Mozambique admits it will default on debt
MAPUTO: The Mozambican Ministry of Economy and Finance has confirmed that Mozambique will default on a payment of almost $60 million (R807m) of interest – due today – on government guaranteed bonds issued by the Mozambican Tuna Company (Ematum).
Addressing the bondholders, the ministry reiterated the statement by the Minister of Economy and Finance, Adriano Maleiane, in a presentation given to creditors in London on October 25 – that the country did not have the money to service its commercial debt.
“The deteriorating macroeconomic and fiscal situation of the republic has severely affected the country’s public finances,” read the statement.
“The resulting debt payment capacity of the republic is therefore extremely limited in 2017, and does not allow the republic room to make the scheduled interest payment.”
This is Mozambique’s second default.
In May 2015, it did not pay $178m owed on a second government-guaranteed loan. This was a loan from the Russian bank VTB to security-related company MAM (Mozambique Asset Management).
The loans to Ematum, MAM and a third company, Proindicus, amount to more than $2billion.
Because of the government guarantees, they added R2bn to the country’s foreign debt, and made it unsustainable.
The loans were arranged under the previous government, headed by President Armando Guebuza. The true scale of the indebtedness was hidden from the Mozambican public, and from the International Monetary Fund (IMF).
When the IMF, in April last year, discovered the extent of the borrowing, it suspended its programme with Mozambique.
Most other Western donors and funding agencies then followed suit.
The government insisted in October that the Ematum, Proindicus and MAM loans cannot be repaid under existing conditions, but must be restructured.
But the Ematum bondholders are refusing to negotiate, apparently in the belief that Mozambique will give way, and the government will perhaps raid its foreign reserves to make the interest payment.
However, the ministry statement made it clear that this will not happen, largely because debt restructuring is key to bringing the debt back to sustainable levels – and without debt sustainability the IMF will not resume any programme with Mozambique.
The ministry told the bondholders that “the government is actively working with the IMF to establish the conditions necessary for an early resumption of its financial assistance to Mozambique”.
“Financial support from the IMF, underpinning an ambitious programme of reforms to be agreed, will play a critical role in improving the republic’s public finances and stabilising its macroeconomic situation.”
That, however, cannot happen, the statement noted, unless measures are agreed with creditors “to put the country’s debt on a sustainable path”.
So, the ministry suggested that the bondholders liaise with the government’s legal and financial advisers, respectively the London law firm, White & Case LLP and Lazard Frères, the world’s leading financial advisory and asset management firm, in order to establish “a collaborative and constructive dialogue”.