Mozambique - Consultative group meeting in Maputo, September 23-24, 1998 : chairman's report of proceedings

Intemational Bank for Reconstruction and Development 84685 FOR OFFICIAL USE ONLY CG98-52 FROM: The Secretary December 28, 1998 CONSULTATIVE GROUPFORMOZAMBIQUE 23-24,1998 Maputo,September REPORTOF PROCEEDINGS CHAIRMAN'S Group for Attachedis the Chairman's Reportof Proceedingsof the Meetingof the Consultative Mozambiqueheld in Maputo,September23-24, 1998. Distribution For Information ExecutiveDirectorsfor: Australia Mozambique EuropeanOffice Austria TheNetherlands TokyoOffice Belgium Norway ResidentRepresentative, Brazil Portugal Mozambique Canada RussianFederation(Observer) Denmark SouthAfrica(Observer) Finland Spain France Sweden Germany Switzerland Ireland UnitedKingdom Italy UnitedStates Japan AfricanDevelopment Bank ArabBank for EconomicDevelopment in Africa EuropeanInvestmentBank EuropeanUnion Food and AgricultureOrganization FinanceCorporation International Fund for AgriculturalDevelopment International MonetaryFund International KuwaitFund for Arab EconomicDevelopment Nordic Development Fund Organization for EconomicCooperation and Development UnitedNations Children'sFund UnitedNationsDevelopment Programme WorldFood Programme WorldHealthOrganization This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization.  TABLEOF CONTENTS Page No. Chairman'sReport ........................................................................................ 1 AnnexI Agenda ....................................... 11 AnnexII List of Participants ............... ........................ 12 AnnexIII Chairman'sOpeningStatement ..................................... 27 Mr. Callisto Madavo,Vice President,WorldBank Annex IV Statementby the MozambicanDelegation ............ ...... 30 HE PascoalMocumbi,PrimeMinister AnnexV Statementby the IMF . ....................................... 33 Mr. Jurgen Reitmaier,DivisionChief,SouthernAfrica AnnexVI Statementby the WorldBank ....................................... 37 Ms. Phyllis Pomerantz,CountryDirector,WorldBank AnnexVII UNDP Statement .............. ......................... 41 Mr. Emmanuelde Casterle,UNDP Representative AnnexVIII A View Into the Future ....................................... 46 Statementby HE Tomaz Salomao, Ministerof Financeand Planning Annex IX Statementon FinancingRequirements.56 HE AdrianoMaleiane,Governor, Bank of Mozambique AnnexX Statementon FinancingRequirements.59 Ms. ManuelaFerro, Economist,WorldBank Annex XI Chairman'sClosingStatement ..................................... 61 AnnexXII Press Release ........... ............................ 66  CONSULTATIVE GROUPFOR MOZAMBIQUE Maputo,September23-24, 1998 Chairman'sReportof Proceedings Background 1. The Consultative Group for Mozambique (CG) held its eleventh meeting in Maputo, Mozambique on September 23 and 24, 1998. It was the first Mozambique CG meeting hosted in-country. The meeting was chaired by Mr. Callisto Madavo, Vice President for Africa for the World Bank. The World Bank's Country Director for Mozambique, Ms. Phyllis Pomerantz, and the Executive Director for the group of countries that includes Mozambique, Mr. Joaquim R. Carvalho, also attended. The Mozambican delegation was led by HE the Prime Minister Pascoal Mocumbi, and included HE Tomaz Salomao, Minister of Planning and Finance, HE Oldemiro Baloi, Minister of Commerce, Industry and Tourism, HE Alfredo Gamito, Minister of State Administration, HE Dr. Aurelio Zilho, Minister of Health, HE Carlos Agostinho do Rosario, Minister of Agriculture and Fisheries, HE Luisa Diogo, Vice-Minister of Planning and Finance, HE Adriano Maleiane, Governor of the Bank of Mozambique, and other senior Government officials. Two special sessions were organized between meeting delegates and Mozambican NGOs and representatives of the private sector. 2. The meeting was attended by delegations from Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States. Also represented were the African Development Bank, the Arab Bank for Economic Development in Africa (also representing the Kuwait Fund for Arab Economic Development), the European Commission, the European Investment Bank, the Food and Agriculture Organization, the International Finance Corporation, the International Fund for Agricultural Development, the International Monetary Fund, the Nordic Development Fund, the Organization for Economic Co-operation and Development, the United Nations Children's Fund, the United Nations Development Program, the World Bank, the World Food Program and the World Health Organization. South Africa and the Russian Federation attended as observers. 3. The following documents were distributed in advance of the meeting: Mozambique Government: * "A View into the Future: Investing Today in the Development and Sustainability of Tomorrow;" * "Reform of the Mozambican Public Sector: Strategy and Actions;" and the * "Policy Framework Paper, 1998-2000," prepared in collaboration with the staffs of the World Bank and the International Monetary Fund.  2 Opening Statement by the Chairman 4. In his opening statement (Annex III), Mr. Madavo welcomed delegates to the first Mozambique Consultative Group meeting held in Maputo. He extended greetings and gratitude to the Mozambican Government. He observed that Mozambique stood out in Africa as a country at peace and on the move. The Chairman stated that with a 1997 growth rate of over 12 percent, Mozambique had one of the highest growth rates in Africa and, indeed, the world. This could be traced to the Government's steadfast adherence to its economic reform program. After all, he noted, while storm clouds were over many countries in the region and the world, "the sun is shining over Mozambique." 5. Mr. Madavo stated that the Mozambican economy's successful track record was a credit to the strong partnerships the country has fostered over ten years of consecutive Consultative Group meetings. The Chairman acknowledged how the partnership's success was recognized last April by the World Bank, the IMF and the larger donor community, with the decision to provide Mozambique with debt relief under the HIPC Initiative. He reminded participants that the HIPC debt reduction package for Mozambique amounts to forgiveness of some US$ 3 billion of Mozambique's debt and thanked Mozambique's aid partners for having gone "the extra mile" to provide debt relief. He shared his expectations that Mozambique will successfully implement the needed reforms to achieve the HIPC completion point by June 1999. 6. Mr. Madavo observed that even though Mozambique has made impressive progress in its reform agenda, the country and its aid partners still face the daunting challenge of reducing poverty and promoting the kind of rapid growth which benefits the poor. Also, Mr. Madavo noted the additional challenge of reforming the public sector in order to build a better managed and more accountable government service that is more capable of directing growth benefits to all sectors of society. He noted that next year's national elections will be a watershed in Mozambique's history as a young democracy. 7. To conclude, Mr. Madavo commented that he had come to Mozambique to salute the country's achievements and to convey personally the importance of building on the success of the reform program and the development partnership. He hoped that the Consultative Group meeting would further cement the relationship between the Government and its partners, as all parties continue their endeavors to improve Mozambique's living conditions. Statement by the Mozambique Delegation 8. In his opening statement (Annex IV) the leader of the Mozambican delegation, the Prime Minister, HE Dr. Pascoal Mocumbi, welcomed participants to the first Consultative Group Meeting held in Mozambique. He explained that he proposed the 1998 Meeting take place in Maputo during the last CG meeting so delegates could witness directly the socio-economic advances that Mozambique has experienced, advances that are sometimes difficult to translate into statistics. He welcomed the opportunity for delegates to communicate with members of Mozambique's civil society through visits to local villages.  4 declined from 70 percent in 1994, to 5.8 percent in 1997, and continued to decline in 1998. The external account deficit narrowed to about eight percent of GDP during 1996-97, and net international reserves rose to four months of imports by the end of 1997. Mr. Reitmaier stated that while these results indicated that the Government's policies were on track, Mozambique's social indicators were below the averages for sub-Saharan Africa. There remains a need to rebuild infrastructure, reduce the external debt burden and eliminate remaining structural impediments to growth. The Government will need to be vigilant in maintaining financial discipline and the pace of reform, especially given currency's recent appreciation. 14. Turning to the future, Mr. Reitmaier commented on the Government's medium-term economic strategy, as outlined in the latest Policy Framework Paper, which emphasizes private- sector-led and export-oriented growth, financial discipline, and the removal of supply bottlenecks. Mr. Reitmaier reiterated the main elements of the Government's medium-term structural program as the following: (a) increasing public sector saving; (b) improving fiscal management; (c) increasing the efficiency of public investment; (d) increasing private investment; (e) increasing private sector saving; (f) improving monetary management; (g) ensuring a competitive and sound banking system; (h) strengthening the capacity for national economic management; (i) increasing economic efficiency; and (j) increasing total outlays in the social sectors. Overall, the authorities made progress in implementing structural reforms, including changes to strengthen the country's tax administration, and the preparation of the value added tax, to be introduced in April 1999. On the expenditure side, he noted the passage of a new budget law in 1997, and stated that the medium-term expenditure framework was being developed to enable expenditure priorities to match resource availability. He also noted the importance of the ongoing public administration reform. 15. Mr. Reitmaier indicated that the program for 1998-1999 will seek to achieve real GDP growth of over 7 percent a year, excluding the impact of large projects, or 9 percent if large projects are included. Inflation is anticipated to fall below 6 percent in 1998, with an estimated inflation rate of 6 percent for 1999 and an increase in net international reserves by about US$ 30 million a year in 1998 and 1999. Mr. Reitmaier noted the authorities' program targets zero net domestic borrowing by the Government in 1998 and 1999 as well as a decline in net external financing in 1998 by 2.2 percentage points of GDP. On the Government's monetary policy, Mr. Reitmaier noted continued restraint. Further, he recognized the Government's commitment to expand outlays on education and health and to assist poverty reduction through a five-year expenditure program in agriculture, a roads and coastal shipping project and a projected doubling of spending on formal social safety net programs in 1999. 16. Mr. Reitmaier concluded that while Mozambique has a heavy external debt burden, the Mozambican authorities' good track record under structural adjustment arrangements had permitted the Boards of the IMF and World Bank to declare the country eligible for assistance under the HIPC Initiative in April 1998. If program implementation remains satisfactory, Mozambique could reach the HIPC Initiative completion point in mid-1999. He went on to report the country's external financing needs and to state that the IMF considers continued donor support to be fully warranted and crucial for the country to maintain its growth momentum in the medium term.  6 Statement by the Minister of Finance 22. Minister Salomlo presented the main Government document "A View Into the Future" (Annex VIII). He began by welcoming delegates to Mozambique and reported on the country's vigorous economic growth and stability. For example, GDP had increased cumulatively by almost 90 percent since the end of the war in 1992. He noted that economic growth had been broad-based, with a particular focus on the manufacturing industry, with an average growth rate of 26 percent in 1996 and 1997, partly due to several large investment projects. Further, a cautious fiscal and monetary policy succeeded in reducing inflation from 60 percent in 1995 to an expected level of 4 percent in 1998. He reiterated the Government's intentions to increase international reserves in 1998 and accelerate structural reforms in order to sustain growth in the medium term. 23. The Finance Minister outlined the 1998 national budget and the Government's strategy to implement cuts in income tax, combat tax evasion, continue the liberalization of trade by reducing customs duties and introducing a VAT, and enhance the efficiency of the Government through the development of a new accounting and budgeting system. He noted the Government's steady increase in the proportion of resources allocated to the social sectors, particularly health and education, and he thanked the donor community for its assistance to social sectors through the Debt Relief Fund. 24. Minister SalomAothen presented the initial results of the 1996-97 Household Expenditure Survey. He noted that around 80 percent of the total population lives in rural areas while 82 percent of the country's poor are concentrated here as well. The average Mozambican has to travel 46 km. to find a doctor, 66 km. to reach a secondary school, 48 km. to reach the nearest telephone and 16 km. to sell and buy essential goods at market. 25. The Minister outlined education, health, water, agriculture and road sector strategies in detail, noting their importance in sustaining Mozambique's development. In education, the Minister stated the Government's intent to improve access to primary education, enhance access and participation for girls, upgrade the quality of teaching, and strengthen the institutional capacity to define and implement policy. In the health sector, the Minister noted the Government's primary objective of expanding health service coverage through increasing the number and distribution of health facilities. He noted the link between poverty and education on the one hand and the overall population's health on the other. Minister SalomAofurther stated that as only 7 percent of the population had access to running water, the Government's water and sanitation sector strategy included privatizing the management of the five main cities' water supply companies, increasing water tariffs and improving rural financing capabilities for water supply and sanitation. 26. The Finance Minister went on to outline the Government's program for agricultural development, PROAGRI. Noting that approximately 80 percent of the population live in rural areas, he underlined the importance of agricultural development to poverty reduction and food security. The agriculture program includes the privatization of agricultural activities and services, capacity building in the Ministry of Agriculture and Fishing, improvements to  8 30. An issue which spanned across all themes was HIV/AIDS. Delegates noted that sustainable growth, and indeed even the gains which have been achieved to date, could be seriously at risk if the threat posed by the spread of HIV/AIDS was not addressed. Participants appreciated the Minister of Health's strong statement of commitment to combat this disease through a multisectoral HIV/AIDS program. Special Session 31. A Special Session was held to discuss the Government's strategy for public sector management and fiscal reform. The Minister for State Administration, HE Alfredo Gamito, presented the Government's paper, entitled "Reform of the Mozambican Public Sector: Strategy and Actions." During his presentation, the Minister gave a summary of the reforms now being undertaken in Mozambique, including the creation of a Human Resources System, a new careers and remuneration system, the decompression of salaries, the rationalizing of the civil service career framework, training of civil servants, and the reform of the budget system. During the special session, the Minister for State Administration outlined the proposed organizational structures for the coordination, management and implementation of the planned public sector reform. He placed particular emphasis on encouraging leadership and empowering management during the reform process. Statement of Financing Requirements 32. Ms. Ferro, who made the statement on external financing (Annex X), stated that Mozambique's positive performance results for 1997 are expected to continue into 1998, with the economy estimated to grow at over 8 percent. Some volatility in the country's external position is anticipated in 1998, following the construction of large investments such as Mozal, and a corresponding increase in imports. Exports are also expected to increase, though at a slower rate than imports. Joint efforts must continue to ensure that the Government implements policies aimed at maintaining a stable macroeconomic environment, including prudent and equitable fiscal policies, close supervision of the financial sector, and maintenance of a sustainable and competitive exchange rate. 33. Ms. Ferro noted how over the years external aid to Mozambique had changed to match the country's conditions. Financial support for food and emergency aid had declined, while balance of payments support, debt relief, and sector expenditure program financing had increased. She noted the Government's ongoing efforts to improve the management of domestic and donor resources through budgetary reform. Ms. Ferro emphasized support for the Government's request that partners continue to move toward medium-term financing plans through the Government's sector expenditure programs. 34. On financial assistance, Ms. Ferro noted that external financing needs before debt relief amounted to about US$1.8 billion in 1998, and US$1.4 billion in 1999. Private sector financing is projected to increase, contributing US$250 million in 1998 and US$530 million in 1999. Multilateral and bilateral grants and credits, including IDA's interim debt relief prior to the completion point, are projected at US$900 million in 1998 and US$300 million for 1999. The  3 9. The Prime Minister observed that the restoration of macroeconomic stability made it possible for the 1998 Consultative Group to discuss a medium-term development strategy and its implementation. He underlined that inflation remained under control and that the Government projects medium-term economic growth at about 10 percent. Further, the Prime Minister noted that the strength of the economy was illustrated by economic actors' trust in the currency and their willingness to invest in domestic production. 10. The Prime Minister drew the participants' attention to the challenges the Government faces and emphasized the pervasive poverty, particularly in the countryside where around 80 percent of the population resides. He noted the need to quickly reduce regional differences while at the same time broadening the benefits of economic growth. To this end, the Prime Minister announced that the Government will continue to allocate greater resources to the health and education sectors. He recognized the country's need for skilled staff to successfully promote sustainable growth and social development. In order to help build the nation's capacity, he advocated a comprehensive effort in the education sector, with a focus on primary schools, training in vocations and trades, technical and professional education, and higher education. The Prime Minister underscored the Government's commitment to quality in all social sectors, and drew on the examples of how quality teaching in schools can improve a country's overall development and how access to sanitation and drinking water and effective health services can contribute to the population's overall welfare. 