Document of The World Bank ON A PROPOSED GRANT IN THE AMOUNT OF SDR 19.4 MILLION (US$25.6 MILLION EQUIVALENT) TO THE FOR A

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No: MOZ Public Disclosure Authorized Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 19.4 MILLION (US$25.6 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR A PUBLIC SECTOR RE FORM PROJECT IN SUPPORT OF THE FIRST PHASE OF THE PUBLIC SECTOR REFORM PROGRAM Public Disclosure Authorized February 13, 2003 Public Sector Reform and Capacity Building Unit Country Department 2 Africa Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2003) Currency Unit = Meticais US$1.0 = MZM 23,300 MZM 1 = US$ FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACCRONYMS APL AT CAS CFAA CG CIRESP CM CPAR CPIA CQ DANIDA DFID EGFE EU FMR FMS FMU GOM GOVNET GOVSYS GPM GPN HIPC HRM IAPSO IAS IBRD IDA SISTAFE IGF LC M & E MADER MAE MPF MINED Adaptable Program Loan Administrative Tribunal Country Assistance Strategy Country Financial Accountability Assessment Consultative Group Inter-ministerial Conrmission for the Reform of the Public Sector Council of Ministers Country Procurement Assessment Review Country Policy Institutional Assessment Consultant's Qualifications Danish Aid Department for International Development General Statutes of Civil Servants European Union Financial Monitoring Reports Financial Management System Financial Management Unit Government of Mozambique Government Network Electronic Documentation Center Prime Minister's Office General Procurement Notices Heavily-Indebted Poor Countries Human Resources Management Inter-Agency Procurement Services Office of the UNDP International Accounting Standards International Bank For Reconstruction and Development International Development Agency Integrated Financial Management System Government Audit Unit Least Cost Selection Monitoring And Evaluation Ministry of Agriculture and Rural Development Ministry of State Administration Ministry of Planning and Finance Ministry of Education

3 MS MTC MTEF NBER NCB NGO NORAD PARPA PER PHRD PIF PS PPF PR PRSC QCBS RFP SCR SIDA SIFAP SIP SOE TOR UNDP UTRAFE UTRESP Ministry of Health Ministry of Transport and Commnunication Medium Term Expenditure Framework National Bureau Of Economic Research National Competitive Bidding Non Governmental Organization Norwegian Aid Action Plan for the Reduction of Absolute Poverty Public Expenditure Review Policy and Human Resources Development Fund Fundo de Melhoramento do Desempenho (Performance Improvement Facility) Permanent Secretary Project Preparation Fund Presidency Poverty Reduction Strategy Credits Quality- and Cost-Based Selection Request for Proposals Compensation and Remuneration System Swedish International Development Cooperation Agency Public Service Training System Personnel Information System Statement of Expenditure Terms of Reference United Nations Development Program Technical Unit for the Reform of the Administration of State Finances Technical Unit for the Reform of the Public Sector Vice President Country Director Sector Manager Task Team Leader Callisto Madavo Darius Mans Brian Levy Harry Gamett

4 MOZAMBIQUE PUBLIC SECTOR REFORM PROJECT CONTENTS A. Program Purpose and Project Development Objective Program purpose and program phasing Project development objective Key performance indicators... 2 B. Strategic Context Sector-related Country Assistance Strategy (CAS) goal supported by the project Main sector issues and Government strategy Sector issues to be addressed by the project and strategic choices Program description and performance triggers for subsequent grants.. 11 C. Program and Project Description Summary Project components Key policy and institutional reforms supported by the project Benefits and target population Institutional and implementation arrangements D. Project Rationale Project alternatives considered and reasons for rejection Major related projects financed by the Bank and/or other development agencies Lessons learned and reflected in the project design Indications of recipient commitment and ownership Value added of Bank support in this project E. Summary Project Analysis Economic Financial Technical Institutional Environmental Social Safeguard Policies F. Sustainability and Risks Sustainability Critical Risks Possible Controversial Aspects G. Main Grant Conditions Effectiveness Condition H. Readiness for Implementation I. Compliance with Bank Policies Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary Annex 5: Financial Summary Annex 5a: Financial Management Assessment Report

