Fitch Ratings keeps Mozambique’s risk rating at “restricted default”

29 May 2019

Fitch Ratings has kept Mozambique’s long-term foreign currency risk rating at “RD” or “restricted default,” which was first given in November 2016, the agency said in a statement.

The “RD” rating means that the issuer of debt, whether in the form of bonds, a loan or any other financial responsibility, has entered into default, but has not declared bankruptcy or entered into liquidation or even ceased to function.

Fitch Ratings notes in the statement that the Mozambican state has failed to pay five coupons related to the issuance of Eurobonds by state-owned Empresa Moçambicana de Atum (Ematum) and paid neither interest nor capital amortisation for two loans contracted by the equally state-owned companies ProIndicus and Mozambique Asset Management.

Recalling that Mozambique is subject to natural disasters, such as cyclones Idai and Kenneth that struck the country in March and April 2019, Fitch Ratings wrote that economic growth would decline to 2.0% after a rate of 3.3% in 2018 due precisely to the impact of these natural disasters, before recovering modestly to 2.7% growth in 2020.

Like other institutions analysing economic progress in Mozambique, Fitch said that the country would return to more significant economic growth with the beginning of the extraction of natural gas in two blocks of the Rovuma basin, scheduled for 2023.

“The rate of inflation is expected to increase to 8.0% in 2019/2020 due to the destruction of plantations and infrastructures, which should lead the Bank of Mozambique to keep interest rates at the current level.”

Fitch Ratings also forecasts that Mozambique’s public debt will increase from 98.8% of gross domestic product (GDP) in 2019 to 103.4% in 2020, due to the large budget deficits that will be recorded in those two years, with 6.5% of GDP in 2019 and 6.7% in 2020, and rising to 5.3% in 2018. (Macauhub)