FILE – Signage is seen outside the Moody’s Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. [File photo: Reuters/Andrew Kelly]
Moody’s Ratings cut Mozambique’s sovereign rating by one notch to Caa3 late Friday.

The agency warned of “higher risks that the government restructures private-sector foreign-currency debt, including the eurobond,” as financing strains that were mainly domestic have now spread to external debt.

External arrears reached $328 million by year-end (1.3% of GDP), even as the country keeps paying its $900 million eurobond due 2031.

Moody’s Ratings downgraded Mozambique’s foreign-currency long-term issuer and senior unsecured debt ratings to Caa3 from Caa2 on Friday and affirmed the local-currency long-term issuer rating at Caa3. The outlook remains stable.

The downgrade reflects higher risks that the government restructures private-sector foreign-currency debt, including the eurobond. Financing and payment pressures previously concentrated in the domestic debt market have spread to external debt. Negative net external financing and rising arrears point to severely constrained access to foreign-currency resources. High debt refinancing needs leave limited capacity to clear arrears, while wages and interest payments absorbing about 80% of revenue limits fiscal buffers before eurobond principal payments begin in 2028.

Net external financing has been negative since 2022, while total external debt-service arrears reached $328 million, equivalent to 1.3% of GDP, at the end of 2025. Gross international reserves stood at $3.5 billion at the end of June 2026, equivalent to 4.3 months of non-megaproject imports. Banks and companies face delays in obtaining foreign currency, the parallel-market exchange rate remains approximately 10% to 15% weaker than the official rate, and the central bank has tightened foreign-exchange surrender requirements and capital-flow restrictions.

The affirmation of the local-currency long-term issuer rating at Caa3 reflects the continued use of switch auctions to roll over maturing domestic debt, which Moody’s classifies as distressed exchanges and therefore defaults. Domestic financing conditions remain severely constrained, leaving the government reliant on maturity extensions, short-term borrowing, central bank advances and point in time arrears to manage liquidity.

The stable outlook reflects Moody’s assessment that risks to Mozambique’s credit profile are balanced at the Caa3 rating level. Improved external financing access and policy adjustment could reduce restructuring risk or limit losses, as would progress on large-scale LNG projects, which would strengthen foreign-exchange earnings and repayment capacity from early next decade.

Source: Investing