Mozambique: Budget with deficit of over 1.4 billion dollars – AIM report

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Mozambique: Budget with deficit of over 1.4 billion dollars – AIM report

7:56 CAT | 03 Dec 2020

File photo: TVM

Mozambique’s Minister of Economy and Finance, Adriano Maleiane, on Wednesday presented the country’s parliament, the Assembly of the Republic, with a draft State Budget for 2021 that envisages a primary deficit of almost 103 billion meticais (about 1.41 billion US dollars, at current exchange rates).

The budget forecasts state revenue for the year of 265.6 billion meticais, and public expenditure of 369 billion meticais.

The deficit is rather smaller than the 109.8 billion meticais envisaged in the budget for 2020. It will be financed, the government states, by foreign grants of 34 billion meticais, foreign loans of 25.6 billion meticais, and 2.5 billion meticais remaining from past payments of capital gains tax.

The remaining deficit, of almost 41 billion meticais, should be covered by the issuing of domestic debt, in the form of high interest bearing treasury bonds.

The priority areas of public expenditure remain education, health and agriculture. The budget contains money to recruit 9,769 new teachers (compared with 6,413 in 2019). There will be an extra 5.520 health professionals recruited, which is more than twice the 2019 figure of 2,126. 1,891 additional agricultural staff will also be recruited.

According to the government’s budget document, “the increase in the number of education and health staff seeks to step up activities to prevent and fight against Covid-19, in order to ensure interpersonal distancing in educational institutions at all levels”.

In order to reduce the spread of Covid-19, class sizes are being cut drastically Classes of 60 or more pupils can no longer be accepted, and this inevitably means that many more teachers will be required.

Education is the sector with the largest share of the budget at 23.9 per cent (but this is a reduction of 3.2 per cent in comparison with the 2020 budget). It is followed by health with 14 per cent and agriculture and rural development with 10 per cent. (These percentages are calculated after excluding general state charges, such as debt servicing).

The public debt weighs heavily on the budget, even after excluding the debts run up the fraudulent, security-related companies Proindicus and MAM (Mozambique Asset Management), The total debt service in the draft budget is 77.7 billion meticais – somewhat less than this year’s figure (78.6 billion), but much more than the debt service paid in 2019 (61.5 billion).

The budget document admits there are serious fiscal risks ahead, arising from uncertainties which could add to the needs for state financing. The largest of these is how the Covid-19 pandemic will unfold. “The fiscal position of the country may change rapidly”, the government warns, “due to the pressures created by increased public expenditure to mitigate the pandemic, and reduced revenue due to the slowdown in economic activity”.

The budget could also be compromised if the macroeconomic assumptions on which it is based (such as the GDP growth rate, the inflation rate, and the exchange rate) turn out to be wrong. Furthermore, volatility in international commodity prices, could affect Mozambican exports and hence state revenue.

Source: AIM