Assembly Passes Amended State Budget for 2011

16 May 2011

Maputo — The Mozambican parliament, the Assembly of the Republic, on Monday passed the first reading of a government bill amending the 2011 state budget, in order to increase authorised public expenditure by 9.4 billion meticais (about 306.7 million US dollars, at current exchange rates).

Total government expenditure rises from the 132.4 billion meticais authorised under the original 2011 budget, approved in December, to 141.8 billion meticais.

Of this sum, 79.2 billion meticais will be covered by taxes and other state revenue, and 2.6 billion will be raised through issuing domestic debt.

This leaves a deficit of 60 billion meticais, to be covered by foreign grants and loans. The government assured the Assembly that its foreign partners have pledged these funds, which break down into 35.3 billion meticais in grants, and 24.7 billion in loans.

Introducing the bill, Prime Minister Aires Ali said the budget had to be amended because of changes in the macro-economic assumptions on which it was based. Thus the estimated growth in Mozambican GDP for 2011 has risen from 7.2 to 7.4 per cent.

This is due to better than expected performance in several sectors of the economy including agriculture, mining, financial services, construction, and transport and communications.

The drawback to this is that several of these sectors suck in imports, the price of which is rising. “Since Mozambique still depends on imports of consumer goods, processed products and intermediate capital goods to meet the needs of the productive sector and of internal consumption, the target for average annual inflation has been revised from eight per cent to 9.5 per cent”, said Ali.

Contrary to expectations in late 2010, the Mozambican currency has not only stopped depreciating but has been rising in value against the currencies of its main trading partners (the US dollar, the South African rand and the euro). In the original 2011 budget, the government used an average exchange rate for the year of 36.7 meticais to the dollar – the amended budget brings this down to 32.9 meticais to the dollar.

The strengthening of the metical reduces the amount of foreign aid received when inserted into the budget in its local currency equivalent. It also reduces customs duties and value added tax on imported goods when these are expressed in meticais.

On the other hand, the stronger metical reduces debt servicing costs by 288 million meticais, and reduces the costs of transfers to Mozambican embassies by 213 million meticais.

The increase in expenditure includes a further 1.3 billion meticais in goods and services that state institutions are allowed to purchase. Finance Minister Manuel Chang said this increase sought “to meet the growing need to provide basic services to the population”.

The amended budget increases the state’s participation in the road building and rehabilitation programme by 1.13 billion meticais.

The budget also includes a 3.6 billion meticais allocation to compensate fuel distribution companies for the 110 million US dollars they lost in 2010, because of the government’s general subsidy on liquid fuels, particularly diesel.

Fuel prices were frozen between August 2010 and April this year. The government is now removing the fuel subsidy, replacing it by a subsidised transport pass aimed at workers, students and the elderly. The budget includes a line of 200 million meticais to cover the transport pass.

As from July, the urban poor will be entitled to a basic food basket, covering their daily calorific needs. They will pay a reference price of 840 meticais a month for this food basket (containing maize, rice, bread, fish, vegetable oil, beans and sugar). The subsidy covers the difference between this reference price and the market price of the food. This subsidy is budgeted at 335.6 million meticais.

The government has also decided to increase its expenditure on the All-Africa Games, due to be held in Maputo in September, by 391 million meticais. This money will be spent on concluding the facilities for the games and in equipping and furnishing the athletes’ village.

The amended budget also increase the transfers from the central government to the municipalities from 912 million to slightly more than a billion meticais. In addition, a fund of 140 million meticais has been allocated to the municipalities to create jobs, under the government’s Strategic Plan for the Reduction of Urban Poverty.

Chang told the deputies that state revenue finances 56 per cent of the amended budget, and foreign aid 42 per cent. The remaining two per cent is raised through domestic indebtedness.

The amendments to the budget, Chang said, “do not change the restrictive nature of budgetary policy, expressed in strengthening standards of economy, effectiveness and rationality in undertaking public expenditure in a framework of budgetary austerity”.

This, he added, sought “to guarantee macro-economic stability, the sustainability of the public accounts in the medium term, and the correction of structural imbalances in the balance of payments in the long term”.

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