Mozambique debt interest hits record 17.4 percent, with ‘default’ warning

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Mozambique debt interest hits record 17.4 percent, with ‘default’ warning

12:37 CAT | 20 May 2016

Exxafrica (file photo) / Ocean eagle surveillance trimaran supplied to Mozambique

The interest rates demanded by investors in Mozambique sovereign debt securities yesterday hit a record 17 percent, after the government warned of a possible ‘default’ next week.

According to financial news agency Bloomberg, Mozambique’s sovereign debt interest rate had yesterday afternoon risen 177 basis points to 17.41 percent.

The rise in investor interest rates charged for transacting debt securities worth about US$726 million resulting from the sovereign debt swap for Ematum obligations last month represents a rise of 70 percent on the initially agreed 10.5 percent interest.

Yesterday, the Minister of Economy and Finance of Mozambique warned that Mozambique Asset Management (MAM), a company which benefited from undisclosed loans guaranteed by the Mozambican state, might default on a loan installment due next week.

“According to the company, MAM is at this time negotiating a restructuring, because it does not have sufficient income to pay” the US$178 million (EUR158 million) first installment, Adriano Maleiane told members of parliament’s Planning And Budget Committee.

“It would be hard to find budget money to pay the debt,” Maleiane admitted, saying that the government was satisfied with the company’s efforts and that its negotiations with creditors “are going well”.

The public debt in Mozambique now exceeds US$11.6 billion dollars, of which US$9,850 million are in foreign currency, he told deputies, in the first official explanation since the country admitted it had more than US$1,400 million of undisclosed debt.

Mozambique’s public accounts have been significantly affected by the disclosure of these loans, with Fitch estimated that debt was 83 percent of GDP in 2015, while Moody’s pointed out that the debt service burden has risen US$250 million dollars a year just counting the Proindicus and MAM loans.

Mozambique’s debt crisis comes with a devaluation of 35 percent in the value of the metical and a decrease of 25 percent in the country’s foreign reserves last year, with inflation rising to 17.3 percent in April and this year’s expected economic growth being revised down to 6 percent, the lowest this millennium, according to the IMF.

The Mozambican government in April acknowledged the existence of a previously undisclosed debts of US$1.4 billion (EUR 1.25 billion), which it justified on national security grounds.

Including the recently disclosed loans, Mozambique’s public debt now stands at US$11.66 billion (EUR10.1 billion), of which US$9,890 million (EUR8.6 billion) is external. This represents over 70 percent of gross domestic product, up from 2012 figures of 42 percent.

Following the announcement of the suspension of support by some of the country’s international partners after the discovery debts concealed by the Mozambican government, the executive has signalled that it will implement cuts, control public expenditure more strictly and increase revenue capabilities.

Source: Lusa