Mozambique risks a new ‘default’ in 2024, says Moody’s

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Mozambique risks a new ‘default’ in 2024, says Moody’s

6:01 CAT | 31 May 2021

File photo: Lusa

Credit rating agency Moody’s says that Mozambique is at risk of financial default again in 2024 if gas production is delayed and the expected increase in revenues compromised.

“Total’s decision regarding the suspension of production will not have an immediate impact, but given that the payment of debt securities depends on revenues, the postponement of production and the delay in revenues may be the trigger for a new ‘default’,” the director of the sovereign risk analysis group at Moody’s says.

“There is still time [to avoid default], because, as the payment of securities increases from 2024 onwards, the government has reassessed its sources of financing for several years,” Marie Diron stressed an interview with Lusa.

But she warned that, “taking into account the government’s previous history, there is a risk, and that is why the rating is low”, currently standing at Caa2, close to the lower limit of the scale for assessing the quality of sovereign credit.

The restructuring of the debt securities that Mozambique undertook following the so-called ‘hidden debt scandal’ reduced the interest payable until 2023, but almost doubled the instalments, from 5% to 9% per year, from then on, which was when natural gas exports were expected to begin with tax revenues supporting rising costs.

Moody’s analyses 28 countries in Africa, ranging from A3, for Botswana, to Ca, for Zambia, with a concentration of opinion on credit quality at the lower end of the scale, “reflecting the constraints due to low levels of yield, that hinder resilience to shocks, budgetary and debt constraints, which were already rising even before the pandemic”.

Two-thirds of the ratings’ outlook are ‘stable’. “This indicates that our opinion on the quality of sovereign credit is well positioned for a very gradual and uneven recovery period, with governments needing time to recover the revenue base,” the analyst concludes.

Armed groups have terrorised Cabo Delgado since 2017, with some attacks claimed by the jihadist group Islamic State, in a wave of violence that has already caused more than 2,500 deaths, according to the ACLED conflict registration project, and displaced 714,000 people, according to the Mozambican government.
The most recent attack, on March 24, was carried out against the town of Palma, causing dozens of deaths and injuries in numbers yet to be ascertained.

Mozambican authorities regained control of the town, but the attack led oil company Total to indefinitely abandon the main construction site of the gas project scheduled to start production in 2024, on which many of Mozambique’s expectations for economic growth in the next decade are based.

Source: Lusa