Definition of Government Activities

2. The budget documents and legislation only refer to the central government, but according to a definition that is not fully in compliance with the IMF’s Government Finance Statistics Manual (GFSM).

1.1.1

Neither the State budget (Orçamento do Estado, OE) proposal nor the budget law itself records the consolidated fiscal position of the general government. According to the Law on the State Financial Management System (the SISTAFE Law), the OE only covers a part of the central government’s entities, that is: (i) the sovereign bodies, the judiciary, and 25 ministries; (ii) the State’s administrative bodies deconcentrated at the local level (i.e., Mozambique’s 11 provinces and 131² districts); and (iii) the autonomous State institutions (institutes, centers, funds, and similar bodies) which, despite legally being autonomous in respect of administrative, financial, and asset management matters, are not in a position to enjoy that autonomy because their own revenues are unable to finance at least two-thirds of their expenses.³ Therefore, except for the transfers made to them, the OE does not include the operations of the rest of the public entities that also should be considered part of the central government. The central government entities excluded from the OE are those autonomous State institutions that enjoy administrative, financial, and asset management autonomy and which undertake noncommercial activities (e.g., the National Social Security Institute (INSS)). As regards local governments, the OE only includes the transfers made to the 33 “autarquias” (municipalities), which are also autonomous in respect of administrative, financial, and asset management matters. The OE also includes the transfers made to public enterprises. The SISTAFE Law requires that the budgets of all autonomous State institutions, local governments, and public enterprises be included in the OE proposal sent to the Assembly of the Republic (AR), as an annex for information purposes. However, this requirement is only partially complied with.⁴

Relations between the government and nonfinancial public enterprises

3. The nonfinancial public enterprise sector in Mozambique can be divided into public enterprises (empresas públicas), publicly-owned corporations (sociedades anónimas), and State shareholdings in private enterprises.

1.1.4

Public enterprises are collective persons with their own legal status and autonomy over administrative, financial, and asset management issues, in which the State holds 100 percent of the capital stock. Such enterprises are authorized to hold shares in other mixed-ownership enterprises. Public enterprises mainly operate in the public utility sectors (water, electricity, radio, television, postal services, and public transport) and the exploitation of natural resources (water, hydrocarbons, and coal). Publicly-owned corporations are those in which the State, sometimes in conjunction with a public enterprise, is the sole or major owner of the capital. Publicly-owned corporations are present in telecommunications, air transport, imports of medicines and recently also in the oil and gas sectors. Finally, the State also holds a major shareholding in private enterprises, sometimes as a result of reverting to the State ownership enterprises that were involved in unsuccessful privatization process, or as a result of the State’s intention of having a presence in strategic sectors (Box 2 and paragraph 8).

4. The legal framework⁵ governing the public enterprise sector is neither clear nor complete.

1.1.4

In principle, the Public Enterprise Law contains sound rules, according to which public enterprises: (i) are subject to the same tax and labor regimes as their private sector counterparts; (ii) can contract loans subject to authorization by the Ministry of Finance (MF); (iii) are entitled to compensation via a transfer from the OE should they be required to apply a public pricing policy; (iv) can sign program-contracts with the MF; and (v) still benefit from outstanding special loan agreements (acordos de retrocessão) with the State, even though the signature of such agreements between the State and public enterprises were discontinued in 2004; under these agreements, the State contracted debts on behalf of public enterprises that the public enterprises are responsible for repaying. Despite the rules laid out in the Public Enterprise Law, the prerogatives of the MF to conduct financial oversight of public enterprises are unclear. Moreover, the MF lacks effective legal tools to exert its authority over public enterprise in certain domains, such as distribution of dividends, signature of program-contracts, and collection of the principal and interest payments on acordos de retrocessão. It is not clear either whether the legal framework governing public enterprises extends to any such enterprises that local governments may create. Finally, the legal and management framework governing publicly-owned corporations, particularly as regards their relations with the MF, is unclear, since such corporations are not covered by the Public Enterprise Law.

5. The information available on quasifiscal activities undertaken by the public enterprise sector, which could be significant, is scant.

1.1.4

Some public enterprises, particularly in the electricity, water, and transport sectors, are required to implement a public pricing policy, for which they receive subsidies that are clearly identified in the OE. Nonetheless, the information provided in the OE does not make it clear whether the subsidies are sufficient to compensate for the losses caused by implementation of the policy. Moreover, some of these public enterprises have a large volume of receivable accounts, because line ministries tend not to pay for their consumption. Although the acordos de retrocessão do not have a subsidy component, they may often represent a form of favorable financing, since public enterprises usually delay payment. According to Mozambique’s Supreme Audit Institution, the Administrative Tribunal (TA), in 2005, of the 42 public enterprises that received credits from the State under an acordo de retrocessão over the previous two years, only 11 had repaid their respective quotas, either fully or partially. There is no information on the potential fiscal risks related to the operations of public enterprises and publicly-owned corporations.

6. The absence of a specific legal framework for regulating the autonomous State institutions sometimes causes conflict.

1.1.4

The financial relations between the Treasury and the autonomous State institutions (institute, funds, etc.) depend on provisions contained in the specific laws governing each institution, which are not standardized, and therefore remain unclear. Moreover, as in the case of public enterprises, there is no clarity as to what financial controls the Treasury can apply to those autonomous institutions. For example, in the case of acordos de retrocessão, which are still maintained in the case of institutes, there are no clear rules to ensure timely payments on the corresponding agreements. Moreover, apart from a set of provisions scattered throughout the SISTAFE Law, there are no clear rules regulating the budget processes of autonomous State institutions, and no timetables for reporting. Furthermore, the definition of financial autonomy is unclear and usually leads to confusion. In principle, the recognition of financial autonomy must be made in the specific law governing each autonomous institution. However, in practice, autonomous institutions only enjoy such financial autonomy if they are able to finance two-thirds of their total expenses with their own revenues, as established in the SISTAFE Law. This has led to cases in which some administrative entities (such as National Directorates) that generate important own revenues have requested financial autonomy, even when they are not allowed by law to be autonomous.

Relations among the government, the central bank, and the financial public sector

7. The Bank of Mozambique (BM), which is the country’s central bank, enjoys operational autonomy. Although it does not carry out any quasifiscal activities of relevance, it bears major costs in implementing monetary policy.

1.1.4

The existence of the BM is provided for in Article 132 of the Constitution of the Republic; it is regulated by Law No.1/1992, which establishes that the BM must implement the government’s monetary, credit, exchange rate, and bank supervision policies. Its chief officers include a Governor and a Vice-Governor appointed by the President of the Republic for a five-year term. The technical side of BM operations has benefited from the bank’s autonomy in administrative, financial and asset management matters, and the fact that its senior management posts have been held by staff drawn from the BM’s own technical career structure. Legal authorization to extend funds to the government, up to a maximum of 10 percent of ordinary revenues, is not used in practice. The treasury’s cash flow needs have been satisfied by the issuance of treasury bills on which the treasury makes interest and principal payments. Over the last few years, major progress has been made in clarifying relations between the BM and the treasury, including the transfer of the latter’s external debt from the BM balance sheet to the treasury itself, and the implementation of a recapitalization program for the BM. Nonetheless, an arrangement still needs to be established to deal with the remuneration and operating costs of the Treasury Single Account (Conta Única do Tesouro, CUT), interest on its daily positive balances, and inclusion of the costs of monetary policy in the OE. Apart from soft loans extended to its staff, the BM does not engage in quasifiscal activities.

Relations between the government and the private sector

1.1.5

8. Following several years of intensive privatization activity, the State’s participation in private enterprises is now small, although it has grown over the last few years especially in the natural resource sector.

