The Mozambican government has admitted to its international creditors that the country’s foreign debt has reached unsustainable levels.

In a presentation prepared by the Ministry of Economy and Finance, and given at a meeting in London on Tuesday, the government said the country’s public and publicly guaranteed debt would reach 104.6 per cent of gross domestic product (GDP) in 2017, although it forecast a tailing off to 79.9 per cent of GDP by 2021.

The total foreign debt is 10.118 billion US dollars. Much of this debt is still soft loans from multilateral bodies such as the World Bank, the African Development Bank (AfDB), and the International Monetary Fund (IMF), accounting for 40.9 per cent of the total. Bilateral debt (including loans from China) accounts for a further 42.1 per cent.

The real headache is the commercial debt which account for 17 per cent of the total debt. Most of this consist of the loans to quasi-public companies which were illegally guaranteed by the previous government under President Armando Guebuza.

Most of the money came from two European banks — Credit Suisse and VTB of Russia. They organized a bond sale of 850 million USD for the Mozambique Tuna Company (EMATUM), and lent over a billion USD to two security-linked companies, Proindicus (622 million USD) and Mozambique Asset Management (MAM: 535 million USD).

The debt service, including arrears, is 675.2 million USD this year, rising to 803.8 million USD in 2017, 826.8 million USD in 2018 and 865.5 million USD in 2019. The debt service then dips to 770.8 million USD in 2020, before rising again to 863.7 million USD in 2021.

From 2017 to 2019, easily the largest slice of the debt service goes on the EMATUM, Proindicus and MAM loans which will be 591.2 million USD in 2017, 377.3 million USD in 2018, and 359.8 million USD in 2019. These figures include capital, interest and clearing arrears.

The government document admits that Mozambique is in breach of all five of the IMF’s debt sustainability thresholds. The total debt to GDP ratio should not exceed 40 per cent, but as of September 2016 was already 67 per cent. The ceiling of the debt to exports ratio is 150 per cent, but in Mozambique’s case it has reached 232 per cent. The debt to revenue ratio has reached 293 per cent, when it should not exceed 250 per cent.

What all this means is that there is no money to pay the commercial debt service, at least not in 2017. The debt service priorities are the multilateral and bilateral debts, and the government’s document suggests that in 2017 there could be a slight shortfall even in meeting these commitments.

Only as from 2018 will there be a residual capacity to service the commercial debt — 54.3 million USD in 2018, 40.7 million in 2019, 57.2 million in 2020 and 35.8 million in 2021. This is nowhere near the hundreds of millions of dollars theoretically owed in commercial debt servicing for these years.

The government is looking for an agreement with its creditors that will bridge the gap between now and 2021. The Ministry of Economy and Finance says the government is committed “to undertake consultations with its creditors in line with the principles of transparency, good faith efforts for a collaborative approach and inter-creditor equity”.

The government hopes to reach an agreement with the IMF on a new programme by early 2017. No new programme will be available until the agreed independent, international audit of Ematum, Proindicus and MAM has been undertaken.

The government’s London document points to the need “to reach agreement with creditors on terms compatible with IMF debt sustainability criteria as soon as possible”. It suggests an agreement in principle with creditors on a “debt resolution proposal” by December, and in January the agreed debt resolution strategy would be implemented.

The government has appointed the French company Lazard Freres as its financial advisor and the international law firm White and Case as its legal advisor to support the debt solution strategy.