Non-payment of Debt may Result in China Seizing Mozambican Assets: CIP Warns

Non-payment of Debt may Result in China Seizing Mozambican Assets: CIP Warns

A recent study by the Centre for Public Integrity (CIP) has revealed that Mozambique’s debt to China has grown from about US$45 million in 2010 to US$2.1 billion by 2018. The study also warns that Beijing may seize Mozambican assets if the country fails to pay back the debt. 

China has become the go-to lender due to its policy of not impose political or economic conditions in its cooperation with developing countries.

CIP researcher Leila Constantino maintains that reports on Mozambique’s debt show that, in 2010, its obligation to China was US$45 million, but in 2018 this had risen to US$2.1 billion.

“This debt represents about 20.2 per cent of Mozambique’s total external debt, and about 13.2 per cent of the country’s Gross Domestic Product (GDP),” confirmed Leila. This makes the Southern African country’s debt to China the largest it has with a single country.

Leila also noted that this debt signifies substantial financial risks, the first of which is the exchange rate, because the debt is denominated in US dollars and, given the depreciation of the metical against the US dollar, “the debt increases with time”.

Also, debts with China carry a 1.5 per cent interest rate, straining the budget in certain areas on the economy because the country has to pay its debts.

Constantino cautioned that “in the event of default, Mozambique may find itself in a situation of having to pledge assets, as in the case of Kenya, where China confiscated the port of Mombasa for failure to repay debt”.