## Preface ## Source details **Canonical URL:** [Preface](https://www.imf.org/-/media/files/publications/cr/2023/english/1mozea2023010.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1mozea2023010.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1mozea2023010.pdf.json) --- ### Mission overview - A Fiscal Affairs Department (FAD) mission visited Maputo, Mozambique from April 20 to May 4, 2016, at the request of the Ministry of the Economy and Finance (MEF), to provide technical assistance on strengthening budgetary execution controls. - Mission team: FAD Chief Israel Fainboim, and IMF consultants Franselmo Costa, Mauro Fridman, and Francisco Moreno. - Principal interlocutors included MEF senior officials (Vice Minister Isaltina Lucas; Permanent Secretary Domingos Lambo), directors and deputies from planning, treasury, public accounts, national accounts, CEDSIF, AT, INSS, IGEPE, FIPAG, Bank of Mozambique, Administrative Tribunal, Ministry of Education and Human Development, and international partners supporting SISTAFE. ### Objectives and main goals of budget execution controls - Ensure fiscal targets are met. - Avoid overdue payments. - Prevent fraud and misappropriation of funds. ### Recent reforms and progress (2015–2016) - Defined budgetary execution phases, procedures, and required documents for each stage. - Developed the online State Financial Management System (e-SISTAFE). - Progress toward a Single Treasury Account (Conta Única do Tesouro – CUT), though coverage remains incomplete. - Segregation of functions for authorizing each expenditure stage. - Specific advances: - Launch of the e-tributação (e-taxation) project; new project implementer contract signed in April 2016 to develop data migration from the NUIT system and integrate e-taxation with commercial banks and revenue stages for income taxes (IR) and other taxes. - e-SISTAFE expansion: by March 31, 2016, 1,388 beneficiary executing units (Unidades Gestoras Beneficiárias – UGBs) (637 district, 584 provincial, 167 central) executing the State budget through e-SISTAFE. Target for end-2016: 1,652 UGBs corresponding to 84.0% of the total. Deconcentration expected to enable execution of 65.3% of total expenditure directly. - Wages and remunerations system: 292,028 government employees and agents (FAEs) registered in e-CAF by March 30, 2016; 285,265 processed through e-Folha online payroll and 6,763 through parallel systems; 291,629 paid directly (99.86% of FAEs in e-CAF), corresponding to 92.3% of the target of 315,699 FAEs by December 2016. - Proof of life biometric test in e-CAF covered 300,406 registered FAEs, equivalent to 99.7% of the 301,153 existing up to June 30, 2015. - Pension payments: collective payment function customized in the budget execution module (MEO) to pay creditors on a mass basis using a single administrative process in e-SISTAFE. - State property module (MPE): improvements to the Unified Register of Public Works Contractors, Goods Suppliers and Service Providers (CEF) and to the Goods and Services Catalogue (CBS) for life-cycle management of property items according to international standards. - Anti-fraud measures and procedures approved by Ministerial Decree (DM) No. 91/2015 of September 18, introducing new rules for submitting invoices and registering bank accounts in e-SISTAFE and consolidating systemic security processes. ### Main weaknesses identified in budgetary execution control - Overestimated revenue and underestimated expenditure in FY2015, partly due to failure to anticipate the economic slowdown during the year. - Incomplete coverage of the State budget: excludes some autonomous entities (particularly INSS), projects financed with external assistance, and part of internally generated funds of government entities. - Just under one quarter of public expenditure in the State budget executed through advances of funds (i.e., indirectly in e-SISTAFE), mostly related to pension payments. - Failure to implement the collection network, including the establishment of a single collection document to ensure transfer of taxpayer payments directly into the CUT and properly classified, preventing the DNT from implementing the financial program efficiently. - Absence of a legal definition of late payment and lack of periodic issuance of reports on payment arrears for entities both inside and outside e-SISTAFE. - Simultaneous or quasi-simultaneous recording of budget execution phases in e-SISTAFE by government personnel; appropriation process constrained by monthly financial quota set by the DNT for each UGB (divided by weeks) based on existing funds. This prevents full appropriation of pre-existing commitments in the fiscal year and hides liabilities from central agencies. - Financial programming instruments (Treasury Budget as commitment plan; Treasury Plan as cash plan) are not functioning as envisaged in the SISTAFE Regulatory Decree: they have a monthly horizon, are rigid, and in practice the cash plan acts as a rationing tool rather than reflecting cash flow dynamics. - CUT implemented in fragmented form with a large number of physical accounts in commercial banks and at the Bank of Mozambique; coverage incomplete as internal revenues, some external funds, and accounts used for advances of funds are excluded. - Failure to record in e-SISTAFE revenue-phase information that occurs in the AT and in main State entities managing earmarked and internally generated revenue, hindering forward-looking financial programming by the DNT. - Acquisitions and contracts are treated outside e-SISTAFE, preventing central agencies from having the information needed for public expenditure management. - Wage and salary management practices applied to FAEs should be extended to pensioners, irrespective of the eventual conceptualization of the pension system. ### Plan of Action for Improving Control of Budgetary Execution (2016–2017) — selected priority actions - A. Preparation of the budget - Use econometric techniques and other revenue projection methodologies to be applied in preparing the 2018 State budget proposal (Proposta do Orçamento do Estado – POE), distinguishing revenue projections made from the targets set. - Effectively implement the Special Financial Regime (Article 4 of the SISTAFE regulation) and its requirements for extending the coverage of the State budget to autonomous institutes and all entities that generate their own funds. - B. Control of budget execution - Adopt an annual commitment plan, with a quarterly breakdown, by source of funding and by aggregate expenditure group (second level of the economic expenditure classifier) (Article 80 of the SISTAFE Regulatory Decree). Implementation of two sectoral pilot schemes for 2016 and the whole of the State budget in 2017. - Establish an annual cash plan (rolling 12 months), with a monthly breakdown (pursuant to Article 81 of the SISTAFE Regulatory Decree). Implementation of two sectoral pilot schemes for 2016 and for the whole of the State budget in 2017. - Make revenue projection for financial programming the responsibility of the AT and entities with the largest internal revenues; expenditure programming for the same purpose should be the responsibility of all UGBs. - Create a Financial Programming Committee consisting of DNT, DNCP, DNPO and the Tax Authority (AT), with the BM as an invited guest; the committee should meet every week and discuss the cash plan prepared by the DNT for the following week and the rest of the month. - The Financial Programming Committee should review revenue projections for the year every month, based on information on amounts already collected. - Conduct an audit on overdue payments throughout the public sector under the auspices of the General Tax Inspectorate (IGF), to be delivered on June 30, 2016. - Prepare a plan for clearing the backlog of overdue payments, for June 2016. - Report on overdue payments every month. - Include in a higher level regulation the obligation to deliver the expenditure commitment note to the supplier. - C. CUT (Receipts and payments) - Develop and implement a plan to progressively increase the coverage of direct budgetary execution. - Publish information on the public sector’s physical bank accounts (and the balances thereof), both inside and outside the CUT, in the BM, and in the commercial banks; and prepare and implement a gradual plan for closing accounts outside the CUT. - D. Legal framework for the control of budget execution - Include a guideline in a Council of Ministers decree to ensure the appropriation covers the whole commitment for the fiscal year, considering the specifics of each aggregate expenditure group. --- ### Key macroeconomic and fiscal figures (exact) - 2015 State Budget Proposal estimated GDP growth of 8.5% for the year; the rate actually recorded was 6.3%. - Average inflation for 2015 was 3.5% (below the 5.1% forecast); cumulative inflation was 10.5%. - In 2015, revenue actually obtained from taxes on goods and services was 85% of the amount initially approved in the 2015 budget. - In 2015, earmarked revenue came in at 87.4% of the amount initially approved. - Execution of debt service in 2015 surpassed that initially projected in the budget by 9.5%. - Execution rate for investment in 2015 was 70.5%; external component of investment execution was 42%. ### Final note on Preface - Preface and Executive Summary, IMF Fiscal Affairs Department technical assistance mission report on strengthening budgetary execution controls (mission dates: April 20 to May 4, 2016). --- ### 2. Define late payment in a Council of Ministers decree ### Core recommendation - Define the concept of late payment (payment arrears) in a Council of Ministers decree to establish legal clarity. - Harmonize inconsistencies between the SISTAFE Law, Law 15 of 2002 and Law 2 of 2006 in relation to the revenue phases, for the purpose of establishing a single collection network. ### Internal and external controls (findings and recommendations) - Circulate the opinion on the General State Account (Conta Geral do Estado – CGE) in time to correct deviations from execution in the State Budget Proposal. It is recommended that this be implemented for the 2017 CGE. ### Technological support of execution control (priorities and timelines) - Prioritize development and implementation of the e-taxation module in the collection network segment. - Recommend: pilot scheme in 2016, roll out for all revenues in 2017. - Prioritize development and implementation of the e-property module. - Recommend: pilot scheme in 2017, coverage for all UGBs as from the 2018 State budget. - Prioritize development and implementation of the pensions management module. - Recommend: pilot scheme in 2017, coverage of the entire State budget as from the 2018. ### Training (priorities) - Continue the training for revenue projections that began in 2016, including training on econometric models. - Develop training in public accounts, public finance, econometrics, cash flow management and logistics (procurement, contracts, stock control). ### Budget preparation (diagnostic findings) - Optimistic revenue projections and pessimistic expenditure forecasts when preparing the budget can lead to payment arrears. - Prudent budgeting requires political commitment and technical capacity; staff need tools and knowledge to prepare fiscal projections consistent with macroeconomic scenarios. - Projecting revenue and expenditure is a relatively recent activity in Mozambique and is being strengthened but remains based on primary criteria and instruments and Excel-based work. - Revenue projection practices: - The AT bases its revenue projection on the values observed over the last five years and calculates a simple average adjusted according to macroeconomic parameters defined by the DEEF (GDP and inflation) and the estimated tax impact of new firms entering the market. - Macroeconomic parameters are discussed with the Statistics Institute, but not with the Bank of Mozambique. - Projections prepared by the AT are reviewed by the MEF and adjusted according to the targets defined in the government’s current five-year program. - Internally generated revenues are estimated from projections prepared by the entities in question and compared with revenues collected in recent years. - Expenditure projection practices: - Goods and services projections take into account expenditure executed in previous years and the inflation parameter. - Wages and salaries projection uses previous-year government employee data from e-CAF, adjusted for expected inflation and a delta for productivity growth; a proof of life exercise at end-2015 verified existence of registered employees. - Pensions projections use inflation parameters, previous-year pensioner information, and projected increases in pensioner numbers; a proof of life exercise for pensioners planned for 2016. - Investment projections account for external financing forecasts and entity forecasts during medium-term fiscal scenario work. ### Controls on budgetary and financial execution (legal points) - Adequate control requires clear definition of all execution stages and timely registration. - Budget execution stages are defined in the SISTAFE Law, annual decrees of responsibilities, annual circulars issued by the MEF, and specific manuals (e-SISTAFE– MEO budget preparation manual and the financial management and accounting procedures manual – MAF). - Article 30 of Law 9 of February 12, 2002 defines key budget concepts; budget expenditure execution in e-SISTAFE begins with appropriation and ends with payment. - Stages defined: Appropriation; Settlement; Payment. - No legal instrument defining the concept of payment in arrears in Mozambique; MEF Circular No. 4 of 2015 (Article 12, 3) defines the deadline for the payment of expenses as 10 working days after settlement has been approved. - Recommendation highlights: - Formalize discussion with the Bank of Mozambique on the macroeconomic parameters defined by the MEF. - Explicitly define the exchange rate along with other relevant macroeconomic parameters in the discourse and documents presenting the State budget. - Continue training of AT and DEEF staff in revenue projection and econometrics (2016 and 2017). - Prepare revenue projections for the 2018 budget based on new econometric models and tools, with details by item and type of taxpayer. - Distinguish revenue projections from revenue targets. - Use the contingency reserve (“provisional allocation”) to cover increases in debt service caused by an unexpected devaluation of the metical against other currencies. - Make an inventory of all existing autonomous institutes and incorporate into the State budget those that do not yet form part of it. - Include the INSS in the State budget. - Return to the rule whereby an entity can record in its budget internal revenues exceeding those initially projected in the budget. --- ### 17. Adequate registration is needed of all stages of expenditure execution ### Definition and purpose of appropriation - Appropriation: initial phase when a request based on an allocation can be recognized. - Two purposes: - (i) defines the legal commitment assumed; and - (ii) records the expense for subsequent settlement. - Appropriation definitions by expenditure type: - Payroll expenses and social contributions: appropriation corresponds to the amount of the compensations, subsidies and contributions owed. - Goods and services: appropriation generally corresponds to the legal commitment that consists in making an order or awarding a contract; in special cases appropriation may correspond to commitments and appropriation and settlement can be simultaneous for necessary expenses and small-scale/low-cost procurements. - Debt service: appropriation for the period should correspond to the debt service pertaining to that same period. - Transfers: appropriation meaning depends on nature of transfer. - Investment expenses: preference to use goods and services definition—appropriation should correspond to the contract; monitor multiyear commitments separately. ### Controls, registration gaps, and institutional practice - Rigorous legal, procedural, and documentary controls needed for each stage; controls legally and documentarily adequate, but UGB civil servants lack clarity on usefulness of each budgetary phase. - TA analyses and authorizes contracting within 45 days (outside e-SISTAFE); if not analyzed in 45 days, contracting is tacitly accepted. - Preparatory procurement processes not registered in e-SISTAFE; contracting, appropriation, settlement, and payment entries occur in e-SISTAFE. - No legislation specifies how to record multiyear commitments, particularly for investment expenses. ### Human resources, payroll, and pensions - Execution of payroll expenditure (except armed forces and military police) requires the NUIT to be included in e-CAF; inclusion in e-Folha requires TA pre-approval. - Payments for armed forces and military police are executed outside SISTAFE. - Pensioner payments control is fragile and largely indirect in e-SISTAFE: - Roughly 156,000 pensioners represent nearly 50% of the payroll. - Collective payment function in the Budget Execution Module (MEO) enables mass payments and improves control. - Electronic control of pensioner registration and payment is under development in e-Folha modules. ### Segregation of functions, monitoring, and arrears reporting - Good practices: segregation between control, appropriation, settlement, and payment actions among different personnel. - Expenses payable report generated by e-SISTAFE provides details but: - Prepared and published annually—insufficient for timely monitoring. - Expenses payable are not identical to payments in arrears. - Does not systematically record arrears generated outside e-SISTAFE, VAT reimbursements, and overtime payments. - Lacks systematic arrears classification fields (age, currency, contractual clauses, risks). ### Payment timeliness benchmark (Directive 2011/7/EU) - Payment deadlines established: - 30 days following the date of receipt by the debtor of the invoice or equivalent request for payment. - Extensions up to 60 days if expressly agreed and duly justified. - Where interest for late payment becomes payable, creditor entitled at minimum to a fixed sum of EUR 40 to compensate expenses. ### Commitment plans, cash planning, and monthly programming issues - DNT restricts appropriations to funding authorized for the month, preventing appropriations in e-SISTAFE for already-assumed State commitments with available budgetary allocation. - Annual programming of expenses for appropriation and payment schedules are not recorded in e-SISTAFE. - Current monthly financial limits are not cumulative; new limits each month ignore unused prior-month balances, creating incentives to use unspent balances quickly and impair planning. ### Recommended appropriation control system elements - Sector ministries submit quarterly expense plans with projected monthly cash needs; Ministry of Finance sets quarterly expenditure limits and projected monthly release amounts before each quarter. - Sector ministries must: - Limit appropriations to quarterly expenditure ceiling and keep programmed payments within monthly amounts. - Prepare monthly reports on outstanding appropriations and invoices payable. - Appoint a staff member responsible for appropriation control. - Detailed procedures to define approval of appropriation, payment, and accounting control; appropriation controller ensures appropriations consistent with quarterly ceilings without incurring arrears. ### Recent financing pressure indicators - The overall balance of 90-day T-bills issued for fiscal policy grew systematically since June 2015, with nearly MT 15 billion in T-bills issued in February 2016 alone. --- ### 41. Financial programming: instruments, conditions, and recommendations ### Financial programming instruments and conditions - Two instruments: the cash budget and the cash plan, both to reflect rolling 12-month periods and include procurements, contracts and projections of ongoing expenses. - Outturn of the cash budget defines appropriation limits per UGB, distributed on a quarterly basis, by funding source and aggregate expenditure group. - Outturn of the cash plan is distributed monthly, by week, by FR, and by aggregate expenditure group, to ensure timely payment of settled expenses. - Conditions for good programming include: - All UGBs must be in the CUT and must not have bank accounts outside the CUT. - Review collection network so AT systems and systems that manage internally generated and earmarked revenues adopt a single collection document (DUC) to replace Modelo 51. - DUC should use the bank collection system to ensure revenue classification on payment. - CUT must be the only depository of revenue; no transition accounts in commercial banks or in the Bank of Mozambique. - Adjustments of gross versus net revenue (tax reimbursements) should remain in the CUT pending AT legal basis. - Until accrual-based account-keeping is in place, manage revenue programming through a financial programming committee including AT, Treasury, and key entities. - Financial Programming Committee to meet every week to evaluate programming of revenue collection, and every quarter to review revenue projection. - Revenue and expenditure programming can be recorded in e-SISTAFE as financial programming transactions. - Financial programming should be structured over a 12-month rolling horizon to determine issuance needs and define new government finance management model (distribution of appropriation limits – LMC – consistent with cash plan). - An UGB can only make an appropriation if it has a balance in its accounts in terms of the available allocation and appropriation limit (LMC). ### Recommendations (financial programming) - Adopt a quarterly cash budget for the entire year, differentiating by aggregate expenditure group (second level of the economic expense classifier) based on up-to-date