11 December 2017

Mozambique: Most of 2018 Budget Goes to Social and Economic Sectors

Maputo — Social and economic sectors account for the great majority of the public expenditure envisaged in the Mozambican government's draft 2018 state budget, once financial operations and debt servicing have been excluded.

Introducing the budget to the country's parliament, the Assembly of the Republic, on Monday, the Minister of Economy and Finance, Adriano Maleiane, put expenditure on the economic and social sectors at 63.4 per cent of the budget.

Education takes the largest share at 22.6 per cent, followed by roads (13.2 per cent), health (11.5 per cent), agriculture and rural development (5.7 per cent), water supply and public works (3.1 per cent), social welfare and labour (2.9 per cent), the judicial system (1.6 per cent), and mineral resources and energy (1.3 per cent).

The budget envisages total public expenditure of 302.9 billion meticais (5.05 billion US dollars). The state revenue forecast is 222.9 billion meticais, leaving a budget deficit of 80.1 billion meticais.

This deficit, Maleiane said, is equivalent to 8.1 per cent of Mozambican GDP, which is a decline of 2.6 percentage points when compared with the 2017 deficit.

The deficit will be covered by 60.9 billion meticais in foreign resources and 19.2 billion in domestic resources. Domestic credit is obtained by issuing high interest bearing treasury bonds.

But the budget does not specify where it expects the foreign loans of 43.5 billion meticais and the foreign grants of 17.4 billion meticais to come from. All the donors who once provided direct support to the state budget have suspended this form of aid since April 2016, and have made it very clear that disbursements will not resume until there is a full explanation of what happened to the two billion dollars lent by the banks Credit Suisse and VTB of Russia to three Mozambican security-related companies, Ematum, Proindicus and MAM, in 2013 and 2014.

Project aid continues to trickle in, from multilateral institutions such as the World Bank and the African Development Bank (ADB), and from various bilateral donors. Whether it will prove sufficient to plug the hole in the 2018 budget remains to be seen. Soft loans (such as those from the World Bank's International Development Association, IDA) remain crucial for covering capital expenditure.

Maleiane said that 40.9 per cent of Mozambique's foreign debt is multilateral (mainly to the World Bank and the ADB), 42.1 per cent is bilateral, and 17 per cent is commercial. The latter is a reference to the Ematum, Proindicus and MAM loans.

“The government has been honouring the service on the multilateral and bilateral debt”, said the Minister, “while the commercial debt is being negotiated with the creditors through the international advisers hired for this purpose”.

He promised that, in future, the country's public debt will be “strictly managed, to ensure its sustainability”. Over the medium term, the government hoped to ensure that that the debt sustainability indicators “are in line with international practices”.

The 2018 budget, Maleiane said, allows the recruitment of only 10.000 people into the public administration - including 5,213 in education, 2,019 in health and 305 in agriculture. Outside of education, health and agriculture, whenever it as intended to replace staff (who have left because of death, retirement or other reasons), only one new person may be recruited for every two who have left.

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