Debt Relief in Mozambique

Question 1

Mozambique

Answer 1

• Gained independence from Portugal 1975
• Colonized in 1752
• 16 year civil war following independence further stunted Mozambique’s economic growth.
• Life expectancy – 52 (women) & 50 (men)
• Adult literacy rate – 58.8%
• HDI – 0.41 (the ninth lowest across the world)

Question 2

Debt in Mozambique

Answer 2

• As a result of decolonization and the war, Mozambican output in 1987 had dropped to less than ⅕ of the mean level of all sub-Saharan African Countries
• The economic impacts of the war persisted well into the recovery period. Poor physical infrastructure, fragile social institutions

Question 3

Debt Relief in Mozambique

Answer 3

• In June 1999, Mozambique completed qualification for the HIPC initiative and was granted debt relief of $1.7 billion in net value
• Mozambique was then granted an extra $600 in 2001 by the IMF and world back
• Overall, Mozambique’s total external debt was reduced by 73% of debt
• This allowed Mozambique to spend more on public, social services, infrastructure, health and education → increase in primary education completion, increase in literacy rate, decrease in poverty (69% to 55% from 1997 to 2009)

Question 4

The Current Situation in Mozambique

Answer 4

• In 2017 the IMF revealed that Mozambique had acquired over $1 billion of hidden or concealed loans, that it was now struggling repay
• Mozambique’s economy was growing rapidly and strong after debt relief so banks lent the country money
• This had led the IMF to withdraw loans and development aid that the government relies on
  Mozambique broke the rules of the HIPC
• The loans were originally said to be to establish a tuna fishing fleet, but instead have been used to buy security equipment to protect off-shore gas supplies
• Mozambique’s total external debt ballooned to $14.78 billion in 2019, according to the IMF with the country’s debt-to-GDP ratio currently at 113%, an increase from 54% in 2013

Question 5

Successes of Debt Relief in Mozambique

Answer 5

• Initially debt relief improved
• Vastly reduced Mozambique’s debt
• Quality of life improved - infrastructure
• Development indicators improved

Question 6

Failures of Debt Relief in Mozambique

Answer 6

• However, it didn’t solve all financial issues for Mozambique as they had to take out additional secret loans to encourage economic development
• Debt relief on its own was not enough to sustain economic development for Mozambique
• Hasn’t led to sustained economic development in Mozambique
• Economic mismanagement to take out big loans that they couldn’t pay back
• Government decided to take out big loans again → economic mismanagement
• Debt relief does not solve economic mismanagement and doesn’t stop countries from getting into debt again
• It still had a positive effect though
• Needs training to prevent from being in debt again