and realistic projections (Articles 80 and 81 of the SISTAFE Regulatory Decree). - Improve monthly cash planning, establishing it for rolling 12-month periods. - Unused financial balances from a given month should be available in subsequent months’ cash plans. - Monthly programming for revenue management should apply to AT and entities with the largest internally generated income; expenditure programming should involve all UGBs (or the largest ones). - Create a financial programming committee consisting of the DNT, DNPO, DNCP, and Debt Division, with the Bank of Mozambique as an invited guest; committee should meet weekly and present plans for the ensuing weeks up to the end of the month and the following month. - Include a higher legal status regulation obliging delivery of the commitment note from e-SISTAFE to the supplier. - Decentralize financial programming through intermediate treasury units to facilitate distribution of financial quotas among sectoral UGBs. - Review the revenue projection for the year every month, based on amounts collected and more reliable prediction models. - Publish the Payment Arrears Report every month and use it as a permanent monitoring mechanism. - Task the General Tax Inspectorate with performing audit of payment arrears for the entire public sector, and record arrears generated in SISTAFE (including overtime payment arrears, VAT reimbursements, arrears in provinces and districts, and all other arrears generated in and outside e-SISTAFE). - Define an arrears management plan that includes scheduling of payment arrears with explicit payment prioritization criteria. ### Procedural guidance for appropriations by expenditure type (Table 9 summary) - Payroll, pensions, debt, and previous fiscal years: - How/when to appropriate: Comprehensive appropriation for amounts forecast for the year, according to commitments already assumed and with budgetary allocation available. - When to settle: Settle month by month, as expenses become ready for payment. - Goods and ongoing services: - How/when to appropriate: Comprehensive appropriation for amounts forecast for the year, according to commitments already assumed and available budgetary allocation. - When to settle: Settle as invoices for services are presented. - Goods and services (except ongoing services) and investment, including works: - How/when to appropriate: Appropriation at time of contract signing; quarterly schedule to guarantee liquidity. - When to settle: Settle when proof of delivery is presented. - Current and capital transfers and subsidies: - How/when to appropriate: Appropriation according to schedules defined and available budgetary allocation. - When to settle: Settle when execution conditions have been met. ### CUT coverage: diagnostic assessment and empirical figures - Budgetary expenditure still made through bank accounts outside the CUT; up-to-date information on number of accounts outside the CUT unavailable. - Priority: revenue and expenditure accounts must be opened at the Bank of Mozambique, except for accounts to pay wages and those used to receive student fees. - CUT has facility allowing deposits in foreign currency (CUT-ME); limited use in 2015 suggests donors continue to execute expenses off CUT and off Budget. - Large portion of domestic component executed through advances of funds, indirectly in e-SISTAFE. In 2015, 27% of the domestic component was executed through advances of funds, outside e-SISTAFE; includes payroll and pensioner expenses in proportions of 25% and 99%, respectively. - Empirical figures (selected): - Table 11 – Year-end cash balance (MT million): - CUT: 13,618 (2013); 10,635 (2014); ND (2015) - Receiving accounts: 4,063 (2013); 6,867 (2014); ND (2015) - Other Treasury accounts: 7,289 (2013); 7,699 (2014); ND (2015) - Other State accounts: 45,075 (2013); 46,321 (2014); ND (2015) - Total: 70,045 (2013); 71,522 (2014); ND (2015) - Table 13 – Amounts appropriated in 2015 from the domestic component (MT million): - Economic nature: Indirectly 40,433 (27%); Directly 109,512 (73%); Total 149,946 - Personnel: Indirectly 17,178 (25%); Directly 52,458 (75%); Total 69,636 - Goods and services: Indirectly 2,849 (11%); Directly 22,661 (89%); Total 25,509 - Debt service: Indirectly 3,445 (45%); Directly 4,132 (55%); Total 7,577 - Current transfers, except pensions: Indirectly 3,673 (39%); Directly 5,808 (61%); Total 9,481 - Civil and military pensions: Indirectly 10,878 (99%); Directly 119 (1%); Total 10,997 - Subsidies: Indirectly 0 (0%); Directly 2,213 (100%); Total 2,213 - Previous fiscal years: Indirectly 114 (70%); Directly 49 (30%); Total 162 - Other current expenses: Indirectly 156 (21%); Directly 590 (79%); Total 746 - Capital goods: Indirectly 1,818 (9%); Directly 17,761 (91%); Total 19,579 - Capital transfers: Indirectly 322 (8%); Directly 3,723 (92%); Total 4,045 - Table 14 – Budgetary coverage and CUT coverage (selected indicators): - % of expenditure executed directly through the CUT: 11.49 (2007); 23.61 (2008); 31.40 (2009); 37.55 (2010); 42.22 (2011); 52.58 (2012); 58.61 (2013); 67.83 (2014); 74.73 (2015) - No. that complete e-SISTAFE rollout: 245 (2007); 301 (2008); 320 (2009); 438 (2010); 504 (2011); 620 (2012); 677 (2013); 1.124 (2014); 1.305 (2015) - No. of active users in e-SISTAFE: 4,463 (2007); 4,074 (2008); 4,173 (2009); 6,478 (2010); 10,004 (2011); 14836 (2012); 18,606 (2013); 38,556 (2014); 46,091 (2015) - % of wages executed directly: 2.73 (2007); 2.75 (2008); 3.47 (2009); 8.60 (2010); 15.77 (2011); 20.6 (2012); 38.47 (2013); 64.77 (2014); 81.13 (2015) - % of pensions executed directly: 0 (2007); 0.88 (2008); 0.30 (2009); 0.30 (2010); 0.29 (2011); Central level: Civil: 2.22. Military: 0.09 (2012); Central level: Civil: 2.09 Military: 0.13 (2013); Central level: Civil: 2.27 Military: 0.18 (2014); Central level: Civil: 3.19 Military: 0.17 (2015) ### CUT recommendations - Develop and implement a plan to steadily increase the coverage of direct budgetary execution until full budgetary execution through this channel is attained. - Publish quarterly data on the physical bank accounts held by the public sector and their balances in and outside the CUT, and within the Bank of Mozambique. - Prepare and implement a gradual account closure plan. ### Internal and external controls: diagnostic assessment and recommendations - IGF and Administrative Tribunal have access to e-SISTAFE for inspections and audits; IGF defining conceptual model of SISTAFE internal control subsystem (SCI). - Need to improve internal control instruments for identifying bank accounts outside the CUT and financial movements between these accounts and the CUT. - Recommendations: - Release the opinion on the General State Account in time for divergences in execution in the POE to be addressed. - Develop new internal control transactions in e-SISTAFE for agents responsible for internal control in e-CAF, e-Folha, and e-Património systems and for management of bank accounts outside the CUT. ### Information and communication technology (ICT) assessment - e-SISTAFE is robust, SOA-based, modular, and interoperable; conceptual model supports integrated GFP functional components. - CEDSIF coordinates conceptual model evolution; organizational improvements and mandate clarified. - Communications network architecture is private and costly; migration to Internet under consideration to reduce operating costs while meeting reliability and security requirements. - Fragilities: coverage of banking services makes staff payment process fragile; proof of life for pensioners in preparation; pension payment security contingent on full implementation. --- ### 56. The functional and territorial coverage of e-SISTAFE is evolving ### Functional and territorial coverage — summary findings - e-SISTAFE supports budget, financial and property execution in 1,388 UGBs (637 district, 584 provincial, 167 central). - Rollout contributed to evolution of State budget execution indirectly towards direct channel: - Execution level in March 2016: 65.3 percent (target of 74% for the end of 2016). - Historical rates: 42% in 2011 and 52.6% in 2012. - Implementation highlights: - 1,305 UGBs decentralized out of a total of 1,525 UGBs. - Direct expense execution 74.73% of total expenditure realized. ### Status of key e-SISTAFE modules and territorial rollout - Budget preparation module (MEO): - Conceptual model prepared; all UGBs use the MEO to prepare the budget. - Budget execution module: - Improvements foreseen; MPE and e-taxation under development. - Information management module: - Conceptual model of the internal control subsystem prepared and approved; SCI development begun. - State property management module: - Conceptual model prepared and approved; development of CBS and CEF; initial usage by DNPE. - Wages and pensions management module (e-CAF and e-Folha; SIGRH): - Development and decentralization ongoing; SNGRH conceptual model prepared. - Key statistics: - Total of 315,699 FAE registered in e-CAF. - Payment of wages and salaries directly to 286,781 FAE (90.84%), with 279,334 processed through e-Folha (88.48%). - 296,783 proofs of life, corresponding to 98.5% dos 301,153 existing up to 30 June 2015 in e-CAF. - Public debt management module: - No development. - Collection network / e-taxation module: - Conceptual model prepared and approved; NUIT functioning in 101 localities; VAT, ISPC and common processes functioning in 26 localities. - Developed functionalities include settlement management, current account management, GARE management, management of interest and fines, VAT reimbursements management, litigation management, income accounting management, and tax enforcement management. ### Operational issues and observations - Wages and pensions: nearly all wages and pensions now paid through e-SISTAFE, but some institutions outside e-Folha; armed forces and police not in e-CAF. - Teachers: bank service access issues force travel costs or reliance on colleagues to collect wages. - Collection network and legal harmonization: - SISTAFE Law/regulation define three revenue phases; tax laws define two phases and use Form 51, preventing establishment of collection network specified in SISTAFE regulation. - Single collection document (GARE) pilot envisaged for payment and banking system. - Technology and architecture: - e-SISTAFE platform SOA-based; MEX module supports accounting and expansion to accrual-adjusted cash accounting. - Migration of communications network from private architecture to Internet being considered to reduce costs. - Fragilities: banking service coverage, pending proof of life for pensioners, and gaps in full system adoption. ### Recommendations from the e-SISTAFE section - Prioritize development and implementation of e-taxation modules for the collection network, e-pensions, and e-property. - Strengthen the SISTAFE reform management model with greater empowerment for MEF. ### Legal framework and human resources - Legal obligations to prepare annual commitment