## 1mozea2023007

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### Mission, participants and timing
- Mission requested by Minister of Finance of Mozambique, Mr. Manuel Chang.
- Mission composition:
  - Mr. Holger van Eden (FAD, head)
  - Mr. Richard Allen (FAD, expert)
  - Mr. Mike Williams (FAD, expert)
  - Ms. Margarida Azevedo (FAD, expert)
  - Ms. Esther Palacio (Resident Representative Office, Technical Assistance coordinator)
  - Mr. Xavier Rame (FAD) joined for one week to help integrate results of the Fiscal Transparency Evaluation (FTE).
  - Mr. Jean Luc Helis (AFS, advisor) joined for a few days and participated in a workshop.
- Mission dates: visited Maputo during January 22–February 4, 2014.
- Mission financing: financed by the Danish Embassy in Mozambique.
- Principal interlocutors included Minister Chang, Vice-Minister Mr. Pedro Couto, Permanent Secretary Mr. Paolo Manhique, and directors of DNT, CEDSIF, DNCP, MPD, MOPH, Central Bank and other agencies; visits to province of Maputo and district of Boene; meetings with Resident Representative Mr. Alex Segura and donor community.

### Executive summary: PFM reform progress, core weaknesses and strategic reorientation
- Progress and achievements:
  - Substantial modernization of treasury and budget management processes around the e-SISTAFE IT system.
  - Initial steps on CFMP (medium-term fiscal framework) and program budgeting.
  - Donor support sustained though showing signs of tapering.
  - Mozambique has progressed well compared with many African peers from a very low base.
- Main concerns and weaknesses:
  - Reform agenda fragmented and dominated by IT development.
  - Slow completion of Treasury Single Account (TSA or CUT) and delayed activation of commitment controls.
  - Full functionality of e-SISTAFE is not being used by line ministries and deconcentrated units.
  - Thin capacity to operate and use e-SISTAFE for budget management and analysis.
  - Systems integrity concerns: correct entry and coding of data are major issues.
- Recommended strategic reorientation:
  - Shift emphasis from IT development to effective use of systems for financial management, reporting and institutional/process reforms.
  - Reorient CEDSIF toward training, equipment provision and maintenance rather than primarily sophisticated module development.
  - Continue development of priority modules: e-Tributação and commitment control.
- Management and coordination:
  - Establish a PFM Reform Steering Committee chaired by the Minister of Finance.
  - Create a PFM Reform Coordination Unit in the MoF alongside CEDSIF to prioritize, coordinate and monitor reforms.
  - Strengthen change management and user consultation to increase ownership and system integrity.
- New fiscal challenges:
  - Prospect of Mozambique becoming a major resource economy raises requirements for investment planning, debt and cash management, fiscal transparency and risk management.
  - Recommend setting up a Risk Management Unit within the MoF to develop an annual Fiscal Risk Statement.

### Reform priorities: short, medium and longer-term actions (priority levels H, M, L)
- Reorienting the PFM Reform Process
  - Short term (by end 2014):
    - Establish a PFM Reform Steering Committee chaired by Minister of Finance (H).
    - Establish a PFM Reform Coordination Unit in MoF working alongside CEDSIF (H).
    - Refocus reforms on process redesign and capacity building as well as IT (M).
  - Medium term:
    - Preparation of a new SISTAFE law (M).
- e-SISTAFE priorities
  - Short term (by end 2014):
    - Revisit conceptual and business models for MPE and SGRH modules; consider delaying implementation (H).
    - Develop, for MPE, CBS and CF catalogues and e-inventory (M).
    - Accelerate development and implementation of e-Tributacao (H).
    - Activate commitment functionality in e-SISTAFE (H).
    - Strengthen integrity and coverage of salary payment applications (H).
  - Medium term:
    - Aim to complete e-SISTAFE roll out by end 2015 (M).
    - Extend salary registration and payment applications to pensions (M).
- Completing Treasury reforms
  - Short term (by end 2014):
    - Release Ministerial and Governor circulars to reduce bank accounts outside the CUT and enhance direct payments (H).
    - Establish mechanism for sweeping into CUT all cash balances held outside the CUT (M).
    - Complete measures to bring all salary payments into e-Folha (H).
    - Begin separation of payment and commitment authority; widen pilot (M).
    - Develop cash forecasting capacity (H).
  - Medium term:
    - Extend e-Folha to security services (M).
    - Introduce more flexibility in release of budget authority and design project plan for basic active cash management (M).
- Integrating planning and budgeting
  - Short term (by end 2014):
    - Increase coverage, content and time horizon of the IIP and integrate with CFMP, supported by the DSA (H).
    - Merge macroeconomic and fiscal forecasting units in MPD and MoF (M).
  - Medium term:
    - Reduce number of planning instruments by merging PQG and PARP and include PES as annex to the budget (M).
    - Revisit budget costing methodology and develop multi-year bottom-up baseline spending estimates (M).
    - Build capacity for program budgeting in line ministries (M).
- Modernizing public sector accounting
  - Short term (by end 2014):
    - Undertake (with IMF support) a comprehensive review of practicalities and implications of implementing accrual accounting (H).
  - Medium term:
    - Improve reliability, timeliness and presentation of CGE; develop a financial balance sheet (H/M).
    - Expand coverage of financial reporting to general government and public corporations (M).
  - Longer-term:
    - Move to accrual accounting step by step (L).
- Fiscal transparency and risk management
  - Short term (by end 2014):
    - Incorporate FTE action plan into the PFM Reform Strategy (H).
  - Short to medium term (by end 2015):
    - Establish a Fiscal Risk Coordination Unit within the MoF (H).
    - Develop a full Fiscal Risk Statement for publication with the FY 2016 budget (H).
    - Improve fiscal reporting and macro forecasting capacity and develop a framework for monitoring fiscal risk (H).
- Capacity and sustainability
  - Short term (by end 2014):
    - Develop project for Public Finance Academy (M).
    - Develop program of institutional strengthening of directorates and units within the MoF (H).
  - Medium term:
    - Develop training curriculum in public finance topics for MoF, MPD and wider public administration (M).
    - Enhance capacity building in line ministries and provinces (M).

### e-SISTAFE: rollout status, architecture, module priorities and performance indicators
- Architecture and governance:
  - e-SISTAFE has adopted a Service Oriented Architecture (SOA) enabling modular structure and interoperability; will become web-based in the near future.
  - Recommendation: revisit conceptual and business models for MPE (State Assets) and HRMS/SGRH in light of SOA; prioritize existing modules and interoperability.
  - CEDSIF should shift focus from advanced new developments to training, system operation and maintenance.
- Module-specific priorities and recommendations:
  - MPE (State Assets):
    - Prioritize catalogue of goods and services (CBS), catalogue of suppliers (CF) and e-inventory.
    - Delay emphasis on e-procurement and valuation of historical/public domain assets.
    - Make registration of inventory items compulsory via MEX functionality for all investment expenditure.
  - HRMS / SGRH:
    - Separate career monitoring from salary payment processes.
    - Complete and use existing modules (e-CAF, e-CAP, e-Folha) rather than immediately acquiring Oracle HCM.
    - By 2015, proof of life application to run over the internet and update e-CAP and e-CAF.
  - e-Tributação (e-Taxation):
    - Accelerate development and implementation of Revenue Collection Network and Single Collection Document (GARE / DUC).
    - Noted delays: entry into production planned but postponed; VAT & ISPC phases Q1 2013 (1st) Q2 2014 (2nd), IRPC/IRPS Q1 2015; outstanding tax reconciliation balances estimated at MZN 1 billion.
- Rollout status at end-2013 and targets:
  - Implemented in 677 UGEs out of total 983 budget units (UGBs listed elsewhere).
  - e-SISTAFE installed in 116 more UGBs during the year; plans to extend by 140 during 2014.
  - Objective: complete e-SISTAFE rollout in 2015.
  - CEDSIF contracted two resident technical staff for each province (one for hardware and one for operational support).
- Selected e-SISTAFE performance indicators (preserve each numeric value exactly):
  - Number of executing units using e-SISTAFE for budget preparation and execution, total 983:
    - 2007: 12
    - 2008: 301
    - 2009: 320
    - 2010: 438
    - 2011: 504
    - 2012: 620
    - 2013: 677
  - Percentage of expenditure executed directly through the CUT:
    - 2007: 11.49%
    - 2008: 23.61%
    - 2009: 31.40%
    - 2010: 37.55%
    - 2011: 42.22%
    - 2012: 52.58%
    - 2013: 58.61%
  - Number of bank accounts maintained by public entities outside the CUT:
    - 2007: 6,428
    - 2008: 5,438
    - 2009: 5,433
    - 2010: 4,390
    - 2011: 4,028
  - Balance of the CUT at year-end (thousands of meticais):
    - 2007: 2,009,463
    - 2008: 2,808,995
    - 2009: 4,195,992
    - 2010: 5,632,264
    - 2011: 10,932,524
    - 2012: 7.045.422
    - 2013: 13.020.409
  - Total value of treasury bills issued (90-day securities) in million MZN:
    - 2010: 20,000
    - 2011: 21,500
    - 2012: 21,000
    - 2013: 28,760
  - Number of entities that completed the e-SISTAFE rollout:
    - 2007: 245
    - 2008: 301
    - 2009: 320
    - 2010: 438
    - 2011: 504
    - 2012: 620
    - 2013: 677
  - Number of responses to e-SISTAFE users via service desk (per day):
    - 2007: 13
    - 2008: 26
    - 2009: 39
    - 2010: 20
    - 2011: NA
    - 2012: 21
    - 2013: 25
  - Number of active e-SISTAFE users:
    - 2007: 4,463
    - 2008: 4,074
    - 2009: 4,173
    - 2010: 6,478
    - 2011: 10,004
    - 2012: 14836
    - 2013: 18606
  - Percentage of wage expenditure executed directly:
    - 2007: 2.73%
    - 2008: 2.75%
    - 2009: 3.47%
    - 2010: 8.60%
    - 2011: 15.77%
    - 2012: 20.6%
    - 2013: 38.47%
  - Percentage of pension expenditure executed directly (selected):
    - 2007: 0%
    - 2008: 0.88%
    - 2009: 0.30%
    - 2010: 0.30%
    - 2011: 0.29%
    - 2012 central level civil pension: 2.22%, military pension: 0.09%
    - 2013 central level civil pension: 2.09%, military pension: 0.13%

### Completing Treasury reforms, CUT policy and cash management
- CUT policy and operational recommendations:
  - DNT should continue program to reduce bank accounts outside the CUT; aim: sweep all balances held outside the CUT overnight (possible exception: donor-financed project accounts).
  - Release planned circulars by the Minister and the Governor on approval of government bank accounts without further delay, and follow up proactively (possible task force of 2–3 officials).
  - Transfer cash balances from transit accounts directly to the CUT; retain accounting information in zero-balanced transit accounts and handle reconciliations from the CUT.
  - MoF should in medium term develop policies to pay transaction costs to banks (for immediate sweeping) and to the BM for market-rate interest on the CUT.
  - Over time, avoid ring-fencing of cash as soon as payment authority is given.
- Budget execution and commitment control:
  - Current practice: DNO makes a “shadow cut” withholding 15 percent of provision for wages and 10 percent of other categories until September review; DNT releases commitment and payment authority at the same time in practice.
  - Recommendation: activate commitment functionality in e-SISTAFE and proceed selectively with separation of commitment and payment authority, widening the DNT pilot beyond domestic debt interest but not delaying commitment activation.
  - Commitment controls should be used for goods and services and investment to manage expenditure limits and avoid arrears.
- Cash flow forecasting and cash management development:
  - Best practice: forecast at least three months ahead; Mozambique aim: weekly forecasts looking three months ahead, rolled forward weekly or every second week, progressing to daily forecasts over time.
  - Current e-SISTAFE cash flow planning functionality is unused; DNT relies on paper submissions.
  - DNT should build cash flow forecasts extending at least three months ahead and implement forecast capacity building including AT and large spending units.
  - Numeric facts and market context:
    - The MoF maintained its balance in the CUT within a range of MZN 6–16 billion in 2013 (monthly average MZN 11.7 billion with a standard deviation of MZN 3.1 billion).
    - The stock of T-bills hypothecated to the MoF varied in the range MZN 5–11 billion of a total stock of MZN 29 billion at end 2013.
    - Windfalls: Some USD 800 million in total in 2012–13, with a further USD 500 million in prospect in 2014.
  - Sequencing and instruments:
    - First step: greater use of T-bills for “rough tuning”; coordinate debt and cash management closely with BM; be transparent about T-bill purposes.
    - For unusually large windfalls: options include a cash reserve fund (central bank account) or a sovereign wealth fund with legal charter; stabilization funds should have clear in/outflow rules.
    - BM currently decides investment of windfalls in foreign currency accounts and is paying interest to the Treasury; recommendation: BM should pay at full market-related rate for the relevant term.

