US credit rating agency Moody’s has upgraded the sovereign debt rating of Mozambique by one notch, to Caa2, on the basis that the debt restructuring continues, but the country’s credit profile remains “very weak”, it warned.
Moody’s upgraded its rating of Mozambique’s local currency and foreign currency debt, from the previous Caa3 rating, with a ‘stable’ outlook, according to a note released on Friday that explains that this change “reflects the improvement in Mozambique’s credit profile, which is still very weak, following the debt restructuring.”
Moody’s is thus the first international credit rating agency to change its formal view on Mozambique since the government earlier this month announced a deal with creditors for the restructuring of debt securities issued in 2016 in the amount of $726.5 million, on which it has been in default since that year.
The upgrade of the rating, which nevertheless remains a non-investment or ‘junk’ grade, takes account of the “slight financial relief” that the restructuring should offer the government, which will also benefit from a reduction in litigation risks, Moody’s noted.
The agreement also offers better prospects for Mozambique to secure an International Monetary Fund financing programme, which would bring improved liquidity and a better credit profile in general.
The Caa2 rating, nevertheless, still indicates a “high risk” of default towards private creditors, given that Mozambique’s public debt remains very high, and access to finance limited, the Moody’s analysts write.
The ‘stable’ outlook for the rating, meanwhile, reflects Moody’s expectation that the government will work to secure an IMF programme; although that is a lengthy process, it will give the government more of an incentive to pay the coupons on the debt and assumes that access to funding, while still difficult, “will not deteriorate further”.
Source: Lusa via Club of Mozambique