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"Mozambique was assessed on its performance in terms of reduction of poverty, improvement in governance and in fighting corruption," Michael Thijssen, a governance and policy officer at the embassy, told AFP.
"According to standards set in our new policy we did not see sufficient improvement in these areas," he added.
"So from 2013, funds for the national budget will only be allocated to specific sectors such as health," said Thijssen yesterday.
Netherlands is among the southern African nation's 19 donors, with funding subject to yearly review.
In March 2010 the group of 19 donors suspended budget support to the country following the 2009 elections in what was deemed a 'donor strike'.
Negotiations continued for a month, during which donors demanded concrete action on promises made by government on electoral reform and the fight against corruption, before payments resumed.
Last year donors trimmed back funding to buy medicines, pointing to Mozambique's own declining budget allocation on health.
A former Portuguese colony Mozambique, once one of the world's poorest countries during its bloody 16-year civil war, has recorded strong growth since the end of the conflict in 1992.
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