Mozambique's Public Debt Sustainability Improves for Second Year, Excluding ENH's Billion-Dollar Debts

Mozambique's public debt sustainability is improving for the second consecutive year, according to Standard & Poor's (S&P) financial rating agency. The country's economy is expected to grow by an average of 5.5% between 2024-2027, largely driven by the extractive sector and the construction of the TotalEnergies gas project. However, Mozambique faces major challenges until 2028 when the major gas projects are expected to begin.

S&P has maintained Mozambique's rating at CCC+, with a stable outlook, citing the high current financial risks despite the positive long-term prospects from the gas projects. The agency recognizes that the government is implementing measures to improve public account management and consolidate finances, but the risks of budget slippage remain due to high costs of wage reforms, climate-related shocks, rising debt servicing costs, and election-related expenditures.

Mozambique's Minister of Economy and Finance, Max Tonela, presented a positive outlook on the country's economic recovery during the Spring Meetings in Washington D.C. The path to recovery is attributed to growth in sectors like agriculture, transport, and the extractive industry, as well as the stability of the national currency, investments in natural resources projects, and support from cooperation partners.

The government has implemented reforms to improve the business environment, including the Economic Stimulus Package (PAE), which aims to develop a more conducive business environment. Fiscal prudence and debt management have also been a focus, with the World Bank commending Mozambique's efforts to maintain a solid fiscal policy and improve domestic revenue collection. The country is also undertaking reforms to broaden its tax base and modernize revenue collection.

Why this matters: Mozambique's improving public debt sustainability and economic recovery efforts are drawing international attention, positioning the country as a notable example of economic progress within the African continent. The successful implementation of reforms and the anticipated growth from major gas projects could have significant implications for Mozambique's long-term economic stability and development.

Mozambique's resilience and commitment to economic reforms have been recognized by the IMF and World Bank, who have been providing support through a medium-term program. "Mozambique's economic performance has drawn international attention, with the country being seen as a notable example of economic progress within the African continent," stated a recent report by S&P. The CTA believes that tension in the Middle East may affect the Mozambican economy.

Key Takeaways

• Mozambique's public debt sustainability improving for 2nd consecutive year.
• Economy expected to grow 5.5% in 2022-2027, driven by extractives and gas projects.
• S&P maintains Mozambique's rating at CCC+ with stable outlook, citing high financial risks.
• Govt implementing reforms to improve business environment, fiscal prudence, and revenue collection.
• Mozambique's economic progress drawing international attention as notable African example.