11. The Prime Minister went on to state the Governrment'scommitment to rehabilitate the country's infrastructure, including communication routes and water supplies, to link regions, expand rural markets, stimulate the private sector and improve living conditions in rural areas. Moreover, he stressed the crucial role that motivated civil servants can play in the process of implementing the Government's programs on the ground. He also emphasized the role agriculture will play in sustaining Mozambique's medium-term growth, and pointed to the Government's efforts to design a strategy for the agriculture sector, known as PROAGRI. As the Government continues to implement reforms through, for example, the privatization of state- owned assets, there is a corresponding need for public institutions to have the technical and human capacity to carry out these adjustments. He noted the Government will continue to create favorable conditions for investment and business development as the private sector takes on greater economic relevance. 12. The Prime Minister concluded his speech by thanking the aid partners for Mozambique's qualification for debt relief under the HIPC Initiative, observing that debt relief will allow more resources to be channeled to social services. In sum, he trusted that, with continued financial support from its partners, Mozambique will reach its medium-term objectives. Statement by the IMF 13. Mr. Reitmaier of the IMF began his statement (Annex V) by stating that Mozambique enjoyed a strong macroeconomic performance in 1997 and that results for 1998 were positive. He reported that Mozambique's real GDP growth rate averaged 6.3 percent from 1994 to 1996, rose to 12.4 percent in 1997, and remained strong in the first few months of 1998. Inflation  10 Civil Society Sessions 39. In addition to the formal Consultative Group sessions, two separate sessions were held with members of Mozambican civil society, Government, and aid partners. Both sessions were chaired by H.E. Minister of Finance Tomas Salomao. The first session, entitled "The Development Agenda and Civil Society," included representatives from over fifty local and international non-governmental organizations (NGOs). Opening the session, Minister Salomao stated his belief that civil society has an important role to play in the country's continued development and noted that the dialogue between Government and civil society was not an event but an ongoing process. In response, the NGO representatives welcomed the opportunity to participate for the first time in the CG meeting and focused their concerns specifically on the situation of Mozambique's debt and on ways to ensure that the benefits of economic growth reach all levels of society. 40. The second session, entitled "Promoting Private Sector Development," included many representatives from Mozambique's private sector. The main issue discussed during the private sector session was the timing of the introduction of the Value Added Tax (VAT), scheduled for next April 1999. On behalf of the Government, Minister Salomao stated his understanding of the private sector's concerns regarding the VAT and agreed to continue to consult with them. Both sessions involved an open and wide-ranging discussion with interventions from Government, donors and members of civil society.  5 Statement by the World Bank 17. In the World Bank's statement (Annex VI), Ms. Pomerantz began by thanking the hosts and noting Mozambique's accomplishments since the Peace Accords of 1992. She noted that the challenge of private sector-led growth in an increasingly turbulent regional and global marketplace reinforced the need for sustained macroeconomic vigilance. She emphasized that sustainability is the watchword for Mozambique, if the benefits of economic growth are to reach the poor throughout the country. 18. Ms. Pomerantz praised the Government for its successful privatization program, and stressed the importance of continued liberalization and privatization, specifically in the transport and utility industries. Removing barriers to trade, introducing the VAT, changing the tax regime, and simplifying import procedures and registration requirements were all positive developments. Nonetheless, red tape and inadequate regulation remain impediments to further growth. 19. Ms. Pomerantz then turned to public sector management and noted its crucial role as a catalyst for broad-based growth. She stressed the importance of the Government's initiative to develop a medium-term fiscal framework, and how this framework, combined with HIPC debt relief, will assist the Government in managing its own future. The Government's effort to reform budget planning, auditing and management systems is an area where the Bank and many development partners are ready to provide assistance. Ms. Pomerantz went on to note that improved fiscal management will include reforming the public sector administration, particularly through the Government's initiative to implement salary decompression and a new career stream system. She noted several partners' concerns on governance matters and stressed the importance of the Government's continuing efforts to combat corruption, improve financial accountability and further legal reform. 20. Ms. Pomerantz stressed that the greatest challenge facing Mozambique remains reducing poverty and ensuring that economic growth reaches the poor. Mozambique needs to approach the problem from several fronts with a wide range of instruments. Sector programs in place or being developed in roads, health, education, water, and agriculture need to be designed and implemented with the poor in mind. A pro-poor fiscal policy will ensure that the benefits of economic growth, even from enclave sectors and the mega-projects, can be tapped to provide programs and services to the poor. She noted the need for more information and analysis on poverty and stated that the Bank and many partners look forward to the Government's national household survey as a basis for developing and implementing a poverty action plan. 21. Ms. Pomerantz concluded by recognizing the strength of partnerships, particularly on the local level. She welcomed the planned interaction between representatives of civil society and meeting delegates. She noted that the positive evolution of the dialogue among Mozambique and its partners will strengthen a common vision of a Mozambique in which all members of society share the benefits of rapid development.  7 agricultural extension services, and measures to give smallholders security of land use. Turning to the road sector, Minister Salomao noted its overall importance to the country's development, particularly in order to increase farmers' access to markets. The Government placed particular emphasis on road rehabilitation and periodic maintenance. In closing, the Finance Minister expressed the hope that he had clarified the country's challenges, and the Government's strategies for addressing these with support from its external partners. Plenary Discussion 27. Plenary discussion during the 1998 Consultative Group Meeting centered on three main themes: balanced, broad-based growth and poverty reduction, public sector reform and capacity building, and governance. Regarding the theme of balanced growth and poverty reduction, many delegates noted that Mozambique remains one of the poorest countries in the world. Participants recognized the challenge Mozambique has of ensuring that economic growth is balanced and broad-based. In this vein, many recognized that agriculture and rural development are of particular importance for poverty reduction, given that 82 percent of the country's poor live in rural areas. Delegates noted the Government's plans under PROAGRI to improve the welfare of rural smallholders, by ensuring access to markets and extending services to improve yields. Participants welcomed the Minister of Agriculture's statement that government regulations would be implemented in a way that recognized communal rights of land tenure. Delegates also emphasized the roles of small and medium scale enterprises as engines of economic growth. Several participants encouraged the Government to use its fiscal policy to tap the "mega projects" so as to spread the benefits of growth more evenly. The participants recognized that reducing Mozambique's debt burden to sustainable levels was essential if the benefits of growth were to be employed in poverty reduction. To this end, participants stressed the importance of the Government successfully reaching the completion point under the HIPC Initiative in mid- 1999. Several speakers also pointed the need for continued prudent exchange rate management to safeguard Mozambique's external competitiveness. 28. The second theme was public sector reform and capacity building. Mozambique's aid partners appreciated the Government's efforts to reform its public sector and build capacity among civil servants. The development of human capital (with an emphasis on women's and girl's education), and public sector reform are key factors in improving social conditions. Participants agreed that an efficient public sector was critical to the Government's ongoing efforts to reduce poverty and stimulate rapid growth. Continuing civil service reform, eliminating red tape and accelerating regulatory, legal and judicial reform were all seen as central to creating a transparent justice system and a business-supportive environment for small entrepreneurs and global investors alike. 29. On questions relating to governance, Mozambique's partners recognized the commitment of the Government to build a sustainable democracy. There was a consensus that ongoing legislative and constitutional reform and the preparation and conduct of next year's national elections represent progress toward this goal. The importance of consensus building on electoral procedures was also emphasized.  13 Annex II BRAZIL H.E. Helder Martins de Moraes Head of Delegation Ambassador, Maputo CANADA Mr. Peter Houliston Head of Delegation Program Director for Mozambique/Regional Canadian International DevelopmentAgency (CIDA) Mr. Roberto Cair-Ribeiro Counsellor and Consul Canadian High Commission Mr. Douglas Mason Consultant Ms. Sharon Armstrong CIDA DENMARK Mr. Ole Moesby Head of Delegation Head of Southern Africa Development H.E. Thomas Schjerbeck Embassy of Denmark, Maputo Ms. Sanne Olsen Head of Section Ministry of Foreign Affairs Mr. Peter Jul Larsen Counsellor Mrs. Esther Lonstrup Counsellor Embassy of Denmark, Maputo FINLAND Mr. Asko Luukkainen Head of Delegation Director, Unit for Sectoral Policy Departmentfor International Co-operation Ministry for Foreign Affairs  9 remainder is expected to be covered by multilateral and bilateral debt relief, including assistance under the HIPC Initiative. Firm financial commitments by the aid partners for 1999 were not possible due to the timing of the meeting. However, based on previous information and pledges made during the meeting, it is expected that Mozambique's financing needs (excluding debt relief) of US$606 million for 1998 and US$570 million for 1999 will be met. The Chairman's Closing Remarks 35. In the Chairman's closing statement (Annex XI), Mr. Madavo thanked Prime Minister Mocumbi and the Mozambican Government for their presentations as well as expressing gratitude to all participants for their openness during the discussions. Mr. Madavo remarked that the 1998 CG Meeting marked another step in the evolution of the partnership among all stakeholders in Mozambique's economic and social development, and referred to the meeting as the "CG of sustainability," in contrast to previous CGs which had been termed the "CG of good intentions" in 1995, the "CG of accountability" in 1996, and the "CG of accomplishments" last year. The Chairman, reflecting comments made by the Prime Minister and other participants, observed the shift the meetings have taken from focusing on short-term issues to discussing medium and long- term issues of consolidating macroeconomic stability and creating the conditions for sustainable, balanced and broad-based growth. 36. Reviewing the main themes of the discussion, Mr. Madavo noted that for growth to be broad-based, policies and programs need to improve the welfare of the rural smallholder. Small and medium-scale enterprises also serve as engines for growth. And, the Government needs to increase its social expenditures, particularly in health and education, as it plans to do. The Chair added a personal plea for increased action to combat HIV/AIDS. He stressed the need for poverty information, analysis and monitoring as a component of alleviating poverty and improving the welfare of the Mozambican people and looked to the Government's Poverty Assessment data as an input into formulating the Government's Poverty Action Plan. 37. Mr. Madavo observed that participants had concerns over the issue of governance. The Government's current efforts to reform the public sector, build capacity, combat corruption, and its planned reform of the electoral law and constitution were all important steps toward building a sustainable democracy and delivering vital public services to all members of society. 38. Mr. Madavo applauded the use of a medium-term expenditure framework in improving the management of public expenditures. He noted that the medium-term framework will support sector programs by directing resource allocations more flexibly and ensuring sustainability by matching expenditure decisions with revenues. Sector programs were a good illustration of the evolving partnership, especially as donors work to improve coordination and the Government strives to improve its financial control and auditing capabilities. In conclusion, the Chairman underscored the need for Mozambique to reduce its dependence on external assistance. After recognizing the frankness of the discussions and noting suggestions for future CG meetings, the Chairman expressed satisfaction that the donor community had met the bulk of the financing requirement for Mozambique in 1998, and, after thanking participants, he declared the meeting closed.  15 Annex 11 Embassy of Germany, Maputo Dr. Wolfgang Voss Deputy Director Kreditanstalt fur Wiederaufbau (KfW) Mr. Rudolph Mutschler Director for Maputo, Deutsche Geselischaft fur TechnischeZussmmenarbeit(DGTZ) IRELAND Ms. Patricia Cullen Head of Delegation Director, Southern Africa Section Development Cooperation Division Department of Foreign Affairs Mr. Edward J. Carroll Charge d'Affaires Embassy of Ireland, Maputo Mr. John Hoy Attache (Development) Embassy of Ireland, Maputo Mr. Patrick Empey Attache (Development) Embassy of Ireland, Maputo ITALY H.E. Ugo G. de Mohr Head of Delegation Ambassador,Maputo Mr. Cristiano Gallo Counsellor, Deputy Head Office Sub-Saharan Africa Desk Directorate General for Co-operationDevelopment Ministry of Foreign Affairs Mr. Claudio Taffuri First Secretary Embassy of Italy, Maputo Mr. Nino Merola Head of Cooperation Desk Embassy of Italy, Maputo  II Annex I Proposed Agenda Mozambique: Eleventh Consultative Group Meeting September 23-24, 1998 Maputo, Mozambique Wednesday, September 23, 1998 08:00-09:00 Registration 09:00-10:15 Opening Statements Chairman's Opening Statement Mozambique Government Statement IMF Statement World Bank Statement UNDP Statement 10:15-10:45 Coffee Break 10:45-12:30 The Economic Reform Program Presentation by the Government General Discussion 12:30-14:00 Buffet Luncheon for all Participants 14:00-16:00 Continuation of Discussion 16:00-16:30 Coffee Break 16:30-18:30 Special Session: Public Sector Management and Fiscal Reform Thursday, September 24, 1998 08:30-10:30 External Financing Requirements Mozambique Government Statement World Bank Statement Participants' Statements 10:30-11:30 Coffee Break 11:30-11:45 Consideration of Press Release 11:45-12:30 Closing Statements Presentation by the Government of Mozambique Statement by Chairman 14:30-16:00 The Development Agenda and Civil Society Discussion with NGOs and Other Representatives of Civil Society 16:00-17:30 Promoting Private Sector Development Discussion with Representatives of the Private Sector 18:00 Press Conference  17 Annex II Mr. R.J. van den Dool First Secretary Embassy of Netherlands, Maputo NORWAY Mr. Kjell Storlokken Head of Delegation Deputy Director General Norwegian Agency for DevelopmentCooperation(NORAD) H.E. Sigurd Endresen Ambassador, Maputo Mr. Gunnar Boe Minister Counsellor Embassy of Norway, Maputo Mr. Gunnar A. Holm Senior Executive Officer Africa Desk Bilateral Department NORAD PORTUGAL H.E. Ruy de Brito e Cunha Head of Delegation Ambassador, Maputo Ms. Helena Paiva First Secretary Embassy of Portugal, Maputo Ms. Ines Alves Counsellor for Cooperation-Embassyof Portugal, Maputo Mr. Adriano Telles de Menezes Deputy Director General Directorate for European and InternationalAffairs Mr. Armando Cruz Senior Officer Directorate for European and InternationalAffairs Mr. Carlos Neves Ferreira President Portuguese Cooperation Institute  12 Annex 11 CONSULTATIVEGROUP MEETINGFOR MOZAMBIQUE Maputo,September 23-24,1998 Chairman: Mr. Callisto E. Madavo Vice Presidentfor Africa The World Bank List of Participants AUSTRALIA Mr. Ian Kershaw Head of Delegation First Secretary Development Assistance Australian Agency for International Development(AusAid) Ms. Jane Gordon Country Program Officer Africa and Middle East Section AusAid Ms. Celia Grenning Second Secretary DevelopmentAssistance AusAid AUSTRIA H.E. Peter Leitenbauer Head of Delegation Ambassador, Maputo Mr. Franz Breitwieser Deputy Director Desk for Southern Africa, DepartmentVI 1.5 Federal Ministry for Foreign Affairs Department for DevelopmentCooperation Mr. Hannes Hauser Head of Cooperation BELGIUM H.E. Leopold Carrewyn Head of Delegation Ambassador,Harare  19 Annex II Mr. Felix Fischer Economist, DevelopmentPolicy Division Federal Office for Foreign Economic Affairs (FOFEA) Ministry of Economy Mr. Martin Fassler Coordinator and Charge d'Affaires SDC, Maputo Mr. Urs Zanitti Deputy Coordinator SDC, Maputo UNITED KINGDOM Mr. Jim Drummond Head of Delegation Head, Central Africa Department Department for InternationalDevelopment(DFID) H.E. Bernard Everett High Commissioner,Maputo Mr. Malcom Smart Economic Adviser DFID Ms. Anna Bewes First Secretary (Development) British High Commission,Maputo Mr. Mick Foster Head of Africa Economics Department DFID UNITED STATES Ms. Vivian Lowery Derryck Head of Delegation Assistant Administrator for Africa U.S. Agency for International Development(USAID) H.E. Brian Dean Curran U.S. Ambassador, Maputo Mrs. Cynthia Rozell Mission Director, Maputo USAID  14 Annex 11 Dr. Martti Eirola First Secretary (DevelopmentCo-operation) Unit for Southern Africa, Ministry for Foreign Affairs Mr. Juhani Toivonen Charge d'Affaires Embassy of Finland, Maputo Mr. Jarmo Kuuttila First Secretary Embassy of Finland, Maputo FRANCE Mr. Michel Hermitte Head of Delegation Counsellor (Commercial & Economic) Embassy of France, Maputo H.E. Didier Destremeau. Ambassador, Embassy of France, Maputo Mr. Fabien Moury Counsellor Embassy of France, Maputo Mrs. Jocelyne Paka Commercial Attache Embassy of France, Maputo Mr. Gerard Pourret Counsellor French Cooperation, Maputo Mr. Paulo-JeanRemy Desk Officer Agence Francaise de Developpement(AFD) GERMANY Mrs. Elisabeth D'Hondt Head of Delegation Director for Sub-SaharaAfrica H.E. Dr. Rolf R. Zirpel Ambassador, Maputo Ms. Petra Hippman Second Secretary  21 Annex 11 Mr. Francisco Jose Gaspar Senior Loan Officer for Mozambique FOOD AND AGRICULTUREORGANIZATION(FAO) Ms. Sieglinde Ring Head of Delegation Representative, Maputo