Friday, July 12, 2024

Medium-Term Fiscal Scenario (2025-2027): Public spending keeps pressure on public finances

The product of ongoing budget consolidation measures indicates that state revenue will average 25.7% of Gross Domestic Product (GDP) per year until 2027, as revealed by the recently approved Medium-Term Fiscal Scenario (2025-2027) by the Council of Ministers.

According to the budget plan, this forecast includes revenues from Liquefied Natural Gas (LNG), with an average of 5.751 million meticais per year by 2027, from the Coral Sul project in the Rovuma Basin. However, the government warns of the volatility of oil prices, which could have an impact on actual revenues.

The LNG revenue considered reflects 60% of the projected revenue, as proposed in the Sovereign Fund Law, where only part of the expected revenue will be directed to finance public investment expenditure.

The government forecasts a reduction in public spending from 33.2% of GDP in 2023 to 27.5% in 2027, reflecting the growing pressure on public finances.

However, operating expenses, wages, salaries, pensions and debt will continue to exert significant pressure on public finances in the medium term. The government prioritizes initiated, externally financed projects with state participation and new projects with high growth potential and immediate economic impact.

The government has set ambitious fiscal targets until 2027, aiming to maintain a fiscal ratio of 25.7% of GDP, reduce the wages and salaries ratio to 11.3% of GDP and guarantee a primary surplus of around 4.0% of GDP to favor a downward trajectory in public debt.

While acknowledging the substantial challenges, the Executive believes that the medium-term fiscal scenario also offers opportunities to promote sustainable economic growth and fiscal stability. The implementation of prudent policies and structural reforms will be crucial to ensure the resilience of public finances and long-term economic well-being.

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