Mozambique: IMF Demands Forensic Audit of Ematum, Mam, Proindicus Loans

The International Monetary Fund (IMF) has demanded an international, independent forensic audit of the government guaranteed loans contracted by the Mozambican companies EMATUM (Mozambique Tuna Company), MAM (Mozambique Asset Management) and Proindicus (intended to provide maritime security services).

The three companies are all security linked. GIPS, the investment arm of the State Security and Intelligence Service (SISE), owns 33 per cent of EMATUM, 50 per cent of Proindicus and 98 per cent of MAM.

The three loans amount to slightly more than two billion US dollars. They were contracted in 2013-14, under the previous Mozambican government headed by President Armando Guebuza. At the time, only the EMATUM loan (for 850 million dollars, arranged on the European bond market) was public knowledge. The loans to Proindicus (622 million dollars) and to MAM (535 million dollars) were not disclosed, either to the Mozambican public, or to the country’s international partners, including the IMF.

When the two loans became public knowledge in April, the IMF suspended the second instalment of a loan of 282 million dollars from its Standby Credit Facility (SCF). Other donors also suspended financial aid, including the group of 14 countries and agencies that used to provide direct support to the Mozambican state budget.

An IMF mission visited Mozambique from 16 to 24 June, essentially to discuss the undisclosed loans, and met with senior government officials, including President Filipe Nyusi, Prime Minister Carlos Agostinho do Rosario, Finance Minister Adriano Maleiane, and the Governor of the Bank of Mozambique, Ernesto Gove.

After the visit, the head of the mission, Michel Lazare, declared that “recent initiatives to investigate the previously undisclosed debt, through the Attorney General and a Parliamentary Inquiry Commission, are important steps to restore confidence”.

But the IMF does not regard these steps as sufficient, and Lazare called for “an international and independent audit” of the three controversial loans.

Lazare warned that the two undisclosed loans had pushed Mozambique’s total debt stock, at the end of 2016, to 86 per cent of Gross Domestic Product (the ceiling for this ratio is usually regarded as 40 per cent).

“According to our technical assessment, public debt is now likely to have reached a high risk of distress”, said Lazare. Furthermore, even before the suspension of IMF lending, “performance under the 2015-2017 Stand-by Credit Facility has been disappointing, with most assessment and performance criteria or indicative targets being missed at end-December 2015 and end-March 2016”.

The IMF has revised its forecast for Mozambican economic growth this year sharply downward. It expects growth to be no more than 4.5 per cent, compared with 6.6 per cent in 2015. “Fiscal policy in 2015 and the first half of this year has been excessively expansionary, with an increase in net credit to the government that far exceeded program targets”, said Lazare. Meanwhile, inflation in the first five months of the year had reached 16 per cent, and the Mozambican currency, the metical, had depreciated by 28 per cent against the dollar.

Lazare said the IMF mission and the government “agreed that this context calls for an urgent and decisive package of policy measures to avoid a further deterioration in economic performance. In particular, substantial fiscal and monetary tightening, as well as exchange rate flexibility, are needed to restore macroeconomic sustainability, reduce pressures on inflation and the balance of payments, and help alleviate pressures on the foreign exchange market while restoring balance between supply and demand on the foreign exchange market”.

Thus further austerity is likely to be imposed, and further devaluation of the metical, thus eroding real wages and savings. This “adjustment”, Lazare added, “should preserve critical social programmes” – this presumably means that the education and health services will be shielded from impending cuts.

“Further progress in the effective implementation of both the corrective macroeconomic measures and the measures aimed at strengthening transparency, improving governance, and ensuring accountability would pave the way for the resumption of programme discussions at a later stage”, Lazare concluded. Thus the SCF programme remains suspended for the time being.

The Mozambican Finance Ministry issued a statement, saying the government had briefed the IMF mission on recent economic developments “stressing the impacts of drought and floods in some parts of the country, as well as the decline in the prices of export products which has impacted negatively on export revenue”.

It was this situation, the government said, which was provoking a shortage of foreign exchange and the volatility in the metical exchange rate.

The statement said the IMF mission “took note, in particular, of the measures of budgetary restraint that the government will adopt, without damaging the commitment to continue guaranteeing resources to the social sectors”,

The government, the statement concluded, “reiterated its commitment to deepen economic and social reforms, as well as building up the technical capacity of institutions for better performance of the public and private sectors”.

Source: Agencia de Informacao de Mocambique