Document of The World Bank

Report No: 38051

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA 4111)

ON A

CREDIT

IN THE AMOUNT OF SDR 83.3 MILLION (US$ 120 MILLION EQUIVALENT)

TO

THE REPUBLIC OF MOZAMBIQUE

FOR A

SECOND POVERTY REDUCTION SUPPORT OPERATION

January 17, 2007

Poverty Reduction and Economic Management – AFTP1 Environmentally and Socially Sustainable Development – AFTS1 Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of December 1, 2006)

Currency Unit = Metical US$1.00 = 25,250

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

BdPES Balanço do Plano Económico e Social BoP Balance of Payments CAS Country Assistance Strategy CBO Community Based Organization CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CSO Civil Society Organization DPL Development Policy Loan DPT3 Diphteria,Pertusis and Tetanus EC European Commission EP1 Primary School 1 FSA Financial Sector Assessment GDP Gross Domestic Product GNP Gross National Product GoM Government of Mozambique HB Hepatitis B HIPC Heavily Indebted Poor Countries IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICR Implementation Completion and Results Report IDA International Development Association IEG Independent Evaluation Group – World Bank IFMIS Integrated Financial and Management Information System IGF Government Internal Auditor IMF International Monetary Fund INE National Statistics Institute INSS National Institute of Social Security JSA Joint Staff Assessment LDP Letter of Development Policy LOLE Lei dos Orgaoes Locais do Estado M&E Monitoring and Evaluation MDGs Millennium Development Goals MEC Ministry of Education and Culture MIC Ministry of Industry and Commerce MINED Ministry of Education

MoF Ministry of Finance MoH Ministry of Health MoL Ministry of Labor MoP Ministry of Planning MoU Memorandum of Understanding MPD Ministry of Planning and Development MYR Mid Year Review NGO Non-governmental Organization NPV Net Present Value PAF Performance Assessment Framework PAD Project Appraisal Document PAP Program Aid Partners PARPA Action Plan for the Reduction of Absolute Poverty PDO Program development Objectives PEFA Public Expenditure and Financial Accountability Assessment PER Public Expenditure Review PES Plano Económico e Social PFM Public Financial Management PODE Enterprise Development Project PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Plan PSIA Poverty and Social Impact Analysis QAG Quality Assurance Group SDR Special Drawing Rights SICR Simplified Implementation Completion Report SISTAFE Integrated Financial Management System TA Technical Assistance UTRAFE Technical Unit for Public Financial Management Reform UTRAFE Technical Unit for Public Sector Restructuring WB World Bank

Acting Vice President: Hartwig Schafer Country Director: Michael Baxter Sector Manager: Emmanuel Akpa/Richard Scobey Task Team Leader: Gregor Binkert/Jeeva A. Perumalpillai-Essex

Mozambique

Second Poverty Reduction Support Operation

CONTENTS

1. Basic Information 2. Key Dates 3. Ratings Summary 4. Sector and Theme Codes 5. Bank Staff 6. Program Context, Development Objectives and Design 7. Key Factors Affecting Implementation and Outcomes 8. Assessment of Outcomes 9. Assessment of Risk to Development Outcome 10. Assessment of Bank and Borrower Performance 11. Lessons Learned 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Results Framework Analysis Annex 2. Restructuring Annex 3. Bank Lending and Implementation Support/Supervision Processes Annex 4. Beneficiary Survey Results Annex 5. Stakeholder Workshop Report and Results Annex 6. Summary of Borrower’s ICR and/or Comments on Draft ICR Annex 7. Comments of Cofinanciers and Other Partners/Stakeholders Annex 8. List of Supporting Documents

1. Basic Information Country: Mozambique Program Name: First Poverty Reduction Support

Operation (PRSC1)

Program ID: P075805 L/C/TF Number(s): IDA 39500

ICR Date: November 29, 2005 ICR Type: Core

Lending Instrument: Development Policy ending (DPL)L

Borrower: Republic of Mozambique

Original Total Commitment: 60 million SDR

Disbursed Amount: 60 million SDR

Implementing Agencies: Ministry of Finance

Cofinanciers and Other External Partners:

2. Key Dates

Process Date Process Original Date Revised/Actual Date(s)

Concept Review: 02/18/2004 Effectiveness: 09/16/2004 09/16/2004

Appraisal: 03/24/2004 Restructuring(s):

Approval: 07/06/2004 Mid-term Review:

Closing: 06/30/2005 06/30/2005

3. Ratings Summary 3.1 Performance Rating by ICR Outcome: Satisfactory Institutional Development Impact: Substantial Sustainability: Likely Bank Performance: Satisfactory Borrower Performance: Satisfactory

3.2 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if any) Rating

Potential Prob. Program at any time(Yes/No):

No Quality at Entry (QEA): None

Problem Program at any time(Yes/No): No Quality of Supervision (QSA): None

DO rating before Closing/Inactive status: Satisfactory

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4. Sector and Theme Codes

5. Bank Staff Positions At ICR At Approval

Vice President: Gobind T. Nankani Gobind T. Nankani

Country Director: Michael Baxter Darius Mans/Michael Baxter

Sector Manager: Emmanuel Akpa Emmanuel Akpa

TTL: Gregor Binkert Antonio Franco and Johannes Zutt

ICR Team Leader: Gregor Binkert

ICR Primary Author: Maria Teresa Benito-Spinetto

Original Actual Sector Code (as % of total Bank financing) 1. General public administration 65 65 2. General industry and trade 10 10 3. General education sector 9 9 4. General health sector 6 6 5. Banking 10 10 Theme Code (Primary/Secondary) 1. Public expenditure, financial management and procurement P P 2. Regulation and competition policy P P 3. Tax policy P P 4. Infrastructure services for private sector development S S

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1. Basic Information Country: Mozambique Program Name: Second Poverty Reduction Support

Operation (PRSC2)

Program ID: P056201 L/C/TF Number(s): IDA 4111

ICR Date: ICR Type: Core

Lending Instrument: Development Policy ending (DPL)L

Borrower: Republic of Mozambique

Original Total Commitment: 83.3 million SDR

Disbursed Amount: 83.3 million SDR

Implementing Agencies: Ministry of Finance

Cofinanciers and Other External Partners: Memorandum of Understanding( MoU) signatories (G-15)1

2. Key Dates

Process Date Process Original Date Revised/Actual Date(s)

Concept Review: 06/14/2005 Effectiveness: 10/13/2005 10/13/2005

Appraisal: 07/05/2005 Restructuring(s):

Approval: 09/13/2005 Mid-term Review:

Closing: 06/30/2006 06/30/2006

3. Ratings Summary 3.1 Performance Rating by ICR Outcome: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

3.2 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if any) Rating

Potential Prob. Program at any time(Yes/No):

No Quality at Entry (QEA): None

Problem Program at any time(Yes/No): No Quality of Supervision (QSA): None

DO rating before Closing/Inactive status: Satisfactory

1 The G-15 included: Belgium, Denmark, EU, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal,

Sweden, Switzerland, UK and World Bank.

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4. Sector and Theme Codes

5. Bank Staff Positions At ICR At Approval

Vice President: Hartwig Schafer (Acting Vice-President)

Gobind T. Nankani

Country Director: Michael Baxter Michael Baxter

Sector Manager: Emmanuel Akpa Emmanuel Akpa/ Richard Scobey

TTL: Gregor Binkert Gregor Binkert/ Jeeva A. Perumalpillai-Essex

ICR Team Leader: Gregor Binkert

ICR Primary Author: Maria Teresa Benito-Spinetto

Original Actual Sector Code (as % of total Bank financing) 1. General public administration 40 40 2. General industry and trade 30 30 3. General finance sector 20 20 4. General education sector 5 5 5. General health sector 5 5 Theme Code (Primary/Secondary) 1. Public expenditure, financial management and procurement P P 2. Legal institutions for market economies P P

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6. Program Context, Development Objectives and Design

This Implementation Completion and Results Report (ICR) covers the implementation and results of a series of two programmatic operations, PRSC1 which was approved by the Board as a single-tranche operation on July 6, 2004 for SDR 40.9 million (US$60 million equivalent) and PRSC2 which was a approved by the Board as a two- tranche operation on September 13, 2005, for SDR 83.3 million (US$120 million equivalent). The contribution of PRSC1 to the series was already discussed and rated in the Simplified Implementation Completion Report (SICR) dated November 29, 2005 as follows: outcome: satisfactory; sustainability: highly likely; institutional development impact: substantial; Bank performance: satisfactory; and, Borrower performance: satisfactory. The World Bank Independent Evaluation Group (IEG) has reviewed the SICR and agreed with the SICR ratings, except for sustainability which was rate likely instead of highly likely. IEG ratings will continue to apply for PRSC1. This full ICR accordingly rates the contribution of PRSC2 to the results of the programmatic series.

6.1 Context at Appraisal

Mozambique had made considerable progress since the end of the conflict in 1992, maintaining 8 percent average annual growth and successfully fighting poverty, as demonstrated by the 15 percentage point reduction in poverty, from 69 percent in 1997 to 54.5 percent in 2003. Structural reforms were also initiated in Mozambique in the 1990’s, even before war ended. It has reformed the financial sector, privatized most state-owned companies, made progress in trade policy and introduced new tax legislation, among others. It has maintained prudent monetary and fiscal policies in spite of shocks, gradually reducing inflation and allowing for increased spending on roads, health and education.

In July 2005, during the appraisal of PRSC2, available data showed that the recent performance of the economy continued to be positive. Real gross domestic product (GDP) growth was robust at 7.8 percent in 2003, and an estimated 7.2 percent in 2004 (Table 1). The external sector recorded notable improvements, with a 24 percent reduction in the trade deficit mainly due to an increase in exports from the mega-projects. The performance of the financial sector was also positive, as commercial non-performing loans fell from 27 percent to 6 percent of gross loans, indicating a reduction in the risks to macroeconomic stability from the banking sector. The exchange rate which had appreciated by about 25 percent in 2004 had been reversed by May 2005. However, the fiscal performance in 2004 was below expectation across most major categories of taxes with government revenues reaching only 12.3 percent of GDP against the target of 13.4 percent. The investment to GDP ratio was also lower in 2004 reflecting mainly lower private investment as a result of slow down in the mega projects investment phase. The second review (June 2005) of the Poverty Reduction and Growth Facility (PRGF) approved by the International Monetary Fund (IMF) Board in June 2005 concluded that the performance under the PRGF program during October 2004 and Mach 2005 had been mixed, mainly due to the slippages in tax collection. Nevertheless, the review also concluded that prospects for 2005 remained favorable, including for strong growth, further deceleration in inflation and maintenance of a sustainable external position.

