Mozambique: H1 domestic debt €5.193B mainly due to treasury bill, bond issues

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Mozambique: H1 domestic debt €5.193B mainly due to treasury bill, bond issues

8:08 CAT | 23 Aug 2024

File photo: Banco de Moçambique

Mozambique’s domestic debt stock totalled 367.121 billion meticais ( €5.193 billion) in the first half of the year, 17% more than at the end of 2023, according to budget execution data to which Lusa had access on Thursday.

According to the report from the Ministry of Economy and Finance, this stock compares with 313.780 billion meticais (€4.438 billion) on December 31, 2023, and results mainly from new issues of Treasury Bills (BT, shorter maturities) and Treasury Bonds (OT, longer maturities) worth 135.053 billion meticais (€1.910 billion).

In contrast, the Mozambican state made repayments of its domestic public debt in the same period in the amount of 81.713 billion meticais (€1.150 billion) – mainly of short-term treasury bills.

“Regarding the repayment of domestic debt, in addition to the amount corresponding to the payment of OT and Bank Financing, the amount of 437.8 billion meticais (€6.1 billion) was also disbursed, corresponding to the payment of debts with suppliers of goods and services from previous years, within the scope of Fiscal Restructuring and Consolidation,” the report details.

Therefore, at the end of June, the accumulated stock of public debt amounted to 1.016 trillion meticais (€14.376.6 billion), of which almost 649.365 billion meticais (€9,184 billion) was external debt.

In July, the International Monetary Fund (IMF) expressed concern about Mozambique’s dependence on issuing short-term public debt, saying it increases the country’s “financing risks”.

“The extensive reliance on short-term domestic debt in recent years has increased refinancing risks for the government Domestic debt increased from 19% of GDP in 2019 to a peak of around 28% of GDP in 2022,” the IMF noted in its report on the fourth review of the Extended Credit Facility (ECF) program, completed in July.

Although medium-term debt “had the largest share of domestic debt”, equivalent to 50% of the total last year, the IMF also highlighted that “short-term debt increased from 19 to 27% of total domestic debt between 2019 and 2023”.

“In a context of rising yields” of sovereign debt, the IMF said that the Mozambican authorities had “been reluctant to accept higher yields of long-term domestic debt” and that this is reflected “in the bid ratios of Treasury Bond auctions, that often fall below 100%, with the average ratio for April and May 2024 at 62%.

“The spread of Treasury bill rates [shorter maturities] over the monetary policy rate has also increased over the last year, from around 50 basis points [for one-year maturities] at the beginning of 2023, to over 200 basis points in April 2024,” the IMF report noted.

It added that “given the high level of external debt” Mozambique’s financing plan “depends only on concessional loans” and that the World Bank and African Development Bank are planning grants to the 2024 state budget of $150 million (€137.2 million) and $20 million (€18.3 million), respectively.

“The authorities are also considering loans from Italy, the Arab Bank for Economic Development in Africa (BADEA) and the Islamic Development Bank, although this remains below the programme’s debt ceiling,” based on information from the government, the IMF adds.

Source: Lusa