[stop-imf] HIPC "relief" for Mozambique

[Robert Weissman]

Press Release No. 00/28 
 April 12, 2000

International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA



    Mozambique Qualifies for an Additional US$600 Million in Debt Relief
under the
    Enhanced HIPC Initiative, Bringing Mozambique Total Debt Reduction
under the
                                  Initiative to US$4.3 Billion

The International Monetary Fund (IMF) and the World Bank Group's
International Development Association (IDA) agreed
to support a comprehensive debt reduction package for Mozambique under the
enhanced Heavily Indebted Poor Countries
(HIPC) Initiative. Total relief from all of Mozambique's creditors under
the enhanced framework equals US$600 million, or
US$254 million in net present value terms (NPV). This new amount is in
addition to relief committed under the original
Initiative, worth US$3.7 billion. In total, this is equivalent to about 72
percent of the NPV of total debt outstanding at
end-1998 after the full use of traditional debt relief mechanisms.

The IMF and IDA have delivered their full share of assistance under the
original HIPC Initiative, and will start providing the
additional debt relief under the enhanced HIPC Initiative effective
immediately as interim relief. The additional assistance
committed by the IMF under the enhanced Initiative amounts to US$19
million, including US$3 million in interim relief.
This is in addition to US$152 million of assistance delivered under the
original Initiative. IDA's assistance under the
enhanced Initiative amounts to US$67 million, of which close to US$10
million in interim relief. Combined with about
US$975 million of assistance under the original Initiative, IDA is
delivering to Mozambique over US$1 billion in nominal
debt service relief.

In response to the emergency brought on by the recent floods, both the
World Bank and the IMF decided to accelerate the
debt relief by forgiving 100 percent of the debt service owed by
Mozambique in the next 12 months, so that Mozambique
will not have to pay any debt service to either institution during this
period. The Paris Club also granted a deferral of debt
service until Mozambique reaches its completion point under the enhanced
HIPC Initiative, which would be followed by a
debt reduction under Cologne terms at the completion point. Several Paris
Club creditor countries also announced their
intention to provide voluntary forgiveness of debt in addition to the HIPC
Initiative assistance.

Mozambique has received the bulk of the assistance under the original HIPC
Initiative at the completion point reached in June
1999, and has started to receive interim assistance under the enhanced
HIPC Initiative immediately after the decision point.
Mozambique will receive the full amount of assistance under the enhanced
HIPC initiative when it satisfies the requirements
for a floating completion point, including adoption of a participatory
poverty reduction strategy paper (see Annex).


ANNEX

1. Mozambique

Track record and poverty

Mozambique has made substantial progress in implementing economic reforms.
During the past four years, average annual
inflation came down from about 47 percent to 2 percent, while real GDP
grew by almost 10 percent a year on average.
Mozambique has also made a strong structural adjustment effort in recent
years, including in the areas of fiscal management,
governance and public administration, and private sector development.
While Mozambique remains one of the poorest
countries in the world, with 68 percent of the population living in
poverty in 1996-1997, substantial improvements in social
indicators have been recorded during the 1990s, most notably in rising
school enrolment and falling infant mortality rate.
There have also been improvements in household food security. 

Requirements

The IMF and IDA had already committed to assisting Mozambique under the
original HIPC Initiative (June 1999). The full
assistance under the enhanced HIPC Initiative from both institutions will
be delivered to Mozambique when action has been
taken in following areas:

       Completion of a fully participatory poverty reduction strategy
paper, which will need broad endorsement by the
       Boards of the IMF and the World Bank. For this purpose, the
government is presently organizing a dialogue with
       civil society, which is expected to take place over the next twelve
months. The document's objectives are
       summarized in the interim PRSP that will be published shortly. 
       Implementation of an agreed set of measures in the context of the
government's poverty reduction strategy,
       including in the areas of social development, public sector reform,
and legal and regulatory framework. 
       Maintenance of a stable macroeconomic environment, as evidenced by
satisfactory performance under a program
       supported by an arrangement under the IMF's Poverty Reduction and
Growth Facility. 
       Confirmation of the participation of other creditors in the debt
relief operation.

2. General

The HIPC Initiative was launched by the World Bank and the IMF in 1996 as
the first comprehensive effort to eliminate
unsustainable debt in the world's poorest, most heavily indebted
countries. In October 1999, the international community
agreed to make the Initiative broader, deeper and faster by increasing the
number of eligible countries, raising the amount of
debt relief each eligible country will receive, and speeding up its
delivery. The enhanced Initiative aims at reducing the net
present value (NPV) of debt at the decision point to a maximum of 150
percent of exports and 250 percent of government
revenue, and will be provided on top of traditional debt relief mechanisms
(Paris Club debt rescheduling on Naples terms,
involving 67 percent debt reduction in NPV terms and at least comparable
action by other bilateral creditors).

Eligible countries will qualify for debt relief in two stages. In the
first stage, the debtor country will need to demonstrate the
capacity to use prudently the assistance granted by establishing a
satisfactory track record, normally of three years, under
IMF- and IDA-supported programs. In the second stage, after reaching the
decision point under the Initiative, the country
will implement a full-fledged poverty reduction strategy, which has been
prepared with broad participation of civil society,
and an agreed set of measures aimed at enhancing economic growth. During
this stage, the IMF and IDA grant interim relief,
provided that the country stays on track with its IMF- and IDA-supported
program. In addition, Paris Club creditors, and
possibly others, are expected to grant debt relief on highly concessional
terms. At the end of the second stage, when the
floating completion point has been reached, the IMF and IDA will provide
the remainder of the committed debt relief, while
Paris Club creditors will enter into a highly concessional stock-of-debt
operation with the country involved. Other
multilateral and bilateral creditors will need to contribute to the debt
relief on comparable terms.

Thirty-six countries are expected to qualify for assistance under the
enhanced HIPC Initiative, of which 29 are sub-Saharan
African countries. As of early April 2000, five countries had reached
their decision points under the enhanced framework
(Bolivia, Mauritania, Mozambique, Tanzania and Uganda), with total
committed assistance estimated at US$12.7 billion,
representing an average stock-of-debt reduction of more than 50 percent on
top of traditional debt relief mechanisms. In
addition, three countries had reached their decision points under the
original framework (Burkina Faso, Cte d'Ivoire, and
Mali), while Guyana had already reached its completion point. Total
assistance under the HIPC Initiative committed to these
four countries amounted to US$1.7 billion. However, these countries are
eligible for additional assistance under the
enhanced Initiative.

For more information on HIPC, visit:

http://www.imf.org/external/np/hipc/hipc.htm
http://www.worldbank.org/hipc/




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