Africa-Press – Mozambique. Moody’s financial agency expects Mozambique’s public debt to drop to 93.3% in 2023, a year when the economy is expected to grow 6.7%, slowing to 5% by 2024.
“Moody’s projects that real GDP will expand by 6.7% in 2023 and 5% in 2024, from 4.4% in 2022, driven by continuing growth of the primary sector, and in particular the LNG production at Eni S.p.A.’s Coral South (the smaller and more advanced project that started production last year),” the rating agency says.
In the note released on Friday evening, which downgrades the economic forecast from positive to stable, Moody’s also foresee Mozambican’s public debt improving to 93.3%, but still “well above the estimated median of Caa-rated peers at 66.1% in 2023”, and below the investment recommendation level.
“The debt trajectory is also vulnerable to currency depreciation and exposed to the risk of materialisation of contingent liabilities related to guaranteed debt disputed in court” (in the ‘hidden debts’ case currently passing through the courts).
“Looking ahead, while the IMF programme is expected to provide an anchor for fiscal policy, fiscal consolidation might prove challenging given Mozambique’s vulnerability to domestic and external shocks,” the note adds.
Mozambique’s growth trajectory, analysts conclude, is dependent on the resumption of TotalEnergies project in Cabo Delgado, after the suspension of work by 2021 due to terrorist attacks in the region.
“There are indications that the security situation in the north has improved, and the authorities expect operations to resume this year, with production potentially starting in 2027. The final investment decision for the Rovuma LNG project, the largest and less advanced project, that was put on hold amid the coronavirus crisis and the challenging security conditions, is still pending, with the authorities expecting it to be finalised in 2025,” Moody’s writes.
The forecasts for debt and GDP were released in the context of revision of the outlook for the Mozambique economy from positive to stable in a note in which Moody’s also foresees further delays in internal debt payments and the implementation of reforms.
“Moody’s views a repeat of the delays in debt servicing similar to the ones that occurred earlier this year as possible, particularly in the context of external shocks affecting the liquidity profile. The risk of payment delays counterbalances the positive developments that led to the assignment of a positive outlook in March 2022, which related to the prospects of economic and fiscal gains of a nascent Liquefied Natural Gas (LNG) sector and progress on institutional reforms under the IMF program. While these positive trends continue, and the government is implementing a number of corrective measures aimed at preventing future payment delays, it will take longer than originally envisaged for the reforms to enhance overall policy effectiveness to a level consistent with a higher rating,” analysts write.
“The outlook change to stable from positive is driven by Moody’s assessment that further delays in debt repayments remain possible in the context of still elevated fiscal pressures and liquidity constraints, which balances otherwise positive credit trends.”
“Pressures on the budget will persist in the context of security challenges in the north of the country, significant exposure to climate shocks, and upcoming local and general elections in October 2023 and October 2024, respectively, notwithstanding the government’s commitment to fiscal prudence supported by the IMF programme,” Moody’s concludes.
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