Poverty Reduction Strategy Support Programme - Phase II (PRSSP-II) Country: RWANDA

Transcription

1 Language : English Original : French AFRICAN DEVELOPMENT FUND Poverty Reduction Strategy Support Programme - Phase II (PRSSP-II) Country: RWANDA COMPLETION REPORT Evaluation Team Team Leader : T. Houeninvo, Senior Macro-economist, OSGE.2 Team Member : A Consulting Macro-economist OSGE.2 Sector Director : G. NEGATU, OSGE Country Director : A. ORDU, OREA Peer Reviewers L. Rugwabiza, Economist RWFO; C. Ahossi, Principal Procurement Expert, ORPF; A. Amoumoun, Senior Procurement Expert OSGE GOVERNANCE & ECONOMIC AND FINANCIAL REFORMS DEPARTMENT (OSGE) November 2008

2 TABLE OF CONTENTS Currency Equivalents, Acronyms and Abbreviations Basic Programme Data Logical Framework Matrix Executive Summary i-ii iii v xiv I. INTRODUCTION 1 II. PROGRAMME OBJECTIVES AND FORMULATION Programme Objectives and Description Programme Origin and Formulation Preparation, Appraisal, Negotiations and Approval 2 III PROGRAMME IMPLEMENTATION Effectiveness and Release of Loan Tranches Matrix of Programme Measures Programme Reporting Financing Sources and Release of Grant Tranches 6 IV PROGRAMME PERFORMANCE AND OUTCOMES Institutional Performance Economic Performance 6 V PROGRAMME IMPACTS Economic Impact Social Impact Gender Impact Environmental Impact Impacts on Governance Assessment of Programme Risks 9 VI. SUSTAINABILITY OF PROGRAMME IMPACTS 9 VII PERFORMANCE OF THE BANK, THE DONEE AND THE CO-FINANCIERS Performance of the Bank Performance of the Donee Performance of Cofinanciers 11 VIII OVERALL PERFORMANCE AND RATING Relevance Institutional Development Sustainability Overall Performance of Programme 12 IX CONCLUSION, LESSONS AND RECOMMENDATIONS Conclusion Lessons to Learn from the Programme s Implementation Recommendations 13 This report was prepared by a Consultant, following a mission to Kigali from 16 to 27 October Questions on this document should be referred to Mr. G. NEGATU, Director OSGE (Extension 2077), Mrs. M. KANGA, Division Manager, OSGE.2 (Extension 2251), and Mr. T. HOUENINVO, Senior Macro-economist, OSGE.2 (Extension 3307)

3 LIST OF ANNEXES Annex1 : Matrix of Programme Measures 5 Annex 2 : Performance of Donee 1 Annex 3 : Performance of the Bank 1 Annex 4 : Overall Programme Performance 2 Annex 5 : Matrix of Recommendations and Programme Follow-up 2 Annex 6 : Macro-economic and Financial Indicators CURRENCY EQUIVALENTS At Appraisal (14 to 28 April) On Completion (December 2008) UA 1 = US$ 1.51 UA 1 = US$ 1.48 UA 1 = RWF UA 1 = RWF

4 ii ACRONYMS AND ABBREVIATIONS ADB : African Development Bank ADF : African Development Fund BNR : National Bank of Rwanda BRD : Rwanda Development Bank CEPEX : Central Public Investment and External Finance Bureau COMESA : Common Market for Eastern and Southern Africa CPIP : Country Procurement Issues Paper CSP : Country Strategy Paper DFID : Department for International Development DRC : Democratic Republic of Congo EAC : East African Community EDPRS : Economic Development and Poverty Reduction Strategy EU : European Union FARAP : Financial Accountability Review and Action Plan GDP : Gross Domestic Product HDI : Human Development Index HIPC : Heavily Indebted Poor Countries IDA : International Development Association IMF : International Monetary Fund MDGs : Millennium Development Goals MINAGRI : Ministry of Agriculture MINALOC : Ministry of Local Government, Community Development and Social Affairs MINECOFIN: Ministry of Finance and Economic Planning MINICOM : Ministry of Commerce, Industry, Investment Promotion, Tourism and Cooperatives MININFRA : Ministry of Infrastructure MINISANTE : Ministry of Health MTEF : Medium-Term Expenditure Framework NPV : Net Present Value NTB : National Tender Board OECD : Organization for Economic Cooperation and Development PFM : Public Finance Management PIP : Public Investment Programme PRGF : Poverty Reduction and Growth Facility PRS : Poverty Reduction Strategy PRSP : Poverty Reduction Strategy Paper RPPA : Rwanda Public Procurement Authority RWF : Rwanda Franc SAP : Structural Adjustment Programme SMEs : Small and Medium Enterprises UA : Unit of Account UNDP : United Nations Development Programme USAID : United States Agency for International Development

