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Consultancy Fitch Solutions considers the agreement between debt holders and the Mozambican government a positive one, but one that does not address the need for external support, with investors remaining “highly cautious.”
According to the consultancy, which is owned by the Fitch financial rating agency group, “the deal is positive because it improves the debt profile and long-term fiscal credibility, but does not solve the problem of lack of international support for the state budget, [which is] needed to stimulate short-term economic growth.”
In a note commenting on the agreement reached this month between debt securities creditors and the Mozambican government regarding the restructuring of US$726.5 million of sovereign debt, Fitch Solutions says it was “a milestone” for the country and recalls that announcements of preliminary agreements had always led to significant reductions in interest rates charged by investors, “which shows improved confidence.”
Mozambican sovereign bond holders approved the restructuring of the
US$726.5 million debt originating with the public company Ematum, the government announced on 9 September.
“The proposal was approved by a written decision by the bondholders holding 99.5% of the aggregate value of the outstanding debt capital,” a statement from the Ministry of Economy and Finance issued at the time read.
The favourable vote includes the Global Group of Bondholders of Mozambique representing 68% of the bonds, which had already declared support for the proposal, giving the 75% of votes needed for the restructuring to take effect.
“The written resolution will be effective upon settlement conditions, and it is expected that the initial distribution of the rights will take place on September 30, 2019,” the statement adds.
According to Fitch Solutions, despite this agreement, “private investors outside the hydrocarbon sector will remain highly cautious about Mozambique in the coming years because of the consequences of the debt scandal and strong government involvement in the economy.”
Economic growth slowed from 7% between 2010 and 2015 to 3.6% between
2016 and 2018, with Fitch predicting that the economy will slow further to 1.4% this year because of cyclones Idai and Kenneth, recovering to 3.8% by 2020.
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