guarantees to borrow USD 1.2 billion from international banks Credit Suisse and VTB without disclosing these additional liabilities to bond investors and the public.<sup>5</sup> Two years later, in 2015, Mozambique first started to experience debt servicing difficulties. The tuna fleet, funded with the USD 850 million bond issuance, pulled in less than 5% of the tuna that it had expected, and the government approached bondholders with a plan to restructure the bond. After most bondholders had agreed to the restructuring in early 2016, rumors about large hidden debts started to emerge. In April 2016, the Wall Street Journal first reported about the additional and previously undisclosed bank loans that Mozambican state-owned enterprises had borrowed and the state guarantees that they carried.<sup>6</sup> The rumors about hidden debt led to a surge in Mozambique’s bond spreads (see Figure 1), with bond investors expressing concerns that the existence of undisclosed, additional liabilities would dilute the recovery value of their bonds in the event of a default, which ultimately happened in January 2017. Audits of Mozambique’s debt through the IMF and international accounting firms followed.<sup>7</sup> They confirmed the existence of USD 1.2 billion in hidden liabilities and the country’s Constitutional Council ruled that the loans were illegally contracted (Cortez et al., 2021). Ultimately, it took 4 years to settle renegotiations with bondholders and the country has not accessed international bond market ever since.

Mozambique’s hidden debts and their revelation can be quantified by comparing the country’s debt reports across different vintages of the World Bank’s International Debt Statistics. When initially reported, the 2014 debt figure for Mozambique was USD 7.1 billion (see Figure 2). This figure was strongly upward revised in subsequent vintages as the previously undisclosed loans became public knowledge. The latest debt figure for year 2014 is USD 8.5 billion, an increase of USD 1.4 billion or 8% of GDP).

# **2.2 Zambia**

Zambia increased external borrowing significantly during the 2010s. Supported by high commodity prices, the country contracted liabilities with numerous external creditors, including bondholders, bilateral creditors, commercial banks, export credit agencies and dozens of different suppliers. Debt issuance was carried out not only by the central government but also by a range of state-owned enterprises and special purpose vehicles that accumulated debt to finance infrastructure and energy projects (Brautigam, 2022). Whereas the country had contracted only five new loans in 2011, it contracted at least thirty new loans at the height of the boom in 2016 (Smith et al., 2017).

As the complexity of Zambia’s public debt portfolio increased, uncertainty over the true extent of the country’s indebtedness emerged. Zambia’s borrowing costs started to increase in April 2018, when the international press and major investors openly questioned the accu-

> 5See Financial Times (2017, June 25) _“State loans at heart of Mozambique debt scandal”_ .

> 6See Wall Street Journal (2016, April 3) _“Tuna and Gunships: How $850 Million in Bonds Went Bad in Mozambique”_ .

> 7See Reuters (2017, May 13) _“Mozambique receives Kroll audit into hidden debts”_ and Reuters (2017, July 11) _“IMF team visits Mozambique after damning debt audit”_ .

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