1.1.5

After an intense privatization process, at present there is no publicly-owned bank or financial institution in Mozambique. As regards the nonfinancial private sector, the State currently has shareholdings in 155 private enterprises, of which only 40 are operating (Box 2).⁶ State participation in these private enterprises takes two key forms. First, the State holds a stake in a large group of private enterprises (many of which are not currently operating), which have reverted to State ownership following unsuccessful privatization processes (e.g., textiles, sugar). Many of these enterprises are, or will be in the future, undergoing a restructuring process (see paragraph 19). Second, and more recently, the State holds stakes in private enterprises or resource projects, either directly or through a public enterprise or a publicly-owned corporation involved in the natural resource sector (CMG and CMH are the most recent with a 25 percent share in the production of gas from the Pande-Temane project), as well as in large-scale projects (e.g., Mozal in the production of aluminum or Cahora-Bassa in the electricity sector; Appendix II).

9. Despite recent improvements, the laws and processes that regulate the nonfinancial private sector are not clear and open, which results in high compliance costs.

Generally speaking, laws and regulatory and administrative processes remain complex (e.g., excessive bureaucracy in registering and obtaining licenses for economic activities, and in custom inspections process, etc.). Recent progress, such as the creation of “one-stop shopping” and microenterprise legislation, has done more to facilitate procedures than to simplify them, while compliance costs remain high. Moreover, the civil service still enjoys considerable discretion in applying the rules, which causes a great deal of uncertainty for the private sector. This seems to be due to the excessive sanctioning powers available to inspectors, which the private sector believes should be the prerogative of the courts. In addition, the various public utility regulatory bodies that exist are not operational and have little impact because their opinions⁷ are not binding on the government and are not published. In the oil sector, public tenders for permits in gas and oil exploration contracts and the approval of environmental impact studies managed by the National Petroleum Institute are very lengthy and not made available to the public.

Relations among the three powers of State on public finance issues

10. The fiscal functions of the executive, legislature, and judiciary are clearly defined by law.

1.1.2

The public finance jurisdictions of the various powers of State are clearly set out in the Constitution of the Republic. The AR has competency (Article 179) to deliberate on the Economic and Social Plan (PES) and approve the OE, in addition to reviewing the budget execution reports and the Government General Account (CGE), prepared by the government.

It also considers the government five-year program (PQG) at the start of the legislature. The AR may not table any legal bill that, directly or indirectly, involves an increase in expenditure or reduction in government revenues, or that in any way alters the outcome of the fiscal year currently underway (Article 183). As is the case with other laws, the OE proposal is debated and voted upon in both specific and general terms. Lastly, the judiciary system, which includes Mozambique’s Supreme Audit Institution (i.e., the TA responsible for evaluating the CGE), prepares its own budget proposals using the same budgeting mechanism as other public entities.

Relations between the different levels of government on public finance issues

11. The legal framework governing relations between the different levels of government is highly complex, imprecise, and not well-known. This makes it difficult to identify the distribution of responsibilities among jurisdictions.

1.1.3

The Constitution of the Republic of Mozambique provides for a central unitary state, administratively deconcentrated into provinces and districts (órgãos locais do Estado); and the existence of local authorities or municipalities (autarquias), which, despite enjoining autonomy on administrative, financial and asset management matters, are under the State’s tutelage. As shown in Table 1, there are currently 11 provinces, 128 districts, and 33 municipalities in Mozambique. The legal framework specifies functions that are exclusive to the State (Box 3), yet attributes the same functions to various levels of government (e.g., both municipalities and districts are authorized to operate local street cleaning services; both municipalities and provinces are authorized to provide education and health care services, etc.). These duplications do not seem to have generated serious problems thus far, due to the districts’ and municipalities’ lack of technical and financial capacity to provide these services, and because districts and municipalities usually have different geographical boundaries, except in a few cases where there are overlaps. Another weakness is the lack of clarity surrounding the organizational structures and responsibilities of the State’s administrative bodies deconcentrated at the local level (órgãos locais do Estado), particularly as regards provinces and districts. In particular, at present the most serious problem is the absence of clear rules governing the responsibilities of districts, which will become separate budgetary units within the OE as from 2008, and therefore, will have the capacity to plan and execute their own budgets. As regards autarquias, current legislation neither includes a set of transparent and formula-based rules for the transfers for the central government to municipalities, nor provides a set of financial and tax provisions that are fully consistent with the SISTAFE Law or the General Tax Law (LGT).⁸

The legal and management framework governing public finance

12. Overall, the legal fiscal and budget framework is clearly defined and consistent with good international practices; nonetheless, some aspects need to be clarified, such as budgetary amendments, the use of unallocated contingency funds, and the budget coverage.

1.2.1

The SISTAFE Law, in addition to regulations, contains sound budgetary rules. In particular, the SISTAFE Law (i) details the contents of the budget documentation; (ii) sets an adequate period for debating the draft budget in the AR (two and a half months); (iii) clearly defines the stages of the expenditure cycle; (iv) mandates the periodic preparation of budget execution reports; (v) calls for the implementation of a computerized system for the integrated management of the government’s financial information; (vi) contains rules on cash planning and management, including the establishment of a CUT, and establishes constraints on public entities’ borrowing; (vii) introduces a well-defined budget classification; (viii) establishes a well-defined accounting system, which specifies the use of the double-entry accounting regime and well-conceived methodologies and deadlines; and (ix) mandates the registration of State’s assets and the implementation of sound internal controls.

Nonetheless, the SISTAFE Law has major gaps. In particular, the SISTAFE Law does not establish: (i) the need to consolidate the budgets of all public entities encompassed by the definition of general government; (ii) timetables for the budget formulation and reporting of the autonomous State institutions; (iii) the need for the issuance of lower rank legislation to regulate the budgetary phases related to planning activities and ex post assessment; (iv) the need for a mandatory involvement of the MF in the analysis and approval of contractual arrangements (e.g., PPP) that could have budget implications; or (v) the need to formally notify the AR of all budgetary amendments or uses made of the unallocated contingency fund (dotação orçamental) by the government during the fiscal year. This latter shortcoming is partially compensated for by the fact that each year the Assembly limits the nature of the budgetary amendments that the government can make⁹ without the prior authorization of the Assembly. This system provides the government with some flexibility during the annual budget execution, something that is needed since the legislature holds only two annual 45-day sessions.

13. The legal framework for the tax system is modern, comprehensive, and generally broadly disseminated, although a number of clarifications are needed.

1.2.2

The Constitution establishes that the creation of taxes and modifications of tax main parameters have to be done by law, and therefore are the exclusive prerogative of the AR. As a result of the fiscal reform initiated in the early 1990s, the current tax system in Mozambique is consistent with international standards. The system includes a LGT, Law No. 2/2006, which clearly and systematically establishes a set of sound principles on taxation, specifies taxpayer guarantees, and describes the tax administration’s powers. The main taxes and customs duties are also defined in accordance with good taxation practices, although at the local level, the Local Authority Tax Code (Decree No. 52/2000) would need to be amended to bring it into line with the LGT. As regards the oil and mining sectors, the recently enacted Law No. 13/2007 has strengthened considerably the transparency of the regime of tax exemptions applicable to the resource sectors. Law No. 13/2007 (i) removes the power of the Council of Ministers, under the Petroleum and Mining Laws, to determine a special tax regime for the resource sectors, and the possibility of negotiating a special tax regime for each contract; (ii) eliminates the application of the 2003 Code of the Fiscal Benefits for Investments to petroleum and mining activities; and (iii) limits the tax exemptions for the mining and petroleum sectors to customs duties (though not fees) and value added tax (VAT) on imports (Appendix II).

14. There are many tax exemptions; although they are well-defined in the legislation and widely disseminated,¹⁰ their impact is not estimated.

