Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT ON THREE CREDITS

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR 2748 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON THREE CREDITS IN THE AMOUNT OF SDR MILLION (US$305.0 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR THE POVERTY REDUCTION SUPPORT CREDITS June 12, 2013 Poverty Reduction and Economic Management (AFTP1) Southern Africa Country Department 2 (AFCS2) Africa Region

2 CURRENCY EQUIVALENTS (Exchange rate effective June 12, 2013) Currency Unit = Metical (MZM) US$1 = MZM MOZAMBIQUE - GOVERNMENT FISCAL YEAR January 1 December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BdPES CEM CPAR CPS ESF EU FSAP FY GBS GDP GoM HIPC ICA ICR IDA IFC IFRS IMF INE INSS JSAN MDGs MoU MTEF PAF PAP PARP Balanço do Plano Económico e Social (Review of the Economic and Social Plan) Country Economic Memorandum Country Procurement Assessment Review Country Partnership Strategy IMF Exogenous Shock Facility European Union Financial Sector Assessment Program Fiscal Year General budget support Gross Domestic Product Government of Mozambique Heavily Indebted Poor Countries Investment Climate Assessment Implementation Completion Report International Development Association International Finance Corporation International Financial Reporting Standards International Monetary Fund Instituto Nacional de Estatística (National Statistics Institute) National Institute for Social Security (National Pension System) Joint Staff Advisory Note Millennium Development Goals Memorandum of Understanding Medium-Term Expenditure Framework Performance Assessment Framework Program Aid Partners Plano de Acção para a Redução da Pobreza (Poverty

3 PARPA PEFA PEFA PR PEFA PI PER PPP PRSC PRSP PSI SISTAFE UFSA UGE UGEA Reduction Action) Programa de Acção para a Redução da Pobreza Absoluta (Action Plan for the Reduction of Absolute Poverty) Public Expenditure and Financial Accountability PEFA Performance Report PEFA Performance Indicator Public Expenditure Review Public Private Partnerships Poverty Reduction Support Credit Poverty Reduction Strategy Plan IMF Policy Support Instrument Integrated Financial Management System Unidade Funcional de Supervisão das Aquisições (Central Procurement Supervision Unit) Unidade Gestora Executora (Unit for Budget Execution) Unidade Gestora Executora das Aquisicões (Unit for Execution and Management of Acquisition) Vice President Country Director Sector Director Sector Manager Task Team Leader Makhtar Diop Laurence Clarke Marcelo Giugale John Panzer Julio Revilla

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5 REPUBLIC OF MOZAMBIQUE IMPLEMENTATION COMPLETION AND RESULTS REPORT CONTENTS Data Sheet 5 A. Basic Information 5 B. Key Dates 5 C. Ratings Summary 5 D. Sector and Theme Codes 6 E. Bank Staff 7 F. Results Framework Analysis 7 1. Program Context, Development Objectives and Design: Context at Appraisal Original Program Development Objectives (PDO) and Key Indicators Revised PDO Original Policy Areas Supported by the Program Revised Policy Areas Other significant changes Key Factors Affecting Implementation and Outcomes Program Performance: Major Factors Affecting Implementation Monitoring and Evaluation (M&E) Design, Implementation and Utilization Expected Next Phase/Follow-up Operation Assessment of Outcomes Relevance of Objectives, Design and Implementation Achievement of PDO Justification of Overall Outcome Rating Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Bank Performance Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners 42 Annex 1: Bank Lending and Implementation Support/Supervision Processes 44 3

6 (a) Task Team members 44 (b) Staff Time and Cost 45 Annex 2. Beneficiary Survey Results 47 Annex 3. Stakeholder Workshop Report and Results 47 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR 47 Annex 5. Comments of Co financiers and Other Partners/Stakeholders 47 Annex 6: Summary of PEFA PFM Performance Ratings Annex 7. List of Supporting Documents 49 MAP IBRD 33451R1 50 4

7 A. Basic Information Program ID: Data Sheet Country: Mozambique Program Name: PRSC-6: P PRSC-7: P PRSC-8: P L/C/TF Number(s): PRSC-6 PRSC-7 PRSC-8 PRSC-6: IDA PRSC-7: IDA PRSC-8: IDA ICR Date: 06/12/2013 ICR Type: Core ICR Lending Instrument: DPL Borrower: Original Total Commitment: PRSC-6: XDR69.5M PRSC-7: XDR54.1M PRSC-8: XDR71.7M Implementing Agency: Ministry of Finance Disbursed Amount: Government of Mozambique PRSC-6: XDR69.5M PRSC-7: XDR54.1M PRSC-8: XDR71.7M Co Financiers and Other External Partners: African Development Bank, Austria, Belgium, Canada, Denmark, European Union, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and UK B. Key Dates Process Date Process Original Date Concept Review: PRSC-6 PRSC-7 PRSC-8 Appraisal: PRSC-6 PRSC-7 PRSC-8 Approval: PRSC-6 PRSC-7 PRSC-8 08/04/ /22/ /10/ /10/ /12/ /26/ /12/ /16/ /15/2012 Effectiveness: PRSC-6 PRSC-7 PRSC-8 Restructuring(s): Mid-term Review: Closing: PRSC-6 PRSC-7 PRSC-8 10/31/ /31/ /31/2012 Revised / Actual Date(s) 12/09/ /23/ /07/ /31/ /31/ /31/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Satisfactory Moderate 5

