Hidden debts

Mozambique’s public debt remains “unsustainable”, according to the latest annual report on the debt from the Ministry of Economy and Finance, and hence the country remains debt distressed. All the key debt ratios showed a decline in sustainability in 2020. Thus the ratio of the net present value of the debt to Mozambique’s Goss Domestic Product (GDP) should not exceed 30 per cent.        But it was 66.4 per cent in 2018, falling to 62.6 per cent in 2019. The estimate for 2020 is a slight rise to 62.7 per cent. The limit on the ratio of the debt to exports is 150 per cent – but it reached 160.1 per cent in 2018, 164.9 per cent in 2019, and an alarming estimate of 225.6 per cent in 2020.       The debt service to export ratio should not exceed 10 per cent – but it was 11.7 per cent in 2018, falling to 10.8 per cent in 2019, and then rising to an estimated 14.8 per cent in 2020. The total public debt at the end of the 2020 financial year was 12.97 billion US dollars. 78 per cent of this (10.15 billon dollars) was foreign debt, and 22 per cent (2.82 billion dollars) was domestic debt.

Perhaps the most shocking aspect of the foreign debt is that it includes part of what have become known as Mozambique’s “hidden debts”. This term refers to illicit loans of over two billion US dollars from the banks Credit Suisse and VTB of Russia in 2013 and 2014 to three fraudulent, security–linked Mozambican companies – Proindicus, Ematum (Mozambique Tuna Company), and MAM (Mozambique Asset Management).

 The loans were only possible because the government of the day, under the then President Armando Guebuza, issued loan guarantees in violation of the 2013 and 2014 budget laws and the Mozambican constitution.

Eventually, the country’s highest body in matters of constitutional law, the Constitutional Council, ruled that all three loans were unconstitutional. That should have ended any possibility of repaying the creditors – and indeed, the Proindicus and MAM loans (now the subject of court cases in London) have been excluded from the debt figures.

But the government is continuing to pay interest on the bonds issued by Ematum, in violation of the Constitutional Council’s ruling, and despite the fact that Ematum was always a fraud, and is now bankrupt. The Ematum bonds have been transformed into Mozambican government sovereign bonds, and are now known as “Mozam 2032” bonds.

The Ministry of Economy and Finance lists this ex-Ematum debt as 900 million dollars – which is 16 per cent of the entire multilateral foreign debt stock in 2020. By the end of 2020, multilateral creditors accounted for 5.64 billion dollars of the foreign debt, and bilateral creditors for 4.5 billion. The largest creditors were the World Bank (2.9 billion – 29 per cent of the total), China (1.95 billion – 19 per cent)), the African Development Fund (936 million – nine per cent), and “Mozam 2032” (900 million nine per cent). The Mozambican government joined the Debt Service Suspension Initiative (DSSI) in September 2020. The initiative had been launched in May 2020, and apparently had the support of the main bilateral creditors. Mozambique announced that it intended to suspend the debt service to 15 of its creditors. But in the period covered by the report, Mozambique only secured bilateral suspension agreements with three creditors – China, Japan and South Korea. These agreements freed 22.3 million dollars that would otherwise have gone to debt servicing in that period. This was 11 per cent of the bilateral debt servicing programmed for May-December 2020.