State expenditure has not been frozen: ‘Budget amendments’ have – Govt

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State expenditure has not been frozen: ‘Budget amendments’ have – Govt

4:28 CAT | 04 Jul 2016

Permanent Secretary to the Ministry of Economy and Finance Rogério Nkomo denies that Mozambican government spending has been suspended; it is only “is a freeze on budget amendments” that has taken place, A Verdade has learnt.

Meanwhile, the prime minister has confirmed that the government and the International Monetary Fund have agreed on “a set of fiscal and monetary measures to improve the economic situation of the country”.

On Thursday, financial publication Bloomberg cited a letter stating that all government expenditure other than salaries and pension payments had been frozen pending the submission of an amending budget next Monday 10 July, but Nkomo has clarified over the telephone that the measure taken “is a freeze of budget changes to allow the budget review to take place”.

Since the Proindicus and Mozambique Asset Management (MAM) secret loans were discovered in April, the Bretton Woods institutions and others that support the Mozambican state budget suspended their aid pending an “international and independent audit” of the three companies obtaining government guaranteed loans.

Donor support comprises about 12 percent of the 2016 budget approved in December last year, and the government has announced that its suspension will necessitate cuts in public spending, while promising that priority sectors such as education and health will not be affected.

The amending budget will have to reflect the slowing in economic growth from an anticipated 7 percent to a figure more like the International Monetary Fund’s 4.5 percent, “with a substantial risk of this projection being lowered further”

The amending budget will also have to reflect a rise in inflation to an annualized 16 percent in May, when the government had initially projected it to stay at 5.6 percent.

Concerning the impact of loans endorsed by the state and the Ematum costs being negotiation downwards with creditors, markets are waiting to see how Filipe Nyusi’s government will handle the situation regarding MAM, which in May missed a first debt repayment of US$178 million.

“Substantial tightening at fiscal and monetary levels” seem inevitable, and the prime minister confirmed in parliament last Thursday that the government and the IMF had agreed on an unspecified “set of fiscal and monetary measures to improve the economic situation of the country”.

“(…) substantial fiscal and monetary tightening as well as exchange rate flexibility are needed to restore macroeconomic sustainability, reduce pressure on inflation and the balance of payments and help alleviate pressures on the foreign exchange market while restoring balance between supply and demand on the foreign exchange market,” the IMF mission visiting Mozambique laid out in a statement released on 24 June.

Source: A Verdade