Embed Size (px)
Citation preview
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report N. 66780-MZ
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAM DOCUMENT
FOR A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 71.7 MILLION
(US$110 MILLION EQUIVALENT)
TO
THE REPUBLIC OF MOZAMBIQUE
FOR AN
EIGHTH POVERTY REDUCTION SUPPORT CREDIT OPERATION
February 15, 2012
Poverty Reduction and Economic Management - AFTP1
Africa Region
This document is being made publicly available prior to Board consideration. This does not imply a presumed
outcome. This document may be updated following Board consideration and the updated document will be made
publicly available in accordance with the Bank‟s policy on Access to information. .
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
MOZAMBIQUE - GOVERNMENT FISCAL YEAR January, 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of January 30, 2012)
Currency Unit = Metical (MT)
US$1 = MT 27.11
MT1 = US$ 0.03689
WEIGHTS AND MEASURES Metric System
ABBREVIATIONS AND ACRONYMS
BdPES Balanço do Plano Económico e Social (Review of the Economic and
Social Plan)
BIM Banco Internacional de Moçambique (International Bank of
Mozambique)
CAS Country Assistance Strategy
CEM Country Economic Memorandum
CFAA Country Financial Accountability Assessment
CNCS Conselho Nacional de Combate ao SIDA (AIDS National Council)
CPAR Country Procurement Assessment Review
CPS Country Partnership Strategy
CTA Confederation of Economic Associations of Mozambique
EU European Union
FSAP Financial Sector Assessment Program
FY Fiscal Year
GBS General budget support
GDP Gross Domestic Product
GNP Gross National Product
GoM Government of Mozambique
HIPC Heavily Indebted Poor Countries
IAS International Accounting Standards
IBRD International Bank for Reconstruction and Development
ICA Investment Climate Assessment
ICR Implementation Completion Report
IDA International Development Association
IFC International Finance Corporation
IFRS International Financial Reporting Standards
IMF International Monetary Fund
INE Instituto Nacional de Estatística (National Statistics Institute)
INSS National Institute for Social Security (National Pension System)
JSAN Joint Staff Advisory Note
LDP Letter of Development Policy
MDGs Millennium Development Goals
MEC Ministry of Education and Culture
- ii -
MIC Ministry of Industry and Commerce
MINAG Ministry of Agriculture
MoF Ministry of Finance
MoH Ministry of Health
MoU Memorandum of Understanding
MOZAL Mozambique Aluminium Company
MPD Ministry of Planning and Development
MoPWH Ministry of Public Works and Housing
MTEF Medium-Term Expenditure Framework
MTFF Medium-Term Financial Framework
MYR Mid Year Review
PAF Performance Assessment Framework
PAP Program Aid Partners
PAPPA Programme Aid Partners‟ Performance Assessment
PARPA Programa de Acção para a Redução da Pobreza Absoluta
(Action Plan for the Reduction of Absolute Poverty)
PEN National Strategic Plan
PER Public Expenditure Review
PES Plano Económico e Social
PMTCT Prevention of mother-to-child transmission
PRGF Poverty Reduction and Growth Facility
PRSC Poverty Reduction Support Credit
PRSP Poverty Reduction Strategy Plan
PSIA Poverty and Social Impact Analysis
QAG Quality Assurance Group
QUIBB Qualitative Indicators Survey
ROSC Report on the Observance of Standards and Codes
SADC Southern African Development Community
SDR Special Drawing Rights
SISTAFE Integrated Financial Management System
TA Technical Assistance
UFSA Unidade Funcional de Supervisão das Aquisições
(Central Procurement Supervision Unit)
UGE Unidade Gestora Executora (Unit for Budget Execution)
UGEA Unidade Gestora Executora das Aquisicões
(Unit for Execution and Management of Acquisition)
UTRESP Unidade Técnica para a Reforma do Sector Público
(Technical Unit for Public Sector Restructuring)
VAT Value Added Tax
Vice President Obiageli K. Ezekwesili
Country Director Laurence Clarke
Sector Director Marcelo Giugale
Sector Manager John Panzer
Task Team Leader Julio Revilla
Ricardo Gazel
REPUBLIC OF MOZAMBIQUE
EIGHTH POVERTY REDUCTION SUPPORT CREDIT
TABLE OF CONTENTS
I. INTRODUCTION ..................................................................................................................... 1
II. COUNTRY CONTEXT .......................................................................................................... 2
A. COUNTRY OVERVIEW ............................................................................................................. 2 B. RECENT ECONOMIC DEVELOPMENTS ...................................................................................... 8 C. ECONOMIC OUTLOOK FOR 2012-2014 .................................................................................. 12
III. THE GOVERNMENT‟S PROGRAM: PARPA II AND PARP .................................... 15
IV. BANK SUPPORT TO THE GOVERNMENT‟S PROGRAM ...................................... 15
A. LINKS TO THE COUNTRY PARTNERSHIP STRATEGY .............................................................. 15 B. HARMONIZATION WITH DONORS, IMPLEMENTATION OF PARIS DECLARATION AND ACCRA
AGENDA FOR ACTION, AND COLLABORATION WITH THE IMF ................................................... 16
V. THE PROPOSED POVERTY REDUCTION SUPPORT CREDIT .............................. 19
VI. THE REFORM PROGRAM SUPPORTED BY THIS PRSC SERIES ........................ 21
A. MACROECONOMIC MANAGEMENT ........................................................................................ 21 B. ECONOMIC DEVELOPMENT .................................................................................................... 40
VII. OPERATION IMPLEMENTATION ............................................................................... 45
A. MONITORING AND SUPERVISION .......................................................................................... 45 B. FIDUCIARY ASPECTS ............................................................................................................. 45 C. DISBURSEMENT AND AUDITING ........................................................................................... 46 D. ENVIRONMENTAL ASPECTS .................................................................................................. 47 E. POVERTY AND SOCIAL ASPECTS ........................................................................................... 48 F. RISKS AND RISK MITIGATION ............................................................................................... 49 ANNEX 1: POLICY MATRIX AND RESULTS FRAMEWORK FOR THE PRSC SERIES ....................... 51 ANNEX 2: PERFORMANCE ASSESSMENT FRAMEWORK (PAF) FOR 2008-2010 ........................... 54 ANNEX 3: LETTER OF DEVELOPMENT POLICY............................................................................ 65 ANNEX 4: IMF RELATIONS NOTE .............................................................................................. 71 ANNEX 5: MOZAMBIQUE AT A GLANCE ..................................................................................... 72
List of Figures
Figure 1: Mozambique Growth: 1993-2012 ................................................................................... 3
Figure 2: Mozambique's Main Exports (2010) ............................................................................... 7
Figure 3: Exports and Imports - Mega Projects .............................................................................. 7
Figure 4: Nominal Exchange Rates and Inflation ........................................................................... 9
Figure 5: Progress in Mozambique‟s Procurement System 2002-2008........................................ 34
- ii -
List of Tables
Table 1: Mozambique Selected Social Indicators .......................................................................... 4
Table 2: Basic Macroeconomic Indicators, 2008 – 2013 ............................................................... 9
Table 3: Balance of Payments, 2008 – 2013................................................................................. 11
Table 4: Fiscal Framework, 2008-2013 ........................................................................................ 12
Table 5: Macroeconomic Indicators under Alternative Scenarios 2010-2013 ............................. 14
Table 6: Prior Actions for PRSC-8 ............................................................................................... 23
Table 7: Summary of PFM Performance Ratings 2006 - 2010 .................................................... 31
List of Boxes
Box 1: Progress towards the Millennium Development Goals ....................................................... 5
Box 2: Mozambique‟s Debt Sustainability Analysis .................................................................... 14
Box 3: Alignment between this PRSC and Good Practice on Conditionality .............................. 19
Box 4: Progress in Financial Management Reforms supported by the PRSC series .................... 39
The Program Document has been prepared by a team consisting of Ricardo Gazel, Julio
Revilla, Maria Teresa Benito-Spinetto, (AFTP1); Mazen Bouri, Karen Faarbaek Jensen
(AFTFP); Guo Li (AFTAR); Kathrin Plangemann, Anne-Lucie Lefebvre (AFTPR);
Furqan Saleem, Elvis Langa (AFTFM); Antonio Chamuco, Dirk Bronselaer, Irina Luca
(AFTPC); Jose Janeiro (CTRFC); Lourdes Pagaran, Jutta Kern, Andrew Osei Asibey
(AFTRL); Luz Meza-Bartrina, (LEGAF). The Peer Reviewers are James A. Brumby
(PRMPS) and Carlos Cavalcanti (AFTP4). The IDA team collaborated closely with 18
other development partner agencies that also provide general budget support under the
Memorandum of Understanding signed in 2009.
- iii -
CREDIT AND PROGRAM SUMMARY
THE REPUBLIC OF MOZAMBIQUE
EIGHTH POVERTY REDUCTION SUPPORT CREDIT
Borrower The Republic of Mozambique
Implementing
Agency
Ministry of Finance
Financing data IDA Credit Amount: SDR 71.7 million (US$110 million equivalent)
Terms: 40-year maturity with a 10-year grace period.
Operation type Programmatic (third operation in a series of three). Single tranche to be disbursed from
the Credit upon effectiveness.
Main Policy
Areas
The proposed PRSC series is designed to assist the Government of Mozambique (GoM) to
implement key policy actions outlined in its 2006-2010 Second Action Plan for the
Reduction of Absolute Poverty (known as PARPA II). The PRSC series supports a subset
of objectives from the PARPA II results matrix focusing on improving public financial
management systems and adopting growth enhancing reforms. The PRSC-8 is expected to
help the GoM in: (a) the consolidation and deepening of reforms in economic
management in the areas of budget implementation through improvements in public
financial management systems, government procurement systems, internal and external
audit functions, and transparency in use of government resources; and (b) removing
constraints to growth, notably by simplifying business procedures and developing a legal
framework to facilitate private sector participation in the provision of infrastructure.
Key Outcome
Indicators
Public financial management systems:
Average difference over the past 3 years between primary expenditure outturn compared
to originally budgeted primary expenditures: Baseline 2007: 4.5 percent; Target 2011: 3
percent
Percentage of public sector contracts reported to UFSA subject to public tender: Baseline
2007: 85 percent; Target 2011: 95 percent
Growth enhancing reforms to increase private investment:
Number of individual and collective taxpayers: Baseline 2007: 550 thousand; Target
2011: 1,400 thousand
Number of procedures and working days to start a business: Baseline 2007: 13
procedures and 113 working days; Target 2011: 9 procedures and 23 working days.
Program
Development
Objectives and
Contribution to
CAS
In line with the government PARPA-II and the FY08-11 Country Partnership Strategy
(CPS), the PRSC series focuses on strengthening economic governance systems and
supporting private sector development in order to achieve broad based growth for poverty
reduction. Specifically the PRSC series will support achievement of the following CPS
outcomes: (#1) improved budget planning at central, district and municipal level; (#2)
improved government fiduciary systems; (#10) simplify procedures to start a business;
(#11) increased access to finance and support for SMEs.
Related operations of the World Bank Group are: Public Sector Reform Project
(P072080); Financial Sector Technical Assistance Project (P086169); and the
Competitiveness and Private Sector Development Project (P106355).
- iv -
Risks and Risk
Mitigation The three main risks for this operation are related to: macroeconomic
management, political development, and implementation capacity.
There are risks related to the potential for macroeconomic shocks and their impact
on the implementation and achievements of the government reform program. The
current deterioration and high uncertainty of the global economy brings with it
risks of deteriorating terms of trade, reduction of FDI, and potential reductions in
donor disbursements, especially through budget support. As for mitigation
measures, the government is following the course that helped them manage the
2008-09 crisis by maintaining a high level of reserves, a flexible exchange rate
regime, and keeping low external debt vulnerability. Additionally, Mozambique
has a stable relationship with the IMF, anchored on a Policy Support Instrument
(PSI), which has contributed to solid macroeconomic management. The
elaboration of the new PARP contributed to deepen the communication and to
address differences of views that could have lead to reduced donor support. Over
the long run, government is keen to continue to build its own revenue base to
gradually reduce dependency of foreign aid. All together we consider the risk of
macroeconomic shocks affecting the reform program moderate but it requires
constant attention to changing circumstances.
There are risks associated to the absence of a political consensus and effective
coordination mechanisms for reforms in support of the growth agenda. Recently
Mozambique ranked 139 (out of 183 economies) in the 2012 Ease of Doing
Business, down seven positions from the 132 rank in 2011. The new Third
Poverty Reduction Strategy Paper for 2011-2014 has as its core the agenda of
inclusive growth. A strong participatory process has laid the foundation for a
stronger commitment for implementation. However, formal institutional
mechanisms to implement reforms that cut across many Ministries and interests
have yet to be put in place. This risk can be exacerbated by the capture of
government‟s attention to the development of mega-projects or policies to address
the demands from urban elites. In this context, the risk associated to fast
implementation of these reforms is high.
A third set of risks concerns possible delays in implementing areas of the reforms
program across all areas, as a result of the weak capacity. Limited institutional
capacity in many agencies limits the scope and speed of reforms in all the areas
supported by the PRSC. In order to mitigate this risk, the Bank intends to
increase its engagement at the technical level. There are specific projects and
technical assistance targeting areas of reforms as listed in Annex V, including the
Competitiveness and Private Sector Development Project which is financing the
hiring of two lawyers and one economist at the Ministry of Industry and Trade on
the elaboration of proposals to simplify or eliminate regulations and licenses
identified as too cumbersome or unnecessary. The Bank with the support of
development partners is engaged in training of public officials in the areas of PPPs
and Concessions, focusing on project selection, negotiations, contract structuring,
implementation, monitoring and evaluation. The risk is moderate. Project ID P126226
- v -
PROGRAM DOCUMENT
Date: February 14, 2012
Country: Republic of Mozambique
Operation: Eighth Poverty Reduction Support
Credit (PRSC8)
Operation ID: P126226
Team Leader: Julio Revilla
Sector Manager: John Panzer
Country Director: Laurence Clarke
Lending Instrument: Development Policy Lending
Board Approval Date: March 15, 2012
Effectiveness Date: June 30, 2012
Closing Date: December 31 , 2012
Sectors: General public administration sector (40%);
Public administration- Finance (15%); General
industry and trade sector (15%); General finance sector
(15%); General agriculture, fishing and forestry sector
(15%)
Themes: Public expenditure, financial management
and procurement; Other financial and private sector
development; Rural policies and institutions; Export
development and competitiveness; Macroeconomic
management
Environmental screening category: N.A.
Special Development Policy Lending:
Crisis or Post-Conflict Situation (exception to
OP8.60):
Programmatic:
Deferred Drawdown Option:
Subnational Lending:
[ ] Yes [X] No
[ ] Yes [X] No
[X] Yes [ ] No
[ ] Yes [X] No
[ ] Yes [X] No
Operation Financing Data
[] IBRD Loan [X] IDA Credit [] Grant [] Other:
Total Bank financing (US$ m.): 110.00
Proposed terms: Standard IDA terms: 40-year maturity with a 10-year grace period
Tranche Release Information List binding conditions as stated in the Legal Agreement.
Tranche 1
Description
Amount
US$110 million Expected release
date
06/2012
Prior Actions
1. The Ministry of Finance has expanded the use of the integrated electronic financial
management system e-SISTAFE to no less than 430 Budget Units resulting in Direct
Budget Execution of 37.5 percent of the State Budget.
- vi -
2. The Ministry of Finance has established internal control units in all of its central and
provincial level bodies.
3. The Court of Accounts has continued to expand audit coverage of the State Budget from
35 percent in Fiscal Year 2009 to at least 37 percent in Fiscal Year 2010, according to
INTOSAI technical standards and according to the laws of Mozambique.
4. The Ministry of Industry and Trade has sent to the Council of Ministers for discussion
and approval a draft decree to simplify business related licenses while allowing an
additional seventy economic activities to be registered and operate under simplified
licensing procedures.
5. The Ministry of Mineral Resources has produced the first report under the Extractive
Industries Transparency Initiative (EITI).
6. The Public Private Partnerships Law has been enacted and published in the Official
Gazette.
Does the operation depart from the CAS in content or other significant
respects? [ ]Yes [X] No
Does the operation require any exceptions from Bank policies? [ ]Yes [X] No
Have these been approved by Bank management? [ ]Yes [X] No
Is approval for any policy exception sought from the Board? [ ]Yes [X] No
Operation development objectives:
In line with the government PARPA-II and the FY08-11 Country Partnership Strategy (CPS), the
program supported by the PRSC series focuses on strengthening economic governance systems
and private sector development in order to achieve broad based growth for poverty reduction.
Specifically the PRSC series will support achievement of the following CPS outcomes: (#1)
improved budget planning at central, district and municipal level; (#2) improved government
fiduciary systems; (#10) simplify procedures to start a business; (#11) increased access to
finance and support for SMEs.
Related operations of the World Bank Group are: Public Sector Reform Project (P072080);
Financial Sector Technical Assistance Project (P086169); and the Competitiveness and Private
Sector Development Project (P106355).
- 1 -
PROGRAM DOCUMENT
TO THE REPUBLIC OF MOZAMBIQUE
FOR A EIGHTH POVERTY REDUCTION SUPPORT CREDIT
I. INTRODUCTION
1. This program document proposes an Eighth Poverty Reduction Support
Credit (PRSC-8) to the Republic of Mozambique. The proposed operation is an
integral part of the Bank‟s strategy to support the Second Action Plan for the Reduction
of Absolute Poverty1 (PARPA II) and it provides a bridge to support the implementation
of PARP (the successor of PARPA II). The PARPA framework is underpinned by the
Performance Assessment Framework (PAF) agreed by the government and the nineteen
external partners (the G-19)2 providing general budget support (GBS). The proposed
operation is the third in the current PRSC series of three annual single-tranche operations
to be delivered over FY10-12. A detailed description of the PRSC series was provided in
the PRSC-6 Program Document, the first operation of this PRSC series (Republic of
Mozambique, Sixth Poverty Reduction Support Credit, Report No. 50921-MZ, approved
November 12, 2009). This Program Document proposes prior actions for PRSC-8, the
third and final operation in the current PRSC series and reviews the results framework
expected for the whole series.
2. Economic performance for the past two decades has been strong and
government has been implementing an active program of structural reforms. Following political stabilization, market-oriented reforms, and steady improvements in
infrastructure, the economy registered an average annual growth rate of 8 percent
between 2001 and 2010. The last two years have been a time for consolidation of
reforms such as the stabilization and expansion of the use of the e-SISTAFE financial
management, as well as increased transparency and accountability in use of public
resources including entry into the EITI. This is especially timely as Mozambique is
poised to enter into a development era characterized by accelerated development of
natural resources including large deposits of coal and natural gas. At the same time
government is set on implementing reforms that will foster more labor intensive and
inclusive growth where it will be critical to improve the business environment to attract
more domestic and foreign investors. Closing the existing infrastructure gap is a
complement to all government reforms. The PRSC series is aligned with these priorities.
1 Segundo Plano de Acção para Redução da Pobreza Absoluta (PARPA-II). The PARPA II originally
covered the period 2004-2009, but was extended to include 2010 in order to avoid a gap before the new
government could prepare the next PRSP document, which was approved by the Council of Ministers in
May, 2011. 2 The 19 donors are: African Development Bank, Austria, Belgium, Canada, Denmark, EU, Finland,
France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, and the
World Bank. Two associate members, the USA and United Nations, participate in the G19 policy dialogue,
although they do not provide budget support. In addition, the IMF is an ex-officio member of the G19..
- 2 -
3. Despite very high rates of economic growth poverty remains high and
poverty reduction has slowed down in the recent past. Government recognizes that
poverty reduction has stagnated in recent years. The poverty headcount fell from 69
percent in 1996/97 to 54 percent in 2002/03. While subject to some methodological
caveats, the 2008/09 household survey data indicate that the poverty rate has remained
high at about 54 percent, with rural poverty actually increasing to 57 percent. While the
food and fuel crisis of 2008/09 played a role in this outcome, the limited progress in
poverty reduction while the economy continued to grow at substantially high rates
suggests that growth has become less inclusive than in previous years. Fostering more
inclusive growth is now at the core of the country‟s new poverty reduction strategy.
4. This PRSC series is an important component of the Country Partnership
Strategy discussed by the Board in 2007, and is closely aligned to the government
program reflected in a new PARP. The FY08-11 Country Partnership Strategy (CPS;
Report No. 39395-Moz) supports the implementation of the PARPA II. As government
policies and budget are the main instruments for implementing the PARPA II, the Bank is
committed to supporting and aligning with the budget process. The indicative lending
scenario of the CPS envisages programmatic support through consecutive PRSCs to
support Mozambique‟s efforts in increasing accountability and public voice and fostering
sustainable and broad-based growth. In line with the government program, and as
reflected in the CPS, the program supported by the PRSC series recognizes the centrality
of a broad-based growth agenda and the importance of enhanced public financial
management reforms. The reforms supported by this operation are also closely aligned
with the government‟s new poverty reduction strategy (PARP) and with the proposed
CPS for FY12 – 15.
