14 February 2014

Mozambique: Standard and Poor Lowers Mozambique Rating

Maputo — The US credit rating agency Standard & Poor's has lowered its long-term foreign and local currency sovereign credit rating for Mozambique to 'B' from 'B+'.

However, it has confirmed that the country's outlook is stable and affirmed the 'B' short-term sovereign credit rating.

The company explained that “increased government spending in Mozambique has resulted in much higher fiscal deficits and faster debt accumulation than we previously expected”.

S&P commented “Mozambique's external commercial borrowing increased in 2013, with a government-owned agency issuing debt equivalent to 5 per cent of 2013 GDP under a government guarantee”.

This refers to the Mozambican government's controversial decision to underwrite a loan of 850 million US dollars on the European bond market. Part of the loan is to fund the purchase of 24 fishing vessels and six patrol boats from a shipyard in the French port of Cherbourg.

The purchase is being made by the newly established Mozambican Tuna Company (EMATUM), in which the majority shareholder is the government's Institute for the Management of State Holdings (IGEPE). The government claims that EMATUM will be a viable enterprise and the money will all be recouped.

S&P added that “the government plans to increase expenditure on infrastructure, as well as on its wage bill, election logistics, and maritime security and development, taking government expenditure to a peak of 40 per cent of GDP in 2014”.

In its analysis, S&P states “despite a one-off revenue increase from capital gains tax in 2013, we now estimate that the average change in general government debt will be a high 8.8 per cent of GDP over 2014-2017, compared with 4 per cent over 2010-2013”.

Whilst warning that the ratings could be lowered further if economic growth slows or elections do not go smoothly, S&P adds that “if the government's ambitious growth agenda leads to significant narrowing of external and fiscal imbalances through better export performance and higher government revenues, we could raise the rating”.

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