5 Annex 6: Procurement and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Country at a Glance Annex 11: President Chissano's Speech on Public Sector Reform Annex 12: Letter of Sectoral Policy Annex 13: Performance Improvement Facility: An Outline Annex 14: CPAR 2002, Executive Summary Annex 15: Ministerial Restructuring MAP(S) IBRD No

6 Date: February 13, 2003 Country Director: Darius Mans Project ID: P Lending Instrument: APL (Grant) MOZAMBIQUE Public Sector Reform Project Project Appraisal Document Africa Regional Office AFTPR Team Leader: Harry C. Garnett Sector Manager: Brian D. Levy Sector(s): Central Government Administration Theme(s): Public Sector Poverty Targeted Intervention: Y Estimated AIPL Indicative Financing Plan Implementation Period lbank FY) Recipient IDA Others Total Commitment Closing US$ m % US$ m US$ m Date Date APL % Govt. of Loan/ Mozambique G rant APL % Govt. of Loan/ Mozambique G rant Total [ ] Loan [ l Credit [X I Grant [ Guarantee [ 1 Other: For Loans/Grants/Others: Total Bank Financing (US$m): 25.6 Proposed Terms (IDA): Standard Grant RECIPIENT IDA _ Others Total: Recipient: GOVERNMENT OF MOZAMBIQUE Responsible agency: GOVERNMENT OF MOZAMBIQUE, UNIT FOR THE REFORM OF THE PUBLIC SECTOR (UTRESP) Address: Ave. Guerra Popular, 20-7, Predio CPD, Maputo Contact Person: Adelino da Cruz, Director Tel: Fax: dacruz@zebra.uem.mz Estimated disbursements (Bank FY/US$m): Annual Cumulative Project implementation period: Phase 1: 3 years; Phase 2: 7 years Expected effectiveness date: April 30, 2003 Expected closing date: June 30, 2006

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8 A. Program Purpose and Project Development Objective 1. Program purpose and program phasing The development objective of the ten-year program is: To provide capacity building support to the Government of Mozambique's Action Plan for the Reduction of Absolute Poverty (PARPA) by transforming the public service so that the poor throughout Mozambique receive the services they need and the economy can afford, and entrepreneurs throughout Mozambique are encouraged to invest. The ten-year program will assist in bringing about a transformation of the public service so that by the end of the program, poor as well as rich citizens in all parts of the country will have much better access to public services and businesses will have to deal with less red tape as they invest to provide the basis for sustainable economic growth. Services will be provided by the citizen's own local governments, via partnerships between the public and private sector, the private sector, and executive agencies, all accountable to citizens. It will be a citizen's right rather than privilege to have access to services. A much slimmer center of government will focus on formulating and monitoring policy. Public resources will be allocated in accordance with the priority needs of citizens and businesses, but also in ways that foster sustainable economic growth and social development. The Bank's program is part of a larger multi-donor program that will support the Government of Mozambique's Public Sector Reform Program, launched by the President in June, The program as a whole will lay the foundations for greater donor reliance on budget support, in the case of the Bank, through Poverty Reduction Strategy Credits (PRSC) planned for FY2004 and beyond. By supporting the implementation recommendations of the 2001 Country Financial Accountability Assessment (CFAA), the 2001 Public Expenditure Review (PER) and the 2002 Country Procurement Assessment Review (CPAR), the program will help to make public servants much more accountable to the public for the services they provide. Public sector reform is defined as reform of the crosscutting issues, common to all sectors, such as restructuring government for decentralized service delivery, accountability, wages, and human resources management. Thus the public sector reform program will support improvements in service delivery carried out by the sectors. Public sector reform also deals with fundamental issues such as the role, structure and processes of government. Phasing There will be two phases to the program. Phase 1. The basic conditions for the transformation will be established in the three-year first phase (the project). In-country capacity for change management support will be developed to help ministries improve service delivery. With support from the Performance Improvement Facility, service delivery processes will be reengineered through the Quick Wins Program and restructuring plans will be prepared in key ministries. Capacity will be developed to establish effective linkages between PARPA, MTEF, and sector programs. A public sector accounting profession will be established. Staff will be trained in the basics of expenditure management and accounting. New systems of expenditure management and accountability will be introduced with support from donors, in line with CFAA, PER, CPAR, and HPIC Assessment and Action Plan 1