II. COUNTRY CONTEXT
A. COUNTRY OVERVIEW
5. Mozambique has been a very strong economic performer since the end of the
Civil war in 1992. The post-civil war growth record has been remarkable, averaging
above 8 percent from 1993 to 2010, making Mozambique the fastest growing non-oil
economy in Sub-Saharan Africa. This performance has been made possible by good
macroeconomic management, and was driven by a few significant foreign investment
projects (“mega-projects”), strong donor support, which empowered consistent solid
growth across most sectors of the economy in such as agriculture, mining, electricity and
water, tourism, and financial services.
- 3 -
6. Mozambique‟s rapid economic growth has not translated into significant
poverty reduction in recent years. Growth was accompanied by significant strides in
reducing poverty up to
2003. Household survey
data indicate that the
national poverty headcount
fell from roughly 69 to 54
percent from 1996 to 2003.
The results of the 2008/09
household survey suggest
the response of poverty
reduction to economic
growth has since
weakened.3The
geographical distribution
of poverty, however,
continues to be concentrated in the rural areas, and in the center and northern part of the
country.
7. Social indicators have shown significant improvements since the mid-1990s (Table 1):
In primary education (grades 1–7), the number of children more than tripled from
approximately 1.3 million in 1992 to 5.3 million in 2010. Net enrollment rate at
primary education doubled from 45 percent in 1998 to over 95.5 percent in 2010.
Net enrollment of girls rose from 40 percent to 93 percent in the same period.
Primary school teachers increased from 30,000 in 1992 to 73,900 in 2008.
The gross enrolment rate in lower secondary education (ES1) increased from 4.8
percent in 1998 to 28 percent in 2008. Net enrollment rate grew from 1 percent to
9 percent during the same period. The gross enrolment rate for upper secondary
school (ES2) increased from 1.3 percent in 2008 to reach 8 percent in 2008.
Under-5 mortality rates decreased from 212 per 1,000 live births in 1996, to 178
in 2003, and reached 138 in 2008.
Infant mortality decreased from 145 per 1,000 live births in 1996, to 122 in 2003,
and further down to 93 in 2008.
Maternal mortality was reduced from an estimated 1,000 per 100,000 live births
in the early 1990s to 408 per 100,000 live births in 2003, and to 340 in 2007.
3 It should be noted that there are concerns related to under-reporting of food consumption in the 2008/09
household survey data which could affect both the poverty levels and their trend over time. In fact the data
problem also affects the previous two household surveys (in 1996/97 and 2002/03), although to a different
extent. Additional analytical work is being undertaken by the World Bank to test the robustness of the
preliminary results and correcting for the data problems.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0
100
200
300
400
500
600
700
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
GDP per capita (UD$) real GDP growth rate (right axis)
Figure 1: Mozambique Growth: 1993-2012
- 4 -
The share of the population with access to an improved water source increased
from 39 percent in 1995 to 48 percent in 2008.
The capacity of the health system was expanded to start providing free ARV
treatment for HIV infection.
8. Mozambique has made substantial progress towards achieving the
Millennium Development Goals (MDGs). Given the results of the recent household
survey discussed in paragraph 3, Mozambique needs to accelerate poverty reduction to
halve the population living in absolute poverty by 2015 (additional 15 percent decline in
poverty in six years). As mentioned, reducing hunger and child malnutrition remains a
challenge. The MDG for sustainable coverage for water supply could also be met, given
the rapid improvements in the provision of urban water supply, although significant
progress is needed to increase access to water in rural areas. There has also been
substantial progress toward other MDG targets, specifically on improving universal
primary education, gender equality and women‟s empowerment, reducing child mortality,
and improving maternal health. Nevertheless, more progress will be required to meet
these MDGs, while combating HIV/AIDS, malaria and other diseases remains a serious
challenge. A detailed discussion of progress towards each MDG is included in Box 1.
Table 1: Mozambique Selected Social Indicators
Latest Single Year
2000-03 2006-08 2009-10
Primary School enrolment (net %) 56 89 92
Primary School enrolment (gross %) 84 114 116
Ratio of girls to boys in primary and secondary education (%) 75 87 89
Under-5 mortality rate (per 1,000 live births) 178 144 135
Infant mortality rate (per 1,000 live births) 122 98 92
Life expectancy at birth (years) 47 49 49
Physicians per 1,000 people 0.024 0.024 ..
Immunization, DPT (% of children under 12 months) 76 76 76
Immunization, measles (% of children under 12 months) 77 77 77
Access to improved water sources (% of population) 42 48 ..
Access to sanitation facilities ($ of population) 15 17 .. Sources: World Bank, DECDG, MDG Report 2008 and INE.
9. Despite the promising progress significant challenges remain. The country
remains poor with a per capita income of US$440 in 2010, still below the average for
Sub-Saharan Africa (US$1,165) and low income countries (US$510). Social indicators
are low, infrastructure is inadequate, and the business environment remains unfriendly.
Adult literacy rates are low (approximately 47 percent), and life expectancy at birth
remains very low (49 years). Malnutrition worsened from 2003 to 2008 with the
percentage of chronically malnourished children (stunted) increasing from 44 percent to
48 percent. The country also relies heavily on foreign aid, which still makes up almost
half of its overall budget. Additionally, malaria is the main cause of mortality (35
percent for children and 29 percent for the general population). It accounts for over 60
- 5 -
percent of all pediatric admissions and 40 percent of all outpatient consultations. It has
been found that in Sub-Saharan Africa, malaria reduces GDP growth by an estimated
average of 1.3 percent per year. As for HIV/AIDS, current projections indicate that in
2010 the Mozambican economy will be 14-20 percent smaller than it would otherwise be
due to the impact of HIV/AIDS.
10. Constraints to private sector development and trade remain substantial, and
much more progress is required to improve the business environment. Mozambique
ranked 139 (out of 183 economies) in the 2012 Ease of Doing Business, down seven
positions from the 132 rank in 2011. By the same token the country ranking in the Trade
Logistics Performance Index worsened, from 110th
out of 150 countries in 2007 to 136th
out of 155 countries in 2010. Mozambique is 116th (out of 178) on the 2010
Transparency International Corruption Perceptions Index, improving from the 130th
position out of 180 countries in the 2009 report. In the 2010 Worldwide Governance
Indicators Mozambique performed better than SSA and low income group averages on all
six aspects of the index (voice and accountability, political stability, government
effectiveness, regulatory quality, rule of law, and control of corruption).
Box 1: Progress towards the Millennium Development Goals
Mozambique is unlikely to eradicate extreme poverty and hunger by 2015 (Goal 1). The poverty
headcount ratio declined from 69 percent in 1996/97 to 55 percent in 2008/09 despite very high rates of
economic growth. Chronic malnutrition rates have also been increasing lately. Mozambique will require
decreasing the poverty rate by 15 percentage points in six years to achieve the goal of 40 percent of the
population below the poverty line by 2015.
Mozambique should be able to achieve universal primary education by 2015 (Goal 2). Good progress has
been made in the last few years; the enrolment rate in 1st grade increased to 95 percent in 2007 from 69
percent in 2003 (net enrolment in all grades of EP1 more than doubled from 45 to 95.5 during 1998 to
2010) and the completion rate increased from 39 percent in 2003 to 73 percent in 2007. A major
achievement is the increase in the net enrollment rate at 6 years of age which was 19 percent in 1998 and
reached 73 percent in 2008. Nevertheless, efforts have to continue to increase enrolment and completion
rates, as well as removing gender disparities, and increasing the quality of primary education.
Mozambique remains stable with respect to gender equality and empowering women (Goal 3). Gender
indicators at all levels of education have improved, particularly in EP1 and the gender difference in net
enrollment ratio was reduced to only 4 percentage points. Net enrollment of girls rose from 40 percent to
93 percent during 1998 to 2008.as a result the girls to boys ratio in EP1 increased from 86 percent in 2003
to 90 percent in 2007. Nevertheless, significant gender gaps remain at the upper of primary education (EP2)
and secondary education. Adult literacy rate for women was only 41 compared to 70 for men in 2009.
Women still have heavier workload responsibilities than men, inferior employment and lower income,
inferior access to land and lower agricultural production, and lower levels of education and health than
men. More progress remains to be made also in women‟s involvement in the productive sectors and in
positions of authority.
Substantial progress has been made towards reducing child mortality and good progress has been made
in increasing immunization rates (Goal 4). Both infant mortality and the under-five mortality rates have
declined substantially since the turn of the century and immunization rates have had a steady increase over
the past years. Under-5 mortality rate decreed from 178 per thousand in 2000 to 138 per thousand in 2008.
Nevertheless Mozambique is very unlikely to meet this MDG goal by 2015.
- 6 -
Good progress has been made in improving maternal health (Goal 5), nevertheless Mozambique is
unlikely to meet this MDG goal by 2015. Maternal mortality has decreased from an estimated 1,000 to 408
per 100,000 live births from early 1990s to 2003 and further to 340 in 2007. The number of attended births
has increased slightly, however Mozambique continues to have one of the worst performances in the region
for these targets.
There has been some progress in combating HIV/AIDS, malaria and other diseases but this goal is
unlikely to be achieved (Goal 6). The most recent data from the 2009 National Serological and Behavioral
survey suggest that the HIV/AIDS prevalence is leveling off at a high rate of 11.5%. In the south region
however the epidemic is still on the rise with prevalence rates varying between 17 and 21 %. The country
made significant progress in scaling up antiretroviral treatment which now covers close to 250,000 AIDS
patients. The overall rate has decreased and there has been some progress in reducing risky behaviors.
There has been some progress in increasing the proportion of population using effective malaria prevention.
The proportion of households sprayed with insecticide in target districts increased from 53% in 2007 to
81% in 2010 and the proportion of pregnant women who received a Long Lasting Insecticide Treated Net
in ante natal clinics (ANC) increased from 41% in 2007 to 77% in 2010.
Finally, the MDG for water is expected to be met in urban areas, although little progress has been made
in increasing access to clean water in rural areas, and in ensuring environmental sustainability (Goal
7). The share of people with access to safe drinking water in urban areas has increased significantly and
the MDG for sustainable coverage is expected to be met for urban water supply (to reach 70 percent), but
little progress has been made in increasing access to clean water in rural areas. In environmental
management, however, more remains to be done as government actions are ad-hoc and not well
coordinated among different sectors
11. Economic growth continues to be strong, but the structure of the economy
remains narrow. Rapid economic growth continues to be made possible by overall
macroeconomic stability, strong donor support, and mega-project investments.
Nevertheless, the productive base of the economy remains narrow, and is focused on
subsistence agriculture and a few isolated mega-projects.4 Agriculture, which employs
about 78 percent of the economically active population, accounted for 23.3 percent of
GDP in 2010; followed by manufacturing at 12.3 percent (mostly accounted for by one
large aluminum smelter), trade and retail services at 12.3 percent; transport and
communications at 11.5 percent; financial services at 5.3 percent; and extractive
industries at one percent.
4 Megaprojects in Mozambique are mainly non-ferrous metal factories, which is highly capital intensive.
For example, it represented 62 percent of the production value of the whole manufacturing sector in 2005
and just 3.3 percent of the sector‟s employment, slightly more than 1,000 jobs.
- 7 -
12. Reflecting the composition of GDP, the export basket remains limited with
only twelve products registering annual exports in excess of US$1 million. Overall
Mozambique‟s exports increased
significantly (in real terms), with
average growth rates of 8.8 percent
and 16 percent in 1991-1999 and
2000-2010, respectively. Most of
this growth, however, was driven
by exports from mega-projects.
Exports, excluding mega-projects,
declined by 20 percent in 2010,
including shrimp (-16 percent),
cashew nuts -20 percent), and
tobacco (-16 percent). In the first
half of 2011, exports excluding-
mega projects recuperated well,
registering an increase of 16
percent compared to the same
period in 2009.
13. More than half of
Mozambique‟s exports remain
concentrated in mega-projects,
(mainly aluminum smeltering
(Figure 2). Export of aluminum is
likely to stay flat as Mozal, the
main producer, has reached a stable
level of production. However,
exports from mega-projects will
increase further in 2012 with the
vast new development of the coal
sector whose exports are expected
to reach close to 6 million tons in
2012 whilst they were negligible just as far back as 2009.
14. Progress in public sector governance has been uneven. Steady good progress
has been made in improving transparency and accountability on economic management
by strengthening public financial management systems, including the areas of
procurement and internal and external audit. Also there has been progress towards
improving the management of natural resources, notably by strengthening the legal
framework regulating the fiscal regimes for mining and petroleum. In addition, in May
2009 Mozambique was accepted as a candidate to the Extractive Industry Transparency
Initiative (EITI). Since then Mozambique has prepared its first report achieving
substantive progress in many areas and has been granted EITI candidate status until
February 2013 in order to prepare the next reconciliation report and complete remedial
actions towards full compliance. Mozambique is making a good progress and is expected
1,160
277
153 134 98 88 66 45 29 26
0
200
400
600
800
1,000
1,200
1,400
0
400
800
1,200
1,600
2,000
2005 2006 2007 2008 2009 2010 Last 4
Quarters
Exp. Mega Imp Mega
Figure 2: Mozambique's Main Exports (2010)
Figure 3: Exports and Imports - Mega Projects
- 8 -
to meet this target ahead of schedule and become EITI compliant during the first half of
2012. Progress however remains limited in other areas. For example, improvements in
the efficiency and transparency of the justice system remain a challenge, and corruption
and conflict-of-interest remain central issues. Also, despite some recent progress,
implementation of civil service reforms remain challenging.
15. Mozambique ranks third amongst the African countries most exposed to
risks from multiple weather-related hazards, suffering from periodic floods,
cyclones and droughts. As much as 58 percent of the population and more than
37 percent of GDP are at risk from two or more hazards. Floods, epidemics and cyclones
are the most frequent disasters, although drought affects by far the largest number of
people. Climate change will increase extreme weather patterns, based on observed trends
and future scenarios. Hence, critical sectors that will be at increasing risk include
agriculture, infrastructure, power, water and sanitation, social protection, and health and
nutrition.
16. Recent discoveries of coal and gas resources indicate that over the medium
term Mozambique‟s development could receive a very significant boost.
Mozambique has the potential to join the ranks of resource rich economies especially if
the exploitation of natural gas resources materializes. This could be transformative,
providing government with significant resources and altering the geographic distribution
of development which is now heavily centered in the southern part of the country.
Government‟s attention to EITI, public financial management, and the continued
strengthening of tax administration is a good basis to manage the increase in health and
resources, but will need to be complemented with stronger attention to polices to support
economic diversification and strengthening government‟s ability for delivery of services.
B. RECENT ECONOMIC DEVELOPMENTS
17. Mozambique‟s economic growth continues to be strong. GDP growth
averaged over 7.4 percent from 2004 to 2010. Growth was not seriously affected by the
global financial crisis as the authorities‟ response adopting accommodating fiscal and
monetary policies in 2009 helped mitigate the impacts. Real GDP growth rate declined
slightly to 6.3 in 2009, increased to 6.8 percent in 2010, and is estimated to have
increased to 7.2 percent in 2011 (Table 2 and Figure 1).
18. Inflation has slowed down following a tighter monetary stance and fiscal
support. Inflation had accelerated in 2010 as a result of increases in international food
and fuel prices, the gradual abolition of the fuel subsidies introduced in 2009, the increase
in aggregate demand, and the sharp nominal devaluation of the Metical, especially
against the US Dollar and the South African Rand. Year-over-Year inflation rate jumped
to 16.6 percent in December 2010 (compared to 4.2 percent in 2009). The Bank of
Mozambique tightened monetary policy by mid-2010 to counter inflation expectations,
which, associated with net sales of foreign currency, reverted the previous trend of the
depreciation of the metical. The tight monetary policy and resulting stronger metical
associated with tight fiscal policy curbed inflation, which year-over-year rate dropped to
5.5 percent in December 2011. As disinflation was successful, the Bank of Mozambique
- 9 -
was able to loosen its policy stance by lowering interest rates and reserve requirements in
August and December of
2011.
19. The External
Current Account Deficit
remains high, but
declining. The current
account deficit declined
slightly to 11.7 percent of
GDP compared to 12.2
percent in 2009, and is
projected to reach
11.2 percent of GDP in
2011. The trade deficit
decreased from US$1.3 billion in 2009 to US$1.2 billion in 2010. Exports increased by
8.7 percent as the 27 percent jump in exports from megaprojects more than compensated
for the 20 percent decline in traditional exports. Imports also increased but at a much
lower rate of less than three percent as megaproject‟s imports increased by 14 percent
while other imports declined by 0.7 percent. Grants decline to 6.4 percent of GDP in
2010 from 6.9 percent in the previous year, while FDI also declined from close to 9
percent of GDP in 2009 to 8.3 percent in 2010.
Table 2: Basic Macroeconomic Indicators, 2008 – 2013
2008 2009 2010 2011 2012 2013
Act. Act. Act. Est. Proj. Proj.
Real GDP growth rate (%) 6.7 6.3 6.8 7.2 7.5 7.9
CPI inflation (%, period average) 10.3 3.3 12.7 10.4 7.2 5.6
Credit to the economy (% change) 45.9 58.6 27.5 19.4 22.2 20.5
Average nominal interest rate (average T-Bill Rate) 13.8 10.6 12.0 15.8 .. ..
Gross domestic savings (excluding grants)/GDP -4.0 -2.6 3.0 4.3 6.0 7.3
Gross domestic investment/GDP 15.7 16.5 22.0 21.2 22.0 23.1
Government 11.6 12.9 14.0 11.6 12.0 12.4
Other sectors 4.1 3.6 8.0 9.6 10.0 10.7
Terms of trade change -3.9 -0.7 12.3 7.0 9.5 4.1
Current Account Balance/GDP (including grants) -11.9 -12.2 -11.7 -11.2 -11.1 -10.9
Real exchange rate change (- = depreciation) 11.8 -6.6 -15.1 .. .. ..
Sources: GoM, IMF and Bank estimates and projections.
20. Fiscal performance improved in 2011 as revenues increased while
expenditures declined slightly as percentage of GDP, resulting in a lower fiscal
deficit. Tax revenues in 2010 and 2011 reached 18.1 and 18.8 percent of GDP compared
to 15.6 percent in 2009, partially as a result of improvements of tax administration
(verification and adjustments to annual income declarations and accounting information),
and increased import volume resulting in higher domestic transactions and consequent
higher sales taxes. Total expenditures and net lending declined by close to one percent of
0
1
2
3
4
5
6
0
10
20
30
40
Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11
US$ Inflation Rand (RHS axis)
Figure 4: Nominal Exchange Rates and Inflation
- 10 -
GDP in 2011, after an equivalent increase a year earlier, driven by a sharp decline of
externally financed capital expenditures.
21. Current government spending, however, led by compensation to employees,
has risen. The wage bill rose to 9.7 percent of GDP in 2011, compared to 9.3 and
8.9 percent in 2010 and 2009, respectively. The wage bill has increased by about
15 percent in real terms from 2009 to 2011. The higher wage and salary bills resulted
from the adoption of a new salary policy and its initial implementation. The government
is currently reviewing the implementation strategy of the salary policy, and the wage bill
is expected to be on a declining trend in terms of GDP starting in 2012. The government
has already realized the impact of the fast rollout of the new salary policy and is
committed under the IMF program to pace its future implementation consistent with
macroeconomic constraints.
22. The high cost of fuel subsidies, an additional source of fiscal concern, is being
reduced by the government. The fuel subsidy represented 1.5 percent of GDP in 2010
but fell to 0.97 percent of GDP in 2011. In 2011, the government raised prices of
gasoline and diesel by 10 percent in April and 8 percent in July. According to the
government, only diesel price remains subsidized and expects to end all fuel subsidies
early 2012 in the absence of unforeseen international price surges. The government paid
off the entire debt to fuel importers accumulated in 2010 and expects to compensate
importers from 2011 losses in 2012. The government has been phasing out the costly and
ill-targeted fuel subsidy with a more efficient voucher system and social protection
systems.
- 11 -
Table 3: Balance of Payments, 2008 – 2013
2008 2009 2010 2011 2012 2013
Act. Act. Act. Est. Proj. Proj.