1.1.2, 3.1.3

Current tax legislation establishes clear limits to the government’s discretion to grant tax exemptions. Tax exemptions can be classified in three types: (i) those that are defined for each tax (e.g., value-added tax); (ii) tax incentives for investments, which are regulated by the 2003 Code of Tax Benefits for Investments (Código de Beneficios Fiscais para Investimentos)¹¹ under the Investment Law; and (iii) specific incentives for industrial free zones in relation to large-scale projects (e.g., Mozal).¹² Moreover, the recent reform of the tax regime for oil and mining activities (Law No. 13/2007) is a positive step towards limiting the discretion of tax exemptions even further, since the revised tax code for these two activities explicitly abolishes the right of the Council of Ministers to establish a special regime for oil and mining activities—which will no longer receive a privileged treatment under the Code of Tax Benefits for Investments—and clarifies and reduces the number of tax exemptions for those activities (Appendix II). The value of tax exemptions, particularly those relating to large-scale projects (e.g., Mozal), is high, but the values of the exemptions are not calculated or published. One positive point is that the CGE for 2006 included, for the first time, a table with information on tax exemptions in line with the mandate of the TA Law.

Tax administration

15. Tax administration procedures are clearly defined in the law, but transparency and effectiveness are limited by the lack of adequate human and technological resources.

1.2.2

Tax and customs administration is consolidated in a single entity, the recently created Mozambique Tax Authority (ATM), which has comprehensive and well-defined responsibilities covering the various phases of the taxation process. These include the assessment of taxes, coercive collection, interim measures, evaluation methods, inspection, assistance to taxpayers, and complaints. The legislation also provides the ATM with tax administration tools that are in line with good international practices, such as the single tax identification number (NUIT) and the implementation of self-assessment practices. ATM staff are covered by a special regime to ensure their neutrality and professionalism (paragraph 61) and by a code of conduct applicable to all its personnel. Nonetheless, the effectiveness of the ATM’s tax administration tools is impaired by weaknesses in information technology systems, which prevents the ATM from conducting routine updates of the database that supports the NUIT¹³ and makes it harder for taxpayers to pay self-assessed taxes through the banking system. Moreover, in practice, the ATM lacks qualified staff with appropriate skills in fundamental areas, such as inspection, disputed assessments, and, especially, taxpayer assistance (Box 4).¹² Lastly, the ATM does not have expertise in sectors that could become of major importance to taxation in the next few years, such as oil, gas, and mining.¹⁵

16. Taxpayers’ rights are clearly defined in the law and in line with good international practices, but their application is still at the initial stage.

1.2.2, 4.2.6

As is explained in Box 4, taxpayers are entitled to notification, complaint, verification, and assistance. These rights aim to ensure mechanisms for public consultation and dissemination of relevant information, as well as a service for resolving tax disputes. Nonetheless, the private sector believes that information on these consultations should be published, the discretionary powers of inspectors should be better regulated, and bureaucratic processes speeded up.

Public consultation

17. There exist relatively well-established public consultation mechanisms, particularly on draft laws, amendments to the regulatory framework, and substantial changes on policy orientation.

1.2.3

Examples of this include the public hearings conducted by the Taxation Council (Conselho da Fiscalidade) on the proposed legislative amendments that are under consideration of the ATM. The Taxation Council is composed of representatives of the government, the private sector, and civil society; in some occasions it includes also experts of recognized prestige and officials from the affected line ministries. Another example is the participatory process followed for the elaboration of the National Poverty Reduction Strategy (PARPA, or Plano de Acçãopara Redução da Pobreza Absoluta) through the Poverty Observatory (recently renamed as Development Observatory), in which civil society groups are invited to express their opinions. The discussions on the recently approved procurement legislation are also a good example of how representatives of the public and private sectors can make suggestions on a draft piece of legislation through an open public consultation process. Nonetheless, the capacity of the public at large to participate in the debate of draft legislation may be restricted by the fact that the AR does not have its own bulletin for publishing draft laws or a functioning website.

Contractual arrangements

18. Contractual arrangements between the government and public entities or private sector bodies are not made public.

1.2.4

For example, the program contracts between the MF and public enterprises are not published, nor are the concession agreements between the government and enterprises currently involved in prospecting, production, and development activities in the oil and mining sectors. Contracts relating to “mega-projects” operating in industrial free zones and public-private partnership agreements are also difficult to gain access to. Information on the ongoing negotiations, and related risks, of the State’s forthcoming participation in large hydroelectric power projects is very scarce.

Legal framework for asset and liability management

19. The legal and institutional framework for the management of the State’s participation in private-sector enterprises has not been adapted to the new reality in Mozambique, in which projects in the natural resource sector are becoming increasingly important.

1.2.5, 3.1.5

The MF manages the State’s shareholdings in the private enterprise sector through one autonomous State institution, the State Shareholdings Management Institute (IGEPE), which is entitled to 30 percent of dividends from State shareholdings under its management. One of the IGEPE’s main responsibilities is the implementation of the State’s policies on restructuring and divestment of the State’s private-sector share portfolio, most of which can be traced back to unsuccessful privatization processes conducted in the 1990s (paragraph 8 and Box 2). In addition, the IGEPE is in charge of the promotion of the State’s participation in strategic commercial sectors. Nonetheless, the IGEPE has not participated in the negotiation and management of recently acquired holdings in some private and public enterprises that operate in the natural resource sectors. These include the creation of some publicly-owned corporations whose governing legal framework is not yet clear (Box 2 and paragraph 3), such as the CMH and CMG, which participate in prospecting, production and development projects in the oil and gas sectors, as well as the stakes held by the National Hydrocarbons Company (ENH) in nearly all gas and oil exploration and production projects (between 15 percent and 20 percent in three of the six exploration blocks). IGEPE also does not seem to have participated in discussions on the Cahora Bassa Hydroelectric Power Plant (HCB) capital reversion operation.¹⁶

20. The legal framework on privatization is widely dispersed and is still based on the laws and decrees that characterized the intensive privatization processes of the 1990s.

1.2.5, 4.2.4

The legal framework¹⁷ dictates that the privatization of public enterprises shall be initiated by the line ministry, endorsed by the MF, and analyzed by the National Commissions for Sector Evaluation and Divestment (which represent workers, the line ministry involved, the MF, etc.), with a final decision being made by the Prime Minister. The legal framework also specifies the set of privatization modalities such as public calls for tender, limited tender, private sale, capital expansion, and sale of shares to workers and technical employees. This framework has been widely used over the last few years to conduct numerous privatizations. As a result, the IGEPE’s portfolio has been reduced by 44 percent: the number of enterprises in which the IGEPE participates has fallen from 279 in 2001 to 155 in 2007. As a general rule, all privatizations used to be reviewed by an Interministerial Commission for Business Restructuring (CIRE), whose function was to assist prime-ministerial decision-making on privatizations. However, the CIRE was disbanded in 2007, and the whole privatization framework seems to be under review. As a consequence, there is not at present a clear mechanism in place to govern the privatizations that are currently under discussion.

21. Overall, the legislation for granting concessions for the exploration of natural resources is clear, but there is a need to strengthen certain provisions on the State’s liabilities.

1.2.5

Concessions for natural resource prospecting, production, and development are governed by specific legislation, that is, the Mining and Petroleum Laws and related regulations.¹⁸ These laws establishes the set of modalities for granting concession contracts for the exploration of natural resources. These concession contracts can be granted through public tenders, direct negotiation, or simultaneous negotiation. They also specify the contract model to be used in each case, and allow State participation to be financed through a share in future production. These contracts are approved by the Council of Ministers and assessed by an Interministerial Technical Commission. However, the legislation does not specifically state that, if projects prove unsuccessful, the State’s liability is limited to future production, and, therefore, does not generate other financial or capital liabilities to the State (Appendix II).

The budget preparation process: clarity and uniformity in process and presentation

22. The calendar for the preparation of the OE is established in the SISTAFE Law and, despite occasional delays, is generally respected (Box 5).

