Mozambique - School of International and Public Affairs - Columbia ...

More documents

Recommendations

Info

Mozambique: Extractives for Prosperity, Vol. II May 2013 tax revenues to replenish its entire budget. Uniting all four accounts under the same trust fund will facilitate accounting and oversight, while lowering administrative costs. At the same time, it is vital that each account is managed in accordance with different criteria, with different decision-making processes to take into account the different purposes of the accounts. For accounting and transparency purposes, each account must clearly state the share of revenues stemming from coal exportation and the share stemming from natural gas or petroleum production and exportation. Sovereign Wealth Trust Fund Budget Account Stabilization Account Development Account Savings Account The replenishment of the different accounts should happen in a cascading manner. Budget support and stabilization of the economy have to be prioritized. Due to the large and imminent financial impact expected from natural gas production, these two funds should be replenished fairly early. It will subsequently be important to increase the development account following Parliamentary approval and to start investments in projects that diversify the economy and increase domestic capacity. Ultimately, any revenues that are not needed in the budgetary process, for stabilization matters or for specific development projects should be saved in the savings account. The revenues that will accrue from financial investment of the savings account can then be fueled back into the budget. The ultimate goal is to build up the savings account. Over time, as the country builds its other sectors, and generates more tax revenue, Mozambique will no longer need the budget or the development account and will be able to manage its resource wealth through a stabilization account and a savings account. While a solid legal basis with clearly stated inflow and outflow rules is crucial for the fund’s success, studies suggest that funds with flexible rules tend to be more effective than funds with fixed rules. 674 Even with some granted flexibility there have to be clear withdrawal limits to prevent the depletion of the fund. Since market realities and macroeconomic indicators change over time, the laws enshrining Mozambique’s sovereign wealth trust fund need to be able to take these new realities into account. In the process of establishing a SWF for Mozambique, public awareness and involvement will be very important. The public needs to be well informed about the benefits and obligations of the SWF. This can also help to create a sense of ownership and pride among Mozambicans. In line with the trust fund’s protection against debt collection, it should not be permitted to borrow against the fund. This will protect Mozambique against increased borrowing during times of high commodity prices, that might not be sustainable once commodity prices fall and 226
Mozambique: Extractives for Prosperity, Vol. II May 2013 could effectively lead to a debt crisis. Recommendation 100: To accommodate Mozambique’s current socio-economic situation the sovereign wealth trust fund should include four separate accounts: a budget account that supports the budget, a stabilization account to protect against price fluctuations, a development account to invest in infrastructure and social projects and a savings account to ensure that future generations will also be able to benefit from the fund. 9.5.1 The Budget Account The budget account shall replenish Mozambique’s budget that has thus far been bolstered by donor contributions. In 2012, the donor community sustained almost half of the Mozambican budget. 675 While Mozambique’s independence from foreign aid is a long-term priority, we recommend a gradual replacement of funds stemming from donor countries with commodity revenues. This will allow the economy to gradually adjust to the new circumstances. Currently, revenues from extractive activities (coal production started in 2012, and there are existing smaller scale onshore natural gas productions in the southern part of Mozambique) are flowing into government accounts. These could immediately be directed into the sovereign wealth trust fund and subsequently fueled back into the budget. Once massive revenues from natural gas production start flowing in (expected 2018/19) the budget account will experience rapid growth. As soon as the budget account has reached the level of the projected budget contributions, any overflows will go into the adjunct stabilization account. 