1.1.1. Structure of the Public Sector (Not Met)

4. In Mozambique, the legal definition of the Public Sector is not consistent with international standards. The SISTAFE Law (9/2002) defines the scope of the public sector which includes the State’s bodies and institutions (both at the central and local levels)², the autonomous institutions, the local government, and the public enterprises.³ However, this scope is not fully defined and consistent with international standards, such as the IMF’s Government Finance Statistics Manual (GFSM). While the law states that the public sector includes all state bodies and institutions, local governments, and state enterprises, it does not provides whether corporations created under private law that are owned and/or controlled by the State should be considered as state enterprises.

5. The authorities’ registers of public entities are not exhaustive:

• For the purpose of compiling sector national accounts under the System of National Accounts (SNA) 1993, the INE had established a register of public entities; however it has not been updated since 2005.

• The National Directorate of the Treasury (DNT) also maintains a register of the public entities. It does not include the publicly–owned corporations. Furthermore, there is no procedure to ensure that the coverage of this register is exhaustive, and updated timely.

• The State Equity Holdings Management Institute (IGEPE) – a public entity under the oversight of the MoF - maintains a register of the State’s shareholdings. However, no assessment of the State’s control over the corporations in which it holds shares directly, or via another entity, has been undertaken to date. Furthermore, this register is incomplete, as the “free” shares owned by the State in concession projects are not reported.

6. Based on the authorities’ registers, a tentative list of entities within the central government, general government, and public sector has been compiled by Staff. For the reasons mentioned above, this list is not exhaustive. However, Figure 1.1 provides a tentative overview of the public sector in Mozambique, which is structured as follows:

• The central government comprises (i) the Government units and (ii) at least 30 budgetary and extra-budgetary bodies, which, while legally established as Autonomous Institutions,⁴ are not financially autonomous.

• The general government comprises (i) the central government; (ii) the Social Security fund of the INSS; (iii) the 53 Municipalities; and (iv) at least 36 Autonomous Institutions.

• The public sector comprises: (i) the general government; (ii) at least 44 non-financial Public Corporations;⁵ (iii) at least 3 financial Public Corporations: Bank of Mozambique (BoM), the National Investment Bank (BNI), and the Mozambican Insurance Company (EMOSE). There are currently two types of Public Corporations controlled by the State in Mozambique:

  (i) corporations created under public law (Public Enterprises and State Enterprises) that are fully owned by the State; and (ii) corporations created under private law that may not be fully owned by the State. These public corporations operate in a very wide range of sectors (construction, communication, energy, transport, agriculture…).

Mozambique: Overview of the Public Sector, Based on Authorities’ Inventories

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF Staff.

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Mozambique: Overview of the Public Sector, Based on Authorities’ Inventories

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF Staff.

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Mozambique: Overview of the Public Sector, Based on Authorities’ Inventories

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF Staff.

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7. However, the scope of the public sector is difficult to estimate in Mozambique. As mentioned above, while the State’s direct shareholdings are supposed to be inventoried by the IGEPE, the extent of the State’s indirect shareholdings, or cross-shareholdings, is difficult to assess. For example, the company GIPS, created under private law in December 2011, was not reported in the inventory provided by the authorities, even if its shareholder is a public body: the social services of the State Intelligence and Security Services - SERSSE); as well, its subsidiary, EMATUM (Mozambican Tuna Company) is not reported in the inventories even if its shareholders are three State bodies.⁶

1.1.2. Coverage of Institutions (Basic)

8. Mozambique’s main fiscal report, the CGE, consolidates the Budgetary Central Government, and provides financial information on public entities within the Central Government and General Government. In compliance with the requirements of the SISTAFE Law, the expenses, revenues and financing operations of the Government, as well as financial information (opening balance, income, expenditures, and closing balance) of Autonomous Institutions that rely on State’s transfers for more than ⅔ of their resources, are reported in the CGE. In addition, information on revenue and expenditure is provided for the majority of municipalities and for the public enterprises created by public law.

9. Other public entities are legally required to establish stand-alone financial statements; however, these are not systematically available. The Municipalities, the INSS, the autonomous institutions, and the Public Corporations should prepare financial statements in compliance with the requirements of their respective legal frameworks. However, the basis of accounting used for preparing these financial statements is not similar (for example, the Government reports on a modified cash-basis, while the publicly-owned corporations report on an accrual basis, see Table 1.2). Furthermore, in practice, these financial statements are not systematically prepared, nor are they published or centralized at the MoF. In particular, the INSS has not published its financial statements since 2009, following an audit carried out by an international accounting firm that identified significant accounting flaws.

Table 1.2

Mozambique: Public Entities Annual Financial Statements

Source: IMF Staff

⁽¹⁾The government is preparing a decree to harmonize financial reporting requirements for this category of public entities.

⁽²⁾International Financial Reporting Standards (IFRS).

⁽³⁾Sociedades Anônimas (SA).

⁽⁴⁾Sociedades Anónimas de Responsabilidade Limitada (SARL).

⁽⁵⁾Plano Geral de Contabilidade para as pequenas empresas das (PCG-PE).

Table 1.2

Mozambique: Public Entities Annual Financial Statements

Category of Public Entities	Legal Framework of Financial Statements	Accounting Basis
Government units	SISTAFE Law	By law, modified cash. In practice, most expenditure is recorded on a cash basis.
Autonomous Institutions	SISTAFE Law and law or decree creating the entities(1)	By law, modified cash. Information not available about current practice.
Social Security Fund (INSS)	Law creating the entity	Accrual basis.
Municipalities	Law 2/1997, art.77	Modified cash.
Public Enterprises	Law 6/2012	Accrual basis (IFRS).(2)
Publicly-owned corporations (SA(3) or SARL(4))	Private Law	Accrual basis (IFRS and PGC-PE)(5), annual.

Source: IMF Staff

⁽¹⁾The government is preparing a decree to harmonize financial reporting requirements for this category of public entities.

⁽²⁾International Financial Reporting Standards (IFRS).

⁽³⁾Sociedades Anônimas (SA).

⁽⁴⁾Sociedades Anónimas de Responsabilidade Limitada (SARL).

⁽⁵⁾Plano Geral de Contabilidade para as pequenas empresas das (PCG-PE).

View Table

Table 1.2

Mozambique: Public Entities Annual Financial Statements

Category of Public Entities	Legal Framework of Financial Statements	Accounting Basis
Government units	SISTAFE Law	By law, modified cash. In practice, most expenditure is recorded on a cash basis.
Autonomous Institutions	SISTAFE Law and law or decree creating the entities(1)	By law, modified cash. Information not available about current practice.
Social Security Fund (INSS)	Law creating the entity	Accrual basis.
Municipalities	Law 2/1997, art.77	Modified cash.
Public Enterprises	Law 6/2012	Accrual basis (IFRS).(2)
Publicly-owned corporations (SA(3) or SARL(4))	Private Law	Accrual basis (IFRS and PGC-PE)(5), annual.

Source: IMF Staff

⁽¹⁾The government is preparing a decree to harmonize financial reporting requirements for this category of public entities.

⁽²⁾International Financial Reporting Standards (IFRS).

⁽³⁾Sociedades Anônimas (SA).

⁽⁴⁾Sociedades Anónimas de Responsabilidade Limitada (SARL).

⁽⁵⁾Plano Geral de Contabilidade para as pequenas empresas das (PCG-PE).

10. In this context, the consolidated fiscal situation at the general government and public sector levels cannot be assessed reliably; however, based on the available information, the IMF staff has established some broad estimates. These estimates are based on figures reported in the 2012 CGE for the State, Autonomous Institutions, and available financial information on other public entities.⁷ However, this information is very limited: (i) no information is publicly available on the financial operations of the social security fund and the autonomous entities, which are likely to be significant, and (ii) only partial information is available on the financial operations of public corporations.⁸ In this context, the IMF staff estimates show that, in 2012, public corporations would account at least for one third of public resources, and their assets and liabilities of the public sector would account at least for 43% and 37% of gross domestic product (GDP) (see Table 1.3 and Table 1.4).