2.2.1

The SISTAFE Law establishes that line ministries should respect the legal deadline for submitting their budget proposals to the “central body in the finance area,” without specifying a concrete ministry or timetable. In the past the “central body in the finance area” was interpreted as the former Ministry of Planning and Finance (MPF). However, after the MPF was split into two ministries, the formulation of the OE is a shared responsibility between the National Directorate of Planning (DNP) of the Ministry of Planning and Development (MPD) and the National Directorate of the Budget (DNO) of the MF. Following this change, the distribution of labor between the DNO and DNP has yet to fully become clear. The budget preparation process starts in May, when the MPD sends to line ministries a circular setting the expenditure ceilings for each spending unit and agency, and a deadline, which in recent years has been around July 31, for line ministries to present their budget proposals to the MPD. In compliance with the SISTAFE Law, by September 30 the government sends the budget proposal to the AR, to be approved by December 15. Overall, the 2½-month period for the Assembly to analyze the OE proposal is adequate, and in line with the calendar of the legislature which only meets for deliberation in the second session in late October. Nonetheless, in practice, the work of analysis and voting on the OE proposal is somewhat compressed and in most years the budget is approved a few days after the legal deadline of December 15.

Box 5.

The Budget Preparation Process

Deadlines	Activities	Legal basis
According to the SISTAFE Law, the fiscal year follows the calendar year. The main stages in the budget preparation process are as follows:
From October of the previous year until May	Development of macroeconomic and fiscal projections to be included in the Medium-Term Fiscal Framework (CFMP), which will be used to prepare the draft PES and draft OE.	Decrees on the MPD and MF’s main functions and responsibilities
Early May	Development of the Guidelines for the Formulation of the PES and OE proposals or “Orientações para Elaboração do PES e Proposta do Orçamento do Estado,” which instructs line ministries on the parameters they should use in the formulation of their budget proposals, which will be subsequently discussed with the DNO.
July 31	All spending units and autonomous State institutions of line ministries must send their budget proposals to the MF.	Circular from MPD
Mid-September	The MF has until mid-September to consolidate the budget proposals of line ministries and present the draft OE to the Council of Ministers for its approval.
September 30	Deadline for the government to submit the OE proposal to the AR.	SISTAFE Law, Art. 25
December 15	Deadline for approval of the OE by the AR.	SISTAFE Law, Art. 26

View Table

Deadlines	Activities	Legal basis
According to the SISTAFE Law, the fiscal year follows the calendar year. The main stages in the budget preparation process are as follows:
From October of the previous year until May	Development of macroeconomic and fiscal projections to be included in the Medium-Term Fiscal Framework (CFMP), which will be used to prepare the draft PES and draft OE.	Decrees on the MPD and MF’s main functions and responsibilities
Early May	Development of the Guidelines for the Formulation of the PES and OE proposals or “Orientações para Elaboração do PES e Proposta do Orçamento do Estado,” which instructs line ministries on the parameters they should use in the formulation of their budget proposals, which will be subsequently discussed with the DNO.
July 31	All spending units and autonomous State institutions of line ministries must send their budget proposals to the MF.	Circular from MPD
Mid-September	The MF has until mid-September to consolidate the budget proposals of line ministries and present the draft OE to the Council of Ministers for its approval.
September 30	Deadline for the government to submit the OE proposal to the AR.	SISTAFE Law, Art. 25
December 15	Deadline for approval of the OE by the AR.	SISTAFE Law, Art. 26

The medium-term scenario and the policies on which the budget preparation is based

23. The budget estimates and the underlying macroeconomic assumptions are clearly presented in the budget documents, although the correlation between them is not made explicit.

2.1.2

The regulations of the SISTAFE Law on the elaboration a CFMP (Cenário Fiscal de Medio Prazo, CFMP) has institutionalized the usual practice followed by the government of Mozambique, started some years ago, of providing the OE with a medium-term perspective. The CFMP closely follows the objectives of the PARPA and the government’s five-year plan (PQG), specifies the macroeconomic assumptions to be used in preparing the OE proposal, and sets budgetary ceilings for all line ministries (Box 6). The SISTAFE Law regulations state also that the CFMP will be a rolling scenario, updated annually in each budget cycle. Until recently, the CFMP was conceived as a technical tool not meant to be circulated outside the MF. Nonetheless, since 2006, it has become a normal practice to submit the CFMP to the Council of Ministers, which uses it in setting expenditure limits for the fiscal year. The CFMP includes fiscal data on the latest completed fiscal year, fiscal estimates from the current year, and projections for the reference year for which the budget is being proposed and the two following years. Bearing in mind that the CFMP is conceived as an internal government document, the draft OE law is sent to the AR together with another document, the “Foundations for the draft OE Law,” which summarizes the content of the CFMP particularly in terms of its macroeconomic and fiscal projections. Nonetheless, neither the CFMP nor the “Foundations” makes explicit the correlation between the macroeconomic assumptions and budget estimates.

24. The budget documents include a discussion of the medium-term fiscal policy objectives, although sometimes incurring in certain overlapping and duplication.

2.1.2

In Mozambique there exists a multiplicity of planning and budgeting document (Box 6). The existence of the PES and CFMP can result in unnecessary duplication and content overlap. The PES presents recent progress in improving key social-economic indicators and how the envisaged physical targets will contribute to reach the Millennium Development Goals. However, the PES also sets out the objectives of the fiscal policy, including detailed targets for line ministries and main fiscal aggregates that are consistent with the medium-term fiscal targets envisaged in the PARPA. This is an information already contained in the “Foundations for the draft OE law,” which is based on the CFMP, and also sets macroeconomic and policy objectives for the medium term.

25. At present, Mozambique’s fiscal policy is guided by certain flexible rule-based principles, such as the PARPA’s priority expenditure objectives and the CFMP fiscal targets.

2.1.2

The objectives to be achieved in priority expenditure, with the corresponding physical targets, are set out explicitly in the PES and OE. On the fiscal front, the CFMP records the fiscal target that would be used in monitoring and measuring the fiscal policy stance. At present, that fiscal target is the net lending to the government (Crédito Liquido ao Governo), which was chosen when adopting the International Monetary Fund’s (IMF) Policy Support Instrument. Another important fiscal target is to increase tax revenue by ½ percent of GDP per year.

26. Estimates of new revenue and expenditure initiatives and the recurrent costs of government policies are not clearly identified in the budget documentation.

2.1.3

The PES presents all government actions in detail, although without a differential treatment for the new and ongoing actions. Therefore, in order to identify the new actions and policies that the government plans to implement in each fiscal year, it is necessary to conduct a comparison between the PESs of current and previous fiscal years. As regards the OE, it does not allow for the identification of new actions and policies because it does not yet use the programmatic classification. One of the advantages of the forthcoming adoption of that classification will be a more precise identification of the funds destined for each new project and/or action, thereby allowing new actions to be identified through their own codes.

Fiscal sustainability analysis

27. Neither the OE nor its accompanying documents provide a detailed analysis of the sustainability of the fiscal policy, or a sensitivity analysis in relation to the main economic and political assumptions.

2.1.4

Sustainability and sensitivity analyses are also not performed internally by the technical services involved in preparing the OE and CFMP. Nonetheless, both the PES and the “Foundations for the draft OE law” establish that fiscal sustainability is one of the government’s objectives, which it plans to achieve by reducing the country’s external dependence, increasing tax revenue, and enhancing the efficiency of public expenditure. The new 2006-09 PARPA, which takes a more medium-term view than previous PARPAs, contains alternative macrofiscal scenarios, including higher-than-projected flows of external assistance and debt relief funds.

Coordination of budgetary and off-budget activities.

28. Mechanisms for coordination between the government and development partners in respect of externally funded off-budget activities have improved substantially over the last few years.

2.1.5

Following the implementation of the integrated financial management information system, or SISTAFE Information Technology System (e-SISTAFE), to support the government’s financial payment since November 2004 and budget execution since September 2005, the government now has a more effective tool to monitor the use of donor funds. The emergence of this new tool has increased the willingness of Mozambique’s development partners to provide funding in the form of general budget support instead of exclusively to sector-specific projects. Therefore, the government is now in a better position to continue trying to convince international partners to include their projects in the State budget. Nonetheless, some donors still have doubts about the internal controls and safeguards provided by the e-SISTAFE and the reliability of the reports generated by the system. These doubts led some donors to keep the sector projects financed by them outside the State budget—and outside the Treasury Single Account (CUT) execution circuit (Box 7). To better coordinate discussions on budgetary support in general, and on the inclusion of sector projects in the State budget, in particular, a group of 19 donors (known as the G-19) was set up to discuss those issues with the government. As a result, certain projects that previously were outside the OE are now included in the budget. However, only those projects financed out of a Common Fund, in which some donors pool their funds to finance a concrete project, are in fact executed under SISTAFE rules. All in all, about half of all projects funded with external resources still remain outside the OE.

