Mozambique: Moody's downgrades outlook from positive to stable

Moçambique: Moody’s piora perspetiva de evolução de positiva para estável

Financial rating agency Moody's has downgraded the outlook for Mozambique's economy from positive to stable, predicting further delays in domestic debt payments and an unforeseen delay in the implementation of reforms.

"The change in outlook reflects Moody's expectation that Mozambique will continue to face fiscal pressures and liquidity challenges in the context of institutional capacity constraints in the short and medium term, potentially leading to additional delays in debt repayments, as it will take time for ongoing reform efforts to strengthen the country's debt and treasury management capacity," the analysts were quoted by Lusa as saying.

In its note maintaining the rating at Caa2, below the investment recommendation level, and downgrading the country's outlook, Moody's points out that "budgetary pressures will persist in the context of the reform of civil servants' salaries, security challenges in the north of the country and the upcoming elections, while the state's liquidity risk will continue to be high, given the difficult maturity profile of domestic debt".

Mozambique, they add in the note released on Friday night, "has very limited fiscal space to respond to shocks, including climate-related events, which could put further pressure on the ability to service the debt."

Analysts therefore see a delay in domestic debt payments similar to that which occurred at the end of last year and the beginning of this year as possible, "especially in the context of external shocks such as those affecting the liquidity profile" of the country.

These risks, however, are offset by "the positive developments that led to the assignment of a positive outlook in March 2022, which relate to the prospects of economic and fiscal gains from the liquefied natural gas sector and the progress made in institutional reforms supported by the International Monetary Fund's (IMF) financial adjustment program."

For Moody's, although this trend will continue, and the government is implementing various corrective measures to prevent future payment delays, implementing the reforms to the point where they lead to effective gains consistent with a better rating will take longer than initially anticipated," which is why they have downgraded the outlook from positive to stable, meaning that the rating is not expected to improve in the next 12 to 18 months. (Lusa)

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