The Executive Board of the International Monetary Fund (IMF) is revising its previously positive view of the progress of the Mozambican economy under the two Policy Support Instruments (PSIs) which the Mozambican government agreed with the Fund.

The IMF had described a PSI as a “flexible tool” which allows low income countries “to secure IMF support and advice without a borrowing arrangement”. It claims that a PSI “helps countries design effective economic programmes that deliver clear signals to donors, multilateral development banks, and markets of the Fund’s endorsement of the strength of a member’s policies”.

Mozambique has had two consecutive three-year PSIs with the IMF, and the Fund’s assessment of Mozambican progress under the PSIs was glowing. In statement after statement, the IMF heaped praise on the government’s handling of the Mozambican economy.

However, in light of the scandal surrounding undisclosed lending with government guarantees of more than 1.3 billion US dollars, the IMF is revising its opinion of Mozambique’s PSIs.

An IMF statement says a meeting of the Executive Board on Monday received a report from Managing Director Christine Lagarde on the “mis-reporting” by Mozambique. The failure to disclose the loans was considered a violation of the government’s obligations under the PSI, and also under the IMF’s articles of agreement.

In light of this violation, Lagarde asked the IMF Board to re-assess the past performance of Mozambique under the PSIs.

The IMF puts the undisclosed borrowing at 1.37 billion US dollars. This consists of government-guaranteed loans from two banks — Credit Suisse and VTB of Russia — to the security related companies Proindicus (622 million USD) and Mozambique Asset Management, MAM (535 million USD), and a loan of around 200 million USD from a so far unnamed bilateral partner to the Ministry of the Interior. The undisclosed loans amounted to 10.6 per cent of Mozambique’s 2015 Gross Domestic Product.

“Information provided by the Mozambican authorities since April 2016 revealed non-observance of the country’s continuous assessment criterion on the ceiling for the contracting or guaranteeing of new non-concessional external borrowing by the central government, the Bank of Mozambique, and selected state-owned enterprises under the 2010-2013 and 2013-2016 PSIs”, said the IMF release.