Mozambique 26 October: Bankrupt
Good afternoon. We wrote in May that the three controversial state-backed loans, to ProIndicus, EMATUM, and MAM, “threaten to bankrupt Mozambique.” That threat has now become reality: as of yesterday, the government officially cannot pay. And its options at this point look dire.
SEE: Mozambique in talks to restructure $1.7bn foreign debt
Public debt now stands at 130% of GDP, against the IMF’s threshold for sustainability of 40%. To get to that level, Mozambique would have somehow to make almost $9 billion of debt disappear. Thankfully, and despite what the government’s advisors say, that does not appear to be a precondition to normalising relations with the IMF.
SEE: IMF ‘ready to assist’ Mozambique in debt restructure talks
The presentation the government made to its creditors in London yesterday, with its upbeat assessments of the country’s prospects as a gas exporter - is simply asking them to make the same mistake again. Or, in the case of EMATUM investors who fell for the swap deal in March, for the third time.
Last week, ENH chairman Omar Mitha told journalists in Maputo that Eni would tie up the multi-billion dollar financing it needs for its floating LNG project in Mozambique by the end of November. But even with political risk insurance from export credit agencies, it would be hard to blame banks who don’t want to touch Mozambique with a barge pole.
Is there a way out for Mozambique? Some still hope that the country could repudiate the debts as having been illegal. However, as Zitamar reported on Monday, the deals only went ahead with the approval of top law firms in Maputo and London - as well as the Bank of Mozambique.
SEE: ProIndicus deal given go-ahead by top law firms and Bank of Mozambique
Last Friday’s newsletter came out before the Bank of Mozambique’s press conference at which governor Zandamela unveiled a rate hike of 600 basis points, and a raft of other measures to tighten liquidity in Mozambique’s financial markets.
SEE: Bank of Mozambique governor defends 600bp hike as ‘minimum we could do’
One side effect could be that more banks run into difficulties and are taken into central bank administration, as has happened with Moza Banco. Mozambique’s banking market arguably suffers from having a small number of large banks, and a large number of small banks - so this could be a way of forcing some consolidation between the players, to deal with both problems at the same time.
SEE: Analysis: Bank of Mozambique measures could tip precarious banks over the edge
Have a great week.
