The chief economist of credit risk insurer Coface said yesterday that Mozambique “could hardly avoid” seeking International Monetary Fund help, and that the country has the highest sovereign debt risk among Portuguese-speaking countries.
“It will be very, very difficult for Mozambique to avoid seeking IMF help, because we find gathered here all the classic components of an emerging country sovereign risk crisis,” Julien Marcilly told Lusa in Lisbon yesterday.
Sovereign risk in Mozambique is the highest among the Portuguese-speaking countries, mainly due to loose fiscal policy, the fall in the price of raw materials and the depreciation of the metical, he added.
“The sovereign risk of Mozambique is the highest of all Portuguese-speaking countries because, as is the case with many African countries, public debt has risen significantly in recent years.”
For the chief economist of Coface, a company specializing in risk insurance for exports, there are three main reasons why Mozambique beats Brazil to the top of the sovereign risk countries list.
“First of all, [Mozambique] had a very expansionary fiscal policy, in particular with the strong increase in salaries of civil servants, and then it suffered from the price of raw materials, which has fallen sharply in recent months and undermined many countries in Africa.”
The third reason has to do with the devaluation of the metical against the dollar.
“An issue that has been less talked about, but which is also very important, is the depreciation of the currency, which affects public debt because much of the debt is denominated in foreign currency,” so that any fall in the value of the metical value means, in practical terms, an increase in the amount owed.
Mozambique recently acknowledged undisclosed debts amounting to more than US1.4 billion, which led to the suspension of financial and budgetary support by donors and a freeze on the payment of the second installment of a US$282.9 million loan agreed with the International Monetary Fund late last year.
Yesterday, Mozambican Minister of Economy and Finance of Mozambique Adriano Maleiane told National Assembly deputies that the Mozambique Asset Management company, which benefited from undisclosed state-guaranteed loans, cannot afford the first repayment installment due on Monday 23 May and is seeking to restructure the debt in order to avoid default.
“All things considered, the country is in a very complicated situation,” Marcilly concludes.
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