FOOD SUBSIDIES AND EXCHANGE-RATE DISTORTIONS IN MOZAMBIQUE

In response to acute food shortages in Mozambique induced by civil war, drought and policies that favoured state farms and restricted private trade, the government introduced a food rationing system in the two largest cities, Maputo and Beira. The primary function was to assure an equitable distribution of the limited food available, but it has evolved into an untargeted income-support programme as the crisis that led to its inception has abated. This article emphasizes the need to transform the subsidy, which at present is financed implicitly through exchange rate distortions, into an explicit and targeted subsidy. This would be consistent with the long-term objectives of Mozambique's economic recovery programme in which liberalization of commodity markets and exchange rate realignment are key policy reforms.