Transcript Mozambique Demonstration 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% - 0.76% (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 $/yr)
Mozambique Fuel Tax PSIA
International Context
Mozambique Fuel Tax PSIA
Regional Context
Diesel and Petrol Prices in Southern Africa
Tanzania
Zimbabwe
Zambia
Malawi
Mozambique
South Africa
Swaziland
Botswana
1991
25
37
24
56
26
41
61
Diesel
Gasoline
1993 1995 1998 2000 1991 1993 1995 1998 2000
30
44
57
73
42
43
56
63
75
28
29
22
72
68
47
38
26
85
66
57
49
40
72
60
53
67
55
45
68
64
71
65
51
69
21
32
41
54
74
48
53
55
56
52
46
39
50
52
52
43
50
40
36
44
46
43
37
47
37
35
29
39
68
41
38
31
42
Mozambique Fuel Tax PSIA
Fuel tax has been frozen
Mt / lt
12,000
Fuel tax
Customs/IVA/ciruclation
10,000
Marketing
Cost cif
8,000
If ISC updated by ER
If ISC updated by CPI
6,000
4,000
2,000
0
F
A
J
1997
J
O
J
M A D
1998
J
S O
1999
F
M M
J
O
N D F
2000
Mozambique Fuel Tax PSIA
M M
J
2001
J
S
N
J
M M
2002
Economic Impact
Issue
Fuel tax
Government revenue
Fuel prices
Transport costs
All sector costs
Household cost of living
Number of poor
Contraction in GDP,
assuming no use of revenue
Net impact on inflation and
aggregate demand
Impact
+ 101%
higher tax increase option, linked to US$
+ US$ 34m / year 17% of PARPA target for increased revenue
+ 20%
weighted average (diesel 20.7%, petrol 30%)
+ 2.6%
assuming fuel accounts for 10%
+ 0.76%
assuming all costs passed on
+ 0.42%
assuming all sector costs lead to price rises
+ 28,500
7% of PARPA's target for one year
- 0.42%
assuming a fuel demand elasticity of –1.0
- 0.63%
with full demand multiplier
- 0.50%
with full equilibrium effects
The net impact depends on whether the value of public services
funded (ie road maintenance or services which would be cut if aid
is reduced) is greater than the contraction from higher fuel prices
Sensitivity Analysis of Impact1
Impact * 0.65
If the tax rise is only 65%, rather than 101%
Impact * 1.40
If fuel is 20% of transport costs, rather than 10%
Impact * 0.13
If elasticities of demand for fuel are –0.13, rather than –1.0
Impact * ?
If vulnerably activities (eg milling, traders …) collapse
Mozambique Fuel Tax PSIA