8 Bank Performance: Borrower Performance: Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Not applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not applicable Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Rating: Potential Problem Program at any time (Yes/No): No Quality at Entry (QEA): None Problem Program at any time (Yes/No): DO rating before Closing/Inactive status: No Not available Quality of Supervision (QSA): None D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) PRSC 6 1 General public administration sector 20 Central government administration 50 Public administration finance 40 General industry and trade sector General finance sector General agriculture, fishing and forestry sector 15 Original Actual Theme Code (as % of total Bank financing) PRSC 6 Public expenditure, financial management and procurement Other private sector development Rural policies and institutions Export development and competitiveness Macroeconomic management Sector Code (as % of total Bank financing) PRSC 7 (1) General public administration sector 40 Central government administration 50 Public administration finance 15 General industry and trade sector General finance sector 15 1 Sector codes Originals from PRSC-6, PRSC-7 and PRSC-8 Program Documents. 6

9 General agriculture, fishing and forestry sector Original Actual Theme Code (as % of total Bank financing) PRSC 7 Public expenditure, financial management and procurement International financial standards and systems Land administration and management Export development and competitiveness Sector Code (as % of total Bank financing) PRSC 8 (1) General public administration sector 40 Central government administration 50 Public administration finance 15 General industry and trade sector General finance sector 15 General agriculture, fishing and forestry sector 15 Oil and gas 8 Coal mining 8 Original Actual Theme Code (as % of total Bank financing) PRSC 8 Public expenditure, financial management and procurement Regulation and competition policy e-government 8 8 Export development and competitiveness 8 8 E. Bank Staff Positions At ICR At Approval Vice President: PRSC 6, 7 & 8: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Sector Manager: Task Team Leader: ICR Primary Author: Laurence Clarke John Panzer Julio Revilla Marcelo Andrade PRSC 6: Peter Nicholas PRSC 7: Olivier Godron PRSC 8: Laurence Clarke PRSC 6,7 & 8: John Panzer PRSC 6 Antonio Nucifora PRSC 7: Ricardo Gazel PRSC 8: Julio Revilla F. Results Framework Analysis Program Development Objectives (from Program Document) 7

10 This PRSC series of three annual single-tranche operations, delivered over FY10-12, was designed to assist the Government of Mozambique (GoM) to implement key policy actions outlined in the Second Action Plan for the Reduction of Absolute Poverty (known as PARPA II by its Portuguese acronym) and in the Performance Assessment Framework agreed by the Government and the 19 external partners that provide general budget support (GBS) to GoM. Within this context, the PRSCs focused on helping the GoM in: (a) Macroeconomic management: to consolidate and deepen institutional reforms to improve the use of public resources through better budget formulation, stronger public financial management systems, stronger internal and external oversight, and civil service wage and pension reform; and (b) Economic development: to continue to support broad-based growth by reducing the excessive regulation constraining business activities, improving the information basis for access to credit, simplifying the regulatory environment for business development and promoting more efficient land use and better access to land. Additional areas address reforms required for membership in the EITI, and strengthening the legal and institutional framework for PPPs and concessions. In line with the government s PARPA-II, and as reflected in the FY08-11 Country Partnership Strategy (CPS), the program supported by this PRSC series recognizes the importance of strengthening economic governance systems and supporting private sector development in order to achieve broad based growth for poverty reduction. Specifically, this PRSC series supported achievement of the following CPS outcomes: (#1) improved budget planning at central, district and municipal level; (#2) improved government fiduciary systems; (#10) simplify procedures to start a business; (#11) increased access to finance and support for SMEs. Related operations of the World Bank Group were: Public Sector Reform Project (P072080); Financial Sector Technical Assistance Project (P086169); and the Competitiveness and Private Sector Development Project (P106355). Revised Program Development Objectives (if any, as approved by original approving authority) Program Development Objectives were not revised. (a) PDO Indicator(s) 8

11 MZ-PRSC Indicator Baseline Value Original Target Values (from approval documents) 2 Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1: Average difference over the past 3 years between primary expenditure outturn compared to originally budgeted primary expenditures Value (quantitative or 4.5% 3.0% 0.9% Qualitative) Date achieved Comments (incl. % achievement) Indicator 2: Met with performance exceeding the target for The 2010 PEFA PR confirms that, in aggregate, primary expenditure outturns have broadly matched originally budgeted primary expenditures. PEFA PI-1 score was upgraded from B to A. The annual deviations reported by the 2010 PEFA are: 2007: 0.39%; 2008 : 1.50%; 2009 : 0.35% Government preliminary estimates 3 indicate that the above deviation was 0.9 percent and 3.9 percent in 2010 and 2011, respectively. Thus, the average difference over the period was 0.9 percent. Percentage of public sector contracts reported to UFSA subject to public tender Value (quantitative or 85% 95% 83% Qualitative) Date achieved Comments (incl. % achievement) Indicator 3: Not met. Data on methods of public procurement applied for acquisitions of goods and services shows that since 2007, the percentage of contracts subject to public tender has evolved as follows 4 : Target (%) Actual (%) Number of individual and collective taxpayers Value (quantitative or 550 thousand 1,400 thousand 1,550 thousand Qualitative) Date achieved Comments (incl. % achievement) Met with performance exceeding the target for The Tax Authority reported that, by end-2009, 960 thousand individual and collective taxpayers were registered. Since then, thousand and thousand were added in 2010 and 2011, respectively. 5 Domestic revenue as a percentage of GDP, increased from 16.4 % in 2007 to 22.2% in From PRSCs Program Documents, Annex with Policy Matrix and Results Framework for the PRSC Series. 3 Aide Memoire G-19, Annual Review 2011 (Annex VI) and 2012 (Annex IV). 4 Data from PRSC 8 Program Document and Aide Memoires mentioned in footnote 3. 5 Aide Memoires G-19, Annual Review 2010 (Annex 5), 2011 (Annex VI) and 2012 (Annex IV). 9

