Moody's Cuts Mozambique Rating to Caa3 Amid Debt Strains
Mozambique loses one rating notch as external arrears hit $328 million. The agency sees rising risks for restructuring private-sector foreign debt.
Key points
- Moody's downgraded Mozambique's foreign-currency rating to Caa3 from Caa2, keeping a stable outlook.
- External debt arrears reached $328 million, or 1.3% of GDP, by the end of 2025.
- Wages and interest payments consume 80% of government revenue, limiting fiscal buffers.
Moody's Ratings cut Mozambique's foreign-currency rating to Caa3 on Friday. The move reflects a one-notch reduction from Caa2. The agency maintains a stable outlook despite the downgrade.
Financing pressures have shifted from domestic to external debt. External arrears reached $328 million by year-end. This sum equals 1.3% of the country's GDP. Access to foreign currency resources remains severely constrained.
External Debt Pressures Worsen
Net external financing has been negative since 2022. Banks and companies face delays in obtaining foreign currency. The parallel-market exchange rate is 10% to 15% weaker than the official rate. The central bank has tightened capital-flow restrictions in response.
Gross international reserves stood at $3.5 billion in mid-2026. This covers 4.3 months of non-megaproject imports. High refinancing needs limit the capacity to clear arrears. Fiscal buffers are thin before major principal payments begin.
Fiscal Constraints Limit Fiscal Flexibility
Wages and interest payments absorb about 80% of government revenue. This leaves little room for new spending or arrears clearance. The government relies on switch auctions to roll over domestic debt. Moody's classifies these exchanges as distressed defaults.
The local-currency rating remains at Caa3. Domestic financing conditions stay severely constrained. The agency notes limited capacity to clear arrears. Liquidity management depends on maturity extensions and central bank advances.
Stable Outlook Reflects Balanced Risks
Moody's views risks as balanced at the Caa3 level. Improved external financing access could reduce restructuring risk. Progress on large-scale LNG projects may strengthen foreign-exchange earnings. These projects could boost repayment capacity from early next decade.
