CONFIDENTIAL

REPUBLIC OF MOZAMBIQUE

Presentation to Creditors

OCTOBER 2016

CONFIDENTIAL

PRESENTATION TO CREDITORS

Disclaimer
While the Ministry of Economy and Finance of the Republic of Mozambique has used all reasonable efforts to ensure that

the factual information contained herein is correct, accurate and complete in all material respects at the date of publication,
no representation or warranty is made (express or implied) as to the reliability, accuracy or completeness of such
information and no reliance should be placed on such information. In addition, certain historical information set forth
herein is preliminary in nature or based on government estimates, and may be subject to substantial change.
This presentation includes forward-looking statements. You are cautioned not to place any reliance on forward-looking

statements. All statements other than statements of historical fact included in this presentation, including, without
limitation, those regarding (i) implementation of the governments fiscal policies, (ii) provision of financing from the
official sector, and (iii) Mozambiques future macroeconomic performance, are forward-looking statements. These forwardlooking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results,
performance or outcomes to be materially different from those expressed or implied by these forward-looking statements.
These forward-looking statements are based on numerous assumptions regarding the present and future political,
economic, financial and international situation of Mozambique, all of which assumptions are subject to significant
uncertainty and change.
The presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue, or the

solicitation of an offer to purchase, subscribe to or acquire any securities issued by the Republic of Mozambique or any
entities controlled by the Republic of Mozambique.
This presentation has been prepared for information purposes only and no recipient of this presentation should make any

investment decision with respect to any securities, loans or any other financial instrument on the basis of information
contained herein.
The Republic of Mozambique reserves any rights it may have in connection with any of its debt obligations and nothing

contained in this presentation shall be construed as waiver or amendment of such rights.

CONFIDENTIAL

PRESENTATION TO CREDITORS

Presentation Framework
I

RECENT MACROECONOMIC DEVELOPMENTS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

III

NEXT STEPS

13

PRESENTATION TO CREDITORS

Recent Macroeconomic Developments

PRESENTATION TO CREDITORS

RECENT MACROECONOMIC DEVELOPMENTS

Mozambique has entered a period of subdued growth

Mozambiques economy has been negatively affected by the deterioration in the global commodity prices
and this years climate conditions
KEY CHARACTERISTICS

SLOWED ECONOMIC GROWTH

Growth in Mozambique has eroded in 2016, with the latest

forecast for real GDP growth downgraded to 3.7%. This is a

result of:
Weaker export revenues due to subdued global
commodity prices, especially aluminum and coal, the
countrys key export product
Lower FDI inflows due to the delay in megaproject
investments amid low commodity prices
Lower agriculture output due to the El Nino drought,
that has also resulted in increased inflationary pressure
Reduced government expenditures
Escalation of political tension

U.S. $ billion
18
16

% growth

7.1

6.7

7.2

7.1

7.4

8.0

6.6

7.0

14

6.0

12

3.7

10
8
6

13

10

15

16

17

15

12

0
2011

2012

2013

Nominal GDP (left axis)

2014

2015

2016F

Real GDP growth (right axis)

16.7

16.0
12.0

4,641

10.0
8.0

4,136
3,867

3,503
2,440

2015

2016

4.2

6.0
4.0

2.1

2.3

2.4

2014

2015

2.0
2014
Exports of goods and services

Source: MoF, as of September 2016

Percent change
18.0
14.0

4,902

Net FDI

3.0
2.0
0.0

2010

INFLATIONARY PRESSURE MIGHT ENDANGER

MACROECONOMIC STABILITY

-26.6% FDI inflows average annual decrease

-9.8% export revenues average annual
decrease

U.S. $ million
6,500
6,000
5,500
5,000
4,500
4,000
3,500
6,175
3,000
2,500
4,768
2,000
1,500
1,000
500
2013