12 This indicator was included as Key Outcome Indicator at the PRSC-7 stage. 6 Indicator 4: Value (quantitative or Number of procedures to start a business 13 procedures 9 procedures 9 Qualitative) Date achieved Comments (incl. % achievement) Indicator 5: Met. The World Bank 2013 Doing Business Report indicates that the number of procedures to start a business has been reduced to 10 and 9 in 2010 and 2011, respectively. This indicator was included as Key Outcome Indicator at the PRSC-7 stage. 6 Number of working days to start a business Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) Indicator 6: Met. The World Bank 2013 Doing Business Report indicates that the number of working days to start a business has been reduced to 26 and 23 in 2010 and 2011, respectively. This indicator was included as Key Outcome Indicator at the PRSC-7 stage. 6 Percentage of due justification reported to UFSA when using other procurement selection methods instead of public tender Value (quantitative or Qualitative) Justification weak or missing 100% 100% Date achieved Comments (incl. % achievement) Indicator 7: Met. UFSA (Central Procurement Board) available information indicates that the percentage of due justification reported to the Board, when public procurement selection methods other than public tender were used, reached 90 percent in 2008 and has since increased to 100 percent in 2009 and 2010, respectively (3). Share of central and provincial level bodies with internal control units Value (quantitative or 25% 100% 100% Qualitative) Date achieved Comments (incl. % achievement) Met, one year later than expected. According to the Internal Audit Institution (Inspeção Geral de Finanças), the number of internal audit units at central and provincial levels was increased to 82 (34 at central level and 48 at provincial level) in 2011, with coverage evolving as follows (3) : Target (%) n.a. Actual (%) In 2009, database to monitor implementation of audit recommendations was launched and completed in Risk-based audit techniques started to be adopted recently. This indicator was included as Key Outcome Indicator at the PRSC-7 stage. 6 6 This indicator was included as Key Outcome Indicator at the PRSC-7 stage when two indicators Credit to the economy as % of GDP and Gross domestic investment excluding GoM as percentage of GDP were dropped as key Outcome Indicators. 10

13 Indicator 8: Coverage of audit verification activities of the State Budget by the Court of Accounts (Tribunal Administrativo - TA) according to INTOSAI technical standards Value (quantitative or 26% 37% 37% Qualitative) Date achieved Comments (incl. % achievement) Indicator 9: Value (quantitative or Qualitative) Met. According to the Court of Accounts (TA), the coverage of audit verification activities of the State Budget evolved as follows (3) : Target (%) n.a. Actual (%) Verification audits of public institutions, at central and local level, increased from 361 in 2007 to 600 in Approval of medium term pay policy (MTPP) Inadequate wage policy Cabinet approval of MTPP MTPP approved by Cabinet Date achieved Comments (incl. % achievement) Indicator 10: Value (quantitative or Qualitative) Met. Cabinet approved the new medium term salary policy in September MTPP implementation started immediately afterwards. Successful pilot of e-folha (electronic salary payment system) completed in 2010 and roll-out launched in Approval of the pension reform Inadequate pension system Cabinet approval of pension reform Pension reform still being prepared Date achieved Comments (incl. % achievement) Not met. Pension reforms preparatory activities still being carried out in Operational assessment of the civil service (including military and police) completed in June Next steps involve preparation of actuarial study and social impact studies for different reform proposals. 7 PRSC-6 Program Document. 11

