MAPUTO– International credit rating agency Fitch has re-affirmed Mozambique’s long-term foreign currency credit rating at RD, or restricted default, the company says i its latest credit rating note issued on the country.

The RD credit rating indicates that the debt issuer has entered into financial default with respect to a bond, loan or other issue, but has not entered into bankruptcy and has not ceased trading.

The default refers to the scandal of what has become known as Mozambique’s hidden dents. These are the loans for over two billion US dollars taken from the European banks Credit Suisse and VTB of Russia in 2013 and 2014 by the three State-owned companies — Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management).

Repaying these loans became a government responsibility since illicit guarantees were issued by the government of the time, under President Armando Guebuza. Those guarantees smashed through the ceiling on loan guarantees established by the budget laws of 2013 and 2014. They also violated a clause in the Mozambican Constitution stating that only the country’s parliament, the Assembly of the Republic, can authorise such debt.

The largest loan, of 850 million dollars to Ematum, was public knowledge, since it took the form of a bond issue on the European market. But the other two loans, for almost 1.2 billion dollars, were kept secret until April 2016.

The discovery that Mozambique’s public debt was much larger than believed led the International Monetary Fund (IMF) to suspend its programme with the country, and all 16 donors which used to provide direct support to the Mozambican State budget followed suit by suspending all further disbursements.

In 2016, the Ematum bonds were swapped for sovereign government bonds with a longer repayment time, but at a higher interest rate. Later that year, the government stopped paying the interest on these bonds, and made no further payments on the Proindicus and MAM loans.

The government insist that all three debts must be renegotiated while Mozambican civil society organizations are calling for no repayment at all, since the debts were contracted illegally and should be considered odious.

The latest Fitch statement recalled that, that since Mozambique’s credit rating was revised down to RD in 2017, the country has already failed to pay four coupons on the ex-Ematum bonds, as well as both interest and capital repayment of Proindicus and MAM loans.

Contradicting Finance Minister Adriano Maleiane who said last week he expected an agreement with the creditors by December, Fitch said it does not anticipate a near-term resolution to the default, since key differences remain between bondholders and the government regarding the terms of a debt restructuring.