Table 1.3

Mozambique: Estimates of the Distribution of Public Sector Resources

(Percent of GDP, 2012)

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

⁽²⁾ Estimates established on the basis of a limited sample of available financial statements

N/I: not informed

Table 1.3

Mozambique: Estimates of the Distribution of Public Sector Resources

(Percent of GDP, 2012)

Sector	Number of entities	Revenue net from transfers	Expenditures net from transfers	Balance (net lending / borrowing)
		1	2	3 = 1-2
I. General Government sector, aggregated		29.7%	42.1%	−12.4%
Central government, aggregated (1)	N/I	28.8%	41.0%	−12.2%
Social security Fund (INSS)	1	N/I	N/I	N/I
Autonomous institutions	At least 36	N/I	N/I	N/I
Local government	43	0.9%	1.2%	−0.2%
II. Public corporation sector, aggregated (2)		14.6%	12.6%	1.3%
1 Non-financial Public Enterprises	14	5.4%	4.1%	1.3%
2 Non-financial Public Corporations	At least 32	6.6%	6.6%	0.0%
3 Financial Public Corporations	2	0.4%	40.0%	0.0%
Public corporations (1+2+3, excl. BoM)	At least 48	12.4%	11.1%	1.3%
Bank of Mozambique (BoM)	1	2.2%	1.5%	0.7%
III. Public sector, aggregated (I +II)		44.3%	54.7%	−11.1%

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

⁽²⁾ Estimates established on the basis of a limited sample of available financial statements

N/I: not informed

View Table

Table 1.3

Mozambique: Estimates of the Distribution of Public Sector Resources

(Percent of GDP, 2012)

Sector	Number of entities	Revenue net from transfers	Expenditures net from transfers	Balance (net lending / borrowing)
		1	2	3 = 1-2
I. General Government sector, aggregated		29.7%	42.1%	−12.4%
Central government, aggregated (1)	N/I	28.8%	41.0%	−12.2%
Social security Fund (INSS)	1	N/I	N/I	N/I
Autonomous institutions	At least 36	N/I	N/I	N/I
Local government	43	0.9%	1.2%	−0.2%
II. Public corporation sector, aggregated (2)		14.6%	12.6%	1.3%
1 Non-financial Public Enterprises	14	5.4%	4.1%	1.3%
2 Non-financial Public Corporations	At least 32	6.6%	6.6%	0.0%
3 Financial Public Corporations	2	0.4%	40.0%	0.0%
Public corporations (1+2+3, excl. BoM)	At least 48	12.4%	11.1%	1.3%
Bank of Mozambique (BoM)	1	2.2%	1.5%	0.7%
III. Public sector, aggregated (I +II)		44.3%	54.7%	−11.1%

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

⁽²⁾ Estimates established on the basis of a limited sample of available financial statements

N/I: not informed

Table 1.4

Mozambique: Estimates of the Distribution of Public Sector Assets and Liabilities

(Percent of GDP, 2012)

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

N/I: not informed.

Table 1.4

Mozambique: Estimates of the Distribution of Public Sector Assets and Liabilities

(Percent of GDP, 2012)

Sector	Number of entities	Assets	Liabilities	Net Worth
		1	2	3 = 1-2
I. General Government sector, aggregated		26.7%	41.0%	−14.4%
Central government, aggregated (1)	N/I	26.7%	41.0%	−14.4%
Social security Fund (INSS)	1	N/I	N/I	N/I
Autonomous institutions	At least 36	N/I	N/I	N/I
Local government	43	N/I	N/I	N/I
II. Public corporation sector, aggregated		43.4%	37.1%	11.6%
1 Non-financial Public Enterprises	14	13.3%	6.1%	7.2%
2 Non-financial Public Corporations	At least 32	6.8%	4.9%	1.9%
3 Financial Public Corporations	2	2.1%	1.0%	1.1%
Public corporations (1+2+3, excl. BoM)	At least 48	22.2%	12.0%	10.2%
Bank of Mozambique (BoM)	1	21.2%	25.1%	1.5%
III. Public sector, aggregated (I +II)		70.0%	78.1%	−2.8%

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

N/I: not informed.

View Table

Table 1.4

Mozambique: Estimates of the Distribution of Public Sector Assets and Liabilities

(Percent of GDP, 2012)

Sector	Number of entities	Assets	Liabilities	Net Worth
		1	2	3 = 1-2
I. General Government sector, aggregated		26.7%	41.0%	−14.4%
Central government, aggregated (1)	N/I	26.7%	41.0%	−14.4%
Social security Fund (INSS)	1	N/I	N/I	N/I
Autonomous institutions	At least 36	N/I	N/I	N/I
Local government	43	N/I	N/I	N/I
II. Public corporation sector, aggregated		43.4%	37.1%	11.6%
1 Non-financial Public Enterprises	14	13.3%	6.1%	7.2%
2 Non-financial Public Corporations	At least 32	6.8%	4.9%	1.9%
3 Financial Public Corporations	2	2.1%	1.0%	1.1%
Public corporations (1+2+3, excl. BoM)	At least 48	22.2%	12.0%	10.2%
Bank of Mozambique (BoM)	1	21.2%	25.1%	1.5%
III. Public sector, aggregated (I +II)		70.0%	78.1%	−2.8%

Source: IMF staff estimates, CGE, IGEPE.

⁽¹⁾Including Autonomous Institutions financed by the State’s budget.

N/I: not informed.

1.1.3. Coverage of Stocks (Basic)

11. The CGE includes information on the Budgetary Central Government’s cash position, debt, and financial assets. While the SISTAFE Law requires that the financial and property assets and liabilities of the State be reported in the CGE, the available information on assets and liabilities is in practice limited to the cash balances,⁹ debt,¹⁰ and financial assets. A list of the State’s shareholdings, and information on the State’s tangible assets, are nevertheless provided in appendices. However, as discussed in section 1.4.4, the reliability and understandability of the information provided in the CGE is to be improved.

12. Assets and liabilities that are currently not reported are likely to be significant. They include:

• Liabilities related to:

  • i. Obligations under long-term contracts,¹¹ in the context of 4 130 investment projects (including concessions arrangements) already approved by the government, of which 2,884 are currently implemented (see section 3.2.7).

  • ii. Public service pension schemes,¹² which are administered by the Previdência Social (see section 3.3.4). It is to be noted that at least two Public Corporation, Bank of Mozambique and Radio Mozambique, also have liabilities related to employees benefits (including pensions), that amounted respectively to 2,469 and 814 millions of meticals (MT) in 2011 (on a net basis).

  • iii. Refundable taxes, mainly refundable value-added tax (VAT) (debt estimated at 6.2 billions of MT as at December 31, 2012 and at 8.5 billions of MT as at June 30, 2013, or approximately 2 percent of GDP, see Figure 1.5).

  • iv. Expenditure arrears, such as those related to fuel subsidies. Based on the IMF staff estimates, these arrears could amount to 623 millions of MT.

• Tangible assets related to:

  • i. Infrastructures, which have been developed intensively during the last years: in Mozambique, public capital expenditure exceeded 10 percent of GDP in 16 out of the past 20 years (see Figure 1.2).

  • ii. Land and subsoil assets, in the context of the recent discovery of important hydrocarbon resources (however these assets should be recognized only if their valuation is considered reliable enough).

Mozambique: Public Capital Expenditure

(Percent of GDP, 1991-2012)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, authorities.

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Mozambique: Public Capital Expenditure

(Percent of GDP, 1991-2012)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, authorities.

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Mozambique: Public Capital Expenditure

(Percent of GDP, 1991-2012)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, authorities.

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13. The State’s shareholdings reported in the CGE should be evaluated at their current value. The State’s direct shareholdings in public corporations are reported at book value in the CGE. Based on IMF staff estimates, Figure 1.3 shows that their value is therefore significantly undervalued, and that their current value would account at least for 22 percent of GDP.¹³

Mozambique: Estimates of the State’s Shareholdings Current Value

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff estimates, IGEPE.

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Mozambique: Estimates of the State’s Shareholdings Current Value

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff estimates, IGEPE.

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Mozambique: Estimates of the State’s Shareholdings Current Value

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff estimates, IGEPE.

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1.1.4. Coverage of Flows (Basic)

14. Mozambique’s consolidated fiscal reports are established on a cash basis, and cover flows related to revenue, expenditure, and financing. While basic information is provided in the CGE, the cash flow coverage could be improved:

• Capital gains or other exceptional revenue deposited at the Central Bank are recorded as revenue in the government’s accounts when transferred to the Treasury Single Account (TSA). This was the case recently for an exceptional capital gain tax amounting to approximately 0.1 percent of GDP.

