No IMF programme until Mozambican debt sustainable – AIM report

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No IMF programme until Mozambican debt sustainable – AIM report

9:02 CAT | 01 Nov 2016

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The International Monetary Fund (IMF) has made it clear that there will be no IMF funds for Mozambique until the country’s debt is sustainable.

IMF spokesperson Gerry Rice, at his weekly press briefing in Washington on Thursday, confirmed what the Mozambican Finance Ministry itself had said in its briefing to creditors in London two days earlier – namely, that there can be no new IMF programme as long as Mozambique is “debt distressed”.

“In line with Fund policies, we cannot disburse funds in a situation where we think the debt is not sustainable”, said Rice. “As with any country, to be able to disburse we need to know that the debt is sustainable”.

The IMF suspended its programme with Mozambique in April, after the discovery that the previous government, under President Armando Guebuza, had not disclosed over a billion dollars worth of government guaranteed loans to the security related companies Proindicus and MAM (Mozambique Asset Management).

There are two basic conditions for the resumption of normal relations between the IMF and Mozambique – a return to debt sustainability and an independent, international audit of Proindicus, MAM and Ematum (Mozambique Tuna Company). Between them, the debts of these three quasi-public companies amounted to over two billion dollars.

Rice said the IMF “welcomed Mozambique’s willingness to perform the audit, and it was agreed that this audit would be conducted in an independent way by a reputable international auditing company”.

“My understanding is that work on this has continued, that in fact we expect the terms of reference for this audit to be completed soon”, Rice added. “We would see this as an important step to our continued support for Mozambique”.

The Finance Ministry document for the creditors admitted that Mozambique cannot pay its debts at the current level of debt servicing.

The debt service, including arrears, is 675.2 million dollars this year, rising to 803.8 million dollars in 2017, 826.8 million in 2018 and 865.5 million in 2019. The debt service then dips to 770.8 million dollars in 2020, before rising again to 863.7 million in 2021.

From 2017 to 2019, easily the largest slice of the debt service goes on the EMATUM, Proindicus and MAM loans – this will be 591.2 million dollars in 2017, 377.3 million in 2018, and 359.8 million in 2019. These figures include capital, interest and clearing arrears.

In other words, were it not for EMATUM, Proindicus and MAM, the foreign debt would be manageable.

The government document admits that Mozambique is in breach of all five of the IMF’s debt sustainability thresholds. For example, the total debt to GDP ratio should not exceed 40 per cent, but as of September 2016 was already 67 per cent. The ceiling of the debt to exports ratio is 150 per cent, but in Mozambique’s case it has reached 232 per cent. The debt to revenue ratio has reached 293 per cent, when it should not exceed 250 per cent.

Mozambique simply has no money to pay the commercial debt service (Ematum, Proindicus and MAM), at least not in 2017. The debt service priorities are the multilateral and bilateral debts, and the government’s document suggests that in 2017 there could be a slight shortfall even in meeting these commitments.

The light at the end of the tunnel is the large revenues expected from the natural gas reserves in the Rovuma Basin, off the coast of the northern province of Cabo Delgado. But the export of liquefied natural gas (LNG) is not expected to begin until 2021.

The government is therefore looking for an agreement with its creditors that will bridge te gap between now and 2021.

According to Prime Minister Carlos Agostinho do Rosario, speaking in the Mozambican parliament last week, the government “is working with the creditors to start negotiations on restructuring the Proindicus and MAM debts, which will make it possible to create the fiscal space to finance the priority actions of the government and stimulate the growth of the economy”.

Source: AIM