report no. 39395-mzdocuments.worldbank.org/curated/en/516101468285905808/pdf/393… · document of...

Document of The World Bank

For Official Use Only

Report No. 39395-MZ

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION

AND

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP STRATEGY

FOR

THE REPUBLIC OF MOZAMBIQUE

APRIL 24,2007

AFcs2 Southern Africa Country Department 2 Africa Region

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Date o f the Last Country Assistance Strategy October 20,2003

~

IDA IFC MIGA Vice Presidents: Obiageli Katryn Ezekwesili Lars Thunell, Exec. Yukiko Omura, Exec. Director: Michael Baxter Thierry Tanoh Frank Lysy Task Team Leaders: DieD Nguven-van Houtte Babatunde Onitiri Tom Vis

Currency Equivalence at Official Interbank Rate US$1 .OO = Metical 25.20 (as o f Apd 2007)

Government Fiscal Year January 1 to December 31

This Country Partnership Strategy was prepared by an IDA team consisting of Diep Nguyen-van Houtte (TTL), Paola Ridolfi (Results Framework Lead), Susan Hume, Peter Nicholas, Aniceto Bila, (AFCWAFCSZ); Gregor Binkert, Antonio Nucifora, Maria Benito-Spinetto, (AFTPI); Louise Fox, Rui Benfica (AFTPM); Eduardo de Sousa, Daniel De Sousa (AFTS1); Mazen Bouri, Gilbert0 de Barros (AFTPS); Jean-Jacques de St. Antoine, Humberto Cossa, Bina Valaydon, Xiaoyan Liang, Ana Ruth Meneses, (AFTH1); Kate Kuper, Jane Walker, Luiz Tavares, Uri Raich, Anne Louise Grinsted (AFTU1); Joseph Narkevic (EWDAF); Jose Luis Macamo, Guenter Heidenhof (AFTPR); Samuel Maimbo (AFTFS); Mohamed Khatouri, (AFTRL); Joseph Kizito (AFTFM); Luz Meza-Bartrina (LEGAF); Beth Dabak (LEJR); Slaheddine Ben-Halima (AFTPC); Ani1 Bhandari, Dieter Schelling, Tim Hartwig (AFTTR); Wendy Hughes (AFTEG); Isabel Net0 (CITPO); and Rafael Saute (EXT). Khateeb Sarwar Lateef (PRMPS) provided guidance on governance matters. The Country Director, Michael Baxter, provided overall management and strategic guidance. Michelle McCue and Esther Lozo (AFCMZ) produced the report.

The IFC team was led by Babatunde Onitiri and the MIGA team by Tom Vis. The IMF team, led by Jean Clement, provided valuable input.

The IDA team collaborated closely with Government and 18 other development partner agencies to develop the joint analysis and review that led to the development of this Partnership Strategy. The partners include: Afiican Development Bank, Austria, Belgium, Canada, Denmark, European Commission, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, World Bank Group. The Swedish International Development and Cooperation Agency chaired the Supporting Team to Government and Donor Committee Review. Most of these development partners are also part of the G18 group of development partners that provide general budget support under the Memorandum of Understanding signed in 2004; this group i s presently chaired by the Royal Netherlands Embassy in Maputo. Austria signed the MoU for providing general budget support in April 2007, bringing this group to 19 members.

AAA APL BdPES CAS CASCR CEM CFAA

CFMP CNCS CPAR

CPI CPPR

DPFP

EMPSO

ESAF

ESSP ESW FDI FIAS FSAP FRELIMO FY G18 GBS GDP GNP GoM GEF HIPC IAS IBRD

ICA ICR IDA

IFC

FOR OFFICIAL USE ONLY

ABBREVLATION AND ACRONYMS

Analytic and Advisory Activities Adjustable Program Loan Balanqo do Plano Econ6mico e Social Country Assistance Strategy CAS Completion Report Country Economic Memorandum Country Financial Accountability Assessment Country Financial Management Plan National AIDS Commission Country Procurement Assessment Review Investment Promotion Center Country Portfolio Performance Review Decentralized Planning and Finance Project Economic Management and Private Sector Operation Enhanced Structural Adjustment Facility Education Sector Strategic Program Economic and Sector Work Foreign Direct Investment Foreign Investment Advisory Service Financial Sector Assessment Program Mozambique Liberation Front Fiscal Year Group of 18 Budget Support Donors General Budget Support Gross Domestic Product Gross National Product Government of Mozambique Global Environment Facility Highly Indebted Poor Country International Accounting Standards International Bank for Reconstruction and Development Investment Climate Assessment Implementation Completion Report International Development Association International Finance Corporation

IFRS

IMF INE VAT JSA M&E MDG MoU MOZAL MPF MTEF

NGO NPV OE PAF PAP PARF'A

PER PES PRGF

PROAGRI

PRSC PRSP PSIA PSR QAG RENAMO SADC

SAPP SISTAFE

SME SWAP TA UN UNDP

UTRESP

International Financial Reporting Standards International Monetary Fund National Statistics Institute Value-Added Tax Joint Staff Assessment Monitoring and Evaluation Millennium Development Goal Memorandum of Understanding Mozambique Aluminum Company Ministry of Planning and Finance Medium-Term Expenditure Framework Non-Governmental Organization Net Present Value State Budget Performance Assessment Framework Program Aid Partners Action Plan for the Reduction of Absolute Poverty Public Expenditure Review Plano Econ6mico e Social Poverty Reduction and Growth Facility National Program for Agricultural Development Poverty Reduction Support Credit Poverty Reduction Strategy Paper Poverty and Social Impact Analysis Public Sector Reform Project Quality Assurance Group Mozambique National Resistance Southern AWcan Development Community Southern Africa Power Pool Integrated Financial Management Information System Small- and Medium-sized Enterprises Sector Wide Approach Technical Assistance United Nations United Nations Development Programme Technical Unit for Public Sector Restructuring

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

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................ i Introduction ............................................................................................................................ - 1

Overview ................................................................................................................................. 2 Poverty and Public Service Delivery ....................................................................................... 3 A Sound Macroeconomic Framework ..................................................................................... 7 Growth through the New Economy ....................................................................................... 10

I1 . THE BANK GROUP STRATEGY: AN INTEGRATED APPROACH ....................... -20 Building on Lessons Learned ................................................................................................ 20 Valued Partnerships ............................................................................................................... 22 Guiding Principles for a New Partnership Strategy: Collaborate - Focus - Deliver ............ 24 Lending and Non-Lending Strategy ..................................................................................... -27

Risks to the Strategy .............................................................................................................. 35

Conclusion ............................................................................................................................. 37

I . THE CHALLENGE: MORE BROAD-BASED GROWTH .............................................. 2

Governance and Accountability ............................................................................................ 15

Resources to Implement the Strategy .................................................................................... 34

Managing Upside and Downside Risks: Strategy Adjustments and Mitigation .................. -35

List o f Tables .. Table 1 . Bank Group Strategy Pillars ............................................................................................ 11

Table 2 . Macroeconomic Framework, 2004-2009 ......................................................................... 8

List o f Figures

Figure 1 . 2005 Governance Rankings. Mozambique and Sub-Saharan Africa ............................ 16

List o f Boxes

Box 1 . The Bank Group and HIV/AIDS in Mozambique .............................................................. 6

Box 3 . Mozambique’s Public Financial Management .................................................................. 17 Box 4 . PARPA I1 Pillars and Focus Areas ................................................................................... 19

Box 2 . Relations with the IMF ....................................................................................................... 9

Box 5 . The Bank Group’s Engagement Principals at Work ......................................................... 26

List of Appendices

Appendix 1 . Mozambique‘Country Partnership Strategy FY08-11 Results Framework ........... 39 Appendix 2a . PARPA I1 Focus Areas of Mozambique’s Development Partners ........................ 46 Appendix 2b . Working Groups and Development Partner Participation ............................. 48

Private Sector ................................................................................................................................. 48 Appendix 4a . Mozambique Indicative Lending Program, FYOS-FY 1 1 ....................................... 49

Sources) ...................................................................................................... 51 Appendix 5 . Mozambique Lending Programs, FY00.07, Indicative FYOS-FY 1 1 .... : ................ 51 Appendix 6 . FY04-07 Mozambique CAS Completion Report ................................................. -52 Appendix 7a . Mozambique Commitments, Disbursements, and Repayments, FY04-FY07 ....... 92 Appendix 7b . Mozambique Debt Relief ................................................................. 94 Appendix 7c . World Bank Transfers to Mozambique, FY04-07 .................................... 95 Appendix Sa . Millennium Development Goals for Mozambique ............................................... -95 Appendix 8b . Summary of Mozambique’s Progress towards the MDGs as o f End-2005 ........ 98 Appendix 9 . Paris Declaration Indicators and Mozambique Performance ................................ 98

Appendix 3 . CPS Consultations - Conversations with Government, Civil Society, and the

Appendix 4b . Mozambique Indicative Lending Program, FYOS-FY 1 1 (Possible WBG Financing

List o f Annexes

Annex 1 . Mozambique . Selected Economic and Financial Indicators ..................................... 103 Annex 2 . Key Economic and Program Indicators ...................................................................... 104 Annex 3 . Key Exposure Indicators ............................................................................................. 106

Annex 5 . Summary of Non-Lending Services-Mozambique ..................................................... 108 Annex 6 . IFC and MIGA Program Summary ............................................................................. 109

Annex 8 . Mozambique at a Glance ............................................................................................ 111

Annex 4 . Operations Portfolio - IDA ......................................................................................... 107

Annex 7 . Statement o f IFC’s Held and Disbursed Portfolio ...................................................... 110

MAP 33451

EXECUTIVE SUMMARY

i. Introduction. T h i s Country Partnership Strategy covers the period July 2007-June 201 1 (FY08-1 l), and follows the 2003-2007 (FY04-07) Country Assistance Strategy (Report No. 26747-MOZ). I t s purpose i s to support the Government o f Mozambique (GoM) in implementing i t s second Poverty Reduction Support Strategy, or PARPA I1 (the Portuguese acronym for Second Action Plan for the Reduction o f Absolute Poverty). As the harmonization agenda has made significant progress in Mozambique, development partners and Government have collaborated to jointly analyze development needs and to coordinate the development o f country assistance strategies. T h i s i s the first Country Partnership Strategy for the World Bank Group in Mozambique. It i s the second assistance strategy developed jointly between IDA, IFC and MIGA for their support to Mozambique.

ii. Development Context. Mozambique has been a strong economic performer over the past decade. Between 1996 and 2006, following the devastating c iv i l war that ended in 1992, the economy grew at an average annual rate o f 8 percent. The poverty headcount index f e l l by 15 percentage points between 1996/7 and 2002/3. Economic expansion was made possible by overall macroeconomic stability, sound policy reforms, growth in agriculture, post-war reconstruction, mega-projects, and strong support from development partners. However, .part o f this growth i s attributed to a post-conflict catch-up effect that cannot last indefinitely. Sustained future growth i s expected to be driven by coordinated infkastructure development, natural resource extractive industries, energy, agriculture, tourism, private sector development, and increased regional trade.

iii. In addition to physical investments, many o f key sectors require second-generation reforms in order to create the enabling environment to unleash a new round o f growth. Governance reforms are a priority, and are especially important in public financial management, decentralization and public sector management, as also i s legal and judicial reform, including reform o f regulatory frameworks (e.g., in relation to land administration and markets, tax, business licensing). These reforms need to be combined with institution and capacity-building, especially at the local level, results monitoring, and increased citizen participation in the design and oversight o f public interventions. Such reform will foster improvement in the investment climate, and ensure that the poor also continue to benefit from growth.

iv. Despite impressive growth, Mozambique remains one o f the poorest countries in the world with high levels of absolute poverty and malnutrition, ranking 168 out of 177 countries in the Human Development Index for 2004. While the country i s on track to achieving the Millennium Development Goal (MDG) for poverty reduction, significant progress needs to be made in increasing access to health care services, water and sanitation services, and quality higher education, especially in rural areas, in order to attain the other MDGs.

v. HIV/AIDS poses perhaps the single greatest threat to Mozambique’s continuing growth and development. Governance issues pose another significant risk. Upcoming elections in 2007 (provincial assemblies), 2008 (municipal), and 2009 (national presidential and parliamentary)

may also affect difficult decisions needed for second generation reforms. Inadequate fiduciary controls and a failure to strengthen public financial accountability mechanisms could result in increased corruption, which would undermine government credibility and private-sector confidence. Finally, Mozambique i s also vulnerable to exogenous shocks, including weather- related shocks, terms-of-trade shocks, and external private investment decisions that have a significant macro-economic impact.

Result Areas

vi. Bank Group Strategy. Within this context, t h e World Bank Group, in collaboration with Government and development partners, has developed a strategy that: (i) incorporates lessons from the previous CAS; (ii) leverages the Bank Group’s comparative advantages; and (iii) exploits partnership opportunities; while (iv) prioritizing the country’s harmonization agenda and supporting Government’s poverty reduction objectives. The strategy includes three pillars, within which five major result areas encompass 18 development outcomes, as follows:

Outcomes the CPS Expects to Influence

Table 1. Bank Group Strategy Pillars

Result Area #1: Improved Economic Governance

Result Area #2: Stronger Citizens’ Oversight Mechanisms

Pillar 11- Equitable Access to Kelr Result Area #3: Improved government effectiveness in the provision of services

Pillar I11 - Sustainable and Result Area # 4 International and local investments enabled

Result Area #5: Strengthened economic growth potential

Outcome 1 Improved budget planning at central, district and municipal level Outcome 2: Improved government fiduciary systems

Outcome 3: Improved government information and communication systems Outcome 4 Increased efficiency in legal and judicial services in selected provinces

Services Outcome 5: Increased access to information o n H I V / A I D S and to treatment Outcome 6: Improved equity in health services Outcome 7 Improved quality of technical and vocational education Outcome 8 Increased access to potable water Outcome 9 Increased sustainable and affordable access to electricity to institutions outside of the power network

Broad-Based Growth Outcome 10: Simplified procedures to start a business Outcome 11: Increased access to finance and support for S M E s Outcome 12: Increased teledensity and access to ICT-based services Outcome U: Improved mobility

Outcome 14: Increased access to technologies and extension information Outcome 15: Strengthened government capacity to develop tourism Outcome 16: Increased energy production for export, commerce and industry Outcome 17: Improved sustainable management o f water resources Outcome 18 Enhanced capacity to respond to disasters

vii. Delivering the Bank Group Program. Assuming progress under the performance framework relative to other IDA beneficiaries - and an IDA15 replenishment broadly comparable to IDA 14 - the annual financing available to Mozambique over FY08- 1 1 is expected to be approximately $155 million. This i s similar to the $680 million over four years allocated under the 2003-7 CAS. Given the results o f the Debt Sustainability Analysis, Mozambique i s expected to receive financing in the form o f credits. If it maintains the current level o f performance, PRSCs will comprise approximately 40 percent o f IDA’S commitments over the

CPS period. Should performance shift significantly in either direction, especially in the core governance areas, th i s amount will be adjusted in consultation with Government and G18 partners. SWAPS and common fund arrangements will be used to minimize transactions costs for all development partners.

viii. Analytical and Advisory Activities (AAA) will be a major instrument o f support. In some sectors or themes, AAA will form the sole source o f support from the Bank Group, as financing from other development partners i s leveraged. AAA will be organized around the main pillars o f the strategy, and will address knowledge gaps or deepen understanding in particular areas; facilitate policy dialogue; and provide greater support for government programs, as requested.

ix. The risks discussed above have been taken into account in the engagement framework. Risks o f exogenous shoFks are generally beyond the direct control o f Government, and their actual occurrence should in principle justify greater commitments o f resources from the Bank Group in the form o f financing and advice. Risks o f HIV/AIDS, governance deterioration, and policy reversals are within Government’s grasp, and would justify a more nuanced response.

x. As a relatively small country with correspondingly small market power and resources, Mozambique’s longer-term growth strategy needs to be built on i t s comparative and strategic advantages and complementarities within southern Africa. Collaboration with neighboring countries and even the wider international community i s also necessary to address public goods and trans-boundary issues such as water resources management, energy, transport, trade, migration, and, above all, HIV/AIDS. During the next four years, the World Bank Group will support Government’s efforts to take advantage o f regional integration and growth opportunities, especially relative to the Southern Africa Development Community (SADC).

xi. The development context i s also changing for the World Bank Group in Mozambique. Supporting the Paris Declaration with i ts focus on collaboration among development partners, and the entry o f new partners such as the Government o f China, the Millennium Challenge Corporation and the Gates Foundation, present new opportunities for partnership. In addition, the maturing needs o f development in Mozambique will offer opportunities to the widest suite of Bank Group products - for national and regional IDA resources, IFC, MIGA, IBRD partial risk guarantees, carbon financing and various trust funds, including the Global Environmental Facility, and so on. The World Bank Group will consider creative business, operational and organizational models that will leverage i ts comparative advantages in this new environment and which will best achieve it and GoM’s overarching goal o f poverty reduction.

xii. following aspects o f this partnership strategy:

Suggested Topics for Board Discussion. Board members may wish to discuss the

(a)

(b)

Does the draft CPS adequately address the key development challenges that Mozambique faces, especially given the Bank Group’s comparative advantages? I s the proposed program appropriate for a well-performing but poor country operating in a changing environment with emerging new development partners (e.g. Government o f China, Gates Foundation) and meaningfil governance challenges?

(c) Are the economic and political risks adequately assessed?

.

Introduction

1. T h i s Country Partnership Strategy covers the period July 2007-June 201 1 (FY08-1 l), and follows the 2003-2007 (FY04-07) Country Assistance Strategy (Report No. 26747-MOZ) which was discussed at the Board on October 20, 2003 - and the completion report for which is at Appendix 6. I ts purpose is to support the Government o f Mozambique (GoM) in implementing its second Poverty Reduction Support Strategy, or PARPA I1 (the Portuguese acronym for Second Action Plan for the Reduction o f Absolute Poverty). PARPA 11, approved by Cabinet in September 2006, covers 2006-2009 and continues many o f the objectives laid out in the first PARPA (200 1-2005) but with the next stage o f results largely expected through investments in rural areas and second-stage reforms. PARPA I1 also adds focus on key cross-cutting objectives that require coordination across key sectors. This Country Partnership Strategy i s timed to be in sequence with the development o f Government’s strategy, and to facilitate coordination and alignment among development partners’ country assistance strategies.

.

2. The World Bank Group has been working with Governrpent and development partners to harmonize development assistance with the ultimate goal o f helping Mozambique achieve its poverty reduction goals efficiently and effectively. Since the start o f the last CAS, the harmonization agenda has made significant progress in Mozambique. In 2004, development partners signed a Memorandum o f Understanding to: (i) provide harmonized, predictable and effective general budget sup ort through a joint monitoring framework, the Performance Assessment Framework (PAF) ; and, (ii) implement the Paris Declaration on Aid Effectiveness. In 2006-7, development partners and Government worked together to jointly analyze development needs and to coordinate the development o f country assistance strategies. Th is joint analysis and review has resulted in the development o f the first Country Partnership Strategy for the World Bank Group in Mozambique.

P

3. The fourteen or so development partners who were to prepare support strategies in 2006- 7 undertook from late 2005 five common joint analyses on subjects ranging from evaluation o f progress under PARPA I to significant political economy considerations in Mozambican development. These analyses were shared among all partners for use in their strategy preparations. Government then launched in mid 2006 a formal peer review process (with donor and consultant input) o f each proposed draft strategy - through document review and live discussion with each partner; their written, detailed conclusions on each proposed strategy being shared among all donors. While there were discussions among partners about doing some joint strategies, in the end donors felt that provided they each supported PARPA I1 and took into account the peer review recommendations, especially on areas o f donor concentration and collaboration, th is was as significant harmonization as could be expected o f joint strategies - and was achievable with considerably less bureaucracy, time and effort. As a result, no joint strategies were prepared.

The Performance Assessment Framework is the subset of PARPA I1 indicators that the G18 development partners track on an annual basis as the monitoring fiamework for general budget support. The G18 partners are: Afiican Development Bank, Belgium, Canada, Denmark, EU, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, and the World Bank (IDA).

4. This strategy i s the second country assistance strategy developed jointly within the World Bank Group between IDA, IFC, and MIGA, continuing the practice that started during the development o f the FY04-07 Country Assistance Strategy (CAS). It i s the fifth in a series o f strategic frameworks that, over the past twelve, years, have contributed to a constructive partnership with the GoM.

5. Mozambique has achieved impressive economic growth since the conclusion o f almost three decades o f pre- and post-independence conflict in 1992 and the f irst democratic election in 1994. T h e poverty headcount index fe l l by 15 percentage points between 199617 and 2002/3. The 8 percent average GDP growth rate between 1996 and 2006, the highest in Africa over that period for a non oil-producing country, is attributed to consistent sound macroeconomic management and policy reforms, growth in agriculture, post-war reconstruction, implementation o f mega-projects, and strong support from development partners. However, part o f t h i s growth i s attributed to a post-conflict catching-up effect that cannot last indefinitely. Thus, the challenge over the next four years i s to sustain this growth while accelerating progress in key service delivery sectors to improve Mozambique’s low Human Development indicators and to attain the MDGs. In addition, HIV/AIDS and governance pose formidable challenges and are the key risks to the country’s continuing development. Finally, as a relatively small country with limited market power and resources, Mozambique’s longer-term growth strategy needs to be built on its comparative and strategic advantages and complementarities within southern Africa.

6. In supporting government implement i ts strategy, the World Bank Group will also face challenges o f i ts own as development partners continue to advance the harmonization agenda, and as the entry o f new partners such as the Government o f China, the Millennium Challenge Corporation and the Gates Foundation, present new opportunities for partnership.

I. THE CHALLENGE: MORE BROAD-BASED GROWTH

Overview

7. Mozambique has been a strong economic performer over the past decade. Economic expansion was made possible by overall macroeconomic stability, policy reform, growth in agriculture, post-war reconstruction, mega-proj ects, and strong support from development partners.

8. T h i s pattern o f development has been accompanied by a steady pace o f change in the governance structures o f the country. However, the expectation and practice o f participation and accountability are s t i l l young, and institution building i s in the early stages. Under the circumstances, Mozambique’s performance as a country in recovery and transition i s exceptional. However, despite increasingly specific government attention, the challenges o f limited public and private sector capacity and corruption remain serious. Together, these concerns need to be continually addressed to ensure that they do not put at risk the country’s broader growth and poverty reduction goals.

- 2 -

9. Recent Political Developments. Mozambique’s parliamentary elections o f 2004 reaffirmed Frelimo’s hold on power which it originally secured during the f irst elections in 1994. These elections were judged by international monitors to be free and fair. Mozambique’s track record o f political stability has allowed the elections to focus largely on socio-economic and governance issues - by no means a small achievement. Moreover, democracy and decentralization have encouraged a diversity o f political representation to emerge.

10. At the same time, however, many analysts have expressed concern that an imbalance in the political system can undermine the effectiveness o f political and institutional checks and balances. As the dominant party, Frelimo’s influence i s significant in all three branches o f Government. Moreover, the Parliamentary passage o f laws has been slow, and th&e are complaints that the judiciary i s not independent. Social accountability i s not common as citizens, civil society organizations and the media have weak capacity and limited participation and oversight o f government activities and institutions. Many observers point to increasing public dissatisfaction with the predictability o f politics in an environment o f patronage and clientelism; the historically low participation (40 percent) in the 2004 parliamentary election was taken by some as an indication o f disillusionment among voters at the absence o f significant party optiom2

11. During the next three years, three sets o f elections wil l impact the political landscape in Mozambique. In 2007, there will be elections o f provincial assembly members, implementing a requirement o f the revised 2004 constitution. In 2008, the third round o f municipal elections will OCCUT, and in 2009, the fourth round o f presidential and parliamentary elections will take place.

Poverty and Public Service Delivery

12. Poverty Trends. Income poverty, measured by the headcount ratio, has fallen steadily from 69 percent o f the population in 1996/7 to 54 percent in 2002/3. The poverty gap (which takes into account the distance separating the poor from the poverty line) has also decreased s~bstantially.~ Mozambique i s on track to meet the Millennium Development Goal (MDG) for poverty reduction (see Appendix 8a, 8b). Despite this performance, Mozambique remains one o f the poorest countries in the world with high levels o f absolute poverty and maln~trit ion,.~ Per capita income was US$340 in 2006, compared with the Sub-Saharan Africa average o f US$500. Moreover, income inequality has increased slightly since 1 997.5

13. Recent poverty reduction trends point to greater progress in rural areas relative to urban areas. However, absolute poverty in 2002/3 was s t i l l more prevalent in rural areas (55 percent), where the majority o f the population live and work, than in urban areas (5 1 percent). The poverty headcount also differs significantly across regions, ranging from 45 percent in the center o f the

* Strategic Conflict Assessment: Mozambique, DFID, 2006. Voter participation has been steadily declining from 88

‘The poverty gap decreased by 30 percent fiom 1997 to 2003, according to analysis by Fox et alia, Mozambique Counhy Integrated Pover& Social and Gender Assessment Concept Note. 2006. The HDI i s a composite measure of three elements o f human development: l i f e expectancy, adult literacy and

income (measured by purchasing power parity). The Gini index rose slightly from to 0.38 in 1997 to 0.40 in 2003.

ercent in 1994 to 40 percent in recent elections.

4

- 3 -

country, where the greatest reduction took place over the period, to 66 percent in the south; and across provinces, ranging from 36 percent in Sofala (in the center) to 81 percent in Inhambane (in the south). In general, these differences partially reflect provinces’ relative access to markets and opportunities for economic diversification.

14. Access to Public Services. Public services are more accessible in urban areas than in rural areas, further compounding the already difficult realities o f poverty among the rural poor and limiting their opportunity for economic advancement. Sub-regional disparities in enrollment and completion rates for both primary and secondary education are significant: enrollment and completion rates are much higher in Maputo, the capital city, than in the more rural northern and central provinces. Supply, quality and access to basic health services are also more limited in rural locations. Finally, while the MDG for urban water provision should be achieved, it is unlikely that th i s will be the case for rural water provision.

15. Education. Access to primary education increased from 2 mill ion in 2001 to almost 4 mill ion in 2006, the period o f PARPA I. Nonetheless, significant challenges remain. For example, the primary completion rate i s s t i l l below 50 percent. Girls’ enrollment, especially at the post-primary levels, lags significantly behind that o f boys. Mozambique i s thus at risk o f not being able to achieve the MDG for universal primary education and gender equity in education. Progress in improving access to post-primary education has also been slow. Only 500,000 students are enrolled in secondary education progrhs, and 30,000 in tertiary programs. Significant disparities remain between rural and urban locations, and are exacerbated by the demand for secondary, technical, and tertiary education which i s higher in wealthier urban areas, making it ever more difficult for government education policies to be effectively pro-poor.

16. The quality and relevance o f education continues to be a concern. Of the seven mill ion people active in the labor market, more than 90 percent have completed only five years o f primary education or less. There i s a significant shortage o f technical and higher level skills, especially in math and science. O f the 30,000 students enrolled in the sixteen higher education institutions, less than one-third major in natural sciences, agriculture, engineering and health sciences, and fewer eventually graduate. Nationwide, less than 300 people have Ph.D. degrees.

17. In addition to the challenges o f coverage and quality, corruption in the education sector diminishes the efficiency and quality o f service delivery, especially to the poor. Diversion o f funds ensures that less money than intended reaches schools and beneficiaries. Corruption also occurs at the level o f individual teachers, with children and their parents subjected to varying illegal practices including: unauthorized charges levied on school admission forms; bribes to obtain good grades or exam scores, or to buy exam questions; forced payment for private tutoring in order to get quality instruction; and sexual coercion o f students. These abuses particularly affect poor children as their parents are less likely to have the means, knowledge and access to counter them. Finally, the education sector is impacted by the general c iv i l service “ghost worker” problem.6

2005 USAID Cormption Assessment. A civil servant census is being implemented by the National Public 6

Administration Authority to address this issue.