### Integrating planning and budgeting; IIP, CFMP and annual budget credibility
- IIP (Integrated Investment Plan)
  - Approved by Council of Ministers in September 2013; initially includes 20 infrastructure projects (energy, transport, water, agriculture).
  - Recommendation: extend coverage to all new investment projects above a financial threshold, include full cost breakdowns (capital vs recurrent), projected economic and social rates of return, implementation timetables and year-by-year cost profiles, and classify projects by financing modality (budget, external, PPP).
  - Develop medium-term portfolios (three-year horizon) and integrate IIP with CFMP to set ceilings and guide financing decisions; strengthen public investment management capacity.
- CFMP weaknesses and reforms
  - CFMP is top-down, lacks anchoring by fiscal targets or rules, and out-year estimates are unreliable and not rolled-over.
  - Recommendation: merge macro unit in MPD with fiscal forecasting unit in MoF; develop bottom-up capital estimates via IIP; set fiscal targets and rules including treatment of one-off windfalls.
  - Specific numeric example: large capital gains-related windfall revenue of some USD 1.3 billion over the 2012–14 period should be managed to avoid undermining fiscal credibility.
- Annual budget and program budgeting
  - Current budget retains input-based incremental elements; program classification is largely presentational.
  - Recommendations:
    - Improve costing methodologies and use cautious but realistic revenue and donor contribution estimates.
    - Build capacity in line ministries for program budgeting; introduce program budgeting as management tool in three to four years after process and capacity improvements.

### Modernizing public sector accounting and accrual accounting strategy
- Current legal/reporting framework and issues:
  - SISTAFE Law: specifies annual state accounts (OE, CGE) on a modified cash basis using double-entry bookkeeping and assets depreciated; law refers to generally accepted accounting principles but lacks detailed accounting policies and explicit reference to international standards.
  - CGE coverage: focuses on budgetary central government with limited consolidation for general government and public corporations; presentation could be improved and consistency issues noted.
- Assessment of E&Y proposed accrual strategy:
  - E&Y recommended three-phase reform starting Phase 1 (2012-2013), Phase 2 (2014-2017) and Phase 3 (2018 onward) proposing IPSAS-based accruals.
  - Mission identifies weaknesses: risk of a “big bang” overreach, insufficient stepping-stone approach, underestimation of costs/HR/change management, potential distraction from higher-priority accounting reforms.
- Mission recommended two-stage alternative approach
  - Stage 1: Preparation (2014–16)
    - Objectives: improve reliability and timeliness of current financial information; consolidate capacities.
    - Actions include: record expenditures in compliance with SISTAFE; present consolidated general government information in CGE; align CGE with chart of accounts; develop a summary balance sheet (initially only financial assets and liabilities); prepare a statement of accounting policies; publish full electronic CGE; broaden reporting to public corporations.
    - Conduct a comprehensive review of costs/benefits, sequencing and options for accrual accounting before legislating or implementing new standards.
  - Stage 2: Implementation (2017 onward) — illustrative phased steps
    - Step 1 (2017-19): report accounts payable, material financial liabilities and assets; retain cash basis for other transactions; present simplified balance sheet and operating statement; heavy focus on capacity building.
    - Step 2 (2020-22): add financial instruments, employee post-employment benefits, fixed assets; include depreciation/amortization and partial cash-flow statements; record contingent liabilities in notes.
    - Step 3 (2021-25): recognize tax receivables, intangible and fixed assets and present full set of financial statements with all flows on accrual basis.
  - Explicit recommendation: do not legislate new accounting standards or begin full implementation until the Stage 1 review is completed.

### Fiscal Risk Management: FRS core elements and sequencing
- Core elements proposed for Mozambique’s Fiscal Risk Statement (FRS):
  - General government statement of objectives and risk management strategy.
  - Framework for Risks Management: legal framework; objectives; scope; institutional arrangements, roles and responsibilities.
  - Macroeconomic risks and budget sensitivity: compare budget assumptions to outturns; sensitivity analysis.
  - Hydrocarbon and natural resource risks: estimated volumes/values; price volatility; fiscal rules for resource revenues.
  - Public debt: sensitivity analysis and summary of debt management strategy.
  - Government lending programs: projected inflows/outflows and monitoring.
  - Civil service pension liabilities: level of liabilities and management approach.
  - Fiscal incentives and tax expenditures: description and estimates of foregone revenue.
  - Contingent liabilities: guarantees, PPPs, other contingent liabilities and mitigation approaches.
  - State-Owned Enterprises: policy framework and financial performance and position.
  - Local governments, INSS, and the financial sector: legal, performance and prudential frameworks.
- Sequencing and recommendations:
  - Define institutional arrangements and develop capacities with IMF and development partner support.
  - Include a “summarized risks assessment” in the MTEF for FY 2015 budget preparation.
  - Develop a full FRS for publication with the FY 2016 budget.
  - In medium term, develop framework of fiscal rules for managing natural resource revenues.

### Capacity building, institutional strengthening and Public Finance Academy
- Present situation and gaps:
  - PFM expertise concentrated in senior MoF and MPD staff; weak capacity in junior staff, line ministries, provinces and districts.
  - Existing training focuses on e-SISTAFE and is often not attended by managers; no standard MoF training curriculum.
  - Weak capacity impedes full use of e-SISTAFE, correct transaction coding, commitment control activation and policy analysis.
- Recommendations and timelines:
  - Develop concept for a Public Finance Academy: development feasible within a six month period; implementation over a 2–4 year time horizon with donor support.
  - Enhance recurring training at basic and advanced levels; link training to career streams and possible accreditation/rewards.
  - Establish a PFM Reform Coordination Unit to support senior management, coordinate reform strategy, monitor implementation and run change management programs.
  - Strengthen directorates and units in MoF for PFM reform coordination, macro-fiscal forecasting, fiscal risk analysis, supervision of public corporations and PPPs; consider dedicated units for cash and debt management and a Risk Monitoring and Management Unit.
  - Immediately integrate macro unit in MPD with fiscal unit in MoF, with BM support, to strengthen macro-fiscal modeling and MTFF preparation.

*Italic: Source: 1mozea2023007 — Preface, Executive Summary, main findings, recommendations and annexes as provided in the chapter.*

### Preface ................................................................................................................

### 1mozea2023007 - Preface

### Preface: Mission background and participants
- Mission requested by Minister of Finance of Mozambique, Mr. Manuel Chang.
- Mission composition and roles:
  - Mr. Holger van Eden (FAD, head)
  - Mr. Richard Allen (FAD, expert)
  - Mr. Mike Williams (FAD, expert)
  - Ms. Margarida Azevedo (FAD, expert)
  - Ms. Esther Palacio (Resident Representative Office, Technical Assistance coordinator)
  - Mr. Xavier Rame (FAD) joined for one week to help integrate results of the recent Fiscal Transparency Evaluation (FTE).
  - Mr. Jean Luc Helis (AFS, advisor) joined for a few days and participated in a workshop.
- Mission dates: visited Maputo during January 22–February 4, 2014.
- Mission financing: financed by the Danish Embassy in Mozambique.
- Key meetings at MoF and other institutions included:
  - Minister Chang and Vice-Minister Mr. Pedro Couto; Permanent Secretary Mr. Paolo Manhique
  - National Director of the Treasury (DNT), Ms. Isaltina Lucas
  - Director-General of CEDSIF, Mr. Augusto Sumburane
  - National Director of Public Accounts (DNCP), Ms. Amélia Mutemba
  - National Director of Economic Studies and Economic Analysis, Ms. Isabel Sumar
  - Deputy Director of the Budget, Ms. Chamila Ali
  - National Director of State Assets (DNPE), Mr. Bonifácio Dias
  - Deputy Inspector General of Finance (IGF), Mr. Emanuel Mabumo
  - Director of Tax Policy at the Revenue Authority, Mr. Algy Mussa Aly
  - Director of National Accounts of the National Statistics Institute, Mr. Saide Dade
  - Director of International Cooperation of MPD, Mr. Adriano Ubisse
  - National Director of Planning and Cooperation of MOPH, Mr. Humberto Gueze
  - Chairman of the Road Fund, Mr. Cecilio Grachane
  - Director of the Department of Financial Administration (DAF) of MISAU, Mr. Mulhovo
  - Director of the Domestic Markets Department at the Central Bank, Ms. Ilda Comiche
  - Accountant-General for General Public Accounts at the Administrative Tribunal (TA), Mr. Moisés Amaral
  - Visits to the province of Maputo and the district of Boene, and the newly created Board of Accountants and Auditors of Mozambique (OCAM)
  - Meetings with the Resident Representative of the IMF in Mozambique, Mr. Alex Segura; and with donor community (World Bank and G19 partners) at technical level and with heads of mission.
- Acknowledgement: Gratitude expressed to authorities, especially Ms. Isaltina Lucas, and all participants for active and constructive participation in meetings and two half-day workshops.

### Executive Summary: Assessment of PFM reform progress and challenges
- Progress and achievements:
  - Mozambique has made good progress with its PFM reform agenda centered around the e-SISTAFE IT system.
  - Treasury and budget management processes have been substantially modernized.
  - Initial steps taken with more advanced reforms such as the medium-term fiscal framework (CFMP) and program budgeting.
  - Donor support for the reform process has been substantial over the years, although some tapering of donor efforts is apparent.
  - Compared with many other African countries Mozambique has done well, starting from a very low base.
- Main concerns and weaknesses:
  - Present reform agenda is fragmented and dominated by IT development processes.
  - Slowdown in completing specific reforms such as the Treasury Single Account (TSA or CUT) and pursuing new ones such as the use of commitment controls.
  - Full functionality of e-SISTAFE is not being used by line ministries and deconcentrated units.
  - Capacity to operate and use the system for budget management and analysis seems quite thin.
  - Systems integrity, including correct entry and coding of data, is a major concern.
- Recommended strategic reorientation:
  - Shift from IT development focus to effective use of systems for financial management and reporting.
  - Reorient CEDSIF from sophisticated module development towards substantially more training, provision of adequate equipment, and maintenance.
  - Continue development of key priority modules and functionalities such as e-Tributação and commitment control.
- Management and coordination recommendations:
  - Strengthen reform management and coordination.
  - Establish a Reform Coordination Unit alongside CEDSIF to balance the IT focus.
  - Support senior MoF and MPD management in prioritizing, coordinating, and sequencing reforms.
  - Create a Steering Committee structure to provide oversight, strategic direction, and monitoring of reform progress, ensuring participation of line ministries and other stakeholders.
- Content shift of reforms:
  - Gradually shift content from treasury management to planning and budgeting, and internal control processes.
  - Treasury reforms have been successful; achievable next steps include completion of the CUT, improving cash forecasting, streamlining budget execution, and developing basic cash management.
  - Planning and budgeting instruments need to be more credible and integrated; reduce number of planning formats and integrate instruments such as the Integrated Investment Plan and the CFMP.
  - Introduce program budgeting in full only after measures to improve the present annual budget process.
  - Internal control improvements, including institutional changes, are essential to assure integrity and quality of PFM processes and information.
- New challenges ahead:
  - Prospect of Mozambique becoming a major resource economy increases requirements for investment planning, debt and cash management, fiscal transparency, and risk management.
  - Institutional capacities and processes to meet these challenges need development.
  - Report reiterates recommendations of the recent IMF Fiscal Transparency Evaluation and recommends setting up a Risk Management Unit within the MoF to develop an annual Fiscal Risk Statement.
- Accounting reform guidance:
  - Improvements to government accounting should be planned with care.
  - Initial focus on reliability and timeliness of existing financial statements, then broaden scope of reporting to general government including public corporations.
  - Present modified-cash system should be well defined and expanded with simple balance sheet presentations, drawing on earlier IMF work.
  - Before pursuing accrual accounting, undertake further review of phasing, and necessary process and IT preparations.
  - IPSAS should be used as guidance adjusted to Mozambique's needs and capacities, not transplanted literally.
- Capacity building and change management:
  - Strong advice to proceed with tentative plans to develop a Public Finance Academy as an in-house training facility for planning, finance and accounting.
  - Curriculum targeted at MoF and MPD staff, and improving capacity in line ministries and deconcentrated units.
  - Increase focus on change management processes.
  - Prioritize new MoF units for Reform Coordination and Risk Management.
  - Consider stronger coordination arrangements between MoF and MPD by the next administration.

