$ crisis deepens as Mozambique government fails to pay

Mozambique Asset Management (MAM), was unable to make the $178 million payment due on 23 May and the government, which guaranteed the loan, also failed to come up with the cash, Reuters reported.

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 conference Thursday 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, asses 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." 

How much is $2.3 bn?

Finance Minister

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Image by MOPA Maputo

 told parliament that the government debt and guarantees total $11.64 billion, of which $9.84 bn is foreign (hard currency) debt and $1.8 bn is domestic (Meticais) debt. So total debt is 107% of GDP and the foreign debt is 90% of GDP - both considered very high.

The estimate of the government guaranteed loans taken in secret in 2013-4 is about $2.3 billion. This is a huge amount of money. It can be visualised in three ways:
+ It is $80 for each woman, man and child in Mozambique. The median rural cash income is below $25 per person per year - so for half the rural population, it would take their entire cash income for more than three years to pay their share of the debt.
+ $2.3 bn is exactly Mozambique's entire tax revenue in 2015.
+ $2.3 bn is the wage bill for two years for everyone working for the government - ministers, directors, nurses, teachers, cleaners, drivers, etc.

MOZAMBIQUE 322

News reports & clippings
24 May 2016
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Editor: Joseph Hanlon ( j.hanlon@open.ac.uk)

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