Mozambique’s Donors Demand Full Disclosure on Nation’s Debt

  • Group of 14 donors suspend funds after ‘breach of trust’
  • Government wants to restore disbursements as soon as possible

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are demanding that Mozambique makes full disclosure of the state of its finances before they can resume aid that was withdrawn after the government admitted to hiding more than $1.4 billion in debt.

The southern African nation may have missed a May 23 deadline for a state-owned company, Mozambique Asset Management, to make an interest payment on a $535 million loan. The potential default has raised concerns that the cash-strapped country won’t meet other obligations, including on a $727 million 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 this month and obtained by Bloomberg.

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 reveal the shareholding structure of MAM and a second state-owned company, Proindicus, which was lent $622 million 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 program, 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 a speech to the nation after a Washington D.C. meeting with the International Monetary Fund last month. Aid was $297 million in 2015, down from $389 million a year earlier and $457 million in 2013.

The IMF, which unearthed the secret loans to MAM and Proindicus, has suspended $55 million in aid, the second tranche of a $110-million program for 2016. The World Bank has also temporarily halted another $276 million in budget support, according to London-based 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 $9.85 billion, Maleiane told lawmakers last week. Fitch Ratings Ltd. has cut its assessment of the country’s ability to repay credit and estimates that, when factoring in the newly revealed loans, the government’s debt was equal to 83 percent of gross domestic product in 2015.

Yields on Mozambique’s Eurobond fell by 2 basis points to 17.12 percent by 2:08 p.m. in London, after reaching a record 17.13 percent on Thursday. The metical has depreciated 18 percent against the dollar this year, extending its 32 percent 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.”

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