Latest News & Mozambique may default on its debts

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Mozambique may default on its debts

Rating agency Fitch recently announced that Mozambique may be unable to repay its debts – an opinion shared by Charlotte King, an analyst at British consultancy the Economist Intelligence Unit (EIU). “Taking into account the timetable for repayment, it is unlikely that the State can meet its obligations”, she says.

“There is a high level of uncertainty about the companies which took on debt with state guarantees in 2013 and 2014. Taking into account what the government told investors and parliament, there are serious doubts about the ability of companies to pay their debts, which technically means a failure to meet the State’s obligations”, King adds.

With the disclosure of the so-called hidden debts, valued at US$1.4-billion, Mozambique’s public debt now amounts to US$11.66-billion (€10.4-billion), 70% of gross domestic product (GDP).

According to a United Nations Conference on Trade and Growth report, Mozambique posted the highest growth in external debt between 2011 and 2013 of any African country, with increases of 30% per year.

“Junk” can ward off investors and creditors:

Fitch’s rating has again put the short and long-term debt of the country at “junk” level, recommending against investments on short-term issuances in local currency and, according to King, creating a “very negative” image of the country.

Several indicators justify it: “For example, the interest that the government pays on the country’s debts are the second-highest in the world, behind only Venezuela, which shows how wary investors are. The truth is that the appetite for doing business in Mozambique is declining”, her report concludes.

Declining foreign investment “will have profound consequences for the deficit and the payment of obligations”. Moreover, since “there are increasing doubts about the State’s ability to deal successfully with the debts, and their will to do so, it is likely that access to credit lines will be reduced”, she explains.

EIU does not forecast improvements:

King also comments on the consequences for international donors. “The lack of transparency and failure by government to investigate have pushed away donor aid, which historically represents about 10% of the budget. This will affect state expenditure”, she predicts.

King considers it unlikely that the country’s situation will improve in the near future, and warns that with cost-cutting more dark clouds are looming for civil servants and companies that rely on state contracts.

On 25 July, the National Assembly approved an amended State Budget revising economic growth downward from 7% to 4.5% and predicting inflation rising to 16.7% instead of the 5.6% previously forecast. However, the government’s estimates are still more optimistic than those of the British consultancy, which predicts an economic growth of 3.8% this year.

Source: Deutsche Welle

“No international debt audit” – President Nyusi

International Monetary Fund (IMF) and donor demands for an international forensic audit of the US$2.3-billion in secret debt were rejected by President Filipe Nyusi on Sunday 24 July. He said the issue is being considered by two Mozambican sovereign institutions, the National Assembly and the Attorney-General’s Office, and that is sufficient.

On 26 July, the National Assembly established a Commission of Inquiry to investigate the secret loans. The committee was to have 10 Frelimo members, six from Renamo and one from the Mozambican Democratic Movement (MDM) – in proportion to parliament seats. But Renamo voted against and will not take up its seats on the grounds that such an inquiry cannot be credible if it is dominated by Frelimo.

The Commission Chair is Eneas Comiche, an MP and former finance minister. He is highly respected and was not allowed by Frelimo to stand again as mayor of Maputo in 2008 because he was too honest. But several members of the Commission are pro-Guebuza Frelimo hardliners, including deputy chair Edson Macuácua. The commission must report its findings by 30 November.

The Attorney-General’s Office announced on 14 July that the secret loans were in violation of the budget law, and thus are a “criminal offense in the form of abuse of office”. Because of the complexity of the case, the Attorney-General’s Office will bring in both national and international experts to investigate the loans.

Source: Mozambique News Reports & Clippings

Government can now resume expenditure

With the promulgation of the amended State Budget for 2016 by President Nyusi on Tuesday 1 August, the government now has the green light to resume the financing of public expenditure.

This amended budget, recently approved by the National Assembly, allows for the viability of the Economic and Social Plan, and was submitted to the President for verification and constitutionality checks.

The filing of an amended budget by the government was intended to accommodate the changes in some macro-economic assumptions dictated by domestic and international factors such as the drought, political and military tension, the suspension of aid by the main programme support partners and falling export product prices.

Consequently, the executive has lowered the expected GDP growth from 7% to 4.5%, three percentage points below the average in recent years. Other indicators suggest that inflation could reach 20% by the end of the year, well above the average of recent years, when the country has registered single digit values.

The amended budget, whose publication in the Government Gazette was ordered by President Nyusi, reflects an expense-cutting exercise in various “non-priority” sectors, resulting in savings of about MT24-billion, reallocated to “key areas”.

As a result of the containment measures, public expenditure will fall from MT246.1-billion to MT243.4-billion, meaning an increase of 0.9 percentage point of GDP, mainly justified by the combined effect of downward adjustment of items regarding personnel and assets and services. State revenue is expected to total MT165.5-billion, compared to about MT178.1-billion in the unadjusted 2016 budget.

Source: Jornal Notícias

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