(Bloomberg) — Mozambique can’t afford to pay debts that were contracted under questionable terms, and creditors to the southern African country must agree on some form of restructuring, central bank Governor Rogerio Zandamela said.
The government had hoped to sort out its foreign commercial debt by January, but a group of investors holding its 2023 Eurobond, which went into default at the start of the year, has refused to start formal negotiations until authorities publish an audit of the hidden loans. The discovery of the undisclosed loans worth about $1.4 billion prompted the International Monetary Fund to suspend aid to Mozambique in 2016.
“The biggest problem we have are these new loans, new debts, undisclosed, that came last year,” Zandamela said Sunday at a conference in Estoril, near Portugal’s capital Lisbon.
“There is a discussion about whether we should pay because they were illegal or not, but the reality is that we can’t pay at this point in time.”
Negotiations were taking place in London, he said, without providing details. “Not a single traditional donor is going to put in a penny so that we can pay those types of debts.”
The central bank is working hard to reform Mozambique’s banking system, Zandamela said. It ordered the liquidation of two lenders this month and the closure of O Nosso Banco in November. Mozambique was counting on one of the biggest gas discoveries in decades to power an economic boom, but the combination of excess borrowing at a time of depressed commodity prices and plunging foreign investment arrested growth.
Conflicts of interest have complicated the reform efforts, Zandamela said. “In every institution operating in my system, out of the 19, there’s a senior leading politician as the chief executive officer,” yet these people are lobbyists and not real CEOs, he said.
Even so, the country’s banking system is sound, said Zandamela, a former senior IMF official who took office last August. “If you look at our debt level in terms of bilateral debt, it’s sustainable,” he said. “We are meeting all our obligations with our bilateral debt.”