Mozambique’s Post-Election Crisis and Domestic Debt Woes Trigger Fitch Downgrade to 'CCC'

Despite the government’s attempts to extend debt maturities through bond swap auctions, Fitch warns that financing needs remain high, exposing Mozambique to liquidity shocks. While foreign exchange reserves have remained stable, uncertainty over external funding flows raises the risk of missed foreign currency debt payments. On the domestic front, delays in servicing government debt have intensified in the fourth quarter of 2024, largely due to revenue shortfalls exacerbated by the post-election turmoil.

The government's reliance on bond swap auctions has provided short-term relief but falls short of a comprehensive debt restructuring, which remains unlikely due to the high concentration of domestic creditors in major local banks and the state pension fund. Additionally, the central bank’s overdraft facility offers limited fiscal breathing room. Meanwhile, Mozambique faces an annual $80 million coupon payment on its sole Eurobond, a figure set to rise to approximately $250 million per year from 2028 onward.

The country’s budget deficit surged to 6.5% of GDP in 2024, driven by revenue losses linked to the political crisis. In response, the government has curtailed certain expenditures, but persistent social and political tensions have delayed the drafting of the 2025 national budget. While some degree of political stabilization could help normalize revenue collection in 2025, Fitch forecasts a still-high fiscal deficit of 4.4%—insufficient to significantly curb Mozambique’s rising debt burden in the near term.

Fitch projects Mozambique’s total public debt to reach 93.8% of GDP in 2024 and 93.4% in 2026, factoring in liabilities linked to the unresolved “hidden debt” scandal. These figures represent a more pessimistic outlook than previous estimates, signaling prolonged debt sustainability risks.

The downgrade also casts doubt on Mozambique’s ability to secure continued financial support from international lenders, particularly the IMF. Delays in finalizing the fifth review of the country’s Extended Credit Facility (ECF) agreement further complicate the government’s fiscal outlook. Fitch warns that Mozambique is likely to miss key budgetary performance criteria, reflecting both political pressures and structural difficulties in controlling the public sector wage bill.

By lowering Mozambique’s rating to “CCC,” Fitch underscores the country’s escalating financial constraints, combining political uncertainty, fiscal fragility, and an elevated risk of default in the coming years.