INTERNATIONALFINANCE CORPORATION(IFC) Mr. Philip Condon Head of Delegation Senior Investment Officer Mr. Oliveira Juvane Investment Officer INTERNATIONALFUND FOR AGRICULTURALDEVELOPMENT(IFAD) Mr. Gary How Head of Delegation Director Africa II Division Programme ManagementDepartment Mr. Edward Heinemann Country Portfolio Manager Africa 1I Division Programme ManagementDepartment INTERNATIONALMONETARYFUND (IMF) Mr. Jurgen Reitmaier Head of Delegation Division Chief Southern Africa H Division Mr. Marco Pinon-Farah Resident Representative,Maputo ORGANISATIONFOR ECONOMICCO-OPERATION& DEVELOPMOENT(OECD) Ms. Shirley van Buiren Head of Delegation Head, Strategic Managementof Developing CountriesDivision Development Co-operation Directorate UNITED NATIONSCHILDREN'SFUND (UNICEF) Mr. Mark Stirling Head of Delegation Representative, Maputo  16 Annex H Mr. Vittorio Sandalli First Secretary Embassy of Italy, Maputo JAPAN Mr. Kazuhiro Maruyarna Head of Delegation Counsellor Embassy of Japan, Harare Mr. Keiji Hamada Second Secretary Embassy of Japan, Harare Mr. Akiko Shimohira Project Formulation Advisor Japan International Cooperation Agency (JICA) Mr. Toshiyuki Nakamura JICA Mr. Hidefurni Sanada Deputy Director The Overseas Economic CooperationFund (OECF) W. Hiroaki Sano Deputy Director OECF Mr. Junichi Yamada Director OECF NETHERLANDS Mr. Williern Beelaerts-vanBlokland Head of Delegation Head of Southern Africa Division Ministry of Foreign Affairs Mr. Jules Jongma Counsellor Embassy of Netherlands, Maputo Mr. A.C.A. van der Wiel AmbassadorDesignate, Mozambique  23 Annex II H.E. Carlos Agostinho do Rosario Minister of Agriculture and Fisheries H.E. Roberto White Minister of Public Works and Housing H.E. Dr. Aurelio Zilhao Minister of Health H.E. Frances Rodrigues Vice Minister of Foreign Affairs and Cooperation H.E. Luisa Diogo Vice Minister of Planning and Finance H.E. Castigo, Langa Vice Minister of Mineral Resourceand Energy H.E. Isidora Faztudo Vice Minister of Agriculture and Fisheries H.E. Carlos Jessen Jnr. Vice Minister of Planning and Finance H.E Adriano Maleiane Governor Central Bank of Mozambique H.E. Eriaesto Gove Vice Governor' Banco de Mocambique Mr. Daniel Tembe Executive Director African Development Bank Mr. Silvestre Sechene Secretary General of Prime Minister's Cabinet Mr. Jose Dias Loureiro Economic Counsellor 'Prime Minister's Office Mrs. Virginia Videira Counsellorto the Minister Ministry of Planning and Finance  18 Annex11 Ms. Maria Helena Cordeiro Alternative Executive Director for Portugal World Bank SPAIN H.E. Jose Eugenio Salarich Head of Delegation Ambassador, Maputo Ms. Teresa Corella Counsellor Embassy of Spain, Maputo Mr. Ramon Guzman Counsellor for Economic and Commercial Affairs Embassy of Spain, Pretoria SWEDEN Mr. Jan Cedergren Head of Delegation Director General for InternationalCooperation and Migration Ministry for Foreign Affairs Mr. Pereric Hogberg Desk Officer, Africa Department Ministry for Foreign Affairs Ms. Malin Krook Desk Officer, Africa Department Swedish International DevelopmentCooperationAgency (Sida) H.E. Erik Akberg Ambassador, Maputo Mr. Carl-Gustaf Svensson Counsellor Embassy of Sweden, Maputo Ms. Maude Svensson Embassy of Sweden, Maputo SWITZERLAND Mr. Jorg Frieden Head of Delegation Head, East Africa Section Swiss Agency for Developmentand Cooperation (SDC) Minister of Foreign Affairs  25 AnnexII Mr. Sergio Chitara National Director of Economy Ministry of Agriculture and Fisheries Mr. Humberto Cossa National Director of Planning Ministry of Health Mr. Carlos Fragoso National Director of Roads and Bridges Ministry of Public Works and Housing Ms. Argentina Mausse National Director ad. Ministry of Planning and Finance Mr. Jose Chichava, Principal Secretary Ministry of Planning and Finance Mr. Arlindo Lopes Director Press Cabinet Mr. Artur Verrissimu. Deputy Director of Europe Ministry of Foreign Affairs and Cooperation Ms. Vitoria da Conceicao Ginja DepartmentChief of Populationand Social Development Ministry of Planning and Finance Mr. Armindo Monjane Director of International Relations Banco de Mocambique Ms. Piedade Macamo Head of International Cooperation Department Ministy of Planning and Finance Mr. Miguel Arcanjo Banco de Mocambique Mr. Daniel Gaduel  22 Annex II UNITED NATIONSDEVELOPMENTPROGRAM(UNDP) Mr. Emmanuel D. de Casterle Head of Delegation Resident Representative, Maputo Ms. Marianne Ouma Economic Advisor UNDP, Maputo WORLD FOOD PROGRAM (WFP) Ms. Georgia Shaver Head of Delegation Representative, Maputo WORLD HEALTH ORGANIZATION(WHO) Dr. Carlos Tiny Head of Delegation WHO Representative in Mozambique Dr. Marie-Helene Mathey-Boo Chief Unit InteragencyResource Mobilization WHO Regional Office for Africa, Brazaville Dr. Nick Drager Medical Officer Division of Intensified Cooperation with Countries and Peoples in Greatest Need Dr. Eva Pascoal Country Team Economist MOZAMIBIQUE H.E. Dr. Pascoal Mocumbi Head of Delegation Prime Minister H.E. Alfredo Gamito Minister of State Administration H.E. Amaldo Nhavoto Minister of Education H.E. Tomaz Augusto Salomao Ministerof Planning and Finance H.E. Oldemiro Baloi Minister of Industry, Commerce and Tourism  24 Annex 11 Mr. Aboobacar Changa Counsellor Ministry of Planning and Finance Mr. Manuel Chang National Director of Treasury Ministry of Planning and Finance Ms. lolanda Fortes National Director of Planning and Budget Ministry of Planning and Finance Mr. Amade Aziza, National Director of Taxes and Audits Ministry of Planning and Finance Mr. Armindo Matos, Director of Public Accounts Ministry of Planning and Finance Mr. Pedro Couto Director of Studies' Cabinet Ministry of Planning and Finance Mr. Antonio de Abreu Administrator Banco de, Mocambique Mrs. Joana Saranga Administrator Banco de Mocambique Ms. Esmeralda Fernandes Advisor Banco de Mocambique Mr. Fernando SumbanaJunior Director Investment Promotion Center Mr. Aiuba Cuereneia National Director of Public Administration Ministry of State Administration Mr. Virgilio Juvane National Director of Plannification Ministry of Education  28 Annex III Mozambique's achievements, I believe, are a credit to the strong development partnershipsit has fostered. Indeed, this Consultative Group represents success in its own right. This Group has faithfully met for more than a decade now, supporting Mozambiquethrough the bad times and now the good times. It has been a flexible partnership,adapting, as the country itself changes and develops. Our Consultative Group meetings are really just one example of how our international partnership has touched this country. Earlier this year, most of our institutionsand countries came together and, under the HIPC Initiative, put together a debt reduction package amounting to the forgiveness of some US$ 3 billion dollars of Mozambique's debt. This extraordinaryeffort surpasses even the initial guidelines of the HIPC framework,with many of us contributing additional relief on a voluntary basis. I would like to commend and thank all of Mozambique's aid partners for having gone "the extra mile" in allowing us to jointly put together the HIPC. We trust that Mozambique will successfully implement the reforms needed to achievethe HIPC completionpoint by June. Still, we, as a partners, face a number of challenges. The most daunting challenge in Mozambique remains the reduction of poverty. Although Mozambique has made impressive progress on its reform agenda, the Governmentand its partnersmust continue to promote the kind of rapid growth which benefits the poor. Another challenge I see today relates to the role of government. Public sector reform,the subject of the special session later today, is an essential part of building a better managed, more accountablegovernment service - one able to create a facilitating environment for growth and to direct the benefits of that growth to the poor. Next year's national elections will also mark an importantwatershed in the history of this young democracy. So, this is an exciting time of change for Mozambique,a time which is filled by the promise, and the challenges,of tomorrow. This is why I wanted to be here: to salute Mozambique's achievements and to personally convey the importancethat 1,and I think all of us, attach to the continued success of the Government's reform program and to our joint developmentpartnership. I am sure that this CG meeting will help cement the relationshipbetween the Governmentand its partners as we endeavor to improve living conditions in every corner of this country. Agenda for the Meeting and Logistical Arrangements Now let me turn to the proposed agenda for this meeting and various logistical arrangements. We will begin the discussion this morning with a statement from His Excellency, the Prime Minister Mocumbi. This will be followed by a statement by Mr. Reitmaier of the IMF. A statement by Ms. Pomerantz, Country Director for the World Bank, will then be followed by a statement by Mr. de Casterle of the UNDP. Following a coffee break, His Excellency the Minister of Planningand Finance, Minister Salomao,will give us a presentationon the Government's economic reform program. We will then open the meeting for a plenary discussion. We would then like to invite you to an informal lunch, outside this room, beginningat 12:30pm. As in past years, we plan to designate some tables for discussion of topics of particular interest to participants. Tentatively,we plan to have tables for HIPC, Agriculture and Land, Social Sectors, Public Sector Reform and Fiscal Management,Regional Cooperation,Roads and Transport,  26 Annex 11 EXECUTIVEDIRECTOR Mr. Joaquim Carvalho Executive Director World Bank WORLD BANK Mr. Callisto E. Madavo Chairman Ms. Phyllis Pomerantz Mr. Shudir Shetty Mr. James Coates Mr. Jehan Arulpragasam Ms. Manuela Ferro Mr. Jocelyn T. Mason Mr. Harry C. Gamett Ms. Dale Lautenbach Mr. Colum Garrity OBSERVER RUSSIAN FEDERATION Mr. Andrei Kemarski Head of Delegation Charge d'Affaires Embassy of Russia, Maputo Mr. Vitaly Agapov Counsellor Embassy of Russia, Maputo SOUTH AFRICA Mr. Mangasi Zitha Head of Delegation High Commissionner Ms. Judy Greathead Head of Department High Commission  27 Annex I1 ConsultativeGroup Meeting for Mozambique Maputo,September 23-24, 1998 Chairman'sOpening Statement Mr. Callisto Madavo Vice President Africa Region World Bank Ladies and Gentlemen: Introduction Good morning. Bom dia. Welcometo the 1998 ConsultativeGroup Meeting for Mozambique. It is the first time that the ConsultativeGroup meets in Mozambique,and it truly is a pleasure to welcome you all here to Maputo. In particular, I am honored to extend our greetings and gratitude to our hosts, the distinguished Governmentdelegation, led by His Excellency Prime Minister Mocumbi. I know I am speaking on behalf of all the delegateshere when I say how much we appreciate this opportunity to meet in your beautifulcountry and to get a chance to know it better. I also want to thank you for the productive and enjoyablefield trip you organized for us yesterday. Meeting in Maputo will allow us to bring many of the issues we discuss at our SPA meetings to the country level. More importantly,meeting in Maputo gives us the opportunityto interact with so many more of our Mozambicanpartners. I am honored to see so many representativesof the Council of Ministers, the Board of the Central Bank, and other Governmentagencies. And tomorrow we will have an opportunity to exchange ideas with a broad cross-sectionof Mozambique's civil society. I am looking forward to productive - and lively - discussions. When I was asked by my colleague, the Country Director,to chair this meeting, I was honored to accept. As the Bank's Vice Presidentfor Africa I have traveled throughoutthis continent. Mozambique stands out; I am impressedby what I see here. Injust six years, Mozambique has moved from a devastated,war-tom countrywith a crippled economy, to a country at peace and on the move. Last year the Mozambicaneconomy grew at over 12 percent, one of the fastest growth rates recorded in Africa, and indeed, the world. Inflation has come down from 70 percent in 1994to less than 6 percent in 1997.These achievementscan be traced back to the Government's steadfast adherence to its economic reform program. The Mozambicaneconomy has been radically transformed over the last decade, and is now one of the most dynamic in the region. The Bank and the Fund, and indeed the larger internationalcommunity,recognizedMozambique's successful track record this April when the decision was taken to provide debt relief under the HIPC initiative. While storm clouds are sweeping over many countries in this region and the world, the sun is shining over Mozambique.  31 Annex IV Ladies and Gentlemen, When we look to the future we first and foremost have to know the challengesthat face us. Fighting structural poverty is our main challenge. It is an atrocious reality, especially in the countryside, where 80% of the population resides. The reduction of regional asymmetriescannot be postponed. Fairer access and greater equity in the results of economicdevelopment,will deserve our attention. Along this line of thinking, we will continue to allocate ever-greaterresources to the health and education sectors. Keeping in mind our purpose of pushing forward significantlyin the building up of national capacities, we advocate a comprehensiveeffort in the education sector which, in addition to primary schooling, includes vocational and trades training, technicalflprofessional education at all levels, as well as higher education. We believe that only in this way we will be able to significantly increase the supply of human capital, minimizing and perhaps overcoming, the dramatic shortage of skilled staff which is one of the most critical constraints to growth and sustainable economicand social development. A commitmentto quality underlies our programs in the social sectors. This isn't something that follows later. Thus, in education, more than the number of schoolsand teachers, we want improvement in the teaching to serve the country's development. In health we promote the well-being of the population through improvementin sanitary conditions,drinking water supply, and more humane treatment of patients. Rehabilitation of basic infrastructures (including communicationroutes and water supply) is another priority sphere of action in the medium term. Its critical role is obvious in linking the various regions of the country, in linking the rural and urban areas, and consequently in the expansionof rural production and of markets in general, in the expansionof the private sector and in the improvement in the incomes and living conditions of the rural population, which is hardest hit by the indices of absolute poverty. Public administration plays a crucial paper in the whole process aiming at improvementof the services that we have to provide. With unmotivated civil servants, no program can produces its desired effects. This will be a question that will merit more detailed expositionthroughoutthe Meeting. Given that the majority of the Mozambicanpeople lives in the countryside,agriculture will deserve special attention in our actions in the medium term, and with a view to dynamizingaccelerated and sustainable growth. It is in that context that the government has been engaged in an exercise to design and perfect a strategy for the agricultural sector, known as PROAGRI. Essentially the question is raised in the determinationof the role and developmentof capacity in public institutions, in a context in which productive agricultural activities are fundamentallyup to the economic actors in the family sector and from the private business class.  29 Annex III and Governance. Please let members of the Bank delegation know, during the coffee break, if you have additional suggestions. As always, some tables will be reserved for more general conversation. After lunch we will continue our discussions at 2pm. Following the afternoon coffee break we will turn to a presentation by the Government on Public Sector Managementand Fiscal Reform, followed by a plenary discussion. I hope to close today's session by about 6:30pm. The Mozambican Government has kindly invited us to a cocktail reception tonight, beginning at 7:30pm in the Cardoso Hotel. Tomorrow morning we will reconvene at 8:30am, with brief statementson external financing by the Mozambican Government and the Bank, followedby statementsand comments on this topic by participants. After coffee, we will turn to the draft press statement. After closing remarks, we will conclude the main meeting at 12:30pm.In the afternoon, we will hold two sessions with civil society. The first from 2:30 to 4pm is with non-governmentalorganizations;and the second, from 4 to 5:30pm is with the private sector. A press conference at 6pm, followed by a cocktail reception offered by the local development partners, will be the final event. So, I now propose to launch this meeting by calling on Prime Minister Mocumbifor his statement.  30 Annex IV ConsultativeGroup Meeting for Mozambique Maputo, September 23-24, 1998 Statement by the Prime Minister Dr. Pascoal Mocumbi Mister Chairperson, Distinguished representativesof the donor community, Distinguished representativesof the multi-lateralfinancial institutions, Ladies and Gentlemen, I would like in the first place to wish all of you welcome to this Meeting of the ConsultativeGroup, which for the first time is being held in Mozambique. In taking the initiative last year of proposingto you that the Meeting take place in Mozambique,we wanted first and foremost for you to be able to witness in loco,the socio-economicadvances which at times statistics don't manage to translate. The city of Maputo is perhaps not the best place to take the pulse of our economy, given the asymmetries in the country's economic development.You will certainly have the opportunity to dialogue with the economic actors and with civil society, and we will provide visits to some socio-economicundertakings in order that along with us and with the Mozambicanpeople, you may share the satisfactionin us having created the bases for the country's economic development. (Some visits were carried out yesterday) It is possible today to discuss the country's developmentprospects, in the medium term, becausethe basic conditions are being created. Indeed, macro-economicstabilizationis a fact and is a necessary condition, sine qua non, for it to be possible to delineate a development strategy. The meeting that we initiate today emphasizes this aspect, that is, the economy's medium-term objectives as well as the mechanisms, instrumentsand means in order that we may attain that which we propose to do. Once more we are counting on your cooperation. Inflation is under control. We are thinking to grow at around 10% in the medium term, and with only single-digit inflation. The economic actors trust our currency. The fact that the economicactors begin to give credit and the structure of credit to the economy begins by degreesto put productive sectors first, is symptomatic of an economy that is moving to a state of good economic health. We are, however, clear and conscious that the victories achieved in all spheresof social life have to be broadened and consolidated.Political stability, which is reflected and consolidatedin greater democratization of society, deserves special attention.Next year, Mozambicansare called on to give their opinion in relation to political life, through the ballot. On the other hand, it's necessaryto keep a short rein on control of the macro-economicvariables. This is an English translation from the original statement given by the Prime Minister in Portuguese.  34 Annex V being given to aid coordination and to raising the efficiency of investment.Last month, the Executive Board of the Fund endorsed this strategy and approvedthe third annual ESAF arrangement in support of the authorities' economicprogram for the period July 1998-June1999. 