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US interest rates hike makes Mozambique and Angola’s debt more expensive – Standard Bank

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The chief economist at Standard Bank in Maputo told Lusa today that, while it would not affect the decisions of major investors, rising US Federal Reserve interest rates implied a rise in the cost of debt.

 

The Standard Bank economist following the economies of Mozambique and Angola warns that “with an increase in interest rates, the debt service that each of these countries pays also increases, which means that they would have to generate more foreign currency to service debt; this is a mechanism through which changes in the US Federal Reserve have an impact on local economies”.

In an interview with Lusa about the impacts that the interest rate rises of the largest central banks have on the sub-Saharan African economies, particularly in Angola and Mozambique, Fáusio Mussá pointed out that’ with the increase in the cost of money, “the North American market is more attractive to investors, but for these two countries [Mozambique and Angola] what we have historically observed is that those who decide to invest in these countries are looking at an investment in a gross fixed capital formation perspective, that is, concrete projects in the real economy that attract investors, as in the oil or gas sectors”.

In this sense, these moves “will not have a significant impact in either Mozambique or Angola, because the greatest mechanism of transmission of these impacts would be through foreign direct investment and, looking at the projects foreseen for each of these countries, it seems that rising interest rates in the United States will negatively affect pipeline projects for each of these economies,” Mussa said.

“In the short term, the most immediate impact would be on the increase in debt service, which, depending on the actual increase, could generate pressure on the balance of payments, generate a demand for dollars above what would be normal in the market and generate pressure on currencies to depreciate as demand for dollars increases,” he said.

In the case of Mozambique, “the most important thing is that there is some positive development in relation to the restructuring of the public debt”, because this will be “the element with the greatest impact on the economy”, since “it could bring debt levels to more sustainable levels and create some fiscal space for the management of budgets” Mussa concluded.

Source: Lusa via Club Of Mozambique

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