5 iii BASIC PROGRAMME DATA 1. Name of Programme: Poverty Reduction Strategy Support Programme 1. Number of Grant Agreement Donee Government of Rwanda 3. Beneficiary Government of Rwanda 4. Executing Agency: Ministry of Finance and Economic Planning (MINECOFIN) 2. Grant Data Estimated Actual 1. Grant Amount UA UA Appraisal Date February 2007 From 14 to 28 April Negotiation Date - 9 June Approval Date July July Signature Date - 12 November Effectiveness Date August November Date of Supervision Mission September 2007 No supervision 8. Date of Mid-term Review March-April 2008 April Date of Audit Mission Not applicable Not applicable 10. Date of Government s Completion November 2008 No completion report available Report 11. Date of ADB Completion Mission December 2008 From 16 to 27 October Start-up Date Unscheduled November Closing Date December December Sources of Finance Financing Plan Estimated Actual UA million % UA million % IDA/World Bank European Union DFID Sweden Germany Netherlands ADF Total Disbursement of ADF Grant Disbursement Estimated Actual Difference Date UA million Date UA million UA million Effectiveness August 2007 UA November 2007 UA Date Amount Date Amount 1st tranche 09/ 2007 UA /12/2007 UA nd tranche June 2008 UA /06/2008 UA UA Total N/A UA N/A UA UA

6 iv 5. Performance Indicators 1- Balance in % 0.04% 2- Time Underrun/Overrun Slippage on Effectiveness 3 months Slippage on Completion Date 0 Slippage on Last Disbursement 30 days 3- Status of Programme Implementation 98% of the programme s measures implemented 4- Completion Indicator 4 measures yet to be completed and 1 measure is incomplete 5- Institutional Performance Institutional performance is satisfactory 6- Completion Report No completion report submitted 7- Audit Report Not applicable (budget support) 6. Information on Bank Missions Missions Dates No. of No. of Persons Composition Staff/wks Missions 1 Identification/ Preparation 2-6 December Economist 1 2 Appraisal 14 to 28 April 3 Supervision Programme dialogue by RWFO 4 Mid-term Replaced by Review joint reviews 5 Participation in From 22 to the 1st joint review 25 April by the Budget 2008 Support Group 6. Participation in the 2 nd joint review by General Budget Support Group From 23 to 25 September Audit Not applicable 8 PCR 16 to 27 October 7. Disbursement Status 1 Five (5) 1 economist, 1 investment officer; 1 country economist and 2 consultants Permanent dialogue Two weeks RWFO RWFO RWFO Cf. joint reviews Cf. joint evaluations Cf. joint reviews Cf. joint reviews 1 4 -Resident representative 1 week -3 Macro-economists - 1 CPO 1 4 -Resident representative -3 Macro-economists - 1 CPO 1 week Not applicable Not applicable Not applicable NA Consulting macroeconomist Two weeks Disbursement Estimates at Appraisal Actual 1 Total Disbursements UA Annual disbursements: in 2007 in 2008 UA UA UA UA

7 v LOGICAL FRAMEWORK MATRIX OF THE POVERTY REDUCTION STRATEGY SUPPORT PROGRAMME PHASE II (PRSSP II) Country : Republic of Rwanda Date : June 2007 Design Team : N. Obayashi, Economist OSGE.2 and a Consulting Macro-economist Hierarchy of Objectives (HO) 1. Overall Goal Promote economic growth for sustainable poverty reduction Expected Outcomes Longer-Term Outcomes Improvement in the population s well-being and standard of living. Reach (Beneficiaries) Rwanda s population especially the most under-privileged Performance Indicators Annual economic growth rate. National investment rate % Population living below the poverty line Objectively Verifiable Indicators and Timeframe Estimated Actual In 2007 and 2008, the annual growth rate reached 4.5% and 4.7% respectively, in line with the long-term objective of the 2020 Vision which is about 7% In 2007, the growth reached 6% and could settle at 8.5% end in keeping with the long-term objective of the 2020 Vision. Assumptions/R isks Source: National Statistics, programme review reports by the Bretton Woods institutions In , the national investment rate was 23% compared to 21.5% in 2006 the private sector component of which averaged 13% of the GDP compared to 12.8% of the GDP in 2006 The percentage of the poor dropped in below the national average of 56.9% and 62.5% in the rural areas in In , the national investment rate reached 22.75% of the GDP compared to the estimated 23%. No accurate statistics available to determine the drop in the percentage of the poor.

8 vi Hierarchy of Objectives (HO) Expected Outcomes Reach (Beneficiaries) Performance Indicators Objectively Verifiable Indicators and Timeframe Estimated Actual Assumptions/R isks 2. Specific Objectives 2.1 Improve budget planning and implementation 2.2 Consolidate the fiduciary framework and enhance transparency in public finance management Medium-Term Outcomes In the context of the single budget that covers operation and development at national and local administration levels, more priority will be given to expenses for the poor Budget management fully computerized for the four decentralized phases of the expenditure chain (commitment, validation, authorization and payment) Transparent management of the budget and financial circuits at national level and in the area-based administrations - Rwandan population and in particular, the poor and vulnerable groups. Ditto -Rwanda s population, successful bidders for government contracts and economic operators - All centralized and decentralized administrations. - % of Ministries and districts that achieve this integration during the 2008 budget year - % of expenses allocated to the priority sectors meeting the needs of the poor populations. - The timeframe of the expenditure chain sequence reduced - At least 75% of the MTEF of the districts and ministries are based on the strategic sector goals defined in the 2008 EDPRS. - In , the expenses allocated to the priority sectors represent on average 52% of the public expenditure compared to 49.7% in The number of committed and authorized files processed per week has increased significantly. 100% of the MTEF of the districts and ministries are based on strategic sector goals set out in the EDPRS in 2008 In , the expenditure for the priority sectors accounted on average for 78.5% of the public expenses in the revised budget and 77.6% in the initial budget The number of files committed and authorized processed was 264 a week in 2007 and 244 in 2008 but the amounts earmarked were much higher in 2008 thank in All project accounts are domiciled at the BNR with the exception only of a few. A. Risks - Political stability in the sub-region - Macroeconomic stability and vulnerability to external shocks (drought, fluctuating prices of export commodities (tea, coffee, coltan etc.) -Unpredictable external aid flows fiduciary risks. B. Mitigation Measures: - Policy dialogue in the context of the budget support with the IMF and

