+++ V.V.I. (FT) IMF halts Mozambique aid after finding undisclosed debts of $1bn

(FT) Mozambique faces a deepening crisis after the International Monetary Fund suspended funding to the southern African nation following the discovery of more than $1bn in previously undisclosed government debt.

The scandal will heap pressure on Maputo, which is dependent on donors to finance about a quarter of its budget. Mozambique is battling to narrow a wide fiscal deficit, its currency has plummeted and its foreign reserves are dwindling.

The controversy will also add greater scrutiny to the role of international banks in providing lending to poorer nations.

“It is probably one of the largest cases of the provision of inaccurate data by a government the IMF has seen in an African country in recent times. They deliberately kept from us at least $1bn, possibly higher, of hidden loans,” said an IMF official. “Mozambique is close to a financial crisis if the authorities don’t take action to deal with the current risks.”

The official warned that other donors could freeze disbursements of $350m to $400m “and you then have a fiscal crisis and a balance of payments crisis”.

The IMF said on Friday that Mozambican authorities confirmed the existence of the previously undisclosed borrowing — secured in 2013 and 2014 — last week. As a result, the fund is suspending disbursements of $155m of a $286m emergency loan it agreed with Maputo in October and has cancelled a visit to the country this week.

The latest revelations come shortly after another controversy involving a state-backed $850m bond that was ostensibly issued to set up a tuna fishing company, Ematum, even though $500m of the debt was spent on naval vessels and other security equipment.

Loans related to the bond significantly increased the cash-strapped government’s debt burden, while breaching its own ceilings on state-guaranteed borrowing and triggering rating agency downgrades.

It is probably one of the largest cases of the provision of inaccurate data by a government the IMF has seen in an African country in recent times. They deliberately kept from us at least $1bn, possibly higher, of hidden loans

IMF

Details of the previously undisclosed loans — which add about the equivalent of 10 per cent of gross domestic product to the government’s known debt burden — emerged after the “tuna” bond was restructured last month.

Of the two previously undisclosed loans confirmed last week, the first was for $622m to a state-owned company, Proindicus. The second, to another unidentified state company, was valued at more than $500m, a person familiar with the matter said.

Credit Suisse, the Swiss bank, and Russia’s VTB bank, both of which arranged the sale of the tuna bond, provided the undisclosed loans, the IMF said.

Credit Suisse and VTB declined to comment.

Both the tuna bond and the two other loans share similarities: much of the funds in each case have apparently been allocated to security equipment to provide protection off Mozambique’s long Indian Ocean coast, where big gas discoveries have been made.

Mozambique-Ematum-bond-yield

Gas projects, led by Italy’s ENI and Anadarko of the US, have the potential to transform Mozambique into one of the world’s top exporters of liquefied natural gas.

Fernando Lima, head of Mediacoop, an independent Mozambican media group, said Proindicus was officially established by the defence ministry in 2013 to “manage the purchase of military and security equipment related to the surveillance of the Mozambican coast” and related economic zones.

“The public is shocked by the unveiling of this extra debt,” Mr Lima said.

A delegation led by Prime Minister Carlos Agostinho do Rosário is heading to Washington this week to meet the IMF’s managing director, the World Bank and US officials.

In a statement that appeared to contradict comments by Adriano Maleiane, the finance minister, who said on Sunday the controversy was the result of confusion, Mr do Rosario said he would confirm the total debt contracted by public companies with state guarantees that do not appear in government statistics and were not reported to the IMF.

At stake is crucial funding from donors. A foreign diplomat in Maputo said: “We are very, very concerned. It seems in a single year, more than $2bn has been lent to a country with a GDP of $15bn, the majority for defence spending which is very bad governance and also thoroughly concerning in terms of the regulation of their financial institutions.

“And Credit Suisse has some quite big questions that so far it has not really wanted to answer.”çecvbyuin