Mozambique: Country Staggers Under Debt Despite Devastating Floods

Publisher Name: 
Financial Times

Mozambique, hit by the worst floods in 30 years, is having to pay $1.4 million a week in debt service, the Jubilee 2000 Coalition revealed in a statement to the press on 23rd February.

Mozambique has hit the headlines, following devastating floods which first hit Southern Africa 3 weeks ago. So far, over a million people have been directly affected as homes have been obliterated and hundreds of
thousands of acres of agricultural land and crops have been destroyed. The situation is likely to get worse, as a new cyclone Eline hits the country this week.

The international community has started to respond. However as international aid starts to drip in, dollars are still pouring out to make payments owed on debt service. The UK has so far promised $1.2million
(765,000) in aid. However Mozambique pays out this amount each week in debt service to the international community.

Mozambique owes a total of $8.3 billion dollars in debt - over 50% of Mozambique's debt is owed to bilateral creditors in particular Russia, Italy and France. It received some debt relief under the Heavily Indebted Poor Countries initiative (HIPC) last June, but at Cologne was promised further relief which would reduce payments to an average $62 million a year. Mozambique has yet to receive this extra debt relief. In September, the IMF announced a new condition for HIPC: countries would have to produce a Poverty Reduction Strategy Plan (detailing how the money would be spent). Following elections just before Christmas, the Mozambican
government said it would not be able to complete this plan in the first few months of its new term. As a result, the delivery of the extra debt relief was delayed. Jubilee 2000 pointed out that this delay was a bureaucratic nonsense: Mozambique had already shown that it would spend resources generated from debt relief on poverty reduction, or
it would not have received HIPC debt relief in the first place.

Jubilee 2000 calculates that even with this extra relief Mozambique will still pay out an average $1.2 million a week in debt repayments - resources that are now needed in the country more desperately than ever. Apart from the physical destruction of infrastructure and farmlands, there is a serious health risk in Mozambique as epidemics of water-related diseases begin to spread. Additionally, there is the threat of land-mine displacement (a legacy from the 16-year civil war). The long-term
implications of the floods for the economy are catastrophic.

Before the crisis broke, Mozambique's President Joaquim Chissano repeatedly called for total debt cancellation. Mozambique has followed severe IMF economic reforms for many years since emerging from a brutal civil war. It is considered by the international community to be a
'success story' as it has constructed a solid democracy which has shown steady economic growth over the past few years.

Jubilee 2000 has called on creditors:

  • To stop taking payments now. Mozambique desperately needs to keep the dollars it currently pays out.
  • To urgently agree the cancellation of all debts for Mozambique.

Ann Pettifor, director of Jubilee 2000 said: "For how much longer do creditors want to spin out the pain in Mozambique ? They need to urgently stop this poor country transferring funds to the West in the form of debt repayments. Taking money from Mozambique before this disaster
was economically irresponsible. Taking it now is utterly indefensible."

The delay in debt relief for a country like Mozambique has exposed again the inadequacies of the Cologne debt initiative. Despite grand promises made by the creditors, the initiative is moving forward at a very
slow pace, has failed to deliver adequate amounts of debt relief, and has not included all countries in urgent need of debt cancellation. Last week, the President of the World Bank James Wolfensohn admitted that the whole HIPC process was suffering from delays, and that the number of countries
expected to benefit by the end of this year could be far less than the 25 planned. Clare Short, Secretary of State for International Development in the UK, identified the additional social conditions tied to the new Poverty Reduction Strategy Papers (PRSP) as a major problem, commenting: "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."

AMP Section Name:World Financial Institutions
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