Mozambique: Wages and Debt Service Will Take 96% of Government Revenue Next Year
The fiscal crisis in Mozambique was underlined by a report published on 18 September by the Ministry of Finance. In 2027, after paying wages and debt service, only 4% of taxes and fees ($200mn) will be left for all other costs, such as running health and education, and building roads.
In the base case scenario, total government fiscal revenue (taxes and fees) will be $5.2bn. Salaries will take 65% of this ($3.4bn) and debt service will take 31% of this ($1.6bn). The Fiscal Risks Report 2027 highlights several risks – climate, Cabo Delgado, state company deficits, and devaluation – which seem likely to make the picture worse next year.
In a report today (28 Sept) the Ministry said that total public debt is $17.4bn, half foreign and half domestic.
Climate: El Niño is already the most serious in recorded history. The report says there will probably be severe drought as bad as in 2015/16 in the centre and south of Mozambique, and exceptionally heavy rain in Niassa, Cabo Delgado, and north-east Nampula. This will cause major economic damage. The Ministry of Finance warns that the cost of El Niño will be more than the tiny $200mn left over after debt service and salaries.
(Not included in the Ministry of Finance Report is the unusually rapid rise in sea temperatures already taking place off the coast of Nampula and Cabo Delgado, and east of Madagascar where many cyclones start and go on to hit Mozambique. The higher sea temperature makes cyclones stronger and carrying more rain. This means cyclones this year are expected to be worse the usual.)
'The deteriorating security situation in Cabo Delgado is delaying the start of production at Coral Norte and Area 1, on which the surge in growth and revenue in 2029 depends', warns the report. The Ministry report warns that there is a possibility that gas will be delayed for another year by the war. It notes that heavy rain and cyclones due to El Niño could also cause delay. So far the only gas production is from the Coral Sul offshore platform.
Badly run state companies: The report cites three badly run state companies – airline LAM, airports ADM, and telephone TMCEL. All are now being restructured, but the report cites a 'high fiscal risk' and the likelihood of further state subsidies.
The overvalued currency makes it hard for Mozambican producers to compete with imported goods, such as rice. The IMF and local business want devaluation. But foreign debt and repayments are mostly in US $ and a devaluation from the current MT69 = $1 to MT77 = $1 (which is widely predicted), would cost the Metical equivalent of $180mn per year in higher debt service.