When the State Conceals the Bill

According to research, emerging economies have accumulated up to $1 trillion in debts since the 1970s that were never reported at the time the loans were taken out. This type of invisible obligation can lead to crises that directly impact currencies, interest rates, and inflation.

In the port of Maputo, Mozambique, a fleet of trawlers sits bobbing in the heat. These boats were meant to become the backbone of a new, proud tuna industry that would lift the country out of poverty. Instead, they have become rusting monuments to one of modern history’s most powerful financial scandals – and a clear example of how the invention of government borrowing can lead to something destructive.

The company behind the now ghostly tuna fleet, Ematum, issued bonds on the market for $850 million. It was 2013, and investors in London and New York bought into the story of a modern, domestic fishing industry. Secretly, government officials borrowed an additional billion dollars. Everyone was enticed by the interest rate. But the money was never used for fishing.

It was diverted into military equipment and corruption. The flow of money into the country was immediately cut off when the scandal was uncovered in 2016. The currency imploded instantly. Overnight, the national debt became unpayable.

The tragedy in Maputo is no anomaly; it is a symptom of a disease that has penetrated deep into the nervous system of the global economy.

This creates a dangerously large gap in the statistics. Economists call it Stock-Flow Adjustment. In a functioning world, the increase in national debt should match the budget deficit. But in today’s murky reality, the debt (the stock) grows much faster than the current expenditures (the flow) justify.

It’s really no more complicated than private finance.

Imagine a personal economy that appears to balance. What the bank sees are income and expenses in equilibrium. What’s not visible at first glance is that the individual has also taken out a private loan with interest guarantee for an external project. As long as the project generates money and covers the interest, the loan remains invisible in daily finances.

But guarantees are binary. They are invisible until they must be fulfilled. When the project can no longer pay, the entire debt burden is immediately transferred to the personal economy, which has no margin for handling the blow.

Politicians are attracted to this setup for a simple reason: it allows them to spend without it being visible. They can build roads or, as in Mozambique, buy boats, without burdening the country’s official deficit figures. On paper, the country appears to follow all fiscal rules. They buy political maneuvering space, but the payment method is a hidden risk that accumulates silently.

The problem is that these hidden guarantees – known in financial language as contingent liabilities – tend to be triggered at the worst possible moment. Often, the same economic shocks, such as falling commodity prices or a rising dollar, weaken both the government-owned companies’ ability to pay and the country’s own tax revenues.

When the guarantee is triggered, the invisible risk immediately turns into formal government debt. The market reacts with shock. Since no one knows how many more hidden projects are on the books, confidence evaporates instantly. Risk premiums soar, and the road to recovery becomes significantly more expensive and difficult than if the debt had been openly reported from the start.

You can hide a billion in a mailbox company. You can deceive parliament and fool international auditors with creative schemes. But you can never deceive reality.

The rusting ships in Maputo bobbing in the heat are a silent reminder of a fundamental economic law: a debt can be erased from the books, but it never truly disappears.

It’s waiting.