The financial rating agency Standard & Poor’s (S&P) decided on Friday to maintain Mozambique’s rating at CCC+, below investment recommendation, with a Stable Evolution Outlook.
“The CCC+ rating for foreign currency debt issuance reflects our view that Mozambique depends on favourable business, financial and economic conditions to meet its financial obligations,” analysts write in the note accompanying the rating released on Friday.
The CCC+ level is the third-lowest on the scale of sovereign credit quality, and considered ‘junk’ because it is several levels below the level of the investment recommendation (investment grade).
“Although credit ratios are weak, we expect Mozambique to be able to meet its obligations in the next 12 months,” the analysts say, noting that “the rating is hampered by the country’s low GDP per capita, fragile governance and institutions, large external and budget deficits and a high debt burden”, which will remain above 100% of GDP until at least 2023.
The Stable Evolution Outlook, that is, the assumption that the rating will not be changed in the next 12 to 18 months, “balances the risks associated with high external and budget deficits in view of the expectation of an economic recovery next year, sustained by large investments in the extractive industry”.
The measures that Mozambique has taken to contain and combat the Covid-19 pandemic have weakened economic activity this year, with the economy contracting 1% in the first half, “because the movement of goods and people has been limited, particularly in the second quarter, but most restrictions have been lifted since then and activity has resumed in most sectors”, S&P writes.
The economic recovery, moreover, allows analysts to predict that Mozambique will escape recession this year, with the country expected to grow 1% in 2020 and 5.5% in 2021, sustained by the large investments in the extraction of natural gas in the north of the country.
The S&P forecast is significantly better than that of the International Monetary Fund (IMF), which in the Economic Outlook for Sub-Saharan Africa, released on Wednesday, predicts a -0.5% GDP growth this year and a growth of only 2.1% in 2021.
Source: Lusa via Club of Mozambique