program aligned with cash plan are not adequately used; execution control horizon is one month in practice. - No definition of payments in arrears exists in SISTAFE Law or its regulation; MEF Circular sets 10 working days after settlement as payment deadline. - Recommendations for legal framework (Council of Ministers decree or higher): - Define timing and amounts for recording execution phases by economic nature. - Prepare annual commitment program aligned with cash and procurement plans; divide into quarters and implement with monthly payment quotas. - Include definition of late payments, obligation to pay interest on delayed liabilities, payment of fixed sum for other costs; use 2011 EU Directive as reference. - Include time limits between invoice submission and verification; require monthly monitoring and report on payment arrears; include quantitative information on commitments, settlements, and payments in quarterly budget execution reports. - Human resource constraints and recommendations: - Shortage of skilled GFP human resources and ICT-qualified human resources in CEDSIF. - Skills retention strategy needed; prioritize GFP functional skills: public accounting on an accruals basis, public finance, econometrics, cash flow management, logistics (procurements, contracts, stock control), and UML artefact development capacities. --- *Source: 1mozea2023010* ### Preface ................................................................................................................ ### Preface ### Mission overview - A Fiscal Affairs Department (FAD) mission visited Maputo, Mozambique from April 20 to May 4, 2016, at the request of the Ministry of the Economy and Finance (MEF), to provide technical assistance on strengthening budgetary execution controls. - Mission team: FAD Chief Israel Fainboim, and IMF consultants Franselmo Costa, Mauro Fridman, and Francisco Moreno. - Principal interlocutors included MEF senior officials (Vice Minister Isaltina Lucas; Permanent Secretary Domingos Lambo), directors and deputies from planning, treasury, public accounts, national accounts, CEDSIF, AT, INSS, IGEPE, FIPAG, Bank of Mozambique, Administrative Tribunal, Ministry of Education and Human Development, and international partners supporting SISTAFE. ### Objectives and main goals of budget execution controls - Ensure fiscal targets are met. - Avoid overdue payments. - Prevent fraud and misappropriation of funds. ### Recent reforms and progress (2015–2016) - Defined budgetary execution phases, procedures, and required documents for each stage. - Developed the online State Financial Management System (e-SISTAFE). - Progress toward a Single Treasury Account (Conta Única do Tesouro – CUT), though coverage remains incomplete. - Segregation of functions for authorizing each expenditure stage. - Specific advances: - Launch of the e-tributação (e-taxation) project, with new project implementer contract signed in April 2016 to develop data migration from the NUIT system and integrate e-taxation with commercial banks and revenue stages for income taxes (IR) and other taxes. - e-SISTAFE expansion: by March 31, 2016, 1,388 beneficiary executing units (Unidades Gestoras Beneficiárias – UGBs) (637 district, 584 provincial, 167 central) executing the State budget through e-SISTAFE. Target for end-2016: 1,652 UGBs corresponding to 84.0% of the total. Deconcentration expected to enable execution of 65.3% of total expenditure directly. - Wages and remunerations system: 292,028 government employees and agents (FAEs) registered in e-CAF by March 30, 2016; 285,265 processed through e-Folha online payroll and 6,763 through parallel systems; 291,629 paid directly (99.86% of FAEs in e-CAF), corresponding to 92.3% of the target of 315,699 FAEs by December 2016. - Proof of life biometric test in e-CAF covered 300,406 registered FAEs, equivalent to 99.7% of the 301,153 existing up to June 30, 2015. - Pension payments: collective payment function customized in the budget execution module (MEO) to pay creditors on a mass basis using a single administrative process in e-SISTAFE. - State property module (MPE): improvements to the Unified Register of Public Works Contractors, Goods Suppliers and Service Providers (CEF) and to the Goods and Services Catalogue (CBS) for life-cycle management of property items according to international standards. - Anti-fraud measures and procedures approved by Ministerial Decree (DM) No. 91/2015 of September 18, introducing new rules for submitting invoices and registering bank accounts in e-SISTAFE and consolidating systemic security processes. ### Main weaknesses identified in budgetary execution control - Overestimated revenue and underestimated expenditure in FY2015, partly due to failure to anticipate the economic slowdown during the year. - Incomplete coverage of the State budget: excludes some autonomous entities (particularly INSS), projects financed with external assistance, and part of internally generated funds of government entities. - Just under one quarter of public expenditure in the State budget executed through advances of funds (i.e., indirectly in e-SISTAFE), mostly related to pension payments. - Failure to implement the collection network, including the establishment of a single collection document to ensure transfer of taxpayer payments directly into the CUT and properly classified, preventing the DNT from implementing the financial program efficiently. - Absence of a legal definition of late payment and lack of periodic issuance of reports on payment arrears for entities both inside and outside e-SISTAFE. - Simultaneous or quasi-simultaneous recording of budget execution phases in e-SISTAFE by government personnel; appropriation process constrained by monthly financial quota set by the DNT for each UGB (divided by weeks) based on existing funds. This prevents full appropriation of pre-existing commitments in the fiscal year and hides liabilities from central agencies. - Financial programming instruments (Treasury Budget as commitment plan; Treasury Plan as cash plan) are not functioning as envisaged in the SISTAFE Regulatory Decree: they have a monthly horizon, are rigid, and in practice the cash plan acts as a rationing tool rather than reflecting cash flow dynamics. - CUT implemented in fragmented form with a large number of physical accounts in commercial banks and at the Bank of Mozambique; coverage incomplete as internal revenues, some external funds, and accounts used for advances of funds are excluded. - Failure to record in e-SISTAFE revenue-phase information that occurs in the AT and in main State entities managing earmarked and internally generated revenue, hindering forward-looking financial programming by the DNT. - Acquisitions and contracts are treated outside e-SISTAFE, preventing central agencies from having the information needed for public expenditure management. - Wage and salary management practices applied to FAEs should be extended to pensioners, irrespective of the eventual conceptualization of the pension system. ### Plan of Action for Improving Control of Budgetary Execution (2016–2017) — selected priority actions A. Preparation of the budget - Use econometric techniques and other revenue projection methodologies to be applied in preparing the 2018 State budget proposal (Proposta do Orçamento do Estado – POE), distinguishing revenue projections made from the targets set. - Effectively implement the Special Financial Regime (Article 4 of the SISTAFE regulation) and its requirements for extending the coverage of the State budget to autonomous institutes and all entities that generate their own funds. B. Control of budget execution - Adopt an annual commitment plan, with a quarterly breakdown, by source of funding and by aggregate expenditure group (second level of the economic expenditure classifier) (Article 80 of the SISTAFE Regulatory Decree). Implementation of two sectoral pilot schemes for 2016 and the whole of the State budget in 2017. - Establish an annual cash plan (rolling 12 months), with a monthly breakdown (pursuant to Article 81 of the SISTAFE Regulatory Decree). Implementation of two sectoral pilot schemes for 2016 and for the whole of the State budget in 2017. - Make revenue projection for financial programming the responsibility of the AT and entities with the largest internal revenues; expenditure programming for the same purpose should be the responsibility of all UGBs. - Create a Financial Programming Committee consisting of DNT, DNCP, DNPO and the Tax Authority (AT), with the BM as an invited guest; the committee should meet every week and discuss the cash plan prepared by the DNT for the following week and the rest of the month. - The Financial Programming Committee should review revenue projections for the year every month, based on information on amounts already collected. - Conduct an audit on overdue payments throughout the public sector under the auspices of the General Tax Inspectorate (IGF), to be delivered on June 30, 2016. - Prepare a plan for clearing the backlog of overdue payments, for June 2016. - Report on overdue payments every month. - Include in a higher level regulation the obligation to deliver the expenditure commitment note to the supplier. C. CUT (Receipts and payments) - Develop and implement a plan to progressively increase the coverage of direct budgetary execution. - Publish information on the public sector’s physical bank accounts (and the balances thereof), both inside and outside the CUT, in the BM, and in the commercial banks; and prepare and implement a gradual plan for closing accounts outside the CUT. D. Legal framework for the control of budget execution - Include a guideline in a Council of Ministers decree to ensure the appropriation covers the whole commitment for the fiscal year, considering the specifics of each aggregate expenditure group. *Preface and Executive Summary, IMF Fiscal Affairs Department technical assistance mission report on strengthening budgetary execution controls (mission dates: April 20 to May 4, 2016).