Mozambique Eyes Debt-for-Climate Deal with Portugal

The Mozambican government is considering converting its debt to Portugal into funding for climate projects.

Facing climate change threats, Mozambique seeks to transform its 675 million euros debt into environmental action.

As of the third quarter, Mozambique’s public debt hit 971.7 billion meticais (approximately 13.96 billion euros), growing 5.1% since late 2022.

This increase, mainly in domestic debt, calls for innovative financial strategies.

The Ministry of Economy and Finance (MEF) is keen on discussing debt conversion for climate funding with Portugal and other creditors.

This plan highlights Mozambique’s dedication to environmental solutions through international collaboration.

Debt-to-climate investment presents a dual benefit for Mozambique: addressing financial burdens while promoting environmental sustainability.

This proposal strengthens Mozambique-Portugal ties and places financial challenges within the global sustainability context.

Background

In 2024, Mozambique’s debt service costs are projected to increase by 18%, reaching over 116.631 billion meticais (approximately $1.712 billion).

This information comes from the Mozambican government’s recent report. The 2024 Economic and Social Plan and State Budget outline this increase.

The budget is currently under discussion in parliament. The debt service costs will account for 7.6% of Mozambique’s expected Gross Domestic Product (GDP).

For 2023, the government predicts debt service costs to be 98.817 billion meticais, or $1.451 billion.

This is about 7.5% of the forecasted GDP. In the previous year, these costs were 72.363 million meticais, or $1.063 billion, equaling 6.1% of the GDP.

The upcoming increase is tied to the External Debt Restructuring Agreement. This agreement entails considerable capital amortizations due in 2024.

Additionally, changes in the external debt interest rate for bonds maturing in 2024 are expected.

More than half of Mozambique’s public debt service costs next year will be for capital repayments.