- 4 -

18. Health. Even though there has been consistent improvement in some indicators in recent years, Mozambique’s health and human development indicators rank among the lowest in the world. Maternal mortality fell from more than 1,000 per 100,000 live births in the early 1990s to 408 in 2003, compared to the 2000 average o f 910 Sub-Saharan Africa.’ Under-5 mortality decreased from 219 per 1,000 live births in 1993 to 152 in 2004, compared to the Sub-Saharan average o f 171 per 1,000 births in 2004.* However, under-5 mortality and maternal mortality are higher in the more rural northern and central provinces, where the lack o f health care facilities limits access to care. Remote rural areas are also more affected by the human resource bottleneck faced by the health system: there are not enough health care workers. The increase in government spending on hospitals in urban centers (partly driven by the rise in non- communicable and chronic diseases, and the related increased cost o f care and treatment) exacerbates the disparities in public provision between urban residents and t h e rural poor. As with the rest o f Sub-Saharan Africa, HIV/AIDS and malaria are the leading causes of death in Mozambique. Life expectancy i s declining due to HIV/AIDS and i s now slightly below 40 earsg (compared to 44 years in 1999), which is lower than the Sub-Saharan average o f 47 years. loy

19. HIV/AIDS poses one o f the most serious socio-economic problems today for the country. Mozambique has the seventh highest prevalence rate in the world; 16 percent o f the population i s currently living with HIV/AIDS. In 2005, there were 123,000 AIDS-related deaths and 400,000 children were orphaned when their parents died from AIDS. Mozambique i s surrounded by countries that have some o f the highest prevalence rates in the world (South Africa, Swaziland, Botswana, Malawi, Zambia, Zimbabwe, and Tanzania). The epidemic has devastating effects on Mozambique’s economic growth. Studies estimate that HIV/AIDS reduces African countries’ economic growth by 1 to 2 percentage points per year. The Food and Agricultural Organization (FAO) estimates that Mozambique may lose more than 20 percent o f its agricultural labor force by 2020 because o f the disease. Institutions are also losing their professional work force at an alarming rate. If the epidemic is not curbed, social networks could collapse as the most productive age groups will be decimated and future generations will grow up without the nurture o f a family. Palliative care for patients will also drain scarce public resources. Government has prioritized dealing with the HIV/AIDS problem and the national response continues to accelerate, but i s s t i l l not commensurate with the need. The World Bank Group and development partners continue to work closely with Government to address this urgent issue (see Box 1).

20. As in the education sector, corruption in health service delivery reduces the quality and quantity o f services that reach the poor. Fraudulent practices include: the stealing o f drugs and supplies; using public facilities for private gain; requests for unofficial payments for services that are supposed to be provided at no cost; charging bribes to provide regular services or to speed up the provision o f services; using access to patients in public hospitals and clinics to transfer them to private clinics, and; manipulating the drug registration and procurement process. Weaknesses in procurement and financial management at the ministry level provide another avenue for leakage o f funds in the service delivery process. l1

’ Source: World Health statistics, 2005, World Health Organization. The state o f the World ‘s Children 2006, UNICEF. National Institute o f Statistics.

2005 USAID Corruption Assessment. lo Source: World Health statistics, 2005, World Health Organization.

- 5 -

Box 1. The Bank Group and H I V / A I D S in Mozambique HIV/AIDS i s a pervasive issue in Mozambique, including for the World Bank Group. The Bank Group’s response to the epidemic includes interventions aligned with other development partners to influence government policy and Mozambican public behavior, to deal with the epidemic in all Bank Group operations, and to address the issue for Bank Group staff. The Bank Group and other partners have played a significant role in bringing the attention of Government and political leaders to publicly address the epidemic. T h e Bank Group also discusses HIVIAIDS frequently in i t s external relations and public speaking engagements. An HIV/AIDS specialist has been employed in the Bank’s Mozambique Country Office since 2004 to support our program in general and, more recently, to help mainstream HIV/AIDS interventions into al l Bank Group operations across the AFCS2 countries (Mozambique, Angola, Malawi, Zambia, Zimbabwe). IFC has a program to help private businesses address HIV/AIDS. The Mozambique Bank Country Office has an internal HIV/AIDS confidential counseling and treatment program for staff, the counselor being a person living with the disease who benefited fiom a HIV/AIDS treatment program supported by IDA and other partners. In addition, the second HIV/AIDS project that IDA supports, the MAP HIV/AIDS Project, i s instituting a grant management mechanism to support public institutions in implementing HIV/AIDS programs. Over the next four years, the World Bank Group will support a MAP HIV/AIDS SWAP that aims to strengthen the implementation capacity o f the National AIDS Commission, extend the Treatment Acceleration Program (TAP), and help develop a regional project with southern Afiica neighbors to deal with transborder HIV/AIDS issues

2 1. Water supply and sanitation. Although poor data quality and disputes over measurement issues make reporting on access to water indicators a challenge, current data and development partner estimates indicate that the MDG for access to water in urban areas has a chance o f being met although it i s unlikely that the MDG for access to water in rural areas will be met unless investment is increased substantially (see Appendix 8a, 8b). Access to water in urban areas, currently estimated at 37 percent, l2 has significantly improved through two consecutive national water rojects (where IDA i s the lead partner) which have increased access to water in five major cities, strengthened sector institutions and the regulatory framework, and successfully piloted the delegated management model which contracts out management to private sector operators with oversight by a regulatory body. The urban water strategy not only provides for increased coverage, it also aims to secure full cost recovery for larger cities so that in future investment needs can tap market funds, which will enable sector budget allocations to be directed primarily to rural and small towns where cost recovery i s limited. IDA is preparing an operation in FY07 (Water Services and Institutional Support Project) which leverages funds from the Millennium Development Corporation and the Africa Catalytic Growth Fund to scale up this model.

22. Access to safe water in rural areas i s currently estimated at 41 percent. However, the rate o f delivery by Government o f new and rehabilitated rural water supply infiastructure has not increased measurably over the last four years, partly due to implementation problems associated with decentralization o f service provision to districts and municipalities. With the central ministry not yet decentralized, a key issue has been the aligning o f the national strategy with the processes o f decentralized service delivery institutions. A GoM rural water supply and sanitation strategic plan has recently been approved. It secured a consensus among Government, development partners and local governments on the appropriate role o f local government in service provision and maintenance, although implementation o f th is approach (which will be

’* The 37% figure represents services that are formally supplied by official Government agencies where quality and reliability can be assured; other water supplied i s fiom the informal sector and includes private boreholes, vending, sharing and illegal connections. l3 That i s for Beira, Maputo, Nampula, Pemba and Quelimane.

- 6 -

supported through a multi-partner SWAP) i s expected to take several years. IDA will support the development o f the SWAP through the FY07 Water Services and Institutional Support Project.

23. The incidence o f water borne diseases such as cholera and diarrhea indicates that improving urban sanitation i s an important objective in Mozambique. Though GoM has clearly given water supply (and education and health) a higher priority than sanitation, a Strategic Sanitation Plan (SSP) was completed in 2004 with funding from IDA’s first National Water Development Project. The SSP covers Maputo, Matola, Beira, Dondo, Nampula, Pemba and Quelimane, and provides complementary sanitation developments over a 1 5-year planning horizon. I t encompasses storm water drainage, and wastewater and solid waste management, and considers infrastructural, institutional, financial and economic aspects. Some initiatives to implement the SSP have been taken. For example, the EU i s implementing a US$27 mill ion sanitation project in Beira, and i s making sanitation investments in Maputo. The MCC i s planning significant Sanitation investments in Quelimane, Pemba, Nampula and seven other larger municipalities. Nonetheless, there remains a considerable sanitation challenge in the country, especially in paying for the recurrent costs o f services. The FY07 Water Services and Institutional Support Project will allow IDA to continue i t s engagement with the water sector in Mozambique where opportunities can be explored for contributing IDA’s extensive country and sector experience to ongoing and future initiatives to effectively address sanitation issues.

24. In general there i s less concern about corruption in service delivery in the water sector as compared to the health and education sectors. The majority o f water provision in major cities i s provided by regulated utilities using private sector operators whose accounts are audited regularly. Nonetheless, poor planning and financial management, including the accumulation o f public debt in the sector, have adverse impacts on water systems development and delivery. Because the Ministry o f Finance has not made available counterpart funds and processed VAT refunds in a timely manner to the implementing contractors, the latter have increased their prices for goods and services, thus increasing the cost o f service provision for all. Also, public institutions have not been paying their water bills on time, if at all, which in turn increases tar i f fs for private users, including the poor. Consequently, reform priorities for the water sector, especially for the rural water sub-sector, include the implementation o f a performance monitoring system and better linkages between plans, budget execution, and outputs.

A Sound Macroeconomic Framework

25. Mozambique has pursued sound fiscal and monetary policies for much of the past decade. Inflation was brought to single digits in the 1990s, but then peaked again at 17 percent in 2002 as a result o f devastating floods in 2000 and 2001 and a banking crisis. Since then, inflation has been kept under control through conservative fiscal and monetary policies (see Table 2). The dollar exchange rate has remained broadly stable since 2002, except for a period o f appreciation in the second half o f 2004 and early 2005, followed by several months o f exchange rate fluctuations (mainly as a result o f the issues with exchange rate management and a rapid rise o f o i l prices in the international markets). Since 2006, the exchange rate - which is a managed float - has remained fairly stable, responding to supply and demand changes within a narrow band.

- 7 -

Table 2. Macroeconomic Framework, 2004-2009

2004 2005 2006 2007 2008 2009 Est. Est. Est. Proj. Proj. Proj.

Real GDP growth rate 7.5 7.7 8.5 7.0 7.0 7.0 Output and prices

Inflation (period average) 12.6 6.4 13.2 5.9 5.7 5.4 Exchange rate-avg (Mt'OOO per US$) 22.6 24.2 26.0 ...... ...... ......

Money and credit (12 month percent change) Broad money (M2) 16.7 22.1 25.8 17.5 15.4 15.0 Credit to the economy -2.5 22.5 14.3 21.5 17.8 16.8

Total revenue 12.6 14.0 14.4 14.9 15.4 16.0 Total expenditure and net lending 24.4 22.6 27.1 31.4 30.0 29.3

Interest 1 .o 0.8 0.8 1 .o 0.7 0.6 Non-Interest expenditures 23.4 21.8 26.3 30.4 29.3 28.7

Public Finances@ of GDP)

Overall balance before grants -12.0 -8.8 -12.2 -16.5 -14.7 -13.4 Primary balance before grants -3.5 -1.9 -2.0 -2.9 -2.7 -2.5 Financing 4.2 2.3 1.6 4.6 3.4 2.8

Foreign financing (net) 2.8 3.5 4.6 5.2 4.3 3.8 Privatization 1.9 0.3 0.1 0.0 0.1 0.1 Domestic financing (net) -0.5 -1.5 -3.1 -0.6 -1.0 -1.1

Source: GoM WB and IMF estimates

26. The primary fiscal deficit after grants fe l l from 3.5 percent o f GDP in 2004 to 1.9 percent in 2005, and it i s estimated to have remained at the same level in 2006. The primary deficit i s projected to increase to 2.9 percent in 2007 and then decline to 2.5 percent by 2009. This primary deficit has been financed by concessional borrowing, including from IDA. This fiscal policy has created space for the expansion o f credit to the economy, which grew at 22.5 percent in 2005, i s estimated to have grown by 14.3 percent in 2006, and i s projected to continue to increase in real terms by at least 17 percent each year during 2007-09.

27. The macroeconomic program has been supported by an International Monetary Fund (IMF) Enhanced Structural Adjustment Facility (ESAF) and Poverty Reduction and Growth Facility (PRGF) program. The fifth review was successfully completed in December, 2006. GoM has requested that the PRGF be followed by a PSI (Policy Support Instrument). The sixth review o f the PRGF and PSI preparation i s expected to be concluded by June, 2007 (see Box 2).

28. Mozambique's debt i s sustainable as confirmed by a debt sustainability analysis carried out by IDA and the IMF in 2006, taking the Multilateral Debt Relief Initiative (MDRI) into account. As a result o f the MDRI, the N e t Present Value o f public external debt i s estimated to have been approximately halved, from about 25 percent to about 12 percent o f GDP in 2006. The debt sustainability analysis shows that debt dynamics remain sustainable under the baseline and stress tests, albeit susceptible to a ratcheting up o f non-concessional external borrowing. In th is respect, the authorities are appropriately committed to seeking non-recourse financing for the transfer o f majority ownership o f the Cahora Bassa dam operating company, Hidroelktrica de Cahora Bassa (HCB), so as not to increase government liabilities to commercial creditors. Final

- 8 -

agreements have yet to be signed with two Paris Club creditors (Japan and Portugal), as well as with some large non-Paris Club bilateral creditors (e.g., Algeria, Romania, Libya, and Iraq) in the context o f the enhanced HIPC Initiative. A second commercial debt buy-back operation was approved by the Board in April, 2007; it will eliminate all eligible commercial debt under IDA’S Debt Reduction Facility.

Box 2. Relations with the IMF The relationship between the GoM and the IMF has been anchored by Article I V consultations and ESAF and PRGF program negotiations. Mozambique has had four IMF-supported programs since 1987. The fifth review o f the most recent PRGF arrangement was successfully completed in December, 2006. GoM has requested that the PRGF be followed by a Policy Support Instrument (PSI). The sixth review o f the PRGF and the preparation of the PSI is expected to be concluded by June, 2007. The relationship has been consistently constructive, as demonstrated by Mozambique’s strong macroeconomic performance since 1987, early accession to full debt relief under the HIPC Initiative in 1999, and the relatively low level o f waivers requested for ESAF/PRGF program reviews. The IMF has been providing about 1000 staff hours o f technical assistance per year to respond flexibly to Government for macro- financial advice.

The outlook for the IMF/GOM relationship remains favorable, as the GoM has engaged the IMF in a dialogue that extends beyond the current PRGF arrangement’s closing in mid 2007. Development partners are also involved in specific policy discussions, since all stakeholders agree that many macroeconomic policy outcomes have structural foundations that development partners can usefklly support. Even though the IMF i s not a member o f the G18 General Budget Support donors group, the timing o f its missions i s such as to be synchronized with the Joint and Mid-Year Review process o f the G18.

IDA and the I M F have worked closely together, including on the PRSCs and PRGF, advice on the financing package o f Mozambiques’s purchase o f the Cahora Bassa Hydro-power system, and on the reform o f the fiscal code governing mineral resources. The practice o f holding joint IMF-IDA missions has both had synergistic benefits, and has reduced the burden on Government o f multiple missions.

29. Pr,ospects for 2007-10 remain favorable, including for strong growth and the maintenance o f a sustainable external position, as Government i s committed to take the necessary fiscal measures and pursue a monetary program consistent with a further reduction o f inflation. End-of period inflation was 13.2 percent as o f end-December 2006, but i s expected to continue to decrease to an average 5.9 percent in 2007. With slower expansion in credit and some leveling o f f in oi l prices, inflation is expected to remain in single digits through 2009. Central to this strategy will be a gradual strengthening o f the fiscal position underpinned by an average increase in revenue o f 0.5 percent o f GDP per annum. Factors that have contributed to a positive macroeconomic outlook include conservative fiscal policies, efforts to increase revenue mobilization, no external borrowing on commercial terms, minimal subsidies to productive sectors, and targeting two-thirds o f public expenditures to priority sectors for poverty reduction.

30. Mozambique i s highly dependent upon official development assistance, with about half o f government expenditure derived from external aid. Among development partners, IDA i s the largest single financier, accounting for about twenty percent o f all development partner contributions. The 18 development partners (“G18”) who provide general budget support contribute about 80 percent o f Government’s external financing needs. Such dependency on external aid presents a risk in that Government may be more accountable to development partners than to i t s own citizens. However, the Memorandum o f Understanding signed by the G18 contains the principle that Government’s performance will be assessed based on the same reports that it submits to Parliament - this elimination o f a parallel reporting system for external

- 9 -

partners i s an essential step to strengthen domestic accountability. Furthermore, Government’s development strategy includes a plan to modernize the tax system and broaden the tax base without raising tax rates. Revenues are programmed to increase by half a percentage point o f GDP per year in the coming years, an objective met in 2005 and 2006. As GDP grows faster than aid, Mozambique will reduce aid dependency and domestic accountability will be strengthened.

Growth through the New Economy

3 1. Sources of Growth. Strong economic growth has contributed significantly to the decline in economic poverty. Growth has averaged about 8 percent annually since 1996, a dramatic improvement over the performance o f the previous decade, when real GDP growth averaged 4 per~ent.’~ This growth has been sustained by continuing agricultural growth, post-war infrastructure rehabilitation, construction o f mega-projects and associated growth in natural resource sectors, growth in manufacturing, and investment in public service provision, The sectors which have grown most rapidly between 1996 and 2005 (as reflected by the percentage point increase in their share o f GDP over the 10 year period), include: transport and communications (5.2 percent), manufacturing (3.8 percent), construction (3.5 percent), public service provision (3.1 percent), mining (0.9 percent), and restaurants and hotels (0.5 percent). These sectors are likely to see a continued relative increase.

32. By contrast, the two most important traditional activities - agriculture (including fisheries) and commerce -- grew less than average GDP growth. Although agriculture grew by an average 6.6 percent between 1996 and 2005, i t s share o f GDP declined by nearly 12 percentage points (to 18.7 percent) while commerce’s share declined by two percentage points (to 21.8 percent) over the same period. Nonetheless, these two sectors remain the largest, and the largest employers, accounting together for almost 40 percent o f GDP. Agriculture’s importance to the livelihoods o f the majority o f the population requires a proactive stance in mitigating volatility, providing supporting infrastructure, and disseminating productive technologies.

33. The IMF and IDA estimate that future growth will be at least 7 percent per annum through 2009 under the assumption that the reform agenda continues to be implemented, that donor support stays broadly at the current level, and that no major natural disaster happens. Any scaling-up o f aid or increased private investments should lead to higher growth rates. As outlined in PARPA 11, a package o f governance reforms, improvements in the business environment, investments in physical infrastructure, and the strengthening o f human and institutional capacity i s necessary to achieve the objective o f high, sustained growth and poverty reduction.

34. Drivers o f growth will continue to be in infrastructure development, mining, energy and manufacturing mega-projects, agriculture, and increasingly tourism. Except for the mega- projects, these activities will facilitate rural development, a central theme o f PARPA 11. Moreover, to ensure that the growth is broad-based, promotion o f small and medium enterprises (SMEs) in needed. Finally, Mozambique will need to collaborate with neighboring countries to leverage economies o f scale for markets, to enhance trade and risk management, and to find

l4 There were wild fluctuations in real GDP growth during the war years (1 976-1992), ranging fiom 1 percent in 1985 and 1990 to 15 percent in 1987, and including negative growth rates during 1982,1983, 1986 and 1992.

- 10-

regional solutions to public goods problems that involve all southern African countries including HIV/AIDS, energy, and water resources management.

35. Critical Growth Sectors: Needs Assessments and Proposed PARPA 11 Interventions. Mozambique’s continued rapid development depends on further large and efficient investments in infrastructure, including an increased energy supply available for the domestic market and improved access to it, roads and transport, water resource management, agriculture, and telecommunications. A particular challenge wi l l be the strengthening o f smallholder agriculture, agribusinesses and SMEs that will have to occur for growth to be shared; otherwise, growth generated by the mega-projects will benefit only a small part o f the population.

36. Energy. Currently, only 7 percent o f Mozambican households have sustainable access to electricity. Government’s goal i s to increase access to 10 percent by 2009. Many institutions in rural areas, such as schools and clinics, do not have sustainable and affordable access to energy. PARPA I1 includes a target o f connecting 500 new institutions to an energy source by 2009. IDA and the Global Environmental Facility (GEF) are already involved in the roll-out o f renewable energy systems for remote schools and clinics. It i s anticipated that continued support in this area will leverage additional resources, as well as policy and institutional developments to support a scaling up o f this approach. Potential shortages o f energy supply to industry may hamper Mozambique’s growth. Growth in domestic demand for electricity, exclusive o f any significant new industrial loads, will increase at about 6-7 percent annually over the next decade. Currently a number o f new industrial projects are in the advanced stages o f preparation, including the Moatize coal mine, Chibuto I titanium and zirconimum mine, and Mozal I11 aluminum smelter projects, but power supply i s a potential constraint to their development. To meet the growth in domestic demand and planned new industrial demand, Government i s planning significant new generation and transmission infrastructure with considerable private sector participation. Government has already begun the process o f selecting private sector strategic investors for three new generation projects which require investments o f around US$ 4 billion.” It i s planned that these generation projects will be complemented by a new 1500 km transmission line from Tete to Maputo and beyond, which will become the “backbone” o f the national transmission grid. From a regional perspective, there are also opportunities for m e r transmission interconnections, including between Malawi and north-west Mozambique and with Tanzania. It i s anticipated that the WBG will support Government in realizing these projects, possibly through advisory services as well as financing instruments, including guarantees.

37. Roads and Transport. Inadequate rural access to the road network and high transport costs hinder both social development and production. Limited roads means that access to education, health and other government services i s more difficult for rural populations - and they are more difficult to staff, anyway, as staf f generally prefer to be in less isolated locations. They also mean that commercial activities are limited: traders and financial services suffer. And, poor road access seriously hinders agricultural growth and productivity, limiting access to markets and storage facilities for Mozambique’s farmers.

The Temane gas-fired power generation project (700 MW), the Moatize coal-fued power generation project I S

(1,000-1,500 MW), and the Mphanda Nkuwa hydropower project (1,300 MW).

- 1 1 -

38. Road density per land area in Mozambique i s low at 0.05 kilometers o f road per square kilometer. The present road network provides potential access16 to around 41 percent o f the rural population; due to the poor condition o f the network, especially in the wet season, the percentage o f the rural population that has reliable all year access is much smaller. Consequently, one o f the main objectives o f the national 2007-201 1 Road Sector Strategy and PARPA I1 i s to increase the number o f the rural population with access to an all-season road. Another part o f the strategy is to improve connectivity for rural producers and communities, which involves increasing access to ports and railroads and decreasing costs o f transport. The concessioning o f major port and railway systems to private o erators for rehabilitation has met with mixed results. The major port concessions are ~perational!~ However, the concessioning o f railways has met with less success due to non-performance o f concessionaires, insufficient monitoring and enforcement o f concession stipulations by Government; only the Machipanda line (Dandomeira to Zimbabwehlutare) o f the Beira railway i s presently operating satisfactorily. Government i s also starting to focus on the rehabilitation o f ferry traffic.

39. Although air transport has an important role for some activities with high growth and export revenue earnings potential (e.g., business travel, tourism, and high value exports), privatization plans have been put on hold. The planned concession agreement for the Maputo International Airport was drafted but Government decided to cancel the concession and rather study options for financing and private participation. Government also put on hold the privatization o f LAM, the national airline, in part due to the company’s indebtedness. The Communications Sector Reform Project (Cr. 35770) supports the development o f air safety regulation and civil aviation law, and capacity development o f the Civil Aviation Institute. Ma in challenges include: financing o f airport infrastructure, particularly in the provinces, and identifying an appropriate medium-term strategy for LAM. As the first Communications Sector Reform Project comes to a close, the Bank Group team (IDA and IFC) will support Government with policy advice to find strategic investors for airports and the national airline. However, IDA does not expect to provide financing for air transport during the period o f the CPS.

40. Agriculture. The agricultural sector i s central to Government’s growth strategy. However, challenges are great: overall agricultural productivity i s very low, many rural people live at near- subsistence levels, there i s very litt le water harvesting (in a country alternatively struck by drought and flood), even where existing, irrigation systems are seriously underutilized, and access to rural financing i s negligible. Enhancing agricultural productivity, developing efficient irrigation, improving access to finance and markets, strengthening and expanding value chains, promoting agro-processing for exports, and encouraging private sector participation are major objectives o f the agricultural growth strategy. In order to support th is strategy, PARPA I1 contains targets for: (i) increasing access to technologies, extension information, and selected agricultural inputs; (ii) promoting the construction and rehabilitation o f agrarian infrastructure, especially irrigation schemes; (iii) improving access to information and input/output markets; (iv) promoting the private sector, especially in export markets for cashew, cotton, and sugar; and, (v) improving community access to natural resources in a equitable manner for sustainable use and management. There is a pressing need to use irrigation resources effectively and to expand and develop agribusinesses and exports. Recent work on biofbels could open up significant new markets for the agriculture sector.

l6 Measured as those living within two kilometers o f any road in the network. ” Including Beira, Maputo and Nacala.

- 12 -

41. Wafer Resource Munugemenf. Water resources are a major natural asset for Mozambique, and are instrumental to all economic sectors, including agriculture, energy, industry and commerce, rural development and health. The combination o f h igh climatic and hydrological variability, high dependency o f the country on international rivers, and growing competing water demands by some neighbors and productive and domestic users in Mozambique represent a serious challenge to long-term growth. The World Bank Group has prepared with Government and development partners a Country Water Resources Assistance Strategy that could help plan investments in water infrastructure and improvements in water management institutions and management practices. The objective o f th is strategy is to help reduce vulnerability to water shortages, and to provide a minimum platform o f water infrastructure to underpin growth in water dependent sectors. Priority areas o f intervention identified in the strategy include: (i) water resources development and management in the water-stressed south, specifically in the Incomati and Umbeluzi basins; (ii) small scale water resources development to support smallholder irrigation and provide infrastructure for small towns; (iii) assistance to Government in identifying and implementing the environmental and social requirements for the development o f large water infrastructure (particularly on the Zambezi River); and (iv) institution building in the water resources sector.

42. Telecommunications. Government, with support from the IDA-financed Communica- tions Sector Reform Project (Cr. 35770), has fostered an increase in teledensity (fixed and mobile lines) from 1 percent in 2000 to 9 percent in 2006. Despite this accelerated growth, teledensity i s s t i l l very low, and needs to continue to increase in order to enable growth, especially in rural areas. The impact o f increased teledensity - and o f information and communications technologies (ICT) in general - on productivity, commerce, education, communication and governance (through more transparent access to information) i s widely accepted. GoM’s ambitious telecommunications targets include: (i) increasing teledensity to 22 percent by 2009; (ii) expanding internet access points by 2009; and (iii) rapidly scaling up the number o f central, provincial, district and municipal government institutions linked to the electronic government network. Government has also prioritized development o f Mozambican ski l ls in science and technology, including in ICT. PARPA I1 includes targets for increasing the number o f Mozambicans studying for graduate degrees in science and technology, and the number o f communities trained in and having access to information and communications technologies.

43. Mega-projects. Mega-projects, including Mozal Aluminum I and 11, and the Southern Africa gas pipeline, are estimated to contribute about 1.6 percentage points to GDP growth annually. This contribution will likely increase as a number o f proposed mega-projects come on stream, including: the Moma Heavy Sands titanium mine, which starts production in 2007; the Moatize coal mine; and the power plant and transmission line associated with Moatize. Further large projects in the energy sector are under preparation, including the Mphanda Nkuwa hydropower project and a gas-fired power plant in Temane in the South. Furthermore, Mozal i s planning to build a third aluminum plant. Several large international mining corporations are also analyzing investment opportunities in the mining sector. Whi le these mega-proj ects are expected to continue to make major contributions to growth and foreign exchange earnings, their impact on local employment i s likely to be relatively limited after the construction phase. To increase their impact in this regard, it i s important to develop SME linkages as has been done by Mozal.

- 13 -

44. Private Sector Development. Development o f the private sector, including helping firms move from the informal sector to the formal sector, w i l l be essential to increasing and sustaining growth and employment generation. Two key PARPA I1 objectives that will help promote broad- based growth are increasing support to SMEs, and promoting the tourism sector. S M E s and the tourism sector hold greater promise for broad-based growth as they help develop the domestic private sector, generate employment and develop the rural economy, and they can be an effective way to link the formal and informal economies.