• Some of the tax revenue collected by the tax administration is recorded in the financial system with a significant delay, due to difficulties to break down and classify amounts collected.

• Some expenses and revenues are not captured in the in-year accounts, and are re-integrated at year-end through manual input of data. They include own and earmarked revenues of some bodies and autonomous institutions that are part of the budgetary central government, and externally financed projects. The completeness of this year-end reintegration is difficult to assess.

15. Accrual flows are not captured in the consolidated fiscal reports. Most of these flows are linked to the changes in value of assets and liabilities that are also missing in the consolidated fiscal reports. These could include, for example:

• The annual gross variation on current receivables and payables (e.g., tax liabilities, see figure 1.4).

• The valuation changes on the Government’s holdings of financial assets.

• The annual net accrual of the public service pensions liabilities.

Mozambique: Liabilities Related to Refundable VAT (2010–13)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, Tax Authority, CGE 2011 and 2012.

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Mozambique: Liabilities Related to Refundable VAT (2010–13)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, Tax Authority, CGE 2011 and 2012.

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Mozambique: Liabilities Related to Refundable VAT (2010–13)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, Tax Authority, CGE 2011 and 2012.

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1.1.5. Tax Expenditures (Basic)

16. Mozambique’s tax expenditures are reported annually in the CGE but more substantial analysis and information is needed. Tax expenditures are authorized by law. The annual consolidated fiscal report includes a summary of tax revenue losses, estimated by type of tax. They amounted to 3 percent of GDP in 2012 (see Figure 1.5). In the context of an increased number of investment projects and an expected boom of fiscal revenue related to gas and oil production, the value of the tax expenditures is expected to rise in the coming years. However, the information provided in the CGE is limited to date:

• It does not include a breakdown by sector or policy area.

• The methodology used to determine their value, the legal basis supporting exemptions, and the budgetary goals and targets for tax expenditures defined by the government are not disclosed.

• While the main expenditures are related to imported goods, very little information and analysis is provided in the CGE. Also, the information on tax expenditures related to investment projects is scarce.

In addition, VAT refunds are currently wrongly reported as tax expenditures.

Mozambique: State’s Tax Expenditures Reported in the Financial Statements (2010–12)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, CGE 2011 and CGE 2012.

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Mozambique: State’s Tax Expenditures Reported in the Financial Statements (2010–12)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, CGE 2011 and CGE 2012.

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Mozambique: State’s Tax Expenditures Reported in the Financial Statements (2010–12)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF staff, CGE 2011 and CGE 2012.

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1.2.1. Frequency of In-Year reports (Good)

17. In-year cash-based budget execution reports and fiscal statistics reports are produced and published on a quarterly basis:

• Quarterly budget execution reports are produced and published within 45 days of the end of each quarter. They include (i) budget execution rates for expenditures presented by economic and functional classifications, (ii) execution rates for central, provincial, district and municipal levels, (iii) revenue collection rates, (iv) adjustments to the revenue forecast, and (v) the revised total expenditure and deficit, when supplementary budgets have been approved ;

• Quarterly fiscal statistics reports are based on the budget execution reports and prepared in the GFSM 1986 statistical format. They are published between 15 to 30 days after the publication of the budget reports.

1.2.2. Timeliness of Annual Financial Statements (Not met)

18. The CGE is published seventeen months after the end of the fiscal year. The stages leading to its release include: (i) five months to prepare the CGE; (ii) six months to submit the external auditor’s report to the Parliament; (iii) about six months for deliberations on the report and the approval of the CGE by the Parliament. While the time to prepare the CGE is reasonable, its publication date is not in line with international good practices.¹⁴

19. The ongoing Government’s accounting reform should improve the timeliness and reliability of the annual financial statements. Part of a broader set of public financial management (PFM) reforms, the public accounting modernization aims at: (i) improving reliability and timeliness of the financial reporting at all levels of government; and (ii) implementing accrual accounting, based on international standards, by 2025. One of its outcome, according to the authorities, should be to make the CGE (as well as the audit opinion) available to the Parliament before the end of September of the following year.

1.3.1. Classification (Good)

20. Administrative and economic classifications, as well as a functional classification based on the classification of the functions of government (COFOG), are used in the fiscal reports. Program classification is used in the budget to present expenditures of six priority programs.¹⁵ The introduction of this classification started in 2008 through pilots in priority sectors (e.g., agricultural extension, infrastructure, and education). While it has been extended and used in the budget proposal since 2009, it is still at its early stages and it is not being used for budget reporting.

21. The government is committed to use a new economic classifier for revenues from concessions and sales of assets as of the 2014 budget. This commitment results from a recommendation in the audit report on the 2011 CGE. So far, comparability between the budget and the annual financial statements has been ensured. The revenue classification distinguishes domestic and external resources. Domestic revenues include recurrent and capital, the former being further disaggregated by tax and non-tax.

22. The government is preparing changes to fiscal statistics classification. Fiscal statistics and annual financial statements are cash-based. The implementation of the GFSM 2001 standards started in 2012. The 2010, 2011, and 2012 cash-based fiscal data have already been converted to comply with the standards set by the GFSM 2001. However, at the time of the mission, only the 2010 data were published. 2011 and 2012 data were published at the end of 2013.

1.3.2. Data Consistency (Basic)

23. While the FTC calls for three internal consistency checks to be regularly verified and published,¹⁶ only a basic reconciliation is disclosed in the fiscal reports. The tables and appendixes presented in the CGE are numerous, and reconciliation of the figures is complex. However, the 2012 annual financial statements include a reconciliation of the overall balance with the financing.¹⁷ In addition, a consistency check on cash balances¹⁸ is undertaken.

24. No consistency check between the CGE and the monetary accounts of the Bank of Mozambique (BoM) is realized and published to date. The coverage of the BoM’s monetary accounts and the CGE is not consistent (for example, the INSS Deposits and Loans are both recorded in the monetary accounts as Central Government Deposits and Credit, while they are not included in the CGE), which makes consistency check difficult to undertake. However, this would be necessary, as, for example, at December 31, 2012, the cash deposits recorded in the monetary accounts for the Government amounted to 73,250 millions of MT, while the cash deposits reported in the CGE amounted to 21,673 millions of MT. To improve the situation, the Ministry of Finance and BoM have committed in conducting a review of the accounts of those State entities and institutions not covered by the State Budget and CGE but included in the monetary accounts, with a view to including explanatory notes and reconciliations in the CGE.

25. Other consistency checks are performed. They aim at insuring a fairly good degree of consistency between the various fiscal reports: (i) the overall balances reported in the CGE and the fiscal statistics are consistent; and (ii) the debt figures reported in the CGE and the Debt Report show only a minor discrepancy. Furthermore, fiscal reports’ quarterly figures add up to annual figures, as quarterly reports are adjusted, if needed, to match the annual figures.

1.3.3. Historical Consistency (Not applicable)

26. No historical revisions to fiscal statistics have been undertaken yet according to the information provided by the authorities. A fiscal statistics database was set up in 2011. Since then the quality and consistency of the data has been checked and updated every year with external assistance but the published statistics do not show any historical revisions. Annual fiscal statistics published in the Ministry’s of Finance website cover the period 1998 to 2012 whereas the quarterly data is from 2007 up to the second quarter of 2013. Any material revisions to historical data regarding new information on the government finances—in particular on accounting errors uncovered by the auditor, specific government’s transactions or sector delimitation—should be incorporated in future statistical reports and explained to ensure a useful, consistent, and accurate time-series.

1.4.1. Statistical Integrity (Basic)

27. Fiscal statistics are produced and disseminated by the Department of Planning and Statistics (DPE) of the Ministry of Finance, which is not independent. The FTC calls for the responsibility for verifying and disseminating fiscal statistics to be vested in a specific body that is independent. This used to be the case in Mozambique, as the INE, an autonomous government agency, was in charge of establishing fiscal statistics. However, since 2012, the responsibility of the fiscal data production and dissemination was delegated to the DPE. Therefore, the production of fiscal statistics in Mozambique is not undertaken in line with international good practices.¹⁹

28. The regulatory environment for the compilation and dissemination of fiscal statistics is fairly clear. The DPE is part of the DEAE and its role and responsibilities were formalized in 2012 through the 94/2012 Internal Regulations for the Directorate. The devolution of the INE’s responsibilities to the DPE was formalized in a memorandum of understanding, which aims at insuring that the INE’s professional standards for establishing statistics are followed by the DPE.

