Republic of Mozambique and the IMF
Heavily Indebted Poor Countries -- A Factsheet
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[Corrects reference to total debt service relief in the second paragraph, last sentence, to US$4.3 billion from US$3.8 billion.]
IMF and World Bank Support US$600 Million in Additional Debt Service Relief for Mozambique Under Enhanced HIPC Initiative
Mozambique's Total Debt Stock Reduced by nearly three-quarters
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) agreed today that Mozambique has taken the steps necessary to reach its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative. Mozambique becomes the third country to reach this point (after Bolivia and Uganda).
Debt service payments are cut almost in half (from over $100 million in 1998 to an average of US$56 million from 2002-2010), creating room for additional public expenditures on poverty reduction. Debt service as a percentage of government revenue is reduced from 23 percent to an average of just under 10 percent over 2000-2010 and 7 percent over 2011-2020. Resources made available by debt relief provided under the HIPC Initiative will be allocated to key anti-poverty programs, which are outlined in Mozambique's Poverty Reduction Strategy Paper (PRSP).
Steps Required to Reach Completion Point Under the Enhanced HIPC Initiative
Mozambique's eligibility for debt relief under the enhanced HIPC Initiative underscores recognition by the international community of its continued progress in implementing sound macroeconomic and structural policies, and of the overall quality of its Poverty Reduction Strategy Paper.
(i) Completion of a full PRSP;
(ii) Continued implementation of strong macroeconomic and structural policies supported by an IMF Poverty Reduction and Growth Facility (PRGF) program; and,
(iii) Continued strengthening of a key set of social, structural and institutional policies.
Poverty reduction strategy paper: Mozambique's PRSP (which is officially designated as the Action Plan for the Reduction of Absolute Poverty) was approved by Mozambique's Council of Ministers in April 2001. The PRSP makes explicit the key role of accelerated and broad-based economic growth as a significant element in Mozambique's poverty reduction effort, and sets out six priority areas for continued focus (i) education; (ii) health; (iii) agriculture and rural development; (iv) basic infrastructure; (v) good governance; and (vi) macroeconomic and financial management. In a joint assessment, IMF and Bank staff indicated that Mozambique's PRSP contains a sound strategy for poverty reduction, including its incorporation of inputs from civil society and key stakeholders.
Macroeconomic stability and structural reform: Despite the impact of the floods of early 2000, GDP growth for 2000 measured 2.1 percent in real terms, reflecting aid-financed reconstruction, new foreign direct investment, and the start of production at a new aluminum smelter. These same forces have continued to drive the economy; a return to near double-digit growth is expected during 2001. Progress was also recorded in a smaller-than-expected primary deficit, stabilization of consumer prices after the flood, and a significant narrowing of the current account deficit as a result of higher net exports from large aluminum and energy projects. By end-2000, all quantitative criteria were met for the PRGF-supported program. Although excessive monetary growth in 1999-2000 contributed to an increase in inflation in 2000, the authorities took measures in mid-2001 to stem inflation, which also stabilized the exchange rate. The IMF Board completed the third review of the PRGF on September 20, 2001.
Key Policy Measures and Reforms. Also encouraging has been the successful implementation of critical social and administrative reforms. In the health sector, the delivery of basic services has continued to improve, as have key indicators. For example, diphtheria, pertussis and tetanus (DPT) coverage was raised from 77 percent in 1998 to 92 percent in 2000 (exceeding the target of 80 percent), the proportion of health posts staffed with trained personnel was raised from 86 percent to 93 percent, and the percentage of health posts or centers stocked with Essential Drugs Program kits has also been raised. In education, substantial improvements are being recorded in a number of important areas, including in increasing gross primary enrollment, as well as increasing access to technical, vocational and tertiary education to address acute skills shortages.
These efforts have been matched by strengthening in the area of public sector management, including in enhancing efficiency, transparency and accountability. For example, in the area of budget management, information on actual expenditures for program areas, with a focus on social programs, are now being published on a quarterly basis. One area where progress has been slower than expected is in the area of legal and judicial reform. The need to improve performance in this area has become more evident over the past year with a growing backlog of court cases, and continued concerns among the business and banking communities about corruption and the enforceability of contracts. At the time of the enhanced decision point in April 2000, a strategic plan for the judicial sector was expected to have been completed by end-2000. Over the past year, this plan was broadened substantially to encompass the wider legal community. The government now intends to complete the strategic plan by the end of 2001, and has made some initial progress with legal reform measures, such as the drafting of a modernized commercial code.
IMF EXTERNAL RELATIONS DEPARTMENT