9 recommendations agreed by the Government. Taken together, these improvements in accountability will assist in reducing corruption. Salary incentives will be introduced to make it easier to recruit, motivate and retain key staff. Support will continue for improved human resources management, including decentralization of the function. There will be substantial training capacity development during this phase. Phase 2. On the basis of, and depending on, progress in phase 1, a process of restructuring, reengineering, and decentralization, and monitoring and adjustment will take place in the second, seven-year phase as the reforms in the processes and structures of government are rolled out throughout the public sector with funding from the Performance Improvement Facility. The integrated financial management system will become progressively fully operational in central and local government resulting in a much stronger linkage being established between MTEFbased budget allocations in line with PARPA targets and expenditure tracking. Local and central government will develop the capacity to adhere to international accounting standards. Accountability to citizens will improve as audit capacity is decentralized and more service delivery functions devolved to local government. An increasing number of key staff will have salaries that will be competitive with the private sector as more budgetary resources can be made available from the budget. 2. Project development objective (see Annex 1) To support the Govemment to restructure the public service for decentralized service delivery, professionalize the public service, and improve govemance. 3. Key performance indicators (see Annex 1) The ten-year program: Access to basic services by the poor in rural areas is significantly improved. Data on this would be collected via poverty assessments. The three-year project: * At least six reengineering "quick wins" will have been implemented that will be recognized by the Ministries' clients (through service delivery surveys) as improving the quality of its services; * Three ministries will have begun to implement their plans to reengineer, restructure and decentralize the delivery of services (implementation to mean: structures have been revised and staffing changes made); * The regulations required to establish a professional accounting body will have been approved by the Council of Ministers; * A process will have begun under which key technical and professional staff will have their salaries increased in line with the Salary Reform Strategy and the restructuring plans (the number to be impacted, and thus the exact indicator, will be determined during the first year of the project in accordance with the Strategy, once it has been approved by the Council of Ministers); * The new policy process by which policies are formulated and submitted to the Council of Ministers, and which will link policy to resources and involve widespread consultation, will have been designed and have begun to be implemented.

10 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1) Document number: MOZ Date of latest CAS discussion: June 1, Country Assistance Strategy goals supported by the project: The 2000 CAS for Mozambique has three pillars: 1) increasing economic opportunities through private sector led growth; 2) improving governance and citizen empowerment; and 3) improving human capabilities. This project mainly supports the second pillar. There is a strong focus on improving accountability for the use of public resources, and involving citizens and businesses both in policy formulation and in monitoring service delivery performance. This project will also have an impact on the other two pillars of the CAS strategy. By making government more responsive to business needs, it will promote private sector growth. (An indicator covering this objective is one of the program indicators). Improved delivery of social and economnic services will help citizens reach their full productive potential. In addition, the project will provide substantial funding for training of those providing public services. Mozambique has particularly weak public institutions and human resources. The project will complement both a future Poverty Reduction Strategy Credit (PRSC) and the Government's Poverty Reduction Strategy Paper (PARPA) on which it is based, since in essence the project is providing the multi-sectoral capacity building support, through technical assistance and training, needed to achieve the reforms required to reduce poverty. The proposed project will also support the improvements in fiduciary responsibility that will be required to track the impacts of the budgetary support given under a PRSC. It will provide funding for the sectors to re-structure in preparation for the budget support under the forthcomning PRSC. The project will also support the implementation selected recommendations of the 2001 CFAA and PER, both of which highlight severe accountability problems. The 2002 CPAR identifies serious procurement problems, which will also be addressed by the project. The Executive Directors discussed the PRSP (IDA/SecM ) on September 25, Rationale for the use of the IDA grant: As an IDA-only country with a GNI per capita of less than $360 per annum, Mozambique has been allocated IDA grants of SDR 19.8 million for FY03. The full amount is proposed to be applied to the Mozambique Public Sector Reform Project. (An additional SDR 41.4 million in IDA grants was allocated to Mozambique for HIV/AIDS and will be fully utilized to support an upcoming HIV/AIDS project being developed under the framework of the Multi-country AIDS Program.). Of the three projects proposed in FY03 in the Mozambique program, this project was selected for grant financing in the "other poor countries" category for the following five reasons: 3

