The government promised the IMF big wage and staff cuts in order to gain IMF approval in May of a $456 mn Extended Credit Facility. The total civil service wage bill is to be cut by 17% by 2026, a cut of $425 mn per year from a peak in 2023. Staff cuts will be achieved “by replacing only one in three civil servants leaving the civil service, except in education, health, justice and agriculture.”
The IMF has always been obsessed with cutting the wage bill, but has never succeeded. And the new salary table will add $300 mn to the wage bill by 2023, mainly to the better paid. But large cuts must come in the three years after that.
Except for that, the IMF has largely accepted promises made before, such as a reduction in credit to state companies and more transparency.
Government promises a reform of the Public Probity Law including improving the definition of conflicts of interest, requiring new public servants to submit declarations of financial interests when they are hired, and establishing public procedures for reporting conflicts of interest. Interestingly there are no requirements for transparency here, so the IMF will allow declarations of assets and interests to remain secret.
Similarly repeated is a promises to strengthen transparency in the management of Mozambique’s natural resources as part of reporting to the Extractive Industries Transparency Initiative (EITI). Government promises to “reduce the scope for corruption and conflicts of interest in the natural resources sector.”
As before there is a promise to improve tax collection and to pay its bills on time. Government has promised to reduce the number of VAT exemptions. It announced that VAT would be cut from 17% to 16%, but that private health, private education, and rent for commercial and industrial premises would be subject to VAT. (Carta de Moçambique 23 Sep)
Many details of what is known as an “article IV consultation” remain secret. But on 14 September the Ministry of Economy and Finance released the key Political and Economic Memorandum – a government document with the commitments to the IMF. The Memorandum is on: https://www.mef.gov.mz/index.php/publicacoes/politicas/memorandos-de- entendimento-1/fmi/1705-memorando-de-politicas-economicas-gdm-fmi-202 2-2024 We used those promises to estimate the wage and staff cuts.
(How we estimated wage cuts: Commitments in the memorandum are based on percentage of GDP rather than monetary amounts. World Bank says 2021 GDP was $16.1 bn. IMF predicts 3.8% per year GDP growth. The cost of the new salary scale in reported in Meticias. We assume a constant exchange rate of $1 = MT 64. Taking that together we estimate for 2021 a wage bill of $2.2 bn at 13.8% of GDP. Government promises no wage rise this year and the extra cost of the new salary scale is given in the Memorandum as $300 mn per year from 2023. So we estimate the 2023 wage bill at $2.5 bn, 14.5% of GDP. The memorandum requires wages in 2026 to be 10.8% of GDP, which we estimate to be $2.1 bn, down $430 mn (17%) from 2023. Jh)