- S&P Global Ratings downgrades Local Currency LT credit rating of Mozambique to “CCC”
- S&P Global Ratings affirms Mozambique at “CCC+” (Foreign Currency LT credit rating); outlook stable
The financial rating agency Standard & Poor’s (S&P) has downgraded Mozambique’s local currency credit rating by one notch, to CCC, indicating a fear of default on payments, while maintaining the rating of external debt at CCC+.
“We believe that there is a high probability that Mozambique will default on its domestic local currency debt, including for administrative reasons, or implement a ‘problematic’ debt swap with respect to its domestic sovereign debt, and we have therefore downgraded the local currency debt rating from CCC+ to CCC,” reads the note released by the analysts.
In explaining why the foreign currency LT credit rating has been affirmed at CCC+, S&P writes that there have been no delays and that “external currency debt payments remain comparatively modest until the Eurobonds reach maturity in 2028”.
For S&P, “liquidity management challenges remain considerable, with some apparent delays in payments to domestic creditors, accumulation of debts to suppliers and contractors, in addition to a budgetary slippage”, in a macroeconomic context in which adjustments in public sector salaries, climate-related shocks, interest payments and the pre-election period have caused “pressures on public spending”.
Maintaining the outlook stable for the rating, S&P notes that, although the 4.3% growth forecast for this year is “relatively robust”, this expansion is based on the construction works required for the exploration of natural gas in the north of the country, and not on the enrichment of the population.
It therefore estimates that real growth in Gross Domestic Product (GDP) will be only 2%.
“Manufacturing, construction and import sector activity 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 imports of petroleum products, leaving the local market with less access to foreign currency.”
Mozambique, concludes S&P in the note released on Friday night, “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 weak socioeconomic conditions and increased pressure on public finances”.
Source: Lusa
