Moody’s Revises Mozambique’s Economic Outlook

Moody’s Revises Mozambique’s Economic Outlook

Global financial services company, Moody’s, has revised its outlook on Mozambique’s economy from positive to stable. Despite indicating a decrease in the country’s public debt to 93.3% in 2023, the debt remains significantly above the estimated median of Caa-rated peers, which stands at 66.1% in 2023. The debt trajectory remains vulnerable due to factors like currency depreciation and the possible risk of contingent liabilities related to guaranteed debt disputed in court, notably in the ongoing ‘hidden debts’ case.

Predicted Growth in Real GDP

Moody’s forecasts that Mozambique’s real GDP will grow by 6.7% in 2023 and 5% in 2024, increasing from 4.4% in 2022. The primary sector, particularly the Liquefied Natural Gas (LNG) production at Eni S.p.A.’s Coral South project, is expected to fuel this growth. The project began production last year and is anticipated to significantly contribute to the country’s economic development.

Impact of Security Conditions on Economic Growth

However, the country’s growth trajectory is largely dependent on the resumption of the TotalEnergies project in the Cabo Delgado region. The project was suspended in 2021 due to terrorist attacks. Improved security conditions in the region are essential for the resumption of operations this year, with potential production starting in 2027. The final investment decision for the Rovuma LNG project, suspended due to the pandemic and security issues, is expected to be finalized in 2025.

Delays in Debt Payments and Reforms Implementation

Moody’s also anticipates further delays in internal debt payments and the implementation of reforms. Recurring delays in debt servicing may counterbalance the positive developments that led to the assignment of a positive outlook in March 2022. These developments include prospective economic and fiscal gains from the emerging LNG sector and progress on institutional reforms under the International Monetary Fund (IMF) program.

Factors Influencing the Revision of Economic Outlook

The revision of the outlook from positive to stable is influenced by the potential for further delays in debt repayments due to ongoing fiscal pressures and liquidity constraints. It is also important to note that the country’s budget will remain under pressure due to security challenges in the northern region, considerable exposure to climate shocks, and the upcoming local and general elections in October 2023 and October 2024, even though the government has expressed commitment to fiscal prudence backed by the IMF program.