From Africa Recovery, Vol.14#3 (October 2000), page 17 (part of Mozambique: Country in Focus)

A beneficiary of major debt relief

Mozambique's development plans in the immediate post-independence years involved running up substantial foreign debt. When war and drought levelled the economy in the mid-1980s, the debt became unpayable. The war also led to a high military debt to the Soviet Union.

By 1998, Mozambique's total foreign debt, even after repeated reschedulings and write-offs by various bilateral creditors, stood at $5.5 bn in nominal terms. Complex negotiations eventually resulted in the World Bank and IMF declaring in April 1998 that Mozambique was eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. In June 1999, some $1.7 bn of Mozambique's debt was waived.

After the floods, several creditors -- including the UK, US, Finland, Spain and Portugal -- agreed to suspend all or part of the debt payments Mozambique owed them. Similarly, the World Bank and the IMF offered a "moratorium" such that Mozambique would not have to pay them any debt service in 2000, but the money would still be claimed later. Mozambican and foreign NGOs campaigning for total debt cancellation described this as "immoral," and argued that the floods were another reason for eliminating Mozambique's debt burden entirely.

Then the World Bank announced in April that Mozambique qualified for additional relief under the "enhanced" HIPC, approved by creditor countries in November 1999. Once fully implemented, cumulative debt cancellation will have reached $4.3 bn in nominal terms, or nearly $2 bn in net present value (the discounted value of debt if it were repaid in a lump sum). This will reduce Mozambique's debt stock to about $750 mn in net present value terms.

Full relief will not come, however, until Mozambique satisfies certain conditions. According to the World Bank and IMF, these will include implementation of agreed social development measures as part of the government's poverty reduction strategy, further reforms of the public sector and in the legal and regulatory framework, and maintenance of "satisfactory performance" under the IMF's Poverty Reduction and Growth Facility.

The government does not think it will have any difficulty meeting these conditions. Shortly after the World Bank announcement, the new Finance Minister Luísa Diogo told reporters that this year Mozambique will pay only $23-25 mn in debt servicing, compared with $104 mn in 1999. Although this decline is very welcome, she said, Mozambique's debt remains a "serious constraint on the fight against underdevelopment,"and the government will continue to fight for total cancellation. "This is a poor country," she stressed, "and every cent that this country pays out abroad is taken from Mozambicans," two-thirds of whom live in absolute poverty.

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