14 1. Program Context, Development Objectives and Design: 1.1 Context at Appraisal 1. This Implementation Completion and Results (ICR) Report covers the third Poverty Reduction Support Credit series in Mozambique, consisting of three annual single-tranche operations to be delivered over FY This PRSC series, included PRSC 6-7-8, built upon the generally satisfactory progress achieved under the first and second PRSC series. 8 The latter, supported implementation of the country s First and Second Action Plan for the Reduction of Absolute Poverty (known as PARPA I and PARPA II, their Portuguese acronyms) approved by Cabinet in 2001 and 2006, respectively. 2. The PRSC follow two previous series, PRSC 1-2 and PRSC which were discussed and rated by two previous ICRs. PRSC 1-2 supported the implementation of the first PRSP (PARPA I) adopted in 2001 in the areas of public financial management and public sector reform, and economic development. The ICR for PRSC 1-2 was rated satisfactory on Outcome, Bank performance and Borrower performance. There was concurrence by IEG. PRSC supported the second PRSP (PARPA II) in areas of macroeconomic management, public sector reform, and economic development (removing constraints to growth and agricultural growth). The ICR for PRSC rated the overall outcome as satisfactory and both the Bank and the Borrower performance also as satisfactory. 3. Mozambique had consistently been a strong performer, since the end of a protracted civil war in In the fifteen years through 2008, the growth record had been remarkable, averaging about eight percent annually, including in the three years prior to launching the operations under review. This was due to solid growth across most sectors of the economy such as agriculture, mining, electricity, water, tourism and financial services. This performance was made possible by good macroeconomic management, the economy responding positively to wide-ranging structural reforms, few significant foreign financed investment projects (mega-projects), strong donor support and sizeable debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) arrangements. 4. At PRSC-6 appraisal, while the medium-term macroeconomic outlook remained positive, it was substantially clouded as a result of the global financial crisis. In this regard, the government and the International Monetary Fund (IMF) projections of real GDP growth were revised downwards to 4.3 percent earlier in 2009 with a slight acceleration to 5 and 6 percent planned for 2010 and 2011, respectively. To address an unexpected fiscal gap of about 2.5 percent of GDP the government rationalized recurrent and domestically financed investment expenditures to generate savings of about 1.2 percent of GDP and sought additional budget support. As agreed with the IMF, in the absence of higher budget support, the government would borrow domestically to close the remaining gap. To complicate the fiscal situation further, in August 2009, the government introduced a de facto subsidy to fuel prices at the pump by preventing the pass through of international fuel prices to the domestic market and promising the fuel retailers to reimburse them for the related losses in December To mitigate the adverse balance of payments (BOP) impact of the crisis and maintain a 8 Project Performance Assessment Report, Mozambique, Economic Management and Private Sector Operation, PRSC-1, PRSC-2, Country Evaluation and Regional Relations, Independent Evaluation Group, The World Bank, June 17, 2009; Implementation Completion and Results Report, Mozambique, Poverty Reduction Support Credits 3-4-5, AFTP1 and AFSC2, Africa Region, The World Bank, May 28,

15 high level of reserves, the government requested assistance under the IMF s Exogenous Shock Facility. The updated Debt Sustainability Analysis (DSA), in light of the financial crisis, confirmed that the country would continue to face a low risk of debt distress. 5. During the post-civil war period, social indicators improved significantly. After an initial significant decline, poverty reduction remained unchanged since The country is well positioned to meet some Millennium Development Goals (MDGs) such as universal primary education, gender equality and access to clean water in urban areas. Encouraging progress was made towards other MDGs such as reducing child mortality and improving maternal health. However, successfully combating HIV/AIDS, malaria and other diseases remain a challenge and chronic malnutrition rates increased from 2003 to With regard to poverty, strong growth was accompanied by significant strides in reducing poverty up to However, the results of the 2008/09 household survey suggest that growth became less inclusive and the response of poverty reduction to economic growth weakened after The poverty headcount ratio declined from 69 percent in 1996/97 to 55 percent in 2008/09 and poverty continued to be concentrated in the rural areas, and in the center and northern part of the country. Overall, the country is unlikely to eradicate extreme poverty and hunger by Mozambique has remained peaceful since 1992, but widespread poverty and unemployment, at times, trigger social unrest. Since 1994, when the first democratic elections took place, legislative and presidential elections have been held regularly. In February 2008, street riots erupted in Maputo and two provinces following an attempted increase in urban transport fares. At PRSC-6 appraisal, in September 2009, the country was heading to the fourth round of presidential elections that were held on October The incumbent President was reelected with 75 percent of the votes. International observers indicated that elections were free and fair, but highlighted problems with electoral laws. In the meantime, in September 2010, a few weeks before PRSC-7 appraisal, social unrest took place again in urban areas triggered by rising bread, water and energy prices. 7. Despite the country s impressive progress, several key challenges remained. The country continued poor with a GDP per capita of US$443 (2008), social indicators are low, infrastructure is inadequate, the business environment remained unfriendly and constraints to private sector development and trade remained substantial. Its productive base remained narrow and focused on subsistence agriculture and a few isolated mega-projects and its export basket remained limited with only twelve products registering annual exports in excess of US$1 million. In addition, the budget relied heavily on foreign aid, which accounted for almost half of its overall resource envelope, and progress in public sector governance was mixed. In this regard, significant progress in strengthening public financial management (PFM) systems was coupled with limited progress in implementing the Justice Sector and Anti-Corruption reform agenda. 8. This PRSC series was an important component of the Bank s Country Partnership Strategy (CPS), discussed by the Board in 2007, to support PARPA II implementation. The series also provided a transition from PARPA II to a new PRSP (Plano de Acção de Redução da Pobreza PARP). The FY08-11 Country Partnership Strategy (CPS; Report No Moz) supports the implementation of the 13

