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Back to war
Renamo attacked the first southbound convoy this morning on the main north-south road near Muxungue, Sofala, injuring five soldiers and two civilians. Later today (Monday), Renamo spokesman António Muchanga announced the end of Renamo's unilateral ceasefire, which had been in force since 7 May. (@Verdade, AIM 2 June; www.verdade.co.mz)
Renamo's action follows three attacks on government military convoys Thursday, Saturday and this morning in Gorongosa district. Renamo says that since its president Afonso Dhlakama registered as a voter on 8 May and declared the ceasefire, the government has stepped up its military action and attacked Renamo bases in Gorongosa. During the ceasefire, until this morning, there were no Renamo attacks on the N1 north-south road.
Muchanga told the press conference that despite the return to war, Renamo would participate in the elections, and is collecting the 10,000 signatures needed to nominate Dhlakama as a presidential candidate.
Renamo claims that the army wants to capture and kill Dhlakama, and that it has no choice but to respond militarily.
New Gorongosa battles
Renamo guerrillas attacked a government military convoy Thursday 29 May near Nhadue, the area in Casa Banana, Gorongosa, where Renamo head Afonso Dhlakama registered as a voter on 8 May. But reports are contradictory. Lusa, the Portuguese press agency, reports a second battle this morning, 31 May, near Dhlakama's former base of Sadjundjira.
Lusa (29 May) quoted local people to say that the government military was following the trail used by the registration brigade to meet Dhlakama in the bush and register him, and that government forces wanted to attack the Renamo base at Nhadue. Lusa says at least seven government soldiers were injured Thursday and none today.
Noticias (31 May) quotes the head of public relations of the Sofala police, Daniel Macuacua, to say the attack was on a convoy taking supplies to a military base at Casa Banana, and that there was heavy material damage but no injuries.
Renamo says that it had declared a unilateral cease fire, but that the government responded by increasing its military movements around Gorongosa.
In an interview with Savana (30 May) given Wednesday night, Dhlakama said his opponents Filipe Nyusi and Daviz Simango have already started campaigning and he wants to leave Gorongosa and start addressing rallies and talking to the press. "The problem is that I am surrounded, and stopped from travelling freely. On one side, at 10 km I am cut off, on the other side at 3 km I am blocked. … I want to leave, but not to leave only to run into an ambush."
Daniel Macuacua in his Friday press conference said Dhlakama is free to leave, and just as agreement was reached to allow him to register, arrangements could be made to allow him to leave Gorongosa. And senior Frelimo people claim that if they wanted to kill or capture Dhlakama, they would already have done it.
On his demand that the armed forces be totally restructured, Dhlakama told Savana: "What we have now is a Frelimo army. I want an armed forces loyal to whomever wins the elections. … If not, it is clear that we will have a coup as happened in Guine-Bissau."
IMF warns Mozambique on farms, jobs, debt
In a pair of reports issued last week, the IMF praised Mozambique but went on to issue strong warnings on declining agricultural productivity, the failure to create jobs, and rising debt. The papers also show disagreements between IMF and government over the wage bill and use of capital gains, on-going repercussions of the Ematum $850 million bond issue, and falling spending on priority poverty reduction areas.
The IMF's progress report on the 2011-14 Poverty Reduction Strategy Paper (PRSP) warns that although government is meeting most of the formal indicators in the PRSP, the desired results are not occurring. It notes the continued downward trend in agricultural productivity of cereals and vegetables, and says "that the main challenges facing Mozambique still relate to increasing production and productivity in the agriculture and fishery sectors."
The PRSP report also points to the failure to create jobs. In another report, the IMF Second Review under the Policy Support Instrument (PSI), IMF staff warn that "making growth more inclusive by generating more employment is clearly a major challenge."
However the PRSP report says Mozambique is doing very well in the social sectors - health, education, water, and cash transfers.
In her speech to the IMF's Africa Rising conference in Maputo Thursday, IMF Managing Director Christine Lagarde stressed the need to build expensive infrastructure in Africa, and cited Mozambique as a good example with its electricity expansion. And she said more borrowing will be needed. But IMF staff in the PSI report and a linked debt sustainability analysis said that "while acknowledging Mozambique's infrastructure gap", they nonetheless warned that it is "essential" that Mozambique "moderate the pace of new borrowing". The report notes that public and publicly guaranteed debt had jumped from 33% of GDP in 2011 to 44% of GDP in 2013, partly due to the Ematum bond, and that Mozambique is already committed this year to non-concessional loans of $528 million from Brazil for the Maputo-Matola public transport system, the Moamba Maior dam, and the Nacala industrial zone.
The IMF also argues that Mozambique does not have the capacity to implement more infrastructure projects, and also that not enough money is being allocated for recurrent maintenance expenditure.
The IMF reports reflect the impact of last year's Ematum bond issue, agreed last year without serious discussion even within government, and for purposes not seen as priority. In the PSI report, IMF staff say "external borrowing can be used to fund the country's vast infrastructure needs, but should reflect transparent project selection based on the country's economic and social priorities." The debt sustainability report says Mozambique needs better "investment planning capacity to ensure that the most deserving public investment projects are selected."
Government rejects IMF advice
on windfall gains, salaries
Also published Thursday is the government's "Letter of Intent" - the government policy statement as negotiated with the IMF. The letter and PSI report make clear that government has rejected IMF advice on two issues:
+ The IMF wants Mozambique to establish an explicit budget rule on the use of "windfall" revenue, such as capital gains taxes on sales of shares in gas companies. Mozambique explicitly rejects this, and says this is an issue to be left for the new government after the election; it only agrees the money should not be used to "finance recurrent spending increases".
+ The government wage bill this year will be 11% of GDP, which the IMF says is too high. Government says no. This has been an important bone of contention, because most of the wage bill is for teachers and health workers. Government also points out that part of the increase is due to election-related hiring agreed with Renamo.
But government has agreed to treat Ematum as one of 15 "fully-owned state-owned enterprises created with social objectives". These companies submit plans, budgets and accounts to the Ministry of Finance. Government will include $500 mn of Ematum bonds as government-guaranteed debt. It notes that there are also 156 fully or partially owned "public corporations," which are supervised by IGEPE (Instituto de Gestao das Participacoes do Estado).
The Letter of Intent also sets out more explicitly than before several government policies and plans:
+ "Priority spending", mainly social and anti-poverty spending, are two-thirds of the budget, but fell below that in 2013 because budget support donors again withheld money - $87 mn in late 2013. And this year (2014) priority spending will fall to 58% of the budget, due to extra spending on elections and on the military (notably the patrol boats bought on the Ematum loan).
+ There are two previously unplanned expenditures for this year, $35 mn for extra election spending and $25 mn "to complete investment projects that lost foreign support in 2013", meaning Millennium Challenge projects not completed on time.
+ Subsidies in 2014 will be 0.2% of GDP for fuel, and 0.1% of GDP for wheat flour for bread, public transport, and a school feeding programme.
+ Of the huge backlog of VAT rebates, going back to 2012 and earlier, $100 mn will be repaid this year, with the money taken from capital gains tax payments.
Three IMF documents were released Thursday and Friday:
+ IMF Country Report No. 14/148: Second review under the policy support instrument (PSI); staff report, etc: http://www.imf.org/external/pubs/ft/scr/2014/cr14148.pdf
+ IMF Country Report No. 14/147: Poverty reduction strategy paper (PRSP) - progress report: http://www.imf.org/external/pubs/ft/scr/2014/cr14147.pdf
+ Letter of Intent, Memorandum of policies, etc: http://www.imf.org/External/NP/LOI/2014/MOZ/042314.pdf