IMF revising past views of Mozambican progress – AIM report

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IMF revising past views of Mozambican progress – AIM report

11:40 CAT | 24 Nov 2016

Fie photo / IMF's Managing Director Christine Lagarde

The Executive Board of the International Monetary Fund (IMF) is revising its previously positive view of the progress of the Mozambican economy under the two Policy Support Instruments (PSIs) that the Mozambican government agreed with the Fund.

The IMF describes a PSI as a “flexible tool” which allows low income countries “to secure IMF support and advice without a borrowing arrangement”. It claims that a PSI “helps countries design effective economic programs that deliver clear signals to donors, multilateral development banks, and markets of the Fund’s endorsement of the strength of a member’s policies”.

Mozambique has had two consecutive three year PSIs with the IMF, and the Fund’s assessment of Mozambican progress under the PSIs was glowing. In statement after statement, the IMF heaped praise on the government’s handling of the Mozambican economy.

But in the light of the scandal surrounding undisclosed lending, with government guarantees, of over 1.3 billion US dollars, the IMF is now revising its opinion of Mozambique’s PSIs.

An IMF press release says that on Monday a board meeting received a report from Managing Director Christine Lagarde on the “misreporting” by Mozambique. The failure to disclose the loans was considered a violation of the government’s obligations under the PSI, and also under the IMF’s articles of agreement.

In light of this violation, Lagarde asked the IMF Board to reassess the past performance of Mozambique under the PSIs.

The IMF puts the undisclosed borrowing at 1.37 billion dollars. This consists of government-guaranteed loans from the banks Credit Suisse and VTB of Russia to the security related companies Proindicus (622 million dollars) and Mozambique Asset Management, MAM (535 million), and a loan of around 200 million dollars from a so far unnamed bilateral partner to the Ministry of the Interior. The undisclosed loans amounted to 10.6 per cent of Mozambique’s 2015 Gross Domestic Product.

“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”, said the IMF release.

This meant that the IMF had not been in possession of complete information when it wrote its favourable reviews of progress under the PSIs after 2013, the start date for the undisclosed loans. “The new information”, said the release, “affects the 6th review of the 2010-2013 PSI, and the 3rd, 4th, and 5th reviews of the 2013-2016 PSI”.

The IMF Board said it “took note of the nature and extent of the misreporting. In particular, it noted that 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”.

As for the IMF Articles of Agreement, these oblige IMF members to supply key macro-economic information. The release said the Board found that 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”.

On a brighter note, the IMF said the government had subsequently taken steps to correct the situation, including launching a criminal investigation by the Attorney-General’s Office into the undisclosed loans, and the audit of Proindicus, MAM and Ematum (Mozambique Tuna company) that will be undertaken by the US company Kroll.

“Further corrective actions”, the release adds, “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”.

In light of these measures, the IMF is not demanding anything else of Mozambique. At the end of the meeting, the IMF deputy managing director, Tao Zhang, said the Board “decided not to require any further remedial action, but called on the Mozambican authorities to implement the announced measures in a comprehensive and timely manner”.

To read the full IMF report you may go here – https://clubofmozambique.com/news/imf-executive-board-considers-mozambiques-misreporting-policy-support-instrument-breach-obligation-article-viii-section-5/

To read a Lusa News Agency report on the same subject translated from Portuguese you may go here https://clubofmozambique.com/news/imf-confirms-hidden-debt-1-37-billion-mozambique-rejects-aid-application/

Source: AIM