16 PARPA II which implementation expired in As government policies and budget are the main instruments for implementing the PARPA II, the Bank CPS committed to supporting and aligning with the budget process. The indicative lending scenario of the CPS envisaged programmatic support through consecutive PRSCs to support Mozambique s efforts in increasing accountability and public voice and fostering sustainable and broadbased growth. In line with the government program, and as reflected in the CPS, the program supported by the PRSC series recognized importance of strengthening economic governance systems and the centrality of a broad-based growth agenda to accelerate private sector development. The three operations being reviewed, bridged the transition to a new PRSP, the PARP (Plano de Acção para a Redução da Pobreza), approved in May 2011, which emphasizes the need to step up poverty reduction efforts by making economic growth more inclusive. The Bank s Board considered (i) the new PARP and a Joint IMF-IDA Staff Advisory Note on January 10, 2012, and (ii) the new CPS on April 13, The three operations being reviewed were fully harmonized with the Performance Assessment Framework (PAF) to support PARPA II implementation. PARPA II was the instrument for operationalizing the Five-Year Program, which must be presented to Parliament by Government following elections. For the first time, PARPA II included a strategic matrix of key indicators. The PAF was part of the new Memorandum of Understanding signed between the Government and the representatives of the nineteen (G19) external partners providing general budget support (GBS) to Mozambique. 10 These PRSCs were fully aligned with and tracked progress based on PAF indicators, all of which were anchored on PARPA II, and they disbursed against the upfront completion of a subset of specific reforms identified in the PAF. 10. The Bank and the IMF cooperated very closely within their respective mandates in assisting the government to implement the PARPA II and the transition to the new PARP. Mozambique had a stable relationship with the IMF, anchored on a three-year Policy Support Instrument (PSI) approved by the IMF s Board in June 2007 and a one-year Exogenous Shocks Facility (ESF) approved by the IMF s Board in June The Bank actively participates in the semi-annual PSI review missions and bi-annual Article IV missions. Close collaboration in the preparation of the PRSC series was ensured through Bank participation in IMF missions to monitor progress in the implementation of the macroeconomic program and IMF participation in relevant G19 sector working groups and the two joint annual reviews. 1.2 Original Program Development Objectives (PDO) and Key Indicators: 11. This PRSC series of three annual single-tranche operations, delivered over FY10-12, was designed to assist the Government of Mozambique (GoM) to implement key policy actions outlined in the Second Action Plan for the Reduction of Absolute Poverty (known as PARPA II by its Portuguese acronym) and in the Performance Assessment Framework agreed by the Government and the 19 external 9 The Segundo Plano de Acção para a Redução da Pobreza Absoluta (PARPA II) originally covered the period , but was extended to include 2010 to avoid a gap before the new Government would be able to prepare the next PRSP document. 10 The 19 donors are: African Development Bank, Austria, Belgium, Canada, Denmark, EU, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, and the World Bank. Two associate members, the USA and United Nations, participate in the G19 policy dialogue, although they do not provide budget support. In addition, the IMF is an ex-officio member of the G19. 14

17 partners that provide general budget support (GBS) to GoM. Within this context, the PRSCs focused on helping the GoM in: a) Macroeconomic management: to consolidate and deepen institutional reforms to improve the use of public resources through better budget formulation, stronger public financial management systems, stronger internal and external oversight, and civil service wage and pension reform; and b) Economic development: to continue to support broad-based growth by reducing the excessive regulation constraining business activities, improving the information basis for access to credit, simplifying the regulatory environment for business development and promoting more efficient land use and better access to land. Additional areas address reforms required for membership in the EITI, and strengthening the legal and institutional framework for PPPs and concessions. 12. In line with the government s PARPA-II, and as reflected in the FY08-11 Country Partnership Strategy (CPS), the program supported by this PRSC series recognized the importance of strengthening economic governance systems and supporting private sector development in order to achieve broad based growth for poverty reduction. The emphasis in macroeconomic management, including public financial management, was linked to the long-term process of reforms that needed to be continued in order to improve governance as well as supporting macroeconomic stability. The support on economic development, including simplifying the regulatory environment for business development and access to land, was seen as key to promote inclusive growth. 13. Specifically, this PRSC series supported achievement of the following CPS outcomes: (#1) improved budget planning at central, district and municipal level; (#2) improved government fiduciary systems; (#10) simplify procedures to start a business; (#11) increased access to finance and support for SMEs. Related operations of the World Bank Group were: Public Sector Reform Project (P072080); Financial Sector Technical Assistance Project (P086169); and the Competitiveness and Private Sector Development Project (P106355). 14. There were six prior actions for PRSC-6, seven prior actions for PRSC-7, and six prior actions for PRSC-8. The PRSC-6 Program Document refers that reforms to improve the business environment have been undertaken by the government but could not be reflected in its prior actions because they were not reflected in the G19 PAF, adding that triggers related to such reforms would start at PRSC At PRSC-6, the impact of the PRSC supported program was measured against the following set of outcome indicators: 1 indicator on budget expenditure outturns; 2 indicators on public procurement; 1 indicator on wage policy; 1 indicator on pensions reform; 1 indicator on credit to the economy, and 1 indicator on domestic investment. 15

18 1.3. Revised PDO and Key Indicators, and reasons/justification: 16. The development objectives were not revised during the PRSC series. However, at PRSC-7 and PRSC-8, indicative triggers and prior actions were revised, advanced or dropped to reflect the country s evolving conditions. Also, new triggers and prior actions were added to (i) expand coverage of important areas of the government s reform program supported by the PRSC series, and (ii) more closely reflect the focus of the policy dialogue between the Bank s team with donors and the authorities. In section 2, more details are provided about changes in triggers and prior actions that took place during the operations being reviewed. All triggers were drawn from the G19 Performance Assessment Framework (PAF) and/or the Political and Economic Governance Reforms Matrix agreed by the government and GBS donors in March

