FitchRatings downgraded Mozambique's long-term foreign- and local-currency issuerdefault ratings to CCC from B, as well as its short-term issuer default ratingto C from B. The country ceiling was cut to B- from B.

Thedowngrade reflects the sharp deterioration of the sovereign's public debtprofile following the disclosure of additional state-guaranteed debt, which hadpreviously been excluded from official statistics, Fitch said April 29.The IMF estimates that the undisclosed debt to state-owned entities totals atleast $1 billion.

"Theterms of the loans are yet to be fully disclosed, including the extent to whichcross-default clauses could precipitate a credit event," the rating agencyadded, noting that the debt's commercial nature would weigh on Mozambique'sdebt-servicing schedule and sustainability.

However,the country has some of the weakest structural features of speculative gradesovereigns, Fitch said, adding that "very weak" institutional factorssuch as transparency and data quality were a major constraint on Mozambique'srating.

Therating agency said that Mozambique's banking sector continued to enjoy a"strong" performance in 2015, despite mounting macroeconomicchallenges. "There has been a deterioration interms of delinquent loans, but at 4.3% at end-2015, [nonperforming loans] arestill moderate and well provisioned."

Thelocal banking sector's foreign exchange exposure is "less pronounced"than other countries in the region.