Mozambique and creditors struggle to reach agreement on debt repayment

21 August 2017

 

The risk of negotiations failing between public debt creditors and the government of Mozambique is growing, BMI Research said, adding that even so, the parties are expected to reach agreement.

In a report on Mozambique’s Political Risk, BMI analysts said that a failure of the agreement, “would not result in the collapse of economic growth but would likely result in a worsening of the risk of the country and possible delays in the construction of infrastructure.”

The analysts also wrote that, until a solution is reached, Mozambique will have difficulties in financing the expenditures recorded in the State Budget, which will force social spending cuts, risking an increase in social instability in the country.

In the short term, BMI Research believes that getting a solution to the debt issue will be the main difficulty of the government, which has “refused to abandon the principle of equal treatment for all creditors,” namely holders of public debt securities issued In 2016 and the creditors of the loans of public companies contracted in 2013 and 2014.

The government, they add in the document quoted by Portuguese news agency Lusa, is expected to be forced to implement even more austerity if it is able to reach agreement on the renegotiation of public debt.

Among Mozambique’s advantages BMI Research noted, “abundant natural resources, particularly coal and gas, as well as significant electricity production capacity,” which are held back by its dependence on major projects, a low level of education of the population and “huge external debt, which this year should be 110% of GDP.” (macauhub)

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