FIRST SUPPLEMENTARY MEMORANDUM SUBMITTED
BY THE DEPARTMENT FOR INTERNATIONAL DEVELOPMENT
MOZAMBIQUE
Thank you for your letter of 14 March following
on from the Select Committee hearing of the same date.
I am setting out the answers to your questions
in numerical order. I have added some points on our assessment
of the performance of USAID, which although not mentioned in your
letter, was raised at the hearing itself. Similarly, I have added
a note on Mozambique's domestic deposits.
1. The performance of ECHO
Following the second, and most severe round
of flooding, ECHO deployed an experienced humanitarian affairs
specialist from their regional support office based in Nairobi
to support the existing EC staff in Maputo.
On the basis of a detailed needs assessment
ECHO has developed a response to the flooding involving the funding
of a range of NGOs (including national societies of the Red Cross)
and a contribution to UNICEF to re-equip health facilities in
Gaza province. In total the proposed ECHO response is in the order
of 8.25 million euros over a six month period and is targeted
at providing assistance to approximately 100,000 of the most vulnerable
people affected by the flooding. Of this total 1 million euros
has been ring-fenced as a contingency fund to tackle any major
outbreaks of cholera which may arise in the near future.
The DFID mission had a meeting with the ECHO
representative together with a member of the EC development programme
staff in order to assess their contribution to Mozambique.
ECHO has drawn up a strategy, with a clear focus
on the stabilisation of affected people (both in accommodation
centres and in the wider community), and the subsequent re-settlement
phase. The planned support to be provided by ECHO is in accordance
with DFID's own assessment of sector and geographic needs and
priorities.
The ECHO representative confirmed that, as at
10 March, no funds had been physically disbursed to implementing
partners. The conclusion of contracts for the funds ear-marked
for Mozambique is still underway; in the meantime ECHO is relying
on NGO pre-financing arrangements to ensure quick start-up of
activities.
In summary, ECHO has developed a strategy for
the flood affected population in Mozambique but the timeliness
of this assistance depends upon the capacity of ECHO's implementing
partners to pre-finance relief activities. The impact of ECHO
funding will become more apparent in the longer-term rehabilitation
phase.
2. The performance of USAID
USAID has a very substantial long-term aid programme
in Mozambique and had operational activities in a variey of sectors
prior to the flooding, particularly in rural livelihoods and road
construction. The DFID mission had a meeting with the USAID Deputy
Head of mission together with an advisor from the regional Office
for Disaster Assistance (OFDA) in Nairobi to assess their contribution
to Mozambique.
To date USAID has given US$1.8 million towards
the immediate relief operations and has a further US$8 million
pledged for the on-going stabilisation and resettlement phase.
USAID are planning to follow through with large-scale funding
for rehabilitation work, with an emphasis on integrating this
with their existing pre-flood programmes.
In addition to this financial support, USAID
deployed a number of OFDA team members during the initial stages
of the operation to help establish the air logistics cell under
the auspices of the UNDAC team. USAID also provided a valuable
contribution through the funding of a specialist NGO, "AirServe",
which provides light aircraft and helicopters at non-commercial
rates to assist in the search and rescue and reconnaissance flights
over affected areas.
In summary, USAID has provided timely contributions
to the relief operations in Mozambique. It is likely that the
relatively limited financial contributions made to date, will
increase substantially over the next several months.
3. Helicopters
The attached table provides details of helicopter
and fixed-wing aircraft which have been active throughout the
unfolding crisis in Mozambique. In addition to the helicopters
contracted by DFID, the UK made a US$1million contribution towards
the operational costs of the South Africa Defence Force helicopters
which were operational from the initial search and rescue phase.
The table shows the type of aircraft, arrival
and departure dates and, in the case of the helicopters, whether
or not they have winching capacity. For certain aircraft the exact
withdrawal dates have yet to be confirmed as this is partially
dependent on conditions on the ground and the extent of the rains
which are expected until the end of this month.
In addition to the 44 medium and heavy lift
helicopters listed in the table there have been a varying number
of much smaller helicopters used for reconnaissance work, moving
field staff and those hired by international media teams. It is
estimated that there has been a total of between 15 and 20 of
these much lighter helicopters operational at any one time during
the response to the crisis.
4. Supply and service agreement
The Ministry of Defence does not supply a continuous
service of the kind for which Government Accounting most readily
applies. Our use of MoD services is inherently irregular and unpredictable,
and MoD has made it clear that they will propose costs on a case-by-case
basis depending, for instance, on the training value of a particular
operation. It is then for DFID to judge whether to commission
MoD resources in the light of all the circumstances; if we do
so, the financial relationship between the Departments is governed
by an exchange of letters.
5. External Debt
Bilateral debt accounts for the majority of
Mozambique's debt, and most of this is owed to the members of
the Paris Club of official bilateral creditors. Mozambique first
approached the Paris Club in October 1984 for assistance with
its debt. It has made six visits to date, agreeing debt reschedulings,
and on later occasions receiving reductions in its debts, including
under the original HIPC framework.
Following the flooding, Mozambique's creditors
have looked for ways to provide exceptional assistance on its
debt payments to free up resources for reconstruction and rehabilitation.
The Paris Club creditors have just announced that they will forgo
all Mozambique's debt payments until Mozambique reaches Completion
Point under the revised HIPC, which is expected to be early in
2001.
