Mozambique: Central bank predicts impact on access to credit after S&P downgrade – Watch

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Mozambique: Central bank predicts impact on access to credit after S&P downgrade – Watch

6:13 CAT | 26 Mar 2025

Screen grab: Bank Of Mozambique

The governor of the Bank of Mozambique, Rogério Zandamela, on Wednesday regretted the decision by Standard & Poor’s (S&P) to lower the rating of domestic public debt issues to selective default, admitting that this had an impact on access to credit in the country.

“It means that we are left with an almost speculative debt instrument. If it’s speculative, few investors will want to hold that bond, that instrument, in their portfolio,” observed Rogério Zandamela, questioned by journalists at the end of the Monetary Policy Committee meeting, which took place today in Maputo.

“It undermines investor confidence. This has implications for access to external credit for families, companies and the state,” he added, emphasising the possibility that some investors may want to “get rid” of the Mozambican debt securities in which they have invested.

That’s why, he said, measures are needed to “within a reasonable time period” be able to “raise the rating” again.

The financial rating agency Standard & Poor’s downgraded Mozambique’s domestic public debt issues to selective default, due to delays in payments to creditors and changes to a debt issue, as reported by Lusa on Monday.

Mozambique’s minister of finance, Carla Louveira, clarified today that the domestic debt swap auctions that have been held are provided for in the current public debt management strategy.

“We have some BT [Treasury Bills] that were issued in the past, where their term was due to expire this year. It would be up to the government to decide whether to simply close them, pay them off or renew them. The strategy that is in force at the moment, until 2025, provides for what we call exchange auctions,” said the minister this Wednesday, questioned by journalists on the sidelines of the start of the first parliamentary session in Maputo.

Minister Louveira insists that the exchange auctions are part of the current debt management strategy (2022-2025), which will be reviewed by the new government, sworn in in January, for the period 2026 to 2029.

“What we are doing in the current period is essentially what is already set out in the current approach,” she said, adding that other measures to “rethink debt sustainability” will “be part of this revised strategy”, through an “inclusive process” with the financial system and the central bank.

“We are also working with our advisors on public debt (…), coming from the World Bank, the International Monetary Fund, among other organisations that also provide support on matters relating to our country’s debt,” said Carla Louveira.

S&P described Mozambique as having “exchanged Mozambican metical (MZN) 3.7 billion ($54 million) in local currency bonds maturing in March 2025 in return for longer-dated, lower-yielding bonds maturing in March 2030”, pointing out that “the ongoing recourse to such liability management operations, coupled with a history of delayed payments on domestic debt, reflects the sovereign’s constrained fiscal and liquidity positions”.

S&P considers ” this transaction distressed and tantamount to default” and says that it has therefore lowered our local currency rating on Mozambique to ‘SD’ (selective default) from ‘CCC-‘”.

READ: Mozambique’s local currency rating lowered to ‘SD’ on completed domestic debt switch; foreign currency rating affirmed – S&P

With regard to foreign currency debt repayments on commercial debt obligations, which are usually more important to investors, S&P says it is maintaining the rating, not least because they ‘remain modest’, but warns that “potential delays to gas projects and foreign aid flows, alongside an uncertain external financing outlook, add to the pressures on Mozambique’s finances” .

Mozambique “switched the original four-year bonds maturing in March 2025, paying an annual coupon of 16.43%, for new five-year bonds with an interest rate of 14.25%,” according to S&P, which recalls that the government had “previously exchanged MZN5.7 billion ($89 million) four-year bonds maturing in October 2024 for five-year bonds due in October 2029″.