The Ministry of Economy and Finance (MEF) suggests that the country should stop borrowing more from banks operating domestically and use more concessional (low interest) loans abroad, since the interest on these contracts tends to be more expensive than those contracted abroad.

The information is contained in a document quoted by Lusa and states that the objective is to have a more sustainable debt, which will represent 64.7% of the Gross Domestic Product (GDP), instead of the 85%, considered at the end of 2021.

The national public debt considered by the MEF was $13.9 billion, a growth in the debt 'stock' of 71% compared to 2014.

While the external debt "increased by only 47%" in those seven years, "the internal debt increased by more than 220%" in the same period - and now represents a quarter of the total public debt.

"This expansive dynamic of domestic indebtedness was determined by the need to finance a growing primary deficit" in the face of "a persistently adverse macroeconomic environment," the document claims, pointing to an increase in the intensity and frequency of natural calamities, the restrictions imposed by covid-19 and terrorism in Cabo Delgado.

The Medium-Term Strategy for Public Debt Management recommends "an incremental increase in the proportion of external financing from 30% in 2022 to 55% in 2025, matched by a gradual reduction in domestic financing from 70% to 45%" over the same period.

"The external component is to be entirely and exclusively covered by concessional loans," while in the domestic portfolio the proportion of short-term Treasury Bills (BT) "will be progressively reduced from 35% in 2022 to 15% in 2025."

The BT - whose "almost totality" is absorbed in the investment portfolios of the five largest banks - should be "gradually substituted by debt instruments with longer maturities" of eight to 10 years, as detailed in the document.

The strategy recognizes that the viability of the scenario depends on "reforms geared toward energizing the secondary market," such as insurers and pension funds to get them interested in underwriting those instruments.

"Mobilizing and boosting institutional investors as a preferred niche for long-maturity debt securities could make it possible to effectively disperse securities beyond commercial banks," according to the document.

This will also allow banking to stop being centered on public debt and allow bank credit to reach other sectors of the economy, he said.

On the "external mobilization front," the document foresees the resumption of confidence in Mozambique, with the reestablishment of a financial program with the International Monetary Fund (IMF) - approved by the fund on May 9 - that will lead to "a greater solidity of macro-fiscal policies" and improvement in the sovereign rating.

This is the third medium-term strategy document for the management of public debt: the first covered the period 2011-2015 and did not prevent the government of the Mozambique Liberation Front (Frelimo), then led by President Armando Guebuza, from hiding 2.3 billion in loans with sovereign guarantees - in what became known as the hidden debts scandal, which led Mozambique to default.

This time, the Minister of Economy and Finance, Max Tonela, believes that the document puts Mozambique on the path of "international best practices" and sends the "right signals" to creditors. (Lusa, via NOAM)