Africa-Press – Mozambique. Fitch Ratings has downgraded Mozambique’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’.
Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below. A full list of rating actions is at the end of this rating action commentary. The downgrade reflects Fitch’s assessment that a restructuring of Mozambique’s sole outstanding Eurobond has become probable over the rating horizon.
The authorities communicated earlier this month their intention to engage with creditors on debt operations that Fitch would likely classify as a distressed debt exchange (DDE) if they involved a material reduction in terms for Eurobond holders (e.
g. maturity extension). Even absent this signal, we consider there is a heightened risk of a credit event, either through an IMF-programme-linked restructuring to restore debt sustainability, or an outright default should a programme fail to materialise or be adhered to.
Mozambique’s ratings continue to reflect severe financing strains, persistent fiscal deficits well above the peer median, elevated government debt, and accumulating debt service arrears.
These pressures are partially offset by transformational liquefied natural gas (LNG) development prospects from 2028, reduced political instability, and strong FDI inflows.
Under applicable credit rating agency (CRA) regulations, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this schedule in order to comply with the CRAs’ obligation to issue credit ratings based on all available and relevant information and disclose credit ratings in a timely manner.
Fitch interprets these provisions as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status.
The next scheduled review date for Fitch’s rating on Mozambique is 24 July 2026, but Fitch believes that developments in the country warrant such a deviation from the calendar and our rationale for this is set out in the first part (High weight factors) of the Key Rating Drivers section below.
Key Rating Drivers
The downgrade of Mozambique’s LTFC IDR reflects the following key rating drivers and their relative weights: High Restructuring Now Probable: Given the IMF’s assessment of Mozambique’s public debt as unsustainable under the current policy trajectory before the start of the Iran war, and the authorities’ demonstrated commitment to securing a new IMF programme, we consider it probable that a reprofiling of the sole Eurobond will form part of any debt sustainability restoration.
In this context, Fitch would treat a commercial debt reprofiling as a DDE if it involved a material reduction of terms, including if there was a maturity extension.
Heightened Default Risk Without Programme: Should Mozambique fail to secure a new programme or be unable to adhere to its conditionality given the scale of fiscal adjustment required, we see a heightened risk of an event of default, due to the lack of multilateral support and market access.
Financing Strains: Mozambique’s financing environment has continued to deteriorate. Debt service arrears reached approximately 1.3% of GDP at end-2025, including on short-term domestic debt obligations, reflecting broadening liquidity pressures across the public sector.
Switch auctions conducted in 2025 are indicative of acute stress in domestic debt markets. The government remains heavily reliant on central bank financing and costly short-term domestic issuance absent an active IMF programme.
Persistent Fiscal Deficits: Fitch estimates the general government deficit at 4.6% of GDP in 2025 (2.2% on a cash basis, with the difference reflecting significant domestic arrears), above the ‘B’/’C’/’D’ median of 3.4%.
Tax revenue collection has underperformed due to post-electoral disruptions. We project the deficit will remain large in 2026. Expenditure remains rigid, with the wage bill averaging 47% of total expenditure in 2025.
Increasing Government Debt: Fitch expects government debt to remain above 90% of GDP over 2026-2027, well above the peer median of 68.7%. This reflects persistent deficits and modest nominal GDP growth.
The domestic debt share continues to rise sharply, to nearly 40% by end-2026 from 24% in 2023, due to the loss of external financing, resulting in higher borrowing costs and shorter maturities that increase liquidity risk.
The approximately USD700 million early IMF repayment made in March raises further uncertainty, both over the source of financing and the sovereign balance sheet implications.
External Pressures Remain High: Fitch estimates the current account deficit expanded to 17% of GDP in 2025 and forecasts it will widen substantially through 2026 as LNG construction-related imports accelerate.
Persistent FX shortages, and further risk of a more protracted period of high energy prices from the Iran war, could add to balance of payments stress. The current account deficit will be only partially financed by FDI inflows and reserves are projected to reduce substantially over 2026-2027.
Mozambique’s ‘CC’ LTFC IDR also reflects the following key rating drivers: Political Tensions Eased: Political instability significantly reduced in 2025.
