The Bank of Mozambique said on Wednesday that the country’s ratio of public debt to Gross Domestic Product (GDP) worsened in the first half of the year, moving from the previous level of “high risk” to “severe risk” in June.
“This variation was influenced by the 2% increase in total debt, specifically the domestic component, which rose by around 10%, although the external component fell by approximately 2%. Year-on-year, the ratio of public debt to GDP remained at the severe risk level,” reads the Bank of Mozambique’s Financial Stability Bulletin for the first half of the year.
As a result, it adds, the ratio of public debt to GDP “worsened and went from high risk in December 2022 to severe risk in June 2023”.
It also noted that the “sovereign risk” last June “remained at the severe level, due to the maintenance of high levels of state indebtedness”.
At the end of the first half of this year, the stock of Mozambican public debt, issued internally and contracted externally, totalled 943.98 billion meticais (€13.7 billion), compared to 926.85 billion meticais (€13.4 billion) in December 2022 and 889.7 billion meticais (€12.915 million euros) in December 2021.
According to the Bank of Mozambique, in June 2023, the sub-index of the sovereign risk category stood at 87.5%, after 75% and 87.5% in December and June 2022, respectively.
Analysing the sub-indices that make up the risk category, Banco de Moçambique notes that the ratio of loans to the government to total credit stood at 38.87% in June, after 44.11% in December 2022 “and remained at the severe risk level”.
“In year-on-year terms, the ratio of loans to the government to total credit also remained at the severe risk level, despite the 6.51 percentage point reduction recorded in the period,” the report adds.
Mozambique’s debt servicing costs will grow by 18% in 2024, to more than 116.63 billion meticais (€1.712 billion euros), according to Mozambican government figures.
According to the documents supporting the proposal for the Economic and Social Plan and State Budget (PESOE) for 2024, under discussion in parliament, the cost of servicing Mozambique’s debt – interest payments and repayment of capital – is estimated to be the equivalent next year of 7.6% of the estimated GDP.
For this year, the government’s forecast for the cost of servicing the debt is 98,817 million meticais (1,451 million euros), equivalent to 7.5% of the GDP expected for 2023. In the previous year, the cost of servicing the debt was 72.36 billion meticais (€1.063 billion), with a weight of 6.1% of GDP.
The governor of the Bank of Mozambique recently recognised “the strong pressure on public spending” in the country “in a context of weak revenue collection and limited sources of external financing”, which “is contributing to an increase in fiscal risk and domestic indebtedness”.
“The increase in spending stems above all from the implementation of the wage reform and spending related to the electoral cycle,” he warned on 1 November.
