New York, December 17, 2015 — Moody’s Investors Service has today placed Mozambique’s B2 government issuer rating on review for downgrade. The review for downgrade is driven by increased external pressures on the country’s external position, its currency and its foreign exchange reserves. The review will focus on the risk that these pressures intensify and cause further deterioration in the government’s and country’s external debt metrics.
Moody’s has also placed under review the B2 backed senior unsecured foreign-currency rating of Mozambique EMATUM Finance 2020 B.V. (‘the EMATUM bond’ which takes the form of a $850 million loan participation note of which $774 million is outstanding, issued in September 2013 by a special purpose vehicle of the Mozambican fishing company EMATUM). This change mirrors the review of the government of Mozambique’s rating.
RATIONALE FOR THE REVIEW FOR DOWNGRADE
The Moody’s review of Mozambique’s B2 government rating was prompted by greater than previously anticipated external pressures, which result in diminished foreign exchange reserves and a weakening local currency, the Mozambican Metical. The latter has depreciated by 35% against the US dollar since the beginning of 2015. The foreign exchange reserves of the Bank of Mozambique, the Central Bank, were estimated at $2.5 billion in August 2015, a similar level to the one posted earlier in the year, but sharply lower than the levels recorded a year ago ($3.2 bn in August 2014). Meanwhile, the deterioration in the external debt of both the government and the whole economy has continued, reaching respectively an estimated 60% and 99% of GDP in 2015. All government external debt is foreign (mostly US dollar) denominated. As a result of the depreciation of the currency against the US dollar, the burden of government’s future external debt payments is increasing. The rating agency also assumes that the whole servicing of the EMATUM notes (denominated in US dollar) will fall on the government.
The capacity of the authorities to respond to these challenges is uncertain because the pressures are strong and the room for maneuver limited. Moody’s notes that any external financing or additional foreign direct investment could help alleviate the pressures. In the current global environment however the authorities’ capacity to attract further FDI or secured long-term external financing is uncertain.
ELEMENTS OF THE REVIEW
During the review period, Moody’s will evaluate the extent to which external risks can build up further. In particular, the rating agency will assess the strength of the external pressures affecting the very large current account balance, its sources of funding and the overall balance of payments as well as the authorities’ ability to manage the ongoing macroeconomic shock. The government strategy for dealing with its own external debt service, which includes the EMATUM notes, will also be part of the review process.
WHAT COULD MAKE THE RATING GO UP
An upgrade is very unlikely given the review for downgrade. However, Moody’s would conclude the review with a confirmation of the rating if it expects external pressures to gradually ease in the coming years, allowing foreign exchange reserves to be preserved. As such, government access to external financing or increased foreign direct investment would be supportive to the rating.
WHAT COULD MOVE THE RATING DOWN
The rating could come under additional pressure if Moody’s were to conclude that the deterioration in Mozambique’s balance of payments will continue, affecting the level of foreign exchange reserves. In particular, should medium-term external pressures heighten in Moody’s view, the authorities’ response will be key to the assessment.
Country ceilings remain unchanged. The long-term foreign currency bond ceiling remains unchanged at B1, and the short-term foreign currency bond ceiling is unchanged at NP. The long-term foreign currency deposit ceiling is unchanged at B3, and the short-term foreign currency deposit ceiling remains at NP. The long-term local currency bond and deposit ceilings remain unchanged at Ba3.
GDP per capita (PPP basis, US$): 1,178 (2014 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 7.4% (2014 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.9% (2014 Actual)
Gen. Gov. Financial Balance/GDP: -7.9% (2014 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -34.6% (2014 Actual) (also known as External Balance)
External debt/GDP: 68% (2014)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been recorded since 1983.
On 14 December 2015, a rating committee was called to discuss the rating of the Government of Mozambique. Other views raised included: The issuer has become increasingly susceptible to external event risks.
The principal methodology used in this rating was Sovereign Bond Ratings published in September 2013. Please see the Credit Policy page on http://www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
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