Government promises yearly international audit of post-cyclone reconstruction funds
The European Union agreed to release €290 mn ($339 mn) in budget support that it froze in 2016 as part of the general donor freeze on aid to government after the revelation of the $2 bn secret debt. The money will not go to government, but will go to projects in Mozambique in the next two years. And the World Bank is raising its funding in Mozambique by $158 mn – in increase of 50%. In 2015, before the crisis, the World Bank dispersed $419 mn, which fell to $316 mn in 2016. (Zitamar, O Pais 26 July)
Comment: Quietly, donors and lenders are admitting that they will not get their main demand — effectively naming and shaming of Armando Guebuza or other senior Frelimo figures – because Frelimo gives priority to remaining united at all costs. Donors and lenders are also coming to understand the cutting aid is only harming the poorest, not the guilty parties. And neither creditors nor debtor want to settle before 2022, after elections and when gas is coming on line. By then, none of the aid officials and diplomats personally offended by being lied to by Mozambican ministers in 2015 will still be in Mozambique. And the new ambassadors and aid heads will have no interest in the secret debt; their promotions and next postings will be built on using aid, not withholding it. For some donors, migrants and north Africa have replaced Mozambique as the priority, but for the rest it appears that the time has come to reset relations and bypass the secret debt deadlock. Departing EU Ambassador Sven Keuhn von Burgsdorff cleared the decks for his successor by releasing the frozen budget support.
Portugal-Mozambique relations cannot be paralysed because of the hidden debt, Portuguese Prime Minister Antonio Costa said in Maputo 5 July. Relations between the two countries cannot be “paralysed by the past,” he said during a two-day official visit. “The future is there and it is at the future that we have to look.” (Lusa 6 July)
But the fiscal crisis continues: banks won’t lend and bills are not paid
On 26 June banks refused to buy $17 mn (MT 1 bn) of 3-year treasury bonds, and government had to cancel its auction. (Zitamar 25 July) Sales on 27 March and 18 April of $35 mn each had been oversubscribed, but only half of bonds were sold on 8 May and very few on 12 June. The 26 June auction had to be cancelled. Government has become dependent on high interest treasury bonds (t-bonds) to repay bonds coming due and fund the civil service payroll, so it is now facing a severe shortage of Meticais.
Meanwhile the Confederation of Economic Associations of Mozambique (CTA) accused the government of absorbing credit that should go to the private sector. Evidence of the crowding-out effect is that since October 2016, the portion of domestic credit lent to the government has increased and the portion lent to the private sector tends has fallen. “If the government continues to absorb the credit that should be going to the private sector, corporate investment will tend to reduce and this will adversely affect economic growth in the medium term and long term,” the CTA said. (O Pais 30 July)
By Josep HanlonSource: News reports & clippings