The financial rating agency Standard & Poor’s considered that Mozambique will see significant gains from the gas projects from 2028, but that it will face major challenges until then, including a sharp increase in debt repayments.
“The country’s economy will see significant gains after the major gas projects begin in 2028, but until then the government will face major political challenges,” wrote the analysts from the financial rating agency S&P in the note accompanying the maintenance of the rating at CCC+.
The organisation added that “although economic growth was relatively high between 2022-23, it did not translate into an improvement in public finances, and the country continues to have high levels of poverty and is still underdeveloped”.
Analysts estimate that the national economy will grow by an average of 5.5 per cent between this year and 2027, equivalent to per capita growth of 2.5 per cent, but warn that the figure is misleading.
“A large part of the growth is based on the extractive sector and the construction of Area 1 of the TotalEnergies gas project in the north of the country,” he pointed out.
In its analysis of the fundamental elements of the Mozambican economy, S&P emphasised that the Executive’s capacity to reduce civil service spending is limited, clarifying that the country is already facing an increase in the cost of external debt, following the agreement reached with investors holding public debt bonds at the end of the last decade.
“The cost of servicing the external commercial debt, which was historically low, has increased; the government has already started paying the coupon on the Eurobond maturing in 2031, which was previously 5 per cent, equivalent to 47 million dollars a year, and has increased to 9 per cent, or 81 million dollars a year between 2028-31,” he stressed.
On Friday (19), the financial rating agency 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 potential problematic debt swap or further delays in debt payments remain high if there is no abrupt budgetary adjustment,” wrote 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 wage 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”.