Mozambique: Government assumes aid cuts & economic crisis will continue in 2018 – By Joseph Hanlon

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Mozambique: Government assumes aid cuts & economic crisis will continue in 2018 – By Joseph Hanlon

7:40 CAT | 30 Oct 2017

“We cannot see, in the short and medium term, the return of direct external support to the State Budget,” said the Bank of Mozambique’s Monetary Policy Committee on 26 October.

The economic crisis of last year and this year may continue into 2018, with increased inflation and further government spending cuts, Bank of Mozambique governor Rogerio Zandamela told a press conference 26 October. “The huge efforts by the Tax Authority [Autoridade Tributaria, TA] will not, in the short term, compensate for the substantial cuts in foreign aid,” he said.

Zandamela contradicted his own government’s budget for 2008, which predicts a 20% increase in tax revenue to MT 223 bn ($3.7 bn at current exchange rates) from MT 186 bn ($3.1 bn) last year. The budget accepts a slight increase in inflation, predicting 11.9% next year. In September (last month), annual inflation was 10.8%.

The Monetary Policy Committee pointed to “the difficulties that the public sector has in mobilizing resources to finance its expenditures” and said that an indication of the shortage of money is that domestic public debt rose $ 46 mn in just two months, from MT 97.7 ($ 1608 mn) bn on 10 August to MT 100.5 bn ($1654 mn) on 25 October. (http://www.bancomoc.mz/)

The budget includes substantial cuts. Hiring of new teachers will fall from 8,300 this year to only 2,200 next year. Spending on education and health will increase, but spending on agriculture will fall by 27% and spending on water and public works will be halved, falling by 56%, because of cuts in aid.

Comment: Statements last week make clear that the Frelimo leadership has given up any hope of an IMF agreement and an increase in aid. Minister of Land, Environment and Rural Development Celso Correia is close to President Filipe Nyusi and on 24 October was pointedly speaking at a reception of the embassy of Germany, one of the countries to stop budget support, He said “the difficult moment in our relationship with our cooperation partners is instructive in making it increasingly urgent for our country to live with the resources that it has internally and to produce enough wealth to finance its own budget and development. Foreign aid should be an exception and not the rule. Foreign aid must be prioritised and not universalised.” And Bank Governor Zandamela at his 26 October press conference said “We can live without aid, but it will be a difficult life. It requires fiscal reforms to be much deeper than what we had in mind. … We have to work, redouble our efforts and our energy to deal with reality [because we will be] walking practically alone without aid for the state budget.” (@Verdade 27 Oct)

It increasingly appears that the deal within the Frelimo leadership is that little more information will be released about the $2 bn secret debt and that those involved will be protected. But in exchange, opposition to a peace deal with Renamo has ended, with acceptance not just of decentralisation but also of serious integration on Renamo guerrillas and commanders into a restructured army and police.

Frelimo now needs to get through October 2018 local elections and October 2019 national elections, with a peace deal but largely without aid money for government expenditure. That means two more years of juggling, in particular delaying payments to companies and civil servants while trying to extract more from them in tax.

Afonso Dhlakama and Renamo are now committed to participating in elections (see below). Their hope that there will be a backlash against Frelimo because of corruption, the secret debt, austerity and the failure to reduce poverty – the Trump and Brexit effect. Frelimo hopes its historic support, better organisation and control of the state apparatus will propel it successfully through the next elections.

Renamo will need to do well in the Nampula by-election and next year’s local elections, electing mayors in some municipalities and at least forcing second rounds (where no candidate for mayor gains a majority in the first round) in some key cities. That would give Renamo and Dhlakama more credibility in national elections.

By Joseph Hanlon

Source: News reports & clippings