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Table 1: Basic Macroeconomic Indicators2

1998 1999 2000 2001 2002 2003 2004 Real GDP growth rate 12.6 7.5 1.5 13.0 7.4 7.8 7.2 Nominal GDP (Mt trillions) 46.9 51.9 56.9 71.1 85.2 113.8 137.4 Nominal GDP (US$ billions) 3.96 4.09 3.63 3.44 3.60 4.79 6.1 Inflation (period average) 0.6 2.9 12.7 9.0 16.8 13.4 12.6 Gross domestic savings/GDP 6.8 9.0 10.6 18.3 15.6 11.3 13.1 Investment/GDP 24.2 36.6 33.5 25.9 29.8 25.9 20.1 External current account balance excluding grants/GDP

-18.9 -28.2 -28.7 -28.1 -24.3 -19.9 -13.9

Fiscal balance before grants/GDP -10.3 -12.7 -13.7 -19.7 -17.5 -14.0 -11.7 Total revenue/GDP 11.4 12.0 13.2 13.3 14.2 12.9 12.3 Total exp. and net lending 21.6 24.7 27.3 34.6 34.1 26.5 23.7 Exchange rate (Mt ‘000: US$) 11.9 12.7 15.7 20.7 23.7 23.8 22.6 NPV external debt/exports (%) 549 212 177 110 92 102 84

Sources: Government of Mozambique, IMF and Bank staff estimates and projections.

In December 2004, Mozambique held general elections. The new President, from the same party as the previous president, was elected with 64 percent of the votes. In March of 2005, the new Government submitted its Five Year Program to Parliament, where it outlined an ambitious reform program to reduce absolute poverty. Subsequently, the operational plan of this five year program, the Poverty Reduction Strategy Plan (PRSP2, PARPAII according to the Portuguese acronym) was approved by Cabinet in 2006.

But despite a sustained positive economic performance, Mozambique remains one of the poorest countries in the world, with GNP per capita of US$ 270 in 2004 and 70 percent of the population still living in rural areas. The Bank had been supporting Mozambique to fight poverty and ensure long term sustainable development since 1984, and since 2001, aligning the objectives of its program in support of the Government’s Action Plan for the Reduction of Absolute Poverty (PARPA) of 2001. The PARPA was updated through a Progress Report in March 2003 and a matrix of priority actions and indicators aligned with the budget planning and execution process, the Performance Assessment Framework (PAF), in April 2004. The PAF was agreed between the Government and the G-15 donors (now G-18) and became the basis for the Memorandum of Understanding (MoU) signed among the same parties, including the World Bank, in April 2004. The PAF matrix provided a framework for policy dialogue and decisions linked to progress in PARPA implementation. Through the PRSC program, the Bank operates alongside the Group of 15 Donors (now G18) providing budget support against progress in implementing actions and indicators identified in the PAF and agreed with all development partners.

6.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The Program Development Objectives (PDO) of this PRSC series were to support the Government of Mozambique’s primary objective of reducing absolute poverty and ultimately

2 This table reflects data available at appraisal of PRSC2. Current revised data may differ from this one.

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progressing towards achieving the Millennium Development Goals (MDGs) by supporting high growth and improving service delivery. The PRSC program would achieve these objectives by supporting implementation of the Government’s PARPA, and by monitoring the completion of specific actions identified in the PAF which would be monitored on an annual basis. The specific objectives of PRSC1 and PRSC2 were common to both operations and they were: (i) building public sector capacity and accountability through strengthening public financial management, decreasing aid dependency, improving monitoring and evaluation (M&E), and accelerating public sector reform; (ii) improving the investment climate through strengthening the financial sector, easing constraints in the regulatory environment, and expanding infrastructure services; and (iii) enhancing service delivery in health, education, and water and sanitation. More specifically, the PRSC series objectives are the following:

1. Building public sector capacity and accountability • Maintaining a sound macroeconomic policy framework: the key objective was to

maintain an adequate macroeconomic policy framework. • Improving public financial management: the key objectives were: (i) maintain near 65

percent the share of direct poverty reducing expenditures in total actual expenditures; (ii) improve the management of public expenditures; and, (iii) realize higher revenues to enable fiscal adjustment.

• Improving governance: the key objectives were: (i) introduce clear, transparent procurement practices leading to few procurement problems and costs; (ii) build local authority capacity in planning, budgeting, financial management to manage decentralized infrastructure for service delivery; (iii) strengthen the regulatory framework for business; and, (iv) higher Government of Mozambique (GoM) capacity to identify corruption issues and develop plans to address them more aggressively.

2. Improving the investment climate • Strengthening the financial sector: The key objectives were: (i) achieve more effective

supervision of banking and non-banking financial institutions, that is, increase capacity of the Bank of Mozambique to regulate and supervise banks and non-bank financial institutions; (ii) move towards more efficient and profitable banks; and, (iii) a complete divestiture of the GoM from the banking system.

• Improving the regulatory environment: the key objectives were:(i) reduce degree of effective protection to local industries; and, (ii) allow for an efficient and flexible labor law, allowing Mozambique businesses to restructure, increase hiring, and profit from knowledge transfers and becoming more competitive.

3. Expanding service delivery. Key objectives for each sector follows. • Education: increase access and retention in primary education and reduce gender

discrepancies. • Health: reduce mothers and infants mortality rate and increase access to basic health

services. • Water and Sanitation: increase access to potable water and adequate sanitation.

6.3 Revised PDO and Key Indicators

The PDO was not revised throughout this PRSC series.

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6.4 Original Policy Areas Supported by the Program (as approved)

The main policy areas supported by this program were public sector capacity and accountability and improving the investment climate. Improving service delivery to health, education and water and sanitation was a third area supported by the original program, but with only one prior action attached to it. The Program envisaged to initially focus on policy dialogue on cross-cutting, fiduciary issues, including governance and public financial management, supporting specific cross cutting actions to strengthen public sector performance and enhance efficiency and effectiveness of the use of public resources. Reforms linked to public financial management included the implementation of an Integrated Financial Management System (SISTAFE), reforming public procurement, implementing revenue-enhancing measures, achieving demonstrable results in the public sector reform program, advancing decentralization to local authorities, and implementing a sound anti-corruption strategy. Some of the actions linked to the investment climate included a new financial institutions law, a new commercial code and a decree to ease restrictions on hiring foreign labor. Although only one action was linked to service delivery in social sectors (keeping public expenditures in priority areas at about 65 percent of total public expenditure) results in this area were positive.

The areas of support of the Program are closely link to the Government of Mozambique’s strategy to reduce poverty delineated in the PARPA. The PARPA emphasizes economic growth, public investment in human capital and productive infrastructure, and institutional reform to improve the environment for private investment. To implement this strategy the PARPA identifies six areas for action: governance, macroeconomic and financial policies, health, education, infrastructure, and agriculture and rural development. The goals, objectives and strategies of PARPA were supported by this PRSC series.

6.5 Revised Policy Areas Policy areas remained the same throughout the period of this PRSC series.

6.6 Other significant changes

The first PRSC series was originally designed as four single-tranche operations to be disbursed over a period of 4 years (FY04-FY07). However, after the appraisal of PRSC1, the fourth operation was dropped as part of the first series because by FY07, a new PARPA would justify the initiation of a second PRSC series. Furthermore, the second PRSC was made an exceptional two tranche credit to harmonize with other budget-support donors and better align with the Mozambique’s budget cycle, and to enhance predictability of budgetary resources. This was also to allow future PRSCs to be based on findings of the annual April /May Joint Review and the September Mid-Year Review. Another reason for the change was to be able to disburse PRSC funds early in the Mozambique budget year to ease the treasury’s cash flow difficulties in the first semester arising from the cyclical nature of tax revenues.

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7. Key Factors Affecting Implementation and Outcomes

7.1 Program Performance

Overall performance of this PRSC series was satisfactory. PRSC1 prior actions were completed by the Government before Board presentation on July 6, 2004. Table 2 below lists those prior actions and shows their “completed” status. Measures to be implemented under PRSC1 included those that would trigger PRSC2. Table 2 also shows those prior actions and their status. Among them, the approval of the new commercial code and the new procurement decree were not implemented on schedule, but were approved by end 2005. E-SISTAFE was rolled out in the Ministry of Finance (MoF) and in all its provincial directorates by November 1, 2004, and direct budget execution in the Ministry of Education (MINED, now MEC- Ministry of Education and Culture) and MoF was completed at end of 2005. The overall assessment of performance by the Government in 2004 was judged to be satisfactory by the Joint Review concluded on May 14, 2005 and PRSC2 was approved by the Board on September 13, 2005. The first tranche was disbursed in October, 2005 for US$60 million equivalent and the second tranche was disbursed on March, 2006 for another US$60 million equivalent, after conditions for the second tranche release were met. The conditions for the second tranche release were chosen as important indicators for the second generation reforms to improve the quality of public financial management, and enhance the institutional environment for accelerated growth and poverty reduction. The second tranche conditions with their status are shown in the third part of the Table2.

PRSC2 Tranche Release Amounts and Dates Amount Expected Date Actual Date First Tranche US$60 million October 31, 2005 October 12, 2005 Second Tranche US$60 million March 31, 2006 March 29, 2006

Table 2: PRSC1 Prior Actions, PRSC2 Prior Actions and conditions for Second Tranche Release PRSC1

Prior Actions Status (a) Spending 64.9% of its 2003 budget (excluding interest and election spending) on the priority sectors referred to in the PARPA, in accordance with Paragraph 9 of the Letter of Development Policy (LDP).