19 Table 1: Key Indicators for PRSC (New or dropped indicators are in italics underlined) Government Medium-Term Objectives (from PARPA/PAF) Indicator for PRSC-6 (Monitoring output and outcome indicators from PARPA/PAF) Indicator for PRSC-7 (Monitoring output and outcome indicators from PARPA/PAF) Indicator for PRSC-8 (Monitoring output and outcome indicators from PARPA/PAF) Component 1: Macroeconomic management Improve efficiency and effectiveness of public financial management KI-1: Average difference over the past 3 years between the primary expenditure outturn compared to the originally budgeted (approved) primary expenditure. KI-1: Average difference over the past 3 years between the primary expenditure outturn compared to the originally budgeted (approved) primary expenditure. KI-1: Average difference over the past 3 years between the primary expenditure outturn compared to the originally budgeted (approved) primary expenditure. Make the State procurement system for goods and services transparent and efficient KI-2: (i) Percentage of public sector contracts reported to UFSA subject to public tender; and KI-3: (ii) justification registered when using other selection methods KI-2: (i) Percentage of public sector contracts reported to UFSA subject to public tender; and KI-3: (ii) justification registered when using other selection methods KI-2: (i) Percentage of public sector contracts reported to UFSA subject to public tender; and KI-3: (ii) justification registered when using other selection methods Increase coverage and efficiency of internal and external audit bodies Improve human resources management in public sector KI-3: Approval of Medium Term Wage Policy KI-4: Approval of Pensions reform KI-4: Share of central and provincial level bodies with internal control units (New) KI-5: Coverage of audit verification activities of the State Budget by the TA according to INTOSAI technical standards (New) KI-6: Approval of Medium Term Wage Policy KI-7: Approval of Pensions reform KI-4: Share of central and provincial level bodies with internal control units KI-5: Coverage of audit verification activities of the State Budget by the TA according to INTOSAI technical standards KI-6: Approval of Medium Term Wage Policy KI-7: Approval of Pensions reform Component 2: Economic Development Improve the financial sector and social security sector Improve business environment, including better access to land and eliminate unnecessary regulation KI-6: Credit to the economy as % of GDP KI-7: Gross domestic investment excluding GOM (as percentage of GDP) KI-8: Credit to the economy as % of GDP (Dropped) KI-9: Number of individual and collective taxpayers (New) KI-10: Gross domestic investment excluding GOM (as percentage of GDP) (Dropped) KI-11: Number of Procedures to start a business (New) KI-12: Number of working days to start a business (New) KI-8: Number of individual and collective taxpayers KI-9: Number of Procedures to start a business KI-10: Number of working days to start a business Note: KI Key Indicator 17. Key indicators were also changed at the PRSC-7 stage. Five out of the ten final key indicators remained unchanged over the course of the three operations under review. As shown in Table 1 above, at the PRSC-7 stage, two indicators were dropped and five new indicators were added to better track impact of reforms supported by this PRSC series. For all new indicators, the baseline value and the end of the program target were established. All indicators were also drawn from the PAF. 17

20 1.4. Original Policy Areas Supported by the Program: 18. The PRSCs under review supported a subset of reforms drawn from PARPA II and its Strategic Policy Matrix contributing to: (i) strengthening the capacity, transparency and accountability of state institutions by strengthening PFM systems both at central and local level; and (ii) fostering a competitive and responsible private sector through interventions aimed at improving the business environment and the investment climate. Reforms were organized around two main components: (a) macroeconomic management, and (b) economic development. Below is a brief summary of main policy areas covered in each of those components, as spelled out in PRSC-6. Macroeconomic management 19. Under this component, this PRSC series supported reforms in the following policy areas: Improve the budget process and the use of public resources: the objective of these reforms were to (i) strengthen the allocation of funds through the budget preparation and execution process, and (ii) support the government s efforts of adopting a programmatic budget classification to allow better links between PARPA, MTEF, and budget allocations; Improve efficiency and effectiveness of PFM: government has completed the roll out of the integrated electronic PFM system (e-sistafe) to all ministries, at central and provincial level, and to a large number of autonomous agencies. The objective of this PRSC series was to support increasing the utilization of e-sistafe to manage Mozambique s public finances, paving the way for improved PFM accountability, transparency, and efficiency; Make the State procurement system for goods and services transparent and efficient: following the introduction of a new procurement system that generally meets international standards of efficiency and accountability and operationalization of a new central procurement board (UFSA) in 2007, reforms in this area aimed at strengthening of the monitoring system to increase transparency and measure the effectiveness of the reforms; Increase coverage and efficiency of external audit bodies: reforms in this area continued to support increasing capacity of the external audit institution (Tribunal Administrativo - TA) to conduct audits and expand audit coverage to consolidate its role of independent watchdog of PFM; Improve human resources management in the public sector: building on the recent operationalization of an electronic database of all civil servants, the objective of these reforms were to (i) improve the management of the payroll and civil service human resources, and (ii) reform the pensions system to reshape and improve the quality of the civil service. Economic Development 20. Under this component, this PRSC series supported reforms in the following policy areas: 18

