Mozambique: Donor Budget Fuels Decentralisation, Raises Funding Woes

• Mozambique's three-decade effort to decentralize municipal government is hampered by an unresolved funding crisis.
• A recent study found Beira's major investments between 2022 and 2024 were heavily reliant on international donor funds, not local revenue.
• The National Association of Municipalities of Mozambique reports that central government has disbursed only about half of due transfers since 2024, with some councils receiving as little as 8%.
• Donor aid is becoming less reliable as funds are redirected towards trade and business, further straining municipal budgets.
• Internal issues like weak tax administration, heavy wage bills, and political appointments over competence also contribute to the financial instability of local councils.

Mozambique's long-standing ambition for decentralisation is fundamentally undermined by the persistent failure to establish a sustainable financial model for its municipal governments.

Mozambique's almost three-decade-long effort to expand municipal government faces a critical, unresolved challenge: who will pay for it. A study presented last week by the Centre for Public Integrity (CIP) highlighted this issue, revealing that the city of Beira's visible record of investment between 2022 and 2024 was heavily reliant on international donors. Funding from the Netherlands, the World Bank, Germany, and the European Union underpinned significant projects, including drains, coastal protection, and sanitation. While these donor-funded initiatives are welcome, Beira's own revenue primarily covered its running costs but proved insufficient for its main capital projects, underscoring a fundamental lack of financial autonomy.

This reliance on external funding is compounded by inconsistent support from the central government. The National Association of Municipalities of Mozambique (ANAMM) reports that since 2024, the central government has disbursed only about half of the statutory transfers due to municipalities annually. Alarmingly, some councils have received as little as 8% of their allocated funds for the current year. Such erratic funding makes it nearly impossible for mayors to plan services, pay suppliers, or make credible investment commitments.

The financial squeeze is not felt evenly across the country. Councils run by the opposition have long complained, with some grounds, that late or missing transfers disproportionately affect them, a charge the government denies. Furthermore, the reliability of outside donor money is diminishing as donors trim aid and reorient remaining funds towards trade and business, rather than traditional infrastructure projects like roads and drains. This shift adds another layer of financial uncertainty for municipalities.

The challenges extend to local financial management, as exemplified by a court order in February in Cabo Delgado. This order blocked Pemba's bank accounts due to a disputed debt of approximately MZN65m (around $1m) incurred under the previous administration, a situation that has now jeopardized the town hall's ability to pay salaries.

The primary responsibility for ensuring financially viable municipal governance rests with the central government. If the central government assigns duties to local councils, it must ensure that financial transfers are both predictable and sufficient to meet these obligations. A crucial element missing from the current system is an effective equalisation mechanism, which would help poorer municipalities that struggle to raise revenue on par with wealthier cities like Maputo, Matola, or Beira.

The existing municipal tax code, which dates back to 2008, is outdated and urgently requires revision to provide a more robust and equitable revenue-generating framework for local authorities. The current approach, which often sees municipalities waiting for a development partner to fund every road repair or drain construction, is not a sustainable fiscal model for long-term development and self-sufficiency. This reliance on external aid, coupled with inconsistent internal transfers, creates a precarious financial environment that undermines the very goal of decentralisation.

While central government and donor policies play a significant role, municipal leaders themselves share responsibility for the financial predicament. A common issue across many councils is weak tax administration, which limits their ability to generate local revenue effectively. Additionally, too many municipalities struggle with heavy wage bills and accumulate debts that are often passed on from one administration to the next, creating a cycle of financial instability.

The problem is exacerbated by governance practices where competence is not always the deciding factor in municipal leadership. Political parties frequently reward loyalty with top positions on municipal lists, leading to some mayors taking office with insufficient technical skills required for effective financial management and service delivery. Consequently, municipal office is too often perceived as a political prize and a source of employment rather than an administrative body tasked with delivering services responsibly within a defined budget. This internal mismanagement further compounds the external funding challenges, creating a complex web of issues that impede effective local governance.

Mozambique's long-standing ambition for decentralisation is fundamentally undermined by the persistent failure to establish a sustainable financial model for its municipal governments. The current reliance on unpredictable donor funding and inconsistent central government transfers creates a fragile system where local authorities cannot effectively plan, invest, or deliver essential services to their citizens. This instability not only hampers local development but also erodes public trust in governance, particularly when basic services are compromised or when financial crises, such as the one in Pemba, directly impact the ability to pay salaries.

Addressing these systemic issues—from reforming the outdated tax code and ensuring predictable central government transfers to improving local financial administration and prioritizing competence in leadership—is crucial for Mozambique to achieve genuine financial autonomy and robust, accountable local governance. Without these fundamental changes, the expansion of municipal government risks remaining an unfunded mandate, perpetually dependent on external goodwill rather than internal capacity.

Source: Original reporting via Zitamar News