Mozambique’s dollar crisis deepens as government fails to pay – Hanlon

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Mozambique’s dollar crisis deepens as government fails to pay – Hanlon

2:14 CAT | 24 May 2016

Mozambique Asset Management (MAM), was unable to make the $178 million payment due yesterday (23 May) and the government, which guaranteed the loan, also failed to come up with the cash, Reuters reported (23 May). The government is still in negotiations with foreign creditors behind the loan, organised by Russia’s VTB Bank. The loan is one part of a package of $2.3 billion in government guaranteed loans organised in secret in 2013 and only recently revealed.

On Monday, ratings agency Fitch downgraded Mozambique’s credit rating to ‘CC’ from ‘CCC’, “which indicates that a default of some kind appears probable. … Fitch now estimates annual public debt service costs to have almost doubled due to the hidden loans, to around 4.5% of GDP.” Fitch notes that “foreign reserves fell to $1.75bn in mid-May (from $1.85bn in early April and $2bn at end 2016) as exports continue to struggle.”http://www.reuters.com/article/idUSFit959912

Local businesspeople report that they are now unable to obtain dollars for imports, and some imported items such as rice are disappearing from the market.

Yesterday parliament announced a special session 8 and 9 June for the government to give more details on the debt.

The IMF mission originally scheduled for April and May will now take place in June. At a press conferenceThursday in Washington, IMF Communication Director Gerry Rice, said the missions was “to gather the facts, undertake the due diligence as needed; and as I said, assess the macroeconomic implications” of the secret debt which had not been reported to the IMF. Then there will extensive discussions about a new agreement and “structural conditionalities”, meaning austerity measures. Thus the very earliest Mozambique could get any money from donors or the IMF would be late July – and more likely much later. That, in turn, suggests that the economic crisis, with continued inflation and devaluation, will continue for some months.

Chatham House, in a 16 May report on the debt crisis by Alex Vines, says that the “government faces its greatest test since the end of the civil war in 1992. Undisclosed loans and debt, worsening armed conflict with the former rebel group Renamo and bad drought in the south and centre of the country highlight the fragility of the Mozambican state.”
https://www.chathamhouse.org/expert/comment/how-can-mozambique-manage-its-debt-crisis?

Vines continues: “Nobody anticipated the dramatic slump in commodity prices and, worryingly, lessons from the global financial crisis seem not to have been learned, given the predatory lending by Credit Suisse and VTB Bank. All of [the secret] loans also broke Mozambique’s own budgetary ceilings and agreements with donors. None of Mozambique’s institutions were consulted. The banks are not the only ones to blame. Oil and gas company Anadarko talked up their prospects of gas production by 2020, but no final investment decision (FID) has been announced. The IMF also predicted that Mozambique’s economy could grow by over 24% from 2021 because of gas – adding to the anticipation. … Belief that over $100 billion was being invested into gas prompted the country’s elites to seek to carve out their share.”

By: Joseph Hanlon

Source: News reports & clippings