9 vii Hierarchy of Objectives (HO) Expected Outcomes Internal and external controls strengthened and improved Public procurement procedures are codified in line with international standard and transparent practices The capacity of the computerized information processing system built. Reach (Beneficiaries) - The country s economic operators and foreign private investors and donors. Performance Indicators - Single Treasury Account consolidated -Accounting procedures manuals available - The reporting format available at the MINECOFIN for the benefit of public authorities. Number of missions of the General Auditor s Office Objectively Verifiable Indicators and Timeframe Estimated Actual - at least 25% of the development project accounts are integrated into the Single Treasury Account at the BNR in % of the public accounts of the 2007 financial year are submitted to the Auditor General not later than 1st quarter % of the 123 public entities submitted their accounting reports at the end of February 2008 for the 2007 financial year. - the coverage rate for the circulation procedures manuals to the public entities in charge of accounting management in the ministries and area-based administrations was 100% at the end of the 3rd quarter The missions of the Auditor General in the technical Ministries, independent institutes All consolidated public accounts of the 2007 financial year was submitted to the Office of the Auditor General on 31 March % of the public entities submitted their accounts for the 2007 financial year with the exception of ORINFOR for issues specific to it. The procedures manuals were distributed to the (budget managers) during the retreat which took place in AKAGERA. In fact out of the 100 entities that were supposed to be covered in 2007, only 94 actually were. Thus, plans were made to cover about 100 services in 2008 because of qualified staff shortage Assumptions/R isks other DFB; - Long-term economic development thanks to a larger number of development partners - The programme measures involve consolidating the fiduciary framework

10 viii Hierarchy of Objectives (HO) Expected Outcomes Reach (Beneficiaries) Performance Indicators Objectively Verifiable Indicators and Timeframe Estimated Actual and districts rose from 100 in 2007 to 135 in accounting officers recruited and trained. The staffing objective set for the will not be reached because of budget constraints Assumptions/R isks 2.3 Improve the legal and institutional business framework The human resource capacity of the new commercial and civil jurisdictions built. - Ditto - Ditto - Rwandan population both in urban and rural areas. - Exporters/economic operators and producers of basic commodities -The Enabling Texts of the Law establishing the Procurement Code are adopted. - the standard bidding documents and other procedures manuals are prepared. - The Law establishing the Rwanda Public Procurement Authority is adopted. Sources: Official Gazette, Excerpts of the Decisions of the Council of Ministers and Activity Reports, Review Reports of the IMF and the World Bank, Implementation Report of the ADF Programme. - Staff of the General Auditor s Office rose from 65 to 135 between 2008 and The implementing regulations for the Law relative to Public Procurement enter into force in all Public Procurement area-based centres in The area-based services for Goods and Services Procurement are operational following the entry into force of the implementing regulations for the Law on Public Procurement in Public Procurement Officers are trained on the basis of a programme Actual. These texts are published in the NTB s website and were effective in the area-based centres for public procurement. These centres are effective and are actually operational. Training sessions organized at IRAM based on the needs survey. SAGEPASTEL is a provisional system that enables possible migration to a more advanced software known SMARTGOV; the alpha version was used for the 2008 budget. The Beta

11 ix Hierarchy of Objectives (HO) 2.4 Strengthen financial intermediation and consolidate the banking system. Expected Outcomes The business registration system and formalities are simplified Law N 08/2005 of 14/07/05 defining the conditions for land use and management is applied Export promotion has now been launched with concrete measures. Reach (Beneficiaries) Performance Indicators - Ditto Timeframe and reliability in processing the Government s economic, financial and accounting information. - Providing new jurisdictions with adequate human resources. - The number of resolutions from the various commercial operators through the judicial system - Actual establishment and operation of the National Registration Agency together with a single window. - Adoption of decrees applying the Land Management Law. Objectively Verifiable Indicators and Timeframe Estimated Actual drawn and approved by the Ministry in charge of Public Procurement as of January Quality and reliability in processing public accounts using the Sage Pastel software and establishment of interfaces to input data on revenue, the district budgets and public procurement into the SmartGov software achieved as of technical assistance judges are recruited in the countries with legislation similar to that of Rwanda - 22 Rwandan judges are trained over a 3-year period ( ) - 60% of the various commercial operators are regulated by the new commercial courts in version which took into account the requirements of the users will be used for the 2009 budget (6 months) and for the July 2009/June 2010 budget. Seven (7) judges from Mauritius were recruited on a contract basis and are currently working in Rwanda A number of Rwandan judges are now being trained at the University of Witwatersrand in South Africa. The three Commercial Courts established in Kigali, Musanze and Huye can settle trade disputes involving sums of money higher or equal to RwF 20 million. Beyond that amount it is the onus of the High Commercial Assumptions/R isks

