The Mozambican government issued on Tuesday $54.61 million worth of long-term treasury bonds into the money market via the Mozambique Stock Exchange (BVM).
The bonds were quickly gobbled up by commercial banks queuing up at the opportunity to profit off a 16 percent fixed interest rate until maturity over a 10-year period.
Comment
The issuing of treasury bonds is not per se bad. Many countries finance their economies by offloading treasury bonds into the market and investing into the productive sector.
However, this is not the case with Mozambique. The government issues treasury bonds to pay wages and other expenditures. Consequently, it has sold off $465.4 million worth of treasury bonds since January. It is expected that by year’s end government would have borrowed $560.76 million via treasury bonds – this has had the effect of ballooning the domestic public debt.
This latest treasury bond issuance might be partly related to the European Central Bank (ECB) decision to hike the interest rate by 25 basis points to 4.7% with effect from 20 September. This means that Mozambique’s $900 million Eurobond related to the Ematum debt, which matures in 2031, rises from 5% to 9%, and the annual interest rate jumps to $81 million of debt service, up from $45 million in 2022.
The bond was issued in 2019 as part of an exchange on the previously defaulted “tuna” bond, with the hope that Mozambique would repay through revenue from natural gas sales.
Apart from the Eurobond, cash-strapped Mozambique needs money to pay salaries. Government cannot afford not to pay the wages of civil servants, notably teachers and police, who usually play a crucial role during elections.
As it is, Mozambique heads into elections, starting with the 11 October 2023 municipal elections to the 2024 general and presidential elections. And the Treasury will want to replenish its coffers to fund the ruling Frelimo party’s electoral campaign, as it has happened in the past.
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