* ### 2. Define late payment in a Council of Ministers decree. ### 2. Define late payment in a Council of Ministers decree. ### Core recommendation - Define the concept of late payment (payment arrears) in a Council of Ministers decree to establish legal clarity. - Harmonize inconsistencies between the SISTAFE Law, Law 15 of 2002 and Law 2 of 2006 in relation to the revenue phases, for the purpose of establishing a single collection network. ### Internal and external controls (findings and recommendations) - Circulate the opinion on the General State Account (Conta Geral do Estado – CGE) in time to correct deviations from execution in the State Budget Proposal. It is recommended that this be implemented for the 2017 CGE. ### Technological support of execution control (priorities and timelines) - Prioritize development and implementation of the e-taxation module in the collection network segment. - Recommend: pilot scheme in 2016, roll out for all revenues in 2017. - Prioritize development and implementation of the e-property module. - Recommend: pilot scheme in 2017, coverage for all UGBs as from the 2018 State budget. - Prioritize development and implementation of the pensions management module. - Recommend: pilot scheme in 2017, coverage of the entire State budget as from the 2018. ### Training (priorities) - Continue the training for revenue projections that began in 2016, including training on econometric models. - Develop training in public accounts, public finance, econometrics, cash flow management and logistics (procurement, contracts, stock control). ### Budget preparation (diagnostic findings) - Optimistic revenue projections and pessimistic expenditure forecasts when preparing the budget can lead to payment arrears. - Prudent budgeting requires political commitment and technical capacity; staff need tools and knowledge to prepare fiscal projections consistent with macroeconomic scenarios. - Projecting revenue and expenditure is a relatively recent activity in Mozambique and is being strengthened but remains based on primary criteria and instruments and Excel-based work. - Revenue projection practices: - The AT bases its revenue projection on the values observed over the last five years and calculates a simple average adjusted according to macroeconomic parameters defined by the DEEF (GDP and inflation) and the estimated tax impact of new firms entering the market. - Macroeconomic parameters are discussed with the Statistics Institute, but not with the Bank of Mozambique. - Projections prepared by the AT are reviewed by the MEF and adjusted according to the targets defined in the government’s current five-year program. - Internally generated revenues are estimated from projections prepared by the entities in question and compared with revenues collected in recent years. - Expenditure projection practices: - Goods and services projections take into account expenditure executed in previous years and the inflation parameter. - Wages and salaries projection uses previous-year government employee data from e-CAF, adjusted for expected inflation and a delta for productivity growth; a proof of life exercise at end-2015 verified existence of registered employees. - Pensions projections use inflation parameters, previous-year pensioner information, and projected increases in pensioner numbers; a proof of life exercise for pensioners planned for 2016. - Investment projections account for external financing forecasts and entity forecasts during medium-term fiscal scenario work. ### Key macroeconomic and fiscal data (exact figures from the source) - 2015 State Budget Proposal estimated GDP growth of 8.5% for the year; the rate actually recorded was 6.3%. - Average inflation for 2015 was 3.5% (below the 5.1% forecast); cumulative inflation was 10.5%. - In 2015, revenue actually obtained from taxes on goods and services was 85% of the amount initially approved in the 2015 budget. - In 2015, earmarked revenue came in at 87.4% of the amount initially approved. - Execution of debt service in 2015 surpassed that initially projected in the budget by 9.5%. - Execution rate for investment in 2015 was 70.5%; external component of investment execution was 42%. ### Controls on budgetary and financial execution (diagnostic findings and legal points) - Adequate control requires clear definition of all execution stages and timely registration. - Budget execution stages are defined in the SISTAFE Law, annual decrees of responsibilities, annual circulars issued by the MEF, and specific manuals (e-SISTAFE– MEO budget preparation manual and the financial management and accounting procedures manual – MAF). - Article 30 of Law 9 of February 12, 2002 defines key budget concepts; budget expenditure execution in e-SISTAFE begins with appropriation and ends with payment. - Table of stages (as defined): Appropriation — Administrative act of verification, registration, and freezing of the amount of the expense to be assumed by the State; Settlement — Calculation of the amount to be effectively paid and issuance of the respective payment order; Payment — Delivery of the amount in money to the beneficiary of the expenditure document. - There is no legal instrument defining the concept of payment in arrears in Mozambique; the IMF GFSM defines arrears as amounts that are both unpaid and past the due date for payment, but Mozambican legal instruments are unclear on this concept. - MEF Circular No. 4 of 2015 (Article 12, 3) defines the deadline for the payment of expenses as 10 working days after settlement has been approved. ### Decree of responsibilities, cativos, and delegations (2016 specifics) - Decree delegating responsibilities published at the beginning of each year sets rules for budget execution, limits for earmarked reserves (cativos), and budget redistributions. - Summary of Decree 1/2016 of February 1 — compulsory freezing of reserves (cativos): - 15% of operating expenses that can be earmarked for wages and salaries and for transfers to families if necessary; and; - 10% of operating expenses, which can be earmarked for other personnel expenses, expenses on goods and services, other current expenses, capital expenditure, and for the domestic component of investments, if necessary. - Exemptions from reserves (cativos) include allocations financed from internally generated revenue and earmarked revenue, grants and external credits; budget allocations from certain local funds; allocations for debt service, current transfers, subsidies, and previous fiscal year; and government financial operations. - Budgetary redistributions permitted in 2016: six redistributions over the year, with three for operating expenses and three for the domestic component of investments. - Main delegations to the Minister supervising finance include release of obligatory cativos through justified request; coverage of the budget deficit, payments of public debt service, financing of emergency investment; redistribution between activities and projects and across levels. - Delegations to titleholders of other bodies include redistribution within aggregate expenditure groups and transfer of allocations between activities/projects in justified cases. ### Additional diagnostic observations on cativos and coverage - The cativo procedure can indicate prudent management but may stem from postponement of decisions from budget preparation to execution, causing concentration of payments late in the year and affecting expenditure planning and the role of the Assembly of the Republic. - A full-coverage budget facilitates control; exclusion of entities or items financed with public funds leads to inefficiencies. - Coverage issues: INSS is outside the budget perimeter; certain autonomous institutes, municipalities and enterprises are also outside; some State budget entities that receive and execute their own revenues stopped budgeting for those revenues a few years ago. - Recommendation to make an inventory of all existing autonomous institutes and incorporate into the State budget those not yet included; include the INSS in the State budget; return to the rule allowing entities to record in their budget internal revenues exceeding initial projections. ### Explicit recommendations (preserved verbatim where given) - Formalize discussion with the Bank of Mozambique on the macroeconomic parameters defined by the MEF. - Explicitly define the exchange rate along with other relevant macroeconomic parameters in the discourse and documents presenting the State budget. - Continue, in 2016 and 2017, the training of AT and DEEF staff for short- and medium-term revenue projection (including training in econometrics and other new forecasting methods) stressing hands-on methodologies. - Prepare revenue projections for the 2018 budget based on new econometric models and tools, with details by item and type of taxpayer. - Distinguish revenue projections from revenue targets. - Use the contingency reserve (“provisional allocation”) to cover increases in debt service caused by an unexpected devaluation of the metical against other currencies, among other unforeseen events. - Make an inventory of all existing autonomous institutes and incorporate into the State budget those that do not yet form part of it. - Include the INSS in the State budget. - Return to the rule whereby an entity can record in its budget internal revenues exceeding those initially projected in the budget. *Source: 1mozea2023010 - 2. Define late payment in a Council of Ministers decree.* ### 17. Adequate registration is needed of all stages of expenditure execution, particularly to avoid ### 17. Adequate registration is needed of all stages of expenditure execution, particularly to avoid the assumption of unplanned and unforeseen commitments in the State budget. ### Definition and purpose of appropriation - Appropriation corresponds to the initial phase of the expenditure cycle when a request based on an allocation can be recognized. - Appropriation has two purposes: - (i) it defines the legal commitment assumed; and - (ii) for budgetary purposes, it records the expense for subsequent settlement. - Appropriation definitions by expenditure type: - Payroll expenses and social contributions: appropriation corresponds to the amount of the compensations, subsidies and contributions owed. - Goods and services: appropriation generally corresponds to the legal commitment that consists in making an order or awarding a contract. In special cases appropriation may correspond to commitments; appropriation and settlement can be simultaneous for: - (i) necessary expenses such as consumption of public utility services and some expenses from medium- or long-term leasing contracts; and - (ii) convenience for small-scale expenses and low-cost procurements. - Debt service: appropriation for the period should correspond to the debt service pertaining to that same period. - Transfers: appropriation meaning depends on nature of transfer (e.g., scholarships: amount owed; transfers unrelated to contract/formal promise: stage when payment order is issued). - Investment expenses: preference to use goods and services definition—appropriation should correspond to the contract. For multiyear contracts monitor: - (i) the legal commitment (the contract), which could be multiyear; - (ii) the annual tranche of the legal commitment; and - (iii) expenses in the settlement phase (obligations resulting from execution of the legal commitment). - The mode of appropriation varies by economic classification and should be precisely indicated in financial regulations for each expenditure category. ### Controls, registration gaps, and institutional practice - Rigorous legal, procedural, and documentary controls are needed for each stage of the expenditure process, distinguished by expenditure type and aggregate. - Controls in Mozambique are legally and documentarily adequate, but UGB civil servants lack clarity on the usefulness