Fitch says Mozambique now faces a real risk of missed payments after downgrading its long-term foreign-currency issuer default rating to 'CCC' from 'CCC+'. The agency pointed to post-election unrest that knocked revenues, a wider 2024 fiscal deficit and sharply higher domestic financing needs that have pushed authorities toward short-term borrowing.

Fitch’s rationale: financing stress and revenue shortfalls Fitch lowered Mozambique’s long-term foreign-currency issuer default rating to 'CCC' from 'CCC+' after concluding the fiscal position has weakened amid elevated financing needs. The agency said post-election protests and unrest knocked government revenues and dented activity in 2024, compounding a fiscal picture already strained by large budget gaps. Authorities cut some spending, and a change in government delayed the 2025 budget, increasing reliance on short-term domestic borrowing and making domestic debt servicing more vulnerable. Domestic financing risks and switch auctions - Domestic debt amortization needs are set to rise in 2025 following increased use of short-term local funding. - Authorities have used switch auctions to push out maturities, but Fitch warned the scale of financing needs means delays in domestic debt servicing could recur. - Domestic debt is concentrated in large banks and the state pension fund; that concentration lowers the immediate likelihood of a broad-based restructuring but raises systemic risk if the state struggles to meet obligations. - The central bank’s overdraft facility and a cut in local-currency reserve requirements are providing banks with added liquidity, but Fitch said these buffers may be insufficient if fiscal pressure persists. External liquidity and eurobond obligations Fitch said foreign-exchange reserves have held up for now but cautioned that prospects for new external financing are unclear. The sovereign has a single outstanding eurobond, and constrained access to external markets could keep domestic deficit financing needs large and limit policy space. If external flows do not return, the agency said Mozambique could face choices between domestic debt relief, greater reliance on central bank facilities, or external debt workouts. Fiscal trajectory and debt burden Fitch estimated Mozambique’s general government deficit widened in 2024 and now expects government debt to fall more slowly from elevated levels than previously forecast. The agency projects a partial normalization of revenue in 2025 if the domestic environment stabilizes, but overall debt decline will likely be slower.

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Fitch warned that higher financing needs, a wider 2024 deficit and strained domestic debt servicing raise the risk Mozambique could face delayed payments, debt relief or an external workout if external financing does not return.

This article was created with AI assistance.