Mozambique debt crisis continues

On the shores of Maputo, Mozambique’s capital, lie a number of ‘state of the art’ tuna fleets. But the vessels have been largely idle and are now the focus of a multi-million dollar international controversy.

The fishing and patrol boats were bought with the proceeds of a 2013 state-backed loan of 850 million US dollars to finance fishing infrastructure.

The cash came in the form of a government-backed bond to state tuna-fishing company Ematum.

“Let’s start with Ematum. It’s a great idea. Call it what you want, it was brilliant. But let’s look into the economic foundations. If it was for the tuna, that would imply that the boats would have started fishing as soon at they left France. But they don’t fish. The boats are in Maputo and they don’t fish,” said economist, Ragendra de Souza.

The IMF has described Ematum as ‘a source of substantial fiscal risk’ for Mozambique. Now, the country’s economic outlook is bleak following the discovery of more than 1 billion U.S. dollars in previously undisclosed government debt.

Carlos Agostinho Do Rosario, the country’s Prime Minister said, “We are going to share, with full openness, the information about the economic situation in the country, and the principle reasons for the economic difficulties that the country is going through.”

Donor nations and institutions have suspended their support over revelations of 1.4 billion US dollars in hidden debt. Donors provide around 9 per cent of GDP in grants and loans annually.

“The debt that was declared recently is a huge burden on the economy. We came out of 42 percent to 67 or 70 percent of the GDP. That means, with the production capabilities that we now have, the debt is unsustainable,” said de Souza.

In light of these revelations, Fitch Ratings downgraded the country’s long-term foreign and local currency Issuer Default Ratings. The ratings agency said the move was necessitated due to Mozambique’s high public debt profile. According to Fitch, 88 per cent total public debt is foreign currency denominated from a previous 69.1 per cent.

“The lack of transparency from the government in disclosing the loans highlights weaknesses in both governance standards and the policy framework and has also worsened relations with donors,” said the ratings agency.

Earlier in the week, ratings agency Moody’s said that the suspension of financial assistance to Mozambique is a credit negative for the country.