Is the Mozambican debt sustainable?

Mozambique’s total public debt stood at $11.64 bn as of 31 December 2015, Prime Minister Carlos Agostinho do Rosario told a Maputo press conference Thursday 28 April. Foreign debt was $9.89 bn. Confirmed domestic debt was $1.75 bn, while a sum of $233 mn was still being reconciled. (AIM 28 Apr). Fitch, the third largest credit rating agency, has downgraded Mozambique from B to CCC. It says the debt to GDP ratio is already 83% and with expected continued devaluation it is likely to exceed 100% this year – “the highest figure in 15 years and compared with only 37.8% in 2011”.

The Mozambican Debt Group (GMD) points out that the government’s own figure for total public debt, of $11.64 bn, means that the debt now stands at 69% of GDP. The foreign debt is 53% of GDP. GMD is a civil society organization that has been working on debt issues for many years, and says the limit of sustainability is normally regarded as 40%, and Mozambique’s debt is substantially over that. Zitamar notes that ENH, the state hydrocarbons company, has to raise its share of the multi-billion dollar investment in the liquefied natural gas (LNG) production facilities in Cabo Delgado, which might be difficult with falling credit ratings. But in an interview ENH chair Omar Mitha says that investors will treat this as a standalone project and bonds will be repaid from revenues from ENH’s share of the gas. He further argues that the project is viable even at today’s gas prices, but that he expects oil prices to double to $60-70 per barrel in five years when the project comes on line. Mitha’s position is supported by an interview in the Financial Times with LNG entrepreneur Charif Souki, who argues that although there is an oversupply of LNG at the moment, exports from some producers such as Algeria are declining, and there will be a shortage by 2021-22 – which is just when Mozambique’s gas will come on line.

By: Joseph Hanlon