World Bank suspends direct financial aid to Mozambique – WSJ

Login

Register

http://www.clubofmozambique.com/

World Bank suspends direct financial aid to Mozambique – WSJ

11:17 CAT | 27 Apr 2016

Ex Africa / Five DV15 and three WP-18 boats in Maputo port

The World Bank announced on Wednesday that it is suspending direct financial aid to Mozambique, thus joining the International Monetary Fund in cutting off budgetary assistance after learning of more than US$1 billion in previously undisclosed loans, reports the Wall Street Journal (WSJ) citing a source familiar to the matter.

The World Bank “will continue to fund individual investment projects, but it is suspending payments of approximately US$40 million this year for direct budgetary support,” reads the report, pointing out that the financial institution “had more than US$1.6 billion committed to Mozambique across 23 different projects as of October and was expected to provide approximately US$110 million this year for direct budgetary support, of which US$70 million have been disbursed”.

The Wall Street Journal recalls in the article how it had previously reported that Credit Suisse Group AG, Russia’s VTB Group “and others” had loaned more than US$1 billion to Mozambique’s government starting in 2013.

“In 2013, when most of the loans were made, Mozambique’s official budget included US$6 million in government-guaranteed debt. Yet the country loaded up with nearly US$1.5 billion in government-guaranteed debt, vastly more than its parliament had approved,” reports WSJ.

Following the first WSJ report, the IMF said it had stopped disbursement of a US$55 million loan and had suspended lending, because Mozambique had violated the terms of its agreement by failing to disclose the loans.

“With the World Bank also pulling back, Mozambique is getting pinched by both its long-term and immediate sources of aid,” writes the WSJ stressing that “the loan disbursements from the IMF are short-term emergency assistance to help shore up its finances” and that the World Bank’s funding, “which includes grant and loan programs that can run for up to 40 years, is for the country’s longer-term development”.

Before the loans were disclosed, Mozambique’s debt risk profile was considered “moderate” by the IMF. The newly disclosed debt is expected to shift the country’s debt risk to “high.”

The person familiar with the discussions between the World Bank and Mozambique told WSJ that “a downgrade would trigger a series of changes to the World Bank’s support in the country, reducing the overall amount of aid to the country and increasing grants as a percentage of aid”.

The Wall Street Journal adds that the World Bank’s general budget support payments will be on hold until the IMF finishes its analysis, a process that could take months, according to the person familiar with the matter.

Lucie Villa, a vice president and senior analyst with Moody’s Investors Service’s sovereign risk group, said the ratings firm is closely following Mozambique’s status in the IMF program because without IMF support, the country’s ability to raise cash from either donors or investors will be limited, fuelling liquidity concerns.

Source: The Wall Street Journal