Today Mozambique becomes a member of the club no nation wants to join.
Finance Minister Adriano Afonso Maleiane says he has no intention of paying $178 million of interest on loans taken out by a state-run company due Monday. Mozambique’s default will condemn one of the poorest nations on the planet to punitively high interest payments.
In fact, it already has.
Yields on the country’s bonds soared to an all-time high as the currency, the metical, tumbled last week.
For sure, it’s been a tough couple of years for the southern African nation.
The relief in 2014 over a peaceful presidential election after decades of civil war and the optimism for natural gas wealth – all of that now seems a world away.
The commodities crash from 2014 rendered many of the proposed gas projects unviable. Soon after, the El Nino weather phenomenon devastated the agricultural economy with floods followed by drought. Fighting ensued in the nation’s center and south, rekindling raw memories of conflict.
Yet none of that accounts for Mozambique’s current mess.
It’s the sudden appearance of $2 billion of loans hidden for years by the government that has alarmed investors and left multilateral donors suspending further support as the nation’s true debt burden ratchets up toward 100% of GDP.
The loans lead to a web of secretive companies set up with one goal in mind – paying a network of crony security thugs to keep President Armando Guebeza in power. Since that plan failed, his successor in the single-party Frelimo government, President Filipe Nyusi, had maintained the deception.
One of the dubious state companies is Mozambique Asset Management, whose payment is due today. Along with Proindicus and the notorious Ematum – purportedly a tuna fishing concern – the trio received loans that were brazenly siphoned off by security and intelligence officials running these companies.
Three years on, the debt has become the burden of 25 million Mozambicans.
As bond investors, who only last month allowed the government to extend the maturity of its debt, begin to pull back the wool from their eyes, one question being asked is just how culpable the banks are that managed the debt sale and recent restructuring: Credit Suisse and VTB.
In tonight’s Emerging Opportunities radio show, we explore Mozambique’s hidden debt crisis and more, with Duet Asset Management’s Africa portfolio manager, Joe Delvaux, and the head of Aston Currency Management, James Bennett.
Look out for the podcast on Monday from 3pm NY / 8pm London right here.