12 x Hierarchy of Objectives (HO) Expected Outcomes The financial sector is strengthened and bank loans are more accessible to the business community. Reach (Beneficiaries) Performance Indicators - Increase in the share of exports in the country s foreign trade. - The banking penetration rate - % of non-performing loans in the portfolio of the banks - Increase in the share of credit to the private sector. Objectively Verifiable Indicators and Timeframe Estimated Actual 2008 and more than 80% in 2009 and 100% in Time span for registration formalities reduced from 16 days to 4 as of The decrees relative to the method for establishing title deeds, the decree relative to procedures for land allocation and rental enter into force as of January The roadmap for land use and management is established in August 2007 and the land master plan for the East Region is established in June Exports increase on average, from 16.8% in 2008 against 14% in % of the banking agencies are insured by the L union des banques populaires (UBP) Court to be established accordingly. The National Land Centre is required to apply these texts which have been adopted. The road map was adopted by the Council of Ministers, submitted and adopted by Parliament but is yet to be published in the Official Gazette. Conversely, the process of introducing the Master Plan for the East Region is still ongoing. Exports rose to 21% instead of the 16.8% set objective. It must be noted that the UBP has since the reform of 2008 acquired the status of a full-fledged commercial bank. Assumptions/R isks

13 xi Hierarchy of Objectives (HO) Expected Outcomes Reach (Beneficiaries) Performance Indicators Objectively Verifiable Indicators and Timeframe Estimated Actual Assumptions/R isks 3. Outputs Short-Term Outputs - The percentage of nonperforming loans in the banks portfolio down from 15% in 2007, to 10% in 2008 against 20% in Loans to the private sector up by 15% in against only 9.4% in Non-performing loans now account for 8.8% against the objective of 10% set in the Programme The increase in loans to the private sector was over 15% in Budget management fully computerized. 3.2 The procurement system is thoroughly revisited and the implementing regulations of the Law on Procurement are adopted and effective. 3.3 Accountants are recruited and trained. 3.4 A new Procurement Regulatory Authority (RPPA) is put in place 3.5 The East Region land master plan is prepared - Better operation of the Government s financial circuits. - Institutional building of the financial and accounting services in the central and areabased Administrations - Clarification of the Government s goods and services procurement procedures. Rwandan population and in particular, the poor and vulnerable groups. - Rwandan civil service. - Economic operators and public contract award-winning enterprises. - The populations of the country s East Region. - Coherence between the budget allocations and the sectoral and national strategies of the country s long-term development vision. Sources: National Statistics, Appropriation Laws, Budget Implementation Reports, and Reviews by development partners. - In 2008, the integrated budgets of the central administrations and districts are available as of January accountants are recruited and seconded to the accounting services of the central Administration and areabased structures. - The public contract approval time is shortened. - Time taken by the relevant departments to approve contracts is much shorter. Implemented The process is still ongoing. The periods are effectively shorter. The periods are shorter as a result of the decentralization.

14 xii Hierarchy of Objectives (HO) Expected Outcomes Reach (Beneficiaries) Performance Indicators Objectively Verifiable Indicators and Timeframe Estimated Actual Assumptions/R isks 3.6 The Secretariat in charge of implementing the Financial Sector Strategy is put in place. - Land development - Fewer cases of misappropriation and poor management. - - Rwandan civil service - The banking system - The annual reports of the General Auditor s Office are prepared regularly and published. 3.7 The Commercial Courts are established. 3.8 The single trade window is set up and is operational. - Protection for savers - The microfinance institutions - The business community - Ditto % of trade disputes are settled by the new Commercial Court in 2008 and over 80% in 2009 and 100% in 2010 Trade disputes involving transactions of an amount lower or equal to RwF 20 million are settled by the Commercial Courts of Kigali, Musanze and Huye Financial Resources ( ) -ADF: UA 33 M -IDA: UA M -EU: UA 31.6 M -Netherl. UA 4.46 M - DFID UA M - Sweden UA: M - Germany: UA 2.68 M - The business community and in particular exporters Financial Resources ( ) -ADF: UA 33 M -IDA : UA M -EU: UA 31.6 M -Netherla: UA 4.46 M - DFID: UA M - Sweden UA 14,42 M - Germany: UA 2.68 M UA 33.0 Million UA Million 31.6 Million UA 0.0 Million UA Million UA 0.0 Million UA 0.0 Million Adequate financing programme of