29. Revenues from natural resource operations, although still small, are not clearly identified in the OE.

2.1.5

The information provided in budget document allows for the identification of the Tax on Mining/Petroleum Production (Royalties) and Land Tax (Impostos sobre a produção Mineira/Petrolífera e de Superfície), and the earmarked and own revenues (Taxas de Prestação de Serviços) of the Mining Development Fund.¹⁹ However, the budget documents (proposal, law, etc.) do not make it possible to identify either the corporate income tax revenue from mining and hydrocarbon companies, or the funds obtained from mining concession revenues. For instance, the withdrawals from the Concessions Resources Fund for the Moatize mine are reported in the budget under the head “capital income.” However, as breakdown of “capital income” is not provided, it is difficult to know the volume of the withdrawal authorized in the budget (Appendix II).²⁰

Accounting and reporting on budget execution

30. Information on and control of budget execution phases are not yet fully satisfactory, reflecting the incomplete roll-out of the e-SISTAFE, the still limited use of the system by the spending units in which it is available, and a failure to develop several of its modules.

2.2.1

The e-SISTAFE, which allows for the control and reporting of budget execution processes, has not yet been fully rolled out to all entities included in the OE. In those where the system has already been installed, only a small percentage of expenses is executed through the e-SISTAFE’s direct budget execution function. This means that most expenses are still executed through the indirect budget execution function based on advance of funds, under which detailed budget operations are recorded ex post (for CUT operations) or by ex post integration of partial balance sheets (in the case of off-CUT operations). Under the indirect accounting function, records are entered manually, which lowers the quality of fiscal information produced. This risk is aggravated in the case of revenues, given the absence of an electronic system for paying taxes through the banking system. This means that tax collections are deposited mainly into the tax offices’ bank accounts, usually held in the BM, from where they are transferred to the CUT, usually within two days. This implies a substantial loss of information, as when the funds are transferred to the CUT, the tax revenues are classified manually by the National Directorate of the Treasury (DNT). With regard to information on the government’s assets, there are still no accounting data, because only the flows arising from budget execution are currently recorded. A comprehensive inventory on the government physical assets is not elaborated at present. Information on stocks of financial assets and debt has not yet been integrated into the e-SISTAFE.

31. Within the constraints mentioned in the previous paragraph, the accounting system is capable of producing in-year reports on the execution of the OE.

2.2.1

The e-SISTAFE is a modern, advanced system that is easy to operate. Its functions include the automatic recording of budget execution and accounting operations and automatic elaboration of reports. The Basic Chart of Public Accounts (PBCP) embedded in the e-SISTAFE ensures the consistency between the Chart of Accounts and the budget economic classification of revenues and expenditure. It is also possible to obtain accounting data on the budget execution classified according to other criteria, such as administrative, functional, and source of funding. It is important to note that the tables contained in the State Budget Execution Report (REOE) for the first quarter of 2007 were extracted by directly consulting the e-SISTAFE, thereby demonstrating significant progress in the process of extracting management data on budget execution. Nonetheless, the reports prepared by e-SISTAFE are only available in formats that are predetermined by the technical unit responsible for developing the system (i.e., UTRAFE), and therefore cannot be altered, improved, or adapted by users for their own needs. The reports obtained directly from the e-SISTAFE are also of limited effectiveness at present, because they do not cover all government institutions and projects.

32. The AR receives information on budget execution quarterly. However, it is not involved in the mid-term reviews of the budget execution conducted by the government, as it is not in permanent session throughout the year.

2.2.2

In compliance with the SISTAFE Law, within 45 days following the end of each semester, the government submits to the AR an assessment of the implementation of the PES (Balanço do PES). Although there is no specific legal deadline, the government also submits the REOE to the Assembly within 45 days following the end of the quarter. However, analyzing the information contained in the REOEs is a complex task, as the REOE usually does not include the original budget appropriations, but rather the budget as amended by the government within the limits granted by the Assembly. The Assembly is also not involved in the decision on how to spend the “unallocated contingency fund” (dotação provisional), which is normally used to execute expenditures not contained in the OE.²¹ Only in very exceptional cases does the Assembly participate in amending the State budget, when it is necessary to modify the budget aggregates (Maps A-J).

33. Information on the budget amendments introduced by the government during the fiscal year is scarce, and it is not presented in a way that can easily be reconciled with the original budget appropriations.

2.2.3

The government is not legally required to report or publish, in the assessment of the implementation of the PES or in the REOE, the budget amendments that are introduced during the fiscal year. Nonetheless, in practice, the REOEs usually include two columns, one for the original budget appropriations and another for the amended budget appropriations, but which are very difficult to reconcile as no clarification or explanation is provided. In addition, the government does not have to report, justify, or even publish the way in which the “unallocated contingency fund” has been used and applied. This contradicts the principle of publicity and transparency established in the SISTAFE Law. The CGE also does not specify in its explanatory tables whether the budget column corresponds to the original budget or the amended one.

34. The final fiscal accounts audited by the TA are available 11 months after the end of the fiscal year, but the Assembly does not issue an opinion before the closure of the fiscal year and thus before the new OE is approved.

2.2.4

In line with the SISTAFE Law, three months after the end of the fiscal year, the MF prepares the CGE, which is simultaneously sent to the AR and the TA. The TA then issues its opinion, which is sent to the legislature by November 30. The Assembly receives the TA’s opinion, considers it, and votes on the CGE at the subsequent session in March, i.e. three months after the following fiscal year’s OE has been approved. Under the law, the CGE must encompass 100 percent of revenues and expenditures from entities included in the OE, including donor-funded expenses, as well as including information on the accounts of all public entities in annexes, (e.g., the INSS and public enterprises). In practice, however, certain revenues and expenditures of certain public entities are not included in the CGE, as has been pointed out by the TA in its opinions on recent years’ CGEs.

Commitment to timely publication of fiscal data

35. The timetable for the elaboration of the budget execution reports, as announced by the government, is respected, and the reports are quickly released to the public. In some cases, however, they are not wide-ranging (Box 8).

3.3.1, 3.3.2

As mentioned in paragraph 32, the government prepares the REOE and sends it to the Assembly within 45 days after the end of each quarter, although there is no legal mandate to do so. The REOE should be published in the Bulletin of the Republic, something that, however, is not done in practice. The REOE is based on information provided by the e-SISTAFE and ex post incorporation of the execution outcomes related to the operations and public entities not included in the system. Nonetheless, the public entities with autonomy on administrative, financial and asset management issues, such as the INSS, are not bound by the same deadline for preparing their quarterly budget execution reports. In the case of the autarquias, it is also not clear whether they have to prepare an REOE. Each semester, the government prepares an assessment of the implementation of the PES, which is more comprehensive than the REOE, and includes information on the evolution of a set of socioeconomic indicators. There is also a predetermined calendar for the elaboration of the CGE that, at present, represents the more comprehensive budget execution report.

Coverage and quality of budget documentation

36. The budget documents do not fully cover the fiscal operations of the central government, nor do they present consolidated data for the central and general governments.

3.1.1, 3.1.4

The budget documents do not cover some of the autonomous State institutions, for example the INSS, which prepares its own budget and submits it to the Ministry of Employment (paragraph 2). The existence of parallel budgets, particularly as regards autonomous State institutions, impairs the OE’s ability to provide a general overview of the government’s fiscal aggregates. Moreover, neither the OE nor the CGE contains summary tables of the central government’s fiscal position, including consolidated budgets for all of the autonomous State institutions. As the fiscal accounts of local authorities are also not consolidated, it is impossible to calculate the fiscal balance corresponding to the definition of general government.

