Mozambique: Rating not expected to improve until late 2021 – Consultant

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Mozambique: Rating not expected to improve until late 2021 – Consultant

9:09 CAT | 28 Oct 2020

File photo: Lusa

NKC African Economics said that none of the financial rating agencies are expected to improve Mozambique’s rating in the next 12 months due to the difficult economic conditions aggravated by the Covid-19 pandemic.

In a comment to Standard & Poor’s (S&P) maintaining Mozambique’s CCC+ rating, sent to clients and seen by Lusa, analysts write that the main risks to the country are a prolonged Covid-19 crisis that adversely affects global demand for Mozambique’s raw materials, as well as a possible escalation in violence in Cabo Delgado that will make investments in the liquefied natural gas sector more difficult.

Last Friday, S&P said that it had decided to maintain Mozambique’s CCC+ rating, below the investment recommendation, with a stable outlook, due to the economic effects of the Covid-19 pandemic.

“The CCC+ rating for foreign currency debt issuance reflects our view that Mozambique depends on favourable business, financial and economic conditions to meet its financial obligations,” analysts wrote in the note accompanying the rating decision, released on Monday night.

CCC+ is the third-lowest in the scale of opinion on sovereign credit quality, considered as junk because it is several levels below the investment recommendation.

“Despite weak credit ratios, we expect Mozambique to be able to meet its obligations over the next 12 months,” the analysts said, noting that the rating is hampered by the country’s low GDP per capita, weak governance and institutions, large external and fiscal deficits, and a high debt burden, which will remain above 100% of GDP until at least 2023.

The stable outlook balances the risks associated with high external and fiscal deficits against the expectation of an economic recovery next year, sustained by large investments in the extractive industry, the analysts wrote.

Source: Lusa