Fitch worsens economic forecasts for Mozambique

The financial rating agency Fitch maintained Mozambique's rating at CCC, but revised its macroeconomic forecasts downwards again due to the post-election protests, now predicting "marginal" economic growth of 2.5% this year.

In its most recent rating assessment, dated August 1 and consulted today by Lusa, Fitch states that the growth forecast rose to 3.4% in 2026 and 4% in 2027, reflecting “mainly the premise of resumption” of construction of the $20 billion (€17.2 billion) Liquefied Natural Gas (LNG) megaproject by TotalEnergies, in Area 1 of the Rovuma Basin, in Cabo Delgado, suspended since 2021 due to terrorist attacks, assuming the resumption of work in the “fourth quarter of 2025”.

"Real GDP [Gross Domestic Product] growth slowed significantly to 2.2% in 2024, down from 5.5% in 2023, primarily reflecting the broad negative impact of post-election violence on economic activity in the final quarter of the year. We expect growth to increase only marginally to 2.5% in 2025, reflecting the contraction in the first quarter and the dampening effects of foreign exchange shortages on business activity," the assessment adds.

The CCC rating is the last level before Financial Default on the Fitch scale.

In its previous assessment, on February 7, Fitch had downgraded Mozambique's rating to CCC and had also worsened its macroeconomic forecasts following the post-election protests, forecasting economic growth of 3.2% for this year, now revised downwards again.

In downgrading Mozambique's rating to CCC, decided in February and confirmed in August, Fitch also took into account financial constraints, high risks in servicing domestic debt, widening of the budget deficit, high public debt and political and social unrest, in addition to a slowdown in economic activity and uncertainty in foreign currency reserves and the resumption of natural gas projects.

In Fitch's assessment, analysts mention concerns about the increase in Mozambique's budget deficit, following the social unrest lasting several months after the general elections of October 9, and the suspension of the support program with the International Monetary Fund (IMF), as well as the exchange of domestic debt issues, central bank loans and short-term financing that "are being used to pay down debt", while "large financing needs represent a significant vulnerability".

Furthermore, the fiscal deficit increased to 4.9% of GDP in 2024, compared to 2.1% in 2023, "mainly reflecting a drop in subsidies and some impact of post-election violence on revenue collection", but Fitch says it expects the deficit to decrease to 3.4% of GDP in 2025 and, in 2026, to 3.6%, "mainly due to the fall in expenditures".