Mozambique will miss $60 million interest payment

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January 16, 2017 2:23 PM

The statement said Mozambique would not pay the $60 million (57 million euros) interest payment on a 2023 bond scheduled for January 18.

Mozambique's economic crisis deepened over hidden debt, the fall in commodity prices and a cut-off in aid

Mozambique, caught between a scandal over hidden debt that has prompted an aid cut-off and a commodity price slump, said Monday it would miss a $60 million interest payment.

The country is currently in talks with the International Monetary Fund (IMF) over resuming support that was suspended in April due to the hidden debt scandal.

"The deteriorating macroeconomic and fiscal situation of the Republic has severely affected the country's public finances," the finance ministry said in a statement in Maputo.

"The resulting debt payment capacity of the Republic is therefore extremely limited in 2017, and does not allow the Republic room to make the scheduled interest payment."

The bonds were originally issued in April 2016, according to Factset.

The bonds fell to 54.917 cents on the dollar by 10:58 am in London, having reached a record low of 50 cents last week, according to Bloomberg News.

Last month, a parliamentary inquiry concluded that the government broke the law by securing loans worth more than $2 billion in hidden debt that had prompted the IMF and World Bank aid cutoff.

The scandal dates back to 2013, when the government announced a contract for 30 fishing and coastal protection vessels between French shipyards and Ematum, a state-owned company that had previously raised $850 million on the eurobonds market without the knowledge of lawmakers.

Currency collapse

In April last year, more hidden debt worth $1.4 billion -- contracted without parliamentary approval by two more state-owned firms and the defence ministry -- was uncovered.

The government claimed the loans were used to fund military vessels and defence equipment, and said it did not disclose them as a matter of national security.

The finance ministry told investors in October it needed to restructure its commercial debt, Bloomberg News reported.

The metical currency collapsed by more than 80 percent against the US dollar last year after falling 36 percent in 2015.

Vast reserves of gas have been discovered in the north of the country since 2010 but exploration has been slow and gas prices have fallen in recent years.

The government previously claimed tensions with the Renamo opposition group, which waged a 16-year civil war that ended in 1992, were behind its decision to hide the debt.

Clashes between government forces and Renamo erupted regularly last year, with key roads often closed due to the unrest, though a two-month ceasefire is in place.

"The Government is actively working with the IMF to establish the conditions necessary for an early resumption of its financial assistance to Mozambique," Monday's statement said.

"Financial support from the IMF, underpinning an ambitious program of reforms to be agreed, will play a critical role in improving the Republic's public finances."

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