Capital Economics: Gas Project Delays Increase Mozambique’s Chances of Default
‘The delays in the projects have rekindled fears that the government and public companies will be forced to restructure their debt. The National Hydrocarbons Company (ENH) has accumulated an external debt equal to 18.6 per cent of Gross Domestic Product (GDP) to finance the entry costs of the LNG projects,’ warned David Omojomolo, an analyst at the organisation.
The institution described that ENH owns 15 per cent and 10 per cent of the projects led by TotalEnergies and Eni, respectively, which, combined with the financing costs of the persistent budget deficits, keeps the public debt to GDP ratio close to 100 per cent, according to the latest IMF data.
‘The composition of Mozambique’s debt is one of the reasons why it is so vulnerable to a financial default. More than two thirds of the debt is denominated in foreign currency, so if the balance of payments comes under more pressure and causes the metical to fall, the ratio of GDP to debt will rise, which is a real possibility due to the current account deficit in 2023, which was worth around 20 per cent of GDP.’
In addition to the issue of public finances, the analyst pointed to the danger of increased interest payments on the debt, which have risen from 5 per cent to 9 per cent at the end of 2023, as a result of an agreement made last decade with the creditors, which provided for an increase in interest to coincide with the start-up of the gas projects, and a consequent increase in Mozambican tax revenues.
‘If the natural gas projects are further delayed, the IMF may be forced to consider that Mozambique’s debt is unsustainable, leading to the need for restructuring before financial support can be resumed,’ he said.
‘Mozambique seems to be prepared for a difficult budgetary future. The IMF programme is dependent on the country meeting its budget targets, something that will be difficult even if it avoids financial default,’ he concluded.