### Summary of reform priorities in the short to long term (Priority levels: H, M, L)
- Reorienting the PFM Reform Process
  - Short term (by end 2014):
    - Establish a PFM Reform Steering Committee chaired by Minister of Finance (H)
    - Establish a PFM Reform Coordination Unit in MoF working alongside CEDSIF (H)
    - Refocus PFM reforms to process redesign and capacity building–people, processes and institutions as well as IT–both in financial management and policy-oriented functions (M)
  - Medium term:
    - Preparation of a new SISTAFE law (M)
- e-SISTAFE Priorities
  - Short term (by end 2014):
    - Revisit the conceptual and business models for MPE and SGRH modules and consider delaying their implementation (H)
    - Develop, for the MPE module, CBS and CF catalogues and e-inventory (M)
    - Accelerate the development and implementation of e-Tributacao (H)
    - Give priority to activating the commitment functionality in e-SISTAFE (H)
    - Strengthen integrity and coverage of the applications used for salary payments (H)
  - Medium term:
    - Aim to complete e-SISTAFE roll out by end 2015 (M)
    - Extend salary registration and payment applications to pensions (M)
- Completing Treasury Reforms
  - Short term (by end 2014):
    - Release circulars by the Minister and the Governor as part of program to reduce further the number of bank accounts outside the CUT and enhance use of direct payments (H)
    - Follow up with recommended task force on bank account closures (M)
    - Establish mechanism for sweeping into CUT all cash balances held outside the CUT (M)
    - Complete measures to bring all salary payments into e-Folha (H)
    - Begin process to separate payment and commitment authority; widen current pilot (M)
    - Address options for strengthening the position of the ICAs (M)
    - Develop cash forecasting capacity (H)
  - Medium term:
    - Extend e-Folha to security services (M)
    - Introduce more flexibility in the release of budget authority (M)
    - Design project plan for moving towards more active cash management (M)
- Integrating Planning and Budgeting Functions
  - Short term (by end 2014):
    - Increase the coverage, content and time horizon of the IIP and integrate it with the CFMP, supported by the DSA (H)
    - Merge the macroeconomic and fiscal forecasting units in the MPD and MoF (M)
  - Medium term:
    - Reduce the number of planning instruments by merging PQG and PARP and including PES as an annex to the budget (M)
    - Revisit budget costing methodology, including use of cautious but realistic macro forecasts (M)
    - Develop multi-year, bottom-up baseline spending estimates (M)
    - Build capacity for using program budgeting in line ministries for planning and execution (M)
- Modernizing Public Sector Accounting
  - Short term (by end 2014):
    - Undertake (with IMF support) a comprehensive review of the practicalities and implications of implementing accrual accounting (H)
  - Medium term:
    - Improve the reliability, timeliness of current financial information (H)
    - Improve presentation of the government’s annual financial accounts (CGE), including presentation of a financial balance sheet, along the lines of earlier technical assistance (M)
    - Expand coverage of financial reporting to general government and the full range of public corporations (M)
    - Develop balance sheet presentations for government entities (M)
  - Longer-term:
    - Move to accrual accounting step by step (L)
- Enhancing Fiscal Transparency and Risk Management
  - Short term (by end 2014):
    - Incorporate into the government’s PFM Reform Strategy the action plan proposed in the Fiscal Transparency Assessment (H)
  - Short to medium term (by end 2015):
    - Establish a Fiscal Risk Coordination Unit within the MoF (H)
    - Develop a full Fiscal Risk Statement for publication with the FY 2016 budget (H)
    - Improve fiscal reporting (as above) and macro forecasting capacity (H)
    - Develop a framework for monitoring fiscal risk (H)
- Enhancing Capacity and Sustainability
  - Short term (by end 2014):
    - Develop project for Public Finance Academy (M)
    - Develop program of institutional strengthening of directorates and units within the Ministry (H)
  - Medium term:
    - Develop training curriculum in public finance topics for the MoF, MPD and wider public administration (M)
    - Enhance capacity building in line ministries and provinces (M)
    - Consider scope for career stream for financial and accounting professionals with training requirements (and rewards) (L)

*Preface, 1mozea2023007*

### 1.      This chapter provides summaries of the mission’s findings and

### 1mozea2023007 - 1.      This chapter provides summaries of the mission’s findings and

### Summary of reform priorities (overview)
- The mission identifies seven areas needing redirection and/or strengthening:
  - 1. The overall direction and management of the PFM reform process.
  - 2. Priorities in the further development of e-SISTAFE.
  - 3. Completing budget execution and treasury reforms, including full use of the CUT, improved release policies, development of basic cash forecasting and management, and strengthening internal control.
  - 4. Integrating and improving the national development planning and budget processes.
  - 5. Modernizing public sector accounting, including the eventual introduction of accruals-based accounting.
  - 6. Enhancing fiscal transparency and fiscal risk management.
  - 7. Strengthening the institutional capacity of the government to modernize PFM systems and ensure their sustainability.

### A. Reorienting the PFM Reform Process
- Key institutional actions recommended:
  - Establish a PFM Reform Steering Committee, chaired by the Minister of Finance, including representatives of line ministries, provinces, and possibly a selection of development partners, as well as MoF and MPD directorates.
    - The Committee would meet twice per year to provide oversight, give strategic direction, monitor reform progress, and ensure consultation on user needs and priorities.
  - Establish a PFM Reform Coordination Unit in the MoF, working closely with CEDSIF. The Unit would:
    - (i) act as the Secretariat to the Steering Committee;
    - (ii) support process and institutional reforms that are part of the PFM reform strategy and monitor their implementation;
    - (iii) coordinate reforms with directorates of the MoF, line ministries, provinces and development partners;
    - (iv) develop a change management strategy fully integrated into the PFM reform strategy and action plan.
    - Additional staff and consultancy support will need to be mobilized.
- Strategic rebalancing and emphasis:
  - Institutional change is necessary, but avoid an overly heavy governance structure.
  - Rebalance IT focus and address lack of user consultation.
  - Emphasis should shift gradually from modernizing the treasury to integration of planning and budget functions and strengthening internal controls.
  - Develop policy-oriented functions now (macro-fiscal forecasting and analysis, tax policy, debt sustainability analysis, fiscal risk management, management of natural resource revenues, financial supervision of public corporations and PPPs), recognizing they will take time to materialize.
  - These functions require strong institutions and human resource capability more than new IT development.
  - Reduce emphasis on new IT development and increase focus on making existing systems deliver better results and on effective change management.
  - Enhance user consultation to counter lack of ownership and use outside MoF and MPD.
  - Undertake a fundamental review of the SISTAFE Law to include modern principles of fiscal responsibility and transparency, following examples such as Kenya, Lesotho, Swaziland, Uganda and Zimbabwe.

### B. Priorities in the Further Development of e-SISTAFE
- Implementation sequencing and module priorities:
  - Revisit conceptual and business models for the new asset and human resource modules (MPE and SGRH) in light of the new SOA architecture; possibly delay their implementation.
  - For the MPE module, priority projects: catalogues for goods and services and suppliers, and an asset registration module; e-procurement should not be given equal priority.
  - Accelerate development and implementation of the Revenue Collection Network and Single Collection Document (DUC).
  - Prioritize registration and management of commitments within e-SISTAFE.
  - Build integrity into e-SISTAFE applications for payment of salaries and pensions; gradually phase out legacy systems still in use.
- Operational focus:
  - Highest current priority: make full use of existing e-SISTAFE functionality.
  - Present functionality is only partially used (e.g., commitment control).
  - CEDSIF activities should shift toward training, system operation and maintenance, and less toward further system development.
  - More sophisticated modules may have less chance of being operationalized.
- Rollout target:
  - Rollout of the core e-SISTAFE system should be completed by the end of 2015.

### C. Completing Treasury Reforms
- Key actions:
  - Finalize TSA reforms by reducing the number of bank accounts outside the CUT and extending the use of direct payments.
  - Bring all salary payments of civil servants (excluding security services for the time being) into the e-Folha salary payment module.
  - Ensure commitments are reported and controlled in e-SISTAFE when made.
  - Strengthen the position of internal control agents (ICAs).
  - Ensure DNT develops cash flow forecasting capability and moves over the medium term toward more active cash management.
- Specific operational guidance:
  - DNT should continue program to reduce bank accounts outside the CUT and extend direct payments.
    - Release planned circulars by the Minister and the Governor on approval of government bank accounts without further delay.
    - DNT’s aim: sweep all balances held outside the CUT overnight (possible exception: donor-financed project accounts).
  - Salary payments:
    - Complete security measures implemented after recent frauds, including employees excluded for technical reasons.
    - Extend e-CAF register to provisional staff and over the medium-term to military and security services, with a view to including them in e-Folha.
  - Commitments control:
    - Proceed selectively with separation of commitment and payment authority, accompanied by training and cash flow information from UGEs.
    - Widen current DNT pilot on commitments beyond domestic debt interest without delaying improvement in commitment functionality.
    - Over time, good commitment management and cash flow analysis should allow more flexibility in budget authority release, including longer-period cash releases.
    - MoF should consider institutional options to strengthen ICAs, possibly linking them organizationally to IGF or DNT.
  - Cash management:
    - Over the medium-term, DNT should develop cash flow forecasts looking at least three months ahead.
    - Design a project plan, integrated with other financial sector development work, to move towards more active, but still basic, cash management (so-called rough-tuning).

### D. Integrating Planning and Budgeting
- Short-term priorities:
  - (i) Increase coverage, content and time horizon of the IIP and integrate it with the CFMP (supported by DSA) to reinforce resource allocation usefulness.
  - (ii) Merge macro-economic and fiscal forecasting units in MPD and MoF to enhance forecasting capability.
- Medium-term priorities:
  - Reduce the number of planning instruments and increase quantitative information (costs of projects, outcomes, outputs).
  - Improve credibility of the annual budget: use cautious but realistic revenue and donor contribution estimates, improve costing methodologies, better assess recurrent and capital expenditure linkages.
  - Develop bottom-up, multi-year expenditure estimates starting with capital investment projects recorded in the IIP.
  - Build capacity in line ministries and provinces for program budgeting as a budget management instrument.
- Key findings on existing frameworks:
  - CFMP is not yet a very credible link between planning and budgeting:
    - CFMP lacks anchoring by a framework for fiscal targets or rules.
    - Out-year estimates are unreliable and not “rolled-over” into the next year’s CFMP.
    - Bottom-up sector and provincial estimates cannot yet be reconciled with top-down forecasts prepared by MPD and MoF.
    - A first improvement step: develop bottom-up estimates of capital investment.
  - Planning instruments misalignment:
    - The 5-year plan (PQG) and the Poverty Reduction Action Plan (PARP) could be integrated.
    - The Economic and Social Plan (PES) should be aligned with the budget and included as an annex to it.
    - Program budgeting can align the budget with strategic priorities in the medium- to long-term.
  - Budget credibility needs gradual improvement:
    - Annual budget retains many input-based, incremental elements.
    - Processes to prepare realistic cost estimates need substantial improvement.
    - Uncertainty about donor commitments and disbursement remains a major weakening factor.

### E. Modernizing Public Sector Accounting
- Strategic approach to accrual accounting (AA):
  - Carry out a full review of practicalities and implications of implementing AA, and the costs and benefits of alternative options; IMF available to assist.
  - View any move to AA as long-term, implemented step-by-step to ensure optimal benefits for fiscal reporting and transparency.
- Near-term priorities (next two years):
  - Improve reliability, timeliness and transparency of annual financial statements.
  - Broaden coverage to include all general government entities and the full range of public corporations.
  - Specific actions:
    - Record expenditures in compliance with SISTAFE requirements.
    - Align presentation of CGE information (public debt, transfers to autonomous institutions and transfers to municipalities) with the chart of account.
    - Develop a summary balance sheet initially including only short-term financial assets and financial liabilities.
    - Prepare a statement of accounting policies to be included in the CGE and supporting volumes.
    - Publish a full electronic version of CGE documents on the MoF’s website.
    - Expand financial reporting coverage to general government expenditure and the public corporation sector.

### F. Enhancing Fiscal Transparency and Risk Management
- Integration and sequencing:
  - Incorporate the action plan from the Fiscal Transparency Evaluation (FTE) into the PFM reform agenda.
  - Introduce an annual Fiscal Risk Statement (FRS) to inform fiscal policy evaluation at the start of the budget cycle and publish it with the budget documents.
  - Strengthen MoF capacity for monitoring and managing fiscal risks by developing analytical tools, improving data capture, and setting up a Fiscal Risk Coordination Unit.
- Priorities and sequencing:
  - Next two years: prioritize reliability and timeliness of financial reports and macro-fiscal forecasts.
  - Short-term focus on management and control of contingent liabilities: government guarantees, PPPs, INSS, multi-year contracts, and other contingent liabilities.
  - Monitor exposure to fiscal risks from public corporations, the financial sector, and local government as decentralization proceeds.
  - Medium-term: develop a framework of fiscal rules for managing natural resource revenues.
- FRS sequencing proposal:
  - Define institutional arrangements and develop capacities; consider establishing a Fiscal Risk Coordination Unit in the NDO.
  - Design a sequenced roadmap to disclose fiscal risks and a strategy to manage and mitigate them.
  - Include in the CFMP a “summarized risks assessment” based on available information to be taken into account during FY 2015 budget preparation.
  - Develop a full FRS for publication with the FY 2017 budget.

### G. Enhancing Institutional Capacity and Sustainability
- Training and human capital development:
  - Establish a Public Finance Academy to train MoF and MPD staff and finance and planning staff from line ministries, provinces and districts.
  - Develop training programs for basic entry-level requirements and more advanced training for mid- and senior-level staff.
  - Strengthen MoF directorates and units in areas such as PFM reform coordination, macro-fiscal forecasting, fiscal risk analysis, and monitoring of public corporations.
- Current capacity gaps and organizational proposals:
  - Institutional capacity is weak in line ministries and provinces; existing training focuses on e-SISTAFE and is often not attended by managers.
    - MoF should establish a standard training curriculum for new staff and for line ministries and deconcentrated units; combine with CEDSIF training on e-SISTAFE rollout and use.
    - Consider basic and advanced training curriculums for finance and planning staff across the public sector.
    - Advance the idea of a dedicated training school, a Public Finance Academy.
  - The institutional and organizational framework for budget reform needs further development to address new reform challenges (IIP, MTFF, program budgeting, fiscal risks and transparency).
  - MoF capacity for CFMP and IIP preparation, macro-fiscal analysis and forecasting, and consolidation of annual financial statements should be reinforced.
  - New departments or units may be required for PFM reform coordination, fiscal risk management, supervision and monitoring of public corporations and PPPs.
- Medium-term human resource measures:
  - Establish career streams for government accountants, economists, planners and financial managers with associated training programs, required qualifications, and possibly enhanced remuneration.
  - Recognize need for continuous training to accommodate staff turnover as private sector demand for qualified personnel increases.

