Overview
- Mozambique exchanged Mozambican metical (MZN) 3.7 billion ($54 million) in local currency bonds maturing in March 2025 in return for longer-dated, lower-yielding bonds maturing in March 2030.
- Ongoing recourse to such liability management operations, coupled with a history of delayed payments on domestic debt, reflects the sovereign’s constrained fiscal and liquidity positions. We therefore consider this transaction distressed and tantamount to default.
- Consequently, we lowered our local currency rating on Mozambique to ‘SD’ (selective default) from ‘CCC-‘. We affirmed our ‘CCC+’ foreign currency ratings.
Foreign currency debt repayments on commercial debt obligations remain modest, but potential delays to gas projects and foreign aid flows, alongside an uncertain external financing outlook, add to the pressures on Mozambique’s finances.
Rating Action
On March 21, 2025, S&P Global Ratings lowered its long-term local currency sovereign credit rating on Mozambique to ‘SD’ from ‘CCC-‘. At the same time, we affirmed our long-term foreign currency rating on Mozambique at ‘CCC+’. The outlook on the foreign currency rating remains negative. Our ‘CCC+’ transfer and convertibility assessment remains unchanged.
As a “sovereign rating” (as defined in EU CRA Regulation 1060/2009 “EU CRA Regulation”), the ratings on Mozambique are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see “Calendar Of 2025 EMEA Sovereign, Regional, And Local Government Rating Publication Dates,” published Dec. 19, 2024, on RatingsDirect).
Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the completion of a domestic debt swap operation. The next scheduled rating publication on the sovereign rating on Mozambique will be on April 11, 2025.
Outlook
Foreign currency rating. The negative outlook reflects ongoing financing pressures and potential delays to gas projects and foreign aid, alongside broader macroeconomic uncertainties tied to the fragile political environment.
Local currency rating. We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability.
Downside scenario
Foreign currency rating. We could lower the foreign currency ratings on Mozambique if the government’s liquidity position weakened further–for example, if we observed a continued drawdown of liquid assets or further accumulation of arrears to creditors and suppliers–or if additional economic or external shocks or delays to the large gas projects rendered the government less willing or able to service its commercial debt obligations on time.
Upside scenario
Foreign currency rating. We could revise the outlook on the foreign currency rating to stable if government revenue strengthened materially, for example due to a rise in gas production over the medium term, ultimately allowing Mozambique to stabilize its fiscal position.
Local currency rating. We would consider the local currency default to be cured–and would therefore raise our long-term local currency rating likely to the ‘CCC’ category–if progress on fiscal consolidation, a reduction in external vulnerabilities, and better access to liquidity were to reduce the likelihood of the sovereign undertaking future debt exchanges to manage its upcoming redemptions.
Rationale
Mozambique undertook its second local currency debt exchange in March 2025, with investors tendering bonds worth around MZN3.7 billion ($54 million). The government switched the original four-year bonds maturing in March 2025, paying an annual coupon of 16.43%, for new five-year bonds with an interest rate of 14.25%. This marks its second liability-management exercise in the local markets, having previously exchanged MZN5.7 billion ($89 million) four-year bonds maturing in October 2024 for five-year bonds due in October 2029. Participation in the first exchange was 90% versus 71% in the second. We understand the government is planning additional debt switches in May and September this year, alongside some in 2026.
We considered the debt exchange to be distressed and tantamount to a default. In our view, the government’s ongoing and planned recourse to debt switches at such low rating levels signals its constrained capacity to manage sizeable upcoming debt maturities amid tight liquidity. We estimate local currency debt redemptions will rise to MZN38.4 billion (2.4% of GDP) in 2025 and MZN37.1 billion (2.1% of GDP) in 2026, from 1.2% of GDP in 2024. Absent fiscal adjustments, these higher local currency debt payments could increase risks of delayed payments or prompt a broader restructuring of domestic debt. The local financial sector is already highly exposed to the sovereign, with over 20% of total banking system assets in government securities.
Mozambique’s fiscal position remains weak as spending pressures continue to mount. Ongoing revenue shortfalls, higher security spending, and weaker growth tied to the post-election protests are adding to fiscal pressures. In addition, multi-year overruns on the public sector wage bill, which consumes around 70% of tax revenue, reduces expenditure flexibility. In our view, a contentious socioeconomic backdrop will weigh on the government’s efforts to consolidate its fiscal position. This could result in the IMF postponing or halting disbursements under Mozambique’s ongoing program expiring in March 2025, with about $126 million remaining under the final two reviews.
We would consider the local currency default cured once the government is able to structurally strengthen its liquidity position. Any positive action on Mozambique’s local currency rating will hinge on the sovereign consolidating its fiscal position, building its cash buffers, and demonstrating access to alternative funding options. Under this scenario, the government would reduce its reliance on local currency debt liability management exercises to manage its upcoming domestic redemptions.
Foreign currency debt repayments will remain reasonably modest until Mozambique’s sole Eurobond starts amortizing from 2028. Despite tight liquidity conditions, the government continues to service the coupon on its 2031 Eurobond; this stands at 9% ($81 million per year) until 2028 and will decrease thereafter as the outstanding amount of the bond reduces through principal amortization. Amortization will be $225 million annually for 2028-2031 before production at the mega gas projects starts, anticipated in 2030. Positively, US Exim Bank re-approved a $4.7 billion loan to TotalEnergies SE in March 2025 that had been a key impediment to lifting force majeure on the project.
