Mozambique - Enhanced Heavily Indebted Poor Countries (HIPC) Debt Initiative

40378 CONFIDENTIAL INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENTASSOCIATION REPUBLIC OF MOZAMBIQUE Initiative for Heavily Indebted Poor Countries (HIPC) Completion Point Document Prepared by the Staffs of IDA and the IMFA June 16, 1999 Contents Page I. Introduction....................................................... 3 II. Economic Policies and Performance ................................... 4 A. Economic Performance in 1998-99.................................... 4 B. Economic Program for April 1999-March 2002 .............................. 8.....8 C. Implementation of Social Reforms ................................... 9 11. Update of the Debt Sustainability Analysis ............... .................... 13 IV. Status of Creditor Participation ................................... 15 A. Assistance Committed at the Decision Point ..................... .............. 15 B. Additional Assistance ................................... 19 V. Benefits of HIPC Assistance .. ................................. 24 VI. Conclusion................................... 24 I Approved by Anupam Basu and Leslie Lipschitz (IMF) and Masood Ahmed and Phyllis Pomerantz (IDA).  -2- Boxes 1. Summary Record of Structural Reforms .................................................. 6 2. Privatization .................................................. 7 3. Structural Reform Agenda, 1999-2002 .................................................. 10 4. Main Assumptions in the Debt Sustainability Analysis ................... .............14 5. Delivery of Multilateral Assistance ................................ .................. 18 Figures 1. Structure of HlPC Assistance at the Completion Point .................... ..............16 2. Impact of HIPC Assistance: NPV Ratios, 1999-2017 .................................. 21 3. Impact of HIPC Assistance: Debt Service Ratios, 1999-2017 ............ .......... 22 4. Estimated Time Profile of HIPC Assistance, 1999-2017.............................. 23 5. Impact of HIPC Assistance: Debt Service, 1999-2017 ................................. 24 Tables 1. Selected Economic and Financial Indicators, 1997-2001 ................ ............. 26 2. Selected Social Indicators .................................................. 27 3. NPV of Debt and NPV of Debt-to-Exports Ratio, end-December 1998 ........ 28 4. Exchange Rates and Discount Rates, 1997-98 ................................ 29 5. Medium and Long-Term Balance of Payments, 1998-2017 ................ .........30 6. Medium and Long-Term External Debt Service, 1999-2017 ........................ 31 7. Proposed Delivery of World Bank Assistance Under the HIPC Initiative, 1999-2035.32 8. Proposed Delivery of IMF Assistance Under the HIPC Initiative, 1999-2008............................... 33 9. Overall Assistance Under the HIPC Initiative ................ ............... 34 10. Key External Debt Sustainability Indicators ............. .................. 35 Appendixes I. Status of Structural and Social Reforms Envisaged at the HIPC Decision Point ............................... 36 II. HIPC Initiative: Status of Country Cases............................... 46  - 3 - I. INTRODUCTION 1. In April 1998, the Executive Boards of the Fund and the Bank agreed that Mozambique was eligible for assistance under the Initiative for Heavily Indebted Poor Countries (HLPCInitiative), with the completion point expected in June 1999, subject to continued strong performance. The Boards also agreed on the amount of assistance to be provided by their respective institutions at the completion point-subject to satisfactory assurances of participation by Mozambique' s other creditors-that would reduce the ratio of the net present value (NPV) of debt to exports from the 466 percent projected for end-1998 to 200 percent (plus or minus 10 percentage points) in mid-1999. 2 Total assistance to Mozambique required to achieve this target under the HIPC Initiative was established at US$1.4 billion in NPV terms. Such assistance, additional to that under traditional debt-relief mechanisms, would entail a 57 percent reduction in the NPV of debt (US$2.9 billion in nominal terms at end-1998). Achievement of this debt reduction has involved exceptional efforts on the part of Mozambique's creditors. 2. The decision to shorten the interim period between the decision and completion points to a little over a year took into account Mozambique's sustained record of strong performance. The mid-1999 completion point was made conditional on continued satisfactory policy implementation, and specifically on (i) completion of the midterm review of the program supported by the third annual arrangement under the Enhanced Structural Adjustment Facility (ESAF) approved in June 1996; (ii) Fund approval of a successor ESAF arrangement; (iii) satisfactory progress in implementing the social and structural policies monitored under the Initiative and supported by IDA; and (iv) satisfactory assurances of participation of the official creditors in the Initiative. The midterm review of the ESAF program was successfully completed on May 5, 1999, and a request for a new three-year ESAF arrangement will be considered by the Executive Board of the Fund, at the same time that this HIPC completion point document will be discussed. As detailed in Appendix I, progress in implementing the structural and social reforms monitored under IDA programs has been satisfactory, and all conditions for the release of the second tranche of the IDA adjustment operation (Economic Management Reform Operation) have been met. 3. This document presents the assessment of the staffs of the Fund and IDA that Mozambique has fulfilled the conditions for reaching the completion point under the HIPC Initiative. Section II reviews Mozambique's recent economic policies and performance, including progress in structural and social reforms, and summarizes the authorities' medium-term program supported by the successor ESAF arrangement and IDA programs. Section III updates the debt sustainability analysis. Section IV reports on the status of creditor participation and on the delivery of assistance. Section V presents the benefits of 2 Republic of Mozambique-Final Document on the Initiative for Heavily Indebted Poor Countries (EBS/98/66; 3/31/98) and (IDA-R98-37; 4/1/98).  - 4 - HIPC assistance. Section VI concludes that, subject to the Fund approving the new three-year ESAF arrangement, Mozambique will have met all the conditions for reaching the completion point under the HIIPC Initiative, but that the amount of assistance committed at the decision point is not sufficient to achieve the debt sustainability target. It therefore proposes that, in addition to the assistance agreed at the decision point and in line with the framework of the HIPC Initiative, an additional amount of assistance sufficient to achieve the debt sustainability target range be provided, subject to agreement by Mozambique's other creditors. This paper will be published after being considered by the Boards of the Fund and IDA. II. ECONOMIC POLICIES AND PERFORMANCE A. Economic Performance in 1998-99 4. Mozambique's economic performance remained strong in 1998 and early 1999. The government continued to build on the gains achieved in 1996 and 1997 in both macroeconomic stabilization and economic liberalization to encourage the rapid expansion of the private sector. The economy grew by 12 percent in 1998, the second consecutive year of double-digit growth and in excess of the program target (Table 1).3 Growth continued to be broad based, with agriculture, industry, and services all growing above 7 percent in 1998. Inflation remained low, with the 12-month rate at less than 2 percent in May 1999, reflecting sound fiscal and monetary management, a strong supply response, and a substantial decline in import prices. Increased confidence in the economy resulted in long-term capital inflows, larger foreign aid flows, and a stable exchange rate. Gross international reserves continued to increase and stood at almost seven months of imports of goods and nonfactor services at the end of 1998. 5. Progress continued to be made on structural reforms (Box I and Appe:ndixI). The status of those highlighted in the Decision Point Document is summarized in the following: 3Macroeconomic indicators (Table 1) are based on a revised set of national accounts, which incorporate the results of the 1996 household survey. For 1997, the revision implies a higher nominal GDP (by some 25 percent, from US$2,753 million to US$3,438 million) and a substantially different mix of demand components. Moreover, in contrast to the Decision Point Document, all shares as a percent of GDP have been calculated on the basis of total output. including large projects. Therefore, a direct comparison with the indicators presented in the decision point document would not be meaningful.  - 5- Privatization and Public Enterprise Reform * The program of privatization and restructuring of large enterprises (those on the list of the Technical Unit for Enterprise Restructuring), was completed in September 1998 (Box 2). The program of privatization and restructuring of small and medium- scale enterprises is on track to be completed in rnid-1999. By end-March 1999, over 1,100 enterprises had been privatized and restructured, and progress was being made towards the privatization and restructuring of the remaining 115 enterprises. * The concessioning of facilities of the state-owned port and railway company CFM is well under way. Most port terminal facilities at Maputo and Beira are now operational and concessioned to the private sector. The concessioning of the remaining ports and railways, except for the CFM-Center rail network, is expected to be completed by end-1999. The corporate restructuring of CFM is also under way. * A private company, IMOPETRO, was established in 1998 and took over the oil importing function of the state-owned PETROMOC. * Privatization of management of water companies in five major cities is well under way. The selected bidder for private management of the five largest urban water supply systems (lease contract for Maputo; management contract for Beira, Nampula, Quelimane, and Pemba) was notified. Contract signatures will follow effectiveness of an IDA credit, to be considered by IDA's Board in June 1999. Fiscal Reform * A value-added tax was introduced on June 1, 1999, to replace the cascading turnover tax. Simultaneously, the consumption tax was replaced with a set of excise taxes. * Personal and corporate tax rates were lowered in 1998. * The dispersion of import duties was reduced through the lowering of the top tariff rate from 35 to 30 percent in April 1999. Including this reduction, the trade-weighted import duty rate was lowered from 18 percent in 1996 to 10 percent in 1999. * A medium-term expenditure framework was developed in 1998 and provided the basis for the 1999 budget proposal.  Box 1. Mozambique: Summary Record of Structural Reforms Area Completion Date Area Completion Date Fiscal policy Divestiture of public enterprises + Effectingregular adjustmentof utility prices to cover costs 1996-ongoing * Establishedprivate company to take over the oil importing 1998 and ensure commercialviabilitv functionof state-ownedPetromoc + Promulgatednew budget frameworklaw 1996 * Completedprivatizationof about 90 largeenterprises 1998 + Lowered directtax rates 1998 * Completingprivatization of about 1,200small and medium 1999 + Developingmedium-termexpenditureframework 1998-ongoing enterprises + Introducedvalue-addedtax 1999 + Signedmemorandaof understandingwithprivate consortia 1998-99 for managementof selectedports and rail lines * Granted concessionof CFM's port terminal facilities at 1998-99 Maputo and Beira to private sector operators * Notified selectedbidder for privatemanagementof urban 1999 wvater supply in the five major cities Private sector development External sector * Simplifiedlicensingand investmentprocedures 1996 * Developedinterbankforeignexchangemarket 1996 * Simplifiedimport registrationand import administration 1998 * Reducednumber and dispersionof import tariff rates 1996-99 * Rationalizingand reducingcustomsexemptions 1996-ongoing * Eliminatedexport surrenderrequirements 1997 Public administration and transparency Poverty, health and education * Undertakingcustoms reform,includingcontractingof 1996-ongoing * Increasing expendituresin health and educationas a share 1994-ongoing private managementof customs of total current expenditure + Approvedcode of ethics for public officials 1998 * Implementinghealth sectorprogram 1995-ongoing * Publishingbudget and quarterly budget executionreports 1998-ongoing * Improvingcoverageof health and educationservices 1995-ongoing * Implementednew career stream and compensationstructure 1999 + Completedpoverty assessment 1998 + Completedsalarydecompression 1999 + Approvedpoverty action plan 1999 * Approvedand commencedimplementationof education 1999 sectorprogram Financial sector Agriculture and the environment + Privatized the two large state-ownedbanks 1996/1997 * Approvedregulationsto implementnew land law 1998 * Conducting regular on-site inspectionsof banks 1998-ongoing + Approvedregulationsfor environmentalassessment 1998 * Complyingwith the Basle Committee's Core Principlesof 1999-ongoing + Commencedimplementationof agriculturalsector 1999 Banking Supervision expenditureprogram + Revised FinancialInstitutionsLaw 