*Source: 1mozea2023007 - 1.      This chapter provides summaries of the mission’s findings and*

### 4.      Apart from the Vision of Public Finance and the Action Plan prepared by

### 1mozea2023007 - 4.      Apart from the Vision of Public Finance and the Action Plan prepared by

### Fragmentation of PFM reform arrangements
- No single document in Mozambique constitutes a PFM reform strategy apart from the Vision of Public Finance and the Action Plan prepared by CEDSIF.
- Donor-prepared documents describe aspects of support but are not regularly updated and do not present a coherent overall picture of activities and supporting technical assistance.
- No comprehensive information is available on the cost of delivering activities and projects over the medium term, or regular monitoring of deliverables, outputs and key performance indicators.

### Assessment: comparative approaches and Mozambique’s bias toward IT
- Common features in other sub-Saharan African countries’ PFM reform arrangements:
  - High level steering committee chaired by the minister of finance, the deputy minister or the permanent secretary.
  - A dedicated PFM reform unit.
  - Technical committees and component managers for specific activities and projects.
  - IT support units sometimes at directorate level and positioned at arms’ length from PFM management.
  - Development partners represented on high-level steering committees that generally meet quarterly.
- Mozambique’s model advantages:
  - Informal relationships and absence of heavy bureaucratic structures contributed to rapid reform progress in past years, especially in IT.
- Mozambique’s current systemic bias:
  - The dual role of CEDSIF as reform coordinator and IT developer has created a bias toward IT-driven solutions.
  - Users presently use only a small part of e-SISTAFE functionality; process and institutional reforms have lagged.
  - IT development should support, not drive, reform objectives.

### Proposed institutional changes to rebalance focus
- Create a small PFM Reform Coordination Unit (RCU) reporting to the Minister and Vice Minister:
  - Responsibilities: prepare and update PFM reform strategy; monitor implementation; advise on reform priorities and sequencing; coordinate with development partners on TA funding.
  - RCU could be staffed by transferring employees from CEDSIF working on institutional aspects; additional staff and consultancy resources may be required.
- Establish a PFM Steering Committee:
  - Chair: Minister or Vice Minister.
  - Role: oversight, strategic guidance, monitoring of overall reform process; forum for line ministries, provinces and stakeholders to raise concerns.
  - Meeting frequency: would not need to meet more often than twice per year.
  - Development partners: a selection could participate as observers.

### Reorientation of reform priorities
- Current need: refocus from dispersed activities and slowing IT system improvements to priority reforms and well-targeted modernization objectives.
- Suggested shift in emphasis over coming years:
  - From modernizing the treasury (where reforms could largely be finalized in the coming three to four years)...
  - ...toward planning and budget preparation, strengthening internal controls, and scaling up policy-oriented MoF functions (macro-fiscal forecasting and analysis, tax policy, debt sustainability analysis, fiscal risk management, management of natural resource revenues, financial supervision of public corporations and PPPs).
- These policy-oriented functions require institutional and human resource development more than IT development.
- Recommended legal realignment: realign the SISTAFE Law to include modern principles of fiscal responsibility and fiscal transparency (as in Kenya, Lesotho, Swaziland, Uganda and Zimbabwe).
- Operational emphasis: decrease new IT development and increase focus on making existing systems deliver through enhanced training, operational support and maintenance.

### Change management and user orientation
- Need to:
  - Counter-balance CEDSIF’s IT-dominant role with institutions enabling process-oriented PFM reform discussions.
  - Give more weight to needs of operators and end-users of e-SISTAFE systems.
  - Improve quality of data input, reports generated and system integrity.
  - Invest in change management processes to strengthen organizational structures, business processes and career development opportunities of financial managers.
- Example cited: PFM Change Management Unit in France (methodological and operational support in reengineering budget processes, reorganizing ministries’ accounting, standardized job descriptions, strengthening financial management career stream, and managing a web-based “PFM Campus”).

### Legal framework and sequencing of SISTAFE Law amendments
- Government intends to propose revisions to the SISTAFE Law during 2014:
  - Technical changes (e.g., budgeting for VAT refunds on a net basis).
  - Mandatory annex on fiscal risks in the annual budget.
  - New legal framework for public accounting based on international standards (IPSAS).
- Mission recommendation: postpone fundamental changes to the accounting framework (accrual accounting) until a thorough review of costs and benefits has been carried out.
- Suggested two-stage approach:
  - 2014: implement technical changes.
  - Later: consider a broader revision toward a modern budget framework law emphasizing aggregate fiscal discipline, fiscal sustainability, fiscal responsibility rules, strengthened budgetary institutions, medium-term planning and expenditure framework, upgraded public accounting legal framework, strengthened internal control, and consolidated financial reporting.
- IMF can support MoF in drafting a new law, retaining much of the existing legal framework structure based on five sub-systems: the state budget, public accounts, the treasury, state assets, and internal control.

### Recommendations (summary)
- Establish a PFM Reform Steering Committee, chaired by the Minister or Vice-Minister, including representatives of line ministries, provinces, and selected development partners; meet twice a year to prioritize, coordinate and sequence PFM reforms; monitor progress and provide strategic direction; provide a forum for user concerns and priorities.
- Create a PFM Reform Coordination Unit in the MoF reporting to the Minister or Vice-Minister, responsible for supporting the Steering Committee on coordination, prioritization and monitoring of PFM reforms. Consider staffing by transferring employees from CEDSIF’s modernization unit (Serviço de Organizaçǎo e Modernizaçǎo), which currently has a complement of 35 staff.
- The new unit to work closely with CEDSIF and other MoF departments and form the Secretariat of the Steering Committee; jointly with CEDSIF be responsible for: (i) preparation and monitoring of the PFM reform strategy in coordination with MoF directorates, line ministries, provinces and development partners; and (ii) developing a change management program to support implementation.
- Consider upgrading the SISTAFE Law to a modern budget framework law with a broader focus and enhanced fiscal and budget responsibilities for the MoF.

### Annex 2 — Progress with e-SISTAFE: 2013 review (key points)
- Objective: complete e-SISTAFE rollout in 2015 is considered entirely achievable based on rollout pace over the previous three years.
- CEDSIF has contracted two resident technical staff for each province (one for hardware and one for operational support).
- e-SISTAFE adopted a new Service Oriented Architecture (SOA):
  - Original modular design became somewhat monolithic in technological implementation, complicating maintenance, development, interoperability and operation.
  - New SOA allows sharing of services and will allow sharing of data between modules in the near future.
  - Will allow e-SISTAFE modules to be available over the internet; example: web-based entry of proof of life statement to update pensioner register in budget execution module planned from 2015.
  - Benefits of the new architecture are recent and yet to be fully explored; important to revisit conceptual and business models of the state assets module (MPE) and Human Resources Management System (HRMS or SGRH).
- Reporting improvements:
  - Adoption of a Business Intelligence (BI) tool (based on open source software PENTAOH) allows authorized users to produce their own reports and provides standardized reporting formats.
- A provisional register of state employees (e-CPAE) interoperates with e-CAF to validate payrolls and prevent duplicate salary payments.
- Mission’s view on priorities: highest priority is to make full use of existing e-SISTAFE functionality; shift CEDSIF focus more toward training, system operation and maintenance, and less toward advanced/costly new developments; acknowledge electricity and banking system availability challenges in some provinces and districts.

### e-SISTAFE Performance Indicators (selected entries from Table 2)
- Number of executing units using e-SISTAFE for budget preparation and execution, out of a total of 983:
  - 2007: 12
  - 2008: 301
  - 2009: 320
  - 2010: 438
  - 2011: 504
  - 2012: 620
  - 2013: 677
- Percentage of expenditure executed directly through the CUT:
  - 2007: 11.49%
  - 2008: 23.61%
  - 2009: 31.40%
  - 2010: 37.55%
  - 2011: 42.22%
  - 2012: 52.58%
  - 2013: 58.61%
- Number of bank accounts maintained by public entities outside the CUT:
  - 2007: 6,428
  - 2008: 5,438
  - 2009: 5,433
  - 2010: 4,390
  - 2011: 4,028
- Balance of the CUT at year-end (thousands of meticais):
  - 2007: 2,009,463
  - 2008: 2,808,995
  - 2009: 4,195,992
  - 2010: 5,632,264
  - 2011: 10,932,524
  - 2012: 7.045.422
  - 2013: 13.020.409
- Total value of treasury bills issued (90-day securities) in million MZN:
  - 2010: 20,000
  - 2011: 21,500
  - 2012: 21,000
  - 2013: 28,760
- Number of entities that completed the e-SISTAFE rollout:
  - 2007: 245
  - 2008: 301
  - 2009: 320
  - 2010: 438
  - 2011: 504
  - 2012: 620
  - 2013: 677
- Number of responses to e-SISTAFE users via service desk (per day):
  - 2007: 13
  - 2008: 26
  - 2009: 39
  - 2010: 20
  - 2011: NA
  - 2012: 21
  - 2013: 25
- Number of active e-SISTAFE users:
  - 2007: 4,463
  - 2008: 4,074
  - 2009: 4,173
  - 2010: 6,478
  - 2011: 10,004
  - 2012: 14836
  - 2013: 18606
- Percentage of wage expenditure executed directly:
  - 2007: 2.73%
  - 2008: 2.75%
  - 2009: 3.47%
  - 2010: 8.60%
  - 2011: 15.77%
  - 2012: 20.6%
  - 2013: 38.47%
- Percentage of pension expenditure executed directly (selected entries):
  - 2007: 0%
  - 2008: 0.88%
  - 2009: 0.30%
  - 2010: 0.30%
  - 2011: 0.29%
  - 2012 central level civil pension: 2.22%, military pension: 0.09%
  - 2013 central level civil pension: 2.09%, military pension: 0.13%

*Source: 1mozea2023007 - 4.      Apart from the Vision of Public Finance and the Action Plan prepared by*

### 10.      The timeline for the development of the various modular components of e-

### 10.      The timeline for the development of the various modular components of e-SISTAFE

### Modules and development priorities
- The timeline for development of the various modular components of e-SISTAFE is illustrated in Figure 1 (Modules and Functionalities of e-SISTAFE, in Production and in Development).
- The e-SISTAFE architecture has evolved into a SOA (Services Oriented Architecture), enabling a modular structure and interoperability between modules. It currently shares common services between modules and will shortly allow data to be shared between modules.
- Following the improvement, e-SISTAFE will become a web-based application in the near future.
- Implications of the new architecture for the design of some modules, like MPE and HRMS, have yet to be explicitly determined.

### MPE (State Assets Module) — conceptual model and priorities
- The MPE conceptual and business models should be revisited.
- Recommendation: Separate processes relating to generating and maintaining the inventory from those relating to procurement.
- Priority focus: development of modules already being produced — the catalogue of goods and services (CBS), catalogue of suppliers (CF) and e-inventory — and less focus on development of the e-Procurement module.
- Rationale: The public procurement platform requires certified electronic-signature systems and certified time-stamp systems not yet developed in e-SISTAFE; development and use of these certified systems requires sophisticated skills and is not a priority.
- Valuation of assets (historical and public domain assets) is not a priority and should be delayed.
- Interoperability of the modules under the new architecture will enable automatic incorporation in the MPE of assets subject to inventory, via data flow from the MEX to the MPE.
- Current status detail:
  - State Assets Module – conceptual and business models are complete and approved.
  - Interoperability with MEX will enable automatic incorporation in the MPE of assets subject to inventory.
  - The MPE module rests on the Register of Suppliers and Contractors and the Catalog of Goods, Materials and Reference Prices (CBS), and on an embedded classifier of public entities and expenditure.
  - Municipalities and public entities are using e-Inventory (a preliminary version of the MPE developed by CEDSIF) to record goods acquired to complete the inventory in the General Account of the State.
  - The CBS has been created and updated with inclusion of Reference Prices.
  - The Catalog of Suppliers (CF) has been created and updated; supplier NUIT information provided by the AT has contributed to this.

### Registration of inventory items and commitment control
- Recommendation: Registration of inventory items should be made compulsory.
- Mechanism: Make registration compulsory through the functionality of the budget execution module (MEX) for all investment expenditure.
- The existing commitment functionality should be activated.
- Recommendation: Integrate commitment control with MEX (budget execution) rather than with MPE; this will be addressed in the conceptual model review.
- Rationale: MEX-to-MPE interoperability will enable automatic incorporation of inventory items into MPE.

