The financial rating agency Fitch Ratings decided today to keep Mozambique’s rating at CCC, anticipating a negative economy growth of 1% and public debt to rise to 120% this year.
“The CCC rating reflects the limited financing options in conjunction with high external and budgetary financing needs, which were exacerbated by the shock of the pandemic, the high public debt and the unresolved issues regarding public sector vulnerabilities”, reads in the note accompanying the decision.
Fitch Ratings, owned by the same owners of the consultancy Fitch Solutions, thus decides to keep Mozambique in the third worst level of credit quality assessment before the default, which it left following the agreement reached with the creditors of the sovereign debt securities for restructuring this debt.
“Fitch expects real GDP to contract 1% in 2020, after a limited growth of 2.2% in 2019 due to the damage caused by the two cyclones”, explaining that the forecast “reflects the expectation that moderate growth in the The agricultural sector only partially offset the poor performance of the extractive industries, affected by low prices and the limited demand for Mozambican mining exports. “
For 2021 and 2022, Fitch Ratings foresees an acceleration of growth to 2.8% and 3.3%, respectively, based on the resumption of the infrastructure projects that were postponed this year, but emphasizes that “the uncertainty about the project schedule remains “and adds that” the persistent financing constraints affecting the public and private sector, as well as security tensions in the country, will influence economic activity “.
With regard to the evolution of the public debt to GDP ratio, Fitch Ratings estimates that the value will increase from 94% in 2019 to 120% this year “due to the high financing needs and the depreciation of the metical”, which influences the value since 86% of the public debt is in foreign currency.
“The Government is discussing possible debt restructuring in addition to the Debt Service Suspension Initiative (DSSI) with some official bilateral creditors, and Fitch considers that the authorities do not intend to include commercial debt in the restructuring and debt relief “, conclude the analysts.
