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'Hidden debts' bills coming due

Mozambique could and should have cut a deal with creditors to share gas revenues. Instead, repayments on its sovereign eurobond have just risen sharply

Good evening, good morning. Last Friday was yet another landmark along the saga of the "hidden debts" — and a concerning one for Mozambique’s public finances.

Back in 2019, the government reached a deal with creditors to swap the bond issued by state-owned company Ematum as part of the larger $2bn debts scheme. As well as being illegally agreed, the original debts had been defaulted on, as the projects they were supposedly set up to finance had come to nothing.

Part of that deal was that interest on the replacement bond, still Mozambique's only international sovereign bond, would increase this year from 5%  to 9% per year, raising the interest to be paid on the $900m principal from $45m a year to $81m. The last of the smaller repayments was made last week; the next will be a lot bigger.

It didn’t have to be this way. Leaving aside the question of whether Mozambique should be honouring the debt at all, back in 2019 the government originally agreed with creditors to pay a flat 5.75% interest rate, but to pay them extra depending on how much revenue was coming in from the Rovuma Basin liquefied natural gas (LNG) projects. This proposal was abandoned as being too complicated – and/or politically unpalatable to promise gas revenues to creditors.

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