Mozambique may default on its debts – Economist Intelligence Unit analyst

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Mozambique may default on its debts – Economist Intelligence Unit analyst

3:59 CAT | 02 Aug 2016

DW / Vessels of the Mozambican Tuna Company, which contracted debts outside of public accounts

Rating agency Fitch recently announced that Mozambique may be unable to repay its debts, and that’s a conclusion shared by Charlotte King, an analyst at British consultancy the Economist Intelligence Unit. “Taking into account the timetable for repayment, it is unlikely that the state can meet its obligations,” she says.

“There is a high level of uncertainty about the companies which took on debt with state guarantees in 2013 and 2014. Taking into account what the government told investors and parliament, there are serious doubts about the ability of companies to pay their debts, which technically means a failure to meet the state’s obligations,” King adds.

Charlotte King, analyst at the Economist Intelligent Unit

With the disclosure of the so-called hidden debts valued at $1.4 billion (EUR 1.2 billion), Mozambique’s public debt now amounts to US$11 660 million (EUR 10.4 billion), 70 percent of gross domestic product.

According to a United Nations Conference on Trade and Growth report, Mozambique posted the highest growth in external debt between 2011 and 2013 of any African country, with increases of 30 percent per year.

“Junk” can ward off investors and creditors

Fitch’s rating has again put the short and long-term debt of the country at “junk” level, not recommending investments on short-term issueances in local currency, and, according to analyst King, creating a “very negative” image of the country.

Several indicators justify it. “For example, the interest the government pays on Mozambique debt are the second-highest of the world, behind only Venezuela, which shows how wary investors are. The truth is that the appetite for doing business in Mozambique is declining,” her report concludes.

Mosambik Maputo Parlament / Plenary session in Mozambik's Parliament — The debts of the Company Mozambican Tuna, the Proindicus and Asset Management Mozambique will be reviewed by a parliamentary committee

Declining foreign investment “will have profound consequences for the deficit and the payment of obligations”. Moreover, since “there are increasing doubts about the state’s ability to deal successfully with the debts, and their will to do so, it is likely that access to credit lines will be reduced”, she explains.

Consultant does not forecast improvements

King also comments on the consequences for international donors. “The lack of transparency and failure by government to investigate have pushed away donor aid, which historically represents about 10 percent of the budget. What will affect state expenditure,” she predicts.

King considers it unlikely that the country’s situation will improve in the near future and warns that with cost-cutting more dark clouds are looming for civil servants and companies that rely on state contracts.

On July 25, the Mozambican parliament approved an amending state budget revising economic growth downward from 7 to 4.5 percent and predicting inflation rising to 16.7 percent instead of the 5.6 percent previously forecast. The government’s estimates are however still more optimistic than those of the British consultancy, which predicts an economic growth of 3.8 percent this year.

Source: Deutsche Welle