Mozambique's ability to restore stability to its public finances remains under heavy pressure. The credit rating agency Fitch Ratings has decided to keep the country's sovereign rating at “CC”, one of the lowest levels on its scale, reinforcing the assessment that a restructuring of public debt or some form of default remains a likely scenario.
The decision, announced on 24 July, confirms the downgrade of the rating that took place in April, when it moved from “CCC” to “CC”. Although this grade does not mean that Mozambique has defaulted, it is a strong signal that the agency regards as high the probability that the State will renegotiate the terms of its debt in order to restore financial sustainability.
At the centre of the concerns is the country's only sovereign Eurobond, valued at around 900 million dollars and maturing in 2031. Fitch admits that this bond could become part of a future restructuring process, which might include measures such as extending payment deadlines, reducing interest or other changes to the terms originally agreed with creditors.
The agency also believes Mozambique could reach a new agreement with the International Monetary Fund (IMF) in early 2027. A programme of this kind would serve to support the adjustment of the public accounts, facilitate access to financing on more favourable terms and strengthen the confidence of international partners. Even so, Fitch warns that implementing the required reforms will face significant political, social and operational challenges.
Among the main constraints identified is the weight of current expenditure. The State's wage bill and interest charges absorb around two thirds of public spending, reducing the room available for investment, infrastructure and the delivery of essential services. At the same time, the agency forecasts the budget deficit rising to 2.9% of GDP in 2026, while public investment is expected to fall from 4.7% to 4.1% of GDP.
Fitch also considers that there is little room to increase the tax burden, arguing that boosting revenue should come mainly from broadening the tax base, combating tax evasion and improving tax administration. At the same time, it warns of commercial banks' growing reluctance to increase their exposure to public debt, a situation that could force the Government to keep turning to the Bank of Mozambique to meet financing needs, increasing the risks to macroeconomic stability.
The agency acknowledges that the large natural gas projects in the Rovuma Basin could transform the Mozambican economy in the medium and long term, boosting growth, exports and tax revenue. However, it stresses that these benefits do not yet resolve the current problems of liquidity, access to foreign exchange and debt sustainability.
For Fitch, the recovery of financial credibility will depend not only on a possible renegotiation of the debt or a new IMF programme, but also on the State's ability to control spending, improve the management of public finances and create conditions for future economic growth to be underpinned by a sounder and more predictable fiscal policy.
