GIPS, the investment arm of the State Security and Intelligence Service (SISE), owns 33 percent of EMATUM (Mozambique Tuna Company), 98 percent of Mozambique Asset Management (MAM), and 50 percent of Proindicus (intended to provide maritime security services).

The loans to the three companies amount to slightly more than US2 billion. They were contracted in 2013/14 under the previous Mozambican government headed by president Armando Guebuza. At the time, only the EMATUM loan (for US850 million, arranged on the European bond market) was public knowledge. The loans to Proindicus (US622 million) and to MAM (US535 million) 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 installment of a loan to Mozambique of US282 million 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 June 16 to 24, essentially to discuss the undisclosed loans, and met senior government officials, including President Filipe Nyusi, Prime Minister Carlos Agostinho do Rosario, Finance Minister Adriano Maleiane, and Bank of Mozambique Governor Ernesto Gove.

After the visit, mission head 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 percent of Gross Domestic Product (the ceiling for this ratio is usually regarded as 40 percent).

“According to our technical assessment, public debt is now likely to have reached a high risk of distress,” he said.

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 percent, compared with 6.6 percent 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 percent, and the Mozambican currency, the metical, had depreciated by 28 percent 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.”

This means further austerity is likely to be imposed and further devaluation of the metical, thus eroding real wages and savings. This “adjustment should preserve critical social programmes”. He presumably meant that the education and health services would 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. This meant the SCF programme remained 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”.

This situation 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 “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”.

ANA