IMF Expects Mozambique to Default on Foreign Debt Until 2023

(Bloomberg) -- Mozambique won’t make payments for at least five more years on about $2 billion of loans that led to a default last year, according to the International Monetary Fund.

The government has amassed $710 million of arrears on the debt, most of which it previously hid from the Washington-based lender, according to an Article IV report and an associated Debt Sustainability Analysis to be submitted to the fund’s board March 2. The documents were shown to Bloomberg by two people who declined to be identified because they’ve not been published yet.

IMF Resident Representative Ari Aisen declined to comment. Finance Ministry spokesman Rogerio Nkomo acknowledged receipt of an email sent by Bloomberg, but didn’t immediately provide comment.

The IMF report and its assumptions are likely to play a key role in the debt restructuring discussions Mozambique plans to hold with its commercial creditors. The government will present proposals to the holders of the debt on March 20, in London.

“It is staff’s understanding that the authorities plan to hold off on making payments on the defaulted loans,” the fund said in the report. Arrears are expected to accumulate until 2023, when Mozambique will start producing gas from large offshore deposits, the IMF said.

Unexplained Spending

Mozambique borrowed about $2 billion from 2013 to 2014 in deals arranged by banks including Credit Suisse AG and VTB Capital to buy tuna-fishing boats and an associated coastal security system. The government only disclosed the bulk of the debt to the IMF in 2016, prompting it to halt funding, while donors suspended direct budget support.

An audit published last year found $500 million of the spending remains unexplained, while suggesting the state-owned companies involved paid too much for the equipment, a claim the supplier denied.

The three companies involved -- Ematum, ProIndicus and Mozambique Asset Management -- should be liquidated and their security assets transferred to the state, the IMF said in the Article IV report.

Mozambican Companies Criticized Over Debts Slam Kroll Audit

“Mozambique’s debt is currently in distress, and total public debt is on an unsustainable path,” according to the report. Any restructuring with creditors would need to consider the risk of prolonged delays to the gas projects, the IMF said.

The report will be published unless the government submits any objections before the board has concluded considering it, according to the documents.

Other points contained in the report:

• It’s the IMF assessment that continued large domestic and foreign borrowing by the government until the gas projects start producing from 2023 is unsustainable; the state sees this as a viable option
• Some of the biggest state-owned enterprises have built up unsustainable debt and may require debt forgiveness or restructuring
• The government may need to guarantee about $2.3 billion of debt that state-owned oil and gas company ENH will need to borrow to take part in a planned $25 billion gas project Anadarko Petroleum Corp. is developing
• The government has agreed to reschedule some bilateral debt-service payments with China and India
• Mozambique will produce $40 billion dollars a year of gas by 2029, with investments of $110 billion expected in the industry from now until then
• GDP growth will remain at between 2 percent and 2.5 percent over the “medium-term,” jumping to 10 percent in 2023 because of gas output.

To contact the reporters on this story: Matthew Hill in Johannesburg at mhill58@bloomberg.net, Borges Nhamire in Maputo at bnhamire@bloomberg.net.

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Paul Richardson, Helen Nyambura

©2018 Bloomberg L.P.