Mozambique: Authorities place €1.8M in treasury bond issue

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Mozambique: Authorities place €1.8M in treasury bond issue

10:45 CAT | 09 Aug 2024

File photo: Lusa

Mozambique placed 125 million meticais (€1.8 million) in a Treasury Bond issue this week, with demand exceeding supply by five times, according to official data to which Lusa had access on Thursday.

According to information from the Mozambique stock market (BVM), this operation took place on Tuesday and the bids submitted by the Specialized Treasury Bond Operators indicate that the demand and supply ratio was 270.17%, reaching 643 million meticais (€9.2 million).

The issue (ninth series of 2024), directly subscribed by the Specialized Operators, raised a value below the maximum foreseen in the initial notice, which was 238 million meticais (€3.4 million), with a maturity of five years.

The domestic public debt issued by Mozambique reached 364.251 billion meticais (€5.213 billion), after growing by the equivalent of more than €740 million in five months of 2024, according to data from the central bank previously published by Lusa.

According to the Economic Situation and Inflation Outlook report for May, domestic public debt contracted between December 2023 and May of this year, excluding that resulting from loan contracts, leases and overdue liabilities, “increased by around 51,910 million meticais”, equivalent to €743 million, by the end of May.

Overall, the debt issued domestically represented the equivalent of 23.7% of Mozambique’s gross domestic product (GDP) on the same date, and was essentially made up of Treasury Bills, with a stock on May 28 of 99.853 billion meticais (€1.429 billion), and Treasury Bonds, which amounted to 169.089 billion meticais (€2.420 billion), as well as 95.309 billion meticais (€1.364 billion) in advances at the Bank of Mozambique.

In April, the 2023 public debt report by the Mozambican ministry of the economy and finance warned of the rate of growth of domestic debt, which, if it continues, threatens the process of reversing its unsustainability: “If domestic debt continues to grow at the current rate over the next five years, the breakdown of the stock could balance at 50% domestic/50% external by 2029, with a portfolio dominated by purely commercial instruments, a scenario that would compromise the possibilities of reversing the unsustainability of the debt in this generation.”

As the interest rates on Treasury Bills (BT, short maturities) and Treasury Operations (OT, longer maturities) “have increased, the cost of domestic financing has been driving a continuous upward adjustment in the weighted average interest rate of the government’s loan portfolio”.

The rate went from “5% in 2021 to 5.8% in 2022 and now 6.5% in 2023, amounting to a cumulative increase of 150 basis points in two years,” says the report, which also warns that the “refinancing risk, reflected in the growing concentration of maturities” of public debt “in the short-term horizon, represents the greatest vulnerability.”

The domestic debt accumulated until December 31, 2023, amounted to the equivalent of US$4.911.3 billion (€4.616 billion). The weight of BT issues in the total stock rose from 4% in 2019 to 9% in 2023, while that of OT doubled to 16% in the same period.

Source: Lusa