### HRMS / SGRH — conceptual model and implementation approach
- The HRMS conceptual and business models should be revisited in light of the new architecture.
- Recommendation: Separate processes for monitoring of careers from those for payment of salaries.
- Recommendation: Support completion of modules already in use (e-CAF and e-Folha) rather than purchasing Oracle HRMS (Human Capital Management) system; this approach is under analysis by CEDSIF.
- Current status detail:
  - Human Resource Management System conceptual model defined; business model in preparation and should be reviewed in light of the new SOA architecture.
  - Customization of Oracle’s Human Capital Management (HCM) system as the new HRMS is under discussion.
  - Suggest splitting the business model into two blocks: salaries payment and career management.
  - The software already developed by CEDSIF (e-CAF, e-CAP and e-Folha) should be fully implemented and used instead of acquiring a new system.
  - Modules for Register of Pensioners and Staff (e-CAP and e-CAF): By 2015 it will be possible to run the proof of life application over the internet and update e-CAP and e-CAF.
  - E-CAF interoperates directly with e-Folha and with e-SISTAFE for direct payments.
  - A provisional register of state employees has been developed (e-CPAE which interoperates with e-CAF) to allow validation of payrolls produced by other salary payment systems and prevent duplicate payment of salaries.
  - e-Payroll (e-Folha): Direct payment of salaries effectively prevents double payments, presupposes registration in e-CAF with single NUIT and bank account details.
  - By March 2013, the MoF should be able to pay all salaries (with the exception of those of the security services) directly to beneficiaries and categorize constraints that lead e-Folha to reject payments; aim for full use of the system by the end of 2014.
  - Registers in e-CAF need verification for all employees through a proof of life audit, possibly during the second and third quarter of 2014.

### e-Tributação (e-Taxation) — delays and priorities
- There has been a significant delay in development of the e-Tributação module.
- Recommendation: Accelerate development and implementation of the Revenue Collection Network, associated access to banking services, and the Single Collection Document (GARE / DUC).
- These developments are important for completion of the CUT and more effective cash management.
- Current status detail:
  - Customizing of ETPM (Oracle’s Enterprise Taxation and Policy Management system); design completed for the IRPC and for IRPS modules.
  - Entry into production was planned for 2014, but significant delay noted.
  - Implementation organized per type of tax:
    - VAT & ISPC, Q1 2013 (1st phase) Q2 2014 (2nd phase);
    - IRPC, IRPS Q1 2015;
    - Other taxes after 2015.
  - NUIT taxpayer registration module entered production in 2012.
  - JUE Single Electronic Window Module: entered production in the Port of Maputo in 2011 (operating with two banks); in 2012 entered production at the seven main Customs posts.
  - The conceptual model for e-Taxation envisages a single collection document (GARE) to be generated by the e-SISTAFE Collection Network Module; business model of the “collection network” in its final stage and will be implemented with VAT and ISPC modules.
  - Development is in an advanced stage for conceptual and business models and software implementation of the GARE; rests on interoperability of e-SISTAFE, e-Taxation and Single Window.
  - The GARE will be implemented simultaneously with entry into production of VAT and ISPC modules.
- Operational issue: Significant delays arise from tax payments held in transit accounts pending reconciliation; an order of magnitude estimate of outstanding un-reconciled balances was given as MZN 1 billion.
- Mitigation: e-Taxation rollout for VAT and ISPC should make it easier for taxpayers to obtain necessary codes and reduce these reconciliation delays, though full functionality allowing online payments will take some years.

### IT governance
- Evidence of compliance with best practice frameworks related to IT governance at CEDSIF was noted.
- Specific frameworks: ITIL and CMMI — compliance at level 2 has been accomplished.

### Summary of recommendations (condensed)
- Making full use of existing e-SISTAFE functionality is the highest priority in the coming years. CEDSIF activities should focus more on training, system operation and maintenance, and less on further system development.
- Revisit conceptual and business models for MPE and SGRH modules in light of the new architecture.
- For MPE, prioritize development of CBS and CF catalogues and e-inventory; e-procurement should not have equal priority.
- Accelerate development and implementation of the Revenue Collection Network, associated access to banking services, and the Single Collection Document.
- Give special importance and priority to registration and management of commitments in e-SISTAFE development.

### Status of rollout and technical reform (end-2013)
- e-SISTAFE rollout:
  - E-SISTAFE has been installed in 116 more UGBs; implemented in 677 UGEs.
  - Direct payment route reached the level of 58% in 2013.
  - Objective of completing e-SISTAFE rollout in 2015 is considered entirely achievable.
  - To support rollout, CEDSIF contracted two resident technical staff for each province (one for hardware and one to operate e-SISTAFE).
- Coverage and targets:
  - About 58 percent of expenditure was covered by direct payments through the CUT by the end of 2013, and a further 5 percentage points is planned for 2014.
  - Of total 939 budget units (UGBs), 677 had access to budget execution modules (UGEs) by end-2013; plans to extend by 140 during 2014.
- e-Folha and bank accounts:
  - Roll-out of e-SISTAFE to UGBs and wider use of e-Folha helped reduce government bank accounts held outside the CUT, though many new accounts were also identified.
  - Cash advances are still made from the CUT to UGBs without e-SISTAFE access, for donor-financed transactions when donors do not use the CUT, supplier payments in rural areas without bank accounts, and petty cash payments.
  - UGBs also tend to have bank accounts for collected own revenues.
  - Defense and police sectors have so far resisted joining the CUT payment system.

### CUT (Centralized Treasury / Completing Treasury Reforms) — current arrangements and issues
- Current arrangements and observed facts:
  - Cash advances from the CUT to UGBs continue for several operational reasons.
  - No arrangements exist for overnight sweeping into the CUT of bank balances held by public institutions outside the CUT (both advances to UGBs and tax payments held by AT in commercial banks).
  - Tax authority sweeps payments from transit accounts to the CUT once payments have been attributed to taxpayer and tax.
  - The proportion of donor financial assistance passing through the CUT increased slowly in 2013: programmatic support increased from 66 to 68 percent; a further modest increase planned for 2014. Substantial project support remains outside the CUT.
- Issues and recommendations:
  - Extension of the CUT is a high priority for expenditure control, cash management and system integrity. Treasury should aim for all government balances to be held at the CUT overnight and all payments made through the CUT except petty cash.
  - Off-CUT accounts categorization is unclear. UGBs financed by advances should hold no more than three accounts: for salaries; for expenditure operations; and for own revenues.
  - Many off-CUT project accounts where donors resist inclusion, accounts held by autonomous government agencies, and accounts believed opened without DNT approvals remain. Defence and security sectors likely hold many off-CUT accounts.
  - Recommendation: Clarify to autonomous bodies and security sector that participating in the CUT does not imply loss of budget autonomy or approved budget allotment; MoF could provide written assurances.
  - A Ministerial Order for classification of accounts has been in preparation for over a year; it is being refashioned to include rules for control, opening and closing of all state accounts, with a parallel circular insisting on closure of accounts not covering agreed purposes.
  - A synchronous memorandum from the central bank Governor to commercial banks would reinforce binding nature of these measures.
  - DNT could more proactively press for closure of unnecessary accounts and return balances to the CUT; option: task force of 2-3 officials (from MoF and possibly IGF) to challenge UGBs directly, identify accounts, and operate under a prior ministerial (or presidential) circular.
  - MoF does not have access to balances in the foreign currency CUT for cash management; domestic expenditures are in MZN. Budget support grants and loans are converted into MZN; foreign currency held against donor project payments to overseas suppliers.
  - Policy: BM debits the MZN CUT, buying foreign currency or drawing on reserves as required — aligns with good international practice.
  - Payments of tax deposited at commercial banks flow into the CUT through transit accounts in the name of the AT; banks have 48 hours to transfer (and pay interest if later). DNT regards this delay’s opportunity cost as compensation for banks’ transaction costs.
  - Recommendation: DNT should reassess requiring immediate transfers and compensating banks for costs, potentially via competitive process; not an immediate priority.
  - Significant delays from tax payments held in transit accounts for reconciliation create substantial balances (order of magnitude estimate MZN 1 billion).
  - Recommendation: Transfer cash balances directly to CUT; accounting information can be retained in zero balanced transit accounts; reconciling adjustments or refunds can be made out of the CUT if necessary.
  - The same principle applies to own-revenue accounts: cash can be banked with the CUT while UGBs retain permission to spend/claim on resources. Transfer of own-revenue cash balances into the CUT should be a medium-term objective, recognizing potential need for virtual sub-accounts and process development.

_Italic: Source: 1mozea2023007 - 10.      The timeline for the development of the various modular components of e-_

### 14.      Until the need to make advances to some UGBs falls away, balances held outside

### 14.      Until the need to make advances to some UGBs falls away, balances held outside

### CUT balances, sweeping, and fees
- Balances held outside the CUT (in banks or in other accounts at the BM) should be swept into the CUT at the end of the day; as necessary, they can be returned the following day.
- There does not appear to be any technical constraint: the commercial banks have well-developed core banking systems (a few rural branches aside) and there is an effective RTGS system for the banking sector (although it is yet to be rolled out more widely).
- The weekly release of payment authority to budget units by the DNT in effect ring-fences that amount of cash in the CUT for the week in question, tying up cash unnecessarily for on average half a week; cash does not need to be available before the payment is made.
- No interest is paid on the CUT.
- No fees are paid by the MoF to the BM for the banking services supplied.
- Best practice: pay interest on balances and transaction-related fees to improve accounting transparency, avoid implicit cross-subsidies, and remove incentives for the MoF to make economically inappropriate placement decisions.

Recommendations
- The DNT should actively continue with its program to reduce the number of bank accounts outside the CUT (as necessary through outreach and explanation of Treasury policies (to UGBs and to autonomous bodies and the military).
- The release of circulars by the Minister (and the Governor) on government bank accounts should proceed without further delay. They should be followed up proactively by the DNT, possibly with a task force.
- All balances held outside the CUT (with the possible exception of donor-financed project accounts) should be swept into the CUT overnight, including from AT transit accounts and, in due course, from own-revenue accounts.
- The MoF should in the medium term develop policies to pay transactions costs to the banks, in return for immediate sweeping of balances from banks into the CUT; and to the BM in return for a market rate of interest on the CUT.
- As cash planning and management improves, cash in the CUT should not be ring-fenced as soon as payment authority is given.

### Budget execution — current arrangements
- After Parliament’s approval of the budget the DNO makes a “shadow cut” to budget allocations until the second half of the budget year, withholding 15 percent of provision for wages and 10 percent of other categories from each UGB. These reduced allocations are included in the budget execution module (MEX). The shadow cuts are released, and as necessary reallocated, following a review in September, based on requests from UGBs, rates of execution and emerging requirements.
- The budget is executed by release of spending and payment authority by the DNT. Within e-SISTAFE the system is formally well-defined with stages of commitment, validation, and payment; but in practice no distinction is made between these stages in the release of expenditure authority.
- Wages apart, the DNT releases commitment and payment authority at the same time, on the basis of requests from the UGEs. These requests are made monthly for each week of the following month, with authority being released weekly balancing requests and overall availability of resources.
- Only when the financial quota is received are commitment, validation, and payment posted in e-SISTAFE. If any part of the expenditure authorization is not drawn on within 1–2 weeks, it is withdrawn by the DNT and the UGB must resubmit its request.
- The DNT is exploring separating release of commitment authority from payment authority but is concerned about inadequate links between budget provision, commitment and payment that could allow UGEs to over-commit.
- The DNT adopted in mid-2013 a pilot servicing domestic debt, releasing commitment authority to the end of 2013; the DNT wants to evaluate the pilot before widening earlier commitment authority.
- Payroll security progress: roll-out of e-Folha in 2014 will reach all central government institutions except police, defense and other security services. Registration of staff in e-CAF continued: some 75 percent of the 260,000 employees registered were paid direct to their bank account (through e-Folha or otherwise) by end 2013, with the balance targeted for end March 2014, although there will continue to be special cases.

Issues arising
- Under current arrangements the DNT cannot use commitment information to help forecast future resource requirements or the profile of expenditure.
- Officials in UGEs lack assurance resources will be available to validate commitments because of the DNO’s shadow cut and limited time windows to spend allocated resources; incentives exist to commit in advance expecting subsequent releases, contributing to payment arrears and supplier demands for advance payments.
- Commitment controls are more effective than cash controls for managing expenditure limits and avoiding arrears; they are especially important for goods and services and investment.
- The DNT’s concern that separating commitment and payment limits will create over-programming suggests a selective separation approach focused on sectors/UGEs with proven management records, accompanied by training and information flows.

Recommendations
- Commitments should be reported, and controlled, in e-SISTAFE when they are made. But the separation of commitment and payment authority should proceed selectively. It should also be accompanied by a training program and a flow of information from the relevant UGEs of cash flow profiles and forecasts.
- The DNT should widen the current pilot beyond domestic debt interest. But that should not delay activating the commitment functionality in e-SISTAFE, which should be pursued independently of other modules in e-Assets.
- Over time, good performance in managing commitments and the flow of cash flow information should lead to more flexibility in the release of budget, and subsequently payment authority.
- In relation to salary payments, the measures implemented after the discovery of recent frauds need to be completed. The register of employees in e-CAF should be extended to all employees, initially those excluded for technical reasons and then to those of security bodies with a view to their also being covered by e-Folha. A registry and payment module for pensions should also be developed.

