Credit rating agency Fitch has just announced its decision to keep Mozambique’s “rating” in CCC due to concerns about debt, external financing and the lack of court resolution of so-called “hidden debts”.
“Mozambique’s ‘rating’ reflects the risks of high debt levels to debt sustainability, limited sources of financing, coupled with high budget deficits and need for external financing, and lack of public sector debt resolution ,” write the analysts at Fitch Ratings.
In the note accompanying the decision to keep the country’s ‘rating’ at CCC, well below the non-investment recommendation scale, or ‘junk’ as it is more commonly known, Fitch writes that “the impact of the pandemic and the risks of security increases the pressure on public spending in the short term” and adds that “in a context of limited sources of financing, this could have a negative impact on medium-term growth prospects and increase the challenges on debt sustainability”.
Mozambique’s public debt-to-GDP ratio, one of the highest in sub-Saharan Africa, “increased to 121% of GDP, largely reflecting the impact of the 18% metical depreciation”, reads the note, which also recalls that 83% of the public debt is held in foreign currency, mainly in US dollars, therefore significantly affecting the evolution of the exchange rate of the Mozambique’s currency.
Analysts estimate that the public debt ratio will decline to around 120% by 2023 due to fiscal consolidation, economic recovery, moderate exchange rate depreciation and the indebtedness of Empresa Nacional de Hidrocarbonetos to finance its participation in natural gas exploration megaprojects , in the north of the country.
Mozambique’s GDP, after having registered a 1.2% contraction in 2020, is expected to grow 1.8% this year, accelerating to 3.4% and 4% in the next two years, approaching the registered growth trend. before the pandemic.
However, they warn, “the prospects for economic growth are sensitive to adverse weather events, the evolution of the pandemic and the situation in the main export markets”.
In explaining the maintenance of Mozambique’s sovereign credit in CCC, the second-worst before ‘Financial Default’ and which may indicate a “real possibility of default” on financial obligations, Fitch also suggests that a financial support programme from the International Monetary Fund could act as “an anchor for policies” and could also “improve financing conditions”.