The financial rating agency has downgraded its forecast for the economy from positive to stable.
Financial rating agency Moody’s expects Mozambique’s public debt to fall to 93.3 per cent in 2023, the year in which the economy is expected to grow by 6.7 per cent, before slowing to 5 per cent in 2024.
“Moody’s projects that real GDP [Gross Domestic Product] will grow by 6.7% in 2023 and 5% in 2024, after having grown by 4.4% in 2022, fuelled by continued growth in the primary sector, and in particular liquefied natural gas production on the ENI Coral Sul platform, the smallest and most advanced project, which began production last year,” says the rating agency.
In the note in which it downgrades the forecast for the economy’s evolution from positive to stable, released on Friday night, Moody’s also predicts that Mozambique’s public debt will improve to 93.3 per cent, but still “well above the average of 66.1 per cent recorded by other countries with a Caa2 level, below the investment recommendation level.
“The debt trajectory is also vulnerable to the depreciation of the currency and is exposed to the risk of materialisation of the losses related to the legal dispute over the debt,” a process related to the case of hidden debts that is taking place in the courts.
The International Monetary Fund (IMF) programme, they add, “should guarantee an anchor for fiscal policy, but fiscal consolidation could be difficult due to Mozambique’s vulnerability to domestic and external shocks”.
These forecasts, the analysts conclude, are dependent on the return of the French oil company TotalEnergies to Cabo Delgado, after the suspension of work in 2021 due to the terrorist attacks in the region.
“There are indications that the security situation has improved in the region, and the authorities expect work to restart this year, with production likely to begin in 2027,” Moody’s concludes.
The forecasts for debt and GDP were released in the context of the revision of the outlook for Mozambique’s economy from positive to stable, in a note in which Moody’s foresees further delays in domestic debt payments and an unforeseen delay in the implementation of reforms.
“The change in outlook reflects Moody’s expectation that Mozambique will continue to face fiscal pressures and liquidity challenges in the context of institutional capacity constraints in the short and medium term, potentially leading to additional delays in debt repayments, as it will take time for ongoing reform efforts to strengthen the country’s debt and treasury management capacity,” the analysts write.
In the note that maintains the rating at Caa2, below the investment recommendation level, and downgrades the country’s outlook, Moody’s points out that “budgetary pressures will persist in the context of the reform of civil servants’ salaries, security challenges in the north of the country and the upcoming elections, while the state’s liquidity risk will remain high, given the difficult maturity profile of domestic debt”.