Analysis of the Impact of External Debt and Debt Cancellation Initiatives on Development and Poverty Reduction in Mozambique

Abstract:     
Mozambique has been one of the first highly indebted countries to obtain a debt reduction, in the framework of HIPC and enhanced HIPC initiative, and to implement a Poverty Reduction Strategy Paper. The process is still in its early stages, but it is already possible to investigate on the recent trends and to have preliminary indications on its effectiveness.

This study is divided in seven parts, trying to give an answer to the following questions: 1) how did the debt reached unsustainable levels? 2) How effective have been traditional debt-reliefmechanisms? 3) What has happened with the HIPC initiative? 4) Is the debt now sustainable? 5) How many resources have been liberated? 6) Are they used to reduce poverty? 7) Is the internal debt a new problem?

The principal conclusions of the study are 1) that the HIPC initiative led to a significant reduction both of the stock of the debt (-39,5%) and of the debt service paid (-50%), 2) that the link between debt and poverty reduction is weaker, because the resources liberated are just a little part of the whole poverty reduction strategy budget and because the effects on the ground haven't been properly measured yet, and 3) finally that the internal debt service in 2002 absorbed a huge amount of resources and de facto cancelled the savings on the external debt service.

Number of Pages in PDF File: 20

Keywords: Mozambique, Debt Relief

JEL Classification: F34, F35, O19

working papers series