Completed

(b) Adoption of regulations for implementing SISTAFE, established the Technical Unit for its Public Financial Management Reform Program (UTRAFE), and substantially strengthen its Data Processing Center, and, make SISTAFE’s first phase operational with the adoption of an electronic system of control over the Government’s bank accounts, all in accordance with Paragraph 8 of the LDP.

Completed

(c) As of 2003, increase domestic revenue mobilization through implementing fuel tariffs adjustments which includes an automatic fuel tariff adjustment mechanism from January 2004, an a withholding tax on the income of public sector employees, all in accordance with Paragraph 10 of the LDP.

Completed

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(d) Adoption of the following public sector reform measures: (i) reduce the land registration to a maximum of 90 days; (ii) adopt a new regulatory framework to simplify and expedite the process of industrial registration; and, (iii) start to issue visitor visas at the Borrower’s borders, all in accordance with Paragraph 11 of the LDP.

Completed

(e) Adoption of a law decentralizing certain services to the district level ( the Local State Organs Law), which provides for increased autonomy of district authorities and the legal basis for treating a district authority as a budget entity, thereby strengthening the territorial dimension of public sector management, in accordance with Paragraph 12 of the LDP.

Completed

(f) Adoption of a law on anti-corruption, in accordance with paragraph 13 of the LDP.

Completed

(g) Reduction of its top import duties on consumption goods from 30% to 25%, in accordance with Paragraph 20 of the LDP.

Completed

PRSC2

Prior Actions for First Tranche Status 1. MoF will implement e-SISTAFE in the Ministry and provincial directorates. Completed

2. The Council of Ministries will approve a new procurement decree that brings public procurement processes in line with international practice.

Completed

3. The Government will present a new Financial Institutions Law to the National Assembly.

Completed

4. Making the hiring of foreign labor more flexible through the adoption of decree 57/03.

Completed

5. The Government will present a new Commercial Code to the National Assembly.

Completed

6. The Government would formulate its 2005 budget with agreed allocations to PARPA priority areas and execute its 2004 consistent with agreed allocations; in particular, it will spend 65 percent of its 2004 budget in priority areas.

Completed

Conditions for Second Tranche Status Condition 1: Adoption of a new procurement code and start of its implementation as evidenced by: (a) the approval of a revised implementation action plan; (b) the carrying out of procurement audits in at least two of its ministries in accordance with the activity plan of the internal audit system; (c) the preparation of a training program for civil servants and supplies; and, (d) the preparation of terms of reference for elaboration of standard bidding documents.

Met

Condition 2: Revision of the 1888 Commercial Code through the adoption of a new Commercial Code.

Met

Condition 3: Rolled out the e-SISTAFE to the Ministry of Education and Culture.

Met

Condition 4: Conclude the study on “off-budgets” in the health sector and initiated the implementation of the study’s recommendations as evidenced by the inclusion in its 2006 budgetary proposal of: (a) the revenues and expenditures resulting from the “special clinic” (clinica especial) and the “special care” (atendimento especial); and, (b) a larger portion of the revenues and expenditures

Met

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from the external common funds, if compared with its 2005 budget. Condition 5: Legal reforms: submit bills to its Parliament revising: (a) the organic law of judicial courts including commercial sections; and, (b) the Notary Code.

Met

Condition 6: Combat corruption: increased, in real terms, the resources allocated in its 2006 budgetary proposal for anti-corruption unit, if compared with its 2005 budget.

Met

It is worth mentioning that PRSC1 had a program matrix which was somewhat different from the PAF. PRSC2, however, took the PAF as its original program matrix. All prior actions for PRSC2 as presented in the original program matrix remained the same. However, some prior actions were only implemented as part of the second tranche release conditions for PRSC2 due to delays in implementing the reform program in the months before and after elections, such as the adoption of the new Procurement Code and new Commercial Code. Two conditions were added to PRSC2, one was related to the inclusion of off-budget items into the budget, and the other was related to judicial reform (submission of bills to Parliament revising the organic law of judicial courts including commercial sections, and the Notary Code). It should be highlighted that PRSC2 had no specific condition regarding service delivery beyond the requirement of expending 65 percent of total expenditures in priority sectors.

7.2 Major Factors Affecting Implementation

Four factors affected the implementation of this first PRSC series positively, and two, negatively. The factors with positive effect were the following: first, was the design which appropriately initially focused on cross-sectoral actions to improve public financial management before beginning particular sectoral reforms. These reforms were owned by the GoM and they were based on extensive analytical work (see section 10.1); second, was the successful coordination effort among donors - formalized in a Memorandum of Understanding signed in April 2004, which made it possible for budget support to be more effective. The budget support process became even deeper with the G-15 group acquiring three new members including the African Development Bank (now, G-18); third, the change in the design of PRSC2 into two tranche allowed for coordination with the other donor’s budget support and GoM budget cycle; and, forth, the PRSC as well as the donor group use the same government planning and reporting documents that are submitted to Parliament to make the assessments on performance and budget support. This enhances domestic accountability and puts pressure in GoM to improve the quality of such documents.

The factors that affected implementation negatively were the following two: the presidential and parliamentary elections in December 2004 delayed the approval of the labor law and procurement law, and in order to harmonize with the MoU, the time period of this PRSC series was shortened to less than two years instead of three which only allowed for the use of two, not three Joint Review’s results.

7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design. The Memorandum of Understanding signed in April 2004 by Government and partners providing budget support (G15 at the time) included an M&E system with PARPA objectives

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and targets to monitor the effectiveness in the use of donor resources channeled through budget support in the priority sectors of the PARPA. This Performance Assessment Framework (PAF) was updated for progress made and new targets set during the annual and mid-year Joint Reviews, which are the basis for Government to provide information to Parliament and in the quarterly budget execution reporting of the priority programs. The Joint Review process assesses the performance of the government in the previous budget year. The review focuses on evaluating progress with regard to the indicators defined in the PAF and makes an overall assessment of progress. The PAF provided since the initial implementation of the Joint Review mechanism a platform for a unified accountability mechanism for Government to report both externally to donors and internally to Parliament. The system contributed to reducing the transaction costs for the Government since no separate reporting mechanisms to the donors were required. The PAF has been fine tuned over time to reflect progress in the dialogue. With the recent approval of the Strategic Matrix as the overall monitoring framework of PARPA II, consultations within the G18 have led to the definition of fifty PAF targets derived from the Strategic Matrix. The PRSC policy matrices have been aligned with the PAF, incorporating the specific areas targeted by Bank’s support.

Implementation. Since the approval of PRSC1, there have been two Joint Reviews and two Mid-Year Reviews (MYR). The MYRs are mainly forward-looking and formalize agreement on the performance indicators for the following year, incorporating the results of the Joint Reviews. The last MYR was concluded in September 2006 when the Government of Mozambique (GoM) met with the Programme Aid Partners (PAPs) and observers. Despite improvements of the M&E system to monitor PARPA and PAF, and therefore, the PRSCs, the establishment of a sound system remains a challenge. PRSC2 annex 6 discusses the M&E system and its recommendations have been discussed with the relevant joint Working Group for Poverty Analysis and Monitoring Systems and the Government. Important steps were taken during the preparation of PARPA II and the PAF for 2007-09 towards improving the Strategic Matrix, and the PAF as a result, and a results-based approach was adopted with technical support from the Bank.

Utilization. The Strategic Matrix is the first comprehensive PARPA monitoring framework which includes actions, output indicators and outcome indicators linked to the PARPA objectives. Implementation of the Strategic Matrix will be put to test in the coming year and a monitoring plan specifying responsibilities and cost of monitoring for each indicator will be defined in the course of 2007. It is therefore preliminary to define the extent to which the M&E system has been utilized. As regards utilization of the PAF monitoring indicators, the backward looking exercises carried out during the Joint Reviews have provided inputs to Government and partners on the status of key policy actions and achievement of targets in the priority areas of the PARPA. In particular, there has been feedback of M&E results into policy actions. For example, low budget execution in water generated a series of meetings among the authorities to remedy the problem. Also, low VAT refunds in the transport sector was tackled first by requesting a study by the EU on the subject which recommendations are being address by the GoM with help of the donors, including the IMF and WB. Another example is the MTEF approved by the Cabinet as a result of monitoring of levels of budget executions.

7.4 Expected Next Phase/Follow-up Operation

The next PRSC is expected to be presented to the Board in January 2007. The next series of

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PRSCs would provide budget support in 2007-09. The focus would continue to be on the three pillars as in the current series: (a) the improvement of public financial management, such as the rollout of e-SISTAFE to all the sector ministries at the central, provincial, and eventually the district levels. The Government is also expected to enhance governance by adopting and implementing an anti-corruption strategy. (b) The improvement of the investment climate by reforming its labor legislation, reducing red tape further, and improving the regulatory framework where necessary. (c) It is expected that the third pillar, service delivery, would become a more important focus of future PRSCs. In particular, prior actions would be chosen to support rural development, which is a top priority for the new government and essential in the fight against poverty, as 70 percent of the population still live in rural areas.

8. Assessment of Outcomes

88..11 Relevance of Objectives, Design and Implementation The objectives supported by this PRSC series continue to be relevant to current country and global priorities. In September 2006, the government formally approved its revised Action Plan for Reducing Absolute Poverty, PARPAII which primary objective is to sustain broad-based growth and thus make further inroads into poverty reduction while maintaining consistency with the MDGs. For the first time, the PARPAII includes a strategic matrix of key indicators3, a joint effort by the government, donors and civil society. These indicators will be fully integrated into and monitored through the annual instruments of the Economic and Social Plan (PES in Portuguese) and BdPES (Balanço do Plano Económico e Social). This planning and monitoring process will be a key issue for implementation of PARPAII and PAF, from which donors, including the World Bank will choose the areas of support. PARPAII arranges the priority areas for public policy to sustain growth and poverty reduction, and improve service delivery under three pillars: (i) economic development; (ii) human capital; and (iii) governance. The three main areas of concentration of this PRSC series are contained in these three pillars.

