News Brief: Mozambique to Receive US$3.7 Billion in Debt Relief Through the HIPC Initiative

IMF News, June 30, 1999

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The IMF and the World Bank’s International Development Association (IDA) have agreed that Mozambique has met the requirements for receiving close to US$3.7 billion in debt relief from its external creditors under the Heavily Indebted Poor Countries (HIPC) Initiative.
The total debt relief package is worth US$1.7 billion in today’s values.
The IMF and IDA increased assistance beyond the US$2.9 billion (US$ 1.4 billion in today’s values) originally committed in April 1998 to ensure Mozambique reached the agreed debt sustainability target.
This operation is the largest debt relief organized under the HIPC Initiative so far and raises the total relief granted under the HIPC Initiative to US$5.5 billion (US$2.7 billion in today’s values).
Mozambique is the fourth country to reach the completion point under the HIPC Initiative, along with Uganda, Bolivia, and Guyana.

HIPC Initiative debt relief will reduce Mozambique’s external public debt by almost two thirds, from about US$2.7 billion to US$1 billion in today’s values (on top of debt relief provided under traditional mechanisms).
External debt-service obligations:
- Will fall to an annual average of US$73 million in 1999-2005.
- Compared with an average of US$169 million that would have been due in the absence of HIPC Initiative relief.
- Compared with the US$104 million actually paid in 1998.
By 2001, debt service due would fall to 8 percent of exports and 10 percent of government revenues.
- Compared with 19 percent of exports and 23 percent of revenues actually paid in 1998.

Mozambique remains one of the world’s poorest countries, with about 70 percent of its population living in poverty.
Taking into account the relief, the Government plans to increase annual current spending on health and education:
- From about US$120 million in 1998
- To US$175 million by 2001
- Characterized as moving from just over the amounts paid in debt service in 1998 to more than double the projected debt-service payments after HIPC Initiative assistance.

IDA will provide debt service relief to Mozambique equivalent to US$975 million, or US$381 million in today’s values.
- This debt reduction will be delivered mainly through the purchase and cancellation by the HIPC Trust Fund of IDA credits, resulting in debt service savings of US$327 million in today’s values.
- In addition, an IDA grant has been made to support improved economic management, which will provide debt service savings of US$54 million in today’s values.
IMF assistance under the HIPC Initiative:
- Will take the form of a grant deposited into an escrow account to be used to cover part of the debt service falling due to the IMF.
- This assistance, to be delivered over the life of outstanding obligations to the IMF, will amount to about US$125 million in today’s values.

Mozambique has pursued a wide-ranging program of economic stabilization and structural reform, including:
- Market liberalization
- Completion of an ambitious privatization program
- Fiscal reform
- Progress on public sector reform
Economic performance and service delivery improvements:
- Strong economic growth averaging more than 8 percent per year over the past five years.
- Primary school enrollment rate increased from 62 percent to 71 percent between 1996 and 1998.
- Coverage for key vaccinations increased from 58 percent to 77 percent between 1996 and 1998.
- Between 1992 and 1998, the number of primary classrooms, including those in rural areas, increased by more than 60 percent.
- Notable progress in expanding delivery of health, education, and water services, as well as in expanding the road network.

Mozambique is expected to benefit from changes proposed by the recent G-7 Cologne Summit to strengthen the HIPC Initiative.
Once agreement is reached on an enhanced HIPC Initiative, additional HIPC Initiative assistance will be considered for Mozambique.

International Monetary Fund — News Brief, June 30, 1999