(Millions of US dollars)
Trade balance -990 -
1,275
-
1,179
-
1,380
-
1,283
-
1,322
Exports, f.o.b. 2,653 2,147 2,333 2,649 2,972 3,251
Of which, exports by megaprojects 1,851 1,311 1,668 1,931 2,231 2,478
Imports, f.o.b. -
3,643
-
3,422
-
3,512
-
4,029
-
4,255
-
4,572
Of which, imports by megaprojects -702 -791 -900 -
1,254
-
1,297
-
1,377
Trade balance for services -410 -457 -506 -855 -865 -
1,005
Income balance -631 -251 -85 -29 -142 -196
Of which: dividend payments by megaprojects -492 -17 0 -5 -169 -206
Current account balance (before grants) -
2,031
-
1,907
-
1,718
-
2,148
-
2,167
-
2,375
External grants 852 687 605 726 659 712
Current account balance (after grants) -
1,179
-
1,220
-
1,113
-
1,422
-
1,508
-
1,663
Financial account balance 768 865 768 1,172 1,361 1,536
Net foreign borrowing by general government 342 434 468 590 934 946
Net foreign borrowing by the non-financial private
sector
-97 -487 -348 -304 -303 -292
Others -64 28 -142 -122 -289 -221
FDI 587 890 790 1,008 1,019 1,103
Change in reserves -140 -352 -87 -128 -248 -319
Memorandum items:
Current account balance/GDP (excluding grants) -20.5 -19.1 -18.1 -16.9 -15.9 -15.7
Current account balance/GDP (including grants) -11.9 -12.2 -11.7 -11.2 -11.1 -11.0
Gross international reserves 1,660 2,012 2,099 2,227 2,474 2,792
In months of projected imports of GNFS 4.4 5.2 4.4 4.5 4.6 4.7
In months of current imports of GNFS 4.3 5.4 5.4 4.7 5.0 5.2
Exchange rate (MTN per US$, period average) 24.2 26.7 33.0 29.9 .. ..
Sources: GoM, IMF and Bank estimates and projections.
- 12 -
Table 4: Fiscal Framework, 2008-2013
2008 2009 2010 2011 2012 2013
Act. Act. Act. Est. Proj. Proj.
(Percentage of GDP)
Total revenue 16.0 17.6 20.6 21.4 22.2 22.6
Tax revenue 14.2 15.6 18.1 18.8 19.5 19.9
Nontax revenue 1.8 2.0 2.5 2.6 2.7 2.7
Grants received 9.4 9.5 8.4 7.7 6.5 6.7
Total expenditure and net lending 27.9 32.6 33.4 32.6 34.6 35.5
Current expenditure 15.7 18.0 19.0 19.8 19.7 20.1
Compensation to employees 8.0 8.9 9.3 9.7 9.6 9.4
Interest payments 0.5 0.5 0.9 0.9 1.1 1.2
Domestic primary balance (before grants) -3.0 -4.3 -3.6 -3.2 -2.1 -2.4
Capital expenditures 11.6 12.9 14.0 11.6 11.9 12.4
Foreign finances 7.0 8.5 7.6 6.0 6.3 6.4
Domestically finances 4.6 4.4 6.4 5.5 5.5 6.0
Overall balance (before grants) -11.8 -15.0 -12.7 -11.3 -12.4 -12.9
Overall balance (after grants) -2.3 -5.5 -3.7 -3.5 -5.8 -6.2
Total financing 2.3 5.5 3.7 3.5 5.8 6.2
External (net) 4.0 5.1 4.2 2.8 5.4 5.4
Domestic (net) -1.7 0.2 -0.6 0.8 0.4 0.8
Net privatization
0.2 0.0 0.0 0.0 0.0
Memorandum items:
Public debt/GDP 40.8 39.1 36.6 35.6 40.6 43.7
External debt 36.6 35.8 33.7 33.6 38.4 40.9
Domestic debt 4.2 3.2 2.9 2.0 2.1 2.8 Sources: GoM, IMF and Bank estimates and projections.
C. ECONOMIC OUTLOOK FOR 2012-2014
23. The medium-term macroeconomic outlook is positive, although Mozambique
will not be immune to a global slowdown. The authorities expect real GDP to grow by
7.6 percent during 2011-14, driven by agriculture, the extractive industries, electricity
and water, construction, and transportation and communications. As discussed in the
PARP, the government proposes reforms to support stronger growth in these labor
intensive sectors, which will take time to implement. In the short run, megaprojects and
investment in infrastructure are likely to remain important contributors to economic
growth. A global slowdown led by the ongoing financial crisis in Europe, however, is
likely to affect negatively growth in Mozambique through lower commodity prices and
ensuing negative effects in foreign direct investment (FDI). Average inflation is
expected to decline from double digits in 2010 to 5.6 percent in 2014, consistent with the
authorities‟ commitment to macroeconomic stability. The macroeconomic framework is
adequate to support continued strong growth.
- 13 -
24. The external accounts are projected to gradually improve over the next few
years, as exports recover, foreign direct investment expands, and foreign borrowing
by the government increases. Export receipts are expected to increase by close to
40 percent (US$1 billion) from 2010 to 2013, fueled by a close to 50 percent increase in
exports from megaprojects, including from new coal mining. Traditional exports are
expected to increase by a more modest 16 percent, staying in the next years below levels
achieved in 2008 and 2009. Foreign direct investment and general government foreign
borrowing, including non-concessional resources, are anticipated to increase by US$800
million, reaching over US$2 billion by 2013 while foreign grants would increase
moderately by about US$100 million and projected dividend payments by megaprojects
increase by about US$200 million by 2013. Lower global economic growth, however, is
expected to have some dampening effect in export growth.
25. On the fiscal side, total expenditures are expected to remain stable in 2011
but increase rapidly in 2012 and 2013, as the government embarks in expanding
infrastructure investments. As Table 4 shows, tax revenue is likely to continue the
recent upward trend, increasing 2011 to 2012 by 1.1 percent of GDP and additional
0.8 percent and 0.4 percent in 2012 and 2013, respectively; while grants decline as
percentage of GDP by 0.7, and 1.2, in 2011 and 2012, respectively. Total expenditures
are anticipated to increase at 2 percent of GDP from 2011 to 2012, and an additional
0.9 percent of GDP in 2013 fueled by externally financed non-concessional net lending.
Fuel subsidies are expected to be completely phased out by 2012 although a
transportation voucher program is planned to start in 2012 absorbing 0.3 percent of GDP.
Domestic primary deficit before grants is likely to decline in 2011 to 3.1 percent of GDP
from 3.3 percent in 2010, and decline further to 2 percent of GDP in 2012. Overall
deficit before grants is expected to decline in 2011 by close to one percent of GDP and
grow in the following two years by 1.1 and 0.5 percent of GDP. Increasing after grant
deficits in 2012 and 2013 are expected to be externally financed in its majority.
26. The Central Bank plans to continue a monetary policy stance consistent with
keeping inflation at one digit. Specifically, the monetary framework that has kept
Reserve Money growth to about 13 percent in 2011 is projected to only accelerate
slightly above nominal GDP growth in the following years. A main challenge in 2011
has been to ensure the implementation and regulation of Law No. 11/2009 of March 11th
- Foreign Exchange Law - approved by Decree No. 83/2010, December 31st, which aim
to complete the liberalization of current transactions in the country. In 2011, the BM
continues to improve the framework for the formulation and management of monetary
policy with emphasis on forecasting models that underpin the activity of the Monetary
Policy Committee (MPC), including aspects of communication with the market and the
public.
27. Despite an overall positive economic outlook, the Mozambican economy faces
substantial downside risks, particularly with regards to a slowdown in international
economic growth. The increased risks posed by the deteriorating global environment
and the negative impacts it would bring to the country as prices of commodities decline
resulting in lower export revenues, foreign investment retracts, and economic activity
- 14 -
slows down, will also result in lower tax revenues. The main transmission channels of a
significant downturn in the global economy – and especially from a recession in Europe –
would be through lower commodity prices and its effects on growth through lower FDI.
In addition, the important trade links to South Africa (including Aluminum exports and
imports of consumer goods) could have a wider effect through the bilateral exchange rate.
28. Under an alternative global growth scenario, assuming the downside risk of a
global slowdown, Mozambique‟s growth is projected to decelerate with growing
fiscal and external imbalances. Assuming a decline in GDP in developed countries of
about 1 percent and almost stagnant overall global growth, real GDP growth in
Mozambique is projected to fall by 1.8 percentage points in 2012 and by 1.6 percent in
2013 (compared to the baseline scenario). Also, under this alternative scenario, the
global downturn is projected to add pressure to the fiscal accounts as fiscal revenues fall
faster than spending and the external current account deficit to widen slightly as lower
external demand and falling commodity prices are expected to affect exports.
Table 5: Macroeconomic Indicators under Alternative Scenarios 2010-2013
2010 2011 2012 2013 Baseline Alternat. Baseline Alternat.
Real GDP Growth (%) 6.8 7.2 7.5 5.7 7.9 6.3
CPI Inflation (% average) 12.7 10.8 7.2 9.0 5.6 9.6
Total Revenues and Grants/GDP 28.7 29.1 28.7 27.5 29.3 27.8
Total Expenditure/GDP 32.5 32.6 34.6 34.5 35.5 35.1
Fiscal Balance/GDP -3.9 -3.5 -5.8 -7.0 -6.2 -7.2
Current Account Balance/GDP -11.7 -11.2 -11.1 -12.0 -11.0 -12.3
International Reserves (US$ million) 2099 2227 2474 2275 2792 2250
Months of Import goods and Services 4.4 4.5 4.6 4.1 4.7 3.9
Debt/GDP 36.6 35.6 40.6 41.7 43.7 45.0
Source: BoM, IMF, and World Bank Staff estimates and projections
29. Additional resources envisaged under PRSC-8, as compared to PRSC-7 and
PRSC-6 would greatly help to mitigate the potential negative impact of an
international crisis. Although the Government has shown strong capacity in dealing
with external shocks, resources from the PRSC-8 would enhance government‟s reform
policies in a worsening external environment. Additionally, the credit would reduce the
need for domestic government borrowing resulting in less crowding out for the private
sector.
Box 2: Mozambique‟s Debt Sustainability Analysis
A DSA update was carried out by the Bank and the Fund in 2011. Mozambique continues to face a low risk
of debt distress. Its external debt levels are expected to remain below their indicative thresholds for debt
distress. However, the government„s plans to temporarily increase public investment financed by external
borrowing on nonconcessional terms, will noticeably increase debt vulnerability, as debt ratios under the
stress tests approach, and in some instances temporarily and marginally exceed, the relevant thresholds.
Although Mozambique„s public debt is expected to decline beyond the medium term, stress tests suggest
vulnerability, mirroring the large share of external debt in total debt.
- 15 -
III. THE GOVERNMENT‟S PROGRAM: PARPA II AND PARP
30. While maintaining its commitment to improve quality and access to social
services, PARPA II, on which this PRSC series is anchored, recognized that “rapid,
sustainable and broad-based growth” warranted more emphasis on the growth of
the productive and private sectors. The strategy envisaged small and medium
enterprises (SMEs) as the engine of employment generation. Rural development also had
a central place in the strategy and an essential role was attributed to districts as the focus
of development. There is also a clear recognition of the challenges related to HIV/AIDS,
with a credible strategy for accelerating the national response to the AIDS pandemic. The
priority areas for public policy were arranged under three pillars: (i) governance; (ii)
human capital; and (iii) economic development. The key areas of public financial
management reforms and the strengthening of the budget process was subsumed under
the pillars of governance and economic development, and benefited from a specific
domain for monitoring and evaluation called macroeconomic management.
31. A new PARP outlines the detailed government program for the period 2011-
14 that strives to foster more inclusive growth. In essence it does not depart
significantly from the previous strategy supported by this PRSC series although it
sharpens its focus towards boosting productivity in labor-intensive sectors and unleashing
the structural transformation and diversification of the economy. The new PARP is built
on three main pillars: (i) increasing production and productivity for the agricultural and
fisheries sectors; (ii) promoting employment; and (iii) fostering human and social
development. In line with the previous PARP it relies on two supporting pillars focusing
on fostering good governance and preserving macroeconomic stability. The PARP is in
line with the Government‟s five-year program (Plano Quinquenal do Governo–PQG), its
long-term vision (the Agenda 2025), and the MDGs. It has been complemented by a
strategic matrix of key indicators. Bank and Fund staff prepared a Joint Staff Advisory
Note on the new PARP, which was discussed by the Board on January 10, 2012.
IV. BANK SUPPORT TO THE GOVERNMENT‟S PROGRAM
A. LINKS TO THE COUNTRY PARTNERSHIP STRATEGY
32. The PRSC series is an important component of the Country Partnership
Strategy (CPS) discussed by the Board in 2007. Bank support to the PARPA II was
through the Mozambique FY08-11 CPS (Report No. 39395-MZ). As government
policies and budget are the main instruments for implementing the PARP, the Bank is
committed to support and align with the government‟s budget process. The indicative
lending program of the CPS envisaged programmatic support through four consecutive
PRSCs. The program supported by the PRSC series recognizes the importance of
strengthening economic governance systems, and the centrality of the new growth agenda
to accelerate private sector development, reflected in the CPS. Specifically the PRSC
series supports achievement of the following CPS outcomes: (#1) improved budget
planning at central, district and municipal level; (#2) improved government fiduciary
systems; (#10) simplify procedures to start a business; (#11) increased access to finance
and support for SMEs.
- 16 -
33. The reforms supported by this PRSC series are also aligned well with the
Bank Group Country Partnership Strategy for FY12-15. The new CPS is built
around the new PARP as well as the Africa Regional Strategy and is aligned around the
pillars of: (i) competitiveness and employment; (ii) governance and public sector
capacity; and (iii) vulnerability and resilience. The current PRSCs series including
PRSC8 are well focused in the first two of these pillars and support to implementation of
reforms in these areas will help further implementation of the government‟s program as
well as the Bank‟s CPS for FY12 and beyond.
34. Strengthening economic governance has been a key objective of the
interventions supported by the PRSC series. The PRSC series has contributed to this
overarching objective through several channels, including (i) strengthening the capacity,
transparency, and accountability of state institutions, by improving PFM systems both at
the central level and at the local level; (ii) fostering a competitive and responsible private
sector through interventions to improve the business environment and the investment
climate; and (iii) contributing to strengthen overall accountability through joint reviews
that monitored progress in implementation of the PARPA II, including raising the
demand for better governance by supporting civil society participation in the joint
reviews, and through the activities associated with the Development Observatories.
35. The Development policy operation is complemented by investment support
and technical assistance. PRSC support continues to coexist with investment lending to
well-articulated sector programs, and with technical assistance to develop government
systems and capacities necessary for an increased reliance on them. IDA‟s investment
portfolio, with 18 projects, is diverse and supports the three pillars of the CPS. As of
December 2011, total IDA commitments were US$1,132 million, and the inclusion of
two regional projects brings the total to US$1,208 million. The share of policy-based
lending in overall IDA disbursements in FY04-07 was below 40 percent, and will stay at
around 40 percent of annual commitments during the CPS FY08-11.
B. HARMONIZATION WITH DONORS, IMPLEMENTATION OF PARIS DECLARATION
AND ACCRA AGENDA FOR ACTION, AND COLLABORATION WITH THE IMF
36. A Memorandum of Understanding (MoU) was signed in March 2009 between
the government and 19 donors (G19) providing general budget support, including
the World Bank. It is based on a set of „fundamental principles‟: (i) predictability and
alignment with domestic systems; (ii) monitoring has to be done jointly and that all
policy actions or expected outcomes in the program have to be based on the common
Performance Assessment Framework (PAF); (iii) no separate reporting to the donors is
required; and (iv) mutual accountability. See www.pap.org.mz for details and a copy of
the MoU.
37. Implementation of the Paris Declaration and the Accra Agenda for Action is
monitored by the G19, the UN agencies and other development partners. The big
challenges are to align project aid with the national budget system, integrate it as much as
possible with the government‟s treasury and reporting system, and reduce the number of
- 17 -
Project Implementation Units. There has been substantial progress to bring project aid
on-budget since 2007, and most of the externally financed projects are now on-budget.
As a result, the budget is increasingly becoming a meaningful instrument for decision-
making on resource allocation, and linking resources to results. The multi-currency
module to the Single Treasury Account (CUT) has been operational since 2007 and the
Government is actively encouraging donors to put all their projects on-CUT. In addition,
the public financial management reforms and procurement reforms supported by the G19
(and also by this PRSC series) are expected to facilitate increased use of country systems
by IDA and other development partners.
38. The Bank and the IMF cooperate very closely within their respective
mandates in assisting the government to implement the PRSP. Mozambique has a
stable relationship with the IMF, anchored on a 3-year Policy Support Instrument (PSI)
approved in 2010. The Bank actively participates in PSI and Article IV missions. The
IMF leads the policy dialogue on macroeconomic policy (including fiscal, monetary, and
exchange rate policies), the electronic integrated financial management system (e-
SISTAFE) and tax and customs reforms. The Bank leads the policy dialogue on public
expenditure management, sector structural reforms, reforms of the civil service, and
poverty and social impact analysis. Areas of close collaboration include banking
supervision, financial sector, trade, the PARP, external debt sustainability, and
maximising the benefits from megaprojects and the use of natural resources. Active
Bank participation in IMF missions has had synergistic benefits, and has reduced the
burden on government. Since 2009, the IMF is an ex-officio member of the G19, and
intends to continue the practice to set the timing of its missions such as to be
synchronized with the joint reviews of the G19.
39. A welcome development has been the design of the new PARP as a dynamic
and flexible document which will facilitate the adoption of more dynamic
development policy operations. In contrast to previous PRSPs, the PARP allows the
Government to adjust priorities and targets in light of changing economic and social
conditions and international developments, and in tandem with the implementation of
sectoral strategies, such as the Strategic Plan for Agricultural Development 2010-19
(PEDSA), the forthcoming Financial Sector Development Strategy, and the successor to
the 2008–12 Strategy for the Improvement of the Business Environment in Mozambique.
The objectives and indicators would be updated in the annual Economic and Social Plan
(PES) and reflected in the Performance Assessment Framework (PAF) agreed with
development partners providing budget support.
40. The Bank participated actively in the elaboration of PAF 2012-14 during the
September 2011 Planning Meetings helping to refine PARP indicators from which
PAF indicators are derived. Departing from the earlier practice, the PAF indicators
include policy and institutional undertakings that are needed to ensure progress in
sectoral outcome indicators. During these Planning Meetings, a streamlined working
group structure was used to undertake assessments of mid-year results, agree on PAF
indicators and technical notes for 2012, and to elaborate a set of undertakings for an
effective implementation of the anti-corruption legislative package now with Parliament
- 18 -
for consideration.5 In line with the Dynamic PARP design, the upcoming Joint Annual
Review in April 2012 will provide an opportunity to discuss and adjust the PARP matrix
and PAF as needed to reflect changing priorities.
41. In tandem with the Bank‟s active role in supporting the inclusive
development vision of the new PARP, it has also led the broadening of the
Development Partners Group (DPG). Since September 2010, the Bank, together with
the UN (co-chair of DPG) has spearheaded the effort to introduce more substantive
discussions among development partners and deepen the coordination among numerous
program and project activities. The quarterly Extended DPG Meetings included
presentations on inclusive growth, rural development, climate change adaptation,
management of agricultural land, and social protection. The Extended DPG Meetings
have drawn high level government participation and is serving as an informal forum to
exchange ideas on key development challenges.
5 The Government has proposed a streamlined working group structure aligned with the 5 pillars of the
PARP 2011-2014, subdivided into 25 topical working groups. For the September 2011 Planning Meetings,
13 working groups provided the sectoral analyses. While not yet formalized, the reduced number of
working groups is expected to contribute to better coordination and reduction of transactions cost for both
the Government and the Development Partners.
- 19 -
Box 3: Alignment between this PRSC and Good Practice on Conditionality
Principle 1: Reinforce Ownership
The proposed operation supports the implementation of Mozambique‟s PARPA II and the Performance
Assessment Framework (PAF) agreed by the government and the G19. The previous PRSC series have
been successfully deployed between 2001 and 2008 and overall progress of the reforms has been
satisfactory.
Principle 2: Agree up front with the government and other financial partners on a coordinated
accountability framework
Progress on the reforms is monitored with the aid of the PAF. Improved service delivery in PARPA
priority sectors is monitored through Sector Working Groups, a mechanism for policy dialogue, donor
harmonization, and for reaching agreement between the government and donors involved in a specific
sector. A budget working group meets on a quarterly basis with the government to monitor budget
execution, particularly in the priority sectors.
Principle 3: Customize accountability framework and modalities of Bank support to country
circumstances
The PRSCs 6 and 7 focused on main constraints such as public financial management and the operation
of the financial sector. The series then evolves to support improvements in the business environment and
shared growth, incorporating triggers related to regulatory reforms in PRSC-8. The Bank carries out all
supervision jointly with the other donors, including the „Joint Review‟ in April to assess progress of
indicators defined in the PAF, resulting in disbursement commitments for the following year. The
„Planning Meetings‟ in September formalize the agreement on the performance indicators and targets for
the following year. PRSC support coexists with a well-articulated investment program, and with technical
assistance to develop government systems and capacities necessary for an increased reliance on them.
Principle 4: Choose only actions critical for achieving results as conditions for disbursement
As agreed with the development partners and the government, and in line with the Bank move towards
increased harmonization, starting with the previous PRSC series the Bank shifted to use triggers selected
from the common PAF used by all G19 partners. The PRSC prior actions are indicators in the PAF
selected for their criticality in achieving objectives which are consistent with the government‟s own
monitoring framework and in line with donor harmonization for general budget support.
