Is Zambia to follow?


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Mozambique may have a way out of its billion dollar secret debt—but it probably won’t use it

The initial shock of Mozambique’s debt crisis may have worn off, but the fallout is just beginning.
Last April, the International Monetary Fund (IMF) suspended aid to Mozambique after revelations that the country has been hiding a debt of $1.16 billion. State-owned companies had borrowed the money in 2013 from Swiss multinational financial services firm Credit Suisse, and the Russian VTB bank. The loans, guaranteed by the Mozambican government, were supposed to be invested into the fishing industry. Instead, they were diverted to purchase arms.
The Mozambican government has since come clean and hired an IMF veteran as its central bank governor in a bid to restore its reputation. But it still has to figure out how to repay a debt that could be as much as 80% of the country’s GDP. Some analysts believe the Mozambican government could query the debt’s legitimacy if it shifted focus to whether the banks were acting responsibly in making the loans in the first place. But with a party election coming up in September, Mozambique’s political elite are unlikely to take this advice, for fear of political fallout.

Development researcher Joseph Hanlon, a fellow at the London School of Economics and Open University with a focus on Mozambique, believes Credit Suisse and VTB could potentially be held accountable for the debt, if they were shown to have “made the loan illegitimate by not either doing due diligence or ignoring the due diligence.” Hanlon was speaking on an online panel hosted by the Africa Research Institute and Mozambique-based news site Zitamar on Jan. 25.

The banks should have noticed three things, according to Hanlon: that the loan’s guarantee was unconstitutional and illegal, because the decision was made unilaterally by the then-finance minister, violating Mozambique’s budgetary laws; that the feasibility studies conducted by the companies seeking the loans were “totally ridiculous;” and that the debt was always going to be unsustainable.
“What the Mozambican government simply needs to do, is that they do not honor, and do not acknowledge, the loan guarantee,” Hanlon argued. That would take the matter to UK courts, as the loans were arranged under British law. Neither bank, he believes, would have the appetite for a battle in open court.
The two loans structured as syndicated bonds, that is, held by a group of lenders, may be simpler to get out of, Hanlon said. But the sovereign loan, held as public debt, would require the government to prove that it acted on questionable information, based on the bonds sold by VTB and Credit Suisse.

Credit Suisse declined to comment. VTB referred Quartz to the statement the bank has previously released on the matter. The Russian bank shared most of its debt with the state-owned Mozambique Asset Management last year and said in that statement that Mozambique’s finance ministry found that VTB’s prospectus disclosed all the relevant information to bondholders.
A court case would also open the government up to even more scrutiny. Apart from a parliamentary committee that has resulted in little accountability for the politicians involved, there has been little effort to really investigate the use of the loans, said panelist Anne Frühauf of Teneo, a global advisory firm in Bogota.
The issue has been made more complicated by the fact that the current president, Filipe Nyusi, was the defense minister in former president Armando Guebuza’s administration, under whose watch the loans were made. Nyusi will likely stand for re-election in September.

“Will they accept a very heavy debt burden primarily because of the political dynamics at play in the former administration of Guebuza, and under Nyusi now?” Frühauf asked.
Kroll, an international auditing firm, is currently investigating the scandal at the request of Mozambique’s attorney general, the government of Sweden and the IMF.
Jorge Matine, a public finance researcher at Maputo’s Center for Public Integrity, told Quartz that the people most affected by the debt have been informal Mozambican traders who have seen prices rise on goods imported from neighboring countries.
“The debt is just an example of a larger problem in Mozambique,” he added. “The police take bribes, teachers will sell exams, and people going to hospital have to pay clerks and nurses” to secure appointments and basic medical supplies.
“The culture of impunity filters down.”

source:Quartz Africa


  1. But why hide yowa name? I know ZICTA is a sniff mongrel now but this article is not insulting anybody. Yes Zambia is in a similar position albeit,worse.Zesco and Zambia Railways can not even account for a single coin they “received” from the two Euro bonds!

  2. Just like the Malawi maize scandal: a problem created entirely by Malawians; then some 1diotic politician who hates the government hopes to gain some political mileage rushes to the media so as to destroy names of targeted government officials. LT Blogger, that label in your baseball cap that says “one size fits all” doesn’t apply to real life economics and politics. If you hate ECL/PF, keep your tantrums to yourself, this is an extremely article!!!!

  3. Africans should be protected against themselves. They sabotage everything they touch. I’m ashamed of our people. I don’t understand why we exist actually. From Eq. Guinea, SA, Congo, Libya, ZIM, Haiti, Jamaica, Uganda, Zambia, Sudan, Somalia, Djibouti, Mozambiaque,Malawi same thing. People, when will you put your countries first and start acting responsibly?

    • The is something fundamentally wrong in the thinking of an African…… he only thinks when being instructed under authority of a white man

  4. I don’t think it’s about due diligence Mr Hanlon. The murky world of Western financiers is an open secret. It’s most likely there was an understanding that the loans were to be given as long as they bought weapons from the West. AID, Development Loans are terms with multiple meanings. The West are happy to give these loans because they know poor gov’ts purchase weapons to gain and keep power. The citizens are the victims in these poor countries. Western gov’ts go to long lengths wining and dining rebel leaders to ensure those monies return to them. It’s a double pronged solution required, can Western Arms Traders be kept in check? Why do western countries fail to stop these shipments? Mull on that a while before asking if Zambia will follow. Zambia has clearly not gone…

    • Zambia has clearly not gone down that route in the last 10 years of heavy borrowing most of the loans have gone to rebuilding infrastructure and helping in diversification programs. We have seen that apart from more than ‘a bit of corruption,’ Zambia has not gone down that route so far.

      Is this ANOTHER FAKE ARTICLE BY UPND DESTABILISERS( they are like chemicals in nature aren’t they?).

  5. If fhis is atrue zrticle shy would LT headline it as ….is zambia to follow. Herevwe are trying to borrowing from IMF and LT is printing a strategy for not repaying the loan. We are at critical stsge of negotiations so why give IMF any doubts that we are not going to repay

  6. I think this article is a mismatch to Zambia. As a writer, write about zambia’s situation and compare with another country to validate your thought. Too late babe, Zambian are awake now and no part of propaganda will sway them from putting the right people in leadership. Yes, maybe our finance minister for we know his a greed person, but he can not be a factor

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