### Internal control — current arrangements and issues
- The state audit system comprises internal audit under the IGF (institutionally part of the MoF) and external audit by the TA (independent from government). Sector ministries and some provinces have units with inspection, compliance and internal audit responsibilities; these units are gradually shifting focus toward audit activities.
- The IGF is developing a model to give it stronger coordination over these units, setting standards and driving training.
- The TA seeks to audit all public institutions on a 2 year cycle and is developing a performance audit capability. Reports on the state accounts are presented to Parliament by November each year; a tighter timetable is not possible without more timely completion of the CGE (currently in May) by the MoF. A substantial backlog exists in Court judgments on audit report findings.
- Within UGEs, formal separation of execution and control exists; each payment is scrutinized by an internal control agent (ICA) appointed by and reporting to the head of the UGE. The IGF is concerned about ICAs’ independence and has sought procedures to strengthen their position.

Issues arising
- Coordination between IGF and TA appears good though capacity is low in both institutions.
- Risk that ICAs cannot stand up to senior managers, enabling contracts without commitment authority, advance payments before delivery, or misattribution to budget lines.
- Internal audit function in sectors and deconcentrated units is at an early stage; quality and independence are variable.

Options for strengthening ICAs (as identified)
- Option 1: Ensure greater accountability of UGE heads with stronger ex-post audit and enforce reporting transparency so the formal role of ICAs would lapse.
- Option 2: Expand ICAs’ reporting lines so they report equally to the IGF as well as the head of the UGE.
- Option 3: Appoint ICAs as officials of the MoF/Treasury, giving them a different status though complicating day-to-day management.
- Option 4: Strengthen sector inspection/audit units and give ICAs access to those units; effective only if those units gain independence from management and would be a lengthy task.

- The choice may depend on how the IGF role develops; if sector units’ audit capacity and independence improve, option 4 may be attractive but long-term. At present the MoF should consider option 2 or 3.

Recommendation
- The MoF should address options for strengthening the position of the ICAs with some urgency by expanding their reporting lines to the IGF or appointing them as MoF officials.

### Cash flow forecasting — current arrangements and issues
- At the start of the financial year the DNT prepares a monthly cash plan. For revenue, the AT prepares a profile of its agreed budget target. Donors provide estimates of commitments and disbursements, but these are highly uncertain.
- For expenditure, wages and debt interest flows are largely predictable; for other expenditure the DNT draws on the outturn profile of the last three years. Profiles from most sectors and UGEs are thought to be of poor quality, often a simple division by 12. The plan is largely static and undergoes few amendments during the year unless revenue forecasts change.
- The DNT prepares each month a cash flow projection for the following month broken down by week (focus on the week ahead). It incorporates recent revenue receipts, UGE requirements reported in e-SISTAFE and any new sector information. These forecasts are passed to the BM and discussed at a weekly meeting chaired by the Minister where decisions are made on financial quotas to release for the week ahead and/or T-bills issued by the BM hypothecated to the MoF.

Issues arising
- Cash flow forecasts are essential to facilitate orderly and less restrictive budget execution and to devise strategies for smoothing the cash flow profile.
- Distinction: programming focuses on controlling spending consistent with cash availability to deliver the budget; forecasting focuses on what “will” happen if line ministries execute optimally.
- Cash forecasting seeks to ensure cash is available when required, avoiding cash rationing and minimizing cash use over the period ahead. To avoid game playing from spending units, cash flow forecasting is often managed separately from budget execution.

*Source: 1mozea2023007 - 14.      Until the need to make advances to some UGBs falls away, balances held outside*

### 37.      Forecast information is usually needed for some period ahead, at least three

### Forecast information, Cash Management, and Integration of Planning and Budgeting (paras 37–46; Annex 4 paras 1–8)

### Forecasting cash flows (paras 37–39)
- Best practice: forecast information is usually needed for some period ahead; at least three months is seen as good practice.
- Mozambique aim: develop cash flow forecasts for each week extending three months ahead (although initially it might not be possible to prepare weekly forecasts for months two and three of any three month period).
- Operational practice: these weekly forecasts looking three months ahead should be rolled forward weekly or every second week. In time daily forecasts will be required.
- Current systems: functionality for cash flow planning within e-SISTAFE has not been used; decentralization overtook it and the DNT now relies on paper submissions from the sectors.
- Forecast source requirements:
  - Wages, transfers to municipalities and debt servicing should be known to the day by UGEs (and the dates should be specified in advance by them).
  - Data on past expenditure patterns, with caution where patterns were constrained by restrictive release policies.
  - Updated cash profiles and commitment information in e-SISTAFE for investment and similar spending, noting uncertain lags between commitment and payment.
  - In-year forecasts from the AT and large UGEs (or sectors and provinces), collected systematically (and separately from budget execution reporting); large donors and managers of large projects should supply regular updates.
  - Prior notification from UGEs of large payments.
- Capacity and process notes:
  - Development of cash forecasting will require substantial capacity building in the MoF, ATs, UGEs and sectors.
  - Gathering of forecast information is often informal; DNT cash managers need technical-level links with counterparts in other units.
  - It may be sensible to continue collecting forecast data outside e-SISTAFE in Excel initially; immediacy is more important than accounting quality.
- Recommendations (forecasting):
  - The DNT should build cash flow forecasts extending at least three months ahead and rolled forward frequently.
  - To support this, the DNT should develop a program of forecast capacity building, including within the AT and large spending units.

### Cash management — current arrangements (paras 40–41)
- Current stance: the MoF does not currently actively manage cash flow to enable unrestricted budget execution through borrowing and lending transactions in the money market; it occasionally borrows short-term when forecasting an emerging cash flow constraint by accepting liability for some Treasury bills (T-bills) issued by the BM for monetary policy purposes.
- Market context:
  - Money and debt markets in Mozambique are not yet well developed.
  - Substantial amounts of T-bills are issued by the BM to drain liquidity; the BM also uses repos in open market operations.
  - MoF has published a medium-term debt management strategy and an annual financing plan.
  - Only very recently has the government been able to auction government bonds, and then for only short maturities.
  - Development of a yield curve is handicapped by a different tax treatment of bonds and bills.
  - Market development issues are addressed under the “Financial Sector Development Strategy, 2012–21” and a World Bank program.

- Numeric fact (historical usage):
  - The MoF was able to maintain its balance in the CUT within a range of MZN 6–16 billion in 2013 (a monthly average of MZN 11.7 billion with a standard deviation of MZN 3.1 billion). It made rather more use of T-bills than in previous years, with the stock hypothecated to the MoF varying in the range MZN 5–11 billion of a total stock of MZN 29 billion at end 2013.

### Issues arising and policy options (paras 42–46)
- Objectives and benefits:
  - Development of more active cash management is an important objective; it can smooth budget execution, allow lower average cash balances (saving costs), and support monetary policy by reducing the impact of government cash flows on market liquidity.
- Sequencing and instruments:
  - Pace depends on development of cash flow forecasting and of the money market.
  - First step likely: greater use of T-bills to smooth larger cash flow variations (“rough tuning”); T-bills should continue to be used for both cash management and monetary policy to avoid fragmenting the market.
  - Authorities should be more transparent in indicating to the market for which purposes T-bills are being issued.
  - Other matters: MoF capacity, close coordination between debt and cash management, and mode of interaction with the BM.
- Handling unusually large cash inflows (paras 44–46):
  - Large one-off windfalls not part of expected budget revenue should normally be managed separately from day-to-day cash flows.
  - Structurally surplus cash (over and above the cash buffer) should be managed with a longer horizon; options range from a “cash reserve fund” to a long-term sovereign wealth fund depending on fiscal policy decisions.
  - A cash reserve fund: probably a separate account in the central bank (which could—under strict rules—be borrowed from on an in-year basis).
  - A sovereign wealth fund: would likely require an arms-length investment management company supervised by the MoF and central bank, guided by a legal charter.
  - For a stabilization fund: develop with clearly defined rules, set in law, on in- and outflow calculations; stabilization fund resources would normally be invested overseas—domestic investment would add to the budget impact and complicate monetary policy operations.
  - Current practice in Mozambique: sizeable one-off windfall gains have arisen in foreign currency and are held by the government with the BM in a foreign currency account separate from the CUT; this is appropriate and distinct from project-linked foreign currency CUT deposits.
  - The BM currently decides where these windfalls are invested, taking account of reserve management and monetary policy objectives; the BM is paying interest to the Treasury, but this should be at a full market-related rate for the relevant term.
- Numeric fact (windfalls): Some USD 800 million in total in 2012–13, with a further USD 500 million in prospect in 2014.
- Recommendations (cash management):
  - The MoF should design a project plan, and the prioritizing and sequencing of the related activities, for moving towards more active cash management. This plan should be integrated with other financial sector development work.
  - Work with the BM to set market remuneration rates on domestic and foreign accounts held at the BM depending on maturity of the deposits.
  - Develop cash and/or investment instruments for excess cash reserves aligned with their fiscal use.

### Annex 4 — Improving the integration of planning and budgeting: Current situation (Annex 4, paras 1–5)
- Multiplicity of instruments: There is a multiplicity of planning and budgeting instruments in Mozambique; most are prepared by the MPD except the CFMP (prepared jointly with the MoF) and the annual state budget (OE).
- Integration gap: In theory government operates under a unified planning and budget formulation system, but in practice integration is less than optimal, leading to inconsistency between instruments.
- Quantification gap: None of the planning documents, except some sectoral plans, the Integrated Investment Plan (IIP) and the Medium-term Fiscal Framework (CFMP), provide quantitative information on the cost of government activities, programs or projects.
- List of planning instruments (descriptive — excerpted from source): 2025 Vision (Visǎo 2025); National Development Strategy (ENDE 2015-2035 draft); Five-year Government Plan (PQG); National Poverty Reduction Strategy (PARP); Sector and provincial plans; Economic and Social Plan (PES); Medium-term Fiscal Framework (CFMP); Integrated Investment Plan (IIP, introduced September 2013); Annual state budget (OE).

- Institutional arrangements and weaknesses (paras 2–5):
  - Until 2004 planning and budgeting were under one ministry; coordination between MoF and MPD remains quite close at working level but issues persist: de facto parallel processes for capital and recurrent budgets; lack of connection between the CFMP and annual budget preparation; divided responsibility for macroeconomic and fiscal forecasting between two ministries.
  - Procedures: planning and budget processes follow procedures clearly defined in law; the CFMP specifies macroeconomic assumptions and spending ceilings, includes fiscal data for the latest completed fiscal year, current year, and projections for the coming budget year and following two years; CFMP is supposed to be a rolling scenario updated annually.
  - CFMP practice and shortcomings: figures are based on top-down projections; criticized for unreliable out-year spending projections; CFMP is not rolled over properly year-to-year; out-year ceilings set in May have little relevance; CFMP updated in August for recent macro outlook; CFMP lacks anchoring in clearly defined fiscal policy objectives/targets and an internal fiscal sustainability analysis.
  - Budget classification and execution: annual budget is mainly prepared and executed according to economic classification; presented and controlled in very detailed manner with many budget lines; program classification supports allocation but is mainly presentational and has no role in execution; capital and recurrent proposals are prepared by different units and have only a loose connection; current economic classification does not classify capital and recurrent spending according to IMF’s GFS standards.

### Annex 4 — Assessment and suggested reforms (Annex 4 paras 6–8)
- Reform areas discussed: (i) rationalization of planning documents; (ii) strengthening IIP and public investment management; (iii) improvements in CFMP and links to annual budget; (iv) strengthening credibility of the annual budget, including introduction of program budgeting over the medium term.
- Options for streamlining planning instruments:
  - One long-term planning instrument based on existing ENDE.
  - One medium-term instrument at national level covering five years, perhaps combining PQG and PARP.
  - Medium-term plans for each ministry and province linked to the national development plan.
  - A strengthened medium-term expenditure framework, combining the CFMP and the IIP, supported by the Debt Sustainability Analysis (DSA), and integrated closely with the annual budget process (OE).
- PES proposal: the annual social and economic plan (PES) could be converted into an explanatory memorandum to the budget to improve alignment; presently its relationship with the budget is not exact, reducing usefulness.
- Note on government work: The MoF and MPD informed the mission they were working on a conceptual framework for integrating planning and budgeting; this document was not yet approved or seen by the mission, but the present report’s ideas may inform government assessment of changes.

*Source: Selected paragraphs from the IMF chapter/pdf content unit 1mozea2023007 (paras 37–46; Annex 4 paras 1–8).*

### 9.      The IIP is a new instrument that was approved by the CoM in September 2013,

### 1mozea2023007 - 9.      The IIP is a new instrument that was approved by the CoM in September 2013,

### IIP: current scope and early steps in public investment management
- The IIP is a new instrument that was approved by the CoM in September 2013, and currently only includes 20 infrastructure projects in a few selected fields (energy, transport, water and agriculture).
- It is intended that the coverage of the IIP should be gradually extended to cover a much wider range of projects.
- With support from the World Bank, DFID and AFRITAC South (AFS), the government has taken preliminary steps to improve the management of public investment projects:
  - establishment of an Inter-ministerial Evaluation Commission (IMEC);
  - preparation and dissemination of a public investment manual containing criteria for the selection and evaluation of projects (and two sub-manuals for roads and rural electrification);
  - some initial capacity building initiatives.
- These initiatives have made relatively little impact so far; further efforts are necessary to establish a disciplined selection and prioritization process both at sector and provincial level.

