Breaking: Moody’s says Mozambique’s rating constrained by weak institutions and intensifying external pressures

Login

Register

http://www.clubofmozambique.com/

Breaking: Moody’s says Mozambique’s rating constrained by weak institutions and intensifying external pressures

2:06 CAT | 23 Aug 2016

A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York, February 6, 2013. REUTERS/Brendan McDermid

Mozambique’s institutional weakness, marked currency depreciation and the fall in its foreign exchange reserves have increased risks for creditors and constrain the government’s Caa3 sovereign rating, Moody’s Investors Service said in an annual report this week.

The country faces several short-term challenges, including the need to resolve liquidity pressures derived from the debts of state-owned enterprises that have received government guarantees, the restoration of financial support from the international community, and improving its weak public governance and transparency of the public finances.

“Mozambique’s weak institutional apparatus was displayed by the under-reporting of government debt that became apparent earlier this year,” said Lucie Villa, a Moody’s Vice President — Senior Analyst and the report’s co-author. “The government’s willingness to alter the terms of debts that it had guaranteed to postpone payments manifests a low commitment to service debt when pressures are mounting.”

The report, “Government of Mozambique — Caa3 Negative”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

The negative outlook on Mozambique’s rating reflects litigation risks that could result in a prolonged period of disorderly debt distress for the government, with a propagation of default to other classes of debt beyond guarantees.

Moody’s would downgrade Mozambique’s government ratings if government defaults on its direct debt were to appear imminent with a loss likely to surpass 35%.

The rating outlook could be stabilized if litigation risks abate and if liquidity pressures were to ease, potentially helped by the restructuring of debts guaranteed by the government.

Mozambique’s credit profile is supported by the prospect of liquefied natural gas (LNG) exploitation that would have a substantial positive impact on the government finances, economic growth and the balance of payments.

However, the timing of any benefits stemming from this source is still too uncertain and Moody’s has not incorporated LNG in its central projections.

Subscribers can access this report via this link:

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1037295

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Source: moodys.com