Mozambique: IMF Sets Conditions for Support

Bank of Mozambique

To start receiving money from the new Economic and Financial Program with the International Monetary Fund, the Mozambican government will be obliged to “better manage the cost of employment in the public sector and [cap] the wage bill at around 10.8% of GDP”. It must also eliminate some VAT exemptions and zero rates, “extend e-taxation to all taxes and all fiscal units”, incorporate all stages of the state expenditure chain in e-SISTAFE, and further strengthen budgetary transparency and the management of risks to the state budgets. Finally, Mozambique is prevented “from granting new guarantees or entering into new external financing contracts on non-concessional terms”.

Mozambique’s return to world financial markets and the resumption of direct support to the State Budget by Cooperating Partners after suspension in 2016 due to the discovery of the illegal debts of Proíndicus, EMATUM and MAM will oblige the government headed by Filipe Nyusi, and by whoever succeeds him in the presidency in 2025, to “adopt strong fiscal policies” dictated by the IMF and aimed at “supporting economic recovery and, at the same time, responding to debt and structural challenges, that are contributing to macroeconomic vulnerabilities and generating protracted needs in terms of the balance of payments”.

These obligations are contained in the Memorandum on Economic Policies signed by the Executive and the IMF which details, among various policies, the imperative to reduce the current wage bill of the Civil Service from 13.8% of Gross Domestic Product (GDP) in 2021 to 10.8% of GDP by 2026, regardless of the implementation of the Single Salary Table (TSU). “This exceptional increase will be offset, in part, by not raising public sector salary levels in 2022 and replacing only one out of every three employees leaving the civil service, except for the education, health, justice and agriculture sectors.”

The Memorandum, made public this week by the Ministry of Economy and Finance (MEF), indicates that “the Government will implement other measures to reduce the pressure on the wage bill, including: assessing the functional structure in the public sector (ministries, local government structures , public institutions) with a view to reducing duplication of activities and institutional overlap; formulate a policy to encourage early retirement; implement the reforms in the EGFAE Statute [General Statute of State Employees and Agents] recently approved by the Assembly of the Republic which determines the retirement age. If savings fall short of expectations, complementary measures will be considered to ensure the convergence of the wage bill/GDP ratio with the averages in the region and the group of homologous countries”.

In order to start making the US$470 million available, the International Monetary Fund also obliges the Executive to reform the Value Added Tax (VAT) by eliminating some exemptions and zero rates, safeguarding “the exemptions and zero rates in basic goods” to minimise the impact on the most vulnerable families. “The Ministry of Economy and Finance (MEF) will submit a proposal to amend the VAT Law to the Assembly of the Republic by August 2022 to limit to 12 months the deadline for taxpayers to request a VAT refund. After this period, the refund will be carried forward and will be credited against future VAT obligations. In parallel, the MEF will present a strategy, by the end of December 2022, to settle the current stock of VAT refund arrears,” the memorandum details.

“The Tax Authority continues its efforts to modernise tax collection through an integrated system of electronic taxation (e-taxation)” the memorandum stipulates, foreseeing the extension of “e-taxation to other taxes (Tax on Vehicles, Tax on National Reconstruction, Stamp Duty, SISA [property transfer] Tax and Inheritance and Donation Tax) by the end of 2022. In addition, the Tax Authority will implement transversal modules (tax enforcement, bankruptcies, instalment payments, risk profiles, claims and appeals, refunds and compensation, litigation and tax audits) by the end of 2023. In parallel, the Tax Authority will extend e-taxation to all taxes and all tax units by the end of 2023 (structural benchmark)”.

The IMF requires the Government to incorporate “all stages of the expenditure chain into e-SISTAFE (the financial management system) by the end of 2022 with a view to improving budget execution control and budget discipline and transparency” and to further increase budgetary transparency and budgetary risk management by including information on Public-Private Partnerships in the Medium-Term Fiscal Scenario, in the Debt Management Report and in the Fiscal Risks Report.

Mozambique is prohibited “from granting new guarantees or entering into new external financing contracts on non-concessional terms, with the exclusion of debt contracted through the National Hydrocarbon Company (ENH) related to the liquefied natural gas development projects already identified, in line with the Policy on Indebtedness Limits and taking into account the expected high social and economic returns from LNG and the absence of concessional financing”.

By Adérito Caldeira