6. Now that inflation has been brought under control and net internationalreserves raised to a comfortable level, the authorities are seekingto push ahead with the structural reform program while maintaining the prudent stance of financial policies that has served Mozambique so well in the past. Their medium-term structural program focuses on the following areas: * increasingpublic sector saving by strengthening tax administration,wideningthe tax base, improving expenditure controls, and maintaining appropriatepricing policies for public enterprises; * improvingfiscal management by revisingbudgetary and accountingprocedures,and by designing sector expenditure programs that are consistent with macroeconomicobjectivesand targets; * increasing the efficiency ofpublic investment through greater coordinationof external aid, review and restructuring of the investmentportfolio, and implementationof sector-wide programs; * increasingprivate investment through, inter alia, privatizationof state enterprises,removal of administrativebarriers to trade and investment,and eliminationof tax disincentivessuch as excessively high tax rates; * increasingprivate sector saving through the developmentof financial instrumentsand markets; * improving monetary management by introducing indirect instrumentsof monetary control, revising accounting procedures, and modernizingthe payments system; * ensuring a competitive and sound bankingsystem through the strengtheningof bank supervision and revision of financial legislation; strengtheningthe capacityfor national economic management through reform of the civil service, developmentof the human capital of the public sector, and improvement of the statistical data base; * increasingeconomic efficiency by encouraging competition (through removal of public enterprise monopolies), reducing barriers to trade, and minimizing tax distortions; and * increasingtotal outlays in the social sectors, particularly on educationand health, and improving their effectiveness. 7. Overall, the authorities are making good progress in implementingthe structural reforms. Efforts to strengthen tax administration and widen the tax base by cutting back on importtax exemptions are beginning to pay off, as reflected in rising government revenue in relationto GDP. As a result, the government feels emboldenedto restructure and lower direct tax rates, and to lower the maximum import tariff from 35 percent to 30 percent, in the interestof economicefficiency and  32 AnnexIV Public institutions should be provided with the capacity in human, technical and financially terms, to carry out the necessary adjustments on an ongoing basis to the new context, and to supply the services that are essential for productive expansionwith a leading role for the above-mentioned economic actors. In our perspective, beyond the expansion of the private sector in the areas traditionallyclassified as economic, and from which the state has already undertaken a significantwithdrawal with the process of privatisations, broad opportunities and possibilities are open for participationand partnership in carrying out undertakings in infrastructures(including social infrastructures)and in the provision of services in the priority action areas included in the government's medium-term programs of action. Here we refer to both Mozambicanand foreign private enterprise. Due to the relevance of the role to be played by private enterprise, the government, through dialogue and in collaboration with the latter, will carry on with actions in the creation of favorable conditions for the expansion of investmentand developmentof business. These actions fundamentally affect institutional improvement,particularly in the spheres of licensing, fiscal administration and inspection, involving the decentralizationof services and powers and further, in the removal of obstacles imposedby superfluousred tape. In the promotion of the expansion of the private sector,and within the context of a broad vision of creation of national capacities, the government has a particular concern in the creation of conditions and in the mobilization of resources for making real the hoped-for role as protagonist for the Mozambicanbusiness class in the economic and social development of the country. Ladies and Gentlemen, Allow me, on behalf of the government, to once again manifest our thanks to the cooperation partners for the effort made so that the country might qualify for the benefit of debt alleviation under the HIPC Initiative. In practice, that will make possible the channeling of a little more resources into the social areas. In closing I would like to place my government's delegation at the disposal of the honorable persons present, for the clarification and going into greater depth on those issues that you may deem necessary. Once more, I reiterate my thanks for the support that has been given to my country,the results of which constitute a cause for satisfactionfor all of us. We are certain that with the indispensablefinancial support that the honorable persons present will provide,we will reach the medium-term objectives which we have set ourselves. I wish you every success in the work and a good stay for those who are visiting. Thank you very much.  36 Annex V 12. The government is committed to expanding both total outlays on education and health and the share of these sectors in total spending, while maintaining a prudentfiscal policy, and the economic program makes provision for such an expansion. In real terms, current spending on education and health is each projected to increase by almost one quarter in 1998.Furthermore,the share of education in total current expenditure is projected to rise from 17.3percent in 1997 to 18.2 percent in 1998, and the share of health to rise from 8.3 percent to 8.8 percent. 13. Development of smalI holder agriculture is the key to the government'spolicy of poverty reduction through economic growth, and a five-year expenditureprogram for the agriculture sector is being formulated in close collaboration with interested donors. The roads and coastal shipping project is also crucial to rural development.The program also makes provision for direct poverty alleviation. Spending on formal social safety net programs is targeted to double to 0.2 percent of GDP in 1999. In addition, the authorities are preparing a National Poverty Assessmentand a Poverty Action Plan, completion of which by end- 1998 is a structural benchmark under the program. IV. External Financing Requirements 14. Mozambique'sexternal debt burden is heavy, and the external financing needs are substantial. In recognition of this, and of the authorities'good track record of performance under successive SAF and ESAF arrangementswith the Fund and under Bank-supportedprograms,the Executive Boards of the Fund and the Bank in April 1998declared Mozambiqueeligible for assistance under the FHPC Initiative, and agreed to a shorteningof the period betweenthe decision and completion points. Provided program implementationremains satisfactory, including in the social area, and the government continues to pursue its adjustmentefforts in the context of a Fund arrangement, Mozambiquecould reach the completion point under the HIPC Initiative in mid- 1999. 15. External financing needs will amount to about US$1.8 billion in 1998 and US$1.4billionin 1999. Commercial loans to the private sector and direct foreign investmentare projected at about US$250 million in 1998and US$530 million in 1999.Multilateral loan disbursementsare expected to total about US$260 million in 1998and US$200 million in 1999, including expected new loan commitments of about US$40 million a year. Multilateral and bilateral grants, including IDA interim assistance under the HIPC Initiative, are projected at about US$350 million in 1998and US$370 million in 1999. The remaining financing gap, amounting to roughly US$900 million in 1998 and US$300 million in 1999, is expected to be filled by multilateral and bilateral debt relief, including assistance under the HIPC Initiative. 16. Overall, the Fund staff believes that Mozambique'strack record demonstratesthe authorities' commitmentto implementingappropriatefinancial and economicpolicies and addressing in a comprehensivefashion the structural impedimentsfacing the economy. The Fund staff therefore considers that continued donor support is fully warranted and, indeed, crucial if Mozambique is to maintain the growth momentum into the medium term and lift living standards to at least the average of those of sub-Saharan African countries.  33 Annex V ConsultativeGroup Meeting for Mozambique Maputo, September 23-24,1998 Statement by the IMF Staff Representative I. The Current Economic Situation 1. At the last consultative group meeting a year and a half ago, we reported that Mozambique had made significant progress in reducing its macroeconomicimbalances. I am pleased to bring you good news again. Mozambique'seconomic performance strengthened in 1997, and developmentsto date point to another good year in 1998. 2. Real GDP growth averaged 6.3 percent during 1994-96,rose to 12.4 percent in 1997,and remains strong in 1998. Inflation declined from 70 percent during 1994 to 5.8 percent during 1997 (the lowest annual rate since independence in 1975),and continued to decline in recent months. The external current account deficit narrowed by about eight percentagepoints of GDP during 1996-97, and the net internationalreserves rose from close to zero at end- 1996 to 4 months of importsat end- 1997.Confidence in the economy is improving, and private investmentis expected to pick up from 1998. 3. These results indicate that the government'seconomic policies are on the right track. Certainly,the authorities' diligence in implementingtheir economic program is now paying off. However, while not detracting from the accomplishmentsto date, we must remember that pressing economic problems remain. Despite the recent rapid economic growth, most social indicators for Mozambique still stand well below averages for sub-Saharan Africa. There is urgent need to rebuild the infrastructure,to reduce the external debt burden, to strengthenthe capacity for national economic management, and to eliminate the many remaining structural impedimentsto growth. Mozambique's financial and technical assistance needs will remain large in the medium term. 4. In the short term, the authoritieswill need to be vigilant to maintain financial disciplineand the pace of reform in the run-up to the presidential elections in 1999.While the nominal exchange rate has been stable in recent years, in real effective terms the metical has appreciated, raising concerns about Mozambique'sexternal competitiveness.To some extent, this real effective appreciation was the result of successful adjustment in Mozambique,which has attracted additional capital flows and assistance and so tended to strengthen the metical. It is importantto maintain the economy's external competitiveness, and the authorities are aware that continued real effective appreciation of the metical is not desirable. II. The Medium-Term Economic Strategy 5. The authorities' medium-term economic strategy set out in the latest policy frameworkpaper, which the authorities have now decided to publish, remains an appropriate responseto these challenges. The strategy emphasizes private-sector-led,export-orientedgrowth,whichwill be fostered through financial discipline, removal of supply bottleneckssuch as inadequate infrastructure and insufficient human capital, and implementationof business-friendlypolicies. More attention is  38 Annex VI what it says it is was going to do. After next year, only twenty or so public enterprises will remain in state hands. These are primarily transport companies -- such as the railroad and airlines -- as well as utility companies -- water, electricity, and telecommunications. These sectors are pivotal to lubricating economic growth, and the services they deliver take a large share of the budget of urban Mozambican households. We are pleased with the progress being made with CFM and the urban water companies to privatize management and operations, and look to the Government to rapidly define and execute its plans for liberalization and privatization in all of these areas. So, new private companies are flourishing in Mozambique, and they are serious about doing business and being competitive. To do so requires an enabling environment. The Government is simplifying import procedures and business registration requirements. It is removing barriers to trade, and when it introduces the VAT, the tax regime will be less distortive. But red tape and inadequate regulation remain impediments to private sector development. At the Fourth Annual Private Sector Conference, held here last week, the private sector asked that more be done more rapidly to remove these impediments. Clearly reforms in this area have a direct bearing on Mozambique's hopes not only to grow, but to have its small entrepreneurs successfully compete in national and regional markets. Public Sector Management and Governance Now let me turn to the public sector, which also has a pivotal role to play in Mozambique's development. As we all know, an efficient public sector can act as a catalyst for growth, support vibrant private sector development, provide social and other services, and ensure that development benefits the majority of citizens. Critical in this regard are sound and effective fiscal policies. We place great importance on the Government's initiative to develop a medium term fiscal framework. This effort to better prioritize and improve the strategic focus of expenditure programs is testimony to the fact that Mozambique is taking charge of its destiny. That is also why debt relief under the HIPC initiative is so important: by reducing debt to levels that Mozambique can manage, HIPC more firmly places Mozambique's future in its own hands. The Government is also undertaking resolute measures to better manage its public spending and has made good progress in the past year in reforming its budgetary planning and management system. Similarly improving budgetary accounting, execution, and auditing over the next year - as the Government is planning to do - will cement this process. This is an area where the Bank and most development partners stand ready to provide assistance. Revenue growth is another important aspect of ensuring sustainability and decreasing Mozambique's dependence on aid. The benefits of economic growth, including from the new mega-projects, need to be harnessed to increase resources for the public sector and, hence, services to the poor. In addition to improved fiscal management, a critical challenge to an effective public sector will hinge on reform of the public sector administration itself. All over Africa, poor salary and career incentives plague civil services and have led to the departure of capable people from the ranks of government. Mozambigue is no different. But, here again, the Government has taken the initiative over the past year to define a comprehensive public sector reform strategy.  35 Annex V growth. Also, preparations are advanced for the introductionof the value added tax in April 1999. On the expenditure side of the budget, the new budget law was adopted in 1997, and a medium-term expenditure framework is being developed to help match expenditurepriorities with resource availability. Of major importance is the ongoing public administration reform, which involves civil service reform, decentralization of government, increased attention to training and human resource management, and efforts to increase transparency and accountabilityin public affairs. 8. The program of privatization of large enterprises is virtually completed, and remaining small- and medium-sizedenterprises are expected to be sold by mid- 1999.Public enterprises,once dominant, now account for only a very small proportionof industrial output. Complementing privatization are efforts to remove bureaucratic obstaclesto private sector development.Financial sector reforms are proceeding on several fronts. Indirect monetary policy instrumentsare to be gradually introduced; immediate priority is being given to the development of short-term markets for government and central bank paper; the payments system is being modernized; accounting procedures of the commercial banks as well as of the Bank of Mozambique are being improved;and financial legislation is being revised. III. The Financial Program for 1998/99 9. The authorities' financial programfor 1998/99was formulatedin the expectation of real GDP growth of over 7 percent a year, excluding the impact of large projects, and of over 9 percent, including the impact of these projects. The industrial, energy, construction,and services sectors are again expected to lead growth. The latest available price data indicate that end-period inflation may fall below 6 percent in 1998,while for 1999 the programassumes an inflation of 6 percent. The program aims at increasing net internationalreserves by about US$30million a year in 1998 and 1999. However, in terms of import cover, net reserves are projected to fall to 3.5 months of imports in 1998 and to 3 months in 1999 because of rapid import growth associated with large projects. 10. The program targets zero net domestic borrowing by the government in 1998 and 1999.This fiscal position is consistent with the provision of adequatecredit to the economy and with the attainment of the inflation and internationalreserve objectives.Net external financing in 1998 is projected to decline by about 2.2 percentage points of GDP, because of lower disbursementsof loans and grants as well as higher amortization.Meanwhile,total expenditure and net lending (relative to GDP) has been kept at its 1997 level, and the overall deficit before grants is expectedto decline to 13.8percent of GDP, from 14.3percent in 1997, because of higher revenue. In 1999, lower revenue (as a result of the tax cuts) and higher expenditure(mainly as a result of the decompressionof civil service salaries) are expectedto widen the overall deficit before grants to 14.7 percent of GDP. 11. The authoritieswill continue to pursue a restrained monetary policy. In real terms, credit to the private sector is projected to increase by 21 percent in 1998 and by 14 percent in 1999,compared with 44 percent in 1997. The targeted decline in credit growth is appropriatein light of the projected fall in external resources to the banking system through the government, and of concernsabout the possible adverse effects of rapid credit growth on the qualityof the banks' loan portfolios. The high credit demand of 1997coincided with exceptionallyhigh economicgrowth, and is not expectedto be repeated in 1998 or in 1999. Preliminaryfigures show that, in real terms, credit to the private sector grew by 10 percent in the first half of 1998,slightly less than programmed.  