Mozambique faces default

Mozambique faces default

Mozambique’s government says it is “extremely limited” in its ability to make a $60 million interest payment due on Wednesday.

Photo: Bloomberg

Photo: Bloomberg

Mozambique’s government says it is “extremely limited” in its ability to make a $60 million interest payment due on Wednesday. JP Morgan, an investment bank, says a default is the most likely outcome, plunging the value of Mozambique’s $727 million worth of bonds to a record low of 50 cents on the dollar.

Mozambique is in the midst of a severe financial crisis. As commodity-based revenue has plunged in recent years, inflation has shot to 20% and the country’s currency has halved since 2015.

Last April, the IMF discovered $1.4 billion worth of undisclosed government loans were made to two state-owned enterprises and suspended its $286 million bailout package. Mozambique has since announced plans to restructure the undisclosed loans, but this means fewer funds will be left over to make further repayments. Indeed, the government has suggested it will miss more payments in 2017, spooking markets.

A default on Wednesday is likely to further drag down Mozambique’s credit rating, which was downgraded to Caa3 last July (meaning creditors should only expect to recover 65% to 80% of their investments).