## 1mozea2023012

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---

### Executive summary and context
- On November 30, 2015, the Directorate of Economic and Financial Studies of the Ministry of Economics and Finance published Mozambique’s first statement of fiscal risks, the Declaração de Riscos Fiscais. The statement describes many sources of fiscal risk, including uncertainties surrounding GDP, commodity prices, donor financing, exchange rates, public corporations, and public-private partnerships.
- The statement is a valuable contribution: it analyzes the accuracy of past forecasts of receipts and spending; it provides information on the debts of public corporations; and it highlights areas (for example, sensitivity to an exchange rate depreciation) that reveal fiscal vulnerabilities.
- The Ministry plans to develop the statement in future years, broadening coverage, improving analysis, and expanding sections on mitigation of risks and natural resource management (see page 2 of the statement). Improving the statement is part of the Fiscal Transparency Action Plan and donor commitments.
- This report is a desk review prepared by Mr. Tim Irwin, Expert, with the support of Ms. Esther Palacio, Technical Assistance Coordinator at the International Monetary Fund Resident Representative Office in Mozambique. The work is part of a project funded by the Managing Natural Resource Wealth Trust Fund.

### Purpose and scope of the desk review
- Aim: define operational and concrete improvements to the structure and content of the statement, with specific focus on:
  - the coherence between the statement of fiscal risks and existing budget documentation;
  - the structure and organization of the statement;
  - the linkages between fiscal forecasts and risks;
  - presentation of key risks related to state-owned enterprises (public corporations);
  - disclosure of risks related to natural resource revenue.

### Key diagnostic findings (from the 2015 statement)
- Recent forecasts of GDP have been unbiased and remarkably accurate (see Table 1 of the statement).
- Forecasts of receipts appear to have been biased and, in the case of external receipts, very inaccurate (Figures 7 and 8).
- Analysis of the effects of a depreciation of the metical on debt service (paragraph 11) is revealing for understanding currency-related fiscal exposure.
- Information on debts and financial autonomy of public corporations aids assessment of contingent liabilities, but recent revelations concerning Ematum and Proindicus show much work remains before estimates are reliable.
- The table on public-private partnerships shows project sizes and helps judge fiscal risks from PPPs.

### Role of a statement of fiscal risks (conceptual framework)
- Fiscal risk is defined as the possibility that fiscal outcomes will differ from fiscal forecasts. The main tasks of a statement of fiscal risks are to:
  - indicate the extent of uncertainty around fiscal forecasts (for example, deficit and debt);
  - describe main sources of that uncertainty.
- Predictable fiscal problems are not fiscal risks for the purpose of the statement and should be addressed in the fiscal forecast documents.
- Fiscal risks can be positive or negative; statements should focus on negative outcomes but may note potential positive surprises and how the government would respond.
- The statement should add new or better-analyzed information; it must be clear, concise, and credible to be useful to politicians, officials, journalists, academics, lenders, and analysts.
- The statement should not massively expand the volume of fiscal reports nor substitute permanently for improving basic accounts and budget documents.

### Improving the statement in 2016 and later years (priorities)
- Main opportunities: clarify and develop existing analyses and link these analyses tightly to the government’s fiscal forecasts. These changes can make the report clearer, more concise, and generally easier to produce.
- While coverage can be expanded and some analyses made more sophisticated over time, top priorities are:
  - stronger links to forecasts;
  - standardized analyses of past forecast errors and implications for forecast uncertainty;
  - improved disclosure of public corporations’ financials;
  - better articulation of uncertainties about future natural gas revenue.

