Fitch Ratings has given a ‘CCC+’ rating to Mozambique’s long term foreign currency issue (Issuer Default Rating, IDR). In a statement released last Friday, February 17, the rating company noted that the rating given to Mozambique corresponds to the seventh level of “junk”, i.e. investment considered speculative.
Among the factors that can, individually or collectively, lead to a negative rating action/grade, Fitch highlights, in the context of public finances, the “increased probability of a default event or a restructuring of the sovereign market instrument.
“A sustained deterioration in financing options, for example due to saturation of the domestic government bond market, or reduced ability to access external sources of financing and/or a substantial increase in the public debt to GDP (Gross Domestic Product) ratio as a result of rising fiscal deficits” is another factor in the area of public finances that could lead to a downgrade, Fitch adds.
With regard to external finances, Fitch points to “a significant decline in international reserves” as a factor for a downgrade.
Among the positive factors that can, individually or collectively, lead to a positive rating action/assignment, in the area of public finances, Fitch mentions “a substantial decline in the public debt-to-GDP ratio, for example as a result of a sustained reduction in the budget deficit or favorable court decisions on the debt obligations of Mozambican public companies.”
Fitch also mentions as a positive factor that can improve Mozambique’s rating in macroeconomic terms a “greater confidence in medium-term growth prospects through the timely commissioning of the LNG (Liquefied Natural Gas) megaprojects and, in structural terms, “a strong improvement in the management of public finances.”
