Mozambique continues being a country beneficiary of external assistance for the financing of public expenditure including that of a priority character as defined by PARPA for the achievement of the MDG. To this end the State has resorted to resources from internal income, grants and concessionary external credit.

With the progress registered in the collection of internal income, the use of external sources for the execution of the budget decreased from an average of 50% in the last few years to 49.7%, 45.7%, 43.9% and 45.4% for 2006, 2007, 2008 and 2009, respectively. However, more than 50% of investment expenditure continues being guaranteed by external assistance.

The discontinuity of the growth of State Income as % of GDP in 2008 is due to the alteration of the deflator that was being used until 2007.

In the five-year period of 2005-2009 the resource mobilization has had an upward tendency. The total of mobilized resources increased between 2005 and 2009 from 44.5 to 87.5 thousand million MT, and internal income from 20.9 to 47.4 thousand million MT, representing an average annual variation of 22.5%.

The progress achieved in the collection of internal income resulted in a commitment to apply greater dynamism, efficiency and effectiveness in the collection of income, particularly guaranteeing an annual growth of internal income of approximately 0.5% of GDP during the 2005-2014 period.

Programme Aid to the State budget

Programme aid aimed at strengthening the State Budget and the balance of payments is one of the mechanisms for the mobilization of financial resources, in the form of grants and credits, to which the state has resorted, given the better harmonization, alignment, predictability, accountability and subsequently greater effectiveness of external assistance. This assistance is currently provided by a group of 19 donors called the Programme Aid Partners (PAPs), against 7 in 2001, when this financing mechanism started in Mozambique.

From 2005 to 2009 PAPs’ financial aid to the country increased substantially from USD 269.4 million in 2005 to USD 434.7 million in 2009, which represents an average increase of 19% of the total financial aid.

Regarding grants, the largest contributions came from the United Kingdom and the European Commission, representing an average weight of 24% and 22% of total resources. Other grant-givers Sweden, Netherlands, Norway, Germany, Ireland, World Bank, Spain, Canada, Finland, Denmark, Switzerland, Italy, France and Portugal.

Regarding credits the largest contribution came from the World Bank, representing 74% of total resources channelled in this way. The other credit channeller was African Development Bank.

Budget execution in the PARPA and MDG priority sectors

The Poverty Reduction Plan PARPA defines that at least 65% of the State Budget’s annual resources should be allocated to the financing of the sectors of agriculture, rural development, infrastructures (roads, water and sanitation), good governance and other priority sectors for the reduction of absolute poverty.

The resources budgeted in PARPA’s priority sectors and in the scope of the MDGs increased from 27,431 million MZN in 2005 to 57,832 million MZN in 2009. This was corresponding to 68%, and 64% of the total of budgeted resources, respectively.  

In the period under analysis, the largest slices of public expenditure executed in PARPA’s priority sectors went to the Education (21.8%), Health (12.0%) and Infra-structure (15.1%) sectors.

Public debt situation in Mozambique

The Government has resorted to concessionary external loans and internal loans to meet the investment needs in crucial socio-economic infrastructures.

The internal debt of Mozambique is made up of public debt certificates that have played an important role, not only for financing the State Budget deficit, but also for the promotion of public savings, the macroeconomic equilibrium and to stimulate the functioning of the Financial Market in general and the Capital Market in particular.

The main internal public debt instruments used are:

• Treasury Bonds: long-term instruments, with the objective to finance budget deficits;
• Treasury Bills: short-term instruments with the objective to finance temporary State Treasury deficits, resulting from the seasonal nature of tax income and for the coverage of possible delays in the disbursements promised by our cooperation partners in the course of the economic exercise;
• Each year’s Budget Law serves as a legal basis for the decree that delegates competencies for contracting this debt. The internal debt service is foreseen in each year’s State Budget and is executed accordingly.

By the end of 2009 the internal debt stock amounted to 14,429 million MZN; 4,050 million of which represent Treasury Bonds, and the remainder correspond to other categories of internal debt.