11 * Strong human development impact. The proposed project will support restructuring in key PARPA ministries, including health and education. The objective of this restructuring is to decentralize the delivery of basic services to the poor. Thus this operation will help Mozambique to accelerate progress towards achieving the Millennium Development Goals (MDGs) for human development. * Centrality of public sector reform to all poverty-reducing activities. Mozambique's Public Sector Reform program, which the proposed project would support, is central to Mozambique's medium- and long-term development strategy and central to the Bank's CAS. As donors continue to move towards higher levels of financing in the form of budget support in Mozambique, an increasing percentage of poverty-reduction activities will be channeled through the public sector. Improving the public sector's ability to deliver services in a costeffective manner will therefore have a multiplicative effect. By improving accountability, rationalizing wages and human resource management, and modernizing the structure and processes of government, the Public Sector Reform program will make a crucial contribution to improved public service delivery and so to poverty reduction. * Better collaboration between IDA and other donors supporting the Government's Public Sector Reform Program. The use of an IDA grant to support the Government's Public Sector Reform Program will facilitate closer collaboration between IDA and the other donors that are supporting program implementation. Many donors have participated in the preparation and appraisal of the project and have, together with the Bank, been funding the Government's Public Sector Reform Secretariat (UTRESP). These donors are putting together a multidonor pool to support the Government program through UTRESP. Having the funds in the same form will facilitate their management by UTRESP. * Stronger public support. The use of grant resources will also help to secure popular support for a reform program which is ambitious and which challenges vested interests, who might tend to use the fact that the government has had to borrow to implement this poverty reduction focused program to oppose its implementation. * The impact of the grant funds on poverty reduction will be monitored and evaluated. A Monitoring and Evaluation Manager will be appointed to UTRESP prior to effectiveness. That manager will not only be responsible for monitoring against the indicators in the logical framework (such a system is already in place in UTRESP) but also for studying the relative impact of a grant versus a credit. A baseline survey will be carried out by senior officials in the key ministries' and other stakeholders' expectations as to the relative impacts, with a follow up survey at the time of the midterm review. Government preference. The Government has shown strong ownership of this program and has explicitly requested grant financing for this project. It sees significant benefit in the popular support for this program and seeks to boost the momentum for country-wide results. 2. Main sector issues and Government strategy Although Mozambique's policy performance has been good (the overall CPIA rating for 2000 was above the average for Africa), starting from a very low base following the civil war, there are substantial concerns about the sustainability of that performance. The critical problems are as follows:

12 * quality of civil servants: civil servants in Mozambique are among the most poorly educated in Africa, they are also poorly paid, technical and professional staff are particularly poorly paid compared to their counterparts in the private sector and parastatals; * weak accountability: there is no accounting profession in Mozambique, and not a single Mozambican qualified to international accounting standards; weak internal and external auditing capacity hence weak oversight by the National Assembly and citizens; and almost no follow-up on the implementation of policies; * complex service delivery processes: centralized, complicated and confusing. 2.1 Main sector issues "We want a public sector that transmits efficiency... a new culture for the public service should be developed as we advance toward a market system", the Prime Minister. In this quotation, the Prime Minister admits that the public service is inefficient and not well organized to support Mozambique's transformation from a centrally planned to a market economy. From its independence in 1975 to the mid-1980s, Mozambique followed a central planning model. The civil war from the mid-1970s to the Peace accord in 1992 destroyed social and economic infrastructure. Market-oriented economic reforms in place since 1987 have reduced inflation and attracted foreign investment. A new constitution was enacted in Since the signing of the peace agreement in 1992, the country has successfully held two democratic elections. In this relatively stable political environment, economic growth has been impressive, exceeding 10 percent on average in the past few years. However, the challenges of development remain daunting. The public sector is staffed with poorly qualified, badly paid civil servants. Not surprisingly, corruption is a problem. A high proportion, especially of the better educated, are based in Maputo. Many citizens do not receive any public services at all. The rest suffer from very poor service delivery. Public servants, many of whom are still directly involved in service delivery still treat the receipt of public service as a privilege not a right. Processes need profound restructuring. Over-regulation exemplifies the situation. A 1996 World Bank study, "Mozambique, Administrative Barriers to Investment: the Red Tape Analysis", describes the lengthy, unpredictable and highly complicated administrative processes for investment, leading to significant costs at the outset and during the life of the business, leading to lost output and employment. An outdated legal and regulatory framework, uncertainties of changing legal rules, lack of transparency and poor training of public servants in the implementation of the rules make life difficult for businesses as well as citizens. New research confirms that the situation did not improve much since that study. Rated with 74 other countries on the time and cost of entry of a start-up firm, Mozambique comes second to last (Djankov, La Porta, Lopez-de-Silanes and Schleifer, NBER Working paper 7982, 2000). The public sector is still very much functioning on the basis of a self-centered paradigm. Neither the culture nor the practice of the executive branch of government being effectively accountable to the legislative branch has taken root. Furthermore, the notion of accountability of the public servant to the users and citizens is still relatively new, and participation of citizen groups or the 5

