The post-election demonstrations in Mozambique could cause setbacks in several areas, including the sovereign credit rating, announced the Center for Public Integrity (CIP), in an analysis published on its website this Sunday.

Unrest has rocked Mozambique since the October 9 elections, which were won by the Frelimo party, in power since 1975, but denounced as fraudulent by the opposition parties.

According to this Mozambican non-governmental organization (NGO), the most recent rating by Standard & Poor's (S&P), on October 18, 2024, which gave the country a highly speculative rating, maintaining the external credit at CCC+ and downgrading the internal credit to CCC, "reflects the persistence of liquidity restrictions, in a context of high internal indebtedness and accumulation of delays in payments to suppliers and contractors".

"The persistence of the demonstrations aggravates the perception of sovereign credit risk. The drop in turnover and increased insecurity jeopardize tax revenue targets and reduce the attractiveness of Foreign Direct Investment (FDI). They also cause capital flight, mainly by frightened political and economic elites, and temporary disinvestment by local companies," reads the document.

The CIP also considers that "the demonstrations could increase the pressure on the fiscal accounts due to the rise in public spending, both to cover the costs of security, the replacement of destroyed infrastructure and social assistance for vulnerable families."

In addition, the analysis warns that the prolongation of the post-election crisis could result in an increase in the budget deficit and, consequently, a growing need for financing. Therefore, "in a context of worsening confidence on the part of external creditors, this situation could further intensify domestic public indebtedness, which is already at unsustainable levels".

CIP's analysis examines the risk of downgrading Mozambique's sovereign credit rating, driven by the intensification of popular protests resulting from the contestation of the election results, based on the factors used by rating agencies such as Standard & Poor's.

In this context, the NGO reiterates that Mozambique runs the risk of a "downgrade" in the sovereign credit rating due to the increased perception of risk by investors, creditors and other stakeholders as a result of the demonstrations triggered by popular protests against electoral fraud.

The document recalls that political and social stability, which is generally linked to the role of institutions, is one of the main determinants of the sovereign credit rating, so "this situation directly interferes with a government's ability to maintain a secure and predictable environment for conducting its economic policies and attracting investment".

"In the current case of Mozambique, the persistence of popular protests and the increase in violence, associated with post-election disputes, have undermined the confidence of both the internal and external sectors in the country's governability. The insecurity generated by these protests could affect Mozambique's international image, reducing the confidence of foreign investors and increasing the costs associated with the risk of investing in the country. The continuation of these protests could also lead to greater social instability, with the possibility of escalation to more serious conflicts," he said.

Thus, "the perception of political and social instability may lead rating agencies to revise down the country's sovereign credit rating because instability directly impacts the government's ability to implement effective fiscal and monetary policies, as well as raising pressure on the government to obtain financing at higher interest rates."

Finally, the CIP analysis warns that in the long term, a deterioration in political stability "could consolidate an image of chronic instability", making it difficult for the country to regain international confidence, even after the crisis has been resolved.

(Photo DR)