(Bloomberg) -- Mozambique faces growing risks as some big domestic-currency debt repayments near and natural-gas windfalls remain elusive, according to S&P Global Ratings.
The southeast African nation’s total domestic public debt has more than doubled since 2020. That’s as the government, which has essentially been unable to raise finance from international markets since 2016, has turned to local-currency debt to cover persistently higher-than-planned budget gaps.
Next year, almost 38 billion meticais ($601 million) in government bonds will fall due, and 34 billion meticais in 2026, with more than half of that amount maturing in November that year, S&P said.
“There are very chunky maturities,” Leon Bezuidenhout, sovereign ratings associate director at S&P, said in a virtual interview. “That’s something that will pose potential challenges and policy trade-offs for the government.”
Mozambique has already made late payments on some debts since the start of last year, and the ratings company assesses the government’s credit standing at CCC+ — deep in junk territory — for both local- and foreign-currency obligations.
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The International Monetary Fund sees total public-sector debt rising to 97.5% of gross domestic product this year. That’s among the highest ratios regionally, and effectively prevents the government from taking on additional non-concessional external debt under its program with the Washington-based lender. For every dollar the government collects in taxes, 20 cents goes to debt servicing, according to the IMF.
Debt Blowout
Much of the debt blowout is because of a government program to simplify the public wage bill and reduce the cost. It’s had the opposite effect, prompting warnings from the IMF.
The government also faces increased spending pressures as the Oct. 9 general elections approach.
Mozambique must also start repaying its $900 million eurobond from March 2028. The coupon payments have climbed to $81 million per year. The government had previously banked on windfalls from liquefied natural gas projects to help make those payments, but those plans have faced repeated and prolonged delays. The notes were trading at less than 84 cents on the dollar on Tuesday.
Still, inflation slowed to below 3% in July, and interest rates on five-year local-currency bonds were above 19% in May, according to the central bank. Easing the unusually high reserve-ratio requirements on domestic banks could free up liquidity to buy more government local-currency debt.
“There’s still capacity from the local financial system to absorb additional issuances,” Bezuidenhout said. “Currently, the yields are extremely high on a real basis.”
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