VZCZCXRO7351
RR RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0847/01 1940557
ZNR UUUUU ZZH
R 130557Z JUL 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 5675
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0064
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 000847 
 
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SIPDIS 
 
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JOHANNESBURG FSC FOR RDONOVAN 
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USDOC FOR RTELCHIN 
MCC FOR SGAULL 
USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: JUNE ECONOMIC DIGEST 
 
 
MAPUTO 00000847  001.2 OF 003 
 
 
¶1. This is a brief summary of significant economic 
developments in Mozambique during June 2006.  We provide it 
as a supplement to our other reporting.  The items discussed 
are: 
 
-- IMF Completes Fourth Review Under PGRF Arrangement 
 
-- GRM Launches Second Five-Year Poverty Reduction Plan 
 
-- World Bank to Loan USD 20 Million to Mozambican Farmers 
 
-- Mozambican Beer Launched in London 
 
-- Fuel Prices Rise Again 
 
-- Germany to Provide USD 25 Million in Budget Support 
 
-- Road Sector to Receive USD 230 million in 2007 
 
-- New Currency Issued without Problems 
 
 
IMF Completes Fourth Review Under PGRF Arrangement 
--------------------------------------------- ----- 
 
¶2. On June 20 the Executive Board of the International 
Monetary Fund (IMF) completed the fourth review of 
Mozambique's economic performance under its existing Poverty 
Reduction and Growth Facility (PGRF) plan.  Completion of 
this review allowed for the release of an additional USD 2.4 
million to the Mozambican government (GRM). (Note:  This 
loan is part of approximately USD 16.7 million the IMF is 
providing Mozambique under the PGRF. End note.) 
 
¶3.  Mr. Takatoshi Kato, Deputy Management Director and 
Acting Chair of the Executive Board, characterized 
Mozambique's performance in 2005 as "strong, despite 
exogenous shocks".  Fiscal results were commendable and all 
performance criteria through end-March 2006 were met, 
according to Kato.  While the macroeconomic outlook remains 
favorable, vigilance will be required in light of volatile 
oil prices and unpredictable weather. 
 
¶4.  According to the IMF, the main challenges over the 
medium term are sustaining broad-based economic growth and 
making further inroads in alleviating poverty through 
implementation of 2006-2009 poverty reduction strategy. 
Mozambique launched its second poverty reduction strategy 
this month (see para 5 below). 
 
GRM Launches Second Five-Year Poverty Reduction Plan 
--------------------------------------------- ------- 
 
¶5. On June 23 the Mozambican government formally launched 
its second five-year "Plan of Action for the Reduction of 
Absolute Poverty" (PARPA II) in a ceremony chaired by the 
Minister of Planning and Development, Aiuba Cuereneia.  The 
plan document had been approved in May by the Cabinet of 
Ministers, after a long drafting process that included 
consultation with civil society and the donor community. 
 
¶6. PARPA II aims to reduce, by 2009, the percentage of the 
population living below the poverty line from 54 percent, 
the figure derived from the 2003 National Household Survey, 
to 45 percent.  The new plan maintains many of the same 
priorities of PARPA I, including more training in the 
education and health sectors, strengthening good governance, 
developing basic infrastructure, and improving macro- 
economic and financial management. 
 
¶7. Where PARPA II differs from its previous iteration is 
that it focuses on development at district level, something 
Guebuza has emphasized, as well as on creating a favorable 
environment for growth of the productive sector, 
particularly with respect to small and medium companies. 
PARPA II also attaches significant importance to investment 
in infrastructure.  (Note: In this regard Prime Minister 
Luisa Diogo has characterized 2006-2007 as the "year of 
civil construction" in Mozambique.  Projects planned include 
improvements to the national highway system and construction 
of the Zambeze and Rovuma bridges. End Note.) 
 
 
MAPUTO 00000847  002.2 OF 003 
 
 
¶8. Cuereneia stressed that the success of PARPA II will 
depend on close coordination between the government, civil 
society, and Mozambique's foreign donors and funding 
agencies.  He also emphasized the importance of timely and 
rational allocation of government resources.  The Minister 
stated that Mozambique's 128 districts will form the basis 
for all planning and development activities outlined in the 
PARPA II. 
 
¶9. Some observers have criticized the plan for being too lax 
in its goals and objectives.  During a June 27 talk in 
Maputo, UN-affiliated economist Jeffrey Sachs stated that 
PARPA II, although it contained the right elements, was not 
ambitious enough.  (Comment: Sachs repeated this view 
numerous times during his visit, going as far as to cite 
specific paragraphs of the PARPA to illustrate how 
"ambition" was lacking in the document. End Comment.) 
 
World Bank to Loan USD 20 Million to Mozambican Farmers 
--------------------------------------------- ---------- 
 
¶10. The World Bank announced in June that it would make USD 
20 million available to smallholder farmers in the Zambezi 
valley via a credit facility to be disbursed through the 
International Development Association. 
 
