Mozambique | Public debt is expected to be restructured, EIU says

Mozambique citizens travel in a crowded bus in Maputo

Mozambique’s public debt is likely to be restructured and the inflow of foreign capital is expected to take time to return to previously recorded amounts, the Economist Intelligence Unit (EIU) said in its latest country report.

In the document obtained by Macauhub, the EIU analysts restated that Mozambique is currently facing a liquidity crisis stemming from unsustainable public debt and the freezing of external support to the State Budget.

The report said the government will seek to maintain strict fiscal and monetary policies in an attempt to restore the relationship with the International Monetary Fund (IMF) and overcome the constraints caused by the liquidity crisis, but added that resistance by political agents should delay the pace of reforms and give rise to some inconsistencies.

Real GDP growth (nominal minus the inflation rate) will remain weak in 2017/2018, at least when compared to the figures recorded in the recent past, due to weak domestic private and public demand.

The report adds that, as of 2019, more rapid growth in GDP should be expected in line with increased business confidence.

The current account is expected to contract in 2017 to 19 percent of GDP, as the liquidity crisis will immediately lead to a reduction in imports and an increase in the international prices of both thermal and coking coal.

There seems to be no quick fix for the fact the country took on undisclosed loans, which is why the country is facing its current difficulties and Mozambique officially went into financial default when it failed to pay coupons and continues to claim it does not have the funds to pay make upcoming payments.

The EIU analysts said the most likely scenario is that the three loans (one bond issue and two syndicated loans) will be brought together in a single vehicle, with lenders being forced to lose part of the capital invested and repayment of the remainder being postponed until the 2020s.

The timeframe for this scenario is not known, with potential lenders requiring the results of the audit conducted by Kroll Associates UK to be made public and for Mozambique to have a new aid program with the IMF.

They point out, however, that negotiations with the IMF have not even begun, so negotiations with creditors are expected to drag to well beyond 2017 if they even start this year. MDT/Macauhub