Posted by Teresa Dabán
In May 2008, the IMF published, on its external web site, a reassessment of Mozambique's fiscal transparency—i.e. a completely updated Report on the Observance of Standards and Codes- Fiscal Transparency Module ("fiscal ROSC"). The overall conclusion of the report is encouraging: although several weaknesses remain, Mozambique’s fiscal transparency has improved significantly since the first fiscal ROSC conducted in 2001. Aside from this positive result, Mozambique’s fiscal ROSC reassessment is of special interest and relevance. Why? Because (i) it has been one of the few fiscal ROSC reassessments conducted since the Fund’s fiscal ROSC was launched; (ii) it shows how the Fund’s technical assistance (TA), in close coordination with donors, contributed to improve fiscal transparency; (iii) it was conducted in close coordination with the PEFA Re-Assessment; and (iv) it provides guidance on how to strengthen transparency of future resource revenues.
What are the benefits of reassessing Mozambique’s fiscal transparency?
Although almost half of the Fund member countries have conducted an assessment of their fiscal transparency vis-à-vis the provisions of the IMF Code of Good Practices on Fiscal Transparency, only five of them, including Mozambique, have conducted a reassessment. In the case of Mozambique, the reassessment—conducted in 2007—aimed at evaluating the implementation of the ambitious program of fiscal reforms outlined in the 2001 fiscal ROSC. Another objective was to signal Mozambique’s continued commitment to fiscal reforms, which has contributed since 2001 to addressing Mozambique’s shortcomings in the areas of tax administration, budgeting, reporting, and internal and external controls. Although the reforms have been broadly monitored by subsequent updates of the fiscal ROSC, IMF technical assistance (TA), and the initial Public Expenditure and Financial Accountability (PEFA) Assessment, the authorities felt that a more thorough reassessment was needed and, therefore, decided to request a reassessment of the fiscal ROSC.
What have been Mozambique’s main achievements in improving fiscal transparency?
Mozambique’s progress in fiscal transparency has resulted in part from the modernization of the legal framework in several areas such as taxation, public financial management (PFM), public procurement, civil service, administrative procedures, governance, and corruption prevention. These legal reforms have led to the introduction of new tools, such as a financial information management system (the e-SISTAFE), an electronic Treasury Single Account (e-TSA), and the creation of new institutional arrangements including the Mozambican Tax Authority and the Development Observatory. These reforms have strengthened Mozambique’s fiscal management and led to relatively well-defined systems for planning and budgeting and donor coordination.
How did the Fund assist Mozambique’s efforts to improve fiscal transparency?
The Fund played a key role in supporting Mozambique’s fiscal reforms. By acting as an executing agency of donors’ funds, the Fund delivered a number of TA missions and backstopped several long-term resident experts. On tax issues, the Fund supported customs reform, the implementation of a VAT, the modernization of direct taxation and its administration, and the recent reform of the resource sector tax regime. In the PFM area, Fund’s TA was critical to the development of the e-SISTAFE. After several years of intense involvement, and given the authorities’ improved capacity to continue the fiscal reforms on their own, the Fund’s advice has transitioned towards a more strategic role, e.g, providing guidance on strategic aspects of further PFM reforms rather than "hands on" TA.
What are Mozambique’s remaining weaknesses in fiscal transparency?
In spite of the progress made so far, further improvements are needed, including:
- strengthening the legal framework on public enterprises and autonomous institutions;
- clarifying the responsibilities between levels of government and introducing well-defined intergovernmental transfers;
- expanding the modules and coverage of the e-SISTAFE;
- strengthening the budget’s coverage, fiscal reporting, and accounting processes;
- increasing the transparency of the resource sector and public-private partnerships;
- strengthening internal and external controls; and
- publishing information more widely, on a timely way, through low-cost electronic media such as the Internet.
How did coordination between the fiscal ROSC and PEFA work in the case of Mozambique?
In 2007, the authorities and donors also agreed to conduct a reassessment of the latest PEFA Assessment (published in 2006 but based on 2004-05 information). The Fund’s ROSC and PEFA missions—which took place only a few months apart—closely coordinated their efforts. In agreement with the authorities, both teams shared their terms of references and key background documentation. During the ROSC mission, the Fund team briefed the donor community on the main findings and recommendations of the fiscal ROSC reassessment. Moreover, following the mission, Fund staff reviewed the draft 2007 PEFA Re-Assessment and provided detailed comments on the draft PEFA assessment report.
Why the Summary of Transparency Practices for Resource Management annexed to the fiscal ROSC may be of special interest in the case of Mozambique?
Before Mozambique, many well-established resource-rich countries have annexed to their fiscal ROSC a summary of their compliance with the Fund’s Guide on Resource Revenue Transparency. This has helped them identify transparency weaknesses and areas for improvement in the management of resource revenues. However, in the case of Mozambique, the resource sector is still in the early stages of development and government’s resource revenues are still relatively modest. Therefore, Mozambique’s annex on the resource sector could help guide the ongoing reform process of the resource sector tax regime and PFM system to ensure these reforms contribute to a sound management of the likely increasing resource-funded expenditures.
Further reading:
Illuminating Resource Revenue Transparency - A New Guide
http://blog-pfm.imf.org/pfmblog/2007/10/transparency-gu.html
The Importance of Transparency and Accountability in Public Management
Public Expenditure and Financial Accountability (PEFA) Part 1
