The financial rating agency Standard & Poor’s (S&P) decided this Friday (19) 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 potential problematic debt swap or further delays in debt payments remain high if there is no abrupt budgetary adjustment,” write the S&P analysts, quoted by the Lusa news agency.
In the note that maintains the CCC+ rating, the third lowest on the sovereign credit quality assessment scale, with a stable outlook, S&P says 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”.
In the report, sent to investors and to which Lusa has had access, S&P recognises that “the government is implementing measures to improve the management of public accounts and consolidate its finances”, but adds that “the risks of budget slippage still result from the high costs of salary reforms, the high expenditure to deal with climate-related shocks, the rising costs of debt servicing and the expenditure related to this year’s elections”.
The stable outlook, i.e. the idea that Mozambique’s rating should neither improve nor worsen over the next 12 months, “reflects the balance between persistent administrative deficiencies in the country’s debt management and current liquidity pressures, on the one hand, and more favourable medium-term growth prospects, on the other”.
In the note, S&P also writes that the resumption of work by the French oil company TotalEnergies in Cabo Delgado could take place in the second half of the year, which will result in the first natural gas exports appearing in 2028, but “until the significant revenues from the Liquefied Natural Gas (LNG) projects have a concrete impact, and without an improvement in the issue of liquidity flow management, the risk of further delays in payments or a problematic debt swap (with losses for investors compared to the contractual terms agreed at the beginning) remains high”.
As a result, the rating agency’s analysts conclude: “Mozambique’s budget situation will remain under pressure until LNG production from the mega-projects begins, which will weigh on the country’s ability to fulfil its debt obligations on time.”
The CCC+ rating is the third lowest after Financial Default, and is two notches below the investment recommendation.