45. Regional Integration and Trade. Increasing domestic and international trade underpins Mozambique's growth strategy. Emphasis needs to be placed on regional integration to leverage economies o f scale and to resolve public goods issues. Because o f the size o f their economies, human resource pools and especially, the HIV/AIDS crisis, no southern Africa country can generate high rates o f growth relying only on domestic resources. Mozambique - like i ts neighbors - has particular interest in regional initiatives to strengthen inter-country transport, energy markets, use o f international water, communications, food security, and trade financial and customs systems. More generally, SADC members have defined their priorities over the next decade to be: (i) trade liberalization, including the creation o f a Customs Union by 2010 and the establishment o f a common market by 2015; (ii) financial harmonization, including the establishment o f a fbll monetary union by 2016; (iii) development o f regional infrastructure to facilitate trade, communications, and energy trading and risk management; and (iv) management o f public health issues, especially HIV/AIDS.

46. Business Environment, Governance, and PARPA 11 Interventions. Second-generation reforms improving the investment climate, reforming the legal and judicial sector, improving public financial management, increasing the quality and quantity o f public services through reform o f the public administration, decentralization, and a vigorous fight against corruption are essential to maintain high growth rates and reduce poverty in Mozambique. At the same time, institution-building, especially at the local level, needs to accelerate, combined with better results monitoring, and intensified efforts to increase citizens' participation in all aspects o f public l i fe as th is will increase the demand for accountability at the local level. These institutional and governance reforms need to complement the investments in infrastructure and social services; otherwise, their impact would be rather limited.

47. A business environment unfriendly to small and medium enterprises and the informal sector has hampered growth in both urban and rural areas. There have been some improvements - e.g., due to recent legal reforms (adoption o f a new Commercial Code and Law on Company Registries) and electronic business registration, the process to set up a firm i s expected to decrease to only 35 days in 2007 (from 153 days in 2005 and 11 1 in 2006) - but much remains to do; Mozambique was ranked 140 out o f 175 countries in the Doing Business indicators in 2006.''

48. The labor market i s an area in which significant reform i s awaited. At present, it is extremely rigid, and i s considered to be among the ten most restrictive globally." The judicial process also remains cumbersome and complex, and case resolution i s slow, particularly in the labor courts. Efforts are underway to improve contract enforcement, including the creation o f

~~

'* Doing Business 2007: How to Reform, World Bank, 2006. l9 Ibid

- 14-

commercial sections in the judicial tribunals, but poor contract enforcement continues to discourage private sector investment. Such hurdles in the business environment have contributed to the growing prevalence o f systemic corruption, which the 2003 Investment Climate Assessment flags as one o f the major impediments to growth. Recognizing this, PARPA I1 contains targets to simplify the process o f starting a business, simplify import and export procedures, approve and implement a new labor law, and limited measures to strengthen the capacity o f the judicial system.

49. Inadequate access to finance has hampered the growth o f SMEs, especially in rural areas. Factors behind this include high interest rates, presence o f secure government investments, absence o f competition among banks, and weak repayment and collateral enforcement. Many o f the only 29 percent o f registered companies that have loans on their books have not used formal financial sector intermediaries. These factors account for this sector’s small and falling contribution to GDP o f a l i t t le above 3 percent in 2006. The World Bank Doing Business survey ranked Mozambique 143 out o f 178 countries on ease o f getting credit for 2006. PARPA I1 includes goals to improve the performance o f banks, increase access to microfinance for rural communities, and increase the amount o f loans to the private sector.

50. Limited administrative capacity at the local level also hinders rural growth and limits demand for accountability. District and provincial governments are improving their ability to stimulate investment in community service delivery projects. However, they have yet to demonstrate significant capability or structure to help organize activities at the local level to stimulate private sector investment. In general, smallholder farmers need support to organize themselves in associations that leverage their bargaining power (e.g., relative to large industrial farming enterprises in outgrower schemes) and share productivity-enhancing agricultural technologies. The limited capacity o f local government and community organizations also impedes the demand for accountability at the local level, a major shortfall in the governance framework. PARPA 11’s rural development strategy foresees developing economic and financial development agencies and agro-livestock associations, and improving rural communication.

Governance and Accountability

51. Mozambique’s governance framework i s in transition; i ts system o f participation and accountability i s s t i l l young and evolving, and institution building i s in the early stages. Yet, Government’s goal o f broad-based growth will be impeded if current weaknesses in the governance framework are not addressed. Further, increasing public dissatisfaction with the politics o f patronage and clientelism pose a risk to the nascent democratic system and to long- term political stability.

52. The World Bank Institute’s Governance Matters survey data shows that in 2005 Mozambique’s performance was better than the Sub-Saharan African average in all six dimensions o f governance, although only barely so for Regulatory Quality, and within the margin o f error for Rule of Law and Control o f Corruption (see Figure 1).

- 1 5 -

Figure 1, 2005 Governance Rankings, Mozambique and Sub-Saharan Africa

Voice and fiw&ablLity

Pol i t ica l Stabilits#W V i d e n e e

Eownmrnt Effectiudneas

Regulatory hurtfty

Rula ot Law

Control o f CorrwCion

(WW Governance Martem Survey)

25

53. During 2005 and 2006, €our studies have strengthened government and development partners’ understanding o f issues affecting governance?’ These analyses have shared the following conclusions: * Corruption i s common in parts of the public sector and in service delivery. In the public

sector, corruption i s more common than elsewhere among the police, the court system, customs, business licensing, and tax collection. Petty corruption i s common in service delivery, including in education, health, water and electricity. and other public services that capture revenues, Main forms o f corruption are bribes and kick-backs. Among large infrastructure and transport projects, there i s a perception that corruption has been associated with contract negotiations and procurement processes. Mozambique perfoms relatively well in the areas o f budget formulation and execution. However, the 2005 Public Expenditure and Financial Accountability (PEFA) Assessment indicates that weaknesses continue in: accounting and audit, especially external audit: cash management and monitoring o f expenditure payment arrears; transparency in the procurement process; revenue collection, especially o f the corporate tax base; internal controls for non-salary expenditure and effectiveness of payroll controls; and, predictability in the availability o f funds for commitment of expenditures. (See Box 4.)

20 These are: (i} the 2005 Worfd Bank Institute Anti-Corruption Survey; (ii) the 2006 DFID Strategic Conflict Assessment; (iii) the 2005 Public Expenditure and Financial Accountability Assessment; and (iv) the 2006 USAID Corruption Assessment.

- 16-

The increasing single party dominance o f all three branches o f the State weakens checks and balances. Parliament that does not have an effective opposition and the judiciary i s not considered to be independent.

Civil society organizations, the media, and local community organizations are often not strong and so have limited voice and participation in political and legislative processes?1

Whi le Government i s gearing up its anti-corruption efforts, there have so far been few repercussions for those who are corrupt. As it i s now receiving more resources, the Anti- corruption Office (GCCC) is increasing the prosecution rate for corruption cases. (See Appendix 6 - CAS Completion Report.)

Access to justice i s often beyond the reach o f the average Mozambican, especially in rural areas. Logistical challenges limit the geographical reach o f the courts. Community courts - the most visible face o f justice for much o f Mozambique - receive l i t t le support f iom the state. Private lawyers’ services are priced well beyond the reach o f the average citizen.

Box 3. Mozambique’s Public Financial Management The 2005 Public Expenditure Financial Accountability (PEFA) assessment reviewed Mozambique’s public financial management systems at the end o f 2004. I t found:

Overall, Mozambique performed well in the areas o f budget formulation and allocation. The budget is a credible and realistic instrument that i s generally implemented as intended. Budget allocations have been consistently in line with sector policies and PARPA objectives. Budget execution is, on average, close to the initially approved allocations, but there i s s t i l l weak capacity o f Government to mobilize local counterpart f inding for foreign financing. Financial management systems for budget execution are steadily improving, especially since the implementation o f an integrated financial management and information system for the central public administration, called e-SISTAFE. The current challenge i s to roll-out e-SISTAFE to districts and municipalities. Monitoring o f expenditure payment arrears i s weak. Predictability in the availability o f funds for commitment o f expenditures is undermined by high levels o f off-budget spending particularly for external project finance. (Development partners have since improved their reporting on project and program aid. and the use o f national procedures, and most o f their support i s now reported on the Treasury account.) Mozambique scores poorly on indicators for: oversight o f aggregate fiscal risk f iom other public sector entities; extent of unreported government operations; and transparency o f inter-governmental fiscal operations. High level o f tax exemptions (particularly for mega-projects) and non-compliance of, and significant inefficiencies in, tax enforcement limit expansion o f the tax base and revenue collection. In 2005, the revenue reform process has focused explicitly on improving tax enforcement. The audit function still requires significant attention, including expanding the limited coverage o f external audit: only a quarter o f government entities i s audited annually. Transparency in procurement is weak. Less than hal f o f contracts above the national threshold for small purchases are awarded on an open competitive basis. A new Procurement Code was approved in December 2005. It adheres to international standards and revises the institutional set-up; its implementation started in late 2006. Internal controls are weak (no central reconciliation), creating real possibilities for “ghost workers” and for staff to receive pay from more than one payroll.

Reforms implemented ‘in 2005 and 2006 would significantly increase Mozambique’s PEFA scores for 2006 in policy-based budgeting, cash management, comprehensiveness and transparency o f budget management, and revenue collection and management. The next PEFA assessment i s scheduled for 2008.

21 There are allegations that members o f the media have been intimidated and a well known journalist was assassinated in 200 1. Nevertheless, the media are fiee by international comparison and represent an important voice.

- 17-

54. In response to these findings, the Government of Mozambique prepared an Anti- corruption Strategy for the period 2006-2010, approved by the Council o f Ministers in April 2006. The strategy’s principles include: zero tolerance, emphasis on prevention, promotion o f investigation o f cases, and citizens’ participation. The National Anti-Comption Plan was approved by the Council o f Ministers in February 2007. This plan includes sector anti-corruption plans from several a results framework, and institutional arrangements for implementation. The Inter-Ministerial Commission for Public Sector Reform, chaired by the Prime Minister, i s charged with providing political leadership for the implementation and monitoring o f the Anti-Corruption Strategy; a Technical Commission and Anti-corruption Forums (at national, provincial and district levels, integrating representatives o f civil society, the public sector and the private sector) have also been established. The Technical Commission i s empowered to oversee, monitor and implement the strategy and the forums serve as consultation mechanisms. PARPA I1 also includes actions for improving transparency in the budget planning and implementation process, and for increasing citizen access to information concerning public resources and service delivery. (The pillars and focus areas o f PARPA I1 are presented in Box 5.)

55. During the last CAS period (2003-7), the World Bank Group and development partners helped raise the profile o f governance concerns. IDA and others o f the G18 focused general budget support on improving the supply side o f the governance framework, including public financial management systems and public sector reform. Although implementation o f agreed changes has been slower than expected, especially in civil service reform, progress in these prioritized areas has been steady. However, development partners and Government have done less on the demand side o f good governance, and there has been growing realization that more effort i s needed to increase citizen demand for accountability.

56. Development partners have collaborated to address governance issues in l ine with their comparative advantages. For example, the Netherlands and FA0 focus on land and environmental management. Denmark has supported the modernization o f the legal framework and improving the quality o f the judiciary through training; recently, along with the European Union and Ireland, it also has supported audits o f the justice sector. Sweden and Ireland have focused on public financial management and audit systems; the former has provided support to the audit section o f the Administrative Tribunal. The European Union has focused on electoral systems. The European Union and UNDP have also supported institutional strengthening and reform in the justice sector. One o f UNDP’s main priorities i s strengthening the criminal justice and prison systems. The UK and Ireland are providing funding for non-governmental and civ i l society organizations to improve governance more generally. IDA will contribute to the development o f baselines for key outcomes in the Anti-Corruption Strategy results framework through the recently restructured Public Sector Reform Project, and will coordinate a second Anti-corruption Survey to check progress against the 2004 Survey results.

57. As Mozambique is a diverse and large country, the policy direction taken by Government towards decentralization can help foster public accountability to citizens by bringing Government closer to the people. Currently, municipalities are the only truly decentralized entities; mayors and city councils are elected. Districts and provinces are st i l l centrally-controlled

22 Ministry o f Interior, Ministry o f Education & Culture, Ministry o f Finance, Ministry of Health, and Justice Sector.

- 1 8 -

Box 4. PARPA J I Pillars and Focus Areas Unlike the sectoral approach in PARPA I, PARPA I1 uses a pillar approach based on the five-year government program. PARPA I1 has three main pillars, a foundation o f macroeconomic and public financial management, and eight cross-cutting topics.

Pi l lar One - Governance: PARPA I1 sets out a broad and ambitious agenda o f institutional reforms in public administration, public financial management, decentralization by devolution, the judiciary sector, and anti- corruption measures. These are to be complemented by increasing popular participation at the local level, focusing on the district and municipality as the key unit o f service delivery. The reforms in public administration w i l l include a census o f a l l c iv i l servants, the formulation o f a new salary policy, and hnctional analysis o f the key ministries to provide better services. Decentralization reform includes the devolution o f some functions to the district administration, an increase in the number o f municipalities with elected city governments, and a rethink o f inter- governmental fiscal relations and resource transfers to local governments. Reforms in the judiciary sector w i l l address inefficiencies and lack o f capacity in the administration o f justice with the objective o f making justice more accessible. Key elements o f the anti-corruption strategy include the reduction o f red tape, increased transparency in public financial management and access to information by the public, and strengthening o f institutions that prosecute corruption.

Pi l lar Two - Human Capital: Improvements in human capital w i l l be sought through interventions in the social sectors and infrastructure. Key objectives include the reduction o f child and maternal mortality, almost doubling the number o f people benefiting from anti-retroviral treatment o f HIV/AIDS, increasing the net schooling rate and the completion rate o f primary education for girls, improving the quality o f teaching by reducing the student-teacher ratio, increasing access to drinking water, and expanding social protection programs. PARPA I1 adopts a holistic view towards human development and skills development by, inter alia, attaching importance to technical and vocational training and tertiary education. PARPA I1 further identifies science and technology as a cross-cutting priority sector.

Pi l lar Three - Economic Development: This pillar addresses the improvement o f the investment climate and removing key constraints to growth. Reforms and measures under t h i s pillar are aimed at: (i) macroeconomic management; (ii) improving the business environment; (iii) development o f the financial system; (iv) promoting the creation o f a strong, dynamic, competitive, and innovative private sector; (v) promoting the priority sectors, broadening the business class, and creating jobs (including in agriculture and agrarian services, natural resource management, industry, fisheries, tourism, mineral extraction, o i l exploration, and several employment creation programs); (vi) improving the integration o f Mozambique into the regional and international economy; and (vii) promoting the integration and consolidation o f the domestic market. The latter includes road and water transport, ports and railways, bridges, marketing systems, and regulation o f internal trade.

Cross-cutting .Objectives: PARPA I1 places focus on cross-cutting areas that require multi-sector collaboration. These include: rural development, environment, HIV-AIDS, gender, science and technology, natural disaster management, de-mining, food and nutritional security.

PARPA I1 Pillars and Areas o f Focus Macro-economics Pillar 1: Governance Pillar 2: Human Capital Pillar 3: Economic and Poverty Development

Poverty Analysis Public Sector Reform Health Financial Sector and Monitoring Systems Justice, Legality and Education Private Sector

Public Order Public Financial Water and Sanitation Agriculture

Social Action Roads Management

Cross-Cutting Areas of Focus Rural Development

Environment HIV/AIDS

Gender Science and Technology

Natural Disaster Management, De-mining, Food and Nutritional Security

- 19-

although deconcentration o f functions and responsibilities has begun. In 2007, provincial assemblies wil l be elected for the f irst time. The gradual empowerment o f district governments and local consultative councils, as well as PARPA 11’s objective o f increasing the number o f municipalities, wi l l enhance citizen participation in government. Legislation approved in 2004 made districts a budget entity, and requires approval by district consultative councils o f budgets. Criteria adopted in 2007 increase the proportion o f investment budget to be executed by district governments. A comprehensive decentralization approach by the major sectors i s still needed; i t w i l l help ensure effective allocations o f functions, finances and human resources for local service delivery, and therefore help improve service delivery.

58. Despite the achievements o f decentralization, slow progress in institutional and civ i l service reform undermines the efficiency o f public institutions and their accountability to the public. While organizational reforms are underway in several ministries and within the civil service in general, progress has occurred at a slower pace than expected. Preparatory measures to reform the civil service and pave the way for salary reform have been taken, including the creation in 2006 of the National Civ i l Service Authority, implementation o f a civil servant census, and development o f the Civil Servant Register. In light o f concerns relating to leadership and program content, the scope o f the Public Sector Reform Program (Phase 2, FY03-10) has been narrowed, with a greater focus on i t s impact on service delivery. Notwithstanding these actions, the lack o f progress on the reform o f the administrative framework raises fundamental issues about how to elicit the best performance out o f c iv i l servants, and risks undermining civ i l servant accountability to the public.

11. THE BANK GROUP STRATEGY: AN INTEGRATED APPROACH

59. The new strategy o f the World Bank Group to support the development o f Mozambique over 2007-1 1 will employ an integrated approach that stresses poverty-reducing growth, collaboration with development partners, focus on cross-cutting themes, mainstreaming governance and capacity development, and focus on results. These operating principles build on lessons from the implementation o f the 2003-7 strategy. They are also in l ine with the pillars stressed in the World Bank Group’s Afiica Action Plan presented to the Board o f the World Bank on March 20, 2007: Accelerating Shared Growth, Building Capable States, Sharpening Focus on Results, Strengthening the Development Parherhips.

Building on Lessons Learned

60. The major lessons relevant for the new strategy are: 0

A discussion o f lessons learned from the previous CAS implementation i s at Appendix 6.

Understand better the country’s political economy and reflect in the design of studies and projects. Political economy factors are central to the stalled implementation o f several projects and some non-lending initiatives, and are key to effective development in general. Political realities should be taken into account in the timing and content o f projects. Attention has to be paid to how political economy factors impact government ownership o f projects.

- 20 -

a Effectively address recurrent portfolio issues, especially counterpart funding and VAT refunds. Two issues that are closely linked to the political economy and to the country's financial management system are counterpart funding and VAT refunds. Lack o f counterpart funds has hampered the implementation progress o f several projects in the portfolio during the last three years; and slow or insufficient VAT refunds to contractors has resulted in higher costs for infrastructure projects and projects that involve building o f public works. The Bank Group will consider these issues in h t u r e project designs, as well as help Government address weaknesses in related budget and financial management systems. For the current and new portfolio, 100 percent financing will be used as permitted in Bank guidelines and where ownership i s not an issue.

Articulate the Bank Group 's requirements regarding country systems related to financial management, procurement and audits, and work with Government and development partners to develop a capacity development plan for these areas. This step is required in accordance with the Paris Declaration but it i s also necessary to accommodate plans for the greater use o f sector wide approaches and common fund arrangements. Several attempts to jo in common fund arrangements in the past have been unsuccessful in terms o f Bank involvement (while others have worked). In addition to assessing the current state o f government procurement and financial management systems against Bank Group requirements, the Bank Group will help Government draft a capacity development plan for these areas to address capacity gaps, especially for district administrations. Attention will also be paid to enhancing the participation o f the local populations, in planning and budgeting, and in ensuring transparency and accountability in the use o f public funds at that level.

More realistic targets for the Bank strategy (CPS), and distinguishing of PAF targets (of the broader group of development partners) versus CPS targets. Because o f the challenge o f attribution, PAF targets should only be selectively included in the CPS results framework, e.g., if they are triggers in the PRSC series, or if the Bank Group program is the main source o f support for achieving the target.

Simpler design and better project preparation to ensure a f i t with government implementation capacity, as well as to reinforce government capacity. Project design i s often overly complex. Available capacity needs to be an important design criterion. Similarly, projects need to: use project preparation facilities to ensure implementation readiness; reduce the creation o f parallel project implementation units and give more responsibilities to l ine ministries; and include govenunent procurement and financial management staff as part o f the preparation team. Projects also need to plan for more realistic implementation timeframes and rapid start-up. Stronger preparation and implementation readiness (through dialogue and relationship building) are also key to an effective portfolio.

Coordinate capacity building efforts across the World Bank Group with Government and with development partners. Bank staf f need to develop an overall strategic framework for capacity building, in coordination with development partners and Government. Important considerations in th is are: (i) capacity building needs and gaps (especially at the sub-national level), (ii) capacity needed for engagement in any field, and (iii) interventions aligned to available capacity. Finally, results measurement for capacity building needs to be improved.

Improve coordination and dissemination of analytic work. ha ly t i ca l and advisory work conducted during the CAS period have been relevant and of high quality. Their findings are

- 2 1 -

used to inform subsequent project design and policy dialogue. Improvements can be made, however, in the collaborative selection o f topics and the design o f joint work programs, timing, and dissemination. Analytical work must also be unequivocally demand-driven.

0 Address governance issues in all operations. Corruption in service delivery and procurement processes (even where activities are not using Bank funds) undermines the performance o f Bank Group operations and their impact on poverty alleviation. Strategies to be pursued by the Bank Group to address th is issue include: mainstreaming citizen scorecards q d other local accountability mechanisms (as done by Decentralized Planning and Finance (Cr. H0670) and ProMaputo (Cr. 42570)); and putting in place sector governance and accountability frameworks (as done in Roads and Bridges (Cr.35500) and National Water Development I1 (Cr. 32470)), and capacity development in fiduciary areas. The implementation o f the procurement code, including at the district level, will be monitored.

Valued Partnerships

61. Partnership with Government. The Government o f Mozambique values Bank Group support. It has indicated that projects garner greater support within Government and communities where there i s involvement o f the World Bank Group. The knowledge, capacity building and influence generated by the Bank Group’s policy dialogue, analytical and advisory services, and lending support i s recognized, as is IDA assistance particularly in the areas o f education, health, and infrastructure, The Bank Group also offers significant combined resources fkom IDA, IBRD, IFC, and MIGA to support private sector development. Other competencies that are especially valued include expertise in financial management, procurement, expenditure management, resource mobilization, poverty diagnostics, and results management.

62. Partnership with Development Partners. The Bank Group’s role as a convener o f development partners and catalyst for reform i s generally appreciated, and the increasing presence o f s taf f in Maputo enhances the Bank Group’s ability to perform these functions. All development partners and Government deserve credit for having significantly advanced the harmonization agenda in Mozambique and for having successfully implemented best practice coordination mechanisms, including for providing general budget support, implementing Paris Declaration objectives, and general coordination on assistance strategies.

63. A Memorandum o f Understanding (MoU) was signed in 2004 between Government and the development partners providing general budget support (G18 Program Aid Partners). Two fundamental principles o f th is M o U are predictability and alignment with the domestic budget cycle. Support for the upcoming year i s based on the assessment o f a “Joint Review” o f the previous year, conducted among the development partners and Government, which looks at government performance against an agreed performance framework (the Performance Assessment Framework, or “PAF”). The M o U also indicates that disbursements for general budget support can be interrupted if Government does not pursue certain undertakings, including macro-economic stability and commitment to sustainable poverty reduction.

64. Additional progress has been made in implementing the Paris Declaration for the 2006 and 2007 budget cycles (see Appendix 9), especially facilitated by the development o f mechanisms to bring project aid on-budget (e.g., the Medium-Term Fiscal Framework, and a

- 22 -

project database and website listing support from all development partners). Previously, development assistance had not been factored into resource allocation decisions, an issue that undermined the principle o f comprehensive budgeting. In addition, development partners have set 2010 targets for Paris Declaration indicators. Since the 2005 review o f the performance of the Program A id Partners, the World Bank Group has been making progress against most o f these targets. Notably, the World Bank Group i s focusing on increasing the number o f joint missions and joint analytical work, and reducing the number o f PIUs. The World Bank Group i s also providing support to Government in financial management and procurement to facilitate the use o f country systems.

65. Development partners have aligned their support to the PARPA I1 and have jointly agreed which donor(s) will take lead responsibility in each focus area, building on their comparative advantage. Appendix 2a lists the PARPA I1 areas o f focus o f each partner and Appendix 2b provides a full l is t o f participants in the respective working groups. For example, among France’s focus areas are health and the environment; Italy’s are public financial management and budget management and agriculture; the Netherlands focuses on decentralization, education and health; Denmark on municipal development and justice systems; Switzerland on water and sanitation and governance reform; Germany on public financial management and the financial sector; the European Commission on electoral systems, the judicial sector, agriculture and health; Ireland on public sector reform; the FAO, IFAD, and Sweden on agriculture; USA on governance, service delivery, the environment and private sector development; the UK on private sector development, the financial sector and transport; and the Africa Development Bank on financial sector and infrastructure development.

66. The benefits o f the growing collaboration among development partners and with Government are evident. Better reporting o f project expenditures by development partners has resulted in getting most external aid flows on-budget, which facilitates budget management. Increased joint missions and joint analytical work are placing less o f a burden on government counterparts, and helping to improve product quality and service delivery efficiency. Collaboration in the development o f country strategies i s helping Government address resource gaps in the implementation o f PARPA 11. At the same time, coordination and harmonization i s time-consuming, and significant work remains.

67. Emerging partners such as the Government o f China, the US Millennium Challenge Corporation, and private foundations (such as the Clinton Foundation and the Gates Foundation) are changing the development context in Mozambique. The risks and opportunities presented by these emerging partners have significant implications for the World Bank Group’s business model. During the CPS period, the Bank will continue to explore ways o f enhancing i ts business and operational models to improve effectiveness in this new context. Accessing the entire range o f products available across the World Bank Group - national and regional IDA resources, IFC, MIGA, IBRD partial risk guarantees, carbon financing and various trust funds, including the Global Environmental Facility, and so on - as well as systematically exploring co-financing opportunities with development partners i s a start.

68. Partnership with Civil Society and the Private Sector. The Bank Group will continue to strengthen i t s work with civil society organizations and the private sector, both to facilitate

-23 -

growth and good governance and to strengthen demand for accountability. Regular consultations are planned with civil society organizations, including NGOs, think tanks, and academic institution, and private sector players. The Bank team will consult with these partners during the design, implementation and supervision o f studies and operations, as appropriate. The advice o f these partners was sought during the development o f the CPS (see Appendix 3).

69. As deeper partnering with civil society and the private sector, and a focus on citizen accountability and voice, are relatively new areas for the World Bank Group in Mozambique, the Bank team will be looking to learn from development partners who have been more active in this area, and from World Bank Group experiences in other countries. Bank sta f f working with Mozambique are in touch with their colleagues in the external relations unit to develop an outreach and knowledge dissemination strategy, and with the World Bank Institute (MI) and the social development unit to mainstream social accountability mechanisms in the portfolio. Other activities to a similar end under discussion include: building the capacity o f civil society organizations and the media to monitor government; using citizen scorecards and surveys to involve citizens in planning and monitoring public service delivery; and working with Government to increase citizens’ access to information on the budget, procurement procedures and transactions, service delivery costs, and users’ rights.

70. Partnership with Other Countries. In the longer term, Mozambique’s continuing development will depend significantly on the country’s vision for the role that it should play in Sub-Saharan Africa and in the larger international context. As a relatively small country with correspondingly small market power and resources, Mozambique’s longer-term growth strategy needs to be built on i t s comparative and strategic advantages and complementarities within southern Africa. As mentioned in paragraph 45, Mozambique will seek to partner with other countries, especially with neighbors in southern Africa, to implement the Southern Africa Development Community (SADC) priorities, deal with public goods and transboundary issues, and to strengthen inter-country transport, energy markets, use o f international water, communications, food security, and trade financial and customs systems, and to deal more effectively with HIV/AIDS. During the next four years, the World Bank Group will work with Government to help explore and take advantage o f such regional integration and growth opportunities, especially relative to neighboring countries and SADC.

Guiding Principles for a New Partnership Strategy: Collaborate - Focus - Deliver

71. during the CPS period. These are: Collaborate - Focus - Deliver.