13 private sector in the oversight of public administration, as well as in information sharing, is still poorly developed. This is also because civil society is still relatively poorly organized. The issues discussed below are based upon the studies and workshops undertaken over the past 3 years. These are listed in Box 1. Service delivery is sti1l highly centralized The Mozambican State still functions in a paradigm of centralism and hierarchy. A process of gradual deconcentration is ongoing but suffers under dual subordination to the center, through the sector ministries and governors and provincial administrations. The traditional practice of treating provincial services as extensions of central programs has done little to encourage the staffing of local administration with well-qualified staff. Similarly, equipment and infrastructures are very limited outside the capital, and working conditions generally very poor. Following a constitutional change in 1996, 33 municipalities were created in However, many of the enabling regulations that need to accompany the decentralization law remain to be enacted. There is the potential for conflict between the municipalities and the deconcentrated administrations of the sector ministries. This first step towards genuine decentralization (locally based service delivery, with accountability to local citizens) needs to be accompanied by structured policies of transfer of powers and resources, which obviously must be gradual, in view of the extremely low capacities at the municipal level. In particular the capacity of municipalities and the local office of ministries to manage finances is very weak. Although there is a widespread appreciation that gradualism is required, there is no clear timetable for the reforms. The move of key public sector functions down to different sub-national tiers of government must occur in parallel with a change of the role of the center, from provider to facilitator. Functions of state organizations at the center should be reoriented towards formulating, monitoring and facilitating the implementation of policies. To assist in the design of the project, a study on the administrative constraints to service delivery was undertaken ("Note on Administrative Constraints to Service Delivery with a Focus on the Sub-National Level"). This study compared the formal and informal service delivery systems in key sectors, through interviews with Bank's team leaders in the key sectors and analysis of the findings of the PER. It provides pointers for reforming key public sector rnanagement systems (personnel, finance). Civil servants lack the skills and incentives to serve citizens and businesses well Despite continuing efforts to improve the educational level of its population, Mozambique is still facing an acute shortage of higher-educated people. In 1999, total enrollment in higher education was 11,600, but the total number of new higher education graduates in Mozambique was only 483 in The result is that out of over 100,000 civil servants (excluding the armed forces), only about 3 percent have a degree, almost all of whom are based in Maputo. Furthermore, 52 per cent of managers do not have the academic qualifications required for their jobs. On the demand side poor working conditions and low pay levels compared to the "international donor sector" and even to the private sector impede the public sector from attracting enough skilled staff. Absence of a sound human resources management policy, and of links between 6