Principle 5: Conduct transparent progress reviews conducive to predictable and performance-
based financial support
The Bank‟s supervision of the PRSC series is aligned with the supervision of the joint General Budget
Support program of the G19. Both the April Joint Review and the September „Planning Meetings‟ are a
multi-sector exercises, and Bank staff participates in all relevant sectors. Disbursements are contingent on
satisfactory progress towards a subset of the PARPA‟s medium-term objectives as set out in the PAF
matrix. In addition, the review process is explicitly designed to allow announcing budget financing
amount early in the year in the budget preparation cycle and to disburse early in the budget year, a
principle to which the Bank adheres.
V. THE PROPOSED POVERTY REDUCTION SUPPORT CREDIT
42. The proposed PRSC-8 is the last operation in a series of three annual
operations supporting the implementation of the PARPA II. The PRSC series is
harmonized with the joint donor (G19) mechanism for the provision of general budget
support. All the proposed prior actions and triggers for this PRSC series are drawn from
the joint PAF and/or the „Political and Economic Governance Reforms Matrix‟ agreed by
- 20 -
the government and G19 in March, 2010 (see Annexes 3 and 4), consistent with the
government‟s own monitoring framework. .
43. The PRSC series supports objectives from the PARPA II results matrix. As
intermediate outcomes the PRSC series supports improvements in:
(i) Macroeconomic management: To consolidate and deepen institutional
reforms to improve the use of public resources through better budget
formulation, stronger public financial management systems, stronger internal
and external oversight, and civil service wage and pension reform.
(ii) Economic development: To continue to support broad-based growth by
reducing the excessive regulation constraining business activities, improving
the information basis for access to credit, simplifying the regulatory
environment for business development and promoting more efficient land use
and better access to land. Additional areas address reforms required for
membership in the EITI, and strengthening the legal and institutional
framework for PPPs and concessions.
44. The PRSC-8 supports specific reforms which are part of the above program. The PRSC-8 supports reforms to improve macroeconomic management by expanding the
use of direct budget execution through the e-SISTAFE, increasing the coverage and
efficiency of internal and external audit bodies, and improving the operational
functioning of the procurement system. In terms of economic development, the PRSC-8
supports the simplification of licenses to register and operate businesses in Mozambique,
especially expanding the business areas allowed to use a simplified licensing procedure;
produce the first report under the EITI initiative; and approval of laws on PPPs and
concessions.
45. The program supported by the PRSC series has been extensively discussed
with major stakeholders and civil society. The program of reforms supported by the
PRSC has been fully discussed with Civil Society Organizations since its triggers are
from PARPA-II, which was prepared through broad based consultations with CSOs.
Similarly, the monitoring of the implementation is open to participation from the public
and representatives of Civil Society Organizations, through the work of the Development
Observatories and their participation in the two annual G19 reviews. In addition, Bank
staff carried out two special sessions with CSOs in 2009 to discuss the preparation of the
PRSC series.
46. The policy matrix and results framework for the PRSC series in Annex 2
presents the specific areas supported by the PRSC series. The prior actions have been
selected following two broad principles: (i) it entails a policy or institutional reform
which is critical to remove a key constraint to poverty reduction and growth (based on the
findings of existing analytical work), or is an implementation activity of a reform
initiated earlier; and (ii) is part of the Performance Assessment Framework (PAF) or the
„Political and Economic Governance Reforms Matrix‟.
- 21 -
47. The program supported by the PRSC series has been informed by a
significant amount of analytical work completed over the past few years. A summary
of the main analytical studies which have informed the design of the PRSC series was
discussed in the PRSC-6 document.6 The policies and reforms supported by the PRSC
focus on the challenges to sustained growth and poverty reduction in Mozambique which
have been identified in the studies.
VI. THE REFORM PROGRAM SUPPORTED BY THIS PRSC
SERIES
48. This section highlights the recent progress in the reform areas supported by
the PRSC series, with a focus on the proposed prior actions for PRSC-8. The PRSC
series focuses on two main areas, macroeconomic management with special emphasis on
public financial management reforms, and economic development addressing the
simplification of business registration and operations. The implementation of the overall
program supported by the PRSC series continues to be satisfactory.
A. MACROECONOMIC MANAGEMENT
49. Mozambique‟s good macroeconomic performance contributed to the excellent
growth record in the past decade. Moving ahead there is a need to continue to
consolidate macroeconomic stability, strengthen public financial management, and
improve the allocation and efficiency in the use of public resources. Without
improvements in these areas, the country‟s economic growth rate and potential poverty
reduction will be jeopardized.
Improve the budget process and the use of public resources
50. The objective of these reforms is to strengthen the allocation of public funds
through the budget preparation and execution process. The reforms have introduced the
Medium Term Expenditure Framework (MTEF) as an important framework for medium
term financial planning and resource allocations, and the government is now in the
process of adopting a programmatic budget classification to allow better links between
PARPA, MTEF, and budget allocations, and reestablish the importance of the MTEF as a
strategic planning instrument.
51. The government goal has been to strengthen the MTEF to use it as the basis
for the sectoral budget allocations, and support programmatic implementation of
6 The Public Expenditure and Financial Accountability (PEFA) reports in 2006 and 2008, the findings of
the IMF technical assistance missions on progress of PFM reforms in January 2008 and March 2009, a G19
PFM Quality Assurance Group mission in March 2009, Country Procurement Assessment Reviews
(CPAR) of 2001 and 2008; Country Economic Memorandums of 2005 and 2009; Investment Climate
Assessment (ICA) and Financial Sector Assessment (FSA) of 2009; a Poverty Assessment completed in
2007, and a Policy Note on the impact and policy options to respond to the higher food and fuel prices
completed in 2008.
- 22 -
PARPA II. The quality of the MTEF has improved since the 2007-09 MTEF went to
Cabinet approval for the first time and following implementation supported by PRSC-6.
However, there are still a number of weaknesses associated with this instrument, as
reflected in the relevant PEFA indicator. The CFMP can be improved through better
medium term forecasts for the outer years. At the aggregate level, these discrepancies
derive predominantly from differences between the budget and the CFMP in the coverage
of externally financed projects and in the underlying inflation assumptions. At the sector
level, the discrepancies are still greater, reflecting the fact that the main vehicle for
prioritization of allocations is the annual budget process rather than the CFMP. There is
also a significant gap between the scope and quality of data in the MTEF pertaining to the
domestic versus the external component of the budget.
- 23 -
Table 6: Prior Actions for PRSC-8
PRSC-6 Prior Actions
PRSC-7 Prior Actions6
PRSC-8 Triggers
(as set out in PRSC7)
Proposed
PRSC-8 Prior Actions
Comments
MACROECONOMIC MANAGEMENT AND PUBLIC FINANCIAL MANAGEMENT
The aggregate envelope and the
aggregate allocation to priority
sectors in the budget 2009 are in line
with the first year of the MTEF 2009-
2011.
90% of the budgetary execution of
the UGEs in goods and services and
investments through direct budget
execution.
90% of budgetary execution of the
UGEs in goods, services and
investments through direct
budgetary execution; and at least
10% of execution of wages
through direct budgetary
execution.
37.5% of the State total
expenditures executed through
direct budget execution.
The Ministry of Finance has
expanded the use of the integrated
electronic financial management
system e-SISTAFE to no less than
430 Budget Units resulting in Direct
Budget Execution of 37.5 percent of
the State Budget.
Met
Improved the operational of the
Procurement system as shown by: (i)
88% of contracts of the public sector
were subject to public tender in 2008
in accordance with the current
Mozambican procurement
legislation; (ii) information on other
modalities of contract has been
communicated to UFSA with the due
justification in at least 90% of cases;
(iii) the process of complaints, as
defined current Mozambican
procurement legislation, is
operational
Operational functioning of the
Procurement system improved:
Approval by the Ministry of
Finance of a Management
Information System (MIS) for
UFSA based on a web interface to
be used as a management tool to
track the procurement performance
of the key ministries to ensure
compliance and best value for
money.
The MIS is still under
development.
The Government has ensured that
internal control units have been
established in at least 75% of
central and provincial level bodies.
The Government has ensured that
internal control units have been
established in 100% of central and
provincial level bodies.
The Ministry of Finance has
established internal control units in
all of its central and provincial level
bodies.
Met
- 24 -
PRSC-6 Prior Actions
PRSC-7 Prior Actions6
PRSC-8 Triggers
(as set out in PRSC7)
Proposed
PRSC-8 Prior Actions
Comments
The Court of Accounts will continue
to expand the coverage of the audit of
the State Budget in accordance with
the technical norms of INTOSAI to at
least 30% in 2008.
The Court of Accounts will
continue to expand the coverage of
the audit of the State Budget in
accordance with the technical
norms of INTOSAI to at least 35%
in 2009.
The Court of Accounts has
continued to expand audit coverage
of the State Budget from 35 percent
in Fiscal Year 2009 to at least
37 percent in Fiscal Year 2010,
according to INTOSAI technical
standards and according to the laws
of Mozambique.
Met
Cabinet approval of the Medium
Term Wage Policy approved
The Council of Ministries approval
of the pension reform.
Implementation of a
comprehensive IT system at the
INSS.
Reform still under
preparation.
Under implementation but
included as a prior action.
The Ministry of Finance has
elaborated the IFRS transition plan
(with the assistance of consultants)
The Cabinet has approved a
Decree mandating implementation
of IFRS in large firms starting in
2010 and medium firms starting in
2011.
ECONOMIC DEVELOPMENT
Land taxation reform: The
Minister of Agriculture approved a
Ministerial Diploma to adjust land
tax rates to account for inflation
since the land law regulations were
approved in 1998.
Approval by the Council of
Ministries of the reform of land
taxation.
Reform still under
preparation.
The Cabinet has reduced the
average time needed for import
and export operations to 23 days
and 30 days respectively in 2009,
by approving a Decree allowing
complete pre-arrival clearance of
goods and creating the figure of
Approval by the Council of
Ministries of a legislative proposal
to simplify all business-related
licenses, and eliminate unnecessary
licenses.
The Ministry of Industry and Trade
has sent to the Council of Ministers
for discussion and approval a draft
decree to simplify business related
licenses while allowing an
additional seventy economic
activities to be registered and
Met
- 25 -
PRSC-6 Prior Actions
PRSC-7 Prior Actions6
PRSC-8 Triggers
(as set out in PRSC7)
Proposed
PRSC-8 Prior Actions
Comments
the „reliable and trustworthy
traders‟ which will benefit from
simplified import and export
procedures.
operate under simplified licensing
procedures.
The government has appointed the
EITI permanent national
coordinator, hired staff for the
national EITI secretariat, and
convened the EITI multi-
stakeholder meeting.
Production of first report under
EITI initiative.
The Ministry of Mineral Resources
has produced the first report under
the Extractive Industries
Transparency Initiative (EITI).
Met
The Council of Ministries has
approved two Bills of Law: (a)
PPPs and (b) concessions.
The Public Private Partnerships Law
has been enacted and published in
the Official Gazette.
Met
- 26 -
52. The government is working to improve various aspects of the MTEF and the
budget preparation and execution. The quality of MTEF and budget submissions by
sector ministries is still uneven. In 2009, the program budget pilot was extended to the
full budget, and the MTEF and budget are now presented using a programmatic format,
although they essentially remain prepared and expressed according to line items, using
the traditional classifications. The PEFA 2010 confirms that “much work has gone into,
and continues to go into the development of program budgeting”. This trend has
continued in 2011. At the same time there will be continued efforts to ensure that the
planning system and the budgeting system are better integrated. Since 2010 there has
been an improvement in the quality of the documents issued by GoM but the main
development is the consolidation of program budgeting, following pilot schemes in 2008
and a roll out to all sectors in 2009. For 2011 the social and economic plan has been
restructured. There are changes in presentation, including a matrix outlining what actions
are being proposed, what objectives they relate to, and how they link to the Government‟s
5 year plan. The perception is that this will represent a qualitative leap in the information
previously provided.
53. The government has also been working to improve the comprehensiveness of
the budget making a substantial effort to bring all aid on budget. While projections
on common funds and direct budget support have been fairly accurate, the same does not
apply to projects and vertical funds. The government has established and is making use of
the ODAMoz database (http:\\www.odamoz.org.mz). The quality and realism of the
information in ODAMoz needs to be improved to raise the usefulness of the budget and
the MTEF as planning instruments. In addition, several donors have started to channel
their project funds through the CUT, and the World Bank is at the forefront of this
process, with all new projects going through the CUT.
54. Going forward, there is a need to further refine and consolidate the
programmatic approach pursued by the authorities. The Bank team, in collaboration
with the IMF and other budget support partners, is providing technical assistance to
support the government efforts towards gradually introducing a form of program
budgeting which can be suitable for Mozambique. There is strong interest and demand
for building on existing steps to introduce program budgets in Mozambique, at the
political level in Government and Parliament as well as at managerial and technical levels
in central ministries (like Finance and Planning) and in some line ministries. However,
there are still many obstacles in the path of program budgeting reform, including general
limits to capacity, deficient information of the kind required for effective program-type
reform and considerable communication problems between key players in Mozambique‟s
Public Financial Management. The authorities agree to move forward in the reforms
following three scenarios: (i) A baseline scenario, in which program budgeting would not
be scaled-up, but MPD and the Ministry of Finance would work together on resolving
issues with the strategic allocation of resources (setting sector ceilings based on better
defined priorities and procedures and using them for the annual budget), make better use
of the existing functional classification and improve budget execution; (ii) An
intermediate scenario, where program budgeting would be deepened throughout the
- 27 -
budget cycle, from appropriations to execution, reporting, joint monitoring of financial
and physical results, internal and external oversight, but only in a very limited number of
sectors (between one and three, to be chosen between health, education, public works,
justice and agriculture);and (iii) An ambitious scenario, where program budgeting would
be deepened throughout the budget cycle for a greater number of sectors (between four
and 10). The Government of Mozambique intends to flesh out these scenarios in terms of
the financial, human and technical resources they would require, as well as in terms of
their timelines. The costs and benefits of each scenario will then be compared to inform
the political decision by the Cabinet needed to move forward.
Improve the efficiency and effectiveness of public financial management
55. The objective of this set of reforms is to implement the policies and procedures
embedded in the SISTAFE PFM reform law, resulting in sounder budgeting practices,
tighter internal controls, more efficient cash management, more accurate accounting and
reporting and auditing compliant with international standards. During the previous
PRSC series, the government launched the integrated electronic financial management
system (e-SISTAFE) on a pilot basis, and progressively rolled it out to all ministries at
central and provincial level, and to a large number of autonomous agencies. This PRSC
series supports increasing the utilization of e-SISTAFE to manage Mozambique’s public
finances, paving the way for substantial improvements in accountability, transparency,
and efficiency.
56. The government has embarked on a sequenced program of reform, and
Public Financial Management (PFM) systems have shown major improvements in
recent years. Implementation has been supported by PRSC-6 and PRSC-7 and
Mozambique is now one of few countries with three successive good quality PEFA
assessments. The 2010 PEFA states that “the period of 2007 to 2009 has been a period
mainly marked by consolidation of several of the reforms initiated between 2004 and
2007 alongside the stabilization and expansion of the use of e-SISTAFE as the key
accounting and reporting system for public institutions” (see Table 7).
57. To guide the next phase of the reforms, the Ministry of Finance has prepared
a medium-term Vision Paper for Public Financial Management reforms. The vision
paper aims to provide a prioritized series of short and medium-term activities, as well as
long term structural reforms, in order to sustain the progress made and to consolidate and
deepen the improvements in public finance management system.
58. The cornerstone of the authorities‟ action plan to strengthen Public Financial
Management is the consolidation and expansion of the integrated electronic
financial management system (e-SISTAFE). Following an initial pilot in 2005 (prior
action for PRSC-3), the full version of the Direct Budget Execution Module was finalized
and rolled out to all ministries at the central and provincial levels by end-2007, and to the
31 districts which had the prerequisite infrastructure (PRSC-4 and PRSC-5 prior
- 28 -
actions).7 By the end of 2010, 438 budget units were using the e-SISTAFE, with
42 percent of the total budget execution a (compared to 29 percent in 2009), and 58 more
units were added in 2011.
59. The government has started working on complementary reforms designed to
make full use of the benefits the e-SISTAFE can deliver. Direct budget execution
improves substantially Public Finance Management. Direct budget execution is
obligatory for all State institutions with access to e-SISTAFE. Direct budget execution
involves three steps: the commitment of the expenditure, its „liquidation‟ when resources
are assigned for payment and the actual payment, when funds are transferred directly
from the Single Treasury Account (CUT) to the bank account of the supplier. When it is
adequately implemented, the direct budget execution modality ensures that the steps are
authorized within e-SISTAFE by three different agents in charge of budget execution
(initiates the commitment and liquidation processes), internal control (verifies
compliance of the process and supporting documentation with rules and regulations), and
financial execution (authorizes payment at the end of the process). The segregation of
duties between the agents is embedded in the design of e-SISTAFE, as the three user
profiles are mutually incompatible. The direct budget execution modality should also
ensure that budget commitments remain within their respective ceilings, as the system
blocks excessive commitments.
60. The implementation of e-SISTAFE in all Ministries at central and provincial
level has allowed the transition from the previous system of advance payments
towards a modern system of direct budget execution. Budget units started to make
their payments directly by bank transfer from the Single Treasury Account at the end of
2007. One year later, over 90 percent of goods and services and investments transactions
of budget execution units were carried out live through e-SISTAFE (prior action for
PRSC-6), resulting in 20 percent of the of the state budget directly executed via e-
SISTAFE. The roll out of the e-SISTAFE to additional budget units resulted in
increasing percentage of the budget under the direct execution, achieving 29 percent in
2009 and 37.5 percent in 2010 (PRSC-8 prior actions) and it is expected to increase to 45
percent in 2011.
61. The e-SISTAFE has increased budget credibility with the reduction of the
deviation in the actual expenditure out-turns compared to the budget. The
difference between the primary expenditure out-turns compared to the originally
budgeted (i.e. excluding debt service charges and externally financed project
expenditure)8 reduced in recent years, reaching 0.35 percent in 2009 and 0.9 percent in
2010, and the distribution of the budget execution throughout the year has become
smother, thereby avoiding the risk that a large share of the budget is spent in a hurry and
7 The roll-out was accompanied by an extensive training program, involving 1850 users, who have acquired
good operational skills and are now able to formulate requests for additional functionality. 8 It is important to distinguish between expenditures funded by domestic sources and expenditures funded
by Overseas Development Assistance (ODA), since the government has less control over the timing of
ODA disbursements.
- 29 -
therefore has a lower impact. The corresponding indicator was raised to an A in the
PEFA 2010.
62. A second area of improvement has been in the stock and monitoring of
expenditure payment arrears. Using e-SISTAFE, all commitments, expenditures due
for payment resulting from the commitments made up until the end of the fiscal year and
all uncleared advances are recorded by the system of registering and accounting for
expenditures, allowing to know precisely the value of unpaid expenditure commitments.
Further, the way the system is conceived it does not permit the accumulation of
expenditure arrears. As presented by Public Accounts Directorate in the Annual Accounts
of 2007, 2008 and 2009 the stock of arrears is low (below 2% of total expenditure),
meriting an “A” score to the first dimension of this indicator.
63. A third area of progress relates to the ability of the authorities to obtain
reliable, timely and relevant data on budget execution. The response to the food and
fuel prices crisis provides an illustration of this. The authorities, by a careful analysis of
the data provided by e-SISTAFE, were able to identify US$ 46 million in savings through
reduced domestic and international travel. This example highlights the potential for
efficiency savings and creation of fiscal space associated with a more systematic
analytical use of the data produced by e-SISTAFE.
64. A fourth area of significant improvement relates to the predictability in the
availability of funds for commitment of expenditures by budget holders.
Predictability in resource flows is fundamental for budget holders to plan and execute
expenditures. A quarterly system of programming expenditure commitments through the
e-SISTAFE system was introduced in 2006 and since then, budget holders have
continued to enhance the use of this tool. The increased use of direct execution modalities
(rather than execution through funds advances) has also facilitated good cash flow
management by the Treasury Directorate (DNT). A significant improvement has occurred
since 2010, whereby the sectors are now starting to program their expenditure
commitments on a monthly basis, and stipulating within the month what sums they
require each week to be disbursed from the Treasury. The Treasury releases amounts
according to what is programmed by the sectors. This is as a direct result of
decentralization whereby the sectors that need the funds state what they need and when
they need it, specifying particular weeks representing a tangible improvement.
