Mozambique resorts to Paris Club for help on debt restructure

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Mozambique resorts to Paris Club for help on debt restructure

11:18 CAT | 02 Feb 2017

Saint-Louis-Studio / Steven Le Vourc'h (File photo) / Minister of Economy and Finance Adriano Maleiane

According to financial information agency Bloomberg, citing the Zitamar news site, the Mozambican government has asked the Paris Club, an international donor group, to begin negotiations to restructure the country’s external public debt, which at current levels is considered unsustainable.

According to the website, the Paris Club is “an informal group of official creditors whose role is to find sustainable and coordinated solutions to the debtor countries’ payment difficulties”.

The Paris Club “provides debt relief for debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, a reduction in debt service obligations over a specified period or on a specific date,” the site explains.

The Paris Club was formed in 1956 when Argentina agreed to meet its creditors in Paris. Since then this group has made 433 agreements with 90 different countries involving more than US$580 billion. Among the 22 countries that constitute the permanent core of the group are many of the European Union countries (excluding Portugal), plus Brazil, Canada, Israel, Japan, South Korea, Russia and the United States.

Mozambique has already resorted to this group eight times, having repaid seven loans in full. The eighth, requested in November 2001 under the Heavily Indebted Poor Countries aid program, is still active.

The Mozambican Ministry of Finance confirmed in January that it would not pay this month’s instalment of US$59.7 million on sovereign debt maturing in 2023.

“The Ministry of Economy and Finance of the Republic of Mozambique wants to inform the holders of the US$726.5 million maturing in 2023 issued by the Republic that the payment of interest on the notes, worth US$ 59.7 million, due on January 18, will not be paid by the Republic,” a statement released in Maputo read.

In the document, Mozambique recalls that it had warned creditors about a lack of liquidity during 2017 last October, and stresses that it views creditors as “important long-term partners whose support for the necessary resolution of the debt process will be critical to the future success of the parents”.

Following this announcement, Standard & Poor’s cut the country’s rating to ‘SD/D’, that is, partial financial default, and found that non-payment was a government strategy to force debt holders to negotiate a debt restructuring, which they have so far rejected.

Fitch has maintained the country’s rating but warned that Mozambique’s failure to pay its January installment will “increase the uncertainty” over the restructuring of sovereign debt issued in April of last year. Moody’s also considers the non-payment default, but did not lower the rating, considering that its Caa3 assessment already implies an assumption of potential losses for creditors from 20 to 30 percent, possibly reaching 50 percent in line with the sovereign defaults historical average.

Creditors, for their part, warned that they could proceed judicially against the country and said they saw the default as merely a strategy to force a renegotiation.

Source: Lusa