World Bank’s annual report on partnering with Mozambique to promote resilience, inclusive growth
In file Club of Mozambique / Adriano Maleiane, minister of economy and finance, Mozambique.
The Banker‘s Finance Minister of the Year 2016 awards celebrate the officials that have best managed to stimulate growth and stabilize their economy.
Like many of its regional peers, Mozambique’s economy has been feeling the pinch of tumbling commodity prices and lower trade growth. Although the International Monetary Fund (IMF) still anticipates gross domestic product (GDP) growth of about 6.3% for 2015, well above the 4.5% it expects across sub-Saharan Africa as a whole, the country is nevertheless grappling with a range of challenges. For one, its currency, the metical, had fallen about 36% against the dollar in 2015 by early December.
These difficulties have been compounded by the legacy of the previous government, which has left Mozambique with higher debt levels and a badly mismanaged bond issue to the tune of $850m.
The inauguration of a new government under president Felipe Nyusi in January 2015 has thus been a welcome change for Mozambique. The country’s new minister of economy and finance, Adriano Maleiane, assumed the role after a tenure as chief executive of the state-owned development bank Banco National de Investimentos. He was also the central bank governor of Mozambique between 1991 and 2006.
In his short time in office, Mr Maleiane has worked quickly to enforce discipline, support the economy and complete a number of much-needed reforms. The approval of the 2015 state budget will bring the fiscal deficit down from about 10% of GDP in 2014 to 6.5%, according to the IMF. In addition, the budget includes the addition of a new ex-ante rule governing the use of windfall revenue, ensuring that future gains can only be used for public investment, debt repayment or national emergencies.
This progress has been matched by adjustments to the country’s tax administration, which is expected to increase total revenues by about 0.7% of GDP in 2015. Meanwhile, payments to public sector employees have been digitized, while government payments to suppliers have been automated. In addition, a stock of outstanding VAT refund arrears valued at about $160m was securitized through a private placement of treasury bills in early 2015.
The minister was also a key figure in Mozambique’s negotiation of a $286m IMF loan, to help cushion the country’s currency in October 2015.
Ram Sharan Mahat receives The Banker’s Global and Asia-Pacific Finance Minister of the Year awards for his exemplary work in the aftermath of the two disastrous earthquakes that hit Nepal in 2015 and in pushing for reforms to improve governance in the country’s ministry of finance.
Global and Asia-Pacific: Ram Sharan Mahat, former finance minister, Nepal
Mr Mahat was the first Nepalese government official to interact with the international community after the earthquakes. He took a last-minute trip to the Asian Development Bank (ADB) annual meeting in Baku, Azerbaijan, to raise awareness among his peers and the press.
The trip to the ADB helped set up the International Conference on Nepal’s Reconstruction on June 25, where attendees – including finance ministers, the ADB, the World Bank and the EU – pledged $4.1bn.
In the immediate aftermath of the earthquakes, Nepal collected $150m-equivalent in cash for emergency relief, $100m of which came from the government’s own coffers. More than 25,000 earthquake victims got free medical treatment and some 7500 of the injured were airlifted from remote and inaccessible hills and mountains across the country.
“I am proud to say that not a single death occurred for lack of medical support. Everyone got medical treatment. Nobody died of starvation; food was sent everywhere. We successfully managed and organized such an operation after this devastating calamity,” says Mr Mahat.
Mr Mahat’s efforts in planning a Post Disaster Need Assessment to gauge the earthquake’s damage and Nepal’s needs – estimated at more than $6bn – were also key. The process required several hundred staff and was completed in just one month. In the budget for the fiscal year, starting mid-July 2015, Mr Mahat also allocated $900m for reconstruction and rehabilitation programmes.
Unfortunately, post-earthquake reconstruction will be delayed by protests in southern Nepal – the Madhesi people of that region feel under-represented in the new constitution – and by India’s de-facto blockade, which is choking flows of basic raw material and supplies into Nepal. “International trade between two countries should not be linked with domestic politics. It is in no way a right tool to influence constituent politics of a small country such as Nepal. Nepal’s internal problems should be resolved internally in a peaceful and constitutional manner,” says Mr Mahat.
On a brighter note, Nepal’s finances and macroeconomy have remained sturdy despite uprisings and natural calamities. Fuelled by $6bn in annual remittances, Nepal’s foreign exchange reserves, at $8.5bn, are enough to fund more than a year’s total imports. Its deficit is also low and Nepal’s ratio of debt to gross domestic product is 25% – one of the lowest in the world. “We could borrow internally if needs be. There is the required fiscal space,” says Mr Mahat.
Even inflationary pressures are being minimized, despite the earthquakes. Inflation in Nepal has already dropped from 9.8% in 2013 to an expected 7.2% in 2015. However, supply disruptions and increasing wage levels, caused by huge labour demand for reconstruction programmes, might push inflation as high as 8% to 10% in 2016.
Among Mr Mahat’s many reforms, pushing for more efficient government spending stands out. “There is no excuse to delay government activities,” he says. Mr Mahat is no longer Nepal’s minister of finance but remains involved in Nepalese politics as one of the leading figures in opposition party Nepali Congress.
Finance minister of the Year, Europe: Global and Asia-Pacific: Dusan Mramor, finance minister, Slovenia
Gone are the days of recession and banking sector crisis in Slovenia, when the gross domestic product (GDP) fell 2.7% and 1.1% in 2012 and 2013, respectively, thanks to a comprehensive reform package, an ambitious privatization programme, a recapitalization of the state-owned banks – without the help of the International Monetary Fund – and the creation of the Bank Asset Management Company, Slovenia’s ‘bad bank’.
