Financial rating agency Standard & Poor’s (S&P) downgraded Mozambique’s domestic currency debt issues by one level, to CCC, fearing that it would miss payments, and maintained the rating for external issues at CCC+.
‘We believe that there is a high probability that Mozambique will miss payments on domestic debt in local currency, including for administrative reasons, or implement a ‘problematic’ debt swap concerning domestic sovereign debt, and we have therefore lowered the rating on local currency issues from CCC+ to CCC,’ reads the note released by the analysts.
In explaining why the external sovereign debt rating remains at CCC+, S&P writes that there have been no delays and that ‘debt payments in foreign currency remain comparatively modest until the Eurobonds mature in 2028’.
For S&P, ‘liquidity management challenges remain considerable, with some apparent delays in payment to domestic creditors, accumulation of debts to suppliers and contractors, in addition to a fiscal slippage,’ in a macroeconomic context in which adjustments to civil servants’ salaries, weather-related shocks, interest payments and the pre-election season have caused ’pressures on public spending.’
Keeping the outlook for the rating at Stable, S&P notes that although the 4.3% growth forecast for this year is ‘relatively robust’, this expansion is based on the construction work needed for the exploitation of natural gas in the north of the country, not on population enrichment.
He, therefore, estimates that real growth in the Gross Domestic Product (GDP) will be only 2%.
‘Manufacturing, construction and activity in the import sector are also limited by difficulties in accessing foreign currency through banks,’ reads the note released by S&P, which recalls that ’last year the government cut the distribution of foreign currency for importing oil products, leaving the local market with less access to foreign currency.’
Mozambique, concludes S&P in the note released on Friday evening, ‘will continue to face persistent policy challenges in the medium term’, including ‘high levels of poverty and underdevelopment in the territory outside Maputo, which has led to poor socio-economic conditions and increased pressure on public finances’.
