Donors want full disclosure on Mozambique’s debt

full disclosure

Donors are demanding that Mozambique make full disclosure of the state of its finances before they resume aid that was withdrawn after the government admitted to hiding more than $1.4bn in debt.

The Southern African nation may have missed a May 23 deadline for a state-owned company, Mozambique Asset Management (MAM), to make an interest payment on a $535m loan. The potential default has raised concerns that the cash-strapped country will not meet other obligations, including on a $727m Eurobond issued in March.

“The suspension of disbursements follows what is perceived by partners as a serious breach of trust, poor governance and lack of fiscal transparency,” the so-called Group of 14 donors said in a letter with a raft of demands sent in May.

In the letter, the donors ask Mozambican authorities to list all the country’s existing and planned debt, with details on what the loans were intended for, their terms and conditions and repayment schedules. The country must also disclose the shareholding structure of MAM and a second state-owned company, Proindicus, which was lent $622m in 2013.

Restore confidence

In a reply obtained by Bloomberg,Finance Minister Adriano Maleiane proposed the government and the donors form a joint team to map out immediate actions to restore confidence.

“The government has a maximum interest in restoring the conditions that could, as soon as possible, enable the resumption of disbursements from the support programme, taking into account the crucial role that this financing plays in the execution of our social and economic policy,” Maleiane said in his letter.

Officials at the finance ministry declined to comment when called by Bloomberg.

Budget support funding to the country has been falling since 2013, Prime Minister Carlos Do Rosario said in a speech to the nation after a Washington DC meeting with the International Monetary Fund in April. Aid was $297m in 2015, down from $389m a year earlier and $457m in 2013.

The IMF, which unearthed the secret loans to MAM and Proindicus, has suspended $55m in aid, the second tranche of a $110m programme for 2016. The World Bank has also temporarily halted another $276m in budget support, according to Standard Chartered plc.

Political repercussions

The southeast African country, which is trying to develop gas fields that the government believes may make it the third-biggest exporter of liquefied natural gas, owes foreign investors $9.85bn, Maleiane told legislators last week. Fitch has cut its assessment of the country’s ability to repay credit and estimates that, when factoring in the newly disclosed loans, the government’s debt was equal to 83% of gross domestic product (GDP) in 2015.

Yields on Mozambique’s Eurobond fell two basis points to 17.12% by 2.08pm in London, after reaching a record on Thursday. The metical has depreciated 18% against the dollar this year, extending its 32% loss in 2015.

“Political repercussions are likely,” Victor Lopes, a senior economist for Africa at Standard Chartered, said in a note. “We see a rising risk of increased social discontent against the ruling Frelimo party, especially as inflation rises as a consequence of a weaker currency.”

Source: Bloomberg
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