14 recruitment and promotion and perfornance are aggravated by the complexity of the rules and lack of clarity of the mandates. A recent study has shown that only 13 per cent of civil servants are appointed through a competitive process - family and party connections are more important. Poor formal incentives are breeding ground for corruption. Very few channels of communication exist between top civil servants and their staff and little knowledge of the rules contributes to slow implementation and lack of individual initiative. Public institutions are assessed in terms of following procedures correctly rather than in terms of performance against expected results. Furthermore, as a result of the very recent democratization and of years of armed conflict, the public sector tends to be somewhat politicized. Top civil servants and governors are appointed by the leaders of the party in power more on the basis of their loyalty than their technical merit. There is little accountability for the use of scarce resources Despite some improvement in terms of a more transparent and comprehensive budgeting process, several factors contribute to a relatively poor allocation and use of resources. These findings were confirned by the PER and CFAA: * the functional classification is not sufficiently disaggregated, hindering the efforts to efficiently measure and monitor the impact of public expenditures; * the Inspectorate General of Finance (internal audit) and the National Administrative Tribunal (external audit) lack trained and qualified staff as well as budgetary resources. There is no value-for-money audit; * the MTEF has not been formally institutionalized; * the level of extra-budgetary flows leave important resources unaccounted for; * neither parliament, civil society nor the private sector participates effectively in the planning, budgeting and financial management process; * the legal framework for accountability is deficient inasmuch as public information about the Government's performance is insufficient. The current framework does not require leaders to declare their assets and liabilities, there is no freedom of access to information in place that would provide for citizens to be better informed, there is no whistle-blower legislation in place that would provide protection to citizens who report corrupt practice, and the rules of evidence do not require leaders and other public officials to explain how they became wealthy while in office. Policy coordination, monitoring and evaluation are weak Public policies are not formulated according to a standard format. Little effective analysis precedes their submission to the Council of Ministers. The linkage between policy and resources is weak. There is little coordination either at the center or in the provinces in the preparation and implementation of policies, and there is virtually no monitoring of the implementation of policies or evaluations of their impact. 7

15 Box 1 Analytical Underpinning for the Project A number of preparatory activities have been undertaken by the Bank and the Government over the past three years: 1. Review of Public Sector Reform in Mozambique, July, 1998, carried out by Bank staff in collaboration with Government. 2. Reform of the Mozambican Public Sector: Strategy and Actions, August, 1998, Government of Mozambique - based upon above study. 3. Workshop on public sector reform issues, February, 2000: meeting of senior officials and academics to identify administrative constraints and possible solutions. 4. Pay policy study, ongoing, : preparation of sustainable pay reform options and design of medium term donor support scheme. 5. Policy process study, 2001: study of the process by which policy is formulated, decided upon, implemented and monitored. 6. Workshops in 2001 to discuss reform issues with groups of stakeholders: permanent secretaries, NGOs, religious groups, journalists, trade unions, donors, private sector, and national directors. Each participant completed a questionnaire identifying key constraints. 7. Country Financial Accountability Assessment, Public Expenditure Review, PARPA. 10. Civil Service Management System: An Analysis of Reforms To Date and Emerging Next Steps, Draft, July, Politica Salarial a Medio Prazo, UTRESP, Draft, May, Improving Expenditure Management in Mozambique, World Bank, July, Administrative Constraints to Decentralized Service Delivery, World Bank, August, Changing role of govermment and decentralization, UITRESP, Draft, December Policy management study, UTRESP, Draft, October Future studies: govemance baseline survey (households', businesses', and public servants' experiences and perceptions of service delivery), salary survey (financed by the PPF). 8

