Due to falling foreign aid and loans, government borrowed an additional $900 mn from local banks and bondholders, reported Bank of Mozambique (BdM) in its quarterly economic report (2 Dec). Government domestic borrowing is $4.3 bn, up 25% since December 2021, according to BdM. Domestic borrowing has doubled in three years – in December 2019 it was $2.2 bn.
As a share of GDP, domestic borrowing has jumped from 14.5% three years ago to 26.6% now. Banks consider government debt safer and more profitable than lending to local businesses, so this huge increase in government borrowing squeezes out the local companies.
Half of government domestic borrowing is in bonds which are auctioned, most recently four year bonds with 21.51% interest rates. One quarter of borrowing is treasury bills of a year or less (currently 17.7%), and one quarter directly from BdM.
Interest rates up 0.1% to 22.6%
The prime interest rate rose 0.1% (10 basis points), the Bank of Mozambique announced on 30 November. The base rate (Taxa de Juro de Politica Monetaria, MIMO) was maintained at 17.25% but the Mozambican Banking Association has increased their prime rate (the interest paid to their most creditworthy customers) by 0.1% to 22.6%. The prime rate was 18.6% until March this year.
BdM reports inflation was 12% in September and fell to 11% in October, which means the prime rate is 11.6% above inflation, which for many businesses is prohibitive and less than their profit margins.
Top 5 exports all mineral-energy – and dependence on extractives increasing
Export data for the first three quarters (Jan-Sep) shows how much Mozambique is now an extractive economy. Mineral-energy exports jumped $2 bn compared to 2021. The top five official exports for January to September were coal ($2,182 mn), aluminium (made with Cahora Bassa electricity, $1,453 mn), electricity ($385 mn), heavy sands ($365 mn), and natural gas ($316 mn).
Not mentioned nor officially recorded is heroin and methamphetamine, which probably is the third most important export, at $600 mn in the first three quarters. This is a transit trade – Afghanistan via Mozambique to Johannesburg and on to Europe – but with substantial amounts of money remaining in Mozambique, adding to the local economy. (http://bit.ly/Moz-heroin and https://bit.ly/Moz-585)
A Chinese factory processing heavy mineral sands in Chibuto, Gaza, was inaugurated by President Filipe Nyusi on Friday (2 Dec). Heavy sands are sifted for titanium and other minerals. The project has had a slow start, beginning in 2014. The Dingsheng heavy sands mine covers 3000 ha and the factory will cost $700 mn. Nyusi said that when it is operating, the mine and factory will pay $36 mn per year in taxes.