The Mozambique bond market finally bounced back after the tuna debt scandal. Indeed, the yield on Mozambique’s 2031 debt fell 19 basis points to 13.34%. The recently announced settlement brought closure to a decade-long dispute between the Swiss bank and Mozambique, one of the poorest nations on the planet. This suggests that investors are more confident in Mozambique's ability to repay its debt in the wake of the settlement.
The Tuna debt scandal is a corruption scandal that involves $2 billion in loans that Credit Suisse arranged for Mozambique in 2013. The loans were used to finance a new coastal patrol force and tuna fishing fleet. However, it was later revealed that some of the money had been siphoned off by corrupt Mozambique government officials and bankers.
The scandal had a devastating impact on Mozambique's economy. The country was forced to default on its debt in 2016 and has been struggling to recover ever since.
In October 2021, Credit Suisse reached a settlement with the US, UK, and Swiss authorities over its role in the scandal. The bank agreed to pay $475 million in penalties and to disgorge $200 million in profits.
In October 2023, Mozambique reached an out-of-court settlement with Credit Suisse over the scandal. The terms of the settlement were not disclosed, but it is reported to include a debt forgiveness component and provisions to improve transparency and accountability in the country's debt management process.
The settlement of this scandal improved Mozambique’s bond market in a number of ways. First, it reduces the debt burden. The settlement reportedly includes a debt forgiveness component, which will help to reduce Mozambique's debt burden. This will make the country's finances more sustainable and make it more attractive to investors.
Second, it improves investor’s confidence. The settlement is a sign that Mozambique is committed to addressing its debt problems and to improving transparency and accountability in its government. This is likely to lead to increased investor confidence in the country and its bonds.
Third, it also lowers interest rates. As a result of increased investor confidence, Mozambique is likely to be able to borrow money at lower interest rates. This will make it less expensive for the government to finance its debt and will free up more money for other important priorities, such as education and healthcare.
In the weeks since the settlement, Mozambique has been able to raise money from investors at lower interest rates than it had been able to do before the settlement. There has been an increase in demand for Mozambique's bonds from both domestic and foreign investors.
The Tuna debt scandal is a reminder of the dangers of corruption and the importance of transparency and accountability in government debt management. It is also a reminder of the high cost that corruption can have on developing countries.
The settlement of the scandal is a positive development for Mozambique, but it is important to note that the country still faces significant challenges. The economy is still struggling to recover from the debt default and the COVID-19 pandemic. The country is also facing a number of other challenges, such as climate change and terrorism.