Regarding the relevance of this PRSC series to the Country Assistance Strategy (CAS), the CAS identified the PRSCs as key financing instruments for the period 2004-2006. A few months before the First PRSC, the country team had finalized a results-based CAS (FY04-FY07) after extensive consultations with country team members and other stakeholders, including the Government, NGO’s, the private sector, opinion leaders and the donors. It proposed a series of PRSCs, representing about 40% of total IDA financing, to support reforms aiming, among other tings, to improve the financial sector, built public sector capacity and accountability, improve the investment climate and improve service delivery. Within this background, this PRSC series program was designed to have a series of annual one tranche operations that would support the PARPA and the pillars identified in the CAS, which were also designed to support the PARPA. Since the first PRSC was not in line with the budget cycle and donor’s budget support, the PRSC2 was designed as an exceptional two tranche operation to bring Banks’ PRSC cycle in line with Government’s budget and other donors. The CAS that is under preparation now will continue to use PRSCs as important financing instruments to attain its objectives, all under the harmonization umbrella with other donors.

3 The previous PAF was developed after the PARPAI was approved. Now it is an integral part of PARPA II.

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88..22 Achievement of Program Development Objectives

The Program Development Objectives were achieved to the extent that most envisaged outcomes in the original Program Matrix were attained. However, these envisaged outcomes are mostly intermediate outcome indicators. The long term development outcomes can not be measured in the short term given the lag between policy measures and measurable development outcome results. Table 3 presents those policy measures supported by PRSC1 and PRSC2, the outcomes expected as presented in the original program matrix and the results achieved by the end of PRSC2. A summary of the results presented in Table 3 is as follows:

• Mozambique maintained an adequate macroeconomic framework. • The Government of Mozambique is better able to manage public expenditures through

the adoption of the e-SISTAFE which was rolled out in the MoF, Ministry of Planning (MoP) and MEC, both at the central level and its provincial directorates.

• The groundwork was laid for improved Governance. Two laws were approved: the anticorruption law and the law on decentralization. The budgetary allocation in 2006 for the newly created Central Office for Fight Against Corruption (formerly Anti-Corruption Unit) was 10 times larger than the allocation in the previous budget. Also, three key measures were adopted in the area of public sector reform: (i) land registration process was reduced to 90 days; (ii) industrial registration process was simplified and expedited; and (iii) visitors visas are now issued at the Mozambique’s borders.

• Steps have been taken to improve procurement practices. The new procurement code was approved according to international standards and procurement audits have been carried out in several ministries. Also, standard bidding documents have been elaborated and training has started. These are helping procurement practices to be more transparent and should lead to fewer procurement problems and costs.

• The capacity of the Bank of Mozambique to regulate and supervise banks and non-bank financial institutions has been strengthened by the approval of the new Financial Institutions Law.

• The legal framework for businesses was strengthened through the approval of the new Commercial Code. Moreover, the Notary Code was revised and the Code of Registry of Legal entities was approved. These have paved the way for the reduction of the time to start a business. In addition, hiring of foreign labor became more flexible by the adoption of Decree 57/03.

• Indicators that support poverty reduction through public sector services directed to the most needed populations have shown improvements as shown by monitoring of the PAF. Allocation of budgetary resources towards service delivery in priority areas was 63 percent of total expenditures in 2004 and 66.3 percent in 2005. PAF targets for 2005 in education and health were attained or surpassed.

The results achieved by component, as presented in the Program Matrix, follows below:

Component 1: Public Sector Capacity and Accountability

Macroeconomic framework. The economy continued to perform well in 2003, 2004 and 2005. GDP grew 7.9 percent in 2003, 7.5 percent in 2004, and 7.7 percent in 2005. Inflation continued to decline gradually from the peak of 16.8 percent period average rate in 2002 to 6.4 percent in 2005. The fiscal deficit also continued to decline steadily from 17.3 percent before

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grants in 2002 to 8.9 percent in 2005, despite low revenues in 2004 which recuperated in 2005. The external current account deficit narrowed in 2003 and 2004, but expanded to 17.0 percent of GDP (before grants) in 2005 mainly driven by higher imports due to higher oil and cereal prices. Nevertheless, the current account deficit was kept at the lowest level since 2000, except for 2004. The performance of the financial sector was also positive.

Public Financial Management (PFM) has improved. PFM systems have shown major improvements through the rollout of the integrated financial management system (e-SISTAFE) according to the latest Public Expenditure and Financial Accountability Assessment (PEFA) assessment. The Homoine version of e-SISTAFE was satisfactorily rolled out to three ministries (MoP, MoF and MEC) by March 2006. The ministries to which the system was rolled out are now satisfactorily executing their budgets for goods and services and capital expenditures4. The new e-SISTAFE will soon allow for full tracking of the sources of funds and the expenditures by functional, program, and geographical classifiers. Also, donor-financed projects are starting to be integrated gradually into the e-SISTAFE and coverage of the budget has increased. A Joint donor-government task force was set up in 2005 to recommend better procedures for including all externally finance projects in the budget. Off-budget study in health sector concluded in March 2005 found that one third of budgets expenditures are from externally finance sources and most are from three pooled funds. US$43 million from these three funds were included in the 2005 budget, and US$93 million were included in the 2006 budget. Other donor financed projects have also started to be gradually integrated into the e-SISTAFE but the level of off-budget projects remain high and some of these projects are characterized by reporting difficulties and low execution rates. Not withstanding, the gradual inclusion of off-budgets has allowed for better external aid management.

Governance. The review of the Governance pillar in the Mid Year Review of 2006 identifies the major challenge in this area to be the difficulties in identifying indicators perceived as being objective and sufficiently comprehensive. Nevertheless, within the scope of measures supported by this PRSC series, there were positive developments.

• Decentralization. The approval of the Decentralization Law- Local Organs of State- (Lei 08/30-LOLE), together with the previously approved legislation of the Integrated Financial and Management Information System (IFMIS) (SISTAFE Lei 09/02) and their respective regulatory decrees, provided a framework for decentralized planning and finances as it establishes the district as a budget entity for the first time5. Furthermore, the government has allocated a direct transfer to districts (of US$300,000 each) for the first time in 2006, in line with their new status as budget entities. However, the Government has to clarify, via concrete guidelines, the uses of these funds (some confusion exists) and the execution autonomy of districts. But the PAF matrix indicators for 2005 on decentralization were partially met, and progress in the PAF 2006 indicators, are positive. For example, the decentralization policy and strategy were prepared and the district Administrative Tribunal audits have already started at the provincial level.

• Procurement is moving in the right direction. The new procurement code was approved according to international standards and procurement audits have been carried out in

4 Payments of salaries continue to be executed centrally by the accounting department of the Ministry of Finance. 5 Municipalities have been autonomous elected local governments since 1998 following the publication of the legal framework known as the “’Pacote Autarquico’’.

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several ministries. Also, standard bidding documents have been approved and published and training has started. These are helping procurement practices to be more transparent and should lead to fewer procurement problems and costs.

• Corruption. The corruption perception index for 2006 published by Transparency International, which is based on a series of surveys, places Mozambique number. 99 (score 2.8) out of 163 countries. This is the same score rating as in 2005 (no. 97 out of 158) and 2004 (no. 90 out of 145) and a slightly better rating than in 2003 (= score 2.7 = no. 86 out of 133 countries). Compared to other countries in Africa Mozambique is rated better than Malawi (105), Uganda (105), Angola (142), Kenya (142) and Nigeria (142) but still a league away from the better performing countries such as Botwana (37), Mauritius (42), South Africa (51), Namibia (55), Ghana (70), Senegal (70), Burkina Faso (79), and Madagascar (84). In the report by the World Bank, “New Governance Matters, 2006, the comparison with the above mentioned countries remains valid. Although the 2006 budgetary allocation for the Central Office for the Fight Against Corruption increased by more than ten folds the allocation in the previous year budget, the number of cases prosecuted has not increased.

• Legal framework for businesses has been strengthened through the approval of the new commercial code. The previous code dated from 1888. Moreover, the Notary Code was revised and the Code of Registry of Legal entities was approved. These have paved the way for the reduction of the time to start a business. Doing Business Report 2007, based on data to end 2005, shows that the number of days to register a business has come down from 153 days to 113 days. Also, land registration in 90 days, industrial registration expedited and visas issued at boarder have also contributed to improving the regulatory framework and investment climate for doing business.

Component 2: Investment Climate. Parliament’s approval of the Commercial Code and approval of the Code of Registry of Legal entities paved the way for the reduction of the time to start a business. The Government of Mozambique through its Cabinet approved the electronic publication of firms' articles of incorporation in the process of starting up a business. Prior to this approval, there was a requirement that the articles of incorporation be published in the Official Gazette. On average, this process took 80 of the 113 days to start up a business. With this “stroke of the pen” reform will now result in a reduction in the time it takes to start up a business from 113 days to about 30 days. The creation of the computerized registration of firms in 3 of the country’s 10 provinces allows for faster and more accurate firm registration. The intention now is for the authorities to roll out this computerized registry to other provinces. Additionally, the simplification of the licensing process could also be implemented to further reduce the time and cost of starting up a business. The publication of the articles of incorporation used to take 80 days. With the approval of the electronic publication, this step can be done in 1 day. As such, the total duration is significantly reduced.

6 The PAF for 2005 is somewhat different than the 2004 PAF. Therefore, the indicators in the Results Framework, Annex 7 of PRSC2 PAD which is part of the 2004 PAF and was used to monitor progress under PRSC2, has less indicators than the 2005 PAF which was evaluated during the 2006 Joint Review. However, this section will also refer to the indicators in the 2005 PAF since they are also relevant to show progress. 7 The annual data for completion rates are available only in May, after the Joint Review, therefore, the assessment for these targets are based on data from 2004. 8 It was considered partially attained despite showing a decrease because there was a change in the methodology of calculation of this indicator. 9 Although targets were not reached, the outcome represented increases over previous year values (see Annex 1).

