Fund manager says Mozambique can not expect understanding from creditors
Mozambique’s public debt is expected to decline from the current 137 percent of gross domestic product (GDP) to about 120 percent by 2020, according to the rating agency Standard & Poor’s.
“We expect the deficit to reach 7 percent of GDP between 2017 and 2020 and that public debt will fall from a very high 137 percent of GDP to the still high figure of 118 percent in 2020,” the rating agency analysts write in an economy analysis note Lusa has access to.
According to the document, the government deficit is expected to reach 10 percent of GDP this year, “although the inability to finance the budget deficit could limit its own work due to the constraints on donor funding because of problems with debt management and high internal interest rates”.
Standard & Poor’s had already in early February lowered Mozambique’s rating for the foreign currency issues to Selective Default and the quality of the long-term debt issued in meticais to B-. Short-term debt in rated B – all below the investment recommendation level, and therefore ‘junk’, as it is commonly known.
The maintenance of the foreign currency public debt rating “arises after the Government failed to pay a US$ 59.8 million interest coupon” on 2023 debt of US$727.5 million issued in April 2016.
“The outlook remains stable for local currency ratings because we believe it is likely that the Republic of Mozambique will continue to honor the debt issued in meticais and will not incorporate it into any talks on debt restructuring,” write the analysts.
Standard & Poor’s experts expect that “the independent debt assessment undertaken by Kroll Risk Auditors will be completed and a debt sustainability assessment by the International Monetary Fund (IMF) will follow before the IMF and other donors can recommence any offer of support”.
Following the assessment of debt sustainability, “authorities are likely to exert strong pressure to negotiate a package of financial aid with the IMF,” S & P analysts predict.
Regarding the evolution of ratings, S & P may increase the valuation to CCC + or B- if a “restructuring offer” occurs, but this is still dependent on the conditions of an IMF program, the outcome of negotiations between the government and the holders of debt securities and our assessment of default contagion into the real economy”.
Despite negative economic news over the past year, S & P expects Mozambique’s GDP to grow at an average of 5.5 percent between 2017 and 2020, “assuming that recent adverse weather and drought conditions are overcome and that the price of raw materials do not fall significantly”.Source: Lusa