Total’s decision to suspend production will not have an immediate impact, but since the payment of debt securities depends on revenues, postponing production and delayed revenues could be the trigger for a new default, said the Managing Director of Sovereign Risk Group at Moody’s Investor Service, Marie Diron.
In an interview with Lusa news agency, Marie Diron stressed that “there is still time [to avoid default], because as the payment of securities increases from 2024 onwards, the Government has reassessed the sources of financing for several years”, but warned that “having taken into account the previous history of the Government, there is a risk and that is why the ‘rating’ is low”, being currently at Caa2, close to the lower limit of the scale for assessing the quality of sovereign credit.
The restructuring of the debt securities that Mozambique made following the so-called ‘hidden debt scandal’ reduced the interest payable until 2023, but almost doubled the installments, from 5% to 9% per year, from that year onwards, which was when natural gas exports were expected to begin; the expectation was that tax revenues would support these rising costs.
Armed groups have terrorised Cabo Delgado since 2017, with some attacks claimed by the Islamic State ‘jihadist’ group, in a wave of violence that has already caused more than 2,500 deaths according to the ACLED conflict registration project and 714,000 displaced people according to the Mozambican government.
An attack on Palma, along with the gas project under construction by the oil company Total, on March 24, caused dozens of deaths and injuries, with no official balance sheet announced.
Mozambican authorities announced not much later that they had seized control of the village, but the attack has prompted oil company Total to leave the site of the project that was due to start production in 2024 and on which many of Mozambique’s economic growth expectations in the next decade are anchored.
Moody’s analyse 28 countries in Africa, ranging from Botswana’s A3 to Zambia’s Ca, with a summation of opinions on credit quality at the lower end of the scale “reflecting the constraints due to low levels of yield that hinder resilience to shocks, budgetary and debt constraints, which was already rising even before the pandemic”, said Marie Diron, noting, however, that two-thirds of the ratings’ outlook are stable.
“This indicates that our opinion on the quality of sovereign credit is well positioned for a very gradual and uneven recovery period, with governments needing time to recover the revenue base,” concluded the analyst.