Country: Mozambique
Public Finance / Economic Meltdown

Mozambicans pay dearly for a president’s financial mistake

Burgess COMMENTARY

Peter Burgess

Mozambicans pay dearly for a president’s financial mistake


Vota Guebuza - election posterEduard Grebe/Flickr

Diagnosed HIV-positive two years ago, Kayana Kandagona* suffers regular episodes of dizziness. However, this is not the cause of the 34-year-old’s anxiety as she waits for a routine appointment at a faith-based organisation’s outpatient clinic in the Mozambican capital, Maputo.

Cradling her three-month-old HIV-negative daughter she explains that her 12-year-old daughter and 10-year-old son are always saying: “Mama, we are hungry”. The collapse of the single mother’s cross-border trading business and her sudden relegation to the ranks of the urban poor was as swift as the sharp slump in Mozambique’s macro-economic fortunes.

Kandagona, like many Mozambicans, blames former president Armando Guebuza for the financial scandal at the end of his final term in office that has wrecked one of Africa’s most hopeful economies.

The scandal involved loans amounting to $2 billion – roughly equivalent to one third of the national budget – to build a tuna fishing fleet and buy maritime security vessels in 2013 and 2014. The problem was those loans, at an interest rate of 8.5 percent, were taken out when the local currency was falling, Mozambique’s gas exports were down, and export prices on its coal and aluminium were also taking a knock.

Compounding the problem, the loans breached commitments to the International Monetary Fund and were hidden from both the Fund and parliament. When they were discovered, in 2016, the IMF and other international partners suspended financial assistance, amounting to $300 million, or nearly 40 percent of the government’s social spending budget.

Crash

On these revelations, the once-stable local currency, the meticais, crashed. Steep price rises quickly followed, while interest rates tripled in order to brace the currency as it threatened to go into freefall, further squeezing economic growth. In March 2017, the inflation rate was 21.57 percent.

Kandagona used to import beds and bedding from neighbouring South Africa and turned a monthly profit of about $700. Owed money by customers, she set monthly repayment schedules of $15, but found, “people can’t afford to pay that, so maybe they pay me back 50 ($0.80) or 100 meticais ($1.60) each month”. Her income has now dropped to as little as $25 a month.