65. PFM reforms in Mozambique over the last decade led to successful
improvement in PFM systems. Mozambique is among the highest performing countries
scoring the second highest overall average on the aggregated PEFA indicator score (out
of 31 African countries, with only Mauritius performing better). This indicates that its
system now conforms very well to the form of what PEFA considers a modern system,
but a deeper analysis of a number of sub-dimensions of the PEFA indicators show that
this has yet to translate into full functionality of such system. However, these PFM
outcomes primarily driven by central PFM institutions have not fully contributed to
sector and economic outcomes. This is also clear from analysis of PEFA indicators (PI -
2, 9, 12, 19, 21, 23 & D-2) which show modest improvement over time as these require
- 30 -
greater strengthening PFM at sector and provincial/district levels. For example, by
publishing a revised Procurement Decree in 2010, reinforcing UFSA and installing 821
UGEAs, Government has contributed significantly to the legal framework and
institutional architecture of public procurement systems as a response to CPAR 2008.
However, little has been achieved on making these systems functional and even less on
integrity. Limited in-depth knowledge and understanding of the procurement legislation,
meager financial resources, limited capacity, and resistance to change to adopt new
procurement practices at UGEAs undermine their ability to fulfill their mandate.
- 31 -
Table 7: Summary of PFM Performance Ratings 2006 - 2010
INDICATOR 2006 Score
(a)
2008 Score
(b)
2010
Score (c)
A. PFM OUT-TURNS: Credibility of the Budget
PI-1 Aggregate expenditure out-turn compared to original approved
budget
A (B) B A
PI-2 Composition of expenditure out-turn compared to original
approved budget
B C D
PI-3 Aggregate revenue out-turn compared to original approved budget B C A
PI-4 Stock and monitoring of expenditure payment arrears D+ B+ B+
B: KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency
PI-5 Classification of the Budget B B B
PI-6 Comprehensiveness of information included in budget
documentation
B B A
PI-7 Extent of unreported government operations C+ (C) C+ C+
PI-8 Transparency of inter-governmental fiscal operations C+ C+ B
PI-9 Oversight of aggregate fiscal risk from public sector entities D+ D+ D+
PI-10 Public access to key fiscal information C B B
C: BUDGET CYCLE
C(i) Policy-based Budgeting
PI-11 Orderliness and participation in the annual budget process B B+ B+
PI-12 Multi-year perspective in fiscal planning, expenditure policy and
budgeting
C+ C+ C+
C(ii) Predictability and Control in Budget Execution
PI-13 Transparency of tax-payers‟ obligations and liabilities B B+ A
PI-14 Effectiveness of measures for tax-payer registration and tax
assessment
C+ B A
PI-15 Effectiveness in collection of tax payments D+ D+ C+
PI-16 Predictability in the availability of funds for commitment of
expenditures
D+ C+ C+
PI-17 Recording and management of cash balances, debt and guarantees B+ A A
PI-18 Effectiveness of payroll controls D+ B B
PI-19 Competition, value for money and controls in procurement C B B
PI-20 Effectiveness of internal controls for non-salary expenditure D+ B B
PI-21 Effectiveness of internal audit C+ C+ C+
C(iii) Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation B B B
PI-23 Availability of information on resources received by service
delivery units
C D D
PI-24 Quality and timeliness of in-year budget reports C+ C+ C+
PI-25 Quality and timeliness of annual financial statements C+ C+ C+
C(iv) External Scrutiny and Audit
PI-26 Scope, nature and follow-up of External Audit D+ C+ C+
PI-27 Legislative scrutiny of the annual budget law B+ B+ C+
PI-28 Legislative scrutiny of external audit reports C+ C+ C+
D. DONOR PRACTICES
D-1 Predictability of Direct Budget Support C+ A A
D-2 Financial information provided by Donors for budgeting and
reporting on
project aid
D+ D+ D+
D-3 Proportion of aid that is managed by use of national procedures D D C
(a) Assessment Period was 2002, 2003 and 2004 – PEFA Report 2006
(b) Assessment Period was 2004, 2005 and 2006 – PEFA Report 2008
(c) Assessment Period is 2007, 2008 and 2009 – PEFA Report 2010
- 32 -
66. A fifth area of improvement is in internal controls and reduced risk of
diversion of funds. The direct execution modality also results in the suppression of a
number of commercial bank accounts that were previously used to hold cash advances.
This greatly reduces the risk of misappropriation of funds, and streamlines internal
control procedures by avoiding the need for bank reconciliations to be performed in the
field. Support to improvements to internal control was specifically supported under
PRSC-7.
67. The paper-based culture still limits the effectiveness of the e-SISTAFE
system. There is evidence that the execution of goods and services often undergoes a
dual process, partly manual and partly automated. Commitments are often entered on the
basis of paper processes and paper accounting books and only after goods or services are
delivered and an invoice is received, the budget execution agent enters the commitment,
liquidate the amount due and request the funds for payment in e- SISTAFE. Expenditure
could in theory be committed over and above the corresponding appropriations. To
tackle this problem internal audit is reviewing a sample of direct execution processes to
verify the effective use of the system. In addition they plan to monitor this phenomenon
over time and identify areas (sectors and geographic location) where the problem is most
prevalent in order to focus efforts to resolve the problem.
68. Mozambique‟s fiduciary accountability has improved significantly in recent
years, but challenges remain. The 2010 PEFA report lists remaining weaknesses and
challenges such as the monitoring of aggregate fiscal risk, and the scope of follow-up
actions of external scrutiny and auditing.
69. The government has started working on the second generation of reforms,
including the integration of the management of payroll and revenue collection in the
e-SISTAFE. Until 2008, the payment of salaries and pensions was executed centrally by
the accounting department of the Ministry of Finance. However, by the end of 2009,
there were 83 state institutions using the direct budget execution module for salary
payments via e-SISTAFE, which represented about 10 percent for recurrent payment, and
rose to 11.2 percent in 2010. The government objective is for all salaries (and pensions)
to be paid via e-SISTAFE, which will require the development of an integrated electronic
payroll management system (called e-Folha), to calculate salary entitlements and issue
payment requests automatically. The development of this module began in 2009, but is
yet to be finalized. The government is consolidating the use of direct execution of goods
and services and investments transactions of budget execution units through e-SISTAFE.
PRSC-8 Prior Action 1: The Ministry of Finance has expanded the use of the
integrated electronic financial management system e-SISTAFE to no less than 430
Budget Units resulting in Direct Budget Execution of 37.5 percent of the State
Budget.
- 33 -
Make the State procurement system for goods and services transparent and efficient
70. Over the past few years the government approved and introduced a new
procurement system that generally meets international standards of efficiency and
accountability: new legislation approved in 2005; creation and operationalization of a
new central procurement institution (UFSA) in 2006 and 2007. In 2010 a new
Procurement Decree was approved, building on the experience of the reforms over the
past five years. Overall, UFSA has succeeded as the central public procurement
authority through capacity-building programs and disseminating of bidding documents
and manuals. Additionally, UFSA has established a website that provides basic
procurement information like bidders, registration, invitations to bid, and contract
awards.
71. Substantial progress has been achieved in the implementation of the
procurement reforms. Most of the activities envisaged as part of second phase of
implementation of the procurement reforms have been completed (including PRSC-6
prior actions). A proposed trigger for PRSC-8 calling for approval of a Management
Information System will not be considered a prior action for this operation.
72. Mozambique counts with a modern legal and regulatory framework,
generally aligned with international good practice. There are a manual and a set of
(nine) standard bidding documents and contracts based on international standards; the
UFSA was established and staffed, and became operational in 2006 (PRSC-3 prior
action); a deputy-director, staff and consultants have been appointed, and a website is
also operational (at http://www.concursospublicos.gov.mz); and a first set of 472 Units
for Execution and Management of Acquisitions (UGEAs) was established as of end-
2007. These reforms are accompanied by a process of capacity building and to date
around 1860 technicians have been trained at central, provincial, district and local
municipality levels. As a result of these reforms, Mozambique has moved into a system
based on open competition as the default setting, transparent and objective evaluation and
qualification criteria are being created, and public advertising is now mandatory.
Reflecting these improvements, development partners increasingly rely on
Mozambique‟s systems for National Competitive Bidding, and move to organically
integrated project implementation units.
- 34 -
73. Notwithstanding progress, there are additional areas where more reforms
are needed. The CPAR update found a need for a more robust management information
system since there is no system in place yet to ensure that all UGEAs systematically
report procurement information. The government is working to develop a simple but
strengthened M&E system, with a web interface to allow UFSA to collect data directly
from UGEAs through an electronic submission system, and track the procurement
performance of main ministries. The CPAR also highlighted the need for an effective
complaint mechanism to disclose abuse of the systems and allow for effective remedies
while maintaining the efficiency of the process. The CPAR recommends the adoption of
a more strategic/sustainable approach to capacity building including (i) the development
of a strategic plan at national and subnational level to train UGEAs and private sector on
implementing the Procurement legislation; and (ii) the development of a specific
professional career and certification procedure within the public service for procurement
specialists.
74. Competitive bidding has become the default choice of procurement. The new
Procurement Decree and its dissemination activities clearly emphasizes the exceptional
nature of the use of single sourcing, and limits its scope by articulating the necessary
conditions for the use of this procurement modality. Training on the new decree has
started recently for all Permanent Secretaries and Provincial Directors.
Increase coverage and efficiency of internal audit bodies
75. The objective of these reforms is to increase efficiency and accountability by
strengthening the internal audit institution (IGF) and its capacity to conduct audits.
Figure 5: Progress in Mozambique‟s Procurement System 2002-2008
Source: Mozambique Country Procurement Assessment Review (CPAR), December 2008.
0.00 0.50 1.00 1.50 2.00 2.50 3.00
Legislative Framework
Institutional and Mgmt Capacity
Operations & Market
Integrity & Transparency
Current framework
Before the start of reform and modernization
Mozambique: OECD Methodology Comparative Analysis 2002–2008 Rating of Base Line Indicators
- 35 -
Although financial accountability environment in Mozambique is improving, internal
controls, internal audit and external oversight have been identified as weak spots in the
system. This PRSC series support reforms in internal audit and controls to improve both
the coverage and the quality of the internal control system.
76. The internal audit institution (IGF) has been substantially strengthened in
recent years and follow up of audit recommendations is being monitored.
Mozambique received a B rating on effectiveness of Internal Audit (PI-21) in the 2008
PEFA as the country has an established institutional set-up for internal audit. However,
this rating has been adjusted to a C+ in the PEFA 2010 related to the extent of
management response and audit recommendations implementation. However, the same
report states that, in late 2009, IGF have started the development of a database with the
objective to improve the monitoring of the implementation of audit recommendations by
institutions. In such database recommendations are classified in categories – criminal,
disciplinary, procedural – and such categories are being improved to be consistent with
TA classification. In addition an internal rule has been established in IGF that requires
that the auditors once completing an audit must feed information into this database. If the
database is maintained and developed improvements can be expected in the scoring in
future assessments.
77. The roll-out of internal oversight bodies increased coverage of internal
control, but did not adequately address the quality aspect of internal audit and
control. The objective of transforming IGF and other internal audit bodies into entities
following international Institute of Internal Auditors (IIA) standards features in the
government's PFM vision for 2020. However there are strong discrepancies among
internal audit bodies. For example, IGF has drafted an audit manual that is consistent
with good practices, and is starting to implement risk-based audit techniques; although
less progress has been achieved by sectoral internal oversight bodies, which have not
really started to focus on risk-based auditing. The Bank has been supporting the
Government to provide training on the application of a risk-based audit approach and
advising on necessary tools and institutional IA reforms, including a forum for high-level
managers focused on benefits of risk-based auditing and an interactive training course
with audit staff. This will be accompanied by a pilot risk-based audit in three ministries
or departments to apply the new techniques learned by staff and an assessment of the
lessons learned from this pilot.
78. The number of audits completed by the IGF almost doubled in relation to
2005 and IGF carried out almost all planned audit activities. Audits have been carried
out in 32 percent of all districts and municipalities (PRSC-4 prior action). As of end-
2007, approximately 25 percent of central and provincial level bodies had operational
internal audit units (also referred to as „internal control units‟) compared to none in 2006
(PRSC-5 Prior Action). By end-2009 there were 26 units of internal control (OCI) in
operation at central level and 36 OCI at provincial level. More recently, the government
has accelerated the full implementation of the Subsystem for Internal Control (SCI),
including the institutionalization of the Internal Control Organs (Órgãos de Controlo
Interno, OCI) in State bodies. The rolling out was completed in January 2012.
- 36 -
79. Progress in the audit function has continued through 2011 and its assessment
through the PAF. As a result of government commitment and policy dialogue with the
donors, including the World Bank, progress in the audit function have continued in 2011.
The internal audit indicator in the PAF will now monitor the number of audit
recommendations made by each of the auditing institutions (incl. TA, IGF, and OCIs) and
also how many of these recommendations have been implemented by the executive. This
is a significant step forward. Similarly, the focus of external audit indicator has been
shifted to include the judgment process on the audit report.
PRSC-8 Prior Action 2: The Ministry of Finance has established internal control
units in all of its central and provincial level bodies.
Increase coverage and efficiency of external audits
80. There has also been improvement in the external scrutiny and external audit
function in recent years. The performance of the Tribunal Administrativo (TA) has
been improving, and it is now increasingly respected as an independent and professional
watchdog of public financial management. The TA is involved in a process of continuous
improvement with the technical assistance of AFROSAI-e and other Supreme Audit
Institutions (SAIs) and the support of a multi-partner common fund.
81. The Report and Opinion on the Annual State Accounts is completed within
the terms stipulated by law and is available on-line. The Report and Opinion on the
Annual State Accounts, including full information on revenue, expenditure, financial
assets and liabilities, at all level of government, is submitted to the Parliament within the
term stipulated by law. At the same time there has also been a qualitative improvement
in the depth and quality of analysis, and a broadening of coverage to range over more
aspects of the State Accounts.
82. Substantial progress has been made over the past few years in improving the
capacity and performance of audit activities. To inform the preparation of the audit of
the Annual State Accounts, the TA has increased substantially the number of verification
audits of the accounts of various public institutions at central and decentralized levels.
The Tribunal is now required to use a risk matrix to select accounts for audit, in which
the value of expenditure is a key determinant; and there is also a planned cycle of audits
in which most accounts are audited at least once every 2.5 years. The latest plans from
the Tribunal, for 2011-2014, suggest a target of 40 per cent of expenditure and around
450-500 audits a year – which would be consistent with an audit periodicity of 2.5 years.
But if high value accounts are audited more often than 2.5 years this should mean a much
higher percentage of the budget audited each year.
83. The response to the audit findings, however, remains limited. The
Mozambican system empowers the TA to impose fines or to recommend corrective
actions as a result of its audits. In practice, however, the follow up is largely limited to
future audits by IGF and by TA specifically to verify the implementation of such
- 37 -
recommendations. In terms of the audit of the CGE, it is the Parliamentary Committee
on Finance and Planning that recommends follow-up measures and a report on their
implementation is included in the TA‟s audit report for the following year‟s CGE. There
is thus a formal response and follow-up to the TA‟s report and opinion on the CGE.
Going forward, the TA needs to ensure a more in-depth follow-up of audit findings,
including detailed statistics on rates of implementation of the TA‟s previous
recommendations. The coverage of the state budget, in terms of external audits, is now
37 percent.
84. The main change, and challenge, facing the Tribunal is a new audit law
introduced in 2009. The main development has been to create Tribunals at the provincial
level, reflecting the government‟s wider “decentralization” agenda. The challenge will be
to support these Tribunals whilst finding a way to co-ordinate the work of these various
levels of audit and avoid duplication of function and work. The independence vested in
each Tribunal could make this an uphill task.
85. The scope of verification audits by the TA remains limited. Building on the
recent progress, in line with the findings of the PEFA assessment, the TA has shifted the
focus from the number to the share of the State Budget covered by the verification audits.
The coverage of the audits of the State Budget has expanded from 26 percent in 2007 to
30 percent in 2008 (PRSC-6 prior action), 35 percent in 2009 (PRSC-7 prior action).
PRSC-8 Prior Action 3: The Court of Accounts has continued to expand audit
coverage of the State Budget from 35 percent in Fiscal Year 2009 to at least
37 percent in Fiscal Year 2010, according to INTOSAI technical standards and
according to the laws of Mozambique.
Improve human resources management in the public sector
86. The objective of these reforms is to improve the management of the payroll and
civil service human resources. Under the past PRSC series the government has carried
out a full census of the civil service, integrated payroll management within e-SISTAFE,
and created a single registry of State officials and civil servants (CAF), contributing to
the management of the civil service human resources, and improving the management
and transparency of salary payments. Building on this basis, under this PRSC series, the
government has started a comprehensive review of civil service wages and pensions
system, which will contribute to reshape and improve the quality of the civil service.
87. There has been good progress in the area of civil service reforms. The
government created the Ministry of Civil Service (MCS) in 2007, responsible for the
policies related to the management of the human resources in the public sector, control
and inspection of the public service, organization of the public administration, as well as
the program of reforms of the public sector. The MCS carried out a detailed census of
civil servants in 2007 (PRSC-4 prior action) resulting in the creation of the CAF (PRSC-5
prior action); an integrated database that allows strategic management of human
resources, including the payroll. As a result, the government is now able, in real time, to
- 38 -
tell how many civil servants there are, by grade and region, and ministry. The
government is in process to move towards a fully computerized Human Resources system
including payroll. Such a system would involve several components: (i) the e-CAF; (ii) a
human resources management system (called e-SIP), which is in process of being
developed; (iii) payroll system for calculating salary entitlements and issuing payment
requests (called e-folha), which remains to be developed; and, (iv) a facility for making
salary payments, which already exists within e-SISTAFE.
88. More recently the government has started to focus on the reform of the
public sector wages and pensions. Following the Census of Civil Servants, a new
medium term salary policy was approved by the Council of Ministers in 2008 (prior
action for PRSC-6). The guiding principles of the new policy are: (i) to simplify and
rationalize the salary scales across ministries, and to increase transparency and fairness,
integrating the remunerative allowances (notably the „subsidio tecnico‟) into the base
salary; (ii) to decompress the salary scales to improve the remuneration based on
qualifications, competence, responsibility and experience; (iii) to reform the system of
locality subsidies and develop a new housing policy to incentivize staff mobility and
attract personnel to the local level; and, (iv) to harmonize the salary policy with the
pensions system and ensure the existence of a pension system to facilitate the retention of
personnel and provide an adequate living standard for pensioners.
89. The government has immediately started the implementation of the new
wage policy with a salary decompression. The wage bill has increased dramatically, as
the new salary policy was being implemented, as it entailed not only the decompression
of the wages but also the granting of allowances to motivate the civil service to also work
in remote areas of the country. As a result of the dramatic curtailing of fiscal space due
to the rising wage bill, the authorities launched a review of the new salary policy, which
is to be completed by March 2012. The Bank and the Fund are expected to follow up
with the authorities on the next steps. In the meantime, the authorities have halted
implementation of the salary policy, which has contributed to a leveling off of the wage
bill in terms of GDP.
90. The Government of Mozambique provides pension benefits for the
employees of the civil service, military and police. The current public pension system,
which is a defined benefit scheme, is partially financed from mandatory contributions
paid by the employees of the civil service and police (not the employees of the military)
and partially financed through the national budget. In 2010 monthly payments were paid
to 107,601 retired employees and their heirs. Over three-quarters of the payments were
made to retired military and their survivors. The system as currently design is
unsustainable in the long run and the government has decided to implement a pension
reform. However, the design of a new system requires a solid assessment of the current
pension recordkeeping and administrative system resulting in recommendations for
appropriate long and short term strategies. There is also the need to undertake an initial
actuarial valuation to determine a base-line understanding of the cost of the public
employee pension system and potential alternatives.
- 39 -
91. The reform of the pension system was an indicative trigger for the PRSC-8.
However, a reform of the pension system is very complex requiring a thorough analysis
to evaluate the cost and social impacts of implementation. The government has
completed an Operational Assessment of the Civil Service (including military and policy)
Pension System. The next step would be to conduct the actuarial study followed by social
impact studies for different reform proposals. As these studies have not been completed,
this operation does not include a prior action in this area.
Box 4: Progress in Financial Management Reforms supported by the PRSC series
Thanks to their sustained, long term support in the area of economic governance within a harmonized donor
framework, the three PRSC series have made important inroads in strengthening growth, macroeconomic
stability improving financial management. The first series of PRSCs [1 &2I] supported macro-economic
stabilization and created the legal and technical foundations for public financial management reforms,
through the Sistafe law, the design of the IFMIS (e-Sistafe). The second series (PRSCs 3 to 5) built on this
foundation to operationalize the reforms, through the roll-out of the IFMIS and the creation of key PFM
institutions, such as the Central Revenue Authority, procurement regulatory agency and internal oversight
entities. The third series (PRSCs 6 to 8) finished the institution-building phase of PFM reforms and started
focusing on the effective operation of these newly created or rolled-out institutions.
In terms of aggregate fiscal discipline, Mozambique has made a tremendous amount of progress:
Budget credibility is high, both on revenues and expenditures [A score for PI-1 and PI-3 in 2011 PEFA].
