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Analysis: Holes in Kroll report complicate Mozambique-IMF talks

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Anne Frühauf

By Anne Frühauf of Teneo Intelligence – exclusively for Zitamar News

Talks between the government and the IMF staff mission, which got underway this week, will be anything but easy.

The completion of the audit into Mozambique’s $2 billion debt scandal was supposed to bring a degree of closure to the country’s worst financial scandal. It was also meant to enable the IMF to reinstate its standby credit facility for Maputo which is worth about $283 million.

However, the emerging picture is much more complicated. The gaping holes in the recently released executive summary of the Kroll report are perhaps unsurprising. But the audit process – particularly the lack of cooperation from the controversial companies and from SISE – poses serious conundrums for the IMF and overseas donors. At the very least, the Fund needs the government to appear willing to improve transparency and governance.

CLICK HERE FOR ALL OF ZITAMAR’S COVERAGE OF THE KROLL REPORT, IN ONE PLACE

Instead, the inadequate audit results will force the IMF to impose follow-up requirements. One of these could include an assurance from the government that the attorney general’s (PGR) investigation into the controversial debts is well under way. The government will also need to address the future of the moribund ProIndicus, MAM and Ematum enterprises. Finally, the IMF ought to impose conditions around the broader management of state and public enterprise debt, which still represents something of a black hole.

Because the IMF’s overall goal seems to be to restore relations, it may eventually soften any specific conditions that emerge from the staff mission. However, its task won’t be made easier by the lack of progress on other fronts. These include the deadlocked debt restructuring negotiations with creditors – an area in which the IMF needs to see at least tentative progress. Another concern is a recent rise in local T-bill issuance. Finally, the broader budget will probably be a thorny issue given that the government failed to implement many of its fiscal consolidation pledges in FY 2016.

Even if all these hurdles are eventually cleared, the IMF programme will not be a silver bullet for a crisis that will take several years to fix. Still, it would be the first step to restoring confidence in the economy. It would also be a signal for overseas donors, which have withheld budget aid since 2016. Although an IMF programme does not guarantee that donors will turn the aid taps back on, the resumption of direct budget aid – a crucial source of hard currency – is impossible in its absence. If the government can strike a deal with the IMF, donors could possibly resume disbursements in the final quarter of the year. However, at the current rate, the government will be lucky if it secures the SCF reinstatement before the end of 2017.

Anne Frühauf is a Senior Vice President with Teneo Intelligence. She leads Teneo Intelligence’s political risk research on Southern Africa, with a particular focus on South Africa and Mozambique. She advises corporate and financial sector clients on political and policy change as it affects key sectors such as energy and minerals.

© 2017, Zitamar Ltd. Reproduction and dissemination prohibited without written permission.

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