madagascar: joint health sector support project (world bank - 2009)

8/4/2019 Madagascar: Joint Health Sector Support Project (World Bank - 2009)

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Documento fThe World BankFOR OFFICIAL, USE ONLY

Report No: 45064 - MG

PROJECT APPRAISAL DOC UME NTO N A

PROPOSED CRE DITIN THE AMOUNT OF SDR 40.5 MILLION(US$63 MI LL IO N EQUIVALENT)

TO THEREPUBLIC OF MAD AGA SCA R

FOR AJOINT H E A LT H SECTOR SUPPORT PROJECT

February 3,2009

HumanDeve lopmen t I11Country Department 1Afr ica Region

This document has a restricted distribution and may be used by recipients only in theperformance o f their official duties. I t s contents may not otherwise be disclosed without WorldBank authorization.


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CURRENCY EQUIVALENTS(Exchange Rate Effective December3 1,2008)Currency Unit = Ariary1.927Ar = USDlUSD 1.55663 = SDR 1FISCAL YEARJanuary 1 - December31

ABBREVIATIONS AND ACRONYMS

..11


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FOR OFFICIAL USE ONLY

I C sIDAIFRIH PIMF

H M I S I Health Management Inform atio n System I sss I Single Source SelectionIBRD I International Ban k for Reconstruction & I SWAP I Sector Wide Approa ch- (Procurement Management Unit)Individ ual Consultant Selection UNF PA United Nations Fund for Po pulation ActivitiesInternational Developmen t Association UN IC EF Uni ted Nations Children's FundInterim unaudited Financial Reports US AI D US Agency for International DevelopmentInternational Health Partnership USC Use o f Country SystemsInternational Monetary Fund W HO World Heal th Organizat ion

I DevelopmentI C B I International Competitive Bidding I U G P M I Unite' de Gestion de la Passation de Marche'

V ic e P resi dent : Ob iage l i Ka t r y n Ezekwes i l iCountry Di rec tor : Ruth K a g i a

Sector Manager : Ly nn e Sherburne-BenzTask Team Leader : Marya nne Sharp

1 IThis document has a restric ted d istr ibut ion and m ay be used by recipients only in the per formance o ftheir o f f ic ia l duties. I t s contents ma y no t be otherwise d isclosed wi thout W or ld B an k author izat ion.


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IA .B.C.I1A.B.C.D.E.F.

M A D A G A S C A RJoint He alt h Sector Support Project

C O N T E N T SPage

S T R A T E G I C CONTEXT AND RATIONALE.................................................................. 4Country and sector issues..................................................................................................... 4Hi gh er level object ives t o w hic h the project contr ibutes ................................................... 8Rationale for Bank involvement........................................................................................... 8P r oJ E CT D E S C R I P T I O N .................................................................................................... 9Lending nstrument ............................................................................................................... 9Proje ct objective and Phases ............................ ................................................................... 9Proje ct development objective andke y indicators ............................................................. 9Proje ct components ............................................................................................................... 9Lessons le arn ed and reflected in the p roject design......................................................... 11Alternatives considered and reasons for rejection ........................................................... 12

I11. IMPLEMENTATION ........................................................................................................ 13Partnership arrangements.................................................................................................. 13Institutional and implementat ion arrangements.............................................................. 13Mo ni to ri ng an d evaluation of outcomes a nd results ........................................................ 14

D. Sustainability........................................................................................................................ 15Cr i t ica l risks an d possible con trovers ial aspects .............................................................. 15Lo ad cre di t conditions and covenants ............................................................................... 18A P PR A I S AL S U M M A R Y .................................................................................................. 18Economic an d finan cial analyses........................................................................................ 18

B. Technical............................................................................................................................... 20

A.B.C.E.FI VA.

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C. Fiduciary .............................................................................................................................. 21D. Social..................................................................................................................................... 23E. Environment........................................................................................................................ 24F. Safeguard policies................................................................................................................ 24G. Policy Exceptions and Readiness........................................................................................ 25Annex 1: Country and Sector Background............................................................................... 26Annex 2: Major Related Projects Financed by the Bank and/or other Agencies..................34Annex 3: Results Framework and Monitoring......................................................................... 37Annex 4: Detailed Project Description...................................................................................... 42Annex 5: Project Financing........................................................................................................ 48Annex 6: Implementation Arrangements.................................................................................. 49Annex 7: Financial Management and Disbursement Arrangements..................................... 52Annex 8: Procurement Arrangements....................................................................................... 66Annex 9: Economic and Financial Analysis.............................................................................. 76Annex 11: Safeguard Policy Issues............................................................................................. 89Annex 12: Project Preparation and Supervision...................................................................... 92Annex 13: Documents in the ProjectFi le.................................................................................. 93Annex 14: Statement of Loans and Credits............................................................................... 97Annex 15: Country at a Glance.................................................................................................. 99

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M A D A G A S C A R

Source L o c a l

MG-JOINT HEALTH SECTOR SUPPORT PROJECT

Fore ign Tota l

PROJECT APPRAISAL DO CUM ENT

BORROWER/RECIPIENTInternational Development Association(IDA)FRA NCE : French Agency fo rDevelopment

AFRICA

0.0 0.0 0.039.1 23.9 63.017.5 2.0 19.5

AFTH3

Total:

Date: February3,2009Country Director: RuthKagiaSector ManagerDirector: Lynne D.Sherburne-Benz communicable diseases (P);Health system

Team Leader: Maryanne SharpSectors: Health (100%)Themes: C hil d health (P);Otherperformance (P);Population and reproductivehea lth (P);Nutrition and food security (S)Environm ental screening category: PartialAssessmentProject ID: P106675

[ ]Loan [X I Credit [ ]Grant [ 3 Guarantee [ 3 Other:

56.6 25.9 82.5

For Loans/Credits/Others:Total Bank financing (US$m.): 63.00ProDosed terms: 40 vears including 10 Years grace


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FYAnnua lCumulat ive

I s approval fo r any po l icy exception sought fro m the Board?Does the project include any cr i t ica l risks rat ed substantial or high?Ref: PAD III.E.Does the project m eet the Regiona l cr i ter ia f or readiness f or implementation?Ref: PAD I K G.Project development objective Re$ PAD II.C., Technical Annex 3

[X IYes

10 11 12 13 1415.00 14.00 12.00 12.00 10.0015.00 29.00 41.00 53.00 63.00

I s approval fo r any po l icy exception sought fro m the Board?Does the project include any cr i t ica l risks rat ed substantial or high?Ref: PAD III.E.Does the project m eet the Regiona l cr i ter ia f or readiness f or implementation?Ref: PAD I K G.Project development objective Re$ PAD II.C., Technical Annex 3

[ ]Yes [XINO[ ]Yes [XINO[X IYes [ ] N o

The development objective o f he JHSSP i s o contr ibute t o strengthening o f he health system toincrease uti l iza tion o f health services, particu larly among mothers and children.Project description [one-sentence summary o each component] Ref: PAD II.D., TechnicalAnnex 4Based on the challenges fa cing the h ealth sector, the JHSSP will support the fol lo win gcomponents: (i)trengthening del ive ry o f hea lth services; (ii)i l o t demand side interven tions forbasic hea lth services; (iii)evelopment and management o f human resources; and (iv)inst itutio na l strengthening and moni to r ing and evaluation.

Component 1 Strengthening Del ive ry o f He alt h Services (US $4 1.3 m il l io n equivalent): Theobject ive o f h is component i s o strengthen the del ivery and avai lab i l i ty o f hea lth services at thepr imary and f i r s t refer ral levels.Component 2: Innovative Dem and-Side Interventions for Basic He alth Services (US$16.9m il l io n equivalent): The objective o f his component i s to support pi lo t testing o f di fferentapproaches designed to increase the ut i l iza tio n o f basic h ealth services by st imulat ing demand.Component 3: Development and Management o f Human Resources (US$7.4 m i l l i o nequivalent): The objective o f this component i s to impro ve hum an resource management in hehea lth sector and strengthen capacity o f he Human Resource Department o f he Mo H .Component 4: Institutional Strengthening and Moni to r ing and Evaluat ion (US$16.9 m i l l i o nequivalent): This component will continue to support a number o f system development andinst itutio nal strengthening activities at the central and decentralized levels.