### Recommendations (operational changes — eight items)
- 1. Re-organize the material into three main sections:
  - a) The extent of fiscal risk, revealed by analysis of differences between previous forecasts (debt and deficit) and actual outcomes.
  - b) The main sources of this risk, subdivided into:
    - i. Macroeconomic risks (e.g., risks to revenue related to GDP and macro-model–based analyses, including discussion of IMF debt-sustainability analysis).
    - ii. Specific risks (e.g., natural disasters, public corporations, PPPs).
  - c) The government’s policies for mitigating risks and increasing fiscal resilience.
- 2. More tightly link the discussion of fiscal risks (sections a and b) to the government’s current fiscal forecasts.
- 3. Make the statement a chapter of the government’s main forecast documents (the Cenário Fiscal de Médio Prazo and/or the Proposta de Orçamento do Estado) rather than a standalone document.
- 4. Develop and standardize analyses of differences between past forecasts and actual outcomes and state what these analyses imply for the uncertainty of current forecasts.
- 5. Develop the analysis of risks created by public corporations (regardless of legal form) by showing each corporation’s guaranteed and unguaranteed debt, assets, leverage, profit, etc.
- 6. Provide more detail on uncertainties surrounding future revenue from the production of natural gas.
- 7. Make the Minister of Finance or the Council of Ministers the official author of the document, or at minimum have the document endorsed by the Minister or the Council.
- 8. Ensure the Ministry of Finance has the right to obtain necessary information from other public bodies for preparing the report.

### Practical implementation guidance and editorial priorities
- Omit or shorten material that does not directly inform the likely divergence between forecasts and outcomes (examples: paragraph 9 and Figure 1 on fiscal policy in the past decade; paragraph 10 on coal exports outlook; Figure 2 on recent exchange rate changes; paragraph 12 and Figures 4 and 5 on receipt composition).
- Combine and shorten the preamble and introduction; remove table of contents and list of abbreviations where not necessary; reduce use of abbreviations.
- Refer to other government reports for background rather than repeating content (for example, debt reports that presumably include the information in Figure 13 and Table 3).
- If the statement becomes a chapter of Cenário Fiscal de Médio Prazo and/or the Proposta de Orçamento do Estado, consider publishing it twice a year (mid-year Cenário and annual Proposta update). If twice a year is infeasible, publish with one of these documents; once the statement format is settled, updates should require limited additional work.

### D. Develop and standardize the analyses of past forecast errors
- The 2015 statement’s analysis of forecast accuracy is highly valuable; Tables 1 and 2 consider GDP and inflation accuracy, and Figures 7–8, 9–10, and 11–12 analyze receipts, current spending, and investment spending accuracy.
- Suggested standardization and development:
  - Focus on the most important fiscal aggregates first: the debt, the deficit, total receipts, and total spending. (Analyses of components shown in Figures 9 and 11 could be omitted to keep the report short.)
  - Present all analyses in exactly the same form; Tables 1 and 2 format recommended.
  - If possible, make all analyses cover the same period; aim to go back to 2008 (current Tables 1 and 2 start in 2009; Figures 7 and 8 start in 2008).
  - Include a new column showing averages and a new row showing the absolute value of the errors.
  - Example table form (GDP) proposed, with exact values preserved:
    - 2008 2009 2010 2011 2012 2013 2014 2015 Average
    - Forecast (1)  6.7 6.2 7.4 7.5 7.0 8.0  7.1
    - Actual (2)  6.5 7.1 7.4 7.1 7.4 7.5  7.2
    - Error (3 = 2 − 1)  −0.2 0.9 0.0 −0.4 0.4 −0.5  0.0
    - Magnitude of error (absolute value of 3)  0.2 0.9 0.0 0.4 0.4 0.5  0.4
  - Explain implications of each analysis in a sentence or two (e.g., whether forecasts are unbiased and how accurate they are relative to average growth).
  - Note that 2009–2014 was an unusual period: GDP grew rapidly and exceptionally smoothly; GDP volatility (standard deviation of growth rate) was much less in 2009–2014 than in most other sub-Saharan countries and much less than previously in Mozambique.
  - Notes to tables should specify precisely the sources of forecast and actual data (e.g., clarify whether "Contas aprovadas" are the same as "Contas Gerais do Estado").

