Mozambique recently exchanged over 3,694 million meticais (52.9 million euros) in internal debt, reflecting a cautious management of public finances. The government faces rising debt interest charges projected to increase by 12% in 2024, with public debt stock exceeding one billion meticais. The 2023 report warns that persistent growth in domestic debt risks fiscal sustainability, requiring careful oversight.
On Tuesday, the government of Mozambique executed an internal debt exchange for an amount over 3,694 million meticais, equivalent to 52.9 million euros. This operation, marking the first for the year, was reported by Lusa based on data from the Mozambique Stock Exchange (BVM). Notably, the exchange reached only a fraction of the maximum limit of 5.2 billion meticais (74.5 million euros) set for this internal debt operation.
The Mozambique Stock Exchange indicated a total bid for the issue amounting to 3,744.2 million meticais (54.1 million euros), yielding a demand-supply ratio of 72%. Within this, 71.04% represented demands for exchanging Treasury Bonds (OT), while 0.96% pertained to new allocations. The issuance, therefore, amounted to approximately 3,694,208,500 meticais, achieving 98.66% of the total, including 50 million meticais in novel allocations.
Recent reports suggest that Mozambique’s debt interest charges are projected to rise by 12% in 2024, reaching 57.608 billion meticais (857.4 million euros). This figure contrasts the 49,929 million meticais spent in 2023 on debt servicing. Notably, interest on domestic debt is predicted to increase by 13% in 2024, while external debt payments will also see a 9.5% uptick.
By the end of 2024, Mozambique’s public debt stock is expected to surpass one billion meticais (15.8 billion euros), reflecting a 9% annual increase. Specifically, domestic debt reached over 407,085 million meticais (6,139 million euros), while external obligations exceeded 636,548 million meticais (9,600 million euros). The rise is attributed to short-term debt issues through Treasury Bills, promoting concerns about unsustainability in the debt structure.
As articulated in the 2023 public debt report from the Ministry of Economy and Finance, continued growth in domestic debt poses threats to its sustainability. If the current trajectory persists, a potential equal distribution between domestic and foreign debt may arise by 2029, leading to a predominance of commercial instruments in the portfolio.
Moreover, rising interest rates on Treasury Bills and Operations are increasing the costs of domestic financing, culminating in a heightened average interest rate on the government’s loan portfolio. The average rate climbed from 5% in 2021 to 6.5% in 2023, signifying a total increase of 150 basis points. This situation raises refinancing risks due to a short maturity concentration in public debt, underscoring significant vulnerabilities ahead.
In conclusion, Mozambique’s recent internal debt exchange of 52.9 million euros reflects a cautious approach to managing its public finance amidst rising debt interest obligations. The increase in domestic and external debt, compounded by rising interest rates, signals a growing fiscal vulnerability. If left unchecked, the trajectory of debt growth could threaten the sustainability of its fiscal framework, necessitating strategic management to mitigate refinancing risks and maintain economic stability.
Original Source: clubofmozambique.com