15 xiii EXECUTIVE SUMMARY INTRODUCTION 1. Committed to the establishment of a poverty reduction strategy since 2002 through the PRSP and Rwanda s Vision 2020, both of which were prepared on the basis of a participatory approach, the Government, in 2007, embarked upon the preparation of a second generation PRSP giving greater importance to growth-bearing and job-creating sectors especially agriculture, private sector development, and investment in infrastructure and human capital. To implement this new strategy known as the Economic Development and Poverty Reduction Strategy (EDPRS) for the period, the Government approached donors including the Bank for assistance. The Bank s response took the form of a new budget support operation by means of a 2 nd phase of the Poverty Reduction Strategy Support Programme (PRSSP-II) covering PROGRAMME OBJECTIVES AND DESCRIPTION 2. The PRSSP-II is a follow-up to PRSSP-I which had contributed significantly to the implementation of the four priority areas of the PRSP, namely: (i) rural development and agricultural processing; (ii) development of economic infrastructure; (iii) promotion of good governance; and (iv) private sector development. The lessons learnt from the Bank s PRSSP-I focused on the need for further public finance management reform efforts by the Government, and consolidation of the foundations for growth through economic diversification, in particular through private sector and export promotion. Against that backdrop, PRSSP-II was formulated and the reforms to be implemented targeted. The Programme comprised the following two components: (i) improving public finance management; and (ii) contributing to the creation of an enabling environment for business development and export promotion. FINANCING SOURCES AND RELEASE OF THE LOAN TRANCHES 3. The estimated Programme financing requirements were UA million broken down in million UA as follows: IDA/World Bank (66.46), European Union (31.6), DFID (91.02), Sweden (14.4), Germany (2.64), Netherlands (4.46) and the ADF (33). The ADF disbursed the 1 st tranche of UA 20,000,000 on 12 December 2007 and a second tranche of UA 12,987, on 30 June Of all the donors that have shown interest in the Programme s funding, only Sweden, Germany and the Netherlands have not as yet released any disbursements. PROGRAMME IMPLEMENTATION 4. The Grant Agreement was signed on 12 November 2007 by the Bank and the representative of the Rwandan Government. The grant became effective on the same date following fulfilment of the general conditions applicable to Bank loans and grants, and the conditions specific to the disbursement of the 1st tranche. 5. The ADF-backed PRSSP-II comprised in all, fifty-two (52) measures including 29 under the 1 st component Improving Public Finance Management and 23 for the second Contributing to the creation of an enabling environment for business development and export promotion. Of all these measures, 47 have been fully implemented, 4 have been

16 xiv implemented in part and only one (1) has not been implemented. This last condition was the establishment and operationalization of the commercial mediation and arbitration system with the adoption by Parliament of the Law on Commercial Mediation and Arbitration. Although the implementation rate of these four (4) partly-implemented measures was 50%, the overall implementation rate was 94%. Details on the status of the Programme s implementation by component and sub-component are given in Annex 1 of this Report. OVERALL PERFORMANCE 6. In all, the performance indicators against the specific objectives targeted by the Programme were reached. Ninety-eight per cent (98%) of the measures selected have been implemented even though some were behind schedule. Although the private sector investment rate was set at not more than 12% of GDP during the Programme implementation period, hopefully following the measures taken, the improvement of the business climate illustrated by Rwanda s world ranking of 139 out of 181 countries in the Doing Business Report compared to 148 in 2008 (9 points up), will promote business development in the country. Based on these criteria and the ratings given (Cf. Annex 4), the Programme s overall performance which was rated 2.66 is deemed fully satisfactory. CONCLUSION 7. The Government has achieved noteworthy results in the implementation of this second phase of the Poverty Reduction Strategy Support Programme (PRSSP-II). Three factors explain this success. First, the Government s determination and resolve to pursue and deepen the reform policy, with a concern to increasingly step up its poverty reduction efforts. Second, it is acknowledged that the Rwandan Administration is constantly gaining in efficiency and expertise in the implementation of reform programmes thereby justifying the rationale of the institutional support it has received for capacity building in the last decade with funds from bilateral and multilateral donors. Lastly, this success is also attendant on the Programme s quality and design in which the Bank played a major role. However, in light of the global financial crisis, whose impact on developed countries will no doubt affect the demand for basic commodities, in the case of Rwanda, tea, coffee and mineral products, the mainstay of its economy, the reform policy should be geared more towards enhancing the competitiveness of the economy, developing infrastructure and deepening sub-regional economic integration. The subsequent phases of the Poverty Reduction Strategy Support should be in keeping with these orientations. RECOMMENDATIONS For the Bank (i) Continue to provide support for the reform policy while ensuring that account is taken of the new global context affected by the financial crisis and the recession that will in turn impact on the economies of its member countries ( 9.1.2); (ii) In the Programme s design, prioritize the approach that limits not only the number of components but also the measures to implement, so as to take into account the country s institutional capacity ( 7.1.2);

17 xv (iii) Invite the Government to complete implementation of the outstanding measures especially those relative to privatizing the remaining public enterprises ( 3.2.5); and lastly (iv) Retain as a topic for dialogue with the Government the institutional stability of the structure for coordination of the implementation of Budget Support Programmes, with a view to preserving a critical mass of skills essential in sustaining the success achieved from one programme to the next ( 9.2.iii); For the Government (i) Finalize the measures not yet implemented under PRSSP-II ( 3.2.5); (ii) Pursue the reform policy by adapting it to the new global economic and financial context ( 9.1.2); and (iii) Ensure the institutional stability of the structure for the coordination of the budget support programmes, with a view to preserving a critical mass of skills essential for the sustainability of the success achieved from one Programme to the next ( 9.2.iii);

