Mozambique: Budget deficit of over 1.6 billion dollars – AIM report

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Mozambique: Budget deficit of over 1.6 billion dollars – AIM report

4:10 CAT | 16 Apr 2020

The draft Mozambican state budget for this year envisages a deficit of 109.7 billion meticais (about 1.64 billion US dollars, at current exchange rates).

The budget, presented to the Mozambican parliament, the Assembly of the Republic, by the Minister of Economy and Finance, Adriano Maleiane, on Wednesday envisages public expenditure over the year of 345.4 billion meticais.

The target for state revenue is only 235.6 billion, leaving a gaping hole of over 109 billion meticais. This is equivalent to 10.8 per cent of Mozambique’s Gross Domestic Product, an increase of 1.4 percentage points over the deficit on the previous year’s budget.

The government plans to resort to foreign grants and loans (equivalent to 6.5 per cent of GDP) to fill the gap. Since that is nowhere near enough, the government will also resort to what is left of the windfall capital gains tax paid by companies involved in hydrocarbon operations. So, far from being used to build a sovereign wealth fund, the capital gains tax will be used to cover current expenditure.

The final source of money to cover the deficit is domestic debt. The government plans to issue debt through such mechanisms as high interest bearing treasury bonds, amounting to 2.8 per cent of GDP.

Wages and other staff expenditure in the public sector amount to over 124 billion meticais. This is 12.2 per cent of GDP, two percentage points more than last year. This is justified with the need to hire more teachers, health workers and agricultural extensionists. In these areas there will be 13,172 new staff recruited, at a cost of 1.8 billon meticais.

The rest of the public sector will be starved of staff. Outside of education, health and agriculture, new staff can only be recruited if old ones leave. One new worker can be recruited, only if three others leave.

The government also promises to rationalise expenditure on goods and services, but to continue capital expenditure on projects that have already begun.

The budget documents promise to safeguard the sustainability of the public debt. Debt servicing will be 37.3 billion meticais – a huge leap from the 27.3 billion that was paid in debt servicing in 2018.

This figure is not broken down by creditor – and no mention at all is made of the scandal of Mozambique’s “hidden debts”. This term refers to the over two billion dollars in loans from the banks Credit Suisse and VTB of Russia to three fraudulent, security linked companies, that were illicitly guaranteed by the previous government, under President Armando Guebuza.

The three companies – Proindicus, Ematum (Mozambique Tuna Company) and MAM (Mozambique Asset Management) – are all effectively bankrupt, making the Mozambican state liable to repay the loans. The government has defaulted on the Proindicus and MAM loans, and is taking action through the London courts against Credit Suisse and three of its staff who admitted taking bribes and kickbacks while arranging the loans.

The Constitutional Council, Mozambique’s highest court, last year declared the Ematum loan and guarantee null and void – yet Maleiane has insisted on making interest payments to the holders of the bonds that were issued to replace the original Ematum bonds.

The central goal of budgetary policy for this year, says the government, is “the adoption of a more diversified and competitive economy, by empowering the productive sectors that have the potential to generate income and create more job opportunities, particularly for young people”.

Resources, the budget says, will be allocated “to attain fundamental macro-economic goals such as increasing the level of employment, stabilising prices, achieving equilibrium on the balance of payments, and maintaining the rhythm of economic growth”.

It pledges that the government “will guarantee the social well-being of Mozambicans, particularly the most vulnerable strata of society, by prioritising investment and basic services that induce development in the areas of education, health, security, agriculture and job creation”.

The largest share of the budget, excluding general state charges, goes to education with 27.1 per cent. 10.9 per cent is allocated to health, and 10.2 per cent to agriculture. The government admits that it has not yet been able to meet the target of allocating 15 per cent of the budget to health, and is still 4.1 per cent short.

Source: AIM