Mozambique expects to earn $96 billion from the production and liquefaction of its natural gas reserves and is considering a sovereign wealth fund (SWF) in order to maximise the benefits.
Estimating the country holds 277 trillion cubic feet (7.8 trillion cubic metres), a document from the Bank of Mozambique has said it may become the second largest producer of LNG in Africa, after Nigeria. It also has other resources, such as coal, titanium and various ores.
The bank’s report looks at how to manage this cash influx. The country aims to maximise revenues from its non-renewable resources, while developing functional and transparent institutions and without overwhelming the local economy.
Revenues from natural resources would be split 50:50 in the first 20 years between the state budget and the SWF. Following this, revenues would go 20% into the budget and 80% into the SWF.
During the first 20 years, if revenues from natural resources dropped by 10%, the fund would channel additional resources to the state’s coffers. This should not exceed 4% of revenues in the previous year.
The Bank of Mozambique organised a seminar on SWFs in March 2019, in partnership with the International Monetary Fund (IMF). A consensus emerged in support of the creation of such a fund. The best time to decide to start such a fund is before the natural resource revenues start to flow, it said.
Mozambique President Filipe Nyusi has spoken in support of the creation of such a fund.
Modalities
The fund would have two objectives. It would aim to accumulate savings so that revenues can be shared among a number of generations. It would also aim to provide fiscal stability, balancing out commodity price swings.
Financing for infrastructure from LNG revenues would be incorporated into the state budget. The Mozambique legislature would therefore be responsible for determining what investments have priority. The central bank would provide operational management and would receive a fixed fee for its work.
The bank would manage some of the fund’s assets. It would also allocate some to internal and external managers. The bank would determine how much of the fund’s assets would be handled by these managers.
The fund would aim to invest in areas distinct from the resources that provide revenues.
The fund would carry out an internal audit every six months. The ministry would also bring in external auditors every year. The assets held in the fund would be forbidden from being used as a guarantee for other debts.
The Ministry of Economy and Finance would plan the investment policy, make medium and long-term projections based on markets, in addition to monitoring the fund’s performance.
The fund, known as the Conta Única do Fundo Soberano de Moçambique (CUF), would be held in US dollars at the Bank of Mozambique.
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