### Mission suggestions to strengthen the IIP process and decision-making impact
- Include in the IIP a discussion of its relationship to and consistency with the strategies and activities set out in the other key planning documents, in particular the PQG and the sectoral plans.
- Discuss the alternative financing modalities that are available through the budget, external grants and loans, and public-private partnerships (PPPs) or concession arrangements, and how this impacts on the selection of projects.
- Extend the coverage of the IIP to include all new investment projects proposed by the government (above a certain financial threshold), whatever the source of finance that achieve a satisfactory economic, social and environmental rate of return, and satisfy any other criteria set by the government.
- For the projects listed in the IIP, provide information on:
  - their full cost,
  - the breakdown of costs between capital and recurrent expenditure,
  - their projected economic and social rate of return if available,18
  - the timetable for implementing the project, with a profile of costs incurred on a year-by-year basis.
- Provide a division of projects into:
  - those that should be given priority for budget financing,
  - those expected to be financed externally,
  - those that are potential candidates for private financing (subject to further analysis by the MoF of the value for money of the project, and any guarantees, contingent liabilities and other fiscal risks incurred).
- Include separately a list of projects on which construction work has commenced, their financing costs, and the profile of disbursements over the remaining life cycle of the project, broken down by financing source (budget, external finance, PPPs/concession agreements).

### Medium-term orientation and integration with the CFMP
- The government should consider developing the IIP with a medium-term time horizon requiring line ministries to develop a portfolio of projects to be implemented over the next three years.
  - Early identification allows more time for adequate evaluation, costing and further development of projects.
  - Reinforcing government capacity in this area should be prioritized, building on technical assistance already provided by the World Bank and AFS.
- Integrating the IIP into the CFMP could increase the relevance of both instruments for government decision-making, enabling the MoF to:
  - set ceilings on capital and recurrent spending over the medium term;
  - make medium-term decisions on large investment projects that can be accommodated by the budget;
  - discuss with development partners and the private sector options for financing projects outside the budget while ensuring investment selection and appraisal criteria are respected, fiscal risks are taken into account, and the decision making process is transparent.
- Implications for accounting policies and the analysis of fiscal risks would also need to be taken into account, as discussed in Sections IV and V of Annex 1.

### CFMP: status, weaknesses, and steps to strengthen credibility
- Current characteristics:
  - The CFMP presently has most characteristics of a fiscal outlook instrument and is compiled from estimates prepared by the MPD, with support from the MoF but limited consultation of line ministries.
  - Macroeconomic and fiscal forecasting capacity in the MPD is weak.
- Revenue forecasting issue:
  - Forecasts have the characteristic of targets (an assumption is made that revenues increase each year with 0.5 percent per year) rather than actual best estimates, reducing medium-term usefulness.
- Institutional recommendation:
  - The small macro unit in the MPD should be merged with the fiscal forecasting unit in the MoF, irrespective of possible future reintegration of the two ministries; the BM should support this unit through active participation.
- Weak link between CFMP and annual budget:
  - Lack of reconciliation between bottom-up sector/provincial expenditure estimates and top-down MPD/MoF forecasts undermines the CFMP’s linkage to the annual budget.
  - Line ministries lack capacity to produce realistic medium-term estimates; no medium-term baseline of approved expenditure or costing of new proposals exists.
- Improving CFMP via IIP:
  - Developing bottom-up estimates of capital investment (prepared in the context of the IIP) could improve the quality of the CFMP by providing reliable cost estimates by sector within agreed expenditure limits.
  - If the IIP selection process approves projects on a multi-year basis, the CFMP’s importance as a decision-making instrument would increase and deviations from budgetary outcomes would decrease.
  - Ceilings set for recurrent expenditure in the CFMP could be linked to allocations for capital spending, increasing relevance and credibility.
- Fiscal targets and rules:
  - The CFMP is not anchored by a framework for fiscal targets or rules.
  - MoF needs to develop a framework for setting annual fiscal targets with a medium-term horizon, considering fiscal sustainability and stabilization.
  - Introduce rules on treatment of one-off windfall revenues such as the large capital gains-related windfall revenue of some USD 1.3 billion over the 2012–14 period, to avoid undermining fiscal framework credibility and disrupting monetary policy.
  - Example policy: use windfall revenue gradually, spread over a number of years for investment expenditure in the context of the medium-term IIP.

### Annual budget process and program budgeting
- Current practice:
  - The annual budget retains many elements of an input-based, incrementally developed estimate of expenditures; capital budget is project-based.
  - Program classification has been developed and helps link policy objectives to the planned budget; programs are used to some extent to reallocate expenditures.
- Main weaknesses:
  - Annual budget is not always adequately costed; decisions on expenditure prioritization are often deferred to the budget year and resolved through in-year reallocations.
  - Cautious revenue assumptions contribute to lack of budget credibility; as revenue targets are commonly exceeded, precise costing becomes less important in practice.
  - Donor funding uncertainty, especially for project finance, forces sizeable adjustments to the state budget when anticipated project funding does not materialize or arrives late.
- Recommendations for program budgeting:
  - Program budgeting becomes a reliable tool only if used for managing and controlling expenditure; as long as it is mainly presentational, line ministries focus on line-item allocations.
  - Substantial capacity building is needed in budget departments of line ministries to allocate program costs accurately.
  - The functionality of e-SISTAFE may need expansion.
  - Introduction of program budgeting as a budget management tool could start in three or four year's time; in the interim, MoF should strengthen the basic budget process.

### Consolidated recommendations (Section C)
- Consider reducing the number of planning instruments to three or four to increase consistency, and increase quantitative information on costs and outcomes.
- Progressively increase the coverage and breadth of information included in the IIP; prioritize projects that can be financed through the budget over the coming three years.
- Integrate the IIP and the CFMP into a single instrument/document to reinforce usefulness and impact in resource allocation.
- Continue and intensify capacity building on public investment management, giving due weight to change management issues: strengthening institutions, business processes, HR management and staff incentives, and IT support.
- Strengthen the credibility and use of the CFMP through stronger macro-fiscal underpinnings and developing bottom-up multi-year estimates of expenditure, starting with capital projects in the IIP.
- Merge the macroeconomic and fiscal forecasting units in PMD and MoF to enhance forecasting capacity, with active support of the BM.
- Develop a framework for setting annual fiscal targets for the CFMP; and more urgently develop fiscal rules to mitigate the impact on the budget of large one-off revenue windfalls.
- Improve the credibility of the annual budget process by using cautious but realistic estimates of revenues and donor contributions, improving costing methodologies and better assessing recurrent and capital expenditure linkages.
- Review the existing program classification and costing methodologies and start building capacity for using program budgeting in line ministries over the medium term.

### Annex 5: Modernization of public sector accounting — Current situation
- Legal and reporting framework:
  - SISTAFE Law and regulations specify that annual state accounts (OE, CGE) will be drawn up on a modified cash basis using double-entry bookkeeping, and that assets will be depreciated.
  - Law contains only a reference to generally accepted accounting principles and no detailed statement of accounting policies or reference to international accounting standards.
  - The CGE makes no reference to the accounting standards and principles used in preparing it, except for reference to the laws that govern its production, and some explanatory footnotes.
- Coverage and presentation:
  - CGE focuses on the budgetary central government and its deconcentrated units (provinces and districts) with annexes covering municipalities and certain other autonomous entities.
  - No consolidation of financial information for the general government sector; only limited information on entities in the wider public sector such as state-owned corporations.
  - June 2013 FAD mission noted discrepancies in the consistency of the data presented in the 2011 CGE with the chart of accounts.
  - The presentation of information in the CGE could be improved: little or no cross-referencing between summary statements and supporting information; format largely unchanged since the mid-1990s.
- Accruals strategy:
  - In 2012 the government commissioned Ernst and Young (E&Y) to prepare an action plan for implementing accruals-based accounting recommending a three-phase reform:
    - Phase 1 (2012-2013): establishment of accounting standards based on IPSAS Board standards, and initial training;
    - Phase 2 (2014-2017): adaptation of IT systems (e-SISTAFE) and pilot implementation;
    - Phase 3 (2018 onward): consolidation of IT functionalities and completion of roll-out of the standards.
  - The MoF will further consider the strategy in March 2014 based on a second E&Y report (report not seen by the mission) that is understood to include a proposed full set of 32 IPSAS accrual-based standards.
  - Planned next steps according to the MoF:
    - (i) MoF to review the E&Y Report in March 2014;
    - (ii) amendments in the SISTAFE Law and regulations to be drafted and sent to the Council of Ministers (CoM) for approval in May 2014;
    - (iii) necessary changes to be made to the e-SISTAFE functionalities in 2015;
    - (iv) roll-out of the new standards to start in 2016.

### Annex 5: Modernization of public sector accounting — Assessment of the reform path
- Identified weaknesses in the current E&Y-based strategy:
  - Lacks a stepping stone approach to the transition to accruals with clear sequential improvements in reporting outputs.
  - May overreach the government’s capacity and underestimate the complexity and difficulty of the reform; recent Fiscal Transparency Evaluation highlighted weaknesses in financial reporting.
  - Lacks a review of costs and benefits of alternative options for implementing accrual accounting.
  - Does not include sufficient analysis of technical, human resource, change management and financial implications of implementing such a reform.
  - Does not take into account the need to prepare accounting policies aligned to the practices of Mozambique rather than simply transplanting IPSAS standards.
  - May distract attention from more basic public accounting reforms urgently required (reliability, timeliness, presentation and coverage).
  - May absorb capacity of the treasury and accounting functions from higher priority reforms.

*Source: 1mozea2023007 — PDF chapter/section (canonical URL provided with the content).*

### 7.      Earlier IMF advisory reports stressed the need to consider the move to accrual

### 7.      Earlier IMF advisory reports stressed the need to consider the move to accrual accounting as a long-term development objective, and to phase the transition process

### Assessment of readiness and recommended overarching approach
- Earlier IMF advisory reports recommended treating the move to accrual accounting (AA) as a long-term development objective and phasing the transition process.
- Recent insights show weaknesses in government accounting capacity especially in line ministries and deconcentrated units, strengthening the argument for caution.
- International experience, including advanced countries, indicates the transition to accrual accounting is both costly and complex.
- Recent difficulties improving the reliability, presentation and timeliness of financial statements indicate that preliminary reinforcement of accounting capacities and a more prudent approach to AA are advisable.
- The mission proposes an approach different from the government and E&Y: it agrees with the overall aim but not with the planned phasing. E&Y’s approach is characterized as a “big bang” (set end-stage standards at the start, prepare all process and IT adjustments, then full roll-out). The mission advises a much more gradual approach with two main stages.

### Stage 1: Preparation (2014–16) — objectives and activities
- Focus: improving reliability and timeliness of current financial information, and consolidating capacities.
- Proposed activities:
  - Recording expenditures in compliance with SISTAFE requirements.
  - Presenting consolidated information on general government expenditure and revenue in the annual financial accounts (CGE) for 2013.
  - Aligning CGE presentation—public debt, transfers to autonomous institutions and transfers to municipalities—with the chart of accounts, as recommended in the June 2013 FAD report.
  - Developing a summary balance sheet, initially including only financial assets and liabilities.
  - Preparing a statement of accounting policies to be included in the CGE and any supporting or supplementary volumes.
  - Undertaking a review of the CGE’s coverage, content and presentation—in cooperation with the Tribunal Administrativo (TA) and other stakeholders—and implementing its recommendations.
  - Making available a full electronic version of the CGE documents to be published on the MoF’s website.
- Parallel program:
  - The MoF should develop in parallel a program to enhance financial reporting of the public corporation sector. Institutional strengthening of the MoF will be required to enforce this and ensure adequate overall financial supervision of public corporations. Outcomes should be reflected in CGE annexes.
- Comprehensive review during Stage 1:
  - A full review of the optimal roadmap to accrual accounting should weigh costs and benefits and assess relative priority given limited government capacity and other PFM reform requirements.
  - The review should include information on challenges other countries faced and how they dealt with them.
  - Review topics to cover:
    - The potential benefits of AA in terms of improved, more transparent accounting and financial reporting.
    - A strengthened legal framework for public accounting.
    - Developing accounting policies relevant to Mozambique, aligned with IPSAS’s to the extent possible.
    - Changes in business processes (commitments, payment approvals, verifications, internal controls).
    - Changes required in e-SISTAFE and other IT systems.
    - Human resource requirements including hiring/retraining public accountants, and the role of independent bodies such as OCAM (Ordem dos Contabillistas e Auditores de Moҫambique).
    - Change management requirements (organizational structure changes in the Public Accounting Directorate and accounting units in line ministries, provinces and districts; information, training and incentives for managers and government accountants).
    - Financing requirements to implement accrual-based accounting.
    - Proposed options for sequencing AA implementations, with estimates of their respective costs and benefits.
- Explicit recommendation:
  - During Stage 1, no decisions should be taken to legislate new accounting standards or to begin implementation.