of each budgetary phase. - Key procedural elements (as reflected in Table 7): - TA analyses and authorizes contracting within 45 days (outside e-SISTAFE); if not analyzed in 45 days, contracting is tacitly accepted. - Procurement preparatory steps are often outside e-SISTAFE; contracting, appropriation, settlement, and payment entries occur in e-SISTAFE. - Despite segregation of tasks between appropriation, settlement, and payment agents, these actions are usually executed sequentially on the same day (formalization in e-SISTAFE). - Preparatory processes for goods and services procurements are not registered in e-SISTAFE; procurement requests are filed at the Administrative Tribunal (TA) based on e-SISTAFE printed documents. - TA prior control required above a given threshold in meticais; for 2016 Annual Budget Law, procurements of goods and services and public works in excess of US$100,000 required prior TA approval. - No legislation specifies how to record multiyear commitments, particularly for investment expenses—necessitates close monitoring of multiyear legal commitments apart from annual appropriation and notification to the Ministry of Finance and recording in e-SISTAFE. ### Human resources, payroll, and pensions - Execution of payroll expenditure (except armed forces and military police) requires the NUIT to be included in e-CAF; inclusion in e-Folha requires TA pre-approval. - Payments for armed forces and military police are executed outside SISTAFE. - Control of pensioner payments is fragile and occurring indirectly in e-SISTAFE: - Roughly 156,000 pensioners represent nearly 50% of the payroll. - Payment by advances of funds is inefficient to avoid fraudulent payment claims. - Collective payment function customized in the Budget Execution Module (MEO) enables mass payments and improves control of budget execution. - Electronic control of pensioner registration and payment is under development in e-Folha modules. - All contracting of civil personnel must be pre-approved by the TA; inclusion in e-Folha is preceded by TA review and authorization. ### Segregation of functions, monitoring, and arrears reporting - Good practices recommend segregation of functions for budget execution and periodic reports on fiscal risks, including payments in arrears. - Each UGB should separate control, appropriation, settlement, and payment actions among different personnel. - In UGBs with limited capacity, stages may be concentrated in a single person using another person’s NUIT—highlighting need for training and functional strengthening. - Expenses payable report generated by e-SISTAFE provides for each expenditure payable: execution unit, beneficiary unit, source of funding, economic classifier, NUIT, amount registered (budgeted), financial resources requested, financial resources released, payments, cancellations, and amounts owed. - Limitations of the expenditures payable report for identifying arrears: - Prepared and published annually—insufficient for timely monitoring. - Expenses payable are not identical to payments in arrears; expenses payable could be partly or wholly paid by cash balances on December 31. - Does not systematically record arrears generated outside e-SISTAFE (provincial/district levels), VAT reimbursements, and overtime payments (significant in education sector). - Report lacks systematic arrears classification fields such as age, currency, specific contractual clauses and risks of nonpayment. ### Payment timeliness benchmark (Directive 2011/7/EU) — reference for commercial transactions - Payment deadlines established in the Directive: - 30 days following the date of receipt by the debtor of the invoice or an equivalent request for payment. - Where date of receipt of invoice is uncertain: 30 days after date of receipt of the goods or services. - Where debtor receives invoice earlier than goods or services: 30 days after date of receipt of goods or services. - Where contract specifies acceptance/verification procedure (not more than 30 days) and debtor receives invoice no later than final acceptance/verification date: 30 calendar days after that date. - Deadlines can be extended up to a maximum of 60 days if expressly agreed and duly justified. - Where interest for late payment becomes payable, creditor entitled at minimum to a fixed sum of EUR 40 to compensate expenses. ### Commitment plans, cash planning, and monthly programming issues - Use of a full-coverage commitment plan with at least an annual horizon is basic to prevent risks and prepare a cash plan aligned to government needs. - DNT restricts appropriations to the funding authorized for the month in question, preventing appropriations in e-SISTAFE for already-assumed State commitments with available budgetary allocation. - Annual programming of expenses for appropriation and respective payment schedules are not recorded in e-SISTAFE. - Monthly financial programming prevents appropriation from recording year commitments precisely; managers do not fully recognize appropriation as a control tool at the commitments stage. - e-SISTAFE allows for annual or longer horizon budget and cash planning, which is currently not utilized. - Essential to prepare a cash plan for at least 12 months ahead and to use inputs from main revenue collecting and executing entities; requires participation and collaboration of main agents. - Current commitment and cash plans are based on revenue target in approved budget and seasonal patterns from previous years; no systematic revenue review during execution—this can lead to obligations assumed without sufficient funds for settlement. - Using the cash plan as a monthly programming tool overloads the central treasury body managing over 1,000 UGBs; decentralization via intermediate treasury units is proposed so sectors distribute limits to UGBs and receive UGB cash plans. - Current financial programming: - Prepared only for the following month and divided into weekly batches. - Monthly cash plan distributed in e-SISTAFE by weeks according to prioritized expenditure types. - Prioritization of monthly payment schedule (Table 8): - 1st week: Expense allowances, goods and services, pensions, and social benefits - 2nd week: Wages - 3rd week: Wages - 4th week: Minor expenses - Monthly financial limits are not cumulative—new limits set each month ignore unused balances from previous month; can create a monthly race to use unspent balances and impair planning. ### Recommended appropriation control system elements - Each sector ministry sends the Ministry of Finance a quarterly expense plan with projected monthly cash needs; Ministry of Finance sets quarterly expenditure limits and projected monthly release amounts before each quarter. - Sector ministries must: - Limit appropriations to the quarterly expenditure ceiling and keep programmed payments within monthly amounts available. - Prepare monthly reports on outstanding appropriations and invoices payable and submit them to the Ministry of Finance. - Appoint a staff member responsible for appropriation control (normally financial auditor or accountant). - Detailed procedures must define approval of appropriation, payment, and accounting control; appropriation controller must ensure appropriations are consistent with quarterly ceilings—without incurring payment arrears. ### Recent financing pressure indicators - Slow growth cycle in 2015 and 2016 led to increased treasury bill issuance to cover budget expenses. - The overall balance of 90-day T-bills issued for fiscal policy grew systematically since June 2015, with nearly MT 15 billion in T-bills issued in February 2016 alone. *Source: 1mozea2023010 - 17. Adequate registration is needed of all stages of expenditure execution, particularly to avoid* ### 41. Apart from good projections and the support of a full-coverage CUT, good financial ### 41. Apart from good projections and the support of a full-coverage CUT, good financial ### Financial programming: instruments, conditions, and recommendations - Key instruments: - Financial programming consists of two instruments: the cash budget and the cash plan. - Both instruments should reflect rolling 12-month periods, containing a plan of procurements, contracts and projections of ongoing expenses. - The outturn of the cash budget defines appropriation limits per UGB, distributed on a quarterly basis, by funding source and aggregate expenditure group. - The outturn of the cash plan is distributed monthly, by week, by FR, and by aggregate expenditure group, to ensure timely payment of settled expenses. - Conditions for good financial programming: - All UGBs must be in the CUT and they must not have bank accounts outside the CUT; - Review the conceptual model of the collection network to ensure TA systems and systems that manage internally generated and earmarked revenues adopt a single collection document (DUC) to replace Modelo 51; - The DUC should use the bank collection system to ensure revenue classification from the moment of its payment; - The DUC must be issued by the revenue management system (e-taxation, temporary revenue collection system – SICR, single online window – JUE); - The CUT must be the only depository of revenue; there must be no transition accounts in commercial banks or in the Bank of Mozambique; - Adjustments of gross revenue versus net revenue, reflecting calculations of tax reimbursements owing to improper payment, should be provided for and not collected from the Treasury; they remain in the CUT for financial payment after the AT has found them to have the appropriate legal basis; - Until account-keeping of all revenue acts and facts is in accordance with the ISPAS (accruals-based accounting), it is advisable to manage revenue programming through a financial programming committee including AT (tax and customs), Treasury, and key entities that manage earmarked and internally generated revenues; - The Financial Programming Committee should meet every week to evaluate programming of revenue collection, and every quarter to review the revenue projection; - Revenue programming and programming of expenses to be appropriated and of expenditures payable can be recorded in e-SISTAFE as financial programming transactions; - Based on this cash flow, Treasury financial programming can be structured over a 12-month rolling horizon, and issuance needs determined; - Financial programming will define a new model of government finance management: budgetary execution control, distribution of appropriation limits (Limites para Cabimentar – LMC) reflecting the cash budget outturn, and financial quotas consistent with the cash plan outturn; - Quarterly limits (within the fiscal year) to be appropriated are controlled by specific accounts in the unified chart of accounts, with funding source and aggregate expenditure group as objects; - An UGB can only make an appropriation if it has a balance in its accounts in terms of the available allocation and appropriation limit (LMC); - Any appropriation made within the