By Colleen Goko
JOHANNESBURG, Feb 17 (Reuters) - Mozambique needs to implement ambitious fiscal consolidation measures to mitigate worsening debt dynamics, delays in debt servicing and limited external financing that weigh on the economy, the International Monetary Fund warned on Tuesday.
The fiscal deficit is projected to have narrowed to 4.5% of GDP last year from 6.2% in 2024 due to lower spending on goods and services and capital projects, but rising interest payments threaten to widen deficits
in the coming years.
In a report after its annual review of the southern African nation, the Fund also said that domestic banks, the primary buyers of government debt, had reached their limits, while net external financing had turned negative.
"Directors emphasised the critical need for ambitious and credible fiscal consolidation to help reduce financing needs and restore debt sustainability," it said, calling for containment of wage spending, a broader tax base, and improved debt management.
MOZAMBIQUE'S DEBT RISKS
Mozambique's sole international dollar bond has come under pressure since President Daniel Chapo suggested in January that a debt renegotiation may be on the cards.
He did not specify whether the bond would be included, but indicated a focus on renegotiating debt with "international partners" once a new deal with the IMF has been clinched.
The IMF warned of risks tied to tight monetary conditions, noting that efforts by the Bank of Mozambique to stabilise inflation and manage foreign exchange shortages have left limited room for further monetary easing.
It also emphasised the need for greater exchange rate flexibility to bolster external adjustment and growth.
While optimism surrounds the resumption of a major liquefied natural gas project and Mozambique's removal from the international Financial Action Task Force's 'grey list', the IMF highlighted downside risks from the public debt burden, security challenges, natural disasters, and institutional fragility.
An IMF team, led by mission chief Pablo Lopez-Murphy, visited Maputo in November and met with Finance Minister Carla Louveira and Bank of Mozambique Governor Rogério Zandamela.
(Reporting by Colleen Goko, editing by Andrei Khalip)