Without HIPC debt relief, annual service payments
to Paris Club creditors would have been between$70 million and
$80 million in the period 2000-08. Following relief under the
original HIPC framework, payments due have fallen to $40-50 million
over this period. HIPC2 will reduce the payments to Paris Club
further, but by less than $10 million a year. This is because
of the high level of debt relief already provided on pre-cut-off
debt, and because there is significant post-cut-off date debt;
the cut-off-date is February 1984. The significance of the cut-off
date is that once a country has received debt relief it is not
normally eligible for relief on debts taken on subsequently.
Mozambique has been making no payments to Paris
Club creditors on its pre-cut-off-date debt since last July, when
its HIPC debt relief was agreed, as it was anticipated that Mozambique
would soon return to agree its additional relief under the revised
HIPC initiative. Mozambique have, over this time, been servicing
the post-cut-off date debt.
Mozambique is expected to receive a further
$250 million in debt relief under the revised HIPC framework.
Its Decision Point is expected to be at the beginning of April—Board
meetings are scheduled for 6 (World Bank) and 7 (IMF) April. Its
Completion Point will probably be set for early next year—to
allow the Government of Mozambique sufficient time to consult
on their draft poverty reduction strategy.
Multilateral creditors—the World Bank
and IMF are the main multilateral creditors. They are both looking
to provide heavily front-loaded relief under the enhanced HIPC
initiative. The World Bank will propose to their Board that Mozambique
makes no debt service payments in the first year. Other multilateral
creditors are relatively minor; of these we understand that the
African Development Bank is planning to provide interim relief
to Mozambique.
Multilateral debt service payments were around
$74 million a year before HIPC, falling to less than $20 million
in 2000 and 2001 after debt relief under the original HIPC initiative.
Assistance under the revised framework will decrease these payments
further.
The total effect of HIPC 1 was to reduce Mozambique's
annual debt repayments from $160/170 million to $60/70 million
in the period 2000-08. The share of government revenue spent on
debt servicing was expected to reduce from 25 per cent in 1998
to 10 per cent by 2005.
Additional action by bilateral creditors—the
Government cancelled Mozambique's aid debts of £21.8 million
in 1983. The remaining debt to ECGD is £9.5 million and is
all being written off. Part of this will be the UK's share of
the additional debt relief to be provided to Mozambique under
the revised HIPC initiative; the balance is being relieved under
the unilateral 100 per cent debt relief policy announced by the
Government in December 1999. Mozambique will make no further payments
to ECGD. France, the US, Canada and Sweden have all announced
that they will provide 100 per cent debt relief policies for countries
qualifying HIPCs. Other countries, including Italy and Norway,
have also said that they will take further measures on their bilateral
debts beyond agreed HIPC levels.
6. 100 per cent debt write-off
The Government does not believe it is necessary
for all of Mozambique's external debt to be written off. With
the measures described above and substantial development assistance
to help with reconstruction and long-term development Mozambique
should be able to sustain a high rate of growth and reduce poverty.
Domestic deposits
Although a HIPC country which incurred substantial
external indebtedness, the Government of Mozambique (GoM) is in
the fortunate position of not having net domestic debt. Over the
last few years it has built up a net stock of deposits ("savings")
with the domestic banking system that in early 1999 amounted to
over US$500 million. In previous years donors' budgetary support
exceeded the amount needed to cover the GoM budget deficit. GoM
capacity to spend a larger budget effectively is small but growing.
Until 1999 the World Bank required GoM to sterilise its structural
adjustment loans rather than spend them. The deposits have not
however been idle; they allow higher bank lending to the private
sector to fund the investment necessary for future growth. They
also cushion against fluctuations in donor flows. The size of
these net domestic deposits came to DFID's attention in mid-1999
when a presentational change in the IMF financial tables made
their size explicit. DFID asked the IMF to consider the extent
and rate that which the GoM should draw down its deposit without
undermining macro-economic stabilisation, as a basis for planning
donor budgetary support over the coming years. Meanwhile DFID
scaled back the level of its budgetary support for 1999-2000.
In fact as a result of slower than expected disbursement of other
donors' commitments GoM has drawn on its deposits in the recent
months and the IMF is currently advising that they should not
be drawn down any faster at the present time.
Discussions with other bilateral and multilateral
donors—a number of donor and NGO groups have been established
to look at Mozambique's short-term needs and the EC Heads of Co-operation
are also meeting weekly to discuss the emergency situation. The
World Bank are conducting an assessment of the likely economic
impact on Mozambique and they will be holding discussions, over
the next two weeks, with other bilateral and multilateral donors.
As far as possible, longer-term reconstruction needs will be discussed
within sector groups which were operational before the emergency.
Donors are working towards a conference on Mozambique's reconstruction
to be held in Rome in late April.
7. How will the reconstruction be funded?
Through grants or loans?—all DFID funding
will be on grant terms. We will be encouraging other donors to
provide grants, where their rules permit.
Will the private sector be involved in this
process?—the private sector has given generously to the
relief effort in Mozambique and has been actively involved on
contract to the relief agencies. The World Bank is assessing the
impact of the floods on the Mozambican economy, and will be discussing
with the private sector ways to reduce damage. The private sector
will be actively involved in the reconstruction effort in the
region.
Department for International Development
27 March 2000
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