“This means we end up with a nearly speculative debt instrument. Being speculative, few investors will want to have this title, this instrument, in their portfolio,” remarked Rogério Zandamela when queried by journalists at the conclusion of the Monetary Policy Committee meeting held today in Maputo.
“It undermines investor confidence. This has implications for external credit access for families, companies, and the state,” he added, highlighting the possibility that some investors might wish to “unload” their Mozambican debt securities.
Therefore, he noted, measures are necessary to “increase the rating” again within a “reasonable period.”
The financial rating agency Standard & Poor’s downgraded Mozambique’s domestic public debt issues to Selective Default due to payment delays to creditors and alterations in a debt issuance, as reported on Monday.
Carla Louveira, Mozambique’s Finance Minister, clarified today that the domestic debt swap auctions being conducted are part of the current public debt management strategy.
“We have some Treasury Bills that were issued in the past, whose terms expired this year. It fell to the Government to decide on simple closure, payment, or renewal. The strategy in place at the moment, until 2025, foresees what we call swap auctions,” the minister explained when asked by journalists on the sidelines of the inaugural parliamentary session in Maputo.
The Mozambican official insists that swap auctions are included in the current (2022-2025) debt management strategy, which will be reviewed by the new Government, to be inaugurated in January, for the period 2026 to 2029.
“What we are doing in the current period is essentially what is already outlined in the existing strategy,” she pointed out, adding that other efforts to “rethink the sustainability of the debt” will “be included in this reviewed strategy,” through an “inclusive process” with the financial system and the central bank.
“We are also working with our public debt advisors (…), from the World Bank, the International Monetary Fund, among others that also support the matter concerning our country’s debt,” Carla Louveira added.
S&P described that Mozambique “exchanged securities of a debt of 3.7 billion meticais [50 million euros] in local currency, maturing in March 2025, for securities with a longer maturity and lower interest rates, which mature in March 2030,” noting that “the continuous recourse to these liability management operations, coupled with a history of delays in internal debt payments, reflects Mozambique’s fiscal and liquidity constraints.”
S&P considers that “this transaction is problematic and amounts to a default” and said that for this reason, it downgraded the rating, or risk notation, “of local issues from CCC- to SD,” the initials standing for Selective Default.
Regarding foreign currency debt issues, which are typically more significant for investors, S&P states that the rating remains, as payments “continue to be modest,” but warns that “potential delays in gas projects and in the flows of external financial assistance, coupled with an uncertain outlook for external financing, increase pressures on public finances.”
Mozambique exchanged bonds maturing this month, with an annual coupon of 16.43%, for new five-year bonds with an interest rate of 14.25%, according to S&P, which recalls that “already in October last year, Mozambican authorities had exchanged 5.7 billion meticais (82 million euros) of four-year bonds, maturing in October 2024, for five-year bonds, maturing in October 2029.”
