The Oxford Economics consultancy said that Mozambique’s rating will remain at speculative grade in the coming quarters, arguing that the financial rating agencies still don’t have enough confidence to improve the assessment.
“Recent developments in Mozambique’s economy have not given the rating agencies sufficient confidence to improve their opinion of the country’s sovereign credit quality or the outlook for the rating,” wrote the analysts from the African department of Oxford Economics.
According to the organisation, the credit risk assessment will remain close to “extremely speculative” until the country implements “the promised budgetary reforms and liquefied natural gas boosts economic growth”.
In a document published on Sunday (28) by Lusa, the consultancy founded by Oxford University explained that despite robust growth due to the expansion of the natural gas sector, Mozambique’s budgetary position has not improved substantially, pointing out that the government is faced with “enormous challenges, such as extreme poverty, climate disasters, insurgent violence, rising levels of domestic indebtedness and rising costs of servicing (paying interest on) the debt”.
“It will take time for the government to implement budgetary reforms that lead to a reduction in spending on civil servants and public debt. In addition, gas revenues will also be limited in the medium term, so a rating upgrade in the short term is unlikely,” he added.
The credit rating will remain close to “extremely speculative” until the country implements “the promised budgetary reforms and liquefied natural gas boosts economic growth”.
Last week, financial rating agency Standard & Poor’s (S&P) decided to keep Mozambique’s rating at CCC+, with the good prospects for gas exports from 2028 being cancelled out by the high current financial risks.
“The long-term budgetary and economic outlook is positive, provided that the gas megaprojects begin to provide support from 2028, but the risks of a potentially problematic debt swap or further delays in debt payments remain high if there is no abrupt budgetary adjustment,” wrote the S&P analysts.
In the note that maintains the CCC+ rating, the third lowest on the sovereign credit quality assessment scale, with a stable outlook, S&P argued that “Mozambique continues to face liquidity flow challenges, as demonstrated by delays in payments to creditors in 2023 and the accumulation of delays in payments to suppliers and contractors”.
The CCC+ rating is the third lowest after Financial Default and is two notches below the investment recommendation.