Three key overarching principles will guide Bank Group staff working on Mozambique

72. Collaborate. The new Country Partnership Strategy will strive to achieve significant impact, be cost-effective, and ensure sustainability o f reforms, capital investments, and capacity building efforts. In this regard, neither Government nor the Bank Group can afford to act alone. In addition to collaborating with Government and the partners listed above, the Bank will continue to collaborate with neighboring Bank country departments to leverage our combined knowledge and human resources to improve our efficiency and effectiveness, including the department working with South Africa, Botswana, Lesotho, Swaziland, Namibia, Madagascar and Mauritius on the one hand, and that responsible for Tanzania and Uganda on the other.

- 24 -

73. Drawing upon the lessons o f the previous CAS, the new strategy will emphasize a programmatic and cross-sectoral approach. To leverage the Bank Group’s support, the strategy will also favor activities that are linked to a larger program that is supported by multiple development partners. Each Bank Group project preparation team will seek to include as relevant specialists from IDA, IFC, MIGA and WBI, in order to systematically explore collaboration opportunities across the Bank Group. Similarly, the Bank will exploit opportunities from global and bilateral development partner programs and other Bank Group resources, including regional initiatives such as the Africa Catalytic Fund and the Africa capacity building program, CDMAP; global programs such as the Carbon Fund and the Global Environmental Facility; and Bank Group global products such as guarantees.

74. Focus. The Bank Group recognizes Government’s leadership in coordinating development partners. It also recognizes that the country’s needs well exceed what the Bank Group can provide in terms o f advice and financing. It will, therefore, continue to consult extensively with Government and with development partners to ident i f j areas where the Bank Group can utilize i t s comparative advantage. For example, other development partners are taking the lead in the areas o f primary education, food security, and environmental management, while the Bank Group will increasingly focus on institutional reforms, and infrastructure and rural development. A recent example o f leveraging non-traditional resources to enable the use o f IDA resources in other less-funded areas (in this case, water resource management) i s the linkages established with the Millennium Development Corporation and the Africa Catalytic Growth Fund to support the expansion o f water supply programs through the FY07 Water Services and Institutional Support Project.

75. Deliver. In order to help Government achieve PARPA I1 outcomes, the Bank Group will aggressively address poor portfolio performance, incorporating lessons learned from the CAS Completion Report (Appendix 6). Realistic outcomes will be defined for all interventions - through strengthened and simplified project design. Rigorous results monitoring will help ensure that implementation o f the strategy i s on track. This will also require attention to planned results during project design. Required changes to the portfolio due to performance issues or to unexpected changes in the operating environment will be addressed quickly and proactively with the range o f instruments and resources available within the Bank Group. The Bank Group i s redefining criteria for the use o f country systems to accelerate the harmonization o f financial management, procurement and auditing procedures among partners and Government.

76. The Bank Group will continue to invest in demand-driven analytical and advisory activities (AAA), drawing from i ts global knowledge and international experience. T h i s non- lending support encompasses: economic and sector work, which underpins our policy dialogue with the client as well as lays the foundation for effective lending; and technical assistance that can be flexibly used to enhance capacity and help Government implement reforms. In some sectors or themes, analytical and advisory activities will form the sole source o f support from the Bank Group, as financing from other development partners are leveraged. AAA will be organized around the three main pillars o f the strategy, and will reflect the need to: address knowledge gaps and deepen understanding in particular areas; facilitate policy dialogue; and provide greater support for government programs, as may be requested. To this end, outputs will be tailored to the particular issue and audience. Hence, in some cases the Bank Group will need

- 25 -

to be particularly agile and responsive, drawing upon global knowledge to provide just-in-time advice. At other times, more comprehensive analysis will be required. Incorporating lessons learned from the previous CAS period, where the poor dissemination and supply-driven nature o f some AAA were problems, the following principles have been defined for AAA work:

Listen to the client to understand their needs for technical assistance and to help them address key knowledge gaps, and ensure genuine demand for specific activities.

Identify upfront the intended impact of the activity, and specify how the baseline and results will be measured.

Coordinate closely with Government, academic institutions, and development partners to leverage resources and promote synergies, ideally as joint products. ’

Ensure that the key stakeholders are involved in shaping the emerging ‘findings f iom the earliest stages, and that dissemination i s just one part o f the consensus building process.

Exploit the range o f World Bank Group resources in the preparation, implementation, and dissemination o f AAA, including the World Bank Institute and the access offered by the Global Distance Learning Network.

77. This more integrated approach has already begun in FY07 (see Box 6 for one example). Sector wide approaches and common funds will be expanded to increase synergies and reduce transaction costs for the client and partners. Country systems will also be utilized for the same reason, although in some areas this will require significant increase in country capacity. Budget support will be provided through PRSCs in line with the Paris Declaration, G18 targets and World Bank Group guidelines. Annual priority objectives defined with development partners will be included as indicative triggers in the PRSC series which will comprise approximately 40 percent o f the IDA financing envelope if PAF targets in the core governance areas are achieved.

Box 5. The Bank Group’s Engagement Principals at Work Preparation of the Maputo Municipal Development Program (ProMaputo) in FY07 illustrates the Bank Group’s engagement principles at work. ProMaputo aims to strengthen the capacity of Maputo Municipality (CMM) in governance, planning, financial management, and service delivery. It also addresses cross-cutting priorities of Government and the Bank Group, including enhanced accountability, combating corruption, promoting public- private partnerships, and addressing the HIV/AIDS epidemic. Citizen report cards and community participation in planning and budgeting, both linked to a comprehensive municipal communication strategy, will increase CMM responsiveness to civil society concerns. Increased transparency, administrative reform, and systematic audits will contribute to reduced corruption in municipal management. With the support of PPIAF, Maputo will pilot public- private partnerships as an option for leveraging its limited fmancial and management capacities to improve priority services. For HIV/AIDS, the municipality will implement a workplace program supported by the National AID Commission (CNCS).

During program preparation, systematic consultation of municipal interest groups, including low-income community residents, local political representatives, NGO/civil society leaders, private sector and public utility managers, and central government officials, ensured that ProMaputo both responds to and engages the contributions Maputojs key social, political, and economic stakeholders. A comprehensive institutional reform and capacity building process based on mainstreaming program activities in permanent municipal units for strategic planning, procurement, revenue administration and expenditure control will ensure CMM leadership, ownership, and the sustainability of governance and management improvements. Service improvement benchmarking, participatory monitoring and periodic citizen report cards will serve to maintain the program’s performance focus as emphasis gradually shifts Eom institutional reform and strengthening internal capacity to its ultimate goals: achieving better living conditions for Maputo’s poor communities and more dynamic growth among the city’s businesses.

- 26 -

Lending and Non-Lending Strategy

0 bj ectives Strengthen core governance, particularly Government’s own

Strengthen local governance and capacity

fiduciary risk management

78. In line with these engagement principles, the overall goal o f th i s Country Partnership Strategy i s to promote shared growth within the context o f the country’s own development strategy (PARPA 11). The strategy encompasses three pillars, corresponding to the PARPA I1 pillars. Pillar I, Increased Accountability and Public Voice supports PARPA 11’s Governance pillar. Pillar 11, Equitable Access to Key Services, supports objectives under PARPA 11’s Human Development pillar. And, Piliar 111, Equitable and Broad-based Growth, supports PARPA 11’s Economic Development pillar. An overview o f the major objectives and outcomes defined for each pillar i s included below. Five major result areas have been defined encompassing 18 development outcomes. The Results Framework i s at Appendix 1. All CPS outcomes support key outcomes in PARPA 11. The indicative lending program i s listed in Appendix 4a (with possible Bank Group financing sources at Appendix 4b). Appendix 5 l ists IDA interventions since 2000, and also shows current operations that will be active during the CPS period.

Outcomes Result Area #1: Improved Economic Governance Outcome 1: Improved budget planning at central, district and municipal level

79. The formulation o f CPS objectives and outcomes took into account PARPA 11, the PAF, the MDGs, Paris Declaration indicators, IDA-14 requirements, the World Bank Group’s Africa Action Plan (AAP), and the programs and priorities of other development partners. The drivers o f growth selected for the CPS align with the flagships o f the Africa Action Plan, namely (i) strengthen the African private sector; (ii) increase the economic empowerment o f women; (iii) build sk i l ls for competitiveness in a global economy; (iv) raise agricultural productivity; (v) improve access to and the reliability o f clean energy; (vi) expand and upgrade road networks and transit corridors; (vii) increase access to safe water and sanitation; and (viii) strengthen national health care systems and combat malaria and HIV/AIDS.

Address governance constraints in sectors

Strengthen civil society, academia, think tanks and media and their capacity to enhance voice and monitor governance

Improve the Bank Group’s understanding Of Mozambique’s governance problems

Outcome 2 Improved government fiduciary systems

Oversight Mechanisms Outcome 3: Improved government in fomat ion and communication systems

Area #2: Stronger Citizens’

- 27 -

8 1. The PRSC series will closely support outcomes in th i s pillar. Indicative triggers include: maintaining expenditures for priority sectors in budget planning and execution in l ine with the Medium-Term Expenditure Framework; expanding the rollout o f basic functionality o f e- SISTAFE to all ministries and districts; increasing the capacity o f the Central Revenue Authority; increasing the number o f central and provincial level bodies with operational internal controls; increasing the number o f financial audits; increasing government revenues; and increasing the disposition o f court cases. Triggers to support milestones in decentralization (e.g., implementation o f the National Decentralization Strategy) and to implement the new procurement system at the district level, will also build the capacity o f district-level government.

82. sector reform program and decentralization strategy:

Three other existing programs and two planned programs support Government’s public

0 The Public Sector Reform Project (Grant H024-MOZ) i s an existing program that seeks to: improve the organizational efficiency o f selected public sector institutions at central and local levels through restructuring the ministries; strengthen public sector capacity in the areas o f planning and financial management, including procurement (implementation o f e-SISTAFE at the central, provincial and district levels i s key to achieving this objective); support the Tribunal Administrativo (TA)23 in undertaking audits for the central, provincial, and district governments; improve access to and the quality o f selected priority public services; improve legal and judicial services in selected provinces; and, improve the quality and availability o f statistical data for public and private sector needs. T h i s project was restructured in FY07 to improve performance and to add the Legal Services component.

The first phase (APL1) o f the Maputo Municipal Development Program (ProMaputo, Cr. 42570) began implementation in FY07. Th is program seeks to build the capacity o f the Maputo municipal government to better deliver public services. A second phase (APL2) i s planned to deepen the reforms initiated in APL l . The National Decentralized Planning and Finance Program, a multi-donor operation, will scale up to all districts the current IDA and partner program, Decentralized Planning and Finance Program (Cr. H0670), which supports capacity building o f selected districts in finance and budget management. A SWAP will be explored for the follow-on program.

0

0

83. Analytical and advisory activities that will support th is pillar comprise three main thematic areas, First, analytical work to examine the mechanisms for local government financing and accountability and assessing municipal development will support Government’s decentralization program. The analysis o f municipal development in Mozambique, including lessons learned from IDA’S recently-closed operation (Municipal Development - Cr.35490), will help inform whether IDA should support a follow-on national municipal development operation. Second, the use o f public resources at the sector level (e.g., in health, education, agriculture, water, and infrastructure), will be examined jointly with Government and the G18 partners through sector-specific Public Expenditure Tracking Surveys. A value-for-money audit o f the justice sector (also with some other development partners) will give further insights and recommendations into the effective use o f public resources. An assessment o f the new procurement system (with OECD and G18 partners) and a second Public Expenditure Financial

The Administrative Court, an independent agency tasked, inter alia, with auditing Government. 23

- 2 8 -

Accountability Assessment (also jointly with some G18 partners) will provide an update on the key public financial management reforms. The ESW work on procurement (FYO8) will be similar to a Country Procurement Assessment Review (CPAR) assessing what stage the procurement system has reached, defining performance indicators (based on OECDDAC methodology), and proposing the monitoring system to be put in place. Th is ESW will be based on extensive consultation with Government and development partners. In addition, the Bank Group will work with Government to develop a capacity development plan for procurement and financial management, including for district governments, as discussed in paragraph 60. Third, a program o f analytical work and technical assistance wil l help strengthen the governance framework. T h i s will include: governance assessments o f sectors in which the Bank i s engaged and the use o f these findings to inform Government’s Anti-Corruption Plan; a legal and judicial review led by the European Commission and the Netherlands (jointly with the G18); and technical assistance to improve public demand for accountability, including activities to strengthen media, NGO and community organization oversight of government activities, build the capacity o f community institutions, and institutionalize citizen feedback mechanisms.

0 bj ectives Outcomes

the Provision of Seivices Outcome 5: Increased access to information o n H I V / A I D S and to treatment

Improve health human development indicators

Increase the supply of skilled labor for the

Improve the efficiency and effectiveness of

labor market

service delivery

‘Outcome 6: Improved equity in health Outcome 7: Improved quality o f technical and vocational education Outcome 8: Increased access to potable water Outcome 9: Increased sustainable and affordable access to electricity t o institutions outside o f the power network

84. Activities in Pillar I1 support Result Area 3: Improved Government EfSectiveness in the Provision of Services, and the achievement o f five service delivery outcomes. Seven current operations, four planned operations, and two potential regional operations support this pillar.

0 Currently, the MAP HIV/AIDS project (Grant No. H0300) and the Regional HIV/AIDS Treatment Acceleration Project (Grant No. H1040) are providing support to Government’s HIV/AIDS strategy by building the capacity o f the national HIV/AIDS secretariat, CNCS, and by increasing access to treatment. A follow-on HIV/AIDS SWAP i s planned to provide further support to CNCS and to put in place sustainable implementation arrangements. The possibility o f implementing a Southern Africa Regional HIV/AIDS Program with neighboring countries will be explored. HIV/AIDS interventions will also be mainstreamed systematically in all World Bank Group projects. Finally, IDA will work with IFC to scale up the IFC-supported model for assistance to SMEs with HIV/AIDS education programs. T h i s initiative, which has been successfully launched, raises awareness o f private sector employees and S M E s to issues related to HIV/AIDS.

A SWAP planned to support Government’s Health Service Delivery Program (HSDP) will provide financing to implement an integrated service delivery strategy that focuses on child and maternal health and that involves facility-based services, outreach, and community-based care. Government would start scaling up services in the northern provinces that generally have less access to healthcare and poorer health indicators, and then expand gradually south

- 29-

as financing becomes available and experience and capacity improve. Also, in the scope o f the HSDP the Bank will provide assistance to the Ministry o f Health to improve i ts planning systems including the planning o f investments and the medium term expenditure framework that should guide prioritization and spending in accordance with the existing resource envelope. A possible Regional Health Worker Training Program will allow Mozambique to collaborate with neighboring countries to leverage economies o f scale and cross-country learning in the training o f health workers.

Two existing IDA projects support higher education objectives. The Higher Education Project (Cr.36090) aims to improve equitable access to and quality o f higher education. The Technical, Vocational Education and Training Project (Cr. 41 560) aims to improve access and quality o f technical and vocational education. A follow-on higher education project focusing on improving sk i l ls in science and technology is planned to support the goal o f improving the quality o f higher education.

The existing National Water Development Project I1 (Cr. 32470) and the proposed FY07 Water Services and Institutional Support Project aim to expand access to urban water and put institutional arrangements in place to facilitate increasing access to rural water. Additional financing from the Africa Catalytic Growth Fund, Program on Output-Based Aid, and Millennium Challenge Corporation have been leveraged for th i s program.

The recently restructured Energy Reform and Access Project (Cr.38 190), with financing from the Global Environmental Facility, wil l build solar photovoltaic systems in schools, clinics and administrative posts in rural areas in order to increase access to sustainable energy for these rural institutions (as well as increase household connections). A planned follow-on project (Phase 2) will pursue similar objectives during the latter years o f the CPS period.

85. Analytical and advisory support for the objectives o f this pillar will include an update o f the Benefit Incidence Analysis using national household survey data, and a series o f Beneficiary Assessment Surveys to gauge the level o f user satisfaction with service provision. These surveys and benefit analysis, together with sector expenditure reviews discussed in Pillar I, will help Government fine-tune public sector reforms to further improve service delivery and to ensure that public funds reach their intended targets. IDA will also undertake specific poverty and social impact analyses o f major reforms planned by Government. This will include continued work on the Poverty Social Impact Analysis, which looks at the impact o f the 2005 abolition o f school fees in primary education, and the baseline analysis on access to secondary education.

Objectives 0 Increase private sector

participation in growth

Accelerate rural growth through development o f infrastructure and increasing access to finance for S M E s

0 Increase regional integration and trade

Mitigate risks f rom disasters and shocks

illar 111: Sustainable and Broad-Based Growth

Result Area # 4 International and local investments enabled Outcome 10: Simplified procedures to start a business Outcome 11: Increased access to hnance and support for S M E s Outcome 12 Increased teledensity and access to ICT-based services Outcome 13: Improved mobil ity

Result Area #5: Strengthened economic growth potential Outcome 14 Increased access to technologies and extension information Outcome 15: Strengthened government capacity to develop tourism Outcome 16: Increased energy production for export, commerce and industry Outcome 17: Improved sustainable management of water resources Outcome 18: Enhanced capacity to respond'to disasters

Outcomes

- 3 0 -

86. Activities in this pillar support two major result areas: Enabling International and Local Investments and Strengthening Economic Growth Potential. Significant investments to unleash the potential o f the rural economy, improvements in the investment climate, and M h e r second generation institutional reforms are required to achieve the nine outcomes and the objective o f sustained shared growth. The partnership strategy will support second generation reforms and the removal o f binding constraints to growth by financing investments in infrastructure, rural development, business climate, and regional integration. These investments will help lay the foundation for sustainable and broad-based growth. Deepening and broadening the private sector will create jobs and generate significant resources for development, including tax revenue, which combined with improved tax administration, could improve Government’s fiscal position and thus reduce dependence on development partner assistance. Other major policy areas that require attention are regulatory reforms in key sectors, such as transport and energy, the financial sector and labor market policy. Also important will be greater collaboration with neighbors on trade, transport, energy, water resource management, communications, and HIV/AIDS.

87. The rational and sustainable development o f natural resources, including b y mega- projects, could: (i) allow increased spending on poverty alleviation and the MDGs; (ii) significantly augment Mozambique’s and the region’s electricity supply; (iii) allow improved control o f water flows on the Zambezi and other international rivers (with benefits for flood control, power generation, agriculture and aquaculture, and urban and rural water supply); and (iv) protect the enviro&ent.

88. The PRSC series and eleven current (including FY07 pipeline) and thirteen planned operations, including four to five regional operations, support the nine outcomes in Pillar 111: 0 A private sector development program will incorporate follow-on objectives to the ongoing

Financial Sector Technical Assistance Program (FSTAP) (Cr. 41320) and the recently closed Enterprise Development Program (Cr. 33170), and will focus on promoting business development services and access to finance for SMEs and on improving the business environment. The program will build on IFC’s programs for SMEs, especially in the area o f promoting access to finance through innovative products and risk-sharing mechanisms, and expanding business opportunities for SMEs through linkages with mega-projects. The program will target key sectors and will focus on broadening support beyond the Maputo area. Finally, the program will support Government’s efforts at reform o f the business environment, as outlined in the GoM Strategy for Improving the Investment Climate. Mozambique will also seek to jo in the Regional Trade Facilitation Program, which promotes private sector development and trade by providing political and commercial risk instruments.

The IMF and IDA have been advising Government on improving i ts fiscal regime for mineral resource and petroleum projects, and on financing o f mega-projects, especially for hydropower. The World Bank Group has been supporting, and will continue to offer support for, such projects to enhance the benefits for the host country and ensure adherence to high environmental and social standards. A technical assistance operation (potentially regional) will support the provision o f high quality advisory services and capacity building in the main ministries involved with infrastructure (e. g., Energy, Mineral Resources, Transport and Communications, Public Works and Tourism).

- 3 1 -

Communications sector support will be provided through a follow-on Communications project and the Regional Communications Infrastructure Program. T h i s regional program supports populations and businesses across eastern and southern Africa to have access to quality and affordable telecommunications services. The follow-on Communications project will continue to support increasing teledensity, increasing sustainable rural access to ICT- based services, especially internet services, and increasing the number o f central, provincial and local government institutions connected to the e-Government network.

The recently restructured Energy Reform and Access Project aims to expand access to energy for households and rural institutions (such as schools and clinics), and reform the institutional and regulatory framework for the energy sector. The FY07 regional Malawi-Mozambique Interconnector Project (Southern Africa Power Pool APL2) will expand energy trading opportunities for both Mozambique and Malawi with SAPP member countries. Two follow- on energy projects will focus on energy generation transmission and distribution for both domestic and industrial use, as well as continuing support for sector reform and overall improved quality o f service. IDA will also work with IFC to address the energy needs o f the mega-projects, including those connected with the Moatize coal project. IDA wil l also collaborate with IFC to address the energy needs o f the mega-projects, e.g., through Partial Risk Guarantees.

0 In addition, IFC i s ready to consider investments in the Beira railway and Beira and Nacala ports that are part o f the ongoing IDA Beira Railway (Cr. 39910) and Railway and Ports Restructuring (Cr. 32880) projects. IDA and MIGA will continue to offer political risk guarantees that support private investments across multiple sectors. Increasingly, IDA, IFC and MIGA wi l l work more closely together, and at an early stage, on large infrastructure projects in order to help optimize their developmental impacts. IDA will also review accessing carbon financing funds. Output-Based Aid will also be accessed for additional financing. Finally, IDA will collaborate with GEF to update irrigation infrastructure and improve efficient water resources management in rural areas and Maputo.

0 IDA’S successful leadership o f interventions in the roads sector date back to the early 1990s. The recently closed Roads and Bridges APL 1 (Cr. 35500) helped reform the institutional and regulatory framework for the sector as well as rehabilitate the road network. The FY07 follow-on APL 2 project will continue to support the sector strategy through the development o f a SWAP and continue to rehabilitate and maintain more o f the road network. APL 3 is planned for the end o f the CPS period and will continue to support the sector strategy. Support to two major regional transport corridor opportunities (Nacala and Mtwara) will also be considered. Development o f the former would likely involve Mozambique, Malawi and Zambia, and the latter, Mozambique, Tanzania, Malawi and possibly Zambia.

0 The existing Market-led Smallholder Development in the Zambezi Valley Project (Cr. 41980) and subsequent two follow-on rural development operations will support the construction and rehabilitation o f irrigation systems and the establishment o f efficient irrigation management, increasing the number of farming households assisted by extension services, and developing the capacity o f f h e r and community organizations,

0 The tourism outcome i s supported by the current Transfrontier Conservation Area and Tourism Development Project (Cr. 41300,56038) which aims to improve tourism capacity in selected conservation areas. In addition, IFC will implement the Mozambique Tourism

- 32 -

Anchor Investment Program, a collaborative initiative with the Ministry o f Tourism that aims to identify, develop and promote three “Anchor Investment Sites” in different zones for the development o f quality tourism, as well as to mobilize funds for infrastructure development and to create a positive image o f Mozambique as a tourism and investment destination. IFC will work with IDA to identify critical connections to support the expansion o f tourism, and to promote private sector investment. MIGA will support infrastructure development projects and SMEs with i ts guarantee products and Small Investor Program.

The regional FY07 GEF-funded Western Indian Ocean Marine Highway Development and Marine Contamination Prevention Project will increase the safety and efficiency of navigation in the Western Indian Ocean by establishing a marine highway to guide ships around environmentally sensitive areas and through selected busy sea lanes, and by supporting development o f capacity for port safety monitoring.

The World Bank Global Facility for Disaster Reduction and Recovery Multi-Donor Trust Fund will support the development of: early warning and emergency preparedness systems; a multi-sector, multi-stakeholder process to mainstream risk reduction and disaster management; an investment framework for hazard prevention, mitigation, and preparedness; and an ex-ante disaster recovery financing mechanism.

89. Several cross-country integration opportunities are under consideration, including: the FY07 regional Malawi-Mozambique Interconnector Project (Southern Africa Power Pool APL2), Western Indian Ocean Marine Highway Development and Marine Contamination Prevention Project, the Regional Communications Infrastructure Program, the Regional Trade Facilitation Project, the Regional Health Worker Training Program (discussed in Pillar II), a regional HIV/AIDS project (discussed in Pillar II), and one or both o f two major transport corridor opportunities (Nacala and Mtwara). Regional integration projects reflect intense and often difficult multi-country coordination. Whi le their potential benefits are tremendous, the transaction costs are high. Thus, the Bank Group will need to be selective in supporting such initiatives; strong ownership by all relevant countries will need to be a critical criterion.

90. Analytical and advisory activities under this pillar will seek to deepen our understanding o f the sources o f sustainable and shared growth and the determinants o f poverty, as well as the development o f policies to enhance productivity and competitiveness. Our AAA work will include a Country Economic Memorandum that analyzes constraints to economic growth and poverty reduction and an integrated country poverty, social and gender assessment. This will be complemented by an update o f the Investment Climate Assessment, an analysis o f labor markets, and further analysis o f rural poverty dynamics. The status o f the financial sector, and the measures to improve long-term finance and access to finance for SMEs in rural areas, will be the focus o f additional AAA. A second Financial Sector Assessment Program will also be conducted, jointly with the IMF. To better understand the costs o f building and maintaining infrastructure in rural and urban areas, as well as to gain a better appreciation o f regional transport opportunities, a baseline study on the fiscal cost o f infrastructure will be conducted; th i s will be part o f the African regional flagship study for the Bank. Analysis will also continue on the management and exploitation o f natural resources, both to maximize the long-term fiscal benefits for Mozambique but also to ensure environmentally sustainable resource use. This will include support for the preparation o f a national water resource strategy. Finally, we will support

- 3 3 -

the 2007 census and the 2008/09 national household expenditure survey, which will provide insights on poverty, as well as inform the preparation o f Government’s next five yeai plan.

91. Cross-Cutting Themes. Reflecting the three cross-cutting themes, al l World Bank Group operations will systematically: (i) explore and support applicable HIVIAIDS interventions; (ii) promote the participation of the private sector; and (iii) tackle relevant capacity and institution- building aspects, including in collaboration with other development partners. Capacity building at the local level will be prioritized to maximize support to Government’s decentralization agenda. The World Bank Group will work with development partners and Government to establish an overall framework to guide interventions in each cross-cutting theme. The integrated frameworks would exploit synergies and comparative advantages o f each development partner, help advance harmonization, and increase the efficiency and effectiveness o f interventions in these areas. The Bank Group Africa capacity development initiative, CDMAP, and the World Bank Institute will help facilitate the development o f a coordinated capacity development strategy; attention will go to results measurement and monitoring capacity building initiatives.

92. To provide intellectual underpinning o f these cross-cutting themes and to gain a better understanding o f the constraints and opportunities for new and existing operations, Bank staff and development partners will continue to review the implications o f Mozambique’s political economy for the design and implementation o f operations.

Resources to Implement the Strategy

93. The IDA allocation i s performance-based, the amount o f financing being significantly influenced by government performance (discussed below). Assuming progress under the performance framework relative to other IDA beneficiaries - and, importantly, an IDA15 replenishment broadly comparable to IDA14 - the annual financing available to Mozambique i s expected to remain similar over the FY08-11 period at approximately $155 million. T h i s i s similar to the $680 million over four years allocated under the 2003-7 CAS. (Appendix 7a l ists IDA commitments, disbursements and repayments during the FY04-07 period.) Given the results o f the 2006 IDAAMF joint Debt Sustainability Analysis, Mozambique is expected to receive financing in the form o f credits rather than grants,

94. The Bank Group’s presence in Mozambique has expanded and with planned recruitments and decentralization transfers, should be adequate to implement the program outlined in this strategy. At end-FY07, the country office will employ 12 international staff and 28 national staff, Sectors that have task team leader representation in the Country Office include communications, energy, water and sanitation, agricultural and rural development, health and HIV/AIDS, and poverty reduction and economic management. Skil ls in financial management and procurement have also been reinforced, including to support Government in i ts public financial management reforms. An internationally-recruited Senior Operations Officer recently joined the office as Mozambique Country Program Manager. The IFC office in Maputo, which was reopened in 2004, now comprises three international s ta f f and 14 local staff, covering the areas o f investments, technical assistance and SME finance.

