With over-subscribed new issuance the new normal in this ‘reach for any yield’ world, perhaps the rapid demise of Mozambique will remind some greater fools that ‘high’ yields are high for a reason.

As we warned 4 months ago, Mozambique has a broad swath of problems within its governing councils.Back in December of 2005, Management Systems International based out of Washington issued a report titled CORRUPTION ASSESSMENT: MOZAMBIQUE which said point blank: “The scale and scope of corruption in Mozambique are cause for alarm”.

Mozambique’s head of state Joaquim Chissano left office in February 2005 after 15 years.His replacement, Armando Guebza, that same year opened Mozambique’s coastline to international companies seeking to search for resources.Between 2005 and 2006 three firms were able to capture rights to explore the coast, Anadarko, Italy’s Eni, and Petronas.Some 75 trillion cubic feet of natural gas was discovered and this set of a a blitz into Mozambique as international banks, corporations, and organizations flooded the area.This opened a breeding ground for corruption and unregulated financing, specifically the controversial Tuna Bond that was supposed to be used to support regional fishing and was instead used for military expenditures and to purchase some 40 boats that remain anchored to this day.

Since then, the New Metical has crashed hyperinflation-like to record lows against the dollar…

In June, The IMF blamed “undisclosed loans” for Mozambique’s sudden surge to 86% Debt/GDP ratio. 

“Mozambique’s economic growth will likely slow to 4.5 percent in 2016 from 6.6 percent the previous year due to rapidly rising inflation and growing government debt, the International Monetary Fund said on Friday. The leader of a Fund team that visited the southern African country, Michel Lazare, said the discovery of more than $1 billion of previously undisclosed government debt would increase pressure on the economy.”

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