Moody’s downgrades Mozambique to B3

Moody's Investors Service said it downgraded Mozambique's issuer rating to B3 from B2, maintaining the rating on review for downgrade.

Concurrently, the agency lowered Mozambique's foreign-currency deposit ceiling to Caa1 from B3, and local-currency bond and deposit ceilings to B1 from Ba3.The foreign-currency bond ceiling remains unchanged at B1.

This extends the review for downgrade of Mozambique's sovereign rating initiated on Dec. 17.

Moody’s said the key driver for the downgrade is Mozambique's deteriorating balance of payments position and reduced capacity for the government to service its outstanding debt, as evidenced by declining foreign exchange reserves of the Bank of Mozambique and the government's decision to initiate a debt exchange offer to reduce the drain on foreign exchange reserves in coming years.

The continuing review for downgrade will allow the agency to assess the implications of the proposed debt exchange on the government's willingness and capacity to service its debt obligations. The EMATUM notes exchange proposal, announced on March 9, will likely constitute a distressed exchange according to Moody's definition. Moody's will also assess the potential severity of the pressures on Mozambique's balance of payments and the reserve position of the Bank of Mozambique in the absence of a permanent liquidity backstop.

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