- 34 -

R i s k s to the Strategy

95. HIV/AIDS poses the most formidable risk to Mozambique’s development. The devastating effects o f the HIV/AIDS epidemic threaten Mozambique’s growth potential in many ways. I ts adverse impact on beneficiaries, the social fabric, civil service capacity and labor productivity i s already obvious. Failure o f leadership to bring about behavioural change will have an adverse effect on PARPA I1 and CPS implementation.

96. In addition, governance problems pose the other significant risk to the strategy. Increasing one-party dominance poses a risk to the development o f the nascent democracy, and may limit public accountability, citizen voice and participation.

97. Notwithstanding the observation made in the previous paragraph, elections also pose a risk to the implementation o f the program outlined in th i s partnership strategy. Elections for provincial assemblies will be held in 2007, municipal elections in 2008, and national presidential and parliamentary in 2009. W h i l e elections oblige a government to show results by a certain date, they may also delay difficult decisions for second generation reforms, particularly around the time o f national elections, as happened in 2004, the year of the last national elections. Revenue collection as a percentage o f GDP also dropped in that year. However, both the revenue generation and the pace o f reforms came back on track in 2005 and accelerated in 2006. The election cycle will require both attention and a sense o f realism about the timing o f reforms.

98. Inadequate fiduciary controls and a failure to strengthen public financial accountability mechanisms could result in increased corruption, which would undermine government credibility and private-sector confidence and possibly prompt development partners to withhold support. Moreover, a lack o f transparency in the justice sector will erode investor confidence.

99. Mozambique i s also vulnerable to exogenous shocks. Weather-related shocks, as vividly illustrated by the 2005 drought and early 2007 floods and cyclone, are temporary in nature and can be somewhat ameliorated with exceptional assistance. The Country Team i s also working with the Global Facility for Disaster Reduction & Recovery Multi-Donor Trust Fund to put emergency management systems in place. Terms-of-trade shocks are also temporary in nature and require quick policy responses. Third, there are external private investment decisions that have a significant macro-economic impact and can be similar to external shocks. Mega-projects are such investments. These also require adequate policy responses.

Managing Upside and Downside Risks: Strategy Adjustments and Mitigation

100. The risks discussed above have been streamlined in the engagement framework. Risks o f exogenous shocks are generally understood to be beyond the direct control o f Government, and their actual occurrence should in principle justify greater commitments o f resources from the Bank Group in the form o f financing and advice. Risks o f HIV/AIDS, deterioration o f governance, and policy reversals are more firmly within Government’s grasp, and justify a more nuanced approach by the Bank Group.

- 3 5 -

101. If significant improvements or slippages occur in the core governance areas and the quality o f service delivery does not improve, then the overall amount of financing, the choice o f lending instruments and the sector focus will need to be adjusted.

102. The financing envelope will be strictly guided by the notional allocation under the PBA framework. Improving Country Performance and Institutional Assessment (CPIA) indicators, especially governance-related indicators, will help Government access more IDA financing. Likewise, improved project implementation performance could also increase IDA allocations.

103. T h e increasing level o f financing through programmatic budget support (the PRSC series) i s a direct consequence of the Bank Group’s trust in Mozambique’s own country systems. If the monitoring o f the use o f resources improves, and shows that they were used as intended, the Bank Group will show a willingness to expand i t s PRSC envelope. If current issues with public financial management are not addressed rapidly, and since donor dependency i s a governance issue in itself, the Bank Group will consider downsizing i ts PRSC support. However, the Bank Group will not discount the momentum that was developed in its policy dialogue from i ts decision to move to programmatic budget support, and will adjust i ts program after consulting with the G18 partners, and in a manner consistent with the Paris Declaration:

104, The sector focus of the programs supported by the PRSC series, as well as the investment project portfolio will need to be reconsidered depending on the pace o f progress in various areas o f the policy dialogue and improvements in country systems. Regarding the various development policies that the Bank supports, the Bank i s committed to a sustained financial and advisory engagement if the challenges remain and the authorities continue to request its involvement. The PRSC series and accompanying updates will provide the opportunity for such stock-takings and adjustments. If l i t t le progress i s made in addressing fundamental governance issues, the Bank will assign more resources (financial and advisory) to address them - resources that will necessarily be drawn from the limited envelope defined by the PBA. The Bank will increase i ts support to the GoM’s governance agenda through targeted financial and technical engagement, and our portfolio management. Recurrent portfolio problems such as counterpart funding, financial management, procurement, Government ownership o f projects, and M&E will be more insistently addressed. To allow for th is contingency, operations under preparation will identify objectives and components that can be deferred without jeopardizing the primary objectives and components. Sustainability o f the outcomes o f scaled-down operations will be key, so as to be leveraged by subsequent operations that will pick up components that will not have been implemented as originally contemplated. In deciding which development policy dialogue to cut back, the Bank Group will pay attention to the risk o f irreversible damage to development prospects from its disengagement, and the public good nature o f some policy areas.

105. To mitigate this risk, the Bank Group i s working closely with Government and other development partners to improve the fiduciary and legal framework through: the PRSC series, analytical work, support to public sector reform, and extensive capacity-building at national and sub-national levels o f government.

106. The Bank Group will also address fiduciary risks in i ts own projects through smarter design o f projects that will incorporate more stringent fiduciary safeguards. Local accountability

I

- 3 6 -

mechanisms such as citizen scorecards and sector governance and accountability frameworks will be mainstreamed across projects. The Bank Group will also provide capacity building support to project staff and counterparts in financial management and procurement, especially at the district level. Procurement and financial management reviews will be conducted for the portfolio during the CPPR process. Recurrent issues such as counterpart funding and VAT refunds will be more insistently addressed. Projects in problem status for more than six months will be considered for restructuring and other remedial measures; those in problem status for one year may be closed to limit portfolio risk.

Conclusion

107. The Bank Group i s looking forward to collaborating with the Government o f Mozambique and development partners to implement the above strategy during the next four years. While adhering to the principles o f engagement defined above (focus, collaborate, deliver), the Bank Group will remain flexible and responsive to Government’s needs in order to implement PARPA I1 efficiently and effectively, and in order to address unforeseen scenarios. At the same time, the Bank Group will work with Government and development partners to help develop and implement a long-term strategic vision for Mozambique that builds on the country’s comparative advantages and which in tightly anchored in accelerating shared growth that wil l benefit all Mozambicans.

-‘37 -

APPENDICES

- 3 8 -

I m

m

I

A

A

AA

I 0

d

I

c

c

A

A

A

AA

I 3

d

I

3 5

I I

AA

A

A

B

a0

W

0

a;

4 A

A

e 9

AA

A

A

A

I

3 I

l-

A

AA

A

A

AA

A

AA

>4

A

A

xx

x

xx

x

xx

xx

X

xx

xx

x

xx

X

xx

xx

I

\o

d

'I

Appendix 2b. : Working Groups and Development Partner Parti~ipation~~

Working Groups I Chair Pillars Development (in general)

Participants GoM Participants

GBS (018

(DPG) Implem. of Paris Declaration

GBS (0 I S )

1) Poverty and macroeconomic management

Brazil + Russia + RSA (total 33) Id., J, N, NL, UK, EC, UN (7) UN resident coord.

2) Governance

HOMs (heads of mission)

HOCs (heads of cooperation) Growth and macro stability Poverty analysis 8 monitoring Economists working group

Budget analysis

3) Economic development

NL since 04/2006. Troika ++ = S (out) + NL (on) + N (in) + WB + EC idem HOMs idem HOMs (22)

Min. Planif. (DNEAP)

Min. Planif. (DNP)

NL sin.04/2006, S out, N in

Min. Fin. (DNO)

G18 : D, B, Can, DK, E, SF, F, Irl, I. NL, N, P, UK, S, SDC, EC, WE, ADB - Observers: UNDP, J, USA, IMF (22)

Can., lrl., SDC, WB (4)

B, Can., DK, lrl., J, N, S, SF, UK, EC, Unicef, UNDP, WB (12) economists of G 18 + observers (22)

B, Can., D, E, F, I. J, NL, P, S (10)

Min. Plan. (DNEAP). Min. Fin. and BdM invited Min. Planificago (DNP and DNEAP), INE

DNO, DNCP, DNT

4) Human capital

Microfinance (IPRM) MPD (DNPDR) in the future 7

Can., D, DK, E, F, S, SDC, USA, ADB, EC, IFAD, IFC, UNDP (13)

5) Cross cutting issues

MPD (DNPDR) one meeting in three

24 B: Belgium; D: Germany; DK: Denmark; E: Spain; I: Italy; N: Norway; P: Portugal; S: Finland.

- 4 7 -

Appendix 3. CPS Consultations - Conversations with Government, Civil Society, and the Private Sector

During the CPS planning process, the World Bank Group consulted with Government, development partners, civil society, the private sector and local governments.

Government leaders and 18 other development partners were consulted during a series o f meetings in October, 2006 (called CS-19 for Country Strategy 19 Partners) that allowed Government and development partners to comment on each other’s strategy and to ensure synergies and gaps are addressed in plans to support PARPA 11.

Civi l society organizations, private sector and local government representatives were consulted during December, 2006 in three locations (Beira in the north, Nampula in the center, and Maputo in the south). The main objectives o f these consultation sessions were to collect participants’ perceptions on: (a) the areas o f intervention to be included in the new strategy; and (b) the suitability o f the geographical approach for the implementation o f the strategy.

The most frequently selected areas for WBG intervention include: Agriculture, Governance, Infrastructure, W / A I D S , Health, Education, Water and Sanitation, Private Sector and Tourism.

The most frequently requested interventions, which did not differ significantly by sub-region, include: e

e

e

e

e

e

e

b

e

e

Agriculture -Trade (Rural and Provincial Level); Installation o f Irrigation Systems; Credit and Micro credit for Agriculture; Agro-processing; Technical Assistance to Farmers; Trade o f Agricultural Inputs; Reforestation; and Technical Assistance to Cattle Sector. Governance - Capacity Building o f District Governments, Municipalities and Community Organizations; Support the Public Sector Reform; Support the Strengthening o f the Judicial System; Support the Strengthening o f Accountability Mechanisms; Support the Fight against Corruption; Promotion o f participation o f both Civi l Society Organizations and Communities. Infrastructure - Reconstruction and Maintenance o f Roads and Bridges (Municipal, Tertiary and Local); Development o f Ports and Railways; Expansion o f EnergyElectricity and Telecommunications Networks; Urban Planning with the utilization o f Geographical Information Systems; and Monitoring o f Infrastructure Projects. H W / A I D S - Prevention and Fight against HIV/AIDS; Free Access to ARV treatment, complemented with food distribution. Health - Training o f Health Professionals; Expansion and Capacity Building o f Health Clinics Network; Prevention and Fight against other relevant epidemic diseases (Malaria, TB, Leprosy, etc.); Environment Sanitation. Education - Expansion o f the School Network; Training o f Teachers (including psycho-pedagogical aspects); and Functional Literacy. Water and Sanitation - Construction o f Water Infrastructures (small systems, dams, small dams, water points). Private Sector - Promotion o f Enirepreneurship and Technical Assistance to S M E s (including small businesses incubators, warranty funds, credit, WET, technological innovation$); Technical Assistance Projects to Private Sector; Credit Programs to Private Sector with low interest rates. Tourism - Credit Programs for the development o f the Tourism Sector (lodges, hotels, transport, etc.); Training in Tourism Sector; Fauna Repopulation.

Participants in general preferred that the World Bank Group focus a whole suite o f projects in selected localized geographical areas rather than implement national projects. However, they could not agree on which geographical sub-regions should be selected.

-48 -

Year

FYO8

FY09

FYlO

F Y l l

Appendix 4a. Mozambique Indicative Lending Program, FYOS-FY 11 SUBJECT TO CHANGE (depending on IDA allocation)

Project PRSC 4 - Poverty Reduction Support Credit

Health Service Delivery Project (SWAP)

Private Sector DevelopmentRinance

National Decentralized Planning & Financing (possible SWAP)

Regional: Advisory and Capacity Support for Infrastructure Ministries

Regional: RCIP - Communications

FYOS Total

PRSC 5 - Poverty Reduction Support Credit

Communications 2

Market Driven Irrigation Project

HIV / AIDS Response -- MAP 2 (SWAP)

Water Resources Management

Energy Reform and Access Project (APL 2)

nal: (to be identfied)

FY09 Total


Energy Generation, Transmission, and Distribution

Higher Education (APL 2)

Maputo Municipal Develapment (APL 2)

Regional: HI V/AIDS

FYlO Total


Rural Development (to be identified)

Roads and Bridges (APL3)

Other (to be identified)

.p- -

F Y l l Total

Amount (US$) 70

30

20

15

10

5

135 + 15

70

15

20

20

20

30

10

175 + 10

70

40

20

30

10

160 + 10

70

30

60

20

s.p.Ic

180 + 10

650 + 45 TOTAL FY08 - 11

- 49 -

Appendix 4b. Mozambique Indicative Lending Program, FYOS-FY11 Possible WBG Financing Sources

- 50 -

Environment

Appendix 6. FY04-07 Mozambique CAS Completion Report

country: Mozambique

Date o f Progress Report(s): Period Covered by the CAS Completion Report: CAS Completion Report completed by: Date: . January 17,2007.

Date o f CASs: FY04-07 February 21,2006 July 2003 through December 2006 Diep Nguyen-van Houtte

I. Introduction 1. Th is CAS Completion Report (CASCR) assesses the effectiveness o f the FY04-07 World Bank Group Country Assistance Strategy for Mozambique (Report No. 26747-MOZ, dated October 20, 2003). It i s based on reviews of: (a) portfolio implementation performance reports; (b) the last two Implementation Status and Results Reports (ISRs) and Aide-Memoires o f each project active during the CAS period; (c) Implementation Completion Reports (ICRs) o f projects completed during the CAS period, Independent Evaluation Group (IEG) Reviews o f ICRs, and Quality Assurance Group (QAG) Reviews, where available; (d) interviews with selected client counterparts; and, (e) self-assessments by the Country Team. The findings from this assessment have informed the preparation o f the 2007-1 1 (FY08-11) Country Partnership Strategy.

2. The FY04-07 Mozambique CAS was one o f the first results-based CASs to be developed in the Bank. I t specified the CAS outcomes that would support Government’s long-term development goals, as well as targets, milestones (intermediate indicators), and indicators used to measure’ the outcomes. As such, the task o f assessing the achievement o f results i s relatively straightforward given the availability o f reliable data.

11. Government’s Strategic Goals (PARPA 2001-2005 and PARPA I1 2006-2009) 3. The CAS used as i t s basis Government o f Mozambique’s strategic goals as articulated in the first PRSP (called PARPA for i ts Portuguese acronym: Action Plan for the Reduction o f Poverty) drafted for the 2001-2005 period and approved by the Council o f Ministers in April 2001. These strategic goals were grouped under three pillars: Improving the Investment Climate, Expanding Service Delivery, and Building Capacity and Accountability.

4. The first pillar, Improving the Investment Climate, emphasized growth through greater private sector investment, improving access to financial services, lowering business transaction costs, and improving infrastructure to enhance connectivity to markets and to increase access to energy, promoting sustainable utilization and conservation o f natural resources, and increasing agricultural productivity. The second pillar, Expanding Service Delivery, focused on reducing the incidence o f HIV/AIDS, reducing child and maternal mortality, increasing access to safe water and sanitation, increasing primary enrollment and completion rates, and eliminating gender and regional disparity in education. Promoting efficiency and efficacy in the delivery of public services was also a major objective in this pillar. The third pillar, Building Capacity and Accountability, emphasized sound macroeconomic management, with low inflation, stable exchange rates, and increased tax revenues, financial and budget management reforms, civil service reforms, and combating corruption.

- 52 -

111. Bank Strategic Objectives and CAS Outcomes (FYO4-07) 5. The FY04-07 Mozambique CAS i s well aligned with Government’s strategic goals. It includes a clear results framework with measurable indicators to guide program planning, country performance monitoring, and portfolio performance monitoring. Attachment 1 compares the original 2003 objectives to the 2006 retrofitted objectives. The original CAS results framework contained 14 CAS objectives aligned to 36 outcome indicators and 54 intermediate indicators. In early 2006, with indicators finalized for the Performance Assessment Framework, the CAS Results Framework was retrofitted to align better with the PAF indicators and the indicators o f the Africa Action Plan, which had then been developed by the Africa Region. Some intermediate indicators were also reformulated to reflect the actual progress o f the portfolio. Th is retrofitted results framework i s included in the CAS Progress Report. The reformulation did not change the development objectives nor the substance o f most indicators. However, for some outcomes, there was confusion between CAS outcomes and national outcomes. Some indicators included in the results framework did not match CAS goals but rather reflected Government’s national goals. This normally occurred where there was not careful distinguishing between PAF indicators and CAS indicators.

IV. Results Assessment 6. Attachment 2 provides a detailed analysis o f CAS progress and World Bank Group performance against the 2006 retrofitted results framework. This section summaries these findings by CAS pillar and outcome.

Improving the Investment Climate (Pillar I) Outcome: Improved business environment for private sector 7. Business environment. Mozambique i s s t i l l one o f the most difficult places in the world to do business. The country’s rank for Ease o f Doing Business has slipped from 137 in 2005 to 140 in the 2006. The country has not met i ts 2006 targets for reducing the cost and time required for registering a business, although these indicators are expected to improve significantly in 2007 as a result o f computerization and electronic publishing o f two o f the most time-consuming steps in the process (the publishing articles in the official gazette and applying for an operational license). More problematic i s the country’s inability to meet reform targets regarding the labor law. Mozambique has one o f the most rigid labor markets in the world, and the most rigid in southern Africa. The new Labor Law approved by Cabinet in November 200625 starts the reform process but falls short o f the changes necessary to meet Government’s target o f ranking 80* in the world for labor rigidity.26

.

8. The WBG has contributed to progress in improving the business environment through: the PRSC series and the Enterpkse Reform Project (Cr. 33 170); key AAA including the CEM, the investment climate assessment, and Doing Business surveys; participation in sector dialogue; and TA in tax policy reform for the mineral resources sector. Although Government did not meet

25 Not yet submitted to Parliament. 26 As measured by the Doing Business Report.

- 53 -

PAF targets for reducing administrative barriers and for improving labor competitiveness, Bank Group performance has been satisfactory in pushing for reform.

9. The Mineral Resources Management Capacity Building Project (Cr. 34860) has been providing technical assistance to GoM for institutional development and regulatory reform designed to encourage the expansion o f private investment in mining in a socially and environmentally sound way. Implementation has been satisfactory. However, the outcomes o f this project were not included in the CAS results framework.

Outcome: Regulation and supervision o f financial system reinforced 10. Financial sector. A high level o f government sponsorship and coordination o f financial sector reforms has led to good progress on implementation o f reforms in the sector. IDA support i s through the multi-donor Financial Sector Technical Assistance Project (FSTAP, Cr. 41 320), the PRSC series, and through leading the PAF working group. Technical assistance is provided by the IMF. The Financial Sector Assessment, supported by IDA, the IMF and other donors was also key in preventing further financial crises during and following the liquidity crisis o f the two national banks in 2000. FSTAP became effective in March 2006 and implementation i s on track despite slow start-up. The project’s M&E framework needs strengthening. The project enjoys good donor collaboration which i s partly exemplified in joint missions. An attempt at setting up a common fund failed, in part possibly due to ADB and WBG internal fiduciary policies.

11. Private sector support. A key development objective o f IDA’S Enterprise Development Project (Cr. 33170) and o f IFC’s program, i s to increase access to finance and support for SMEs, yet outcomes related to SME finance and support have not been included in the original or retrofitted CAS results framework, Bank Group performance in supporting SMEs could be improved and scaled up. The Enterprise Development Project, which closed in June 2006, reported better than expected outputs at project closing, especially in the areas o f linkages and promoting business advisory and training services for SMEs. However, weaknesses in M&E prevented systematic reporting on actual results and impact for beneficiary SMEs although there i s anecdotal evidence to this effect. Supervision for this project was not vigilant, as financial management and internal control irregularities which escalated in the final 18 months o f the project were not flagged to Management until near project closing. The project provided a platform for collaboration and joint experience with development partners; however, feedback provided to the ICR team indicates IDA could have involved the development partners more in the implementation and supervision process. Support to SMEs provided by the Bank Group has also come at high unit cost; the support model should be reexamined. Closer collaboration between IFC and IDA in sharing knowledge and resources, as planned since 2007, will partially help address this issue. The Bank Group i s developing an appropriate strategy to respond to Government’s request for strengthened support in private sector development.

Outcome: Improved delivery of infrastructure services 12. Only one out o f four infrastructure goals has been met during the CAS period. The telecommunications target has been exceeded while the targets for roads, transport, and energy have only been partially met.

- 54 -

13. Communications. Teledensity has far exceeded the CAS target o f 1.6 percent with teledensity actually increasing to nearly nine percent in 2006. Th is result reflects, inter alia, the Bank’s solid performance in supporting the communications sector reform agenda, including a well-designed and supervised Communications Sector Reform Project (Cr. 35770) (albeit, with some delays in project implementation).

14. Transport. While restructuring in the roads sector follows industry best practice (e.g., through a Road Fund, private sector participation, road safety) and has led to collection o f revenues above target, non-performance o f provincial works departments and procurement delays have led to high cost increases and to both the road rehabilitation and road maintenance targets not being met. Maintenance execution and contract management need improvement. The Roads and Bridges APL 1 project (Cr. 35500) achieved the upgrading and rehabilitation o f 800 kilometers o f road as against the targeted 1250 kilometers. Road maintenance i s 11,949 W y r (as of June 2006) against the target o f 14,000 W y r by Dec 2006. Institutional reform targets have been achieved. The rural access indicator was included in the retrofitted CAS results framework even though IDA support to this outcome would not begin during the CAS period.

15. IDA provided advice through the Roads and Bridges APL 1 project that led to sector restructuring that follows industry best practice. Although limited provincial capacity explains much o f the delay in meeting project targets, part o f the cost increases are attributed to IDA project design flaws associated with exchange rate risk. Other cost increases are attributed to government delays in processing IVA refunds, causing contractors to increase their costs. Another lesson learned from this project, which has been incorporated into the follow-on APL, i s to enhance sustainability by developing the capacity o f government staff rather than hiring consultants to do much o f the work. The project required extensions totaling 24 months.

16. Original CAS targets for international rail traffic, transport time and cost, cannot be met and were eliminated from the retrofitted CAS. T h i s poorer than expected performance i s attributed to several factors, including weak private sector interest in rail and port concessions, poor performance o f existing concessions, poor government monitoring o f concessions, slow implementation o f the Railway and Ports Restructuring Project (Cr. 32880) which has led to cost overruns, and the deteriorating economic situation in Zimbabwe. The restructuring o f the government parastatal, CFM, however, has been proceeding as planned. IDA support through the Railway and Port Restructuring Project has been responsive and in accordance with sector policy, although the design o f the project i s complex and ambitious. The closing date has been extended by a total o f 30 months, attributed to slow GoM response and procurement delays.

17. Energy. The target for 2006 o f new connections for 30,000 households and 3000 clinics and schools will not be met due to Government’s change in sector reform approach just as the IDA-supported Energy Reform and Access Project (Cr. 38190, 52650) became effective. Government i s no longer supporting the privatization o f the parastatal EdM but instead i s putting regulatory mechanisms in place to monitor improvements in commercial and technical performance at EdM. IDA did not incorporate political economy considerations into the design o f the Energy Reform and Access Project; IDA approved a risky privatization strategy just before elections without ensuring the commitment o f the new Government. As a result, the project was approved in August 2003, became effective in March 2004 (the elections were in December 2004)’ and has been in problem status since. However, a new Senior Energy

- 55 -

Specialist based in the Country Office has been working closely with Government to restructure the project along new Bank sector policy and advice. The WBG i s also advising Government on financing options for the Cahora Bassa hydroelectric facility.

Outcome: Sustainable management of natural resources 18. The CAS outcome o f sustainable management o f natural resources has been partially met. A small portion o f rural land i s covered by management plans, though these are mostly forest concessions. Community level natural resource management planning has been improving slowly; capacity to implement management plans at all levels remains low. The primary Bank Group operation in this area has been the IDA and GEF-sponsored Coastal and Marine Biodiversity Management Project (IDA-33660, 3366A GEF- 23844). This project has been in long-term problem status and i s currently set to close in June 2007; despite a 24 month extension, a restructuring and recent improvement in implementation, the key development objectives have not been met (although the Strategic Development Plan for establishing conservation areas will have been prepared and endorsed by MICOA). The project team i s working with Government to address sustainability issues. These include applying lessons learned from pilot projects; assuring the implementation o f systems; funding and staffing for the Research Center; and implementation o f the Strategic Development Plan. Quality-at-entry issues -- lack o f assurance o f government ownership, capacity, and readiness at effectiveness -- were the source o f the project’s long-term problem status. Counterpart funds and financial management have been recurrent flags. Bank Group AAA that contributed to progress in conservation and tourism include the Country Environmental Assessment and a joint EU-WB analysis o f MICOA’s performance. IDA and GEF approved the Transfrontier Conservation Areas and Tourism Project (IDA-41300, 56038) which became effective in June 2006. The objectives o f the project support the CAS outcome although the project outcomes and indicators have not been included in the CAS results framework.

Outcome: Increased use o f new farm technologies 19. The CAS targets related to the use o f new farm technologies have been met (although the sector has met only two out o f the four targets that PAF partners track). Government has demonstrated commitment to improving extension services including decentralizing the management o f these services. However, some major donors have pulled away f iom sector support (DFID, Netherlands, Italy, USAID, IDA) due to poor performance o f the first SWAP (PROAGRI I). Poor policy and planning, budget execution and data quality continue to be major sector issues. IDA interventions in the agriculture sector include participation in the sector working group; extensive TA and supervision for the implementation o f two extension outsourcing pilots; ES W to evaluate the effectiveness o f public extension services; supporting the first sector SWAP (PROAGRI I, Cr. 31710) and approval o f the Market-led Smallholder Agriculture Development in the Zambezi Valley Project during FY06 (Cr. 41980). IDA will not support the second phase o f the sector SWAP due to poor performance o f the first SWAP. IDA has been responsive in supervision and has provided extensive technical assistance as government sector capacity i s major impediment to progress.

20. Overall, the World Bank Group’s performance in Pillar I was moderately satisfactory. Quality at entry and implementation support provided to projects in the financial sector, communications, transport, and agriculture were satisfactory. Implementation support for private

- 56 -

sector development was not sufficiently vigilant and therefore missed critical financial management and procurement irregularities. Management was also not notified in a timely manner to take corrective action. Technical advice and policy support also did not meet client expectations. The design o f the Coastal and Marine Biodiversity Management project was overly complex, especially for counterparts at the local level, subjecting the project to long-term problem status, even after a restructuring which also contained design flaws. IDA did not ensure client commitment for the energy project which also lead to the project being in long-term problem status. Political economy considerations were not adequately accounted for in the design o f this project.

Expanding Service Delivery (Pillar 11) Outcome: Reduced HIV vertical transmission from mother to child 2 1. The national response to the HIV/AIDS epidemic continues to accelerate but i s s t i l l not commensurate with the need. Government i s making strong efforts to broaden its geographical coverage. IDA has provided support through the (MAP) HIV/AIDS Response project (Grant No. H0300), the regional HIVIAIDS Treatment Acceleration Project (Grant No. H1040), and policy dialogue with Government in collaboration with other donors through the Partners Forum. IDA support has been instrumental to Government’s expansion o f i t s HIV/AIDS control program. The M A P HIV/AIDS Response Project provides 60 percent o f total financing for HIV/AIDS. The project was a problem project from May 2004 until February 2007 due to poor government capacity and coordination, and inadequate Bank supervision. Additional support by IDA since the Mid-Term Review in February 2006 (when it was transferred to the Health sector for supervision) has resulted in improved performance. The Bank has decided to channel i t s funds with other donors through a Common Fund, which will reduce transaction costs for Government; however, there have been significant delays in processing the legal amendment needed to that effect.