Agreement with opposition parties on judicial and electoral reforms secured parliamentary support on the budget, restoring conditions for authorities to advance structural reforms.
Mozambique exited the FATF grey list in 2025, which could help catalyse investments, although deep structural challenges persist, including weak governance, high youth unemployment and climate vulnerability.
Slow Recovery from Recession: Mozambique’s economy contracted by 0.5% in 2025. We forecast a slow recovery of growth to 1% in 2026. We expect growth to accelerate starting in 2027 as LNG construction intensifies and production commences, but execution risks remain, given security challenges in Cabo Delgado.
Concessional Debt Dominates External Profile: External public debt was about 57% of GDP at end-2025, including state-guaranteed ENH obligations. Excluding ENH, 90% is concessional from multilateral (21% of GDP) and bilateral creditors (13% of GDP), particularly China (5% of GDP).
The servicing cost of the sole USD900 million Eurobond is manageable in the near term, with only coupon payments due through 2027. However, the principal repayments falling between 2028 and 2031 pose a sizeable challenge.
ESG – Governance: Mozambique has an ESG Relevance Score (RS) of ‘5’ for Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model.
Mozambique has a low WBGI ranking at 17.5, reflecting the absence of a recent record of peaceful political transitions, violence associated with the insurgency in the northern part of the country, relatively weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
– Public and External Finances: Launch of a formal debt renegotiation process by the authorities or the start of a process that Fitch deems to constitute a default-like event (distressed debt exchange).
– External Finances: Failure to service the sole Eurobond within grace periods stipulated in relevant documentation, or unilateral declaration of a debt moratorium.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
– Public and External Finances: Evidence that debt sustainability could be restored without a restructuring of the Eurobond, for instance, through a significant improvement in the fiscal outlook, improved external financing conditions and lower risk of pressure on FX reserves.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
Fitch’s proprietary SRM assigns Mozambique a score equivalent to a rating of ‘CCC+’ on the LTFC IDR scale. However, in accordance with its rating criteria, Fitch’s sovereign rating committee has not utilised the SRM and QO to explain the ratings in this instance.
Ratings of ‘CCC+’ and below are instead guided directly by the rating definitions. Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LTFC IDR.
Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
Debt Instruments: Key Rating Drivers
Fitch does not currently rate any debt instruments for this sovereign.
Country Ceiling
The Country Ceiling for Mozambique is ‘B-‘. For sovereigns rated ‘CCC+’ or below, Fitch assumes a starting point of ‘CCC+’ for determining the Country Ceiling. Fitch’s Country Ceiling Model produced a starting point uplift of 0 notches above the IDR.
Fitch’s rating committee applied a +1 notch qualitative adjustment to this, under the Balance of Payments Restriction pillar, reflecting the fact that capital controls exist, but they are limited and have not constrained the private sector’s ability to convert the metical into FC and/or transfer funds abroad.
The prospects of receiving significant inflows of investment and financing to develop large gas reserves reduce incentives to introduce capital controls.
Fitch does not assign Country Ceilings below ‘CCC+’, and only assigns a Country Ceiling of ‘CCC+’ if transfer and convertibility risk has materialised and is affecting the vast majority of economic sectors and asset classes.
The principal sources of information used in the analysis are described in the Applicable Criteria.
Climate Vulnerability Signals
The results of our Climate. VS screener did not indicate an elevated risk for Mozambique.
ESG Considerations
Mozambique has an ESG Relevance Score of ‘5’ for Political Stability and Rights as WBGI have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Mozambique has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.
Mozambique has an ESG Relevance Score of ‘5’ for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGI have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight.
As Mozambique has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile. Mozambique has an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms as the Voice and Accountability pillar of the WBGI is relevant to the rating and a rating driver.
As Mozambique has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Mozambique has an ESG Relevance Score of ‘4’ for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Mozambique, as for all sovereigns.
As Mozambique has a fairly recent restructuring of public debt in 2020, this has a negative impact on the credit profile. The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section.
A score of ‘3’ means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.
Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit www. fitchratings. com/topics/esg/products#esg-relevance-scores.
