Mozambique faces largest increase of public debt to GDP ratio, to top 100% next year, says Fitch
On Thursday 13 October, Fitch Ratings said that Mozambique’s ratio of public debt to GDP will increase between 2012 and 2017, when it will top 100%.
“Mozambique will experience the largest increase in the ratio of debt to GDP
between 2012 and 2017 (60 percentage points)”, the latest quarterly Fitch report on emerging markets reads. The report focuses on public debt in sub-Saharan Africa, and was sent to investors this week.
In July, Fitch set Mozambique’s sovereign debt rating at ‘junk’, meaning that it does not recommend purchase. It had already warned that its projections pointed to an increase in Mozambican public debt to 97.8% of GDP this year and 100.1% in 2017, before declining to 90.7% in 2018.
The rise of the rate of public debt to GDP is explained not only by accounting for undeclared loans raised since 2013 worth nearly US$2-billion, but the slowdown in GDP growth, which this year is expected to increase only 3.7% compared to 6.6% last year.
“Sovereign debt levels and the costs of servicing that debt have risen in subSaharan Africa in recent years and will continue to rise”, the report says, noting that although the debt has a strong concessionary component, “its increase makes fiscal consolidation more difficult”.
The average debt to GDP ratio for countries whose sovereign debt is analyzed by Fitch increased from 30.2% in 2011 to 49.7% in 2015, and looks to rise to 51.4% this year and 53.2% in 2017.
This increase is explained, says Fitch, by the decline in the price of raw materials and dependence on investment in infrastructure to boost GDP growth.
The increase in public debt and its share of GDP have caused interest costs as a percentage of revenues in sub-Saharan African countries to rise from 4.8% in 2011 to 9.1% this year, expected to approach 10% next year.
“The growth of debt service costs is an obstacle to fiscal consolidation among sub-Saharan African countries, and greater or equal deficits will lead to greater increases in government debt, driving debt ratios up”, says Fitch.
The rating agency, according to whom “debt ratios are not likely to fall” in the near future, warns that, in addition to the increase in debt, US Federal Reserve monetary policy, the rise of the dollar against these currencies and the volatility of capital flows will lead to more difficult financing conditions.
The result is that “six of the 18 subSaharan countries analyzed by Fitch are currently looking at negative evolution, with no positive prospects”.
Among Portuguese-speaking countries, Angola saw its assessment downgraded by Fitch to ‘B’ on 23 September. Mozambique is currently in ‘DC’, which is equivalent to a financial noncompliance or ‘default’, and on Thursday, Consultancy Company Exotics recommended its clients sell Mozambique sovereign bonds maturing in 2023, citing financial difficulties.
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