The Mozambique government missed a crucial payment on Monday relating to a sovereign guarantee on a $535 million loan taken out by a state-run enterprise, inching the country closer to default.
The loan was intended for the construction of shipyards by the state-run Mozambique Asset Management (MAM), but the shipyards are still not yet complete.
MAM failed to make good on a $178 million repayment which was due on May 23. Russia’s VTB Bank organised the foreign creditors responsible for the loan, and those creditors initially refused to renegotiate payments with the Mozambicans, according to Reuters.
The government and creditors are now in talks to restructure the debt repayments.
A fall in commodity prices has left the coal and gas rich nation with spiralling debt levels that have made the situation dire in the southern African state.
The discovery of hidden loans amounting to over $1.1 billion in April by the International Monetary Fund (IMF), in addition to previously unacknowledged loans brought Mozambique’s hidden debt toll to at least $2.32 billion, according to Chatham House.
Secretive government borrowing has been responsible for the current debt crisis in the country, with the Finance Ministry in the country coming clean about the fact that numerous hidden loans were made by the state.
The country is not yet in formal default, however, as a grace period is built into the foreign loans that Mozambique have taken out.
Total foreign debt is now at around $9.86 billion, or approximately 80 percent of the country’s GDP, while the entire debt attributed to Mozambique amounts to around $11.64 billion.
This staggering figure makes it virtually inevitable that a payment crisis is on the Mozambican doorstep, moving the country closer to default.
Monday was a negative day for the country from a financial standpoint, with ratings agency Fitch cutting Mozambique’s credit rating to ‘CC’ from ‘CCC’, indicating that “a default of some kind appears probable”, according to Bloomberg.