REUTERS FACTBOX

What Mozambique owes, and to whom

Fabio Scala –Further Africa, May 26, 2016

Mozambique is in a deep foreign debt crisis that analysts say could lead to social unrest if it continues to hammer the economy and currency, fuelling inflation and making it harder for the government to pay civil servants.

This week, it missed a deadline for a scheduled repayment on a $535 million loan organised by Russia’s VTB Bank, according to a finance ministry source, putting the war-scarred southern African nation on course for default.

An $850 million Eurobond launched in 2013 was rescheduled in late March after the government again struggled to make a repayment. Ratings agency Standard & Poor’s classified it as a “selective default”.

Foreign debt – including $2 billion of commercial borrowing arranged without consulting parliament, as required – has ballooned in the last four years, largely due to expectations Mozambique was about to become a major natural gas producer.

Those expectations are now being shown to be wildly premature, leaving the country with a foreign debt burden equal to $400 per head, only a fraction below the International Monetary Fund’s (IMF) $435 annual per capita GDP estimate.

The debt crisis has pegged back growth and sent the currency, the metical, to a record low of 59 against the dollar. A year ago, it was at 35.

In a bid to slow the currency’s decline, the central bank has been ploughing through foreign reserves, which have dropped from $2.4 billion at the end of last year to $1.8 billion, below the IMF’s recommended threshold of three-months import cover.

Furious at being kept in the dark over the clandestine borrowing, donors, including the IMF, have suspended aid, exacerbating the foreign currency crunch.

Speaking on BBC radio last week, IMF Managing Director Christine Lagarde said the government’s action was “clearly concealing corruption”.

The government says it has now come clean on all its outstanding debt. Donors and the IMF are waiting to see whether that is true.

Following is a summary of what is known about Mozambique’s debt: total debt – $11.64 billion – Foreign debt stood at $9.89 billion in April, Prime Minister Carlos Agostinho do Rosario was quoted as saying in state media.

This is equal to 79 percent of GDP, based on 2016 IMF forecasts. The proportion has more than doubled in the last four years.

– Mozambique has an additional $1.75 billion of domestic debt, do Rosario said.

Commercial debt – $2.01 billion – Mozambique Asset Management. The state-owned company took out a $535 million loan, arranged by VTB, to build shipyards in Maputo and the northern city of Pemba, according to an IMF source and media reports. The shipyards have not materialised.

VTB has not commented on the loan. Analysts say it is likely to have been syndicated out to other banks and investors.

– Proindicus. The state-owned firm, owned by the defence and interior ministries and state security service, borrowed $622 million for maritime security projects.

VTB arranged $118 million of the loan and Credit Suisse the remaining $504 million, according to an IMF source.

Neither bank has commented on the loan. Again, it is almost certain to have been farmed out to other parties.

– Ematum. The state tuna company, also partially owned by the security services, issued a government-guaranteed $850 million bond in 2013 to build a fishing fleet. The project has been a fiasco, and the boats are now rusting in Maputo harbour.

The outstanding $697 million on that bond was restructured in March after the government struggled to meet repayments.

Ownership data for the restructured bond is not yet available.

Bilateral/Concessional debt – $5.96 billion – At the end of 2014, Mozambique owed $5.96 billion to “official creditors”, according to the Economist Intelligence Unit (EIU).

– Of that, $2.79 billion was due to bilateral creditors, most of whom will be Western donor nations. The remaining $3.20 billion is owed to multilateral institutions such as the IMF, World Bank and African Development Bank, the EIU said.

– This latest figure tallies broadly with World Bank and IMF data. The World Bank says Mozambique has $2.57 billion of outstanding concessional debt under 78 separate aid projects.

According to a table of IMF loans granted since 1987, Mozambique still owes the Fund $257 million.

Which leaves $1.92 billion outstanding… – Analysts say the remaining $1.92 billion is almost certainly debt from foreign governments such as Russia and China which prefer not to publish overseas aid and investment figures but which are both active in the Mozambique economy.