Mozambique’s finance minister warns of immediate public expenditure cuts

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Mozambique’s finance minister warns of immediate public expenditure cuts

7:54 CAT | 05 May 2016

O País (File photo) / Adriano Maleiane, minister of Economy and Finances of Mozambique

Mozambican Finance Minister Adriano Maleiane has warned of cuts in public expenditure, following the announcement that the group of 14 donors and funding agencies that provide support to the Mozambican state budget are suspending their financial aid, due to the government’s failure to report massive borrowing made in 2013-2014.

At the centre of the storm are loans contracted by two state concerns, Proindicus (622 million US dollars) and Mozambique Asset Management (MAM – 535 million dollars), with government guarantees. Proindicus is supposed to provide security for oil and gas operations in the Rovuma Basin, and more generally for shipping in the Mozambique Channel. MAM was set up to provide maritime repairs and maintenance.

These loans, contracted under the previous government, led by President Armando Guebuza, were not disclosed to Mozambique’s partners, including the International Monetary Fund (IMF), or to the Mozambican public.

Speaking to reporters on Wednesday night, Maleiane said that the budget support partners had pledged US$467 million for 2016 – which is 12 per cent of all public expenditure. This figure covers both general budget support, and support for the sectors. Both are considered forms of programme aid, as opposed to the scattering of aid around dozens or hundreds of separate project.

The suspension will not affect the full 12 per cent, since some of the group had already begun disbursing aid for 2016 before the scandal of the undisclosed loans erupted.

Maleiane said the government is making cuts in public expenditure including restrictions on the use of fuel, reduction in travel by government delegations and the suspension on hiring new staff for the state. He pledged that education and health “will be the last to be affected”.

“If the suspension of aid lasts for a long time, and we hope that will not be the case, every citizen should know that there will be cuts in expenditure”, the Minister said. “But I can guarantee that education and health will be the last areas to be touched. There are other areas that can be cut without great problems”.

The unfreezing of the aid will depend on the position towards Mozambique taken by the IMF. Maleiane said the government has sent the IMF all the information it requested, and is now waiting for its conclusions.

The massive debts incurred by the Guebuza government in its final years, through issuing guarantees for loans contracted on more or less commercial terms, amount to slightly more than two billion dollars. This figure covers the Proindicus and MAM loans, and the 850 million dollar bond issued in 2013 by the Mozambique Tuna Company (EMATUM). The only salient difference between EMATUM and the other two loans is that EMATUM was not concealed.

These three loans between them amount to over 20 per cent of the country’s total foreign debt of US$9.89 billion and around 17 per cent of the total public debt of US$11.64 billion dollars.

Maleiane declared that the responsibility for repaying the debts lies in the first place with the companies that benefited from government guarantees. Only if they are unable to pay would the government guarantee be enforced.

Hence the government is demanding business plans from the three companies, so that it can assess their ability to pay. Maleiane did not reject the possibility of selling off the companies’ assets to help pay the debt. The most prominent assets are EMATUM’s 24 fishing boats and six military speedboats for maritime protection – but, according to the French press, these boats, built in a shipyard in the French port of Cherbourg, cost 200 million euros (about 230 million dollars) when new. Even if they were all sold off, the money raised would come nowhere near covering the EMATUM debt.

Some of the military boats bought with the Proindicus loan are visible in Maputo port, but no information is yet available on how much they cost.

To date, none of the companies shows any sign of profitability, According to the government’s figures, last year the EMATUM fleet caught only 300 tonnes of tuna – apparently because only five of its 24 boats were licensed. Fisheries Minister Agostinho Mondlane, however, was optimistic that this year the catches will rise to over 4,000 tonnes.

As for Proindicus or MAM making a profit, that will depend entirely on whether oil and gas companies (such as the American Anadarko, or the Italian ENI) or shipping companies operating in Mozambican waters, are willing to pay for their services.

“Mozambique was always a country which had a lot of discipline”, Maleiane said, “but right now it is necessary to prove once again that it is on the right path, and is doing everything to ensure that everything functions as the norm recommends”.

Source: AIM