Victor Lled

November 17, 2011

1 2

The Development Partner Group consists of heads of mission in Mozambique of bilateral donors, the UN, and the international financial institutions. This document has not been approved by the IMF Executive Board.

Outline of the presentation Sub-Saharan Africa Economic Outlook:

Sustaining the Expansion

Mozambique Economic Outlook Recent Developments and 2011-12 Prospects

Policy Discussions : 3rd PSI review mission

Sub-Saharan Africa: Sustaining the Expansion

Providing the world economy expands at 4 percent this year and next, output growth is SSA is expected to be robust at 5 percent in 2011 and 5 percent in 2012. LICs are particularly expected to do well.
8 7 6 5
Percent change

12

Low-income and fragile countries

10

Oil Exporters

8
6

Percent change

4
3 2 1 0 World

4
2

MICs

World
0 -2

-1
-2 2004 2005 2006 2007 2008 2009 2010 2011 2012

2004

2006

2008

2010

2012

Sub-Saharan Africa: Sustaining the Expansion

Could the sub-Saharan African economy decouple and avoid another slowdown? This is very unlikely given the strong links between SSA exports and global trade volume indicators.
60

40

20

-20

-40
Trade value CPB trade volume index Non-Oil SSA

-60

-80
2000M1 2001M1 2002M1 2003m1 2004m1 2005m1 2006m1 2007m1 2008m1 2009m1 2010m1 2011m1

Sub-Saharan Africa: Sustaining the Expansion

Policy challenges :
- Create and timely use the policy space to sustain the expansion
Some LICs need to consider tightening their monetary stance to restrain

inflationary pressures.
Countries in which fiscal deficits are not declining from their 2009-10 highs,

and where growth remains strong, should focus on rebuilding fiscal policy buffers.
Slower-growing countries (mostly middle income) without financing

constraints should retain a supportive macroeconomic stance.

Oil exporters should be using their windfall gains to build up fiscal buffers.

Sub-Saharan Africa: Sustaining the Expansion

Structural Challenges
Speed limits
Economies

are expanding at or near their highest rates of growth in many years, and so supply bottlenecks are emerginge.g. infrastructure

Politics

Several important elections in 2012 may delay necessary policy adjustments.

Financial Sector Deepening, with Effective Supervision Inclusive Growth

How inclusive is Africas Growth

Growth rate of real consumption per capita by percentile of the distribution: the high-growth cases
0 6 Annual growth rate (percent) 5 4 3 2

Ghana, 19982005

0 8 Annual growth rate (percent) 6 4

Uganda, 2003-2010

10

20

30

40 50 60 70 Consumption percentiles

80

90

100

10

20

30

40 50 60 70 Consumption percentiles

80

90

100

Tanzania, 2001-2007
0 Annual growth rate (percent) 9

1 7 Annual growth rate (percent)

Mozambique, 2002-2008

-1 1 10 20 30 40 50 60 70 Consumption percentiles 80 90 100 1 10 20 30 40 50 60 70 Consumption percentiles 80 90 100

Growth incidence Growth in mean

95 percent confidence bounds Mean growth rate

How inclusive is Africas Growth :

Mozambique case with different deflators
Mozambique, 2002-2008 different regional deflators
Total (years 2008 and 2002)
5
Growth-incidence Growth in mean 95% confidence bounds Mean growth rate

-1

-3

-5 1 10 20 30 40 50 60 70 80 90 100

Expenditure percentiles

Employment growth has been strong and rural agricultural employment growth provides much of the explanation of per capita consumption growth among the poorest households
Employment Indicators
(Annual percentage change, except where stated) Employment Output Elasticity 0.8 0.7 0.6 0.5 1.0 0.6

Period Cameroon Ghana Mozambique Tanzania Uganda Zambia Memo items: Cambodia Vietnam
2

Total Employment 2.7 3.4 4.4 3.3 7.5 1.9

Urban Employment 5.6 6.1 7.4 8.8 9.8 5.1

Agricultural Employment 5.9 3.5 3.4 2.3 6.0 -0.2

Rural Agricultural Employment 4.2 1.4 -0.4 2.1 6.4 -1.6

Formal Sector Employment1 9.5 13.3 16.7 9.5 13.9 13.8

200107 19992005 200309 200009 200209 19982004

200407 200007

4.2 2.9 3.3

0.4 0.4 0.6

4.5 6.1 6.8

3.9 -0.3 3.5

4.7 n.a. 1.8

25.0 44.0 13.6

Sub-Saharan Africa (sample median)

Sources: Household surveys; Vietnam Ministry of Planning and Investment and UNDP (2010); World Bank (2008).
1 2

Latest estimate in percent of working-age population. Agricultural employment is for 200008.

