The increase in Mozambique’s public debt as a percentage of Gross Domestic Product (GDP) is a major vulnerability of the country’s financial system, wrote the Bank of Mozambique in its Financial Stability Bulletin for 2019, released recently.
The document mentions that there are other sectors which are suffering from high public debt due to the weight of the State in the economy and the gap in the coverage of its commitments, with a high level of overdue loans, which has restricted the willingness of banks to grant loans to businesses and families.
Economic growth in the first half of 2019 was also affected by natural disasters that struck the north and centre of the country, and the Bank of Mozambique projects a deceleration of economic growth in 2019, followed by a gradual recovery in 2020, although still below its potential.
Credit institutions, especially those of systemic importance, have been affected by the weak performance of the economy and by non-compliance with obligations by a number of institutions within the banking system, said the central bank.
However, it said in the same document that the overall risk to financial stability in Mozambique has decreased in the last three years.
“The nominal levels of interest rates were reduced thus contributing to the easing of financial conditions, which, along with high rates of bank solvency that increased the strength of the banking sector, favoured a reduction of systemic risk,” the document said.