Agreement with creditors & IMF support to dictate evolution of Mozambique’s rating

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Agreement with creditors & IMF support to dictate evolution of Mozambique’s rating

12:11 CAT | 07 Aug 2017

The rating agency Standard & Poor’s (S & P) said on Friday that an improvement in Mozambique’s rating would depend on debt restructuring, the contours of IMF support and the assessment of the real economy.

“We can raise the rating of debt issued in foreign currency when the financial default is resolved, depending on the conditions of a prospective International Monetary Fund (IMF) programme, the outcome of negotiations between the Government and the holders of debt securities and our assessment of the effects of default contagion on the real economy,” S & P says.

In its Friday assessment, which maintains all existing ratings, S & P analysts say that “the IMF is likely to link a new financial aid package to measures taken by the Government to improve governance and transparency, following Kroll’s debt audit”.

For S & P, it will be this resumption, “along with finalising an analysis of debt sustainability by the IMF, which will underpin the terms of a possible restructuring on debt securities” worth US$727 million issued in 2016 and maturing in 2023, and on which Mozambique defaulted on January 18, when it failed to make a payment of nearly US$60 million.

Throughout the report, S & P repeatedly states that it does not predict a timetable for the renegotiation of the payment of public debt issued in foreign currency or the outcome of these negotiations.

Most analysts think an agreement with international creditors will only be reached when Mozambique succeeds in persuading the IMF to resume financial aid, suspended following the disclosure last year of US$ 1.4 billion in undisclosed loans.

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

The outlook for debt issuance in meticais 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 ‘Eurobonds’ foreign currency debt does not attract an evolutionary forecast because it is already in default.

Source: Lusa