The IMF has imposed a major wage freeze, which implies wage cuts over the next three years. In effect, government has agreed that its total wage bill of $3.3bn this year must fall to $3.0 bn next year, and $2.9 bn in 2027. Not only does that mean no increases for current staff, but if more nurses and teachers are hired, everyone else’s wage must be reduced. Mozambique’s IMF Resident Representative Alexis Meyer Cirkel ends his term in August, and he has left a massive time bomb for the new government to be elected on 9 October. The IMF squeeze might also be seen as retaliation for the governments earlier victory over the IMF on hidden debts. (See tomorrow)
And the IMF says the squeeze will continue until there is LNG (liquified natural gas) production. It says even if work resumes this year, there will not be revenue until 2028, and the IMF notes that the war in Cabo Delgado is intensifying again, which suggests money in 2028 is very unlikely. It points out that "63% of the population is below the poverty line," up from 48% in 2015.
The IMF released $60mn in budget support, but demands higher taxes and reduced spending and borrowing. The IMF opens its big report by saying "economic growth is tepid, with tight financial conditions continuing to act as a drag on activity." Bo Li, IMF Deputy Managing Director, admits there is a "weak outlook for non-mining growth". In other words Mozambique will continue to be an exporter of unprocessed minerals and gas, and the resource curse will continue. Indeed, Lopez Murphey, the IMF lead of the 2-15 May negotiations stressed that "the medium-term outlook for the extractive sector is strong as large LNG projects are expected to resume activities."
But the IMF report warns that "continued weakness in non-mining growth [is] delaying poverty reduction and intensifying social unrest in the north." Indeed the IMF says there is a "high risk" of "deterioration in the security situation". The government should "enhance security and socioeconomic policies in the northern region," which seems impossible under the tighter squeeze
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This is an imposition of austerity just as the IMF did to Mozambique 36 and 30 years ago. As it was then, the goal is to push good people out of the state and encourage privatisation - both informal fees for state health and education as well as the middle classes continuing to move to private health and education. But this time the government faces strikes by judges, doctors and teachers
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The IMF also stressed its growing list of demands. It demands devaluation and the end of the fixed exchange rate of $1=64Mt, but this was already part of the 2022 agreement. The IMF hints this is not acceptable to the Bank of Mozambique, even though it claims the currency is 38% overvalued.
The IMF wants to increase tax revenue through VAT increases and a new property tax. It also reiterates its strong opposition to state owned enterprises, even though it admits profitable ones add to state income, and it demands tighter control of government companies. And it effectively admits that the creation of the Sovereign Wealth Fund was an IMF condition.
Two statements were released in parallel on Monday 8 June. The IMF published a press release and on the same day the Ministry of Economy and Finance released in Noticias a complicated package of wage and salary limits based on percentages of GDP declining from 12.4% next year to 10.6% in 2027.
Then on Friday 12 July the IMF released its 164 page package of documents with includes its review under the Extended Credit Facility (done twice a year) and its bi-annual "Article IV consultation", based on 2-15 May negotiations in Maputo. It also issued a report to stress its opposition to state-owned enterprises. Tables and recommendations in the various documents do not always agree, creating some confusion. (references and links in pdf on https://bit.ly/Moz-639)
IMF cap means schools are short of 16,000 teachers
The Education Ministry says that the salaries limit has prevented it from hiring 16,000 essential teachers. Ministry spokesperson Manuel Simbine explained that in the past five years, the Ministry should have hired 47,000 teachers, but could only afford to hire 31,000. He was speaking at a planning meeting in Tete on Monday 8 June, the same day the tighter salary limit was announced. (AIM 9 July)
This comes after cuts to teacher training imposed by the IMF. The Pedagogic University group has excellent teacher training programmes, but few of its students can be hired by the state system because teachers with a degree are paid more than those with the reduced basic training.
Simbine explained that in order to cover all classes, teachers are forced to work overtime and do extra shifts, especially for night school classes. And he admits the cuts means that payments for the extra teaching are increasingly delayed.
The National Teachers’ Association (ANAPRO) has threatened to boycott lessons and go on strike because the government has not pay them for months of overtime they have worked. It also protests that because of teachers shortages they are forced to work with classes of over 100 pupils, which worsens education quality.
The IMF in its report notes that "human capital gaps in terms of health and education of workers are significant" and are a major barrier to economic growth.
The IMF had demanded that despite the other cuts, there should be a minimum social spending of $100 mn per year, but for three years this has not been met. In 2023 social spending was only $45mn, and "liquidity constraints … prevented regular payments to beneficiaries, compromising the income security." About 600,000 people are supposed to receive monthly payments. Indeed, the IMF says government should "consider tapping into LNG revenues" to fund social protection systems.
The government and IMF have agree a token hiring freeze. Excluding health, education, agricultural extension and justice - who are the vast majority of state workers - only one in three leaving public employees will be replaced and promotions and wages are frozen.
Judges and health workers strike against cuts
The Judges Association of (AMJ) on 6 July agreed a partial general strike to start on 9 August, which would be the first-ever strike of judges in Mozambique. Judges would only provide what they call a "minimum service" on the most urgent cases. Judges says the constitution guarantees them independence which lets them set their own salaries, and they are not bound by IMF agreements.
Nurses, psychologists, drivers and cleaners are among health workers who were on strike in May for overtime allowances and better medical equipment. The Association of United Health Professionals of Mozambique (APSUSM) said hundreds of patients had died for lack of care. Doctors said on Saturday (13 July) that they would return to strike soon.
A key to the problem is the Unified Wage Table (TSU) for the public administration. Over decades higher paid officials had negotiated a set of special extra payments for housing, cars, etc. In 2022 the Economy and Finance Ministry (MEF) tried to make a single salary scale for government workers which incorporated the extra payments into the salary. Implicitly it tried to create a ranking - is a doctor worth more or less than a district administrator? Salaries and extras were set as percentages of the President's salary. It turned out to be a total mess, and attempts are still being made to resolve the problems. `
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Trying to include everyone's claims in the TSU became a nightmare, and the wage bill jumped by a half - from $2.1 bn in 2021 to $3.0bn in 2022, the first TSU year. The huge jump in wages was compensated for by spending $0.6bn less on capital spending such as roads.
And it becomes a class issue. Doctors, judges and some others have special legislation which included extra payments, and they claim these were not included in their TSU salary. But the IMF is saying that too high a percentage of salaries go to an elite. When the IMF imposed wage cuts 30 years ago, doctors and judges also suffered. The AMJ says that when the TSU was applied to judges, it resulted in cutting rights which the judges had acquired over the years. But if their perks mean hiring fewer teachers?
IMF rep admits past IMF errors
Studies show that tax incentives are not a decisive factor for investors, said departing IMF Resident Representative Alexis Meyer Cirkel, speaking at Universidade Eduardo Mondlane Friday (12 July). More important are political and economic stability, infrastructure, and the existence of strong institutions, namely the courts, And he called for the ending of fiscal incentives for investors which reduce tax revenue. (LUSA, 12 July)
In effect, Cirkel is sharply criticising his predecessors who forced Mozambique to accept fiscal incentives on projects such as Mozal, where the IMF argued the incentives were essential to secure the investment. Mozambique has lost hundreds of millions of dollars in tax revenue because it listened to the IMF.
If Cirkel is saying Mozambique should have resisted IMF pressure to tax incentives in past, what would he say today? Should Mozambique resist his demands for education cuts?
