CIP says Mozambique’s debt with China is “frightening”
The Centre for Public Integrity (CIP) says Mozambique’s debt to China “frightening” as well as not being very transparent, and has asked the Mozambican government how it will manage the burden in the context of Covid-19.
Evaluating the impact of the Chinese debt on Mozambique’s public accounts in an analysis entitled “Debts contracted with China affect the availability of resources in the budget to face Covid-19”, the organisation points out that the country owed China about two billion dollars (1.7 billion Euros) by the end of 2019, calling the figure “frightening” and “similar to that of the ‘hidden debts'”.
CIP says that Mozambique’s debt service to China “is capable of causing major diversions of funds needed for social sectors, especially in the current context of the Covid-19 pandemic”.
“The Government must explain to Mozambicans how it will pay this debt and present in detail the projects that constitute the debt,” the report demands.
This explanation, continues the CIP, is pertinent, bearing in mind that the seven years’ grace period due to expire soon.
“Showing transparency regarding these loans is urgent, at a time when Mozambicans have to face the new coronavirus, which implies the government use scarce resources to protect Mozambicans’ health and well-being as far as possible,” the analysis reads.
The CIP criticises the fact that the public debt reports of the Mozambican state do not include information on interest and repayments on the debt with China, “which represents a weakness for a document that generally has a rich content”.
The NGO points out that the Mozambican state has been borrowing from China since before 2010, but indebtedness increased post 2016, particularly with the Export-Import Bank of China.
“It is worth emphasising that one of the reasons why debts with China continued to grow after 2016, the year in which the hidden debts came to light, was because the members of the Paris Club practically refused to give Mozambique any further credit,” the document says.
But debts with China, the text continues, were used to finance investment projects in large-scale infrastructure, mostly of a commercial or administrative nature.
“One element that certainly influenced this growth in debt to China is that that country applies less stringent criteria for granting new loans,” the study said.
Mozambique’s “high level of debt” exposes the country to the risk of falling into financial dependence on China, which could result in “enormous pressure on the Mozambican government” – “a possible debt trap”.
According to the CIP, Chinese loans expose Mozambique to exchange rate risks, given that the loans are denominated in US dollars, which makes them vulnerable to exchange rate variations.
Agostinho Mondlane, economist at the Centre for Democracy and Development (CDD), a Mozambican civil society organisation, told Lusa that loans from China have been characterised by “opacity and lack of public information on the terms and conditions under which the debts are to be amortised”.
“In the absence of information on the terms and conditions of these debts, it is not even known what collateral is attached to them, nor whether they are concessional or commercial [loans],” Mondlane says.
In addition, some of the infrastructure financed with Chinese money have doubtful economic return, because there is little diligence in carrying out consistent feasibility studies.
“Unfortunately, some of that money finances real ‘white elephants’, which then burden the public purse of debtor countries,” Mondlane explains.
A source at the Chinese embassy in Maputo said that his government would not publicly discuss debt agreements with the Mozambican state, refusing to go into details on the topic.
As for any possible default by Mozambique leading the Chinese authorities to seize public assets, Mondlane was sceptical, saying there was always room for debt restructuring.
“It doesn’t seem logical to me that China would choose to kill the ‘goose that lays the golden egg’,” Mondlane said.