Mozambique to Avoid Debt Restructuring Despite Gas Delays

(Bloomberg) -- Mozambique ruled out reworking its sole $900 million Eurobond, even as delays in giant liquefied natural gas projects because of an Islamic State-linked insurgency cost it revenue, the Finance Ministry said.

TotalEnergies SE in April suspended work on its $20 billion project, Africa’s biggest private investment yet, due to an escalation of violence in the gas-rich northern Cabo Delgado province where it operates. It is now targeting first production in 2026 -- two years later than originally planned.

Mozambique has been counting on gas revenues to boost development and help pay down government debt that the International Monetary Fund sees reaching 133.6% of gross domestic product this year, the third-highest ratio in sub-Saharan Africa.  

The Eurobond coupon payments, which jump to 9% in March 2024, from 5% now, were structured in anticipation of TotalEnergies starting gas production by 2024.

“The macro-fiscal assumptions that underpinned the renegotiation of Eurobonds with the creditors’ committee remain unchanged,” the ministry said in reply to emailed questions. “There are no reasons to anticipate the scenario” of having to restructure the dollar bonds, which have already been through two reworkings since 2016, it said.

Read more: Mozambique Completes Eurobond Restructuring: Finance Ministry

Still, its debt continues to mount. The government projects the budget deficit at 13.5% of GDP in 2022, a 4.4 percentage point increase from this year’s target. While the biggest source of funding will come from grants, the government also plans to borrow 11.7 billion meticals ($183 million) externally, and 53.1 billion meticals internally, according to the ministry.

The ministry didn’t comment on whether the nation is considering asking the IMF for funding following so-called Article IV consultations from Sept. 27 to Oct. 15, the first such mission since 2019.

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