2 April 2014

Mozambique: General State Account Shows Decline in Foreign Aid

Maputo — The percentage of the Mozambican state budget funded by foreign grants and loans fell to below 30 per cent in 2012, according to the General State Account for that year, debated on Wednesday in the country's parliament, the Assembly of the Republic.

The General State Account is drawn up by May of the year following the year it refers to, and is then sent to the Administrative Tribunal, the body that rules on the legality of state expenditure, for its opinion. The Account and the Tribunal's opinion are then delivered to the Assembly which debates them in the first parliamentary sitting of the following year - that is, about 15 months after the end of the period covered by the Account.

Foreign aid once covered over half the Mozambican budget, but in recent years this percentage has been steadily declining. This is not entirely planned - in 2012 some foreign partners simply did not disburse as much as promised.

Thus the 2012 budget contained foreign grants and loans of 64.35 billion meticais (2.1 billion US dollars, at today's exchange rates), but in the event the state only received 42.96 billion meticais of this promised money - or just 66.8 per cent.

Some of the shortfall was made up by increased revenue raised through taxation and other domestic sources. The forecast for domestic budget was that 98.69 billion budgets would be raised domestically, but the final figure was three per cent higher at 103.63 billion meticais.

Nonetheless, the reduction in expected foreign aid meant that only 87.8 per cent of planned expenditure was carried out. These cuts were almost entirely in the capital budget, where only 79.8 per cent of planned expenditure was made.

Summarising the sources of the 2012 budget, the government document said that 69.1 per cent came from domestic revenue, 2.2 per cent from domestic loans, 18.9 per cent from foreign grants and 10.8 per cent from foreign loans.

Compared with 2011, foreign aid declined in real terms by 4.6 per cent. The government says this was partly because foreign partners disbursed less than promised, partly because certain programmes largely reliant on foreign aid, such as the National Agricultural Development Programme (PROAGRI), were coming to an end, and partly because some projects had been put into the budget without any guarantee of funding. To complicate matters further, the government admitted that it lacks information on expenditure financed by funds that do not pass through the Single Treasury Account managed by the Finance Ministry.

The 2012 budget planned to spend 69.3 per cent of all resources, excluding debt servicing and financial operations, on the priority sectors for the fight against poverty. The General State Account shows that only 67.5 per cent was spent on these sectors. But the amount spent on education and health was larger than initially planned - 20.1 and 11.7 per cent respectively of total expenditure, rather than 19.4 and 11.6 per cent. The decline occurred in infrastructures, such as roads and water supply, which accounted for 16.2 rather than 18.9 per cent of expenditure, and in agriculture (8.3 rather than nine per cent).

Defence spending was planned to take 2.8 per cent of the budget, but ended up with 3.2 per cent.

By the end of 2012, public debt had reached 165.77 billion meticais (about 5.43 billion US dollars). Of this, 142 billion meticais was foreign debt, and 23.74 billion was domestic debt. This was an increase of 19.7 per cent in the foreign debt and 6.3 per cent in the domestic debt, compared with 2011. The total debt stock was equivalent to 40.4 per cent of GDP.

Debt servicing in 2012 was 4.13 billion meticais, or about 2.8 per cent of total expenditure.

The General State Account also shows an increased contribution by the mega-projects to the state budget. Taxes paid by the megaprojects in 2012 amounted to 5.67 billion meticais, or 5.8 per cent of total revenue. This was more than double the 2.76 billion meticais paid by the megaprojects in 2011.

Oil and gas exploration accounted for 37.2 per cent of the megaproject taxes paid, mining for 31.3 per cent, and electricity production for 22.3 per cent.

The General Account also showed how much the state lost in 2012 in the tax benefits granted to investment projects. The total was 13.17 billion meticais - or considerably more than twice as much as the taxes paid by the megaprojects.

The main components of the fiscal benefits are exemption from Value Added Tax (VAT) on imports (almost six billion meticais), exemption from corporation tax (4.67 billion), and exemptions from customs duties (2.44 billion).

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