Mozambique Economic Outlook : Recent Developments and 2011-12 Prospects

Mozambique and Sub-saharan Africa: Selected Economic Indicators, 2004-2012 Mozambique Sub-saharan Africa 2004-08 2009 2010 2011 2012 2004-08 2009 2010 Average Act. Est. Proj. Proj. Average Act. Est. Real GDP (% growth) 7.8 6.3 6.8 7.2 7.5 5.3 3.2 5.5 Consumer prices (a vera ge, %) 10.2 3.3 12.7 10.8 7.2 8.4 10.6 7.5 Broad money (% of GDP) 30.3 40.2 42.0 39.5 40.6 42.0 49.5 48.0 Credit to the private sector (% of GDP) 14.4 26.8 29.1 28.8 30.5 17.3 20.8 21.6 Current account balance, incl. grants (% of GDP) -10.9 -12.2 -11.7 -11.2 -11.1 0.8 -2.3 -1.2
Source: Regi ona l Economi c Outl ook Subs a ha ra n Afri ca , IMF, October 2011; Projecti ons from the l a tes t PSI revi ew mi s s i on.

2011 Proj. 5.2 8.4 47.9 26.9 0.7

2012 Proj. 5.8 8.3 48.2 20.6 -0.5

Mozambiques growth performance remains robust,

cementing the country as one of the fast growing economies in the Sub-Saharan Africa While risks to the global economic turmoil have increased, Mozambiques medium-term macroeconomic outlook remains positive.

Mozambique Economic Outlook : Recent Developments and 2011-12 Prospects

Inflation The inflation rate in October was 0.01 percent, the lowest October rate in at least a decade:
In percentage points

30.00

Maputo headline inflation (in percent, 12 months, end-of-period), Dec '07 to Oct '11

This contributed to further bringing the average in twelve months down to 11.9 percent. The core measure of inflation has also followed this downward trend, by declining to 6.8 percent. The end of period in twelve months is 8.3 percent, almost close to the current projection under the IMF program (8.4 percent).

20.00

10.00

0.00

-10.00 Dec-07

Jun-08

Dec-08 Total CPI

Jun-09 Food CPI

Dec-09

Jun-10

Dec-10

Jun-11

Non-Food CPI

Source: National Statistics Office (INE).

Mozambique Economic Outlook : Recent Developments and 2011-12 Prospects

Exchange rates
Bilateral exchange rates and total trading among banks, January '08 to November '11
140 120 100 80 60 40 20 -20 -40 -60 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 40 38 36 34 32 30 28 26 24 22
MT/US$

Monthly changes in exchange rates, Dec 2010 to Oct 2011 (in percent) EUR ZAR Dec-10 0.2 -4.5 Mar-11 1.3 1.4 Jun-11 -2.9 -3.1 Sep-11 -13.2 -6.8 Oct-11 3.4 3.5 Jan-Oct 2011 -30.1 -13.8

USD -7.2 -1.0 -3.7 -0.1 -0.3 -17.7

US$ millions

BM direct interventions

Trading among banks

MCI (Banks-BM)

Obs: (+) depreciation of the Metical; (-) appreciation of the Metical.

Source: Central Bank of Mozambique. Latest data as of November 4, 2011.

The pace of the appreciation vis--vis the US dollar, slowed down recently. The same applies to the SA Rand and to a lesser extent to the Euro.

Mozambique Economic Outlook : Recent Developments and 2011-12 Prospects

Exchange rates
120 110 100 90 80 70 60 50 40 30 Nominal effective exchange rate

Nominal and Real Effectve Exchange Rates

(Index, December 2000=100)
Real effective exchange rate

Jun-01

Jun-02

Jun-03

Jun-04

Jun-06

Jun-08

Jun-10

Jun-05

Jun-07

Jun-09

Dec-00

Dec-02

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-01

Dec-03

Dec-11

Jun-11

Policy Discussions : 3rd PSI Review

Mozambique continues to weather the global economic turmoil remarkably well. Mozambique is relatively well positioned to mitigate the impact of a severe global downturn.

Mozambiques record under the PSI remains strong.

Authorities focus to continue the disinflation effort in the short run is appropriate
-

Monetary policy geared towards preserving low levels of inflation while allowing financial deepening; Fiscal policy: while supportive of the disinflation stance, will seek to step up public investment to close the infrastructure gap and support expansion of social safety nets to address chronic poverty.

Medium-term : Sustain and achieve more inclusive growth

- Create fiscal space : prudent concessional and non-concessional borrowing, maintain revenue mobilization efforts with support from booming natural resource sector. - Better prioritize current spending, spend more on social support mechanisms - Scale-up infrastructure through the selection of appropriate projects and financing vehicles. - Enhance macroeconomic management of natural resources.

Thank you!
www.imf.org/maputo