Maputo, May 27, 2025 (Lusa) - The refinancing of Mozambique's short-term domestic debt issues cost 19.211 billion meticais (€264 million) in the first three months of the year, but the Ministry of Finance doubts the effectiveness of the measure.
According to data from the Ministry of Finance's report on the evolution of public debt from January to March, compared to December 2024, this represents an 8.9% increase in the stock, corresponding to an additional 36.223 billion meticais (€498.1 million), influenced by the refinancing of short-term debt.
"Although this is a liability management operation aimed at mitigating refinancing risks and improving the predictability of debt servicing, its effects have proved adverse due to refinancing on more onerous terms and conditions, contributing to an increase in the debt stock and raising concerns about the effectiveness of the strategy adopted and its sustainability in the medium term," the report states.
In addition, domestic debt - which closed the first quarter at 443.218 billion meticais (€6.094 million) - "was aggravated by the issuance of debt for advances under the central bank's Credit Facility" in the amount of 21.6 billion meticais, representing a growth of 23.8%.
"This is a short-term operation aimed at providing liquidity to the State treasury, which should be repaid by 31 December 2025 and should therefore not have a permanent impact on the stock of domestic debt," it said.
The Mozambican government plans to hold five auctions this year to exchange internally issued debt, totalling almost 26.223 billion meticais (€365 million), according to a document from the Ministry of Finance previously reported by Lusa.
According to the document on the situation of Mozambique's public debt, the approval of ministerial decree 87/2024 "marked the introduction of exchange auctions, as part of the reform measures recommended by the Medium-Term Debt Management Strategy" for the period 2022-2025.
This is "one of the liability management operations implemented to improve the public debt profile," it explains, adding that five debt exchange operations have been identified for this year - the first completed in March and another scheduled for May - Treasury Bonds issued between 2020 and 2022, maturing in 2025.
Five identical debt exchange operations are also planned for 2026, totalling three in 2027.
In March, the financial rating agency Standard & Poor's downgraded Mozambique's domestic public debt rating to Partial Default due to delays in payments to creditors and changes in a debt issue, as previously reported by Lusa.
S&P described how Mozambique "swapped 3.7 billion meticais [€51.5 million] of debt in local currency, maturing in March 2025, for longer-maturing, lower-interest securities maturing in March 2030", pointing out that "the continued use of these liability management operations, coupled with a history of delays in domestic debt payments, reflects Mozambique's fiscal and liquidity constraints".
S&P says that "this transaction is problematic and amounts to a default" and says that it has therefore downgraded the “rating”, or risk rating, "of local debt issues from CCC- to SD", the initials for “Selective Default”, or partial default.
Despite this position, Mozambique's Minister of Finance, Carla Loveira, insisted that the exchange auctions are part of the current debt management strategy (2022-2025), which will be reviewed by the government for the period 2026 to 2029.
"We are on a path of debt growth that could call into question the state budget, so we do need to review this strategy," she said.
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