1.4.2. External Audit (Good)

29. The Administrative Tribunal of Mozambique (Tribunal Administrativo, TA) is independent of the executive, according to the Constitution,²⁰ and provides an audit opinion on the CGE. The CGE is audited by the TA. Currently its opinion focuses mainly on the legality of budget execution, but also includes comments on the reliability of information, the budget performance and provides detailed conclusions and recommendations. The TA does not express an opinion on whether the financial statements present a true and fair view. This audit report is transmitted to the Parliament and is published in the website of the Tribunal after the deliberations by the Parliament. A summary for citizens of the audit on the 2009 CGE has also been published.

30. The Tribunal also performs financial audits on the accounts (contas de gerencia) of a selection of public entities. The accounts are verified, and when errors and irregularities are significant they are audited and judged. The TA is a Supreme Audit Institution based on the judicial model. The members of the TA are independent magistrates. If they deem the transactions they review as legal, they have the power to discharge public accountants from further liability. They have also the power to impose penalties or fines on audited officials. According to the Tribunal, more than 450 audits are performed annually, based on an audit plan. However, these reports are not published.

31. As part of the accounting reform mentioned above, the Tribunal is revising its audit methodologies to meet international standards. While no timetable has been communicated to the mission, the objective is to incorporate the first set of International Standards for Supreme Audit Institutions (ISSAI) issued by the International Organization of Supreme Audit Institutions (INTOSAI) in 2010.²¹ Moreover, the quality of the Tribunal’s audit processes is reviewed by the African Organization of Supreme Audit Institutions (AFROSAI) every two years.

1.4.3. Statistical dissemination (Basic)

32. Mozambique is participating in the IMF’s General Data Dissemination System (GDDS)²² since 2003. Participation in the GDDS is open to all Fund members, whereas the Special Data Dissemination Standard (SDDS) is intended for member countries having or seeking access to international capital markets. The GDDS is less prescriptive than the SDDS, which prescribes specific standards that must be observed by countries that subscribe to it. The GDDS provides recommendations on good practice for the production and dissemination of statistics (generally less demanding than the corresponding requirements of the SDDS), but the emphasis is on progress, over time, toward higher quality data that are disseminated more frequently and in a more timely fashion.

1.4.4. Reliability of Financial Statements (Not met)

33. At the Budgetary Central Government level, the accounting principles are based on the provisions of the SISTAFE Law. The SISTAFE Law establishes a mixed accounting system comprising accrual-basis accounting for expenditure and cash-basis accounting for revenue. These principles, however, are not fully applied as most expenditures and revenues are recorded on a cash-basis, and the commitments were not reported in the last published year-end financial statements (CGE 2012). As noted above, the ongoing Government’s accounting reform should help improving the timeliness and reliability of the annual financial statements.

34. Concerns on the reliability of the CGE have been noted over the last years by the external auditor. While the Administrative Tribunal of Mozambique noted some progress on the quality of the financial information, it has identified, in its most recent audit report, several concerns on completeness and reliability of the financial information provided in the 2011 CGE.

35. The reliability of the financial statements of the other public entities cannot be exhaustively assessed. As mentioned above, the financial statements of some public entities, as well as the auditors’ reports are not systematically published.

2.1.1 Budget Unity (Good)

42. Budget documentation incorporates all revenues, expenditure, and financing²⁴ by central government ministries, agencies and extra-budgetary funds. The annual budget law covers revenue and expenditures of 25 ministries, 11 provinces, 128 districts, 43 municipalities, and 14 public enterprises. The budget provides a breakdown of all expenses, including expenses related to national security and military intelligence. There are no secret items in the budget.²⁵

43. The revenues and expenditures of the national Social Security Fund are not included in the budget documentation. The provisions of the SISTAFE law²⁶ that require their presentation in a specific annex of the annual budget have not been implemented.

2.1.2 Gross Budgeting (Basic)

44. Domestic tax revenue, external resources and related expenditures are presented in the budget documentation on a gross basis in accordance with the provisions of the SISTAFE Law.²⁷ The annual budget law presents all tax revenues including the VAT. The VAT refunds are presented as expenditures, although these are not expenditures. The authorities are committed to present the VAT on a net basis from the 2015 budget onwards, according to best international practices. The budget also includes external funds both grants and loans. Information on budget support, pool funds for line ministries and projects on-budget are reconciled by the Ministry of Finance with information from development partners. Although coverage has increased, a number of grants for projects, including in kind, are not yet covered in the budget, mainly in the area of health.

45. Although a large portion of non-tax revenue is included in the budget, there is still no exhaustive coverage of own-generated revenue²⁸ that is collected by the institutions for a specific service delivery. A 2010 MoF Circular set up rules for improving timeliness of these revenue recording in budget execution reports. They include deadlines for their classification and recording. Regarding budget preparation, the Budget and Planning Directorates exclude internal revenue from the ceiling for sector programming. As a consequence, a significant increase was noted in collection of own-generated revenues in 2012 and 2013. However, a minority of this revenue is still executed directly by the institutions, without being transferred to the TSA and reported in the budget documentation.

2.1.3. Macroeconomic Forecasts (Basic)

46. The budget documentation includes forecasts of key macroeconomic variables but does not disclose the underlying assumptions. The main budget document reviews both global and domestic economic conditions and developments, using the IMF World Economic Outlook as a reference point to provide context for the macroeconomic forecasts, though no detailed explanation is made about the variables, the underlying assumptions or risks to the forecasts.

47. Mozambique’s budget projections are based on simple macroeconomic forecasts of four variables produced by various agencies. The key variables are real GDP growth rate, nominal GDP, exchange rate and inflation rate as proxy for the GDP deflator.²⁹ Though the exchange rate featured in earlier budget documents, it has not been explicitly referred to as a projection item since 2011 as the authorities do not want to influence the financial markets operators. It is used however in forecasts, especially of external financing. The Department of National Planning (DNP) prepares real GDP growth rate, the Bank of Mozambique prepares exchange rate forecasts and an inflation target as part of its annual monetary program, while the DNO prepares the nominal GDP projection from its financial modeling program based on IS-LM model assumptions.

48. Forecast of main fiscal aggregates rely principally on nominal GDP and inflation, with real GDP growth providing context for real expectations. Nominal GDP is used to forecast tax revenues. Inflation generally forecasts the growth of some recurrent expenditure items, though in reality most of the projections assume a fixed percentage increase over prior year values, and are often only marginally correlated with inflation. Capital expenditure, which constitutes about a third of total expenditure, is driven by policy objectives, mostly from the Five Year Plan, and external financing commitments.

49. When actual and projected data are compared (Figure 2.1), projected nominal GDP is consistently above actual GDP, pointing to possible upward bias in revenue forecast. Real GDP growth, which is not directly linked to the projection of any fiscal aggregate, shows the least deviation from actual of any of the variables. Deviation of actual and projected inflation is not as systematic as that of nominal GDP.

Mozambique: Main Macroeconomic Aggregates: Projection versus Outturn, 2010–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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Mozambique: Main Macroeconomic Aggregates: Projection versus Outturn, 2010–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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Mozambique: Main Macroeconomic Aggregates: Projection versus Outturn, 2010–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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2.1.4. Medium-Term Budget Framework (Advanced)

50. The MTBF covering the period 2014–16 provides a more comprehensive and detailed 3-year budget perspective. The first CFMP approved by the Council of Ministries covered the period 2007–09. The framework draws its objectives mainly from the 5-year government plan, the Plano Quinquenal do Governo (PQG). The framework includes projections of revenue, expenditure, and financing by economic classification, and by program, at the central, provincial, and district levels. It also includes transfers to municipal level. It covers the three-year forward and provides budgetary outturns of the two preceding years. Information on forward plans is provided at the same level of detail for all years. Revenue is classified by collecting entity and revenue type, while expenditure is classified by organizational unit, function, economic category, and program. A section analysis the potential risks to the achievement of the projections. These include deviation from macroeconomic assumptions, global developments, including on exchange and interest rates, and unanticipated domestic developments requiring emergency actions.