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Financial sector. The capacity of the Bank of Mozambique to regulate and supervise banks and non-bank financial institutions has been strengthened by the approval of the new Financial Institutions Law. The passing of the law enables the Central Bank to issue prudential regulations for the governance of both the banking and non-banking sector. With the law in place, the Bank of Mozambique has completed the drafting of the prudential regulations required to comply with the Basel I principles, together with an accompanying inspection manual. Both are currently being subjected to a review process, while arrangements are simultaneously being made for hands on training of inspectors who will be responsible for implementing the regulations. The new regulations and inspection manual will in the future contribute to more effective supervision.

Regulatory environment.

• The degree of effective protection to local industries has been reduced through the reduction of import duties from 30 percent to 25 percent. In January 2006, the maximum import duty for SADC countries was reduced to 20 percent and in late 2006 it is expected it will be reduce to 20 percent for all countries.

• Initial steps to achieve and efficient and flexible labor law allowing Mozambique businesses to restructure, increase hiring, and profit from knowledge transfers and becoming more competitive have been taken. However, the approval of Decree 57/03 is not the only measure necessary to achieve the envisaged outcome. More flexibility for firms to hire foreign labor is a step forward. However, there are other measures that need to be taken to fully achieve the expected outcome, such as a complete reformulation of the Labor Law.

• The Government submission of bills to Parliament revising the Organic Law of Judicial Courts to provide for the creation of commercial courts, and the revision of the Notary Code are positive steps towards improving the regulatory environment for doing business in Mozambique, but still there are few measurable indicators that show this improvement. One of them is the reduction in the time to do business, as mentioned earlier.

Component 3: Sectoral service delivery. Indicators that support poverty reduction through public sector services directed to the most needed populations have shown improvements as shown by monitoring of the PAF. The estimated expenditure of budgetary resources towards service delivery in priority areas was 63 percent of total expenditures (excluding bank restructuring cost, net lending and interest payments) in 2004, 66.3 percent in 2005 and is projected at 69.5 percent for 2006. The Joint Review of 2006 shows that most PAF targets for 2005 in education, health, HIV-AIDS and infrastructure were attained or surpassed. Out of 15 indicators, ten were met or surpassed, two were partially met, two were not met and one could not be measure, as follows6:

• Education: EP1 (Primary School 1) net enrolment rate for girls and total target of 77 percent and 79 percent were surpassed to 81 percent and 83 percent, respectively; and, EP1 completion rate for girls and total target of 36 percent and 43 percent reached 39 percent and 48 percent, respectively7.

• Health: the number of institutional deliveries target of 49 percent was attained and the utilization rate measured by the number of consultations per inhabitant per year surpassed the target of .93 to reach 1.01 (DPT3 -diphteria, pertusis and tetanus vaccine- and HB-hepatitis B vaccine) was not attained.

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• HIV-AIDS: percentage of funds channeled by CNCS-SE (National Council for the Combat of Aids) to CSOs ( Civil Society Organizations) and to public and private sectors (percent of total funds used by CNS-SE in all types of expenditure) target of 55 percent reached 60 percent; percentage of community initiatives or CBOs (Community based Organizations) supported by CNCS-SE to support orphans and vulnerable children in the country (percent of total applications of CSOs, and institutions from public and private sector) target of 20 percent reached 25 percent. However, the number of HIV positive pregnant women and neonates receiving PMTCT Prophylaxis (Prevention of Maternal to Child Treatment) did not reached the target.

• Roads, the number of kilometers rehabilitated target of 1,091 km reached 1,902 km and the number of kilometers periodically maintained target of 1,635 reached 1,932, but the number of kilometers under routine maintenance was not attained.

• Water and sanitation, the percent of population with access to potable water was considered to be partially attained 8(it reached 40.4 percent instead of 44.2 percent) and the indicator on the percent of population with access to sanitation services could not be measured.

Regarding agricultural and rural development, which was also part of the Results Framework utilized to monitor progress during PRSC2 supervision, the Joint Review found that out of 8 indicators, two were attained, and six were partially attained. Under agricultural services, proxies were used to measure the percent of agricultural assisted explorations that adopted at least one new technique during the last 12 months. These proxies, the total farmers assisted by public extension services and number of vaccinations against New Castle, were partially attained (instead of 196 thousand and three million for each targeted proxy, 176 thousand and two million were reached, respectively)9. Also, for the percent of cattle farmers that vaccinated their livestock, proxies were used. These proxies, the number of cattle vaccinated for Anthrax and for Black Leg, the targets were partially met ( instead of 660 thousand and 250 thousand target, respectively, 502 thousand and 198 thousand were reached, respectively representing, nevertheless an of 48 and 41 percent over the previous year value, respectively). The target for the percent of area (Ha) with irrigation schemes constructed and/or rehabilitated with public resources was partially attained (instead of reaching 2,900 hectares, it reached 2524 hectares, representing a growth of 57 percent in relation to 2004). The only target to be fully attained under agricultural services was the percent of cereal production for maize, sorghum and rice commercialized by the formal sector (reached the sixteen percent target). Under management of natural resources, one target was surpassed (percent of concessions with application plan approved target was 37 percent; it reached 50 percent) and one was partially attained (the percent of processes received that are authorized in 90 days target of 90 percent reached 70 percent).

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Table 3- Policy Measures and outcomes achieved by the end of PRSC2 by major sector/policy area

Sector/Policy Area

PRSC1 –Key Policy Measures completed

PRSC2 – Key Policy Measures completed

Envisaged outcome Outcome/Results achieved by the end of PRSC2

1. Public Sector Capacity and Accountability 1a. Macroeconomic Policy Framework GoM maintained an adequate

macro policy framework GoM maintained an adequate macro policy framework

Maintain a stable macro economic environment that enables policies and reforms to move forward as they support the PARPA goals.

Achieved. GDP grew 7.5% in 2004, and 7.7% in 2005. The annual average inflation declined from 12.6 %in 2004 to 6.4% in 2005. Interest rates continued to decline. Fiscal deficit decline. The Forth PRGF Review conducted in June 2006 concluded that macroeconomic performance was strong in 2005. (See Table 1)

1b. Public Finance Management GoM executed the 2003 budget

consistent with agreed allocations of expending around 64 % of GDP in priority sectors

GoM formulated the 2005 budget with agreed allocations of around 65 % of GDP and execute the 2004 budget with same agreed allocations

Direct poverty-reducing expenditures as share of actual expenditures remains near 65%.

Achieved. Although slightly below 65% in 2004 (63%), expenditures in priority sectors as percent of total expenditures reached 66.3 % in 2005.

SISTAFE regulations were adopted

SISTAFE was implemented in MPF (now MoF), and MEC including provincial directorates.

GoM better able to manage public expenditures

Ongoing. The ministries where e-SISTAFE has been rolled out are now satisfactorily executing their budgets for goods and services and capital expenditures. The new e-SISTAFE will soon allow for full tracking of the sources of funds and the expenditures by functional, program, and geographical classifiers. Also, donor-financed projects are starting to be integrated gradually into the e-SISTAFE.

Revenue-raising measures were introduced, including 60% automatic fuel tariff adjustments and application of withholding tax on the income of public sector employees.

Higher revenues, enabling fiscal adjustment

Achieved. Revenues in 2005 are estimated at 14 % of GDP, up from 12.6% in 2004. Fiscal performance for 2005 was better than programmed by the IMF under the 4th PRGF review.

The study on off-budget expenditures in the health sector was concluded and implementation of recommendations started.

Increase coverage of the budget A Joint donor-government task force was set up in 2005 to recommend better procedures for including all externally finance projects in the budget. Off-budget study in health sector concluded in March 2005 found that one third of budgets expenditures are from externally finance sources and most are from three pooled funds. US$43 million from these three funds were included in the 2005 budget, and US$ 93 million were included in the 2006 budget. Other donor financed projects have also started to be gradually integrated into the e-SISTAFE but the level of off-budget projects remain high and some of these projects are characterized by reporting difficulties and low execution rates.

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Sector/Policy Area

PRSC1 –Key Policy Measures completed

PRSC2 – Key Policy Measures completed

Envisaged outcome Outcome/Results achieved by the end of PRSC2

1c. Governance 3 key public sector reform

measures were achieved: land registration in 90 days; industrial registration expedited; and, visas issued at border.

Improve the business climate. Ongoing. Improving the business climate does not only depend on the 3 key public sector measures, but also in other measures aimed at improving the investment climate (see bellow). Moreover, the creation of the one stop shop in 3 provinces has contributed to the efficiency of businesses. Doing Business Report 2007, based on data to end 2005, shows some improvements in doing business. For example, the number of days to register a business has come down from 153 days to 113 days.

Council of Ministries approved in December 2005a new procurement decree in line with int’l practice.

Clear, transparent procurement practices introduced leading to few procurement problems and costs.

Ongoing. .Procurement is moving in the right direction. Procurement audits have been carried out in several ministries and standard bidding documents have been elaborated and training has started.

National Assembly approved law on decentralization (Lei dos Orgaos Locais do Estado - LOLE)

Local authority capacity in planning, budgeting, financial management built to manage decentralized infrastructure service delivery.

Ongoing. Districts are now budgetary entities and as such, they received investment allocation for the first time in 2006. Also, PAF matrix indicators for 2004 and 2005 on decentralization were partially met and PAF indicators for 2006 in this area are positive.

National Assembly approved a new commercial code, and subsequently it was signed by the President based on the authorization to do so by Parliament

Legal framework for business strengthened

Achieved

Parliament approved anti-corruption law

GoM has substantially increased the resources allocated for the newly created Central Office for the Fight Against Corruption (formerly Anti-Corruption Unit) to about US$1 million from US$ 96 thousand.

Higher GoM capacity to identify corruption issues and develop plans to address them more aggressively.

Ongoing. The corruption perception index for 2006, which is based on a series of surveys places Mozambique no. 99 (score 2.8) out of 163 countries. This is the same score rating as in 2005 (no. 97 out of 158) and 2004 (no. 90 out of 145) and a slightly better rating than in 2003 (= score 2.7 = no. 86 out of 133 counties)

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Sector/Policy Area

PRSC1 –Key Policy Measures completed

PRSC2 – Key Policy Measures completed

Envisaged outcome Outcome/Results achieved by the end of PRSC2

2. Investment Climate 2a. Financial Sector National Assembly approved new

Financial Institutions law in 2004 and implementation regulations have been issued.

