- Mozambique political unrest has caused losses of nearly $390 million, or 2.2 per cent of the gross domestic product.
- According to S&P Global Ratings, this situation has escalated the already high risks that the government will meet its domestic debt obligations.
- The ongoing post-election unrest continues unabated, and any currency devaluation is likely to exacerbate inflation and risk further destabilization.
Mozambique Political Unrest
Since last month’s disputed elections, deadly protests have rocked Mozambique’s economy. According to S&P Global Ratings, this situation has escalated the already high risks that the government will meet its domestic debt obligations.
The company lowered its assessment of the gas-rich nation’s local currency debt to CCC on 18 October before widespread political unrest shut down large parts of the economy. This situation will squeeze the government’s already tight finances, S&P analyst Leon Bezuidenhout said.
“Unless there’s some type of sharp fiscal adjustment or windfall revenue, they may have to undertake some type of either distressed restructuring or continued further delayed payments on domestic debt,” he said in a virtual interview this week.
Political unrest has rocked Mozambique since opposition presidential candidate Venâncio Mondlane, in October, called for a nationwide shutdown over fraudulent election results that placed him second. The authorities used teargas and live ammunition to disperse demonstrators, triggering violent responses, including the burning down of police stations and attacks on the main border crossing with South Africa, forcing its temporary closure.
According to the Centre for Democracy and Human Rights, a campaign group based in the Mozambique capital, Maputo, at least 40 people have lost their lives during these demonstrations.
The opposition leader’s call to paralyze major trade routes in Mozambique adds to the economic pressure. Government finances are already under strain since the government insisted on spending more than budgeted on civil-servant salaries. The government now faces rising costs of fighting an insurgency in Cabo Delgado province, where violence has put on hold an expected windfall from natural gas projects.
Economic Losses
Having been effectively excluded from international debt markets since 2016, the government has predominantly relied on issuing domestic bonds to fund its deficit, which S&P projects will average 4.3 per cent from this year through 2027. Additionally, it has progressively utilized the central bank for financing.
Mozambique’s local currency debt has increased significantly since 2020 following its Eurobond restructuring. Recently, the government executed a liability management operation, proposing a new bond with extended maturities to creditors.
“It cannot be overstated how significant the liquidity challenges are,” Bezuidenhout said. “This is slowly but surely turning into a solvency issue because the maturities for next year and the year thereafter are large.”
He also views the Mozambican dollar as overvalued by up to 40 per cent, with the real effective exchange rate approaching its highest level since 2015.
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‘Stabilised Arrangement’
The currency’s trading level has remained unchanged since September 2021, a situation the International Monetary Fund describes as a “de facto stabilized arrangement.” As of October, the fund reported a backlog in foreign exchange demand amounting to approximately $440 million, with an estimated wait time of three months.
Still, there are indications that “the current exchange rate is not very far away from its fundamental equilibrium value,” the Washington-based lender said in a Nov. 8 report.
The ongoing post-election unrest continues unabated, and any currency devaluation is likely to exacerbate inflation and risk further destabilization.
On November 12, Police Chief Bernardino Rafael issued a stern warning against demonstrations, labeling them as “urban terrorism.” Meanwhile, Mondlane has called for the protesters to stay peaceful.
President Filipe Nyusi convened an extraordinary National Defense and Security Council session on Wednesday. According to a release, the council adopted a more conciliatory stance regarding the protests, urging defense and security forces to prioritize dialogue.