18 I. INTRODUCION 1.1 Committed to the establishment of a poverty reduction strategy since 2002 through the PRSP and Rwanda s Vision 2020, the Government benefited from a first Poverty Reduction Strategy Support Programme (PRSSP-I) (PRSSP-I) for the period, which had efficiently contributed to the implementation of four priority areas of the PRSP, namely: (i) rural development and agricultural processing; (ii) economic infrastructure development; (iii) promotion of good governance and (iv) private sector development. In 2007, the Government embarked on a second generation of PRSPs which gave greater importance to the growth-bearing and job-creating sectors especially agriculture, private sector development and investment in infrastructure and human capital. To implement this new strategy known as the Economic Development and Poverty Reduction Strategy (EDPRS) for the period, the Government sought assistance from donors including the Bank. 1.2 Replying positively to the request from the Government, the Bank launched a new budget assistance operation in the form of a 2 nd phase of the Poverty Reduction Strategy Support Programme for (PRSSP-II) whose objectives focused on improving public finance management, and the business climate, as well as promoting exports. This second programme was a follow-up to the first (PRSSP-I). Indeed, in line with the lessons learnt from the first, it pursued the reforms to improve public finance management, budget planning and execution, and strengthen the growth base through diversification and promotion of the private sector and exports. In addition, PRSSP-II was designed at a time of transition when there was no common matrix for all budget support partners. 1.3 This Report gives an account of PRSSP-II s implementation, especially the conduct of the reforms, using data collected in Tunis at the Temporary Relocation Agency and during the mission to Kigali from 16 to 27 October In addition to the introductory Chapter I, the Report comprises eight other chapters. The second chapter presents the Programme s objectives and formulation; the third deals with the actual Programme implementation, the fourth gives an account of its performance and outcomes; the fifth highlights its impacts; the sixth concerns the Programme s sustainability; the seventh recalls the performance of the Bank, the Borrower and Co-financiers; the eighth summarizes the overall performance and rating; and lastly, the ninth gives the conclusions, outlines lessons learnt and makes recommendations both to the Government and the Bank. II. PROGRAMME OBJECTIVES AND FORMULATION 2.1 Programme Objectives and Description The Programme s strategic context was the Economic Development and Poverty Reduction Strategy Programme (EDPRS) adopted by the Government in 2007 for the period whose principal orientations are: (i) the promotion of a knowledge and skillsbased society; (ii) transformation of the agricultural sector towards exports; (iii) development of the financial sector; (iv) population growth control; (v) health services improvement; (vi) social transformation (Vision Umurenge); and (vii) strengthening governance, security and the rule of law. Accordingly, the PRSSP-II reform measures were limited to two components, firstly improving public finance management and secondly, contributing to improving the business climate, as well as promoting exports.

19 2 2.2 Programme Origin and Formulation The PRSSP-II is a follow-up to PRSSP-I which had contributed greatly to supporting implementation of the PRSP s four priority areas namely: (i) rural development and agricultural transformation; (ii) economic infrastructure development; (iii) promotion of good governance and (iv) private sector development. The lessons learnt from the Bank s PRSSP-I intervention, focused on the need for the Government to pursue its public finance management reform efforts and to consolidate the foundations for growth through diversification of the economy, promoting in particular the private sector and exports. It was on that basis that PRSSP-II was formulated and the reforms to be implemented targeted. 2.3 Programme Preparation, Appraisal, Negotiation and Approval The Programme was prepared during the mission to Kigali from 2 to 6 December 2006 and it was appraised on the occasion of the Bank s mission to Kigali from 14 to 28 April 2007 with a team comprising two Bank experts and two consultants, one a macroeconomist and the other a public procurement specialist. The Grant Agreement was negotiated by video-conference between the Bank s Country Office in Kigali and the TRA on 9 June The negotiations focused mainly on the disbursement modalities and the conditions precedent to these disbursements. The grant in the form of budget support of UA 33 million was approved by the Bank s Boards of Directors on 18 July III. PROGRAMME IMPLEMENTATION 3.1 Effectiveness and Release of Grant Tranches The Grant Agreement was signed on 12 November 2007 by the Bank and the Rwandan Government s representative. The Grant entered into force on the same date following fulfilment of the general conditions applicable to Bank grants and loans and the conditions specific to the disbursement of the 1 st tranche, namely: (i) submission to the Fund of evidence that an account had been opened in the National Bank of Rwanda (BNR) for the payment of the grant resources; (ii) submission to the Fund of a copy of the Order establishing the Secretariat in charge of monitoring and implementing the financial sector development plan; (iii) submission to the Fund of evidence that the Government had adopted the micro-finance bill. The Grant s 2 nd tranche was disbursed in June 2008 after the Joint Review of the Budget Support judged satisfactory, and after fulfilment by the Government of the related conditions, namely: (i) submission to the Fund of evidence of the Government s adoption of the Ministerial decree appointing the Independent Public Procurement Review Committee and the Decree relative to the Public Procurement Law s implementation, including standard public procurement documents; and (ii) submission to the Fund of evidence that the Government had adopted the Strategic Road Map for Rwanda s National Land Reform. 3.2 Matrix of Programme Measures Backed by the ADF, the PRSSP-II comprised in all, fifty two (52) measures, including 29 for the 1 st component Improvement of Public Finance Management and 23 for the second Contribution to the Creation of an Enabling Environment for Business Development and Export Promotion. Out of all these measures, 47 have been fully