More effective supervision of banking and non-banking financial institutions; more efficient and profitable banks GoM divestiture from banking sector.

Ongoing. The capacity of the Bank of Mozambique to regulate and supervise banks and non-bank financial institutions has been strengthened by the approval of the new Financial Institutions Law. With the law in place, the BoM has completed the drafting of the prudential regulations required to comply with the Basel I principles, together with an accompanying inspection manual. The new regulations and inspection manual will in the future contribute to more effective supervision. Bank sheets are healthier and banks have resume consumer credit (credit cards and loans to purchase durable goods). However, complete GoM divestiture from banking sector has not been achieved.

2b. Regulatory Environment Highest level of import duties was

reduced from 30% to 25% Reduce degree of effective protection to

local industries Achieved. By definition when one reduces import duties, effective protection to local industries is reduced.

Decree 57/03 on hiring foreign labor was revised to ease restrictions on firms hiring expatriate employees

An efficient and flexible labor law, allowing Mozambique businesses to restructure, increase hiring, and profit from knowledge transfers and becoming more competitive

Ongoing. The approval of Decree 57/03 is not the only measure necessary to achieve the envisaged outcome. More flexibility for firms to hire foreign labor is a step towards the envisaged outcome. However, there are other measures that need to be taken to fully achieve the expected outcome, such as the approval of the New Labor Law.

The Government submitted bills to Parliament revising: (a) the Organic Law of Judicial Courts to provide for the creation of commercial courts; and (b) Revision of the Notary Code.

Although an envisage outcome was not explicit in this condition for the release of the second tranche, it is expected that these measures will improve the regulatory environment for investment and businesses.

These measures together are a step forward towards improving the regulatory environment for doing business in Mozambique, but still there are few measurable indicators that show this improvement. . One of them is the reduction in the time to do business, as mentioned earlier.

2c. Infrastructure Services. There were no prior actions or conditions under this sub-component but Annex 1 makes reference to agriculture and rural development targets that were part of the PAF. 2d. Agricultural Productivity. There were no prior actions or conditions under this sub-component. 3. Service Delivery. The Public Financial Management indicators of spending around 65% of total expenditures on priority sectors identified in the PARPA is also under this pillar. For specific indicators for each priority sector and status of envisaged results, please refer to Annex 1 of this document.

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88..33 Justification of Overall Outcome Rating

Rating: Satisfactory

The overall outcome rating of the program is assessed as satisfactory because most targeted outcomes as presented under the program were reached. The previous section supports this and reflects the continuous record of policy implementation by the Mozambican Government. Moreover, the monitoring of the PAF shows improvements in indicators that support poverty reduction through public sector services directed to the most needed populations, such as increases in the EP1 net enrollment rate, EP1 completion rate and in number of medical consultations per inhabitant.

88..44 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

Continuing to improve the welfare of the population requires policy action to improve efficiency and effectiveness of the state in service delivery. These measures should contribute to improvements in welfare of the poorest in the medium term. As mentioned in section 8.2, monitoring of the PAF shows many of the targets for 2005 related to poverty reduction through privileged orientation of public services to the most needed populations have improved. Out of 15 indicators, ten were met or surpassed; two were partially met; two were not met; and one could not be measure (see section 8.3). Furthermore, a study on poverty done by three Scandinavian countries for the National Statistical Institute of Mozambique (INE) in March 2006 shows that poverty might have declined to 50 percent by end of 2005.

(b) Institutional Change/Strengthening

PRSC2 continued to strengthen institutional development. First, the creation of national technical teams focused on translating poverty reduction strategies into results is a gain that will endure; second, the approach of using pooled funds freely available to the budget to finance development activities started a new and more efficient approach to managing them by strengthening local planning and budget execution systems and accountability rather than creating parallel structures: this is a gain that will also endure; third, the reporting done donors is the same that is done to Parliament, therefore strengthening local accountability; and forth, there is a reduction in transaction costs due to increased donor harmonization.

(c) Other Unintended Outcomes and Impacts None

8.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not applicable

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9. Assessment of Risk to Development Outcome

Rating: Moderate

The risks to sustain the development outcomes for Mozambique are moderate. There are four potential risks that could influence the development outcomes already achieved as well as the development outcomes that were set in the new PARPAII. Those risks include: (i) potential for macroeconomic instability mainly due to external factors, poor financial sector performance, or unsustainable accumulation of new debt in the future. Exogenous risks have been properly handled these past years and indications are that they will continue to be in the coming ones. Regarding the financial sector, the measures supported by the PRSCs have already reduced the risks for the banks to accumulate a high share or bad performing loans and accumulation of new external debt is been monitored by the IMF and Fund through the annual debt sustainability analysis; (ii) unpredictability of donor disbursements, which has been mitigated by intensive efforts in donor harmonization and the signing of the MoU by all parties (originally 15 donors- now 18). Moreover, the GoM has assumed strong ownership of the Joint Review process in April/May 2005, which has consolidated mutual trust in the process; (iii) weak administrative capacity to implement reforms and effective decentralization. To mitigate this risk, the Government and donors agreed during the Joint Review to develop an integrated strategy for capacity development in public finance management, and to strengthen the coordination and management of reforms. To strengthen capacity at the district level and to improve control mechanisms (auditing), several decentralization projects are being integrated into a national program that is expected to deliver capacity building and oversight more effectively; and, (iv) potential for deterioration in governance that can compromise economic reforms and poverty reduction efforts. The Bank has noted that reforms in the legal and judiciary fronts are not moving at the desired pace. Deterioration in governance can have deleterious effects on economic growth and compromise poverty reduction. The GoM has already taken steps to mitigate this risk and continues to pursue improvements in this area through various fronts. Furthermore, the Bank has held an active policy dialogue with the authorities on the subject. The G-18 also closely monitors developments associated with governance in its quarterly meetings. Therefore, despite the potential risk to the development outcomes of past and future operations, there has been and will be sufficient risk mitigation to render this issue a score of moderate.

10. Assessment of Bank and Borrower Performance

10.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory Bank performance in ensuring quality at entry for PRSC2 is rated satisfactory as supported by the following information. The identification and design of PRSC2 built on the CAS (Report No. 26747-Moz) as well as on the Government’s PARPA. This ensured the strategic relevance of the reforms and the ownership by the Government. Furthermore, the strategic relevance of the PRSC2-supported reforms was derived from extensive analytical work completed over the past few years, including two PERs (FY01 and FY03), a Poverty Assessment (FY04), A CEM

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(FY01), a CFFA (FY02) a CPAR (FY03) , a ICA (FY03) and a FSA (FY03). It also used lessons from the mentioned analytical work and incorporated inputs from another CEM (FY06), a PSIA on the impact of school fees (FY05), and a Public Financial Management and Fiduciary Risk assessment undertaken with the donors (2004). The analytical work done by the Bank and the assessments done by the Fund on the macroeconomic situation and the control environment of the Central Bank, and the joint FSAP done in 2003 assured that the structural, financial and macro-economic aspects were adequately reflected at entry. The fiduciary aspects were also judged to be adequate at the design stage of PRSC2; they had improved significantly as a result of actions taken under PRSC1, i.e. the introduction of e-SISTAFE in the Ministries of Finance and Planning. At entry, it was also made clear that significant challenges remained, and they were supported by prior actions and conditions of PRSC2, such as the approval of a new public procurement code and the extension of e-SISTAFE to the Ministry of Education, which is a large spending ministry. Lessons learned from PRSC1 were incorporated in the design of PRSC2. For example, PRSC2 adhere more closely to the PAF than PRSC1 and PRSC2 was designed to coincide with the budget cycle of the Government and other donor’s budget support disbursements. Also, discussions during the Joint Review of 2005 were the basis for the pre-appraisal of this operation. This allowed assessing and confirming the implementation of those key reforms identified in the program and help recognized the most likely risks so they could be mitigated. Another aspect that played an important role in the design of this program was the strong multi-sector team effort that went into this operation. Poverty and social development aspects were taken into account in the design of the operation based on the analytical work; however, no gender-specific work related to macroeconomic issues was done before entry. It is only being done in FY07. The M&E arrangements were adequate but not perfect. The strength lies in the fact that all 49 Performance Assessment Framework indicators are being monitored jointly with the G18, monitoring key policy actions, intermediate outcome and outcome indicators. The weakness of the M&E system (i.e. the PAF) lies in the fact that it was not designed with a clear results framework in mind.

(b) Quality of Supervision

Rating: Satisfactory The Bank’s supervision of the PRSCs was aligned with the supervision of the joint Direct Budget Support program of the now G18. In order to reduce the transaction costs for the Government, the Bank carried out all supervision jointly with the other donors. The main supervision activities were the one-month long Joint Review in the Spring and the three-week long Mid Year Review in the Fall of each year. The MoU specifies that the Joint Review takes place each year in April/May (Year n) with the objective to assess the performance of the government in the previous budget year, which corresponds to the calendar year (Year n-1). The review focuses on evaluating progress with regard to the 50 indicators defined in the Performance Assessment Framework and makes an overall assessment of progress, i.e. it looks at sector-specific and overall development impact. The second event is the Mid-Year Review in September. This review is mainly forward-looking and formalizes the agreement on the performance indicators for the following year (Year n+1). Both the Joint and the Mid-Year Review are a multi-sector exercise, and the multi-sector PRSC team participated in all relevant sectors. The MoU also specifies that quarterly meetings take place to analyze the Quarterly Budget Execution report, and the Bank participated in these meetings. In addition, supervision was undertaken on a continuous basis throughout the year in collaboration with the other donors. The Bank participated in the Troika Plus meetings (consisting of three donors/a chair/co-chair and outgoing chair, forming the troika chairmanship - EC and WB are permanent

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members, thus forming the Troika Plus), the overall coordination mechanism set up by the G-18, and the Joint Government-Donor Steering Committee. Furthermore, 23 joint sector working groups meet on a regular basis with their government counterparts to monitor the implementation of the agreed actions at a sector level and progress toward achieving results. The Bank co-chaired some of the working groups, and the PRSC team was active in almost all of the remaining working groups. More specifically, World Bank was represented in the Quality Assurance Group (QAG) of SISTAFE, co-chaired the Financial Sector, the Macroeconomic Growth and the Procurement Reform Working Groups, and it gave technical assistance to finalize the Strategic Matrix of PARPAII. The Bank also conducted the policy dialogue based on the CEM and the poverty analysis. All Bank sector missions working for the PRSC team liaised closely with and through the respective joint sector working groups to assure maximum coordination with all other sector partners and utilized the Results Framework (PAF) to monitor progress. Furthermore, the Bank participated in joint IMF-Bank missions to monitor progress in the macroeconomic framework. The joint staff assessment mission to evaluate progress of the PARPA was carried out at the same time as the Joint Review. Supervision of the PRSC also benefited from the technical assistance provided to the Government under Public Sector Reform Project, the Financial Sector Technical Assistance Project, and the Enterprise Development Project (PODE). For the reasons stated above, Bank supervision for PRSC2 is rated satisfactory.

