The world’s leading credit rating agencies have cut Mozambique’s already low sovereign debt ratings further, reflecting mounting risks associated with the country’s deteriorating financial position. After Fitch downgraded Mozambique to CC in April, Moody’s followed in September by lowering the country’s long-term foreign currency debt rating from Caa2 to Caa3. Then, on 25 September, S&P cut its rating from CCC+ to CCC, maintaining a negative outlook.
In its most recent report, S&P attributed the decision to the growing likelihood that Mozambique will restructure its only eurobond — a foreign debt instrument that traces its origins to the ‘hidden debts’ scandal — which matures in 2031. The agency stated that severe fiscal pressures and a shortage of foreign currency are compounding risks at a time when Mozambique is seeking to negotiate a new financing programme with the International Monetary Fund (IMF).
The assessment reinforces warnings issued days earlier by Moody’s, which also flagged an increased risk of foreign currency debt restructuring. According to the agency, financing and payment pressures that had previously been concentrated in the domestic debt market have now extended to external debt.
Metical Depreciation: Between Pessimism and Moderation
The situation has prompted Oxford Economics to adopt a strongly pessimistic view of the country’s macroeconomic outlook. The British consultancy considers the rating downgrades to reflect a ‘worrying situation’ in public finances, and projects a depreciation of approximately 30% in the metical during the first quarter of 2027.
Moody’s and S&P have both worsened their assessments of Mozambique’s sovereign debt, anticipating a growing restructuring risk against a backdrop of severe pressure on public finances.
Oxford Economics links the exchange rate pressure to foreign currency scarcity and the state’s financial difficulties, noting that the adjustment programme currently under discussion with the IMF could require greater exchange rate flexibility. A depreciation of that magnitude would raise the cost of imports in local currency terms, reduce purchasing power, and add further pressure to prices paid by households.
S&P also expects a new IMF programme to demand greater exchange rate flexibility. The agency is, however, less pessimistic about the scale of adjustment, anticipating a moderate depreciation of the metical through to 2029.
Gas Revenue Benefits Not Expected Until After 2030
The immediate difficulties stand in contrast to the longer-term prospects associated with large-scale liquefied natural gas projects. S&P acknowledges that a resumption of the TotalEnergies project could improve Mozambique’s long-term economic outlook, but argues that material effects on public finances and the external accounts are unlikely to materialise before 2030. Until then, pressure is set to persist. The IMF classified Mozambique’s public debt as unsustainable in February, and its external debt as being at high risk of debt distress — an assessment that could make restructuring a condition for securing new financing.
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=553092
