Mozambique: Out-of-court settlements on ‘hidden debts’ to cost 1% of GDP this year- IMF

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Mozambique: Out-of-court settlements on ‘hidden debts’ to cost 1% of GDP this year- IMF

3:16 CAT | 17 Jul 2024

File photo: Reuters

The International Monetary Fund estimates the cost this year of Mozambique’s new agreements with banks to resolve the ‘hidden debts’ controversy at 1% of gross domestic product.

Almost a decade after the loans taken out by state enterprises without the knowledge of parliament were disclosed, the IMF’s final report of its fourth evaluation of Mozambique’s Extended Credit Facility (ECF) programme, released this month, shows that the ‘hidden debts’ continue to be a source of pressure on the country’s public finances.

“Mozambique has reached agreement with creditors to settle the remaining outstanding amounts of the 2015 disclosed debt,” the IMF report notes, adding that” the settlement covers about $648 million of outstanding principal (with a total liability including interest of $1.4 billion), and entails a payment of $220 million (1 percent of GDP) during 2024″.

This month, Mozambique’s government announced a new out-of-court settlement – after another one closed in 2023 – now with three banks, including Portugal’s BCP, in a court dispute in London over the hidden debts. The settlement provides for a reduction in “state exposure” from $1.4 billion (€1.3 billion) to $220 million (€200 million).

At a news conference on 1 July, the economy and finance minister, Max Tonela, noted that the out-of-court settlement reduces the state’s exposure by 84% of the banks” total claim (and 66% of the capital).

According to the minister, the state’s potential liability in this case, including both principal and interest, would be around $1.4 billion (€1.3 billion), “with interest continuing to accrue, as well as estimated costs in the order of fifty million pounds [around €59 million], in the event of losing the case.”

The hidden debts scandal dates back to 2013 and 2014, when the then finance minister, Manuel Chang – who is now in detention in the US – approved state guarantees on loans taken out by state enterprises Proinducus, Ematum and MAM from the banks Credit Suisse and VTB without parliamentary approval or the knowledge of public auditors or other state creditors.

Disclosed in 2016, the debts were estimated at around $2.7 billion (€2.55 billion), according to figures presented by Mozambique’s Public Prosecution Service.

The agreement now announced was reached with Banco Comercial Português (BCP), which only participated in the loan to MAM, VTB Capital Plc (placed into administration in 2022) and the former VTB Bank Europe, in a dispute that has been running in the London courts since February 2019.

“The out-of-court settlement offers clear advantages for the state, compared to an uncertain court decision with possible unsustainable consequences for the country in the short and medium term,” said Tonela earlier this month. “It also avoids endless appeals and extremely high costs, considering the country’s current economic and fiscal challenges.”

Mozambique announced in 2023 that it had paid $130 million (€119.1 million) to financial institutions as part of an out-of-court settlement with Credit Suisse to end a dispute in the London Commercial Court over the hidden debts case.

Made public on 1 October, the day before the trial began in the British courts, the main signatories to the agreement were Mozambique’s government and the UBS group, owner of Credit Suisse, the main financier of Proindicus, which had sought the funds to buy ships and maritime surveillance equipment in 2013.

“Mozambique is now unconditionally open to the market and its government is committed to strengthening the governance agenda and structural fiscal reforms on a healthy basis and to giving its full attention to implementing the right measures to support the country’s economy,” concluded Tonela.

The ongoing trial is the culmination of almost four years of litigation in the British courts, to which the African country applied for the cancellation of debts and financial compensation, alleging corruption, conspiracy to defraud by unlawful means and dishonest assistance.

Mozambique is demanding $3.1 billion (€2.8 billion) in damages, compensation and indemnity from the shipping group Privinvest and its owner, Iskandar Safa, whom it accuses of paying bribes to public officials, including former minister Chang, who signed the sovereign guarantees on the loans.

Source: Lusa