37. Defense expenditure is fully declared in the budget.

3.1.1

The budget of the Ministry of Defense is treated equally with those of other ministries, even in terms of the detail of the information provided. It is possible to break down defense expenditure by economic classification, and it is also possible to identify the funding sources for each expenditure item. From this analysis, it can be seen that the expenditures of the Ministry of Defense of Mozambique are basically funded from Treasury’s general resources, except for a small fraction of own revenues.

Scope and quality of budget documents

38. The data contained in the REOE only refer to the execution of revenues and expenditures recorded in the e-SISTAFE, and do not provide any financial or comparative analysis vis-à-vis original budget appropriations.

3.1.1, 3.1.4

In principle, the data contained in the REOE should be comprehensive, but as explained above, not all projects have their budget execution channeled through the e-SISTAFE. Some projects funded by external donors are executed outside the system, and a special and cumbersome procedure is needed to integrate them ex post into the REOE and the e-SISTAFE. This arrangement substantially reduces the quality of the REOE, as there are no mechanisms in place to ensure that the information integrated ex post is complete and up-to-date. This greatly complicates comparison of the results of budgetary execution with the OE. The CGE, which is the most comprehensive budget execution report developed so far, contains a comparative table of the annual budget execution vis-à-vis the budget appropriations, which, for year 2006, showed an execution rate of 104.5 percent for revenue and 91.8 percent for expenditure. Nonetheless, the analysis is again complicated by the fact that the CGE does not specify whether the column referring to the budget appropriations relates to the original OE or to the modified version following in-year budget amendments.

39. The budget documents do not report on the fiscal position of subnational governments.

3.1.6

The only expenditures of local governments included in the OE are the transfers that they received from the central government through the Municipal Compensation Fund and the Local Investment Fund. The total amount of both funds is identified in the State budget, but their distribution, which would be possible to determine by applying the budget classification, is not included in the proposed OE sent to the AR. The same applies to the CGE, which does not contain any details on the fiscal accounts of municipalities, with the exception of an inventory of physical assets that was included for the first time in the 2005 CGE. Local governments are required to submit their fiscal accounts to the TA, but the latter does not produce any opinion or analysis on them.

Past and projected fiscal data contained in the budget

40. The OE proposal includes estimates for two subsequent fiscal years and contains partial information from the previous and current fiscal years.

3.1.2

In compliance with the SISTAFE Law (Article 24), the proposed OE includes information—although preliminary and highly aggregated—on the budget execution of the current fiscal year. However, this information does not cover all OE revenues and expenditures, since the execution reports of many of the donor-funded projects are usually not available at the time that the budget proposal needs to be submitted to the legislature. Also in compliance with the SISTAFE Law, the budget documents for 2007, and in particular, the “Foundations for the draft OE law” included for the first time information on the previous year’s fiscal execution (based on the 2005 CGE) and the current OE (2006), together with data from the fiscal year to which the OE refers (2007) and projections for the two subsequent years (2008 and 2009).

Treatment of fiscal risks, tax exemptions, contingent liabilities, and quasifiscal activities

41. The budget documents do not contain any analysis of fiscal risks and sensitivity of fiscal estimates to changes in the macroeconomic scenario; nor do they contain information on the State’s contingent liabilities, quasifiscal activities, and tax exemptions

3.1.3

Information on contingent liabilities and quasifiscal activities is scarce, partial, and dispersed; and in most cases it is confined to the line ministries and the public enterprises that are under their control. Subsidies paid to public utility providers are clearly identified in the OE and in the CGE; however, the link between the subsidies and the quasifiscal activities conducted by the public enterprises (e.g., public pricing policies) is vague. The OE also does not provide information on contingent liabilities related to the restructuring processes that the IGEPE plans or is in fact undertaking, such as potential severance payments, overdue wages, guarantees, etc. Although the OE does not contain information on tax exemptions, the CGE provides an estimate of tax benefits by type of tax, together with a brief explanation. Nonetheless, the methodology for the calculation of the tax exemptions is not explained or even made explicit.

Publication of data on debt and other liabilities and on financial assets

42. The budget documents contain little information on public debt.

3.1.5

The OE does not include any information on debt stocks. The CGE includes a list of beneficiaries of acordos de retrocessão with the treasury, whether these be public enterprises, funds, or private enterprises. The CGE also contains a list of outstanding stocks of external debt, classified by group of creditors.

43. The management of the State’s stock of debt is centralized at the level of the National Directorate of the Treasury (DNT) and responds to sound principles.

3.1.3

The DNT uses the Commonwealth information technology system for monitoring the debt stock, payments, and disbursements during the period, and for preparing managerial reports. These reports guide the BM in producing quarterly statistical data on the State debt and help compose the CGE upon closure of the fiscal year. The legal framework governing debt arrangements contains clear rules, for example: (i) the SISTAFE Law establishes that the signature of contracts and international agreements requires prior authorization from the MF and prior registration in the OE; (ii) the OE specifies conditions for contracting domestic or foreign loans, and acordos de retrocessão; it also sets limits on the State’s guarantees; and, (iii) there is a decree limiting the DNT’s ability to issue treasury bills related to the budget execution and cash management processes. However, there is no specific legal provision regarding borrowing by autonomous State institutions, which should at least observe the provisions of the SISTAFE Law by default.

44. The information published on contractual debt, which is controlled directly by spending units and autonomous institutions of line ministries, or on pension liabilities, is sparse and scattered.

3.1.5

Contractual debts directly entered into by line ministry agencies (payable accounts, unpaid bills to suppliers, etc.) are controlled on a decentralized basis and there is no consolidated information on such State liabilities within the DNT. There is also no information on INSS pension liabilities, or on the high levels of payment arrears in contributions to the INSS.

45. Information on the government’s financial assets is scarce and partial

3.1.5

Data on State shareholdings, managed by IGEPE, is scarce and not systematically disseminated. In addition, the CGE does not include a State balance sheet or report the values of the State’s financial assets and liabilities. The information included in the budget documents and in the CGE on the stock and flows of resources from the Concession Fund (Fundo de Recursos de Concessão), related to use of the Moatize mine, is also very sparse.

Analysis of long-term public finance

46. No systematic analysis is made of long-term fiscal sustainability; no analysis of the impact of current policies or other sectoral events in the government’s fiscal balance in the long run is conducted.

3.1.7, 3.2.1

Except for analyses of debt sustainability in the context of debt relief initiatives (e.g., HIPC, MDRI), the long-term sustainability of fiscal policy is not systematically analyzed. In addition, the projections of Mozambique’s potential future revenues from natural resources are neither systematically estimated nor published (Appendix II). This is an area for concern, since in a few years’ time the natural resource sector will represent a large portion of the Mozambican economy and may therefore exert a major influence on public accounts. The INSS also does not prepare long-term actuarial estimates.

Budget guide

47. There is currently no publication summarizing the content of the budget in simple language that can be understood by persons who are not familiar with budgetary and financial language.

3.2.1

Despite the poor dissemination of fiscal information, local communications media (e.g., radio and TV stations) directly transmit the discussions held by the Planning and Budget Commission and the Plenary of the AR when debating the OE proposal.

Budget classification

48. The OE is an input budget, i.e. based on the resource demand of line ministries and not on outcomes, in which expenditures are presented according to the institutional and economic classifications²² and revenues according to the source of funds.

3.2.2

In the case of current expenditures, for each spending unit, the OE presents information on large economic aggregates such as payroll, goods and services, subsidies, debt, transfers, capital, and financial operations. Investments are presented as projects of the spending unit, with funding sources divided into domestic and external components. The institutional classifier has shortcomings because it is highly aggregated, displays certain duplications, and overlaps with the economic classification. The functional classification, whose application is not mandated by law, allows for adequate monitoring of expenditures on poverty reduction.

Nonetheless, there is no program-based classification. Therefore, to ascertain the government expenditure in the fight against HIV/AIDS, for example, it is necessary to add the figures for six different projects carried out by the Ministry of Health, plus those of the National Council Against HIV/AIDS. The government plans to gradually adopt a programmatic classification beginning with the 2008 State budget.

