11 December 2013

Mozambique: Dependence On Foreign Aid Continues to Decline

Maputo — Mozambique's dependence on foreign aid is continuing to decline, according to the state budget for 2014, presented to the country's parliament, the Assembly on the Republic on Wednesday by Finance Minister Manuel Chang.

The budget envisages total state expenditure of 229.72 billion meticais (about 7.66 billion US dollars, at current exchange rates). State revenue from taxation and other domestic sources is estimated at 147.37 billion meticais, leaving a deficit of 82.35 billion meticais, which will largely be covered by foreign grants and loans.

The government expects foreign aid to cover 33.5 per cent of the budget, while 66.5 per cent will be covered by domestic resources.

Some years ago, foreign aid paid for over half of Mozambican public expenditure. Now the figure is declining to just over a third. In the 2013 budget, 34.9 per cent of expenditure was covered by foreign grants and loans. The figure was 39.6 in 2012, 44.6 per cent in the 2011 budget, and 51.4 per cent in 2010.

But within foreign aid, there is a shift away from direct budget support back to the more unwieldy project aid. Direct budget support is expected to fall from the equivalent of 15.18 billion meticais to 12.57 billion. Grants and loans for projects, however, are expected to rise from 41.07 to 55.05 billion meticais.

Chang stressed that the great bulk of government spending in 2014 will be aimed at the priority sectors for poverty reduction. Expenditure on the priority sectors rises from 67.4 per cent of the total budget (excluding debt serving and financial operations) in 2013 to 68.3 per cent.

The sector with the largest increase is education - rising from 17.6 to 19.1 per cent of expenditure. Spending on health care rises from 8.8 to 9.6 per cent of the budget and on agriculture and rural development from 10 to 11 per cent. There is a slight increase in spending on governance, security and the judicial system from 8.4 to 8.8 per cent

Expenditure on infrastructures such as roads and water supply, however, falls from 18.5 to 16.1 per cent of the budget.

The budget will allow the government to recruit 13,719 new staff to the public sector (the figure this year was 10,700). 9,000 new teachers will be recruited and 2,019 new health workers.

Debt servicing will require 6.35 billion meticais - which is much the same as this year's figure. Domestic debt (through the issuing of treasury bonds) has now overtaken foreign debt in terms of its weight on the budget. Servicing the domestic debt in 2014 will cost 3.71 billion meticais, whereas interest payments on the foreign debt are only 2.64 billion meticais.

The budget continues to include subsidies intended to keep the price of bread and of bus fares low. Thus the subsidy for wheat flour in the 2014 budget is 350 million meticais (which should keep the price of a standard loaf of bread at five meticais). Fuel subsidies will cost 1.16 billion meticais.

When the budget was discussed in the Assembly's working commissions, the commission members from the former rebel movement Renamo complained, as they do every year, that “enormous portions of the budget are being allocated to bellicose and repressive institutions, namely the Ministry of Defence and the State Information and Security Service”.

It is an easy matter, with the aid of a pocket calculator, to check how much money is really being spent on these institutions. It turns out that the Ministry of Defence accounts for 0.53 per cent of the budget and SISE for 0.82 per cent.

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