Mozambique’s Sovereign Fund is an “important step” toward transparent management – IMF

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Mozambique’s Sovereign Fund is an “important step” toward transparent management – IMF

8:08 CAT | 10 Jan 2024

File photo: Lusa

The International Monetary Fund (IMF) considers the approval by Mozambique’s parliament of the Sovereign Fund of Mozambique “an important step toward ensuring transparent and sound management of natural resource wealth”.

“Parliamentary approval of the Sovereign Wealth Fund bill in December 2023 was an important step toward ensuring transparent and sound management of natural resource wealth,” reads a statement in which the IMF on Monday announced its approval of the third evaluation of the assistance plan for Mozambique, allowing ” immediate disbursement” of a new tranche of US$60.7 million (€55.4 million) in budgetary support for the country.

“Continued fiscal consolidation efforts are warranted to reduce financing needs and contain debt vulnerabilities. With inflation expectations well anchored, tighter fiscal policy and weak non-mining growth, there is scope for gradual monetary policy easing,” the IMF further argues.

The Mozambican president, Filipe Nyusi, on Monday enacted the law that creates the Sovereign Wealth Fund approved by parliament in December, the Presidency of the Republic announced yesterday.

In a statement, the Presidency of the Republic states that the head of state “enacted and ordered publication” of the law creating the fund, to be financed with revenues generated from the export of natural gas.

On December 15, the Mozambican parliament approved the creation of the Sovereign Wealth Fund (SWF) with revenue from natural gas exploitation which, in the 2040s, is expected to reach US$6,000 million (€5,500 million) annually, despite widespread scepticism from opposition parties concerning the fund’s management.

The proposal to create the SWF received 165 Front for the Liberation of Mozambique (Frelimo) votes in favour, while 39 opposition deputies of the Mozambican National Resistance (Renamo) and the Democratic Movement of Mozambique (MDM) voted against.

“Projections indicate that annual gas exports could amount to around US$91.7 billion nominal over the life cycle of the project, in a scenario in which all development initiatives approved by the government to date are in operation. In this scenario, annual revenues for the state will reach a peak in the 2040s of more than US$6,000 million per year,” Minister of Economy and Finance Max Tonela explained to parliament at the time.

The creation of the fund had been under discussion for several months, with the government having withdrawn the proposal from discussion in the national assembly more than once, allegedly to try to obtain consensus on its approval, which ultimately did not happen.

In the model for creating the SWF – whose operational manager will be the country’s central bank, the Bank of Mozambique – Max Tonela stated that “successful examples in the world and less good cases” were taken into account, in which “countries that had great resources and went along for the ride of resources and raised the state’s consumption standard too much, they got into too much debt and at this moment the level of resources is reducing and they enter into a conflict in which they do not have the capacity to have more resources”.

“So this is the ultimate purpose of the fund. That is why we must look at the current generations, but ensure that future generations can also take advantage of the existence of resources that the country also has,” he explained, highlighting that the SWF would allow the government “to seek resources to finance the state budget in a situation where there is no longer any natural gas” to exploit.

The proposed law that creates the SWF states, in the preamble, that within the scope of research activities carried out in the Rovuma block offshore Areas 1 and 4, “huge deposits of oil and non-associated natural gas were discovered”, estimated at around 180 trillion cubic feet.

The operators and partners in Areas 1 and 4 submitted to the government three natural gas liquefaction projects, which have already been approved, namely the offshore Coral Sul FLNG Liquefied Natural Gas, the Golfinho/Atum Liquefied Natural Gas, and the Natural Liquefied Rovuma LNG.

Source: Lusa