(c) Justification of Rating for Overall Bank Performance:

Rating: Satisfactory Given that Bank performance for quality at entry and for supervision was rated satisfactory, the overall Bank performance is also rated as satisfactory

10.2 Borrower Performance

Since the government and the implementing agency are indistinguishable, only rating and justification for Overall Borrower Performance is provided.

(a) Government Performance:

Rating: Not applicable

(b) Implementing Agency or Agencies Performance:

Rating: Not applicable

Implementing Agency Performance Ministry of Finance

(c) Justification of Rating for Overall Borrower Performance:

Rating: Satisfactory

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Borrower performance under PRSC1 was rated as satisfactory in the SICR. Government performance under PRSC2 was also satisfactory from design to implementation. The Government was in the driver’s seat during the design of the original program presented in the PRSC1 PAD, and continued to be during the appraisal and preparation of PRSC2. The Government determined the core reforms and guided the definition of the main indicators, actions and outcomes to be achieved. This was possible because the Government had prepared the PARPA and then the PAF, which updated the PARPA and the core of the country’s reform program. The Government stressed the need for all partners to harmonize with the PARPA and PAF, and the need for substantial, coordinated budget support, as this would increase ownership, which will also increase sustainability of actions in the future and would avoid creating parallel systems where accountability is primarily towards the donors. The Government was also at the center of the implementation process. The monitoring was undertaken through regular monitoring, such as the quarterly budget execution reports and semi-annual PES (Economic and Social Plan) and PAF matrices reviews. The Ministry of Finance monitored the PES and PAF matrices. There was continual reporting to the Parliament, which strengthened the accountability foundation of the reform. The new Government had a remarkable commitment to the program as stated in the Letter of Development Policy and saw the measures through to conclusion. The conclusion of the prior actions and triggers for this PRSC series is a reflection of this commitment. While there were some slippages under PRSC1 in implementing the reform program during the months before and after the general elections of December 2004, the delays were made up during the implementation of PRSC2 as part of the conditions for the second tranche release.

11. Lessons Learned Looking at what we learned from this PRSC series that can be incorporated in the next series, are the following four lessons:

• Adherence to the PAF matrix is important. Choosing prior actions and triggers from the PAF is important to maintain donor harmonization. It became evident during PRSC1 that small deviation from the PAF in the wording chosen for the Program Matrix could create frictions between the Bank and other donors. PRSC2 incorporated this lesson by adhering to the PAF matrix more strictly than PRSC1. Future operations should continue to adhere to the PAF matrix, but given that PAFs change not only in content, but in format from one year to the next, an effort should be made to consolidate the PAF structure.

• Budget support is more effective if provided in coordination with other donor’s assistance in synchrony with the Government’s budget process. Under PRSC1 donor financing was not well coordinated. This resulted in some uncertainty about the availability and timing of disbursements. It also made it difficult to have shared views among donors regarding comprehensive budgeting. This changed with PRSC2. The MoU of the G18, which includes the World Bank, aligns general budget support with the Mozambican budget cycle. This improves the predictability of resource flows, and harmonizes the donors regarding policy benchmarks, the reporting and review process. In addition, largely as a result of donor harmonization and peer pressure, some reforms that had long been advocated, e.g. increasing budget coverage for externally financed projects and own revenues – this was an important recommendation of the 2001 PER – were implemented. The effect can be seen in the 2007 budget which now covers more externally financed projects, and makes it possible to achieve more complete reporting

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on budget execution. The effect of this lesson will be the enhancement of the quality of future PRSCs which will be aligned with the Government’s budget process and other donor’s budget support disbursements.

• Define monitoring indicators and a results framework early. PARPA I was approved in 2001, but the first PAF was only developed in 2004. As some of the choices were made in an ad hoc manner, the indicators in the PAF kept changing from one year to the next making multi-year monitoring more difficult and the link between the changed PAFs and PARPAI not always easy to establish. This was the case with PRSC1 and PRSC2. With PARPAII, it should be easier for future operations to define the monitoring indicators and results framework at an early stage because the PAF is an integral part of PARPAII.

• Selection of key measures to be supported by the PRSCs should take into account political time tables. Experience with PRSC1 showed that timing of reform implementation should be more realistic by taking electoral cycles into consideration, i.e. the labor law and procurement law were designed to be approved during an election year, and therefore were delayed. Future operations should be realistic about the timing of measures taking into account the political time table.

12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies:

(b) Cofinanciers:

(c) Other Partners and Stakeholders (e.g. NGOs/private sector/civil society):

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ANNEXES Annex 1. Results Framework Analysis

Program Development Objective (from Program Document)

The Program Development Objectives (PDO) of this PRSC series were to support the Government of Mozambique’s primary objective of reducing absolute poverty and ultimately progressing towards achieving the Millennium Development Goals (MDGs) by supporting high growth and improving service delivery (see section 6.2 for specific objectives)

Revised Program Development Objective (if any, as approved by original approving authority):

Not applicable PDO Indicator(s) ─ from Program Document Indicator Baseline Value Original Target Value Actual Value

Achieved at Completion or Target Year

1. a Strengthen Government of Mozambique's public financial management and accountability by maintaining an adequate macroeconomic framework

Inflation was 12.6 percent and GDP growth 7.2 percent in 2004. Second review of IMF PRGF completed in June 2005 with mix results for period October 2004 to March 2005.

Lower inflation and maintained pace in GDP growth. Satisfactory performance under PRGF.

Target was met Inflation was 6.4 percent in 2005 and GDP grew by 7.7 percent. Performance under the PRGF program was satisfactory during the Fourth PRGF Review of June 2006.

Date achieved 08/12/2005 03/31/2006 03/31/2006 1.b Strengthen Government of Mozambique's public financial management and accountability by introducing an IFMIS

E-SISTAFE only rolled out in Ministry of Finance and operationally limited to treasury and accounting functions.

Rolled out e-SISTAFE in Ministries of Finance, Planning, and Education and Culture, including provincial dictatorates

Target was met. These Ministries are now satisfactorily executing their budgets for goods and services and capital expenditures

Date achieved 08/12/2005 03/31/2006 03/31/2006 1.c. Strengthen Government of Mozambique's public financial management by making budget coverage more comprehensive

A study of off-budget expenditures in the health sector completed in March 2005 found that over a third of all externally financed programs in the health sectors were off-budget, and most were from three polled funds. Only US$43 million from these funds were included in the budget 2005

Inclusion in 2006 budget of a larger proportion of revenues and expenditures from external common funds

Target was met. In 2006, the amount of the three pooled funds included in the budget was US$93 million.

Date achieved 08/12/2005 03/31/2005 03/31/2005

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1.d. Strengthen Government of Mozambique's public financial management and accountability through the approval of the Decentralization Law

Districts were not budgetary entities Decentralization Law (Lei 08/30-LOLE) was approved and districts became budgetary units

Target met

Date achieved 2003 06/09/2004 06/09/2004 Approval of new procurement code according to international standards;

Target was met.

1.e. . Strengthen Government of Mozambique's public financial management and accountability through procurement reform

Procurement code is incomplete and outdated. As a result, most public procurement for goods and investments is done using donor procurement rules. Approval of a revised

implementation action plan, carrying out procurement audits in at least two ministries, preparation of a training program for civil servants and suppliers and elaboration of standard biding documents.

Target was met

Date achieved 08/12/2005 10/31/2005 & 03/31/06 12/31/2005 & 03/31/06

Comment The new procurement code was approved on 12/31/2005, but the other indicators were reached by 03/31/06

1.f. Strengthen Government of Mozambique's public financial management and accountability through combating corruption.

A new central anti-corruption unit was created, but had a budget of less than US$100 thousand in 2005.

Increase in real terms the resources allocated in the 2006 budgetary proposal for the anti-corruption unit.

Target was met. The 2006 budget for the new Central Office for the Fight Against Corruption, which replaced the previous Anti-Corruption Unit, was over US$1.4 million, over 10 times the budget allocation of 2005

Date achieved 08/12/2005 03/31/2006 03/31/2006 Presentation of New Commercial Code to Parliament.

Target was met. 2.a. Improve the investment climate through the approval of a new Commercial Code.

Commercial Code dates from 1888

Approval of New Commercial Code by Parliament.

Target was met

Date achieved 08/12/2005 10/31/2005 & 03/31/2006 10/12/2005 &12/27/2005

Comments The New Commercial Code was presented to Parliament by 10/12/2005, but it was only approved on 12/27/2005.

2.b. Improve the investment climate through the approval of a new Financial Institutions Law

Capacity of BoM to regulate and supervise banks and non- bank financial institutions were very weak.

Approval of New Financial Institutions Law to increase supervision capacity of BoM

Target was met

Date achieved 2004 08/12/2005 08/12/2005

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2.c. Improve the investment climate through legal reform.

Procedures for commercial cases and notary requirements were very cumbersome.

Government to submit bills to parliament revising the Organic Law of Judicial Courts including commercial sections and the Notary Code

Target was met.

