10 August 2018

Mozambique: Interest Payments This Year to Be $560 Mn, As Banks Lend More but AfDB Says No

Interest payments this year on Mozambique's debt will be $560 mn, up from $460 mn. More than half, $300 mn, will go to Mozambican banks and bondholders. The rest is external debt service according to the Ministry of Economy and Finance (O Pais 9 Aug)

Meanwhile after failing to raise more domestic loans from banks, the government increased the interest rates from 10% and sold bonds on the stock exchange Tuesday. $15.6 mn of three-year bonds were sold at interest rates ranging from 16% up to 20.25%. (Zitamar, @Verdade 8 Aug)

Although the World Bank is raising lending to Mozambique (see last week's newsletter) the African Development Bank (ADB) says that because Mozambique's debt is unsustainable it cannot access normal ADB funding and will be limited to its $79 mn Africa Development Fund loans for 2017-19. Loans might be possible for 2020-22 if "the Government implements fiscal consolidation and negotiate with creditors for a debt restructuring, and the first batch of gas production comes on line to boost GDP," according to the ADB Mozambique Country Strategy Paper 2018-2022 (page 19).

The paper is quite damning about Mozambique, noting that "The hidden debts case is symptomatic of the country's governance vulnerabilities, while international benchmark indicators and surveys suggest that corruption represents a challenge in Mozambique... . The overall fiduciary risk is assessed as substantial, with a negative trajectory of change. ...

Mozambique continues to suffer from weak PFM [public finance management] system that has been identified as key drivers of fragility, resulting in insufficient domestic resource mobilization and inefficient public spending. ... Growth has not been inclusive enough, with poverty remaining pervasive at just below 50% of the population. ... Inequality is increasing." https://www.afdb.org/fileadmin/uploads/afdb/Documents/Boards-Document s/MOZAMBIQUE_-_CSP_2018-2022__Final_.pdf

The IMF continues to take its hard line. At a press conference 3 August at the end of the IMF's team's visit, team leader Ricardo Velloso said there were no discussions about the $2 bn secret debt and there will be no other IMF visits this year. That means no discussion about any resumption of an IMF programme. (@Verdade 6 Aug)

Meanwhile bondholders have again made a proposal that they know will not be accepted, confirming the view that they will want to wait until after elections and gas is coming on-line to negotiate a deal. They again propose a deal for their $727 government bond issue that excludes the $1.2 bn syndicated loan, and they want to tie repayments to gas revenues - both of which the government has already rejected. Government has already said there will be no repayments on the $2 bn secret debt in 2018 or 2019. But the deal proposed would largely delay repayments until 2023 when the gas comes on line. (Zitamar 8 Aug) Bloomberg (3 Aug) reports that the proposal pushed the value of the bonds up to 85 cents on the dollar, much more than was offered by government in March. Thus it is beneficial for the bondholders to keep the bonds on the books at 85% of face value and they are under no pressure to settle.

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