9 Million Mozambicans Below Poverty Line: National Budget Credibility Under Scrutiny

Editorial

Maputo – Mozambique, ranked among the bottom 20 countries in the Human Development Index (HDI), faces a severe challenge in tackling poverty, with nearly two-thirds of its population – 18.9 million people – living below the national poverty line of US$0.70-a-day. A recent study into the country’s budget credibility has highlighted systemic challenges and offered recommendations to address these issues.

Mozambique struggles to fund public spending, frequently running state budget deficits. Ironically, it also fails to utilize all the funds allocated in its budgets. This persistent challenge is exacerbated by a rapidly growing population, crumbling infrastructure, and limited revenue streams.

Focus on Social Sector Spending

The study, centred on public expenditures in social sectors such as education, health, social protection, and public works (water and sanitation), reveals significant gaps. These areas, critical for human capital development and poverty reduction, account for 40% of Mozambique’s budget. Education alone takes up 20%.

Despite this allocation, the government consistently underperforms in utilizing budgeted funds, even during periods of sufficient revenue. Education and health sectors were found to have relatively credible budgets compared to public works and social protection, where execution gaps were glaring.

The study also revealed disparities between investment and current expenditures. Externally funded investment expenditures, such as those for schools and health facilities, were more volatile and less credible than current expenditures, such as salaries for teachers and public workers.

Budget Deviations and Mismanagement

The research corroborates findings from the Public Expenditure and Financial Accountability (PEFA) programme, which identified consistent deviations and mid-year budget adjustments as major issues. However, unlike PEFA’s broader assessments, this study delved deeper, uncovering patterns of resource reallocation outside established budgetary rules.

For example, resources allocated for investment projects were frequently redirected to cover current expenditures, undermining long-term development goals. Mid-year budget adjustments were found to have limited effectiveness in improving budget reliability.

Underlying Causes

Mozambique’s budget inconsistencies stem from several factors, including:

• Revenue Shortfalls: Slow economic growth and poor tax collection mechanisms.
• Expenditure Overruns: These are driven by natural disasters, health crises like COVID-19, inflation, exchange rate volatility, and delayed donor funding.
• Administrative Issues: Logistical delays in project implementation.

Government Interventions

In recent years, the government has introduced measures to address these challenges, including:

• Establishing a reserve fund under a new sovereign fund.
• Increasing tax collection efforts.
• VAT reform, as recommended by the International Monetary Fund (IMF).
• Initiatives to limit public sector wage expenditure and improve budget transparency.

Study Recommendations

To bolster budget credibility and ensure sustainable development, the study makes the following recommendations:

1. Sectoral Focus: Enhance budgeting and expenditure targeting in social sectors such as health, education, and social protection.
2. Investment Oversight: Strengthen mechanisms to prevent the diversion of externally funded investment resources and align spending with development goals.
3. Budget Adjustments: Prioritize strategic mid-year reallocations rather than ad-hoc adjustments.
4. Enhanced Monitoring: Implement robust monitoring tools within the Ministry of Economy and Finance to identify and replicate best practices.

The Bigger Picture

Budget credibility is pivotal to Mozambique’s economic growth, poverty alleviation, and public trust. Effective fiscal management can ensure transparency, predictability, and accountability – essential elements for sustainable progress.

Efforts to stabilize public spending and target investments more strategically must be accelerated to provide relief to millions of Mozambicans living in poverty while driving long-term national development.