Even by the standards of Africa, it’s been a wild ride for Mozambique.
There’s little sign it will end well.
Blowing through more than $2 billion of borrowed money just as the
currency and the price of commodity exports plunged has left the
former Portuguese colony with near-empty coffers. Its creditors, which
bought debt sold by Credit Suisse Group AG and VTB Group, may be left
holding the bag. Nor does it help that the International Monetary Fund
is raising questions about the government’s transparency and its
finances.
“Mozambique is not in a state of development where it can maintain a
credible foothold in the global financial markets,” said Jan Dehn,
head of research at Ashmore Group Plc, which manages $53 billion of
emerging market assets and opted not to buy Mozambican bonds. “It was
more like, someone got an idea one day to issue a bond.”
Standard Bank Group said Mozambique could turn into the next Qatar.
Growth since the end of a 16-year civil war in 1992 had averaged 7.4
percent.
Mozambique’s borrowing produced a few surprises. A loan for $850
million, for instance, went to a new state-owned tuna-fishing company.
What the offering documents didn’t say was that the government would
also use some of those funds to purchase search and rescue and
surveillance vessels. And two other loans from 2013 and 2014, totaling
$1.4 billion, weren’t disclosed to parliament or to the IMF and were
only discovered in April.
Mozambique was in much more debt than had been known, at a time when
the currency was plunging, gas exploration was delayed and prices of
gas, coal and aluminum exports down.
The April disclosure of the loans caused the IMF to halt a $286
million bailout loan signed only last October. Managing Director
Christine Lagarde in May accused the government of using debt for
“concealing corruption.” Western donors including the U.K. and
Portugal have suspended about $500 million in aid for this year.
The nation missed an interest payment and yields on its dollar bonds
have almost doubled in the past year, to 18.25 percent. The government
has frozen spending aside from salaries, foreign investment has
plummeted and companies are laying off workers, if not shutting down.
Inflation has soared to 20 percent, which raises the risk of riots
over higher food prices, according to Standard Chartered Plc.
The crisis is visible on the main streets and in the shopping centers
of Maputo, the capital, once a haven for wealthy expats. In Shopping
24, a multipurpose building opened in 2014, newspapers are pasted over
the empty glass showcases. Many stores are vacant.
“It’s difficult to do business,” said Abdul Suleimane, whose shop
sells computers, keyboards and other accessories and is suffering from
the high prices of products he imports. “I don’t know how long we can
hang on.”
Meanwhile, the currency, the metical, has lost half its value against
the dollar since the start of 2015, making Mozambique’s hard-currency
debt payments more expensive. The swapped Eurobond, the country’s only
sovereign issue, has lost 4.2 per percent in the past six months. It’s
the only one of 66 emerging markets tracked by Bloomberg whose dollar
bonds have made losses in that period.
The yield soared to 19.2 percent in June. Among sovereign issuers,
only those of Venezuela, mired in an economic crisis, are higher.
Moody’s downgraded Mozambique two levels to Caa3 on July 8, saying it
doubted the government’s willingness to honor loans at state-owned
firms.
“Mozambique was a nice story,” said Victor Lopes, an analyst at
Standard Chartered in London. “They had high growth and massive gas
discoveries. But it’s got worse and worse.”
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