LMC can be settled in due time and will have a financial allocation available. - Recommendations (financial programming): - Adopt a quarterly cash budget for the entire year, differentiating by aggregate expenditure group (second level of the economic expense classifier) based on up-to-date and realistic projections (Articles 80 and 81 of the SISTAFE Regulatory Decree) (see Table 9). - Improve monthly cash planning, establishing it for rolling 12-month periods. Chart 3 sets out a proposal for preparing the cash plan. - Unused financial balances from a given month should be available in the subsequent months’ cash plans. - Monthly programming for revenue management should apply to the tax authority and the entities with the largest internally generated income, and the expenditure programming should involve all UGBs (or the largest ones). - Create a financial programming committee consisting of the DNT, DNPO, DNCP, and Debt Division, with the Bank of Mozambique as an invited guest. The committee should meet weekly, and present for discussion the plan for the ensuing weeks up to the end of the month and the following month. - Include a regulation of higher legal status for the obligation to deliver the commitment note from e-SISTAFE to the supplier, as a document required for contract signing. - Decentralize the financial programming through intermediate treasury units to facilitate the distribution of financial quotas among the sectoral UGBs. - Review the revenue projection for the year every month, based on amounts collected and more reliable prediction models. - Publish the Payment Arrears Report every month and use it as a permanent monitoring mechanism. - Task the General Tax Inspectorate with performing audit of payment arrears for the entire public sector, and record a report on arrears generated in SISTAFE (including overtime payment arrears, VAT reimbursements, arrears in provinces and districts, and all other arrears generated in and outside e-SISTAFE). - Define an arrears management plan that includes a scheduling of payment arrears with explicit payment prioritization criteria. - Table 9 – Appropriations programming by expenditure type (procedural guidance) - Payroll, pensions, debt, and previous fiscal years: - How and when to appropriate: Comprehensive appropriation for amounts forecast for the year, according to commitments already assumed and with budgetary allocation available. Reinforcements or cancellation of appropriation must be made as new commitments and facts are identified. - When to settle: Settle month by month, as the expenses for these items become ready for payment. - Goods and ongoing services: - How and when to appropriate: Comprehensive appropriation for amounts forecast for the year, according to commitments already assumed and the available budgetary allocation. - When to settle: Settle as the invoices for services provided are presented. - Goods and services, except for ongoing services, and investment, including works: - How and when to appropriate: Appropriation of expenses envisaged for the year, at the time of contract signing. The quarterly schedule allows for greater flexibility and must be prepared to guarantee liquidity for paying appropriated expenses. - When to settle: Settle when there is proof of delivery of the work or good or service, through the presentation of invoices or other evidentiary documents. - Current and capital transfers and subsidies: - How and when to appropriate: Appropriation according to the schedules defined for realizing these expenses and the available budgetary allocation. - When to settle: Settle when the execution conditions have been met. ### CUT coverage: diagnostic assessment, data, and recommendations - Diagnostic assessment: - Budgetary expenditure is still being made through bank accounts outside the CUT. It was impossible to obtain up-to-date information from the DNT on the number of bank accounts that are open outside the CUT (Table 10). - Opening of new accounts outside the CUT remains permitted, provided previously authorized by the sector supervisor and by the Ministry of Economy and Finance. - On a priority basis, revenue and expenditure accounts must be opened at the Bank of Mozambique, except for accounts to pay wages and those used to receive student fees. - The Single Treasury Account has a facility allowing for deposits in foreign currency (CUT-ME). Nonetheless, amounts executed in 2015 for the external component, in relation to budgetary forecasts, show limited use of CUT-ME, suggesting donors continue to execute expenses off CUT and off Budget. - A large portion of the domestic component in the CUT is executed through advances of funds, indirectly in e-SISTAFE. In 2015, 27% of the domestic component was executed through advances of funds, outside e-SISTAFE; this includes payroll and pensioner expenses in proportions of 25% and 99%, respectively (see Table 13). - Advance of funds systems generate idle balances and increase the government’s need to borrow to finance payments by certain agencies, while other agencies have surplus funds idle. Multiple bank accounts weaken reports and controls; the CUT aims to overcome those weaknesses. - Empirical figures and tables (as reported): - Table 11 – Year-end cash balance (MT million) - CUT: 13,618 (2013); 10,635 (2014); ND (2015) - Receiving accounts: 4,063 (2013); 6,867 (2014); ND (2015) - Other Treasury accounts: 7,289 (2013); 7,699 (2014); ND (2015) - Other State accounts: 45,075 (2013); 46,321 (2014); ND (2015) - Total: 70,045 (2013); 71,522 (2014); ND (2015) - Source: General State Account 2014, map I. - Table 13 – Amounts appropriated in 2015 from the domestic component (MT million) - Economic nature: Indirectly 40,433 (27%); Directly 109,512 (73%); Total 149,946 - Personnel: Indirectly 17,178 (25%); Directly 52,458 (75%); Total 69,636 - Goods and services: Indirectly 2,849 (11%); Directly 22,661 (89%); Total 25,509 - Debt service: Indirectly 3,445 (45%); Directly 4,132 (55%); Total 7,577 - Current transfers, except pensions: Indirectly 3,673 (39%); Directly 5,808 (61%); Total 9,481 - Civil and military pensions: Indirectly 10,878 (99%); Directly 119 (1%); Total 10,997 - Subsidies: Indirectly 0 (0%); Directly 2,213 (100%); Total 2,213 - Previous fiscal years: Indirectly 114 (70%); Directly 49 (30%); Total 162 - Other current expenses: Indirectly 156 (21%); Directly 590 (79%); Total 746 - Capital goods: Indirectly 1,818 (9%); Directly 17,761 (91%); Total 19,579 - Capital transfers: Indirectly 322 (8%); Directly 3,723 (92%); Total 4,045 - Source: e-SISTAFE report. - Table 14 – Budgetary coverage and CUT coverage (selected indicators) - % of expenditure executed directly through the CUT: 11.49 (2007); 23.61 (2008); 31.40 (2009); 37.55 (2010); 42.22 (2011); 52.58 (2012); 58.61 (2013); 67.83 (2014); 74.73 (2015) - No. that complete e-SISTAFE rollout: 245 (2007); 301 (2008); 320 (2009); 438 (2010); 504 (2011); 620 (2012); 677 (2013); 1.124 (2014); 1.305 (2015) - No. of active users in e-SISTAFE: 4,463 (2007); 4,074 (2008); 4,173 (2009); 6,478 (2010); 10,004 (2011); 14836 (2012); 18,606 (2013); 38,556 (2014); 46,091 (2015) - % of wages executed directly: 2.73 (2007); 2.75 (2008); 3.47 (2009); 8.60 (2010); 15.77 (2011); 20.6 (2012); 38.47 (2013); 64.77 (2014); 81.13 (2015) - % of pensions executed directly: 0 (2007); 0.88 (2008); 0.30 (2009); 0.30 (2010); 0.29 (2011); Central level: Civil: 2.22. Military: 0.09 (2012); Central level: Civil: 2.09 Military: 0.13 (2013); Central level: Civil: 2.27 Military: 0.18 (2014); Central level: Civil: 3.19 Military: 0.17 (2015) - Source: CEDSIF. - Recommendations (CUT coverage): - Develop and implement a plan to steadily increase the coverage of direct budgetary execution, until full budgetary execution through this channel is attained. - Publish quarterly data on the physical bank accounts held by the public sector and their balances in and outside the CUT, and within the Bank of Mozambique. - Prepare and implement a gradual account closure plan. ### Internal and external controls: diagnostic assessment and recommendations - Diagnostic assessment: - The IGF and Administrative Tribunal (Tribunal Administrativa – TA) have access to e-SISTAFE to prepare inspections, audits, and the General State Account; this benefits preparation of internal and external control actions. - The IGF is defining the conceptual model of the SISTAFE internal control subsystem (Subsistema de Controlo Interno – SCI). Transaction profiles are implemented in e-SISTAFE for internal control agents to ensure documentary and accounting conformity in each phase of expenditure execution through separation of functions. - Development of the SISTAFE SCI conceptual model will include conformity actions on wages, pensions, and works and services contracts; internal controls will be introduced in e-SISTAFE in the e-CAF and e-Folha modules, performing monthly random verifications of expenditures. - The TA opinion on the General State Account includes analysis on UGB management accounts, where divergences have been found in income and expenditure executed outside the State budget and CUT. This information is essential for IGF with NDCP and DNT to act with UGBs to record these revenues and expenditures in the State Budget Proposal (POE). Currently this is not happening, so the TA’s opinion will only be released once the POE has been finalized. - There is a need to improve internal control instruments for identifying bank accounts outside the CUT and the financial movements between these accounts and the CUT. The Bank of Mozambique does not have tools to supervise the opening of commercial bank accounts by government agencies. Internal control can be based on information recorded in e-SISTAFE (NUITs of organisations and authorizers and agents are known in the system). - Recommendations (internal and external controls): - Release the opinion on the General State Account in time for divergences in execution in the POE to be addressed. - Develop new internal control transactions in e-SISTAFE for the agent responsible for the internal control of conformities in the e-CAF, e-Folha, and online property management (e-Património) systems and for the management of bank accounts outside the CUT. ### Information and communication technology (ICT): diagnostic assessment - Diagnostic assessment: - e-SISTAFE is a robust information technology system evolving based on the accounting records of all government finance management events and facts. - Improvements to the recording of multiyear commitments and the evolution of financial programming are addressed within the scope of ICTs. - The SISTAFE conceptual model is the starting point for the integrated conceptualization of all SISTAFE functional components and provides conditions for functional specification of information systems. - The SISTAFE conceptual model has been a vehicle for discussing best GFP practices and integrating functional components of GFP (Treasury, budget, accounting, property, internal and external controls, and human resources). - The CEDSIF is tasked with coordinating the evolution of the conceptual model among areas supervising GFP functions in the MEF; the conceptual framework determines requirements for legal review, IT system specification, and human resource training. - Organizational improvement in CEDSIF to support the reform of SISTAFE is a fact (Decree Law amended in 2012; CEDSIF Organic Charter approved; internal regulation prepared and submitted). UTRAFE was abolished and CEDSIF takes on the role of the unit for the reform of SISTAFE. - The SISTAFE reform management model requires greater participation from the highest levels of the MEF in taking decisions needed for the reform. *Source: 1mozea2023010 - 41. Apart from good projections and the support of a full-coverage CUT, good financial (PDF chapter/section).