Mozambique is in denial about risk of bankruptcy – Researcher

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Mozambique is in denial about risk of bankruptcy – Researcher

3:09 CAT | 23 May 2016

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The Mozambican government is in denial about the seriousness of the public debt situation and is on the verge of bankruptcy, António Francisco, an economist and director of research at the Institute of Social Studies of Mozambique (IESE), has told Lusa.

“Faced with the gravity of the situation, the government chose denial, acting with lack of candor regarding this worrying situation, which will lead to bankruptcy, to default,” said Francisco, reacting to claims by the government that sovereign debt was “under control”.

Representatives from the Community of Portuguese Language Countries (CPLP) are meeting in Luanda today in a forum that will discuss the management of public debts.

The Mozambican authorities, Francisco continued, adopt in relation to public debt a strategy of covering up the circumstances in which the previous government, led by Armando Guebuza, gave guarantees on borrowings that have caused public debt to swell to its current US$11.64 billion total.

“It is a matter of great unease that the government tries to legitimize hiding debts from everyone, including the Assembly of the Republic, and this attitude of insouciance is impossible to understand,” Francisco says.

According to the economist, it will not be long before Filipe Nyusi’s government admits that the country is unable to pay what it owes.

“It seems probable that, by the end of the year, public debt will be 100 percent of GDP, because of costs that will have to be financed with more debt. There is even uncertainty about the debt burdens that have to be met by the end of this month” noted Francisco, who also teaches at the Eduardo Mondlane University (UEM).

To Francisco’s mind, default and international aid for the country to renegotiate the debt looks increasingly inevitable.

“The International Monetary Fund still has to determine the extent of the problem and the destination of the money borrowed, because so far it is not yet clear if it really was for the purposes stated,” he warned.

According to the Francisco, the IMF’s opinion will be key to the position of international partners, including China, which “could even give us oxygen for one or two months, but will not assume a greater commitment in the face of such debt opacity”.

The Mozambican government in April acknowledged the existence of a previously undisclosed debts of US$1.4 billion (EUR 1.25 billion), which it justified on national security grounds.

The revelation of government-guaranteed loans contracted between 2013 and 2014 led the International Monetary Fund to suspend the second installment of a pre-agreed loan to Mozambique and cancel a visit to Maputo.

The group of international donors, currently chaired by Portugal, also suspended aid to the state budget of Mozambique, followed by the US, which announced that it would review its bilateral support to the country.

Including the recently disclosed loans, Mozambique’s public debt now stands at US$11.66 billion (EUR10.1 billion), of which US$9,890 million (EUR8.6 billion) is external. This represents over 70 percent of gross domestic product, up from 2012 figures of 42 percent.

Source: Lusa