4.0

1.0

Source: IMF, World Economic Outlook, October 2016

LOWER FDI INFLOWS AND EXPORT REVENUES

5.0

0.0
2012

2013

Source: IMF, World Economic Outlook, October 2016

2016

PRESENTATION TO CREDITORS

RECENT MACROECONOMIC DEVELOPMENTS

The external position has deteriorated sharply

The substantial depreciation of the metical and the decrease in foreign exchange reserves have exacerbated
the economic crisis
WORSENING EXTERNAL POSITION

The metical has depreciated by approximately 70% against the US dollar over the course of 2016, having already

depreciated by 36% in 2015

The Bank of Mozambiques (BdM) attempts to provide sufficient FX resources for the economy to continue functioning
were not enough to limit the inflationary pressure and volatility
The increase in external debt payments in a depreciating currency environment, combined with lower FDI inflows and
weaker export growth, has contributed to a substantial decline in foreign reserves
Gross foreign reserves have fallen from US$3.1 billion at end of 2014 to US$1.7 billion in 2016. Import cover is currently at 2.6
months, which well below the level recommended by the IMF, and is expected to continue decreasing
ACCELERATING DEPRECIATION OF THE METICAL

FOREIGN RESERVES AND IMPORT COVER RATIO

MET per USD

U. S. $ billion
3.5

90

3.0

80

2.5

70

2.0

0.5

40

30
Apr-12

Oct-12

Apr-13

Source: Bloomberg, as of 12/10/2016

5.0

3.6

3.5

3.0

1.0

50

Oct-11

6.0

5.1

4.6

1.5

60

20

Number of months of projected GNFS imports

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

4.0

2.5

2.6

1.3

3.1 2.9

2.5 2.0

1.6 1.4

1.4 1.1

2014

2015

2016F

2017F

Gross International Reserves (GIR)

Net International Reserves (NIR)
GIR in months of imports
GIR in months of imports, excluding megaprojects

Source: MoF, as of September 2016

Note: GNFS stands for Goods and Non Financial Services

3.0
2.0
1.0
-

PRESENTATION TO CREDITORS

RECENT MACROECONOMIC DEVELOPMENTS

The pressure on public finances has significantly increased

The macroeconomic framework has been affected by (i) the suspension of IMF financing under the 2015
Standby Credit Facility (SCF), (ii) the withdrawal of aid from donor countries and (iii) the significant
increase in general government gross debt. These factors have added pressure to the already very limited
fiscal space and forced the government to make substantial cuts in public expenditure
INCREASED FISCAL PRESSURE
The freeze of IMF/donor budget support following the

misreporting to the IMF of MAM and ProIndicus loans in

early 2016, with no clear timeline for reinstatement, has
seriously hurt the government accounts
Donor funds historically accounted for around 10% of
governments revenues
Gross public debt has substantially increased as a result of
Mozambiques deteriorating external and fiscal positions
At the current exchange rate, gross public debt (including
liabilities under MAM and ProIndicus loans) is expected to
reach 130.0% of GDP by end 2016,
External debt currently represents over 80% of total gross
public debt, increasing the countrys vulnerability to external
shocks
With only limited near-term opportunities to boost revenues,
the governments fiscal consolidation efforts have focused
on reducing public expenditure
The level of government expenditure has considerably
decreased in the last three years

GOVERNMENT REVENUES AND EXPENDITURE HAVE

DECREASED
Percent of GDP
42.5%

45%
40%
35%

30.0%

32.2%

31.4%
26.1%

27.3%

31.8%
28.0%

27.0%

25.9%

20%
2010
2011
2012
2013
2014
2015
2016F
General government revenue
General government total expenditure
Source: IMF, World Economic Outlook, October 2016

GROSS PUBLIC DEBT HAS SIGNIFICANTLY INCREASED

Percent of GDP

130.0%

140%
120%

86.0%

100%
80%
60%

43.3%

38.0%

40.1%

53.1%

62.4%

40%
20%
2010
2011
2012
2013
Source: IMF, World Economic Outlook, October 2016

Financing fiscal expenditures is set to be an issue in the short to medium term

3

31.7%

30.7%

30%
25%

35.4%

34.0%

2014

2015

2016F

PRESENTATION TO CREDITORS

RECENT MACROECONOMIC DEVELOPMENTS

Downside risks might further deteriorate Mozambiques short to medium

term prospects
Three main risks could further deteriorate Mozambiques fiscal and economic situation in the short and
medium term
1 Further depreciation of the local currency

