The UK government says it has suspended financial aid to Mozambique over an alleged “serious breach of trust” relating to undisclosed debts.
This follows similar action from the International Monetary Fund (IMF) and the World Bank.
The IMF halted funding 10 days ago when it found Mozambique had not declared debts of more than $1bn (£700m).
The government says the liabilities relate to guaranteeing loans taken out by two mostly state-owned companies.
The UK said in a statement that it was now “working closely with other international partners to establish the truth and coordinate an appropriate response”.
The IMF is currently carrying out an analysis to see if Mozambique has a sustainable level of debt, and the World Bank is waiting for its outcome before it approves any more loans.
Mozambique’s Prime Minister Carlos Agostinho do Rosario went to the IMF headquarters in Washington DC last week to explain the government’s position.
The government has admitted that it acted as guarantor for a $622m loan taken out by state-owned Pro-Indicus, and another loan of $535m by Mozambique Asset Management. Both are involved in the maritime industry.
Mozambique has had one of Africa’s fastest growing economies in recent years with oil and gas discoveries buoying its prospects and attracting a lot of investment.
The mechanics of this are the same as with a personal loan.
If you take out a loan from a bank, the bank always asks you about your other liabilities. Do you have other debts? It will also want to see a payslip.
From the bank’s point of view, it is all to do with risk. Can you make the payments on their loan, if you have a lot of other debt as well?
And it is the same with countries. So, when the IMF lent money to Mozambique, it would have asked about the country’s other liabilities.
As the Mozambique government failed to disclose that it guaranteed the two large loans, it has put the IMF loan in jeopardy.
The IMF is now worried that Mozambique will not be able to meet its liability commitments with this extra debt on its books.
What are your thoughts? Please comment below and share this post!