Mozambique: Country suffering effects of credit crunch

Maputo (Mozambique) — Mozambican Prime Minister Luisa Diogo on Wednesday said that Mozambique is now suffering from a reduction in export revenue, a reduction in remittances from migrants, a decline in private sector investment, and a fall in tourist numbers, all effects of the international financial crisis, colloquially known as the "credit crunch".

Responding in the Mozambican parliament, the Assembly of the Republic, to questions about the government response to the crisis, Diogo stressed that the government is working with the country foreign partners to ensure that there is no reduction in a fifth area, the flow of development aid.

On this front, the government appears to have been successful. On 28 May, the 19 donors and funding agencies which give direct support to the Mozambican budget promised a total of 471.8 million US dollars in budget support for 2010 - an increase of six per cent on the 445.2 million dollars pledge for 2009.

The funds pledged from this group of partners for 2010 rise to 804.5 million dollars when aid earmarked for common funds (in health, for example) and sector programmes are taken into account.

Diogo noted that the growth rate for sub-Saharan Africa is expected to fall from 5.4 per cent last year to less than 1.5 per cent in 2009. The largest economy of the region, that of South Africa is now in recession. The South African economy, which grew by 3.1 per cent in 2008, is expected to shrink by one per cent this year.

But in Mozambique, she added, "the prospects remain acceptable". The latest predictions are that growth in 2009 will be 6.7 per cent - lower than the seven to eight per cent experienced in recent years, but much better than most economies in the region.

Nonetheless, the crisis would certainly have an impact on public finance. Diogo expected fiscal losses over the year of almost 4.2 billion meticais (about 158 million US dollars). The public sector was responding with measures to restrict expenditure, while safeguarding the areas that are priorities in the government's poverty alleviation strategy.

Asked by the parliamentary group of the former rebel movement Renamo how the government explained "the ever more unbearable cost of living", Diogo pointed out that the government has exempted basic foods (such as maize flour, rice, wheat, salt and sugar) from Value Added Tax (VAT).

But the cost of living was not restricted to food. Diogo said that the government has maintained a health service and a primary education service that are essentially free of charge. Consultations and medicines in public health units bear a symbolic cost - five meticais (19 US cents) in urban areas, and half a metical in the countryside. In the education system, enrolment and text books are free up to seventh grade.

"We now take this for granted", said Diogo. "But there are developed counties where this isn't the case". Free health and education services were only available "because there's a Frelimo government".

She stressed that the only way to improve the cost of living "is to increase production and productivity in all areas, and this has been happening".

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