Costs and Consequences of the Hidden Debt Scandal of Mozambique
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CENTRO DE INTEGRIDADE PÚBLICA Anticorrupção - Transparência - Integridade Datasheet: Authors: Edson Cortez (PhD), Anthropology, Executive Director, CIP Aslak Orre (PhD), Researcher in political sciences, Chr. Michelsen Institute Baltazar Fael, Jurist, coordinator of the anti-corruption pillar, CIP Borges Nhamirre, Journalist, coordinator of the PPP pillar, CIP Celeste Banze, Economist, coordinator of the public finance pillar, CIP Inocência Mapisse, Economist, coordinator of the extractive industries pillar, CIP Kim Harnack (PhD), Economist, researcher, public finances pillar, CIP Torun Reite (PhD), Economist, researcher and consultant, Scanteam Linguistic reviser: Samuel Monjane Translate to English: Paul Fauvet Printing and Layout: Liliana Mangove CENTRO DE INTEGRIDADE PÚBLICA Anticorrupção - Transparência - Integridade COSTS AND CONSEQUENCES OF THE HIDDEN DEBT SCANDAL OF MOZAMBIQUE “This case is very important for Mozambique since these criminal offenses caused devastating effects to the Mozambican economy” The Attorney General of the Republic, 23 August 2019 Centro de Integridade Pública (CIP), Moçambique, and Chr. Michelsen Institute, Norway Maputo, Moçambique / Bergen, Norway May 2021 TABLE OF CONTENTES EXECUTIVE SUMMARY.................................................................................................................................................6 PREFACE............................................................................................................................................................................9 ACKNOWLEDGMENTS...........................................................................................................................................12 ACRONYMS AND ABBREVIATIONS ....................................................................................................................14 1. INTRODUCTION.........................................................................................................................................................16 1.1 Short history of the hidden debts scheme.......................................................................................................16 1.2 A redistribution from poor to rich...................................................................................................................17 1.3 Structure, methodology and analytical logic...................................................................................................18 2. THE DIRECT COSTS OF THE HIDDEN DEBTS...................................................................................................23 2.1 Methodology and data.....................................................................................................................................23 2.2 Direct costs related to the loans as of end-2019..............................................................................................24 2.3 Future monetary expenses regarding the loans................................................................................................26 2.4 The financial loss for Mozambican citizens....................................................................................................26 3. THE INDIRECT LOSSES CAUSED BY THE HIDDEN DEBTS.............................................................................29 3.1 Introduction.....................................................................................................................................................29 3.2 Impact of the hidden debts: Methodology and calculation..............................................................................29 3.3 Fiscal Sector.....................................................................................................................................................33 3.4 Public sector debt............................................................................................................................................36 3.5 Inflation: Fall in purchasing power..................................................................................................................39 3.6 Monetary and Foreign Exchange sector...........................................................................................................41 3.7 External Sector.................................................................................................................................................44 3.8 Analysis of the Real Sector..............................................................................................................................48 3.9 Conclusions.....................................................................................................................................................51 4. POLITICAL AND INSTITUTIONAL COSTS AND EFFECTS............................................................................54 4.1 Introduction: Trends of indices worsened......................................................................................................54 4.2 Analytical and methodological framework....................................................................................................56 4.3 More tension: the political economy of the hidden debts................................................................................60 4.4 Credibility of the regime – internal and external..............................................................................................70 4.5 Responsibility and impunity: the Executive and its institutional counter-weights..........................................73 4.6 Public finances: Less transparency, more concealment...................................................................................80 4.7 Democracy and the public space: freedoms and repression.............................................................................88 4.8 Summary: Theses on the influence of the HD...............................................................................................101 5. SOCIAL CONSEQUENCES.....................................................................................................................................106 5.1 Poverty increased...........................................................................................................................................106 5.2 Malaise and fewer opportunities because of public expenditure cuts...........................................................112 5.3 What do Mozambicans say about the socio-economic situation?..................................................................115 5.4 Summary........................................................................................................................................................117 6. SUMMARY OF THE CONCLUSIONS....................................................................................................................119 6.1 Fraud and political corruption........................................................................................................................119 6.2 The direct financial costs...............................................................................................................................120 6.3 The economic losses......................................................................................................................................121 6.4 Political and institutional costs and effects.....................................................................................................124 6.5 The social impacts.........................................................................................................................................126 7. ANNEXES....................................................................................................................................................................129 Annex to Chapter 2......................................................................................................................................................129 Annex 1 to Chapter 3...................................................................................................................................................135 Economic databases (chapters 2-3)..............................................................................................................................138 Databases on governance, institutions, and political analysis (chapter 4)...................................................................139 8. LITERATURE............................................................................................................................................................140 EXECUTIVE SUMMARY How a $2 billion hidden and corrupt loan has cost $11 billion and increased poverty In 2013, bankers in Europe, businesspeople based in the Middle East, and senior politicians and public servants in Mozambique conspired to organise a USD 2 billion loan to Mozambique – an incredible 12% of GDP of one of the poorest countries in the world. The loan was kept hidden. None of the borrowed money, except bribes, went to Mozambique, and there were no services or products of benefit to the Mozambican people. The knock-on effects of such a huge corruption scandal may already have cost Mozambique at least USD 11 billion – nearly the country’s entire 2016 GDP – and almost 2 million people have been pushed into poverty. If Mozambique is forced to service this debt, there is USD 4 billion more