Mozambique IMF loan moves forward amid serious sustainability and transparency concerns

21 July 2022

Despite ongoing concerns about insecurity, high debt levels, and vulnerability to natural disasters, on 9 May the IMF approved a $456 million Extended Credit Facility (ECF) loan to Mozambique. While Article IV consultation documents have still not been published two months later, the accompanying press release indicates that the debt sustainability analysis was likely once more based on the assumption of long-term growth prospects from Mozambique’s major liquefied natural gas (LNG) projects.

Contrary to this assessment, a detailed May 16 report from civil society organisation (CSO) Friends of the Earth asserted that the discovery of gas has been closely connected to destabilisation, displacement, disappearance of journalists and other human rights violations. Meanwhile, due to fluctuating commodity prices, security concerns – leading French investor Total to declare force majeure on its offshore LNG project in 2021 – and World Bank-advised tax breaks for gas developers, the expected “tremendous” economic windfall for Mozambique is now projected to be much smaller than anticipated (see Observer Autumn 2020).

The accelerating climate crisis and resulting long-overdue global policy shift towards renewable energy generation – including in key importer markets such as the EU – mean the LNG export projects risk becoming a stranded asset in future. This will have serious potential ripple effects on Mozambique’s debt sustainability and development prospects, as highlighted in two separate in-depth analyses by German think tank Open Oil and UK-based think tank E3G in 2021. “IMF modelling was a key factor in inflating the bubble of expectations on gas in Mozambique,” according to E3G. While the Fund has tamed its revenue projections and the board admits that “risks remain significant”, the ECF went through nevertheless, calling into question the rigour of the IMF’s risk assessment. Environmental activists Nnimmo Bassey and Anabela Lemos emphasised in a February article in Foreign Affairs that, “Instead of pouring more money into fossil fuel production and perpetuating the crises many African countries face… investments in renewable energy would produce an economic model that is cheaper, more reliable, and more democratic.”