Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey: Budget Reform Holds Promise in Mozambique

November 26, 2007

  • Mozambique is promising example of successful budget reform in Africa
  • Country ownership, donor support, IMF technical assistance create virtuous circle
  • Main challenges include continued donor support and greater use of local expertise

Since the end of its devastating civil war in 1992, Mozambique has undertaken wide-ranging structural reforms that have contributed to an average annual growth rate of 8 percent between 1996 and 2006.

Budget Reform Holds Promise in Mozambique

Repairing power lines in Mozambique: all government entities will operate under law aiming for efficient, transparent use of public funds (photo: Reuters)

IMF technical assistance

Indeed, its remarkable record of economic growth and structural reforms remains a model of successful post-conflict reconstruction. A cornerstone of the country's reform efforts has been the implementation of a far-reaching, donor-funded, public financial management reform program.

Despite some setbacks, this program has progressed well, reflecting a virtuous circle of strong ownership on the part of the Mozambican authorities, sustained donor support, and an intense IMF technical assistance program, conducted in conjunction with continued support under the Poverty Reduction and Growth Facility and, more recently, under the IMF's Policy Support Instrument.

Stepping stones

The origin of Mozambique's current public financial management reforms can be traced back to a 1996 Consultative Group meeting where the authorities presented their own public financial management reform program to the country's main donors and funding agencies.

The program called for a complete overhaul of Mozambique's public financial management system, including the modernization of the budget legal framework, upgrading of budget-treasury operations, introduction of a well-designed accounting and reporting system, adoption of an integrated and computerized financial management system, and enhancement of internal and external controls.

Thereafter—under isolated and not always well-coordinated donor-supported projects— Mozambique introduced several public financial management reforms, including the elaboration of a Medium-Term Fiscal Framework in 1998; the strengthening of the planning capacity for the elaboration of the first Poverty Reduction Strategy Paper in 2001; and the promulgation, in 2002, of a well-designed government-wide organic budget law (Lei do Sistema de Administração Financeira do Estado, or SISTAFE law) aimed at ensuring an efficient and transparent use of public funds.

e-SISTAFE project milestones

2002—Promulgation of a government-wide organic budget law (Lei do Sistema de Administração Financeira do Estado, SISTAFE); recruitment of an IMF-backstopped long-term resident expert on information technology (IT); approval of the model for managing the reforms of public financial management.

2003—Approval of the procurement manual; recruitment of procurement staff and information technology consultants for software development; initiation of the consolidation of government's accounts in commercial banks.

2004—Introduction of a virtual electronic Treasury Single Account (e-TSA) by consolidating several treasury bank accounts; execution of the government's financial payments through the e-SISTAFE; recruitment of an IMF-backstopped long-term resident expert on budget formulation.

2005—Use of the e-SISTAFE for the centralized execution of line ministries' expenditure at the level of the Ministry of Finance; rollout of the e-SISTAFE on a pilot basis to three ministries (finance, planning, and education); establishment of a full-fledged TSA and a new chart of accounts. Departure of the IMF-backstopped long-term expert on IT.

2006— Rollout of the e-SISTAFE to 22 line-ministries; training programs on the use of e-SISTAFE for the decentralized budget execution; implementation of the pilot version of the budget formulation module.

2007— Departure of the FAD-backstopped long-term expert on budget formulation; use of the budget formulation module for the preparation of the 2008 draft budget; development of module pilots on asset management, payroll, tax collection and multi-currency TSA; finalization of the e-SISTAFE rollout planned for end-2007.

In 2002, following the authorities' request for greater donor coordination, a group of donors—the governments of Belgium, Denmark, Norway, Sweden, and the United Kingdom, as well as the European Union—agreed to pool their resources in a common fund to support Mozambique's reforms of public financial management.

In addition, the government created a management unit—the UTRAFE—at the Ministry of Finance, charged with the responsibility for implementing the reforms. It also introduced several monitoring mechanisms, such as a Steering Committee that included all high-level senior officials of the Ministry of Finance, and a Quality Assurance Group made up of international experts on public financial management.

Essential technology

Since its enactment, the SISTAFE law has been the pivotal element of Mozambique's public financial management reform program, in particular, the law's mandate of developing a computerized integrated financial management information system. In line with this mandate, the government, with donor support, launched the e-SISTAFE project in 2002 and invited the IMF to take the lead in assisting UTRAFE in implementing it (see box).

To that end, during 2002-06, the IMF, as executing agency of donors' funds, was responsible for the design of the work program and the recruitment of two long-term resident experts on public financial management. This was undertaken through the IMF's Fiscal Affairs Department, whose responsibilities also included the continuous provision of technical support and feedback to the two experts, sometimes by conducting diagnostic and inspection missions, in close coordination with the IMF's African Department.

The IMF's involvement has been critical in designing some of the e-SISTAFE's core technical aspects, such as the accounting system, the treasury single account, and the budget formulation and execution modules, as well as in developing key institutional aspects such as the SISTAFE law's regulations, an effective management model for UTRAFE, and the e-SISTAFE's implementation plan.

Overall, the e-SISTAFE project has progressed well, despite some setbacks arising from the UTRAFE's limited capacity, the lengthy approval of the SISTAFE law's regulations, and the difficulties in establishing the treasury single account and uploading past budget records into the system.

These hurdles have been overcome thanks to the authorities' strong commitment to the project, which the donors have rewarded with substantial and sustained support, and to the high-quality assistance provided by the long-term resident experts provided by the IMF.

Remaining challenges

The e-SISTAFE project is still far from finished. Critical extensions are scheduled to be implemented during 2007-09. These include the completion of the rollout of the system to all (including local) government entities and operations (including donor-funded activities); and the development of additional modules on asset management, payroll, pensions, and tax revenue collection.

After several years of the Fund's intense involvement, Mozambican authorities have developed sufficient capacity to continue making good progress with the e-SISTAFE project—with donor support—and for the IMF's role to switch to providing only periodic advice.

However, major challenges lie ahead to ensure the sustainability of the reform effort—including the need to secure continued support from the international community and the gradual replacement of external consultants by local civil servants.