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A port in Maputo, the capital of Mozambique
The news follows earlier action from the International Monetary Fund and the World Bank, which have both suspended funding to Mozambique after the country had deliberately kept the existence of the $1.35bn loans from its international lenders.
Mozambique admitted to the existence of the loans last Friday, and the UK’s Department for International Development said in a statement today that it too will be putting all aid payments on hold.
“This appears to be a serious breach of trust, so we are working closely with other international partners to establish the truth and coordinate an appropriate response,” a DFID spokeswoman said.
They added that the UK follows strict rules and procedures around the delivery of its aid, and that failing to disclose debts marks a breach of fundamental principles around financial management, transparency and accountability.
The statement said any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly.
The loans, for which Mozambique’s government acted as a guarantor, related to the purchase of security and maritime equipment to protect big gas supplies discovered off the country’s coast.
While such discoveries have bolstered Mozambique’s prospects for investment in recent years and driven growth, its economy remains in trouble.
The commodities slump has sent the currency into rapid depreciation while public debt has risen fast in the past few years. The deficit is big, while foreign reserves are depleting.
Mozambique also relies heavily on donor funds to keep afloat, all of which now seem in jeopardy as a result of the scandal.
While the World Bank is thought to have put on hold around $40m worth of loans, the IMF has suspended a $165m disbursement, part of a $268m emergency loan package agreed last October.
After cancelling a fund mission to the country, Mozambique sent a delegation to Washington to consult with staff in hopes of explaining their position and preserving the country’s relationship with the fund.
Mozambique’s prime minister Carlos Agostinho do Rosario has reportedly said instability and insurgency in the country were the reasons the government chose to keep the debt secret.
The revelations add the equivalent of around 10% of the country’s gross domestic product to its known debt burden.
The IMF is currently analysing Mozambique’s debt sustainability and said it will continue to work “constructively” with the country.
Mozambique had already come under fire for issuing an $850m bond in order to set up a tuna fishing company, only to spend $500m again on maritime equipment.
