Maputo, July 19, 2024 (Lusa) - The International Monetary Fund has expressed concerns about Mozambique's dependence on issuing short-term public debt, as this increases the country's "financing risks," it said in a report on the fourth evaluation of the country's Extended Credit Facility (ECF) programme, which was concluded this month.
"The extensive reliance on short-term domestic debt in recent years has increased refinancing risks for the government points out the IMF in the report, consulted on Friday by Lusa. "Domestic debt increased from 19% of GDP in 2019 to a peak of around 28% of GDP in 2022."
Although medium-term debt "has the largest share in domestic debt," equivalent to 50% of the total last year, the IMF also points out that "short-term debt increased from 19 to 27% of total domestic debt between 2019 and 2023.
"In a context of rising yelds" of sovereign debt, the IMF says that the Mozambican authorities “have been reluctant to accept higher yelds of long-term domestic debt” and that this is reflected “in the bid ratios of Treasury Bond auctions that often fall below 100%, with the average ratio for April and May 2024 at 62%.
"The spread of Treasury bill rates [shorter maturities] over the monetary policy rate has also increased over the last year, from around 50 basis points [for one-year maturities] at the beginning of 2023, to over 200 basis points in April 2024," the report notes.
It says that "given the high level of external debt" Mozambique's financing plan "depends only on concessional loans" and that the World Bank and African Development Bank are planning grants to the 2024 state budget of $150 million (€137.2 million) and $20 million (€18.3 million), respectively.
"The authorities are also considering loans from Italy, the Arab Bank for Economic Development in Africa (BADEA) and the Islamic Development Bank, although this remains below the programme's debt ceiling," adds the IMF, based on information from the government.
This week Mozambique placed 824 million meticais (€11.8 million) in a Treasury Bond (OT) issue, with demand almost doubling supply.
According to information from the Mozambique Stock Exchange (BVM), this operation took place on Tuesday and the bids submitted by the specialised OT operators indicate that overall demand was 1.511 billion meticais (€21.6 million), meaning that demand was 183.37% of supply.
The issue (the eighth series of 2024), directly subscribed by specialised operators, which raised the amount sought by the state, was closed with a yield rate of 16% and has a maturity of five years. This is the second operation of its kind on the stock exchange this month, after on 2 July the state placed 2.270 billion meticais (€32.5 million) in bonds, also through direct subscription by specialised operators (in a reopening of the seventh series of 2024) with a maturity of five years.
Domestic public debt issued by Mozambique totals 364.251 billion meticais (€5.213 billion), after growing by the equivalent of more than €740 million in five months, according to data from the central bank.
According to the Economic Situation and Inflation Outlook report for May, domestic public debt contracted between December 2023 and May increased by around 51.910 billion meticais (€743 million).
Overall, the debt issued domestically at the time represented the equivalent of 23.7% of Mozambique's gross domestic product, and was essentially made up of Treasury Bills (BTs, with a stock on 28 May of €99.853 billion meticais (€1.429 billion), and OTs, which totalled 169.089 million meticais (€2.420 billion).
PVJ/ARO // ARO.
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