MAPUTO, Mozambique’s Ministry of Economy and Finance has announced that it is not making the interest payment due on its 727 million US dollar Eurobond which fell due Tuesday.

In 2013, bonds were issued to raise 850 million USD for the Mozambique Tuna Company (Ematum) for the purpose of developing a home-grown and self-sustaining fishing industry. However, the company has barely operated and has thus never been anywhere near being able to service the debt.

As the bonds, organized by Credit Suisse and VTB of Russia, were guaranteed by the Mozambican government, the repayments fell upon the government. In April 2016, unable to meet the annual 260 million USD interest and principal repayments, the government replaced the bonds with sovereign government bullet bonds with a longer repayment time but at a higher interest rate.

However, the economy has been hit by several factors including a drastic fall in commodity prices and severe drought. In addition, the international donor community has temporarily withdrawn much of its support to the country because of the discovery of linked, hidden debt by the security-related companies MAM and Proinducus.

As a result, in January, the government defaulted on a 59.8 million USD interest payment on the Ematum-linked Eurobond.

In an official statement issued here Monday, the Ministry of Economy and Finance confirmed that it would also miss Tuesday’s interest payment.

It explained that as mentioned by the Minister of Economy and Finance, during the investor presentation in London on 25 October 2016, and as reiterated in the Ministry’s communiques dated 14 November 2016 and 16 January 2017, the challenging macro-economic and fiscal situation of the Republic has severely affected the country’s public finances”

“The resulting debt payment capacity of the Republic remains extremely limited in 2017, and does not allow the Republic room to make the scheduled interest payment, the statement added.

However, it stated that the government is committed to finding a consensual and collaborative resolution to the current financial crisis through dialogue with the holders of its direct and guaranteed external commercial obligations.

It stressed that it will be critical that any solution is based upon a realistic appraisal of the Republic’s capacity to pay, while at the same time is respectful of the interests of the Republic’s international investors.

It concluded that the objective of the debt restructuring process will be to establish an external commercial debt profile that is credible, sustainable, and appropriate in light of the critical development needs of the country.