Secret debt crisis: Spending cuts / US$148 mn due this month & more – Hanlon

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Secret debt crisis: Spending cuts / US$148 mn due this month & more – Hanlon

3:09 CAT | 05 May 2016

Revelations that the government of Armando Guebuza took on more than $2 billion in debt in secret are creating a deepening economic crisis.

The Group of 14 (G14) budget support donors have all suspended their contributions to the government budget, the President of Portugal, Marcelo Rebelo de Sousa, confirmed yesterday. Portugal holds the rotating chair of the G14 and Marcelo Rebelo is on a visit to Maputo. The IMF had already announced that is would not release any more funds from the agreed standby credit. The G14 is already down from an earlier 19 budget support donors and lenders.

Economic and Finance Minister Adriano Maleiane yesterday announced the first spending cuts. These include a hiring freeze and limits to government travel. But he guaranteed that health and education would not be sacrificed.

Maleiane said that donor budget support was $467 mn per year, corresponding to 12% of the state budget. Spending cuts will clearly be much more severe. The IMF issued a general warning Tuesday in its Africa “Regional Economic Outlook” that African countries, including Mozambique, that have been forced to turn to the IMF for support will need to cut their budget deficits. And Roger Nord, deputy director of the IMF Africa Department, told Bloomberg that it is still not clear how large are the Mozambican secret debts. This will fuel rumours that more debts are still to be revealed.

There are at least three loans to parastatal companies taken in secret in 2013. They are the Mozambique Tuna Company (EMATUM $850 mn), revealed last year and recently renegotiated, and two newly revealed loans, Proindicus to provide maritime security, particularly for offshore oil and gas operations ($622 mn), and Mozambique Asset Management (MAM), set up for maritime repair and maintenance ($535 mn).

At a press conference Thursday 28 April Finance Minister Adriano Maleiane said that the Proindicus loan is to be repaid in the next 5 years at an interest rate of 3.75% with the first payment of $24 mn due in May. Over the 5 year period, the repayments will be running at an average of $119 mn per year. For the MAM loan, the repayment period is 4 years at an interest rate of 7.7%, and the first payment of $124 mn is also due in May.

Thus payments of $148 mn are due this month. An estimated $321 mn in debt repayments will be due next year (2017) on the secret loans – Proindicus $119 mn/year, MAM $124 mn/y and Ematum $78 mn/y. This comes on top of servicing the government’s remaining debt.

In addition the government has admitted previously unannounced loans to the Ministry of Interior. These appear to be suppliers credits for $221 mn taken between 2009 and 2014. No further details have been provided, but the items imported appear to include new armoured cars for riot control and equipment for the riot police, who have been doing most of the fighting against Renamo.

This huge increase in spending at a time of cuts to IMF and donor funds creates a serious financial hole for the government.

The Attorney-General’s Office in a press statement Friday 30 April said that investigations into the Proindicus and MAM loans were ordered on 20 April, and that investigations into the Ematum loan were launched in August 2015.

By: Joseph Hanlon

Source: Joseph Hanlon News