The Ministry of Economy and Finance (MEF), in a report released on Tuesday (23), warned that the continued pace of growth in domestic debt could threaten the reversal process and make it unsustainable “in this generation”.
“If domestic debt continues to grow at the current rate over the next five years, the breakdown of the ‘stock’ could balance out by 2029 at 50 per cent domestic/50 per cent external, with a portfolio dominated by purely commercial instruments, a scenario that would jeopardise the chances of reversing the unsustainable debt situation in this generation,” said the institution quoted by Lusa.
The MEF explains that, as interest rates on Treasury Bills (BT, short maturities) and Treasury Operations (OT, 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.
“Having risen from 5 per cent in 2021 to 5.8 per cent in 2022 and now 6.5 per cent in 2023, totalling a cumulative increase of 150 basis points in two years, the refinancing risk, reflected in the growing concentration of public debt maturities in the short-term horizon, represents the greatest vulnerability,” the document reads.
According to the entity, Mozambique’s domestic debt, accumulated until 31 December 2023, amounted to the equivalent of 4.9 billion dollars (309.6 billion meticals). The weight of BT issues in the total stock of Mozambican debt went from 4 per cent in 2019 to 9 per cent in 2023, while the weight of OT went from 8 per cent to 16 per cent in the same period.
“In the last two years, the average time to maturity has fallen from ten to eight years. Just over a third of all the country’s debt matures within a year. In the current climate of pressure on the state treasury, this overloaded cycle of domestic debt maturities increases the risk of a scenario materialising over the course of the year in which dealing with overdue instalments through commercial refinancing will be the only option available to the government. The shock to the market resulting from a materialisation of this scenario would force banks to increase spread premiums, putting interest rates on a new cycle of acceleration,” the MEF report explains.