As the economy bounced back to 3% GDP growth in 2014, Slovenia’s finance minister, Dusan Mramor, kept a firm eye on the country’s budgetary deficit – one of his main aims – from heights of 15% in 2013 it fell by 10 percentage points in 2014, with expectations for less than 3% in 2015 and 2.2% and 1.7% in the following two years.
“In the revised budget for 2015, which was adopted in February, we brought in 57 measures, the majority of which were aimed at reducing expenditures – largely by putting a halt on automatic spending increases,” says Mr Mramor.
The measures paid off. Across competitiveness scoreboards, Slovenia climbed the rankings and now takes 29th place in the World Bank’s Doing Business report.
In January 2015, Moody’s joined credit rating agencies Standard & Poor’s and Fitch in awarding Slovenia an investment-grade rating, which opened the door for the country’s lowest ever coupon on its then longest ever bond issue – a 20-year €1bn benchmark with a 1.5% coupon, followed by a 30-year bond in July.
“That was really a breakthrough – from 7.5% yields [for 10-year bonds in 2012] to 1.5% for 20 years, that is a great position to be in,” says Mr Mramor.
But there is no room for complacency. Mr Mramor tackled the country’s insolvency procedure to make restructurings more efficient – the legislation is under review and will aid the banking sector and the bad bank in recovering assets.
And Mr Mramor knows that success brings opportunities but also requires expectation management.
“We are slowly eliminating austerity measures for the most vulnerable – we focus on these groups, which were hit the most during the crisis – but at the same time we have very difficult ongoing negotiations for wages, pensions and social transfers,” he says. “We are trying to convey the message that while we have seen a good recovery, we are not [back] at the level of 2008.”
Finance minister of the Year, Americas: Alonso Segura, finance minister, Peru
As is the case in most countries in Latin America, Peru has suffered a dramatic economic slowdown in the past five years, mostly on the back of weaker commodities prices and falling export demand from Asia. However, thanks to its government’s efforts across a number of areas, the Andean country is expected to have closed 2015 with a 3% gross domestic product (GDP) growth rate.
This is an improvement from the 2.4% registered a year earlier, and higher rates will soon follow, says finance minister Alonso Segura. Much of this is due to a relentless series of reforms and initiatives to support economic activity, attract private sector investment as well as generally improve the lives of Peruvians.
First, a revised fiscal plan allowed for the continuation of expansionary policies but, although letting the fiscal deficit reach more than 2% of the GDP in 2015, Peru’s government focused on the effectiveness of interventions rather than on the volume of funds injected in the economy. The government also introduced initiatives to bring more small businesses into the formal sector and simplify tax rules.
Second, the country’s infrastructure received a much-needed boost thanks to a total of 29 public-private partnerships worth about $20bn in 2015 – a figure that represents 11% of GDP. This outcome was made possible in part thanks to measures that addressed some of the concerns constructors and financiers often raise when dealing with emerging market governments. These include the level of bureaucracy, project delays and the overall legal framework guiding such initiatives.
Finally, Mr Segura has overseen the education reform that is improving facilities and introducing scholarships; a civil service reform that aims to improve efficiency; and the creation of a digital banking platform to provide financial services to wider parts of the population.
As such measures begin to pay off, and there is new activity in the commodities sector, Mr Segura’s optimism about the future is well justified. “Taking into consideration all these reforms, plus the beginning of production in some important copper projects in Toromocho, Constancia, Las Bambas and Cerro Verde, I think that the Peruvian economy will continue to accelerate its growth rate to between 4% and 4.5% in the coming years,” he says.
Finance minister of the Year, Middle East: Ali Shareef Al Emadi, finance minister, Qatar
After years of abundance, the countries of the Gulf Co-operation Council (GCC) now have to adjust to a challenging new normal. With oil prices hovering around the $40 a barrel mark, massive budget deficits are emerging across the region, while foreign exchange reserves are being depleted to meet public spending requirements.
In many ways this environment is a test of the region’s economic leadership. It is revealing which jurisdictions chose to enact difficult reforms during the good times and placing a spotlight on those that did not.
For its part, Qatar’s finance ministry, under the leadership of Ali Shareef Al Emadi, has steered the country on a successful path of economic diversification and fiscal discipline in recent years. Gross domestic product growth (GDP) is expected to hit 4.7% in 2015, before climbing to 4.9% in 2016, according to the International Monetary Fund.
Driving much of this growth will be the country’s booming non-oil sector which is forecast to expand by 9.1% year on year between 2015 and 2017, according to the National Bank of Kuwait. These non-oil growth rates are among the highest in the GCC but are supported by large public sector spending developments.
Though Qatar’s decade-long run of achieving fiscal surpluses is expected to end in 2016, with ratings agency Moody’s forecasting a small deficit of 2.6% of GDP, the finance ministry has enacted a number of positive fiscal reforms to address the economy’s longer term challenges.
This includes the creation of a debt management office, tasked with overseeing aspects of risk management for public sector debt. In addition, a new Public Investment Management Unit has been formed to weigh up the costs and expected outcomes associated with public investment projects.
Moreover, the Ministry of Finance has established a new macro-fiscal unit that will assist in devising new three-year medium-term budget frameworks. In turn, this will help to formulate annual budget requirements and protect government spending plans from revenue volatility.
This new framework will build on existing efforts by the ministry to maintain budget discipline. For one, the public sector wage bill is being minimised by not replacing retired workers. In addition, the ministry is both rationalising and prioritising current capital spending plans. Among other means to this end, the government is re-tendering services contracts and introducing new public procurement legislation.Source: The Banker
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