Good afternoon. The Mozambican government’s sovereign wealth fund is one step closer to reality, after members of parliament approved in outline the government’s plans for a fund to manage revenues from the country’s natural gas production. Unfortunately, the government looks set to miss the opportunity to achieve a broad consensus on how the fund, which after all is meant to serve the national interest, should function. Only members of ruling party Frelimo voted in favour of the legislation, with opposition parties Renamo and the MDM voting against.
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Of the opposition’s arguments, the MDM’s is the weaker. The party argues that now is not the time to be saving revenues, when the need for funding to pay for essential services like healthcare and education is so acute. It is true that the government is short of money to cover everyday spending: debt is going up, the deficit is being paid for by borrowing, and salaries are not all being paid on time.
However, the basic arguments for the sovereign wealth fund as presented by the Bank of Mozambique remain strong. Firstly, oil and gas revenues are volatile, and the fund would provide a shock absorber to deal with that volatility. This should ideally address the potentially damaging effects of a sudden inflow of money to the economy, such as so-called “Dutch disease”, where a boom in one industrial sector, often natural resources, leads to a decline in other sectors. Secondly, saving money and building up a fund over time allows the revenues from gas to be spent over more generations than would be possible if the money only lasted as long as the gas itself.