MAPUTO, Oct 29 – Mozambique plans to negotiate further debt relief with bilateral creditors after China agreed to reschedule some debt payments, as the Southern African country seeks additional external financing to ease pressure on government finances.
In a statement on Wednesday, Mozambique’s finance ministry said the government was prioritising negotiated solutions to improve its debt repayment profile while attempting to avoid a comprehensive restructuring.
“Mozambique is prioritising negotiated solutions aimed at improving the repayment profile and reducing pressure on government finances, while seeking, as far as possible, to avoid a comprehensive debt restructuring”, the ministry said.
The government also plans to hold discussions with bilateral creditors on mechanisms to convert debt into investments, potentially linking debt management with financing for economic activity.
The announcement follows confirmation on Monday that China had agreed to let Mozambique adjust certain “payment schedules”. Neither government disclosed the amount of debt covered by the agreement.
China Accounts for Nearly 15% of External Debt
Mozambique owed China approximately $1.28 billion at the end of June, according to official data. That represented nearly 15% of the country’s total external debt, making China its largest bilateral creditor.
The agreement to adjust payment schedules could provide some flexibility in managing near-term obligations, although its precise fiscal impact remains unclear without details of the debt covered, the revised repayment timetable and any associated conditions.
The government’s preference for negotiated solutions suggests it is seeking to ease immediate financing pressures without undertaking a comprehensive debt restructuring.
Debt-to-investment arrangements are another option under consideration. Such mechanisms can allow creditors and governments to agree on converting certain obligations into investments, although the terms and potential economic benefits depend on the structure of each agreement.
Debt Burden Compounded by Funding Constraints
Mozambique has been grappling with a heavy debt burden that the World Bank and International Monetary Fund have assessed as unsustainable.
The country’s financial difficulties date back to the hidden-debt scandal that emerged in 2016, damaging investor confidence and restricting access to financing.
The scandal involved previously undisclosed borrowing that contributed to a sovereign debt crisis and undermined confidence in the country’s public finances.
Delays to major natural gas projects have added to the pressure. The projects were expected to generate export earnings, government revenue and broader economic benefits, but delays have postponed some of those anticipated gains.
The combination of debt obligations, constrained financing options and delayed gas developments has left the government seeking ways to manage repayments while securing resources to support its fiscal programme.
Mozambique Seeks $528 Million in External Financing
The finance ministry said on Wednesday that Mozambique required an additional $528 million in external financing to complement an IMF programme it hopes to secure.
The funding requirement highlights the challenge facing the government as it attempts to manage existing debt obligations while meeting financing needs.
Securing the additional funds and advancing negotiations with creditors could help ease liquidity pressures. However, the eventual outcome will depend on the availability and terms of external support, the scope of any debt relief and progress towards an IMF arrangement.
The government has not disclosed further details of the proposed financing or the timeline for securing it.
Bond Prices Edge Higher
Mozambique’s international bonds rose slightly on Wednesday, with prices increasing by 0.3 cents to a bid of 91.614 cents on the dollar, according to Tradeweb data.
The modest gain came as investors assessed the implications of China’s agreement to adjust payment schedules and the government’s plans to pursue further debt relief.
The market movement indicates a limited price increase rather than a definitive shift in investor expectations. The longer-term outlook for Mozambique’s sovereign debt will depend on the terms of creditor negotiations, progress towards additional external financing and the government’s ability to improve debt sustainability.