9.5.2 The Stabilization Account Mozambique’s stabilization account will fulfill the same tasks as the stabilization funds described above. Given the fact that the larger share of resource revenues are expected to originate from natural gas production, fluctuation in natural gas prices will have a higher impact on Mozambique compared to fluctuations in coal prices. Historically, natural gas prices have experienced high volatility. Thus, establishing a solid stabilization mechanism is very important. During periods of high commodity prices, the account will expand until it reaches a certain threshold that is pre-determined and enshrined in the law. Funds that exceed this threshold will be directed into the development account or the savings account. In the case of a price shock, funds may be withdrawn from the stabilization account. The development or the savings account, however, cannot be touched in such an event. By drawing on the stabilization account in times of low natural gas prices (or coal prices), the government can avoid painful spending cuts or increasing taxes, which could potentially affect GDP growth. These, however, are general guidelines that will have to be studied further and adjusted to suit Mozambique’s fiscal environment. The International Monetary Fund (“IMF”) has been advising resource rich countries on tools regarding macroeconomic stability. During its mission visit to Maputo in 2012, the IMF advised the government of Mozambique, in particular the Budget Directorate, on how to deal with price fluctuations. In a conversation with the IMF in Maputo in March 2013 we were told, that while the IMF is in favor of a SWF in Mozambique (and it is likely that it will become more vocal about this in the near future), the government currently lacks the capacity to deal with this matter. 227
Page 1:
Mozambique: Mobilizing Extractive R
Page 5 and 6:
Contents Table of Contents Acknowle
Page 7 and 8:
Page 9 and 10:
Page 11 and 12:
Page 13 and 14:
Page 15 and 16:
Page 17:
Page 20 and 21:
Page 22 and 23:
Page 24 and 25:
Page 26 and 27:
Page 28 and 29:
Page 30 and 31:
Page 32 and 33:
Page 34 and 35:
Page 36 and 37:
Page 38 and 39:
Page 40 and 41:
Page 42 and 43:
Page 44 and 45:
Page 46 and 47:
Page 48 and 49:
Page 50 and 51:
Page 52 and 53:
Page 54 and 55:
Page 56 and 57:
Page 58 and 59:
Page 60 and 61:
Page 62 and 63:
Page 64 and 65:
Page 66 and 67:
Page 68 and 69:
Page 70 and 71:
Page 72 and 73:
Page 74 and 75:
Page 76 and 77:
Page 78 and 79:
Page 80 and 81:
Page 82 and 83:
Page 84 and 85:
Page 86 and 87:
Page 88 and 89:
Page 90 and 91:
Page 92 and 93:
Page 94 and 95:
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Page 102 and 103:
Page 104 and 105:
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
Page 148 and 149:
Page 150 and 151:
Page 152 and 153:
Page 154 and 155:
Page 156 and 157:
Mozambique: Extractives for Prosper
Page 158 and 159:
Page 160 and 161:
Page 162 and 163:
Page 164 and 165:
Page 166 and 167:
Page 168 and 169:
Page 170 and 171:
Page 172 and 173:
Page 174 and 175:
Page 176 and 177: Mozambique: Extractives for Prosper
Page 276 and 277:
Page 278 and 279:
Page 280 and 281:
Page 282 and 283:
Page 284 and 285:
Page 286 and 287:
Page 288 and 289:
Page 290 and 291:
Page 292 and 293:
Page 294 and 295:
Mozambique Capstone Appendix 3A: Ec
Page 296 and 297:
Mozambique Capstone Appendix 3B: So
Page 298 and 299:
Page 300 and 301:
Page 302 and 303:
Page 304 and 305:
Mozambique Capstone Appendix 3C: Tr
Page 306 and 307:
Mozambique Capstone Appendix 3C: Ib
Page 308 and 309:
Mozambique Capstone Appendix 3D: Wo
Page 310 and 311:
Mozambique Capstone Appendix 3D: IF
Page 312 and 313:
Mozambique Capstone Appendix 3D: IF
Page 314 and 315:
Mozambique Capstone Trading Across
Page 316 and 317:
Mozambique Capstone Appendix 3E: Na
Page 318 and 319:
Mozambique Capstone Appendix 3E: Re
Page 320 and 321:
Mozambique Capstone Profiles of the
Page 322:
Mozambique Capstone Mozambique Caps
show all

Mozambique - School of International and Public Affairs - Columbia ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?