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W hic h safeguard po licies are triggered, if any? Ref. PAD I K l ? , Technical Ann ex 10The only safeguard tr iggered i s OP 4.01 Enviro nme ntal Assessment, due to p otential risks in heineffective m ed ical waste management in hea lth centers. As such, a Med ica l Waste Managem entP lan (MW MP). is required.The project does not trigger any o f he Wo r ld Banks socia lsafeguards p olicies, since landwil l no t be acquired and c iv i l works will be l im i ted torehabi li tation o f existing infrastructures. To address poten tial impacts on the environment andpu blic health effectively, the MoH adopted the Nat ional Pol icy for Medica l Waste Managementin September 2005. T h i s Polic y was approved and disclosed o n M ar ch 23,2007 in he Infosho pand between Ma rch 20 and 26,2007 in-country . The relevant detailed MWMP was prov ided tothe Bank in September 2008 and ud ge d satisfactory.Significant, non-standard conditions, if any, for:Re$ PAD III. .Bo ard presentation:N oneLo ad cre dit effect iveness:Adop ti on o f a rev ised P I M and a Project Account ing Manu al o f Procedure, satisfactory to IDA,to r eflect the revised Chart o f accounts, the n ew m odels o f nterim non-audited Finan cial Reports(IFRs) and fina ncia l statements, and al l pol ic ies and procedures to be a pplied to the project.Covenants applicable to project implem entatio n:Finan cial covenants are the standard ones as stated in he Finan cing Agreement Schedule 2,Section I1(B) on Finan cial Management, Finan cial Reports and Audits and Section 4.09 o f heGeneral Conditions. Inparticular, the proceeds o f he cred it shall be used (a) e xclusive ly tofinance Eligible Expenditures under the An nua l Act i on Plan; and (b) in he case o f PooledActiv i t ies in accordance with such percentages as sha ll be determinedeach year. In addition, theexisting computerized accounting system will be upgraded to ensure timely produc tion o f a l lf inancial and technical in form ation required by IDA and AFD, to be completed n o later than twomonths after effectiveness. The p roject f inan cial statements shall be audited o n a six month lybasis by independent aud itors acceptable to IDA. Independent auditors will be appointed withinthree months after the effectiveness date. Three addition al covenants are include d in the project:(i)rganizat ion o f at least one Joint He al th Sector Review annually; (ii)he adopt ion o f henational Hum an Resource Developmen t Plan by December 3 1,201 0; and (iii)he co-f inancingdeadl ine for effect iveness o f he Co-Financing Agreement o f AFD i s September 30,2009.Finally, n o disbursements wil l be made (i)or bonuses under Component 2.1 until th e manualestablishing the system f or such bonuses, satisfactory t o the Association, has been adopted; (ii)for performance based allocations un der Componen t 1.1 until the ma nua l establishing the systemo f such allocations, satisfactory t o the Association, has been adopted; and (iii)ro m thecomponents under the Poo led Fundinguntil th e Co-f inancing Agreement o f AFD i s madeeffective and the Collab oration Agreement has been signed.

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I. STRATEGIC CONTEXT AND RATIONALEA. C o u n t r y and sect or issues

1. Poverty in Madagascar is widespread, with over two-thirds o f he population living belowthe pove rty line, and i s heterogeneous among geographical regions, with the eastern and southerncoastal regions with poverty rates o f 80 percent. There are also significant urban-ruraldifferences (52 percent versus 7 4 percent), altho ugh between 2001 and 2005, poverty declinedmore rapidly in rural areas than in urb an areas. Th e last decade however, has witnessed markedimprovements in basic social indicators, albeit from a low base. Today, more children are inschool and net primary enrolment rates have increased fr o m 7 0 percent in 2002 to 85 percent in2006/07. C hi ld morta lity rates have also declined significantly, fr om 159 deaths per 1,000 l i vebirths in 1997 to 94 in 2003/2004, and imm uni zat ion rates significantly improved f rom 53percent o f al l children 12-23 months fully immunized in 2003/2004, to 71.5 percent in 2008'.Chronic malnutrition rates o f children under the age o f hree decreased from 43 percent in 1997to 32 percent in 2007. Th e prevalence o f H I V / A I D S in th e country remains low , but has rapidlyincreased among high risk groups and there are an estimated 180,000 persons living with HIV inthe country. Madagascar's health indicators are better than other African countries at a similarincome level, but they s t i l l rema in low, particularly amongst th e rural population and the urbanpoor. Fo r example, the maternal mortal ity ratio in 2004 was s t i l l high at 469 deaths per 100,000l iv e births. Population growth in Madagascar i s 2.7 percent while the fertility rate is 5.2 child renper woman, and children under-five make up around 17.5 percent o f th e population.Contraceptive prevalence in women aged 15-49 was only 24 percent in 2006. Thus, althoughthere are encouraging developments, there i s s t i l l a long way t o go g iven where Madagascar istoday relative to th e rest o f he world.2. Health i s a key goal o f Madagascar's poverty reduction strategy, the Madagascar ActionPlan (MAP) 2007-2012. In l ine with the MAP, the Min is t ry o f Hea lth and Family Planning(MoH) developed a National Hea lth Sector and Social Protection Development Plan (Plan deDe'veloppement du Secteur Sante' et de la Protec tion Social - PDSSPS) for the period 2007-201 1which articulates and translates the M A P commitments into specific strategies and activities andidentifies a number o f bottlenecks to increased access and use o f hea lth services, including fourkey areas o f weakness:(0 Low levels of health fina nc ing and inefficiencies in resource allocation: Madagascar spentaround US$6 per capita o n health care in 2005, significantly lower than the average o f US$15.4per capita for sub-Saharan Africa2. Despite increases o f th e resource envelope o f the M o Hbetween 2005 and 2008, the current budget in 2008 o f around US$144 million, or 1.6 percent o fGDP, i s not sufficient to adequately finance th e implementation o f he PDSSPS. Moreover, thebudget execution rate, although improving, has remained weak with preliminary estimates at73.4 percent in 2007. This low uti l ization o f existing resources does not encourage the Ministryo f Finance and Budget (MFB) to increase the allocation o f domestic resources to the healthsector. Furthermore, even when resources are available, they have been allocated in ways that donot necessarily favor the poor, are not sufficiently directed to basic health centers, and the

Enguzte sur la Couverture Vaccinale, February 2008* excluding SouthAfr ica4


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formula for al locating health resources does not take into account demographic or socio-economic differences across the regions. A s a result, high impa ct health interventions, especiallythose needed to improve maternal and child health, are not targeted to where they ar e mostneeded. Fo r instance, the mo rtal i ty rate among c hi ldren and infants among the poorest 20 percento f he popu la t ion i s more than three time s higher than for ch i ldren among the richest 20 percent.(ii) Inadequate demand for health services and low levels of utilization: only 10 percent o f hepopulation reports an i l lness annually, and o f this, only 40 percent seeks care from qual i f iedme dic al personnel. Fin anc ial barriers to access are th e ma in reason fo r the lo w u t i li za t ion o fhealth services and are often related no t only to th e direct cost o f the services, but also to otherrelated expenditures, such as transportation costs and the opportunity cost o f seeking care.Moreover, geographic access to health care facil i ties is limited in rural areas, and about 10percent o f hose needing care l iv e very far f rom a hea l th fac i l ity and are unable to ut i l iz e heal thservices whe n ill.A health ma pping exercise done in 2007 showed that on ly about 58 percent o fthe populat ion l ives within 5 k i lometers o f a pr imary heal th center .(iii) Uneven staffing of health facilities, especially in ru ra l and remote areas: a fundamentalproblem underlying the uneven product ion and del ivery o f heal th serv ices in Madagascar is th ehuge variation in the al location as wel l as training and competency levels o f medical andparamedical personnel. There are m ajo r imbalances in he d istr ibut ion o f doctors across ru ra l andurban areas, with 28 percent o f doctors serving 75 percent o f the populat ion living in the ru ra lareas and the rem aining 72 percent in he urban centers. Moreover, an estimated 40 percent o f a l lprimary health centers do not have doctors. In addit ion, the re lat ive ly lo w product iv i ty o fmedical personnel in the publ ic sector poses a ma jor problem . Besides shirking and absenteeismdocumented in the 2007 Publ ic Expenditure Trac king Survey and the Absenteeism Survey, lowproduct iv i ty o f he medical personnel is a lso a resul t o f o w evels o f emuneration.(iv) Poorly equipped health centers and low levels o capacity to produce and deliver healthservices, especially in rural and remote areas: health centers, especially those in the mostisolated areas, often l ac k essential goods and equipments t o facil i tate diagnosis and treatment.Also, as demonstrated in th e 2007 Survey on Bottlenecks in F unc ti on i ng o f he Supply C h a in o fDrugs, there continue to be extensive delays in the d istr ibut ion o f drugs and medical suppl ies t othe hea lth facil ities, taking, on average, up to one and a ha lf months, and regions continue tohave di ff icul t ies in eff ic ient ly managing their medica l supplies. Manager ia l and imp lementat ioncapacity at decentralized levels also continues to b e weak. Final ly, there are other indications o fl o w q u a li ty o f services at pub lic fac il i ties. In 2007, only 65 percent o f pub l ic basic hea lth centersha d access to water, 31 percent ha d electricity, and on ly 56 percent had a means o ftransportation.3. To address these issues, the PDSSPS seeks t o strengthen th e hea lth system and increasei t s capacity to prov ide the necessary produ ction, financing , delivery and management support fo rimpro ved service delivery to reduce neonatal, ch i ld and maternal mortal i ty, a nd contro l i l l nesssuch as malaria, tuberculosis, sexually transmitted infections (STIs), and H I V / A I D S . A newsector policy was adopted in June 2005, in which emphasis was placed on re-orienting healthresource allocations to underserved areas and improving publ ic expenditure management.Accordingly, ongoing efforts are being targeted to strengthen th e delivery o f health services,develop and manage human resources in the health sector, introduce innovations in heal th

