Bank of Mozambique warns of Increased exposure of banks to public debt

Login

Register

http://www.clubofmozambique.com/

Bank of Mozambique warns of Increased exposure of banks to public debt

2:02 CAT | 02 Jun 2025

File photo: Banco de Moçambique

The Bank of Mozambique claims that systemic risk in the country’s banking system is “moderate”, but warns of “increased exposure” to public debt.

“The systemic risk, which assesses the potential contagion effect resulting from disruptions in the banking system, is moderate. This assessment reflects the reduction in interest rates and the level of non-performing loans in the market, despite the increased exposure of the banking sector to public debt,” according to the central bank’s statement on the latest meeting of the central bank’s Monetary Policy Committee (CPMO), held on Friday.

“In fact, the domestic public debt, excluding loan and lease contracts and outstanding liabilities, stands at 445.9 billion meticais [€6.155 billion], which represents an increase of 30.3 billion meticais, [€418 million] compared to December 2024,” warns the central bank, in the same statement.

Lusa reported last week that the refinancing of Mozambican short-term domestic debt issues cost 19.211 billion meticais (€264 million) in the first three months of the year, but the Ministry of Finance doubts the effectiveness of the measure.

According to data from the Ministry of Finance’s report on the evolution of public debt from January to March, compared to December 2024, this represents an increase of 8.9% in the stock, corresponding to an additional 36,223 million meticais (€498.1 million), influenced by the refinancing of short-term debt.

“Although this is a liability management operation, with the aim of mitigating refinancing risks and improving the predictability of debt service, its effects have proven to be adverse due to refinancing under more onerous terms and conditions, contributing to the increase in the debt stock and raising concerns about the effectiveness of the strategy adopted and its sustainability in the medium term,” the report reads.

Furthermore, as acknowledged in the document, domestic debt – which closed the first quarter at 443,218 million meticais (€6,094 million) – “was aggravated by the issuance of debt in advance under the central bank’s Credit Facility”, in the amount of 21,600 million meticais, which represents a growth of 23.8%.

“This is a short-term operation with the objective of providing liquidity to the state treasury, the repayment of which should occur by December 31, 2025, and should therefore not have a permanent impact on the stock of domestic debt,” the document states.

The Mozambican government plans to hold five auctions this year to exchange domestically issued debt, totalling almost 26,223 million meticais (€365 million), according to a document from the Ministry of Finance previously reported by Lusa.

According to the document, regarding the situation of Mozambican public debt, the approval of ministerial diploma 87/2024 “marked the introduction of exchange auctions, within the scope of the reform measures recommended by the Medium-Term Debt Management Strategy”, for the period 2022-2025.

This is “one of the liability management operations implemented to improve the public debt profile”, it is justified, adding that five debt swap operations have been identified for this year – the first completed in March and another scheduled for May – concerning treasury bonds issued between 2020 and 2022, which mature in 2025.

Five identical debt swap operations are also planned for 2026, totaling three in 2027.

In March, the financial rating agency Standard & Poor’s downgraded the rating of Mozambique’s domestic public debt issues to Partial Default, due to delays in payments to creditors and changes in a debt issue, as previously reported by Lusa.

Source: Lusa