The exchange rate assumptions used in preparation of the government budget (capped at MET 88.5 per USD 1

in the coming five years) may be too optimistic

The countrys high level of external debt and the significant volume of imports make it extremely vulnerable to

further shocks in the exchange rate

2 Risk related to systemic state-owned enterprises (SOEs)

four key SOEs (M-Cel, LAM, Petromoz and EDM.) are facing important financial challenges, which represent

potential contingent liabilities for the government

3 Risks related to fuel subsidies

Further delays in the implementation of fuel subsidy reform may constitute an additional fiscal risk considering

their current levels

4 Financial sector instability

Potential government intervention in troubled domestic banking sector may entail additional burden for the

budget
4

PRESENTATION TO CREDITORS

RECENT MACROECONOMIC DEVELOPMENTS

Mozambiques long-term growth prospects are still promising

As the country develops its nascent energy sector, it will generate greater export revenues, more attractive
opportunities for foreign investors, and higher GDP growth
KEY INVESTMENT DECISIONS

GAS PRODUCTION PROJECTIONS

Two final investment decisions in the gas sector are

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

expected to be taken by the end of this year (Eni) and during

2017 (Anadarko)
Enis Coral FLNG project is estimated at approximately
US$8.0 billion, while Anadarkos development is estimated at
approximately US$12.0 billion
Investment into these projects will see significant inward

flows of capital
On the back of affirmative final investment decisions, other
investments are expected to follow as the country boasts
abundant natural resources, particularly coal and natural gas
Moreover, since the economy is expanding from an extremely
low base, there are investment opportunities in many sectors
Once the offshore gas projects start generating export

revenues in the early 2020s, the economy is expected to

significantly expand, potentially yielding some of the highest
rates of real GDP growth in Sub-Saharan Africa
Growth could reach double digits after 2022, assuming gas
projects become operational in 2022/2023

2004

2006

2008

2010

2012

2014 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F

Anadarko

Eni East Africa

Sasol

Source: Wook Mackenzie, August 2016

LNG EXPORTS AND ECONOMIC GROWTH

10

20

15

10

0
2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
LNG net exports, bcm (RHS)

Real GDP growth, % y-o-y (LHS)

Source: BMI, September 2016

Mozambiques growth prospects are promising in the long term, on the back of progress in the

development of its nascent energy sector

5

PRESENTATION TO CREDITORS

II

Assessment of the governments payment capacity

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

IMF pre-requisites for a new fund program

Two pre-conditions must be met in order for the IMF to resume discussions with Mozambique authorities
on program financing support: (i) an effective initiation of the audit process and (ii) the removal of the
country debt distress classification
1 Significant progress on international and independent audit process

Considerable progress on the drafting of the audit terms of reference (TOR) has been made
The audit will focus on EMATUM, Proindicus and MAM
2

Restoring debt sustainability

The IMF debt sustainability framework for low income countries uses 5 policy-dependent thresholds to

assess a countrys debt-related vulnerability and therefore the risk of debt distress

IMF DEBT SUSTAINABILITY FRAMEWORK THRESHOLDS FOR MOZAMBIQUE

PV of debt as a percent of

Debt service as a percent of

GDP

Exports

Revenue

Revenue

Exports

40

150

250

20

20

Source: IMF, Debt Sustainability Framework for Low Income Countries

Note: CPIA stands for the World Banks Country Policy and Institutional Assessment index. Mozambiques CPIA stands at 3.5 (countries are rated on a scale of 1 (low) to 6 (high)).

