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EU to provide Mozambique with €110M for COVID-19 fight; no return to budget support

The European Union is expected to provide €110M in support to Mozambique in its fight against Covid-19, in the form of grants for 2020 and 2021, a source from the EU mission in Maputo has told Lusa.

Precisely how support is to be allocated is still under discussion, the source added.

“The return to a State Budget support programme is not on the table,” the official said, while saying that the country may benefit from funds that in practice are handed over to the government to cover a tax shortfall this year.

Direct support to Mozambique’s annual state budget was suspended by international donors in 2016 after the revelation of hidden debts amounting to US$2.2B (€2B), underwritten by state guarantees of which neither parliament nor international partners were informed, in a case that is now in the courts.

The same EU source stressed that the support now to be given to Mozambique is an emergency response.

The EU has launched a global response to the new coronavirus that causes Covid-19 that aims at mobilising more than €15B to support partners around the world.

As part of this global effort, Mozambique is to benefit from “a package of €110M in grants” to be disbursed this year and next and whose “concrete modes of implementation are still under discussion, but will be guided by the principles of urgency, efficiency and alignment,” the source said.

The EU is working “in close coordination” with the International Monetary Fund and World Bank with the aim of “strengthening the state’s capacities to deal with the human, social and economic impact of the pandemic crisis”, the source went on. “The return to a general budget support programme is not on the table.”

Mozambique’s government on March 23rd in Maputo asked its partners for a total of US$700M to cover the fiscal hole in the 2020 state budget caused by the pandemic, as well as to finance the fight against the disease and support for the poorest.

The IMF has already announced the allocation of around half that, in the form of a loan of US$309M through its rapid credit facility and another of US$28M for disaster relief and containment.

The World Bank is also to disburse US$100M while there will be US$132M in project support from the World Bank, Islamic Development Bank and partners in the IMF’s Pro-Saúde health support programme for the country.

In an interview with Lusa in January, the EU’s ambassador in Maputo, António Sánchez-Benedito Gaspar, said that the EU could only from 2021 consider the resumption of direct budget support in subsequent years, as part of talks on the new EU funding cycle for the period 2021-2027 and provided that “conditions linked to transparency, management of public accounts and strengthening of institutions” are in place.

Mozambique has had 80 confirmed cases of infection with the new coronavirus, mostly linked to construction work on a natural gas project. There is no record of any deaths or cases with serious symptoms.

In a report on the country released last Wednesday, the IMF says that the Mozambican public debt “will continue in difficulties, but is sustainable” even after the impact of the pandemic.

“The largest share of future loans and state guarantees reflects the state’s participation in large liquefied natural gas (LNG) projects,” it went on. “Despite some delay, the projects will move forward.”

It forecast that the LNG projects would start operations in 2023.

The document also takes into account the government’s promises to publish audits on the use of funds received and notes progress on the part of the Bank of Mozambique in improving management and auditing capacities, in accordance with recommendations made by an IMF mission in December 2019.

Source: Lusa via Club of Mozambique

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