Government, economy and public finances affect Mozambique’s credit rating

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Government, economy and public finances affect Mozambique’s credit rating

3:33 CAT | 08 May 2017

Suspension of debt negotiations, economic slowdown, pressure on public finances and difficult political momentum are some of the factors holding back Mozambique’s credit rating, according to a report released by Fitch Ratings.

The agency added that the slow progress in natural gas projects and the reduced flexibility of monetary policy conditioned the country’s sovereign debt rating, which remains at “D”, attributed when the country defaulted on its loans.

Among the positive aspects of the Mozambican economy Fitch Ratings lists the economic growth of the last 15 years – higher than that of most countries in the region – the vast natural resources and the flexible exchange rate of the metical, which are however offset by the weaknesses.

These include poor human development indicators, rapid deterioration of public finances, growth in public debt, “one of the highest” in the world, weak business climate and poor management of public accounts.

In its analysis of the main aspects that influence the quality of sovereign debt, Fitch stressed pressure on public finances, as a result of lower growth and less foreign aid, with the economy expected to grow 5% this year and 6% in 2018.

“The ratio of gross domestic product revenue is at 24%, the lowest in the last 12 years,” the analysts said, noting that “government attempts to contain spending in response to the debt crisis were insufficient to significantly reduce the deficit, as it was also pressured to keep salaries and allowances high even in times of economic hardship.”

Source: Macauhub