Mozambiques primary objective is to resume relations with the IMF in order to stabilize the

economy and restore confidence of the international community

IMF discussions can only resume if Mozambique is no longer in debt distress category, which
6

entails putting the government of Mozambiques public and publicly guaranteed debt on a
sustainable path (i.e., meeting the medium CPIA thresholds)

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

Mozambiques external public and publicly guaranteed (PPG) debt profile is

not sustainable
UNSUSTAINABLE METRICS

EXTERNAL PPG DEBT HAS SIGNIFICANTLY INCREASED

The local currency depreciation has exacerbated the increase

Percent of GDP

of the debt stock and its servicing costs

The level of public and publicly guaranteed external debt to
GDP is expected to exceed 100% of GDP in 2017
Total normal PPG external debt servicing costs (including
arrears) are projected at US$826 million on average over the
period 2017-2021, i.e. approximately 6.9% of GDP per year
In particular, servicing of commercial debt represents a heavy
burden for the country
Mozambican debt remains predominantly concessional
debt, with more than 80% of debt stock due to multilateral
and bilateral creditors

110.0%

104.6%

100.0%

95.7%

91.6%

89.2%

90.0%

84.5%
79.9%

80.0%
70.0%
60.0%

63.2%
2015

2016F

2017F

2018F

2019F

2020F

2021F

Source: MoF, as of September 2016 ; Lazard calculations

CONTRACTUAL EXTERNAL PPG DEBT SERVICE

(INCLUDING ARREARS)

EXTERNAL PPG DEBT STRUCTURE, AS OF END-2016

US$ MILLION

Multilateral
o/w IMF
o/w World Bank

Bilateral
o/w on-budget
o/w off-budget (on-lending)

Commercial debt
o/w on-budget (former Ematum)
o/w budget (guaranteed debt MAM &
Proindicus)

Total debt
Source: MoF, as of September 2016

4,138
227
2,635

4,255
3,878
377

1,725

% OF TOTAL

40.9%
2.2%
26.0%
42.1%
38.3%
3.8%

727
998

17.0%
7.2%
9.8%

10,118

100%

U.S. $ million
1,000.00
800.00

803.8

826.8

865.5

2017

2018

2019

675.2

770.8

863.7

600.00
400.00
200.00
2016

Multilateral amortization
Bilateral amortization
Commercial debt amortization
Commercial arrears
Source: MoF, as of September 2016; Lazard calculations

2020

Multilateral interest
Bilateral interest
Commercial debt interest

2021

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

According to IMFs debt sustainability framework for low income countries,

Mozambique is in debt distress
External PPG debt sustainability analysis demonstrates that Mozambique is in breach of all five of the
IMFs debt sustainability thresholds
EXTERNAL PPG DEBT EXCEEDS ALL THE IMF
THRESHOLDS

IMF DEBT SUSTAINABILITY FRAMEWORK

Mozambique

The IMF uses five different debt burden indicators to

assess the countrys debt repayment capacity

IMF Thresholds

Currently, all thresholds have been breached and

Mozambique is likely to remain in breach of most of

the IMF thresholds in the medium term

293%

232%

250%

150%
67% 40%
PV PPG external debt / GDP
(2016)

PV PPG external debt /

Exports (2016)

PV PPG external debt /

Revenue (2016)

Source: MoF, as of September 2016 ; Lazard calculations

EXTERNAL PPG DEBT SERVICE / GOVERNMENT

REVENUES

EXTERNAL PPG DEBT SERVICE / EXPORTS

Percent of government revenues

Percent of exports (f.o.b.)

50%

25.0%

44.6%

45%

41.0%

40%
35%

35.0%

20%
15%

32.2%

2017F

IMF threshold

20.2%

17.5%

18.0%

15.0%
12.5%

24.4%

24.5%

2020F

2021F

IMF threshold

2016F

16.1%

10.0%

13.1%

13.7%

2020F

2021F

7.5%
5.0%

2018F

Baseline scenario
20% depreciation

31.3%

30.4%

26.5%

22.9%

20.0%

31.0%

30%
25%

22.5%

38.7%

Source: MoF, as of September 2016 ; Lazard calculations

2019F

10% depreciation
30% depreciation

2016F

2017F

2018F

2019F

External PPG debt services / total exports of G&S (f.o.b.)

