JOHANNESBURG - Mozambique’s economy appears to be in crisis as the nation prepares to default on massive loans taken out without parliament’s knowledge or approval during the past presidential administration.
It’s a striking setback for a nation once hailed for its promising natural gas deposits and peaceful recent elections. Now, with $1.4 billion in loans hanging over the government’s head, money it simply cannot afford to pay back when the loans come due in coming months, the situation has taken a turn for the worse.
A new report by the World Bank predicts that the debt scandal has halved economic growth in 2016, from 6.6 percent to 3.6 percent. The bank also projected a 17 percent drop in foreign investment and a currency slide of about 42 percent against the dollar.
Alex Vines, head of the Africa program at London’s Chatham House research institution, says this crisis isn’t limited to the world of accountants and policymakers. It will directly affect ordinary Mozambicans.
“This spike like this, which is worse than in the past, in previous times, has resulted in urban unrest,” he told VOA. “This has to be a worry now, I think for Moz in the next three or four months, because it’s tough for Mozambicans and the government is unable to pay for things and is having to cut back.”
Martyn Davies, managing director of emerging markets and Africa at consulting firm Deloitte, estimates this crisis could set Mozambique back economically by as much as a decade. And, he says, Mozambique’s poor financial decisions are not unique.
“Now Mozambique is an extreme case, but there are other cases in the region, nowhere near as bad, as I might add, where you have governments issuing eurobonds ... for developmental purposes, for infrastructure building purposes if you like, but then proceeding to spend those monies on things that are, that have nothing to do with, the original mandate of the bond issuance,” he said. “We see, not to the same extent as mentioned, similar governance lapses in spending money in Kenya as well, among other places, but Mozambique is particularly bad.”
The nation’s parliament has held a commission of inquiry into the situation, which led the former president, Armando Guebuza, to say of the loans that “we would do just the same again, in the defense of our beloved homeland and the wonderful Mozambican people.” Meanwhile, risk consulting firm Kroll is conducting an investigation, which is expected to wrap up in February.
Davies says Mozambique’s parliament has one viable option to get out of the crisis, but won’t like it.
“Privatization, I’m afraid is the only way to bring in, to instill, decent governance in many of these state enterprises, and that’s the case in Mozambique ... So, that’s what’s going to take place. I think the story of Mozambique in the next two years, or three, will be the privatization story. I think the question is really, what investors will have the appetite to invest in these companies, in these organizations?”
This is one of the many difficult questions facing leaders in Maputo as the new year dawns over this southern African nation.