Mozambique: State companies a serious financial risk - World Bank
Mozambique posted the highest growth in external debt of all African countries between 2011 and 2013, with increases of 30 percent per year, according to the United Nations Conference report on Trade and Development (UNCTAD).
Entitled ‘Economic Development in Africa’, and focussing on the levels and dynamic of public debt on the continent, the report notes that “between 2011 and 2013, the volume of foreign debt grew fastest in Mozambique (30 percent per year on average), [followed by] Cameroon (26 percent per year) and Gabon, Nigeria, Rwanda and Seychelles (24 percent per year)”.
In the classification of countries in terms of their debt risk, Mozambique appears alongside Angola, Cape Verde and Guinea-Bissau in the group of moderate risk, leaving Sao Tome and Principe isolated in the group of higher risk, but the data is current only to November 2015, before the debt crisis in Mozambique and the revelation of at least US$1.4 billion dollars in undisclosed government-backed loans.
“On average, the volume of foreign debt in Africa increased by 10.2 percent per year between 2011 and 2013, compared with growth of 7.8 percent between 2006 and 2009,” the report adds, commenting that “this trend was motivated in part by factors such as the sharp decline in commodity prices and consequent lower tax revenues and the global financial crisis”.
The UNCTAD experts suggest that these factors led investors to bet on riskier assets, which increased interest in emerging markets. “Investors seeking higher interest rates in Africa, given the slow growth in advanced economies and higher interest rates based on the perceived risk of investing in Africa, opened new sources of external financing, often without imposing constraints, that African countries took advantage of.”
The 166-page document presented in the Kenyan capital also stresses the importance of the differences between those who own the debt of African economies, but points out that even more important is to assess the use of means of funding: “Debt taken on for current expenses can lead to great vulnerability and to challenges to states’ debt sustainability, as in Mozambique and Ghana.”
On the other hand, “if the debt is used to finance investments that contribute to production and future capacity increases in GDP, countries can generate the resources to repay and serve their debts”. UNCTAD also stresses the importance of diversify economies.
“Using debt to finance investments for economic diversification goals is even more important, as it ensures that countries have the capacity to respond to unforeseen external shocks and the ability to repay their debts.”
In the press release accompanying the launch of the report, which sets the means to achieve sustainable development goals in Africa at US$600 billion a year, the Secretary General of UNCTAD, Mukhisa Kituyi, says we have to find a “balance between the present and the future, because the debt is dangerous when it is unsustainable”.
The report also estimates that illegal financial flows top US$50 billion a year, which means that “between 1970 and 2008, Africa will have lost US$854,000 million, roughly the same as all official development aid received during this period”.
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