Mozambique: Forecast Errors of Fiscal Aggregates, 2005–11

(in percent of original forecast)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Mozambique authorities and IMF Staff estimates.

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Mozambique: Forecast Errors of Fiscal Aggregates, 2005–11

(in percent of original forecast)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Mozambique authorities and IMF Staff estimates.

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Mozambique: Forecast Errors of Fiscal Aggregates, 2005–11

(in percent of original forecast)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Mozambique authorities and IMF Staff estimates.

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51. While the framework provides a road map for the government’s intentions in the medium term, expenditure and program discipline is not strong. Revenue forecast has on average been better than forecast, and forecast errors—which measure the difference between forecast and outturn—have not shown gradual decline over time. Large revisions to expenditures occur mainly due to insufficient disbursement of externally funded projects, but also because of forecast errors and mid-term changes in government’s objectives. During the period 2005–12, expenditure outturn has on average been 14 percent lower than the initial estimate in the preceding year, mostly on account of lower than budgeted capital expenditure implementation. The large errors in revenue and expenditure forecasts limit the effectiveness of the planning and budgetary processes. This problem could be magnified in the medium term as Mozambique’s natural gas sector takes off, and unanticipated revenue becomes the norm. The adoption of a fiscal rule could contribute to a stronger fiscal discipline, especially in the context of unexpected revenue collection such as capital gain taxes.

2.2.1 Fiscal Strategy Report (Basic)

52. The quarterly budget execution report, Relatório de Execução do Orçamento (REO), describes the macroeconomic and fiscal developments since the budget approval and macroeconomic and fiscal changes for the current year.³⁰ The REO includes a section³¹ that discusses the budget balance and how to maintain this balance despite of macroeconomic changes. For instance, the report for the period January-September 2013 mentions the revision of GDP forecast for the current year, from 8.4 percent to 7 percent, resulting from the macroeconomic impact of the floods.

2.2.2 Budget Submission (Advanced)

53. The legislature and civil society have adequate time to scrutinize the annual budget before the start of the financial year. The provision of the SISTAFE Law providing that the annual budget should be tabled to the National Assembly before September 30 is enforced. The draft annual budget is also made available to the public at the same time.

Table 2.2

SADC countries: Timeliness of Budget Submission

Source: Open Budget Survey 2012, IMF Staff.

Table 2.2

SADC countries: Timeliness of Budget Submission

	At least 3 months	At least 6 weeks but less than 3 months	Less than 6 weeks
Angola		x
Botswana		x
Malawi			x
Mozambique	x
Namibia			x
Rwanda			x
South Africa			x
Tanzania			x
Uganda			x
Zambia	x
Zimbabwe		x

Source: Open Budget Survey 2012, IMF Staff.

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Table 2.2

SADC countries: Timeliness of Budget Submission

	At least 3 months	At least 6 weeks but less than 3 months	Less than 6 weeks
Angola		x
Botswana		x
Malawi			x
Mozambique	x
Namibia			x
Rwanda			x
South Africa			x
Tanzania			x
Uganda			x
Zambia	x
Zimbabwe		x

Source: Open Budget Survey 2012, IMF Staff.

2.2.3 Budget Approval (Good)

54. The budget law is approved and published by the start of the financial year. The annual budget is approved before the 15^th of December, in accordance with the provisions of the SISTAFE Law.

Table 2.3.

Mozambique: Dates of Budget Legislation Approval for Fiscal Years 2012 to 2014

Source: Budget laws for 2012, 2013 and 2014.

Table 2.3.

Mozambique: Dates of Budget Legislation Approval for Fiscal Years 2012 to 2014

Fiscal Year	Date of Approval by the Parliament
2012	December 15, 2011
2013	December 14, 2012
2014	December 13, 2013

Source: Budget laws for 2012, 2013 and 2014.

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Table 2.3.

Mozambique: Dates of Budget Legislation Approval for Fiscal Years 2012 to 2014

Fiscal Year	Date of Approval by the Parliament
2012	December 15, 2011
2013	December 14, 2012
2014	December 13, 2013

Source: Budget laws for 2012, 2013 and 2014.

2.3.1 Legal Framework (Advanced)

55. The constitutional and legal frameworks clearly define the role and responsibilities of the government in the area of public financial management. Overall, the legal fiscal and budget framework is clearly defined and consistent with advanced international practices. The Constitution, the SISTAFE Law (9/2012), and the SISTAFE Regulation (Decree 23/2004) define the government’s powers with respect to fiscal policy making, budget preparation and execution, accounting, and internal audit. The respective powers of the government’s branches regarding public finance are clearly set out in the Constitution. The Parliament³² has competency to deliberate on the Economic and Social Plan (PES), and approve the budget and the CGE that are prepared by the government. It also discusses the government five-year plan (PQG) at the start of the legislature. The Parliament shall not table any bill that, directly or indirectly, involves an increase in expenditure or reduction in the government revenues, or that in any way alters the outcome of the fiscal year currently underway.³³ The judiciary branch, which includes Mozambique’s Supreme Audit Institution, the TA, prepares its own budget proposals using the same budgeting mechanism as other public entities. The TA is responsible to scrutinize the budget execution and audit the CGE. The organic law on administrative jurisdiction (25/2009) and the law on the Third Chamber of the Administrative Court (26/2009) regulate the functions of the TA.

2.3.2 Revenue Collection (Good)

56. Laws and regulations related to revenue collection are comprehensible and accessible. The Constitution and the Tax Law (15/2002) clearly define taxpayers’ rights and obligations. They have in particular access to a well-functioning appeals process. In the first instance, the head of the tax collection unit has to review any claim formulated by a taxpayer. This decision could be submitted for reconsideration to the Legal Directorate, inside the Revenue Authority. In the third instance, the Fiscal Tribunal, which is part of Administrative Tribunal, will take the final decision. Access to information could be further improved however through the publication of up-to-date guidance to taxpayers on how to meet their rights and obligations.

2.4.1 Fiscal Policy Objectives (Not met)

57. A number of fiscal policy objectives are defined by the government for the main fiscal aggregates, but it does not regularly reports on these. The Vision of Public Finances 2011–25 defines a set of fiscal objectives and their targeted value for four years long periods, until 2025. The CFMP presents objectives in terms of revenues and expenditure projections from 2014 up to 2016 and set the objective of maintaining public wages at 10 percent of GDP yearly and to allocate 67 percent of investments to priority programs of the Poverty Reduction Strategy.³⁴ In addition, the government has set an objective of increasing annually domestic revenues by ½ percent of GDP as part of a strategy to reduce dependency on external revenues. However, the government does not explicitly report on whether the targets have been met on each of these fiscal objectives.

2.4.2 Performance Information (Basic)

58. The budget documentation provides information on the government’s inputs on priority sectors. The annual budget presents the budgeted aggregated envelope for each priority sector, and information is provided in the CGE on aggregated expenses incurred on each one of these. To facilitate policy analysis, information on expenses incurred should be disaggregated according to the economic classification (i.e., salaries, goods and services, transfers, subsidies). In addition, performance indicators are not defined in the budget documentation.

59. Efforts are ongoing towards a performance orientation of the budget but a program-based budgeting is still under development. Program-based classification of the entire budget began in 2011, but the quality of the objectives, goals, and performance indicators of the programs and subprograms is not yet uniform. The CFMP (2014–16) shows only the allocations of investment resources by the strategic programs of the Poverty Reduction Strategy. None of the budget documents provides results or outputs on the priority sectors, linking the budgetary resources to the projections in the PES.

2.4.3 Citizens’ Guide to the Budget (Basic)

60. The government has published in the Ministry of Finance’s website budget proposal summaries for citizens since the 2012 budget. The first summary of the budget proposal (Proposta Orçamento Cidadão 2012) was published in February 2012, after the approval of the 2012 budget by the Parliament whereas the 2014 summary has been published in October 2013 when the budget proposal was submitted to the Parliament. This third budget proposal summary includes economic assumptions, expenditure level proposed against the level of the previous year, revenue forecast with information on revenues from the natural resources activities, expenditures in poverty reduction priority sectors and efforts in the social protection area. To further improve the accessibility of budget information for the public, the document could use a simpler terminology. Information on the financial impact of major policies on different income population groups would also contribute to better inform the public.

