Wednesday, May 25, 2022

Mozambique seeking to boost infrastructure budgets

MAPUTO: Optimism from the government of Mozambique and despair from the governed run concomitantly as the country slowly rebuilds itself from the ruins of war.

The government of President Armando Guebuza has the daunting task to implement its Plan of Action for Food Production against poverty in urban areas and the countryside, improvements in water supply and sanitation, transport and communications and health and education.

These challenges notwithstanding, almost at every corner of the coastal city of Maputo sprouts a new building construction, a sign that the economy is not on its knees.

Mozambique is one of the four African countries identified by the International Monetary Fund (IMF) as seeking to boost their infrastructure budgets with new and nontraditional financing sources as
they chase higher economic growth rates.

The country’s economy grew by 7 percent before the global financial crisis. The government says it intends to finalize a comprehensive debt strategy that will assess the risk profile and the fiscal and macroeconomic implications of new borrowing by the end of this month and complete its first debt sustainability analysis by the end of this year.

In June this year, the IMF approved US$ 21 million disbursement for Mozambique.
The IMF says policy programs in Mozambique, Rwanda, Tanzania, and Uganda allow for less oncessional financing from multilateral development banks and export credit agencies; more use of public-private partnerships; and, potentially, external sovereign bond issues-as long as the new approach does not endanger fiscal and external debt sustainability.

Programs for the four countries approved since 2006 under the IMF’s Policy Support Instrument (PSI), focus on macroeconomic and structural policies aimed at scaling up infrastructure spending.

Policy packages for Mozambique, Rwanda, Tanzania, and Uganda, the IMF says, show infrastructure spending is critical for enhancing growth and maintaining momentum toward achieving the United Nations Millennium
Development Goals.

According to the IMF, numerous recent assessments in conjunction with multilateral development bank and think tanks, have shown how disproportionately large infrastructure gaps serve as a binding
constraint to higher factor productivity and growth in low-income countries in sub-Saharan Africa.

The World Bank has estimated that if sub-Saharan Africa’s low-income countries had an infrastructure base equivalent to a medium income country such as Korea, average per capita growth would be higher by 2.6 percentage points per year. Higher transportation, water, and power costs in Africa’s low-income countries are estimated to dampen private sector productivity by almost half -as much as crime, corruption, and limited financial market access combined.

Mozambique, Rwanda, Tanzania, and Uganda all face critical infrastructure gaps, including in the energy and transportation areas.

The Policy Support Instrument programs also contain measures to enhance domestic revenue intake significantly, both through administrative improvements and policy reforms.

According to the IMF, Uganda and Rwanda still have very low levels of revenue collection, at around 12.5 percent of GDP while Mozambique and Tanzania’s ratios at roughly 16-17 percent of GDP, remain low by international standards.

The IMF says streamlining tax exemptions and stronger enforcement should allow for continued increases in the tax revenue effort in all the four countries, on average by at least 1.5 percentage points of GDP.

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