By Joseph Hanlon
The IMF mission which left
Mozambique yesterday rejected what it had been offered by the government. The
Kroll report on secret debt with its lack of “critical information” is again
rejected. And the IMF made harsh demands for tax rises, spending cuts, no new
investment and action on state companies. The IMF statement pointedly said
“this mission will not result in a Board discussion,” which means no new IMF
programme this year and no resumption of aid which has been cut off.
The 10-19 July mission was headed, as have recent missions, by Michel Lazare,
who repeated and strengthened his past demands. He explicitly cited the 24 June
press statement on the Kroll report, saying that “critical information gaps
remain unaddressed regarding the use of loans proceeds.” The government must
“take steps to fill the information gaps and to enhance its action plan to
strengthen transparency, improve governance, and ensure accountability.”
Clearly annoyed that the
government had not listened to past statements, Lazare said “the 2018 budget
should decisively reduce the fiscal deficit.” The government “should focus on:
+ eliminating tax exemptions
(including for VAT),
+ containing the expansion of
the wage bill, and
+ prioritizing the implementation
of only the most critical public investments, while avoiding the further
accumulation of arrears.”
“Urgent action is also needed
to strengthen the financial position of loss-making companies and limit the
fiscal risks they represent.”
Lazare always stresses wage cuts and attacks state companies. But this package
contains new austerity measures, including tax rises and a sharp cut in public
investment, which is in part pointed at announcements of non-essential projects
such as Xai-Xai airport.
Three new phrases are also important. “Reduce the fiscal deficit” means
government cannot continue to spend above its income, in part through domestic
borrowing. And “avoiding the further accumulation of arrears” points to the way
that the government has been surviving simply by not paying its bills, and
seems unable to even provide an accounting of how much it owes. Similarly
“fiscal risks” refers to the huge debts of some state companies, which also
remain unclear.
The demands for further
austerity were expressed in normal IMF jargon: “Macroeconomic policy
discussions centered on the urgent need to further consolidate public finances.
The team emphasized that a strong commitment to fiscal adjustment is an
essential element to ensure policy sustainability, foster a decline in
inflation and interest rates, limit further increases in public debt, while at
the same time facilitate debt restructuring.” Unpacking this, the phrases
“consolidate public finances” and “fiscal adjustment” mean spend less. “Limit further
increases in public debt” means the government cannot continue with the rapid
expansion of local, domestic borrowing.
But he adds that “protecting
critical social programs and reinforcing the social safety net should cushion
the impact of these measures on the most vulnerable segments of the
population.”
Meanwhile, Lazare stresses
that Mozambique’s overall economic outlook “remains challenging” and that any
increase in growth this year will be entirely due to an increase in the export
price of coal. Virtually the only praise in the statement was that “the
government took important steps by removing wheat and fuel subsidies and
reinstating the old automatic fuel price mechanism in March.”
Also Read: Breaking: IMF Press
Release on the visit to Mozambique – Unabridged
Comment: As well as the normal
IMF austerity prescription, Michel Lazare is using his knowledge of Mozambique
to go after the rent-seeking and patronage aspects of the Mozambican elite.
State companies such as the airline LAM have long provided jobs, contracts and
other benefits for the Frelimo elite; extra posts in ministries and provincial
administration are for party cadres and push up the wage bill; contracts for
supplies and projects provide important revenues. Opposition parties remain
quiet about this because they hope to benefit in the next elections by winning
posts that would give them power over such spending. This was underlined by the
purchase of 18 Mercedes Benz cars for $3.8 million for members of the
parliamentary Standing Commission, initially agreed by members of all three
parties and only after public outcry rejected by the opposition parties, but
again last week defended by the speaker of parliament, Veronica Macamo.
“Members of the Standing Commission are above the level of ministers.
Therefore, in legal and procedural terms, we do not see any problem,” she said.
(AIM En 12 July)
Also Read: Watch: Verónica
Macamo speaks out on Mercedes for MPs
This presents a serious problem for President Filipe Nyusi at the Frelimo
Congress in September. The $2 bn secret debt is widely believed to have
benefitted some senior Frelimo people, and at lower levels the party has become
dependent on patronage, jobs and other benefits paid by the government. The
Frelimo leadership has pretended that the delays in the gas projects and the
end to budget support and IMF programme would not halt the gravy train because
it could borrow domestically and delay paying its bills. Lazare says explicitly
this cannot continue. Will the Congress allow at least a few secret debt
scapegoats to be identified and accept some belt tightening? Or will it block
its ears and continue to pretend that Mozambique can have Mercedes at the top
and hand money down the patronage chain?
Japan has suspended new
lending because of the secret debt, Japanese Agency for International
Cooperation (JICA) representative Yamashita Chigiru told O Pais (20 July). He
added “we cannot just suspend loans: we have to create conditions so that the
[debt] problem does not repeat itself. It does not make sense for Mozambique to
make the same mistake again, given the impact on its population.”
Also Read: “At the moment, it
is not appropriate to lend to Mozambique”
Interest payments were not made on 18 July on the government bonds which
replaced the Ematum bonds, the Ministry of Economy and Finance announced on 17
July. Last year, the government nationalised the private loan to Ematum and
replaced it with a $726,524,000 10.5% government bond to be repaid in 2023,
with interest paid twice a year. The statement said: “As mentioned by H.E. the
Minister of Economy and Finance, during the investor presentation in London on
25 October 2016, and as reiterated in the Ministry’s communiques dated 14
November 2016 and 16 January 2017, the challenging macroeconomic and fiscal
situation of the Republic has severely affected the country’s public finances.
The resulting debt payment capacity of the Republic remains extremely limited
in 2017, and does not allow the Republic room to make the scheduled interest
payment on the Notes. The Government is committed to finding a consensual and
collaborative resolution to the current financial crisis through dialogue with
the holders of its direct and guaranteed external commercial obligations. It
will be critical that any solution is based upon a realistic appraisal of the
Republic’s capacity to pay.”
By Joseph Hanlon
Source: News Reports &
Clippings, 20.07.2017