December 22, 2010

Emergency measures to remain in effect

The Mozambican government has promised to keep in effect, for at least the first quarter of 2011, most of the measures adopted in September to subsidise prices and rein in public expenditure.

The Minister of Planning and Development, Aiuba Cuereneia, said that prolonging these emergency measures for a further three months "will allow a softer transition to the following phase, in which seasonal factors and the current festive season are no longer exercising pressure on price rises".

The government's measures were a response to the riots against price rises in Maputo and the neighbouring city of Matola on 1-2 September. The most significant is a subsidy on wheat flour used by bakers, which allowed bread prices to revert to their pre-September levels. The government also cut the price of low grade rice by 7.5 per cent, by removing customs duty on this import.

Low income households also saw increases in their electricity and water bills reversed. The government abolished the increase in the "social electricity tariff" for consumers who use less than 100 kilowatt-hours a month, while for those who use between 100 and 300 kilowatt-hours a month, the price rise was cut from 13.4 to seven per cent.
Similarly the government dropped plans to increase water prices for those households who use less than five cubic metres a month. This "social tariff" remains fixed at 150 meticais (4.4 US dollars) a month. The cost of a new connection to the piped water supply was cut from 4,000 to 2,000 meticais.

As for expenditure, the government announced a freeze on wages and allowances for all senior state figures until an assessment of state wages policy has been completed, and promised to rationalize its own expenditure on air travel (particularly in business class), fuel, lubricants and communications.

Cuereneia said that the immediate effect of these September measures had been to reduce or stabilize prices. Furthermore, the fiscal discipline which the government has stressed helped stabilize the exchange rate of the Mozambican currency, the metical. No doubt the Bank of Mozambique's decision to hike its reference interest rate from 11.5 to 15.5 per cent also helped stop further depreciation of the metical. Indeed this month the metical has strengthened considerably against all other major currencies.

According to Cuereneia, the price support measures were covered by the 2011 budget passed by the country's parliament, the Assembly of the Republic. "During the first quarter of 2011, the government will continue to assess the country's macro-economic performance and its impact on the cost of living", he said.

One of the measures announced in September is not being renewed. The government had banned the creation of new state institutions - but in 2011, Cuereneia said, some new bodies would be required to carry out the government's priority objectives. He also warned of an impending end to the freeze on fuel prices. Although international oil prices have moved relentlessly upward, and now stand at over 90 US dollars a barrel, the prices at Mozambican fuel pumps have been unchanged since July. He said that the government would continue to monitor international fuel prices and act accordingly. (AIM)

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