21 Improve access to credit for private firms: reforms in this area focused on reducing information constraints for commercial banks by supporting improvements in accounting and reporting standards through the implementation of International Financial Reporting Standards (IFRS) in the corporate sector; Strengthen the social security system: these reforms aimed at ensuring the financial sustainability of the social security system and adoption of best practice and transparency in the management of the social security funds to facilitate a deepening of the country s financial sector; Improve the operation of the land law and facilitate access to land: the focus of these reforms was on implementation of the country s generally sound land laws and regulations in view of gaps such as lack of clarity, limited capacity and unclear institutional arrangements, and low tax and associated distorted incentives for land access; Improve the business environment by simplifying the regulatory framework: this PRSC series focused on reforming one key aspect of the business environment, namely the excessive regulatory framework, with a view to support the government s efforts aimed at sustaining high economic growth and reshaping its pattern to generate more employment by exploiting its vast and diversified export potential Revised Policy Areas: 21. PRSC-7 introduced two modifications to the policy areas supported by this PRSC series. First, under the component macroeconomic management, a new policy area was added focused on increasing coverage and efficiency of internal audit bodies as this was identified as a weak spot of the PFM system. In this regard, reforms aimed at strengthening the internal audit institution (Inspecção Geral de Finanças IGF) to improve both the coverage and the quality of the internal control system. Second, under the component economic development, a new policy area focused on maximizing the benefits from megaprojects, concessions, and Public-Private Partnerships (PPPs) to reflect the country s growing potential wealth in mineral and other natural resources and the need to ensure their adequate management. The objective of reforms in this new policy area was to support the government s effort to achieve membership of the EITI Initiative and to strengthen the legal framework for PPPs and concessions Other significant changes: 22. The Bank responded positively to assist the government to mitigate the adverse impact of the international financial crisis. In this regard, PRSCs 6 and 8 were increased to US$110 million from the original US$ 85 million envisaged in the FY08-11 CPS. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance: 23. PRSCs 6 to 8 fully aligned with selected priorities of the Government s PARPA II and its Strategic Policy Matrix reform agenda and the PAF agreed by the GoM with the G-19 development partners. The subsequent operations, generally, built on the previous ones and the prior actions followed an incremental sequencing path to deepen the 19

22 reforms. Performance with respect to prior actions and triggers is summarized in Table 2 below. This assessment takes as a starting point the prior actions and indicative triggers for subsequent operations identified in PRSC-6 and how they evolved during the PRSC series in terms of being dropped, advanced or new actions being added. Changes in some of the reforms envisioned at the beginning of the series are the result of changing government priorities as well as the intrinsic difficulties posed by the inflexibility of the PAF. Table 2: Prior Actions for PRSC 6 to 8, by component and policy area PRSC 6: PRIOR ACTIONS Macroeconomic management Policy area: Improve the efficiency and effectiveness of PFM The aggregate envelope and the aggregate allocation to priority sectors in the budget 2009 are in line with the first year of the Medium-Term Expenditure Framework (MTEF) % of the budgetary execution of the UGEs in goods and services and investments through direct budget execution. Status Met. Met and exceeded. In 2008, the target reached was 95%. 11 Policy area: Make the State procurement system for goods and services transparent and efficient Operational functioning of the Procurement system improved as shown by: (i) at least 88% of number of contracts of the public sector were subject to public tender in 2008 in accordance with the current Mozambican legislation; (ii) information on other modalities of contract has been communicated to UFSA with the due justification in at least 90% of cases; (iii) the process of complaints, as defined current Mozambican procurement legislation, is operational. Policy area: Increase coverage and efficiency of internal and external audit bodies The Court of Accounts (TA) will continue to expand the coverage of the audit of the State Budget in accordance with the technical norms of INTOSAI to at least 30% in Policy area: Improve human resource management in the public sector Cabinet approval of the Medium Term Wage Policy (MTPP) approved Economic development Policy area: Improve the financial sector and social security sector The Ministry of Finance has elaborated the IFRS transition plan (with the assistance of consultants) PRSC 7: PRIOR ACTIONS Macroeconomic management Policy area: Improve the efficiency and effectiveness of PFM The aggregate envelope and the individual allocations to priority sectors in the budget 2010 are in line with the first year of the MTEF % of budgetary execution of the UGEs in goods, services and investments through direct budgetary execution; and at least 10% of execution of wages through direct budgetary execution. Met. 11 Met. 11 Met. Met. Status Dropped, partially as a result of the financial crisis (para. 63, PRSC-7 Prog. Doc.). Met and exceeded. In 2009, the target reached was 97% for goods, services and investments, and 20% for wages. 12 Policy area: Make the State procurement system for goods and services transparent and efficient Operational functioning of the Procurement system improved as shown by: (i) at least 95 percent of contracts of the public sector were subject to public tender in 2008 in accordance with the current Mozambican procurement legislation; (ii) information on other modalities of contract has been communicated to UFSA with the due justification. Dropped. Improved data collection was, at least partially, responsible for the apparent drop (82%) in the share of contracts 11 GoM and PAP: Revisão Annual, Anexo V ao Aide Memoire, Relatório dos Grupos April 29, GoM and PAP: Revisão Annual, Anexo V ao Aide Memoire, Relatório dos Grupos May 19,

