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Mozambique: Debt deal ‘paves way for resumption of IMF loans’ – Moody’s analyst

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The analyst at the Moody’s credit rating agency who covers Mozambique has told Lusa that the country’s preliminary agreement with some of its foreign creditors should help pave the way for financial support from the International Monetary Fund.

 

“If the negotiation process with creditors is confirmed, this will put the government of Mozambique one step closer to an agreement with the International Monetary Fund, because it improves the sustainability of debt,” Lucie Villa said in an interview with Lusa.

According to Villa, the first consequence of the preliminary agreement announced in Maputo last Tuesday is that it “removes the risk of litigation due to debt securities not being paid, and this will be an immediate effect.”

In addition, she said, Mozambique will have “smaller annual interest payments, and this improves liquidity and budget slack” under the agreement.

Finally, the third “fundamental consequence” of the agreement, if it comes into force, would be to “bring the government one step closer to a financial assistance agreement with the IMF, because it improves the Debt Sustainability Analysis” or DSA that is key to the Fund’s board approving loans to countries.

The preliminary agreement signed last week with creditors holding $726.5 million (€645 million) of debt, who had not been receiving payments since 2016, has yet to be ratified by Mozambique’s attorney-general and by parliament.

Asked whether the terms of the agreement automatically put the five DSA criteria within the necessary limits, Villa said that it “improves the chances of meeting the criteria… but until the IMF publishes the analysis it is difficult to say what the situation is, because there is a degree of appreciation and of interpretation.”

Villa’s comments come after Moody’s published a note on last week’s agreement, a deal that Mozambique’s ministry of finance has said he expects can be replicated with creditors holding $1.4 billion in debt from public companies MAM and ProIndicus.

In its note, Moody’s states that the agreement “increases the probability” that Mozambique will be able to agree a financial assistance programme with the IMF, which would in turn further improve its credit profile.

However, the analysts add, despite the liquidity relief resulting from the debt restructuring, the government’s credit profile will remain “weak” given the large public debt and the fact that Mozambique’s institutional framework is classed as ‘Very Low’, the worst level for this measure in the agency’s rating system.

Mozambique last Tuesday announced a preliminary agreement with holders of 60% of the holders of its Eurobonds (foreign-currency debt securities), according to which the country would resume payments as soon as March 2019 and also hand over 5% of the tax revenues from natural gas production (which is due to start in 2022) until 2033.

The new securities to be issued under the deal are to have a nominal value of $900 million, with a maturity of September 30, 2033 and a coupon of 5.875%, lower than the current rate of over 10% that helped push Mozambique into default.

Source: Lusa via Club Of Mozambique

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