Government will take “all necessary steps” to make debt sustainable – Mozambique

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Government will take “all necessary steps” to make debt sustainable – Mozambique

1:34 CAT | 07 Nov 2016

Angop (File photo) / A view of Maputo

The Mozambican government said on Friday it would “take all the necessary steps” to put the public finances on a sustainable footing and become eligible for financial support from the International Monetary Fund (IMF).

In response to a set of questions posed by financial news agency Bloomberg, the Ministry of Finance said that it is prepared to “take all the necessary steps” to put the public debt, which is expected to reach 130 percent of GDP by the end of year, on a sustainable path.

“The objective of the negotiations must be to reach an agreement on the treatment of commercial external debt, public and guaranteed by the state, which meets the definition of the IMF on the debt sustainability for low-income countries and take into account Mozambique’s payment capacity in the short and medium term ,” the statement sent to Bloomberg reads.

At stake is the technical impossibility of the IMF resuming the country’s funding program while Mozambique does not meet the five criteria that define debt sustainability, and in fact currently violates all five.

The Ministry of Finance statement also says that it “encourages all holders of public debt and debt guaranteed by the state, foreign and commercial, to organise a single committee of creditors in order to efficiently and timely negotiate with the government and its legal and financial advisors”(British firms Lazard and White & Case).

“It is premature and counterproductive to speculate at this stage on the outcome of the forthcoming negotiations,” the Ministry of Finance said, referring to its 25 October proposal, after it had admitted its inability to pay commercial external debt this year and next, on the establishment of a creditors’ committee to discuss solutions with the government.

For now, it is certain that Mozambique would prefer an extension of debt repayment terms to 2024. Most of all, it wants to avoid losses for creditors, a process known as a ‘haircut’, which a government spokesman assured this week on the sidelines of a conference promoted by the Financial Times in Maputo was not on the table.

“One way or another it is critical that a consensus resolution be found as soon as possible to avoid the consequences of continued deterioration of the macroeconomic and fiscal situation,” the Ministry of Finance concludes.

On October 25, the government admitted its inability to pay its debts, proposing a restructuring of commercial debt of US$2.1 billion before starting talks with the IMF, which in April suspended financial aid following the revelation of undisclosed debt of about US$1.4 billion taken on by public companies Mozambique Assett Management and Proindicus.

Source: Lusa