Fitch affirmed Mozambique’s long-term foreign currency Issuer Default Rating at CCC+. The outlook is stable, reflecting anticipated continued progress on debt reduction efforts as well as expected economic growth driven by nascent liquefied natural gas (LNG) production.
However, governance and institutional weaknesses continue posing risks according to Fitch’s analysis. The ‘CCC+’ rating indicates substantial credit risk for Mozambique, weighed down by high government debt burdens, public finance management deficiencies, low income levels, challenging external finances and subpar control of corruption measures. Offsetting these constraints are robust GDP growth forecasts averaging 4.5% over 2024-2025 on the back of the country’s emerging LNG sector. Mozambique also benefits from the recent agreement of a USD456 million three-year Extended Credit Facility program with the International Monetary Fund providing additional external financial support.
Debt Reduction Efforts Bearing Fruit
General government debt, incorporating state-owned enterprise liabilities from the “hidden debt” scandal, is seen declining to 90.2% of GDP by 2025, down from 96.4% in 2023. This partly reflects the Proindicus loan creditor settlement, slashing outstanding liabilities by over 80% or USD987 million. While pockets of domestic and external debt servicing delays persist amidst capacity shortfalls, thus far instances have subsequently been resolved preventing major arrears accumulation.
Strong Growth Fundamentals Emerging
LNG production coming onstream has been the primary growth catalyst, with ENI’s Coral South floating liquefaction facility already operating at 90% capacity. The greenlighting of TotalEnergies’ onshore Golfinho Atum project in 2024 promises further real economy spillovers tapping local content during construction. These mega-projects drive Imports in the near term however, widening the current account deficit to 38.5% of GDP by 2025 per Fitch. Yet full external financing mitigates risks of balance of payments strains.
Policy Efforts Showing Dividends
Fitch sees Mozambique’s IMF program implementation supporting external concessional financing access from multilateral partners, meeting the state’s external obligations. Moreover prudent fiscal policy is bearing fruit, with the fiscal deficit narrowing to 2.0% of GDP by 2025 on public wage rationalization efforts. However interest costs are projected to consume 4.2% of GDP given expensive domestic debt financing.
Legacy Governance Concerns Persist
ESG considerations remain a major rating constraint for Fitch, with Mozambique scoring poorly on political stability, institutional capacity, rule of law and corruption measures. And while security is improving in the northern Cabo Delgado region, the insurgency still simmers. But current reforms momentum is expected to continue following 2024 general elections.
In summary, while risks abound from debt vulnerabilities to security challenges, the emergence of Mozambique’s LNG sector looks set to be an economic boon. This alongside ongoing policy reforms has prompted Fitch to affirm the country’s highly speculative grade credit rating and stable outlook.