### E. Present more information on the finances of public corporations
- Figures 14 and 15 provide valuable information on debts of a group of public corporations. "Public corporation" defined broadly to include entities owned or controlled by government regardless of legal form.
- Expand Annex 2 (which lists 21 corporations) to include all public corporations and largest corporations with significant noncontrolling government share. For each corporation include:
  - Legal form and proportion owned directly or indirectly by the government (indirect includes ownership by entities controlled by government).
  - Total liabilities (excluding equity), total debt, and total assets (from most recent balance sheet) and leverage (for example, total liabilities divided by total assets).
  - Total government-guaranteed liabilities.
  - Revenue, expense, and profit (from most recent statement of financial performance).
  - Total operating, investing, and financing cash flows (from most recent statement of cash flows).
  - Dividends and any other payments made by the corporation to the government in the last year.
  - Subsidies, capital injections, and any other payments made by the government to the corporation (excluding ordinary payments for services).

### F. Say more about the uncertainty surrounding revenue from natural resources
- Natural-gas revenue uncertainties over the next ten or twenty years are large and warrant special treatment even if the statement focuses on the budget year and next two or three years.
- Suggested concise content (can rely on/refer to other analyses):
  - Brief discussion of main sources of government revenue related to natural gas (for example, royalties and profit-sharing).
  - Reminder of government’s baseline forecast of revenue and the main assumptions underlying that forecast.
  - Simple sensitivity analysis showing how revenue would differ if assumptions about volume and price of gas were different.

### G. Change the formal author of the report
- The statement should be officially made or endorsed by the Minister of Finance or by the Council of Ministers (as with the Cenário Fiscal de Médio Prazo).
- Consider a declaration by the Minister of Finance or the Council of Ministers that they are not aware of any material information not reflected in the report.

### H. Ensure the Ministry of Finance has the right to obtain necessary information
- The Ministry of Finance needs access to information held by other ministries, agencies, and public enterprises to identify fiscal risks.
- The Ministry should have the legal right to obtain such information and should require reports from other bodies before preparing each statement on fiscal risks.
- To reduce reporting burden, request information as part of existing budget or accounting submissions.

### I. Other sources of risk
- When time permits, provide more analysis on other fiscal uncertainties, including:
  - Natural disasters: provide data on past variations in government spending caused by natural disasters (acknowledging indirect effects are hard to estimate).
  - Fuel subsidies: IMF’s January 2016 Staff Report on Mozambique (page 20) suggests fuel subsidy costs may be a significant spending uncertainty; describe the nature and extent of this uncertainty and uncertainties around subsidies for flour and public transportation.
  - Health and social security spending: clarify whether all spending on these items is included in fiscal forecasts.
  - Subnational government finances: briefly explain how they affect the analysis.
  - Government guarantees: provide a full list of government guarantees of borrowing reconcilable with total guarantees reported in paragraph 23; describe any guarantees beyond those for public corporations and subnational governments.
  - Public-private partnerships: analyze whether contract or law clauses transfer risks to the government (e.g., obligations if a concessionaire goes bankrupt).
  - Significant lawsuits: mention major suits involving the government with indications of possible amounts receivable or payable.

### J. Improving the presentation
- Fix small presentation issues:
  - Use fewer abbreviations and avoid listing unused abbreviations.
  - Use a consistent number of digits after decimal places (for example in Tables 1 and 2).
  - Use a standard form for tables and charts and a standard color scheme for charts.
  - Avoid repeating “%” in tables and figures; put units in the subtitle of the table or figure instead.
  - Try to eliminate typos and spacing errors.