This means that the Government budget has become a good predictor of public fund flows both for public
and private sector actors - a huge achievement given the starting point. It also speaks to very significant
progress in terms of domestic revenue collection, about 21 percent of GDP in 2011, and cash management
(a successful treasury single account). Payment arrears have been almost eliminated, providing a platform
for sound fiscal policy.
In terms of strategic allocation of resources, progress is more mixed, but the foundations have been built.
The key achievements are a disciplined and ordered budget process, and the existence of an MTEF
framework. The key challenges are the high variance in the composition of expenditure and the still high
dependency in donor project, and their integration into the MTEF, to be sustained.
In terms of effectiveness/ efficiency in the use of public funds / service delivery: As evidenced by the
PEFA scores, there has been important progress - the policies, institutions and processes are essentially in
place. What needs to happen now is a push towards proper implementation of the blueprint of reform.
Progress has happened in all key dimensions: cash releases to service delivery units are streamlined and
automated. This helps them a lot to pay suppliers and deliver services regularly. A robust internal control
framework exists within the e-Sistafe system, with segregation of duties, and it is being used for the vast
majority of purchases of goods and services; payroll controls are much improved, with a match between the
civil service database and the payroll, as well as a well established anti-ghost worker system; all
procurement institutions are in place; accounts reconciliation happens regularly, which means that any loss
of funds would be quickly identified and controlled; oversight entities are in place in most line ministries;
external audit has established itself as a key player in the system, is legitimate and respected.
In terms of Transparency and accountability: Very positive progress in the comprehensiveness of the
budget, access of the public to budget information, in-year fiscal reporting and annual financial statements
produced and audited professionally and publicly in good time, with reasonable quality, but there are still
challenges in the availability of information on resources at point of service delivery - even though the e-
SISTAFE allows for that, its reporting capabilities are under-utilized.
- 40 -
B. ECONOMIC DEVELOPMENT
92. Accelerating shared growth requires improvements in the climate for private
sector development, adequate infrastructure, improved smallholder productivity, and
tackling key challenges such as the impact of the HIV/AIDS epidemic, and the need to
improve significantly the management of natural resources. This PRSC series focuses on
removing constraints to private sector development, by introducing reforms to deepen the
financial sector and improve access to credit, improving the operation of land taxation to
facilitate access to land, and, especially simplifying the excessive regulation constraining
business registration and operation.
Strengthen the social security system
93. The objective of these reforms is to ensure the financial sustainability of the social
security system and to adopt the best practices and transparency in the management of
the social security funds, contributing to the deepening of the financial sector in
Mozambique. In recent years the government commissioned an actuarial study and an
investment strategy for the National Institute for Social Security (INSS). The results of
the study highlighted severe shortcomings in the financial and monitoring data available
at the INSS as well as the need for significant reform in the management of INSS and the
social security funds, which the government is in the process of addressing.
94. The government has undertaken a broad program to strengthen the social
security system in Mozambique. A new Law on Social Security was approved by
Parliament in 2007, but its implementation is facing difficulties, and there are serious
shortcomings in the operation and governance of the sector. There are significant data
gaps at the INSS and the current institutional capacity of the INSS is weak. Records for
the entire system are still manual, although efforts to introduce an IT system are
underway. In addition, until last year, the INSS had not published its financial statements
since 2004. During 2009 substantial progress has been made in this regard, and the
financial accounts for 2005, 2006, and 2007 have now been published, and publication of
the accounts for 2008 and 2009 expected in 2010 was not accomplished. Progress in this
area is very important for the transparency of the institution but also because the lack of
reliable financial statements has precluded an accurate assessment of the financial
situation of INSS, and prevented the full determination of potentially significant fiscal
and private liabilities.
95. A comprehensive, structured set of interventions was urgently needed to
improve the situation at the INSS, the backbone of the pension system. Important
priorities were: to introduce an IT system and to create an electronic database of all
pensioners and contributors, to improve administration, to establish the value of the
investment portfolio, and prepare and publish financial statements. The cooperation
between the INSS and the Brazilian government progressed well in 2011, especially in
the area of IT modernization.
96. The INSS has implemented the Financial, Human Resources and Administration
Management System and trained users of the system. Additionally, it also implemented
- 41 -
the first phase of the Social Security Information System and started the implementation
of phases two and three. The implementation of a comprehensive IT system at the INSS
was an indicative trigger for the PRSC-8. However, as this indicative trigger is more an
intermediate step of modernizing and improving the management of the INSS, this
operation will not include a prior action in this area.
Improving the operation of the land law and facilitating access to land
97. Mozambique’s overall land-related policy and legal framework is sound. There
are, however, gaps in the implementation of relevant laws and regulations such as lack of
clarity, limited capacity and unclear institutional arrangements as well as low land tax
and associated distorted incentives for land access. These implementation gaps result in
unfavorable consequences such as land speculative activities, ineffective land use
planning; associated difficulties of dealing with large numbers of application for
concessions, and emerging inconsistency between land policies and other initiatives.
Given the overall soundness of the policy and legal framework, the focus of the reforms
supported in this PRSC series is to improve implementation instead of revising laws and
regulations.
98. The acquisition of land lease (administered by the State) has been identified
as a major obstacle to business development, in various enterprise surveys conducted
by the World Bank as well as in sector-specific studies undertaken for the 2009 CEM.
Besides the sheer complexity of navigating through the allocation system of land use
rights (DUAT), investors carries cost of capital while waiting for the necessary approvals
constitutes a constraint to invest in Mozambique. The urban land system is also not
geared to absorb large influxes of rural labor migrating to urban industrial areas. Coastal
land with high potential for organized tourism development remains undeveloped, yet
only about an estimated 10 percent of the coastal areas are available for additional lease.
99. To improve the implementation of the existing land law, the 2009 CEM
recommended that the government should: (a) take measures to facilitate a better
understanding, better dissemination, and more capacity building for improved
implementation of the Land Law; (b) undertake systematic delimitation of all local
community lands in rural areas, starting with priority areas with relatively high land use
value; (c) disseminate, simplify, and further improve guidelines for consultations with
communities; (d) systematically adjudicate and title urban, peri-urban, and high use value
plots in rural areas; (e) enforce collection of existing land tax, raise the rates without
affecting smallholder rural producers, and decentralize collection to the district level; and
(f) conduct comprehensive rural zoning/land use planning for supporting informed
decisions and exploiting Mozambique‟s development potential.
100. The government has also taken steps to discourage land hoarding and to
promote efficient land use. Concerns about speculative acquisition of large amounts of
land led Mozambique to adopt a regulatory framework that links award of DUATs to
specific conditions on land use and revokes such rights in case the conditions are not
honored. International experiences show that such an approach is administratively
- 42 -
difficult and costly to implement and susceptible to discretion that can undermine
investor confidence and security of land rights. Increasing rural land taxes (possibly
differentiated by land quality/zoning) could be a more incentive-compatible way of
encouraging efficient land use. In December 2009 the Ministry of Agriculture issued a
decree updating tax rates for the use of land to account for inflation for the first time
since 1998.
101. The government has started a process to review land taxes. The Council of
Ministers, in September 2008, gave a mandate to the Ministry of Agriculture to explore a
possible reform of the land taxation system. Once a clear data-base of DUATs is
available, it will be possible to empirically explore the revenue potential of a specific
reform of the land taxation system, and to empirically explore the implications of
adjusting the rates to better reflect the economic potential of land use in different areas to
incentivize use of the land, while protecting smallholders.9 Originally, it was proposed
the approval by the Council of Ministers of a reform of the land taxation system as a
trigger for PRSC-8. However as the studies have not been completed and a more
comprehensive land tax reforms would require solid social impact analysis as well as a
ample discussion with many stakeholders, the government has decided to implement
many intermediate steps such as a national land management strategy (draft is ready and
should be finalized this year), new information system on land (in process of
elaboration), and delimitation of community lands, before more fully implementing this
reform.
Improving the business environment by simplifying the regulatory framework
102. A main challenge for Mozambique is to sustain high economic growth and
reshape its pattern to generate more employment by exploiting its vast, diversified export
potential by addressing a number of constraints, including factor markets, trade logistics,
institutions supporting exports, and professional services. This PRSC series focuses on
one important aspect of the business environment, namely the excessive regulatory
framework.
103. The overall regulatory framework in Mozambique is very unfriendly to small
and medium enterprises where licensing, inspections, and red tape are a heavy
burden. All the sectors analyzed in the 2009 CEM have the perception that rather than
facilitating and regulating economic activities, the government has a “control and punish
mentality”. Under such a setting, the risk is high for civil servants to cloud efficient
decisions by embarking on rent-seeking behavior.
104. The government wants to accelerate progress in removing red tape, and
simplifying the business environment. Mozambican firms are currently subject to
excessive operational licensing, inspections (labor, health, environment), and red tape. A
new strategy to improve the business climate was approved in 2008, but its
implementation has been slow. For instance, while Mozambique has set the goal to be
9 World Bank. Mozambique Rural Land Taxation Policy Note. Draft. 2011
- 43 -
best among SADC countries in the Doing Business Indicators by 2015, its ranking has
been dropping.
105. There is growing consensus in Mozambique that it is time to consider bolder
and more aggressive reforms to reduce the burden of unnecessary regulation. The
introduction of the one-stop shops and simplified licensing regime approved in 2008 for
selected businesses represented a substantial progress in this area. However, the
simplified licensing regime was restricted to seven areas and around 190 economic
activities. The government has put together an inventory of business-related licenses and
regulations by economic activity, and after analyzing the inventory, eliminated licenses
needed to register and operate for an additional seventy-two business activities allowing
them to register and operate under the simplified procedure, which can be done in one
day. See Annex X for the new decree of simplified procedure including the list of all
business activities and the newly added activities allowed to register and operate under
the simplified procedures. The government will continue to analyze the remaining
economic activities in order to simplify their registration and operating procedures.
PRSC-8 Prior 4: The Ministry of Industry and Trade has sent to the Council of
Ministers for discussion and approval a draft decree to simplify business related
licenses while allowing an additional seventy economic activities to be registered and
operate under simplified licensing procedures.
Maximizing the benefits from megaprojects, concessions, and PPPs
106. Mozambique has gained strong reputation as investor friendly, and S&P and
Fitch have given a stable outlook on their B+ credit ratings. The country has huge
potential wealth in mineral and other natural resources. Increasing investor interest is
translating in multi-billion dollar investments, and with major investments planned over
the next few years, including natural gas and the possibility of oil discoveries, it is likely
that these will start to generate significant revenue streams. This has the potential, over
time, to transform the economy of Mozambique and generate the resources necessary for
the eradication of poverty and ending the country’s dependence on foreign aid.
International experience shows that maximizing the benefits and ensuring they are
spread as widely as possible will not happen automatically; it will require good
governance of the economy and a careful balance between maintaining the reputation as
investor-friendly destination with maximizing domestic fiscal, ownership, employment,
social and environmental benefits of mega-projects. This PRSC series supports the
government’s effort to achieve membership of the EITI initiative and to strengthen the
legal framework for PPPs and concessions.
107. There has been good progress towards improving the management of natural
resources, notably by strengthening the fiscal regimes for mining and petroleum, and the
process of becoming a full fledge member of the EITI. However, limited transparency
and possible conflict of interest are important issues related to access to resources and
participation in mega-projects and other large investments. Ensuring transparent access
to economic opportunities and a consistent and predictable application of
- 44 -
legislative/fiscal frameworks is critical to enhancing domestic and international
confidence and maintaining high levels of investment. There is also a need to improve
the government‟s planning and negotiating capacity to assess proposed large investment
projects, and to improve the management of concessions and regulations of key sectors,
such as electricity, mining, forestry, biofuels, transport and telecommunications.
108. Mozambique has so far avoided the resource curse, reflecting „enclave
nature‟ of existing megaprojects. Recent studies have found that abundance of natural
resource can have strong negative impact on growth, but more likely in countries with
bad governance. In 2008 the government announced its intention to adhere to the EITI
and Mozambique was admitted as a candidate country in May 2009. The government
started to secure funding for the EITI secretariat (by allocating funds from the 2010 State
budget for the EITI, and also securing support to the World Bank administered Multi
Donor Trust Fund and AfDB). The country has submitted the first reconciliation and
validation report and is addressing the recommendations from it. The validation report
acknowledges “significant progress” with fourteen out of eighteen areas having met their
goals. However more work will be required and full entry into the EITI is expected in the
first half of 2012.
PRSC-8 Prior Action 5: The Ministry of Mineral Resources has produced the first
report under the Extractive Industries Transparency Initiative (EITI).
109. Mozambique lacked a comprehensive framework law for mega-projects,
concessions and PPPs to provide guidelines for project selection and risk allocation.
To maximize benefits from mega-projects, concessions and PPPs, in the medium term the
Government has been focusing on: (i) improving the legislation for concessions to ensure
that competitive processes are used to identify project developers offering the best deal
for the country; (ii) revising the process of negotiation and approval of megaprojects to
maximizing fiscal benefits for the country; (iii) establishing clear steps / institutions for
negotiating with companies seeking concessions / benefits for large investment projects;
and (iv) establishment of independent authorities for regulating/managing concessions
and PPPs. The government has approved a new law on PPPs and concessions. A Bank‟s
expert on PPPs has supported the government to improve the quality of the proposed
legislation providing them with expert advice in these areas.
110. The new PPP, Large Scale Projects and Business Concessions Law has been
enacted by Parliament in 2011. The new Law provides a framework for PPP
transactions and frames the approach to mega-projects and natural resource concessions.
The regulations for the implementation of the new law are currently under preparation
and are expected to be adopted soon. Adoption of adequate regulation will be an
important step in ensuring the best possible implementation of this legislation.
PRSC-8 Prior Action 6: The Public Private Partnerships Law has been enacted and
published in the Official Gazette.
- 45 -
VII. OPERATION IMPLEMENTATION
A. MONITORING AND SUPERVISION
111. The Bank‟s supervision of the PRSCs is aligned with the supervision of the
joint General Budget Support program of the G19. In order to reduce the transaction
costs for the government, the Bank carries out all supervision jointly with the other G19
donors. In addition to the two joint annual reviews, the supervision of the PRSC is done
on a continuous basis in harmonization with the other general budget support donors,
through the monthly joint government-donor steering committee meetings. Progress in
each sector is monitored by joint government-donor sector working groups. Bank staff
actively participates in these meetings through its staff in the field offices and
Washington D.C. (through missions or by videoconference). Furthermore, the Bank
participates in IMF missions to monitor progress in the macroeconomic framework.
Monitoring of the PARPA II in the various sectoral working groups is carried out on the
basis of the „Strategic Matrix‟ prepared in early 2006 and included in the PARPA II
document. Implementation of sector specific matrices is expected to be carried out by
line ministries and sector agencies, while the overall poverty monitoring is the
responsibility of the National Statistics Institute (INE). In 2008 the government
announced that it would extend the PARPA II by one year to include 2010, thereby
strengthening sustainability and continuity with the new PARP, which was approved in
May 2011.
112. In addition, an Institutional Development Fund (IDF) grant was approved in
2009 to assist the government in strengthening the overall monitoring and
evaluation framework for the new PARP. The objective of the IDF grant is to
strengthen the government‟s capacity to coordinate the overall M&E framework for the
upcoming third Poverty Reduction Strategy and, particularly, to strengthen the results
orientation at sector level. The Ministry of Planning and Development commissioned a
study (USEC 2008) on the planning cycle and monitoring and evaluation systems and
practices to get a deeper understanding of issues underlying the impediments of a
functioning national M&E system. Activities under this grant will pick up the analysis of
the USEC study and target specific areas. The work would focus on: (i) improving the
results orientation at sector level by strengthening the logical linkage between different
levels of results and relating them to budget and policy actions as well as provincial
plans; and (ii) improving the linkage between M&E and planning, by strengthening the
coordination mechanism and production cycle of the annual PARP progress report.
B. FIDUCIARY ASPECTS
113. Fiduciary aspects and strengthening of the government‟s own systems are
key in this operation. As indicated in the PRSC-7 document, the public financial
management system is considered reasonably adequate to support the PRSC series.
Weaknesses are found in internal control systems, the limited coverage of the external
audit, and the high-level of off-budget spending from external project finance. An action
plan on PFM reforms (discussed above), focusing on comprehensiveness and financial
accountability system is being implemented. The PRSC series supports implementation
- 46 -
of key reforms in the action plan, in close coordination with the IMF program. Public
financial management has been improving steadily in line with government commitment
to reform, and the dialogue between the government and the donors has been constructive
which has been confirmed by PEFA 2010. In this context, it is worth noting that the
Bank is moving towards increasing the use of country‟s financial management system in
Mozambique, on the basis of an assessment that was made in early 2008, and recently,
broad-based consultations were made for greater effectiveness and scaling up of the use
of these country systems.
114. The IMF concluded a safeguards assessment of the Mozambique Central
Bank in early 2008, which confirmed that the Mozambique Central Bank‟s control,
accounting, reporting, and auditing systems are adequate and aligned with
international standards. The assessment made recommendations to further strengthen
the governance structure of Mozambique Central Bank, notably by opening the Central
Board and the Audit Board to independent experts from outside the Central Bank and
Ministry of Finance. It also recommended that the Audit Board should also ensure more
systematic follow-up of audit recommendations and the audit charter be subject of an
external quality assurance review (peer review) in accordance with international
standards. The authorities are in the process of implementing the action plan that was
drawn-up as a result of the safeguards assessment. In the context of the IMF Policy
Support Instrument program, the government has agreed to follow up on the
recommendations of the Safeguards Assessment, and committed to implementing a series
of measure identified as part of the assessment.
C. DISBURSEMENT AND AUDITING
115. Disbursement and auditing procedures remain the same as for PRSC-7. The
proposed credit will be disbursed following standard IDA disbursement procedures. The
credit will be disbursed as a single tranche after effectiveness and fulfillment of tranche
release conditions and upon submission of withdrawal applications from the Ministry of
Planning and Development. IDA will deposit the funds in a dedicated foreign exchange
account of the Bank of Mozambique in Frankfurt. It is the same account which is used
by other GBS donors to transfer their GBS contributions, as specified in the MoU. The
funds will not be used for Excluded Expenditures in accordance with the Financing
Agreement. Within two working days, the Bank of Mozambique will credit the Metical
equivalent of the credit funds to the Transit Account of the Ministry of Finance dedicated
to GBS funds. The Metical equivalent funds will be transferred from the dedicated GBS
Transit Account to the Central Treasury Account in accordance with the treasury plan
and will be used as State budget revenue and recorded in the State accounts as such.
Auditing procedures are the same as defined in Section 9 of the MOU signed in March
2009. A legally registered, private and independent audit company meeting international
standards on auditing and qualifications of the auditors assigned will perform the annual
audit, and in accordance with the Terms of Reference contained in Annex 8 to the
- 47 -
MOU.10
The audit costs will be met by government. The annual audit report and the
management letter together with Management response will be submitted annually to
government as well as to GBS donors, including the Bank no later than three months after
the year end.
D. ENVIRONMENTAL ASPECTS
116. The legal framework for the environment is relatively well developed in
Mozambique, but capacity to implement and enforce it remains limited. The
framework for environmental management in Mozambique is defined by the Law of the
Environment (Law n° 20/97), which applies to all public and private activities that may
influence environmental aspects. All activities that may result in a significant effect on
the environment are subject to an Environmental Impact Assessment, which has to
precede any issuing of licenses and investment activity. The Ministry for the Co-
ordination of Environmental Affairs (MICOA) is the main entity responsible for
conducting Environmental Impact Assessments. The capacity of MICOA, however, is
limited due to financial and technical capacity constraints.
117. The reforms supported in this PRSC series are not likely to have significant
positive or negative effects on the environment, forest and other natural resources.
The PRSC series supports policy actions that create the enabling environment to support
poverty reduction, and which by themselves do not have effects on the environment. It is
expected, however, that regular private and public investment activities which may result
from such policy actions, could have effects on the environment. For instance increased
land taxation is expected to promote more intensive use of the land currently lying idle.
Environmental aspects of the reform of land taxation will have to be considered during
the preparation of the reform. While the implementation of the reform of land taxation is
expected to lead to an increase in land use, nevertheless it is not expected that there will
be need to introduce special measures since all activities to be carried out on the land are
subject to the Mozambican legal framework for the protection of the environment. As
discussed above the Bank is working to help the government to develop and implement
appropriate policies in the areas of natural resources, environment and adaptation to
climate change. Thus, neither specific environmental studies nor environmental impact
management measures are anticipated for this measure. This also includes the potential
effects from increasing exports – which may include mining, energy and forestry.
Increasing exports of any of these sectors could have effects on the environment and
forestry. As mentioned above, the Mozambican legislation requires that such effects
would have to be identified as part of the preparation of the individual business projects,
and evidence provided on how the developer proposes to manage these effects. In this
context it is worth noting that the regulatory simplification envisaged under the PRSC
series is to be carried out with the involvement of MICOA and the Ministry of Health, in
10
It should be clarified that OP 8.60 does not require such an audit. However, the audit is required as part
of the G19 harmonized institutional arrangements for the provision of budget support, and is included in the
MOU which the World Bank has signed.