Date achieved 08/12/2005 03/31/2006 03/31/2006 2.d. Improve the investment climate through adoption of decree 57/03 on hiring foreign labor

Decree 25/99 made it very difficult to hire foreign labor. For example, it gave discretionary ministerial power in the hiring of foreigners.

New decree modified previous one and provided a limit on the time the Ministry of Labor could take to approve requests.

Target was met

Date achieved Before 2004 06/29/2006 06/29/2006 3. Poverty reduction through expansion of service delivery by privileged orientation of public resources to PARPA priority sectors

63 percent of total expenditures went to PARPA’s priority sectors in 2004

65 percent of expenditures allocated to priority sectors in 2005

Target was met. Allocation of resources to priority sectors reached 66.3 percent in 2005

Date achieved 2004 12/31/2005 12/31/2005 Comments The PARPA priority sectors listed in the Results Framework attached to the PRSC2 (Annex 7)

included: education, health, HIV-AIDS, Roads, water, agriculture and rural development. Indicators for each of these sectors follow below.

3.a. Education:

EP1 net enrollment rate (less than 72%); EP1 net enrollment rate girls (less than 69%); EP1 completion rate total (less than 43%); EP1 completion rate girls (less than 36%)

EP1 net enrollment rate (79%); EP1 net enrollment rate girls (less than 77%); EP1 completion rate total (43%); EP1 completion rate girls (36%)

Targets were met EP1 net enrollment rate (83%); EP1 net enrollment rate girls (81%); EP1 completion rate total (48%); EP1 completion rate girls (39%)

Date achieved 2004 April/May, 2006 (after Joint Review)

04/16/2006

Comment All base line indicators value for priority sectors refer to values in 2004 which were the ones available at appraisal of PRSC2 (Results Framework -2004 PAF-in annex 7 of PRSC2 PAD).

3. b. Health:

Proportion of institutional deliveries among expected births (47%); DPT3 and HB vaccines treatment coverage to less than 1 year old infants (91.5%); consultations per inhabitant per year (more than 91%)

Proportion of institutional deliveries among expected births (49%); DPT3 and HB vaccines treatment coverage to less than 1 year old infants (95%); consultations per inhabitant per year (93%)

Two targets were met; one target was not met Proportion of institutional deliveries among expected births (49%); DPT3 and HB vaccines treatment coverage to less than 1 year old infants (94%); consultations per inhabitant per year (101%)

Date achieved 2004 April/May, 2006 04/16/2006

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(after Joint Review) 3. c. HIV-AIDS

Positive pregnant women and neonates receiving PMTCT Prophylaxis (less than 8 thousand).

Positive pregnant women and neonates receiving PMTCT Prophylaxis (15 thousand).

Target was not met Positive pregnant women and neonates receiving PMTCT Prophylaxis (7.3 thousand).

Date achieved 2004 April/May, 2006 (after Joint Review)

04/16/2006

3. d. Roads

Kms rehabilitated (less than 813); kms Periodic maintenance ( less than 1392); kms routine maintenance ( less than 13578)

Kms rehabilitated (1091); kms. Periodic maintenance (1635); kms routine maintenance (14343)

Two targets were met but one was not met. Kms rehabilitated (1902); kms. Periodic maintenance (1932); kms routine maintenance (11949)

Date achieved 2004 April/May, 2006 (after Joint Review)

04/16/2006

3. e. Water

% of population with access to potable water (less than 41%)

% of population with access to potable water (44.2%)

Target partially met. % of population with access to potable water (40.4%)

Date achieved 2004 April/May, 2006 (after Joint Review)

04/16/2006

Comment Target considered partially met because methodology of calculation of this indicator changed. 3. f. Agriculture and rural development

Agriculture and rural development percent of agricultural assisted explorations that adopted at least one new technique during the last 12 months ( 70%)- Proxies, the total farmers assisted by public extension services (150 thousand) and number of vaccinations against New Castle (1.2 million); percent of processes received that are authorized in 90 days (less than 90%)

Total farmers assisted by public extension services (196 thousand) and number of vaccinations against New Castle (3 million); percent of processes received that are authorized in 90 days (90%)

Targets partially met.Total farmers assisted by public extension services (176.7 thousand) and number of vaccinations against New Castle (2 million); percent of processes received that are authorized in 90 days (70%)

Date achieved 2004 April/May, 2006 (after Joint Review)

04/16/2006

Comment Considered partially met because: total farmers assisted by public extension services of 176.7 thousand represents 18% over the value in 2004; number of vaccinations against New Castle of 2 million represents an increase of 74% over 2004.

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Annex 2. Restructuring (if any)

ISR Ratings at Restructuring

Restructuring Date(s)

Board Approved PDO Change DO IP

Amount Disbursed at Restructuring

in US$mil.

Reason for Restructuring & Key Changes Made

If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below:

Outcome Ratings

Against Original PDO/Targets

Against Formally Revised PDO/Targets

Overall (weighted) rating

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Annex 3. Bank Lending and Implementation Support/Supervision Processes10

(a) Task Team members

10 For programmatic DPL, Annex 3 will have multiple entries, as applicable, to include relevant data on each individual

operation in a programmatic series.

Name Title Unit Responsibility/ Specialty

Lending (from Task Team in Program Document)

Gregor Binkert Lead Specialist AFTP1 TL

Jeeva A. Perumalpillai-Essex Lead Operations Officer AFTS1 TL

Peter G. Moll Sr. Country Economist AFTP1 Macro framework

Antonio Franco Sr. Economist AFTP1 PARPA

Maria Teresa Benito-Spinetto Research Analyst AFTP1 Macro framework

Lurdes Samuel Malate Amaral Executive Assistant AFTP1 Administrative support

Peter Nicholas Country Program Coordinator AFCMZ Country Strategy

Gilberto de Barros Sr. Private Sector Development Specialist

AFTPS Private Sector Development

Louise Fox Lead Specialist AFTPM Poverty

Daniel De Sousa Investment Officer AFTS1 Agriculture Sector

Caroline Forkin AFTS1 HIV/AIDS

Jacomina de Regt Lead Specialist AFTS1 HIV/AIDS

Luisa Matsinhe Team Assistant AFTS1 Administrative support

Caroline Guazzo Language Program Assistant AFTS1 Administrative support

Noel Kulemeka Sr. Economist AFTH1 Education Sector

Alexandria Valerio Sr. Education Specialist AFTH1 Education Sector

Humberto Cossa Sr. Health Specialist AFTH1 Health Sector

Jean-Jacques de St. Antoine Lead Operations Officer AFTH1 Health Sector

Kate Kuper Sr. Urban Specialist AFTU1 Decentralization

Lance Morrell Lead Operations Officer AFTU1 Decentralization

Kathy Revels Principal Regional Team Leader

AFTU1 Water Sector

Jose Luis Macamo Public Sector Management Specialist

AFTPR Public Sector Reform

Ravi Ruparel Sr. Financial sector Specialist AFTFS Financial Sector

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(b) Ratings of Program Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements (US$mil.)

1 6/30/2006 Satisfactory Satisfactory US$120.00 (a) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage No. of Staff Weeks US$ Thousands

(including travel and consultant costs) Lending

FY05 59.75 375,591.53 FY06 35.55 183,175.68

TOTAL: 95.1 558,767.21 Supervision/ICR

FY05 3.15 140,087.26 FY06 10.23 94,285.08

TOTAL 13.38 234,372.34

Name Title Unit Responsibility/ Specialty

Mohamed Khatouri Lead Monitoring and Evaluation Specialist

AFTRL M&E

Paola Ridolfi Country Officer AFCMZ M&E

Gert Van der Linde Lead Financial Management Specialist

AFTFM SISTAFE; Public Financial Management

Alberto Ninio Lead Counsel LEGAF Legal

Slaheddine Ben-Halima Sr. Procurement Specialist AFTQK Procurement

Anil Bhandari Sr. Adviser AFTTR Transport Sector

Dieter Schelling Lead Transport Specialist AFTTR Transport Sector

Supervision (from Task Team Members in all archived ISRs)

Gregor Binkert Lead Specialist AFTP1 TL

Jeeva A. Perumalpillai-Essex Lead Operations Officer AFTS1 TL

Alexandria Valerio Sr. Education Specialist AFTH1 Education Sector

Lurdes Samuel Malate Amaral Executive Assistant AFC02 Administrative Assistance

Gert Van der Linde Lead Financial Management Specialist

AFTFM Public Financial Management

Slaheddine Ben-Halima Sr. Procurement Specialist AFTQK Procurement

Gilberto de Barros Sr. Private Sector Development AFTPS Private Sector Development

Brighton Musungwa Senior Financial Management Specialist

AFTFM Public Financial Management

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Annex 4. Beneficiary Survey Results (if any)

36

Annex 5. Stakeholder Workshop Report and Results (if any)

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Annex 6. Summary of Borrower’s ICR and/or Comments on Draft ICR

38

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Annex 7. Comments of Co financiers and Other Partners/Stakeholders

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Annex 8. List of Supporting Documents11

1. First Poverty Reduction Support Operation, June 9, 2004, Report No. 29262MZ 2. Second Poverty Reduction Support Operation, August 4, 2005, Report No.32890MZ 3. Letter of Development Policy, June 1, 2004 4. Letter of Development Policy, July 29, 2005 5. Tranche Release Document, March, 2005 6. Development Credit Agreement for First PRSC, July 21, 2004 7. Development Credit Agreement for Second PRSC, September 16, 2005 8. Country Assistance Strategy Progress Report, February 21, 2006, Report No. 35319MZ 9. Simplified Implementation Completion Report, November 29, 2005, Report No. 34007 10. Mid Year Review 2006 Aide-Memoire, September 14, 2006 11. Joint Review 2006, Aide-Memoire, April 13, 2006 12. Performance Assessment Framework (PAF) 2005 13. World Bank, New Governance Matters, 2006. 14. National Statistics Institute, Mission Report from a short term mission on a model for

predicting poverty, Statistics Norway, Statistics Denmark and Statistics Sweden, March 2006.

11 All listed documents can be found in IRIS or Image Bank.

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