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Hidden Debts: New Agreement Is Good For Mozambique, But Has the Lesson Been Learned? Economists Divided

Hidden Debts: New Agreement Is Good For Mozambique, But Has the Lesson Been Learned? Economists Divided

At the beginning of last week, the government announced an out-of-court agreement with three banks, including Portugal’s BCP, in the litigation taking place in London over the case of the hidden debts, which will reduce the “state’s exposure” from 88.4 billion meticals to 13.9 billion meticals (from 1.4 billion to around 220 million dollars).

Economists contacted by Diário Económico (DE) argue that, with the new agreement, the country will no longer be in default and will be able to improve its image, gaining access to the international capital market to seek more funding.

Borges Nhamire, an analyst and researcher at the Centre for Public Integrity (CIP), explains that “Mozambique is no longer in default because it had bad credit. Someone borrowed money and couldn’t pay it back. So, with this agreement, the country is no longer in default, which opens up space for it to issue guarantees again to finance other projects of strategic value, such as, for example, the participation of the National Hydrocarbons Company (ENH) in gas exploration in the Rovuma basin,” he said.

The researcher also said that the debts of MAM and Proindicus, on which the country borrowed around 88.4 billion meticals (1.4 billion dollars), the state will return only around 13.9 billion meticals (220 million dollars) and the case will be closed. “This means that Mozambique has been forgiven around a billion dollars of debt,” he points out.

Estrela Charles, on the other hand, argues that the agreement “is beneficial for Mozambique”, as it will reduce the burden of debt payments and end a very long process that was costing the country a lot in terms of lawyers and other factors. “We can say that this is a reduction in the value of the debt, because there is still an amount to be paid. The ideal would be for the government to have mechanisms and ways of cancelling and not paying the debt, but unfortunately the state is trying, through agreements and negotiations, to pay and get out of this problem,” she explains.

Continuing, the economist points out that in terms of positive consequences or impacts, “we can see the 84 per cent reduction in the amount payable, which is quite high. We have the issue of opening up to new investments, which means that Mozambique, at international level, has room to contract more external debts, as we know that these have lower interest rates. There is also the issue of reducing the risks of investment flight and improving the country’s image, as we will no longer be seen as a nation that doesn’t pay its debts.”

On the other hand, the researcher highlights some of the negative aspects of the process. “The first is related to the lack of transparency, as the outline of this agreement, when it started and what the procedures are, is not published.

Then, there is no explanation of how the remaining amount will be paid and, finally, there is the issue of impunity, because the government doesn’t talk about punishing those involved in the scandal, in other words, the continuity of the other processes that exist for accountability, mainly at a national level,” he laments.

With the new agreement, the country will no longer be in default and will be able to improve its image, gaining access to the international capital market to seek more funding

For his part, Egas Daniel, a senior economist at the International Growth Centre (IGC) of the London School of Economics (LSE), believes that the agreement for Mozambique is in fact a step towards recovering the country’s image and credibility with international partners. “From a non-paying state that went into default in terms of payment difficulties, it is now a nation in fulfilment. The agreement improves the debt-to-GDP ratio, although this isn’t immediately reflected in the reduction of the instalments the country has to pay, which are high at the moment, but it marks an important step towards debt sustainability. We can’t deny that,” he explains.

The IGC economist also says that the agreement also means that the state has a lot to do, because if it has managed to work very well on the external debt, the same effort to renegotiate, adjust and balance it will have to be made domestically. “But we must emphasise how positive this agreement is for the country, for the debt stock, the nation’s credibility, attracting and facilitating access to the international capital market, for a vision of a lower risk profile after this situation (which didn’t happen before, as the risk profile was quite high), and even this could improve the country’s rating, if this trend of debt control and the path towards sustainability continues,” the source pointed out.

Lessons to be learnt
Borges Nhamire explains that several lessons can be learnt from this case, because it is important to realise that if the state asks for money and signs guarantees, it will have to pay. “Mozambique paid these amounts because they were earmarked for projects that are of no importance to the state. Those companies were declared insolvent and the country didn’t get any benefit from them,” he explained, emphasising that “the state needs to study the projects for which it is making guarantees”.

For Estrela Charles, “the most important issue is managing the risk of public debt. There’s a need to analyse the risk so that we know what level we’re at, what the payment methods are, and whether there’s a need for such a high level of debt to meet some current internal expenses. So the government should take this lesson from the hidden debts and draw up a management plan to understand the contours that exist. There’s the issue of the lack of transparency and participation of civil society: it’s very important, in all matters of public debt, especially over very large amounts, that civil society, Parliament, is aware and enters the debate to know all the contours of the debt. We have to look at the issue of improving the mechanisms for contracting debt, both internal and external, who approves and controls it. This can’t just be concentrated in the Ministry of Economy and Finance,” she emphasised.

Borges Nhamire begins by clarifying that the government that contracted the debts is not the current one. “The Executive involved in the debts is not that of the current Mozambican President. They usually say that intelligent people learn from the mistakes of others. Now, I don’t know if President Filipe Nyusi’s government hasn’t contracted other debts that we don’t know about, which is why I don’t think a lesson has been learnt,” he said.

“Now, President Filipe Nyusi is also making strange agreements, with a year to go until the end of his mandate. So I would say that it seems that nothing has been learnt. I can’t see, from a practical point of view, whether the current government has learnt anything from the mistakes made by the previous one,” concludes Borges Nhamire.

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Egas Daniel, meanwhile, believes that the whole process of the hidden debts so far is a great lesson in itself and that “we can already see structural reforms that have been carried out at government level. I’m talking specifically about the Ministry of Economy and Finance, where the head of the Debt Department has been transformed,” he points out.

Continuing, the economist points out that the whole process of greater control of state spending shows the concern and good lessons that have been learnt from the hidden debts process. “May the future allow this memory and these lessons to lead to constant improvement in debt management so that we don’t get into the same situation in the future,” he concluded.



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