* ### 56. The functional and territorial coverage of e-SISTAFE is evolving in response to its ### The functional and territorial coverage of e-SISTAFE is evolving in response to its conceptual model ### Functional and territorial coverage — summary findings - e-SISTAFE supports budget, financial and property execution in 1,388 UGBs (637 at the district level, 584 in the 11 provinces, and 167 at the central level). - Rollout contributed to evolution of State budget execution indirectly towards the direct channel: - Execution level in March 2016: 65.3 percent (target of 74% for the end of 2016). - Historical rates: 42% in 2011 and 52.6% in 2012. - Table-level implementation highlights: - 1,305 UGBs decentralized out of a total of 1,525 UGBs. - Direct expense execution 74.73% of total expenditure realized. ### Status of key e-SISTAFE modules and territorial rollout - Budget preparation module (MEO) - Functional status: Conceptual model prepared and in internal discussion; all UGBs use the MEO to prepare the budget. - Territorial: Central, Provincial, District - all UGBs use MEO; in 2014 district services were turned into UGB. - Budget execution module - Functional status: Improvements foreseen; MPE and e-taxation under development. - Territorial rollout counts shown as: 165 UGBs decentralized; 560 UGBs decentralized; 580 UGBs decentralized (table entries reflecting stages). - Information management module - Functional status: Conceptual model of the internal control subsystem prepared and approved; actions begun for development of SCI functions. - State property management module - Functional status: Conceptual model prepared and approved; development of goods and services cadaster (CBS); Unified Register of Public Works Contractors and Goods Suppliers and Service Providers (CEF); business model for direct incorporation of property prepared. - Territorial: CBS and CEF are being used by the National State Property Department (DNPE) in an initial phase. - Wages and pensions management module (e-CAF and e-Folha; SIGRH) - Functional status: Development and decentralization of e-CAF and e-Folha; conceptual model of the National Human Resource Management System (SNGRH) prepared and being approved; start of development of the SNGRH; proof of life of pensioners in preparation. - Key statistics: - Total of 315,699 FAE registered in e-CAF. - Payment of wages and salaries directly to 286,781 FAE (90.84%), with 279,334 processed through e-Folha (88.48%). - 296,783 proofs of life, corresponding to 98.5% dos 301,153 existing up to 30 June 2015 in e-CAF. - Public debt management module - Functional status: No development. - Collection network / e-taxation module - Functional status: Conceptual model of e-taxation prepared and approved; taxpayer register module (NUIT) developed. - Developed functionalities include settlement management (MA, MB, MC and M30), current account management, GARE management, management of interest and fines, payment management, VAT reimbursements management, litigation management, income accounting management, access management, management of tax enforcement actions, and critical reports. - Territorial status: - NUIT functioning in 101 localities. - VAT, ISPC and common processes functioning in 26 localities. ### Operational issues and observations - Wages and pensions - Nearly all wages and pensions are now paid through e-SISTAFE, but some institutions remain outside e-Folha. - Armed Forces and police are not in e-CAF and do not have wages paid through the online payroll system. - Teachers: all are in e-Folha, but lack of nearby banking services forces travel costs or reliance on colleagues to collect wages. - Security of pension payments expected to increase with full use of systems similar to e-CAF and e-Folha; National Pensions Department has a goal for 2016 of initiating the proof of life process for pensioners and instituting computerized pension payments. - Collection network and legal harmonization - The collection network component remains to be developed as a fundamental element for collecting revenue into the CUT. - SISTAFE Law and regulation define three phases for revenue execution (entry, settlement and collection) and the collection network concept; tax laws (Law 15 of 2002 and Law 2 of 2006 and their regulations) define only two phases (settlement and collection) and use Form 51 as the revenue collection instrument. - Current tax systems (SICR and JUE) implement procedures with Form 51, preventing establishment of the collection network specified in SISTAFE regulation where financial flows would be undertaken directly in the CUT with classification and accounting in e-SISTAFE. - Single collection document (GARE) implementation has not yet been fully implemented; a pilot implementation of GARE is envisaged for payment and the banking system. - Technology and architecture - e-SISTAFE platform is based on Services Oriented Architecture (SOA), modular and interoperable with other systems; supports incorporation of in-house and proprietary systems. - MEX module supports accounting of administrative, financial and property events; suitable for expansion of cash accounting adjusted for accruals; transactions recorded in unified chart of accounts parameterizable by fiscal year. - Current communications network architecture is private with high operating costs; migration to Internet is under consideration by CEDSIF to reduce operating costs while meeting reliability and security requirements. - Fragilities - Coverage of banking services makes the direct staff payment process fragile. - Proof of life for pensioners in preparation; pension payment security contingent on full implementation. ### Recommendations from the e-SISTAFE section - Prioritize development and implementation of the e-taxation modules in respect of: - the collection network, - e-pensions, - e-property. - Strengthen the SISTAFE reform management model with greater empowerment for MEF. --- ### Legal framework for budgetary execution — diagnostic assessment - Legal obligations exist to prepare an annual commitment program, divided month by month, aligned with the cash plan (or treasury plan), and to distribute both into quotas; these tools are not adequately used to control budgetary execution. - In practice, the execution control horizon is one month; all phases of budgetary execution are recorded at the same time and within a one-month horizon. - The legal framework covers timing of registration of the different phases of budget execution (appropriation, verification, payment) in general terms and does not specify amounts to be recorded in each time period; timing depends on the economic nature of the expense. - No definition of payments in arrears exists in the SISTAFE Law or its regulation. An annual circular adopts a maximum payment period of 10 working days after settlement of the expense, which is identified as excessively short and much less than deadlines in other regulation such as the 2011 EU Directive on late payment in commercial transactions. - The juridical-legal framework does not recognize payment of interest to suppliers or other costs resulting from late payment. - There are no limits set for time between delivery of invoice and verification that goods and services were provided as contracted. - Legislation does not make it mandatory to report payment arrears frequently; periodic (monthly) monitoring and reporting are needed. ### Legal-framework recommendations (to include in at least a higher ranking instrument, such as a Council of Ministers decree) - Define the moment and amounts for recording the various phases of budget execution, according to the economic nature of the different expenses. - Prepare an annual commitment program, aligned with the annual cash plan and procurement plan, based on information provided by government entities. - Divide the commitment program into quarters and implement it in conjunction with monthly payment quotas for each quarter consistently with the program. - Include a definition of late payments, the obligation to pay interest on liabilities whose payment was delayed, and the payment of a fixed sum for other costs incurred. The 2011 EU Directive could serve as a reference on this topic. - Include time limits between the phase of submitting the invoice and the verification phase. - Periodically (monthly) monitor execution and produce a monthly report on payment arrears. - Include in the quarterly budget execution reports the obligation to provide quantitative information on commitments, settlements, and payments, by economic expense category. ### Human resource training — diagnostic assessment - There is a shortage of skilled human resources in GFP functions within SISTAFE; specific knowledge of public finance is necessary beyond information systems operation. - Lack of ICT-qualified human resources in CEDSIF; during 2012 the Decree Law that created CEDSIF was amended; the CEDSIF Organic Charter was approved; draft CEDSIF internal regulation prepared and submitted for review. - Contracting ICT staff for CEDSIF requires giving CEDSIF its own recruiting status, exempting it from the General Law on Civil Servants, which is currently going through the approval process. - Skills retention is a chronic problem: retirement of skilled staff and loss of skills as young people leave for better paid jobs threatens SISTAFE sustainability. ### Human resource recommendations - Establish a skills retention strategy to underpin SISTAFE continuity and progress. - Prioritize, apart from capacity to operate e-SISTAFE IT systems, GFP functional skills, namely: - public accounting on an accruals basis, - public finance, - econometrics, - cash flow management, - logistics (procurements, contracts, stock control). - Prioritize capacities for the analysis of functional and technological requirements and development of artefacts in Unified Modelling Language (UML). *Source: The functional and territorial coverage of e-SISTAFE is evolving in response to its conceptual model (IMF content unit 1mozea2023010).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mozea2023010.pdf_