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Mozambique must strengthen the implementation of reforms to improve its fiscal transparency, considering the macroeconomic challenges facing the country, particularly in the area of natural resources, the International Monetary Fund recommended.
The Fiscal Transparency Evaluation was developed by an IMF mission that visited Mozambique at the invitation of the Mozambican authorities in late 2013, the period to which information in last week’s report refers.
The document points out the budget reform that the country has been implementing is putting a number of aspects of fiscal and budgetary practices to fall into line with the standards set out in the IMF Fiscal Transparency Code.
Therefore some weaknesses observed in fiscal reporting practices are expected to be solved, although the report warned that current models of management and disclosure of fiscal risks are “inadequate”.
The IMF therefore recommends the introduction of reforms with impact in the medium term given the “expected” challenges of an increase in tax revenue from exploration of natural resources.
In terms of threats to fiscal transparency, the IMF noted that the country does not have a complete inventory of its public entities and “the institutional coverage of tax reports is limited and does not provide complete and reliable information about the operations performed by the social security fund” and other autonomous public institutions.
It is also a concern that “much of the net asset value” that the State has in “at least 156 public and publicly traded companies” remains unknown, with the IMF considering “the limited supervision capacity of the State Holdings Management Institute (Igepe) on financial assets and the risks associated with these entities.”
The Mozambican authorities announced the preparation of a draft law for the State Business Sector, an “effort to improve transparency and to consolidate existing legislation,” according to a letter of intent related to the Policy Support Instrument program (PSI), sent to the IMF in December.
The document signed by former Finance Minister Manuel Chang, and the Governor of the Bank of Mozambique, Ernesto Gove, announces the State’s intention “to consolidate its portfolio in the medium term,” through privatisation processes and liquidation.
In 2014, the country reduced “its portfolio” by two companies, after selling four and incorporating two new companies, including Mozambican tuna company Ematum, the Letter of Intent said, which also outlined the “aim of selling all shares in non-strategic businesses where government involvement is less than 20 percent.”
This process should be based on a financial assessment of the portfolio of state holdings in companies, which is being carried out with World Bank assistance in order to compile information on their indirect holdings, in addition to standardising managers’ pay, among other objectives.
Also with support from the World Bank, the Ministry of Finance plans to develop a tax risk unit by the end of the first quarter, which may respond to the IMF recommendation to improve the analysis and management of risks such as “the dependence on donor support for external financing” or “the State’s business sector activities.” (macauhub/MZ)