Moody's Ratings cut Mozambique's credit assessment deeper into junk, lowering the rating by a notch to Caa3 on heightened risks the government will restructure its sole eurobond. The downgrade reflects that financing and payment pressures previously concentrated in the domestic debt market have spread to external debt. Mozambique has faced intense fiscal pressures over the past two years, as post-election violence battered an already struggling economy.

That has amplified debt-servicing difficulties, and Moody's said external arrears had by the end of last year increased to $328 million, equivalent to 1.3% of gross domestic product. While the government has stayed current on payments for its $900 million eurobond due 2031, the Caa3 rating is consistent with a debt restructuring that would constitute a default and result in investor losses of 20% to 35%. Mozambique has been in talks with the International Monetary Fund for a fresh bailout, and the Washington-based lender's mission ended on Friday.

Economic activity remains subdued but is showing signs of recovery, the fund said. The government said the next visit could be in November, and could lead to a staff-level agreement on a deal. The Moody's downgrade could surprise investors, who've pushed the price of Mozambique's dollar notes up by nearly 30% from their April lows to 94.88 cents, the highest since March 2020.

Companies led by Total Energies SE have been forging ahead with a $20 billion liquefied natural gas export project that could transform the economy of one of the world's poorest nations. Another Exxon Mobil Corp.-led group is set to approve another even bigger adjacent facility by year-end.