The rating agency Standard & Poor’s (S&P) expects Mozambique’s economy to accelerate to 4.5 percent this year and 6 percent in 2019, as well as foreseeing a decline in public debt to 118.7 percent of the GDP.
“Gross domestic product (GDP) growth slowed further in 2017, but we anticipate a partial rebound in 2018 or 2021 due to relatively high commodity prices that fuel exports and investments in liquefied natural gas (LNG)”, the S&P analysts write.
According to the report that accompanies the explanation of the decision to maintain the country’s Selective Default rating, the slowdown in wealth growth to 3 percent in 2017, having grown by 3.8 percent in 2016 and 6.6 percent in 2015, “was partly due to the weakening performance of small and medium-sized enterprises, struggling to access affordable credit”.
Analysts at S&P believe, however, that “the prices of aluminum and coal (among Mozambique’s major exports) recovered and will likely facilitate growth in the coming years. “, in which S&P forecasts a 6 percent growth in 2019 and 7 percent in the two following years.
Although analysts say that developments in the gas industry may support an even faster recovery, they caution that “LNG projects will significantly improve Mozambique’s export mix and boost its economy once completed”, but it will take time for them to make a significant contribution to the economy, and most of the benefits will materialise only after the period under consideration.
The S&P analysis and forecasts arise in the context of the evaluation of the country’s financial rating, which the agency decided to maintain at Selective Default following successive failures to make repayments on sovereign debt issued in 2016.
“We are affirming our ‘SD’ (selective default) long-term and ‘SD’ short-term foreign currency ratings on Mozambique. We are also affirming our ‘B-‘ long-term and ‘B’ short-term local currency ratings on the sovereign,” the S&P analysts write.
In the review of the rating, S&P explains that there is no prospect of a rating change because the assignment of an SD assessment is related to the fact of financial default, not any opinion about the government’s ability to pay its debts in future.
“We are likely to reassess the foreign currency rating on Mozambique upon completion of any restructuring, although its timeline remains unclear,” analysts say, adding that they believe the country will honour its domestic commitments.
” We also believe that it is likely that Mozambique will not incorporate local currency debt into any debt restructuring deal, and that it will continue to honour metical-denominated debt,” the sovereign rating report reads.-Lusa
