Lusa - Business News - Mozambique: Domestic debt growth a threat to turnaround this generation - report

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Lusa - Business News - Mozambique: Domestic debt growth a threat to turnaround this generation - report

Maputo, April,23,2024(Lusa)- A report by the Mozambican ministry of the economy and finance on public debt warns of the rate of growth of domestic debt, which, if it continues, threatens the process of reversing its unsustainability "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 at 50% domestic/50% external by 2029, with a portfolio dominated by purely commercial instruments, a scenario that would jeopardise the chances of reversing the unsustainability of the debt in this generation," reads the 2023 public debt report, to which Lusa had access on Tuesday.
It adds that, as interest rates on Treasury Bills (BT, short maturities) and Treasury Operations (OT, longer maturities) "have increased, the cost of domestic financing has been driving a continuous upward adjustment in the weighted average interest rate of the government's loan portfolio".
"From 5 % in 2021 to 5.8 % in 2022 and now 6.5 % in 2023, a cumulative increase of 150 basis points in two years," says the report, which also warns that the "refinancing risk, reflected in the growing concentration of maturities" of public debt "in the short-term horizon, represents the greatest vulnerability".
Mozambique's domestic debt, accumulated until 31 December 2023, amounted to the equivalent of US$4.911.3 billion (€4,616 million). The weight of BT issues in the total stock of Mozambican debt went from 4% in 2019 to 9% in 2023, while the weight of OT went from 8% to 16% in the same period, according to the same report.
"In the last two years, the average time to maturity has reduced from ten to eight years, which suggests that each year the average maturity of the government's portfolio reduces by one year. Just over a third of all 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 the treatment of overdue instalments by commercial refinancing will be the only option available to the government," it reads.
"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 report adds.
PVJ/AYLS // AYLS
Lusa

Agency : LUSA
Date : 2024-04-24 10:55:00

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