1999 * Adopting indirectinstruments of monetarycontrol 1999  -7- Box 2. Mozambique: Privatization Since 1990, Mozambique has made substantial progress in privatizing and restructuring the state- owned enterprises. Economic activity, once predominantly under state control, is now conducted primarily by the private sector. Public enterprises account for less than one-fifth of industrial output, compared with over two-thirds in 1990. The program of privatization of selected large enterprises was completed in September 1998, with the exception of the national airline. In the absence of acceptable bids, the airline was converted into a limited liability company, with the intention of selling the government's shares in the future stock exchange. As a result of the program, 87 large private companies were established from existing state enterprises, 22 of these in 1998. The program of privatization and restructuring of small and medium-sized enterprises is to be completed in mid-1999. In March 1999, over 1,100 of these enterprises had been privatized or restructured, and preparations were well under way for the remaining 115 to be completed by mid-year. Another important step was the privatization of the two large state-owned banks, which, at the end of 1995, represented 71 percent of commercial banks' assets. This step improved monetary control and fostered the healthy development of the financial sector. With the completion of the government's privatization and restructuring program of both large as well as small and medium-sized enterprises, over 1,300 enterprises will have been privatized, concessioned, or liquidated. After that, only 11 wholly owned public enterprises and 22 com- panies with majority govemment shareholding will remain. Sixteen of these 33 enterprises are large enterprises; and most of them are utilities and public service companies. Civil Service Reform * The new career stream and compensation structure was finalized and adopted in 1999. * The second phase of salary decompression was implemented in 1999, raising the ratio of the highest to the lowest salary from 9.6 in 1997 to as much as 15 for certain categories. Social Sector Reforms and Poverty * An Education Sector Strategic Program, targeting improved access to, and higher quality of primary education, was approved in early 1999. * A review of the Health Sector Recovery Program was carried out in 1998. * The shares of health and education in total current expenditure increased from 8 percent and 17 percent in 1997, to 9 percent and 18 percent in 1998, respectively. * The first national poverty assessment was completed in December 1998, and the poverty action plan was adopted by the cabinet in April 1999. 6. In addition, key steps were taken to improve the business environment for private sector development. Import procedures and the licensing of importers were made more transparent, and regulations for the 1997 Land Law were adopted. In the financial sector, a new law of financial institutions was drafted, and banking supervision continued to be strengthened. A major effort to identify off-budget flows was launched, and an action plan to strengthen the auditing function in government was developed. B. Economic Program for April 1999-March 2002 7. The government's medium-term program aims to strengthen the foundations for real GDP growth of about 7-10 percent a year, limit inflation to 5-6 percent a year, and maintain 4 gross international reserves at about five months of imports of goods and nonfactor services. Sustained, broad-based real GDP growth and low inflation, together with improved delivery of social services, are central to the government's efforts to reduce poverty in the medium term. To attain these objectives, the government is committed to maintaining economic stability, improving further the environment for the expansion of private sector activities, and creating the conditions for the development of a strong export base through liberal trade and investment policies. 8. Fiscal policy aims at a gradual reduction of the budget deficit (before grants) from 1999 onward, while creating space for increased expenditures in priority sectors. The program reflects the impact of HIPC assistance committed at the decision point. Initially, the domestic primary budget deficit (before grants) is expected to rise from 0.6 percent of GDP in 1998 to 2.6 percent of GDP in 1999. Apart from including the costs of conducting this year's parliamentary and presidential elections, the increase reflects a number of tax and expenditure reforms, most of which intended to encourage private sector development and improve public administration. Even with a higher budget deficit in 1999, because of large inflows of foreign aid, the government is expected to increase its deposits in the banking system; these deposits may be drawn down over the medium term. 4This program is outlined in more detail in the government's Policy Framework Paper of June 1999.  -9- 9. Monetary policy will be aimed at maintaining price stability, while accommodating the projected increase in economic growth and enabling a real increase in credit to the economy. During 1999, the supply of broad money is projected to increase by 17 percent, and by a somewhat slower rate in 2000-2001. The central bank will conduct monetary policy through the use of indirect instruments of monetary control, supported by effective banking supervision and the enforcement of prudential regulations. 10. The structural reform agenda for the next three years will build on the stabilization and structural policies carried out in recent years, and will aim at further improving the foundation for a rapidly growing market economy. The government's program, as expressed in the Policy Framework Paper of June 1999, focuses on further strengthening the fiscal base, liberalizing trade, developing the financial sector, reforming the legal system, increasing the efficiency of the remaining state-controlled enterprises, and providing basic services (Box 3). Consequently, the program aims at mobilizing government revenue through the strengthening of tax administration and the widening of the tax base; improving the efficiency and transparency of government operations by adopting new accounting practices, reducing off-budget transactions, and reinforcing internal auditing; divesting government shares in privatized enterprises and undertaking further privatization; reforming the civil service and increasing its human capital; simplifying the regulatory framework; eliminating obstacles to entry and private sector participation in the transport, communications, energy, and water sectors; and reducing further import tariff rates. C. Implementation of Social Reforms 11. The government has continued to make progress in implementing its programs for poverty reduction and social development, broadly in line with the expectations and targets set out at the decision point (Appendix 1). The government completed its poverty assessment in 1998. The assessment indicates that about 70 percent of the population lives in absolute poverty. While poverty is widespread, its incidence, depth, and severity are greatest in rural areas, where over 80 percent of Mozambique's poor live. The poverty assessment formed the basis for the government's poverty action plan, which was approved by the cabinet in April 1999. This plan is based on (i) generating rapid and sustainable growth, particularly in rural areas; (ii) investing in human capital through improved delivery and quality of social services; and (iii) developing a program, including safety nets, that fosters the social and economic integration of the most vulnerable groups. Implementation of the plan is beginning with the definition of the institutional arrangements for integrating the plan into the government's regular policy and budgetary processes and will be reflected in the budget and the medium term expenditure framework from the year 2000 onward. 12. In the area of education, considerable progress has also been made in pursuing targets to increase access, improve quality, and build capacity (Appendix I). The share of the government's own budgeted current spending devoted to education has continued to increase, reaching 18 percent in 1998 (equivalent to about US$80 million) compared to  - 10 - Box 3. Structural Reform Agenda, 1999-2002 Sharpen the poverty-reduction focus of policies and programs. The Govenunev.tof Mozambique's objective is to reduce the level of absolute poverty through growth and expanded social services for the poor. To this end, in 2000 the govemunentwill budget for, and commence implementation of, its poverty action plan. Provincial poverty profiles, to be completed in 2000, will help to improve the targeting of programs to the poor. The govermnent will also establish a systematic technical review process, reporting to the cabinet, to consider the impact of major policy changes on poverty. Further improve access to, and quality of, health and education services. The government is inplementing integrated sector-wide programs in health and education that will continue to increase expenditures in these sectors ainually, both in real termns and as a share of total current expenditures. The programs aim at improving access to, and quality of, education and health services, particularly at the primary level, so as to achieve targeted improvements in key social indicators. By end-2000, the government will complete a new health sector strategic plan for the next decade and develop strategies for tertiary, technical, and vocational education; by mid-2000 it will adopt a strategic plan on HIVJAIDS. Strengthen the legal system and improve the regulatory environment for private sector development During 2000, the governunent will adopt a plan for strengthening the justice system, open the Center for Judicial Studies and Training, and permit dispute resolution through arbitration. A new Commercial Code, covering company anld contract law, is being prepared and will be submitted to the National Assembly in 2001. Regulations goveming urban land use under the 1997Land Law will be finalized and adopted by end-I 999. The Intermninisterial Commission for Removal of Administrative Barriers is to publish its reports annually in a move to increase its accountability. Improve governance and the effectiveness of public administration. Civil service regulations that include performance standards and incentive mechanisms will be prepared by end-l 999; a code of adminiistrativeprocedures for the civil service will be established by end-2000. The Public Administration Trairing System (SIFAP) will be implemented according to an operational plan to be completed in early 2000. A comprehensive plan for public sector refonn, including a functional review of ministries, will be submitted to the cabinet in mid-2000. Improve fiscal management. A medium-tenn expenditure framework has been developed and will be updated and approved by the cabinet annually as part of the budget process. From 1999, the govermnent will progressively incorporate remaining off-budget revenue and expenditure flows into the budget A new system of accounting and a schedule for its implementation will be adopted in 1999. Consolidated budget accounts are to be formally closed and submitted to auditing in 1999, and anniuallythereafter. In the area of revenues, the government will review the tax and tariff system, rationalize exemption regimnes, and create a recording system for exemptions on domestic taxes by March 2000. Tax auditing procedures and capacity will also be strengthened with the additional recruitment and training of staff. Strengthen public enterprises management. In 2000, the goverunent will adopt (i) a policy regarding the remaining 11public enterprises and 22 companies with mnajority public ownership; (ii) a strategy for govermnent shares in privatized enterprises, ilncludingcriteria for divestment; and (iii) a strategy for distributing the shares in these companies held on behalf of labor. All perfornance contracts witlhpublic enterprises will be revised to improve the delivery of services and to rationalize flow of funds with govenunent. Further liberalize trade. Revised customs legislation will be submitted to the National Assem-blyin 1999. In January 2002, the top import tariff rate will be lowered from 30 percent to 25 percent. Promote agricultural growth and sustainable use of natural resources. The govermuent is implementilngan agricultural sector expenditure program aimned at raising the effectiveness of sectoral public expenditure and increasing agricultural production. The institutional capacity for effective implementation of the Land Law of 1997 is being strengthenied,anid the government will complete identification and commence reduction of the backlog in land title applications. To promote the sustainable use of natural resources, an environmental assessmentreview system and associated capacity building planiwill be in place by mid-2000. Improve access and service and lower costs in the transport, telecommunications,water, and electricity sectors. The government expects to have all main port anidrailway systems of the three transport corridors under private sector operatiol, and to complete the corporate restructuring and downsizinigof CFM in 2000.The managemelntand sustainability of the road network will be enhanced through annual increases in the government's share of periodic and routine maintenance expenditure, institutional refonns to improve road management, and a reclassification of the road network. Legislation and regulations pennitting entry of private companies into the telecommunication sector will be submitted to the National Assembly in mid-2000. Effective operation by the private sector of the five major urban water supply companies is expected to commenicein 1999. A plan for demand-based water provision in rural areas will be implemented in all provilces by 2002; strategies for national water resource management and for intenationally shared river basins will be developed. By end-l 999, regulations will be adopted to pennit private sector involvement in the generation and distribution of electricity and the establishment of an autonomous regulatory body.  - 11 - 17 percent in 1997 and an average of 13 percent in 1993-95.5 Progress in increasing accessto primary education has generally met or exceeded the targets set out at the decision point. Between 1992 and 1998, the number of primary classrooms, particularly in rural areas, increased by more than 60 percent, and the total number of primary schools in the country has now surpassed prewar levels. The primary gross admission rate reached 79 percent in 1998. While access to education has thus increased, improving educational quality has been more difficult; the increase in the number of qualified teachers has not fully kept pace with the expansion of enrollment, as new recruitment of teachers has been partially offset by departures. The target of maintaining the availability of textbooks for primary school students at one per pupil has broadly been attained. The planned transformation of the curriculum is under way, and a number of quality enhancing activities-such as in-service training and the revitalization of the pedagogical clusters combined with a move toward cycles of learning (rather than "stop" examinations)-are expected to increase significantly the cost effectiveness and the internal efficiency of the education system. 13. To address the continuing challenges of education in Mozambique, the government developed an Education Sector Strategic Program (ESSP) agreed with donors in May 1998. This strategy is based on the medium-term objective of achieving education coverage for all by the year 2010, with substantial quality improvements. IDA is supporting this sector-wide program with a US$71 million credit, which was approved by the IDA Board in February 1999. Under the five-year integrated expenditure program, bringing donors together under a sector-wide approach, the government's own financed current expenditures in education are to continue increasing annually both in real terms and as a share of total current expenditures. A real increase of 15.8 percent is programmed for 2000, taking into account committed assistance under the HIPC Initiative. 14. The sector-wide program is designed to increase the access to, and improve the quality of, education in Mozambique. The program targets improvements of 1-2 percentage points a year in the gross enrollment rate and in the proportion of students passing key examinations, as well as a 1-2 percentage points annual reduction in the average repetition rate in primary and lower secondary schools. The program will also support a further expansion of the school network, and emphasize the promotion of higher enrollment rates for girls and for those living in underserved regions. To achieve the dual objectives of greater access and higher quality, the program will raise the number of qualified teachers through increased pre-service and in-service training. Lower and upper primary education will be merged in 1999 to make better use of the existing teaching staff. The curriculum and 5Total social sector expenditures substantially exceed those in the government's own current expenditure budget due to external grants and other aid financing. As part of the govern- ment's program to improve expenditure management, an integrated approach is being implemented through the development of a medium-term expenditure framework. It is estimated that, in the health and education sectors together, externally-provided flows from donors and NGOs constitute more than one-half of total expenditures.  - 12 - evaluation processes for grades 1-7 are being revised to better reflect local needs and will be completed by 2001. These measures, by improving quality and efficiency, are expected to lower the currently high repetition rates and increase completion rates. The implementation of the ESSP will be supported by strengthening the institutional capacity of the Ministry of Education, especially to manage resources at the provincial, district, and school levels. The first joint annual review of the ESSP, completed in May 1999, confirmed that the program had made a good start under government leadership. Broad agreement has been reached with donors on the next steps in operationalizing the sector program through common financial and administrative procedures. 15. Substantial progress has been made in the health area against targets for improving the access to, and delivery and quality of, health services (Appendix I). The government's Health Sector Recovery Program (HSRP), adopted in 1995, is based on a strategy aimed at increasing access to health care and improving the quality of services through the rehabilitation and construction of first-level care facilities and rural hospitals, and the provision of adequate medical supplies. The strategy also emphasizes improving institutional and management capacity at the Ministry of Health (at both the central and provincial levels), while developing human resources in the health sector through the training of health workers and enhancement of university medical training. The share of the government's own budgeted current expenditures that are devoted to health was 9 percent in 1998 (equivalent to about US$40 million), exceeding the target of 8 percent. In terms of results, vaccinations continued to increase, reaching a coverage of 77 percent in 1998 (exceeding the target of 60-65 percent), the proportion of health facilities stocked with essential drug kits reached 88 percent (exceeding the target of 80 percent for 2000), and 86 percent of the facilities are staffed with trained personnel. Progress also continued to be made in reducing geographical inequities and in expanding the overall delivery of health services, although at a somewhat slower pace than earlier planned. Indicators of health service quality, such as the proportion of health centers stocked with basic drug kits and trained personnel, have improved at the targeted rates. 16. Domestically-financed current expenditures in the health sector will be increased annually, both in real terms and as a share of total current expenditures. Real expenditures are expected to increase by 16 percent in 2000, bringing the share to 10 percent of total locally-financed current expenditure. Furthermore, the government will be using key outcome indicators to monitor progress on access and quality. By 2001, coverage of DPT vaccinations6 is targeted to increase to 80 percent (from 70 percent in 1998); the index of geographical inequality in the provision of health services will be reduced to below 2.8 (from 3.1 in 1998); the proportion of health posts/centers stocked with drug kits will be increased to 90 percent (relative to 86 percent in 1997); and the proportion of health posts/centers staffed with trained personnel will be increased to 90 percent (from 88 percent in 1998). The 6 Diphtheria, pertussis, and tetanus.  - 13 - government is also committed to combating HIV/AIDS, and to that end in mid-2000 it intends to adopt and commence implementing a National Multisectoral Strategic Plan for HIV/AIDS. 17. The government and donors recognize that the health sector is moving from a phase of recovery after the devastation caused by the civil war to a longer-term focus on improving basic health services. Consequently, at a joint review of the Health Sector Recovery Program (HSRP) in October 1998, it was agreed to adapt the HSRP to the improved economic and social conditions in Mozambique and to move toward a sector-wide approach for donor coordination, including a common financial and administrative system. The government's own program of financial management reform is continuing to be implemented and will benefit from the completion of a joint government/World Health Organization (WHO) evaluation of the health information system completed in March 1999. As a follow-up to the annual review, the Ministry of Health has taken the initiative of preparing a longer-term strategy and policy for the sector that will outline the specific program for the period 2000-04. By December 2000, the government will complete and begin implementing a new Health Sector Strategic Plan that will establish sectoral policies, programs, and targets for the new decade. The plan will provide the policy framework for the development of a sector-wide approach in which the government will work with donors to develop joint procedures for budgetary support in the health sector. HII. UPDATEOFTHE DEBT SUSTAINABILITY ANALYSIS 18. The debt sustainability analysis (DSA) has been updated to reflect revised debt and export data for end-1998, as well as new export.projections and other modifications to the macroeconomic framework (Box 4). As a result of these changes, and after taking into account the impact of traditional debt-relief mechanisms, the NPV of debt-to-exports ratio is now estimated at 538 percent in 1998, compared with 466 percent projected in the decision point document. After taking into account the HIPC assistance committed at the decision point, this ratio would fall to 254 percent, outside the targeted range. The higher debt ratios result mainly from a higher NPV of debt and, to a lesser extent, from a lower value of exports in the denominator (Table 3). 19. The NPV of external public and publicly guaranteed debt at end-1998 is now estimated at US$2,731 million, compared with US$2,528 million projected in the Decision Point Document. The increase in the NPV of debt (measured in U.S. dollars) is explained largely by a sharp decline in discount rates (CIRRs) 7 and by the depreciation of the U.S. dollar against major currencies during 1998 (Table 4). It is estimated that these factors, taken together, explain the increase, as the reconciliation of creditor and debtor data on 7The currency-specific discount rates used to convert projected debt service to net present value are the Commercial Interest Reference Rates published by the OECD.  - 14 - Box 4. Main Assumptions in the Debt Sustainability Analysis The following assumptions are used in the debt sustainability analysis: * Real GDP growth is projected to average 8 percent a year duringl999-2001, largely as a result of the construction of the Mozal aluminum smelter; thereafter, it is assumed to average about 6 percent a year. * Inflation is assurned to remain at about 5 percent a year tlhroughoutthe projection period. * The investment-to-GDP ratio is projected to peak at 36 percent in 1999 on account of investment related to the Mozal project. It is expected to decline gradually thereafter and stabilize at about 20 percent by 2005. The domestic savings rate is projected to increase from about 2 percent of GDP in 1998 to 11 percent in 2005. * Exports of goods and nonfactor services, excluding electricity and aluminum, are projected to grow at an annual rate of about 9 percent in U.S. dollar terms in the period 1999-2005. In volume terins, export growth is in line with output growth. These results assume a steady increase in service receipts, in particular transportation and tourism. Including exports of electricity and aluminum, a strong growth of over 16 percent a year is expected for the same period. As a result, the ratio of exports of goods and services to GDP would increase from 14 percent in 1998 to about 21 percent in 2005. * Imports of goods and services, including those related to the investments in large projects, are projected to increase sharply in 1999-2005; excluding imports related to large projects, imports are expected to grow more modestly, at an average of 6 percent (the same in volume terms). As a share of GDP, overall imports of goods and services are projected to peak at 43 percent in 1999 and decline thereafter to 26 percent in 2005. * After peaking at 34 percent of GDP in 1999, the external currenitaccount deficit (excluding grants) is projected to decline to less than 10 percent of GDP in 2005. This pattern Mirrors the aforementioned developments in the Mozal project. The current account deficit will be financed through (i) increased external private capital flows, in particular related to the Mozal project; (ii) grants and official foreign borrowing on concessional tenns; and (iii) debt relief. Official grants are assumed to be maintained at about their current level. Gross international reserves are projected to average about four months of imports of goods and nonfactor services during 1999-2005. the stock of bilateral and multilateral debt outstanding and disbursed as of end-I 998 led to little change in the debt. A joint TDA-IMF mission that visited Maputo in April 1999 assisted the authorities in finalizing the debt-reconciliation exercise. Bilateral debt data were updated to remove discrepancies between the authorities' database and the creditors' records.8 8 The reconciled stock of public and publicly-guaranteed debt in nominal terms at end-1998 is estimated at US$6.4 billion. In addition, there was about US$2 billion of private nonguaranteed debt.  - 15 - 20. The 1998 export denominator (the 1996-98 average of exports of goods and nonfactor services) was revised downward because exports of goods and nonfactor services were significantly lower in 1998 than had been projected at the decision point. The marked fall in commodity prices and delays in resuming electricity exports to South Africa account for about one-half of the difference between the projections and the outcome, with the remainder explained by worse-than-expected performance of nonfactor services (25 percent) and manufacturing products (12 percent). 21. The long-term balance of payments and debt prospects are favorable, assuming continued pursuit of sound macroeconomic policies and implementation of structural reforms, and continued availability of external financing on concessional terms. To ensure the full benefits of debt reduction in the context of a continued large need for external financing, the government is strengthening its debt-recording and debt management capabilities and its policy is to continue to limit new borrowing to loans on highly concessional terms (Tables 5 and 6). IV. STATUSOF CREDITORPARTICIPATION A. Assistance Committed at the Decision Point 22. As a result of exceptional efforts by Paris Club creditors and joint action by the Fund and the Bank, a fully financed assistance package under the HIPC Initiative was put together for Mozambique at the decision point, amounting to US$1,442 million in NPV terms.9 Under proportional burden sharing, the contribution from multilateral creditors would amount to US$526 million in NPV terms, or about 36 percent of the total, while bilateral assistance would amount to US$916 million. However, under Lyons terms (80 percent NPV reduction), a financing gap would have emerged, requiring additional action by creditors. To fill the gap, Paris Club creditors agreed to provide additional assistance of US$170 million in N:PVterms. The remaining gap was filled by additional contributions from the Fund, IDA, and some donors, and the assumption of fully proportional burden sharing by non-Paris Club creditors.10 23. Following the decision point, all multilateral creditors confirmed that, at the completion point, they would provide assistance to reduce the NPV of their claims in accordance with the decision taken by the Boards of IDA and the Fund (Figure 1). IDA assistance would amount to US$324 million in NPV terms and would be delivered first through a US$150 million IDA grant provided during the interim period and equivalent to an 9 Assistance from the Fund and IDA was conditional on, inter alia, satisfactory assurances of commensurate action by Mozambique's other creditors. 10The financing plan to cover the gap is detailed in "Supplementary Information on the Final Document" (EBS/98/66, Sup. 1; 4/6/98; IDA/R98-37/1; 4/6/98).  - 16 - Figure 1. Mozambique: Structure of HIPC Assistance at the Completion Point (in millions of U.S. dollars, NPV terms) Assistance Committed at Decision Point F 1I 105 49= ~~~~~~~World Bank (IDA) if a W ~~~~~~~~~~324 Bilateral creditor 877 _ AMB/AflDF 98 Other multilateral creditors 44 |AssumingAdditionalAssistance at Completion Point 2/ IMdF I/ 125 WorldBank (IDA) V1 Bilateral creditors - A 1037 ____ _ Othermultilateral creditors 55 Sources: Mozambicanauthorities;and Bank and Fund staffestimates. 1/ Amountsshown for World Bankand IMF includethe additionalcontributionscommittedby the Bankand the Fund (US$29 millionand US$10millionin NPV terms, respectively)during the gap-fillingexercise at the decisionpoint. 2/ Necessary to meet 200 percentNPV of debt-to-exports ratio.  - 17 - NPV of debt reduction of about US$54 million". The remainder of US$268 million would be delivered using resources from the HIPC Trust Fund to purchase and cancel IDA credits, starting with the oldest credits. In addition, about US$2 million in NPV terms would be delivered through payments of debt service by the HIPC Trust Fund after the completion point (Table 7). After committed HIPC assistance, debt service to IDA would average about US$11 million a year in 2000-2005, compared with about US$24 million a year before committed HIPC assistance. On a cash basis, total assistance from IDA would amount to over US$620 million. Assistance from the Fund would take the form of a grant (equivalent to US$105 million in NPV terms)'2 deposited into an escrow account at the completion point. This amount, plus accrued interest, would be used to cover part of Mozambique' s debt service to the Fund under an agreed schedule. Fund assistance would be slightly front-loaded but spread over the life of Mozambique's current obligations to the Fund. On a cash basis, this assistance would amount to about US$30 million in 1999-2000 and would average about US$15 million a year over 2001-05. Relief of US$131 million in NPV terms would be provided on debts owed to the African Development Bank Group comprised of US$98million provided by the AfDB with assistance from the HIPC Trust Fund and US$34 million committed by bilateral donors as part of the gap filling exercise. The modalities of assistance of all multilateral creditors are summarized in Box 5. 24. Paris Club creditors agreed to provide a stock-of-debt operation, involving 80 percent NPV reduction in eligible debt, and to provide exceptional debt reduction of US$170 million in NPV terms at the completion point. They also decided to provide interim assistance by broadening the coverage of the 1996 flow rescheduling and topping up the NPV debt reduction to 80 percent." 3 The Mozambican authorities have now signed bilateral agreements with all creditors participating in the November 1996 Paris Club flow- rescheduling agreement except for Russia and Japan. Despite their best efforts, the authorities have so far not been able to conclude agreements with non-Paris Club bilateral creditors on comparable terms. l This amount includes US$29 million committed at the decision point as part of the gap- filling exercise. 12 This amount includes US$10 million committed at the decision point as part of the gap- filling exercise. 13 "Republic of Mozambique-Further Information Note on the Status of Discussions Under the HIPC Initiative" (EBS/98/21; 2/11/98; IDA/R98-37/1; 4/6/98). The interim assistance resulting from granting Lyon terms on the 1996 flow rescheduling is estimated to be around US$23 million in NPV terms. This amount has been taken into account in the determination of the required assistance.  - 18 - Box 5. Delivery of Multilateral Assistance 1/ creditors All multilateral have respondedfavorablyto Mozambique'srequestfor assistanceunderthe HIPCInitiative.The followingare the indicativemodalities throughwhicheachmultilateralcreditor may deliverthe assistanceafter the completion point. Debt Relief Creditor Terms 2/ Modalities (US$ million) An IDA grant of US$150 million (equivalent to the provision of US$54 million of debt relief in NPV terms) was provided during the interim period. An additional US$270 World Bank l/ 324 million of debt relief (in NPV terms) will be provided by the HIPC Trust Fund, drawing on IBRD net income transfers, through purchase and cancellation of IDA credits. Grant from HIPC/ESAF Trust Fund to be deposited into an escrow account in the IMF 1/ 105 name of the government, to be used to meet Mozambique's debt service to the Fund under an agreed schedule. Assistance to be slightly front-loaded and spread over the life of current obligations. The HIPC Trust Fund would make a grant to the AfDB of US$53 million, which, together with AfDB's own contribution of UA 33 million (equivalent to about US$45 million), will allow the AfDB to provide a total of US$98 million of debt relief Developmetit Bank African* 98 in NPV terms to Mozambique. In addition, in order to fill the bilateral gap identified at AfnicanDevelopment Bank 98 the decision point, the HIPC Trust Fund would (subject to the receipt of applicable bilateral contributions) make a grant of US$34 million to the AfDB to be used to provide another US$34 million of debt relief by way of cancellation of outstanding loans. European Union / European Investment Bank 17 Refinancing on grant terms (EIBIEDF) Intemational Fund for Agricultural Development Debt service to be limited to a token US$35,000 per year with the rest being forgiven (IFAD) 10 until the required NPV debt reduction is achieved. Mozambique would resume payments to IFAD under normal terms thereafter. Arab Bank for Economic Development in Africa Concessional rescheduling of the disbursed and outstanding balances of seven loans (BADEA) 8 (amounting to US$14.85 million in nominal terms) at a reduced interest rate of 0.5 percent with a maturity of 33 years, including a six-year grace period. Rescheduling by extension of maturity sufficient to deliver required NPV reduction, as OPEC Fund 6 well as refinuancingthrough a concessional loan. The precise terns of the two umodalities to be worked out between the OPEC Fund and the Gover=nent of Mozambique. Nordic Development Fund (NDF) 2 Debt service due by Mozambique to be paid by the NDF through the HIPC Trust Fund for a sufficient number of years to deliver the required NPV reduction. Total 561 1/ Includes exceptional assistance by the Fund and the Bank (US$10 million and USS29 million in NPV terms, respectively) commnitted toward filling the bilateral assistance gap that existed at the decision point. Does not include proposed additional assistance to meet debt sustainability targets discussed in paragraphs 25-27. All U.S. dollar figures converted from original loan currency at end-1998 exchange rates, and rounded to the nearest nillion dollars. 2/ Debt relief is based on relative proportion of NPV of debt outstanding at end- 1997 arnong the multilateral creditors, and incorporates revisions of data presented in the decision point document after further debt reconciliation.  - 19 - B. Additional Assistance 25. The updated debt sustainability analysis shows that the amount of HIIPC assistance committed at the decision point would fall short of bringing the NIPVof debt- to-exports ratio to the targeted range. It is now estimated that the amount of additional assistance required to bring the NPV of debt-to-exports ratio to the 200 percent target would be US$274 million (Table 9). Agreement on this additional amount by bilateral and multilateral creditors would raise the total HIPC assistance to US$1,716 million from the US$1,442 million committed at the decision point.1 4 This level of assistance would imply an overall debt reduction under the H[IPCInitiative equivalent to about 63 percent of the debt outstanding at end- 1998 in NPV terms, instead of the 57 percent estimated at the decision point. 26. Including the additional assistance required to meet the 200 percent target, total required multilateral assistance would amount to US$641 million.15 The contribution of the Fund and the Bank would be about US$125 million and US$381 million, respectively, in NPV terms (Figure 1). 16 The proposed schedule for the delivery of Fund assistance, including the additional assistance, is shown in Table 8. The debt service profile for IDA, including both the committed and the additional assistance, is shown in Table 7. The total bilateral assistance would amount to US$1,076 million; however, taking into account US$39 million already committed by the Fund and IDA at the decision point toward the closing of the financing gap, this amount would be reduced to US$1,037 million. For bilateral creditors, the NPV reduction consistent with proportional burden sharing is equivalent to topping up previous debt relief to 90 percent of eligible debt, compared with the 89 percent estimated at the decision point. 27. The staffs of the Fund and IDA have begun to consult with Mozambique's other creditors to mobilize the additional assistance required for Mozambique to meet the debt sustainability target. Paris Club creditors have reaffirmed the delivery at the completion point of the assistance committed at the decision point and have indicated their willingness to provide the required additional assistance consistent with achieving the 14 Ifthe top of the range (210 percent) is considered instead, the required additional assistance would amount to US$225 million, bringing the total HIPC Initiative assistance to US$1,667 million. 15 This is equivalent to 75.5 percent of the multilateral NPV of debt outstanding at end-1997 (Table 9). 16 Includes the US$10 million (in NPV terms) committed by the Fund and US$29 million (in NPV terms) committed by IDA, both towards filling the financing gap that emerged at the decision point.  - 20 - 200 percent target. The agreement of concerned multilateral development bank creditors will be sought at a meeting on the HIPC Initiative chaired by the World Bank on June 25, 1999, and an update will be provided by the staff to the Boards on the result of this meeting. V. BENEFITSOFHIPC ASSISTANCE 28. Mozambique's external debt and debt-service burden will be significantly reduced with the delivery of assistance under the HIPC Initiative. On the basis of the assistance committed at the decision point, the NPV of debt-to-exports ratio would fall from 538 percent in 1998 to 132 percent in 2005; over the same period, the debt service ratio would be reduced by more than two-thirds from its actual level of 24 percent iin1998 (Figures 2 and 3). The committed debt relief of US$1.4 billion in NPV terms is equivalent to an estimated total saving of debt service payments of US$3.1 billion over time (Figure 4). When the additional assistance required to meet the debt sustainability target is included, debt service payments would fall from US$104 million actually made in 1998 to an annual average of US$73 million in 1999-2005 (Figure 5). The estimated total saving of debt service payments would amount to US$3.7 billion. By 2005, the NPV of debt-to-exports ratio would fall to 116 percent, and the debt-service ratio would decline to about 6 percent (Table 10). 