Monitoring public finance risks in order to guarantee a country’s economic and financial stability is one of the essential elements for states. In this review, we will highlight some of the risks to be monitored in the PF of the Mozambican economy.
- Inefficiency in revenue collection
Until September 2023, tax revenue collection levels were below those achieved in the same period of 2022. In this period, 67.1% of tax revenues were collected, 10pp less than in the same period in 2022. VAT on domestic transactions was collected at 59%, compared to 83.1% in the same period in 2022.
shows the collection levels of some taxes from January to September 2022 and 2023.
The implementation of economic acceleration measures, including the elimination of exemptions in the health and private education sectors, was intended to increase revenue. However, the year 2023 saw a lower than expected revenue performance. By the third quarter of 2023, 232.5 billion meticais had been collected, representing a variation of 7.8% compared to the previous period.
- Increase in tax benefits
Between 2012 and 2021, tax benefits in Mozambique tripled, from 13.2 billion meticais to 34.1 billion meticais. These benefits have increased over time, especially during election periods, as seen in the exemptions from customs duties and VAT. For example, in 2019, an election year, VAT exemptions on imports increased to 12.7 billion meticais, after an average of 6 billion meticais in the previous two years. In 2017, the state granted exemptions worth 17.1 billion meticais.
The increase in these benefits means a reduction in state revenue. With the elections underway and the dependence on tax revenues from companies, there may be pressure on the government to increase revenue collection. To compensate for the drop in revenue due to the exemptions, the government may intensify tax collections from certain companies that are not aligned with the ruling party, while companies allied with the party may continue to benefit from the exemptions.
To prevent abuses, there is an urgent need to step up the monitoring of tax breaks at all levels, including companies in the extractive sector, private companies, civil servants, members of Parliament and political parties.
The reinforcement of internal and external audits by the General Inspectorate of Finance and the Administrative Court is essential to identify companies benefiting from exemptions and guarantee the legality of these benefits.
- Debt increase
During 2023, the Mozambican government made excessive use of treasury bills, a form of short-term financing with high interest rates, to cover its cash needs. In August of the same year, it announced that it had reached the limit of its domestic debt capacity, resorting to debt refinancing, i.e. taking on new debt to pay off existing debt.
This excessive use of domestic debt is related to restrictions on access to external financing and inadequate internal management, which often resorts to short-term borrowing and debt refinancing at increasingly high interest rates.
For 2024, an even more worrying scenario regarding indebtedness is predicted. The Economic and Social Plan for Economic Guidance(PESOE) indicates an increase in interest payments on public debt, which will account for 4.2% of GDP, compared to 3.3% in 2023.
The payment of hidden debts, using internal indebtedness, could make the country’s situation even worse, leading to ever higher interest payments. By November 2023, domestic debt stood at 334.4 billion meticais, representing an increase of 59.3 billion meticais compared to December 2022.
The risks associated with the increase in debt at the end of the mandate become even higher, since refinancing is not yet regulated. This leads the government to take on debt to pay off debt, which causes interest rates to rise and worsens the country’s financial situation.
- Degradation of state assets
The lack of transparency and availability of documents related to state assets, coupled with the absence of audits to verify real estate (the RPCGE 2022 indicates that the TA has not carried out verification audits of state assets due to insufficient funds) and their low level of registration, increase the risks of their misappropriation, with an emphasis on real estate.
The lack of transparency in the management of state assets has already been mentioned by CIP in an article that shows the downward trend in state assets (in 2021 alone their value will be more than 114 billion MT) and warns of the risk of dilapidation of the properties of the Correios de Moçambique company, which is in the process of being liquidated.
The deficient publication of the volumes referring to state assets, Volume IV of the CGE, has shown a total lack of interest on the part of the government in analyzing this sector, coupled with the low levels of registration of properties in favour of the state.
See the full report at: Center for Public Integrity
Documents consulted: PESOE
