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International Monetary Fund (IMF) staff currently in a mission in Maputo is updating Mozambique’s macroeconomic framework and will also prepare the next update Debt Sustainability Analysis for the country, whose criteria currently prevent financial assistance to Mozambique.
“An IMF mission is currently visiting Mozambique. Can it lay the groundwork for resuming financial assistance and does the new prospect of agreement with the country’s lenders and bond holders change Mozambique’s outlook?” Lusa asked IMF communications director Gerry Rice on Thursday.
“So, I can confirm yes, an IMF mission is currently in Maputo updating the macroeconomic framework and preparing the ground work for that exercise,” he replied. “And they will be there over the next several weeks including working on the joint IMF/World Bank debt sustainability analysis.”
“On the second question, again yes, we are aware that the Mozambican authorities have announced an agreement in principle on debt restructuring with a group of their Euro bond holders. Fund staff as part of the mission that I mentioned will study the implications of the agreement for debt sustainability in the context of the next update of the debt sustainability analysis for Mozambique,” he added.
The IMF debt sustainability analysis has five indicators which determine whether a country’s debt is sustainable, and whether it is able to honour its financial commitments, not only with commercial creditors but also with multilateral institutions like the IMF or the World Bank.
“By the end of 2017, all indicators of Mozambique’s Debt Sustainability Analysis except the ratio of debt service to exports were above the prudence threshold for countries with an average Country Policy and Institutional Assessment (CPIA),” the Mozambican government acknowledged in a presentation to creditors in London on March 20.
Under the Fund’s internal rules, countries that exceed these levels are unable to receive financial assistance, making Mozambique’s already complicated economic situation even more difficult. These are the limits of the Current Value of Debt vis-à-vis GDP, Exports, Revenues, Debt Service in relation to Exports and Debt Service compared to the value of Revenues.
Mozambique currently exceeds all five indicators, but following the preliminary agreement with bondholders, it manages to significantly improve the Debt Service criterion compared to the value of Revenues, as well as other indicators given the financial ‘slack’ that is provided by the new framework of payments to creditors of US$726.5 million in sovereign debt.
Last week, Lucie Villa, the Moody’s analyst tracking the Mozambican economy, said the agreement improved the indicators, but admitted that the calculations had to be made by the IMF, since their model is quite complex and there is a meaningful level of interpretation and analysis.
When asked if by Lusa if the terms of the agreement automatically put the five criteria of debt sustainability within limits, Villa responded: “It improves the chances of meeting the criteria, yes, but until the IMF publishes the analysis is difficult to say what the situation is, because there is a degree of appreciation and interpretation [involved], so until we have the IMF DSA it is difficult to say whether this is enough or not.”Source: Lusa
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