The International Monetary Fund (IMF) has announced that it has frozen the second planned instalment of a US$286 million loan to Mozambique following revelations that the government did not disclose the full extent and nature of the country’s national debt ‒ allegedly to the tune of over US$1 billion. The IMF has also cancelled a planned mission to the country pending a “full disclosure and assessment of the facts”. Mozambique’s Finance Minister, Adriano Maleiane, who was in Washington DC for an IMF/World Bank summit when the announcement was made, has publicly denied that the country left out anything pertinent when disclosing Mozambique’s finances.
The debt is derived from loans the country took with Credit Suisse and Russia’s VTB Bank, a debt many financial experts believe Mozambique will be unable to repay. The first loan includes a US$622 million loan from Credit Suisse to state-owned defence firm, Proindicus, ostensibly to fund the government’s maritime security programme. This loan has reportedly been increased to over US$900 million. The second loan, issued by VTB to the value of US$550 million, was rumoured to be lent to a state-owned entity driving the development of the port in the city of Pemba, in the northern Cabo Delgado province. The port is intended to be a logistical, transport and shipping hub for Mozambique’s nascent gas sector.
These latest revelations follow a Wall Street Journal (WSJ) exposé on 3 April which claimed that US$850 million raised from government bonds in 2012 intended to finance state-owned tuna fishing company, Ematum, was instead partly used for defence expenditure. This is particularly damaging as current President, Filipe Nyusi, was Mozambique’s defence minister at the time. The government has already had to agree to an arrangement where investors who bought the Ematum bonds can swop them for Mozambique sovereign notes.
This suspension of the second tranche of the IMF loan is cause for concern in Mozambique as it was specifically intended to help the country meet its budget and development targets while faced with reduced income due to falling commodity prices. It could see Mozambique struggle to finance its national budget this year and could derail, or at least stall, much planned development in infrastructure and in the energy sector. Further, the controversy over the VTB loan could lead to delays in the Pemba port development itself. The IMF announcement could further impact on Mozambique’s credit rating as the three major ratings agencies will need to account for the additional debt. Naturally, it also will do little to ease the perceived trust deficit already associated with the Ematum bond saga which will likely only deepen in the short term.
Compounding the pressure on Nyusi’s team, the revelations coincide with a sustained increase in violence between the government and opposition party/rebel group, Renamo. The accusations will play into opposition propaganda that the Frelimo-led government is corrupt and could lead to a surge in Renamo’s support, further emboldening the group to take a more belligerent stance towards the government with all the inevitable implications for stability.