Mozambique grows 4%, public debt to reach 128.1% of GDP this year – S&P

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Mozambique grows 4%, public debt to reach 128.1% of GDP this year – S&P

9:25 CAT | 07 Aug 2017

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The rating agency Standard & Poor’s (S & P) believes that this year Mozambique’s economy will grow by 4 percent and that public debt will decline from 128.1 percent to 111.7 percent of GDP by 2020.

“External economic pressures on real GDP growth have somewhat decreased this year,” S & P said, adding that the strengthening of the metical and the rising price of aluminum and coal “will increase production and investment and, together with investments related to the liquid natural gas sector, will give a boost to real GDP growth, which is expected to increase by an average of 5.5 percent between 2017 and 2020”.

In its report on Mozambique’s rating, S & P writes that the acceleration of economic growth, from 3.8 percent in 2016 to 4 percent this year and a percentage point higher each year until 2020 “will be based on positive developments in the gas industry such as ENI’s Final Investment Decision in the Rovuma Basin, whose main contributions to the economy will only be felt after 2020, the horizon of S & P’s forecast.

In the assessment of the state of the economy, analysts Rhavi Bhatia and Gardner Rusike say that, in the coming years, “a particularly high debt burden coupled with weak domestic demand and low levels of investment will continue to weigh in the perspective of the evolution of the Mozambican economy”.

Also read: World Bank sees Mozambique’s economic growth at 4.6 percent in 2017

Per capita GDP, for example, declined to US$371 per inhabitant, “almost half its level three years ago”, before the commodity prices’ fall and the disclosure of state-guaranteed loans to public companies not disclosed to international donors and national institutions.

Forecasts for the evolution of public debt to GDP point to a ratio of 128.1 percent this year, up from 127.5 percent last year, and significantly above the 94.7 percent of 2015. S & P estimates that public debt will decline to 125.6 percent of GDP in 2018 and then more significantly, to 119.3 and 111.7 percent of GDP over the next two years.

Also Read: IMF concerned about growth prospects in Mozambique

In its Friday rating action, S & P maintained the rating on Mozambique’s foreign currency debt as ‘Selective Default’ and also kept debt issued in meticais below the investment recommendation.

The outlook for debt in meticals remains stable, which means that “it is not expected that there will be an improvement in the assessment of domestic debt in the next 12 months”, while bonds issued in foreign currency (the so-called ‘Eurobonds’) are not subject to any evolutionary forecast because they are a fact – financial default [is a fact ] – and not an assessment of the issuer’s ability to pay creditors.

Source: Lusa