Some donors may never return to Mozambique, according to well-placed sources who warned that investor optimism over last week’s landmark deal that saw it finally agree to an independent audit of its debt was misplaced.
The country’s sovereign bonds jumped 12 cash points on news of the audit, which was the first positive step in a long story that saw the International Monetary Fund cancel a mission to Mozambique, and de facto suspend funding to the embattled country in April after some $1.4bn of hidden loans, amounting to 11% of GDP, were discovered via a debt exchange programme.
This pushed debt levels up to 86% of GDP. Other international donors such as the World Bank, EU and Canada also suspended funding.
On September 29, the IMF issued a statement confirming that the Government of Mozambique was ready to progress with an international and independent audit of the Ematum, Proindicus, and Mozambique Asset Management (MAM) companies with the objective of strengthening transparency, governance and accountability to avoid recurrence of past debt problems.
The IMF is now choosing a large international firm to carry out the forensic audit, but even after the decision is made, the process will not be a quick or easy one.
In addition, several international donors such as Denmark have made clear their intention not to resume funding to Mozambique under any circumstance. Denmark is understood to be closing its embassy in Maputo.
Progress on the audit would prompt the IMF to resume discussions with, and possibly funding to, Mozambique but there is no telling how long that would take.
OPTIMISM ‘UNFOUNDED’
The country’s bondholders celebrated “progress at last” by piling into Mozambique’s only outstanding Eurobond, a repackaged $727m Government of Mozambique 2023 bond, the cash price of which jumped some 12 points to 83 from 72 in June. But a source told Emerging Markets that the optimism was unfounded, saying that it was too early to tell how the situation would play out.
Mozambique’s Eurobond has a $38m coupon due on January 18 which the country’s FX reserves could cover, but would make a sizeable dent in those reserves. Mozambique has also reached stalemate over a missed coupon payment on the $535m loan to MAM. A default could lead to a cross-acceleration default on the country’s Eurobond. The original loan was issued by VTB who has since passed on the loan to other creditors.
The UK’s Financial Conduct Authority is understood to be investigating VTB and Credit Suisse for their involvement in the loans — both banks worked on the Eurobond exchange earlier this year.
“Overall there is likely to be very little support to Mozambique this year,” the source said. “External financing is a key element of the budget. They’re going to have to adopt a very tight fiscal position well into 2017.” Despite repeated requests by Emerging Markets, no one from the government was available for comment.