Maputo — The Executive Board of the International Monetary Fund (IMF) has approved a loan to Mozambique of 118.2 million US dollars under its Rapid Credit Facility (RCF).
An IMF press release says that this financial aid “is intended to address large budgetary and external financing gaps arising from reconstruction needs after Cyclone Idai, which caused significant loss of life and infrastructure damage.”
The cyclone struck central Mozambique on 14 March, causing a confirmed death toll of 603, wiping out crops across hundreds of thousands of hectares of farmland, and causing material damage that could run into billions of dollars.
IMF Deputy Managing Director, Tao Zhang, described cyclone Idai as “the worst and costliest natural disaster to ever strike the country”.
He declared that “disbursement under the IMF’s Rapid Credit Facility will help address the country’s immediate financing needs and play a catalytic role in securing grants from donors and the international community”.
The IMF release claims that the Mozambican authorities remain “committed to macroeconomic stability, which will also be underpinned by the IMF’s financing. Key fiscal measures include reallocating lower priority spending to emergency assistance to the poorest and for reconstruction.”
Tao Zhang added that the Mozambican government’s “room for manoeuvre is limited and the bulk of emergency assistance and reconstruction needs will have to be covered by the international community mostly in the form of grants to ensure debt sustainability”.
“The authorities are committed to creating fiscal buffers, including preparing for, and dealing with, future natural disasters”, he added. “They are seeking significant debt relief from private creditors which is important to put public debt on a declining path. While the authorities cautiously proceed with normalization of monetary policy, they should remain vigilant about possible second-round effects on inflation of supply shock caused by the cyclone”.
He said the government is “committed to improving transparency, governance, and accountability. Ongoing preparation, with Fund technical assistance, of a diagnostic report on governance and corruption challenges in the areas most relevant for economic activity will help to further ensure that scarce public resources are put to good use.”
“Going forward, it will be critical to increase the economy’s resilience and preparedness for natural disasters and climate change”, he concluded.
This loan does not mean resumption of normal relations between Mozambique and the IMF. These came to an abrupt end in April 2016, when Mozambique’s “hidden debt” burst into public view.
The debt consisted of over two billion dollars’ worth of government-guaranteed loans obtained in 2013 and 2014 by three fraudulent, security-related companies, Proindicus, Ematum (Mozambique Tuna Company) and MAM (Mozambique Asset Management). Only the Ematum loan (for 850 million dollars) was public knowledge because it took the form of a European bond issue.
The Proindicus and MAM loans were kept secret from the Mozambican public and from the government’s foreign partners, including the IMF. The IMF regarded this as a violation of the government’s obligation to keep the Fund informed about the country’s true macroeconomic situation, and it suspended its programme with Mozambique.
The emergency assistance does not change this, and the IMF is on record as saying that it is unlikely there can be any new programme before the general elections scheduled for 15 October.
The Rapid Credit Facility was set up to provide immediate financial assistance with limited conditionality to low-income countries with an urgent balance of payments need. RCF loans are interest-free. They should be repaid within ten years, and have a grace period of 5.5 years.