Comment: Is ‘do nothing’ still an option? – By Joseph Hanlon

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Comment: Is ‘do nothing’ still an option? – By Joseph Hanlon

12:25 CAT | 18 Sep 2017

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In the run-up to the Congress, the Frelimo government has done as little as possible to rock the boat. On the $2 bn secret debt, the donors were kept calm by allowing the Kroll audit, but much essential information was withheld so the leadership was not compromised. On the private debt itself, Mozambique continued to promise to pay when it could but made no actual payments (and even delayed bilateral repayments to China and Brazil). Foreign exchange reserves were boosted by unexpectedly high coal and aid revenues. There were no real domestic spending cuts and government survived simply by not paying bills, particularly for construction projects. Because Mozambique uses a cash accounting system, unpaid bills do not appear on the books. No one seems to know how large government debts are, but they are probably getting up to $100 mn.

After the Congress, the next big hurdle will be 2018 local and 2019 national elections. Could Frelimo follow the same “do nothing” strategy to get through national elections? In 2020 the re-elected (or new) president could point to their mandate and turn to donors for help.

On debt, it now seems apparent that holders of bonds and syndicated loans are not prepared to go to court – in part because that would release evidence pointing to the responsibility of the banks, Credit Suisse and VTB, in improper lending – making loans which were impossible to repay and not following normal practices. And it does seem that the bond and loan holders are prepared to wait for a new government and closer prospects of gas before negotiating. So Mozambique could probably get away with not paying now and promising to pay some day – at least until after elections.

On Kroll and the debt, there seems little chance of releasing sufficient new detail on the use of money to satisfy the IMF, so Mozambique may as well assume no IMF programme until after elections. And donor budget support will never return. On the other hand, Mozambique will be getting more than $300 mn in capital gains tax from ENI in the coming months, coal revenues seem likely to hold up, and the World Bank and some donors seem happy to pour dollars into Mozambique so long as the projects do not go through central government budgets. That should maintain foreign currency reserves and provide some money for Frelimo election spending.

The biggest problem is likely to be domestic spending in Meticais. With elections coming up the government will not want to cut civil service wages, and also will not want to cut the perks of more senior officials who are expected to organise Frelimo votes in the election. Infrastructure projects will have to be cut, and growing debts will remain unpaid.

But it looks possible that the Frelimo government can follow the “do nothing” option until after the elections.

By Joseph Hanlon

Source: News reports & clippings