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Mozambique: Poverty reduction strategy paper - Annual progress report - Review of the economic and social plan for 2007

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Mozambique
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IMF
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I. INTRODUCTORY NOTE

This Review of the Economic and Social Plan for 2007 is an evaluation of the implementation of the Five-Year Government Programme for 2005-2009, in its third year of execution. The document presents the new simplified structure adopted in the Review of the First Half of 2007, and aims at adjusting the Review of the Economic and Social Plan as main monitoring and evaluation instrument of Government action. It consists of 4 big chapters: International Context, National Socio-Economic and Demographic Context, Main Lines of Development by Pillar, and Public Finance. In the international context the evolution of the international economy is presented, which allows a visualization of the international economic conditions in which the country has implemented its economic and social policy; in the national socioeconomic and demographic context the socio-economic and demographic situation of the country is presented; in the chapter on the main lines of development by pillar the main political measures and activities implemented by the various sectors are presented, including those of a cross-cutting nature. The cross-cutting issues have a multi-sector dimension and impact, thus going beyond sector level. The evaluation of the activities performed in this area is made in a single chapter, to achieve a better impact visualization. On this basis, the activities of the environment and the science and technology sectors are described in this chapter, in which the activities implemented by the other sectors are equally integrated. In the chapter on public finance the budget policy is presented, as well as the envelope of resources and their appropriation with a view to the accomplishment of the activities foreseen in the Economic and Social Plan for 2007. In annex, the strategic PARPA II matrix is presented. This review evaluates real economic performance with 1996 as base year, considering that the rebasing process of the statistical series to the new 2003 base year is still in progress. Thus, there may be discrepancies of the results here presented compared to those that will be presented by the National Statistics Institute, after the verification of the final results from this new base year.

II. INTERNATIONAL CONTEXT

Initially, the estimate for overall economic growth in 2007 was 4.7%. In the second half of 2007, this estimate was revised upwards to 4.9% in view of the first half year's performance. Various economic publications of specialized bodies in the whole world have emphasized the continuation of good global economic performance in the last few years. The IMF (International Monetary Fund), in its April 2007 World Economic Outlook, forecasted an overall GDP growth of 4.9% in 2007. The information available for the first half of 2007 shows that in spite of the financial market turbulence, the world economy has grown considerably, with a growth of more than 5%. This positive economic performance was basically due to the strong growth occurred in the emerging markets, especially in China, Russia and India. The IMF points out, however, that the risks related to the financial crisis and the inflationary pressures resulting from the petroleum price volatility have had a negative influence on world economic performance in the course of the second half of 2007. In this context, and according to the IMF, in 2007 the world economy grew by about 5.2%, 0.2 percentage points less than in 2006. With respect to the unemployment rate, the preliminary IMF estimates indicate a slight decrease in 2007 for the advanced economies (5.3%), 0.3 percentage points less than in 2006. By country, it is estimated that in 2007 France had the highest unemployment rate in the euro zone, about 8.6%, followed by Greece (8.5%) and Spain (8.1%). The IMF estimates that in 2007 the unemployment rate in the Netherlands (3.2%) and in Austria (4.3%) should be the lowest in the euro zone, similar to the situation of the two previous years. The monetary policy aimed at the containment of short-term inflationary pressures limited the performance of the main world economies' Central Banks. The monetary policy, unrestricted by inflation-related targets, has contributed significantly to the consolidation of a favourable macroeconomic environment on more distant horizons. The price of crude attained the historical maximum of about $ 100 per barrel, following the imposition of new sanctions by the USA to Iran (the fourth largest petroleum exporter of the world) and an attack on a Nigerian oil rig, reducing production by 50,000 barrels per day. Another significant event in 2007 was the financial turbulence occurred in February and March, on account of the Shanghai Stock Exchange crash and the uncertainties relative to the deceleration speed of the North American economy. The Shanghai crisis hit the Asian markets, spread over Europe and reached the North American and the emerging markets. On top of this came the statement of an ex-FED President, pointing out that the North American economy was running the risk of recession. Among the main risks for global economic performance stand out the following:

- The deceleration of the American economy in view of the housing market behaviour;

- The great financial market volatility, which decreased investment in this area; and

- The inflationary process caused above all by the sudden increase of petroleum prices. The productivity gains that have sustained good recent economic performance were compromised in 2007 due to: the aging of the population and the anti-globalisation movements; rapid economic growth of some emerging countries with environmental consequences.