Mozambique in danger of sliding into a debt crisis

Mozambican economist Carlos Nuno Castel-Branco says that Mozambique's public debt has reached the limits of sustainability, warning that fluctuations in the world economy could risk "a debt crisis explosion" in Mozambique."Debt starts getting dangerous when it approaches its limits. Fluctuations in the world economy, for example around the issue of interest rates, can trigger a debt crisis," the research director of IESE, the Institute of Social and Economic Studies.

The debate around Mozambique’s public debt which sat, according to the Government, at 36% of the Gross Domestic Product (GDP) in December, has become a central theme in discussions, as Mozambican and international economists question whether debt levels are sustainable even as others defend its role in the development of the economy.The government has restated its conviction that current levels of debt are sustainable and the International Monetary Fund itself confirms that it is at present within acceptable margins, while warning that levels of 40% and up will definitely sound alarm bells.

Pressure on Mozambican public debt increased, especially in the last ten years, according to Castel-Branco, citing recent public investments in the controversial Mozambican fishing company Ematum estimated at over 765 million euros, and the construction of the Nacala International Airport in the north of the country at 160 million euros. "If we look at six or seven major projects which are now running in Mozambique, we see that they represent 70% of the external debt ‘stock'," he said, pointing out that the commercial dynamics of the debt make it more expensive and risky for the Mozambican economy. Castel-Branco is sceptical of opposition arguments that debt is essential for the country’s development, believing that, in Mozambique’s case, what is generating the debt is the state’s various subventions to multinational companies in the energy, mineral and forest sectors, a type of debt that is risky for the country. "We need to establish whether this debt results from investments with economic and social validity, which augment sources of income and revenue, or, on the contrary, is risky debt, focused on very specific areas of the economy and based primarily on speculative expectations,” said the academic.

Pointing to the emergence of "capitalist oligarchies" in Mozambique’s economic landscape, the researcher says he believes the country risks of ending up like Greece, where debt will be paid by those who have never benefited from it. "This is a debt located in the genesis of capitalist oligarchies which obtain multinational capital to generate businesses, but it will be paid for by the whole po-0ulation," said Carlos Nuno Castel-Branco, warning that the problems the country faces are part of an overarching economic logic that needs to be discussed and understood.