(2015-11-06) Moody’s credit rating agency said yesterday (Thursday) that the possibility of Mozambique benefiting from US$286 million (263 million euros) of IMF funding comes at a time when the country’s economy is experiencing “a tense moment”.
“If approved by the IMF [International Monetary Fund] in December, as we believe it will be, the credit is a positive thing, and will provide Mozambique with substantial external financing at a critical moment,” said an analysis by Moody’s made public yesterday.
On Friday, the IMF lowered Mozambique’s economic growth forecast to 6.3 percent this year and 6.5 percent in 2016, warning that there are “new challenges that require decisive policy measures”.
The downward revision of growth was announced in a statement issued at the end of the IMF technical visit completing the fund’s fifth Economic Policy Support Program review, announcing an agreement with the Mozambican government for a loan of loan of US$286 million during 18 months to be made available through a new framework under the Credit Facilities Program.
The IMF points out that “although the medium-term prospects remain positive, the short-term challenges have become more complex,” and explains that, as in other countries in the region, Mozambique “faces an external shock associated with the drop in raw materials’ prices, lower growth in trading partner economies, and delays in investment associated with large natural resources projects”.
On the same day, President Filipe Nyusi warned of a nexus of financial difficulties including a sharp devaluation of the metical against the dollar, declining foreign reserves, cuts in foreign investment and external support and a rising debt.
According to Moody’s, the IMF financing is equivalent to 11 percent of foreign currency reserves at the end of August this year, allowing Mozambique to respond to short-term financial needs and relieving pressure on the balance of payments, while also implying the consolidation of public finances in the country and the strengthening of its institutional framework and economy against external shocks.
The credit rating agency point out that, under the Credit Facilities Program, “funds are usually available for 18 months at a rate of 0.25 percent and involve certain economic, fiscal and monetary conditions”.
In August, when Moody’s lowered Mozambique’s rating to a negative outlook, the agency expected the Mozambican government to face difficulties managing foreign currency payments for the next two years, recalling that the state-owned Mozambican Tuna Company (fifth Economic Policy Support ProgramEmatum), with its government backed US$850 million debt, is virtually bankrupt.
Mozambique, which sells aluminum, coal, energy, cotton and sugar, has been hit by the fall in international prices of raw materials and the appreciation of the dollar against the metical.
According to Moody’s, the new funding comes in response to concerns from the IMF about the fall of capital inflows, currency depreciation and declining foreign reserves.
After Moody’s had lowered its Mozambique rating from B1 to B2, in August, credit rating agency Fitch also revised the country’s rating downwards from B+ to B, on October 31, citing the growth in public debt, difficulty in obtaining revenue, the depreciation of the metical and the reduction in foreign exchange reserves among the causes for this downgrade.
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