Government says it is working on the payment of 13th month salary
In an analysis note on Mozambique, the International Business Monitor (BMI) estimates that the country’s public debt will reach 109.7 percent of gross domestic product (GDP) this year, making it the highest in sub-Saharan Africa,
“After falling into financial default on January 20, the next few years will be defined by the government’s ability to bring the burden of global debt back to a more sustainable level, and we expect the government’s total debt to reach 109.7 percent of GDP this year, the highest in sub-Saharan Africa,” the note, to which Lusa has access, reads.
In the document sent to investors, the Fitch group analysis unit underlines that “most of the debt is denominated in foreign currency, making it susceptible to exchange rate volatility”.
This volatility, they add, was evident during the past year when the metical depreciated almost 33 percent against the dollar, further increasing the government’s difficulty in servicing the debt, which rose to unsustainable levels forcing the government to default on the first nearly U$60 million instalment of the US$727.5 million of debt issued in April last year.
BMI analysts consider that if the financial agreement that Mozambique intends to obtain from the International Monetary Fund is reached, “restricting public spending should be a large part” of that agreement, which will improve the analysis of the country made by international investors.
However, they add, “any return to the international markets in the future” will be negatively received by investors because of “the unfriendly way they were treated during the default process”, in which they refused to prefer them over other creditors although they had accepted a restructuring in 2016.
“This decision is expected to increase funding costs in the future, as investors are expected to include in the loan price a record of default and the lack of cooperation,” the BMI concludes.
For now, the financial default and the inability to service debt has lowered public spending, and for this reason the BMI predicts that the government deficit will fall this year to 6.2 percent of GDP, an improvement over the 10.3 percent in 2014, and it should further decline if Mozambique enters into an IMF financial aid program, the analysts conclude.Source: Lusa
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