Foreign aid suspension will have a “severe” impact on Mozambique – EIU

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Foreign aid suspension will have a “severe” impact on Mozambique – EIU

10:59 CAT | 09 May 2016

In File Club of Mozambique / Street vendor in a Maputo sidewalk

British finance magazine The Economist’s Intelligence Unit (EIU) says it considers that the suspension of donor aid to Mozambique will have a “severe impact and force the government, whose leaders’ personal interests intermix with their public responsibilities, to be more transparent.

“Fiscal transparency is a politically troubled process in Mozambique, since the business interests of leading politicians often mingle with their public responsibilities,” write the EIU experts.

In a research note on the suspension of more than US$300 million financial aid from international donors, representing 12 percent of the budget for this year, experts say that the cuts were “inevitable after it became known in April that the government had hidden loans from the International Monetary Fund, donors, Parliament and the public”.

The short-term impact, the EIU believes, will be “severe” and the government will have to compensate for budgetary restrictions through domestic loans, postponing of development projects and implementing measures to cut back on spending.

“In addition to the budgetary impact in a country with a deeply rooted political patronage system, and in the context of a rapid increase in the cost of living, the negative impact of austerity in Mozambique will also increase the risk of political instability,” The Economist’s analysts write.

Because of widespread poverty and ongoing aid projects, donors should not go completely off the country, the EIU adds, but to resume funding “the government will have to demonstrate a level of fiscal transparency that it has so far been reluctant to show”.

With public debt “unsustainable” and the economy looking set to slow down to growth values of the beginning of the century, “the need for external help should convince the government to comply with the requirements of donors”, the EIU concludes, warning, however, that “restoring donor confidence in the Government will be a slow process”.

Source: Lusa