### Stage 2: Implementation (2017 onward) — phased illustrative steps
- Stage 2 depends on government decisions from the Stage 1 review; it envisages gradual, phased implementation of AA. The steps below are illustrative and would be based on the review’s recommendations.

- Box 3 — Illustrative Steps Towards Accrual Accounting:
  - Step 1 (2017-19, say):
    - Stocks reported: accounts payable to suppliers and other creditors; material financial liabilities and financial assets, including financial debt, cash and other short-term deposits and outstanding loans.
    - Flows reported: accrued expenses on transactions with suppliers and other creditors.
    - Cash basis retained for other transactions.
    - Required actions: revise legal framework; define accounting policies and procedures; prepare a modified chart of accounts; strengthen internal control and financial reporting framework.
    - CGE changes: simplified and partial balance sheet and operating statement; description of accounting policies; basic notes and disclosures.
    - Extensive focus on capacity building of government accountants and auditors (including the IGF and TA).
  - Step 2 (2020-22):
    - Additional stocks: financial instruments other than debt (including derivatives and loans); financial liabilities including employee post-employment benefits; fixed assets, including non-tax receivables.
    - Additional flows: accrued expenses on transactions with suppliers and other creditors; accrued non-tax revenue; valuation changes, depreciation and amortization of items in the balance sheet.
    - Cash base used for tax revenue.
    - Contingent liabilities recorded in notes to the financial accounts.
    - CGE to include: partial operating statement and balance sheet; cash flow statement; description of accounting policies; partial notes and disclosures.
    - Further reinforcement of staff capabilities.
  - Step 3 (2021-25):
    - Remaining categories recognized: tax receivables, intangible and fixed assets, and inventories.
    - All expenditures and revenues recognized at the time of the relevant economic transaction.
    - Government to present a complete set of financial statements: operating statement, balance sheet, cash flow statement, description of accounting policies, and a full set of notes and disclosures.
  - Note: These steps are based on J. Cavanagh, S. Flynn and D. Moretti, “Moving to Accrual Accounting for the Public Sector”, IMF Technical Notes and Manuals, forthcoming.

### Summary of recommendations (concise)
- The government should reconsider its planned AA implementation approach by carrying out a full review of practicalities, implications, and costs/benefits of options.
- The review should consider a more gradual, “stepping stone” approach that provides concrete benefits at each stage while avoiding unrealistic demands on Mozambique’s financial management system.
- A first phase should codify existing accounting standards and improve financial statement formats as part of the initial reform phase.
- AA should be treated as a long-term development, carefully sequenced to ensure optimal benefits, with particular attention to capacity building, change management, business processes, IT systems, and transitional simplified accounting policies where needed.
- In the next two years, focus should be on improving reliability, timeliness, coverage, and quality of financial information in the CGE, and improving reporting of state-owned corporations.

*Source: Excerpt from IMF advisory report (section 7 and Annex 6 as provided).*

### 8.      In the medium term, an FRS for Mozambique could include the elements

### 8.      In the medium term, an FRS for Mozambique could include the elements

### C. Recommendations
- With the support of the IMF and other development partners, define the institutional arrangements and develop capacities to strengthen fiscal risk management; design a sequenced roadmap to disclose fiscal risks and their mitigation strategy;
- Include in the MTEF a “summarized risks assessment” based on available information as of the preparation of FY 2015 budget;
- Develop a full FRS for the FY 2016 budget.

### Box 5. A Fiscal Risks Statement for Mozambique — Core Elements
- General statement of the government on its objectives in publishing information on fiscal risks and its risk management strategy
- Framework for Risks Management
  - Legal framework
  - Risks management objectives
  - Scope of risks management: institutional coverage and categories of risks
  - Institutional arrangements, roles and responsibilities
- Macroeconomic Risks and Budget Sensitivity
  - Discussion of the macroeconomic forecasting record in recent years, comparing the assumptions used in budget forecasts against actual outcomes.
  - Sensitivity of aggregate revenues and expenditures to variations in the key economic assumptions on which the budget is based with explanation of underlying mechanisms.
  - Analysis of the variance of budgets versus outturns in recent years.
- Hydrocarbon and natural resource
  - Estimated volume and value of natural resource, as well as government’s interest and ongoing exploitation;
  - Impact of price volatility on revenues. Fiscal rules implemented to manage revenue from natural resources.
- Public Debt
  - Sensitivity of public debt levels and debt servicing costs to variations in assumptions, e.g., on interest rates. A summary of the government’s debt management strategy and its impact on the government’s risk exposure.
- Government lending programs
  - Policy and institutional framework for government lending, including subsidized lending: projected inflows, outflows, and balances; disposition of loan repayments, monitoring arrangements.
- Civil service pension liabilities
  - Level of the government’s liabilities, and its approach to managing costs and risks in the scheme.
- Fiscal incentives and tax expenditures
  - Description of main incentive schemes with estimates of foregone revenues; evidence of cost effectiveness.
- Contingent Liabilities
  - Guarantees: Government’s gross exposure to guarantees. Rationale and criteria for the provision of guarantees, recent experience of non-repayment of guaranteed loans; description of any guarantees fund.
  - Public Private Partnerships: Summary of the PPP program and its relationship to the public investment program; policy framework and rationale for PPPs.
    - Cumulative overall multiyear obligations from government’s current PPP program.
    - Discussion of additional announced PPP contracts under active consideration.
    - Gross exposure from guarantees and other contingent liabilities in PPP contracts.
  - Other contingent liabilities: This might include a short discussion of fiscal risks from natural disasters, and legal action against the federal government, and how these are managed.
- State-Owned Enterprises
  - Policy framework for SOEs (pricing policy, dividend policy, noncommercial obligations).
  - Financial performance and position of the SOE sector and the largest SOEs.
  - Financial performance and position of state-owned financial institutions.
- Local governments
  - Legal framework for intergovernmental fiscal relations, and summary of recent local government financial performance and financial position.
- INSS
  - Legal framework for fiscal relations with the INSS, and summary of recent INSS financial performance and financial position.
- Financial Sector
  - Deposit insurance scheme, prudential regulation.

### ANNEX 7: ENHANCING CAPACITY AND SUSTAINABILITY — Present Situation
- PFM expertise is distributed unequally in the public administration. While senior staff in the MoF and MPD are well trained and aware of advanced PFM concepts and the overall reform strategy, this is less the case with more junior staff. The knowledge of PFM processes in line ministries, provinces and districts is even more limited, with the exception perhaps of some of the larger ministries.
- Low capacity undermines the use of e-SISTAFE and makes the PFM system susceptible to personnel changes.
  - Deconcentrated financial administration and planning units have difficulties with most aspects of e-SISTAFE functionality.
  - Transaction recording and appropriate coding of expenditure information are seen as problematic.
  - Lack of capacity has impeded operationalization of the commitment control feature of e-SISTAFE.
  - Deconcentrated units reportedly mostly see e-SISTAFE as a payment window for budget expenditure.
  - Use of e-SISTAFE for policy planning and analysis is still limited, even within the MoF and MPD.
  - Some line ministries rely on their own systems for planning and policy purposes, often at the instigation of donors.
  - Staffing changes can severely impact low capacity financial management units, requiring in some cases substantial staff retraining complements.
  - The macroeconomic forecasting unit in the MPD is an example of a unit that has lost most of its technical capacity as a result of personnel changes.
- Existing training efforts are largely focused on the use of e-SISTAFE, mostly provided through CEDSIF, and the courses are not always attended by managers.
  - The MoF does not have a standard training curriculum for new staff, let alone for ministries and deconcentrated units.
  - CEDSIF provides substantial training, but it is very much centered on the roll-out and use of e-SISTAFE.
  - Senior line ministry staff does not always feel obliged to participate in training events.
  - The idea of establishing a dedicated training school, a Public Finance Academy, has been discussed but no decision has been taken.
- Institutional capacity is weak in line ministries and deconcentrated budget users, and in need of development to meet existing and new PFM challenges.
  - Existing focus on e-SISTAFE gives too little priority to staff training, development of new business processes, upgrading and maintenance of IT equipment, and change management support.
  - New institutional arrangements have to be established to build the MoF’s capability in emerging and evolving areas such as public investment management, the MTFF, program budgeting, and fiscal transparency and risk management.

### A. Capacity Building — Analysis
- Some countries have developed and maintained basic and advanced training curriculums for finance and planning staff in the public administration; Public Finance Schools/Institutes have been set up in several countries.
  - Success varies and is mostly linked to commitment of senior management.
  - Examples cited: Burkina Faso, Brazil and Cambodia among developing/emerging market economies; France, the Netherlands and Australia among advanced countries.
  - Important factors: keep the training institute part of the finance ministry and ensure trainers are enlisted from senior management; institutes linked to universities and/or general civil service training tend to be less successful.
  - Training curriculums provided only by international consultants tend to lack relevance for existing government procedures, systems and legal frameworks.
- To stimulate capacity building some countries have defined career streams for accounting, finance and planning staff.
  - Creating cadres of finance specialists can allow higher remuneration and enable the government to achieve and maintain high standards of expertise.
  - A variant: require institutional units within line ministries and deconcentrated units to achieve certain technical and capacity standards tested by the MoF; after “certification”, devolved units could be given greater autonomy in budget management.
- Ministries of Finance often underestimate the training effort needed to successfully implement PFM reforms.
  - Reforms need implementation with active participation of the whole government administration, multiplying training needs.
  - Training cannot be one-off; staff turnover and changing technologies/business processes require strong, continuous training.

### A. Capacity Building — Summary of Recommendations
- The authorities should proceed to develop a Public Finance Academy aimed at training both MoF and MPD staff, as well finance and planning staff of line ministries and deconcentrated units.
  - Development of the concept should be feasible within a six month period.
  - Implementation, which would certainly require donor support, could be done over a 2–4 year time horizon.
- Training efforts should be enhanced substantially and be seen as a recurring requirement, and should be focused both on the basic entrance level requirements of junior staff and more advanced training of mid-level staff members.
- To stimulate capacity building and ensure training obligations are met a combination of career stream rewards and accreditation requirements could be set as part of definition of a Finance and Planning career stream.

### B. Institutional Strengthening — Analysis
- Institutional structures have adapted to some extent to PFM reforms, but institutional strengthening overall seems to lag adopted reforms.
  - Strengthening of the Tribunal Administrativo (TA, the external audit institution) and the expansion of sectoral inspectorates evolving to accommodate internal audit requirements.
  - CEDSIF has played a major role in managing the overall reform process but its focus has been on IT development.
  - Capacity by line ministries and deconcentrated units to use e-SISTAFE fully is insufficient, reflecting lack of staff training and weaknesses of systems, equipment and maintenance.
- New challenges are arising with regard to reforms in areas such as the IIP, the MTFF, program budgeting, and fiscal transparency and risk management. The institutional framework for these tasks needs further development.
  - MoF and MPD are working together on IIP and MTEF, but cooperation could be further enhanced.
  - At the provincial and district levels the two functions have not been separated.
  - Implementation of reforms set out in the recent Fiscal Transparency Assessment will require institutional changes.

### B. Institutional Strengthening — Identified Needs
- Setting up a PFM Reform Coordination Unit to coordinate the overall reform process and support senior managers in MoF and MPD; the Unit would also have an important monitoring and communication role vis-a-vis the line ministries and others system users.
- Strengthening capacity and position of sectoral and decentralized DAFs/Planning Units to improve transaction recording and more fully use e-SISTAFE functionality.
  - Strengthening the legal and organizational autonomy of the DAF director in relation to the management of the line ministry or province.
- Linkage of IC agents to IGF/MoF/Internal Audit to benefit system integrity.
- Strengthening the policy focus of the MoF’s Budget Directorate and the DAFs as data collection through e-SISTAFE improves; program budgeting will add to the scope for expenditure analysis.
- Setting up a dedicated unit within Treasury for cash and debt management; cash and debt management can be separate units but would need to coordinate activities closely, including issuance and communications with the market and central bank.
- Immediate integration of the macro unit in the MPD and the fiscal unit in the Budget Directorate, with enhanced support from the BM, to strengthen modeling work for macro-fiscal projections and lay a stronger basis for preparing the MTFF and the annual budget.
- A new risk monitoring and management unit within the MoF to carry out an enhanced risk monitoring and reporting function as recommended in the FTA.
- Enhancing SOE oversight and reporting would require substantial strengthening of the IGEPE to allow improved supervision, and reporting enforcement. Reporting by IGEPE and Treasury on the overall public corporation sector (as defined internationally) will also require substantial capacity building.
- Supervision and monitoring of public-private partnerships will require upgrading the capacity of the MoF.

### C. Recommendation (Institutional Strengthening)
- The MoF should develop and implement a program of institutional strengthening based on the detailed proposals set out above.

*Source: 1mozea2023007 - 8.      In the medium term, an FRS for Mozambique could include the elements*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mozea2023007.pdf_