16 May 2018

Mozambique: Government Again Promises Full Cooperation In Scandal of "Hidden Debts"

Maputo — Mozambican Prime Minister Carlos Agostinho do Rosario on Wednesday assured the Mozambican parliament, the Assembly of the Republic, that the government remains "completely willing to cooperate and support the bodies of the administration of justice" in their investigations into what have become known as "the hidden debts".

This refers to the loans of over two billion US dollars which three security-related companies, Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Assets Management) contracted with the banks Credit Suisse and VTB of Russia in 2013/2014. The loans were only possible because the previous government, headed by President Armando Guebuza) issued illicit guarantees.

The guarantees smashed through the ceiling laid down by the 2013 and 2014 budget laws on the amount of guarantees that the government can issue. They also violated the constitution which states that only the Assembly can authorise such debts.

Speaking in a question and answer session in the Assembly, Rosario said "We must continue to put our trust in our justice institutions and await the outcome of this process".

It looks like a long wait. The Attorney-General's Office has been investigating the illicit loans since 2015, but so far not a single person has been charged with any crime.

Rosario said the government's strategy "is to bring the country's public debt to sustainable parameters, which involves restructuring it so as to free resources to finance priority actions in the Government's Five Year Programme".

It was from that perspective, he continued, "that we have been maintaining a permanent dialogue with our partners and the creditors. The dialogue with creditors also seeks to establish a favourable environment so that our country gains access to financial resources on the international market on favourable terms and conditions".

Giving further details, the Minister of Economy and Finance, Adriano Maleiane, put the country's total foreign debt, as of 31 December last year, at 10.6 billion US dollars. Of this sum, 4.2 billion dollars (39 per cent of the total) is multilateral debt (owed to institutions such as the World Bank and the African Development Bank), and 4.6 billion dollars (43 per cent) is bilateral debt owed to a variety of creditor countries.

The rest is commercial debt, of which the largest portion is the 1.8 billion dollars remaining of the Ematum, Proindicus ad MAM debts. The commercial debt carries much higher interest rates and shorter repayment periods than the bilateral and multilateral debts.

In 2017, Maleiane said, Mozambique only paid the debt service on the multilateral and bilateral debts. It has not paid anything at all on servicing the commercial debt since early2016.

"We are in negotiations over these debts", the Minister said. He believed that, if those negotiations went well, the country's credit rating would improve.

Maleiane argued that the government had been knocked off course by the collapse in commodity prices of 2016, which hit some of Mozambique's most important export products, and increased the deficit on the balance of payments. He said that 2015, the first year of this government, had been promising, with a growth rate of 6.6 per cent and inflation held to 3.4 per cent.

This rosy picture was shattered by the 2016 fall in commodity prices which he blamed for the sharp fall in the value of the Mozambican currency, the metical, which plummeted from 44 meticais to the dollar at the start of the year to about 80 to the dollar in around October.

Other analysts, however, believe that the collapse in the value of the metical was caused by the crisis in confidence arising from the hidden debts. The true scale of the debts only became clear in April 2016, whereupon the International Monetary Fund immediately suspended its programme with Mozambique, and all 14 donors who had previously provided direct support to the Mozambican budget halted further disbursements.

Maleiane put the size of the government's domestic debt at the end of 2017 at 100.5 billion meticais (about 1.68 billion dollars). Around half of this debt is the consequence of the subsidy policies followed by the Guebuza government, particularly a generalised fuel subsidy. Thanks to that subsidy, the government amassed huge debts to the fuel distribution companies which it is still paying off.

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