61. Another welcome development is the citizens’ summary on the audit report of the 2009 CGE prepared by the Supreme Audit Institution (Tribunal Administrativo). This is a complementary useful document that presents the audit findings, provides non-technical explanations, and summarizes the 600 pages of the annual financial statements. It was published for the first time in November 2012 (i.e., six months after the publication of the annual financial statements and of the audit report). Going forward, it should be systematically published at the same time as the CGE.

2.4.4 Fiscal Sustainability Analysis (Basic)

62. The projected evolution of the main fiscal aggregates over the long-term are published, but ranges between 15 and 20 years and discusses a limited number of scenarios.

Two documents forecast the evolution of the main fiscal aggregates using different scenarios:

• The Vision of Public Finances 2011–25 was prepared by the Ministry of Finances, using as context, the broader 2025 Vision (Visão 2025), a statement of economic objectives and aspirations. The Public Finance Vision 2011–25 discusses 15 year projections of main fiscal parameters that would concretize the objectives of the vision. The evolution of revenue, expenditure, financing and deficit/balance are first presented in baseline scenario for 2012–25. In addition, two alternative scenarios for public finances are discussed. In one scenario, domestic revenue is gradually decreased in rates of 20 percent to 10 percent of the previous budget year. Another scenario increases internal revenue in rates of ½ percent to 0.1 percent of GDP of the respective year.

• The Debt Sustainability Analysis (DSA), prepared by the Ministry of Finances analyses the evolution of public debt under different scenarios and is updated annually in the context of the annual budget preparation. The DSA covers a 20 year horizon, but scenarios are standard and could usefully include more variety to assess the impacts of the risks that Mozambique’s public debt faces. Annual updates of the DSA are published, but with some delays.

63. While the Vision 2025 is a good starting point, a time frame of 15 years is short, the range of assumptions driving the projections is limited, and it has not been updated since its publication. A limited time frame means that some of the profound changes to the economy, expected in the medium term, are not captured. In addition, a 20–30 year time frame, based on robust scenarios could capture the long term implications for Mozambique’s fiscal sustainability of the expected long-run changes to the extractive industry sector, and its impact on public finances. In addition, more sophisticated scenarios could show more clearly the risks arising from the expected change in the economy.

Mozambique: Evolution of Public Debt Under Different Scenarios

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Sources: Mozambique authorities and IMF Staff estimates and projections.

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Mozambique: Evolution of Public Debt Under Different Scenarios

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Sources: Mozambique authorities and IMF Staff estimates and projections.

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Mozambique: Evolution of Public Debt Under Different Scenarios

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Sources: Mozambique authorities and IMF Staff estimates and projections.

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2.5.1 Independent Evaluation (Not Met)

64. There is no independent scrutiny of macroeconomic and fiscal forecast. The budget documentation provides only one set of forecasts and there is no specific entity responsible for assessing their credibility. An independent evaluation should be implemented to check the macroeconomic and fiscal assumptions of the CFMP, and the developments during the year. The impact of fiscal assumptions changes in the budget and the need to revise the budget law should also be checked during the independent evaluation.

2.5.2 Supplementary Budget (Good)

65. The SISTAFE Law provides that increases of the overall original budget should only be authorized by law. In accordance with the article 34-1 of the SISTAFE law, “any ceiling set in the national budget may be amended only by law, based on a duly substantiated proposal of the government”. The SISTAFE Law provides that increases of the overall original budget should only be authorized by law. The annual budget law allows for increases of the overall budget expenditure in cases where collections exceeds budget revenue, and only for specific categories of expenditure (debt reduction, priority investment projects and deficit reduction). Changes in the expenditure composition do not require the legislature’s approval. The article 34-2 of the SISTAFE Law allows the government to increase appropriations, within the limits of the national budget, through the use of provisional appropriations (contingencies provision) defined by the article 13-3. In addition, the Law authorizes the Government to redistribute appropriations according to limits established by the Parliament: i) budget allocation could be transferred from any objective to another; ii) resources could be reallocated within the same1 institution; and iii) resources could be transferred from one institution to another in case they are no longer needed by the first one. Every year, the Council of Ministers approves a decree defining competencies of central government entities to redistribute appropriations.

Mozambique: Supplementary Budgets

(Percent of original expenditures)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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Mozambique: Supplementary Budgets

(Percent of original expenditures)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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Mozambique: Supplementary Budgets

(Percent of original expenditures)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

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2.5.3 Forecast Reconciliation (Not met)

66. The quarterly budget execution report (Relatório de Execução do Orçamento, REO) compares the current and previous macroeconomic forecasts, but does not explain the impact of new policy measures. The REO compares forecasts used to prepare the budget and the macroeconomic developments during the year at the end of each quarter. As mentioned before, the last report (Jan–Sep 2013) relates the 2013 GDP forecast decrease, from 8.4 percent to 7 percent, because of a macroeconomic shock due to floods. Nevertheless, it is necessary to clarify changes in forecast caused by new government actions included in the projections and from others sources.

3.1.1. Macroeconomic Risks (Basic)

73. Mozambique, like many small open economies, faces a wide range of macroeconomic risks, but published fiscal reports provide limited information on these risks:

• The introductory section of the annual budget discusses global developments, but it is not directly related to the risks to forecasts that may result from changes in the macroeconomic environment.

• Medium term documents, such as the CFMP, do not explicitly report on possible changes to forecasts as a result of different macroeconomic shocks, but they now recognize that risks do exist.

• The DSA includes a quantitative discussion and some illustrative quantification of the impact of a wide range of developments on the evolution of public debt. However, it does not provide a fully quantified set of alternative fiscal outcomes or forecasts.

74. Macroeconomic volatility is likely to become a major source of fiscal risk in Mozambique. In high growth economy like Mozambique, GDP can be difficult to forecast because of limited information about the economy. High growth economies are indeed prone to wide swings in growth, and these eventually feed into projections of revenue. In Mozambique, in addition, economy is likely to become more and more diverse and open, with a natural resource boom. The authorities will therefore need to assess macroeconomic risks in more detail in the future. Notwithstanding, so far, Mozambique fared relatively better during 2005-2012 when compared to other Sub-Saharan Africa (SSA) countries.

Indicators of Macro-fiscal Risks in Selected SSA, 2005–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, World economic Outlook database, October 2012.Note: The coefficient of variation is the standard deviation of a variable divided by its mean.

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Indicators of Macro-fiscal Risks in Selected SSA, 2005–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, World economic Outlook database, October 2012.Note: The coefficient of variation is the standard deviation of a variable divided by its mean.

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Indicators of Macro-fiscal Risks in Selected SSA, 2005–12

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: IMF, World economic Outlook database, October 2012.Note: The coefficient of variation is the standard deviation of a variable divided by its mean.

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3.1.2. Specific Fiscal Risks (Basic)

75. Mozambique’s fiscal operations face a variety of specific risks, a few of which are recognized in recent fiscal reports, but not fully quantified. These include risks from contingent liabilities, those related to the government’s assets and liabilities, interest and exchange rate risks that could affect the cost of financing and debt service, and environmental risks. Risks from donor financing is also significant since more than 10 percent of the government revenues is accounted for by grants from donors. The DSA discusses risks to debt sustainability from a variety of risks, including interest and exchange rates, while the most recent CFMP provides a brief context to how changes in the certain assumptions may affect fiscal outcomes.

Table 3.2.

Mozambique: Selected Specific Fiscal Risks, 2013

Other sources of fiscal risks not quantified: Quasi fiscal activities, Public private partnerships, Public Sector Pension liability, VAT arrears that are not reported in fiscal documents, unreported expenditure arrears, and exposure to the volatility of donors financing.

⁽¹⁾Following the reintegration in the national budget of $350 million of EMATUM debt, the guarantee granted by the government has been reduced to $500 million as of January 1, 2014.

Table 3.2.

