As Mozambique’s debt crisis deepens, lenders are holding back on assisting the country financially.
The troubled state defaulted on loans worth more than $2 billion last year and, it is unlikely creditors will be repaid in the near future.
According to the IMF , “Real GDP growth reached 3¾ percent in 2017—¾ percentage point higher than projected by Fund staff in the last Article IV consultation—supported by a stronger-than-expected recovery in agriculture and significantly higher mining production.”
“Inflation is projected to remain low at 6½ percent in 2018, and to decelerate to 5½ percent in 2019. International reserves are projected to remain at comfortable levels in 2018 and 2019.”
The economy has proven to be resistant,it is apparent that the government is inclined to introducing measures that will stimulate growth. The current finance minister, Adriano Maleiane, recently proposed a plan to investors but it was met with objection. Instead, investors formulated a plan of their own, the Wall Street Journal revealed that,
“The proposal, which would give bondholders a share in government revenues from future natural-gas exports, is a counteroffer to a plan Mozambique Finance Minister Adriano Maleiane set in March and that investors rejected”.
“Mozambique has relied on domestic bond sale to local banks to finance its budget deficits since losing access to international lenders in 2016”.
By 2023, liquefied natural gas is expected to be key to Mozambique’s growth, potentially rescuing the country from its financial burden. The investors’ plan to restructure bonds could work in the government’s favour in the meantime to properly plan for the development of sustainable LNG projects. Local banks are becoming financially constrained, the government will need a plan to finance budget deficits until LNG projects are fully operational.
The discovery of liquefied natural gas can certainly boost the country’s growth. At the moment, the government’s agenda ought to focus on negotiating with international creditors to reassure that debt will be cleared. Not to suggest that lenders will resume financing the state but this can put foreign companies investing in LNG projects at ease.
Creditors are set on recovering debt owed to them, Mozambique’s approach particularly to fiscal and monetary policy indicates the country’s eagerness to thrive within the Southern region once more.