Mozambique: Fitch Ratings Downgrades Mozambique

The Fitch ratings agency on Monday downgraded Mozambique’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘CC’ from ‘CCC’.

This means that, in the view of Fitch, a Mozambican default is imminent. The Fitch release announcing the downgrade said that last month’s revelation of 1.4 billion US dollars of undisclosed government-guaranteed loans “has revealed significant short-term repayment obligations, which could precipitate a near-term credit event”.

Fitch notes that 1.4 billion dollars was equivalent to 9.2 per cent of Mozambique’s GDP in 2015. The bulk of this money consists of loans to two companies effectively owned by the security services – Proindicus (622 million dollars) and Mozambique Assets Management, MAM (535 million dollars).

Proindicus managed to make its first repayment (of 25 million dollars) in March, but there is no sign that MAM, a company which has no apparent assets, is in any position to start repayments.

Fitch remarked “uncertainty has risen over MAM’s ability to service its debt and whether the government will step in to honour the obligations”.

Annual debt servicing, Fitch estimates, has doubled to around 4.5 per cent of GDP because of the undisclosed loans. The agency noted that “Mozambique’s fiscal and external positions continue to deteriorate, in part due to the decision of donors and multilateral organisations to halt programmed budget support until the debt debacle is resolved”.

The release added that “although the government could tap reserves to pay for the upcoming MAM amortisation, this would put severe strains on reserves and could add to external and foreign exchange pressures. An alternative is to search for other sources of external funding, primarily bilateral loans. This could help stave off short-term macroeconomic imbalances but would compound risks to debt sustainability”.

The first repayment of the MAM loans, for 178 million dollars, should have happened by Monday. But the payment did not occur.

MAM itself had no funds, and the government did not step in to make good its guarantee.

At the government’s press conference on the public debt, on 28 April, Finance Minister Adriano Maleiane said that MAM was trying to restructure its debt. So far the creditors have not been impressed.

According to a Finance Ministry source, quoted by the Reuters news agency, the creditors rejected the initial proposals to renegotiate payments, but were still in talks to try to reach a deal.

Fitch warns that “the potential restructuring of the MAM debt being considered by the government could precipitate a credit event as defined under Fitch’s Distressed Debt Exchange (DDE) criteria” – which would lead to a further downgrade in Mozambique’s rating.

Source: Agencia de Informacao de Mocambique