29. The fiscal burden of external debt would also fall markedly following the HIPC Initiative assistance. On the basis of the assistance committed at the decision point, the NPV of debt-to-revenue ratio is expected to fall from 610 percent at the end of 1998 to 183 percent in 2005 and 120 percent in 2010. The ratio of debt service to revenue would fall from 24 percent in 1998 to less than 10 percent in 2005 and to about 5 percent in 2010 (Figure 3). When the additional assistance is considered, this ratio would decline further to 8 percent in 2005 and below 5 percent by 2010. At the same time, the NPV of debt would fall to 161 percent of revenue in 2005 and to 107 percent in 2010 (Figure 2). 30. Assistance under the HILPC Initiative will free budgetary resources for additional development spending, thus providing momentum toward achieving the 2015 International Development Goals. Current spending on health and education is projected to increase by about 16 percent in real terms over the 1999-2000 period. As shares of the government's own budgeted current spending, they are projected to increase from 9 percent and 18 percent, respectively, in 1998 to 10 percent and 20 percent in 2000. At the same time, the economic reform process would continue to aim at improving the environment for private sector activity, which is essential to achieve sustainable economic growth and to reduce poverty. VI. CONCLUSION 31. Mozambique's economic performance remains strong, and implementation of social and structural policies is progressing well. All multilateral and Paris Club creditors have confirmed delivery of the amounts committed at the decision point, and strong efforts have been made to reach agreement with other bilateral creditors on comparable terms.  - 21 - Figure2. Mozambique: Impactof HIPC Assistance:NPV Ratios, 1999-2017 NPV of Debt-to-ExportsRatio 550 (in percent) 500 450 Before 400 HIPC 1/ 350 300 300~~~ _ After Commnitted l> _ / ~~~~HlPC Assistance 250 200 >. l_ 150 100 After Ad 50 HIPC Assistance 2/ 0 NPV of Debt-to-Revenue Ratio 600 (In percent) 550 500 Before 450 / HIPC 1/ 400 350 After Conmuitted __ / ~~~~~~~~HIPC Assistance 300 250 200 150 - 100 I 50 - After Additional HIPC Assistance 2/ Sources: Mozambicanauthorities;and Bank and Fund staffestimates 1/ Ratios before HIPC reliefincludesthe impact of debt relief on traditionalmechanisms (Naplesterms). 2/ Necessaryto meet 200 percentNPV of debt-to-exports ratio.  - 22 - Figure3. Mozambique: Impact of HIPC Assistance:Debt ServiceRatios, 1999-2017 Debt Serviceto ExportsRatio 1/ 30 (In percent) 30 25 - 25 20 . . . ..... ....... 20 ....................................................................................... 15 BeforeHIPC 15 10 \ After Commnitted 10 \ \ FHPCAssistance After Additional HIPC Assistance 2/ 0 0 Debt Serviceto RevenueRatio 1/ 35 (In percent 35 30 30 25 25 Before WC 20 20 15 .- +s After Comrnitted 15 HlPC Assistance 10 - 10 5 - AfterAdditional , _ 5 IIIPC Assistance 2/ .0 . O~~~~~~~~~1 0 b @ t a a W a W g a e N 0 Sources: Mozambicanauthorities;and Bank and Fund staff estimates 1/ Includesnew borTowing assumed for 1999-2017.Debt servicebeforeHIPC relief includesthe impact of debt reliefon traditionalmechanisms (Naplesterms). 2/ Necessaryto meet 200 percent NPV of debt-to-exports ratio.  -23 - Figure 4. Mozambique: Estimated Time Profile of HIPC Assistance, 1999-2017 (Reductionin Debt Service Obligations) 200 190 1780 |AssistW e Commied a Decision Pornt 160 150 140 90 80 130° 70 60 1200 40 30 20 Multlata l creditors 10 150 200 190 IS0 Assmig Adit nalAsi at CompletitonPW Pi 170- 160- 150- 140- 20° 130- 0 10- 410 30 20 Multlatraltredtor 50 Sources: Mozambicanauthorities; and Bankand Fund staff estimates. 1/ Necessary to meet200percentNPV of debt-to-exports ratio.  -24 - Figure5. Mozambique: Impact of HIPC Assistance:Debt Service, 1999-2017 of U.SA (Inmillions dollars) Due onPublicandPublicly Debt Service Debt 1/ Guaranteed 300 300 250 250 200 B H 200 150 150 AficrConmitted _ ' -- 100 sc _ - 100 50 AftcrAdditional 50 HIPC Assistance 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Due onMultilateral Debt Service Debt 1/ 160 160 140 140 120 120 100 Before HIPC 100 so~~~~~~~~~~~~~~~~~~~~~~~~~~~~s 60 60 AfterCommitted ~~*6 __ 60 - fX W_ 40 ZZi HIPC Assitace 0 40 2 E _ _ _ _ ~/ f Aflcr Additional 20 HIPC 2/ Assistance 20 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Debt ServiceDue on Bilateral Debt 180 180 160 160 140 140 120 120 100 Before IPC 100 80 So 80AftrCommitted 60 HIPC Assist.an-e 60 40 _ - 40 20 ARer Additional 20 HIPC Assistance 2/ 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: Mozambicanauthorities;and Bank and Fund staffestimates. 1/ Includesnew borrowing assumed for 1999-2017.Debt servicebeforeHIPC relief includesthe impact of debt relief on traditionalmechanisms (Naplesterms). ratio. 2/ Necessaryto meet 200 percentNPV of debt-to-exports  - 25 - Therefore, in the view of the staffs of the Fund and IDA, provided the Fund approves the proposed new three-year ESAF arrangement,Mozambique will have met sll the necessary conditions for reaching the completion point under the HIPC Initiative. With respect to the additional assistance required to meet the NPV of debt-to-exports target range of 190-210 percent, the Paris Club has already indicated its willingness to provide its share of additional assistance under proportional burden sharing, consistent with a 200 percent target, and similar commitments are being sought from multilateral creditors. Against this background, and subject to the participation of the other creditors, the staffs of the Fund and IDA recommend approval of the additional assistance required to reach the target range. The current framework of the Initiative provides for additional assistance sufficient to reach the top end of the target range (210 percent in this case). However, given the views of the Paris Club and the circumstances of Mozambique, the staffs recommend that Directors consider additional assistance sufficient to reach the original debt sustainability target of 200 percent. 32. As Directors know, the international community has been actively considering ways to strengthen the HIPC Initiative, and this topic was considered at the Development and Interim Committees in April 1999. The staffs intend to submit specific proposals to strengthen the Initiative so that decisions can be endorsed at the next meetings of these Committees. Directors have already expressed the view that additional assistance resulting from a strengthening of the Initiative should be provided to all eligible countries, including those that have already reached decision and completion points, provided that they qualify under any revised thresholds. If a change in the Initiative that would benefit Mozambique is agreed, the staffs would come back with proposals as to how this could be effected later in the year. In the meantime, the staffs recommend that Directors agree to provide assistance to Mozambique under the current Initiative as recommended in paragraph 31 above.  -26- Table 1. Mozambique: Selected Economic and Financial Indicators, 1997-2001 1997 1998 1999 2000 2001 Prog. Proj. Proj. (Annual percentage change, unless otherwise specified) National income and prices Nominal GDP (in billions ofmeticais) 39,693 46,134 52,913 60,177 67,790 Nominal GDP (in millions of U.S. dollars) 3,438 3,893 4,147 4,505 4,940 Real GDP 11.3 12.0 9.7 7.0 7.2 Real GDP per capita 8.9 9.5 7.3 4.6 4.9 GDP deflator 11.1 3.8 4.5 6.3 5.1 Consumer price index (annual average) 6.4 0.6 1.5 6.6 5.0 Consumer price index (end ofperiod) 5.8 -1.3 5.5 5.0 5.0 Extemal sector Merchandise exports 1.7 7.9 18.6 9.4 57.8 Merchandise imports -2.9 14.3 60.8 -20.5 -3.1 Merchandise export volume 1.7 13.0 15.9 7.2 54.4 Merchandise import volume 5.7 19.3 57.6 -22.3 -4 3 Terms of trade 8.8 -0.3 0.3 -0.2 0.9 Nominal etfective exchange rate (end of period) I/ 6.5 -5.7 -2.4 Real etlective exchange rate (end of period) 11 9.4 -9.7 -6.9 ... ... Govemment budget Total revenue 31.8 14.9 17.9 20.2 17.0 Total expenditure and net lending 34.7 7.5 28.9 5.6 9.0 Current expenditure 38.8 23.3 24.2 9.0 10.2 Capital expenditure and net lending 31.3 -5.5 33.7 2.2 7.8 (Annual change in percent of beginning-period broad money, unless otherwise specified) Money and credit Net domestic assets 11.8 9.3 1.6 23.0 21.6 UJ wEich: net credit to the govemment -22.3 -16.0 -11.1 3.7 1.3 credit to the rest ofthe economy 31.1 17.7 17.5 18.9 19.4 Broad money (M2) 24.4 19.2 16.5 12.8 12.6 Velocity (GDP/ average M2) 5.9 5.7 5.6 5.6 5.6 Rediscount rate (in percent; end ot period; 1999 end-June) 13.0 10.0 10.0 ... ... (In percent of GDP) Investment and saving Gross domestic Investment 19.1 20.4 35.5 25.6 19.8 Govemment 8.0 9.3 10.6 10.7 10.5 Other sectors 11.1 11.1 24.8 14.8 9.3 Gross national savings 5.5 4.2 10.7 6.7 7.5 Govemment 9.7 7.6 10.6 7.3 7.4 Other sectors -4.3 -3.3 01 -0.6 0.1 Government budget Total revenue 11.6 11.5 11.8 12.5 13.0 Total expenditure and net lending 23.9 22.1 24.9 23.1 22.3 Overall balance before grants -11.9 -10.7 -13.0 -10.6 -9.4 Total grants 9.3 8.3 12.1 7.0 6.4 Overall balance after grants -2.6 -2.4 -1.0 -3.5 -3.0 Domestic primary balance 0.7 -0.6 -2.6 -1.7 -1.6 Domestic bank tinancing -3.3 -2.3 -1.8 0.6 0.2 Extemal sector Current account balance before grants -17.8 -20.5 -34.1 -23.7 -15.9 Current account balance after grants -8.7 -12.4 -22.4 -16.8 -9.6 (In percent of exports of goods and nonfsctor services) Net present value ot total extemal debt outstanding 2/ 710.8 699.2 505.2 475.7 406.5 External debt service (nontinancial public sector) Scheduled, before debt relief 66.2 72.8 68.0 79.7 57.9 Scheduled, after debt relief in Naples terms 19.2 20.1 24.6 26.5 19.2 Scheduled, after debt HIPC assistance 3/ ... ... 15.5 13.4 9.1 (In percent of govemment revenue) Extemal debt service (nonfinancial public sector) 4/ Scheduled, before debt relief 73.9 77.1 73.3 83.3 70.5 Scheduled, after debt relief in Naples terms 22.6 23.7 30.0 30.7 26.0 Scheduled, alter HIPC assistance 3/ ... ... 19.0 15.5 12.3 (In millions of U.S. dollars, unless otherwise specitied) External current account atter grants -298 -483 -931 -759 475 Overall balance of payments -98 -204 -196 -485 -473 Gross intemational reserves (end of period) 532 625 734 647 567 in months of imports of goods and nonfactor services 6.8 6.7 5.0 5.5 5.0 in percent oftbroad money 82.8 82.7 83.4 65.2 50.7 Total extemal debt (end of period) 7,439 8,344 7,682 8,069 8,215 Extemal arrears (public sector; end of period) 5/ 741 762 0 0 0 Exchange rate (meticais per U.S. dollar; end of period) 11,543 12,366 Sources: Mozambican authorities; and staff estimates and projections. 1/ A minus sign indicates depreciation. Figure for 1999 represents change over 12 months through March. 2/ Public and publicly guaranteed debt after rescheduling, in percent of three-year export average. 3/ Based on the amount comminted at the decision point. 4/ Excludes IMF debt. 5/ In view of the best etlorts being undertaken by Mozambique to conclude debt-rescheduling agreements, the country is deemed to have no arrears outstanding for programming purposes.  - 27 - Selected Table2: Mozambique: Indicators Social (In percent, unless otherwise indicated) 1995 or 1996 1997 or 1998 2001 actual I estimate 2/ target Health Proportion of health posts staffed with trained personnel 70 * 86 * 90 Proportion of first level health facilitiesproperly stockedwith essential drugs program kits 40 * 88 * 90 Vaccinationcoveragewith DPT third dose 58 77 80 Sevice units per inhabitant 3/ 2.6 3.1 3.6 Geographicinequity index 4/ 3.6 3.0 2.8 Education Gross priinary enrollmentrate 62 71 73-75 Repetition rate 33 25 23-21 Source: Ministry of Health, Ministry of Education. I/ Refers to 1996 unless indicated with an asterisk. 2/ Refers to 1998 unless indicated with an asterisk. 3/ "Service units" is a weightedsum of inpatitent days, hospital deliveries, vaccination doses, outpatient consultations,and MCH visits. 4/ This index is defined as the number of health units servicingthe 25 percent most favoured population divided by the number of units servicingthe 25 percent least favouredpopulation.  - 28 - Table 3. Mozambique: NPV of Debt and NPV of Debt-to-Exports Ratio, End-December 1998 (In millions of U.S. dollars, unless otherwise indicated) Projectedat DecisionPoint Actual 1/ Net presentvalue of debt 2,528 2,731 Multilateralcreditors 923 1,019 IDA 539 564 AfricanDevelopmentBank Group 2/ 169 202 IMF 157 168 Others 59 86 Bilateral creditors 3/ 1,606 1,712 Paris Club 1,281 1,334 Non-Paris Club officialbilateral 256 302 Commercial 69 76 NPV of debt-to-exports ratio (in percent) Beforecommittedassistance 466 538 After committedassistance 200 254 Memorandumitems: Additionalassistancerequired to meet target In millionsof US$ (in NPV terms) 274 In percent of exports of goodsand nonfactorservices4/ 54 Exports of goodsand nonfactor services(currentyear) 636 534 Exports of goodsand nonfactorservices 4/ 543 507 Sources:Mozambicanauthoritiesand staff estimates. 