The World Bank in its latest Report on "Mozambique's Economic Current Events" reports that domestic debt has been growing rapidly, particularly since 2016, and as a consequence, is choking the financing of the national economy.

According to that financial institution, since the 2016 debt crisis, cuts in donor budget support and limited access to external financing have led the authorities to resort to borrowing on the domestic market.

"The stock of domestic debt increased from 12% to 22% of GDP [Gross Domestic Product] between 2016 and 2021. In addition to expenditure pressures caused by recurrent shocks, this was driven by the need to refinance maturing bonds, support underperforming public enterprises, and resolve arrears to domestic suppliers," reports the document cited by Carta de Moçambique.

The Report released last week, points out that the stock of domestic debt has seen considerable changes in its structure, with Central Bank debt gaining ground. Prior to 2016, the institution recalls, the government had minimized recourse to Central Bank financing, in part due to inflationary concerns.

Meanwhile, the global financial institution noted that Central Bank financing has become one of the dominant financing mechanisms since 2016, constituting about 30% of the total stock of domestic debt. There has also been an increase in the use of Treasury Bills (TBs) for fiscal financing, resulting in an annual build-up of the stock of TBs and repayments that were not made within the same fiscal year.

Thus, the World Bank states that the increased contracting of BT has increased pressures on domestic financial markets because, with commercial banks being the main buyers of BT, increased government borrowing increases pressure on domestic credit demand, already characterized by high interest rates (also compared to peer countries).