20 3 implemented, 4 have been partially implemented and only one has not been implemented at all. It concerns the establishment and operation of the Commercial Mediation and Arbitration System with the adoption by Parliament of the Commercial Mediation and Arbitration Law. Although the implementation rate of these four partially implemented measures is estimated at 50%, the overall implementation rate stands at 94% 1. The implementation status by component and sub-component is given in Annex 1 of this report and is as follows: A Component I: Improving Public Finance Management Out of the 29 measures that make up this component, the following two have been partially implemented: the number, i.e. 94, of institutions audited by the Office of the Auditor General instead of the 135 planned under the Programme for 2008; in addition 29 projects were audited, and the Code of Conduct was applied; however although mention is made thereof in Articles 15, 16 and 17 of the Public Procurement Law, it is yet to be clearly stated in a formal Code of Conduct which is being prepared. This will be available towards the end of 2008 and could be applied as of January All the other measures were implemented over the Programme period even though some fell behind schedule. The SMARTGOV software, the cornerstone of the public finance management computerized system, was in operation for the 2008 Budget in its alpha version and its beta version which takes into account users' requirements will soon be available and could be used for the six month interim budget (January/June 2009) that precedes the budget cycle (July 2009/June 2010) of the East African Community of which Rwanda is a member. The implementation rate of the reform measures in this first component can be estimated at 100% if account is taken of the partially implemented measures. Those fully implemented include budget decentralization and the reform of the public procurement system which strengthened the reliability of the fiduciary framework and enhanced the transparency of the Government s transactions Implementation of the budget decentralization policy was taken a step further during the Programme s execution. Indeed, transfers from the Central Budget to the districts rose from 8.8% in 2006 to 12.2% in 2007 and to 13% in Thanks to the Bank s introduction of the IT connection network and the training courses it provided for Rwandan experts under the support project to strengthen public investment planning and management, decentralizing management of the budget to the districts using SMARTGOV is easier. In the areas of health and education, a large portion of the operating charges (22.7% and 40.6%, respectively) is now transferred to the districts, making it possible to achieve the expected outcomes from implementation of the reforms, i.e. greater role of the Districts in development programme implementation and in the transparency of their budgets. Regarding the procurement system reform, not only was Law N 12/207 of 27 March 2007 adopted and promulgated, but all the implementing regulations were transformed into operational provisions, in particular standard bidding documents, and Appeal Committees were introduced both at national and area-based levels (ministries and districts), and adequate training provided for procurement officers Concerning the performance indicators for the attainment of the Programme s specific objectives, it must be pointed out that those relative to budget planning and implementation (1 st sub-component) did well or even better than planned. For instance, 100% of the MTEF of the districts and ministries are now based on the strategic sector goals set out in the EDPRS against the estimated 75%. Priority expenses represented 78.5% of the revised 2008 total budget expenses and 77.6% of the initial 2008 budget compared to an estimated 52%. The number of files committed and authorized fell from 264 a week in 2007 to 244 in However, the amounts committed in these files starting 2008 were much 1 Based on the 4 half-implemented measures, a total of 49 out of 52 measures were implemented or 94%

21 4 higher since they covered larger transactions; this also explains the drop in the number of files processed per week. To consolidate the fiduciary framework and for greater transparency in managing public finance, all development project accounts except for a few are now with the BNR, against set objective of 25%. All public accounts managed in 2007 were submitted to the Auditor General on 31st March 2008 as planned. All the accounts of the public authorities for the 2007 financial year except for ORINFOR were audited. The coverage rate for the circulation of procedures manuals to the relevant public authorities (budget managers) was 100%. Conversely, performance indicators for the objectives assigned to the Auditor General (number of services audited) was not as good owing to a lack of qualified staff, and budget constraints that make it difficult for the Institution to solve the problem in the near future. B. Component II: Contributing to Creating an Enabling Environment for Business Development and Export Promotion This second Programme component also registered positive results both in terms of performance indicators as in terms of the reform measures agreed to in the Programme. Firstly, of 23 reform measures under this second component, only that on the accreditation of the Rwanda Bureau of Standards as Quality Control Certification Agency has not yet been implemented. The following two measures have been partially implemented: privatization of the remaining four enterprises (BANK of KIGALI, RWANDAIR, IMPRISCO and LABOPHAR) was finalized and so was the master plan for land use in the East Region s Province. In that last regard, the process is still ongoing but given the complexity of the issue of land distribution in that part of the country, the Land Use Master plan could not be finalized. Concerning privatization, the firm IMPRISCO (printing press) was sold to an Indian firm called ANGELIC INTERNATIONAL LTD. For the other enterprises, either bidding was unsuccessful (the case of RWANDAIR), or preliminary studies were required before they could be put up for sale (case of LABOPHAR) or lastly, the bids were well below the asset value of the enterprise (case of BANK of KIGALI). The Government has decided to re-launch the process any time now. Apart from these two cases, all the other measures were implemented not only to improve the legal and institutional framework but also to strengthen financial intermediation and consolidate the banking system Concerning the banking sector reforms and financial intermediation, all of which are an important link in the mechanism for creating an enabling environment for business development and export promotion, the following concrete measures that were taken in the context of the Programme should be underscored: (a) (b) (c) The revised banking law enabling BNR to supervise insurance companies was promulgated in February 2008; Almost all the banks are bound by regulation to increase the level of their share capital in mid-april 2008; the Union des Banques Populaires (UBP) which was in control of a large portion of micro-finance, has since February 2008, become a full fledged commercial bank with a 35% share by Rabobank of the Netherlands in its capital. As to the BRD, it joined a private German Group the African Development Corporation which now holds 25% of its equity, the public sector holding only 45%;

