"Mozambique is one of the countries with the riskiest debt in sub-Saharan Africa," - Capital Economics

“Moçambique é um dos países com a dívida mais arriscada na África subsaariana”, – Capital Economics

The consultancy Capital Economics considers that Mozambique, along with Angola, is the sub-Saharan African country with the riskiest debt in the event of a depreciation of local currencies or significant changes in the context of international trade..

"Mozambique or Angola, with high levels of debt in foreign currency, are the ones most at risk of debt distress if there is a deterioration in international trade or a weakening of the currency," reads an update from this consultancy on the evolution of debt in sub-Saharan African countries.

With a large part of their debt in foreign currency, the analysts, quoted by the Portuguese newspaper Expresso, warn that the two countries "will be vulnerable to both sudden falls in the value of the currency and significant changes in the terms of international trade".

In the report sent to clients, Capital Economics analysts write that "the average public debt in sub-Saharan Africa is still above pre-pandemic levels.

Most of these economies, they argue, will need further budgetary adjustments to stabilize debt to Gross Domestic Product (GDP) ratios", which is one of the main indicators used to gauge the sustainability of a country's debt.

The position of African countries has improved somewhat in 2022 compared to 2021, "but only a small minority have a lower debt burden than before the pandemic," and unlike before, no country currently has a debt-to-GDP ratio of more than 100%.

In Angola's case, according to the analysts, "it managed to reduce its debt-to-GDP ratio by almost 40 percentage points between 2019 and 2022," due not only to the suspension of debt payments under international initiatives in this regard, but also to the appreciation of the kwanza and the exit from the economic recession, which increased GDP and consequently lowered the ratio.

"Having a large percentage of debt denominated in foreign currency is a fundamental risk for Mozambique and Angola, and also for countries like Zambia, which has already defaulted," says Capital Economics, pointing out that the simple fact that the kwanza devalued by around 40% during the second quarter of this year makes the debt ratio rise by 25 percentage points.

The public debt of African countries has been one of the main concerns of economists and international institutions in recent years, not only because of the rising costs of new loans, due to rising interest rates, but also because of the budgetary space it occupies, diverting investment from structural and deficit areas such as health or education, in addition to basic infrastructure, and because it leads to unpopular financial adjustment measures.

"Implementing austerity measures will be challenging; several governments have already scaled back efforts to control public spending and implement taxes; high inflation has increased fears that further austerity could increase social unrest," says the British consultancy.

The analysts also point out that next year's elections in South Africa, Mozambique and Ghana "imply that budgetary relaxation may be adopted by governments in order to remain in power".

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