40 Annex VI are looking forward to seeing the Government's completed poverty assessment later this year. It will be the cornerstone to the development of a poverty action plan and measurable targets. The Bank and many of you, I know, will be keen to support that effort. Strong Partnerships Finally, Mr. Chairman, let me turn to the theme of partnerships that you highlighted already. This country has indeed come a long way. Its success in meeting so many daunting challenges speaks also to the powerful development partnership here. It really is a credit to the Government that the partnerships it has fostered have been so productive and constructive. Mr. Chairman, you spoke about the strength of Mozambique's global partnerships. As we hold this CG here in Maputo, I want to salute the level and intensity of the rich local partnership, here in Mozambique. The local aid partners, through various working groups, keep up an active and vigorous dialogue with Government and allow our agencies to be much more responsive to the needs on the ground. It is a credit to these local donor efforts, for example, that external financing commitments of donors are now compiled locally, and outside the forum of the meeting. Those efforts will allow tomorrow's financing session to focus on issues and trends rather than numbers. The local donor strategy meeting held last month was also an important first effort to better coordinate the efforts of this partnership, and we need to build upon it. NGOs and the private sector are also pro-actively involved in the development effort, and Mozambique has an engaged and organized group of civil society associations and a vocal and diverse press. We will have an opportunity to meet with civil society tomorrow. Just let me say now that the entire World Bank team have benefited greatly from our continuing discussions with representatives from local organizations. All of these partnerships have ensured that dialogue and debate are an important part of the development process here and they have strengthened and enriched that process. That does not mean the debate is always harmonious or that the dialogue always ends in agreement. Development is about change, and change brings conflicts. But dialogue is key to furthering understanding and, to the extent possible, a shared vision. I believe most of us do share a common vision of what we want to achieve. The Bank is committed to working with Mozambique and all of its partners to further this shared vision - that of a Mozambique in which all members of society share the benefits of rapid development. I look forward to the discussion today and tomorrow. I am sure that, as in the past, this meeting will provide us with food for thought; it will help bring us closer together; and especially this year, it will give us new insight into the reality that is Mozambique today and the challenges that we will face together. Thank you.  37 Annex VI Mozambique Consultative Group Meeting Maputo, September 23-24, 1998 World Bank Statement Ms. Phyllis Pomerantz Country Director, Mozambique Africa Region World Bank Mr. Chairman; Honorable Mr. Prime Minister; Honorable Members of the Council of Ministers; Ladies and Gentlemen: Bom Dia. It is nice to see so many familiar faces here. And let me say just how special it is for me to be able to address you at a Consultative Group Meeting here in Maputo. My first visit to Mozambique was in July 1992,just prior to the signing of the Peace Accords. I have been an admiring witness to this nation's tremendous efforts and accomplishments over the past six years. The changes have been breathtaking, and are a credit to the will of the Mozambican people, the resolve of the Government, the strength of Mozambique's economic program, and the steadfast support of its partners. Our meeting here today symbolizes how far we all have traveled together. Private Sector Led Growth Now let me quickly turn to a few of the challenges which lie ahead. Mozambique's economic reform program was launched on the principle that the private sector would be an engine of growth. When we travel through Mozambique, as some of us did yesterday, we see signs everywhere that this engine is revving up: more farmers are working the fields; there are bigger markets, with more maize and more vegetables; more trucks are carrying produce and people up and down the coast; and there are new banks, new factories, new investment, and mega-projects like the Mozal project we visited yesterday. Critical has been the macroeconomic stability of the past two years. Low inflation, a stable exchange rate, and falling interest rates have reassured entrepreneurs and stimulated business. We join the Fund in commending the Government on its disciplined macroeconomic management. However, in the face of increasingly turbulent markets in this region, and indeed the world over, there is a new urgency for macroeconomic vigilance. We encourage the Government to stay on course. Stabilization does not mean standing still. Moving forward is fundamental to sustaining and building on past gains. I think we all agree that sustainability is the watchword for Mozambique over the next few years if the benefits of growth are to be carried to the poor throughout the country. The Government's ambitious privatization program, one of the most successful in Africa, has helped bring about a burgeoning private sector activity. Almost all economic activity will be in the hands of the private sector by the middle of next year. This is a Government that has done  42 Annex VII and strategies. In the meantime, a highly necessaryfirst decompressionof salaries was implemented in 1998, a new system for careers and remunerationsis being approved by the Council of Ministers and progress is on-going toward the preparationof a comprehensivetraining strategy for civil servants for which UNDP and other donor partnersare offering collaboration. We look forward to the second step of the decompressionearly next year which can alleviate the need for the current unsustainable practice of topping up salaries. The decentralisationprocess will need energetic support, through the new law on local authorities,to create. appropriateworking conditions for municipal authorities. The costs associated with democracy are significant:holding elections, operating a strengthened National Assembly, an expandedjudiciary system, and other activities such as building a competent Police Force will eventually have to be fully financed from Mozambique'sown resources. UNDP believes that security forces such as the National Police, are key to sustainable developmentfor all citizens. Such activities should decisively appeal to other donors as well. Human Development Mozambique still remains one of the ten poorest countries in the world according to the 1998 UNDP Human Development Report, ranking 166 of 174countries. The Human DevelopmentIndex rating is far below neighbouring countries and sub-SaharanAfrica in general. It should be noted, however, that the 1998Report is based on 1995 data and it will therefore take another two or three years before real improvementsare revealed in the statistics. As UN Coordinator, I am pleased to note that the Government, in its new Medium Term Strategy, sets forth objectives to facilitate uninterruptedrapid growth in the economy, improvementsin social conditions (in particular the development of humancapital), equity in distributionof income, the creation of jobs, and the reduction of poverty, all of which fall within the areas of the development of good governance and poverty alleviation. The Government'stargets for Education and Health in its MediumTerm Strategy,which are very welcomed features in the CG documentation,will go a long way towards the enhancementof the primary and essential right, especially of women and children, to improved social services. In the same UNDP Report, while opportunities for women to participate in economicand political activity in Mozambique are well above many countries according to Gender EmpowermentMeasures, let us not forget the devastating ratio of infant mortality in this country, one the highest in the world reaching 1500 infant deaths per 100,000 live births. This means that 8000 women will die needlessly during child birth this year resulting in an astounding 30,000 orphans. The UN Agencies and donor partners therefore urge overall gender equity and fall and active participationof women in all aspects of social and economic development. As regards debt relief, the donor community and the UN Agencies fully support the HIPC initiative as promoted by the IMF and the World Bank and we encourage furtherbudgetary support measures from partner countries. The MozambicanGovernmentmust have a chance, as soon as possible, when meeting the completion point next year, to channel financial resources to the provincesand to support micro-financing as one key instrument for employmentcreation and sustainable livelihoods.  39 Annex VI The implementation of the salary decompression and new career stream system that the Government introduced to us at the last CG meeting are central components; structural reforms and sectoral programs are also part of a more comprehensive reform agenda. I look forward to hearing the Government's strategy and plans at the special session on this topic later this afternoon. Given our collective experience elsewhere in Africa and in other parts of the world, we know that these reforms will be challenging, they will take a long time, and they will require the patient and long-term support of Mozambique's partners. I cannot talk about improved public sector responsiveness without speaking of governance. I know that several partners have expressed concerns on governance matters, ranging from issues relating to corruption to those relating to proper and fair elections, and to legislative and constitutional reform. Good governance is fundamentally about the confidence and trust that a people places in its government - the confidence and trust that the Government is reliable, fair, and transparent. Increasingly, we are seeing a link between good governance, stability, and broad-based economic development. Sadly, elsewhere, we are also seeing that the converse is true. The Mozambican Government continuing efforts to combat corruption, improve financial accountability, and further legal reform will receive our wholehearted support. Poverty Reduction I have now mentioned the dual challenges of promoting private sector growth and improving public sector management and governance. But let us reflect for a moment on why we are talking about growth and development in the first place. Mozambique remains one of the poorest countries in the world. More than one out of every ten infants born in this country does not live until his or her first birthday; most of the population is illiterate. As you mentioned Mr. Chairman and Mr. Prime Minister, reducing poverty and improving the well-being of the majority of Mozambicans must be the number one priority of all our collective efforts. The previous speakers talked about how this country is on the move. The real challenge will be in ensuring that the poor participate in this growth and that their living standards improve. The Government has a crucial role in ensuring that development means poverty reduction. Programs must be oriented to effectively benefit the poor. The poor family in rural Mozambique needs a road to take its goods to market and to buy cheap products. It needs access to basic health care, basic education, and water. The sector programs in place or being developed in roads, health, education, water, and agriculture have to be designed and implemented with this poor family in mind. Moreover, throughout the world we see the power of policy in reducing poverty. Sound policy can improve producer prices to farmers, reduce costs to consumers, increase employment, and improve the delivery of services. A pro-poor fiscal policy can ensure that economic growth, even from enclave sectors and the mega-projects, can be tapped to direct programs and services to the poor. As Mozambique develops, that poor Mozambican family ought to share the benefits. Critical at this juncture is badly needed information and analysis on poverty, as well as performance indicators. Who are the poor, and what are the determinants of poverty? What are our programs accomplishing? How can our programs be better designed to reduce poverty or protect the poor? The Government has completed the first ever national household survey. We  44 Annex VII The Sector-Wide Approach also presupposesa strengthenedaccounting and auditing role of central government insofar as the state budget is concerned. Capacity building in financial management, accountability and transparency is crucial. The progress in the areas of public sector reforms and the development of human resources, areas identified by the Governmentas high priorities for its Medium Term Strategy, will be crucial for the implementationof the Sector-WideApproaches. Similarly, major changes need to be implementedamongstthe external partners in their planning, monitoring and procedures for developmentco-operationto be able to respond to the demands of sector-wide approaches. Tied-aid will continue to offer resistanceto integrative efforts. A Longer Term Perspective Until now, development strategies in Mozambique have focused on short-termmacro-economic stabilisation. The macro-economicstructural adjustments have led to tangible gains and renewed optimism. Clearly, Mozambique is one country where the ESAF has worked well and we acknowledge the new PFP as the defining statement on national policies and strategies. The long-term success of the present reform programmesnow also depend on Mozambique'sability to consolidate its democracy and human developmentgains, to plan consensuallyfor the future, to manage change in a participatory fashion, and to deal with strategic long-term challengesdirectly with civil society and the private sector. President Chissano, in his speech to the Nation on IndependenceDay, 25 June 1998, announcedthe launching of Agenda 2020, a visionary exercise intended to consolidatepeace and nationbuilding through a highly participatory consensus-seekingprocess, including the development of "smart partnerships". UNDP fully welcomes this exercise and will, with other partners, offer 6ollaboration and experiences from other African countries. Conclusion Mr. Prime Minister, HonourableMinisters, Mr. Chairman, DistinguishedParticipants and Colleagues: The UN System in Mozambique,through its developmentassistanceframework (the UNDAF) is reaffirming its commitmentto promote basic human rights and adherence to' internationalconferences and conventions through sustainablehuman developmentseekingto empower all Mozambicans independentof gender, age, religion, political affiliation or economic or social status to participate in and benefit from the developmentprocess. Along with its donor partners, we pledge our commitmentto support a coordinatedand economicallyand socially sound approach to the medium term development initiatives as proposed by the Government of Mozambique in this Consultative Group. Finally, as UN Coordinator, and co-chair of the DevelopmentPartners Group, I should like to congratulate and thank the Government of Mozambiquefor hosting this momentouscoordination conference in Maputo. It will mark a turning point in our relationshipsas ever-more reliable and trusting partners, confident in the bright future of Mozambique. In concluding, I would like to extend to our colleagues of the World Bank and the IMF our vibrant wishes for the most successful ever Consultative Group Meeting, at this historical point in Mozambique's development.  41 AnnexVII ConsultativeGroup Meeting for Mozambique Maputo, September23-24,1998 Statement by the UNDP Resident Representative/UNResidentCoordinator Mr. Emmanuel Dierckxde Casterle Mr. Prime Minister, HonorableMinisters, Mr. Chairman, DistinguishedParticipantsand Colleagues: Already when we met last year in Paris and agreed to meet next in Maputo, we talked about the very encouraging developments, both economicallyand politically,achieved during the period since the signature of the Peace Agreement in 1992. We can today add yet another year of positive progress in the area of macro economic performance. Gross Domestic Production grew last year by 12.5 per cent without significant inflation, a remarkable accomplishmentindeed, and with donors' support, Governmentwas able to spend one quarter of its current budget in the health and education sectors. Similar brilliant economic performance e is expected in coming years. The on-going, far-reaching privatisation programme combined with the rehabilitationof economic and physical infrastructurein many areas are expected to promote the revival of sustainable economic activity. However, sustainabilityrequires that we look beyond the confinesof development'seconomic growth dimension, to the political and social context. The strengthening of sustainable democracyrests on the two crucial pillars of good governance and poverty alleviationas we have suggested in the DevelopmentPartners Group which, as UNDP Representative,I have the honour to co-chair with the World Bank Representative. Good Governance In the area of good governance, notable achievementswere made over the past year: * Approval of the Law on Governance Ethics * Creation of 33 municipalities * Training and restructuring the Police with the help of the Dutch and Spanish Governments * Preparation by Parliament of a substantial revisionof the Constitutionthrough an open process of public hearings. I am pleased to note Italian, US and UNDP support in this endeavourvery welcomed by the Partners Group. We salute the Government'splan for comprehensivereforms in the Public Sectorwhich will render civil servants more efficient both at central and local levels. As UN Resident Coordinator,I should like to state the need for and our readiness in the UN Agencies to strengthencapacities at the provincial and district levels as a matter of urgency. In the collective view of the United Nations, while Government is wisely devolving all operational and production activities to private partners, the country needs an ever-stronger State capacity focused on formulatingand monitoring policies  46 Annex VIII ConsultativeGroup Meeting for Mozambique Maputo, September23-24, 1998 Statement by the Minister of Finance and Planning HE Tomaz Salomao "A View into the Future" Mr. Vice President of the World Bank and Chairmanof the XI ConsultativeGroup Meeting on Mozambique, Mr. President, Members of the Donor Community, Ladies and Gentlemen, I would first like to welcome you to Mozambique. It is a great pleasure to receive you in our country, where you can see for yourselves the advances we have made and the problemsthat we continue to face. Contrary to the tradition of recent years, I will take up relatively little time in discussing stabilisation programmes. I will try to give as full a picture as possible of our current concerns, the manner in which we plan to resolve our current problemsand the support that we need from the Donor Community. We begin, therefore, with the area of stabilisation.Here results continue to be positive. Economic growth has been vigorous, at more than 10%. Our forecastssuggest that we will repeat that result in 1998and 1999. By 1999,at the turn of the century, we will have managed to double the GDP in relation to the levels attained in 1980.Compared with the situation in 1992,at the end of the war, the result expected for 1999 represents a cumulative increase of almost 90%. This growth reflects positive results in all sectors of the economy, but particularly so in the case of manufacturing industry, which had an average growth rate of 26% in 1996 and 1997. Economicgrowth has shown a tendency to accelerate as some large investmentprojects are implemented.To give only one example, growth in the area of construction is expectedto attain 40% in 1998,reflecting the rapid growth in investmentfrom the current year. The cautious approach to fiscal and monetary policy, in the context of rapid economic growth, has allowed us to reduce inflation from 60% in 1995 to an average near 4% expected in 1998.This year, the accumulated rate from January to August shows a reduction of 3.1 %. translation Thisis an English statement fromtheoriginal givenbytheFinance in Portuguese. Minister  47 Annex VIII Just as important as this rapid decline is the fact that inflationaryexpectationshave been overcome and we are now experiencing the second consecutiveyear of price stability.The reduction in inflationaryexpectations has also contributed to a strengtheningof the currency, whose tendency towards stability in relation to the dollar accompanies the slowing down of inflation. In 1997, the average devaluation was about 2.2% and in 1998policies aimed at increasing internationalreserves and competitiveness will be implemented. The progress I have described is not a justification for a relaxation of our stabilisationpolicy. It continues and will continue to be necessary to maintain a compromise between the promotion of development and the consolidationof single digit rates of inflation. At the same time, we are trying to accelerate structural reforms which will securethe medium term sustainabilityof the results that have been achieved. The 1999 State Budget reflects this option. Before continuing, I would like to open a short parentheses,to explain that I will use the old GDP figure in this presentation.A new figure, which takes into considerationof the recent Censusand Household Expenditure Survey, is now being finalised and will be used as the official series from January of next year. Having clarified this point, I would like to inform you that governmentreceipts have risen by 1.4% of GDP in 1997, as a consequence of the effort taken to reduce tax evasion. As I have already had the opportunityto point out, our strategy in this area is not short-term. We want to create a fiscal system that is just and equitable, whilst at the same time being attractiveto investment. Thus, we are implementingcuts in taxes on income, in order to reduce tax evasionon the one hand, whilst, on the other, making the level of taxation equivalentto other countries. Continuing the process of trade liberalisationwe intend to reduce customs duties next year. Finally, we will introduce the Value Added Tax, which, we are sure, will constitute an important step in the reduction of tax evasion. As a result of these options, all of which are aimed at creatinga modem fiscal system for the future, fiscal revenues will grow by 0.8% of GDP in 1998and will fall by the same amount in 1999, reaching the same proportion of GDP as registered in 1997. As we continue to hold to our promise not to recourseto bank lending to finance the Budget, we will have to balance the enormous expenditure needs, our fiscal capacity and the aid we receive from donors.  