Mozambique: State places €19M in 5-year bonds as ‘high debt pressure’ continues

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Mozambique: State places €19M in 5-year bonds as ‘high debt pressure’ continues

10:37 CAT | 12 Dec 2024

File photo: Noticias

This week Mozambique’s state debt agency placed 1.273 billion meticais (€19 million) of Treasury Bonds (OTs) with a maturity of five years, in a domestic issue via the Maputo stock market, according to official data to which Lusa had access on Wednesday.

According to information from the Mozambique Stock Exchange (BVM), the operation took place on Tuesday and the bids submitted by the Specialised Treasury Bond Operators indicate that the supply-to-demand ratio was 42.21%, with overall demand reaching 1.773 billion meticais (€26.5 million).

This OT issue, which consisted of the 13th series of 2024, for direct subscription by specialised operators, authorised the placement of up to 4.2 billion meticais (€62.6 million), with a nominal interest rate of 13.5% during the first four half-yearly interest payments and a variable rate in the last six payments.

The Bank of Mozambique recently acknowledged the “high pressure” on the economy caused by the state’s domestic indebtedness, which has already grown by 95.7 billion meticais (1,427 million euros) by 2024.

“The pressure on domestic public indebtedness remains high,” read a statement from the central bank released after the ordinary meeting of its Monetary Policy Committee (CPMO) on 27 November. “Domestic public indebtedness, excluding loan and lease contracts and outstanding liabilities, stands at 408.1 billion meticais” or €6.089 billion.

Domestic indebtedness has grown by around 5.5 billion meticais (€82 million) since the previous CPMO meeting on 30 September, according to information from the Bank of Mozambique consulted by Lusa.

According to the central bank, domestic debt relative to gross domestic product went from 18.1% in December 2020 to 26.5% in November this year.

The 2023 public debt report by Mozambique’s Ministry of Economy and Finance, released in April, warned of the pace of growth of domestic debt, saying that, if this continued, it would threaten efforts to reverse its unsustainability.

“If domestic debt continues to grow at the current rate over the next five years, the breakdown of the ‘stock’ could balance out at 50 per cent domestic/50 per cent external by 2029, with a portfolio dominated by purely commercial instruments, a scenario that would jeopardise the chances of reversing the unsustainability of the debt in this generation,” the report reads.

As yields on Treasury Bills (BTs) with short maturities and Treasury Bonds, with longer maturities “have risen, the cost of domestic financing has driven a continuous upward adjustment of the weighted average interest rate on the government’s loan portfolio,” it noted.

This average rate went from 5% in 2021 to 5.8% in 2022 and was 6.5% in 2023, “making for a cumulative increase of 150 basis points in two years,” the report noted, also warning that the “refinancing risk, reflected in the growing concentration of maturities” of public debt “on the short-term horizon, represents the greatest vulnerability.”

Mozambique’s accumulated domestic public indebtedness at 31 December 2023 amounted to the equivalent of $4.9113 billion (€4.682 billion). The weight of BT issues in the total stock rose from 4% in 2019 to 9% in 2023, while that of OTs doubled to 16% in the same period.

Source: Lusa