Mozambique’s Debt Scandal Unmasks a Larger Crisis

A devastating combination of financial mismanagement, corruption, and terrorism has pushed Mozambique to the brink of economic catastrophe. The country’s “hidden debt” scandal, which emerged in 2016, has left a trail of destruction, displacing nearly a million people and pushing over a million others into poverty.

The Hidden Debt Scandal

The scandal centers on secret loans amounting to approximately $2 billion, meant for state fishery projects but secured with undisclosed government guarantees. This reckless financial decision ultimately led the International Monetary Fund (IMF) to withdraw fiscal aid, triggering a sovereign debt default and currency collapse. By 2022, Mozambique’s debt-to-GDP ratio had soared to 101%, an alarming level of indebtedness that the country was unable to manage.

The Fallout from the Scandal

The fallout from the scandal has been staggering:

• Estimated costs: Exceeding $11 billion in direct expenditures, payments made, and economic losses resulting from a slowdown.
• Impact on poverty: Over 1 million people displaced or pushed into poverty.

However, rarely considered is the scandal’s impact on the violent insurgency led by Ansar al-Sunna and the Islamic State of Mozambique Province, which broke out in Cabo Delago in 2017.

The Roots of the Insurgency

Research reveals that the roots of the insurgency stem from socio-economic marginalization, corruption, and weak governance, contributing to perceptions that the central government neglects its northern communities. Economic marginalization, poverty, and lack of access to essential services are significant drivers of violent extremism in sub-Saharan Africa, according to a United Nations Development Programme (UNDP) report.

A Vicious Cycle

The interplay between economic instability and terrorism can intensify economic downturns, spur inflation, and diminish funding for social support systems and security expenditures. In Mozambique’s case, this vicious cycle fuels grievances that contribute to conflict.

Africa’s Dual Challenge

Africa faces a pressing dual challenge as mounting debt crises have dire implications for countries’ economies and human security. The continent-wide impact of conflicts, ranging from terrorism to armed clashes and political instability, is exacerbated by economic vulnerabilities in countries such as Somalia, Cameroon, Egypt, Kenya, and Chad.

A Comprehensive Strategy

To address Mozambique’s crisis, a comprehensive strategy is needed that boosts northern Mozambique’s resilience. However, the plan approved by the government removed all references to the social and economic problems driving the insurgency, which could explain the lack of donor funding for its implementation.

Stability in Mozambique requires accountability for those accused of corruption and a commitment to tackling the drivers of violent extremism. Ultimately, poor governance lies at the heart of both Mozambique’s debt crisis and its insecurity. The country’s government must commit to transparency, accountability, and addressing economic and security concerns to restore stability.