Monday, March 29, 2021

IMF ‘capital increase’ with limited effect

The director for Africa at rating agency Fitch said on Thursday that the impact for Mozambique of the International Monetary Fund’s (IMF) new allocation of Special Drawing Rights (SDR) would be limited due to debt. “This allocation is worth 1.8% of Gross Domestic Product, it is not a drop in the ocean, but given the challenges that Mozambique faces, with a CCC rating, this allocation won’t solve the challenges,” said Jan Friederich. 

Speaking to Lusa via video conference from Hong Kong, the analyst explained that, in Angola and Mozambique, the CCC rating reflects not so much a temporary liquidity problem, but rather solvency challenges and on debt sustainability in general, and these challenges are not solved with an allocation of SDRs, even if they represent 1.8% of GDP.  Mozambique will receive at least $325 million (€275 million), representing the share of the $650 billion (€550 billion) that is equivalent to the country’s quota. Still, this figure is expected to be increased as the IMF has said that richer countries should allow part of the new allocation to be channelled to poorer countries, particularly those in Africa. In a report released this week, Fitch Ratings, owned by the same owners of consultancy Fitch Solutions, wrote that the new SDR allocation by the IMF is not a panacea for the most indebted countries and stressed that the effect on the rating is minimal. The report said that on a list of 20 countries that will benefit most from the new SDR allocation, which includes Angola and Mozambique, the country that will benefit most based on GDP is Zambia, but will still influence the model for assigning ratings by just 0.1 points. It takes a full point to influence the rating.

“We do not foresee a significant impact on ratings due to allocation,” the report said. “The things that could solve Mozambique’s problem are faster GDP growth, which is possible because of the prospects in the gas sector, but we are not there yet,” said Jan Friederich, therefore, there is not yet full confidence that this will happen in time. Until projects are in place, Mozambique continues to face a very challenging situation.” The managing director of the International Monetary Fund (IMF) announced today that in June, she is expected to present a formal proposal for an allocation of $650 billion according to the needs of 190 member states.

“I intend to submit in June a formal proposal to the Executive Board to consider a new allocation of $650 billion, based on an assessment of the long-term reserve needs of IMF members, and consistent with the Articles of Agreement and the IMF’s mandate,” Kristalina Georgieva announced.

The announcement by the head of the IMF represents an improvement on the figure that had been indicated, which was $500 billion (€423 billion) – although it was never clear whether this figure was expressed in dollars or Special Drawing Rights (SDR), the currency of the IMF – whose exchange rate was equivalent to around SDR 456 billion. In its last report on Mozambique in December, in which it kept its rating at CCC, one of the lowest, Fitch forecast that the country would grow by 2.8% this year and 3.3% in 2022 and that public debt would be at around 120% this year, falling to 115% in 2022.

0 comentários:

Post a Comment