The International Monetary Fund will withhold any further funding to Mozambique, which told creditors this week it wants to restructure its commercial loans, while the country is still classified as debt-distressed, a spokesman for the lender said.
“In line with Fund policies, we cannot disburse funds in a situation where we think the debt is not sustainable,” Gerry Rice told reporters in Washington Thursday, according to a transcript of the briefing posted on the IMF’s website. “As with any country, to be able to disburse we need to know that the debt is sustainable.”
Mozambique’s Eurobonds have fallen by as much as 24 cents on the dollar to 57.18 cents in the dollar since Finance Minister Adriano Maleiane told investors Oct. 25 that the country was in “debt
distress” and wouldn’t be able to make an interest payment on the debt due in January. The IMF halted aid disbursement after the government admitted to about $1.4 billion in undisclosed loans in April, prompting other donors to stop budget support too.
The government plans on reaching a deal with investors to restructure its external debt by the end of the year, to allow it to conclude an agreement with the IMF on a new program early next year, according to the Finance Ministry. This timing is “terribly ambitious,” Stuart Culverhouse, an economist at Exotix Partners in London, said in a note to clients Friday.Top of Form
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The nation, which has appointed Lazard Frères and White & Case LLP as advisers to help with the planned restructuring, may seek relief for as much as 40 percent of its total debt of about $10.1 billion, Culverhouse said. A “strong group of creditors” may be able to negotiate a 20 percent writedown of the debt, he said. The IMF is ready to help the government in restructuring process, it said this week.
Another condition the IMF has given to resuming aid discussions with Mozambique is that the country agrees to an independent, international audit of its foreign debt. The government will issue a tender for a company to carry out the probe, Prime Minister Carlos do Rosario told lawmakers this week.
Cuts in donor and IMF support “seriously hurt” Mozambique’s finances
The Mozambican government says that the cessation of IMF and international partners’ support has “seriously hurt” finances.
“The freeze of IMF/donor budget support following the misreporting to the IMF of MAM and Proindicus loans in early 2016, with no clear timeline for reinstatement, has seriously hurt the government accounts”, says a Ministry of Economy and Finance presentation to investors. In addition to the suspension of IMF support due to the so-called hidden debts totalling more than US$2-billion incurred between 2013 and 2014, Mozambique’s macro-economic framework has been affected by the withdrawal, for the same reason, of State Budget support from other countries and institutions, the document says.
The suspension of these grants, totalling 10% of state revenue, joins a “significant increase” in public debt, which is “not sustainable” and will exceed 130% of GDP this year, against 42% in 2012.
While advocating the resumption of aid from the IMF and international partners and the restructuring of debt that it is unable to pay, the government expects an economic growth in 2016 of 3.7%, below the 4.5% estimated in the Amending State Budget and above the 3.5% calculated by the Banco de Moçambique.
The Ministry of Economy and Finance attributes the strong economic downturn in a country accustomed to annual growth of more than 7% to the drop in prices of raw materials, especially coal and aluminium, reduced foreign investment, escalation of political tension and a decline in agricultural output due to the El Niño climatic phenomenon, which has also led to an increase in inflation.
The cutting of foreign aid “added pressure to an already very limited fiscal space and forced the government to make substantial cuts in spending”, the document says.
The text also foresees a decline in international reserves to 1.3 months of imports in 2017, 2.5 months if megaprojects are excluded.
However, the Mozambican government expects “significant revenue” from 2020 on, driven by “royalties and taxes paid by the energy sector, particularly natural gas”. It is expected to increase by an average of US$2-billion per year between 2021 and 2025 and revenue is estimated at US$6.2-billion per year starting in 2023.
“Therefore, the government’s payment capacity is expected to increase considerably after 2021”, along with the development of offshore natural gas projects. Of the two leaders of the major consortia, ENI is expected to take final investment decisions this year and Anadarko in 2017.
The value of ENI gas processing is estimated at US$8-billion and Anadarko at US$12-billion.
“Investment into these projects will see significant inward flows of capital”, the document concludes, a reference to Mozambique’s potential millions of dollars in revenue, but does not offer any shortterm solution to the damage inflicted by over-indebted state enterprises.
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