22. The regional HIV/AIDS Treatment Acceleration Project received an Unsatisfactory overall rating during QAG’s seventh Quality at Entry Assessment for i t s flawed design because it was not apparent how the Bank would have received clear answers to key questions on clinical effectiveness, impact on health systems, and fiscal sustainability. Since then the Bank team has elaborated a specific learning agenda to address these questions. This project has provided essential funding for Mozambique’s treatment needs. It provides funding through three NGOs whose patients represent about 30% o f total patients treated in Mozambique.

Outcome: Improved coverage of health services 23. All CAS targets with respect to health service coverage have been met. The budget for health i s increasing in absolute terms, and more i s going to the provinces and in a more equitable way, in line with the recommendations o f IDA and development partner analytical work and policy dialogue. IDA provided no lending support to health services during the CAS period (other than for HIV/AIDS). Indicators listed are for PAF partners. IDA’S recent analytical work, “Better Health Spending to Reach the MDGs” has been instrumental in influencing the government health service delivery strategy. IDA has pressed Government to use an integrated service delivery approach including the development o f outreach services and community health services, in addition to facility-based services, which have been the main focus o f government

- 57 -

efforts. IDA has also urged Government to focus on less-served rural areas. A new Health Services Delivery Program SWAP i s currently under preparation in response to Government’s request.

Outcome: Sustainable increases in access to safe water 24. A national indicator o f access to safe water was included in the CAS results framework even though the CAS program only intervened in five cities. Access has increased only marginally overall (current overall access is 40.2%) but is expected to increase significantly in the five cities o f the IDA project. Reliability o f water supplies has improved significantly over the last 18 months. The number o f connections is expected to increase by an average 34 percent (to about 122,000) in the next 12 months in the IDA-project cities. There is potential to serve over 2.4 mill ion with improvements in water production made under the project.

25. IDA’S interventions have included the National Water I Project (Cr. 30390) which closed in June 2005 and the current National Water I1 Project (Cr. 32470, 32471). National Water I achieved significant results, including strengthening o f sector institutions, privatization o f water management for five cities, and the successful piloting o f the demand-driven approach for rural water provision. Nonetheless, Government and development partners, including IDA, did not collaborate to ensure scaling up o f th i s best-practice model after the IDA project closed. Quality- at-entry issues contributed to significant start-up delays. The current National Water I1 Project i s expected to dramatically increase coverage and reliability o f water service in the five project towns. Implementation progress has been satisfactory despite slow start up and disbursement, leading to an extension o f 24 months.

Outcome: Increased access and quality of primary education system, and improved quality of higher education 26. In the CAS period, IDA financed the Education Sector Strategy Program (1999 - 2006, Cr. 31720), the Higher Education Project (2002-2007, Cr. 36090), and the Technical and Vocational Education and Training Project (2006-2010, Cr. 41560). In the area o f basic education, ESSP was instrumental not only in providing additional financing for basic education, but also for capacity building and contributing to the alignment and harmonization o f donors. There has been significant progress in expanding access to all levels o f education, especially at the EP1 level. ESSP met project targets for gross enrollment, but data quality issues make the achievement o f targets for passing examinations and for repetition questionable. Primary completion rate remains low at less than 50%, posing a serious risk to the achievement o f the relevant MDG by 2015. Quality o f education remains an issue. ESSP outcomes and indicators were not included in the CAS results framework.

27. IDA was the first donor to support the ESSP. However, there was no agreement among donors on the procurement and financial instruments critical for IDA financing and no legal framework for ensuring donor funding, and this resulted in failure to establish a common fund or SWAP arrangement. This short-coming caused donor funding issues, which contributed to start- up delays and a complex project design, making it difficult for IDA and Government to assess the performance o f the project during implementation. The less than satisfactory implementation performance o f the project during i ts early years indicates that the preparation team did not sufficiently take into account the limited readiness o f project authorities to implement this

- 58 -

program. Project implementation was rated unsatisfactory from the end o f 2000 to 2002. After the project was realigned to focus on components that required additional financing, project implementation was rated satisfactory. The closing date o f the project was extended by 24 months.

28. T h e Higher Education Project has achieved the targets for three o f four key performance indicators, including the internal efficiency rates, annual number o f graduates, and the introduction o f new degree programs. The fourth indicator, increase by 5 percentage points the number o f students from the North and Center, was only partially achieved. The proportion o f students from the Center reached only 27% in 2004, short o f the target which was 35%.

' Expansion at secondary level has not been commensurate with that at the primary level. Secondary gross enrollment ratio i s only 16%, a serious bottleneck in the education system. The government further made progress in the policy front by approving the ESSP 11, TVET reform program, and the second phase o f Higher Education Operational Plan. The implementation o f the Higher Education Project i s on track with a slight delay. The design o f the project has raised sustainability concerns as much o f the higher education directorate remains staffed by consultants hired under the IDA credit. The Technical and Vocational Education and Training Project only recently became effective (June 2006) and its outcomes are not part o f the results framework.

Outcome: Improved public service delivery planning, budgeting, and financial management 29. Transparency o f public procurement practices that reinforced IDA interventions in this area include budget support through the PRSC series, the Public Sector Reform Project (Grant No. H0240), the Decentralized Planning and Finance Project (Grant No. H0670), and the Municipal Development Project (Cr. 35490). Deconcentration o f functions and responsibilities to districts has begun although a comprehensive decentralization approach to the major sectors needs to be undertaken in order to ensure effective allocations o f functions, finances and human resources for local service delivery. Criteria were defined and adopted for distribution in the 2007 Local Initiative Investment Budget (OIIL) and the proportion o f investment budget to be executed by district governments has increased. Work on the inter-governmental fiscal framework has therefore made progress but it s t i l l needs further effort to establish a predictable, stable and equitable system and to provide specific guidelines for execution responsibilities. The framework needs to be developed for all subnational entities including provinces, districts and municipalities. Work on the National Decentralization Policy i s under way but does not as yet set out specific strategies or targets. The Municipal Development Project demonstrated that there i s significant work needed to increase the fiscal autonomy and institutional capacity o f municipalities to be able to finance and implement service delivery. IDA i s working with partners on preparing a National Decentralised Planning and Finance Programme (PPFD) to complement the budget allocations to districts as well as a multi-donor and government supported AAA on municipal development.

30. The Municipal Development project was in long-term problem status until the last year o f the project. The design o f this project was also overly-ambitious especially considering the capacity o f municipalities. Moreover, ownership was also a problem again reflecting inadequate incorporation o f political economy factors. Disbursement on the Decentralized Finance and

- 59 -

Planning Project has been slightly slower than planned. However, the project supported significant progress on policy reform and capacity development through learning by doing at the local level. Major policy steps have been taken including the Law on Local Organs o f State (and i ts associated regulations) which were approved in 2004 and are under implementation. These make the districts a budget entity and require consultative council approval. Plans have been prepared for most districts (the PAF indicator is for all districts supported by donors, not only IDA) although the quality i s poor in many cases. The first district audits were also conducted and the Tribunal Administrativo ’s institutional assessment and Corporate Plan were funded under the DPFP. Close supervision and realistic reporting by the IDA team has kept the project on track despite a difficult political environment.

31. Government’s slow progress in public sector reform continues to raise concern among donors. Most targets have not been met. Inter-ministry coordination and government-wide commitment and championship o f these reforms pose significant risk to the Public Sector Reform Project, which was restructured in 2006 due to poor performance. One main design flaw was the installation o f a parallel P IU that competed with ministries for control o f reforms. Another was that complex political economy considerations were not incorporated into the design o f the project, leading to commitment issues which impacted implementation progress later on.

32. The World Bank Group’s overall performance for Pillar I1 was moderately satisfactory. Whi le satisfactory support was provided in the education, health and water sectors and for the DPFP project, quality-at-entry and implementation problems associated with the HIV/AIDS projects, the ESSP program, the Municipal Development project and the Public Sector Reform project point to the need for IDA to better learn the recurrent lessons o f over-complexity of project design and inadequate incorporation o f political economy factors that affect client ownership o f projects.

Building public-sector capacity and accountability (Pillar 111)

Outcome: Improved budget allocation and budget execution 33. IDA’S main instrument for supporting financial and budget management reforms i s the PRSC series. Reforms are mostly on track. Most targets have been met, except for one: recurrent expenditures in priority sectors are not greater than expenditures for non-priority sectors. Own revenues included in the budget are 70 percent higher in real terms in 2007 than in 2006. External funds reporting in the single treasury account (CUT) have continually increased. Budget allocation in accordance with PARPA requirements (65%). Budget execution for 2006 on track to meet PARPA target. Implementation o f e-SISTAFE has been progressing steadily if slower than expected. Operationalizing e-SISTAFE at the district and municipal levels is now a priority. Although the targets for internal and external audits will be met, the capacity o f the external auditing body, Tribunal Adrninistrativo, i s a concern as the body was allocated very l i t t le budget for the auditing function in 2005 and received none. The creation o f the Revenue Authority finally commenced in November 2006 after significant delays.

- 60 -

34. IDA’S collaboration with the IMF on macroeconomic issues and with Program Aid Partners in providing budget support within a clear policy framework (the Performance Assessment Framework - a prioritized subset o f PARPA I1 Strategic Matrix indicators) has been instrumental in helping Government achieve steady targets in a sound policy framework.

Outcome: Stronger M&E capability in Government 35. All CAS targets related to monitoring and evaluation have been met. IDA support is provided through the PRSC series, technical support, and donor harmonization activities. Government meets with Program Aid Partners twice yearly to review progress o f implementation o f the PES (Economic and Social Plan) and to set targets for the PARPARAF which get incorporated in the CFMP (Country Financial Management Plan). The PAF targets are annexed to the PES. Government has made significant progress in M&E at the national level, especially for monitoring the PARPA I1 and aligning the PARPA I1 to budget documents. Nonetheless, there has been very l i t t le progress at the sector level; most sectors do not have sector results frameworks, and M&E capacity i s weak, especially at the provincial and district levels.

36. IDA has provided M&E support to GoM and development partners for the development o f the PARPA I1 Strategic Matrix, the Performance Assessment Framework and the alignment o f IDA projects to PARPA and PARPA I1 objectives. IDA also participated in working groups to ensure consistency and alignment between PARPA, CFMP, PES and the OE (Budget Execution Report).

Outcome: Reduced corruption 37. IDA supports the corruption reduction objective mainly through the Public Sector Reform Project and policy support through the PRSC series, although all projects have fiduciary safeguards in place to fight corruption at the project level. The main anti-corruption target relating to the number o f cases prosecuted, has not been met: the High Authority for Combat o f Corruption did not prosecute any cases in 2005. In 2006, however, more action has been taken resulting in 194 public officers expelled, 164 dismissed and 73 penalized; 249 other cases are due to be concluded, including one concerning the Director o f Prisons. The 2007 Doing Business Report ranked Mozambique 93rd out o f 146 countries for corruption. The 2004 WBI Anti- corruption Survey indicated that Mozambique performs worse than average for countries in southern Afiica with respect to control o f corruption, though better on accountability, political stability and other areas o f governance. The Action Plan for Government’s Anti-Corruption Strategy was finalized in March 2007; apart from this and some high-level events and meetings, implementation o f the Strategy i s about to start..

38. At the request o f Government, WBI provided comprehensive assistance in developing and conducting both the Anti-corruption Survey and the subsequent Anti-corruption Strategy. However, despite continuous delays in implementing the Anti-corruption Strategy, IDA did not use triggers in the PRSC to ensure Government delivers in a timely manner the results in the Anti-corruption Strategy, especially in the prosecution o f cases.

- 6 1 -

Outcome: Increased efficiency in the provision of services by the justice system 39. IDA’s support for the justice sector has mainly been through the PRSC series plus the Public Sector Reform Project. The specific outcomes associated with th is project are not included in the CAS results framework. Instead, the results framework includes sector indicators. In the Joint Review 2006, two o f the five indicators were considered to have been met, one partially met and the other not met (see Attachment 2). Poor quality o f dialogue and progress in the justice sector poses a serious concern for development partners. Discrepancies in priorities, content, and relevance o f indicators are an issue.

40. Direct IDA involvement in the justice sector started in late 2006 through a $5 mill ion component in the restructured Public Sector Reform Project. Though small, this component i s expected to achieve modest impact on critical activities, including: (i) build capacity and strengthen institutions at the provinciallappellate jurisdictions level; (ii) raise awareness o f citizens’ rights and responsibilities through working with civil society; (iii) improve access to courts, conflict resolution mechanisms, and legal services; and, (iv) provide support for sector institutions to provide outreach activities and to advance the dissemination o f legal and judicial information. IDA also plans to propose supporting a system-wide information and planning system beginning in December 2006 through the legal component o f the Public Sector Reform Project, which should improve the overall availability o f sectoral data. IDA has rightly been cautious to proceed slowly in this area as government ownership and commitment have not yet fully materialized.

41. The World Bank Group’s performance for Pillar I11 was satisfactory. Excellent policy advice and technical assistance by IDA and the IMF helped Government make significant improvements in budget management. M&E support provided by IDA was also appreciated by the client and helped improve PARPA monitoring. IDA’s support for the corruption outcome, however, could be more strategic and coordinated across the portfolio. IDA did not have an integrated and coordinated strategy for addressing corruption within the portfolio, nor did it have a definitive strategic position on how to deal with corruption in the country. Nonetheless, the Bankwide strategy for governance and anti-corruption was only finalized recently. Finally, IDA could have also been more decisive in i ts use o f the PRSC instrument in order to accelerate implementation o f the procurement and Anti-Corruption plans, and to improve compliance for PAF anti-corruption objectives (e.g. prosecution of cases).

V. IDA Lending 42. Portfolio Composition. During the FY04-07 CAS period, 12 IDA lending operations and one supplemental credit were approved, totaling $683 million, including an estimated $2 15 mill ion commitment for FY07. Three GEF operations, with a value o f $6 million, were also approved (see Attachment 3). This i s in line with the base case scenario outlined in the CAS. Of the 12 IDA lending operations, three were PRSCs, which totaled $250 million, or 38 percent o f all lending. Most o f the projects planned in the CAS were implemented during the latter half o f the CAS period, during FY06 and FY07, reflecting slippages in preparation; only four projects were prepared on schedule. The Maputo Municipal Development APL (ProMaputo) was not planned in the CAS and was added during FY07. Total projects under implementation during

World Bank Group Performance - Portfolio Management

- 62 -

th is period averaged 21, including two GEF projects and one regional pr~ ject ,~ ’ with an average total commitment o f approximately $1 billion. In all, $982 mill ion was disbursed from IDA credits and grants to GoM during the CAS period (Appendix 7a). Total World Bank Group transfers to Mozambique during the four years o f the CAS total $2,461 million, along with $331 million o f M IGA and IBRD guarantees and another $1,091 mill ion o f HIPC and MDRI debt relief for the IMF and the African Development Bank (Appendices 7b and 7c).

43. Portfofio Age. The portfolio age i s somewhat old. As o f December 2006, nine o f the 19 IDA operations under implementation are at least five years old. Twelve projects (eleven IDA, one GEF) exited the portfolio during the CAS period.

44. Portfofio Performance. Between FY05 and FY07, three to five projects, or one quarter o f the portfolio, were at risk28 at any one time, which i s roughly equivalent to the Africa Region average. The recurrent problem projects include the MAP HIV/AIDS Response Project, the Public Sector Reform Project, the Municipal Development Project, the Energy and Access Reform Project, and the Coastal and Marine Biodiversity Management Project. Slow start-up and effectiveness delays were common. Start-up and implementation delays also led to frequent closing date extensions. Of the 19 IDA projects currently under implementation, nine projects, or almost 50 percent, have had their closing dates extended, one by six months, two by 12 months, three by 18 months, two by 24 months, and one by 30 months. Slow disbursement, procurement, financial management, counterpart funding, and M&E are the most common flags raised.

45. Counterpart funding has been a recurrent problem for the Mozambique portfolio since at least 1999 when it was flagged in some project documents as a potential implementation risk. Yet, this issue has continued be a major cause o f implementation delays for most projects in the portfolio during FY05 and FY06.29 Counterpart funding was a flag for five projects under implementation in December 2006. A Bank note on counterpart funding issues written during FY06 points to several causes, including: (i) the failure o f the Ministry o f Finance to budget adequately for counterpart funding requirements in some projects, which i s partly linked to the failure o f some projects to provide adequate and timely data to the Ministry; and (ii) insufficient commitment by GoM for some projects. Mozambique was among the three countries in the Africa Region with the highest number o f flags for counterpart funding during FY05, and had the highest number o f such flags in FY06 and FY07.30 To facilitate implementation, GoM has applied for 100 percent IDA financing for selected projects.

Counterpart Funding.

46. VAT Payments. An issue related to counterpart funding that has caused implementation problems i s government delay in refunding V A T payments to contractors. T h i s delay has contributed to procurement delays and to some contractors raising prices in order to make up for the loss o f VAT refunds, which in turn causes cost overruns. Most o f infrastructure projects and others with civil works are affected.

27 Mapped under AFC16. Projects at risk include problem projects (Le., projects that have the Development Objective or Implementation

Progress rated as Moderately Unsatisfactory or Unsatisfactory) and projects that have three or more flags raised. 29 Many projects experienced delays related to counterpart funding but did not raise the flag. 30 Mozambique had five projects with counterpart fund (CF) flags in both 2006 and 2007. The next highest number o f CF flags for similarly-sized portfolios was two. In 2005, Mozambique had two projects with CF flags, while two other portfolios had a higher number - Uganda had four and Madagascar hard three.

- 63 -

47. Design and Quality-at-entry, Only two projects were rated for Quality-at-Entry by QAG during the CAS period: the GEF Transborder Parks Project (TF-28483) and the Health Sector Recovery Project (Cr. C2788). Both received satisfactory ratings in all categories. Project design, however, could have benefited from less complexity, taking into account the capacity o f the client. In addition, implementation readiness could have been better, especially in the areas o f procurement and financial management. Finally, the reviews found that project implementation would have benefited from a better appreciation o f the political economy, including a more realistic assessment o f client commitment. Quality-at-entry problems led to long-term problem status and subsequent restructurings for the Coastal and Marine Biodiversity Management Project, Public Sector Reform Project, Energy Reform and Access Project, and the Municipal Development Project. The Education Sector Strategy Project was not restructured but was in problem status during the first two years o f implementation.

48. Closed Projects. O f the eight projects (seven IDA, one GEF) that closed by end FY06, four have been rated by IEG. The Health Sector Delivery Project and the Second Road and Coastal Project received the highest ratings in all five performance categories (see Attachment 7); the Economic Management (EMPSO) Project received the top ratings in three o f the five performance categories, moderately satisfactory rating for outcome and a modest rating for institutional development impact; the GEF Transborder Parks Project received a satisfactory rating in the borrower performance category.

49. Two projects drafted Implementation Completion Reports (ICRs) during FY07 but have not been evaluated by IEG. The ICR for the Education Sector Strategy Project cites poor project design as a major reason for project implementation to be rated unsatisfactory from end-2000 to 2002 and for the 24-month extension o f the closing date. The ICR for the Enterprise Development Project rated IDA Supervision Moderately Satisfactory, as financial management and internal control irregularities which escalated in the final eighteen months o f the project were not flagged to Management until near project closing. The project provided a platform for collaboration and joint experience with development partners; however, feedback provided to the ICR indicates IDA could have involved development partners more effectively in the implementation and supervision process. Recurrent lessons from ICRs and IEG reviews include: over-complexity o f design; low pre-implementation readiness; and poor incorporation o f political economy factors and assurance o f client commitment.

IDA Non-lending 50. The non-lending program includes 17 pieces o f analytical work (see Attachment 4a), including two core pieces o f economic and sector work - the Second Public Expenditure Review and a Country Economic Memorandum - and seven technical assistance activities. The Second Public Expenditure Review and the Country Economic Memorandum were completed in FY04- FY06, together with studies o f value chains, contract farming, technical and vocational education, health status, constraints to achieving the health MDG, legal and judicial status, governance and anti-corruption, and the poverty and social impact o f changes in primary school fees. The program o f technical assistance included activities aimed at strengthening capacity to implement the PARPA, focusing in particular on public expenditure management, as well as

.

- 64 -

technical assistance in the main productive sectors. Technical advisories from IFC and MIGA complemented the non-lending program.

5 1. Economic and Sector Work (ESW). ESW conducted during the CAS period have been relevant and o f high quality. Improvements can be made, however, in timing, dissemination, planning o f the output, and coordinating with Government and donors. Explicit attention also needs to be paid to ensure that the analytical work i s demand-driven. Findings in all analytical work were used to inform current or subsequent operations. Quality and peer reviews praise the quality o f the deliverables. However, slippages o f planned ESW were common (see Attachment 4b) and (as noted during the 2004 QAG review o f Mozambique AAA) often resulted in reshuffling and a scrambling for funds. Some ESW products appear not to have been reviewed (or read) beyond the task team. Although the country website posts the major reports, there is no central repository that keeps track o f all deliverables. Although most o f the ESW produced have been demand-driven, there have been a few instances where other donors and counterparts did not support the commissioning o f the work. The Country Team discussed these issues during the development o f the new Country Partnership Strategy, and has agreed on measures to ensure better planning, coordination, funding, and dissemination o f future analytical work.

52. Technical Assistance and Policy Advice. Technical assistance and policy advice efforts have been demand-driven, o f high quality and timely. These included fiscal policy advice regarding mineral resources and financing arrangements for the Cahora Bassa dam. Staf f based in the Country Office also provide day-to-day advice to government counterparts, especially in public expenditure management, financial management, procurement, ICT, energy, HIV/AIDS, and agricultural and rural development.

IDA Instruments

53. PRSCs. The Mozambique portfolio has achieved balance between projects and budget support. Almost 40 percent o f new lending is through budget support using the PRSC instrument. In determining the amount o f budget support, the portfolio balances key parameters including: (i) Paris Declaration and donor harmonization targets for lending in the form o f program support; (ii) Government demand for the World Bank Group to lead or engage in specific projects to benefit from the knowledge base and technical expertise o f the World Bank Group; (iii) the readiness o f country systems for further budget support; and (iv) the ability o f the country to meet agreed performance targets and triggers. G18 partners who provide direct budget support and Government use the Performance Assessment Framework, a prioritized subset o f indicators from the PARPA I1 Strategic Matrix, to guide decision-making on budget support. Although the performance framework i s clear, what is less clear and subject to negotiation among donors and Government i s the level o f under-performance that would lead donors to provide less budget support.

54. Common Funds and SWAPS. The Bank's program for Mozambique has in principle been supportive o f SWAPS and common funds as a means o f providing low-transaction cost lending to Government and for coordinating with other donors. The first SWAP supported by IDA was PROAGRI for the agricultural sector. This SWAP was approved in August 1999 and closed December 31,2006. Although this SWAP helped achieve notable institutional and policy changes, IDA and other key donors have decided to discontinue support for the second phase o f

- 65 -

the SWAP due to under-performance o f the first. IDA did not participate in any additional SWAP during t h e CAS period. Participation in common h d s for projects has neither been easy nor particularly successful. The main challenges have been in reconciling IDA’S fiduciary policies and procedures with those o f Government and other donors, and weaknesses in government procurement and financial management systems. For example, the project team sought to include the MAP HIV/AIDS Response Project in a multi-donor common fimd but the actual effort to do so took almost two years. Similarly, an attempt to create a common fund for the provision o f financial sector assistance failed due to procurement and disbursement concerns. Despite these obstacles, the country team continues to work on aligning Bank work better with national systems.

55. APLs have facilitated longer term planning for promising programs to test approaches before deepening reforms or expanding- to other locations, and ultimately to achieve greater impact. The Roads and Bridges APL series i s an example o f a program that has used th is instrument effectively. Going forward, the Country Team i s incorporating th i s lesson into the new portfolio by planning more APLs.

56. Regional Projects: Only one regional project, the Regional HIV/AIDS Treatment Acceleration Project, was approved during the CAS period. Regional integration opportunities have not been explored systematically by the country team. Interviews with selected government counterparts reveal that most are not aware o f the IDA funds available under the IDA Regional Integration Pilot. The country team has recently begun to work with the Regional Integration Team and other country teams to prepare four regional IDA projects, two GEF projects and one IDF project.31 According to team members, notwithstanding the merits o f such regional projects, high transaction costs (stemming from working in more than one country), and lack o f incentives within the Bank for such activities discourage task team leaders from pursuing regional projects

VI. Aid Coordination / Donor Harmonization 57. Development aid partners and Government have collaborated to implement an impressive donor coordination and harmonization framework in Mozambique. Government meets with Program Aid Partners yearly to discuss PARPA implementation, update PAF targets, and ensure alignment o f development partner support with budget priorities and reporting. Joint Sector Working Groups meet regularly and frequently to review sector issues, agree on action plans, and divide responsibilities. Performance and participation varies across working groups, however. The G18 donors have also committed to the Paris Declaration and have set related targets for themselves. The Bank Group has been responsive in making adjustments to meet many Paris Declaration indicators including: reducing the use o f project implementation units, increasing the use o f joint missions and joint analytical work, and in the amount o f budget support provided. However, several attempts to jo in common fund arrangements have yet to come to fruition. Government and development partners have asked the Bank Group to define requirements for i t s adoption o f country systems for financial management, procurement, and audits, and the Bank Group is currently responding to that request.

Southern Africa Power Pool APL2: Mozambique-Malawi Interconnector Project; Regional Trade Facilitation; Regional Communications Infrastructure Project; GEF Western Indian Ocean Marine Highway Development and Marine Contamination Prevention Project; GEF Market Led Smallholder Development; IDF SADC Capacity Development.

3 1

-‘66 -

VII. Client Feedback 58. Interviews o f selected government officials, c iv i l society, and private sector counterparts were conducted during the preparation o f this report (see Attachment 8). Generally, client impressions o f the World Bank Group are positive and reflect in large part the responsiveness o f the growing World Bank Group presence in the Maputo office. Civ i l society, especially, has appreciated recent Bank Group efforts to consult them on development matters, including during the preparation o f the new CPS, and they stress that more is needed. Major points highlighted during these consultations include:

The World Bank Group is needed for i ts financing role, technical assistance, knowledge, and as an interlocutor and convener o f donors. Every major sector has requested that the Bank Group continue to be a major sponsor o f i t s operations. According to those interviewed, projects gamer greater support with the involvement o f the World Bank Group and the knowledge and capacity building generated by projects i s highly valued.

Better coordination i s needed both within IDA, within the World Bank Group, and between IDA and other donors, including more effort in explaining their respective roles to stakeholders (clients sometimes get confused about the organization and roles o f World Bank Group staff). World Bank Group capacity building efforts, especially, need to be more integrated and coordinated across sectors and providers.

Government has requested that the Bank Group provide strengthened and more coordinated support for private sector development.

Country demand for regional integration i s increasing. At the same time, many government clients did not know about the IDA Regional Integration Pilot program and funding available for regional integration efforts.

The World Bank Group’s fiduciary processes can be burdensome, especially given capacity constraints. Government and other donors would l ike the Bank to fully embrace Paris Declaration requirements with respect to the use o f country systems.

VI. Conclusions and Lessons 59. The World Bank Group’s performance in supporting CAS objectives has been moderately satisfactory. CAS objectives have remained valid during the CAS period. The Country Team has provided ongoing and valued technical assistance and policy advice in the major sectors and in fiduciary areas. The presence o f Maputo-based sector s taf f has been particularly valued by the client. The World Bank Group has also been responsive in many instances, providing agile, just-in-time support to Government for unforeseen needs. Collaboration between IDA and IFC and MIGA, and between IDA and IMF, i s strong. An area o f support that did not meet Government expectations, however, was for private sector development, which could have benefited from closer coordination within the World Bank Group. Capacity development initiatives also lacked sufficient coordination across the portfolio, nor have their results been tracked. Quality-at-entry, supervision, and portfolio management shortcomings contributed to implementation delays, closing date extensions, and restructurings for some long-term problem projects. Delays o f counterpart funding payments and Government VAT refunds to contractors, especially, could be dealt with more effectively by the Country Team.