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f inancing inclu ding resource mo bil iza t ion and resource allocation, and improve demand for, andutil iza tion of, he alth services. All development partners support the PDSSPS and ar e f inanc ingact iv i ties inscribed in the sector plan, albeit through parallel projects. There is, however, ageneral consensus among th e development partners that a trans ition phase o f sector-specificsupport and sustained impro vem ent in pu blic resources i s necessary be fore the Ministry can fullybenefi t f r om general budget support. The M o H s also in the process o f updat ing i ts M edium -Term Expendi ture Framework (MTEF) for 2009-201 1 and in parallel, the PDSSPS 200 7-201 1will be updated for the pe riod 2009-201 1 based o n the MTEF and to take i nto account lessonslearned, further prior i t iz ing act iv i ties and resul ts expected based o n different f inan cial scenarios.4. The PDSSPS and the MTEF are the key anchors o f he Sector-Wide Ap proa ch (SWAP),the first phase o f which was put in place in early 2007. T he SW AP i s contribut ing to increasingcountry ownership and leadership, fostering coordinated and open policy dialogue, puttinggreater focus o n results, and guiding the al locat ion o f resources based o n priori t ies. Final ly, i t i ssupporting enhancing sector-wide accountability with common fiduciary standards, andstrengthening the countrys capacity, systems and institutions. The S WA P i s a crit ica l step forMadagascar, especially since i t became a member country for th e Internat ional HealthPartnership and related init iatives (IHP+) in M a y 2008. IHP+ i s a renewed global effort tosupport countries in achieving their heal th Millennium Developme nt Goals (MDGs) with scaledup financial, technical and inst i tut ional support for act iv i t ies and mechanisms designed toachieve results o n the ground. A key e lement o f he IHP+ is the development o f esults-focused,country-led Compacts that rally all development partners around one costed national healthstrategy, one Monitoring and Evaluat ion (M&E) framework, and one review process, thusim pro vin g harmonization, alignment, focus on results and mutual accountability. As such, th eSWAp can act as the catalyst for the preparation o f this Compact f or Madagascar.5. The Wor l d Bank is support ing the SWAP through the Sustainable Health SystemDeve lopm ent Project (SHSDP), in the amount o f he US$lO m i l l ion, wh ich became ef fect ive onAugust 30, 2007. The project was designed to lay the foundations for the SWAP and build thebudgetary, impleme ntat ion and mo nitorin g capacity o f he M o H . The SHSDP seeks to provid esupport for strengthening the nat ional health system, including f inancing, del ivery andmanagement, so as to improve the access and uti l izat io n o f health services, especial ly in rura land remo te areas. Three other Ba nk- fina nce d projects are also suppo rting the health sector: theSecond Mult i-secto ral STI/HIV/A IDS Prevention Project (MSPP II),he Poverty Reduct ionSupport Credit (PRSC) and the Governance and Insti tution al Deve lopm ent Project (PGDI). Theobject ive o f the MSPP I1 s to support the Government o f Madagascars efforts to prom ote amulti-se ctoral response to the HIV/AIDS crisis and contain the spread o f HIV/AIDS. To do so ,th e project i s building capacity to carry out th e national response to H IV /A ID S and STIs, a keyrisk factor for and contributor to the spread o f HIV/AIDS. The M S P P I1 also seeks to improvethe quali ty o f i f e o f persons living with HIV/AIDS throu gh increased access to qu ality m ed icalcare and to non-medical support services. The PRSC Series and the P G D I are support ingimprovements in f inancial management, including budget preparation and execution,implementat ion o f the new procurement code, improvements in human resource pol icy anddecentralization o f service delivery in the health sector. In particular, the P G D I financestechnical assistance to the key sectoral Min is t r ies , inc luding the MoH, on budget and publ icexpenditure management, institutional capacity building, and support to im pro ving governanceand transparency in Government operations.

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6. The Wor l d Bank i s col laborat ing closely with development partners in their respectivesupport to the M o H o ensure implementat ion o f effect ive strategies for the development o f hehealth sector. The complementarity o f the respective con tributions o f development partners inaddressing the main public health issues and in institu tiona l strengthening i s exemplary, fo rexample, with respect to the Expanded Program o f Vacc inat ion (Global Al l iance for Vacc inationIni t iat ive - GAVI, UNICEF, the W o r l d Bank), the malar ia control program (USAIDPres ident sMa laria Ini t iative, G lobal Fund to fight AIDS, Tuberculosis and Malar ia - GFATM, t he Wor l dBank), the family planningprogram (USAID, UNFPA, the Wor ld Bank), and f inally, support toimprov ing o f he nat ional heal th management and inform ation system (European Unio n-E U andthe Wo rld Bank). The proposed Joint H ealth Sector Support Pro ject (JHSSP) will build upon theimple men tation experiences o f he various partners in Madagascar; f or example, the introd uctio no f he minimum package o f basic health services to mothers and children, init ially developed andcosted in partnership with U N IC EF.7 . Experience from Bank projects in the sector, inclu din g the SH SDP and the formerSecond Health Sector Support Project (CRESAN II),as high l ighted certain bottlenecks inhealth service delivery but also demonstrated advances in certain areas o f the health system.With respect to finan cial management and reporting, disbursement o f proje ct funds are made inadvance and based o n bi-annual estimates p resented in a finan cial management rep ort as opposedto payments contingent o n the presentation o f statements o f expenditures fo r disbursements. Th einternal audi t capacity o f he M o H has been developed with the creation o f an internal audit bo dythat has undertaken a numb er o f audits o f region al hospitals, developed actions plans fo rimprovements in f inancial management, and overseen imp lementat ion o f these plans. Withcontinued tech nica l assistance, i t should be able undertake high-q uality, comprehensive fin anc ialand technical audits o f he PDSSPS acceptable to a ll SWAP partners (thus eliminating the needfor audits carried out by each individual agency). With respect to procurement, tw o o f theweaknesses identified during implementat ion o f he SHSDP have been addressed. Firstly, th eunit responsible fo r procurement within the M o H has been insti tut ionalized in conformi ty withthe recommendations o f an interna tional audit, and receives funding f rom a dedicated budgetl ine. Secondly, the central and the regional procurement u nits have been trained to use the newlyadopted Procurement Code, as well as on the various procurement requirements o f th edevelopment partners. Furthermore, th e M o H , with the support o f key heal th partners, such asU N I C E F and WHO, i s also in the process o f putting in place an integrated procurement andlogistics system for hea lth and nu trit io n commodities.8. The M o H has made signif icant progress on part ic ipatory annual wor k plan an d budgetplanning in the last few years. Th e pla nn ing process has been decentralized whereby wo rk plansare prepared fro m the bottom-up, consolidated and validated at each level, and integrated at thecentral l eve l into a nat ional annual wo rk plan. In addition, budgets are prepared at the district,regional and central levels based on each levels wo rk plan. The overa l l budget is then adjustedbased on the f inal envelope received fro m the MFB. Regions have also receive d assistance fr o mth e MFB fo r putting in place the appropriate financial software. As a result, although budgetmanagement i s s t i l l weak, especially at the regional and district levels, annual prog ramm ing o factivities, budget planning, and monitoring at the local levels cont inue to show markedimprovements. In an effo rt to facil itate inter-regional exchanges o f experience and lessonslearned, the M o H i s putting place different mechanisms, such as creating coaching teams tosupport the regions and districts in publ ic f inance reforms, ut i l iz ing the learning by doing

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methodology in conduct ing internal audits at the region al levels, and ho lding staff meetings inwell-performing regions so that the best performers can serve as examples and role models.Final ly, the pract ical design o f the bi-annual Joint H ealth Sector Reviews, with j o in t f ie ldmissions to learn fro m experiences on the ground, and open and honest dialogue o n constraints,bottlenecks and potential solutions, not only serves as an innovative and learning forum butfosters a certain measure o f heal thy compet i t ion among the regions and districts.9. These contributions are important but more needs to be done to support and strengthenthe natio nal health system to deliver better results o n he ground. Thus, the proposed JHSSP willseek to consolidate resul ts achieved un der the SHSDP and in tens i fy support to overal l healthsystem strengthening to im prove u t i l izat ion o f he alth services.B. Rationale for B an k involvement

10. The rationale for the Banks cont inued involvem ent in th e hea lth sector i s strong. First,consol idat ion and scaling-up o f support for basic health services i s essential for Madagascar tomake progress in achieving the MDGs. Th e proposed JHSSP supports inn ova tive results-basedfina ncin g mechanisms fo r clear opportunities t o boost progress o n pro-p oor and potent ial lyhigh mpa ct activities, in clud ing the immunizat ion o f children, con trol o f malaria, and populat ionand fami ly planning, which will contribute t o th e MDGs. Secondly, the current financial supportprov ided by the SHSDP will be exhausted by end January 2009. The proposed JHSSP will berequired to sustain the mo men tum o f the SWAP, consolidate results under the SHSDP, andprov ide the Government with more predictable f ina ncing through th e end o f 2013. Final ly, theBank can play a catalyt ic role in leveraging a dditiona l resources for the he alth sector, such asthrough the IH P+ ini t iatives, within an agreed MTEF. The Bank is a ke y agency in a consort iumo f deve lopment partners, inc luding the Afr ican Development Bank (AfDB), AFD, the EU,French Cooperation, JIC A, UN ICEF , UNFP A, USAID and WH O. Moreover, the Bank plays animportant role in bringing together the Government, c iv il society, and development partnersaround a comm on vision o f effect ive service de l ivery and impr oved governance andaccountabi l i ty through better pub l ic expenditure management.11. The proposed project is included in th e Madagascar Cou ntry Assistance Strategy (CA S)fo r 2007-11 on page 32. Key C A S goals supported inclu de impro ving services to people ( PillarI 1 o f the CAS) and achieving better outcomes in education and health. In health, the focus i s tohelp the Government make further progress o n reducing neo-natal, chi l d and m aternal morta l i tyby offering access to reproductive services, reducing malnutrit ion, improving the availabil ity ofclean water and sanitation services, and keeping HIV/AIDS and S TI rates under control. Theapproach o f the proposed project - al ignment with the government plan as enunciated in theMAP, harmonizat ion and coordinat ion with other development partners, and integrated sector-wide approach to health - s consistent with th e CA S principles and approach. Final ly, theJHSSP i s al igned with th e Wor ld Bank health, nutrit ion and po pula tion strategy and th e sectoralstrategic pr iorit ie s as la id out in the Afr ica A ct ion Plan.

