Mozambique’s Internal Debt Exchange Reflects Economic Pressure and Challenges

Mozambique’s government exchanged 2021 internal debt for a new issuance worth 52.9 million euros, marking 2024’s first financial operation. Demand for the issuance was robust, though below the maximum limit set. Interest payments on national debt are rising, reflecting increased economic pressures, with public debt surpassing 15.8 billion euros, indicating a worrying trend in financial sustainability.

On Tuesday, the Mozambican government successfully exchanged an internal debt issuance from 2021 for a new one, amounting to over 3,694 million meticais (approximately 52.9 million euros). This marked the first financial operation of the year. The Mozambique Stock Exchange (BVM) indicated that the exchange’s maximum limit was set at 5.2 billion meticais (about 74.5 million euros), indicating that the demand did not reach the specified cap.

The BVM reported that the total demand for the issue reached 3,744.2 million meticais (around 54.1 million euros), resulting in a demand-to-supply ratio of 72%. This included 71.04% for the exchange of Treasury Bonds (OT) and 0.96% for new allocations. The operation’s total amount issued was 3,694,208,500 meticais (52.9 million euros), effectively covering 98.66% of the total for the exchange for 2021 OT – third series for 2025 OT – first series, along with 50 million meticais (approximately 716.6 thousand euros) in new allocations.

Lusa reported a 12% increase in interest charges on Mozambique’s debt for 2024, which totaled 57.608 billion meticais (857.4 million euros). This figure reflected an increase from the previous year’s debt burden costs of 49,929 million meticais (743 million euros). Specifically, domestic debt interest payments surged 13% to over 45,691 million meticais (680 million euros), while interest on external debt approached 11,395 million meticais (177.6 million euros), marking a 9.5% year-on-year rise.

As of 2024, the public debt of Mozambique surpassed one billion meticais (15.8 billion euros), signifying a 9% annual increase. Reports indicated that from January to December, the state’s debt rose to nearly 1.069 billion meticais. By December 31, domestic debt reached over 407,085 million meticais (6,139 million euros) and external debt surpassed 636,548 million meticais (9,600 million euros).

A recent public debt report from the Mozambican Ministry of Economy and Finance expressed concerns regarding the accelerating growth of domestic debt, citing that ongoing rates could push the domestic debt to 50% parity with foreign debt by 2029. The report highlighted potential difficulties in reversing the unsustainable debt situation within this generation.

Moreover, the document noted that increases in interest rates on both short-term Treasury Bills (BT) and longer-term Treasury Operations (OT) had raised domestic financing costs. This has been accompanied by a cumulative increase in the average interest rate on the government’s loan portfolio, rising from 5% in 2021 to 6.5% in 2023. Attention was also drawn to refinancing risks associated with the growing concentration of public debt maturities in the short term, representing a significant vulnerability for the economy.

The Mozambican government’s recent exchange of internal debt showcases its ongoing efforts to manage public finance amid increasing pressure from growing debt. With significant increases in interest payments and concerns surrounding sustainability, the country’s public debt strategies will need careful monitoring and management to mitigate risks and ensure economic stability.

Original Source: clubofmozambique.com