Standard & Poor’s (S&P) Ratings Services said on Wednesday it has assigned its B long-term and B short-term sovereign credit ratings to Mozambique. The outlook is positive.
“The ratings on Mozambique balance the constraints of low economic development, high government debt, large fiscal imbalances, and weak, although improving, external liquidity against the strength gained from high export-led GDP [gross domestic product] growth and strong donor support,” said S&P’s credit analyst Mame-Fatou Diagne.
The ratings are constrained by high, although declining, general government debt, estimated at 82,2% of GDP in 2004 (from 155,8% in 2000).
Mozambique reached the completion point under the Heavily Indebted Poor Countries initiative in September 2001. Progress on bilateral negotiations with certain creditors, however, has been slow.
General government deficits are also high, averaging 6,2% between 1999 and 2003. Mozambique’s revenue-raising capacity and expenditure flexibility are weak and the government budget is highly reliant on grants, which averaged 45,9% of total revenues from 1999 to 2003.
The ratings on Mozambique are supported by high export-led GDP growth — albeit from a low base — and strong donor support.
Buoyant exports and debt relief mean that external liquidity is expected to continue improving in the medium term.
Moreover, following the completion of “megaprojects” (including the Mozal aluminum smelter and Sasol natural gas pipeline), current account deficits are expected to narrow to an average of 5,5% from 2004 to 2006, from 12% in 2002.
Donors provide debt relief, grants and concessional loans for the country’s ambitious development programmes.
Mozambique is expected to continue to meet donor conditionalities in order to receive further external assistance.
With GDP per capita estimated at $267 in 2004, Mozambique is a low-income economy. That said, the country has received strong foreign direct investment inflows over the past decade, mainly due to its large and diversified resource base, the availability of cheap energy and its geographical proximity to South Africa.
With continued investment in industry and expansion in the services sector, GDP growth is expected to remain robust, at 7,2% per year on average from 2004 to 2006.
The government is expected to be able to reduce fiscal deficits while continuing to improve social indicators and infrastructure.
Mozambique should continue to benefit from strong external support in the form of grants and debt relief, while the government is expected to pursue the structural reforms needed to favour private-sector development and promote growth — even after the impact of the “megaprojects” abates.
“The ratings could therefore improve as a result of fiscal strengthening and a reduction in external vulnerability,” Diagne said.
“Equally, however, the ratings could come under pressure in the event of fiscal laxity or if political developments lead to a reduction in foreign assistance.” — I-Net Bridge