General government balance

49. The general government balance is not the main indicator of the fiscal position presented in the budget documents.

3.2.3

The main fiscal policy indicator used in the budget documents is the fiscal balance reported in the OE, that is, the balance obtained by consolidating the operations of the central government operations, administrative State bodies deconcentrated at the local level, the autonomous State institutions that cannot enjoy autonomy because their own revenue are unable to cover at least two-thirds of their expenditure, some donor-funded operations, and transfers to local authorities. This means that certain expenditures financed with their own revenues by autonomous State institutions such as the INSS and by local authorities, are not included. This is broadly the same indicator used for the Mozambican government’s program supported by the Fund through the recently agreed PSI, although in this case the fiscal target and monitoring are focused on the net lending to the government (paragraph 25). The CGE does not contain an indicator of the consolidated balance of the general government, nor does it include a consolidated financial position of public enterprises.

Result-oriented budgets and reporting

50. The government has several planning instruments that set out the objectives of government actions, but those instruments lack an efficient link with the OE.

3.2.4

Planning instruments include long-, medium-, and short-term instruments (Box 6). Although they all relate to each other, links between medium-term instruments and the OE are deficient, reflecting the differences between the language, matrices, and classifications adopted by those instruments. It is thus extremely difficult to assess the implementation of the policies and objectives outlined in the planning instruments by analyzing the execution of annual State budgets. Recognizing this shortcoming, the government aims to introduce pilot program-budgeting schemes in several specific areas as early as the 2008 OE, building on a number of programs that already exist within some line ministries.

Integrity of the budget and accounting processes

51. Aggregate budget data are relatively realistic, but at a disaggregated level it is difficult to draw the same conclusion due to differences between budget estimates and actual outcomes which are not published on a timely basis.

4.1.1

The number of supplementary budgets, which are mandatory for altering aggregate levels of the OE, have diminished in recent years thanks to improvements in the formulation of the State’s budget and more predictable disbursements of donors’ funding. However, it is very difficult to assess the composition of the budget as executed with respect to the original budget due to the government’s flexibility to introduce budgetary amendments within the limits authorized by the Assembly, and the freedom the government enjoys in the application of the “unallocated contingency fund” (paragraphs 12, 32, and 33). Moreover, there are no mechanisms for the publication of the amendments made to the budget appropriations throughout the year; in addition, the budget execution reports (REOE, Balanço do PES, CGE, etc.) do not allow for the identification of these amendments. The opinions on the CGE elaborated by the TA present the same problem, that is, budget execution is assessed against the amended budget appropriations rather than the original budget appropriations, without mentioning which alterations were introduced by the government. As a result, it is extremely difficult to assess whether or not budget execution diverged from the original budget appropriations as approved in the OE Law.

52. The budget documents and final fiscal accounts do not explicitly specify the accounting policy, apart from mentioning that the SISTAFE Law needs to be respected.

4.1.2.

The State budget’s text establishes that the budget needs to be prepared in accordance with the SISTAFE Law. Therefore, it can be inferred from that that the OE should comply with the criteria on accounting records and statements specified in the SISTAFE Law, including double-entry accounting, cash-based budgeting in the case of revenues, and commitments-based accounting for expenditures. The SISTAFE Law also establishes a set of sound accounting principles, including consistency, materiality, comparability and timeliness, among others, all of which are in line with international standards. However, neither the SISTAFE Law nor the CGE itself specifies the criteria that need to be used to prepare the CGE. In fact, the fiscal data included in the CGE seem to be more related to the flows than to the stocks involved in the execution of the budget, focusing on actual revenues and expenditure executions, the government net domestic credit, tax exemptions, financial flows related to borrowing and lending transactions, financing of the State budget, and the incomes and expenditures of autonomous institutions. In fact, the CGE contains only (so far) partial information on the government’s inventory of physical assets, and still does not include the government’s balance sheet as required under the SISTAFE Law.

Account reconciliation practices

53. The timely reconciliation of accounts is conducted only occasionally; when it is conducted, it is done manually or with a substantial delay, and without disclosing information on discrepancies.

4.1.3.

The reconciliation of the balance of the CUT with the revenue flows is done manually by the DNT staff. Any deposits—credits—to the CUT can be traced through the bank statement issued by the BM and the information provided by the DGI on the economic nature of the revenue deposited. The accounting entries are made and confirmed in the e-SISTAFE. On the expenditure side, however, the reconciliation processes are not that clearly identified, as the e-SISTAFE currently only records accounting flows and not stocks. With regard to State debt controlled by the DNT, at the end of the fiscal year, the stocks recorded in the Commonwealth system are reconciled with the information provided by creditors. This procedure lasts about four months, during which certain discrepancies are often identified, especially as regards bilateral agreements, which are usually explained by exchange rate differences or by the calculation of penalty interest. As regards the CGE, it does not contain any information on the discrepancies between: (i) actual expenses and original appropriations; (ii) accounting records and bank accounts; and (iii) lending to the government/external financing (contained in the monetary summary) and the public fiscal outcome (in this case the CGE usually mentions the existence of a discrepancy and reports its value without explanation). With the further development of the e-SISTAFE, it is hoped that these reconciliation procedures can be improved and any discrepancies published and explained.

54. Fiscal information does not include any historical data; in any case, historical comparisons are difficult to make due to the recent implementation of the e-SISTAFE and increased coverage of the OE.

4.1.3

As no integrated system for providing consolidated information existed until 2005, it was not feasible to prepare historical series that were comparable over time. Therefore, in practice, the CGE only provides basic information on budget execution for the current year compared to that of the immediately preceding one. However, there exist some remarkable efforts to present historical data. For example, the opinions issued by the TA usually include a historical series of fiscal data from 2000 until the present. The new PARPA also makes an effort to prepare historical series and its text warns of comparison difficulties owing to differences in the scope of the OE over the period in question. Once budget execution via the e-SISTAFE is definitively implemented, it will be possible to develop historical series of fiscal data in the future.

Internal control

55. The General Civil Servant Statute sets forth the ethical principles applicable to civil servants in central, provincial, and district government bodies; civil servant contracts have to be previously authorized by the TA.

4.2.1.

The Statute is supplemented by additional rules on ethical standards (Normas Éticas Deontológicas), which are applicable to the country’s 150,000 civil servants and also to contracted public-sector workers. In addition to those regulations, there is a code of conduct for government employees that defines the professional values and behavior of managers and holders of political positions such as governors, ministers, directors, and even administrative post chiefs. These ethical principles and standards are enforced by the Constitutional Council. Law No. 7/1998, which requires civil servants to file a statement detailing the assets they possess when taking up and leaving a public sector position. The Constitutional Council stores such information, and the State Administrative General Inspectorate (IGAE) oversees fulfillment of that requirement. In principle, the presentation of the statement is an ex ante condition for holding a civil service position, but there is no evidence that the requirement is actually enforced when a civil servant leaves his or her post. There is also a Statute of Public Sector Managers which applies to the State’s representatives on Boards of Directors of private enterprises in which the State participates.

56. At present there is not any law regulating public employment, but admission to the civil service is generally competitive.

4.2.2

The competitive selection process must be announced in publicly available newspapers on at least five occasions within a 30-day period. The process can involve a written test or merely require an interview, at the discretion of the public entity holding the contest. The selection jury is also appointed by the line ministry holding the contest, with the only requirement for membership being that jurors must hold a higher-level post than the position being filled. Jurors must plead disqualification if they have a connection with any of the candidates. Nonetheless, there is no restriction regarding the degree of relationship the candidates may have with civil servants already working in the institution. During the three years for which the selection process is valid, the entity may not hold new contests for the same functions if there are qualified candidates available from the previous contest. Candidates who consider themselves unfairly treated may appeal to the ministry holding the selection process, to the IGAE, or even directly to the TA. There are also public employees who are contracted for specific activities, such as teachers, who are subject to the public salary scale but are governed by the private sector labor law. Civil servants can also be hired to perform such specific activities in conjunction with their public positions, provided they obtain authorization from a higher-ranking official.