1/ Figures are basedon reconciledend-1998data, using end-1998exchangerates and the six-month average CommercialInterest ReferenceRate (CIRR)at end-December1998. 2/ IncludesNigerianTrust Fund. 3/ Includesthe impact of a hypotheticalParis Club stock of debt operationon Naplesterms at end-1998as well as comparabletreatmenton other bilateral and commercialpre-cutoffdate debt. 4/ .three-yearmovingaverage ,  -29 - Table 4. Mozambique:ExchangeRates and Discount Rates, 1997-98 ExchangeRates Discount Rates (CIRR) 1/ (currencyper U.S. dollar) (in percent) end-1997 end-1998 end-1997 end-1998 Paris Club Austrian Schilling 12.49 11.75 5.79 5.28 FrenchFranc 5.99 5.62 5.91 5.36 GermanMark 1.79 1.67 5.88 5.16 Japanese Yen 130.11 115.60 2.50 2.22 PortugueseEscudo 2/ 181.36 171.83 6.06 5.25 Russian Ruble 3/ 0.60 0.60 7.31 6.23 Spanish Peseta 150.06 142.61 6.52 5.31 Swedish KronoT 7.76 8.06 6.81 5.66 Swiss Franc 1.46 1.38 5.91 4.05 U.K. Pound 0.61 0.60 7.95 6.81 U.S. Dollar 1.00 1.00 7.31 6.23 Non-ParisClub Bulgarian Leva 2/ 70.83 70.83 6.06 5.25 Chinese Yuan 2/ 8.28 8.28 6.06 5.25 indianRupee 2/ 39.28 42.48 6.06 5.25 Iraqi Dinar 4! 0.31 0.31 7.31 6.23 Kuwaiti Dinar 2/ 0.30 0.30 6.06 5.25 SouthAfrican Rand 2/ 4.87 5.86 6.06 5.25 Multilateral ECIJ 5/ 0.90 0.86 5.88 5.00 SDR 6/ 0.74 0.71 6.06 5.25 U.S. dollar 7/ 1.00 1.00 7.31 6.23 UA 8/ 0.74 0.71 6.06 5.25 Sources: OECD;and IFS. 1/ Six-monthaverage of commercialinterest referencerate (CIRR)for July-December1997and July-December1998. 2/ Discountrate based on SDR CIRR. 3/ Reflects exchangerate agreed in September 17, 1997Paris Club memorandumof understanding. 4/ Discountrate based on U.S. dollar CIRR,reflectingexchangerate peg. 5/ Appliedto loans from the European InvestmentBank and EuropeanFund for EconomicDevelopment. 6/ Appliedto loans from IDA, 1vIMF,InternationalFund for AgriculturalDevelopment,and NordicDevelopmentFund. 7/ Applied to loans from the OPEC Fund and Arab Bank for EconomicDevelopmentin Africa (BADEA). 8/ AfricanDevelopmentBank/Fundunit of account,applied to all AfDB/AfDFloans,  Uable S Mo.za.imbiq Mediom- arid 1999-201 7 lalance ol Paymareots, l.ug-trm (hr rflltors of U.S. dollars, oirressihllerises specilied) I'roieciioiis Oiiier Years Averages 1998 1999 2000 2001 2002 2003 2004 2005 2010 2017 1998-07 2008-17 Trade balance -620 -1,102 -78N -567 -399 -431 -450 -469 -678 -1,177 -5118 -849 Exporis(fo.b.) 248 294 322 508 844 884 929 976 1,201 1,716 708 1,373 lirlporis (c i f) -868 -1,396 -1,110 -1,075 -1,243 -1,1 is -1,379 -1,446 -1,878 -2,893 -1,296 -2,222 Servces (lrl) -1 76 -31 1 -280 -218 -309 -252 -222 -191 26 457 -222 164 Receipts 333 349 374 403 433 467 504 545 826 1,401 464 1,021 EIxperrdrlrrres -509 -6o 1 -654 -620 -742 -/19 -726 -736 .800 -944 -686 -857 OJ rrhr6 milresl orililbic delbt -I511 -162 -161 -147 -13f -119 -1()6 -95 -82 -61 -125 -75 rrr,eoelrrdmrg Cor-of nwaceol gramls -796 -1,411 -1,1)68 -85 -7118 -683 -672 -6611 -652 -719 -811 -684 IJljrrrar 1rrjvd erflcialtranisfers I/ 313 482 309 310 307 304 301 299 292 313 322 31111 aCcorrrn, (CrreCilt iriclridilrg grarrls -483 -931 -759 -475 -402 -380 -372 -362 -360 -406 -489 -384 Capital aecorrrii 270 735 274 2 -35 4 81 156 301 392 199 338 Prircigi brir-irvg 307 64? 5116 276 266 319 354 174 290 282 371 292 Publrcsector 225 147 165 165 187 225 245 260 90 35 203 76 01/rr.hr-h. Il)A 134 100 130 130 150 190 200 2110 70 30 157 61) Pliva-esecrrrr 2/ 81 495 341 111 79 94 109 114 200 247 168 217 Amiorriza-iror -244 -752 -353 -352 -393 -429 -395 -360 -382 -378 -129 -312 O)/ pirrbl debr irhich i,ariolrizal.rrrmrrrr -211 -201 -306 -306 -309 -316 -277 -235 -109 -176 Slhom r lIet,' il edrors arrd orrs11 (rret) sr5r1S 9 0 I 0 oI 0 0 0 f9 i,4hrrh: coirirrrercialbaniks(tier) 1 0 0 0 0 0 0 0 0 0 2 0 Overall balaice -204 -196 -485 -473 -436 -384 291 -205 -59 14 -289 -47 FPiracir g 2114 196 485 473 436 384 201 205 59 14 289 47 L. laralkofMrrzanrlrirrre -77 -100 79 75 52 10 -27 -52 -34 -69 -8 -41 o/w: Grossint reserves(mrc ) -13 -11(9 87 81 64 31 -4 -25 -34 -69 -30 -'2 o/w: sJsclf IMFcrcdil (lct) 10 9 -7 -6 -12 -21 -23 -27 0 0 -7 17 Netcicarrge r arrcars (irrccase +) 2(7 -762 0 () 0 0 () 0 0 0 -74 0 Iri.amiciniggap 261 1,057 40)6 398 384 374 318 258 93 83 372 96 Debl relref 3/ 261 127 0 0 0 0 0 0 0 0 39 0 tlo3ioioilrlggap 4/ 0 930 406 398 384 374 318 25S 93 83 333 96 ireinis: MlemiroramiuIir,o Crnerri a.aconml rdelicil 5/ Before granis 149 236 164 90 57 52 41 45 33 23 92 311 Afierggartis 90 156 116 55 33 29 27 24 1l 13 57 17 Grossimrrri:rorurral reserves 625 734 647 567 503 472 477 502 563 914 548 684 (,inoni iis of imlorts ofgords and serriees) 67 50 55 50 1.8 34 3.3 3.3 3.0 3.3 4.2 3.1 Debl-servec ratio 6/ Blefore ldblrelief 72 8 68 0 79.7 579 39 5 3711 312 26 2 116 98 44.6 116 After debt reliefonr Naples ie-ns7/ 2(rf 24.6 26 5 192 I10.2 17 9 12.6 12 7 95 89 16 7 1II Afilr,:rrrnrrIrIrcdHIOPCassisia-rce 8/ ... 15.5 134 9 1 62 60 6.0 65 4.9 50 84 53 Fiscal debh servicerawir)9/ lleforerdcbt rliel 77 1 733 83.3 70 5 59 4 52 2 44 2 374 12.6 95 66 1 136 Afler debt rclefoli Naples tenirs 7/ 23 7 30 0 30.7 26 0 22 1 20 4 19.1 1I 7 10.3 8.8 24 6 II 9 Alier corrruledl I iiC assistanrce 8/ ... 19.0 15.5 12.3 10.3 9.4 9.1 9.5 53 40 127 (r I AficerrdIirral IlP'Cassisloirct 8/ - 17 13 15 011 01 7 02 47 106 55 arir staff etlirirairs rrl prrjecliotrs Sori ces Noo,rrrbre:irr ilrrrollrflies I/ lr 1999iticilrrles IJSSIS5 ririlierr of grarrtsprovrdcd by IDA as rrrlerrrrrassrslarrce rrrrdcr tir( 11 ialrte. ... oe.ri g, mIlgrr:rrariaeed 7/ l'rrvatc br rrr die Raoikofb-Mozatmbliqore by tire gos,eneirriert 3/ irclides lircirlrpar of'lire 1996 Paris Clilb liotr rcschcr-litirtgOer Napi,s ernits, irrtirli"tf esclredltrlitrg of lilc debrto ltissr afler aot rrf 80 perceril Als tic-Irtles Ite rip-frorrt drscorrrrr 1997crrorrrrr-rcl di lelr reschrerdlirrg with tie liaik rrf Alrazil Debt relief irr 1990arrd199') rirchr de IOSS23 trilliort ofr'irterrtr assistarrcc provided by Paris('Irb crcdiTorsItrner thieIH 'iltlrrtive ol01 Irs rssistar,ie (lie topping tnt of lhe 1 1l 199t II,r-, rcsciehiiridrg1t I 1rr.rs erts rrrclrrrr abore tire i-r as red.ed debl service 4/ I-mratrcirrggaps alitr tird- 1999 to bccoveredby ill P'CaSrrst:rtrC arid Ihteaplptlicotr of' tadtlrrttjl tescltetlirlrg rcclrhamirsrtrs by rrorrP.t-s Club ciedr s 5/ hI IperCiel coo .pIs rtl gords arndrotIfactoi scr-rcs (./ Iorpireerllrof epo9rl ol goodsai,lf ronifactorservstees, ecvlides private seertr drelrt 7/ Assirir-esNapllesreirrrs loin reschiedlirr tlrioogit al 1)99)anrda tlrerrltio 6 I 1 -- r NOV relrcitt l cmigibleelatrtrsat erd- 1998. r l,rck-ofreht 8/ Assrires hyl-1 IeItIIX slock of-debrtoperation . t I YO. terits (10 pet,errr(Nl'V redrlrrtirtr.l, iiell as dc-bir0el kirret ih I 111'( ' ilriatre 9/ tl rf g,t-rmrerttil reverirle oeecetrl  Table 6. Mlozatubique: Medium- and Long-Tern Extemal Debt Service, 1999-2017 (In nrillions of U S dollars. unless etherss'cs n-rceA Projecuorrs Outer years Averages 1999 2000 2001 2002 2003 2004 2005 2010 2017 1999-07 2008-17 Totaldebt servce 476.1 642.9 630.6 656.8 6830 6397 600.2 506.3 635.6 591.0 566.9 Principal 283.2 382.9 381.2 417.8 4564 4254 395.7 301.4 427.9 370.5 357.1 Interest 192.9 260.0 249.3 238.9 226.6 2143 204.5 204.9 207.0 220.5 209.9 Schrduleddebtetsr,ce 1/ 407.8 493.4 477.6 453.3 442.5 390.0 335.3 155.8 151.3 378.3 161.3 Principal 273.6 369.0 368.9 360.0 364.7 327.2 286.0 128.5 140.0 297.6 139.7 Ilaltldlatenla 52.9 57.0 54.4 49.6 50.4 524 52.2 42.1 575 52.0 49.5 Of lhi,h: IDA 5.b 807 9.4 11.7 14.6 17.4 20t 32.0 44.6 14.8 36.6 AftDB/AfDF 9.4 9.5 9.1 7.9 8.6 76 6.2 7.6 11.1 7.8 809 IMF 31.3 30.3 20.9 23.6 20.7 19.9 17.8 0.0 0.0 22.1 0.5 Bilateral 169.9 266.7 271.1 273.0 274.9 233.5 190.7 33.8 21.1 201.9 34.7 ParisClub (excludingRussia nd Braz2i) 88.5 182.2 184.6 184.2 183.1 176.0 1698 31.4 21.1 143.8 33.1 Post-cutoffdate 14.- 15.4 17.2 161 14.3 12.5 122 5.6 3.4 13.9 4.6 Pre-cutoffdate 73.8 166.8 167.3 168.0 168.8 163.4 157.6 25.8 17.7 129.9 28.5 Ofohi,h: previously resheduled on Torontoteres 1.0 1075 107.5 107.5 107.5 1075 107.0 5.5 0.0 73.0 5.0 presioisly rescheduledon London terms 10.3 17.4 18.0 18.7 19.5 14.1 0.0 16.7 17.7 14.3 21.0 Russia 12.0 802 5.5 3.0 1.2 0.4 0.2 0.0 0.0 3.4 0.0 Brazil 32.6 37.5 407 44.0 47.3 24.4 0.0 6.0 0.0 25.2 0.0 ODierofficial 19.6 19.3 19.4 19.4 19.4 19.2 18.5 0.0 0.0 15.7 0.8 Comrumercial 17.2 19.4 20.9 224 23.9 13.5 2.2 1.6 0.0 13.8 0.8 Privatesectordebt2/ 50.8 46.0 43.4 37.4 394 41.2 43.1 52.6 61.3 43,7 55.5 Interest 1342 123.6 108., 93.3 77.8 62.8 49.3 27.3 11.4 80.7 21.6 MuldIaleral 1806 17.6 16.7 15.9 151 14.3 13.6 11.5 80. 15.3 10.6 Ofwhach I:DIDA 10.0 10.0 9.9 9.8 9.7 9.6 9.5 0.6 6.5 9.7 79 AfDB/AIfDF 59 5.3 4.7 4.2 3.8 3.4 3.1 2.5 2.0 4.0 2.4 IMIF 1.0 0.0 0.7 06 0.4 0.3 0.1 0.0 0.0 0.4 0.0 Bdatnral 108.1 98.5 84.9 71.0 56.9 43.3 31.1 14.4 2.5 59.7 10.2 PairsClub(excludingRv,ssiaand Brazd) 8002 74.8 65.7 56.6 47.5 385 29.9 14.2 2.5 4A4 10.1 Post-cutoffdate 4.7 41 3.6 3.1 2.6 22 1.9 0.7 0.2 2.8 0.5 Pre-cutoffdate 75.5 70.7 62.1 53.5 44.9 36.3 20.0 13.5 2.3 45.6 9.6 Of.4ai,h:previouslyrescheduledonToronto ternes 36.8 354 30.1 24.0 19.5 14.2 8.9 3.0 0.0 19.8 1.9 presiouslyrescheduledon Londoiitems 17.5 16.9 16.0 150 14.1 13.1 12.6 10.1 2.3 14.3 7.4 Russia 0.8 0.5 0.3 0.1 0.1 0.0 0.0 0.0 0.0 0.2 0.0 Brazil 14.3 121 9.6 6.0 3.9 1.2 0.0 0.0 0.0 5.3 0.0 Other oflicial 4.2 3.6 3.0 2.5 1.9 1.3 0.7 0.1 00 2.0 0.1 Commercial 8.6 7.5 6.3 50 3.6 2.2 04 01 0.0 3.8 0.1 Privatesectordebt 2/ 7.6 '.5 71 6.5 5.8 5.2 4.6 1.4 0.0 5.7 0.7 Debt sevice onnew borrowinga d rescl,eduled debt 68.3 149.5 153.0 2034 240.4 249.7 264.9 350.5 484.3 212.7 405.6 Principal 9.6 13.1 12.4 57.8 91.7 98.2 109.7 172.9 2879 72.9 217.3 Onrrescheduleddebt 9.6 13.1 92 11.2 18.1 18.3 18.6 44.4 1121 16.4 67.1 Onnes,borrowmrg3/ 0.0 0.0 3.1 46.6 73.6 79.9 91.2 128.5 175.8 56.5 150.2 OfJhieh: privatesector 214/ 0.0 0.0 3.1 46.6 73.6 77.0 81.7 120.3 1401 51.5 126.2 Ilterest 50.7 136.4 140.7 145.6 149.8 151.5 155.2 177.6 1964 139.8 1883 On reschuled debt 47.7 65.3 63.9 63.6 63.3 62.9 62.5 60.1 46.4 615 55.7 On new borrowing 3/ 11.0 71.1 76.7 820 85.5 08.6 92.6 117.5 150.0 7803 132.6 Of.ehi,h: privatesector 2/4/ 10.9 69.8 741 78.1 80.1 81.5 83.8 101.5 132.6 72.5 116.0 hlerorarndum iters: ExtemaiDebt(Naplestemms)5/ 5,531 5,613 5,689 5,791 5,912 6,061 6,230 6,541 5,757 5,954 6,281 NPV fdebt (Naplesterms) 5/ 2,765 2,831 2,872 2,954 3,036 3,128 3,223 3,516 3,294 3,052 3,466 NPVofdebtafter cornrrnitted HIPC assistance5/ 1,382 1,457 1,520 1,610 1,705 1,810 1,913 2,277 2,356 1,722 2,323 NPVofdebt-to-expourtsatio(Naplesteres) 5/ 6/ 505.2 475.7 406.5 321.6 266.9 238.5 231.3 107.9 114.1 3203 1616 NPVof'debt-to-exporrs ratio aftercommittedHIPC assistance 5/6' 252.5 244.9 215.2 175.3 149.9 1380 137.3 121.7 81.6 175.8 107.6 NPVofdebt-to-exportsratioafleraddi6onaalHIPCaassistance5/6/ 201.2 197.4 175.0 144.1 124.4 115.7 116.1 104.2 69.4 144.8 91.9 Sources: Mrozanabican and staff estimatesand projechions authonifies I/ Debt serviceon stock of debt oustanding as of December31, 1998. Excludeslalcumterest on loans extended to the Cah15aBassuIydropowver companyin dae early 1970s. 2/ Debt servicenot contractedor guaranteedby the g-venment or doeBank of hiozarabiqrae.Jrucludos oanortzatonrof loans extended in dheearly 1970sand servicingof loans exlended in 1995rnd 1996to ahe CahoraBassohydropowercompany. 3/ Disbursed afer December31, 1998. 4/ Includes,dbt serviceerr nowloans to lb. CahoraBassahydopon-er company,Mozai amd other largeprojects. 5/Refersto publc and publiclyguaranteeddebt orty. Itcorporates dhetemrs of the November1996ParisClub agreement(includingwith Brazil)amd of a hypothtical stock-of-debt operaion onNaples tenns (67percent NPVreduction) atend-1998 Non-ParirClub officialbdaerai andecomd ercial coeditorsare .su.medtoreschedue eligible debt on comparabletemms. All Russianloans disbursedbefore 1992are subjectto au 80 per.e..t up-Irontdiscount;of tde remaining, pre-cutoff-dateloars are treatedon comprarbleterms sod post-cutoff-datearrears are reschleduledto achieve a further56 percent NPV reductoi. 61 In percert of doethree-year moing averageof expots ofgoods aid norafactor sectr-es.  Table 7. Mozambique: Proposed Delivery of World Bank Assistanice Under Lhe HIiPCInitiative, 1999-2035 (In millions of U.S. dollars, tunless otherwise indicated) Cumulative 1999 2000 2001 2002 2003 2004 2005 2006-15 2016-25 2026-35 1999-2035 IDA debtservice before HIPC relief 15.6 18.7 19.3 21.6 24.3 27.0 30.2 407.0 507.0 306.4 1377.1 IDA debtserviceaftercommittedHIPCrelief 1/ 9.6 7.9 8.6 9.0 10.0 12.7 15.4 201.7 275.9 203.5 754.3 IDAdebtservice after additionalHIPC relief 2/ 10.9 7.9 8.5 8.9 9.9 10.7 11.3 163.0 210.3 141.1 582.4 IDAreliefafterconsmittedassistanice 3/4/ 6.0 10.8 10.7 12.5 14.3 14.3 14.8 205.3 231.1 102.9 622.8 IDA reliefafter acditional assistance 4/ 5/ 4.7 10.8 10.8 12.6 14.4 16.3 18.9 244.1 296.7 165.3 794.8 Memorandumitems: Debt reliefafter committedassistance asa percent of IDA debt service due (in percent) 38.5 57.8 55.5 58.1 59.0 52.9 49.1 50.4 45.6 33.6 45.2 Debtrelief after additionalassistance as a percent of IDA debt service due (in percent) 30.3 57.9 56.0 58.6 59.3 60.5 62.5 60.0 58.5 54.0 57.7 Sources: Mozambicanauthorities;and IDA staff estimates. 1/ Total HIPC assistanceof $1,442millionin NPV tcrms was committedat the decisioi point, of which IDA's shiare was estimatedat $295 millionin NPV terms. 2/ Assumingadditionalassistancerequired to bringthe NPV of debt-to exports to the target set at the decisionpoint. 