2.3.4 Decentralisation 145. In 1997, the Mozambican parliament passed Law 2/97 on municipalities, which entails the devolution of political and economic powers to local institutions. As a result, municipal assemblies, local councils, mayors, and local parliamentarians were elected on 30 June 1998. These bodies were vested with the power to make laws, plan and budget, acquire and administer resources, and collect tax. In exercising their powers, municipal institutions were encouraged to coordinate their activities with those of traditional authorities in satisfying the specific needs of local communities. 2.3.5 Broader Public Sector Reforms (2001–11) 146. In 2001, the government passed its Global Strategy for Public Sector Reform (PSR) aimed at enabling the public sector to promote socioeconomic development and reduce absolute poverty. Rationalisation and decentralisation of service delivery are two key components of the PSR and entail restructuring the public sector based on functional analysis and restructuring plans for all ministries. This restructuring will lead to the transformation of the functions, structures and human resources of central government towards policy formulation and monitoring. Service delivery will be transferred from central institutions to local-level institutions, including the private sector and civil society organisations (CSOs). The PSR focuses on the following six key areas: • Improving service delivery through decentralisation and institutional re structuring; • Strengthening the policy formulation and monitoring process; • Enhancing professionalism in the public sector; • Improving financial management and accountability; • Promoting good governance and combating corruption; and • Managing the reform process. 2.4 Challenges 147. While progress has been achieved in the pursuit of reforms, Mozambique still faces a number of major challenges that could complicate the country’s quest to improve the welfare of the majority of its people. The challenges that require urgent attention are discussed below. 2.4.1 Lack of Structural Transformation in the Economy 148. The irony of Mozambique’s recovery is that the macroeconomic stability that has been achieved is based almost entirely on concessional and conditional transfers of development aid. It is not based on any fundamental improvement in the basic economic structure and the inherited colonial economy has persisted. There has been no deconstruction of the economy and therefore no restructuring 76 A P R M COU N T RY R EV IEW R EP ORT NO. 11