16 May 2014

Mozambique: Fitch Maintains Mozambique Credit Rating

London — The international ratings agency Fitch on Friday announced that it was maintaining Mozambique's credit rating at 'B+' with a stable outlook.

According to the agency, this reflects average growth of seven per cent, which is “well in excess of the 'B' median of 4.2 per cent over the past five years”.

The rating also takes into account the country's significant mineral resources, infrastructure investment and “favourable macroeconomic policy environment”.

Fitch points out that “inflationary pressures have abated, supported by a strengthening currency and improved monetary policy”.

It adds that “developing coal and natural gas reserves will continue to underpin robust growth, which is forecast to average eight per cent over the next three years, due to estimated foreign investment of five billion US dollars (thirty per cent of GDP) annually”.

However, it warns that “risks emanate from delays in infrastructure investment, falling commodity prices and an intensification of political violence”.

In addition, “Mozambique has announced sharply higher budget deficits each year over the past four years, rising to nine per cent in 2013 and 12.8 per cent in 2014 from 5.2% per cent in 2011”.

This is “raising concerns about the country's commitment to prudent fiscal policy - a factor which contributed towards Fitch's upgrade of Mozambique in 2013”.

However, Fitch points out that the budget deficit in 2013 was lower than expected due to windfall capital gains taxes and underspending on capital projects. Fitch expects these factors to result in a lower budget deficit than expected this year.

Whilst the agency points out that government debt as a percentage of GDP is expected to rise to 47.7 per cent of GDP in 2015, interest payments will remain low due to the highly concessional nature of the country's debt.

Fitch warn that “EMATUM, a state-owned fishing company formed six weeks prior to issuing USD850 million on international capital markets, has highlighted existing concerns about corruption, transparency and fiscal responsibility, with donors delaying budget support in response”.

The agency states, “the bond was purportedly issued to finance investments in tuna fishing, but a large share of the funds will go to fund maritime security”.

It is also concerned about the sporadic attacks carried out by Renamo in the run up to this October's elections. However, “a return to full scale civil war is unlikely, but the attacks may adversely impact Mozambique's ability to attract foreign investment”.

Fitch is one of the three main credit rating agencies (the others being Moody's and Standard and Poor's).

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