- 67 -

60. Key lessons for the Bank Group include:

Organizational a. Better collaboration between IDA, IFC and MIGA. Improved coordination and

collaboration i s needed to answer Government’s demand for strengthened support in private sector development. Moreover, given constrained IDA resources and reflecting client needs, the Bank Group needs to better adapt i t s business model to exploit resources available both within and outside o f the World Bank Group, including trust fbnds (e.g., the Carbon Fund).

b. Improve internal coordination across sectors. The experience during th is CAS period with HIV/AIDS , private sector development, and capacity development show that there i s significant potential to improve cross-sector coordination. In particular, the attempt to mainstream HIV/AIDS solutions across sectors and projects was haphazard rather than strategic or systematic, and depended largely on the interest o f the task team leader. Nor has collaboration to promote private sector development across and within sectors been systematic (including across the World Bank Group, as noted above). Although about one-third o f Bank financing is targeted for capacity development, a focused and integrated strategy has not been developed. Here, the World Bank Institute and the Africa Capacity Building Initiative (CDMAP) can play an important role, including in results measurement o f capacity development initiatives. Cross-sector collaboration i s especially important during the next CAS period as PARPA I1 emphasizes cross-cutting themes (HIV/AIDS, gender, rural development and private sector development) that require cross-sector collaboration. These challenges will require the country team to rethink how it i s organized and how it interfaces with Government, development partners, and other stakeholders.

c. Articulate the Bank Group’s requirements regarding country systems related to financial management, procurement and audits, and work with Government and development partners to develop a capacity development plan for these areas. This step i s required in accordance with the Paris Declaration but it i s also necessary to accommodate lans for the greater use o f sector wide approaches and common fund arrangements. 3 P

Project Design d. Better appreciation o f the country% political economy, reflected in the design o f

projects. Political economy factors are central to the stalled implementation for at least four projects, specifically the timing o f project approvals. The Bank approved politically risky projects just prior to elections, leaving ownership by the subsequent administration less certain. Political realities should be taken into account in the timing and content o f projects (and AAA). For infrastructure projects, especially, ESW and preparation work should include analysis on potential winners and losers in interventions, and adjust design

32 The Bank Group i s currently responding to this request.

- 68 -

and implementation arrangements as appropriate. This should be done throughout supervision as well. Implications for the composition o f infrastructure teams, in terms o f broader ski l ls, should be considered.

e. Simpler design and better project preparation to ensure a fit with Government’s implementation capacity. Project design remains overly-complex, especially for locally-implemented projects. Available capacity needs to be an important design criterion. Similarly, projects need to make more intensive use of project preparation facilities to ensure implementation readiness; halt the creation o f parallel project implementation units and give more responsibilities to line ministries; and include government procurement and financial management staff in preparation teams. Projects also need to plan realistic implementation timeframes in order to avoid repeated extension requests. Advancing pre-preparation readiness (through dialogue and relationship building) and pre-implementation readiness are also key activities.

f. M o r e strategic, yet pragmatic exploration o f project opportunities for regional integration. Many government counterparts are unaware o f the IDA Regional Integration Pilot Program, a situation that i s being addressed. Only one regional integration project was implemented during the CAS period. The country team i s now making a greater effort to explore regional opportunities, but will need to ensure such projects have strong multi-country ownership.

g. More realistic CAS targets, and careful distinguishing of PAF targets vs. CAS targets. Because o f the challenge o f attribution, PAF targets should only be selectively included in the CAS results framework -- where they are specific triggers in the PRSC series, or where the Bank Group program i s the main source o f support for achieving the PAF target.

Project Supervision and Portfolio Monitoring h. Effectively address recurrent and cross-cutting implementation issues. R Recurring

portfolio issues such as counterpart funding have been a barrier to implementation for many projects, yet continue to persist. Political realities should be taken into account in the timing, content and commitment to projects. Two issues that are closely linked to the political economy and to the country’s financial management system are counterpart funding and VAT refunds. Lack o f counterpart funds has hampered the implementation progress o f several projects in the portfolio during the last three years; and slow or insufficient VAT refunds to contractors has resulted in higher costs for infrastructure projects and projects that involve building o f civil works. The Bank Group will consider these issues in future project designs, as well as help Government address related weaknesses in budget and financial management systems. For the current portfolio, the new parameters for 100 percent financing have been used to retrofit existing projects where ownership i s not an issue. For issues related to weak ownership, a realistic view on the political feasibility and better project design and preparation i s key. Lack o f capacity, especially acute at the sub-national level, i s another systemic problem that cuts across the portfolio, and will need to be addressed through better project design and preparation. In

- 69 -

addition, a more concerted effort needs to be taken to build capacity for projects that have decentralized components.

Address governance issues in all operations. Corruption in areas like service delivery and procurement processes (even where activities are not using Bank Group h d s ) undermines the performance o f Bank Group operations and their impact on poverty alleviation for the client. Lessons can be drawn from projects that have effectively incorporated local accountability mechanisms in their design o f projects (as done by the Decentralized Planning and Finance and the ProMaputo projects, for example); and have implemented sector governance and accountability fiameworks (as done by the Roads and Bridges and National Water Development Project I1 projects); capacity development in fiduciary areas will also mitigate corruption risk at the project level.

j. Better coordination and dissemination of analytic work. Analytical and advisory work conducted during the CAS period have been relevant and o f high quality. Their findings are used to inform subsequent project design and policy dialogue. Improvements can be made, however, in the collaborative selection o f topics and the design o f joint work programs, timing, and dissemination. Attention i s needed to ensure that analytical work i s demand-driven.

k. Improve the monitoring o f results. Although new projects under preparation are systematically paying more attention to results management, most projects under implementation require actions to improve monitoring and evaluation. Data collection and reporting on outcomes needs to be improved across the portfolio. Project teams will also need to focus on helping sectors develop M&E systems which would in turn help project data collection and reporting.

i.

Attachments: 1. Original and Retrofitted CAS Results and Indicators 2. Completion Report Analysis 3. Planned IDA Lending Program and Actual Deliveries 4. Planned AAA Program and Actual Deliveries 5. Selected Indicators o f IDA Portfolio Performance and Management 6. IDA Projects that Exited the Portfolio During FY04-07 7. I C M E G Ratings for IDA Projects that Exited the Portfolio During FY04-07 8. L is t o f Project and Government Counterparts Interviewed for Completion Report

- 70 -

e.

e

e

.. \o

1

I

c\1 b

I

0.

0

14 I 3

5

a

0

00

I v, I

0

3

0

rA 6

u .. \o

I

I- I- I

Go

E 2 c Go 4

u

e

e r

ig

.

e.

$ s 8 U

- E

B

I

0

00 I

-

aa u

e cp

0

L

c I

a

a 5 F x e : P -

v)

6 E h 2 3 E e k

2 . s

0

0

v)

b h e P,

E e k

3 CI

c1 8

0

0.

0

0

0 0

I m

00 I

I lr) 00 I

FY 2004

2005

2006

APPENDIX 6 : FY04-07 MOZAMBIQUE CAS COMPLETION REPORT ATTACHMENTS

Attachment 3: Planned IDA Lending Program and Actual Deliveries

PROJECT S. Africa Power APL2 National Water Supplemental Decentralized Planning and Finance PRSC 1

Beira Railway Sustainable Rural Dev. Financial Sector Capacity TA Legal Sector Capacity

PRSC 1 PRSC 2

Roads and Bridges APL 2 Technical and Vocational Education Sustainable Rural Development

Financial Sector Capacity TA Legal Sector Capacity

PRSC 2 PRSC 3

2007 Roads and Bridges APL 2 Public Sector Reform 2 PRSC 3 PRSC 4

Regional Projects FY04

FY07

AMOUNT $13m $15m $42m $50m

$70m $20m $lorn $5m

$50m $50m

$85m $20m $20m

$10m $5m

$50m $70m

$85m $20m $70m $70m

STATUS Slipped to FY08 actual actual slipped to FY05 Additional Actual Projects: Energy Reform and Access S I L TOTAL FY04 actual Slipped to FY06 Slipped to FY06 Slipped to FY06, incorporated into restructured PSR Project Slipped from FY04 Slipped to FY06 TOTAL FY05 Slipped to FY07 Actual Transfiontier Conservation Areas (TFCA) & Tourism Dev

Slipped to FY06 Slipped to FY06, incorporated restructured PSR Project Slipped from FY05 Slipped to FY07 Additional Actual Projects: Market Led Smallholder Development TOTAL FY06

into

Slipped from FY06 Dropped Slipped from FY06 Slipped to FY08 Additional Actual Projects: Maputo Municipal Development MZ-GEF Market Led Smallholder Dev (FY07) Water Services and Institutional

TOTAL FY07 TOTAL CAS PERIOD

support

HIV/AIDS Treatment Acceleration Project Southern Afiican Power Pool APL2

AMOUNT $0 $15m $42m

$40m $97m $1 10m

$60m

$170m

$30m $20m ($lorn GEF) $10.5m $5m

$120m

$20m

$200.5m

$85m

$70m

$30m $6.5 GEF

$15

$215m $680m

$25m

$45m ($15 IDA)

- 86 -


FY 2004

2005

2006

2007

Attachment 4: Planned A4A Program and Actual Deliveries PROJECT Agriculture PSIA Country Status Report on Health PER

CPAR Legal and Judicial Assessment

Rural Strategy Private Sector Competitiveness Labor Markets and Tec. Voc. Ed Poverty Update Institutional Governance Review PER TA (FY05)

CEM HIV/AIDS Retro. Water Management Country Integrated Poverty, Social and Gender Assessment PSIA Labor Market Reforms PER TA (FY06) Moatize Dialogue TA

Country Framework Report Country Integrated Poverty, Social and Gender Assessment Education Fee Reform Impact Analysis PSIA Labor Market Reforms Zambezi Valley Regional Growth Study Zambezi River Basin Regional Water Resource Management Modem Biofuels Assessment PSIA Land Use Country Environmental Assessment MIGA - Enterprise Benchmarking Study Rural Telecommunications Value Chain Analyses Rural Strategy Achieving the Health MDGs Procurement Reform TA Commercial Debt Reduction TA

STATUS Dropped Slipped to FY05 Dropped

Dropped Advanced to FY03 Additional Actual AAA: Technical And Vocational Educ Actual (Agriculture Strategy) Actual (Competitiveness Study) Advanced To FY04 Slipped To FY07 Actual (Governance And Anti-Corruption Diagnostic) Actual (Per Ta (FY05)) Additional Actual AAA: PSIA: Reducing Primary School Fees In Mozambique Contract Farming And Supply Chain Financing Impacts Of Extension Services Natural Resources In Mozambique PPI Review Health Sector Country Status Report Water Resource Management Actual Dropped Advanced To FY05 Slipped To FY07

Slipped To FY07 Actual Dropped Additional Actual AAA: Decentralization & Local Service Delivery Policy Note Public Financial Management Assessment (PEFA) Mining Policy TA Actual Actual

Actual Actual Actual Actual

Dropped Dropped Actual Actual Dropped Actual Actual Actual Actual Actual

- 87 -


Attachment 5: Selected Indicators o f Bank Portfolio Performance and Management

Indicator 2004 2005 2006 2007 Portfolio Assessment Number of Projects Under Implementation a 16 17 18 17

Percent of Problem Projects by Number 6.3 17.6 16.7 23.5 Percent of Problem Projects by Amount a, 6.8 14.1 12.0 15.4 Percent of Projects at Risk by Number 6.3 29.4 16.7 23.5 Percent of Projects at Risk by Amount 6.8 18.0 12.0 15.4 Disbursement Ratio (%) e 14.9 24.6 30.4 25.2 Portfolio Management CPPR during the year (yesho) Yes Yes Yes Yes Supewision Resources (total US$) 2084 2322 2368 Average Supervision (US$/project) 116 129 108

Average Implementation Period (years) 3.7 4.5 4.2 4.5

Memorandum Item Since FY 80 Last Five FYs Proj Eva1 by OED by Number 36 8 Proj Eva1 by OED by Amt (US$ millions) 2,086.7 643.2 % of OED Projects Rated U or HU by Number 13.9 0.0 % of OED Projects Rated U or HU by Amt 5.9 0.0

a. As shown in the Annual Report on Portfolio Performance (except for current FYI. b. Average age of projects in the Bank's country portfolio. d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

- 88 -


Attachment 6: IDA Projects that Exited the Portfolio During FY04-07

Exit FY

Project Date, Date, Rev IDA Net Tot Age Ext Approval Closing Comm Undisb yrs Mos

Bat

Latest Latest Risk qqL-

2007

S L T S

S s o M&E,

S S FM, Mgt M&E,

S S FM, Mgt

(FY99)

FY06 MZ-Agriculture Sector PEP 08/12/1999 12/31/2006 30.0 2.6 7.6 30 (FY99) MZ-Roads and Bridges MMP 06/04/2002 1213 112006 162.0 5.2 24 (FY02) MZ-Municipal

S I L (FY02)

Marine Biodiversity Mgrnt S I L

(FY07)

y F 09/13/2005 06/30/2006 120.0 0.0 0.5 0

Development ll/l5/20Ol 12/31/2006 11.0 5.2 12

MZ-Coastal and

06/30/2007 5.6 6.3 24

70.0 MZ-PRSC3

s I s / o S

S

S

MS

MU

s o

s o

s o

MS 0

FM, MS CF

- 89 -


2005

2006

2007

Attachment 7: ICIUIEG Ratings for IDA Projects that Exited the Portfolio During FYO4-07

and Coastal

Engineering

6. Natl Water 1 (FY98)

7. Enterprise Dev (FYOO)

8. Edu Sec Strtgy Prgm TAL (FY99)

9. Agriculture Sector PEP (FY99)

10. Roads and Bridges MMP (FY02)

1 1. Railway and Port Restructuring (FYOO)

12. Municipal Development SIL (FY02)

13. Coastal and Marine SIL

4. Gas

. 5. EMPSO

PRSCs PRSC (FY05) PRSC2 (FY06) PRSC3 (FY07)

Exit FY Project

Sector Recovery

Transborder I ParksSIL

Outcome % I Sustainability % 1 Inst Dev Impact % 1 Bank I 'Borrower

E Likely

Likely

MS

Substantial

1: Substantial

- 90 -


Attachment 8: Project and Government Counterparts Interviewed for Completion Report

Sergio Cassamo, Project Director, Communications Reform Project

Paul0 Fwnane, Confederation o f Business Associations, Enterprise Reform Project

Victorino Xavier, UTRESP Director, Public Sector Reform Project

Dra. Joana Mangueira, Generally Secretary, CNCS (National HIV/AIDS Commission), MAP HIVlAIDS Project and Regional HIV/AIDS Treatment Acceleration Project

Fernando Songane, PROAGRI Coordinator, PROAGRI Program

Minister Aiuba Cuereneia, Minister o f Planning and Development

Ana Dimande, Ministry o f Planning and Development

Momade Pieraly Jutha, National Director for Planning and Budget Salim Vala, National Director for Promotion o f Rural Development

Pascoal Bacela, Director o f Energy

- 9 1 -

Appendix 7a. Mozambique Commitments, Disbursements, and Repayments, FYO4-WO7

Year FY 04 FY05

US$ (Million) Commitments Disbursements Repayments

97.3 183.5 9.2 170.0 223.0 14.3

FY06 1 200.5 FY07 I 21 5.0

I TOTAL I 682.8 I 982.0 I 38.1 I 307.5 14.6 268.0 0.0

- 92 -

Appendix 7b. Mozambique Debt Relief

Mozambique HlPC and MDRl Debt Relief (million USD) CY 2004 CY 2005 CY 2006 CY 2007 2004 - 2007

HIPC IDA AfDB IMF Bilateral and other

MDRI . IDA AfDB IMF

135.2 135.8 130.9 130.0 532.0 8.9 9.7 9.8 10.6 39.0 2.6 2.5 2.6 2.9 10.6

15.0 34.0 - 49.0 123.7 108.7 84.5 116.5 433.4

1,916.8 1,916.8 1,319.0 1,319.0

477.8 477.8 120.0 120.0

Total HlPC and MDRl relief 135.2 135.8 2,047.7 130.0 2,448.8 Source: AfDB, World Bank and IMF

Assistance under original HlPC 96.5 96.1 90.8 88.8 372.2 Assistance under enhanced HlPC 28.4 29.6 30.5 32.1 120.6 Assistance-additional bilateral beyond HlPC 10.3 10.1 9.6 9.1 39.1 MDRl 1,916.8 - 1,916.8

Total HIPC and MDRI 135.2 135.8 2,047.7 130.0 2,448.8 Source: IMF BOP March 19,2007

Mozambiaue Reduction in Debt Service Pavments (million USD) I

CY 2004 CY 2005 CY 2006 CY 2007 2004 - 2007 IDA Debt Service 25.0 29.0 31.0 26.0 111.0 IMF Debt Service 13.0 14.0 - - 27.0 AfDB Debt Service 2.0 3.0 6.0 7.0 18.0 Source: HjPC Initiative and MDRl - Status of Implementation, August 2006

- 93 -

Appendix 7c. World Bank Transfers to Mozambique, FY04-07

Other (World Bank -related) Debt re l ie f - HIPC Debt re l i e f - MDRI Subtotal

Total

I I USSm I Comment I

493.0 For calendar year, 2004-7, for ADB and IMF 597.8 For calendar year, 2004-7, for ADB and IMF I, 090.8

3,551.4

Notes: 1. IDA commitments, FY04-07, US$683 m (incl. April-June 2007 estimated). 2. MIGA made guarantees during FY04-07 o f US$3 11.4 m and IBRD made one $30 million guarantee. 3. Repayment of IDA credits, FY04-07, US$38 m. 4. Reduction in IDA debt service payments, 2004-7, US$l 1 1.0 m, plus US$45 m to IMF and ADB. 5. MDRI reduces IDA resources available for commitment by about US30 m p.a. from FY07.

- 94 -

Appendix Sa. Millennium Development Goals for Mozambique with selected targets to achieve between 7990 and 2015 (estimefe closesf to dafe shown, +/- 2 years)

Goal 1: halve the rates for $1 a day poverty and malnutrition 1990 1995 2000 2004 Povertv headwunt ratio at $1 a day (PPP. % of population) 37.6 Povert; headcount ratio at nationaipoverty line &'of popuiation) Share of income or consumption to the poorest qunitile (%) Prevalence of malnutrition (% of children under 5)

69.4 54.0

27 20 24 6.5

Goal 2: enaure that children are ableto complete prlmary schoollng Primary school enrollment (net, %) 43 50 71 Primary completion rate (% of relevant age group) 27 10 29 Secondary school enrollment (gross, %) 7 0 11 Youth literacy rate (% of people ages 15-24) 49

Goal 3: ellmlnate gender dlsparlty In educatlon and empower women Ratio of girls to boys In primary and secondary education (%) 72 75 82 Women employed in the nonagricultural sector (YO of nonagricultural employment) Proportion of seats held by women in national parliament (%)

11 10 25 30 35

Goal 4: reduce under4 mortallty by two-thlrds Under-5 mortality rete (per 1,000) 235 212 170 152 Infant mortality rate (per 1,000 live births) 158 145 122 104 Measles immunization (proportion of onsyear olds immunized, %) 59 71 71 77

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,000.

44 46 Births attended by skilled health staff (% of total)

Goal 6: halt and begln to reverse the spread of HIWAIDS and other major dlraases Prevalence of HIV (% of population ages 15-49) 16.1 Contraceptive prevalence (% of women ages 1549) 6 17

Tuberculosis cases detected under DOTS (%) 54 45 40 Incidence of tuberculosis (per lW,OOO people) 107 460

Goal 7: halve the proportlon of people without suatalnable access to bark needs Access to an improved water source (% of population)

Nationally protected areas (% of total land area) C02 emissions (metric tons per capita) 0.1 0.1 0.1 0.1

30 43 Access to improved sanitation facilities (% of population) 20 32 Forest area (% of total land area) 25.5 24.9 24.6

8.4

GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent) 1.3 1.0 2.2 2.5

Goal 8: develop a global partnenhlp for development 4 8 27 Fixed line and mobile phone subscribers (per 1,000 people)

lntemet users (per 1,000 people) Personal computers (per 1,000 people) Youth unemployment (% of total labor force ages 15-24)

iducation Indicators ( X )

lW 1

2s 1 1998 2wo 2mz 2oM

+Primary net enrollment ratio

-0-Ratio of girls to boys In pnmary a semndary educatlon

leasles lmmunlzatlon (36 of 1-year olds)

I 0 Mozambique 0 Sub-Saharan AMca

4 0 0 I 7

1 3 6

CT lndlcaton (per 1,000 people)

n n I I

Zoo0 2002 zoo4

OFixed + mbiie subsuiben b# lntemet users

Note: Figures In italica are for years other than those specified. .. indicates data are not available.

Development Economics, Development Data Group (DECDG).

311 3/07

- 95 -

Most MDG Target Baseline Intermediate Recent Target feasibility

1990-1992 1998-2000 2004-2005 for 2015

Goal 1: Eradicate extreme poverty and hunger Target 1 : Halve, between 1990 and 201 5, the proportion o f people under the poverty line (Indicator 1) 69 54.4

Likely 34

Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger (under the ultra-poverty line, Indicator 5) 58 45 29

Goal 2: Achieve universal primary education . Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, wil l be able to complete a full course of primary schooling (Net enrollment ratio in primary education, Indicator 6) 43 49 71

Potentially 100.0 Feasible

Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, wil l be able to complete a full course of primary schooling (completion rate, Indicator 7) 27.1 13.4 29 100.0

Goal 3: Promote gender equality and empower women

Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels o f education (Gender

Likely

ratio in primary, Indicator 9a) 71.6 74 82.3 100

Goal 4: Reduce child mortality Unlikely Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate (Indicator 13) 235.0 212.0 152 78.0

Goal 5: Improve maternal health Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio (Maternal mortality ration, Indicator 16) 1000 250 Unlikely

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio (Proportion of birth attended by skilled health personnel, Indicator 17) 44.2 48 11

Goal 6: Combat HIV/AIDS, malaria and other diseases

Target 7: Have halted by 2015 and begun to reverse the spread o f HIVIAIDS (HIV prevalence among pregnant women, Indicator 18) 14 16.2 4 4 Unlikely Target 8: Have halted by 2015 and begun to reverse the incidence o f malaria and other major diseases (Proportion o f population in malaria risk areas using effective malaria prevention (percent o f under five children using bednets, Indicator 22a)

Goal 7: Ensure environmental sustainability Target 9: Integrate principles o f sustainable development into country policies and programs and reverse loss o f environmental resources (Proportion o f forested land area, Indicator 25) 26

Likely 25 e26

Target 10: Halve, by 2015, the proportion of people without sustainable access to safe drinking water (Indicator 30) 58 30

Appendix 8b. Summary o f Mozambique's Progress towards the MDGs as of End-2005

Mozambique i s likely to achieve the Poverty MDG as wel l as the Water MDG targets. A detailed discussion follows:

Mozambique is likely to eradicate extreme poverty and hunger (Goal 1). The poverty headcount ratio declined from 69 perqent o f 54.5 percent between 1996-1997 and 2002-2003. Taking into account demographic growth over the period covered by the two surveys, the number o f people who were lifted out o f poverty is estimated at 3.7 million, Given that only two surveys are available, and assuming that the current trend would continue, Mozambique i s expected to half the population living in absolute poverty.

Good progress has been made towards achieving universal of primary education (Goal 2); nevertheless more progress is required to meet this MDG. Substantial progress has been made in increasing access to primary education, particularly in lower primary schools (EP1, grades 1 through 5). Government has continued to make progress with reforms that will bear results in the near future, however, more reforms will be needed to increase enrollment and completion rates as well as gender disparities and quality o f primary education.

Mozambique remains stable with respect to gender equality and empowering women (Goal 3). Gender indicators at all levels o f education have improved, particularly in EP1 and the gender difference in net enrollment ratio was reduced to only 4 percentage points. Nevertheless, significant gender gaps remain at the second level o f primary education and first level o f secondary education. More progress remains to be made also in women's involvement in the productive sectors and in positions o f authority.

Substantial progress has been made towards reducing child mortality and good progress has been made in increasing immunization rates (Goal 4). Both infant mortality and the under-five mortality rates have declined substantially from 1996 to 2002 and immunization rates have had a steady increase over the past years.

Good progress has been made in improving maternal health (Goal 5). Maternal mortality has decreased and the number o f attended births has increased slightly, however Mozambique continues to have some o f the lowest indicators in the region for these targets.

There has been'little progress in combating HIWAIDS, malaria and other diseases (Goal 6). Adult prevalence rates have increased to 16.2 percent. Despite improvements in setting up the infrastructure needed for outreach and treatment, and in securing financial resources, only limited progress has been made in reducing risky behaviors. There has been some progress in increasing the proportion o f population using effective malaria prevention.

The MDG for urban water is expected to be met, although little progress has been made in ensuring environmental sustainability (Goal 7). The share o f people with access to safe drinking water in urban areas has increased significantly and The MDG for sustainable coverage for urban water supply to reach 70 percent i s expected to be met. In environmental management, however, more remains to be done as government actions are ad hoc and not well coordinated.

- 97 -

Appendix 9. Paris Declaration Indicators and Mozambique Performance

Category/ Indicator Global Targets for 2010 Country Country W B Current Progress Target for Baseline Baseline

2010 2005 2005

1. Partners have operational development strategies - Number o f countries with national development strategies (including PRSC) that have clear strategic priorities linked to a medium-term expenditure framework and reflected in annual budgets

2. Reliable country systems - Number o f partner countries that have procurement and public financial management systems that either (a) adhere to broadly accepted good practices, or (b) have reform programs in place to achieve these.

3. Aidjlows aligned on national priorities- Percent o f aid flows to the government sector that i s reported on partners national budget

4. Strengthen capaciw by coordinated support - Percent o f donor capacity- development support provided through coordinated programs consistent with partners national strategies

At least 75 percent o f partners countries have operational development strategies

a)Public financial management - half o f partner countries move up to at least one measure (Le., 0.5) on the PFWCPIA (Country Policy and Institutional Assessment) scale o f performance

b)Procurernent - one third of partner countries move up at least one measure (i.e. fromD to C, C to B or B to A) on the four-point scale used to assess performance for this indicator

Halve the gap - halve the proportion o f aid flows to government sector not reported on government budget(s) (with at least 85 percent reported on report on budget)

50 % o f technical cooperation flows are implemented through coordinated programs consistent with national development priorities

OWNER B o r A

ALIGNN 4

Not Applicable

92%

50%

I IP C

INT 3.5

Not Applicable

84%

38%

(CAS aligned

with PARPA)

Target met. Donor harmonization has been based on two PRSPs, PARPA I (200 1-2005) and now around PARF'A I1 (2006-2009).

Not Applicable

Not Applicable

100%

9 %

The Integrated Financial Management System (e-SISTAFE) was introduced in 2004 and has contributed to improved reliability o f budget transactions. Main bc t i ons of treasury, budget execution, and accounting have been rolled out at s i x ministries at central and provincial levels by July 2006.

The new Procurement Code was approved by Cabinet in Dec 2005. Although implementation was delayed it is now in progress. The UFSA (unit within MoF) director has been appointed, staff hiring has begun, and training programs have been developed. Standard bidding documents published in Sept 2006.

The percentage of ODA reflected in the 2005 budget i s 84 percent. However, the budget cycle o f donors and the country are s t i l l uncoordinated. Effort i s being made for better alignment in sector budgets and common'funds. A l l Bank projects are on-budget and efforts are being made under SISTAFE for Bank funded projects to be reflected in the Single Treasury Account (CUT). 100 percent o f Bank operations are implemented through government programs and are consistent with national development priorities but only 9 percent o f disbursement were through coordinated programs.

