Last week, the government reinforced its domestic debt by placing 2.5 billion meticais (approximately 40 million dollars) in a Treasury Bond issue, completed on 23 October on the Mozambique Stock Exchange (BVM). This operation, which had a demand rate of 68.03 per cent, is the 12th series of issues this year, consolidating long-term domestic public financing, as reported by Lusa.
The issue, aimed at operators specialising in Treasury Bonds, authorised a maximum placement of 3.9 billion meticals, an amount that was not fully subscribed.
Unlike the previous series, there was moderate demand for this issue, with a fixed nominal interest rate of 14.5 per cent for the first four six-monthly payments, followed by a variable rate for subsequent periods.
In the previous operation, carried out on 7 October, the government raised 5.6 billion meticais, reflecting greater demand from investors. This continued growth in domestic debt issues is a response to the increase in the state’s financing needs, but it is also imposing additional pressures on the market.
The Bank of Mozambique recently warned of the impact of domestic debt on the sustainability of public finances. According to the central bank, domestic public debt stood at 402.7 billion meticals by the end of September, excluding loan and lease contracts and overdue bonds.
In 2024, the amount of domestic debt increased by 90.3 billion meticals, a trend that could jeopardise the state’s ability to manage its debt in a sustainable way.
The Ministry of Economy and Finance had already indicated in April that the rapid growth of domestic debt, combined with the increase in interest rates on Treasury Bills and Bonds, is making public financing more expensive.
The weighted average interest rate on the government’s loan portfolio rose from 5 per cent in 2021 to 6.5 per cent in 2023, accumulating an increase of 150 basis points in two years. This growth puts pressure on the public budget, especially in a context of greater concentration of maturities in the short term, which increases the risk of refinancing.
Domestic debt issues have been a central tool for Mozambique’s financial management, allowing the government to raise funds without resorting to external loans.
However, the rate at which this debt is growing raises concerns about long-term sustainability and the associated costs, at a time when interest rates are rising due to the global economic context.