C. Hig he r level objectives to wh ich the projec t contributes12. The JHSSP i s designed to support th e implementat ion o f major parts o f he GovernmentsPDSSPS, which places an emphasis on maternal and chi ld health with a key object ive o f

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strengthening a ll aspects o f hea lth systems, in clu din g the production, financing, delivery,stewardship and governance o f health services. The achievement o f the goals o f the PDSSPSwill, inter alia, include reduction in maternal, child and neo-natal mortality, fertility rate, andchronic m alnutr i t ion in chi ldren under the age o f ive. The f iduciary dimensions and focus o f heJHSSP on strengthening public budgeting, f inancial management and procurement also fi t withbroader efforts in this direct ion and is supported by other Bank projects, especially th e fifthPRSC. Activit ies under the JHSSP also emphasize transparency and pr edic tab ility in budgetingand sectoral planning, thus in keeping with higher-level objectives in governance and publ icsector, and pub l ic expenditure management reform . The successful implem entat ion o f JHSSP isexpected t o yield a number o f other development benefits as well, inc lud ing coordinated andopen po licy dialogue, alloca tion o f esources based on priorit ies, sector-wide accoun tability withcom mo n fiducia ry standards, and stronger cou ntry capacity and inst i tut ions.11. PROJECT DESCRIPTIONA. Lending instrument

13. The tota l cost o f he proposed JHSSP i s US$82.5 m il l io n equivalent. IDAs contribut ionto the JHSSP will be f inanced through a sector investment cred i t o f an amount equivalent toUS$63 mi l l ion, implemented over a four-year period from June 2009 to June 2013, with aclosing date o f December 31, 2013. A por ti on o f IDAs support wil l be pooled with f inanc ingf rom AFD in a com mo n account (US$19.5 m il l i o n equivalent). Th is amount includes acont ribution o f Euros 2 m i l l i on f rom KfW, who has entered into a si lent partnership with AFD.B. Project objective and Phases

NIA

C. Project development objective and key indicators14. The development objec tive o f the JHSSP i s to contribute to strengthening o f the hea lthsystem to increase ut i l izat ion o f health services, part icularly among mothers and chi ldren. T o doso, th e proposed JHSSP i s emp loying a two-pronged strategy: to pro vide f inanc ial and technicalsupport to priority activit ies as identified in the PDSSPS, such as maternal and c h il d hea lthinterventions; and to continue t o strengthen the health systems ability to use resources moreeffectively, which in turn, should result in better results on the ground. Achievemen t o f thedevelopment objective will be moni tored by th e fo l low ing key performance indicators: (i)percentage o f births attended by skille d hea lth staff; (ii)ercentage o f wom en aged 15-49 usingmo der n methods o f contraceptives; and (iii)ercentage o f chi ldren under one immunized forDPT3lPenta. In addition, a series o f indicato rs will be used to moni tor progress o f eachcomponent. For each indicator, th e M o H has recorded the basel ine value, conf irme d thef requency o f moni tor ing and the institutions responsible for doing so, and set targets forachievement by 2013. These are summ arized in detai l in Annex 3.D. Project components

15. The proposed JHSSP will dire ctly support the sector by improv ing the supply o f h e al thservices, stimulating the use o f services, and strengthening th e health system fram ework within9


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which these intervent ions are implemented through the fol lowing components: (i)trengtheningdelivery o f he alth services; (ii)nnov ative demand-side interve ntions for basic hea lth services;(iii)evelopment and management o f hum an resources; and (iv) institutional strengthening andmoni tor ing and evaluation. Indicative allocations by component will be made for the projectperiod; however, the actual allocations will be adjusted based o n the Governments An nu alAc t ion Plan, as preparedby the MoH. The detailed project d escript ion by component i s in Annex4. The IDA credit wo uld f inance 100 percent o f eligible expenditures under Components 1.2,2.1and 4.2 while the AFD grant wou ld f inance 100 percent o f el igible expenditures underComponents 2.2 and 4.3 as described in Annex 4. IDA and AFD wo uld join t ly f inance, at therespective percentages to be determined each year, 100 percent o f el igible expenditures under a l lother project Components.16. Component 1:Strengthening Delivery o Health Services (US$41.3million equivalent):The object ive o f his component is to strengthen the delivery and avai labi li ty o f he alth services atthe primary and f i r s t referral levels. To this end, this component wil l support the strengtheningo f he capacity o f he regions, distr icts and he alth centers to be tter organize, manage and del iverhealth goods and services to all, especially those living in rura l and remote areas, but withcontinuing technical support and stewardship from the center. Efficient logistics and sustainedavai labi l i ty o f pharmaceuticals, medical and laboratory equipment and supplies, crit ical foref fect ive del ivery o f basic h ea lth services, will also be supported by this component. Componentactivities will include : (1.1) allocations to regions, districts and hea lth centers in part to coverfixe d costs and in part based on achievement o f an agreed up on set o f results; (1.2) contracting-out o f basic h ealth service delivery; and (1.3) support to the func tiona lity o f hea lth facilit ies,such as strengthening the distribut ion and management o f the pharmaceutical log ist ical supplychain, reha bi l i tat ion o f warehouses, and prov is i on o f equipment, medical suppliesand medicines.Sub-components 1.1 and 1.2 w ou ld be financed by the pooled funds and sub-component 1.3 by100 percent IDA f inancing. The expected resul t o f his component would be the improvement o fdelivery o f basic hea lth services at al l levels.17. Component 2: Innovative Dem and-Side Interventions for Basic He alt h Services(US$16.9 million equivalent): The object ive o f this component i s to support the p i l o t testing o fdifferent approaches designed to tackle financial and geographical barriers to access andintroduce cost-effect ive intervent ions for m others and chi ldren. One o f he ways t o do th is wil lbe to expand coverage by encouraging health provide rs through performance bonuses to reach ahigher number o f c h il dren and mothers (increasing supply) with a free-of-charge (wh ich sh ouldincrease demand) minimum package o f basic hea lth interventions. A manual o f proceduresgoverning the adminis trat ion and moni tor ing o f the bonuses i s under preparat ion for each pi lo tregion. The expected result i s therefore increased use o f basic h ealth services especially thoserelated to mother and ch i ld health. The component will finance technical assistance, training,goods and equipment to support activit ies aimed at (2.1) im pro vin g access and util iza tion o fbasic h ea lth services; and (2.2) expanding enrollment in a social he alth insurance scheme for theformal sector. Sub-component 2.1 would be financed by 100 percent IDA and sub-component2.2, 100 percent AFD financing.18. Component 3: Development and Management o Hu m an Resources (US$7.4 millionequivalent): The objective o f this component i s to improve human resource management in thehea lth sector and strengthen capacity o f the Hum an Resource Department o f th e MoH. To this

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end, this component will support the finalization and implementat ion o f the n at ional HumanResource Development Plan as well as career plans for medical personnel. In addition,innova tive and performance-based mechanisms will be developed and implemented to pro videincentives to rural-based personnel and prom ote enhanced performance o f such personnel. Thi scomponent will also support selective training o f health personnel on p rior i ty areas o f healthservice delivery, and in management for results. This component will therefore finance techn icalassistance, training, sma ll rehab ilitation o f existing health centers, goods, m edic al supplies,medicines and equipment. T h i s component wou ld be entirely f inanced by the pooled funds. Theexpected resul ts o f h is component wou ld be a more equi table dis t r ibut ion o f qual i f ied medicaland paramedical personnel in specified r ura l regions.19. Component 4: Institutional Strengthening and Monitoring and Evaluation (US$16.9million equivalent): This component will continue to support a number o f system developmentand institutional strengthening activit ies at the central and decentralized levels, including thefol lo win g sub-components: (4.1) imp rov ing technical and management capacity and distr ictlevels in areas such as public expenditure management and governance, procurement, financialmanagement, internal auditing, and project oversight, which will complement and increaseeff ic iency o f the cont inuing support provided through PGDI; (4.2) strengthening the nat ionalHealth Management Information System (HMIS) and improving capacity in data collection,management, dissemination and use o f data for dec is ion-making at al l levels o f he system; (4.3)strengthening epid emio logical surveillance system; and (4.4) support to project supervision andexecution. Sub-components 4.1 and 4.4 would be f inanced by the pooled funds, whi le sub-component 4.2 wo ul d be financed by 100 percent IDA f inanc ing and sub-component 4.3, by 100perc ent 'AF D f inancing. The expected resul t o f th is component wo uld be the improvement o fplanning, budgeting, management, implementation, and mo nitorin g capacity at al l levels.E. Lessons lea rne d and reflected in the pro ject design