23 Policy area: Increase coverage and efficiency of internal and external audit bodies The Government has ensured that internal control units have been established in at least 75% of central and provincial level bodies subject to public tender (para. 84, PRSC-7 Prog. Doc.) Introduced at PRSC 7. Met. 12 The Court of Accounts (TA) will continue to expand the coverage of the audit of the State Budget in accordance with the technical norms of INTOSAI to at least 35% in Economic development Policy area: Improve the financial sector and social security sector The Cabinet has approved a Decree mandating implementation of IFRS in large firms starting in 2010 and medium firms starting in 2011 Met. 12 Introduced at PRSC 7. Met. Policy area: Improve business environment, including better access to land and eliminate unnecessary regulation Land taxation reform: The Minister of Agriculture approved a Ministerial Diploma to adjust land tax rates to account for inflation since the land law regulations were approved in The Cabinet has reduced the average time needed for import and export operations to 23 days and 30 days respectively in 2009, by approving a Decree allowing complete prearrival clearance of goods and creating the figure of the reliable and trustworthy traders which will benefit from simplified import and export procedures. The government has appointed the EITI permanent national coordinator, hired staff for the national EITI secretariat, and convened the EITI multi-stakeholder meeting. PRSC 8: PRIOR ACTIONS Macroeconomic management Policy area: Improve the efficiency and effectiveness of PFM Allocations in OE in line with MTEF (CFMP) as evidenced by the following criteria measures (TBD). The Ministry of Finance has expanded the use of the integrated electronic financial management system e-sistafe to no less than 430 Budget Units resulting in Direct Budget Execution of 37.5 percent of the State Budget. Operational functioning of the Procurement system improved. Approval by the Minister of Finance of a MIS for UFSA based on a web interface to be used as a management tool to track the procurement performance of the key ministries to ensure compliance and best value for money. The Ministry of Finance has established internal control units in all of its central and provincial level bodies. The Court of Accounts (TA) has continued to expand audit coverage of the State Budget from 35 percent in Fiscal Year 2009 to at least 37 percent in Fiscal Year 2010, according to INTOSAI technical standards and according to the laws of Mozambique. Cabinet approval of pensions reform Economic development Policy area: Improve the financial sector and social security sector Introduced at PRSC 7. Met. Introduced at PRSC 7. Met. Introduced at PRSC 7. Met. Status Dropped at PRSC-7. Met. Dropped at PRSC-8. MIS was still under development (para. 71, PRSC-8 Prog. Doc). Introduced at PRSC 7. Met, one year later than expected. 13 Met. 13 Dropped (para. 91, PRSC 8 Prog Doc.). Preparatory work still being carried out. Starting mandatory implementation of IFRS in large firms. Dropped at PRSC-7, met ahead of time. Implementation of a comprehensive IT system at the INSS. Dropped (para. 96, PRSC 8 Prog Doc.). Considered an intermediate step. Policy area: Improve business environment, including better access to land and eliminate unnecessary regulation Approve reform of land taxation. Dropped (para. 101, 13 GoM and PAP: Revisão Annual, Anexo IV ao Aide Memoire, Relatório dos Grupos May 7,

24 The Ministry of Industry and Trade has sent to the Council of Ministers for discussion and approval a draft decree to simplify business related licenses while allowing an additional seventy economic activities to be registered and operate under simplified licensing procedures. The Ministry of Mineral Resources has produced the first report under the Extractive Industries Transparency Initiative (EITI). The Public Private Partnerships Law has been enacted and published in the Official Gazette. 22 PRSC 8 Prog Doc.). Studies still being prepared. Met. Introduced at PRSC-8. Met. Introduced at PRSC-7. Met. Source: Program Documents of PRSC-6&7, Annex 2; Program Document of PRSC-8, Table 6 and Annex All prior actions were completed before Board approval. Flexibility was adopted in the PRSC series to respond to the country s specific circumstances. At PRSC-6, 6 prior actions (5 under macroeconomic management and 1 under economic development) were met and another 13 indicative triggers were identified, of which 4 triggers (all under macroeconomic management) for PRSC-7 and 9 triggers (5 under macroeconomic management and 4 under economic development) for PRSC-8. At that stage, the Program Document mentioned (para. 108) that (i) in each of the following operations there would be no more than 6 to 8 triggers; and (ii) the Bank was continuing to work with government and development partners to reflect in the PAF key reforms to boost economic growth so that they could be used as prior actions of subsequent operations. The latter, seems to have been one of the contributing factors to changes in prior actions that took place in follow-up operations, especially during PRSC Overall, the operations being reviewed proceeded well. In some areas progress was very significant. In PFM, the 2010 PEFA assessment reported continued progress towards meeting good PFM practices with the share of indicators scoring B or above moving from 36 percent in 2006, to 50 percent in 2008 and 54 in 2010 (Annex 6). In the EITI, Mozambique was declared fully compliant with the EITI requirements in October In several areas, such as human resource (HR) management in the public sector, IFRS implementation and improving the business environment, encouraging progress was achieved. In areas such as strengthening the budget process progress was modest while in procurement, land taxation, INSS and pension reforms preparatory activities were still being carried out and progress was limited. 26. From 2008 to 2011, progress in implementing PAF actions was considered satisfactory paving the way for budget support disbursements to proceed, except for 2010 when it was considered broadly satisfactory. The Government and the G-19 jointly reviewed progress on PAF implementation, every year (Table 3 below). As stated in the FY08-11 Country Partnership Strategy Completion Report donor dialogue reached an impasse in early 2010 in the context of Mozambique s General Elections, when multilateral positions differed significantly from the ones brought forward by bilateral donors with regard to demanding political change. Donors concerns on matters of political and economic governance led to a delay of budget support disbursements by most donors early in After government committed to measures to address those concerns (listed in a Political and Governance Policy Matrix ) in March 2010, disbursements resumed in April Performance Assessment Framework (PAF) Table 3: Findings of the Joint Annual PAF Reviews 2008 Number % 2009 Number % 2010 Number % 2011 Number % Indicators, total