Fitch says negotiations with Mozambique’s creditors will only progress in the third quarter

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Fitch says negotiations with Mozambique’s creditors will only progress in the third quarter

10:14 CAT | 08 May 2017

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Financial rating agency Fitch said yesterday that negotiations between the Mozambican government and international creditors are only expected to progress in the third quarter of this year, leaving the country without external funding until then.

“We anticipate that the debt restructuring process will be postponed. Negotiations will only progress after the audit of the public companies involved in the debt crisis and the International Monetary Fund has resumed a program of assistance. The earliest foreseeable date for these conditions to be met is the third quarter of this year,” Fitch says.

According to a full report on the country’s current ratings sent to investors yesterday, and to which Lusa has had access to, the debt crisis has had a significant impact on the Mozambican economy.

“Gross domestic product growth was 3.3 percent last year, the lowest level in the last 15 years, with confidence and investment falling sharply,” the report says. The agency anticipates a “modest recovery” In economic activity this year, based on the extractive industries, mainly in the exports of coal and aluminium.

Fitch continues to forecast six to seven percent growth over the medium term, supported by the positive demographic profile and ongoing investments in the extractive sectors, but notes that “Government efforts to contain expenditure and increase revenue to compensate for the decline in foreign aid have been largely inadequate, with the deficit increasing to 6.5 percent of GDP in 2016”.

The public debt crisis came in the middle of last year after news leaked of government-guaranteed loans being taken out by state-owned companies without the amounts being written into public accounts or reported to international donors including the International Monetary Fund.

Following the disclosure, donors cut funding and demanded concrete transparency measures, including an independent external audit. Kroll Associates UK is preparing a report on the independent international audit of the loans to Proindicus, Ematum and Mozambique Asset Management.

The three companies are owned by Mozambican state entities, mainly the State Information and Security Services (SISE), and were created in the government of Armando Guebuza, who preceded the current president, Filipe Nyusi.

ProIndicus contracted a loan of US$622 million (EUR586 million) with Credit Suisse and Russian VTB bank between 2013 and 2014 with guarantee by the Mozambican government given without informing the Mozambican parliament and the international financial institutions .

The Mozambican government also endorsed a US$535 million loan in favour of MAM (Mozambique Asset Management), a maritime security company.

Including the sovereign bonds that resulted from the conversion of the corporate bonds issued by the Mozambican Tuna Company (Ematum), the debts total more than US$727.5 million (EUR684.8 million).

An independent international audit of the ‘hidden debts’ was a condition of the IMF resuming its support for Mozambique following the suspension of its funding in April 2016, along with that of 14 other state budget donors.

Source: Lusa