(Bloomberg) -- Carla Louveira, Mozambique’s new finance minister, takes over a treasury sapped by months of unrest and is already having to contend with a potential debt restructuring and a wage strike by government employees.
Even before months of post-election turmoil left at least 314 people dead and slammed the brakes on the southeast African nation’s economy, the government was struggling to meet its obligations. Now, a new administration that was sworn in last week has to pick up the pieces and steady the state’s finances.
Louveira, who holds an economics degree from Eduardo Mondlane University in Maputo, the capital, served as a deputy minister in the previous administration and prior to that as a director at the central bank. Her new role will be her toughest yet.
“At the end of the day, the revenue will not be there, which means that you increase the deficit,” Tomaz Salomão, a former finance minister and a member of the ruling party’s central committee, said by phone last week before Louveira’s appointment. “2025 will be a challenging year in terms of the deficit, in terms of managing the fiscals in this country.”
Louveira has already flagged that the government is considering restructuring public debt, which was projected to grow to about 96% of gross domestic product last year. She declined to say whether this would encompass both domestic and foreign liabilities, saying by phone on Sunday that “this is work that is ongoing.”
The minister also revealed that the government lost about $664 million in revenue because of the demonstrations against the outcome of October elections that extended the governing party’s 49-year rule and ended with its candidate, Daniel Chapo, securing the presidency.
Chapo has signaled that public servants will bear the initial brunt of cost cutting by his administration: the state will save about $266 million by reducing the size of government, including the number of ministries and state secretariats, he said.
The government will also continue with public-wage bill reforms it began under an International Monetary Fund program that was scheduled to end in March 2025, but which is already months behind schedule.
Mozambique this year faces debt-servicing costs of more than $1.7 billion, about half of which is owed to external creditors, IMF data shows. The biggest external portion — $395 million — is bilateral debt, with China the largest holder.
The gas-rich southeast African nation must make coupon payments totaling $81 million this year on its $900 million eurobond due in 2031. Those notes fell as much as 3.7% on Monday to 81.9 cents on the dollar.
Debt Default
Mozambique previously restructured its eurobond in 2019, after defaulting in early 2017.
The current situation in Mozambique is the latest example of what the IMF flagged in an October report as a resurgence of unrest in sub-Saharan Africa that’s been fueled by perceptions of economic exclusion. Wasteful spending and corruption also contribute to structural fragility.
The new administration also faces persisting pressures from opposition leader Venâncio Mondlane, who’s directed months of anti-government protests. While he’s called off those demonstrations for three months, Mondlane continues to make costly demands, including that road users refuse to pay tolls.
The government will have to undertake painful spending cuts and will have to make them more palatable to the population, Salomão said.
“If you say you need to take austerity measures, people have to see that you lead the process by example,” he said. The new finance minister “has to center her attention on how you manage scarce resources when you have a lot to be attended to,” he said.
--With assistance from Tavares Cebola.
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