48 AnnexVIII As you know, the Governmenthas made a considerableeffort to improve efficiency in the use of budget resources, creating instruments which make the process of allocating resources and analysis of Budget execution transparent. This effort will be continued in 1999, with the identificationof off-budget flows, their consequent integration in the budget and the development of a new, consolidatedaccounting system for public accounting. On the other hand, efforts have also been made, together with the donor community,to formulate integrated investment programs in those sectors considered fundamentalfor economic development. I would further like to point out that the creation of a modern fiscal system will also absorb resources in the short-term. Thus, it is easy to understand the pressures to increase expenditures, both recurrent and investment, coming from different sectors and reflecting our efforts to speed up development. During my presentation I will have the opportunity to give a general vision of these needs and show what we are going to do in each of the priority areas. You will see that in almost all of these sectors it has not been possible to close the financing gap, despite the efforts of the Governmentand of the Donor Community. In this context, the Budget for 1999 reflects a widening of the deficit beforegrants of 0.9 percentage points of GDP, while the deficit after grants will increase by 1.1 percentage points of GDP. Thus the financing through external credit will increase in 1999,reflecting a reduction in amortisation, which will drop in relation to 1998 by 0.8 percentagepoints of GDP, reflecting the debt relief that the Government expects through HIPC. As we have just seen, Mozambique. has followed a long path of reform to reach the point at which we find ourselves today. It required a considerablecommitmenton the part of Governmentand civil society to achieve some of these reforms. It has consistently been the Government'saim to follow policies that will contribute to the alleviation of poverty and the improvementof the living conditions of our population. The proportion of resources allocated to the social sectors has increased steadily in recent years, to the detriment of other sectors, which are not necessarily less important,but with a lower impact on the provision of basic public services.As a proportionof recurrent expenditures, the educationand health sectors together have passed from a position of 14% in 1995to 28% in 1999. We have received a considerablecontribution from the Donor Community in implementingthis policy, not just through the general assistance which it provides the country, but also through The Debt Relief Fund, which has provided importantsupport. A considerablepart of the financing needed to eradicate the cholera epidemic was financed from this Fund.  49 Annex ViII Looking at recent trends, one might think that Mozambique has reached the point where it can follow the path to development alone. However, this is not yet the case. We would like to show some of the results of the Household Expenditure Survey undertaken in 1996-97.From the results of this survey it was possible to draw a poverty profile in Mozambique. The indicators speak for themselves. Around 80% of the population of Mozambique lives in rural areas, while 82% of the poor live in rural areas. Consideringthe country as a whole, 69% of the population lives below the poverty line. The incidence of poverty in Mozambique is higher than other countries of the region, which, in large part, is due to the war that came to an end in 1992. But these statistics give little idea of the conditions in which the majorityof the population lives. Around 90% of Mozambicanshave land, with an average plot of 0.4 hectares per capita, or 2.4 hectares per family of 6 persons. But only 9% of the population uses some kind of equipmentto work this land; only 7% use mechanical or animal traction and only 2% use some kind of fertiliserof insecticide. This gives a good idea of the levels of productivity in the family sector - which constitutesthe majority of the population of Mozambique - living from the land, but with a low productivityowing to the use of inadequatetechnologies. This is the principal cause of the level of income in Mozambiquebeing amongst the lowest in the world. Only 7% of the population as a whole has access to in-house piped water, 58% have access to standpipesor wells and the remaining 35% take their water directly from rivers or lakes. In spite of the effort made to improve the provision of public services,the numbers speak for themselves. On average, a Mozambicanhas to travel 46km to find a doctor, 66km to reach a secondary school, that is to receive education beyond 9th Grade. The nearest telephone is 48km away and even to sell products and buy essential goods the average Mozambicanhas to walk 16km to a market. Your Excellencies, Ladies and Gentlemen, This is the reality of Mozambique. A reality which often passes unseen when we look at the capital of the country, whose conditions do not reflect our problems.  50 Annex VIII We must struggle to change this state of affairs. When we speak of developing the country, we are not talking in the abstract, but of reducing the suffering of those that live daily in the conditions I have described. It is for this reason that - at the risk of prolonging my interventiona little longer - I would like to describe the point which we have reached and outline our medium-termtargets in those sectors that are fundamental to the well being of the population. I will begin with education, since it is the sector which, I believe, is fundamentalin assuring the sustainability of the reforms which are being undertaken and also crucial in supportingthe future development of our country. In spite of the efforts made access to education is still limited. The gross admissionrate, which had reached 110% in 1981,fell to 59% in 1992.Owing to the efforts made to widen access, the gross admission rate will be around 82% in 1999.But this is still far from achievingthe objective of universal access to education. The possibilities for girls are even more limited: they represent only 45% of the total number of students in First Grade. The second major problem that the sector faces is the quality of education. To characterise the low quality of education it is enough to cite a few indicators: Firstly, the majority of teachers have only 6 years of schooling and one year of teacher training; 25% of primary school teachers have no teacher training whatsoever; Secondly,there are more than 60 students for each primary school teacher; Thirdly, teaching is undertaken with a shortageof materials and in poor working conditions. The costs involved in the expansion and improvementof teaching by far exceed the country's internal financing capacity. This obliges us to look for solutions that will guaranteethe sustainability of our efforts to expand education. The Strategic Plan for Education aims to tackle these problems by setting the followingobjectives: * Guarantee universal access to primary education; * Improve access and the participation of girls; * Improve the quality of teaching; * Strengthen institutional capacity to define policy, to plan and to manage the national education system; and, * Find solutions, together with other partners in society, which will guarantee the sustainability of the achievementsthat are made. I will now try to present an overview of the scale of the task in the education sector.  51 Annex VIII Between 1992 and 1999, there was an increase of about 56% in the numberof students in the first seven years of schooling. It is expected that this number will increase by a further 44% to the year 2002. This means that the number of primary school students will have more than doubled between 1992 and 2002, reaching almost 3 million. To satisfy this growth, 12,700new classrooms will have to be built and 18,000new teachers recruited. When these objectives are achieved, the gross enrolment rate for the first five grades of primary education will have risen from 70% in 1998 to 86% in 2002. For 6th and Ph Grade the gross enrolment rate is significantlylower, reaching 17% in 1998and 24% in the year 2002. Another objective of the Education Programme is to increase the participationof girls so that they account for 50% of the students in the first year of schooling. The education sector absorbs a substantial proportion of the resources available in the Budget. Even so, internal resources covered only 66% of total financing needs in 1998. It is the Government'sstrategy to transfer part of these costs to parents,communities,NGOs and the private sector, reserving public resources to assist the poorest communitiesand families. Dialogue with the different stakeholders in education will be encouraged so as to ensure that the solutions adopted reflect the consensus of these groups. This is the only sector where needs are well covered. Even so, for 1999there is a gap of 9 million dollars, which grows over the period until 2002. Also in the health sector, considerableefforts have been made to improvethe situation. The trends have been positive, but much remains to be done. To illustrate this point, it is enough to refer to the fact that, of every 100births only 30 are assisted and inequality index between provinceswith highest and lowest coverage of services ranges from I to 7. To increase the coverage of health services,the primary objective is to expand the number and distribution of health facilities. The target fixed for coverage is 70% in the year 2001. To achieve this level, 350 to 400 new health facilities will be needed. The principal causes of mortality in Mozambique continue to be malaria, contagious diseases and complications arising from pregnancy and birth. At the heart of this problem are the poor conditions in which the majority of the population lives. Only with the eradication of poverty and the improvementof the education of the population can we hope, in the long term, to improve this situation. In the short term, our efforts are concentrated in education campaigns which have an importantrole to play in the prevention and early treatment of disease.  52 AnnexVIII Together with the expansion of the health care network and the improvementin the quality of services, significant improvementsmust be made in the management of services and the training of health workers. These are some of the key objectives of the health programme. The sustainability and consolidation of the advances we have made is a central concern. Consequently, the Government is currently developinga medium-termstrategy in which the role of each partner will be clearly defined: on the part of donors, in terms of the assistancewhich they intend to provide in the medium-term; on the part of beneficiary communitiesin terms of their participationin the financing of health facilities; on the part of new systems, which can provide health facilities without constitutinga direct burden on the State, as in the case of health insure systems. The central objectives to be reached by 2001 include, amongstothers, an increase the coverage of IDPT vaccinations from 63% in 1997to 80%, and a reduction in the infant mortality rate of children below the age of I from 135 per thousand to 120. The financial needs of the health sector will exceed 129 milliondollars in 1999.It is expectedthat, with the adoption of the measures indicated above, leading to increased financing by users, the financial needs of the sector will rise to 137 million dollars in 2003. This implies an increase of 6.2% in four years. Even with these restrictions,the program is not fully financed. The average financing gap in the period from 1999to 2003 is close to 40 million dollars. I have spoken of education and of health. The third sector in the hierarchy of priorities for improving the well being of the population is the water sector. Many of the diseases and epidemics that cause death in Mozambique are linked the limited access to water and poor sanitary conditions in which the majority of the population lives. As I have already noted, only 7% of the population has access to running water. In urban areas, coverage is currently at only 30%. The major problems facing the sector have been studied and the followingpoints stand out: * the deficient management of water systems results in 60% of water being lost or not charged for, * water tariffs in urban areas do not cover the operating and maintenancecosts; * the expansionof coverage in rural areas was done on a supply basis, which permitted a rapid expansion in coverage. However, the growing number of non-operationalfacilities shows that the efforts of educationand communityparticipationhad limited impact.  53 AnnexVIII The strategy to overcome these problems encompassesa range of actions. I will only mention those that are most important. Firstly, the management of the companies responsible for water supply in the five main cities will be privatised. We hope that this measure will lead to improvedefficiency and a more rigorous approach to charging for water, thereby reducing lossesto 25%. Tariffs will be increased in order to render systems sustainable,ensuring that costs and 50% of the amortisation of capital are covered. In rural areas, policy will be altered so as to better reflect demand conditions,permitting communities to participate and co-finance the development and maintenanceof water facilities. To complement these measures, an integrated strategy for water and sanitationwill be developed, while at the same time developing educationcampaigns on health and hygiene. The financial needs implied by this program reach 67 million dollars in 1999,and increase to 122 million dollars in 2002. While 76% of the program is currently financed for 1999,this percentage falls to 57% in the final year of the program. The significanteffort to be made by the Governmentin this sector is reflected in the fact that budget financing will more than double during this period. The improvement of living conditions - education,health and water supply -are ways to reduce the problems. But we must also attack the fundamental causes of poverty. In a country where 80% of the population live in rural areas on what the land produces,the only means to improve living conditions is to increase the productivity of those live at subsistence levels. Agriculturaldevelopment is therefore fundamentalto achievinga reduction in povertyand food security. It also plays an important role in supplying industry with inputs, and in permitting a growtl in exports. In order to respond to these challenges, a national program of agricultural development has been prepared (PROAGRI). Amongst the different componentsof this program, the following stand out: * privatisation of activities and servicesthat may be more efficiently undertaken by the private sector, thus guaranteeing long term sustainability.The Government will support the development of these servicesto ensure that the interests of the poor are protected. * capacity building in the Ministry of Agriculture and Fishing at central, provincialand local level strengthening its ability to define and implementeffective policies, and analyse their impact. Agricultural extension services are essential to increase the productivityof the family sector. This is one of the areas in which the Government will act in partnershipwith the private, sector and with NGOs.  54 Annex VIII Other important services targeting agricultural developmentto be undertaken in the context of PROAGRI include: the supply of seeds suitable for climatic conditions and that will contributeto increased productivity; the development of an early warning service; and supportto the development and implementationof methods for combatingdiseases in plants and animals. Aside from these measures, rural development centres will be put in place, particularly in the areas of greatest agricultural potential. One of the keys to the success of this programme is that land is used and managed in a sustainable manner. The government will take the necessarymeasures to give smallholderssecurity of land use, while at the same time seeking to expand cultivation. The land regulation will be published, and a public system of information about land issues is to be developed. The transparency illustrates, for cereals and cashew, the expected impact of the program.In the case of cereals, an average growth rate of 10% is expected, while the production of cashew is expectedto grow at an average rate of 15%. The total cost of implementingthe program is 202 million dollars. Of these, the Governmentwill finance 10%. It is expected that the remaining 182 million dollars will be financed by external funds. At the moment, 50% of this amount is financed, leaving a financing gap of 91 million dollars. Finally, I will refer to the road program. This program is of enormous importanceto the development of the country. Without roads, surplus productionof farmers will not reach markets; without roads, goods and people cannot move about the country, limitingthe extent to which a true market economy functions. At the moment, poor roads result in considerablewear on vehicles, and thus in exorbitant transport costs. The Government, in partnership with the internationalcommunity,has developed a program of road rehabilitation. Between 1992 and the present, significantprogress has been made: the percentageof roads in poor condition or impassablefell from 76% to 42%. However, much work lies ahead before a one might