Servicing Mozambique’s public debt to cost 4.5 percent of GDP per year – Fitch

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Servicing Mozambique’s public debt to cost 4.5 percent of GDP per year – Fitch

2:04 CAT | 13 Jun 2016

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Rating agency Fitch on Friday estimated that Mozambique’s public debt stands at 80 percent of gross domestic product, with annual interest payments running at approximately of 4.5 percent of the same measure.

“Public debt has risen rapidly in the last six months due to a combination of the exchange rate weakening and additional debt disclosure of about US$1.4 billion dollars,” said Fitch in a statement sent to investors.

The 80 percent figure is almost double that of 2012 levels, as is the cost of servicing the debt.

Fitch’s analysis came in the same week that the Minister of Economy and Finance of Mozambique acknowledged in Parliament that Mozambique Asset Management (MAM) had failed to make an end-of-May debt payment of US$178 million.

The Fitch document, which justifies the agency’s downgrade of Mozambique debt to CC or no investment recommendation on May 23, stresses the impact of the suspension of financial support from donors (US$300 million annually, or about 11 percent of the country’s 2016 budget) and the suspension of US$165 million in aid from the International Monetary Fund.

“Solving the standstill with donors will be a key government priority and crucial to determining the overall macroeconomic impact of recent developments,” the report says, adding that “to regain donors’ support, the authorities will be forced to implement much more rigorous management of public finances and budgetary goals”.

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 G14 group of state budget donors also suspended its payments, followed by the US, which announced that it would review its bilateral support to the country.

Source: Lusa