Moody's revises outlook for Mozambique's economy from positive to stable

The financial rating agency Moody's announced a review of the outlook for Mozambique's economy, changing it from positive to stable, due to concerns related to delays in domestic debt payments and challenges in implementing reforms.

This change in outlook was based on Moody's expectation that Mozambique will continue to face fiscal pressures and liquidity challenges in the short and medium term. The agency also expressed concerns about institutional capacity constraints, which could result in additional delays in debt repayments, as it will take time for ongoing reform efforts to strengthen the country's debt management and treasury capacity.

Moody's maintained Mozambique's rating at Caa2, which is below the investment recommendation level, and downgraded the outlook for the country's economy from positive to stable. This rating reflects the risk agency's assessment that Mozambique presents a considerable risk to investors.

The agency highlighted several reasons for revising the outlook, including:

1. Persistent Budgetary Pressures: Moody's emphasized that Mozambique will continue to face budgetary pressures, due to factors such as the reform of civil servant salaries, security challenges in the north of the country and imminent elections.
2. High Liquidity Risk: The country faces significant liquidity risk due to the difficult maturity profile of its domestic debt. Mozambique has limited budgetary space to deal with shocks, including adverse weather events, which could worsen its debt servicing capacity.
3. Possibility of Delays in Domestic Debt Payments: Moody's pointed to the possibility of delays in domestic debt payments similar to those that occurred at the end of last year and beginning of this year, especially amid external shocks that affect the country's liquidity profile.

The agency recognized that there are positive developments, such as the potential economic and fiscal gain arising from the liquefied natural gas sector and progress in institutional reforms supported by the International Monetary Fund (IMF). However, Moody's considers that the full implementation of these reforms and the resulting gains will take longer than initially anticipated.

As a result of the revision of the outlook to stable, an improvement in Mozambique's rating is not expected in the next 12 to 18 months, according to Moody's. This review highlights the financial challenges that the country continues to face, despite positive prospects in some areas, and highlights the importance of effective measures to improve debt management and financial stability in the country.