Mozambican economist and IESE researcher Nuno Castel-Branco says the solution to Mozambique’s debt crisis is restructuring and cancellation. He talks about Mozambique’s illegal debts, and advocates an audit and holding accountable those who have harmed the state.
O País: In recent years, Mozambique’s public debt has risen significantly, reaching 40 percent of gross domestic product. Do you consider that Mozambique is in a critical debt situation?
Nuno Castel-Branco: Yes, because the public debt was already renegotiated in the 90s, with the introduction of the mechanism for heavily indebted developing countries. This allowed the cancellation of a significant part of the debt and the restructuring of the rest.
But the point we wish to draw attention to is that of our economic structure depends on debt, so cancelling debt does not solve the problem. We have to change the economic structure.
What we demonstrated at the time was that even if we reduce our debt to zero, the next day we’ll be two million in debt. In 2006, the debt was reduced to three billion dollars. Today we have about nine billion dollars of debt, but it is difficult to know exactly how much debt we have, because every day we discover new debt. Not even the IMF knows how much we owe. We must make a serious and responsible audit.
O País: How dangerous is the lack of information on the country’s debt level?
NCB: The Governor of the Central Bank has refrained from comment on the news of the Proindicus debt; the Minister of Economy and Finance also said it would evaluate. There is no concrete information on the debt.
First you need to know whether the debt is small, big, commercial, domestic or foreign. There is a line of thought which says that the public debt is still within fiscally sustainable parameters. This is fallacious, firstly because the ratios that are used are questionable for an economy that is completely dependent on imports, and the wealth we do create flows out easily because of tax incentives, dependence on imports, lack of domestic connections and so on.
When we use the GDP as an indicator in debt sustainability ratios or when we use exports, we are mis-stating our national economic dynamics. For example, our gross national income (GNI), which is the generated income which actually stays in the economy, is much smaller than GDP, which is the entirety of income generated within the economy. A significant part of the GDP gets out and GNI is smaller, but it is a technical issue.
The fundamental point is that the speed with which indebtedness comes about creates a crisis of expectations, and the economy continues to fuel expectations that generate this debt, that is, this great investment in mineral and energy resource infrastructure whose income is insecure and lies in an uncertain future.
O País: If we are to look at the investment choices made by these debts, we can conclude that the proceeds will not be sufficient to pay them. If we look at Ematum, for example, it is producing 5 percent less than expected. How do we pay this debt?
NCB: There is another point we must look at, which is that of an expected debt crisis, because as capital costs increase, so the debt starts to feed on itself. On the other hand, there is indeed a crisis affecting the budget and this crisis is also created by the new debt structure. By 2006, we had almost no commercial debt besides domestic debt. And at this time 25 percent of the external public debt is commercial debt with little maturity and much higher interest rates. So the impact that these small groups of debt have is much larger than the great debts to the IMF and the WB which are at concessionary rates.
Domestic public debt is only 15 percent of total public debt. It is a debt that aggravates the speculative trends in the financial system. It makes capital for small and medium enterprises scarce and expensive. We are talking about diversification while at the same time our domestic financial system is being so structured by debt as to become more speculative and inaccessible to diversify the production base.
This kind of economic structure prevents the economy from generating sustainable jobs and reducing poverty. Where the only one thing that survives is big capital.
O Pais: You have said that we are in an austerity situation. Since when?
NCB: Austerity is not a declared thing, it is reflected. We have not discussed budgets, cuts in public spending and so on, but we still have them. Austerity is when we see the windows in Maputo Central Hospital without glass for example, the doctors unmotivated, the patients without sheets or medication, and so on. We go to schools, the quality of education is low, there are no desks. And once again, the high-income people have options, foreign or private schools, but most people have none. Look at public safety, the high-income people have guards at the entrance of the house, but the low class needs police protection.
Meanwhile, we have austerity, but we do not call it austerity yet, and it will get worse if we continue in this debt and crisis dynamic.
You need to do an audit and lay out a strategy of debt restructuring and cancellation. And second, the sovereign institutions should impose accountability in cases of unlawful debt. Accountability of individuals with high positions in the state who have damaged the country with illegal decisions. The debts of Ematum and Proindicus are illegal; they were not submitted to parliament.
We have to have strong institutions. We must investigate those who created these problems. We have to hold accountable those who took poor and above all illegal decisions that damaged an entire state when their political position was that of guarantors of the constitution. This is a subject that is part of debt restructuring because it increases our credibility as a nation, being is able to say “this will not happen again”.
O Pais: Economic growth projections averaged 7 percent per year, but the current situation, with floods, drought, political tension and now the issue of public debt, threatens this. What is your projection?
NCB: Growth rate projections take into account all of those factors, but even if there were no floods and droughts, the debt model and the structural dynamics of the economy would lead to the reduction of growth rates. My main concern is the structure of this economic variability. We are in the bubble phase of the national economy, which is imploding and exploding, as is the case of reduced investment in the country, but also the debt crisis.
The point is to take the necessary measures to solve the problem. First is the credibility, second is the audit, third is the strategy of debt restructuring and cancellation and fourth is to take action in two areas: tax incentives and public investment strategies and priorities.
The area of tax incentives: if we abolish the incentives, the state will add US$400 million a year to the budget.
Secondly, we need profound changes in public investment strategies and priorities. We have data from the previous government of large investments in projects that, given the level of our economy, can in no way be defined as priorities. They are large projects that create visibility with very high costs but do not contribute fundamentally to our economy at this stage. They could be contributing at a later stage. These are not a priority in terms of the existing basic problems of the country. That is where we are spending these billions of dollars of debt.
Where have contracts, let us mobilize those partners who are in agreement with us and restructure these contracts without significant costs to the state so that we can restructure our resources and diversify our production base.
As long as we depend on external dynamics and interests, our economy will be structured around what is fundamental for the global capitalist economy – and this may conflict with the interests and the basic needs of the population.
Source: O País
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