New debt reduction package

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) have agreed to a comprehensive debt reduction package for Mozambique under the
enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

An IMF statement on Wednesday said the move was in response to the emergency brought on by the recent devastating floods which were the worst in living memory. "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," it said.

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 earlier debt relief worth US $3.7 billion.

"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 statement said.

"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," it said.

Last month, the Paris Club of industrialised nations granted a deferral of debt service. Several Paris Club creditor countries also announced their intention to provide voluntary forgiveness of debt in addition to the HIPC Initiative assistance.

The two international lending agencies also praised the "substantial progress" Mozambique had made 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.