consider the situation reasonable. If the program is successfullyimplemented,the percentageof poor or impassableroads should fall to 30% by 2001, requiring the periodic and routine maintenanceof 29,000 km of roads. The program is expected entail annual costs of up to 135 million dollars until 2001. Clearly this amount exceeds the Government'sfinancing capacity. The financing gap remainingin 1999 is 31 million dollars. Ladies and Gentlemen, I hope to have presented a clear picture of the considerableproblems that the country faces. The brief review of key sectors reveals the significantpressures on budget resources discussed in the  55 Annex VIII opening of this talk. You may find more detailed informationabout these sectors in the supporting documents that we have prepared. I would also like to mention a further sector, which is very important in ensuring the sustainabilityof the actions that we are taking - public administration reform. We will have a special meeting on this subject, but I want to stress that it is a priority of the Governmentto restructure the public administration in order to render it more modem, flexible and output oriented. To improve the performance of public servants, we have to adopt a policy to increase wages, and thereby bring public salary scales more in line with the private sector. Moreover, intensive and extensive training of public servants will be undertaken. Having come to the end of this presentationyou may ask - how did you close the 1999budget if all the sectors mentioned have financing gaps? In fact, the pace of program implementationswas reduced in line with financing capacity, in order to ensure that public expenditure was not financed through bank credit However, this reduction means that we need more time to reach the targets of the programs; it means also that we need more time to reach the developmentand welfare of the populationthat we all aim for. We must progress as quickly as possible in the coming years so that Mozambique can reach a positionwhere the dependence on foreign aid can be significantly reduced. The time required to reach such a situation clearly depends on the Government,but also on the donor community. The harmonisationof efforts and the creation of consensusregarding the utilisation of disposable funds is crucial in this respect. I thank you for your attention and patience. I hope to have contributedto a clearer view of what is the reality of Mozambique today. We have confidence in your support in facing up to the enormous task of developing the country. I conclude as I began - welcome to Mozambique. Thank you.  56 AnnexIX ConsultativeGroup Meeting for Mozambique Maputo, September 23-24, 1998 Statement by the Governorof the Central Bank' HE Adriano Maleiane Governor Mr. Chairman Lad,iesand Gentlemen, to start by joining the previous speakers in wishing you a pleasant stay in our country. I wvish At th- meeting of the Consultative Group last year, the Governmentannounced to the international community the main objectives of its economic policy for 1997,emphasising macro-economic stability and the structural reforms started more a decade ago. The economic performance indicators presented earlier, together with the growth in inflows of foreign capital, illustrate well what has been accomplished in creating an enabling environment for business. In 1997, the overarching goal was to monitor the liquidityof the banking system in order to maintain pric' stability. Measures geared to creating the basis for a gradual transition to indirect instruments of monetary control were also implemented. Since 12 months have elapsed from the start of the inter-bank money market, there's been an increased volume of operations, coupled with an increase in the sophisticationof instruments and improvementsin the regulatory framework. From January of this year, net domestic asset ceilings, the main monetary control instrument,were set on a six months basis rather than on a quarterly basis. These efforts are geared at gradually abandoning direct monetary control. During this period, the rate of required reserves underwentsignificantchanges, as we sought to match it with the liquidity managementpolicy of the bankingsystem. Currently, reserves are at 9% in rea! terms, which is the lowest level since introduction. Domestic credit to the economy increased by 57 %, of which 19 % was in the agricultural sector and 29 % in industry. This reflects the policy, whereby a restrictive monetary policy translates into allocating scarce resources to the most dynamic and productive sector; those capable of yielding high returns and having a positive impact on employmentand exports. We progressed in reforming the financial system. In 1997,the last state owned bank was privatised, the Banco Popular de Desenvolvimento. New proceduresand instrumentsof prudential management were introduced, which will contributeto greater efficiency of the financial system. The country remains open to the entry of new banks: Currently we have seven commercial banks, an investment bank, a leasing company, a credit co-operative,four offices of foreign banks, twenty exchange bureaux and four insurance companies. Thisisan English fromtheoriginal translation givenbytheGovernor statement entitled in Portuguese, de Financiamentos." "Necessidades  57 Annex IX In 1997, the foreign exchange Northern Regional Branch of the Banco de Mocambiquewas opened in Nampula and this has contributed to lowering transactioncosts of commercialbanks and to the establishment of a wider payments system in the country. Likewise, headway has been made in legislative reforms. The new Financial InstitutionsLaw was approved by the Cabinet and will be submitted to the next sessionof Parliament and will, for example, provide for a faster licensing of credit and financial institutions and grant more oversight powers. Regulations regarding the regulationof group purchase companies and venture capital firms will both be submitted for approval by the Cabinet. The new law regarding check use is already in force. The Cabinet recently approved a regulation regarding credit activity by individuals and companies, with the objective of providing micro-credit services. This is an important instrument to re-establishthe rural commercial network, particularly rural shops, to market agricultural surpluses, and to create micro-projects. At the 1996 Consultative Group meeting, we made an appeal to the internationalcommunityfor wider acceptance of the new and more efficient system of allocating external funds. This system includes quicker disbursement procedures,registrationand sales to commercialbanks of the external funds allocated to our country, the generationof local currency and its allocation to the general State Budget, and rules for procurement, auditing and monitoring. Today, we note with satisfactionthe fact that more than 77% of donors and multilateral institutionsthat supportthe Balance of Payments have adhered to this system. This has contributedto a more active inter-bankforeign exchange market and has increased transparency in the use of foreign aid. In order to improvethe programming and management of foreignaid, it is necessary that Balance of Payments support funds be pledged on a multi-year basis and that the procurementprocess conforms with the foreign exchange management system. From this perspective,we welcome the new methodology for the management of these funds, outlined in the document which is being circulated to the donor community represented in this hall. Regarding external debt, the Addendum signed on May 25, 1998, and the Minutes of November 1996, widens the discount from 67% to 80% and integrates in the 5 th reschedulingpart of the debt already rescheduled in the 4 th rescheduling exercise. Let me take this opportunity to thank the Bretton Woods institutions, and other bilateral and multilateral institutions, for their support in the qualificationprocess of Mozambiqueto the HIPC initiative, which took place in April 1998. After completing the requirementsof this assistance, Mozambique will benefit from debt reduction of about $1.4 billion, starting in June 1999. It is worthwhile emphasisingthat in view of the magnitudeof this debt relief, my country will be able to reallocate public spending toward social sectors and thereby further sustain macroeconomicstability. Mr. Chairman Ladies and Gentlemen Regardingthe $596 million funding requirements submitted in 1997,we are delightedto note about 98% financing of our Balance of Payments. Mention should equally be made of the fact that while we requested an amount of $335 million, the donor communityfinanced $355 million.  58 AnnexIX Our economic program for 1998provides for consolidatingmacro-economicstability, while continuing to correct internal and external imbalances,the growth of savings and investments,and continuing to control inflation. As far as the management of the monetary policy instrumentsis concerned, we have been consolidating the implementationof indirect control mechanisms. And, within the framework of external debt, we continued negotiationsand conclusion of bilateral debt rescheduling agreements with Paris Club creditors, and other parties. We shall continue to work together with our bilateral and multi-lateral creditors towards benefiting from debt relief so that we may reduce its heavy burden on external and budgetaryaccounts in the short, medium and long term. Despite the results in 1997and the internal efforts made during the first semester of 1998, we will continue to need financial support from the InternationalCommunity. Accordingto Balance of Payments forecasts,the overall financing requirementsof the economy for this year are around $1.8 billion, and $1.4 billion for 1999, including external debt relief. In these fora, it has been our tradition to specifically address issues pertainingto flows from official aid we would like to obtain from the donors represented here. In this connection, for current year, the estimates are $605.5 million for investmentsand recurrent financing of the economy, of which $262.3 million are concessional credits and $344.2 million are grants. By the end of the first semester, the official aid we received amounted to $239.4 million, of which $137.7 million were grants and $101.7 were credits. For 1999,the financing needs total $570 million, of which $198 million are concessional credits and $372 million are in grants. At the same time, we anticipate financing from private sector direct flows to reach $533 million with some $273 million from foreign direct investmentsand the remaining$260 million from credits to the private sectorwithout official guarantees. Additionally,we would like to receive from the donor communityfinancial resources worth some $74.4 million for the external debt relief fund, and some $25 million for the rehabilitation of the rural trade network and support for rural economic rehabilitation. These funds will be managed by appropriate financial mechanisms with the involvementof the private sector and the other partners. We are confident that from this meeting new support initiativeswill emerge against the backdropof our past fruitful relationshipand also against the backdrop of mutual trust we have been able to build. On a closing note, I wish to thank the Bretton Woods institutionsfor their valuable contributionin convening this very important meeting and for the' efforts which, for more than a decade now, we have beenjointly developing and successfully involvingthe donor and creditor community in Mozambique's economic and social recovery. Thank you very much.  59 AnnexX ConsultativeGroup Meeting for Mozambique Maputo, September 23-24, 1998 Statementof FinancingRequirements by The World Bank ExcelentissimosSenhores e Senhoras, bom dia. Many of you have pointed out the progress achieved so far. Mozambique's performance is indeed worth emphasizing, as these results show that the Government's reform efforts, coupled with the support from the internationalcommunity,are paying off. In 1997, continued macroeconomicstability,external support, and favorable weather led to broad- based, double-digit growth. The external account deficit narrowed by almost eight percentage points since 1996, to 9.6 percent of GDP in 1997. For 1998, we expect overall positive results, with the continuation of macroeconomicstability and the economy continuing to grow at over 8 percent. The country's external position may show some volatility over the near future, as construction of large, lumpy investmentstakes off. Early estimates indicate that the external account deficit may worsen in 1998, with first quarter imports increasing almost 10 percent over the same period in 1997. This increase in imports may already reflect the start of large investment projects, such as Mozal. In 1998,exports are expectedto grow as a share of GDP, although not as rapidly as imports. Private investmentis expectedto continue growing, reflecting improved confidence in the economy.And for the first time since we started reportingto you on Mozambique eleven years ago, the country's external position will be viable after debt relief is provided under the HIPC initiative. In light of Mozambique's externaland fiscal vulnerability, debt relief will be instrumental in resolvingthe debt overhang problem and thereby permitting the people of Mozambiqueto share more fully in the benefits of rapid economicgrowth. We need to continue joint efforts to ensure that these good prospects are fulfilled and that Mozambique's external position remains viable after HIPC debt relief. To that effect, we encourage the Government to continue implementingpolicies aimed at maintaininga stable macroeconomic environment, including prudent and equitable fiscal policies, close supervisionof the financial sector, and maintenance of a sustainableand competitiveexchange rate. As you are aware, the Government is implementinga numberof reforms in the fiscal area. During 1997 and 1998, a medium-term fiscal framework was developed and is being adopted,the budgetary process is being improved, and the tax and trade system is being rationalized.We would like to reiterate our support for this work, as it contributes to not only a more sustainable fiscal position but also a much improved and increasinglytransparent budget management, including its domesticand externally financed components. Ultimately,these reforms will allow the Governmentto ensure that priority programs such as those in health, educationand roads, among others, can be sustainedand expanded over the medium term. Managementof balance of payments support has also continued to improve over 1997 and early 1998, which has been greatly facilitatedby the increpsedavailabilityof  60 AnnexX "untied" external funds and use of simplified disbursementprocedures. We would encourage donors who have not yet done so, to adopt these more liberalizedprocedures. Over the years, Mozambiquehas enjoyed strong financial support from all of us, starting in the difficult period of emergency aid, to the post-conflictyears, and now to this developmentphase. Correspondingly,the composition of external aid has changed to match the country's changing needs. Food and emergency aid have declined and balance of payments support, debt relief, and more recently sector expenditureprogram financing have increased. The improved managementof domestic and donor resources brought about by the budgetaryreform will continue facilitatingthis shift. We would like, therefore, to support the Government's request that our partners continue to move towards medium-term financing plans through mechanisms such as the Government's sector expenditure programs. Over the short and medium run, Mozambique will continue to have substantialexternal financing needs. These will continue to reflect substantial external current account deficits, as well as debt service obligations. For 1998, the balance of payments financing needs are expectedto increase, due to a faster growth of importsrelative to exports. External financing needs before debt relief amount to about US$1.8 billion in 1998 and US$1.4 billion in 1999. Private sector financing is projected to continue increasing and contribute US$250 million in 1998and US$530 million in 1999 to the country's financing needs. Multilateraland bilateral grants and credits, including IDA's interim debt relief prior to the completion point, are projected at US$610 million in 1998 and US$570 million in 1999. The remaining financing gap is projectedat US$900 million in 1998 and US$300 million for 1999 and is expected to be covered by multilateral and bilateral debt relief, including assistance under the HIPC initiative. We understandthat, for many donors, firm financial commitmentsfor 1999 are not possible at this time, as budget discussionsare still taking place at the national level. However,we would like to highlight the importance of continuing financialand technical supportto Mozambique,and to work towards increased effectivenessand sustainabilityof the programs we finance. All of Mozambique's development partners will thus continue to have an importantrole to play in supportingthis country's development program,while continuing our joint efforts towards a reduced reliance on external aid. Muito obrigada.  