IMF confirms hidden debt of 1.37 billion in Mozambique, cancels positive assessment of support program

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IMF confirms hidden debt of 1.37 billion in Mozambique, cancels positive assessment of support program

6:43 CAT | 22 Nov 2016

eastmoney.com (File photo) / Zhang Tao, deputy managing director of the International Monetary Fund (IMF) since August 22 2016, has previously served as deputy governor of the People's Bank of China (PBOC).

The International Monetary Fund (IMF) has announced that Mozambique has failed to meet its financial disclosure obligations under the support program and has cancelled its positive assessment of the implementation of this program, although requiring no further measures.

“Due to the non-observance of the continuous assessment criterion on the ceiling for the contracting or guaranteeing of new non-concessional external borrowing under the 2010-2013 and 2013-2016 PSIs [Policy Support Instrument], the Executive Board decided that it can no longer maintain a positive assessment of program performance under the two PSIs,” said the Deputy Managing Director of the International Monetary Fund. at the end of an Executive Board meeting on Mozambique.

“With respect to Mozambique’s breach of obligation under Article VIII, Section 5 of the IMF’s Articles of Agreement, the Executive Board welcomed the remedial measures already taken and additional corrective actions committed to by the authorities to implement measures to improve and strengthen the monitoring and reporting of data provided to the Fund,” adds Tao Zhang.

” In view of these remedial measures and additional corrective measures, the Executive Board decided not to require any further remedial action, but called on the authorities to implement the announced measures in a comprehensive and timely manner,” the Deputy Managing Director and Acting Chair concluded at the end of the meeting.

At stake is the concealment of external debt amounting to $1.37 billion (about 10.6 percent of the 2015 GDP) contracted during 2012-2015, reads an IMF communiqué on the meeting held by the Executive Board to “consider a report from the Managing Director on misreporting by the Republic of Mozambique under the Policy Support Instrument (PSI), and a breach of obligation under Article VIII, Section 5, of the IMF’s Articles of Agreement”.

“Specifically, 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,” reads a statement issued by the Fund.

This new information, says the Fund, “affects the 6th review of the 2010-2013 PSI, and the 3rd, 4th, and 5th reviews of the 2013-2016 PSI” and harms the Mozambican accounts, namely with regard to the debt limit that IMF establishes in order to provide financial assistance.

“The previously undisclosed debt has played a key role in making Mozambique a heavily indebted country, and has placed the government’s finances and international reserves under considerable strain. As such, the undisclosed debt undermined the achievement of key goals under the PSIs, which included accelerating economic development and maintaining macroeconomic stability, “reads the document released Monday night in Washington.

At the meeting, the IMF also said that it had examined issues related to non-compliance with the obligation to provide financial information “deemed necessary for the Fund to discharge its duties effectively,” noting that “the Republic of Mozambique had breached this obligation, as the authorities had reported inaccurate data with respect to the stocks of central government and central government guaranteed debt. “

Despite the lack of information, the Fund says it will not require any further remedial action and ensures that it will be “committed to remaining constructively engaged with Mozambique,” showing confidence in the “several important steps to address the situation” that the Government has announced since disclosing the previously unreported debt obligations earlier this year.

“Remedial measures include the launch by the Public Prosecutor of a criminal investigation into the debts incurred by certain state-owned entities, which will include an independent audit of these entities by an experienced and reputable international auditing company,” states the Fund.

The IMF concludes saying that that “further corrective actions will focus on introducing reforms to enhance Mozambique’s debt management, with the aim of reinforcing the process of issuing loan guarantees and improving transparency of public borrowing and guarantees”.

For the IMF full, unabridged statement you may want to go here: https://clubofmozambique.com/news/imf-executive-board-considers-mozambiques-misreporting-policy-support-instrument-breach-obligation-article-viii-section-5/

Source: Lusa / IMF