3/ Translatesinto US$269.89 millionin NPVterms, using updated discountand exchangerates. 4/ An IDA grant of US$ 150million(equivalentto $54.22millionin NPV tenis) wcre deliveredbeforethe conipletionpoint as interimassistance.This amountincludesUYS$29 millionin NPV termscontributedby IDA toward filling thebilateralassistancegap thatexisted at the decision point. 5/ Translatesinto US$326.89 millionin NPV terms, usingupdated discountand exchangerates.  Table 8. Mozambique:Proposed Delivery of IMF Assistance Under the HIPC Initiative, 1999-2008 I, (In millionsof SDRs, unless othenvise indicated) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Profile of delivery (in percent of amount 11.0 13.0 16.0 14.0 12.0 11.0 7.0 7.0 6.0 3.0 deposited in escrow account (principal)) Repayments falling due on current IMFobligations 2i 11.5 22.2 21.0 17.] 14.8 14.1 12.6 11.3 7.6 3.8 IMF HIPC Initiativeassistance 3/ 10.3 14.1 18.4 15.9 13.4 11.9 7.7 7.3 6.1 3.0 Of which: principal 10.3 12.1 14.9 13.0 11.2 10.3 6.5 6.5 5.6 2.8 Proportion of each repayment falling due duringthe period to be paid bv HIPC Initiativeassistance from principal 88.9 54.7 71.1 76.2 75.5 72.9 51.11 57.5 74.0 74.0 deposited in escrowv account (in percent) 4/ Scheduled IMF debt service 5! 5.3 4.7 3.4 1.9 1.6 1.6 1.8 1.9 1.7 1.4 Of which: covered by IMF HIPC assistance 5/ 2.3 2.9 2.8 1.7 1.4 1.1 0.7 0.6 0.5 0.2 U. Mlemorandumitem Exports of goods and nonfactor services 599 652 869 1,235 1,309 1,391 1,480 1,566 1,658 1,758 (current year, in millionsof U.S. dollars) Sources: Mozambican autliorities and Funidstaff estimates. 1! Assuming additionialassistance required to meet the 200 percent NPV of debt-to-exports target at the completionpoint. The U.S. dollar amount of 124.6 millionto be deposited in SDRs inl an escrow account three business days after the completion point valued at the SDRIU.S. dollar exchange rate prevailing at the completionpoint (i.e the date of Executi'veBoard approval of Mozambique's completionpoint). The SDR equiv,alenitisestimated at SDR [93.2] millionon the basis of the SDRII.J.S.dollar exchanigerate of [0.747884] prevailing on [June 4, 1999]. 2/ As of mid- 1999. 3/ It is assumed that the amounts in escrowecam arate of retum of 4.5 percent in SDR terms, Actual interest eamings may behigher or lower. Interest eamed will be accumulated through the calendar year and used towvard payment of the first repayment obligation falling due in the following year, except in the final year, whienit will be uised towvardpayment of the final repayment obligation falling due that year. 4! For 1999, the proportion is calculated on the basis of repaymentsfalling due three business days after the completionpoint. 5! In percent of current-year exports of goods and services.  Table 9. Mozambique: Overall Assistance Under the 1IPC Initiative 1/ (In millions of U.S. dollars, unless otherwise indicated) Assistance at completionpoint 2/ Multilateral Total Bilateral 3/ Multilateral of which (in percent of NPV IDA IMF AIDB Other at decision point) Decision Point Document 1,442 916 526 295 95 98 38 62.9 Requiredtoreach200percenttarget 1,716 1,076 641 352 115 119 55 75.5 Memorandumitems: NPV of debt 1/ 2,731 1,712 1,019 564 168 202 86 Paris Club (excl. Russia; incl. Brazil) ... 1,129 Russia 4/ ... 205 ... Other official bilateral ... 302 ... Commercial ... 76 ... Three-yearaverage of exports 507 ... ... NPV of debt-to-exportsratio 5/ 538 Sources: Mozambicanauthorities and staff estimates. 1/ Based on latest data available at completion point after full application of traditional debt relief mechanisms,i.e. a hypothetical stock-of-debtoperation on Naples terms and appropriatecomparabletreatmentat end-1998. 2/ Amounts shown for bilateral creditors include, and for IDA and IMF exclude, US$29 million and US$10 million in NPV terms committed by IDA and IMF as part of the gap-fillingexercise at the decision point. 3/ Includes official bilateral and commercialcreditors. 4/ After an up-front discount of 80 percent on all Russian claims disbursed before 1992, the application of Naples terms is assumed on pre-cutoffdate debt in 1997 and post-cutoffdate an-earsin 1998, with NPV reductions of 67 percent and 56 percent, respectively. 5/ In percent of three-year export average.  Table10. Mozarnbique: KeyExtenal Debt-Sustoability Idichators1/ (Inpercent) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Key ratios NPVofdebt to eaots ratio 2/ BeforeEHPCAssistce 3/ 538 505 476 407 322 267 238 231 223 215 206 198 188 178 167 157 147 136 125 114 After CowmittedHlcCAssisince4/ 254 242 235 207 169 144 133 132 131 128 125 121 117 111 106 101 95 89 83 76 AfterProposedllHPCAssistance 5/ 200 201 197 175 144 124 116 116 116 113 111 108 104 100 95 91 86 81 75 69 NPV ofdebtto revnue ratio 6/ BeforeH[PCAsistance Y 609 563 503 448 402 367 342 320 289 262 235 214 193 173 155 138 123 109 97 86 AftrCoanmittedHlPCAssistmce 4/ 288 270 248 228 211 199 190 183 171 156 142 131 120 108 98 89 S0 71 64 57 AfterProposedlHPCAssistnce 5/ 226 224 209 193 180 171 166 161 151 138 126 117 107 97 8S 80 72 64 58 52 NPVof debtto GDPratio BeforeHlPCAssistance3/ 70 67 63 58 54 50 48 46 43 41 38 36 33 31 28 26 24 22 20 18 AfterCowsmittedHIPCA risnce 4/ 33 32 31 30 28 27 27 26 25 24 23 22 21 19 18 17 15 14 13 12 AfterProposedHPCAssistance S/ 26 27 26 25 24 23 23 23 22 21 20 20 18 17 16 15 14 13 12 11 Dcbt-svice ratio 7/ BeforeHlPCAsistarce 31 20.1 24.6 26.5 19.2 13.2 12.9 12.6 127 12.8 12.7 12.5 13.3 9.5 9.3 9.5 9.6 9.6 9.4 9.3 9.1 AfterCemittedHIPCAstnce 4/ ... 15.5 13.4 9.1 6.2 6.0 6.0 6.5 6.4 6.3 6.5 6.7 4.9 4.9 5.0 5.0 5.2 5.1 5.1 5.0 AterPr aedllWPCAss_dance51 . 14.3 11.7 7.7 5.3 5.1 5.1 5.5 5.6 6.0 5.8 6.1 4.3 4.2 4.3 4.4 4.5 4.4 4.4 4.3 w Debt-service to eenue ratio 6/ BeforeHIPCAssistance 3/ 23.7 30.0 30.7 26.0 22.1 20.4 19.1 18.7 17.6 16.4 15.0 15.2 10.3 9.7 9.3 8.9 8.5 8.0 7.7 7.3 AfterConmittedHIPCAssistanoe4/ ... 19.0 15.5 12.3 10.3 9.4 9.1 9.5 8.9 8.2 7.8 7.7 5.3 5.0 4.9 4.7 4.6 4.4 4.2 4.0 AfterProposedHIPCAssistnce 5/ ... 17.5 13.5 10.5 8.8 8.1 7.8 8.2 7.7 7.8 7.0 7.0 4.7 4.4 4.2 4.1 4.0 3.7 3.6 3.5 Source:Momnbicanauthorities ad staffestawts. 1/ Refersto publicad publicly9kgeed debtay. 2/ Inpeant ofthe thre-yearwving aerae ofexpots ofgoods d nonfactor services. 3/ Assumes Naples ens flow ding through mid-1999 ad a hypotic opertion (67 perent NPVreduction) stock-of-debt onald eigble claimsat end-1998. 4/ Assues HIPCasistance cmitted at the decision poin, includig ahypothetical stock-ofdebtoperatio on Lyontenns (80percentP Vreduction). 5/ Assumes HIPC ssiance committed at the decisionpointand additio l HIPC sistance essy to meet200 percent NPVof debtoce tt, including stock-of-debt a hypothetical operatio n Lyonterms(80 pecent NPVreduction). 61 Inpercentofgovernmentrevnes excluding Wants. 7/ Ipe_t ofcuentyar exports of goodsandn-factr serices.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point Policy Area/Objectives/Targets Status Actions Taken/Results Actions Observations/Future Privatizationand publicenterprisereforn Completeprivatizationof large enterprisesunder Done 22 large enterprisesprivatizedin 1998, Options and proposed policiesfor remaining the TechnicalUnit for EnterpriseRestructuring completinglist under UTRE. public enterprisesand enterpriseswith (UTRE). majoritystate ownershipto be developed overthe next year. Completeprivatizationof small and medium- On track Program nearly complete. Over 1,100 Strategyon governmentshares in mixed sized enterprises. companiesprivatizedor restructuredunder enterprisesand criteria for disposalof this program as of March 1999,with govermuent's remaining interest in preparationswell advancedfor the enterprisesto be developed. remaining 115 to be completedby midyear. Establish a private oil-importingcompanyto Done Private oil importingcompanyestablishedin replacethe state-ownedoil company Nov. 1998with minorityownershipby (PETROMOC). PETROMOC. Privatize the managementof five major water Underwvay Selectedbidder notifiedfor private Beginning of longer-termprogramto managementcompanies. managementof five largest urbanwater delegate managementof water supply supply systems(leasecontractfor Maputo; towards municipalownership,and manage it managementcontractsfor Beira, Pemba, on commercialbasis. Legislationprovides Nampula,and Quelimane).Contract for decision to be made in three years with of IDA signaturesis tied to effectiveness respect to five initial cities, with extensionto credit, successfullynegotiatedin May 1999 other cities to follow.Rural water supply and to be considered by the Board in June strategyand managementoptions to be 1999. developed to moveto demand-basedwater supply systemduring 1999. -u I-.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point PolicyArea/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future CFM's ports and railways(1998-99). Under way Process of concessionsis well under way, CFM's strategicobjectiveis to divestitself of monitoredthrough preparationof IDA any involvementin the direct operationand credit. Most port terminal facilitiesat managementof the ports and railwaysin the Maputoand Beira concessioned to private country.Restructuringof CFM is underway, sector operatorsand operational.All other to be supportedby the IDA credit negotiated rail and port facilities,exceptcentral rail in April. The proposed restructuringwould network,under negotiation.Concessioning involve(i) incorporationof a new holding expectedto be completedby end-1999. companyto manage CFM's subsidiariesand Concessioningof central (Machipanda)line affiliates,the govermnent's equityin the delayedby decision to packageit together concessionaire companies,and residual with Sena line; activesearch underway for commercialactivitiesand public assets (i.e., concessionaire. not taken overby the concessionaires); (ii) redefiningthe role of the existing CFM; and (iii) regularizing the financialflows betweenthe CFMand the government. Fiscalreform Introducevalue-addedtax (VAT) Done Governmentannouncedintroductionof Further strengthening of tax administration VAT on April 1; commenced is to continue withthe hiring of additional implementationJune 1, 1999. staff, improvementsin collectionscontrol and audit, and training staff. Revisepersonal and corporatetaxes. Done Personal and corporateincome tax rates Further rationalizationof tax and exemption loweredand corporaterates restructuredin regimesto be made, followinga 1998. comprehensivereviewof tax and tariff system. Reducedispersionof import duties. Done Top tariff rate reducedfrom 35% to 30% in Trade liberalizationto continue.Top tariff April 1999. rate to be reducedto 25% by January2002.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point Policy Area/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future Developa medium-termexpenditureframework Done introducedin First annual framewvork Draft of next year's MTEF expectedJune (MIEF). September1998. 1999. MTEFs to be approvedand published annually as part of budget process. Ciil service reform Finalize new career stream and compensation Done Newcareer streams and compensation Reformprocess to continue with new structure. structureintroducedas of April 1999. performancestandardsand incentive mechanisms,codeof administrative procedures,and public administration training system. accordingto new Done Completesalarydecompression Secondphaseof decompression Salaries may be furtherdecompressedwithin structure. implemented in April 1999. Ratio of highest frameworkof revisedcareer streams and to lowestsalarywas raised from 9.6:1 in compensationstructure. Systemof merit- 1997to as much as 15:1for certain basedpay increasesand promotionswill be categoriesof workers. instituted. Social sector reforms and poverty reduction Education Medium-termobjectiveis to extend primary Objectivehas been confirmedand strategyto educationcoverageto all by 2010, wvith achievetargets articulated in education Annual reviewmeetingwith donorstook substantiallyimproving quality, sectorstrategy agreed with donorsin May place in May 1999. 1998. Donor financing of program coordinated through Sector Investment Program-IDA support approvedby IDA Board in Feb. 1999. Progressmade in coveragewhile maintainingor improving quality.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point PolicyArea/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future Increasepublic spendingin education,by meetingthe followingtarget: * Increaseshare of educationin current Shareof educationin current spendingwas Current expenditureson educationto spendingfrom 17.3%in 1997to 18% in 18% in 1998. increaseboth in real terms and as a share of 1998,with fiutureincreaseconsistentwith total current expenditure,in line with medium-term expenditureprogram mediumterm expenditureframework. Improvemonitoringof spendingin education,by Expandedmonitoringsystemto integrate program Completionof systemimprovement meetingthe followingtarget: financialand educationalinformationbeing expected in 1999. finalized. Delayfrom original scheduledue * Install informationsystemby 1998. Slowerthan to needto achieveconsensuswith donors. expected Systemwill substantiallyimproveabilityto monitoreducationalallocationsand equity, as well as contributionsof donor support. and efficiencyof public Increaseeffectiveness by meetingthe expendituresin education, followingtarget: * Approve,in coordinationwith donors, Done Integratededucationsectorexpenditure Rollingfive-yearprogramto be updated integratededucationsector expenditure programincludedin 1999budget and annually. program. supportedby WorldBank project approved Feb. 19, 1999. Increaseaccess to primary education,including Increasein accessto primary educationhas by meetingthe followingtargets: generallymet or exceededtargets.