Mozambique – Debt Troubles Continue

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The IMF commends recent efforts but states that financial support will not resume until debt levels are made sustainable.

The Deputy Director of the Africa Department of the International Monetary Fund (IMF), David Owen, said on November 14th that Mozambique had taken promising steps to deal with hidden debts that have impacted heavily on the economy.

The debts relate to loans of over US$1.1bn from Credit Suisse and Russian bank VTB to quasi-public firms Proindicus, Mozambique Asset Management (MAM) and the Mozambique Tuna Company (Ematum), under then President Armando Guebuza in 2013/14.

The IMF, during a mission visit from September 22-29th, praised the “significant tightening of macro-economic policy,” and the raise in interest rates announced by the Bank of Mozambique in October, which had led to the stabilisation of the exchange rate, reported AIM.

However the head of the mission Michel Lazare said that resumption of financial support was still a long way off.  “The authorities have requested the Fund to resume discussions on financial support as soon as possible. A solid track record of implementation of sound macroeconomic policies and an effective initiation of the audit process in the near term would help to create the conditions for a possible resumption of program discussions with the IMF,” Lazare said.

Lazare continued by stating that Mozambique “is facing a challenging economic environment”, with economic growth now in decline. The forecast growth for this year is 3.7% in 2016, down from 6.6% in 2015, which is “is significantly below levels observed in recent years.”

“At the same time, a significant decline in imports has been more than offset by a weakening of exports, foreign direct investment, and donor financing…This has maintained pressure on international reserves, which have continued to decline,” Lazare added, reported AIM.

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Ex-President Armando Guebuza – CC 2012

However more than half of the secret loans related to Ematum and maritime security have never been explained. According to Africa Confidential, around $900m was passed on to companies owned by the ruling Frelimo elite for the purchase of assault rifles, armoured cars and other weapons from Israel, for use in the war against Renamo, reported UK-based Mozambique News Reports.

There have also been accusations that Frelimo officials have wasted huge sums on setting up a shipbuilding industry, for which little work had been completed. Though many of the weapons seem to have been bought by companies owned by private individuals, these companies are linked to the three implicated in the debt scandal. Many of the funds were placed in offshore bank accounts to act as collateral for Frelimo-owned companies.

Two banks involved in the deals, Crédit Suisse and Russia’s VTB Group are under investigation by authorities in the UK and Switzerland.

The two main political parties remain at loggerheads as the country continues to be in crisis. Frelimo, which has held power since independence from Portugal in 1975, is fighting to maintain its grip on the country. In the wake of the scandal economic and political unrest troubles have only worsened, reported Africa Confidential.

Find out more in the Africa Research Bulletin:

Mozambique – Price Falls Lead To Closures
Economic, Financial & Technical Series
Vol.53, Issue. 8, Pp. 21404A

MOZAMBIQUE: Liquidity Problems
Economic, Financial & Technical Series
Vol.53, Issue. 5, Pp. 21289A–21290C

MOZAMBIQUE: Economic Update
Economic, Financial & Technical Series
Vol.53, Issue. 4, Pp. 21231A–21233C

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