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    23 September, 2009
Donors criticise fuel subsidy

The group of donors who provide direct support to the Mozambican budget on 18 September criticized the government’s fuel subsidy policy. However, Minister of Planning and Development, Aiuba Cuereneia, has defended it as a necessary measure. The criticism came at the closing session of meetings between the government and the donors to draw up a “Performance Assessment Framework” (PAF) containing indicators and targets for both sides.

Speaking on behalf of the 19 donors and funding agencies who give direct budget support (known as the Programme Aid Partners, or PAPs), Finnish ambassador Kari Alanko said the group had expressed “reservations about the current fuel subsidy which, in our understanding, mostly benefits the richest strata of society and is very expensive, particularly in a year when Mozambique has been affected by the world economic crisis, which has been expressed in the need to hold back expenditure”.

Alanko said that the donors “are ready to help the government find more appropriate and better directed mechanisms to mitigate the high price of fuel”.

In the ensuing press conference, Cuereneia recalled that in 2008 the government had resorted to temporary lifting of taxes to keep down the price of fuel. When international fuel prices fell sharply later in the year, the government was able to re-impose the taxes and return to its traditional mechanism of reviewing fuel prices every month, raising or lowering them if the price of imported fuel, when expressed in the local currency, meticais, had moved by more than three per cent in either direction.

“This period of normality did not last long”, said Cuereneia, and when oil prices once again rose significantly the government decided to freeze fuel prices at their March level for the rest of the year. This led to lengthy negotiations with the fuel distribution companies, with the government agreeing to meet their losses, estimated at $31 million for the year.

Asked why the government had decided to subsidise not only diesel (which is vital for agriculture, industrial fishing and other productive activities), but also petrol, Cuereneia denied that petrol-driven cars are only owned by the wealthy. He said large numbers of cars in the state’s own vehicle fleet run on petrol.

Cuereneia admitted that the fuel subsidy meant that less money was available for other activities. The government was therefore making cuts in travel, in consumables and other non-essential expenses in state institutions. He guaranteed that these cuts would not affect the operations of the priority sectors for poverty reduction, such as the education and health ministries.

The current price of diesel is 22.45 meticais a litre, and that of petrol 23.1 meticais a litre (at current exchange rates there are about 27.2 meticais to the US dollar).

Asked about the impact of the international financial crisis on Mozambique, Cuereneia said it had reduced the value of key Mozambican exports, such as aluminium and cotton, and had forced Mozambique to dip into its foreign reserves. The reserves used to be enough to cover five months of imports, but now only cover four months.

Some foreign investors, he added, have postponed their projects in order to rearrange finance. This was the case with an oil refinery planned for the northern district of Nacala, and with an iron and steel factory planned for the Beluluane Free Zone, just outside Maputo.

Alanko said the financial crisis had also hit donor countries, and so finance ministries “are examining in minute detail our aid budgets”.

He warned that this could result “in tight competition for the scarce resources allocated to cooperation and development globally”. It was therefore important that Mozambique’s political and socio-economic development “should continue to show a positive performance, in order to maintain the confidence of the partners and the level of aid to the country”.

But it was not only the Mozambican government that had to meet targets. Alanko said that the PAPs themselves must “honour our undertakings concerned with the effectiveness of aid, and harmonization of our procedures to ensure better coordination and lower transaction costs”.

Further efforts were needed from the donors “so that we are better aligned with the government’s strategies”.

He told the reporters “the government’s performance merits continued budget support. Nothing is perfect and there are always challenges. We are working together to the common objective of development”.

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