*Source: 1mozea2023012 - 28. Including the statement in the Cenário Fiscal de Médio Prazo might suggest giving the — IMF PDF content provided.*

### PREFACE _________________________________________________________________________________________ 4

### PREFACE

### Executive summary and context
- On November 30, 2015, the Directorate of Economic and Financial Studies of the Ministry of Economics and Finance published Mozambique’s first statement of fiscal risks, the Declaração de Riscos Fiscais. The statement describes many sources of fiscal risk, including uncertainties surrounding GDP, commodity prices, donor financing, exchange rates, public corporations, and public-private partnerships.
- The statement is a valuable contribution: it analyzes the accuracy of past forecasts of receipts and spending; it provides information on the debts of public corporations; and it highlights areas (for example, sensitivity to an exchange rate depreciation) that reveal fiscal vulnerabilities.
- The Ministry plans to develop the statement in future years, broadening coverage, improving analysis, and expanding sections on mitigation of risks and natural resource management (see page 2 of the statement). Improving the statement is part of the Fiscal Transparency Action Plan and donor commitments.
- This report is a desk review prepared by Mr. Tim Irwin, Expert, with the support of Ms. Esther Palacio, Technical Assistance Coordinator at the International Monetary Fund Resident Representative Office in Mozambique. The work is part of a project funded by the Managing Natural Resource Wealth Trust Fund.

### Purpose and scope of the desk review
- Aim: define operational and concrete improvements to the structure and content of the statement, with specific focus on:
  - the coherence between the statement of fiscal risks and existing budget documentation;
  - the structure and organization of the statement;
  - the linkages between fiscal forecasts and risks;
  - presentation of key risks related to state-owned enterprises (public corporations);
  - disclosure of risks related to natural resource revenue.

### Key diagnostic findings (from the 2015 statement)
- Recent forecasts of GDP have been unbiased and remarkably accurate (see Table 1 of the statement).
- Forecasts of receipts appear to have been biased and, in the case of external receipts, very inaccurate (Figures 7 and 8).
- Analysis of the effects of a depreciation of the metical on debt service (paragraph 11) is revealing for understanding currency-related fiscal exposure.
- Information on debts and financial autonomy of public corporations aids assessment of contingent liabilities, but recent revelations concerning Ematum and Proindicus show much work remains before estimates are reliable.
- The table on public-private partnerships shows project sizes and helps judge fiscal risks from PPPs.

### Role of a statement of fiscal risks (conceptual framework)
- Fiscal risk is defined as the possibility that fiscal outcomes will differ from fiscal forecasts. The main tasks of a statement of fiscal risks are to:
  - indicate the extent of uncertainty around fiscal forecasts (for example, deficit and debt);
  - describe main sources of that uncertainty.
- Predictable fiscal problems are not fiscal risks for the purpose of the statement and should be addressed in the fiscal forecast documents.
- Fiscal risks can be positive or negative; statements should focus on negative outcomes but may note potential positive surprises and how the government would respond.
- The statement should add new or better-analyzed information; it must be clear, concise, and credible to be useful to politicians, officials, journalists, academics, lenders, and analysts.
- The statement should not massively expand the volume of fiscal reports nor substitute permanently for improving basic accounts and budget documents.

### Improving the statement in 2016 and later years (priorities)
- Main opportunities: clarify and develop existing analyses and link these analyses tightly to the government’s fiscal forecasts. These changes can make the report clearer, more concise, and generally easier to produce.
- While coverage can be expanded and some analyses made more sophisticated over time, top priorities are:
  - stronger links to forecasts;
  - standardized analyses of past forecast errors and implications for forecast uncertainty;
  - improved disclosure of public corporations’ financials;
  - better articulation of uncertainties about future natural gas revenue.

