Briefing: Mozambique and International Debt

Jubilee 2000 Coalition, March 8th 2000

Total debt owed in 1998:	$6.4 billion (excluding private debt)
	- Bilateral debt:	$4.3 billion
	- Multilateral debt:	$2.1 billion

 

The majority of the bilateral debt (78%) is owed to Paris Club creditors (some of the biggest are: Italy $504 million; France $472m; Germany $201m. The UK is owed $150m, the US $49m, Japan $57m). Russia and Brazil are also non-OECD creditors.

Private debt is $2.2 billion.

Debt relief so far under the Heavily Indebted Poor Countries initiative (HIPC)

The HIPC initiative was started in 1996 by the World Bank and IMF, designed to address the enormity of the debt burden faced by poor countries. In June 1999, Mozambique completed the HIPC initiative and was granted debt relief of $1.7 billion in net present value (NPV), or $3.7 billion in nominal terms. This resulted in a reduction of actual payments from an average $112m a year to $73m a year.

At the Cologne Summit in June 1999, the HIPC initiative was deemed inadequate, and the G7 extended the relief on offer, resulting in a promise of extra debt relief for Mozambique. However a new condition was introduced by the IMF in response to criticisms of the institution's lack of focus on poverty reduction. Governments hoping to qualify for debt relief are required to produce a detailed poverty reduction strategy plan. Mozambique's extra debt relief was delayed until such a plan had been completed. However, Mozambique had already proven it would spend the money on poverty reduction (as well as jumping numerous economic and social hurdles) as a condition for completing the HIPC process. Jubilee 2000 called it a bureaucratic nonsense that they had to prove this again in order to get the extra relief.

Clare Short, UK Secretary of State for Development, criticised the way poverty reduction plans were being used to delay debt relief: “What is happening in Washington is that there's a delay in looking for the perfect poverty reduction strategy, which means that the timetable for debt relief won't be kept. If you ask for perfection, you'll be waiting for decades.

Mozambique is due to get this extra relief in March/April 2000. The extra relief will amount to approximately $250 million (NPV), and will leave Mozambique with annual average payments of $45 million, more than is spent on primary health and education combined.

Debt service (source: IMF/World Bank paper, Modifications to the HIPC Initiative).

• Before debt relief was granted, average debt service paid by Mozambique in 1993-98 was $112 million.
• After the initial relief was granted (June 1999), annual debt service due is an average of $73 million for 1999-2005 ($1.4 million a week).
• When extra relief is granted in April, estimated annual debt service due is $45 million ($0.9 million a week).
• According to Oxfam, the budget for primary healthcare in Mozambique is $20m a year; the budget for primary education is $32 million a year.

Mozambique and bilateral debt cancellation

When Mozambique reaches decision point in the HIPC process (scheduled, finally, for April 2000), bilateral debts for many creditors will be reduced by 90%. Creditors which have gone further than this are:

UK: announced (Feb 29^th 2000) that it would take no more debt repayments from Mozambique, following the floods, and would be cancelling 100% of Mozambique's debts in April, at HIPC decision point.

Mozambique owes the UK £93 million (1999 figures; $150m), and in the last financial year paid about £64,000 to the UK. Of the total owed, £90 million is owed to the Export Credits Guarantee Department, and £3 million to the Department for International Development (DFID debt is cancelled as it becomes due).

Under HIPC agreements, this debt will be reduced to £10m, and in line with Gordon Brown's 100% announcement just before Christmas, this last £10m was due to be written off in April, at the time that Mozambique gets extra relief from the IMF.

US: on March 7 announced their intention to cancel 100% of Mozambique's debts ($49m). As with the UK, this is just a confirmation a position already decided. In Sept 1999, Clinton promised to cancel 100% of debts as countries came through HIPC, which Mozambique is scheduled to do in the next few months.

Finland and Germany have also formally announced their intention to cancel 100% of Mozambique's debts.

Italy: is due to cancel 100% of Mozambique's debts in April ($504m), alongside the extra relief from the IMF. Following a positive meeting on February 23^rd between Jubilee 2000's Ann Pettifor and Bono, the Italian premier Massimo D'Alema promised to consider cancelling Mozambique's debt immediately.

Belgium and Spain have announced that they intend to cancel all of Mozambique's concessional aid debts (about $0.4 million for Belgium, $30 million for Spain).

Portugal: announced an intention to cancel just 40% of Mozambique's debt ($144m of $364m owed). Jubilee 2000 considered this a totally inadequate response given that Mozambique is a former Portugese Colony, and the Portugese currently hold the responsibility of the EU Presidency.

The World Bank and IMF have failed to respond. Under increasing pressure, on March 3 they issued a release which said the Boards were considering 1. Accelerating loans to Mozambique; and 2. Frontloading debt relief so that Mozambique did not have to make payments for about a year. The result of their suggestions would be to simply delay payments postponing the problem, and exacerbate the existing debt crisis by adding new loans.

What does Mozambique need now?

In 1992 Mozambique's brutal 16 year civil war ended. There is now a democracy, and recently the economy has started to look stronger, with upward growth in the last few years. Last year, Mozambique was able to produce enough food to feed its population.

The floods have washed away this hard-earned progress. The costs of reconstruction have now been estimated to be least $250 million. Much of the infrastructure (including roads, communications, and buildings) has been ruined, thousands of hectares of crops destroyed, and over a million people severely affected. Thousands have been drowned. Cholera and malaria are sweeping the flood-drenched areas. The full extent of the damage is as yet unknown.

There can be no hope of proper recovery without addressing the country's disabling debt burden, which affects both short-term rebuilding efforts, and the long-term growth on which the prosperity of Mozambique depends.

The President, Joaquim Chissano, has called for total cancellation of Mozambique's debts, echoed by Graca Machel, former First Lady of Mozambique now married to Nelson Mandela. Jubilee 2000 are supporting this:

• Creditors, including the IMF and World Bank, should stop taking payments now.
• Creditors should urgently agree the immediate cancellation of all Mozambique's foreign debt.

For further information: John Garrett (0171 739 1000 ext 230) or Lucy Matthew (ext 242 / 07970 175 324).