22 5 (d) With a view to improving their financial soundness, 11 micro-finance institutions accepted the mandatory increase in their minimum capital level as at 1 st January 2008; (e) (f) (g) Since the adoption by Parliament of the new accounting law in December 2007, all financial institutions, large private and public companies alike must now comply with international accounting standards and accounting systems; A Unit within the BNR is, since March 2008, responsible for the supervision of insurance companies and pension funds; A study on the Rwandan banking sector was entrusted to the South African company FINMARK TRUST which will submit its finding before the end of the current year. These will provide data on the banking penetration rate, the various segments of the system and the sections of the population who have no access to financial services. The ultimate goal of the monetary authorities is to turn Rwanda into a financial hub in the sub-region Regarding the pre-determined performance indicators, it is worth mentioning that: (i) of the 22 technical assistance judges planned, 7 have already been recruited in Mauritius on contract; (ii) Rwandan judges are currently being trained based on a programme drawn by the University of Witwatersrand in South Africa; (iii) trade disputes involving amounts lower than or equal to RWF 20 million, are now settled by the Commercial Courts established in Kigali, Musanze and Huye, and for higher amounts the dispute will be settled in a High Commercial Court to be put in place very soon and which will also serve as Court of Appeal in commercial matters; (iv) the duration of company registration formalities will be brought down from 15 days to 2 or 3 days starting January 2008, against the Programme s projected 4 days; (v) the road map for land use and management has now been established and has been in place since 2007; the National Land Centre (NLC) which regulates technical issues arising from disputes, various transactions, expropriation, and title deeds, has been set up; (vi) according to projections, the country s exports should in 2008, grow by about 25% compared with 2007 compared to the Programme s objective of 16.8%; (vii) contrary to the objective that had been set in the Programme and which had given Union des Banques Populaires (UBP) 80% coverage of the country s banking agencies, it must simply be noted that UBP has since the 2008 reform, acquired the status of full-fledged commercial bank with clearing and SWIFT authorization; (vii) the percentage of non-performing loans in the Rwandan banking system dropped to 8.8% compared to the Programme s estimated 10%; and finally (viii) the increase in credit to the private sector was over 15% in Programme Reporting Contrary to what was retained in the Appraisal Report that the Government would send to the Bank periodic reports on budget execution in the priority sectors of the EDPRS, the latter were submitted for review to all donors on the occasion of the joint half-yearly budget support reviews, with the aim of minimizing the transaction costs in the spirit of the Paris Declaration. It is, in fact, on the basis of the positive comments of the joint reviews and given the fulfilment of the specific conditions that the Bank went on to disburse the Grant s second tranche. In accordance with the new Presidential Instruction for preparing completion reports, and contrary to what was planned at appraisal, this report was prepared in concert with the Government to take stock of the Programme s implementation. Consequently, the Bank should no longer expect a separate completion report from the Government.

23 6 3.4 Sources of Finance and Release of the Grant Tranches The Programme s estimated cost was UA million as follows: IDA/World Bank EU DFID Sweden Germany Netherlands ADF UA million UA 31.6 million UA million UA million UA 2.64 million UA 4.46 million UA 33 million Only Sweden, Germany and the Netherlands have not disbursed any funds to date. This has meant a loss of UA million or 8.8% of the expected resources. All other partners honoured their commitments. IV. PROGRAMME PERFORMANCE AND OUTCOMES 4.1 Institutional Performance The ADF Grant became effective on 12 November 2007 or about 4 months after its approval by the Bank s Boards of Directors, a period during which the 3 precedent conditions including that relative to the Government s adoption of the micro-finance bill were fulfilled. This period is relatively long since there were only three conditions to meet including the two for which the MINECOFIN itself was responsible On the other hand, fulfilment within a relatively short timeframe (18 months), of 98% of the 52 reform measures retained under the Programme illustrates the performance of the country s Administration especially those in charge of economic and financial issues (MINECOFIN, MINICOM, BNR). The External Financing Unit responsible, under the oversight of the Secretary-General of MINECOFIN, for monitoring implementation of the Programme and its measures, displayed its technical capacity to coordinate the budget support programmes of its development partners in general and the PRSSP-II in particular, not only from its appraisal but also during the joint half-yearly budget support review, as well as during preparation of the completion report. This External Financing Unit proved to be competent. It would therefore be desirable to maintain it in the institutional mechanism of the Ministry of Finance and Economic Planning so that advantage could be taken of the experience it has acquired over time. Institutional performance in the context of the Programme can be considered as highly satisfactory. 4.2 Economic Performance The Programme s macro-economic and financial objectives focused on economic growth rates of 4.5% and 4.7% respectively in 2007 and 2008, inflation at 5%, the primary deficit at about 3% of the GDP, the overall budget deficit excluding grants at about 14% of the GDP, the current account deficit (excluding official transfers) at 18.5% and the maintenance of gross official reserves at over 4 months of imports.