Mozambicans feel the pinch as ‘tuna bond’ debt crisis deepens

Some foreign ambassadors posted to Maputo, Mozambique’s beachfront capital, have noticed their security guards are starting to look thinner. Others report anxiety among staff who worry they will be unable to afford Christmas presents.

In an impoverished, import-dependent country, a 70 per cent slide this year in the metical, the currency, has sent the price of goods, including food staples such as rice and bread, beyond the reach of many Mozambicans.

Georgo, who hawks belts and sports shoes on a pavement, has a theory as to why prices have skyrocketed and living standards fallen.

“There’s too much corruption in our government and politicians are stealing the money,” he says, putting his hand to his mouth in a disdainful gesture that means the elites are “eating” more than their share.

Georgo, who declined to give his full name, is not far wrong. Mozambique’s economy, which had been growing at about 7 per cent for years, has stalled thanks mainly to the impact of a huge corruption scandal that has knocked investor confidence and prompted international donors to suspend budgetary support. That has left the government, in the words of Filipe Nyusi, the president, facing “increasing fiscal, exchange rate and balance-of-payments problems”.

In 2013, the government went on a borrowing spree in anticipation of the huge funds that are eventually expected to flow into state coffers following the discovery of one of the world’s biggest reserves of natural gas off Mozambique’s coast.

But it has been forced to admit that much of the more than $2.2bn it borrowed was in hidden loans with virtually no explanation as to where the money went. Most of a now notorious $850m “tuna bond” was blown on naval vessels and security equipment instead of being spent, as promised, on a non-existent tuna-fishing industry.

Cynics suspect the borrowing binge was intended to pay off officials from the administration of Armando Guebuza, Mr Nyusi’s predecessor, who will not be around to cash in when gas revenues start to flow in the 2020s.

The revelation of missing money and hidden loans caught the International Monetary Fund off guard. It has suspended its lending programme until an independent 90-day audit, now being organised, establishes where the money went. Maputo has got some credit for belatedly acknowledging the depth of its problems, although it probably had little choice as the southern African nation grapples with its severest financial crisis in years.

Two weeks ago, the government admitted it would not be able to service its loans, telling investors it was in “debt distress”.

At a Financial Times conference in Maputo last week, Adriano Meleiane, the finance minister, said: “We have to regain the trust Mozambique had before, because we need to have inflows of investment. We must face up to corruption.”

Mr Meleiane did not put a gloss on the plunging fortunes of what had been one of Africa’s fastest-growing countries. The growth estimate for this year has been nearly halved to 3.7 per cent, he said, admitting that even this would be hard to achieve unless renewed fighting with former Renamo rebels could be halted.

Inflation, said Mr Meleiane, had shot up from 2.4 per cent to 17 per cent, though his upward-tilting graph suggested it could yet go higher. In a sign of how seriously the administration is taking the threat, the central bank raised interest rates by 600 basis points last month.

Worsening conditions have made it harder for public and private employers to pay wage bills. If the situation deteriorates further, some worry there could be a repeat of 2010 food riots that rocked Maputo.

Ari Aisen, the IMF’s representative in Mozambique, warned the government that, even as its resources dwindle, it should protect the most vulnerable.

“The authorities need to pay attention and prioritise outlays to the social sector: health, education and nutrition,” he said.

In spite of the deepening crisis, said Adriano Nuvunga, director of the independent Centre for Public Integrity, the government was confident it could get through.

In the short term, it is expecting a $1.4bn injection from capital gains tax in the belief that ExxonMobil is about to close a deal that will see it buy a stake in a liquefied natural gas project led by Eni, the Italian company. In the long run, it is counting on the potentially transformative gas bonanza.

The question is how it balances the books before the LNG starts to flow. That would require getting back onside with donors, Mr Nuvunga said, with the completion of the audit into the missing funds a critical step.

He predicted the investigation would stop short of implicating senior government officials. In part that is because of a reluctance within Frelimo, the former Marxist liberation movement that has ruled the country since independence in 1975, to incriminate its own members. But it also reflects donors’ wish to resume lending to what, until recently, had been deemed an African success story.

“They want the omelette,” Mr Nuvunga said. “But they don’t want to break too many eggs.”