61 AnnexXI Chairman'sClosing Statement Mr. Callisto Madavo Vice President, Africa Region It is time to bring this ConsultativeGroup meeting for Mozambiqueto a close. Let me begin by thanking all of you for your participation and for the openness with which we have been able to conduct these discussionsover the past two days. I especially want to thank Prime Minister Mocumbi and his colleagues for their clear presentations and candid responsesto the issues that have been-raised. There is no question that this meeting has been a big success. I also know I speak for all of us -- Mozambique's cooperatingpartners -- when I thank the Governmentfor its hospitality in hosting this meeting in Maputo. It gave us a chance to see and appreciate for ourselves many of the themes we have discussedover the past two days as well as an opportunityto get to know each other better. This CG meeting marks another step in our partnership.From what we called the CG of good intentions in 1995, we progressed to the CG of accountabilityin 1996, and to the CG of accomplishments in 1997. In that spirit, this meetingcan be termed the CG of sustainability.As Prime Minister Mocumbi said yesterday, the Mozambicaneconomy is strong and flourishing,and a firm basis for development has been established. But, as he also acknowledged,and as has been echoed by several others in our discussions,the challenge is now to sustain this growth and ensure that its benefits are broadly shared. We all agreed that the economic successesof the recent past reflect the commitmentand dedication of this Governmentand the Mozambicanpeople. As summarizedat the outset by Minister Salomao in his excellent statement, growth has been vigorous with a near-doublingof real GDP since the war ended. Inflation is now in singledigits and external imbalanceshave fallen sharply in the last two years. Macroeconomicstabilityhas been combined with structural reforms that have encouraged private enterprise and openedthe economyto trade and capital flows. And, social sector expenditures have increased both in absolute terms and as a share of total spending. This commitmentto far-reaching economicreform has been recognized in the decision by the internationalcommunity earlier this year to provide debt relief to Mozambiqueunder the HIPC initiative. But many of you have also reminded us of the unfinishedagenda. Mozambiqueis still one of the poorest countries in the world and its social indicators are grim. And, the -rapid growth of recent years has only scratched the surfaceof widespreadpoverty. With growth now a reality, and sustainable growth a distinct hope, I think we would all agree with H.E. Brito e Cunha that the primary challenge is to ensure that the fruits of growth benefit all Mozambicans,and particularlythe poor. A theme I heard resonate throughout this meeting was that growth needs to be balanced and broad-based.And as Mr. Cedergren said, balancedgrowth has many dimensions:urban/rural; regional; and gender, among others. One thing is clear to all of us. For growth in Mozambiqueto be broad-basedand poverty-reducing,agriculture must grow. Minister Salomaopointed out that 82 percent of the poor  62 AnnexXI live in rural areas with the vast majority relying on smallholderagriculture. It is, therefore, not surprising that many of you stressed the importanceof policies and programs aimed at improvingthe welfare of the rural smailholder -- roads to ensure access to markets, and extension services to improve yields. Therefore, it is importantthat PROAGRI,the Government'sagriculture sector program, is being designed with a view to enhancing productivityand production, and lowering costs for these smallholders. In addition, for smallholdersto benefit from and to invest in agriculture, security of land tenure is key. In this regard, Minister do Rosdrio's statement about the regulations for the land law, including that the regulations would be implementedin a way that recognizes communal rights of tenure, was welcome. Needless to say, growth outside agriculture will also be important.The challenge here, as several of you indicated, will be how to harness the fast growth in other sectors so that it improves the livelihood of the average Mozambican. Growth in labor-intensiveservices, manufacturingand industry can createjobs and generate incomes.In particular, small and medium scale enterprises -- many quite small indeed -- must play an increasing role as the engines of growth. Many participants encouraged the Government to use fiscal policy to tap the "mega projects" so as to spread the benefits of growth more evenly. More generally, the Governmenthas an important role to play in increasing social expenditures and redirecting them towards the poor. Access to educationand health care remain poor. On average, a Mozambicanmust still travel 46 km. to see a doctor and 66 km. to reach a secondary school. In addition, as Ms. Cullen stressed, the quality of education and health care also need to be improved.The health sector program that is in place and the educationsector program under preparation are, therefore, critical areas for our cooperation,and we must work hard to see that they succeed. But we must also heed Mr. Storlokken's caution that expansionin these sectors needs to be sustainable. Sustainable growth, and indeed even the gains we have achievedto date could be seriouslyat risk if we do not act quickly to address the threat posed by the spread of HIV/AIDS.Let me add my personal plea as well as that of the World Bank to those of Mr. de Casterle and several others who urged urgent action on this front. In this respect, we appreciated the Minister of Health's strong statement of commitmentto combat this disease and we support the Government'smultisectoral HIV/AIDSprogram. As Mozambique'spartners, we should all make a particular effort to evaluate the effect of HIV/AIDSin reviewing all our projects and programs, and in particular with respect to the sectoral programs. We will need to take stock of our progressat the next CG meeting. Alleviating poverty and improving the welfare of the Mozambicanpeople is our overriding objective. I don't think this can be said often enough. We recognizedonce again during the last two days the pressing need for information,analysis, and monitoring of poverty and welfare indicators. Many participants stressed the importanceof completingand disseminatingthe Government's Poverty Assessment in a timely fashion. These results will be important in formulatingthe Government'sPoverty Action Plan, recasting its social safety nets, developing a monitoring system of key social and poverty indicators, and improvingthe focus and targeting of sectoral programs. In this regard, the data from the new national household survey that were included in the Government's presentation whet our appetite to know more. Severalpartners encouragedthe Governmentto disseminatethese findings broadly.  63 Annex XI The issue of govemance was also a recurrent theme throughoutour discussions.As Minister Salomao put it eloquently, "we are not specialists in creating a democracy.But we are learning. And our determination is genuine to go forward on this road." And he emphasizedthat the Government intends to reform the electoral law to ensure that next year's electionsare free and fair, and to carry out constitutional reforms in a way that ensurestheir broad acceptance by all Mozambicans.Many of you offered assurances of support for these activities, and I know that many of you want to underline the importance this holds for the nation's future. But, as Ms. Derryck neatly put it, "one election does not a democracy make." For a democracy to work, people must not only be able to choose their government,there must also be the means for that government to deliver on its promises. The Government'saim is to transform the public sector from one that provides goods and servicesto one that facilitatesthe work of the private sector while still providing vital public services. In this, civil service reform is a critical ingredient. A number of you noted the progress the Governmenthas made in reforming the civil service since we discussed this topic last year. The first of two salary decompressions,linked with the new career and remuneration systems, was an important first step. MinisterGamito's presentationhelpfully took our discussion to the next stage. He broachedthe more challengingand longer-termplan. This includes changing the attitudes of the civil service, enhancing the capabilitiesof its members through education and training, and reorienting and motivating the civil service to be responsive to citizens and deliver a higher quality of service. In addition, the government'sprogram to decentralize responsibilitiesto the provincial and municipal levels will enhance its responsivenessto the needs to the population. It is clear from the structuresthat the Governmentis putting in place to manage these issues that it knows that tackling them will need careful planning and a long term approach. Our conversation over the last two days also dealt with the improvedmanagement of public expenditures, and this too is a central feature of public sector reform.Many of you welcomed the Government'smedium term expenditure frameworkthat will link the macroeconomicframework with sector programs so as to make possible more appropriate inter-sectoralallocationsthat are in line with priorities. At the sectoral level, you reaffirmed your support of sector-wideapproaches that reduce the number of individual projects, thereby strengtheningthe Government'sability to take the lead in managing its programs. At the macroeconomiclevel, the medium-term expenditure framework supports these efforts by directing resourceallocations more flexibly and ensuring sustainability by matching expenditure decisionswith revenues.Another aspect of an improved expenditure framework is effective budget management.But, there is still a need to complement these efforts. In particular, as Mr. Moore mentioned, better implementation,along with better accounting and auditing practices are needed to increase the efficiency,transparency and accountability of public expenditures. While we spoke about public expenditures and reform, concerns about corruption emerged during our discussion. I think many of us joined in commendingthe Governmenton its actions to curb corruption while urging it to redouble its efforts. The reforms of the public sector,which include reducing bureaucracy and simplifying procedures,will be a central component of those efforts. As some of you suggested, corruption is also linked to capacity, human and institutional.A weak and under-staffedjudicial system, an inadequatelytrained police force, and poor dissemination and understandingof the law all contributeto the conditionsthat encourage, or at least do not  64 Anne XI discourage,the abuse of power. Better training, greater transparency,more accountability,and better working conditions for civil servants together will help to eliminatethe opportunity and the desire for corruption. As Mr. Drummond reminded us, less corruption, less red tape, better services and a more efficient public sector are fundamental to an enabling environmentfor private sector development, particularly for the small and medium enterprisesthat are the real engine for broad based growth. A growing economy, led by the private sector, is Mozambique'sbest hope for eliminatingpoverty. While we all recognized Mozambique'saccomplishmentin restoringmacroeconomic stability, many speakers stressed the need to remain vigilant in these turbulent times if these achievements are to be sustained in the longer term. One aspect that was touched upon was the management of the exchange rate. Some partners, includingMr. Reitmaier of the IMF, noted the recent real appreciation of the metical and the need to safeguardMozambique'sexternal competitiveness. The Governmentand its partners also recognizedthe need for Mozambiqueto reduce its dependency on external assistance as another aspect of sustainabilityin the longerterm. In addition to improvingexpenditure management, which I have already mentioned,this will require the delivery of HIPC debt relief. I hope we will all continue working together to ensure that this happens by June 1999. Reducing aid dependency will also hinge on mobilizing additional domestic fiscal resources. The increase in revenuesthat have resulted from recent improvementsin customs administration is encouraging in this regard. Vigorousprivate sector growth will also help provided exemptions are minimized. Several speakers noted the need for the Governmentto ensure that planned mega-projects yield commensuratefiscal revenuesand result in a broadeningof the tax base. The Government assured us that it was examining its tax and revenue structure and prospects in a comprehensivefashion. As part of its plans in this area, the Governmentreiterated its intention to implement the VAT by April next year. Let me turn now to our partnership and how we might make it even more effective in assisting Mozambique. Sector programs illustrate one aspect of this partnership. Several partners indicatedtheir support for this approach, including some who have shifted their financing towards sector programs. But as Mr. Moesby stressed, the Governmentneeds to improve its financial control and auditing capabilities.Many of you also acknowledgedthat the donors in turn will need to improve the coordinationof their sector programs and harmonizetheir proceduresand approaches. These programs are an aspect of our partnership that both the Governmentand its partners will need to improve. This CG meeting representsanother aspect of our partnership. Mr. Frieden's intervention during our discussionyesterday of "topping up" in the context of the Government'sPublic Service Reform Program showed that we are moving in this forum towards greater frankness in our discussions.A number of you endorsed Mr. Houliston'ssuggestionson how to improve the CG process at this stage of our partnership.These suggestions included greater informalityin our proceedings and an increased focus on policy implementation.I propose that over the next few months we think about these and other options for making the CG process more effective.  65 AnnexXI Turning to financing, this meeting has not compiledthe commitments of donors,since those are now compiled locally. However, based on the statements at this meeting, I expect that the projected financing needs (excluding debt relief) of $606 million for 1998 and $570 million for 1999 will be met provided the Government continues to successfullyimplement its reform program. Now, I would like to thank the translators for their contributionsto our proceedings. We are all grateful to the Maputo office of the World Bank, which went far beyond the call of duty in organizing this meeting. I also want to thank the Bank team from Washington for their dedication and hard work. Let me add a personal note. This CG will be Mr. Carvalho's last as the Bank Group's Executive - Director for Mozambique. Joaquim has been an untiring advocate for Mozambique and more generally for Southern Africa at the World Bank, and I want to thank him for his advice, efforts, and friendship with all of us at the Bank. Finally, I would like to say how much I enjoyed chairing this CG in this beautiful city. And, on behalf of all of us, I would once again like to extend our heartfelt thanks to our hosts, and especially to the Mozambican Governmentteam who worked hard to make this a great success. With that I close this eleventh ConsultativeGroup meeting for Mozambique. This meeting is now officially adjourned but our work will continue after lunch at the sessions with representatives of NGOs and the private sector. These sessions will be chaired by the Government,and I now will hand over the gavel to Minister Salomao.  66 Annex XII Embargo 24 September 1998 The World Bank Resident Mission,Av. Kenneth Kaunda 1224,MNaputo, Mtozanbique Coates Contact:-Jim (258)1 492-851/61/71 DaleLautenbach(1)202-473-3405 MOZANIBIOUE PLEDGES CONTINUED GROWTH AND COMMfIT`lENT TO REFORN NLA.PUTO, September 24, 1998. -- The eleventh Consultative Group meeting of the Government of Mozambique and its international development partners was held in Maputo for the first time, with the Government playing host to 37 bilateral and multilateral agencies on September 23 and 24. Mr. Callisto Madavo, Vice President of the Africa Region of the World Bank, chaired the meeting. The Mozambican Delegation was led by H.E. Dr. Pascoal Mocumbi, the Prime Minister, and included H.E. Tomaz Salomao, Minister of Plan and Finance, H.E. Aifredo Gamito, Minister of State Administration, H.E. Adriano Maleiane, Governor of the Bank of Mozambique, and other prominent members of the Mozambican Government. The Consultative Group meeting focused on the challenges of sustaining growth in Mfozambique,promoting good govemance, and ensuring that the benefits reach the poor. Participants also held discussions with representatives of the private sector and non- governmental organizations. An Emerging Success Mozambique's economy grew at more than 12 percent in 1997. This makes it one of the fastest-growing countries in the world. Enduring peace, sound economic policies, and the continuing support of the international community have combined to produce low inflation and broad-based growth. In recent years, Mozambique has carried out a wide array of economic reforms and has attracted the interest of intemational investors. Construction of several large projects has begun and more are on the drawing board, as well as many smaller investments. Mozambique's international partners applauded the reforms and congratulated the Government on its sound economic management and performance. The Challenge of Broad-Based Growth Participants recognized that the foremost challenge in the years ahead is to spread the benefits of development to the nation's poor. The development partners encouraged the Government to continue reforms, especially efforts to increase implementation capacity and fiscalreforms aimed at increasing revenue and sharpening spending decisions. Mozambique remains one of the poorest countries in the world with close to 70 percent of its citizens livingbelow the poverty line. Poverty is particularly severe in rural areas, where access to social services is limited. On average, a Mozambican has to travel 46 kmn to find a doctor and 66 km to reach a secondary school. Meeting participants supported Mozambique's efforts to develop multi- year sector programs, focusing on critical needs such as health, agriculture, water, roads and education. A number of these programs focus on women: in education, for example, a special  67 AnnexXII drive will begin shortly to increase school enrollment among girls. These sector programs will bring together the efforts of Government, various international development partners and civil society in the delivery of services to and supporting initiatives of poor communities throughout the country. Development partners expressed a willingness to review their procedures to assist this joint effort. This kind of broad-based cooperation among Government, international development partners and citizens was also seen as fundamental to the battle against major health problems, including malaria and HIV/AIDS. An estimated one million Mozambicans are infected with the HIIVvirus. Consultative Group members emphasized the importance of supporting the Government's existing program and assessing the impact of {IIV/ATDS in the design of all new projects. Continuing Reformrs Participants agreed that an efficient public sector was critical to the Government's ongoing efforts to reduce poverty and stimulate rapid growth. Continuing civil service reform, eliminating red tape, and accelerating regulatory, legal and judicial reforn are all central to creating a transparent justice system and a business-supportive environment for small entrepreneurs and global investors alike. Mozambique's development partners underlined the importance of the Government's continuing efforts to establish clear rules of the game, increase transparency, and combat corruption. These reforms, in conjunction with Government plans for decentralization and local capacity building, will also benefit the average Mozambican citizen. The development partners recognized the commnitmentof the Government of Mozambique to build a sustainable democracy. There was a consensus that ongoing legislative and constitutional reform and the preparation and conduct of next year's national elections present opportunities for further progress towards this goal. The importance of consensus-buildingon electoral procedures was emphasized. Mozambique's Financing Needs Met Mozambique's official financing needs for 1999 are estimated at US$570 million, excluding debt relief. Based on the discussions during the CG meeting, and the Mozambique's Government's commitment to continue the implementation of its reform program as highlighted during the meeting, international development partners are expected to fully meet the country's 1999 financing requirements. (In recent years, international aid partners have financed over 50 percent of the Government's annual budget.) Mozambique also qualifiedfor nearly US$3 billion in debt relief in April this year under the Heavily Indebted Poor Countries Initiative. It is expected that Mozambique will successfully complete the requirements and receive the expected relief by the end of June next year. Membersof the ConsultativeGroupattending the meeting were Austalia, Austria,Belgium,Brazil, Canada,Denmark, Finland,France, Germany,Ireland,Italy,Japan, the Netherlands,Norway,Portugal,Spain,Sweden, Switzerland, the United Kingdomand the United States. Also representedwere the African Development Bank, the Arab Bankfor EconomicDevelopmentin Africa (also representingthe Kuwait Fund for Arab EconomicDevelopment), the European Commission, the EuropeanInvestient Bank, the Food and Agriculture Organization, Finance the International Corporation,the International Fund for AgriculturalDevelopment,the InternationalMonetaryFund,the Nordic DevelopmentFund, the Organisationfor EconomicCo-operationand Development, the UnitedNations Children'sFund, the UnitedNations DevelopmentProgram,the World Bank, the World Food Programand the WorldHealth Organization. SouthAfica and the Russian Federationattendedas observers.