Mozambique’s risk rating reflects losses incurred by creditors

7 September 2018

Mozambique’s sovereign debt risk rating (“Caa3”) reflects Moody’s expectations that private lenders will suffer heavy losses as the country has gone into default, the credit rating agency said in a note to investors.

“The Mozambican government has failed to honour debt service to private external creditors, which accounts for about 20% of its debt, including the issuance of Eurobonds maturing in 2023,” wrote Lucie Villa, vice president of Moody’s.

The note, which is not a credit risk assessment, said that non-payment of interest and capital of private sector debt instruments constitutes a default according to Moody’s definitions.

“Whether the government reaches an agreement with private lenders on debt restructuring or continues to not honour payments owed, private lenders are expected to incur large losses,” the note said.

The document states that Mozambique’s fiscal capacity is very low due to high public debt and the weakness of the national currency, with public sector debt at 112% of gross domestic product (GDP) at the end of 2017.

The GDP growth rate is expected to gradually recover to around 3.5% in 2018/2019, after falling between 2015 and 2017 due to the strong depreciation of the metical against the dollar, lower commodity prices and weak investments in the mineral resources sector. (macauhub)