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Debt default may result in China confiscating Mozambican assets, watchdog warns

A STUDY by Mozambique’s Centre for Public Integrity (CIP) says the country’s debt to China grew from around $45 million in 2010 to $2.1bn in 2018, and warns that, in the event of non-payment, Beijing may confiscate Mozambican assets.

According to CIP, following the discovery of the so-called ‘hidden debts’, Mozambique was unable to count on Western support for its state budget, and pivoted towards China, which does not impose political or economic conditions in its cooperation with developing countries.

CIP researcher Leila Constantino says that reports on Mozambican indebtedness indicate that, in 2010, its debt to China was $45 million, but in 2018 had risen to $2.1bn.

Currently, the debt to China is the largest that Mozambique has with a single country, ‘and this debt represents about 20.2 percent of Mozambique’s total external debt, and about 13.2 percent of the country’s Gross Domestic Product (GDP).’

Credit is costly

The CIP researcher noted that this debt represents huge fiscal risks, the first of which is the exchange rate, because the debt is denominated in US dollars and, given the depreciation of the metical against the US dollar, ‘the debt increases with time.’

In addition, debts with China carry a 1.5 percent interest rate, ‘which reveals that these loans are quite costly. This affects the availability of resources to finance spending on Covid-19, precisely because the country has to pay those debts.’

Constantino warned that ‘in the event of default, Mozambique may find itself in a situation of having to pledge assets, as in the case of Kenya, where China confiscated the port of Mombasa for failure to repay debt’.

‘There are several risks associated with this debt that are damaging to the coffers of the state. For this specific case, the CIP’s recommendation is that the government renegotiate its debt with China within the scope of the debt forgiveness process currently underway,’ she concludes.

An official source, however, said that all was safeguarded regarding the issue.

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