### Recommendations (operational changes — eight items)
1. Re-organize the material into three main sections:
   - a) The extent of fiscal risk, revealed by analysis of differences between previous forecasts (debt and deficit) and actual outcomes.
   - b) The main sources of this risk, subdivided into:
     - i. Macroeconomic risks (e.g., risks to revenue related to GDP and macro-model–based analyses, including discussion of IMF debt-sustainability analysis).
     - ii. Specific risks (e.g., natural disasters, public corporations, PPPs).
   - c) The government’s policies for mitigating risks and increasing fiscal resilience.
2. More tightly link the discussion of fiscal risks (sections a and b) to the government’s current fiscal forecasts.
3. Make the statement a chapter of the government’s main forecast documents (the Cenário Fiscal de Médio Prazo and/or the Proposta de Orçamento do Estado) rather than a standalone document.
4. Develop and standardize analyses of differences between past forecasts and actual outcomes and state what these analyses imply for the uncertainty of current forecasts.
5. Develop the analysis of risks created by public corporations (regardless of legal form) by showing each corporation’s guaranteed and unguaranteed debt, assets, leverage, profit, etc.
6. Provide more detail on uncertainties surrounding future revenue from the production of natural gas.
7. Make the Minister of Finance or the Council of Ministers the official author of the document, or at minimum have the document endorsed by the Minister or the Council.
8. Ensure the Ministry of Finance has the right to obtain necessary information from other public bodies for preparing the report.

### Practical implementation guidance and editorial priorities
- Omit or shorten material that does not directly inform the likely divergence between forecasts and outcomes (examples: paragraph 9 and Figure 1 on fiscal policy in the past decade; paragraph 10 on coal exports outlook; Figure 2 on recent exchange rate changes; paragraph 12 and Figures 4 and 5 on receipt composition).
- Combine and shorten the preamble and introduction; remove table of contents and list of abbreviations where not necessary; reduce use of abbreviations.
- Refer to other government reports for background rather than repeating content (for example, debt reports that presumably include the information in Figure 13 and Table 3).
- If the statement becomes a chapter of Cenário Fiscal de Médio Prazo and/or the Proposta de Orçamento do Estado, consider publishing it twice a year (mid-year Cenário and annual Proposta update). If twice a year is infeasible, publish with one of these documents; once the statement format is settled, updates should require limited additional work.

*Prepared as a desk review by Tim Irwin (Expert) with support from Esther Palacio (Technical Assistance Coordinator), part of a project funded by the Managing Natural Resource Wealth Trust Fund.*

### 28.      Including the statement in the Cenário Fiscal de Médio Prazo might suggest giving the

### 1mozea2023012 - 28.      Including the statement in the Cenário Fiscal de Médio Prazo might suggest giving the

### D. Develop and standardize the analyses of past forecast errors
- The 2015 statement’s analysis of forecast accuracy is highly valuable; Tables 1 and 2 consider GDP and inflation accuracy, and Figures 7–8, 9–10, and 11–12 analyze receipts, current spending, and investment spending accuracy.
- Suggested standardization and development:
  - Focus on the most important fiscal aggregates first: the debt, the deficit, total receipts, and total spending. (Analyses of components shown in Figures 9 and 11 could be omitted to keep the report short.)
  - Present all analyses in exactly the same form; Tables 1 and 2 format recommended.
  - If possible, make all analyses cover the same period; aim to go back to 2008 (current Tables 1 and 2 start in 2009; Figures 7 and 8 start in 2008).
  - Include a new column showing averages and a new row showing the absolute value of the errors.
  - Example table form (GDP) proposed, with exact values preserved:
    - 2008 2009 2010 2011 2012 2013 2014 2015 Average
    - Forecast (1)  6.7 6.2 7.4 7.5 7.0 8.0  7.1
    - Actual (2)  6.5 7.1 7.4 7.1 7.4 7.5  7.2
    - Error (3 = 2 − 1)  −0.2 0.9 0.0 −0.4 0.4 −0.5  0.0
    - Magnitude of error (absolute value of 3)  0.2 0.9 0.0 0.4 0.4 0.5  0.4
  - Explain implications of each analysis in a sentence or two (e.g., whether forecasts are unbiased and how accurate they are relative to average growth).
  - Note that 2009–2014 was an unusual period: GDP grew rapidly and exceptionally smoothly; GDP volatility (standard deviation of growth rate) was much less in 2009–2014 than in most other sub-Saharan countries and much less than previously in Mozambique.
  - Notes to tables should specify precisely the sources of forecast and actual data (e.g., clarify whether "Contas aprovadas" are the same as "Contas Gerais do Estado").

