“Mozambique at risk of falling into financial dependence on China” - Plataforma Media

“Mozambique at risk of falling into financial dependence on China”

The Center for Public Integrity (CIP) considered a few days ago that Mozambique’s debt to China was “not very transparent”, demanding that Filipe Nyusi’s government explain how it will manage this burden. The figures in question are also the basis of criticism, given that the government speaks of 1.1 billion euros and CIP of 1.7 billion. Now, in an interview with PLATAFORMA, the Mozambican NGO also criticized the way in which this money was used by the government, stressing that the debt can be compared to the recent past of hidden debts of the Mozambican state

Mozambique has worked extensively with China for ten years. In fact, there are records that prove that the financial links are quite strong with this Asian country. What opinion does the Center for Public Integrity (CIP) have about the loans that Mozambique has made to China since 2010?

To the detriment of greater investments in the social sectors, the amount of these loans was used to finance large-scale infrastructure investment projects. By the way, by the way, most of them were commercial or administrative projects. It is important to emphasize that studies [1] demonstrate that public investments in large infrastructures are those that present high levels of payment of bribes to top public officials and government elites. International experiences show that investments in large infrastructure projects only generate significant revenues for a Government after a long time, and sometimes they do not even generate them. The payment of these loans relates to the State budget, which implies that these payments are financed by resources subtracted from other sectors, for example, to strengthen the country’s capacity in the face of the challenges imposed by COVID-19. Therefore, the Government, for the sake of transparency, should make feasibility studies on these investments public in order to show that they can generate enough revenue to meet the respective debt service.

CIP recently criticized the public debt reports of the Mozambican state vis-à-vis China, what are the reasons for this criticism?

Public debt reports contain details by creditor, and therefore include China, but do not include information on specific projects relating to financial transactions (that is, interest and repayments) with China, which represents a weakness for a document that its generality has a rich content.

Loan payments are financed by resources subtracted from other sectors, for example, to strengthen the country’s capacity in the face of the challenges imposed by COVID-19

The figures presented by CIP on total debt are also different from those presented by the State. What are they based on and why do you consider the State to have released different figures?

CIP is not aware of the reason why the State released different figures regarding the debt with China. For the note prepared by the CIP [where they revealed that the debt would amount to a total amount of 1.7 billion euros, against the 1.1 billion presented by the State] the public debt reports and the Account Reports and Opinions were used General of the State (RPCGE) prepared by the Administrative Court. Both are state documents accessible to the public.

Were these the reasons why the CIP was very ‘tough’, considering the debt as ‘scary and not very transparent’?

It turns out that there is no satisfactory public information on loans made (feasibility studies) to justify the size of the debt with China, mainly due to inconsistencies and the lack of transparency in budget documents. Debt with China grew rapidly after 2010, reaching a peak of USD 2.17 billion in 2018. Such a high level of debt with one country, which represents some 20% of Mozambique’s total public debt and some 37% bilateral public debt, presents significant fiscal risks, particularly with regard to the capacity of the State Budget to meet the needs of debt service, both in interest and in amortization. This high level exposes Mozambique to the risk of falling into financial dependence on China, which could put enormous pressure on the Government – a possible debt trap with China. Among the cost and risk indicators associated with loans, in relation to China, we highlight the cost and exchange risk [related to the change in exchange rates and their impact on service costs and debt stocks] and the risk of the weighted average interest rate [indicator of the weighted cost of the debt portfolio].

Such a high level of debt with one country, which represents some 20% of Mozambique’s total public debt and some 37% of bilateral public debt, presents significant fiscal risks

Meanwhile, the State, made a request for debt forgiveness with China, according to what was disclosed by the Minister of Economy and Finance, Adriano Maleiane. Was it a right measure or a lack of it?

CIP has no information on what the State has obtained regarding debt forgiveness. Often the Government releases figures that cannot be verified; without giving details to Mozambicans. It is not known what the Government is achieving in relation to debt relief with China. It is true that the Minister of Economy and Finance reported that the country has requested debt relief from China, but in the meantime we have no additional information.

CIP criticize the possible “dependence” on China and what comes from that reality. Are you of the opinion that loans could be made to states other than China? For example with Lusophone countries?

The important thing to note is that the Government has made loans for projects for which feasibility studies have not been published. In cases of large infrastructures there is always a danger that a government will want to carry out “white elephant” projects, to the detriment of investments that are urgently needed in the social sectors. The policies of previous years are now putting the budget under pressure with obligations to service the debts that take resources to combat Covid-19.

Construction of the Maputo Bay Bridge, the largest infrastructure project in China in Mozambique, built by China Road and Bridge Corporation

Often the Government releases figures that cannot be verified; without giving details to Mozambicans

There is a recent past of ‘hidden debts’ by the Mozambican state. Do you think that this connection with China could follow that path, is that your fear?

The fact that the level of debts to China is so high, puts them at a level of fiscal risk similar to that of hidden debts. Debt of this magnitude with a single country presents significant fiscal risks, particularly with regard to the capacity of the State Budget to meet debt service needs. Combined with a notable lack of transparency, the Government must clarify to Mozambicans how it will pay this debt and present in detail the projects that constitute the debt. Without this information, given the state’s trajectory in debt management, CIP fears that shared information is just the tip of the iceberg — with more imminent sacrifices to pay debts not disclosed by the Government.

[1] Fazekas, M & Toth, B. (2016), Infrastructure for Whom? Corruption Risks in Infrastructure Provision Across Europe, www.researchgate.net

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