Mozambique - Financial Sector Technical Assistance Project

Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1799 Project Name MZ-Financial Sector TA Project Financial Sector Technical Assistance Region AFRICA Sector General finance sector (100%) Project ID P086169 Borrower(s) GOVERNMENT OF MOZAMBIQUE Implementing Agency Bank of Mozambique Mozambique Ministry of Finance Mozambique Tel: 258-1-082-492284 otiliasantos2000@yahoo.com.br Ministry of Finance Mozambique Banco de Mocambique Mozambique Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared August 30, 2005 Date of Appraisal Authorization September 20, 2005 Date of Board Approval December 1, 2005 1. Country and Sector Background The Government of Mozambique (GoM) is committed to an overall objective of poverty reduction through economic stabilization and the promotion of economic growth. During the past decade, the GoM has taken key steps to provide a stable economy, consistent and comprehensive fiscal and monetary policies, enhanced financial sector management and supervision, a gradual reduction of government bureaucracy, strengthening of institutional capacities, and improved governance. The GoM recognizes that the scope and efficiency of the financial sector plays an important role in facilitating growth, and that reforms in the financial sector need to continue to be pursued. The core of the Mozambican financial sector is the banking sector, comprised of 12 commercial banks. A key weakness of the sector is limited access to financial services by Mozambican households, notably in rural areas, and by private enterprises, especially micro, small and medium-sized enterprises (SMEs). Sustained high interest spreads and transaction costs reflect structural problems. Further strengthening of banking supervision, as well as implementation of International Financial Reporting Standards (IFRS) by the commercial banks and divestiture of Page 2 the GoM of its remaining holding in the banking and insurance sectors, continues to be a priority of the GoM. The macro-monetary framework needs to be strengthened. Continued successful implementation of the HIPC (Heavily Indebted Poor Country) agreements depend, in part, on the GoM