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Published On: Mon, Aug 21st, 2017

Mozambican government mulls Sovereign Fund for development projects – again

nsnbc : The government of Mozambique will soon – after some delay – establish a sovereign fund to build reserves to finance national development projects.

Sovereign Fund to fire up Mozambican development and national wealth?

Sovereign Fund to fire up Mozambican development and national wealth?

Plans to establish a sovereign wealth fund were first announced in 2014 on the sidelines of the IMF conference on Africa. The latest announcement was made on Friday by Mozambican Minister of Economy and Finance, Adriano Maleine, during a lecture on fiscal consolidation, based on policies currently implemented by the government.

Maleiane said the reserve fund will be called the National Development Fund (FND) and will have as one of its sources of financing extraordinary income such as capital gains from the sale of shares in the mineral resources sector. Noting that commercial banks would also have a role to play, Maleine said “We have to create a National Development Fund. That’s what we’re thinking. The National Development Fund will finance good initiatives, but needs patient capital to start.”

The former government was advised on several occasions to create a fund to deposit funds it received in capital gains from natural gas and coal, but the then finance minister argued that the country had urgent needs and could not afford the “luxury” of going down that road. However, others in the government disagreed and announced plans to create the sovereign wealth fund.

The current government now, apparently and according to Maleine, believes extraordinary income should be channeled into a reserve account. “This fund will be fed in the same way that the other countries feed the sovereign fund. What we are saying, as a government, is that when we receive capital gains we shouldn’t spend it, and then have adjustment problems. We are saying: let’s take advantage of the capital gains and put them in an account,” Maleiane explained.

The fund (FND) will be managed by an autonomous institution, with the National Investment Bank as the probable manager. With the National Development Fund, according to Maleine’s statement practically a certainty, the US$350 million’s-worth of business recently closed by ENI with US oil company Exxon Mobile in the Rovuma basin could be the first amounts to enter the fund.

For 2019, Maleiane plans the beginning of the consolidation of the recovery of the national economic growth, expected to enter its best phase ever in the next decade boosted by natural gas revenues from the Rovuma basin and other sources of internal growth. Maleiane noted that the revenues that the country will collect will be at the double-digit level, making the volume of debt that is now thought a problem “a joke”. “When we have two digits, if I tell the next minister of finance that a country’s minister has been discussing 1.2 or two trillion dollars of debt for a long time, he will not even believe it, he’ll think it’s an joke, because, really, for that number, does not make much sense, ” Maleiane predicted.

As part of ongoing fiscal reforms, the government says a new model for dealing with the civil servants’ Pension Fund which will ensure better predictability is being studied. “The model we are currently using depends on the government of the day’s budget. The official has to pray every day for a generous government of the day because, in times of crisis, between paying a worker who is in active employment and one who is in retirement, it can be difficult to decide. And to avoid this need, we have to make the [pension] fund autonomous,” Maleiane explained. The government says it is conducting studies to identify the responsibilities and funding of the foundation.

F/AK – nsnbc 21.08.2017

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