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No budget support while Kroll audit incomplete – AIM report

8:17 CAT | 09 Nov 2017

The traditional disbursements from the donors who used to provide Mozambique with direct budget support will not resume until the gaps in the audit of the three security-related companies Ematum, Proindicus and MAM are filled, warned the Swedish State Secretary for International Development Cooperation, Ulrika Modeer, in Maputo on Wednesday.

According to a report in Thursday’s issue of the independent newssheet “Mediafax”, after giving a lecture on “democracy, gender equality and transparency”, at Maputo’s Eduardo Mondlane University, Modeer told reporters that there would be no further budget support until the audit is completed, and those responsible for the illegal government guarantees to the three companies are held responsible for their actions.

Ematum, Proindicus and MAM borrowed over two billion US dollars from European banks (Credit Suisse and VTB of Russia) in 2013 and 2014. The loans were only possible because the Mozambican government of the time, headed by President Armando Guebuza, gave guarantees, thus violating the ceiling on guarantees set by the budget laws of 2013 and 2014, as well as a clause in the constitution stating that only the country’s parliament, the Assembly of the Republic, can authorise such debt.

The guarantees added 20 per cent to Mozambique’s foreign debt, and pushed it beyond the limits of sustainability.

Sweden financed the audit, undertaken by Kroll Associates, reputedly the world’s foremost forensic auditing company. But the Kroll audit report complained that the task could not be completed because of obstruction by the management of the three companies.

Antonio do Rosario, a senior officer of the State Security and Intelligence Service (SISE), is the chairperson of all three companies. Citing “national security” he refused to collaborate fully with the auditors, and in a message widely circulated over the Internet he boasted that he had thrown the Kroll auditors out of his office.

The main challenge in completing the audit, Kroll said “was the lack of information available from the Mozambique companies. Kroll spent a considerable amount of time requesting and liaising with representatives of the Mozambique companies to obtain information and documentation that was, in some cases, either ultimately incomplete or not provided at all”.

Kroll said it repeatedly asked Rosario for “outstanding information that would provide a better understanding of expenditure: the response was that the requested information was ‘classified’ and not available”.

Kroll also found it could not obtain “reliable accounting records from the Mozambique companies to enable a proper assessment of the financial position of each company. Further, the Mozambique companies were unable to provide complete loan agreements or supply contracts”.

The invoices that the companies did provide “did not include sufficient detail to provide comfort that the documents accurately reflect the true price of the assets and services”. Some of the assets, such as the Ocean Eagle patrol vessels supplied to Ematum, did not feature in the accounting records at all.

There were huge holes in the Ematum records. Kroll found that Ematum “only provided limited information for two bank accounts which did not cover the period from the account opening, nor did Ematum provide details of two bank accounts held with BNI-Mozambique and Moza Banco. Of particular concern is that the Moza Banco account was not recorded in the Ematum accounting records, despite this account being used to receive more than 1.7 billion meticais (USD 55 million) from SISE”.

“The inability of Ematum to provide complete accounting records and bank statements demonstrates that the company has not maintained adequate books and records, either through mismanagement or a deliberate attempt to frustrate Kroll’s independent audit”, the report declared.

Modeer made it clear that the position of Sweden, a traditional ally of Mozambique, is that the resumption of financial aid is dependent, not just on completing the audit, but on legal proceedings against those responsible for the illegal debts.

“One of the decisions of the Swedish government”, Modeer said, “and not just of Sweden, since we are working with other partners, is not to provide direct budget support. As for holding people responsible, it is the task of the country’s own bodies to do this. Our position is the same as that of the other partners”.

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She made it clear that the Swedish government is not going to drop its demand for completion of the audit, because Mozambicans have the right to know how the money was spent.

“The message that I have brought is that the government has the responsibility to complete the missing information and to start the process of holding people to account. Transparency is necessary and the public has the right to know what happened and who the people involved are”.

Although Sweden will give no budget support until the audit is complete, it is continuing other forms of aid.

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Modeer met with Mozambique’s Deputy Foreign Minister Nyeleti Mondlane, who announced that Sweden is investing around 115 million US dollars in energy, agriculture, social projects and human rights initiatives.

“We are very grateful because Sweden is a country that invests not only in the development of infrastructures, but also in social areas that are crucial for the human development of our country”, said Mondlane

“We have a longstanding relationship and we shall continue to work with Mozambique”, said Modeer. “We have had other discussions about the financial challenges that the country faces and the importance of Mozambique returning to the financing programmes of the International Monetary Fund (IMF)”.

As the IMF has repeatedly made clear, it will not discuss a new programme with Mozambique until the Kroll audit is completed.

Also Read: Mozambique state budget donors have no “prognosis” for 2018

Source: AIM

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