Source: MoF, as of September 2016 ; Lazard calculations

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

Assessment of the governments residual payment capacity for commercial

debt service
METHODOLOGY

The governments payment capacity to service external

public and publicly guaranteed commercial debt is

derived from the primary balance (incl. grants), net of
new government financings (external and domestic)
and domestic debt service (amortization and interest)
New external financings follow the currently envisaged

DETAIL

Revenues
Expenditures
Grants

Primary Balance (incl. Grants)

multilateral and bilateral disbursement schedule

External Financing
New domestic financings are constrained by the level of

Net Credit to the Government, currently at 12.7

billion meticals but expected to decrease and be negative
over the coming years, following IMFs requirements

Net Domestic Financing

Interests in domestic Financing
Fuel subsidy arrears

From the result of this calculation, we deduct the

multilateral and bilateral debt service (amortization

and interests) included in the budget debt

Payment capacity for external debt services

Multilateral & Bilateral debt service

The residual payment capacity in USD is presented on

the next slide, under our best-case scenario

Residual payment capacity for external PPG commerical

debt servie

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

Assessment of the government residual payment capacity for commercial

debt service (contd)
Assessment of the government payment capacity under our best-case scenario
IN MET BILLION, UNLESS OTHERWISE INDICATED

2017

2018

2019

2020

2021

Total revenue

186.3

213.6

241.8

274.4

312.5

Total expenditure

(222.4)

(254.2)

(282.9)

(311.4)

(345.9)

14.0

25.5

28.8

27.4

26.0

(22.1)
50.8

(15.2)
64.0

(12.2)
72.2

(9.6)
80.6

(7.4)
87.5

Net domestic financing ("Net Credit to Government")

12.7

(5.0)

(10.5)

(15.3)

(16.1)

Interests in domestic financing

(9.0)

(10.4)

(11.8)

(12.5)

(13.0)

Fuel subsidy arrears accruing from 2016

(6.9)

25.5
(26.2)

33.5
(29.0)

37.7
(34.2)

43.1
(38.1)

51.0
(47.9)

(0.8)

4.5

3.5

5.0

3.2

(9.7)

54.3

40.7

57.2

35.8

81.2

83.3

85.0

86.8

88.5

Grants
Primary Balance
External financing

Payment capacity for external debt service

Multilateral/Bilateral debt service
Residual payment capacity, after concessional external debt service
Residual payment capacity, after concessional external debt service
(US$ million)
Exchange rate assumption (MET per USD)
Source: MoF, as of September 2016 ; Lazard calculations

10

Considering
that the fuel
subsidies
reform is
undertaken
in 2017

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

Assessment of the government residual payment capacity for commercial

debt service (contd)
The residual payment capacity assuming the contractual payments due to our external commercial creditors
This assumes MAM and Proindicus generate no revenue to support debt service and that the debt service of these two loans

covered from the governments budget

In addition, risks related to a further depreciation of the Metical, the governments contingent liabilities and the failure to

remove the subsidies, would further negatively affect Mozambiques payment capacity

MOZAMBIQUES EXTERNAL PPG COMMERCIAL DEBT

SERVICE COMPARED TO THE GOVERNMENT RESIDUAL
PAYMENT CAPACITY UNDER THE BASELINE SCENARIO

RESIDUAL PAYMENT CAPACITY IN USD

U.S. $ million

U.S. $ million

700.0
600.0

591.2
arrears
377.3

500.0
400.0

359.8

300.0

208.3

200.0
54.3

100.0

40.7

57.2

202.1
35.8

0.0
(100.0)

( 9.7)
2017

2018

2019

2020

2021

External PPG commercial debt service (incl. clearance of arrears)

Payment capacity under baseline scenario

Source: MoF, as of September 2016 ; Lazard calculations

11

2017

2018

2019

2020

2021 TOTAL

Baseline scenario

(9.7)

