November 24, 2011

Government abandons food basket

Government's plan to introduce a subsidised basket of basic foods for the urban poor was shelved because feared rises in food prices did not materialize, Prime Minister Aires Ali told the Mozambican parliament, the Assembly of the Republic. He was responding to a request for information from the main opposition party Renamo, who wanted to know what the government had done with the budgetary allocation of 335 million meticais (12.4 million US dollars) for the food basket. Renamo has even suggested that the money is being diverted to fund the congress which the ruling Frelimo Party plans to hold next year.

Ali said that, when the government announced the subsidised food basket, in March 2011, "the macro-economic climate and international prices were still unstable and uncertain". The food basket was thus envisaged as one of a series of crisis management and poverty reduction measures, but on a strictly temporary basis. It was "an emergency measure for the short term (July-December 2011) which sought to mitigate the impact of eventual rises in the price of basic foods" on the urban poor. The plan was that anyone living in Maputo and the ten provincial capitals with a monthly income of less than 2,500 meticais (about 93 US dollars) would be entitled to the subsidised food.

The food would not be free for the six months of the scheme the beneficiaries would pay 824 meticais a month for the basket of grains, sugar, vegetable oil, beans and second grade fish. The government would pay the difference between 824 meticais and the real price of the goods. The scheme was based on the assumption that there would be sharp rises of the prices of at least some of these goods, and that was why the government included this subsidy in its revised budget for 2011, passed by the Assembly in May. But the reverse happened, and food prices began to decline as from June.

The amended budget, Ali said, was a precautionary measure, in case the government did have to introduce the food basket. But close monitoring of the situation led the government to drop the idea, and opt instead to maintain existing subsidies a subsidy on the wheat flour used to bake bread, and exemption from customs duties for low grade rice, and from duties and value added tax (VAT) for second grade fish.

This decision, Ali said, was taken after consultation and dialogue with the government's partners. He gave no details - but the government had certainly become aware of the huge costs of administering subsidies targeted at specific income groups. (The Zimbabwean)

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