Ongoing unrest in Mozambique, triggered by disputed elections, has heightened the risk of a debt default, according to S&P Global Ratings. The protests, which erupted after opposition presidential candidate Venâncio Mondlane called for a nationwide shutdown over alleged electoral fraud, have devastated the nation’s economy and worsened its already precarious financial situation.
S&P had downgraded Mozambique’s local currency debt rating to CCC on October 18, before the protests intensified, citing concerns about the government’s ability to service its debt. The civil unrest, including violent clashes between protesters and authorities, has further strained the country’s finances. S&P analyst Leon Bezuidenhout warned that unless Mozambique finds additional revenue or makes sharp fiscal adjustments, it may face distressed restructuring or delays in repaying domestic debt.
The protests have resulted in significant economic disruption, with large portions of the economy shut down. Demonstrators have attacked police stations, torched buildings, and temporarily closed the main border crossing with South Africa. According to the Center for Democracy and Human Rights, at least 40 people have died since the protests began.
Adding to the economic pressure, Mondlane has called for a shutdown of major trade routes, exacerbating the situation. Mozambique’s finances were already under pressure due to overspending on civil servants’ salaries and the escalating costs of fighting an insurgency in Cabo Delgado province. The insurgency has delayed the anticipated revenues from major natural gas projects.
Mozambique’s largest business association estimated that the election-related unrest has caused economic losses of nearly $390 million, or 2.2% of the country’s GDP. These disruptions have increased the likelihood of further delays to a $20 billion liquefied natural gas project led by TotalEnergies SE.
Mozambique, effectively shut out of international debt markets since 2016, has relied heavily on selling domestic bonds to finance its budget deficit, which S&P expects to average 4.3% from 2024 to 2027. The government has also increasingly borrowed from the central bank, leading to a doubling of its local currency debt since 2020. However, liquidity challenges are mounting, and there are concerns that these may turn into solvency issues due to upcoming debt maturities.
S&P believes that the Mozambican currency, the metical, is overvalued by as much as 40%, with the real effective exchange rate near its highest level since 2015. Though the currency has remained stable since September 2021, the International Monetary Fund (IMF) has flagged a foreign exchange demand backlog of $440 million as of October, indicating the country’s difficulty in managing its currency.
As the protests persist, any devaluation of the metical could spark inflation and further instability. Police Chief Bernardino Rafael has labeled the protests as “urban terrorism,” but opposition leader Mondlane has urged demonstrators to remain peaceful.
In response to the unrest, President Filipe Nyusi convened an extraordinary meeting of the National Defense and Security Council, which struck a more conciliatory tone, urging the security forces to prioritize dialogue in addressing the crisis. However, the continued unrest and economic strain signal that Mozambique’s financial troubles are far from over, with a potential debt default looming.
