The financial rating agency Standard & Poor's (S&P) decided on Friday to maintain Mozambique's rating at CCC+, below investment grade ('junk'), with a stable outlook, predicting an acceleration of economic recovery in 2022.

In the note accompanying the 'CCC+/C' foreign currency long and short-term rating decision, S&P analysts say the stable outlook reflects the balance between risks associated with Mozambique's large external and fiscal deficits against improving economic growth beyond this year, supported by large investments in the extractive sectors.

The CCC+ level is the third lowest on the sovereign credit quality scale, and is considered 'junk' because it is several levels below the investment recommendation threshold.

However, S&P analysts assure the 'B-/B' long and short term local currency issuer credit rating for the Mozambican economy.

In a positive scenario, the analysts say they could consider raising the rating "in the next 6-12 months if Mozambique's economic growth prospects improve, political risks diminish as a result of accelerated [covid-19] vaccination rates, and with the sustainable resumption of LNG [liquefied natural gas] projects."

"Although credit ratios - including debt-to-GDP - and wide budget deficits continue to raise questions about Mozambique's long-term debt servicing capacity, we expect the country to be able to meet its obligations over the next 12 months," the analysts maintain.

Also presenting the negative scenario, the analysts say the ratings could go down over the next 12 months if Mozambique's economic performance weakens substantially, for example due to "persistent insurgency risks that could adversely affect major gas projects."

"Mozambique faces several challenges related to the covid-19 pandemic, while recent extreme weather events undermine the country's growth prospects," they recall.

However, they add, "economic activity should recover in 2021 in the face of considerable environmental, security and social challenges, and accelerate from 4% in 2022 to normalize at 5.5% in 2024."

Lusa Agency