Standard & Poor’s said today that the agreement between Mozambique and the International Monetary Fund will help overcome financing difficulties and debt vulnerabilities in the country, the second most indebted after Zambia.
"Mozambique’s main weakness lies in the high level of government debt, which makes it the second most indebted country" in the list of 16 sub-Saharan African countries analysed in light of the impact of the war in Ukraine on the banking system.
Speaking to Lusa, analyst Giulia Filocca explained that despite these difficulties, "the recent entry into an IMF programme this month could help alleviate current financing difficulties and debt vulnerability", which currently stands at around 100% of GDP.
The vast majority of Mozambique’s public debt is denominated in foreign currency, which, in addition to making the country more vulnerable to exchange-rate shocks, means fewer financing options.
"The Government has opted to increase domestic debt issuance, subscribed by local banks," Giulia Filocca said in remarks to Lusa following the publication of Standard & Poor’s report.
Domestic banks are thus "increasingly financing the budget deficit, increasing the profile of short-term domestic debt and the volume of rolling debt in local currency".
In its report on debt vulnerabilities on the continent following Russia’s invasion of Ukraine, the credit rating agency says that "the decline in global economic growth and China’s slowdown are negatively affecting the ability of African emerging markets to accumulate debt".
The fact that in markets such as Egypt, Ghana and South Africa a significant share of domestic debt is held by foreign investors "increases liquidity, but often at the cost of greater sensitivity to changes in global monetary policy", the analysts warn, concluding that "many African countries already entered this post-pandemic period with a high level of domestic debt and substantial debt refinancing needs".
The IMF announced a loan of 470 million dollars (445 million euros) under an Extended Credit Facility, stressing that "the authorities are implementing a broad reform agenda, including strengthening the management and debt oversight of state-owned enterprises, improving fiscal risk management and debt transparency, as well as strengthening public financial management and the anti-corruption framework".
The aim is to support recovery and reduce public debt, which remains above 100% of gross domestic product (GDP).
This is the first time the Fund has financed Mozambique since the disclosure of the so-called hidden debts scandal in 2016, with only occasional financial assistance following specific disasters, such as the Covid-19 pandemic or cyclones Kenneth and Idai in 2019.
