Mozambique Fuel Tax PSIA Mozambique Demonstration PSIA Possible Fuel Tax Increase

Mozambique Fuel Tax PSIA Reasons for Selecting Fuel Tax Relates to key Poverty Strategy (PARPA) aim of reducing aid dependency (fuel tax would give up to 17% of revenue targets) Linked to Road Programme commitments (also in Poverty Strategy) Good example for future analysis and uses available underutilised data sources

Mozambique Fuel Tax PSIA National Context Severe Challenges (low income & HDI, HIV/AIDS, civil war, central planning, natural disaster Good aggregate growth 3 IMF programmes with the latest PRGF (based on PARPA) about to go into a 1 year extension Several large WB sector loans (including the roads programme)

Mozambique Fuel Tax PSIA Key Research Questions 2 policy options: 65% tax rise with inflation since 1997 or 101% rise with devaluation (giving 20% and 13% fuel price rise) Fieldwork to understand how the use of fuel affects the processes behind poverty Use household survey to analyse the effect on expenditure and poverty numbers Some macro analysis of knock-on effects Discussions with key informants to understand reaction of enterprises and public opinion

Mozambique Fuel Tax PSIA Impact on Poverty pressure to increase prices 0.42% % (though this is not a projection of inflation) higher costs for urban transport and rural diesel lighting increase number of poor by up to 28,500 higher fuel costs for producers & some enterprise failure (milling, trading …) higher costs of social provisioning & emergency relief increased costs affecting remittances, food transfers & cross-community links changing work burdens, esp. for women’s unpaid work

Mozambique Fuel Tax PSIA Conclusions on Fuel Tax Poverty impact is ‘modest’ Possible serious impact on key vulnerable activities Extent of price rise is limited by S African prices Tax increases should be made when world prices fall

Mozambique Fuel Tax PSIA Lesson on Future PSIA Analysing short term expenditure impact is easy and useful Qualitative fieldwork is needed to understand variety and processes, but should be done early Very important to understand the response of vulnerable economic activities Impact on poverty numbers is a limited indicator, but offers comparable results This ex-anti PSIA would be distinct from routine PARPA M&E done in MPF, but would relate to it

Mozambique Fuel Tax PSIA Capacity for PSIA in Mozambique Various bodies are currently involved in PSIA-related work (MPF, University, Civil Society, INE …) Capacity is concentrated in a few people A small new body, in-between MPF, the University and the private sector would be ideal for new PSIA This should be a Mozambican version of similar institutes in other African countries

Mozambique Fuel Tax PSIA Reference Slides Slides for possible reference in case of need during discussion

Mozambique Fuel Tax PSIA Poverty Strategy Action Plan for Reducing Absolute Poverty 8% growth projections Costed, prioritised spending programme (health, education, infrastructure, agriculture, governance) Poverty from 70% to 50% (400,000 /yr) Revenue from 12.4% to 16.7% GDP (200m $/yr)

Mozambique Fuel Tax PSIA International Context

Mozambique Fuel Tax PSIA Regional Context

Mozambique Fuel Tax PSIA Fuel tax has been frozen

Mozambique Fuel Tax PSIA Economic Impact