Economists warn that there may be a lack of transparency in the management of natural gas revenues. The specialists were contacted by Diário Económico (DE) to comment on the recent proposal for the Sovereign Wealth Fund, submitted by the Government to the Portuguese Parliament, which foresees that 40% of the revenues to be generated by the gas industry will be channelled to the Fund in the first 15 years, contrary to the initial proposal, which established a weight of 50% for the Fund and the other half for the State Budget (OE).
Economists believe that, although the reasons for this reduction are unknown (although they recognise that it is legitimate since the country operates on the basis of a deficit budget), the entry of resources from gas exploration may worsen the old problem of lack of clarity in the management of public funds.
Egas Daniel, of the London School of Economics and Political Science (LSE), believes that the reduction from 50% to 40% of the weight of tax revenues for the Sovereign Fund reflects a greater weight of spending in the present in relation to the future. For him, although this makes sense due to the fact that the country has pressing unmet needs, there may be a risk that this increase in resources for OE is not accompanied by an improvement in the State’s capacity to absorb and use the value efficiently.
“This may lead to a relative waste of resources while the institutional capacity to generate good results with this value has not been strengthened. It is similar to adding water to a bucket without plugging the holes that let the water escape from the bucket,” warns the economist, underlining that, “in any case, the country still has a period of approximately six years before the most significant inflows of revenue to strengthen institutions (closing the holes of inefficiency in public spending).
“One needs to see the actual expectation of revenues or clear forecasts of spending in order to have a much more realistic idea”
Profiling the same position, the economist at the Institute of Social and Economic Studies (IESE), Michael Sambo, looks at economic factors that may have caused this reduction in the revenues that will be allocated to the Sovereign Fund. But he also questions what the expectations are for an increase in public spending over the next few years.
In the view of the IESE economist, it is necessary to see the real expectation of revenues or clear forecasts of spending in order to have a much more realistic idea, since “when the Fund is created, it is because a large volume of tax revenues is expected, and therefore, high profitability with the sales, in addition, it is also intended to protect the economy from price volatility in the international market.
“If there is no clarity in the spending that will be done, one can make relatively arbitrary expenditures, because, on the one hand, it is not about revenues that come from taxes paid by the citizen, but about a resource that belongs to the Mozambican State of which we are all part. In general, I think that the important thing is not to discuss what has caused this reduction in the allocation to the Fund, but rather, which projects will be able to absorb the 60% of the revenues that are expected to be generated without necessarily causing macroeconomic and financial shocks for Mozambique”, he stressed.
Michael Sambo explained that when making this proposal, the Government must be foreseeing quite a lot of expenditure. However, he hopes that with the entry of these revenues, public debts will be paid off and that no new debts will be contracted while the resources are generating revenue
However, Sambo also warned of the need to determine the real estimates of the volume of revenue that Mozambique will be able to absorb, at the risk of making exaggerated forecasts.
“The revenue estimates, very often have been over-estimated, perhaps not the case of the Rovuma natural gas, but in the beginning there was over-estimation for the exploitation of the Temane and Pande gas, in Inhambane, so much so that there was a disparity between the estimates of the IMF, the World Bank, the Ministry of Mineral Resources and what was then effective as revenue. So it is important to note this. There is a certain over-estimation,” reiterated the IESE economist, before questioning: “What mechanisms were taken into consideration so that the estimates are more adjusted/realistic?
Allocation
Nevertheless, and under the penalty of continuing to observe this poor transparency in the management of funds from the natural resources that the country has, Egas Daniel suggests distribution of the resources by social sectors as a development strategy, since the recent proposal submitted to Parliament does not contemplate this aspect.
“The Fund’s proposal does not provide clear guidelines, which may be done later, on how to promote development through financing the social sectors. The health sector seems to have made significant progress in structuring a National Strategy for Financing the Sector (which includes a financing metric situated at the level of 3.5% of GDP as a criterion for resource allocation). It is necessary that the Economic and Social Plan and State Budget (PESOE), once it receives the values from the Fund, presents a specific section that shows how and where the Fund’s resources will be applied”, Egas Daniel argued.
According to the proposal submitted to Parliament, 40 percent of tax revenues from gas exploration in northern Mozambique will be channelled, in the first 15 years of exploration, to the sovereign fund that the country is preparing to manage the almost US$100 billion it is expected to receive in tax revenues.
After that, the percentage rises to 50 percent, according to the draft law that is expected to be submitted to members of parliament by the end of this year, which represents a variation on the 2020 idea, in which the fund would receive 50 percent in the first two decades, a figure that would then rise to 80 percent of taxes from this sector.
The draft law on the Sovereign Fund of Mozambique (FSM), provides for capitalisation to start with this year’s revenues from the Coral Sul platform, which began extracting gas from the Rovuma in June.
“Revenues from the 2022 exploration of the FLNG Coral Sul project shall be shared,” according to the articles of the new law.
The draft law, which should be considered by Parliament by December, according to the memorandum between the Government and the International Monetary Fund (IMF) that underpins the financial assistance programme of $470 million until 2025, provides that the Sovereign Fund will be capitalised in the first 15 years with 40% of the revenues from gas and oil, with 60% going to the State Budget (OE).
However, according to the report published a few days ago by the Centre for Public Integrity (CIP), the Sovereign Fund proposal neglects the development component. For CIP the document does not prioritise investment, a component that could promote the structural changes needed for Mozambique’s accelerated development.