- 48 -
order to preserve the government‟s regulatory capacity in environmental and health
safety issues.
118. Beyond the need to ensure that the environmental effects of reform
supported by the PRSC is mitigated, the sustainable use of Mozambique's natural
resources (land, mining, fisheries, forestry, water, natural gas) represents a great
opportunity for poverty reduction as well as social and economic development, and
needs to be strengthened. Sustainable exploitation of natural resources by communities
and individuals should be promoted to contribute directly to poverty reduction and
livelihood security. Investments in extractive and exploitative industries can promote
further growth and economic activity through providing markets for local goods and
services as well as inputs for processing industries. Licensing and taxation of natural
resource use can provide significant revenue for government, which in turn, can support
funding development and poverty reduction programs, especially where (local and
global) market demand and prices allow significant margins. However managing these
resources is complex. While GOM legislation and policies recognize and seek to
facilitate the role of different models of resource use for poverty reduction and
development, little attention has been given to the specific mechanisms for: (i) access, (ii)
promoting efficient use and (iii) monitoring and compliance with existing norms. This
has led to a situation where regulations appear to have produced unnecessarily complex
procedures that create opportunities for rent seeking and corruption, harming both the
poor and private commercial interests. Over the next few years IDA, in collaboration
with the IMF and other development partners, will continue to work closely with
government to maximize the benefits from the sustainable exploitation of natural
resource. An important step to enhance the revenue collection efforts was the approval
by the parliament in December 2006 of the new laws on the fiscal regimes for the mining
and oil sectors, which have become effective in mid-2007. The PRSC-8 contributes to
improve the regulatory framework through the prior action related to the approval of
legislation on concessions and PPPs.
E. POVERTY AND SOCIAL ASPECTS
119. The poverty reduction impact of the policies supported by the series is
expected to be positive and with long term impact. The PRSC series contribute for the
improvement of the use of public resources through better budget preparation and
execution, stronger public financial management systems, and stronger oversight. As
PFM improves, public expenditures become more efficient resulting in larger benefits for
the population as more and superior public services become available. Additionally, as
efficiency increases, fiscal space is created and more resources become available to
finance policies targeted on poverty reduction. The public pension reform is needed to
guarantee its long term sustainability. The Bank is supporting the government by
financing a Diagnostic and Actuarial Studies for pension reform. The team will continue
to work very close with the government to monitor potential distributional and social
aspects of the reform.
120. Policies contributing to job creation have important impact on poverty
reduction. The PRSC actions continue to support broad-based growth by reducing the
- 49 -
excessive regulation constraining business activities, improving the information basis for
access to credit, simplifying the regulatory environment for business development and
promoting more efficient use and better access to land, and strengthening the legal and
institutional framework for concessions, public private partnerships, and large investment
projects, including in the exploitation of natural resources. All these actions contribute to
create an environment conducive to business activity and job creation, a necessary
condition to further reduce poverty in Mozambique as close to three quarters of the
working age population is working in agriculture and less than 15 percent have a formal
salaried job. The specific country policies supported by the PRSC series are not
expected to have significant distributional and social impacts.
F. RISKS AND RISK MITIGATION
121. The three main risks for this operation are related to: macroeconomic
management, political development, and implementation capacity.
122. There are risks related to the potential for macroeconomic shocks and their
impact on the implementation and achievements of the government reform
program. The current deterioration and high uncertainty of the global economy brings
with it risks of deteriorating terms of trade, reduction of FDI, and potential reductions in
donor disbursements, especially through budget support. As for mitigation measures, the
government is following the course that helped them manage the 2008-09 crisis by
maintaining a high level of reserves, a flexible exchange rate regime, and keeping low
external debt vulnerability. Additionally, Mozambique has a stable relationship with the
IMF, anchored on a Policy Support Instrument (PSI), which has contributed to solid
macroeconomic management. The elaboration of the new PARP contributed to deepen
the communication and to address differences of views that could have lead to reduced
donor support. Over the long run, government is keen to continue to build its own
revenue base to gradually reduce dependency of foreign aid. All together we consider the
risk of macroeconomic shocks affecting the reform program moderate but requires
constant attention to changing circumstances.
123. There are risks associated to the absence of a political consensus and effective
coordination mechanisms for reforms in support of the growth agenda. Recently
Mozambique ranked 139 (out of 183 economies) in the 2012 Ease of Doing Business,
down seven positions from the 132 rank in 2011. The new Third Poverty Reduction
Strategy Paper for 2011-2014 has as its core the agenda of inclusive growth. A strong
participatory process has laid the foundation for a stronger commitment for
implementation. However, formal institutional mechanisms to implement reforms that
cut across many Ministries and interests have yet to be put in place. In this context, the
risk associated to fast implementation of these reforms is high.
124. A third set of risks concerns possible delays in implementing areas of the
reforms program across all areas, as a result of the weak capacity. Limited
institutional capacity in many agencies limits the scope and speed of reforms in all the
areas supported by the PRSC. In order to mitigate this risk, the Bank intends to increase
its engagement at the technical level. There are specific projects and technical assistance
- 50 -
targeting areas of reforms as listed in Annex V, including the Competitiveness and
Private Sector Development Project which is financing the hiring of two lawyers and one
economist at the Ministry of Industry and Trade on the elaboration of proposals to
simplify or eliminate regulations and licenses identified as too cumbersome or
unnecessary. The Bank with the support of development partners is engaged in training
of public officials in the areas of PPPs and Concessions, focusing on project selection,
negotiations, contract structuring, implementation, monitoring and evaluation. The risk is
moderate.
- 51 -
ANNEXES
ANNEX 1: POLICY MATRIX AND RESULTS FRAMEWORK FOR THE PRSC SERIES
Government
Medium-Term
Objectives
(from PARPA/PAF)
PRSC 6 Prior Actions
(Policy Actions)
From PARPA/PAF
PRSC 7 Prior Actions
(Policy Actions)
From PARPA/PAF
PRSC 8 Triggers
(Policy Actions)
From PARPA/PAF
Indicator
(Monitoring output
and outcome
indicators from PARPA/PAF)
Baseline 2007 Targets 2008
from
PARPA/PAF
Actual 2008 Targets 2009
from
PARPA/PAF
Actual 2009 Targets 2010
from
PARPA/PAF
Component 1: Macroeconomic Management
Improve efficiency and effectiveness of
public financial
management
The aggregate envelope and the aggregate
allocation to priority
sectors in the budget 2009 are in line with the
first year of the MTEF
2009-2011.
-- --
Average difference over the past 3
years between the
primary expenditure outturn
compared to the
originally budgeted (approved) primary
expenditures
(Source: OE and REO)
4.5% 5% 2.4% 3% [1.1% tbc] 3%
90% of the EO of the UGEs in goods and
services and
investments through direct EO.
90% of budgetary execution of the UGEs
in goods, services and
investments through direct budgetary
execution; and at least
10% of execution of wages through direct
budgetary execution.
The Ministry of Finance has expanded the use of
the integrated electronic
financial management system e-SISTAFE to no
less than 430 budget
units resulting in 37.5% of the State Budget
executed through Direct
Budget Execution.
Make the State
procurement system for goods and
services transparent
and efficient
Operational functioning
of the Procurement system improved: (i) at
least 88 percent of the
number of contracts of the public sector were
subject to public tender
in accordance with the current Mozambican
procurement legislation;
(ii) information on other
modalities of contract
has been communicated to UFSA with the due
justification
-- (i) Percentage of
public sector contracts reported
to UFSA subject to
public tender; and (ii) justification
registered when
using other selection methods
(Source: UFSA)
(i) 85% of public
sector contracts reported to
UFSA subject to
public tender; (ii) justification
on other
modalities of contract in at
least is weak or
missing.
(i) 88% of public
sector contracts reported to UFSA
subject to public
tender; (ii) justification on
other modalities
of contract in 90% of contracts at the
central, district,
and provincial
level.
(i) 88%
(ii) 100%
(i) 95% of
public sector contracts
reported to
UFSA subject to public
tender;
(ii) justification on other
modalities of
contract in
100% of
contracts at the central, district,
and provincial
(i) 82%
(ii) 100%
(i) 95% of
public sector contracts
reported to
UFSA subject to public
tender;
(ii) justification
on other
modalities of
contract in
100% of contracts at
the central,
- 52 -
communicated to UFSA in at least 90 percent of
cases; (iii) the process
of complaints, as defined in the current
Mozambican
procurement legislation, is operational and
UFSA has data on the
process and decisions available).
level. district, and provincial
level.
Increase coverage and efficiency of
internal and
external audit bodies
The Government has ensured that internal
control units have been
established in at least 75% of central and
provincial level bodies.
The Ministry of Finance has established internal
control units in all of its
central and provincial level bodies.
Share of central and provincial level
bodies with internal
control units
25% 65% 59% 75% 75% 100%
The Court of Accounts
will continue to expand the coverage of the
audit of the State
Budget in accordance with the technical
norms of INTOSAI to
at least 30 percent in 2008.
The Court of Accounts
will continue to expand the coverage of the
audit of the State
Budget in accordance with the technical
norms of INTOSAI to
at least 35 percent in 2009.
The Court of Accounts
has continued to expand audit coverage of the
State Budget from
35 percent in FY 2009 to at least 37 percent in FY
2010, according to
INTOSAI technical standards and according
to the laws of the
Republic of
Mozambique.
Coverage of audit
verification activities of the
State Budget by the
TA according to INTOSAI technical
standards
(Source: Court of Accounts)
Entities covered
by annual verification audit
activities by the
Court of Accounts cover
26% of approved
State Budget.
30% 32% 35% 34.8% 37%
Improve human
resources
management in public sector
Cabinet approval of the
Medium Term Wage
Policy approved
-- Approval of
Medium Term
Wage Policy and of Pensions reform
(Source: Council of
Ministers)
Inadequate wage
policy and
pensions system
Cabinet approval
of Medium term
Wage Policy
MTPP
approved
- - Cabinet
approval of
pensions reform
Component 2: Economic Development
Improve the
financial sector and social security
sector
The Ministry of Finance
has elaborated the IFRS transition plan (with the
assistance of
consultants)
The Cabinet has
approved a Decree mandating
implementation of IFRS
in large and medium firms.
-- Credit to the
economy as % of GDP
(Source: MoF, BM)
Dropped as Key Outcome Indicator
-- --
Improve business
environment,
-- Land taxation reform
Stage One: The
. Gross domestic
investment
- 53 -
including better access to land and
eliminate
unnecessary regulation
Minister of Agriculture approved a Ministerial
Diploma to adjust land
tax rates to account for inflation since the land
law regulations were
approved in 1998.
excluding GOM (as percentage of GDP)
(Source: MoF, BM)
Dropped as Key
Outcome
Indicators
NEW
INDICATORS:
Number of
individual and
collective
taxpayers
Number of
Procedures to
start a business
Number of
working days to
start a business
550,000
13
113
TARGET
FOR 2011
Not PARPA-
PAF
Indicators)
1,400,000
9
23
-- The Cabinet has reduced the average
time needed for import
and export operations to 23 days and 30 days
respectively in 2009, by
approving a Decree
allowing complete pre-
arrival clearance of
goods and creating the figure of the „reliable
and trustworthy traders‟
which will benefit from simplified import and
export procedures
The Ministry of Industry and Trade has sent to the
Council of Ministers for
discussion and adoption a draft decree to simplify
business related licenses
while allowing an
additional seventy
economic activities to be
registered and operate under simplified
licensing procedures.
Maximizing the
benefits from
megaprojects, concessions, and
PPPs
The Ministry of Mineral
Resources has produced
the first report under the Extractive Industries
Transparency Initiative
(EITI).
n.a.
The Public Private Partnerships law has
been enacted and
published in the Official Gazette
n.a.
- 54 -
ANNEX 2: PERFORMANCE ASSESSMENT FRAMEWORK (PAF) FOR 2008-2010
Pillar / Area Objective Achievements
(Actions)
Responsibility
of:
Indicator
[Verification
Source]
Target 2007 Indicative target
2008
Indicative
target 2009
Type of
indicator
(Outcome/
Output)
No
of
Ind
MACRO-ECONOMICS AND POVERTY
Poverty
Analysis and
Monitoring
Systems
Make adequate,
precise,
disaggregated and
timely information
on the
implementation of
the PARPA
available to all key
agents
Carry out at least
one Provincial
Poverty
Observatory (OPP)
in each province
MPD Number of
Provinces with
executed OPPs
[Syntheses of the
OPP on the OP
website and at the
DNP]
11 11 11 Output 1
Public
Financial
Management
Improve the
efficiency and
effectiveness of
public management
funds (par. 289 &
494)
Note: Since we are dealing with an
outcome indicator, there are various
actions and responsible entities,
whereby these may be conferred in
the Strategic Matrix
Aggregate
expenditure as a %
of the approved
Stage Budget (OE)
[OE]
≥95% e
≤105%
≥95% e ≤105% ≥95% e ≤105% Outcome 2
Allocation of the
public resources in
accordance with
the objectives of
the PARPA II,
whereby the
allocation for
priority sectors, as
indicated in the
PARPA, is used as
a reference (Table
17)
MF-DNO /
MPD-DNP
Allocation of the
OE in line with the
MTFF [MTFF and
OE]
X X X Output 3
- 55 -
Increase in the
budgeting
orientated by the
objectives of the
Government
MPD / MF Research on the
Localization of
Public Expenditure
("PETS") executed
on a bi-annual basis
[MF and MPD]
Initiated and
effectively
carried out at
MEC
(Education)
level
Actions in
response to the
implemented
2007 PETS
Research
carried out
Output 4
Direct execution of
the budget through
the e-SISTAFE
MF/
Ministries
Number of
Ministries, State
organs and UGEs
[MF]
25 Ministries,
organs and at
least 291
UGE
To be defined To be defined Output 5
Note: Since we are dealing with an
outcome indicator, there are various
actions and responsible entities,
whereby these may be conferred in
the Strategic Matrix
Total incomes as a
% of GDP [OE]
14.90% 15.40% 15.90% Outcome 6
Make the State
goods and services
acquisition system
transparent and
efficient (par. 494)
Implementation
and operation of
the Procurement
System up to the
district level
MF - DNPE System of
Procurement
operational [DNPE-
MF]
X X X Output 7
- 56 -
Increase the
coverage and
efficiency of the
internal and external
auditing organs
(pars. 290 & 494)
Increase the
number of organs
with an operational
internal cntrol units
at central and
provincial levels
IGF % of organs at
central and
provincial levels
with operational
internal control
units [Annual
activities report on
the internal audit
subsystem, SCI]
30 65 100 Output 8
Increase the
number of
financial audits
TA Number of financial
audits approved by
the TA [Annual
activities report]
90 118 144 Output 9
GOVERNANCE
Public Sector
Reform
Strengthen the
institutional
capacity of the local
governments
Implementation of
the national
decentralized
planning and
finance strategies
MPD / MF /
MAE
% of the budget
transferred to the:
provinces, districts,
municipalities [OE]
provinces -
24.9% ,
districts - 3%,
municipalities
- 0.8%
To be defined To be defined Output 10
MAE % of operational
District
Consultative
Councils (at least 3
meetings per year)
with accountability
to the Government
60.00% 80% 100% Output 11
- 57 -
Improve human
resources
management
systems (par. 288)
Development and
implementation of
the unified
Personnel
Information
System (ANFP,
MF and TA)
ANFP Published Statistics
Yearbook on public
servants [Statistics
Yearbook]
Census and
CUF
X X Output 12
Strengthen the
public policies
management
processes (par. 286)
Increase in the
number of
municipalities
MAE Proposal for the
increase in the
number of
municipalities
deposited in the AR
[MAE]
Legislation
on the criteria
approved by
the CM and
deposited in
the AR
Output 13
Justice,
Legality and
Public Order
Increase the
efficiency and
celerity in the
provision of legal
services (par.294)
Increase the
productivity of the
Courts
TS Number of cases
tried per judge per
year [TS official
statistics]
150 To be defined To be defined Output 14
MJ % of prisoners in
jail awaiting trial
[TS official
statistics]
35% 30% 30% Output 15
Strengthen the
combat against
corruption (par.
297)
Investigation and
closure of
corruption cases
PGR Number of
corruption cases :
A) Reported B)
Under investigation
C) a- Accused b-
Non-accused
(awaiting better
evidence) c- Filed
D) Tried [PGR]
Published
statistics
To be defined To be defined Output 16
- 58 -
Strengthen the
prevention and
combat against
crime (par. 299)
Improvement in
the quality of the
services rendered
by the Criminal
Investigation
Police
MINT and
PGR
% of cases prepared
within the
preparation time
limits [MINT and
PGR]
50% 50% 50% Output 17
Elevate
performance levels
of the police forces
(par.301)
Increase in the
PRM's
operationality
MINT % of cleared-up
crime processes
[MINT]
74% 74% 75% Output 18
HUMAN CAPITAL
Health
Reduce infant-youth
death rates (par.
428)
Strengthening of
the activities of the
PAV, and
especially that of
the mobile
brigades
component
MISAU -
DNS
DPT3 and Hb
coverage rates in
children between 0-
12 months [SIMP]
95% 95% 95% Output 19
Reduce maternal
death rates (par.
426)
Carry out
campaigns on
education,
information
dissemination,
awareness of
community leaders
and of other people
with decision-
making powers so
as to increase the
demand of
obstetric care
MISAU -
DNS
Coverage rate of
institutional births
[SIMP]
52% 53% 56% Output 20
- 59 -
Reduce the weight
of malaria, specially
in the more
vulnerable groups
(par. 432)
Increase the use of
mosquito nets and
insecticides
MISAU -
DNS
% of pregnant
women and children
under 5 who have at
least one REMTI in
each district without
fumigation [Malaria
Programme]
≥95% ≥95% ≥95% Output 21
Reduce the impact
of HIV/AIDS on the
population (par.
451)
Increase National
capacity to the
diagnosis and
treatment of AIDS
MISAU -
DNS
Number of people
who benefit from
antiretroviral
therapy (ART)
[HIV/AIDS
Programme]
96420 132280 165000 Output 22
Number of children
who benefit from
paediatric ART
[HIV/AIDS
Programme]
11820 20826 30000
Education
Guarantee quality
universal schooling
(par. 400)
Recruitment of
teachers
MEC Net enrolment rate
at 6 years of age in
the 1st Grade - Girls
[MEC Statistics]
67% 73% 80% Outcome 23
Distribution of the
EP school
textbooks -
Increase in the
proportion of
teachers with
pedagogical
training
MEC EP2 conclusion rate
- Girls [MEC
Statistics]
27% 40% 50% Outcome 24
- 60 -
Hiring of new
teachers;
Reduction in the
number of teachers
teaching 2 shifts in
EP1
MEC Ratio students per
teacher in EP1
[MEC Statistics]
71 69 67 Outcome 25
Water and
Sanitation
Increase the
population's access
to potable water in
the rural areas (par.
455)
Construction of
new disperse water
points
DNA /
DPOPH´s
Number of new
disperse water
points that were
constructed
[DPOPH annual
reports]
1055 1055 1034 Output 26
Social Action
Protect and attend
to the population
groups in vulnerable
situations (children,
women, deficiency
carriers and the
elderly) (pars. 463,
465, 467 and 469)
Implementation
and expansion of
the Social
Protection
programmes
(Direct Social Aid,
Food Subsidies,
Social Benefit
through Work,
Income Generating
Programme,
Institutional
Assistance
Programme for
Children, the
Elderly and
Deficiency
Carriers)
DPMAS /
INAS
Number of children,
elderly people,
deficiency carriers,
women who are
heads of the family
aggregate benefiting
from social
protection
programmes [PES
periodic reports
with disaggregated
data per target
programme and
group]
120437 279800 294400 Output 27
ECONOMIC DEVELOPMENT
- 61 -
Financial
Sector
Strengthen the
regulation and
supervision of the
financial system so
as to minimize the
risks of financial
crises and financial
crimes (par. 500)
On-site and off-site
inspection and
report production
by BM
BM % of banks
fulfilling the
IAS/IFRS norms
[BM]
100% 100% 100% Output 28
Improve the
insurance and social
protection sector
(par. 503)
Elaboration of:
Regulation on
Private Pensions
Funds (Private),
proposals for the
insurance
contracting law;
Revision of the
financial
guarantees regime
and the elaboration
of a transition plan
for the IFRS
IGS Submission to the
Council of
Ministers /
Parliament
[Publications in the
Government
Gazette]
Revision of
the financial
guarantees
regime.
Regulation on
the private
pensions
funds
IFRS transition
plan and
proposals for the
insurance
contracting law
Output 29
Realization of the
actuarial study and
the design of the
investments
strategy and
elaboration of
regulating
diplomas
INSS Study concluded;
investment strategy
being implemented;
regulations in force
and
recommendations
implemented.
