Fitch maintains Mozambique’s CC risk rating

31 October 2016

The Fitch Ratings agency has maintained Mozambique’s long-term risk rating at CC in both local and foreign currency, indicates a statement issued on Friday.

The CC rating implies that the so-defined debt is speculative, i.e. without quality for investment, and that the respective country is close to or already failing to meet its financial obligations.

The short-term debt, in both local and foreign currency, was rated at C, one level below CC.

The agency states in its report that Mozambique’s debt-servicing capacity is under severe distress. The government has announced that in 2017 it will have to pay out USD 803.8 million on public and publicly guaranteed external debt.

Mozambique’s government officially admitted last week that the state would be unable to make the next payments on debt of public companies and called for servicing to be restructured and further financial assistance from the International Monetary Fund (IMF).

A 20-page document presented to investors by the Finance Ministry states that “the profile of public debt guaranteed by the State of Mozambique is not sustainable.”

The Finance Ministry indicates in the document that public debt should reach 130 percent of GDP in 2016. It also lowers to 3.7 percent the country’s forecasted economic growth.

The current crisis associated to the debt and lower commodity prices has dented confidence in Mozambique and its currency, causing the value of the metical to fall nearly 40 against the US dollar and 45 percent against the South African rand.

Devaluation vis-à-vis the rand has led to a sharp rise in prices, since most consumer products are imported from South Africa. Fitch Ratings expects the inflation rate to hit 20 percent this year, the highest in two decades, before beginning to drop slightly in 2017/2018 due to more rigid monetary policy.

Mozambique should thus grow 3.5 percent this year, the lowest rate in the last 15 years, owing to the slowdown in economic activity across all sectors. (Macauhub)