Britain has suspended aid to Mozambique, one of the world’s poorest nations, after secret loans meant to fund a state-owned tuna-fishing firm were instead used to buy expensive military patrol boats from France.
The Department for International Development (DFID), which has been sending £84 million a year to Mozambique, turned off the tap after the government there confessed to almost £1 billion of debts it had failed to disclose while taking aid money.
The move follows similar suspensions of aid from the International Monetary Fund (IMF) and the World Bank, which includes Britain among its biggest donors.
The bizarre scandal emerged after Mozambique took delivery of eight military vessels.
They currently sit high and dry on a concrete dock in the port area of the capital, Maputo.
The boats, which include three futuristic-looking 130ft trimarans able to carry heavy-calibre machine guns, were bought with the proceeds of loans taken out in 2013, supposedly to create a state fishing firm.
Critics questioned such lavish spending on fishing boats by an impoverished and highly indebted nation but the government went ahead and sold bonds based on an estimated tuna catch of 200,000 tons a year, worth £140 million.
The recorded catch for 2014 was 6,000 tons.
Some of the cash raised by the bonds sale was used to buy 24 fishing boats. But hundreds of millions more was spent on security equipment for coastal protection, including patrol boats, light aircraft and drones.
The fishing firm was supposed to help fund loan repayments of £177 million a year. It reportedly made a £17 million loss in its first year.
Last month Mozambique’s prime minister, Carlos Agostinho do Rosario, admitted to the IMF that loans were taken out secretly by his predecessor without telling parliament or donors.
The IMF, which bailed out Mozambique with emergency help last October, instantly stopped payment of a second £200 million tranche. The country’s credit rating fell sharply.
Economist Joseph Hanlon, an expert on Mozambique, said: ‘At least $2.2 billion [£1.5 billion], equivalent to all government spending for five months, has been squandered in secret on boats of dubious necessity and, it is widely assumed, on corrupt payments.’
Hanlon, a senior fellow of the London School of Economics, added that the careers of aid officials were largely determined by how much money they dispensed, saying: ‘Despite war and scandal, Mozambique is seen as a country they can work with.’
The scandal appears to be a classic case of ‘fungibility’ – the term used to describe how money provided from outside for poverty relief permits rulers to divert funds into pet projects or their own pockets.
About a quarter of the cash- strapped country’s budget comes from overseas donors.
Britain is among key donors, boasting on its website that UK aid is helping Mozambique ‘transform itself into a thriving gateway of trade and investment’.
A DFID spokeswoman said: ‘This appears to be a serious breach of trust.’ She insisted there was no evidence ‘to date’ of any misuse of taxpayers’ money, adding: ‘We are working closely with international partners to establish the truth.’