¶11.  According to the World Bank, which deems this a market- 
led smallholder development project, long term 
environmentally sustainable agricultural development by 
smallholder farmers is essential for continued macroeconomic 
growth.  To support such growth, the Bank intends to provide 
direct support to smallholder groups and other supply chain 
participants, as well as strengthening local level capacity 
within the context of the GRM's decentralization policy. 
 
¶12.  This project has four components.  The first component, 
Community Group Organization and Local Institutional 
Strengthening, focuses on empowering and building the social 
capital of farmer groups, women's groups and other supply 
chain participants.  The second component, Agricultural 
Production and Marketing Development, is intended to provide 
technical support for market driven, broad-based sustainable 
agricultural development via technical assistance to 
stakeholders involved in production, marketing and 
processing of agricultural products.  The third component, 
Community Agricultural and Environment Investment, will 
provide financial resources and technical assistance to 
support agricultural related public and private investments. 
The last component focuses on continued capacity at the 
governmental level; the Management, Coordination and 
Monitoring and Evaluation component will work with the 
Directorate of Rural Development within the Ministry of 
Planning and Development to ensure effective management of 
the project. 
 
¶13.  The World Bank provides this money as a soft loan, 
payable over 40 years, which includes a ten-year grace 
period.  This pilot project is part of the World Bank's 
overall strategy to support development in the Zambezi 
valley, where the World Bank is already supporting bridge, 
road and rail projects.  If successful, the World Bank may 
extend the project to other areas of Mozambique. 
 
Mozambican Beer Launched in London 
----------------------------------- 
 
¶14.  On June 23 the Mozambican High Commissioner in London, 
Antonio Gumende, hosted an event launching a Mozambican 
beer, Laurentina, in Great Britain.  The launch was part of 
the High Commission's larger effort to promote tourism in 
Mozambique.  Both types of Laurentina, Clara (clear) and 
Preta (dark), will be available for purchase at select 
wholesalers.  Laurentina is produced in Maputo at the 
MacMahon (2M) brewery, owned by Cervejas de Mocambique, the 
local subsidiary of South African Breweries (SAB). 
Fuel Prices Rise Again 
----------------------- 
 
¶15.  The Mozambican Ministry of Energy increased fuel prices 
again in June.  The price of fuel oil rose by 54.9 percent; 
petrol increased by 10.9 percent; diesel fuel by 16.2 
percent.  The rise in jet fuel was slightly lower at eight 
 
MAPUTO 00000847  003.2 OF 003 
 
 
percent.  Cooking gas also increased by 11.9 percent.  The 
Ministry of Energy blamed the increases on rising import 
prices for all petroleum products and the depreciation of 
the metical against the US dollar since the last price rise. 
(Note.  The metical depreciated by 9.63 percent in that time 
period. End note)  Mozambique must import 100 percent of its 
fuel needs and is therefore very vulnerable to fluctuations 
in price and currency value. 
 
Germany to Provide USD 25 million in Budget Support 
--------------------------------------------- ------ 
 
¶16. Over the next two years, the German government, via its 
cooperation institute KFW, will grant approximately USD 25.4 
million to the Mozambican budget.  This will be the first 
budget support Germany has provided.  This direct budget 
support is intended to help Mozambique implement its Plan 
for the Relief of Absolute Poverty (PARPA II), but is not 
specifically earmarked for any project or program. 
Mozambique will receive half of the money in 2006 and half 
in 2007.  The Governor of the Bank of Mozambique, who signed 
the agreement along with KFW's representative in Maputo, 
stated that this direct budget support is a sign of trust on 
the part of Mozambique's partners, the fruit of Mozambique's 
economic stability, control of inflation and of the exchange 
rate. 
 
Road Sector to Receive over USD 200 million in 2007 
--------------------------------------------- ------ 
 
¶17.  Mozambique's road sector is set to receive USD 150 
million in donor funding in 2007.  The GRM will contribute 
an additional USD 80 million.  The multi-donor and multi- 
year (2007-2011) program eventually will put an estimated 
USD 1.14 billion towards construction, improvement and 
maintenance of Mozambique's road infrastructure. 
 
 
 
 
Transition to New Meticais Relatively Problem Free 
--------------------------------------------- ------ 
 
¶18.  At 12:01 a.m., July 1, Mozambique began circulating its 
new currency, the Nova Familia de Metical.  While some minor 
inconveniences arose, such as ATMs being inaccessible while 
waiting to be calibrated, there was no major disruption. 
Some Mozambicans have complained that they have not yet seen 
the new notes and some ATMs are still issuing the old notes, 
but these issues are expected to resolve themselves easily 
over the next months.  Both the new and the old currencies 
will circulate until December 31. 
 
DUDLEY