The International Monetary Fund (IMF) revealed on Wednesday (17) that the costs of the new agreements between Mozambique and the banks to resolve the problem of hidden debts could consume 1% of Gross Domestic Product (GDP) by 2024.
The financial organization, quoted by Bloomberg, explained that the hidden debts contracted by the country continue to be a source of pressure on public finances. The IMF stressed the importance of Mozambique reformulating its asset declarations and conflict of interest laws to bring them into line with international standards.
The Fund also highlighted the need for greater transparency in public procurement, considering the relevance of Mozambican state-owned companies to the economy, as a preventative measure against corruption.
“Mozambique has reached an agreement with its creditors to settle the remaining outstanding amounts of the debt disclosed in 2015. The agreement covers around 648 million dollars of outstanding principal (with a total liability including interest of 1.4 billion dollars) and implies a payment of 220 million dollars, corresponding to 1% of GDP in 2024,” said the IMF.
At the beginning of the month, the government announced an out-of-court settlement with three banks, including Portugal’s BCP, in the dispute in London over the hidden debts. This agreement provides for a reduction in “state exposure” from 88.4 billion meticais to 13.9 billion meticais (from 1.4 billion to 220 million dollars).
“The out-of-court settlement reduces the state’s exposure to 13.9 billion meticais (220 million dollars), i.e. a cut of 84% of the banks’ total claim (and 66% of the capital),” explained the Minister of Economy and Finance, Max Tonela.
According to Tonela, “the state’s potential liability in this case, including both the capital and the interest, would be 88.4 billion meticais (1.4 billion dollars), with interest continuing to accrue, in addition to the costs estimated at 3.9 billion meticais (63.2 million dollars), in the event of losing the case”.
The hidden debts scandal dates back to 2013 and 2014, when the then Finance Minister, Manuel Chang, approved, without Parliament’s knowledge, state guarantees on loans from ProIndicus, Ematum and MAM to the banks Credit Suisse and VTB.
Discovered in 2016, the debts were estimated at 170.6 billion meticais (2.7 billion dollars), according to figures presented by the Public Prosecutor’s Office.
The agreement announced with Banco Comercial Português (BCP), which only participated in the loan to the MAM company, VTB Capital Plc and the former VTB Bank Europe, brings to an end a dispute that has been running in the London Court since February 2019.
“The out-of-court settlement offers clear advantages for the state, compared to an uncertain court decision and possible unsustainable consequences in the short and medium term. It also avoids endless appeals and extremely high costs, considering Mozambique’s current economic and fiscal challenges,” said Max Tonela.
This is the second out-of-court settlement in this case. Previously, Mozambique announced that it had paid 8.2 billion meticais (130 million dollars) to financial institutions in an out-of-court settlement with Credit Suisse, ending a dispute in the London Commercial Court over the hidden debts.