16 HIEV/AIDS is having a growing adverse impact on public sector capacity HIV/AIDS impacts public sector capacity in two ways, by increasing the demand for public services in some sectors, while reducing the public sector capacity, since civil servants are affected by the disease (lower productivity, high attrition environment). GoM has requested the support from IDA in preparing a MAP project. 2.2 Government strategy Issued in August 1998, the "Reform of the Mozambican Public Sector, Strategy and Actions" (Republic of Mozambique), describes the different areas already undergoing reform, and the need for articulating a strategy to move "in the direction of a new organizational culture for the public sector, centered on efficacy and transparency", as well as the changes to be made to transform the public sector, currently centered around the delivery of service, to being a "facilitator". This document, presented at the 1998 CG meeting together with a public sector study jointly undertaken by the World Bank and the GoM, provides the first, underpinning diagnosis for the elaboration of the public sector reform strategy. Reform actions of the past few years have focused on three main issues: * the rationalization of human resources, through the establishment of a new Career and Remuneration System, measures of salary decompression and the implementation of a Human Resources Management System (computerized database), as well as the establishment of a program of training for public servants (Public Service Training System, SIFAP) and a State Administrative Inspectorate; * institutional reform through measures towards deconcentration and decentralization (creation of local governments, municipal elections); * reform of the budget system, with the enactment of a new Budget Law (1997) and its corresponding regulations, and enactment of a new Public Finance Law (2001). Over the past year, following the 1999 elections, the President established the Inter-ministerial Commission for the Reform of the Public Service (CIRESP), chaired by the Prime Minister. The Council of Ministers then set up the Technical Unit for the Reform of the Public Service (UTRESP) to be a secretariat to CIRESP. CIRESP recently approved the reform strategy prepared by UTRESP: Estrategia da Reforna do Sector Publico (June 2001). The strategy defines public sector reform as the cross and multi-sectoral reforms in processes and institutions needed to support reforms in the separate sectors leading to improvements in the delivery of services to all citizens and businesses. The Council of Ministers has decided that the reform will cover all institutions financed directly or indirectly by the State and will focus on restructuring the State so that public servants will become more results-oriented. The Strategy includes a Quick Wins Program, which consists of identification of measures that could be successfully implemented in a relatively short period, and would be highly visible, partly to build up support for the reform program. The CM has requested that all ministries prepare and implement quick wins; The Prime Minister has taken responsibility for this program. The GoM Strategy takes account of the GoM's poverty reduction objectives set forth in PARPA. Good governance is described in PARPA as one of the fundamental conditions for poverty 9

17 reduction, improved public service delivery and sustainable economic growth. Stakeholders consulted as part of the PARPA process stressed the need for good governance (and in particular decentralization and deconcentration policies that favored participative development at the local levels). They also highlighted the need for the State to improve its capacity to act energetically on its policy and program choices, as well as the importance of fighting corruption and establishing a more mutually supportive relationship between public institutions and citizens. President Chissano launched the reform of the public sector, based upon this Strategy, on June 25th, 2001, National Day, in a speech to the nation. His speech is summarized in Annex 11. Key points from the speech are shown in Box 2. He confirmed his commitment to public sector reform in a speech to the National Assembly in April, The Government Strategy has been published and widely disseminated. GoM has prepared an Implementation Plan and has implemented a number of Quick Wins. Box 2 Quotations from the President's Speech Launching the Public Sector Reform Program National Day, June 25, 2001, Bagamoio barrio, Maputo The public sector has generally operated with low levels of efficiency and has provided the citizens with low levels of efficiency. There is now a generalized trend for civil servants to demand illicit payments for providing the services that are the job of the civil service. Examples of corruption: The mother or father of a family who must "offer thanks" in order to enroll their son at school. The patient who is only cared for if he gives the health worker "a little envelope"...the driver who must buy a beer or "act like a man" to the police to avoid a fine. The Government wants a public service that is flexible, decentralized, free of red tape, simplified, modernized, competitive, and concerned with the results and quality of services provided to the citizens. The public service must be transparent... endowed with qualified, professional staff. I want to see participatory mechanisms institutionalized which allow us to identify more securely the desires and needs of citizens. At the top of the list of reforms is the rationalization of procedures and the decentralization of administrative structures and processes in order to make them more efficient and accessible to the citizens. From 2001 to 2004 the basic conditions would be established for the profound transformation of the public sector. Up to 2011, programs with a much broader impact would be inplemented... the public sector will be a sector working for results and for citizens. 10

