8 July 2013

Mozambique: Fitch Revises Upwards Mozambique's Status

London — The Fitch Credit Ratings Agency, which is based in both New York and London, has upgraded Mozambique's long-term foreign currency Issuer Default Rating (IDR) to 'B+' from 'B' and affirmed the local currency IDR at 'B+'.

According to Fitch, the Outlook is Stable, the short-term IDR remains at 'B' and the Country Ceiling upgraded to 'B+' from 'B'.

Fitch commented that the upgrade of the foreign currency IDR reflects the fact that "Mozambique has demonstrated a continuous track record of prudent economic policy and commitment to reform, notably in the conduct of monetary policy, public financial management as well as revenue collection".

It added that "this is reflected in below-peer inflation and above-peer growth, which has averaged 7.1 per cent over the past five years".

Fitch pointed out that "the expansion of the coal sector has gained momentum over the past year, with coal exports rising to 10 per cent of exports (or 435 million US dollars) from 0% in 2011".

The credit ratings agency added that "infrastructure improvements such as the completion of the Sena railway line, boosts confidence in future prospects. Fitch expects the development of the coal and natural gas sectors to support growth of between seven and eight per cent in 2013-2015, due to the scale of foreign direct investment (FDI) estimated at 5 billion dollars annually".

Fitch acknowledged the risk posed by potential delays in infrastructure investment, falling prices and political violence.

However, it pointed out that "disciplined fiscal policies have led to a persistent decline in government indebtedness even after Mozambique received debt relief. Government debt as a percentage of GDP has fallen to a projected 42.1 per cent in 2013 from 54 per cent of GDP in 2006".

In addition, "public debt sustainability has benefited from improved revenue collection and tax compliance. Revenue as a percentage of GDP has risen seven percentage points over the past five years to 24 per cent in 2012 and is expected to rise to 27 per cent by 2015".

Regionally, Fitch pointed out that "Mozambique's governance standards are comparable with peers, supporting economic stability and donor engagement".

It added that "Mozambique's abundant arable land, long coastline and vast commodity potential give it comparative advantages over its neighbours and peers".

Whilst Fitch noted that the current account deficit of 42 per cent of GDP in 2012 was high, it recognised that this reflected "the capital-intensive nature of the development of the coal and natural gas sectors. Fitch does not expect this to pose a threat to stability, with rising imports funded through increased foreign direct investment and private debt".

Fitch is one of the three main credit rating agencies. The other two are Moody's and Standard and Poor's.

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