Mozambique: When will the Sovereign Fund come into operation? The central bank doesn’t know - A ...
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The rating agency Moody’s has said it considers Mozambique among the countries most vulnerable to financial shock because of a shift in its debt structure, which now exceeds 100% of gross domestic product (GDP).
“Credit risks are highest in countries where unfavourable debt structures coincide with narrow external buffers, financing constraints on domestic banking sectors and weak debt-management capacity,” the Moody’s analysts write.
“The Republic of the Congo, Mozambique and Zambia are most exposed, while Ghana, Angola and Kenya are also vulnerable but to a lesser extent,” the same source adds.
“With countries having greater access to capital markets, issuance on domestic and international capital markets has increased and the share of borrowing from multilateral lenders has fallen,” the report reads.
“Although this has diversified funding sources, fostered investor scrutiny on macro-fiscal policy and provided funding for development spending, it has also increased exposure to global financing conditions, amplified foreign-currency exposures and increased refinancing risk,” it adds.
Debt shift
At the same time, bilateral lending in some countries has shifted toward non-traditional creditors, which usually offer less transparent and less predictable terms.
“Exposure to global financing conditions has also increased, amplified exposure to foreign exchange variations, as in Angola, and increased debt refinancing risks, as in Zambia,” Moody’s says.
In a comment sent to clients to which Lusa had has access, analysts warn that Angola and Mozambique are the two countries, out of the 16 analysed in sub-Saharan Africa, with the highest ratio of debt to GDP.
Debt has increased and “the ability to pay has deteriorated”, they warn, pointing out that “public debt now represents more than 50% of GDP in more than half of the countries” analysed by Moody’s in this region and, at the same time, ” the increased dependence on private creditors has weakened metrics in most cases”.
Angola and Mozambique
Angola and Mozambique, analysts say, are the two countries that saw the debt-to-GDP ratio increase the most, representing, in both cases, values above 100% of GDP.
In addition to the figures, analysts also draw attention to the weaknesses in public debt management, noting that more than a third of Angolan debt is issued in foreign currency, making the country the most vulnerable to shocks in the foreign exchange market, as happened last year.
In the case of Mozambique, Moody’s points out that “the notable deficiencies in reporting data and in particular in the undisclosed debts of public companies, contributed to financial default”, and that “despite progress in some areas, such as issuing sovereign guarantees, the debt management capacity in Mozambique remains weak, particularly with regard to the supervision of public companies”.
The rise in public debt in relation to GDP in sub-Saharan Africa has been one a consistent theme in reports on the region, because of the danger this poses to economies in terms of their ability to make the necessary public investments for development and, at the same time, have sufficient budgetary margin to meet financial commitments.
Moody’s assigns Angola a B3 rating, with a Perspective of Stable Evolution, and Mozambique a Caa2 rating, Stable, both below the investment recommendation.
“Sub-Saharan African sovereign debt has increased and affordability has deteriorated, with government debt now exceeding 50% of GDP in more than half the countries we rate in the region,” says Daniela Re Fraschini, a Moody’s AVP-Analyst and the report’s co-author. “At the same time, a shift in creditor bases has increased credit risks in several countries.”
“The domestic banking sector remains the main holder of domestic bonds and a significant portion of total government debt and its absorption capacities may be limited, especially when the sector is small relative to the sovereign’s financing needs,” Moody’s notes.
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