Mozambique ranks at bottom 20 With human development index. It measures a rustic’s progress based on key dimensions akin to long and healthy lives and an honest lifestyle. Nearly two-thirds of Mozambicans – 18.9 million people – live below national poverty line of $0.70 per day.
The country also has difficulties financing public spending, persistent state budget deficits . At the same time, it doesn’t use all the funds provided for in the budget.
Mozambique’s frequent budget deficits should not surprising. The country has rapidly growing populationincreases needs of the poor population, ruined infrastructureAND very limited revenue generation.
In recent research on the credibility of Mozambique’s budget, we examined how the government’s challenges in meeting revenue and expenditure targets are harming the overall economy. And we advise solutions.
In our study, we focused on public spending on the social sector. This included education, health, social protection and public works (including water and sewage). All are essential to creating human capital and reducing poverty. The social sector is accountable for 40% of planned expenses. Education is the largest and accounts for about 20% of the total pie.
Our study introduces – and successfully tests – a straightforward method that might be easily applied by budgetary oversight entities. This includes the Parliament’s budgetary oversight unit and the Court of Auditors. It will also be utilized by planning units in ministries, especially the Ministry of Finance. Finally, it might be utilized by civil society budget watchdogs because they depend on public information.
Its adoption will provide tools to improve budget management, which in turn will lead to more reliable budget implementation.
Assessment of public finance management
The Public spending and financial responsibility The program was initiated in 2001 by the European Commission, the International Monetary Fund, the World Bank and the governments of France, Norway, Switzerland and the United Kingdom. The goal was to improve fiscal performance. It has conducted 533 assessments in 155 countries, including 47 countries in sub-Saharan Africa. Ten evaluations were accomplished in Mozambique.
The program defines budget credibility as the degree to which the government budget is realistic and implemented as intended. A reputable budget provides assurance to a spread of stakeholders about the predictability of public spending and services. This includes taxpayers, donors and lenders, firms that provide government, public sector employees and recipients of public services.
A matter about credibility
We used publicly available government budget data to measure the credibility of Mozambique’s budget. We checked out each planned expenses and their actual implementation.
The Public Spending and Financial Responsibility Program has identified several weaknesses in its previous evaluations. These included deviations, sector-specific volatility, revenue shortfalls and interim budget adjustments.
However, these conclusions didn’t address the underlying causes of budget discrepancies. The assessments due to this fact didn’t allow for in-depth evaluation.
in ours testWe analyzed the credibility of the budget intimately, measuring the forms of expenditure and the financial 12 months.
The Court’s findings showed continued under-implementation of budgeted expenditure. This occurred even in years when income was sufficient. There were significant differences across sectors. For example, education and health budgets have shown relatively reliable budgets compared to public works, social protection and general non-social spending.
Comparison of forms of expenses revealed interesting patterns. Examples include capital expenditure in social sectors (akin to schools, health care facilities, water and sewage). They were mainly financed from external funds and were more volatile and less reliable than current expenses. Current expenditure includes teachers’ salaries and, more generally, total salaries.
We also found clear indications of a reallocation of resources outside normal budgetary rules. For example, we’ve got come across the suggestion that funds originally intended for investments were redirected to finance current expenses.
Finally, we found no strong evidence that mid-12 months budgetary adjustments improved credibility. This was in line with the public expenditure and financial responsibility reporting.
Causes and potential solutions
The government of Mozambique’s budget account attributes fiscal inconsistencies to two essential aspects.
On the one hand, slower economic growth and inefficient tax collection lead to revenue shortfalls. On the other hand, there have been overspends due to quite a lot of events. These include natural disasters, health shocks (akin to Covid-19), inflation, exchange rate fluctuations and delays in donor disbursements. Administrative and logistical issues also played a task and delayed projects.
The government has taken steps to reduce these gaps. These include:
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creation of a reserve fund inside the recent state fund
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increasing tax collection
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initiated the VAT reform. It was proposed by the IMF.
These efforts are accompanied by measures to address spending overruns. These include improving transparency and accountability in public budgets. They also include efforts to reduce overall public sector wage spending.
Our test recommends additional strategies to increase budget credibility:
Sectoral concentration: higher targeting of spending in social sectors. This includes education, health, social protection and social work. And streamline related budgeting processes
Improved investment management: strengthening supervision mechanisms over externally financed projects. The aim can be to limit the diversion of funds for unplanned purposes. And higher alignment with long-term development goals
Reassessment of budget adjustments: focus mid-12 months budget adjustments on strategic reallocation moderately than ad hoc adjustments
Improved monitoring: implement a system that can enable the Ministry of Economy and Finance to discover areas requiring improvement, potential quick advantages and best practices
Budget credibility is crucial to Mozambique’s economic development and public confidence. Effective budget management ensures transparency, predictability and accountability. All are essential for sustainable growth.