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point Policy Area/Objectives/Targets Status ActionsTaken/Results Observations/Future Actions Met Raise primary gross admissionrate from Primarygross admissionrate' estimatedto Plan is to increaseadmissionrate by 1-2% 75% in 1996to 79-81% in 1998and to 82- be 79% in 1998. per year. Ratesare basedon old cenSus 86% in 2000. projectionsof school-agechildren and may be underestimated. * Increaseprimary gross enrollmentrate to Continued Rate2increasedfrom 62% in 1996to 71% in Improvementof 1-2% per year is now 79% in 2000. progress 1998. expected.Enrollmentrate affectedby combinedrate of progresson dropoutand repetitionrates. Improvequalityof primary education,including Pace of improvementin indicators of qualitv Mfinistrventeringnewv five-yearprogram to by meetingthe followingtargets: slower than anticipated,thoughno overall addressqualityissues, supportedby IDA deteriorationhas accompaniedexpansion of through sector-wideprogramwvith donors. coverage. * Increase number of primary school teachers Not met, being Net increasein numberof teachershas Reformof civil servicesalarystructure and by 10 percent per year while maintaining addressed averagedabout7.5 percent,as recruitment definitionof separatecareer stream for share of qualified teachersat 70%. rate of about 13percent has been partially teachersare expectedto help address teacher offsetby departures. Shareof qualified supplyissue, along with other measures teachersat 68% in 1998. Incentivesand under the Education Sector Strategic ability of secondaryschoolsto producenew Program. teachershavebeen constraints. * Maintainavailabilityof textbooksat level of Substantially Textbookcoverageratio increasedfrom 25% Textbooksprovidedfor use free. In addition, at least one per pupil. met in 1995 to 95% in 1998in primary levels. about 2.5% of studentspurchase new textbooksfor their own retention. Defined as the ratio of new entrants in primary school(as a percentage of age cohort). 2 DCdnedas ratio of all studentsin primary schoolas a percentageof primary schoolage cohort.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point Policy Area/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future * Maintain pupil-to-teacherratio at no more Not met, being Pupil: teacherratio of 61.5 in 1998, Program is to return to ratio of no more than than 60. addressed comparedwvith 60.8 in 1997, Rise in ratio 60, basedon improvedrecruitmentand due to slightlysmallerincrease in number of retentionincentives for teachers. teachersthan planned. * Completerevisionof curriculumby 2000. On track Grade structurereform agreed; draft Broad consultationprocessunder way.New curriculumreformof November1998, on curriculumand evaluationprocess will track to be completedby 2000. providegreater flexibilityto local school administrations,while core programwill be retained. Increaseinternal efficiencyof primaryeducation, by meetingthe followingtargets: * Increase primary schoolcompletionrate Met Completion rate3 wvas 8% in 1998. Progressin raising completionrateswill from 6% in 1996to at least 8% in 1998and Measuredas graduationrate of entry cohort continueto be monitoredclosely. 10%by 2000. in first grade,rate was 23.7% in 1998, comparedwvith 19.5%in 1995 and 23% in 1996. * Reducerepetitionrate from 33% in 1996to Not met, being Repetitionrate appearsto have remained at Revisedcurriculumand evaluationprocessis 27-29% in 2000. addressed about 25% in recent years according to new expectedby governmentto yield reductions measurement basis. in repetitionrate. * Reducedropoutrate from 8% in 1996to Not met Dropoutrate 8.4% in 1998comparedwith Futureprogress on this indicator appearsto 5-6% in 2000. averageof 12% in 1992-95. be difficultto attain. 3 Completionrate definedas ratio of number of students graduating to total number of studentsfive years earlier in primary school.  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point Policy Area/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future Health Health Sector Recovery Program (MSRP)aims at Midtermreviewundertakenin October Reprogramnming of HSRPunder way. reducinginfant, child, and maternalmortality 1998.Evolutionof programinto a Movementto SWAPwill be basedon rates to sub-SaharanAfrica averagesby 2000. comprehensivesector-wideprogram developmentof strategicplanning document through increasedaccessto qualityhealth care (SWAP)under way. for 2000-04, to be produced overcoming and in institutionalcapacityof health delivery year. system. Targets are based on original 1995 program, to be updatedon the basis of midterm review. Increasepublic spendingin the health sectorby meeting the followingtarget: Raise share of health in total recurrent Target exceeded Share in expenditureswas 9 % in 1998. Current expenditureson health to increase expendituresfrom 7.8% in 1997to 8% in both in real terms and as a share of total 1998, with future increasesconsistentwvith current expenditures,in line with medium- medium-termexpenditureframework. term expenditureframework. Improvemonitoringof internallyand externally financed spendingin health sector, by meeting the followingtarget: * Install pilot and informationsystemby 1998. Ongoing Joint Ministryof Health and WorldHealth Reform of financialmanagementsystemis in Organizationevaluationof health secondyear of implementation,aimed at informationsystemcompletedin March improvingmonitoring of executionof 1999,on basis of which specific internal and external funding. modifications will be planned.  Mozambique: Status of Structural and SocialReformsEnvisagedat the HIPC DecisionPoint PolicyArea/Objectives/Targets Status ActionsTaken/Results Observations/Future Actions Increaseefficiencyand effectivenessof health sectorexpenditures,by meeting the following target: Completemidtermreviewof Health Sector Done/ongoing Midtern reviewundertaken in October High-levelministry committeesconsidering RecoveryProgramin 1998and start 1998. Recommendations for improved policyissuesand wvork plan arising from implementation. informationsystemare under consideration review. Donors meeting on transforming by donors' steeringcommittee. health recoveryprogram into a sector-wide program to integrate all donor flows in sector. Increaseaccess to basic health services, especiallyin rural areas, by meetingfollowing targets: * IncreaseDPT(3)coveragefrom 58% in 1996 Target exceeded Coveragereached63% in 1997and 77% in Higher-than-projected coverageis due to to 60-65% in 1998and 80% in 2000. 1998, reflecting13%increase in more rapid increasein health facilitiesin vaccinationsdelivered. Target for 2000 rural areas, greater use of mobile health already reached. units, and lowerestimates of populationfrom new census. * Decreasegeographicalinequityindex 4 from Continued Index is estimatedto be 3.0 in 1998, (3.3 in Revisedtarget: decreasein ratio of 0.I per 3.6 in 1996to 2.6 in 1998to near I in 2000. progress 1997),comparedwith 6.6 in 1994. year. Initial target now believedto have Deceleration in reductionin index now been unrealistic. expectedin light of expansionof services already achievedin rural areas. 4 This index is definedas the numberof health units servingthe 25 percent most-favoredpopulationdividedby the number of units servicingthe 25 percent least favored population.  Point Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Status ActionsTaken/Results Actions Observations/Future Policv Area/Objectives/Targets Continued Index reached2.8 in 1997and an estimated Service-unitmeasure gives larger weightto * Increase "serviceunits" per inhabitantfrom progress 3.1 in 1998. Realisticgoalfor 2000 now in-patientdays, whereasimprovementshave 2.6 in 1996to 3.9 in 2000. been greatestin vaccinationsand consideredto be 3.6 be on expanding consultations.Focus wvill deliveryof maternal and child health services. Increasequalihtof health servicesby meetingthe followingtargets: Met UNICEFsurvey indicatesthat 88% of health Indicatorwill continueto be regularly * Increaseproportionof health posts/centers centerswere stockedwith EssentialDrugs monitored. stockedwiththe Essential Drugs Program Kit from 40% in 1996to above50% in 1998 Program Kit in 1997. and 80% in 2000. * Increaseproportionof health posts/centers Met Proportionof posts with trained personnel staffedwith trained personnelfrom 70% in was 86% in 1997.Deepeningof training 1995to 80% in 1998to 95% in 2000. now under wvay.Proportionstaffedby medical doctorsestimatedto be 77% in 1998,comparedwith less than 40% in 1995. Increasesustainabilityof health expenditures over the mediumterm by meetingthe following targets: Met Draft cost-sharingstrategyprepared. Exemptionin place for the poorest.Cost- * Completecost-sharingstrategy. sharing is seen more as a means of engaging communitysupportand expandinglocal servicesthan of ensuringfinancial sustainabilityper se  Mozambique: Status of Structural and Social Reforms Envisaged at the HIPC Decision Point PolicyArea/Objectives/Targets Status ActionsTaken/Results Actions Observations/Future * Increaseshare of receiptsof user fees in Progress Userfees remainedat about4% of recurrent User feesretained at local level. Exemptions recurrent health expenditurefrom 2% in health expendituresin 1997-98in view of providedfor treatmentof conununicable 1995to 10% in 2000. continuedrapid expansionof government diseases,preventativeservices,and for those budgetsfor recurrenthealth expenditures. unable to pay. Poverty action plan A poverty action plan, basedon a poverty Povertyaction plan has been developedand assessment,wouldbe developed,aimed at medium-term is being integratedwvith creating an integratedsocialsafetynet for the expenditureplanningand sectorstrategyin entire country.The first target to be met under key sectors. this plan is the following: * Completepovertyassessmentand poverty Draft povertyassessmentcompletedDec. Povertyaction plan approvedby cabinetin action plan (end-1998). 1998and released. Povertyaction plan April 1999. Institutionalarrangementsfor completedin March 1999. integrationof povertyaction plan into policy processesbeing defined. Action plan to be implementedthrough budget for year 2000.  iIPC Initiative: Status of Country Cases NPV of Estimated Total Country Satisfactory Debt-to- Assistance at CompletionPoinit(In millionsof Percentage Nominal Debt (In order of Assurances Export U.S. dollars, present value, at completionpoint) Reduction Service Relief expected Decision Completion Total Bilat- Multi- IMF World in NPV of (In millionsof from Other decision point Point Point 'I'arget (In eral lateral Bank Debt 1/ U.S. dollars) Creditors within groups) percent) 877 565 105 324 57 3,100 Received Mozarnbique Apr. 98 Mid-99 200 2/ 1,442 1,716 1076 641 125 381 63 3,700 Being sought 200 3/ Completion point reached 73 274 69 160 20 650 Received Uganda Apr. 97 Apr. 98 202 347 448 157 291 29 54 13 760 Received Bolivia Sep. 97 Sep. 98 225 91 165 35 27 24 410 Received Cyuyana Dec. 97 May 99 107 4/ 256 Decision point reached and assistance committed by IMEF and World Bank 115 21 94 10 44 14 200 Being sought Burkina Faso Sep. 97 Apr. 00 205 345 163 182 23 91 6 5/ 800 Being sought C6te d'lvoire Mar. 98 Mar. 01 141 4/ 128 37 90 14 44 10 250 Being sought Mali Sep. 98 Dec. 99 2(00 3,355 1,618 1,737 305 6/ 801 24 6,770 Total assistance provided/comnnitted (of seven countries) and World Bank Boards; assistance based on Preliminary HIPC document issued; targets based on majority view in preliminary discussions at J.IF preliminary HIPC documents and subject to change 148 153 8 73 73 600 ... C(uinea-Bissau 2000 7/ 2003 20() 300 225 411 22 214 23 1,300 ... Ethiopia 1999 8/ 2002 200 636 114 157 21 43 25 550 ... Mauritania Jul-99 9/ 2002 200 271 Debt judged sustainable ... ... ... ... ... ... ... Benin Jul. 97 ... .. ... ... ... ... ... ... ... Senegal Apr. 98 ... preliminary HIPC documents, and staff calculations. Sources: IMF and World Bank Board decisions, completion point documents, decision point documents, I/ In percent of net present value of debt at completion point, after full use of traditional debt-relief mechanisms. 2/ Committed at decision point. for Mozambique. 3/ includes additional assistance required to meet 200 percent debt-to-exports target at completion point chosen to meet NPV of debt-to-revenue target of 280 percent, as projected at the decision point. 4/ Eligible under fiscal/openness criteria; NPV of debt-to-exports target > bilateral creditors and the London Club, which was already subject to a highly concessional 5/ Nonresehedulable debt to non-Paris Club official the cornpletion point in the calculation of this ratio. restructuring, is excluded from the NPV of debt at 6/ Equivalent to SDR 212 million. H 7/ Debt situation needs to be revisited once the current conflict has ended and a new recovery program agreed. 8/ Country case is delayed diie to conflict. point in July 1999 once the new ESA-F anrangement is 9/ Boards will be recommended to agree that Mauritania could be considered to be ready to reach the decision when assistance is expected to be conmnitted by the Boards on the basis approved by the Fund Board. The formal decision point would be expected in the l:all of 1999, of the enhanced I4IP'C Initiative framework expected to have been agreed by that time.