20. The design o f the JHSSP draws upon a number o f lessons learned f ro m internat ionalexperience and f ro m implementat ion o f a series o f health and STI/H IV/AID S prevention projectsin Madagascar. The following are the most important lessons that have been taken int o accountwhilst developing th e JHSSP:2 1. Alignment with Government's vision and priorities. The M o H has deve loped anintegrated and com mo n health sector strategy in the f o rm o f he PDSSPS, which i s based o n theGovernment's visi on as articulated in the M AP . The development o f this strategy alon g with therevised MTEF was the f i r s t step in towards a comprehensive and harmonized SWAp. Theact iv i ties o f th e proposed JHSSP are therefore based on the strategies and resul ts expectedoutl ined in bo th the PDSSPS and the MTEF 2007-201 1 and as such, c lea rly refle ct the needs andpr iori ties o f the M oH. Th is serves to strengthen Government ow nership o f the JHSSP andguarantee i t s commitment to implementation, as well as ensures that i t contributes to theachievement o f he object ives o f he PDSSPS.22. Maintaining support to decentralized levels of the health system is critical. Underprevious Bank support, th e implementat ion capacity o f key technical M o H departments hasimproved as a resu l t o f technical assistance and capacity building in planning, financialmanagement and procurement. However, a number o f weaknesses remain, especially at the

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decen tralized levels. Thus, tech nical assistance to these levels has been integrated into th e projectinc luding a l l e lements o f budget planning and execution, data analysis and use for decision-making, supply chain management and distribution, and med ical waste m anagement. In addition,external technical advisors andor consultants recruited will be requ ired to not o n ly prov idetechnical support on specific issues, but will also be paired up with Government counterpartsw h o m they will train on the issue-at-hand to build the technical capacity o f he M o H .23. Keep maxim um flexib ility to allow for response to urgent needs. The evaluat ion andimplementat ion completion report o f he CR ES AN I1showed the importance o f he flexibility o fproject design to al low for a rapid response to nat ional emergency needs during implementat ion.Given that pub l ic hea lth context i s constant ly evolving and Madagascar i s subject to frequentcyclones and pu blic h ealth outbreaks, the proposed JHSSP is be ing designed in such a way toa l low the Ministry some flex ib il it y t o re direct resources to address urge nt needs while protect ingpriori ty act iv i t ies. While maintaining flexibility, however, performance indicators should reflectimple men tation progress as well as interven tions actually financed to a voi d any disconnect withachievement o f he proje ct development objective.24 . Reduce the transac tion costs for the Governmen t. A k ey goa l o f a SWAP in heal th i s toreduce the burden and transactions costs for Government. As such, the proposed JHSSPimplementat ion moda li t ies are expected to im prove al locat ive eff ic iency by redu cing transactioncosts at all levels o f the health pyramid, throug h com mon implementat ion, procurement, anddisbursementplans as we ll as com mo n simp lif ie d procedures. Moreover, the JHSSP will prov idesupport to the H M I S to encourage one single M&E system, integrat ing the multiple toolscurrently used by development partners, similar t o th e Three Ones for the national HIV/AIDSpreve ntion program. Th e creation o f an integrated an d comprehensive he alth sector M&E systemwill be essential for projec t management, de cision-m aking and mo nitor ing results.F. Alternatives considered and reasons for rejection

25. There i s general consensus amo ng d evelopment partners that a sector investment creditfor f inancing the support to th e health sector continues to be preferred to general budget supportas the primary vehicle for financing. There i s widespread recognition that the challenges inhealth ar e too specific and th e sector i s too fragmented to fully benefit f rom pure budget support.The W o r l d Banks Independent Evaluation Group (which completed a country assistanceevaluation in Ju ly 2006 o f DA s invo lvement in Madagascar for 1995-2005) also recommendedlimiting the role o f budget support until there is a sustained improvement in col lect ing andmanaging p ub lic resources. Limiting support to the hea lth sector throug h budget support underthe PRSCs was rejected because o f he relative fr ag il ity o f the macro envi ronment which w ou ldexpose th e sector to economy-wide shocks outside the control o f the Government. Although inrecent years the Government has impro ved management o f these external shocks (such ascyclones and o il pr ice increases), p rio rit y sectors cannot yet be insulated as necessary fr o m suchnegative events. Based o n this assessment, i t was deemed cri t ical to ear-mark funds for the healthsector under th e JHSSP. The use o f an Adaptable Program Lo an was also considered give n thephased programmatic approach. However, the development partners group did not want tocondi t ion subsequent phases o f nvestment.Thus a sector investmentcredit was considered to beth e best opt ion under th e current circumstances.

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111. IMPLEMENTATIONA. Partnership arrangements

26. In l ine with the 2005 Paris Declarat ion on Aid Effectiveness, there is broad-basedconsensus between Government and development partners o n the SWAP and on the PDSSPS.All donors are provid ing support to the PDSSPS but with many s t i l l prov iding paral le l f inanc ingthroug h specific projects. Furthermore, b i-ann ual Joint Hea lth Sector Revie ws will continue to b eled by M o H with the part ic ipa t ion o f al l stakeholders and development partners as well asrepresentatives fr om c iv il society, private sector and other re levan t ministries. The Joint HealthSector Re views have three components: (i)oi nt preparat ion o f cri t ical questions in a number o fthematic areas; (ii) j o in t f ie ld v isi t to a number o f di fferent regions to better understand theproblems in the field an d undertake discussions with stakeholders at the regional, district andcomm unity levels on th e crit ica l questions; an d (iii) plenary session o f wo days to consol idatethe f i e ld work and prepare a prio ri t ized act ion plan for the fol lo win g six-month period. TheseReviews have been successful in giving voice to the al l levels o f heal th service prov iders andfacil itating a constructive dialogue around bottlenecks and capacity constraints to servicedel ivery. The Reviews will continue to provide a mechanism for monitoring progress onimplementat ion o f the PDSSPS and serve as one o f the countrys health sector coordinat ionmechanisms.27. A document ou t l ining the Guiding Principles f or a S WA P layin g out the coordinat ion,f inanc ing and m oni tor ing pr inc iples governing the implementat ion o f he PDSSPS was signed bythe M o H and development partners during the third Joint Health Sector Review in December2008. These Guiding Principles serve as th e foundation for the development o f a countryCompact, a cri t ical m ilestone o f IHP+, and which i s expected to be prepared in 2009. Withrespect to th e pooled f inanc ing under the proposed project, a separate Co llabora tion Agreeme ntoutlines the organizational, institutional and coord ination arrangements fo r implementation, theroles and responsibilit ies o f each partner pool ing their resources as w e ll as and arrangements fo radding new partners during implementation, and wil l be signed in i t ia l ly by the Government,AFD and th e W or ld Bank. The goal is that part ic ipat ing donors will grad ually expand the shareo f their support that i s poole d and that other donors will swi tch f rom paral le l to pooled fundingas exi sting projects close. AFD will administer i t s own f inancing.B. Institutional and implementation arrangements

28. T he M o H wi ll be responsible for th e overal l oversight o f PDSSPS as we l l as o f projectact iv i t ies. The Ministrys Management Team will continue to funct ion as th e SteeringCommit tee for oversight o f mplementat ion o f project act iv i ties and mon i tor ing o f progress inachieving development objectives. A project coordinat ion t e a m (Cellule de Gestion deProgramme - CGP),report ing direct ly to the Secretary General, will be responsible for the day-to-day coordinat ion o f project act iv it ies. This CGP i s made up o f experienced professionals wh ohave been responsible for oversight o f Bank-f inanced health projects over the last ten years. Thisteam has already demonstrated i t s capacity both to manage IDAS inancial management andprocurement procedures and to innovate effec tively at a ll levels o f the he alth care system toimprove the accessibility and qual it y o f he alth services.

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29. In close collaboration with the Directorate o f Finance (DF) and the Directorate o fPlanning and Studies (DEP) within MoH , t he C GP will be responsible for annual projectplanning and budgeting. The CGP will also be responsible fo r project management includin g: (i)coordinat ion and communicat ion with al l agencies invo lved in he implementat ion o f he Project,inc luding al l M o H echnical departments at the central and decentralized levels, on the basis o fthe Annual Act ion Plans; (ii) onsol idat ion o f distr ict- level w ork plans and budgets; (iii)maintenance o f records and separate accounts fo r al l transactions related to the CGP; (iv)preparat ion, consol idat ion and product ion o f he project f inancial statements and other f inanc ialinformation; (v) management o f he three designated accounts; (vi) overseeing procurement; and(vii) M&E o f he various a ct iv it ies supported under the project. The CGP i s currently headed bya Nat iona l Coordinator nominated by M o H , and existing sta ff include specialists in accounting,procurement and M&E. An in-depth capacity assessment o f the CGP and M o H under takenduring appraisal co nfirm s that the CGP i s adequately staffed and that appropriate resources havebeen earmarked t o meet project implementat ion needs.30. The M oH , through i t s Secretary General, will: (i)nsure consistency o f pro ject activit ieswith the Governments pol icy and strategy; (ii)pprove the annual action plan and budget; and(iii)ol low-up on project performance and implementat ion progress. The im pleme ntat ion o fproject act iv i ties will be entrusted to technical departments o f M o H and regional and districtoperating units, which will receive t imely payments from th e CGP based up on submission o fsatisfactory quarterly budgeted action plans. The regional and district operating units willmanage disbursements from their own bank accounts. Unde r the supervision o f the region alfina ncia l officer(s), th ey will mainta in records and accounts for a ll transactions related to them,and prepare f inancial reports and other basic inform ation o n project management and moni tor ingas required by the CGP. The district operating u n i t s are also responsible for the accou nting andpayment o f a ll transactions o f he health centers under their authori ty.31. A port ion o f the f inanc ing for this project will be placed in a p ooled account with theremaining amounts in separate designated accounts. All project act iv i ties will be inc luded in acommon act ion plan, procurement plan and disbursement plan. A harmonized ProjectImplementat ion Manuel (PIM) and Project Accou nting M anu al o f Procedures will ensure thatGovernment only has to use one set o f procedures fo r al l donors part ic ipat ing in this project. TheIDA credit w ou ld f inance 100 percent o f expenditures under Components 1.2, 2.1 and 4.2 w hil ethe AFD grant wo uld f inance 100 percent o f expenditures under Compon ents 2.2 an d 4.3 asdescribed in Annex 4. IDA and AFD would. joint ly f inance, at the respective percentages to bedetermined each year, 100 percent o f eligible expenditures under a ll other project Components.

