Mozambique must restructure debt and negotiate with the IMF at the same time – Consultant

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Mozambique must restructure debt and negotiate with the IMF at the same time – Consultant

11:23 CAT | 22 Mar 2017

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The government should restructure public debt and negotiate a financial aid package “at the same time,” said Eaglestone’s chief economist Tiago Dionísio in response to the country’s latest financial default.

Speaking to Lusa, Tiago Dionísio said that “the effort must be coordinated and both operations must happen at the same time”, since the country needs help from the International Monetary Fund (IMF) and must also ensure the conditions to pay off debt which is this year expected to reach 130 percent of GDP, according to projections by international economic institutions.

“Creditors should not be expecting to receive any money in the immediate future. What should happen is that Mozambique reaches an agreement with the IMF for an aid program that entails ambitious reforms and at the same time will try to delay debt repayment to creditors, which presupposes a haircut, and high,” Tiago Dionísio, meaning the loss of part of the value invested by creditors.

The Mozambican state-owned company Proindicus failed to make a US$119.2 million repayment on its US$622 million loan on Tuesday, causing Mozambique to fall again into financial default.

In the natural gas sector “there is still news” Dionísio says, noting that the recent Eni-Exxon Mobil deal has allowed the state to receive significant financial backing from taxes on the transaction.

“One of the issues under discussion is what kind of transaction tax will be paid. It should not be the 32 percent stipulated by law, about 300 to 500 million dollars is being talked about, but there is doubt as to whether that will go to creditors,” Dionísio said, concluding that “part should be given as a sign of goodwill, but it is more probable that creditors will have to wait longer”.

The Mozambican Ministry of Finance fulfilled its own January prediction when it chose not to pay the nearly US$60 million instalment on US$726.5 million sovereign debt issued in April last year.

“It’s not a big surprise, it’s confirmation of what happened in January,” Eaglestone’s chief economist told Lusa, adding “that there would be no concrete data until the Kroll report” on the recently contracted ‘hidden loans’ was released.

The US$622 million loan to Proindicus, of which US$597.1 million remains unpaid, was arranged by the London branch of Credit Suisse, according to a finance ministry document released in November last year.

The agreement for the loan, which matures in March 2021 and entails a payment of a US$119.4 million every March 21 until then, was written by Clifford Chance LLP and Couto, Graça and Associates.

The state-guaranteed loan, like the Mozambique Asset Management loan, was contracted without entering the public accounts and without informing international donors, who suspended financial help on their discovery.

Source: Lusa