Mozambique Says Foreign Loans Breached Laws as Probe Deepens

MAPUTO, Capital Markets in Africa: Mozambique’s attorney-general plans to ask international and domestic experts to help probe loans taken by three state-owned companies that may have breached the southern African nation’s budget laws, spokesman Taibo Mucobora said.

The office of the attorney-general has held hearings into loans taken by Empresa Mocambicana de Atum SA, whose debt was converted into a $727 million sovereign Eurobond in April, Mozambique Asset Management and ProIndicus. The borrowings breached limits on guarantees set by parliament, Mucobora told reporters Thursday in the capital, Maputo.

“There was breach of the budgetary legislation regarding failure to comply with the limits and non-compliance with legal procedures and this implies illicit criminal activity in the form of abuse of office,” he said.

Mozambique’s government in April owned up to the existence of $1.4 billion of undisclosed borrowing by the Interior Ministry and state-owned security companies ProIndicus and MAM. The country, one of the world’s poorest, is struggling to repay its debts after a commodity slump reduced its export revenue and the depreciation of the metical boosted the payment costs in dollars.

Funding Suspended
While ProIndicus made a $24 million interest payment on its $622 million facility on March 21, MAM missed a May 23 deadline to make a $178 million interest payment on its $535 million loan.

The International Monetary Fund, which unearthed the secret loans, has suspended $55 million in aid, the second tranche of a $110-million program for 2016. The World Bank has also temporarily halted another $276 million in budget support.

Mozambique’s budget laws set the maximum amount of guarantees that the government can issue to public or private entities at about 10 percent of total spending approved by parliament. In 2013, the government was authorized to issue 183 million meticais ($2.8 million) of guarantees, before Ematum’s $850 million loan. The following year, the limit for guarantees was set at 15.7 billion meticais before the ProIndicus and MAM loans were taken.

Under Mozambican law, public servants convicted of abuse of office face a prison term of as many as two years.

Source: Bloomberg Business News