MAPUTO, — The World Bank has suspended its direct budget support to Mozambique, although Mozambican Prime Minister Carlos Agostinho do Rosario told a Maputo media conference here that the government has not yet been formally informed of this decision.

Rosario was in Washington last week for talks with the International Monetary Fund (IMF) and the World Bank following reports that the government had not informed the IMF about 1.4 billion US dollars worth of loans contracted in 2013-14.

He said that during the talks in Washington, the IMF and the World Bank recognized that the Mozambican government “is serious about seeking solutions to the question of the public debt”.

In the meeting with the World Bank “we were informed that the disbursements of the budget support envisaged for this year will be made after the work that is under way with the IMF is concluded”, the prime minister added. Thus the announcement of the suspension of budget support can hardly have come as a surprise.

According to a report in the Wall Street Journal, the World Bank will continue to support individual projects, but will hold back 40 million USD in budget support. For 2016, the Bank had promised budget support of 110 million USD, and 70 million USD of this sum has already been disbursed.

Rosario said the government was working with the IMF “to re-establish full confidence and consolidate fiscal transparency so that similar situations do not occur again”.

This joint work would also “assess the macro-economic impact of the debt, with a view to redesigning future programmes based on the information available”.

Rosario argued that the fundamental problem with the Mozambican economy was not debt, but production, or the lack of it. “Our economy has a low productive base. That is, our consumption is not satisfied by national production, and that’s why we resort to imports, grants and debts. We are consuming more than we produce,” he added.

In the 2013-2015 period, he added, excluding the foreign investment mega-projects, “Mozambique imported four times more goods and services than it exported”. For 2015, the import bill was over 6.6 billion US dollars, but exports only brought in 1.36 billion USD.

“The structural problem is chronic,” said Rosario, and was made worse by a general decline in the world market prices of Mozambique’s main export products.

The country had also experienced a decline in foreign direct investment (FDI), and even before the current problems with the IMF and the World Bank, foreign aid had been falling. General budget support, the Prime Minister said, had fallen from 457 million USD in 2013, to 389 million USD in 2014, to 297 million USD in 2015.

These factors combined to reduce the amount of foreign currency available, to put pressure on the value of the Mozambican currency, the metical, and to increase the cost of living.

“The stability and resilience of our economy”, Rosario said, “can only be achieved by increasing internal production, because no economy can live and be sustained on loans, imports and state subsidies.”

He called not only for increased production but also for diversification of the economy “to guarantee food security, replace imports and raise the level of exports. These are the essential conditions for macro-economic stability”.

Meanwhile, the British government on Thursday announced that it is suspending financial aid to Mozambique, in the wake of the scandal over undisclosed loans. A spokesperson for the British Department for International Development (DFID), cited in the British government statement, said “the existence of the loans, and the lack of transparency around them, is deeply disappointing”, and warned of “serious implications for Mozambique’s economy for the medium-term”.

“This appears to be a serious breach of trust, so we are working closely with other international partners to establish the truth and coordinate an appropriate response,” the spokesperson added. “We support the IMF’s call for full disclosure of loan transactions and debt to the people of Mozambique. Any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly.

“The United Kingdom follows strict rules and procedures when providing aid and our priority continues to be supporting the people of Mozambique to lift themselves out of poverty and build a more prosperous country.”

The British aid has not been cancelled, but delayed until further notice and will mainly affect British support for the Mozambican budget. For many years, Britain has been one of the main donors of direct budget support.