C. Mo nito ring and evaluation o f outcomes and results32. The five-year PDSSPS includes a Results Framework which focuses on moni tor ingresources, processes and outputs directly related to actions and activit ies implemented by theMoH. Another se t o f outcome indicators i s used for broad sector monitoring. JHSSP indicatorshave been selected o n th e basis that they are regularly monitore d through the HMIS, which wil lt rack the specific inputs and results o f project act iv i ties. M&E o f he project wi ll be undertakenby the CGP and th e Directorate o f Moni tor ing and Evaluat ion who wil l be jo i nt l y responsible fororganizing the collection, analysis, presentation and dissemination o f these indicators, withtechnical support o f the development partners. Data col lect ion will take place using exist ing

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report ing mechanisms. The Mo H s Management Team oversees the moni to r ing o f p rogress o nthe sectors Results Frame work and i s responsible for data analysis fo r decision-making, healthpo lic y analysis, and health pol ic y and management training.33. Under the SHSDP, technical assistance i s being provided to the Di rectorate o fMon i to r i ng and Evaluation and as a result, the M&E guide and th e audit guidel ines are nowavailable. Each health center n o w has a month ly tracking table that records phy sical andfinanc ial activi ties. Indicators are monito red in he mo nth ly activi ty report whi ch tracks progresso n results indicators. Data i s also col lected on human resources and equipment on an annualbasis, f inanc ial f lo w data on a mo nth ly basis, and services produced and del ivered on a mon th lybasis. At the decentral ized levels o f the M oH , the on-going SHSDP is providing assistance inenhancing the data col lection capabi li ties, strengthening the insti tu tional capacity o f he H M IS ,and ensuring the appropriate dissemination o f data.D. Sustainability

34. Although the Government will continue to rely o n external assistance f or health sectorf inancing in the foreseeable future, i t will also need to take concrete steps to improve thef inancing o f recurrent expenditures within the national budget. To impro ve the budget executionrate, the M o H must increase its capacity to produce, finance, deliver and manage services. Tothis end, the project will build the capacity o f the centra l leve l in financial management, andclar i fy ro le and responsibi li ties o f the decentral ized leve ls as well as strengthen regional anddistrict level capacities in planning, programming and budgeting to support enhanced budgetaryexecution and improved pr ior i t izat ion and rational ization o f activi t ies. Putting in place a SWAPi s expected to increase ownership and leadership, reduce the fragmentation o f inancing providedto the sector, improve technical and al locative eff iciency o f pu blic expenditures, and thuscontribute to the sustainabi li ty o f investments. Final ly, Madagascar join ed the IHP+ in M a y2008, the f i r s t mi lestone o f wh ich i s th e development o f a country Compact that will ra l l y a l ldevelopment partners, and therefore increase al ignment, predic tabi l i ty o f aid and m utua laccountabil i ty.E. Cri t ica l r i s k s and possible contr ove rsia l aspects

35.mitig atio n measures are outl ined in Table 1.There are no anticipated controversial aspects to th e proposed project. The r isks an d risk

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Table 1RIRisksT o Project Development Objective:Weak public expendituremanagement withinthe sector: Poor public expendituremanagement i s a critical constraint to efficien tutilization o f existing resources at all levels o fthe hea lth system. Even if more financialresources becomes availab le, i f he publicexpend iture management i s not improved,including the flow and us e o f resources by theregions, districts and health centers, resul ts onth e ground wi ll continue to be slow.

Poor auditing capacity: Audits may not beconducted in compliance w ith internationalauditing standards due to: (i) eak capacity o fthe accou nting profession in Madagascar; and(ii)nadequate number o f skilled andexperience d auditors at the Chambre desComptes in particular.

sector development strategy m ay lack adequatefocus on the most cr i t ical priorities resulting ina fragmen tation of sector strategy activities anddilut ion o f esul ts on the ground.

Increa sed transaction costs for Government:Different sources o f financing each withdifferen t procedures and reporting mechanismswi l l place a hig h burden on and increasetransactions actions for the Government and th eMoH, which in turn could slow implementationand disbursement.

ks an d Risk Mitigation MeasuresRisk mitigation measures

This risk i s mitigated both through the institutionalcapacity bu ildin g component o f he proposed project andthrough parallel p rojects aimed at public financemanagement reforms and improveme nt in governance,such as the PG DI. Close collaboration with th e publicsector management group and PR EM w il l also facilitatethis work. Stronger coordination wi th the MFB wi l l befacilitated through technical assistance provide d b y PG DI.W h i l e sector and national fiduc iary systems are beingstrengthened, the fiducia ry aspects o f this project wil l beentrusted to the CGP within the Mo H. The CG P has asound financial management system and good experiencein manag ing donor funds. The 17 financial managementofficers recruited under SHSDP wi ll continue to providesupport to the region al operating units.A country action plan has beenprepared by the authoritiesto strengthenthe accounting profession. A n InstitutionalDevelopment Fund grant i s currently under preparationfor the implementation o f hese actions. In he meantime,the audit o f the project accounts wi ll be carried out b y aninternational accounting fir m or by an internationalaccounting firm associated with local a uditing f m s , witheffective participation o f the former in he fieldwork. Theselected aud iting fmw il l be invited to perform the auditjo in t ly wi th the Auditor General.The PDSSPS i s being revise d to take in to account lessonslearned and further prioritize activities and resultsexpected based on differe nt financ ial scenarios as ou tlinedby the sectoral MT EF 2009-2013. The PDSSPS and theM TE F have served as key inputs into the design o f projectactivities. In addition, IH P+ and the development o f acountry Compact require a strongly prior itize d sector planin l i ne wi th a four-year MTEF , focused on a few selectresults. As Madagascar i s an IHP+ focus country, thereare stronger incentives for the country to p rioritize toattract additional donor funding.The bulk o f the financing for the JHSSP wi ll be placed ina pooled account with n omina l amounts in separatedesignated accounts. A l l JHSSP activities are included ina comm on action plan, procurement plan anddisbursement plan and a harmonized P I M w i l l ensure thatGovernment has to us e one set o f procedures forutilization o f funds, although since each dono r i sadministering i t s own financing, certain policies andprocedures o f each donor may be used.

Risk ra t ingw h i t i g a t i o nModerate

Moderate

L o w

Moderate

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Table I cont 6RisksTo component results:Weak implementation capacity: Th eimpleme ntation arrangements remain the sameas for the SHSDP. The funct ion o f he projectcoordin ation team has been further integratedi n to the M o H with the unit funct ioning mainlyas a facilitator in overseeing the day-to-daymanagement o f echnica l activities,implemented by the respective technicaldepartments. However, impleme ntationcapacity at the regional, dis trict and healthcenter leve ls remains weak.Frequent turnover in already scarce healthpersonnel: Turn-over at al l evels o f he healthsystem and in particular, in rur al rem ote areas,will impact the qual i ty o f hea lth servicesprovided.Financial Management: There i s a risk o fmisclassi f icat ion o f expenditures andnon-compliance with agreed changes in procedures.The compu terized system in place may no tsat isfy the requirements o f other donors inf inancial an d technical information.

a ne w code, there continues t o be weaknessesin country p rocurement systems and ininstitutiona l capacities.

To component results:Social an d en vironm ental safeguards: MO Hhas been actively engaged in trying to resolvethe problems related to management o f medicalwaste, althoug h capacity remains weak in ermso f mplementa ti on o f activities. The Serviced'Appui aux Gknies Sanitaires (SAGS) hasbeen an integral player in he development o fthe po licy as wel l as information, educationand communic ation activities and trainingconducted at various levels. Howeve r, mu chmore wo rk needs to be done o n ensuring thatthe norms ou tlined in the pol ic y are appl ied toeach type o f healt h center.

