‘Hidden’ debt to cost Mozambique more than US$250 million a year

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‘Hidden’ debt to cost Mozambique more than US$250 million a year

6:33 CAT | 04 May 2016

International credit rating agency Moody’s estimates that the payment of Mozambique’s ‘hidden’ debt annual interests will cost around US$250 million dollars a year, further worsening the country’s finances.

“The discovery of hidden debt [1.4 billion dollars, according to the Government of Mozambique] means that the government will have to pay more debt, with cost possibly reaching 250 million dollars a year, according with our estimates,” wrote Moody’s vice president accompanying the country, Lucie Villa, in a research note released today.

According to Moody’s, the estimate “assumes that the total debt was not included in the debt repayment profile and the associated interests were not included in the analysis that the Government presented on the payment of interest, and also assumes that the debt consisting of loans to be repaid over seven years includes an average annual interest of 0.7 percent.

According to the rating agency, cancellation of aid from the International Monetary Fund means that the fund will “reassess debt sustainability, which is essential for any future funding program.”

The credit risk for investors is such, concludes Moody’s, that this funding program may come with “the condition that a restructuring of private sector’s debt is implemented,” raising the possibility of the government choosing this option to relieve pressure on its public finances.

Changing the conditions of the loan to the Company Mozambican Tuna (Ematum), exchanging the bonds for sovereign debt at the end of March, was viewed by Moody’s as a ‘problematic exchange’, equivalent to a financial default ( ‘defaut’) although the financial conditions are more favourable for investors, who overwhelmingly accepted the Government of Mozambique’s proposal.

In late March, the Mozambican Prime Minister presented the values of the total debt of the country, admitting that there are debts guaranteed by the state between 2013 and 2014, of US$622 million in favour of Proindicus and US$535 million in favour of Mozambique Asset Management (MAM).

In addition to debt service costs in the coming years, the Government has further acknowledged the existence of a bilateral debt contracted between 2009 and 2014, worth US$221.1 million, “in the context of strengthening the capacity to ensure order and public security”.

In total, about US$1.4 billion dollars were not included in the public accounts, leading the International Monetary Fund (IMF) to suspend a mission that had planned to Maputo and also the disbursement of the second tranche of a loan to Mozambique, a move followed by the World Bank and international donors.

Source: Lusa