It should be noted that in 2009 the State subsidized the petrol station holders to a total of 2,514.62 million MZN.

Debt relief commitment under the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI) Initiatives

Due to its good economic performance, Mozambique has had several benefits, among which are the successive debt cancellations and a growing increase of financing for the country.

Due to this progress, the Government is facing the resulting challenges, such as: (i) improving its vision of indebtedness, taking measures to keep the debt within sustainable levels with a view to economic growth, and (ii) preparing a coherent debt strategy in agreement with at medium and long-term balanced and sustainable economic growth. In this context, a public debt strategy is being prepared.

The creditors from which Mozambique has not yet received relief of its debt are the following: Poland, Bulgaria, India, ex-Yugoslavia, Angola, Algeria and Libya.

Under the Multilateral Debt Relief Initiative (MDRI), Mozambique has benefited from additional debt relief, since it had reached its completion point. The IMF cancelled an amount of USD 154.0 million (100%) of the debt incurred and disbursed until 31 December 2004. The World Bank granted a relief of about USD 1.3 thousand million of the debt incurred and disbursed until 31 December 2003, including the HIPC.

Regarding the African Development Bank, an amount of about USD 500.0 million was cancelled, referring to the debt incurred and disbursed until 31 December 2004. Thus, the debt stock decreased from USD 4.6 thousand million in 2005 to 3.9 thousand million in 2009 and the annual debt service from about USD 52 million in 2005 to USD 46 million in 2009. The increase of the external debt stock results from new loans.

Constraints on the achievement of the targets for 2015

• In spite of still being high, the external assistance flows are subject to a high level of uncertainty and at medium-term may decrease in real terms. To deal with this uncertainty, it is fundamental that the State continues in the next few years its effort to increase the collection of internal income so as to be able to face a possible fall of the external assistance and continue to invest in the priority sectors in the fight against poverty.
• There is an enormous potential for the increase of exports. The main challenges are in the creation of an investment-favourable business environment, which includes, among other aspects, the efficiency of the judicial system. The creation of adequate infrastructures is another challenge (for example, roads and the reliable supply of utility goods, such as water and electricity). Other challenges include compliance with the standards of the external market and the trade policy.
• In the scope of debt management: (i) the Government should continue to improve its vision taking measures to maintain debt sustainability with a view to economic growth, and (ii) prepare a debt strategy that includes a risk analysis and debt sustainability limits and indicators.

Recommendations for the achievement of the targets for 2015

• Improve the effectiveness, transparency and predictability of disbursements of external assistance, harmonizing the Cooperation Partners’ assistance with Government priorities and the harmonization and improvement of the planning, budgeting, PES review and mutual accounts rendering cycles in the spirit of the Paris Declaration.
• Increase support to the productive sectors of the economy to alleviate the constraints on the supply side (for example, poor production capacity, poor quality of infrastructures, high cost of transport, unreliable supply of utility goods, etc.) that impede trade competitiveness.
• Ensure the strengthening of technical analysis and negotiation capacity regarding regional and international trade issues.
• Ensure that total debt cancellation is obtained in the bilateral and multilateral conversations and negotiations.
• There is a need for the development of a scientific and technological knowledge acquisition, dissemination and communication system that absorbs the new information and communication technologies in the framework of the promotion and coordination of the development of services and the creation of infrastructures to guarantee the successful implementation of Government reforms and the introduction of new stakeholder services.
• Consolidation of the diversified industrial use of the energetic potential created by the extraction of natural gas.
• Assess the costs and benefits and the economic and social viability of the promotion of the development of large projects.
• Effective use of the industrial property system.

Positive factors of progress in the indicators

• The existence of a positive dialogue between the Government and the development partners is added value;
• The good reputation of Mozambique in the international arena favours the country’s performance;
• The preservation of a climate of peace and political stability has contributed to better performance;
• The entry of foreign investment in the country has contributed positively;
• The commitment of the Government to improve the performance of the production of its own income is a decisive factor for the improvement of performance.

Source: Report on the Millennium Development Goals - Mozambique 2010