28 August 2017

Mozambique: No IMF Programme Without Completing Kroll Audit Report

Maputo — There is still no sign of any new programme between Mozambique and the International Monetary Fund (IMF), and the IMF representative in Mozambique, Ari Aisen, has made clear that a basic condition for any advance is filling in the gaps in the audit of the three security related companies Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management).

These are the three companies that contracted loans of over two billion US dollars with European banks (Credit Suisse) and VTB of Russia, in 2013 and 2014, which were illegally guaranteed by the government of the time, headed by President Armando Guebuza.

The Proindicus and MAM loans were kept completely secret until April 2016. When they became public knowledge, the IMF accused the Mozambican government of concealing the true extent of its foreign debt. The IMF suspended its programme, and other partners followed suit. The 14 donors who used to provide direct support to the Mozambican state budget all interrupted their disbursements.

A key requirement for restoring normal relations with the IMF was an independent audit of Ematum, Proindicus and MAM. The Attorney-General's Office (PGR) hired Kroll Associates, reputedly the top forensic auditing company in the world, but the Kroll audit report is incomplete, because the three companies refused full cooperation.

The executive summary of the Kroll report, released by the PGR in late June, said the companies only provided “limited financial data, including incomplete trial balances and bank statements for certain periods, and incomplete supporting documentation, such as loan facility agreements and supplier contracts. As a result, it became apparent that a significant amount of the information originally envisaged to be held by the Mozambique Companies in Mozambique was not available”.

Mozambican banks also failed to cooperate and “As a result”, the report added, “Kroll cannot rely on the completeness of this information for the purposes of this report”.

The lack of cooperation was quite deliberate. The agent of the security and intelligence service, SISE, Antonio do Rosario, who is the chairperson of all three companies, openly boasted that he had thrown the Kroll auditors out of his office.

Interviewed in the latest edition of the independent weekly “Savana”, Aisen said that a condition for any new programme with the IMF is filling the gaps in the Kroll report.

“The government has expressed its desire to have a programme with the IMF, and for our part we also want to support Mozambique”, he said. “The question of the audit has been posed as an important element in this regard”.

He pointed out that the investigations into Ematum, Proindicus and MAM are headed by the PGR. “The information will not be given to the IMF, but to the PGR, and there are confidential inquiries to which we have no access”, said Aisen. “So we are waiting for the next steps in the outcome of this entanglement, because as the mission from Washington (of the IMF, in July) made clear, it is very important to fill these information gaps in the report”.

Asked whether the IMF was demanding that those who contracted the debts be held responsible, Aisen replied “I'm going to leave this question open because it is a sovereign decision of the country, and the PGR is the body responsible which will decide how to proceed”.

The scandal of the hidden debts has weakened the government, and the IMF is now making further demands, including restricting public sector wages, or what Aisen called “adjusting the public accounts”.

“The public deficit must be reduced, or more precisely the primary public deficit, which excludes the high cost of debt servicing”, he stressed. This meant eliminating tax exemptions, in order to increase fiscal revenue, and reducing the state wages bill.

“Measures must be discussed by the government to rein in the growth of the public sector wage bill”, he demanded.

Aisen believed this could be achieved by hiring fewer new staff for the state, and “increasing wages in a much more cautious way than has been the case”.

But the largest numbers of state employees are in the education and health services, and this year their wage rises were much lower than the rate of inflation. When “Savana” pointed out that the wages of most public servants do not cover basic living expenses, Aisen agreed this was a concern “but we must be honest about the capacity of the government to pay wages for the public administration”.

He suggested cutting the benefits for those at the top of the public sector pay scale “before reducing the wages of the lower strata. The government needs to debate sustainable options, but not give the impression that nothing needs to be done”.

Aisen praised the recent increase in electricity tariffs (of between 35 and 42 per cent), pointing out that the previous prices “were lower than the average in the region, and you have to be honest with the public”.

It was the richer groups in society that consumed the most electricity “and it is not correct for a public company to subsidise these classes. If EDM (the public electricity company) accumulates losses, it will certainly need an injection of capital from the government, which will come from the State Budget”.


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