Overal l Risk Rating

Risks and Risk Mitiga tion MeasuresRisk mitigation measures

Implementat ion capacity o f ke y technical departmentsand o f each o f he decentral ized levels i s beingstrengthening hrough long-term technical assistance,coaching and t raining and is slowly improving. Theprov is i on o f performance-based allocations will providemotiva t ion to im prove implementat ion and results on theground. The excel lent implementat ion track record husfar o f he CGP along with continued high qual i tytechnical and strong pol i t ical support f io m the highestlevel are ke y elements for mit igat in g this risk.The development o f career plans for medical andparamedical staff, wi th the f i rst wave focused on staff inrura l areas, is expected to contribute t o reducing this risk .In addition, the proposed project wil l pi lot and scale up apackage o f ncentives and other innovative mechanismsto retain staf f in rura l areas.The Project Account ing Manu al o f Procedures i s beingupdated to inc lude the ne w Char t o f accounts and reflec tagreed changes in procedures to be applied. Thecomputerized accounting system used by SHSDP i sbeing customized and updated to m eet user needs andsatisfy donor requiremen ts in f inancial and technicalinformation.Capacity continues to b e built in he procurement unit o fthe M o H hrough a long-term technical assistance andthrough transfer o f knowledge and competencies o f heexperienced procurement sta ff o f he CGP. Theproc urem ent arrangements for the JHSSP are the same asfor the SHSDP wh ich have pro ven successful . Theperformance o f he Min i s t r y will continue to be evaluatedregularly.The Nat ional Pol icy o n Me dica l Waste Management wasadopted in September 2005. I t was approved anddisclosed on M arc h 23,2007 in the Infoshop and in hecountry between Marc h 20 and 26,2007.The Government has recently updated the Med ical WasteManagement P lan (MW MP ) and reinforced i t scommitment by the inclusio n o f he necessary budget formedica l waste management for rehabil itated andequipped hea lth centers in the 2009 State budget an d inyears thereafter.Support to strengthening the me dica l waste managementcapac it y o f he M o H at al l levels i s being built into theInst i tut ional Strengthening Component o f he proposedproject.

Risk rat ingw h i t i ga t i onM o d ra e

Moderate

L o w

L o w

Moderate

Moderate

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F. Loadcredit conditions and covenants36. Con ditions and covenants perta ining to the IDA credit include the fol low ing:(a) Conditions o Effectiveness: A d o pt io n o f a revised P I M and a Project Account ing Ma nua l o fProcedures, satisfactory to IDA, to ref lect the revised Chart o f accounts, the new models o fInterim unaudited Financial Reports (IFRs) and financial statements, and al l pol ic ies andprocedures to be appl ied to the project. In addition, there are the standard le gal con ditions thatapply t o the effectiveness o f cre dit agreements.(3) Financial Covenants: Fina ncial covenants are the standard ones as stated in the FinancingAgreement Schedule 2, Section I1 (B) on F inancial Management, Finan cial Reports and Auditsand Section 4.09 o f he General Conditions. In particular, th e proceeds o f he credit shal l be used(a) exclusively to finance Eligible Expenditures under the Annual Act ion Plan; and (b) in thecase o f Pooled Act iv i t ies in accordance with such percentages as shall be determined each year.In addition, the existing computerized accounting system will be upgraded to ensure t imelyproduc tion o f al l f inancial and technical in form ation required by IDA and AFD no later than tw omonths from the effectiveness date. This act ion i s presently underway and expected to becompleted n o later than two months after effectiveness. T he pro ject f ina ncia l statements shall beaudited o n a six mo nthly basis by independent auditors acceptable to IDA. Independent auditorswill be appointed within three months after the effectiveness date.(c) Other Covenants:Three addition al covenants are include d in he project: (i)rganizat ion o f a tleast one Jo int H ealth Sector Review annually; (ii)he adoption o f the nat ional Human ResourceDevelopment Plan by December 3 1,201 0; and (iii)he co-fina ncing deadline fo r effectiveness o fthe Co-Financing Agreement o f AFD is September 30,2009.(d) Disbursement Conditions: N o disbursements will be made (i)or bonuses under Component2.1 until th e man ual establishing the system for such bonuses, satisfactory t o th e Association, hasbeen adopted; (ii)or performance-based allocations under Component 1.1 until the manualestablishing the system o f such allocations, satisfactory to the Association, has been adopted; and(iii)ro m th e components under the Pooled Funding until th e Co-f inancing Agreement o f AFD i smade effective and the Col laborat ion Agreement i s signed.IV. APPRAISAL SUMMARYA. Economic and financial analyses

37. The underlying rationale for the JHSSP i s th e continued need fo r the Government o fMadagascar to improve budget sustainability by incremental ly increasing publ ic f inancing forthe hea lth sector, miti ga ting allocative and technical ineffic iencies, and improv ing target ing o fresources for vulnerable groups and high priority health programs. JHSSP i s also expected togenerate further benefits by adopting a programmatic approach that will reduce thefragmentation o f donor support and strengthen l inkages with th e M A P and PDSSPS.38. With a per capita GDP estimated at US$375 in 2007 and about 70 percent o f i t spopula tion l i v ing in poverty, Madagascar i s one o f he poorest countries in he world. The health

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sector faces many challenges and at the current leve l o f expenditures, the country will not b e ableto achieve the hea lth-related MDGs. Prel iminary resul ts o f he MTEF, costed by the M o H withthe support o f UN ICE F and other partners, show that an addit ional US$7 per capita wil l berequired for 2009-2010 and US$8.10 per capita for 201 1-2012 to achieve a re duct ion in ch i ldmortal i ty by 46 percent, neo-natal mo rta lity by 29 percent and maternal mortal i ty by 44 percent,necessary to sustain progress in achieving these MDGs. Given the Governmentsmacroeconomic constraints, the fin anc ing gap in he hea lth sector cannot be bridg ed with internalresources. Therefore, do no r assistance, fina ncin g a large share o f he sectors investmentbudget,will continue to be rel ied upon.39 . The Bank-f inanced CRESAN 11, which closed in December 2007, has supported thehealth sector since 1999 and financed some 65 percent o f he M o H nvestment expenditures in2005. The key, however, i s no t on l y t o find the required resources but also to spend themeffect ively and eff ic ient ly. Despite M o H efforts, budget execution remains l o w (according topreliminary estimates at 73.4 percent in 2007), and constitutes a challenge that i s both internal(rem oving cumbersome procedures and addressing techn ical capacity shortcomings) and extern al(ensuring a higher degree o f predictabi l i ty and coordinat ion in he delivery o f ore ign assistance).JHSSP aims to fill a part o f the f inanc ing gap, w hi le at th e same time addressing some o f thebudget management bottlenecks confronting th e Government, including internal managementweaknesses at a l l a dministrat ive levels, vola t i l i ty o f donor funds, and high transaction costscreated by the prol i ferat ion o f paral lel projects with dif ferent management and report ingmechanisms. JHSSP will support a coordinated approach o f development partners in support o f aGovernment-owned health strategy, with a corresponding MTEF leading to greaterharmonizat ion in dono r processes and procedures.40. The economic value o f the proposed intervention, and the just i f icat ion for support ingpubl ic intervent ion in th e health sector, are attributable in part to the presence o f importantmarket fai lures re f lect ing th e presence o f externalit ies as well as the publ ic goods dimens ion o fhea lth services. Preventable diseases such as diarrhea and m ala ria are the m ajo r causes o fmortal i ty and morbidi ty in Madagascar, especially among children under f ive. JHSSP willf inance activit ies aim ed at preve ntion and treatment o f these diseases, and will supportinformat ion and community-based campaigns. In addition, JHSSP has a pro-poo r bias, and willf inance activit ies aim ed at reducing the inequalities in access and u t i l izat ion o f health services.There are large incom e inequalities in the uti l izat ion o f health services in Madagascar, partly du eto poor physical access to health services in rural isolated areas, and partly to f inanc ial andcultural barriers to ut il izin g services. The recurrent budget o f the M o H s unequa l ly distributedacross regions, and in general, ric her regions receive higher amounts o f budget per capita thanpoorer regions. This also reflects an unequal distr ibut ion o f qual i f ied m edical personnel, wh ic hbene fits riche r urb an areas, and somewhat the higher concentration o f hea lth centers in better-offregions. The project will seek to address this unequal distr ibut ion o f resources by f inanc inginterventions in underserved, rural areas where poverty rates are highest. Moreover, th e projectwill focus o n cost-effective interve ntions to preve nt and treat the illnesses tha t can be deliveredat household, community and hea lth center leve l . By improv ing coordinat ion and harmonizat ionamong donors, the project will also improve al locat ive eff ic iency by diminishing transactioncosts and thus diminishin g ad ministra tive costs o f MoH when handl ing different donor-supported projects.