Mozambique: Selected Specific Fiscal Risks, 2013

	Percent of GDP	Millions of $	Source
Public enterprises external debt guarantees	0.45	67	2012 Public Debt Management Report
EMATUM publicly guaranteed external debt	5.65	850(1)
Subsidies to public enterprises	0.17	26	2013 budget proposal
Price subsidies (Wheat flour, transportation, and fuel)	0.52	78	2013 budget proposal
Major and Multi-annual Contracts	33.14	4,984	2014-16 MTEF
Natural disasters (total average cost of 2013 damages)	3.32	500	Plan for Mitigation of Natural Disasters
Total quantified risks	43.25	6,505

Other sources of fiscal risks not quantified: Quasi fiscal activities, Public private partnerships, Public Sector Pension liability, VAT arrears that are not reported in fiscal documents, unreported expenditure arrears, and exposure to the volatility of donors financing.

⁽¹⁾Following the reintegration in the national budget of $350 million of EMATUM debt, the guarantee granted by the government has been reduced to $500 million as of January 1, 2014.

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Table 3.2.

Mozambique: Selected Specific Fiscal Risks, 2013

	Percent of GDP	Millions of $	Source
Public enterprises external debt guarantees	0.45	67	2012 Public Debt Management Report
EMATUM publicly guaranteed external debt	5.65	850(1)
Subsidies to public enterprises	0.17	26	2013 budget proposal
Price subsidies (Wheat flour, transportation, and fuel)	0.52	78	2013 budget proposal
Major and Multi-annual Contracts	33.14	4,984	2014-16 MTEF
Natural disasters (total average cost of 2013 damages)	3.32	500	Plan for Mitigation of Natural Disasters
Total quantified risks	43.25	6,505

Other sources of fiscal risks not quantified: Quasi fiscal activities, Public private partnerships, Public Sector Pension liability, VAT arrears that are not reported in fiscal documents, unreported expenditure arrears, and exposure to the volatility of donors financing.

⁽¹⁾Following the reintegration in the national budget of $350 million of EMATUM debt, the guarantee granted by the government has been reduced to $500 million as of January 1, 2014.

3.1.3. Comparability of Fiscal Data (Basic)

76. Fiscal reports are broadly comparable. The budget statement is prepared on the same basis than the Medium Term Expenditure Framework. Data and presentation in the CGE are also comparable to the budget document.

77. Nevertheless, budgetary outturns are not reconciled with either the fiscal statistics or final accounts.

3.2.1. Allowances for Budgetary Contingencies (Basic)

78. Mozambique’s budget includes a limited provision for contingencies, but with no clear access criteria. The SISTAFE law gives to the Minister of Finance the power to use the provisions for contingencies, under the condition that these resources be used for the execution of expenditures that cannot be foreseen or postponed. However, no transparent criterion on the use of budgetary contingencies is set out. Additionally there is no report, in-year or year end, that explain the rationale for their use, except for aggregated information on the transfers made to other budget lines. The contingent reserve appears in general expenses, under the category “Provisional appropriation” included in “Other current expenses”. It represents about 0.35% of total budget expenditure for the period 2011–14.

Mozambique: Budget Contingencies Provision, 2011–14 (Percent of Central Government Budget)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Table C of 2014 Budget proposal and Budget law for 2011, 2012, and 2013.

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Mozambique: Budget Contingencies Provision, 2011–14 (Percent of Central Government Budget)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Table C of 2014 Budget proposal and Budget law for 2011, 2012, and 2013.

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Mozambique: Budget Contingencies Provision, 2011–14 (Percent of Central Government Budget)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Table C of 2014 Budget proposal and Budget law for 2011, 2012, and 2013.

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3.2.2. Assets and Liability Management (Basic)

79. The authority to borrow, including limits and ceilings, are set by laws for the State and municipalities, but not for other public entities. The current situation is as follows:

• State borrowing is authorized by the annual Budget Law, which stipulates rules on domestic borrowings. These rules include (i) limits on the interest rate; which cannot exceed the medium interest rate observed on the national market; and (ii) on loan term, which is set at a minimum of 3 years. Regarding external borrowing, the specific consideration is to maximize concessional debt. The 2013 annual budget law also sets an annual ceiling of MT183 million (about $6 million) on State guarantees. The $850 million guarantee granted to the EMATUM corporation in 2013 (reduced to $500 million in 2014) breached this annual ceiling.

• The municipalities can borrow in accordance with the provision of the law 1/2008 on the subnational governments financial system.

• Regarding the other public entities, in particular corporations in which the State holds shares, no specific legal provisions apply, neither is any specific authorization necessary. The Ministry of Finance is, however, drafting a law that will clarify the legal requirements applying to these entities.

80. The Debt Report, which is released annually, analyses the central government’s domestic and external debts. The current debt management strategy of the government is focused on ensuring debt sustainability, maximizing use of concessional funding and limiting domestic financing at the lowest level. However, the strategy and oversight on public sector’s other financial debts, such as leases and public–private partnerships (PPPs), which are arrangements that typically involve commitments similar to borrowing, and on financing guarantees, is unclear. For example, some public entities do not have to get approval to enter into financial leases.

81. Some information on the government’s financial assets is published but the public assets management strategy is not disclosed. The State’s public enterprises are overseen by the Ministry of Finance. The State’s majority or minority shareholdings in publicly-owned corporations are managed by the IGEPE, an autonomous agency: some very broad objectives for managing the government’s portfolio are defined in its annual report. The oversight on the local governments’ public enterprises is not clearly set up. The Government’s and MoF’s oversight on the creation, acquisition and disposal of government financial assets is limited as the law on public enterprises applies to only the 14 public enterprises and not to participations held in private corporations. Furthermore, little information is available to date on the fiscal risks surrounding these assets. No analysis is provided on the State and local governments’ public enterprises, or the shareholdings of the autonomous institutions. Regarding the shareholdings managed by the IGEPE, an annual report provides comments on the activities of some of the corporations. However it does not include a comprehensive analysis of their financial operations or the potential financial risks related to these investments.

3.2.3. Natural Resources (Not Met)

82. Natural resources exploitation is an increasing source of economic growth and revenue for Mozambique. While coal resources have already been exploited for a number of years, recent discoveries of large off-shore natural gas deposits, as well as on-going exploration of petroleum resources are likely to transform Mozambique into a major resource-rich country over the next few years. These explorations and the production of natural resources are managed mainly via concessions, or other arrangements, granted to the private sector.

83. The government publishes limited information on the value of its natural resources and the related current and projected fiscal revenue. Although considerable efforts have been made to increase the transparency of fiscal information on the extractive sector, through the publication of the major Exploration and Production Concession Contracts (EPCC)³⁵ negotiated between the government and contractors, and collected revenue, information available to the public is still limited. In particular, the government does not publish any estimates of the volume and current value of its natural resources. The main information available to date is the following:

• The CGE provides a breakdown of the fiscal revenue related to mega-projects (which includes natural resources production), which amounted to only 1 percent of GDP in 2012, but there is no comprehensive report disclosing information on the volume and/or current value of Mozambique’s natural resources reserves.

• Mozambique is a member and complies with the rules of the Extractive Industries Transparency Initiative (EITI). Four EITI reports have been already drawn up for the period between 2008-2011, which cover all the active mining companies and oil that pay a certain level of taxes.

• Regarding the forecasts of natural resources revenue, the “Vision of Public Finances 2011-2025” includes rough estimates of the fiscal revenue related to coal and gas production and the CFMP provides estimates of the fiscal revenues related to coal production. However, the information is limited. For instance, the underlying assumptions of the forecasts and the different risk scenarios that were considered (in relation to long-term commodity prices, extraction capabilities, or quantity of supply contracts for example) are not disclosed.

84. Unknown size of gas reserves and potential fiscal revenue underline the volatility of any projection. Mozambique is now one of the countries with the world’s largest proven natural gas reserves, and recent reports of geological surveys indicate that total gas reserve in two areas of the Rovuma basin alone could reach 150 trillion cubic feet.³⁶ In this context, management of fiscal risks will become more complex as the natural resources revenues become a substantive part of government revenue. This complexity results from issues related to the volatility and exhaustibility of this category of revenues.