[INSS]
Realization of
the actuarial
study and the
elaboration of
the
investment
study
Implementation
of the
recommendations
made by the
actuarial study
and by the
investment
strategy
Implementation Output 30
- 62 -
Private Sector
Improve the
business
environment (par.
495)
Simplification of
the procedures for
starting a business
MINJ / MIC Number of days to
start a business
[Annual World
Bank Report "Doing
Business Annual
Report" ]
60 40 30 Output 31
Create employment
(par. 556 e 497)
Approval and
implementation of
a flexible Labour
Law
MITRAB Cost of hiring and
firing workers**
[Doing Business
Position]
80 To be defined To be defined Output 32
Agriculture
Increase access to
technology and
extension
information (par.
531)
Divulgation and
dissemination of
agricultural
technologies
MINAG /
Agricultural
Extension
Total number of
peasants assisted by
the public extension
services, including
sub-contracting
[REL]
222300 222300 411000 Output 33
Promote the
construction and
rehabilitation of
agricultural infra-
structures (par. 531)
Construction and
rehabilitation of
water collecting
infrastructures for
the agriculture
sector
MINAG /
Agricultural
Services
Number of new
irrigation hectares
rehabilitated with
public funds and put
under the
management of the
beneficiaries. [REL]
4000 3400 3000 Output 34
Improve the
communities' access
to natural resources
in an equitable
manner for
sustainable usage
and management
(par. 533)
Stocktaking,
mapping of land
occupation, use
and utilization
MINAG /
Lands and
Forests
% of processes
channelled and
registered in 90
days [MINAG]
90% 95% 99% Output 35
- 63 -
Roads
Improve
transitability (par.
570)
Rehabilitation and
maintenance of the
network of national
roads
MOPH % of roads in good
and reasonable
conditions [ANE
Report]
76% 77% 78% Outcome 36
CROSS-CUTTING ISSUES
HIV
Prevent the
transmission of HIV
(pars. 193 and 449)
Distribution of
condoms,
implementation of
CNCS's national
communication
strategy and the
expansion of
vertical
transmission
prevention services
CNCS /
MISAU
% (and number) of
HIV positive
pregnant women
who have been
receiving complete
prophylaxis
treatment in the last
12 months so as to
reduce the risk of
vertical transmission
from mother to baby
[MISAU]
13%
(22500)
17% (30400) 22%
(42000)
Output 37
Gender
Promote gender
equality and strengthen
woman's
empowerment (pars.
192 and 193)
Inclusion of gender
issues identified in
the PARPA in the
PES/OE and
BdPES
Identified
Ministries (in
coordination
with MMAS
and MPD)
PES/OE and BdPES
whereby the actions,
budgets and progress
in gender are
reflected [Sector
BdPES/OE and a
conjunct MMAS
evaluation]
MMAS,
MISAU,
MEC,
MINAG,
MINT,
MOPH,
MPD.
MMAS,
MISAU,
MEC,
MINAG,
MINT,
MOPH,
MPD.
MMAS,
MISAU,
MEC,
MINAG,
MINT,
MOPH,
MPD; MJ
and MAE
Output 38
- 64 -
Rural
Development
Increase the
competitiveness and
the accumulation of the
rural economy (par.
237)
Coordination of the
implementation
process of the Local
Economic
Development
Agencies
MPD -
DNPDR
Cumulative number
of operational Local
Financial and
Economic
Development
Agencies [DNPDR
monitoring reports]
8 10 10 Output 39
Environment
Improve spatial
planning (par. 205)
Elaboration and
approval of district
plans on the use of
land
MICOA /
MPD
Cumulative number
of District
Development
Strategy Plans
(PEDD) with an
elaborated and
approved integrated
spatial component
(use of land) [Sector
BdPES]
26 33 40 Output 40
- 65 -
ANNEX 3: LETTER OF DEVELOPMENT POLICY
- 66 -
- 67 -
- 68 -
- 69 -
- 70 -
- 71 -
ANNEX 4: IMF RELATIONS NOTE
IMF Completes Third Review Under the Policy Support Instrument for Mozambique
Press Release No. 11/449
December 7, 2011
The Executive Board of the International Monetary Fund (IMF) has completed the third
review under the three-year Policy Support Instrument (PSI) for the Republic of
Mozambique.1 The Board's decision was taken on a lapse of time basis.
2
Mozambique continues to weather the global economic turmoil well. Real GDP growth
is projected to remain above 7 percent in 2011, benefiting from good harvests, a robust
performance in the services sector, and the coming online of new megaprojects in the
natural resource sector. While risks related to the external environment have increased,
Mozambique‟s macroeconomic stability and prudent policy mix over the past few years
should help the economy mitigate the impact of a temporary global downturn. The
tightening of monetary policy in 2011 has been effective in curtailing inflation. The
prudent execution of the 2011 budget has contributed to a judicious policy mix that has
fostered macroeconomic stability at a critical time and positioned the country well to
respond to downside risks should such a need arise. All quantitative targets for end-June
2011 were met, except for reserve money growth which was missed by a small margin.
Progress on the structural front has also been good.
The authorities‟ economic program under the PSI will continue to emphasize preserving
macroeconomic stability and debt sustainability while promoting economic and social
development. Monetary policy will be geared toward further reducing inflation while
fostering financial deepening. Fiscal policy will seek to step up public investment to
close the infrastructure gap and support an expansion of social safety nets to address
chronic poverty, consistent with the authorities‟ four-year poverty reduction strategy
(2011–2014). The necessary fiscal space is expected to be created through a continued
strong revenue effort, the phasing-out of the fuel subsidy, selective non concessional
borrowing, and a moderate increase in domestic borrowing. The program‟s structural
reforms will focus on improving public financial management including debt
management, tax administration and policy, and monetary policy framework.
The Executive Board approved Mozambique‟s second three-year PSI on June 14, 2010
(see Press Release No. 10/242), upon expiration of the previous PSI and completion of
the final review under a 12-month high-access arrangement (SDR 113.6 million) under
the Exogenous Shocks Facility, aimed at providing temporary balance of payments
support in dealing with the global crisis (see Press Release No. 09/247).
1 The IMF‟s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close
cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-
owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. A country‟s
performance under a PSI is reviewed bi-annually. 2 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.
IMF EXTERNAL RELATIONS DEPARTMENT
Public Affairs
Media Relations
E-mail: [email protected] Phone: 202-623-7100
Fax: 202-623-6278 Fax: 202-623-6772
- 72 -
ANNEX 5: MOZAMBIQUE AT A GLANCE
Mozambique at a glance 1/27/12
Sub-
Key D evelo pment Indicato rs Saharan Low
M ozambique Africa income
(2010)
Population, mid-year (millions) 23.4 840 846
Surface area (thousand sq. km) 799 24,242 17,838
Population growth (%) 2.3 2.5 2.2
Urban population (% of to tal population) 38 37 29
GNI (Atlas method, US$ billions) 10.6 944 431
GNI per capita (Atlas method, US$) 450 1,125 509
GNI per capita (PPP, international $) 880 2,051 1,220
GDP growth (%) 6.8 1.7 4.6
GDP per capita growth (%) 4.2 -0.7 2.4
(mo st recent est imate, 2004–2010)
Poverty headcount ratio at $1.25 a day (PPP, %) 60 51 ..
Poverty headcount ratio at $2.00 a day (PPP, %) 82 73 ..
Life expectancy at birth (years) 49 53 57
Infant mortality (per 1,000 live births) 92 81 76
Child malnutrition (% of children under 5) .. 25 28
Adult literacy, male (% of ages 15 and o lder) 70 71 69
Adult literacy, female (% of ages 15 and o lder) 41 54 55
Gross primary enro llment, male (% of age group) 122 105 107
Gross primary enro llment, female (% of age group) 110 95 100
Access to an improved water source (% of population) 48 60 64
Access to improved sanitation facilities (% of population) 17 31 35
N et A id F lo ws 1980 1990 2000 2010 a
(US$ millions)
Net ODA and official aid 167 997 906 2,013
Top 3 donors (in 2008):
United States 9 62 116 256
European Union Institutions 7 81 79 205
Germany 2 37 48 114
Aid (% of GNI) 4.7 43.0 22.9 20.5
Aid per capita (US$) 14 74 50 88
Lo ng-T erm Eco no mic T rends
Consumer prices (annual % change) 4.2 43.7 12.7 12.7
GDP implicit deflator (annual % change) 4.1 34.1 12.0 12.6
Exchange rate (annual average, local per US$) 32.4 947.5 15,689.5 32,985.8
Terms of trade index (2000 = 100) 87 112 100 126
1980–90 1990–2000 2000–10
Population, mid-year (millions) 12.1 13.5 18.2 23.4 1.1 3.0 2.5
GDP (US$ millions) 3,526 2,463 4,183 9,805 -0.1 6.1 7.6
Agriculture 37.1 37.1 24.0 28.7 6.6 5.2 7.6
Industry 34.4 18.4 24.5 22.4 -4.5 12.3 8.4
M anufacturing .. 10.2 12.2 13.3 .. 10.2 7.5
Services 28.5 44.5 51.5 48.9 6.5 5.0 8.0
Household final consumption expenditure 96.7 92.3 80.6 82.4 -1.2 5.8 6.1
General gov't final consumption expenditure 12.2 13.5 9.0 13.1 -6.7 3.2 9.1
Gross capital formation 7.6 22.1 31.0 20.6 4.1 8.6 4.9
Exports o f goods and services 10.9 8.2 16.5 29.5 -6.8 13.1 13.0
Imports of goods and services 27.4 36.1 37.0 45.7 -3.8 7.6 6.6
Gross savings -6.9 2.1 13.8 3.2
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. Group data are for 2009. .. indicates data are not available.
a. A id data are for 2009.
Development Economics, Development Data Group (DECDG).
(average annual growth %)
(% of GDP)
10 5 0 5 10
0-4
15-19
30-34
45-49
60-64
75-79
percent of total population
Age distribution, 2009
Male Female
0
50
100
150
200
250
1990 1995 2000 2009
Mozambique Sub-Saharan Africa
Under-5 mortality rate (per 1,000)
-10
-5
0
5
10
15
95 05
GDP GDP per capita
Growth of GDP and GDP per capita (%)
- 73 -
Mozambique
B alance o f P ayments and T rade 2000 2010
(US$ millions)
Total merchandise exports (fob) 364 2,333
Total merchandise imports (cif) 1,163 3,512
Net trade in goods and services -819 -1,685
Current account balance -697 -1,113
as a % of GDP -16.7 -10.2
Workers' remittances and
compensation of employees (receipts) 37 111
Reserves, including gold 745 2,099
C entral Go vernment F inance
(% of GDP)
Current revenue (including grants) 15.2 28.7
Tax revenue 10.5 18.1
Current expenditure 11.7 19.1
T echno lo gy and Infrastructure 2000 2009
Overall surplus/deficit -8.4 -3.9
Paved roads (% of to tal) 18.7 20.8
Highest marginal tax rate (%) Fixed line and mobile phone
Individual 20 32 subscribers (per 100 people) 1 26
Corporate 35 32 High technology exports
(% of manufactured exports) 9.5 9.5
External D ebt and R eso urce F lo ws
Enviro nment
(US$ millions)
Total debt outstanding and disbursed 7,258 6,187 Agricultural land (% of land area) 61 62
Total debt service 166 437 Forest area (% of land area) 52.4 49.6
Debt relief (HIPC, M DRI) 3,147 1,322 Terrestrial protected areas (% of land area) .. ..
Total debt (% of GDP) 173.5 63.1 Freshwater resources per capita (cu. meters) 5,208 4,586
Total debt service (% of exports) 21.6 14.6 Freshwater withdrawal (billion cubic meters) 0.7 ..
Foreign direct investment (net inflows) 139 790 CO2 emissions per capita (mt) 0.07 0.12
Portfo lio equity (net inflows) 0 2
GDP per unit o f energy use
(2005 PPP $ per kg of o il equivalent) 1.3 1.9
Energy use per capita (kg of o il equivalent) 393 416
Wo rld B ank Gro up po rtfo lio 2000 2009
(US$ millions)
IBRD
Total debt outstanding and disbursed 0 0
Disbursements 0 0
Principal repayments 0 0
Interest payments 0 0
IDA
Total debt outstanding and disbursed 760 1,387
Disbursements 125 240
P rivate Secto r D evelo pment 2000 2010 Total debt service 6 7
Time required to start a business (days) – 13 IFC (fiscal year)
Cost to start a business (% of GNI per capita) – 13.9 Total disbursed and outstanding portfo lio 99 85
Time required to register property (days) – 42 o f which IFC own account 99 85
Disbursements for IFC own account 49 19
Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and
(% of managers surveyed who agreed) repayments for IFC own account 3 18
n.a. .. ..
n.a. .. .. M IGA
Gross exposure 114 175
Stock market capitalization (% of GDP) .. .. New guarantees 74 0
Bank capital to asset ratio (%) 8.2 8.4
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. 1/27/12
.. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
0 25 50 75 100
Control of corruption
Rule of law
Regulatory quality
Political stability
Voice and accountability
Country's percentile rank (0-100)higher values imply better ratings
2009
2000
Governance indicators, 2000 and 2009
Source: Kaufmann-Kraay-Mastruzzi, World Bank
IBRD, 0
IDA, 1,577
IMF, 190
Other multi-lateral, 994
Bilateral, 438
Private, 2,988
Short-term, 0
Composition of total external debt, 2010
US$ millions
- 74 -
Millennium Development Goals Mozambique
With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)
Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2009
Poverty headcount ratio at $1.25 a day (PPP, % of population) .. 81.3 .. 60.0
Poverty headcount ratio at national poverty line (% of population) .. 69.4 .. 54.7
Share of income or consumption to the poorest qunitile (%) .. 5.6 .. 5.2
Prevalence of malnutrition (% of children under 5) .. 23.9 .. ..
Go al 2: ensure that children are able to co mplete primary scho o ling
Primary school enro llment (net, %) 44 44 56 92
Primary completion rate (% of relevant age group) 26 26 16 57
Secondary school enro llment (gross, %) 7 7 6 23
Youth literacy rate (% of people ages 15-24) .. 47 .. 71
Go al 3: e liminate gender disparity in educat io n and empo wer wo men
Ratio of girls to boys in primary and secondary education (%) 73 69 75 89
Women employed in the nonagricultural sector (% of nonagricultural employment) 11 .. .. ..
Proportion of seats held by women in national parliament (%) 16 25 30 39
Go al 4: reduce under-5 mo rtality by two -thirds
Under-5 mortality rate (per 1,000) 219 195 177 135
Infant mortality rate (per 1,000 live births) 146 131 119 92
M easles immunization (proportion of one-year o lds immunized, %) 59 71 71 77
Go al 5: reduce maternal mo rtality by three-fo urths
M aternal mortality ratio (modeled estimate, per 100,000 live births) 1,000 890 780 550
B irths attended by skilled health staff (% of to tal) .. 44 .. 55
Contraceptive prevalence (% of women ages 15-49) .. 6 .. 16
Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases
Prevalence of HIV (% of population ages 15-49) 1.2 4.1 8.6 11.5
Incidence of tuberculosis (per 100,000 people) 181 262 378 409
Tuberculosis case detection rate (%, all forms) 65 43 31 46
Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs
Access to an improved water source (% of population) 36 38 42 47
Access to improved sanitation facilities (% of population) 11 12 14 17
Forest area (% of land area) 55.2 .. 52.4 49.6
Terrestrial protected areas (% of land area) .. .. .. ..
CO2 emissions (metric tons per capita) 0.1 0.1 0.1 0.1
GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 0.9 1.0 1.3 1.9
Go al 8: develo p a glo bal partnership fo r develo pment
Telephone mainlines (per 100 people) 0.4 0.4 0.5 0.4
M obile phone subscribers (per 100 people) 0.0 0.0 0.3 26.1
Internet users (per 100 people) 0.0 0.0 0.1 2.7
Personal computers (per 100 people) .. 0.1 0.3 1.4
Note: Figures in italics are for years other than those specified. .. indicates data are not available. 1/27/12
Development Economics, Development Data Group (DECDG).
M o zambique
0
25
50
75
100
2000 2005 2009
Primary net enrollment ratio
Ratio of girls to boys in primary & secondary education
Education indicators (%)
0
10
20
30
2000 2005 2009
Fixed + mobile subscribers Internet users
ICT indicators (per 100 people)
0
25
50
75
100
1990 1995 2000 2009
Mozambique Sub-Saharan Africa
Measles immunization (% of 1-year olds)
Montes NamuleMontes Namule(2,419 m)(2,419 m)
Mo
za
mb
iq
ue
Pl a
i n
M o z a m b i q u e
P l a t e a u
MAPUTOMAPUTO
G A Z AG A Z A
S O F A L AS O F A L A
T E T ET E T E
Z A M BZ A M B É Z I AZ I A
N A M P U L AN A M P U L A
C A B OC A B OD E L G A D OD E L G A D O
N I A S S AN I A S S A
Limpopo
INHAMBANEINHAMBANE
MANICAMANICA
GuijaGuija
MassingirMassingir
ChicualacualaChicualacuala
MapaiMapai
MoambaMoamba
EspungaberaEspungabera
ChiguboChigubo
MachaílaMachaíla
PandaPanda
GorogosaGorogosa
SenaSena
ChangaraChangara
CatandicaCatandica
InhamingaInhaminga
MontepuezMontepuez
MuedaMueda
MarrupaMarrupa
CaturCatur
MetangulaMetangula
Alto MolócueAlto Molócue
RibáuRibáuè
GuruGurué
CuambaCuamba
NamacurraNamacurra
MocubaMocuba
MoatizeMoatize
SongoSongoZumboZumbo
FíngoFíngoè
FurancungoFurancungo
MualadziMualadzi
MilangeMilange
LichingaLichinga
ChimoioChimoio
TeteTete
NampulaNampula
ChibitoChibito
MatelaMatela
Monte BingaMonte Binga(2,438 m) (2,438 m)
To To LusakaLusaka
To To PetaukePetauke
To To LilongweLilongwe
To To MangocheMangoche
To To MtwaraMtwara
To To ZombaZomba
To To BlantyreBlantyre
To To ChipataChipata
To To MutokoMutoko
To To HarareHarare
To To MasvingoMasvingo
To To MasvingoMasvingo
To To RutengaRutenga
To To MessinaMessina
To To NelspruitNelspruit
To To MbabaneMbabane
S O U T HS O U T HA F R I C AA F R I C A
SWAZILANDSWAZILAND
Z I M B A B W EZ I M B A B W E
Z A M B I AZ A M B I A
T A N Z A N I AT A N Z A N I A
MALAWIMALAWI
LakeLakeMalawiMalawi
Zitundo
Manhica
Guija
Massingir
Chicualacuala
Mapai
Moamba
Nova Mambone
Espungabera
Inhassôro
Vilanculos
Chigubo
Machaíla
Inharrime
Panda
Chibito
Gorogosa
Sena
Changara
Catandica
Inhaminga
Pebane
Angoche
Nacala
Montepuez
MuedaMocimboada Praia
Marrupa
Catur
Metangula
Alto Molócue
Ribáuè
Gurué
Cuamba
Namacurra
Mocuba
Moatize
SongoZumbo
Fíngoè
Furancungo
Mualadzi
Milange
Moçambique
Xai-Xai
Matela
Beira
Chimoio
Quelimane
Tete
Nampula
Inhambane
Pemba
Lichinga
MAPUTO
S O U T HA F R I C A
SWAZILAND
Z I M B A B W E
Z A M B I A
T A N Z A N I A
MALAWI
MAPUTO
G A Z A
S O F A L A
T E T E
Z A M B É Z I A
N A M P U L A
C A B OD E L G A D O
N I A S S A
INHAMBANE
MANICAINDIAN OCEAN
Lago deCahora Bassa
LakeMalawi
Lugenda
Messalo
Lúrio
Ligonha
Licungo
Zambeze
Buzi
Save
Changane
Zambeze
Limpopo
To Lusaka
To Petauke
To Lilongwe
To Mangoche
To Mtwara
To Zomba
To Blantyre
To Chipata
To Mutoko
To Harare
To Masvingo
To Masvingo
To Rutenga
To Messina
To Nelspruit
To Mbabane
Mo
za
mb
iq
ue
Pl a
i n
M o z a m b i q u e
P l a t e a u
Monte Binga(2,436 m)
Montes Namule(2,419 m)
30° E 35° E
30° E 35° E 40° E
25° S
20° S
15° S
10° S
25S
20° S
15° S
10° S
MOZAMBIQUE
0 50 100 150
0 50 100 150 Miles
200 Kilometers
IBRD 33451R1
JANUARY 2007
MOZAMBIQUESELECTED CITIES AND TOWNS
PROVINCE CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
PROVINCE BOUNDARIES
INTERNATIONAL BOUNDARIES
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.