### E. Present more information on the finances of public corporations
- Figures 14 and 15 provide valuable information on debts of a group of public corporations. "Public corporation" defined broadly to include entities owned or controlled by government regardless of legal form.
- Expand Annex 2 (which lists 21 corporations) to include all public corporations and largest corporations with significant noncontrolling government share. For each corporation include:
  - Legal form and proportion owned directly or indirectly by the government (indirect includes ownership by entities controlled by government).
  - Total liabilities (excluding equity), total debt, and total assets (from most recent balance sheet) and leverage (for example, total liabilities divided by total assets).
  - Total government-guaranteed liabilities.
  - Revenue, expense, and profit (from most recent statement of financial performance).
  - Total operating, investing, and financing cash flows (from most recent statement of cash flows).
  - Dividends and any other payments made by the corporation to the government in the last year.
  - Subsidies, capital injections, and any other payments made by the government to the corporation (excluding ordinary payments for services).

### F. Say more about the uncertainty surrounding revenue from natural resources
- Natural-gas revenue uncertainties over the next ten or twenty years are large and warrant special treatment even if the statement focuses on the budget year and next two or three years.
- Suggested concise content (can rely on/refer to other analyses):
  - Brief discussion of main sources of government revenue related to natural gas (for example, royalties and profit-sharing).
  - Reminder of government’s baseline forecast of revenue and the main assumptions underlying that forecast.
  - Simple sensitivity analysis showing how revenue would differ if assumptions about volume and price of gas were different.

### G. Change the formal author of the report
- The statement should be officially made or endorsed by the Minister of Finance or by the Council of Ministers (as with the Cenário Fiscal de Médio Prazo).
- Consider a declaration by the Minister of Finance or the Council of Ministers that they are not aware of any material information not reflected in the report.

### H. Ensure the Ministry of Finance has the right to obtain necessary information
- The Ministry of Finance needs access to information held by other ministries, agencies, and public enterprises to identify fiscal risks.
- The Ministry should have the legal right to obtain such information and should require reports from other bodies before preparing each statement on fiscal risks.
- To reduce reporting burden, request information as part of existing budget or accounting submissions.

### I. Other sources of risk
- When time permits, provide more analysis on other fiscal uncertainties, including:
  - Natural disasters: provide data on past variations in government spending caused by natural disasters (acknowledging indirect effects are hard to estimate).
  - Fuel subsidies: IMF’s January 2016 Staff Report on Mozambique (page 20) suggests fuel subsidy costs may be a significant spending uncertainty; describe the nature and extent of this uncertainty and uncertainties around subsidies for flour and public transportation.
  - Health and social security spending: clarify whether all spending on these items is included in fiscal forecasts.
  - Subnational government finances: briefly explain how they affect the analysis.
  - Government guarantees: provide a full list of government guarantees of borrowing reconcilable with total guarantees reported in paragraph 23; describe any guarantees beyond those for public corporations and subnational governments.
  - Public-private partnerships: analyze whether contract or law clauses transfer risks to the government (e.g., obligations if a concessionaire goes bankrupt).
  - Significant lawsuits: mention major suits involving the government with indications of possible amounts receivable or payable.

### J. Improving the presentation
- Fix small presentation issues:
  - Use fewer abbreviations and avoid listing unused abbreviations.
  - Use a consistent number of digits after decimal places (for example in Tables 1 and 2).
  - Use a standard form for tables and charts and a standard color scheme for charts.
  - Avoid repeating “%” in tables and figures; put units in the subtitle of the table or figure instead.
  - Try to eliminate typos and spacing errors.

*Source: 1mozea2023012 - 28. Including the statement in the Cenário Fiscal de Médio Prazo might suggest giving the — IMF PDF content provided.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1mozea2023012.pdf_