allAfrica.com: Mozambique: Sweden Reaffirms Reduction in Budget Support (Page 1 of 2)

The Swedish ambassador to Mozambique, Torvald Akesson, has warned that, as from next year, Sweden will reduce its direct support to the Mozambican state budget, because of the government's failure to meet benchmarks in the area of good governance.

Cited in Friday's issue of the independent weekly "Savana", Akesson declared "We aren't seeing any serious progress in the fight against corruption".

Sweden is one of 19 donors and funding agencies that provide at least some of their aid to Mozambique in the form of direct budget support, rather than as funds earmarked for specific programmes or projects. Every year, these "Programme Aid Partners" (PAP) review progress with the government, based on indicators agreed the previous year - the 2008 Joint Review, which ended in late April, concluded that, of the 41 indicators and targets set for 2007, only 23 had been achieved.

The donors regarded this as a good enough basis for continuing budget support, but warned publicly that the country was not making enough progress in the fight against crime and corruption. The Aide-Memoire agreed between the government and the 19 partners declared that anti-corruption measures should be speeded up "bearing in mind the concern of the private sector that corruption is one of the main constraints weighing on its performance, and the development of the business environment in general".

Akesson's statement to "Savana" comes as no surprise. For when, on 22 May, the PAP members formally delivered their pledges of budget support for 2009 (totaling 445.2 million US dollars), Sweden and Switzerland were the two donors who reduced their aid, citing fears of corruption and poor governance.

At first sight, despite these concerns, overall budget support seemed to be rising: the amount pledged for 2008 was only 383.8 million dollars. But this increase was deceptive, owing a great deal to the weakness of the US dollar. Most of the PAP members give aid in Euros or other European currencies (such as the Swiss frank, the British pound or the Swedish crown) which had appreciated considerably against the dollar.

In dollar terms, it looked as if both Sweden and Switzerland had increased their budget support (from 44.6 to 47.1 million dollars). But this was just an artifact of the exchange rate. In reality, when the sums are expressed in Swedish crowns of Swiss francs, these were the two countries that had reduced budget support.

When expressed in their own currency, rather than in dollars, only four donors (Austria, Germany, Ireland and Spain) pledged to increase budget support in 2009. 13 of the partners opted to keep budget support at the same level as in 2008.

During the May ceremony, the PAP chairperson, Irish Ambassador Frank Sheridan, gave the government a clear warning. He said that, although the government's performance in 2007 was regarded as sufficiently satisfactory for the donors to continue direct budget support, this type of support was not being expanded, nor was support to projects and programmes being converted into budget support.

Any apparent expansion, apart from exchange rate illusions, was because "the donors are complying with bilateral undertakings given in their multi-year agreements and strategies", said Sheridan. He added that "One reason for the low rate of expansion of direct budget support concerns serious disquiet about performance in the area of governance, particularly the lack of substantive indications of progress in the fight against corruption".

In his "Savana" interview, Akesson also warned observers not to be taken in by the exchange rate. "Since the Swedish currency is strengthening, and the dollar is depreciating, somebody inattentive might think that we are going to increase aid", he said. The gap between the two currencies had widened so much, with the dollar depreciating by 10 per cent against the Swedish crown, that Swedish budget support pledged for 2009 is now equivalent, according to Akesson, to 52 million dollars. But that does not mean that a single extra Swedish crown has been promised.

One of the longstanding problems cited by Sweden is the 2001 collapse of the privatised Austral Bank. The Malaysian-Mozambican consortium that purchased 60 per cent of the bank in 1997 presided over four years of looting, so that by December 2000 non-performing loans accounted for over a third of the Austral credit portfolio.

Rather than recapitalize the bank, the consortium simply handed its shares back to the state in April 2001, leaving the government, which still held 40 per cent of Austral, to rescue the bank.

Akesson pointed out that "Part of the money used to recapitalize the Austral Bank came from Swedish taxpayers, and so we are concerned that the case has not been cleared up. Schools and hospitals could have been built with the money that was criminally removed from the bank".

However, finally there are signs of movement. The new Attorney-General, Augusto Paulino, has made the murder of the Austral interim chairperson, Antonio Siba-Siba Macuacua, in August 2001, and the looting of the bank, one of his priorities. On Monday and Tuesday this week, prosecutors questioned several of those who had been at the helm of Austral as the bank was ruined - including the chairman of the board, former Industry Minister Octavio Muthemba, non-executive director Jamu Hassane, and member of the Supervisory Board, Alvaro Massinga.

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