The recent downgrade of Mozambique's credit rating by Standard & Poor's shows that the country's credit still has "substantial risk" due to debt and poor governance, among other factors, Oxford Economics Africa said yesterday..

Oxford Economics Africa analysts, quoted by Lusa, write that: "although Mozambique's rating has recovered somewhat from the Financial Default levels of S&P and Fitch following the hidden debt scandal in 2016, the country still has substantial credit risk; this is due to the high level of public debt, above 100% of GDP, extremely high costs to service the debt, unresolved weaknesses in public companies related to the hidden debt scandal, poor governance indicators and the insurgency in Cabo Delgado."

It should be remembered that in a commentary on the recent downgrade of local currency issues by S&P last week, the African department of Oxford Economics also points out that "the government faces high spending pressures due to the lack of development and the humanitarian crisis caused by climate disasters, diseases such as cholera or malaria, and violent conflict, which limits the ability to service the debt".

According to the Oxford Economics analysis, "if there are further delays over the next 12 months in natural gas projects in Cabo Delgado, this will probably result in a downgrade of the rating," but stresses that this is not the most likely scenario.

The basic scenario, for these analysts, is that gas projects will resume in the second half of this year and that "there will be a massive increase in exports from 2027 onwards, which will give some relief to public finances and help Mozambique avoid a default".

Last week, S&P downgraded local currency debt issues to 'default' for 24 hours, to reflect the delays in payments that existed between February and May, and then took the rating off the default level, leaving it one level below what it was before it fell to 'default'.

According to S&P's head of sovereign ratings, Ravi Bathia, the downgrade to SD was a signal sent to investors for the sake of transparency, to point out that Mozambique fell behind on its domestic debt payments between February and May, but that the situation has now been resolved.

"Subsequently, Mozambique resolved the issue and they are paying within the due period, we see the problem resolved, and that's why we took them out of default again, but due to the pressures on the financial system and inflationary and public spending pressures, we have put the rating for local currency issues at CCC+ because we still consider that there are difficulties, which Mozambique is resolving, and in a better position, and that's why we have upgraded the rating," added the S&P director.

Mozambique thus saw S&P's analysis of domestic sovereign issues downgraded by one level, from B- to CCC+, but its rating on international issues, namely Eurobonds, on which there was no delay, remained unchanged, at CCC+/C.