- 98 -

Sa. Use of country public financial management system - Percent o f donors and o f aid flows that use public financial management systems in partner countries (budget, financial reporting systems, auditing systems), which either (a) adhere to broadly accepted good practices, or (b) have a reform program in place to achieve these

Sb. Use of Country Procurement Systems - Percent of donors and o f aid flows that use partner country procurement systems that either (a) adhere to broadly accepted good practices, or (b) have a reform program in place to achieve these

Percent of donors

S+

3.5 to 4.5

Percent o f a S+

3.5 to 4.5

Percent of d A

B

all donors use partner countries PFM systems

90% o f donors use partner countries PFM system flows 213 in reduction in the % o f aid to the public sector not using partner countries' PFM system

1 I3 reduction in the YO o f aid to the public sector not using partners' PFM system

Country Level

Target for 2010

57%

90%

countries' procurement system

90% o f donors use partner countries' procurement

Country Baseline

2005

36%

92%

36%

World Bank

Baseline 2005 Not

Applicable

27%

Not Available

The level of use of government PFM systems for donor h d s i s 36 percent. Improvement i s required on: quality and comprehensiveness o f the budget and planning cycle; implementation o f e-SISTAFE; integrating salary databases and improving human resources management; implementing the new procurement law; and strengthening internal and external audit institutions, whose capacity and coverage i s s t i l l weak.

Most donors are s t i l l using almost exclusively non-national rules for procurement with exception of a small number of common funds. The GoM approved in December 2005 a procurement law that adheres broadly to accepted international good practices. Implementation i s lagging and will required political commitment and strong leadership.

- 99 -

flows 213 reduction in the % of aid to the public sector not using partners countries' procurement system

1 I3 reduction in the % o f aid to the public sector not using partner procurement system

8. Aid is untied - Percent of bilateral aid that i s untied

6. Strengthen capacity by avoiding parallel implementation structures - Number of parallel project implementation units (PIUS).

7. Aid is more predictable - Percent o f aid disbursements released according to agreed schedules in annual or multi- year frameworks

Continued progress over time

Reduce by two-thirds the stock o f parallel project implementation units (PIUS)

Halve the gap -halve the proportion o f aid not disbursed within the fiscal vear for which was scheduled

Not Applicable

13

50%

> 90%

38%

39

70%

90%

23%

12

82%

100%

!n 2005,38 percent of all donor funding ised government procurement system igainst 23 percent of the Bank. Teduction in percentage o f aid to the yblic systems not using partner :ountries procurement systems will require a functioning normative and regulatory body including staff, Equipment and documentation. Donors are committed to greater use o f country systems if procurement reforms are satisfactorily implemented.

The total project implementation units (PJU) are 39 in the country. The World Bank i s supporting about half (19), of which 12 are parallel.

Only 70 percent of total donors' projections for 2005 was actually disbursed. GoM accounts currently '

do not disaggregate actual disbursements by donor (except for direct budget support, project aid, food aid and debt relief). For 2005, common funds were not disaggregated by source of funds, therefore disbursement data by donor were not available. However, al l donors have made progress in meeting this target. World Bank disbursement rates in the past two years were above 80 percent o f projections, well above the 20 10 target.

- 100-

9. Use of common arrangements or procedures - Percent o f aid provided as program-based approaches

66 percent of aid flows are provided in the context of program based approaches

(a) 40 percent of donor missions to the field are joint

10. Encourage shared analysis - Percent o f (a) field missions and/or (b) country analytic work, including diagnostic reviews that are joint

66% 46%

40% 10%

1 1. Results-oriented frameworks - number o f countries with transparent and monitorable performance assessment frameworks to assess progress against (a) national development strategies, and (b) sector programs

12. Mutual accountability - Number o f partner countries that undertake mutual assessment o f progress in implementing agreed commitments on aid effectiveness including those in this Declaration

(b) 66 percent o f the country analytical work is joint

60% 43% I MA

Reduce the gap by one- third - reduce the proportion of countries without transparent and monitorable performance

(AGING FOR RESULl

M U T All partner institutions have mutual assessment

28%

30%

83%

Bank has partnership . strategy

JAL ACCOUNTABILITY

I C /

A group o f 18 donors are providing budget support to Government. In 2005, budget support accounted for 3 1% o f all donor support. Budget support accounts for around 30% o f the World Bank's development assistance. This indicator lacks effective means of measuring in the donor community. World Bank estimates show that only 12 out o f a total 38 missions; or 32 percent, are coordinated. T h i s indicator needs better monitoring but i s likely to be achieved by 20 10. In 2005 six studies were completed by the World Bank and only one, the Doing Business Survey, was not coordinated.

PARPA I1 Strategic Matrix is a results- oriented framework against which national development strategies and sector programs are aligned and measured. The Performance Assessment Framework i s a prioritized list of indicators of GoM performance from the Strategic Matrix that Program Aid Partners (those who provide budget support) track.

This i s based on Paris Declaration targets being applied on annual basis for direct budget support donors only.

- 101 -

ANNEXES

- 102 -

Annex 1. Mozambique - Selected Economic and Financial Indicators

Indicators 2004 2005 2006 2007 2008 2009 2010 201 I

Output, income, and prices

Inflation (period average) 12.6 Exchange rate-avg (Mt'OOO per

US$) 22.6

Real GDP growth rate 7.5

Money and credit (12 month percent change) Broad money (h42) 16.7 Credit to the economy -5.6

Public finances Total revenue Total expenditure and net lending

Current expenditure

Capital expenditure and net

Unallocated revenues Overall deficit before grants (-) Overall deficit after grants (-)

Foreign financing (net) Privatization Domestic financing (net)

of which interest payments

lending

Financing

12.6 24.4 14.2 1 .o

10.2 -0.2

-12.0 -4.3 4.3 2.8 1.9

-0.4

7.7 6.4

23.1

22.1 57.0

14.0 22.6 13.8 0.8

8.8 0.1

-8.5 -2.1 2.1 3.3 0.0

-1.2

7.9 13.2

25.5

25.8 29.2

14.4 27.1 14.2 0.8

12.8 0.0

-12.7 -2.0 2.0 4.2 0.1

-2.3

7.0 5.9

26.9

17.5 42.0

14.9 31.4 15.1 1 .o

16.4 0.0

-16.5 -4.6 4.6 5.2 0.0

-0.6

7.0 7.0 7.0 7.0 5.7 5.4 5.1 5.0

28.5 30.0 30.9 31.6

15.4 15.0 14.5 8.8 28.7 24.5 19.2 7.3

15.4 16.0 16.5 17.2 30.0 29.3 28.6 28.5 14.8 14.7 14.7 14.9 0.7 0.6 0.6 0.6

15.2 14.6 13.9 13.6

-14.7 -13.4 -12.2 -1 1.2 -3.4 -2.7 -2.2 -2.1 3.4 2.7 2.2 2.1 4.3 3.8 3.4 3.2 0.0 0.0 0.0 0.0

-0.9 -1.1 -1.2 -1.1 *

0.0 0.0 0.0 0.0

Source: GoM, Wl3 and IMF estimates and projections.

- 103 -

Annex 2. Key Economic and Program Indicators

Estimate Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011

National accounts (as YO of GDP) 100.0 100.0 23.1 23.0 30.2 32.1 46.7 44.9

Gross domestic product' Agriculture Industry Services

Total Consumption Gross domestic fixed investment

Government investment Private investment

100.0 23.3 29.2 47.5

85.7 22.6

9.4 13.2

100.0 23.1 32.6 44.3

82.4 27.7 14.7 13.1

36.8 46.9

17.6 16.1

7838.6

350.0

7.0

100.0 23.1 33.4 43.5

82.9 27.6 13.9 13.7

34.4 44.9 17.1 16.5

8366.3

370.0

7.0

100.0 22.8 33.3 43.9

82.0 27.4 13.5 13.9

34.3 43.7 18.0 17.5

8946.6

390.0

7.0

100.0 22.8 34.0 43.2

81.7 25.0 12.0 13.0

35.5 42.2

18.3 17.4

9765.7

410.0

7.0

100.0 21.7 32.9 45.3

18.3 28.6 11.5 17.1

33.7 40.6 21.7 23.3

10770.7

450.0

7.0

89.3 79.2 20.4 24.8

8.4 11.7 12.0 13.1

E X P O ~ ~ S (GNFS)~ Imports (GNFS)

Gross domestic savings Gross national savings'

30.9 39.2

14.3 14.2

32.6 38.6 42.3 42.6

10.7 20.8 10.3 39.3

Memorandum items Gross domestic product 5912.4 (US$ million at current prices) GNI per capita (US$, Atlas method) 270.0

Real annual growth rates (%, calculated from 1995 prices) 7.5 Gross domestic product at market prices

6636.3 7295.6

310.0 320.0

7.7 7.9 Real annual per capita growth rates (%, calculated from 1995 prices)

Gross domestic product at market prices 5.4 5.7

Private consumption 7.3 9.4 Total consumption 6.5 8.4

6.0 7.5 6.9

5.1 3.7 2.3

5.1 2.6 1.9

5.1 2.7 2.1

5.1 5.2 3.8 -7.5 3.4 -10.9

Balance of Payments (US% millions) EXPO- (GNFS)~

Merchandise FOB Imports (GNFS)~

Merchandise FOB Resource balance Net current transfers Current account balance before grants Official Capital Grants Current account balance after grants

1827.8 1503.9 23 19.9 2034.7 -492.1

0.0 -832.1 527.0

-305.1

2163.7 1745.3 2805.4 2466.6 -64 1.7

0.0 -1058.5

467.8 -590.7

2818.5 2288.0 3 109.3 2756.5 -290.8

0.0 -1 190.9 2462.6 1271.7

206.7

108.7 -1473.6

-1 13.5

2885.4 2347.0 3679.6 3183.3 -794.2

0.0 -1637.7

947.3 -690.4

322.9 385.9

9.2 -27.5

2879.7 2331.1 3759.5 3272.2 -879.9

0.0 -1665.4

963.4 -702.1

363.1 350.3 31.7

-43.0

3066.1 2506.5 3910.4 3385.0 -844.2

0.0 -1635.3

974.1 -661.2

354.4 320.8

92.9 -107.0

3466.9 3628.3 2895.1 3019.8 4120.9 4370.4 3589.4 3806.5 -654.0 -742.1

0.0 0.0 -1498.5 -1566.2

975.6 1214.1 -522.9 -352.1

289.0 307.8 196.1 119.5 94.2 71.2

-56.4 -146.4

Net private foreign direct investment 244.7 150.1 Long-term loans (net) 172.4 214.6 Other capital (net, inci. emrs & ommissions) 100.0 170.8 Change in reservesd -212.0 55.2

Memorandum items

Real annual growth rates ( YR95 prices) Resource balance (% o f GDP) -8.3 -9.7 -4.0

Merchandise exports (FOB) 1.7 -12.0 -25.1. Merchandise imports (CIF) 3.3 12.5 2.3

-10.1 -10.5 -9.4 -6.7 -6.9

8.6 11.8

32.7 5.3

36.7 14.3 7.1 5.6

27.1 3.7

- 104-

Annex 2: Key Economic and Program Indicators

(Continued)

Estimate ' Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011

Public finance (as % of GDP at market prices)e Current revenues incl. current grants Current expenditures Current account surplus (+) or deficit (-) Capital expenditure Capital grants Net Foreign financing Overall Balance after grants

Monetary indicators MUGDP Growth of M 2 (%)

Price indices( YR95 =loo) Merchandise export price index Merchandise import price index Merchandise terms o f trade index Real exchange rate (VS%/LCU)'

Real interest rates Consumer price index (% change) GDP deflator (% change)

15.5 17.3 14.2 13.8 1.3 3.5

10.2 8.8 4.6 3.2

2.8 3.3 -4.3 -2.1

25.6 28.4 5.9 27.1

100.2 132.2 134.1 144.5 74.7 91.5 53.4 48.9

12.6 6.4 9.0 6.4

19.5 14.2 5.3,

12.8 5.5

4.2 -2.0

28.9 23.4

231.3 157.8 146.6

13.2 12.5

18.4 15.1 3.3

16.4 8.4

5.2 -4.6

29.9 17.5

218.5 163.0 134.1

5.9 5.9

18.8 19.3 14.8 14.7 4.0 4.6

15.2 14.6 7.9 7.3

4.3 3.8 -3.4 -2.7

30.7 31.4 16.0 15.4

170.8 38.4 161.6 58.8 105.7 87.1

5.7 5.4 5.7 5.4

19.7 14.7 5.0

13.9 6.7

3.4 -2.2

31.9 14.2

117.0 157.2 74.4

5.1 5.1

20.3 14.9 5.4

13.6 6.1

3.2 -2.1

30.5 7.6

106.7 157.8 67.6

5.0 5.1

a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US%/LCU denotes appreciation.

- 105 -

Annex 3. Key Exposure Indicators

Estimate Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011

Total debt outstanding and 4551 4691 disbursed (TDO) (US$m)a

Net disbursements (US$m)'

Total debt service (TDS) (US%m)'

Debt and debt service indicators (%I

TDOKGS~ TDO/GDP TDSKGS

IBRD exposure indicators (%) IBRD DSIpublic DS Preferred creditor DS/public DS (%)' IBRD DSKGS IBRD TDO (Us$m)d IDA TDO (US$m)d

175

43 8

242.9 77.0 23.3

0.0 80.8

0.0 0

222

397

12.3 70.7 18.0

0.0 82.1

0.0 0

1475 1575

- 1469

2269

110.3

3160 3548

388

53 1

20.9 43.3 45.3 79.2 18.1

0.0 0.0 99.2 66.7

0.0 0.0 0 0

667 667

3898 4219

350 321

616 655

132.9 135.0 46.6 47.2 21.0 21.0

0.0 0.0 59.6 57.3

0.0 0.0 0 0

667 665

4415

-442

692

125.0 45.2 19.6

0.0 53.9

0.0 0

660

4534

-534

728

122.6 42.1 19.7

0.0 56.3

0.0 0

653

IFC (US$m) Loans 1.2 Equity and quasi-equity /c 18.5

MIGA MIGA guarantees (US$m) 31 1.4 300.2 264.1 277.5

a. Includes public and publicly guaranteed debt, private nonguaranteed, use o f IMF credits and net short-

b. "XGS" denotes exports o f goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the

Bank for International Settlements. d. Includes present value o f guarantees. e. Includes equity and quasi-equity types o f both loan and equity instruments.

term capital.

- 106-

Annex 5. Summary of Non-Lending Services-Mozambique Product Comdetion F Y Cost (US$OOOj Audience' Objective*

Completions Education PSlA Impact of Extension Services in Rural Contract Farming Private Sector Value Analysis Chain CEM on Sustainable Growth PER TA Achieving the Health MDGs Moatize Dialogue Decentralization and Local Service Del. Horticulture Development

Undetway Poverty and Gender Analysis Procurement Reform TA Education Fee Reform Impact Analysis PSlA Labor Law Reform Country Water Resource Assistance Country Environmental and Social Analysis Increased Energy Access in Rural Areas CAS

Planned Country Economic Memorandum Modern Biofuels Assessment

2005 2005 2005 2005 2006 2006 2006 2006 2006 2006

2007 2007 2007 2007 2007 2007 2007 2007

2008 2008

85.0 85.0 85.0 100.0 200.0

45 50

20.0 50.0 85.0

150.0 100.0

70 15 30 30 50 100

50

Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ.

Gov, don.,WB, Gov, don.,WB, publ. Gov.,don.,WB Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ. Gov, don.,WB, publ.

Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl.

Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl. Know., publ., probl.

* Gov, don.,WB, publ. Know., publ., probl.

a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving.

- 108 -

Annex 6. IFC and MIGA Program Summary (as o f March 2007)

Mozambique - IFC and MIGA Program, FY 2004-2007 2004 2005 2006 2007

. IFC approvals (uS$m) 20.89

Sector (YO) Food & Beverages 11 Oil, Gas and Mining 89 Total 100 0 0 0

Investment instrument(%) Loans Equity 89 Quasi-Equity Other 11 Total 11 0 0 0

MIGA guarantees (uS$m) 311.4 300.2 264.5 237.5

- 109-

Annex 7. Statement of IFC's Held and Disbursed Portfolio

Mozambique Statement o f IFC's

Held and Disbursed Portfolio As of 07/3 1/2006

(In US Dollars Millions)

Held Disbursed

FY Approval Company Loan EquiLQuasi Partic Loan Equity Quasi Partic 2004 ENH 0 18.5 0 0 0 13.37 0 0

GTFP BDC 0.1 1 0 0 0 0.11 0 0 0 1997 MOZAL 29.7 0 58.5 0 29.7 0 58.5 0 2001 MOZAL 10.12 0 0 0 10.12 0 0 0 2000 SEF Ausmoz 0.72 0 0 0 0.72 0 0 0 1997 SEFCPZ 1 0 0 0 1 0 0 0

2001 SEF Grand Prix 0.33 0 0 0 0.33 0 0 0 2004 SEF Merec 1.02 0 0 0 1.02 0 0 0

2000 SEF Cab0 Caju 0.58 0 0 0 0.51 0 0 0

Total Portfolio: 43.58 18.5 58.5 0 43.51 13.37 58.5 0

%- Approvals Pending Commitment Loan Equity Quasi Partic

- 110-

Annex 8. Mozambique at a Glance

Mozambique a t a glance 411 0107

Key Development Indicators

(2006)

Population, mid-year (millions) Surface area (thousand sq. km) Population growth (%) Urban population (% of total population)

GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNI per capita (PPP, international 0)

GDP growth (%) GDP per capita growth (%)

(most recent estimate, 200&2006)

Poverty headcount ratio at $1 a day (PPP. %) Poverty headcount ratio at $2 a day (PPP, %) Llfe expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5)

Adult literacy, male (% of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primary enrollment, male (% of age group) Gross primary enrollment, female (% of age group)

Access to an improved water soum (% of population) Access to improved sanitation facilities (% of population)

Mozambique

20.1 802 1.8 35

6.8 340

1,270

8.5 6.6

36 78 42

100 24

114 96

43 32

Sub Saharan

Africa

74 1 24,285

2.1 35

552 745

1,981

5.3 3.1

41 72 47

100 29

99 87

56 37

LOW income

2,353 29,265

1.8 30

1,364 580

2,486

7.5 5.6

58 60 39

73 50

110 99

75 38

Net Aid Flows

(US$ millions) Net ODA and ofMal aid Top 3 donon (in 2005):

Aid (% of GNI) Aid per capita (US$)

Long-Term Economic Trends

Consumer prices (annual % change) GDP implicit deflator (annual Sb change)

Exchange rate (annual average, local per US$) Terms of trade index (2000 = 100)

Population, mid-year (millions) GDP (US$ millions)

Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation

Exports of goods and sewices Imports of goods and services Gross savings

Manufacturing

1980

167

4.7 14

4.2 4.1

32.4 78

12.0 3,526

37.1 34.4

28.5

96.7 12.2 7.6

10.9 27.4 -6.9

1990 2000 2006'

998 876 1,286

43.0 24.7 20.1 74 49 65

43.7 12.7 13.2 34.1 10.3 13.2

947.5 15,447.1 25,400.0 101 100 150

13.4 17.9 2,463 3,778

(% of GDPj 37.1 26.1 18.4 26.6 10.2 13.3 44.5 47.3

92.3 78.3 13.5 10.1 22.1 33.5

20.1 7,608

21.7 29.0 13.4 49.3

69.8 10.0 24.9

6.2 19.7 37.4 36.1 41.6 42.0 2.1 5.5 11.3

Age dlrtrlbutlon, 2001

Male Female

0 10 20 I 2o lo w c a n t

Jnder-1 mortality rate (per 1,000)

250 1 n n 150

100

50

0

OMozambique BSub-Saharan Atrica

I 3rOwth of GDP and GDP per caplta (%)

w 85 00

--O-GDP - GDP per capita - - - - - . - - - - - - - - - - - - -

(average annual growth %) 1.1 2.9 2.0

-0.1 5.9 8.2

6.6 4.9 7.9 -4.5 12.8 9.6

10.2 12.4 6.7 3.6 7.7

-1.7 3.7 3.0 -1.1 3.1 8.1 4.1 11.4 9.8

-6.8 11.0 16.5 -3.8 6.3 7.3

Note: Figures in Raliw are for years other than those specified. 2006 data are preliminary. Group data are for 2005. .. indicates data are not available. a. Aid data are for 2005.

Development Economics, Development Data Group (DECDG).

- 111 -

Mozambique

Balance of Payments a n d Trade

(US$ mir,ionsj Total merchandise exports (fob) Total merchandise imports (cif) Net trade in goods and serviws

Workers' remittances and compensation of employees (receipts)

as a %of GDP Current account balance

Reserves, including gold

Central Government Finance I/

(% of GDPj Revenue

Expense

Cash surpius/defick

Highest marginal tax rate (%)

Tax revenue

Individual Corporate

External Debt and Resource Flows

(US$ ml///onsj Total debt outstanding and disbursed Total debt servica HlPC and MDRl debt relief (expected; flow)

Total debt (% of GDP) Total debt service (% of exports) 21

Foreign dired Investment (net inflows) Potlfollo equky (net inflows)

2000

384 1,163 -815

37

-1,042 -27.6

745

2000

12.9 11.6 13.1

-5.8

20 35

2000

7,257

4,300

192.1 12.5

139 0

m

2006

2,288 2,756 -291

58

-1,191 -16.3

1,216

2006

14.4 12.7 14.2

-2.0

32 32

2006

4,691 93

70.7 4.2

lo8 0

Composition of total extemsl debt, 2006 I IBRD. 0 I Short-hrm. 645,

IOA 1,575

Pr ivate Sector Development 2000 2008

Tlrne required to start a buslness (days) - 113 - 85.7 Cost to start a business (% of GNI per capfia)

Time required to register properly (days) - 42

Ranked as a major constraint to business (%of managers surveyed who agreed)

Cost of financing Electricity

Stock market capltalization (% of GDP) Bank branches (per 100,ooO people)

,. 83.8 .. 84.0

Oovernance Indlcaton, 2000 and 2006

Voice and accountability

Political itability

Regulatory quality

Rub of law

Contml of cormpbon

0 25 50 15 100

2005 Countrf8 pefwnble rank (4100) 0 2000 h@hhH vdum rmpy b d l u mung#

S o u m Kautmann-Knry-Mallruzzl, Worid Bank

Technology and Infrastructure

Paved roads (% of total) Fixed line and mobile phone

High technology exports subscribers (per 1,OOO people)

(% of manufactured exports)

Environment

Agrlcultural land (% of land area) Forest area (% of land area, 2000 and 2005) Nationally protected areas (% of land area)

Freshwater resources per capna (cu. meters) Freshwater wlhdrawel (% of internal resources)

C02 emlssions per capita (mt)

GDP per unit of enemy use (2000 PPP $ per kg of 011 equivalent)

Energy use per capita (kg of oil equivalent)

2000

18.7

8

9.2

61 24.9

0.07

2.2

401

2004

27 . 9.4

82 24.6 8.4

5,164 0.6

0.08

2.5

430

(US$ mi//lonsj

IBRD Total debt outstanding and disbursed Disbursements Prlnclpal repayments interest payments

IDA Total deM outstanding and disbursed Disbursements Total debt service

IFC (fiscal year) Total disbursed and outstanding pomollo

Disbursements for IFC own account Pcdfolio sales, prepayments and

repayments for IFC own account

ofwhlch IFC own account

MlGA Gross exmure

- - - -

780 97 6

99 99 49

3

114

0 0 0 1

1,575 227

17

log log

0

7

299 NW guarantees 74 0

Note: Figures In Italics are for years other than those specified. 2008 data are preliminary. 3/14/07 .. indicates data are not available. -indicates observation Is not applicable. 11 Revenues refer to current revenues excluding grants; expense refers to current expendkures; and, deflck refers to deficil after all grants. Z! Refere to Public and Publicly Guaranteed Debt (PPG). Development Economics, Development Data Group (DECDG).

- 112-

Montes NamuleMontes Namule(2,419 m)(2,419 m)

Mo

za

mb

iq

ue

Pl a

i n

M o z a m b i q u e

P l a t e a u

MAPUTOMAPUTO

G A Z AG A Z A

S O F A L AS O F A L A

T E T ET E T E

Z A M BZ A M B É Z I AZ I A

N A M P U L AN A M P U L A

C A B OC A B OD E L G A D OD E L G A D O

N I A S S AN I A S S A

Limpopo

INHAMBANEINHAMBANE

MANICAMANICA

GuijaGuija

MassingirMassingir

ChicualacualaChicualacuala

MapaiMapai

MoambaMoamba

EspungaberaEspungabera

ChiguboChigubo

MachaílaMachaíla

PandaPanda

GorogosaGorogosa

SenaSena

ChangaraChangara

CatandicaCatandica

InhamingaInhaminga

MontepuezMontepuez

MuedaMueda

MarrupaMarrupa

CaturCatur

MetangulaMetangula

Alto MolócueAlto Molócue

RibáuRibáuè

GuruGurué

CuambaCuamba

NamacurraNamacurra

MocubaMocuba

MoatizeMoatize

SongoSongoZumboZumbo

FíngoFíngoè

FurancungoFurancungo

MualadziMualadzi

MilangeMilange

LichingaLichinga

ChimoioChimoio

TeteTete

NampulaNampula

ChibitoChibito

MatelaMatela

Monte BingaMonte Binga(2,438 m) (2,438 m)

To To LusakaLusaka

To To PetaukePetauke

To To LilongweLilongwe

To To MangocheMangoche

To To MtwaraMtwara

To To ZombaZomba

To To BlantyreBlantyre

To To ChipataChipata

To To MutokoMutoko

To To HarareHarare

To To MasvingoMasvingo

To To MasvingoMasvingo

To To RutengaRutenga

To To MessinaMessina

To To NelspruitNelspruit

To To MbabaneMbabane

S O U T HS O U T HA F R I C AA F R I C A

SWAZILANDSWAZILAND

Z I M B A B W EZ I M B A B W E

Z A M B I AZ A M B I A

T A N Z A N I AT A N Z A N I A

MALAWIMALAWI

LakeLakeMalawiMalawi

Zitundo

Manhica

Guija

Massingir

Chicualacuala

Mapai

Moamba

Nova Mambone

Espungabera

Inhassôro

Vilanculos

Chigubo

Machaíla

Inharrime

Panda

Chibito

Gorogosa

Sena

Changara

Catandica

Inhaminga

Pebane

Angoche

Nacala

Montepuez

MuedaMocimboada Praia

Marrupa

Catur

Metangula

Alto Molócue

Ribáuè

Gurué

Cuamba

Namacurra

Mocuba

Moatize

SongoZumbo

Fíngoè

Furancungo

Mualadzi

Milange

Moçambique

Xai-Xai

Matela

Beira

Chimoio

Quelimane

Tete

Nampula

Inhambane

Pemba

Lichinga

MAPUTO

S O U T HA F R I C A

SWAZILAND

Z I M B A B W E

Z A M B I A

T A N Z A N I A

MALAWI

MAPUTO

G A Z A

S O F A L A

T E T E

Z A M B É Z I A

N A M P U L A

C A B OD E L G A D O

N I A S S A

INHAMBANE

MANICAINDIAN OCEAN

Lago deCahora Bassa

LakeMalawi

Lugenda

Messalo

Lúrio

Ligonha

Licungo

Zambeze

Buzi

Save

Changane

Zambeze

Limpopo

To Lusaka

To Petauke

To Lilongwe

To Mangoche

To Mtwara

To Zomba

To Blantyre

To Chipata

To Mutoko

To Harare

To Masvingo

To Masvingo

To Rutenga

To Messina

To Nelspruit

To Mbabane

Mo

za

mb

iq

ue

Pl a

i n

M o z a m b i q u e

P l a t e a u

Monte Binga(2,436 m)

Montes Namule(2,419 m)

30° E 35° E

30° E 35° E 40° E

25° S

20° S

15° S

10° S

25S

20° S

15° S

10° S

MOZAMBIQUE

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33451R1

JANUARY 2007

MOZAMBIQUESELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.

report no. 39395-mzdocuments.worldbank.org/curated/en/516101468285905808/pdf/393… · document of...

Documents