Government trying to normalise relations with IMF
The Standard & Poor’s analyst following Mozambique says the most likely scenario in the debt crisis is creditors accepting a significant cut, allowing further International Monetary Fund (IMF) assistance.
“Debt restructuring, especially if it involves a significant ‘haircut’, would reduce government debt to sustainable levels, which could allow the IMF to see the debt as on a more sustainable trajectory and thus resume financial aid,” said Ravi Bhathia.
In an interview with Lusa in London, the director of the S&P credit department for the African continent stressed that debt restructuring, involving a significant cut in the amount payable to creditors, is not a scenario that the rating agency recommends, but it seems to be the most likely scenario given Mozambique’s financial difficulties. The country went into financial default on public debt when it failed to pay a provision of nearly US$60 million in January.
“A restructuring agreement could cause the default to be seen as being resolved, and Mozambique could potentially then move on to a new phase and start borrowing again,” Bhathia said.
At stake is the non-payment of a US$727 million issue made last year and a further US$1.4 billion that public companies Mozambique Asset Management and Proindicus contracted in 2013 and 2014 with state guarantee, but without the amounts being registered in Mozambique’s public accounts or international donors being informed.
Asked about the possibility of the country’s rating – currently Selective Default – being revised in August when the next evaluation of the quality of the country’s sovereign credit is due, Bhathia replied that the situation had not changed much since February, the date of S&P’s latest assessment.
“To change the rating, we needed a resolution of the debt issue in order to move forward,” and this will hardly happen as long as the Kroll audit – one of the conditions for the IMF and other donors to begin negotiations that may lead to the financial aid – remains undisclosed.
Bhathia stressed however that, “donors will continue to be involved because Mozambique is a poor country with a low GDP per capita and until recently had grown rapidly, and has a profile that typically fits that of a country eligible for concessional lending”.
Donor support, he said, did not completely stop with the disclosure of the US$1.4 billion undisclosed debt; it was re-channelled from budget support to concrete projects in specific sectors.
Asked about the possibility of Mozambique following the example of Ukraine, which, in an attempt to avoid paying a significant amount of public debt, argued that the previous government violated the law in taking it on, the S&P analyst said that the argument would hardly fit the case in Mozambique.
“It’s an approach that they can try to use, but success is questionable. I do not think they can go down that road, because ultimately the government has issued a guarantee on government-owned loans,” Bhathia said.Source: Lusa