Mozambique’s metical currency has weakened around 21 percent this week, Reuters data showed, as investors fret over the government’s moves to restructure an $850 million international bond.
Mozambique is one of the world’s poorest nations. While gas discovered off the coast could transform the country, which was ravaged by a 16-year civil war that ended in 1992, delays in initiating those investments have set back economic growth.
More immediately, investors are worried about its ability to manage its finances after it launched an $850 million bond to start state tuna-fishing company Ematum, only for $500 million of the proceeds to be spent on defence.
So far, no details have been provided on where exactly the money has gone.
As of 1205 GMT on Friday, the metical was 0.6 percent weaker on the day at 56.61 to the U.S. dollar. That takes its losses this week to a hefty 21 percent and leaves it down about 43 percent against the dollar since the start of the year.
This week, Mozambique has ramped up negotiations on the so-called tuna bond to cut its borrowing costs and extend its repayment period, two sources involved told Reuters.
Last month, Finance Minister Adriano Maleiane had told Reuters the government may try to convert the loan into sovereign-debt to improve the terms.
Ratings agency Standard and Poor’s, which downgraded the country in July, has warned it could cut its rating again if Ematum’s sovereign-guaranteed debt is restructured.
Mozambique has pinned its longer-term economic hopes on a potential gas boom over the next decade. But final investment decisions by Italy’s Eni and U.S. firm Anadarko have been repeatedly delayed and remain in the balance.
If those decisions are made next year, as expected, Mozambique could become one of the world’s top liquefied natural gas exporters under projects that could bring in more than $30 billion in investment in the country.
But investors are wary about more delays to gas projects with prices subdued and the government still at odds with energy companies over the terms of the deals.
South Africa-based NKC African Economics cut its sovereign debt rating outlook on Mozambique to ‘negative’ this week.
“It is becoming increasingly important that the commercialisation of Mozambique’s natural gas is successful, with any significant delays harmful to the country’s economic outlook,” NKC economist Hanns Spangenberg said on Friday.
Ratings agency Fitch downgraded Mozambique’s credit rating on Oct. 30 on concerns over a deterioration in fiscal management and expectations of a widening debt-to-GDP ratio after the issuance of the Ematum bond.
Mozambique’s central bank raised its benchmark lending rate by 50 basis points to 8.25 percent on Nov. 16, partly in an effort to curb the slide of the metical.