57. Rules and procedures on government procurement are clear, well-known, and in line with best international practices, but it is too early to assess their practical application.

4.2.3

The new regulation²³ and the corresponding procedural manual provide a sound basis for ensuring open and competitive procurement practices. Efforts are also being made to enhance the transparency of public procurement by publishing information on the number of open and awarded tenders, as well as current legislation and contract models, on the public tenders portal (http://www.concursospublicos.gov.mz). It is still too soon to evaluate the implementation of this new procurement legislation. The government’s main challenge is to reduce the number of cases in which the legislation is not enforced, something that has often happened in the past, as pointed out by the TA in its opinions on the CGE for 2004 and 2005. With the goal of ensuring a sound implementation of this new legal framework, the government is working to disseminate the new legislation on procurement and to train public officials.

58. In some occasions, acquisitions and sales of public rights, such as through concessions, are neither conducted openly nor identified separately in the budget and fiscal reports.

4.2.4

For example, the CGEs for 2004 and 2005 showed that revenues obtained from the sale of State holdings and dividends belonging to the State in publicly-owned corporations and private enterprises were not recorded in the OE; and that the funds used by the IGEPE in providing financial support to enterprises, and other commitments assumed by the government, had not been recorded as State expenditures.

59. Despite a number of recent improvements, internal controls and audits are not yet fully effective.

4.2.5

In principle, the expansion and full rollout of e-SISTAFE would make it possible to effectively monitor expenditure commitments (cabimentação) and ensure effective internal controls. Nonetheless, at present the e-SISTAFE’s internal controls have limited reach, because only about half of goods and service operations are executed through the e-SISTAFE direct budget execution. The internal control bodies in line ministries are either deficient or nonexistent. The General Finance Inspectorate (IGF), which is attached to the MF, acts at the national level with support from two regional delegations. The IGF focuses on conducting property and financial controls of State institutions, including those with financial autonomy.²⁴ Its planning instrument is the three-year strategic plan approved by the MF and supported by annual work plans. IGF performance is evaluated in quarterly, semiannual, and annual reports, published by the fifth day of the month following that to which the report refers. Those reports do not contain indicators but highlight areas needing greater attention. In 2006, a total of 206 audits were planned, but just 102 were performed owing to financial constraints and human resources difficulties (the IGF currently has 134 staff, including 86 inspectors; only 44 inspector have higher-level training). In 2007, the aim is to cover 35 percent of districts and 20 percent of local authorities.²⁵ The IGF does not prepare an opinion on the CGE. Coordination and articulation between the IGF and the TA is still incipient, but since July 2006 information has been regularly exchanged following creation of an auditors’ forum. In 2007, agreement was reached as to the districts that each would inspect, and for fiscal 2008 prior IGF audits are programmed in bodies that will subsequently be inspected by the TA.

60. Tax legislation envisages mechanisms for internal control and for keeping the ATM accountable.

4.2.6

The ATM has a strategic plan for 2006-10 supported by an annual work plan that details the activities that the ATM will conduct and the performance indicators that will be used to monitor its performance. The ATM is required to prepare execution reports on these two plans, which are both submitted to the MF and presented at the “National Fiscal Policy Execution Seminar,” to which representatives from the private sector and affected line ministries are invited. The first work plan, corresponding to 2007, has already been prepared and approved by the ATM Board of Directors, and an evaluation will be made next year.

61. ATM staff, although not entirely independent of the MF, are subject to a special professional and disciplinary regime.

4.2.6

The ATM Staff Statute (Diploma no. 152/2005 of August 2), which creates a special institutional career structure, establishes that ATM staff are recruited under an open and competitive regime; they must (i) act with absolute neutrality and impartiality; (ii) work for the ATM exclusively; (iii) avoid involvement in resolving fiscal and tax disputes concerning their family; and (iv) undergo a semiannual performance appraisal. Staff are also entitled to legal assistance and representation from a hired ATM lawyer regarding legal problems that may be related to the service. At the present time, the ATM is carrying out a census of its staff (roughly 2,826 employees), as part of a downsizing and restructuring process, and is too early to evaluate the effectiveness of this special regime.

External control

62. The external audit function is performed by the TA, which is an entity independent of the executive, and has the mandate of auditing all public sector activities.

4.3.1

According to the Constitution of the Republic, the external audit function is performed by the TA, which has jurisdiction to review the CGE and perform successive, concomitant, and ex post external audits on all public sector entities as well as private organizations that receive public funds.²⁶ The TA forms part of the judicial system; its chairperson and advisory judges are appointed by the President of the Republic and are subject to a regime of incompatibilities in the exercise of their functions. Unlike in other countries, the TA in Mozambique, in addition to its traditional competencies, is also responsible for resolving administrative, fiscal and customs disputes, and for conducting ex ante controls of the legality of public acts and contracts. The fact that the TA verifies ex ante all public-sector procurement processes and also audits ex post the processes that follow generates a clear conflict of interest, and also causes delays in the execution of public expenditure.²⁷ The TA and other audit agencies must notify the Central Anti-Corruption Office (GCCC), the Office of the Attorney General, and the Prosecutor General of the Republic of any irregularities they detects. This notification of the GCCC does not always happen in practice, however, because the GCCC does not yet have well-defined functions and responsibilities.

63. In recent years, the TA has improved the quality of its analysis, submitting increasingly professional, independent, and timely opinions; but the need remains to strengthen its technical and human capacities.

4.3.1

According to the SISTAFE Law, the TA must provide an assessment of the CGE before November 30. Numerous budget execution irregularities were detected in the opinions issued by the TA on the CGEs for 2004 and 2005. These included the signing of construction contracts, goods and service procurements, and staff hiring without competitive selection, without TA approval, or with private enterprises that are not legally registered or whose tax situation is not up to date; and expenditures incurred without the appropriate supporting documentation or budgetary appropriation, expenditures incorrectly classified or registered, or lacking the anticorruption clause established in the law.²⁸ In the case of asset management, the TA also detected discrepancies between inventory values and expenditures actually incurred. The TA has also pointed out that in some occasions the DNT has authorized some public institutions to sign loans that were not supported by reliable repayment guarantees. However, the opinions issued by the TA are still narrow and non-exhaustive due to the lack of appropriate human and technical resources. It is estimated that the TA only verifies 25 percent of all government accounts, whereas the international recommendation is 75 percent. Areas that warrant greater attention include the accounts of provincial and district governments and local authorities.

64. The reports prepared by the TA are in the public domain and discussed by the legislature; but neither the AR nor the judiciary systematically follows up on irregularities detected.

4.3.2

The TA reports evaluating the CGE are sent to the Assembly for evaluation by the Planning and Budget Commission. These reports are also published and released to the public at large on the TA Internet site (www.ta.gov.mz), where, however, it is only possible to find a few extracts of the CGE itself. It would seem that the TA has thus far targeted its efforts to preparing audits and opinions of an “educational” type, but does not take any action to ensure accountability for irregular practices detected.

65. There is no independent or external evaluation made of the macroeconomic assumptions underlying the OE.

4.3.3

The private sector does not issue an opinion on these assumptions, probably because the Mozambican private sector is a consumer of macroeconomic data produced by the government and has not yet developed capacity to challenge government projections.

66. The legal framework supporting the statistical system is adequate; the National Institute of Statistics (INE) enjoys technical autonomy, but it does not have the human and financial resources needed to appropriately fulfill its tasks.

4.3.4

The legal framework governing the statistics system in Mozambique²⁹ gives the INE authority to conduct surveys, in which population must participate within pre-established deadlines, and take all steps needed for statistics production (http://www.ine.gov.mz). The law requires the INE to uphold principles of technical autonomy, neutrality, reliability, and transparency, acting in coordination with other statistics producers such as the BM and line ministries. The INE also has sanctioning power in the event of a refusal to supply information. In practice, the INE lacks the technical, human, and financial capacity needed to exercise all of its competencies appropriately.