MOZAMBIQUE GOVERNMENT MAY DEFAULT ON EUROBOND THIS WEEK: LESSONS FOR ZAMBIA

By Peter Chazya Sinkamba President Green Party of Zambia  secretariat@zambiagreens.org 

Peter Chazya Sinkamba President Green Party of Zambia

The Mozambique government says it won’t honor a $59.8 million Euro-bond interest coupon payment due tomorrow, January 18. If the Mozambique government fails to honour its interest obligations tomorrow, this would be Africa’s first sovereign default in five years. Government has a 15-day grace period to pay the coupon after Jan. 18, according to the bond’s prospectus. Analysts see Mozambique defaulting on the Eurobond interest obligations, on the $727 million bonds due January 2023.

Mozambique’s finances have deteriorated in the last few years, following the collapse of base-metal exports on the world market. Government’s capacity to make debt payments is “extremely limited,” the Ministry of Economy and Finance said last week.

The authorities are in talks with the IMF about resuming support to the country after it was suspended last year in April because of undisclosed loans. It is believed Mozambique government borrowed about $2billion from Russia, but this loan has not been officially declared on the country’s debt portfolio leading to suspension by IMF of aid to the country.

Now, Mozambique is saying it won’t pay the Eurobond interest coupon. BMI Research, a Fitch unit, says this could be part of government’s “tough negotiating strategy” to compel bondholders to accept more lenient repayment terms.  This won’t auger well for future negotiations.

Zambia, which has so far borrowed $2.8 billion with $750 million due in 2022, is so much dependent on base metals, mainly copper and cobalt. As a nation, we must draw hard lessons from Mozambique’s case. The first lesson is never to be over-dependent on base-metals, and other commodity markets for national revenue. This has proven to be gigantic problem. So, there is need to seriously consider diversifying from this ‘manga-manga’ agriculture of maize and cotton. There is compelling need to radically shift to high-value agriculture of cannabis/hemp, tomatoes, grapes, potatoes, vegetables, sugar cane and other high value crops which we can grow on large-scale for local and export. The second lesson is that government should avoid contracting secretive non-conventional loans, especially from China and Russia. These loans have serious implications in the long-run. For what goes around, for sure comes around.