IMF Executive Board Considers Mozambique’s Misreporting Under the Policy Support Instrument and Breach of Obligation Under Article VIII, Section 5
The Executive Board of the International Monetary Fund (IMF) met today to consider a report from the Managing Director on misreporting by the Republic of Mozambique under the Policy Support Instrument (PSI), and a breach of obligation under Article VIII, Section 5, of the IMF's Articles of Agreement. The Executive Board also considered a recommendation by the Managing Director to reassess the past performance of the Republic of Mozambique under the PSI.
The Executive Board considered matters related to previously undisclosed external borrowing that was contracted during 2012-2015, and amounted to about $1.37 billion (about 10.6 percent of the 2015 GDP). Specifically, information provided by the Mozambican authorities since April 2016 revealed non-observance of the country’s continuous assessment criterion on the ceiling for the contracting or guaranteeing of new non-concessional external borrowing by the central government, the Bank of Mozambique, and selected state-owned enterprises under the 2010-2013 and 2013-2016 PSIs. The new information affects the 6th review of the 2010-2013 PSI, and the 3rd, 4th, and 5th reviews of the 2013-2016 PSI.
The Executive Board took note of the nature and extent of the misreporting. In particular, it noted that the previously undisclosed debt has played a key role in making Mozambique a heavily indebted country, and has placed the government’s finances and international reserves under considerable strain. As such, the undisclosed debt undermined the achievement of key goals under the PSIs, which included accelerating economic development and maintaining macroeconomic stability.
The Executive Board also reviewed matters related to a breach of obligation under Article VIII, Section 5, of the IMF's Articles of Agreement by the Republic of Mozambique, which obliges member countries to furnish certain information deemed necessary for the Fund to discharge its duties effectively. It found that the Republic of Mozambique had breached this obligation, as the authorities had reported inaccurate data with respect to the stocks of central government and central government guaranteed debt.
Since disclosing the previously unreported debt obligations, the Mozambican authorities have taken several important steps to address the situation. In June, the Prime Minister, in an address to Parliament, explained to the Mozambican people and the international community the matters arising from the contracted debt. Remedial measures include the launch by the Public Prosecutor of a criminal investigation into the debts incurred by certain state-owned entities, which will include an independent audit of these entities by an experienced and reputable international auditing company. Further corrective actions will focus on introducing reforms to enhance Mozambique’s debt management, with the aim of reinforcing the process of issuing loan guarantees and improving transparency of public borrowing and guarantees.
At the conclusion of the meeting, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, stated:
“Due to the non-observance of the continuous assessment criterion on the ceiling for the contracting or guaranteeing of new non-concessional external borrowing under the 2010-2013 and 2013-2016 PSIs, the Executive Board decided that it can no longer maintain a positive assessment of program performance under the two PSIs.
“With respect to Mozambique’s breach of obligation under Article VIII, Section 5 of the IMF's Articles of Agreement, the Executive Board welcomed the remedial measures already taken and additional corrective actions committed to by the authorities to implement measures to improve and strengthen the monitoring and reporting of data provided to the Fund. In view of these remedial measures and additional corrective measures, the Executive Board decided not to require any further remedial action, but called on the authorities to implement the announced measures in a comprehensive and timely manner.
“The IMF is committed to remaining constructively engaged with Mozambique.”