December 14, 2016 / 12:13 PM / 3 years ago

IMF cuts Mozambique growth, policy adjustments required for aid

MAPUTO (Reuters) - The International Monetary Fund (IMF) cut its 2016 growth forecast for Mozambique further on Tuesday, saying it would require fiscal policy adjustments to pave the way for financial assistance and a recovery program.

The Fund and other donors suspended aid earlier this year after the emergence of loans that were not approved by parliament or disclosed publicly and which the IMF said on Tuesday amounted to $1.4 billion.

In a statement after aid talks with government officials on Tuesday, the lender said it now expected economic growth of 3.4 percent compared with the 3.7 percent seen in September and against an outcome of 6.6 percent in 2015.

“The outlook remains challenging,” it said, adding that total public debt, mostly denominated in foreign currency, had increased to “distressed levels” in 2016 owing to the addition of the previously undisclosed loans.

“While good progress was achieved on a number of technical questions, additional policy adjustments are required to further consolidate macroeconomic and financial stability, and pave the way for a Fund-supported program,” it added.

A medium-term budget plan for the next three years, posted on the finance ministry website, slashed the Mozambican government’s own growth estimate for this year to 3.9 percent this year from 4.5 percent.

The government cited the impact of drought, high levels of public indebtedness and exchange rate shocks.

The document said the budget deficit, projected at 11 percent of GDP for this year, would narrow to 8.2 percent by 2019.

Reporting by Manuel Mucari; Writing by Stella Mapenzauswa; Editing by Ed Cropley

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