Fitch Ratings has affirmed Mozambique’s sovereign credit rating at CC — the second-worst level on its rating scale — deeming a public debt restructuring probable and warning of heightened default risk should the country fail to secure a new programme with the International Monetary Fund (IMF).
“Mozambique’s CC rating reflects Fitch’s view that some form of default appears probable within the rating horizon,” the agency said in an analysis published on Friday (24). Fitch had downgraded Mozambique from CCC to CC in April of this year.
The affirmation of the rating is underpinned by the likelihood of a restructuring of Mozambique’s sole sovereign bond — its Eurobond — in light of the IMF’s assessment that public debt remains unsustainable under the current policy trajectory.
“Given the IMF’s assessment that Mozambique’s public debt is unsustainable on the current policy path and the authorities’ demonstrated commitment to securing a new IMF programme, we consider it likely that a restructuring of the single Eurobond will form part of any debt sustainability restoration process,” Fitch said.
The agency’s analysts added that any material alteration to the terms of commercial debt — including the extension of maturities — would be classified as a distressed debt exchange.
On the state of negotiations between the Mozambican government and the IMF, Fitch acknowledged the possibility of a deal being reached in early 2027, but cautioned against underestimating the associated implementation risks. “Fitch expects an IMF deal in early 2027 but views implementation risks as significant, given the likely scale of fiscal adjustment required and the social and political sensitivity of wage bill reforms and exchange rate flexibility measures,” the analysis states.
The agency further warned that default risk could intensify if Mozambique fails to reach a new agreement with the Fund. “Should Mozambique fail to secure a new IMF programme or fail to meet its conditions, we see increased risk of a default event,” Fitch cautioned.
Fitch also assessed that the country remains subject to severe financing constraints. The agency noted that the government is expected to rely this year on domestic debt swap operations and borrowing from the central bank, underlining that “domestic commercial banks show no appetite for new net credit to the sovereign.” Among the pressure factors identified, Fitch highlighted the early repayment of US$701.4 million to the IMF in March via the central bank — a transaction it characterised as quasi-monetary financing of the state.
The agency also projects that the fiscal deficit will widen to 2.9% of gross domestic product (GDP) in 2026, against a backdrop of mounting domestic and external payment arrears.
Fitch added that the wage bill and interest payments absorb approximately two-thirds of public expenditure, leaving limited room for investment, which is expected to fall to 4.1% of GDP this year from a previous 4.7%. Notwithstanding these constraints, the agency acknowledged that the economy could benefit from progress on major natural gas projects in the Rovuma Basin, while maintaining reservations about the country’s capacity to overcome its current financial constraints in the near term.
Source: Diário Económico
