Mozambique is “a good debtor”, declared the Minister of Economy and Finance, Adriano Maleiane, on Monday, cited by the independent daily “O Pais”.
Speaking in Maputo, at a meeting organised by the Confederation of Mozambican Business Associations (CTA), ahead of the African Investment Forum, an event that will take place in Johannesburg in November, Maleiane said that, if Mozambique does not pay certain debts, “that’s because it has a strong reason for not doing so. The risk for the country is zero”.
He put Mozambique’s public debt at over 11 billion US dollars. 87 per cent of this debt is with multilateral and bilateral creditors, “and we are paying these debts”.
The problem lay with the other 13 per cent, which is Mozambique’s commercial debt. Most of this arises from the illegal guarantees which the previous government, under President Armando Guebuza, issued in 2013 and 2014 for loans of over two billion dollars contracted from European banks (Credit Suisse and VTB of Russia) by three security related companies – Ematum (Mozambican Tuna Company), Proindicus and MAM (Mozambique Asset Management)
The EMATUM debt took the form of a bond issue organised in Europe by the two banks. These EMATUM bonds were replaced by sovereign government bonds in April 2016. But the government has defaulted both on payments to the banks for the Proindicus and MAM debts, and to the bondholders for the Ematum debts.
It has insisted that the three loans must all be renegotiated and rescheduled, and Maleiane claimed that the negotiations with the creditors should be concluded by December. According to a report from the Portuguese news agency, Lusa, the latest proposal from the bondholders would delay payment of 80 per cent of the debt services until the bonds mature in 2023. They are still demanding payment in full, but are giving the government more time.
The problem here is that Mozambican civil society organisations demand that the government should not pay anything at all. The debts were negotiated secretly and illegally, since the government guarantees smashed through the ceilings on such guarantees laid down in the 2013 and 2014 budget laws. A strong case has been made for Mozambique declaring the debts as odious.
The Attorney-General’s Office has been investigating the debts for three years, but there is still no sign that it will bring criminal charges against anyone involved.
As for the 2019 State Budget, which the government will present to the end of year sitting of the country’s parliament, the Assembly of the Republic, Maleiane described it as “realistic”, given the continued refusal of the country’s traditional donors to provide direct budget support.
“Unfortunately, the next budget will have no donor support”, said Maleiane. There had been no donor commitments by July 2018, and so the budget had to be drawn up without that component.
Although there will be no direct budget support, there will be other forms of foreign aid, in grants and soft loans (this is basically project aid). The rest of the budget deficit will be filled by the issuing of more high interest bearing treasury bonds, thus increasing Mozambique’s domestic indebtedness.
The suspension of direct budget support is part of the price Mozambique is paying for the Ematum, Proindicus and MAM scandals. When the existence of the Proindicus and MAM loans became public knowledge on April 2016, the International Monetary Fund (IMF) suspended its programme with Mozambque, and the donors suspended budget support.
The basic condition for restoring normal relations was that the government explain in full what had happened to the two billion dollars lent to Ematum, Proindicus and MAM. The world’s foremost forensic auditing company, Kroll Associates, was hired to audit the three companies, but could not complete the task because of deliberate obstruction by the company managements, notably by the man who was chairperson of all three boards, Antonio do Rosario, who even boasted of throwing the Kroll auditors out of his office.