54.3

40.7

57.2

35.8

178.3

10% depreciation

(23.8)

33.8

18.0

31.7

5.4

65.1

20% depreciation

(35.5)

16.7

(0.8)

10.4

(20.0)

(29.1)

30% depreciation

(45.4)

2.3

(16.8)

(7.6)

(41.5) (108.9)

Without the fuel

(9.7)
subsidies reform
Potential SOEs
N/A
debt service burden
Potential
recapitalization of N/A
domestic banks

(206.3) (292.3) (334.5) (432.0) (1,274.6)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Source: MoF, as of September 2016 ; Lazard calculations

At this time
those fiscal
risks are
difficult to
assess, but
may
materialize

PRESENTATION TO CREDITORS

II

ASSESSMENT OF THE GOVERNMENTS PAYMENT CAPACITY

Significant streams of revenues will increase the fiscal space after 2021
Government revenues are expected to significantly increase in the early 2020s, when the energy sector
projects start generating export revenues
Significant revenues will be derived in the form of royalties and other taxes from the projects in the

energy sector
Government revenue is expected to increase by an average US$2,000 million per year between 2021 and 2025
Preliminary estimations indicate revenues as high as US$6,211 million starting from 2023
GOVERNMENT REVENUE PROJECTIONS ASSUMING POSITIVE INVESTMENT DECISIONS IN THE ENERGY SECTOR
U.S. $ million
20,000
18,000

14,177

16,000

17,241

18,226

12,291

14,000
12,000

9,016

10,000

Considering that there are no delays

or operational issues with the gas
fields

6,211

8,000
6,000

14,931

16,355

4,151

4,000

2,546

2,294

2,566

2,845

3,163

3,525

2016F

2017F

2018F

2019F

2020F

2021F

4,427

2,000
-

2015

2022F

2023F

2024F

2025F

2026F

2027F

2028F

2029F

2030F

Source: MoF, as of September 2016

The government payment capacity is therefore expected to significantly increase after

2021, subject to a timely implementation of the offshore gas projects

12

PRESENTATION TO CREDITORS

III Next Steps

PRESENTATION TO CREDITORS

III

NEXT STEPS

Principles for interaction with creditors and proposed timeline

A collaborative process is of paramount importance to engage in a constructive dialogue with creditors with

a view to restore Mozambiques debt sustainability in the medium to long term and ensure the resumption
of an IMF financed program
Mozambique is committed to undertake consultations with its creditors in line with the following principles:

Good faith efforts

for a collaborative
approach

Transparency

Inter-creditor
equity

Mozambique would welcome formation of one (or several) representative creditors committee(s) to engage in discussions

with the Ministry of Economy and Finance and its advisors

The Government would like to reach an agreement with the IMF on a new program in early 2017. To this end, we look

forward to reaching agreement with creditors on terms compatible with IMF debt sustainability criteria as soon as possible
Investors meeting in London
Presentation of the government payment
capacity and begin dialogue with creditors

October

IMF Staff mission in

Maputo
13

November

Discussion with investors

Regarding optimal format
for creditors engagement

December

Agreement in
principle with
creditors on a
debt resolution
proposal

January

Implementation of the
agreed debt resolution
strategy

PRESENTATION TO CREDITORS

III

NEXT STEPS

Next steps
Mozambique has appointed Lazard Frres (financial advisor) and White & Case LLP (legal advisor) as its
exclusive advisors to support the debt solution process. Mozambiques authorities, Lazard and White &Case
remain at the disposal of Mozambiques commercial creditors to discuss the content of this presentation
and will be holding consultations regarding the optimal framework for ongoing engagement with
Mozambiques commercial creditors in the coming days

Contact at Lazard:
Michele LAMARCHE, Managing Director - michele.lamarche@lazard.fr; and
Hamouda CHEKIR, Executive Director - hamouda.chekir@lazard.fr
Contact at White & Case:
Ian Clark, Partner iclark@whitecase.com

14