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4 1. Fin ally systems and process-related benefits are expected t o be generated by th e proposedintervention. Bet ter planning, financing, organization and management o f he health sector willbe supported (notably through technical assistance and knowledge-bui ld ing through pi lotinitiatives) and household-oriented benefits (better access, increased uti l iza tio n o f health servicesand impr ove d health status, especially o f vulnerable group s living in rural areas, women andchildren) will be sought. The adoption o f a prog ramma tic approach i s al igned with th e object iveo f prom oting a strategic partnership between the M o H and the principal development partners,and o f achieving greater aid effectiveness through harmon izat ion o f donor assistance and betteralignment t o clien t processes and priori t ies.B. Technical

42. The overa l l technical design o f the pro jec t i s al igned with the countrys priorit ies andconsistent with interna tional goo d practice. The pr oject has been designed in response to healthsector prior it ies and needs, thus i s in l ine with the revised PDSSPS. The last Demographic andHeal th Survey (DHS) 2003/2004 pro vides solid baselines for the key health indicators for thecountry and the 2007 Heal th Inf rast ructure Development Plan is a rel iable source o f nforma t ionon avai labi l i ty at health centers and distribut ion o f esources.43. Consultations and j o in t rev iews with some o f th e development partners helped identifyspecific support required by the government. Lessons learned and good practices from recentIDA or other d evelopment partner-financed he alth projects in Madagascar and in th e region willbe capitalized upon to ensure better scal ing-up o f proved high-impact intervent ions: qual i tymanagement at the primary hea lth care level, community-based activit ies related to health, andintegrat ion o f services o n reproduct ive health. T he project will also benefit f rom analy t icalstudies provided by AFD ( improvement o f the budget al loca t ion cri teria for the d istrict level,assessment o f nsurance schemes), by UN ICEF (cost ing o f a minimum package o f high-impact,lo w cost health interventions) and f rom evaluation o f the current pilots under SHSDP: incentivemeasures for providers, universal access to obstetrical and neonatal emergencies. Lastly,innovative approaches cal l ing upon mutual accountabi l i ty and performance culture will beexplored thro ugh results-based financing mechanisms.44. Pro ject elements will be implemented on the bas is o f nation al strategies and inter nation alnorm s and standards (performance indicators, go od practices in mmun izat ion, community-basedmala ria treatment and at the prim ary hea lth level, performance-based contracting). The pro jectaims to implement cost-effective interventions o f pro ven values to address pr ior ity hea lth issues,and to avoid overburdening the Government counterpart with procedure issues.45. The design recognizes the necessity to strengthen the health system as a who le in order toachieve the expected results. An emphasis on capacity strengthening i s relevant and the projectwil l support the decentralized levels t o us e available data in decision-making, and will strengthenmanagement, planning and budget process capacities to ensure timely and eff ic ient budgetexecution.

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C. Fiduciary46. Procurement. A new Procurement Code was passed by the Parliament and the Senateand became effective in July 2004 and included sim pli f icat ion o f procedures and compliancewith international standards. The Procurement Code has also been supplemented by regulations,procedure manuals, and standard biddingand other procurement documents. Th e Ban k approvedthe U se o f Country Systems (USC) on April 24, 2008, wh ich includes Internat ional Com peti t iveBidding (ICB) and Qual i ty and Cost-Based Selection (QCBS). However, t his approval does no textend to Madagascar giv en that there ar e a certain number o f pre-requisites that have no t beenfulfilled, inc luding th e fact that Madagascar has no t yet expressed i t s interest to be part o f thepi lot . As a result, despite th e support fro m other development partners for U SC, there continuesto be no formal approval f rom any partners on USC in Madagascar. Therefore, during th epreparat ion o f the proposed project, i t was agreed with,the Borrower that IDA Guidel ines andStandard Bidding Docume nts (SBDs) wo uld be used. The existing P I M will be updated beforecred it effectiveness t o r eflec t the arrangements fo r the proposed JHSSP.47. Procurement act iv i ties o f the project wil l be carried out by the Unite' de Gestion de laPassation de Marche's (U GPM) o f the M o H in coordinat ion with th e procurement team o f heCGP wh ich is responsible for oversight o f mplementat ion o f he on-going Madagascar SHSDP.This unit will funct ion as a M o H procurement unit in accordance with the provisions o f theProcurement Code. The CGP procurement t e a m i s current ly duly staffed with two pro f i c ientprocurement officers and an assistant. The U G P M has had some experience in managingprocurement operations within the M o H and i s properly staffed with health procurementspecialists. A Procurement Capacity Assessment o f M oH , inclu ding training needs andarrangements, was conducted as part o f projec t preparation. The assessment rev iewe d theorganizational structure for implementing the pooled f inancing act iv i t ies and the interact ionbetween the UGPM, th e CGP'S staff responsible for procurement, and the DF. Correct ivemeasures were agreed upon in M a y 2 0 07 during preparation o f the on-going project and arebeing implemented in a timely manner along with the agreed procurement a ction plan. A s such,the procurement act ion pla n s being, and will continu e to be, fine -tune d quarterly and the projectprocurement pla n wil l be updated accordingly. A s pa rt o f supervision m issions and in addi t ion toregular post procurement reviews, independent procurem ent and technical audits will be carriedou t as needed. The overal l project and project risk for procurement i s herefore m oderate.48. Financial management. In accordance with Bank po l i cy and procedures, the financialmanagement arrangements o f the CGP and the regional operating units responsible forimplementat ion o f th e project have been reviewed in order to determine whether they areacceptable to the Bank. This rev iew i s actually an update since th e f inancial managementsystems o f hese enti t ies have already been assessed in th e context o f the ongoing SHSDP. Theconclu sion o f the fina ncia l management assessment i s that the CGP and the related operatingunits o f he M o H s atis fy the Bank's minimum f inancial management requirements specified inO P B P 10.02. However, some improvements will be needed to further strengthen the f inancialmanagement system.49. T o efficie ntly address the challenges o f the proposed project, a financial managementplan has been developed and agreed upo n with M o H o ensure an environment wh ich mit igatesf iduciary risk. Measures to be taken are th e fo l lowing:

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Maintenance o f a qual i f ied technical assistant recrui ted under S HSD P w ho i s acquainted withboth th e national f inancial management system an d IDA financial management procedures.The mandate o f his technical assistant is to strengthen the f inanc ial management capacity o fthe MoH, and specif ical ly the DF, and supervise the f inanc ial management aspects o f al lprograms t o be implemented by M o H . Th is act ion has been completed;Extens ion o f he on-going contracts o f he seventeen financial management off ic ers rec rui tedunder th e SHSDP to: (i) rovide the regiona l operating units with th e required capacity toquic kly disburse and account for p roject funds; (ii)nsure, at the reg iona l and district levels,the use o f funds for the purposes intended; and (iii)ssure timely prepara tion o f per iod icf inancia l reports requi red for proper mon i tor ing o f act iv i t ies implemented by regionaloperating units , with respect to f inancia l and physical aspects. This action has beencompleted;R e v ie w o f he Char t o f accounts t o re flect a l l components and activi t ies to be f inanced underth is pro ject and satisfy the requirements o f other development partners in financial,accounting and technical infor ma tion related to the project. Th is action will be c ompleted aspart o f he rev is ion o f he Pro jec t Account ing Manua l o f Procedures;Update o f th e Project Account ing Manual o f Procedures to include the new Chart o faccounts, agreed changes in f l o w o f unds, model s o f IF Rs and financial statements and a l lpol icies and procedures t o be appl ied under this project. T he content and formats o f F R s andfinan cial statements were agreed at negotiations. The update o f he manua l will be completedprio r to credit effectiveness; andCustomizing and upgrading o f the computerized accounting system cu rrently used by theCGP in order to satisfy donor requirements in inancial and technical informatio n, and ensuretim ely production o f annual f inanc ial statements and quarterly IFRs fo r mon i to r ing p ro jec tactivities. The new software will be functional no later than two months af ter credi teffectiveness.

50. The review o f the Chart o f accounts and the extension o f th e contract o f the seventeenfinancial management officers has been undertaken. To ensure proper appl ica tion o f proceduresdescribed in the revised manual, a specif ic training will be provid ed pri or t o cred it effectiveness.To mi t iga te risks raised by the limited capacity o f he Auditor General (Chambre des Comptes),th e partners and Government agreed that, as an interim measure, an international private aud it ingfirm acceptable to th e donors will carry out the audi t o f the pro ject accounts jo in t ly with theAuditor General. This audit wil l be performed on a six-monthly basis and conducted inaccordance with International Standards o f Auditing. The auditors wil l be recrui ted within threemonths after th e effectiveness date. The audit rep ort wil l be submitted t o IDA and AFD no t la terthan six months after the end o f each per iod. No signif icant problems have been encountered sofar in t e rms o f audit covenants: al l audit reports related to ID A-fin anc ed projects in Madagascarhave been received in due time.51. T o build and strengthen the f inancia l management capaci ty o f M o H staf f at a l l levels,capacity bu i lding activi t ies are being developed in the medium-term hrough the ongoing publ icfinancial management reforms supported by P G D I and other development partners. I nsti tution alstrengtheningactivities are also bein g undertaken under Component 4 o f this project t o enablethe M o H to move towards sector-wide financial management arrangements by the end o f theproject period.

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D. Social52. A Poverty and Social Impact Analysis carr ied out in 2005 high l ighted the absence o fc i t izen involvemen t in mo nito ring service qual i ty in health as well as a lack o f empowerment o flocal health committees, which represent a key focus o f communi ty l e ve l involvement in th ehealth system. The limited use o f publ ic heal th centers is main ly re lated to f inancia l barriers toaccess and poor qua li ty o f health services provided. Moreover, lac k o f education in communi t iesprevents understanding o f he importance o f eproductive health services: family-planning s n o twidely accepted by men; antenatal care i s delayed; and wom en are re luctant to del iver in healthfaci l i t ies. Al though publ ic primary health services are free and drugs are subsidized throughequity fund mechanisms, other related costs (transportation, accommodation, meals) representimp ortan t finan cial constraints to accessing health services. He alt h care providers are reproachedfor absenteeism, lack o f professional ism and/or ski l ls and poor qual i ty o f he services providedw