The International Monetary Fund on Monday approved $16.6 million to support Mozambique's three-year economic program to 2006.
The Washington-based global lender said the first loan payment of $2.4 million will be made only after a July 6 review by the World Bank of Mozambique's poverty reduction strategy.
The fund said Mozambique's economic performance had been "favourable" although inflation had picked up 13.8 percent in 2003 as the currency of neighbouring South Africa strengthened against the US dollar.
The economies of the two countries are closely tied, with more than 50,000 Mozambican working in South African mines.
"Continued fiscal consolidation is an essential element of the authorities' program," IMF Deputy Managing Director Takatoshi Kato said in a statement.
"Achievement of the fiscal targets, while allowing for additional resources for the priority sectors, will require strict control over the wage bill and restraint in nonessential outlays, as well as further efforts to strengthen revenue and improve public expenditure," he added.
The fiscal program sees the country's domestic primary budget deficit reduced to 3.3 percent of gross domestic product in 2004, the fund said.
It said economic growth is forecast to increase to over 8 percent in 2004, from around 7 percent last year. Growth is, however, expected to slow to 6.5 percent a year in 2005 and 2006, the fund added.
The program will tackle rising inflation and strengthen monetary control by limiting interventions in the foreign exchange market, the fund said.
"With technical assistance from the fund, the Bank of Mozambique will tackle several steps to enhance monetary and exchange rate management in order to achieve the targeted reduction in inflation," he said.
The program also seeks to address reforms in the public sector to make it more effective and improve the quality of services.
Reducing the cost of doing business in Mozambique, improving the decision-making process and the judiciary will help private-sector development, the IMF said.