Mozambique Update

Just a little update from the FT on Mozambique, which was highlighted in our last piece, World Current Account Balances (CAB).

Note first,  Mozambique is a very small economy with a nominal dollar GDP of only $11 billion in 2017 or about 1/7th the size of the economy of Memphis, Tennessee.   The exchange rate has been weak over the past five years,  though strengthening recently, which has reduced nominal $GDP and has made external debt service more burdensome.

MOZ_FX

It began four years ago, with money meant to herald the start of a modern fishing industry for one of southern Africa’s poorest nations — a fleet of new boats to trawl the sparkling waters off the coast of Mozambique.

This month, one of the most controversial government debt scandals in Africa this decade neared its denouement as Kroll investigators delivered a much-delayed forensic audit into an $850m “tuna bond” and more than $1bn in hidden loans to opaque state-affiliated companies.

When these loans — and more purchases of naval vessels and security equipment than tuna boats — were uncovered last year, international donors cut off aid. Investors in huge offshore gas discoveries were also rattled as Mozambique plunged into a financial crisis.

Now donors, who funded about a quarter of the budget, are asking if Frelimo, the former liberation movement that has ruled with a tight grip since independence in 1975, can punish those within its ranks implicated in the audit.

“It’s the $2bn question,” says one diplomat in Maputo, referring to the debt defaults that last year undermined Mozambique’s status as one of the fastest-growing economies in Africa and threatened plans to develop the gasfields.
FT, May 27, 2017

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