Fitch affirms Mozambique at ‘CC’

A full list of rating actions is at the end of this Rating Action Commentary. Mozambique’s ‘CC’ rating reflects Fitch’s view that some form of default appears probable within the rating horizon. Fitch expects that any IMF programme would require a liability management operation on the sovereign’s sole outstanding Eurobond, which would likely constitute a distressed debt exchange (DDE).

Absent an IMF programme, an outright default remains probable given severe financing constraints, near-stagnant growth, sharply widening external imbalances and persistent accumulation of domestic and external arrears. The government’s reliance on central bank financing underscores acute liquidity pressure. Restructuring remains probable:Fitch views a reprofiling of the sole Eurobond as probable, given the IMF’s assessment of Mozambique’s public debt as unsustainable under the current policy trajectory and the authorities’ commitment to a new IMF programme.

Fitch would treat any form of commercial debt reprofiling or liability management operation as a DDE if it involved any material reduction of terms, including a maturity extension. Fitch expects an IMF programme agreement by early 2027, but views implementation risks as significant given the likely scale of fiscal adjustment required and the social and political sensitivity of wage bill reforms and exchange-rate flexibility measures. Heightened default risk without programme:Should Mozambique fail to secure a new IMF programme or prove unable to adhere to its conditionality, we see a heightened risk of a default event.

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Official budget support would be unlikely to resume, leaving the central bank as the sole remaining source of additional financing. The financing gap is acute even excluding the early IMF repayment, with net external financing at -0.8% of GDP as external debt amortisation of 2.1% of GDP exceeds limited project-related inflows. Severe financing constraints:Government financing will continue to rely on domestic swap operations and central bank credit throughout 2026.

Domestic commercial banks have no appetite for net new sovereign credit. The USD701 million early IMF repayment in March 2026, channelled via the central bank’s balance sheet, represents additional quasi-monetary financing in Fitch’s view. Fiscal pressures and arrears:Fitch projects the 2026 fiscal deficit will widen to 2.9% of GDP, with the size of the deficit effectively capped by the legally binding limit on the central bank credit line, set at 10% of fiscal revenue collected in 2024.

Supplier and debt arrears continue to accumulate, with their resolution contingent on fiscal space materialising and participant’s willingness to participate in securitisation operations. Fiscal space severely constrained:With the wage bill and interest payments absorbing about two thirds of spending, we project capex will fall to 4.1% of GDP in 2026 from 4.7% as the main spending adjustment available. Revenue upside is limited, as the already relatively high revenue-to-GDP ratio of above 25%, one of the highest among regional peers, leaves little room for further fiscal mobilisation in a low growth environment.

Government debt rising:We project total government debt, including ENH’s (Empresa Nacional de Hidrocarboneto) liquefied natural gas (LNG)-related liabilities, to rise to about 98% of GDP in 2026 and to exceed 100% in 2027, well above the ‘B’/’C’/’D’ peer median of 63%. Domestic debt will continue to increase to 38% of GDP in the absence of external financing. We project meaningful debt reduction to start only in 2029 as LNG revenue materialises, and IMF programme-related fiscal consolidation takes effect.

Strained FX conditions:We project the current account deficit will widen to 40% of GDP in 2026, driven by LNG construction imports, while coal and Mozal disruptions weigh on exports, and expect the deficit to be fully financed by LNG-related FDI. FX market conditions remain strained, with importers reporting significant difficulties sourcing FC. We project reserves will recover to USD3.8 billion by end-2026 (4.4 months of non-megaproject imports), following a sharp decline in March 2026 as a result of the early repayment to the IMF.

Near-term growth fragile:Fitch forecasts 2026 real GDP growth of 0.8%, following a 0.5% contraction in 2025, with challenges from flood-related coal disruptions, the Mozal smelter closure, fuel pressures driven by the Iran war and anticipated El Niño-related agricultural risks. The restart of onshore LNG construction provides a partial offset. TotalEnergies targets first LNG production in 2029 and ExxonMobil is expected to reach a final investment decision by 3Q26, supporting potentially double-digit growth for several years from 2029.

Inflationrebounding:Annual inflation reached 7.5% year-on-year in June 2026 from 3.2% at end-2025, following fuel price adjustments in May 2026. Fitch expects inflation to remain sticky near current levels, as food inflation may accelerate through lagged pass-through of fuel and import costs as well as seasonal effects.

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