daniel chigunwe
The Fitch ratings agency predicts strong economic growth in Mozambique with real GDP growth expected to reach 6.4 percent this year and to average 4.9 percent over 2024-2025. This is a significant increase from the 4.2 percent growth rate seen last year.
In an analysis released on 11 August, Fitch states that this growth primarily reflects “a Liquefied Natural Gas-led increase in the output of the extractive sector, as the production capacity from ENI’s Coral South floating LNG platform increases to 70 percent and 90 percent in 2023 and 2024, respectively“.
However, Fitch has kept its key Long-Term Foreign-Currency Issuer Default Rating (IDR) rating for the country at CCC+ due to what it calls a “substantial credit risk” reflecting “elevated government debt levels, persistent fiscal deficits, weak public financial management, low GDP per capita, weak governance indicators and a challenging security situation”.
Despite this, Fitch welcomes “the agreement of a three-year US$456 million Extended Credit Facility with the International Monetary Fund in 2022, positive momentum in the development of the liquefied natural gas sector, and measures to address the fiscal slippage of 2022” which, it notes, “provide some support to creditworthiness”.
The rating agency also stresses the positive effect on the economy of “the resumption of the construction of Total’s US$20 billion LNG project, which we assume will begin in the first quarter of 2024, given the improvements in the security conditions in Cabo Delgado throughout 2023”.
According to Fitch’s analysis, the debt-to-GDP ratio will decline as a result of strong economic growth. In addition, it notes that the Mozambican currency, the metical, has been stable relative to the US dollar, although it warns that “renewed external pressures could lead to significant depreciation of the exchange rate”.
Fitch expects international reserves to increase from US$2.7 billion in 2022 to US$3 billion this year and US$3.5 billion by the end of 2025. This will be driven by lower food and fuel import costs, a marginal contribution from LNG exports, and the resumption of Total’s Rovuma Basin Area 1 project, of which 12.5 per cent of the total investment will have to be contracted domestically. — AIM
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