3.2.4. Financial Derivatives (Not Applicable)

85. There are no financial operations with derivatives at the time of the assessment.

Nevertheless, the Government may need, in the coming years, to consider the benefits and risks related to the implementation of hedging strategies. To smooth the volatility of the price fluctuation of natural resources, the government may enter into financial contracts to guarantee a certain price, or minimize down-side price realizations.³⁷

3.2.5. Guarantees (Not Met)

86. The government does not report on the outstanding stock of government guarantees. The Mozambique’s legal framework authorizes the government to grant guarantees. The Ministry of Finance is responsible for approving these guarantees, which can include loan, minimum revenue, and balance sheet guarantees. Therefore, public enterprises and other public institutions asking for the government guarantee have to submit a feasibility study to the relevant line ministry, and the Ministry of Finance. The 2014 budget contains a provision which sets a cap of around $526 million for guarantees and, since 2014, the Debt Report includes information of the annual flows of guarantees granted by the government. However, there is limited information on existing guarantees and their management policy, and the stock of government guarantees is not published.

87. Given the limited information available, it is difficult to quantify Mozambique’s gross exposure arising from guarantees granted. While a ceiling for the issuance of new guarantees is included in annual budget laws, no policies exist regarding the assessment of projects or potential beneficiaries. Similarly, no procedures or policies are in place regarding the assessment or monitoring of financial risks associated with guarantees that had already been granted. Considering the recent and expected ramping up of infrastructure investment projects, significant increase in borrowing is projected. Since some of the projects are to be implemented through public enterprises, the government may be required to guarantee or provide on-lend financing to State-owned enterprises. From a debt sustainability perspective, if obligations on related governmental liabilities fall due at the same time, this could pose risks to both fiscal and debt sustainability, and potentially require additional financing.

3.2.6. Financial Sector Exposure (Not Met)

88. Exposure to the financial sector is not quantified and disclosed annually. The government has direct exposure to the financial sector through its public financial institutions and insurance company. In addition, a Deposit Insurance Fund (FGD)³⁸ created by the decree 49/2010 is responsible for safeguarding financial sector stability, but it is still not in operation. However, fiscal risks from financial sector exposure are not limited to Government explicit guarantees or ownership in the sector. As shown during the financial crisis, total financial sector deposit liabilities could be a source of risk and contagion that may require government intervention in the event of financial crisis. The government approved a Financial Sector Development Strategy 2013–22 aiming at strengthening financial stability and facilitating long-term financing of the private sector, but there is no assessment of the potential fiscal risks.

89. The BoM is dealing with financial sector challenges through an enhanced financial stability framework, but the government exposure to financial sector risks remain largely unaddressed. Financial sector prudential indicators are sound, but assets ownership in the banking system is concentrated. About 85 percent of the assets of the system are held by the three largest banks. Deposits at the commercial banks reach almost 40 percent of GDP for the last two years (Figure 3.3.). As a precaution for any unforeseen economic shocks, the BoM approved its Contingency Plan and Emergency Liquidity Assistance in April 2013. But the BoM reports do not assess the risks faced by the government though it analyzes the risks to financial instability.

Mozambique: Financial Assets & Deposits at Commercial Banks as % of GDP

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: BoM and Staff estimates

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Mozambique: Financial Assets & Deposits at Commercial Banks as % of GDP

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: BoM and Staff estimates

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Mozambique: Financial Assets & Deposits at Commercial Banks as % of GDP

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: BoM and Staff estimates

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Selected Sub-Saharan African Countries, Bank Deposits and Assets

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Data on Bank deposits for Ethiopia and Rwanda are missingSource: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank. 2013.

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Selected Sub-Saharan African Countries, Bank Deposits and Assets

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Data on Bank deposits for Ethiopia and Rwanda are missingSource: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank. 2013.

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Selected Sub-Saharan African Countries, Bank Deposits and Assets

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Data on Bank deposits for Ethiopia and Rwanda are missingSource: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank. 2013.

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3.2.7. Major and Multi-Annual Contracts (Not Met)

90. The need to address infrastructure gaps and exploit natural resources requires major and multi-annual contracts, but limited information is published on their fiscal and financial impact. Mozambique wants to fully utilize its natural resources to expedite its economic and social development. Major projects are planned to develop the country’s infrastructures. At the same time, the government is assessing the type of involvement of the state hydrocarbon company ENH in the development and production phases of liquefied natural gas to better manage risks and maintain debt sustainability. A new PPP law (PPP, Large Scale Projects, and Business Concessions, 15/2011) overhauls the oversight framework for undertaking PPPs. It provides a direct oversight from sectoral ministries, an indirect oversight from the MoF over the use of guarantees and fiscal and budgetary impacts of PPP, and the creation of a PPP Unit and sectoral regulatory agencies. The Investment Policy Review of Mozambique also recommends a simpler arrangement for PPP oversight, instead of the four-agency approach, to streamline the organization and strengthen controls.³⁹

91. Limited information on major and multi-annual contracts is published regularly. A list of on-going or planned “mega-projects” is regularly published in economic reports such as the CFMP and other medium term reports. The Ministry of Mineral Resources (Ministério dos Recursos Minerais) publishes forthcoming tenders of natural gas and mining areas. Mozambique has also been declared compliant with the EITI in October 2012. Nevertheless, public information available on items such as public rights, obligations, and payments over the life of contracts is limited.

92. There is still room for more transparency. The PPP Law provides that the CGE should include information on the performance of PPPs at the end of each fiscal year. The PPP legal framework also mandates the publication of PPP contracts, including mining and hydrocarbon ones. But the new law is not retroactive. The PPP unit has collected information on existing PPP; but it cannot publish the data, unless existing projects are revised according to the new law. The TA has mandate for auditing the PPPs, large scale projects, and business concessions.

3.2.8. Environmental Risks (Not Met)

93. Mozambique faces significant risk of natural disasters but fiscal reports do not identify and discuss their potential impacts in qualitative or quantitative terms. Mozambique is exposed to droughts, floods and cyclones, and severe natural hazards which could disrupt critical sectors including agriculture, infrastructure, power, water and sanitation, social protection, and health and nutrition (Figure 3.5.). The authorities recognize the need for a disaster risk management strategy. They have approved the Master Plan for Disaster Prevention and Mitigation (Plano Director para Prevenção e Mitigação de Calamidades) to better manage and mitigate serious weather-related risks but it does not include the fiscal dimension.

Selected SSA Countries: Average Annual Damages (droughts, earthquakes, floods, storms)

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank, 2013.

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Selected SSA Countries: Average Annual Damages (droughts, earthquakes, floods, storms)

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank, 2013.

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Selected SSA Countries: Average Annual Damages (droughts, earthquakes, floods, storms)

(in percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: “World Development Report 2014: Risk and Opportunity—Managing Risk for Development.” World Bank, 2013.

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94. Though the fiscal cost of natural disaster mitigation could be substantial, fiscal risks are not assessed ex ante. The cost of reconstruction work for the 2013 flood is estimated at $500 million (3.3 percent of GDP), and the Post-Disaster Reconstruction Plan (Plano de Reconstrução Pós-Calamidades) is planned for implementation over the next three years. A 2013 supplementary budget provides $150 million to mitigate the negative impact on the economy. The 2014 Budget proposal underlined the importance of reconstruction efforts and gave priority to financing actions of the Post-Disaster Reconstruction Plan, including replacement of damaged infrastructure and resettlement of affected populations.

3.3.1. Subnational Governments (Good)

95. Aggregated information on the financial situation of subnational governments is included in the CGE. It includes data on revenue, including own revenues, and expenditures. While the institutional coverage of this information is not yet exhaustive, it already includes the most significant subnational entities.

96. Government supports investment and recurrent expenditures of municipalities, while the law limits their borrowing and liabilities. Budgetary transfers to municipalities consist of the transfers from Municipal Compensation Fund (FCA), ⁴⁰ Fund of Local Investment Initiative (FIIA), and Road Fund (FE) and from the Strategic Program for Urban Poverty Reduction (PERPU). Municipalities have also their own revenues; and capacity development efforts have been started at the local level to have a sustainable revenue base. Though municipalities have fiscal and administrative autonomy, rules and limitations on their borrowing have been set by the Law 1/2008. They can only borrow from local creditors up to three twelfths of the amount they receive from the FCA. This amount should also be paid back by the municipality by the end of fiscal year. For long term borrowing from international creditors, they have to get the approval of the Ministry of Finance.

Mozambique: Local Governments Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Authorities and IMF Staff calculation

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Mozambique: Local Governments Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Authorities and IMF Staff calculation

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Mozambique: Local Governments Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2015, 032; 10.5089/9781484316993.002.A001

Source: Authorities and IMF Staff calculation

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