Domestic debt conditions in Mozambique's banking sector are deteriorating further, according to the Bank of Mozambique.
Mozambique's government has unveiled a comprehensive strategy to address its rising debt burden and ensure fiscal sustainability. The strategy, aimed at managing the growing debt burden, emphasises risk management, concessional borrowing, and improved debt portfolio management.
According to the government's report, the internal debt closed the first quarter of 2025 at 443.218 million meticais (6.094 million euros), an increase of 38.7 billion meticais (530 million euros) from December 2024. This increase, partly due to the issuance of debt through advance in the context of the Central Bank's Credit Facility, amounting to 21.600 million meticais, resulted in an 8.9% increase in internal debt, amounting to an additional 36.223 billion meticais (498.1 million euros).
The report expresses concerns about the effectiveness of the debt management strategy and its sustainability in the medium term. It suggests a concentration of payments in specific periods, which may put pressure on the public treasury.
To address this, the strategy prioritises prudent mobilisation of resources, primarily focusing on concessional external financing to fund public investments while limiting costly borrowing. It also seeks to diversify funding sources to reduce reliance on debt instruments with higher interest rates or shorter maturities.
Active portfolio management is another key element of the strategy, aimed at lowering the average cost of debt and improving the payment profile by spreading maturities more evenly. The government also plans to strengthen institutional capacity for centralised debt data integration, improved analysis, and regular public debt reporting to enhance transparency and monitoring mechanisms.
Maintaining a tight monetary policy stance with elevated reserve requirements and high real interest rates is another measure aimed at countering inflationary pressures from government financing operations. Monetization of fiscal deficits has increased due to weak domestic demand for government bonds.
Despite these measures, challenges remain. The public debt level is anticipated to reach 96.5% of GDP in 2025, with severe constraints on fiscal space due to large recurrent expenditures (salaries and debt servicing consume 90-95% of domestic revenue). A foreign exchange backlog also limits debt service capacity.
The overall approach aligns with international advice emphasising medium-term fiscal strategies and reforms to build resilience, reduce fiscal risks, and maintain confidence with development partners. This includes improving public investment management and sticking to fiscal discipline in a low-growth, high-debt environment.
However, it's worth noting that the report does not specify a strategy for resolving the debt issue in the long term. The central bank governor stated that the state has increasing debt due to budget resource difficulties.
In summary, Mozambique’s plan combines borrowing prudently from concessional sources, active debt management, institutional strengthening for transparency, and monetary policies to control inflationary effects, aiming to gradually reduce public finance pressure from debt payments and position public finances on a sustainable trajectory by 2028.
The strategy to address Mozambique's rising debt burden in the medium term also includes the pursuit of concessional external financing for public investments to limit costly borrowing. (concessional finance)
Moreover, the government intends to diversify funding sources, reducing reliance on debt instruments with higher interest rates or shorter maturities to manage the world economy's financial commitments more effectively. (diversify funding sources, business, finance)