18 3. Sector issues to be addressed by the project and strategic choices The Bank's support will focus on five of the components of the GoM strategy: decentralization and institutional restructuring, strengthening policy formulation and monitoring, the professionalization of human resources, including pay reform, accounting and financial management, and change management. The phasing of the support is consistent with the Government's strategy, which will focus on quick wins and the preparation of plans to implement the strategy over the coming year, and establish the basic conditions for a longer reform program in its first, 3-year phase. The Bank will share support with a number of other donors. This project will support institutional reforms already underway in key sectors such as education, health and transport, all supported by multi-donor programs by focusing on crosscutting issues and, through the Performance Improvement Facility, providing the funding and incentives for reform. Reform in the sectors will be managed by the sectors themselves, just as reform in the Ministry of Finance and Planning, the Administrative Tribunal and the Secretariat to the Assembly will be managed and implemented by those agencies themselves. The program and project will provide leadership, coordination and monitoring and evaluation services, as well as funding. The reform team will be in a position to deal with major issues since it is led by the Prime Minister and his Inter-ministerial Commission, with a direct line to the Council of Ministers. 4. Program description and performance triggers for subsequent grants Phase 1 will begin to address the basic structure of government and incentive issues. In doing so, the project will seek to address the capacity issues identified in the GoM Public Sector Reform Strategy. Systems will begin to be put in place to make sure that individuals and service delivery units will be rewarded for performing well; and, if they do not perform well, they will be disciplined. Process reengineering for improved service delivery will be undertaken as part of the Quick Wins Program. Restructuring support, through the Performance Improvement Facility, will be given to ministries that have already demonstrated a willingness to reform. The project will also support the realignment of the center of government with a view to further decentralization of service delivery functions in support of the Bank's Municipal Development and Development Planning and Finance Projects. By helping to establish an accounting profession and reforming procurement processes, the project will support improvements in expenditure management and accountability funded by other donors. The agreed performance triggers are: * At least six reengineering "quick wins" will have been implemented that will be recognized by the Ministries' clients (through service delivery surveys) as improving the quality of its services; * Three ministries will have begun to implement their plans to reengineer, restructure and decentralize the delivery of services (implementation to mean: structures have been revised and staffing changes made); * The legislation and regulations required to establish a professional accounting body will have been presented to the National Assembly; * A process will have begun under which key technical and professional staff will have their salaries increased in line with the Salary Reform Strategy and the restructuring plans 11

19 (the number to be impacted, and thus the exact indicator, will be determined during the first year of the project in accordance with the Strategy, once it has been approved by the Council of Ministers); * The new policy process by which policies are formulated and submitted to the Council of Ministers, and which will link policy to resources and involve widespread consultation, will have been designed and have begun to be implemented. Phase 2 will continue to implement the restructuring, reengineering and decentralization and associated capacity building, with support from the Performance Improvement Facility. The Facility will provide incentives for reform - those who begin to reform will be rewarded with additional funding for further reform. Wage reform will continue. As more resources become available for wages, more staff will be moved towards salary levels prevailing in competitive markets. More senior staff will be placed on performance contracts. There will be very careful monitoring of the restructuring and decentralization experience. There will be unexpected outcomes to which adjustments will have to be made. Progress with improved service delivery will be monitored using the governance survey by comparing results with the baseline survey to be undertaken this year. C. Program and Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown) 1.1 Restructuring Objective: To begin a process of restructuring central government so that service delivery will be improve through decentralization and rationalization ofprocedures. Phase 1 will focus on supporting key ministries committed to reform to prepare plans to decentralize, deconcentrate, and privatize the delivery of services and at the same time move towards focusing the ministries on policy formulation, monitoring and evaluation. Some ministries may be ready to implement the reforms before the end of the first phase. The Government public sector reform and team and country team members have confurned the readiness of a number of ministries for restructuring; the Prime Minister has asked that all rninistries prepare restructuring plans. The implementation of the reforms, and the associated capacity building, will be supported by the Fundo de Melhoramento do Desempenho (Performance Improvement Facility, PIF), which will be designed and begin to be implemented in Phase 1 (see Annex 13 for a description of how the fund will be operated). The Facility will include an incentive structure that will reward ministries and agencies that are committed to reform and meet their reform targets. The preparation of the plans, and the actual restructuring, will be carried out by the ministries themselves. The project's role will be to define the process, establish a change management team to support the ministries, train ministry staff in change management and strategic planning, and monitor progress (see Annex 15 for a description of the ministerial restructuring process). The project will help the Council of Ministers to exercise its collective responsibility for poverty reduction and the implementation of PARPA by improving the policy formulation, decisionmaking, implementation, monitoring and evaluation process. The project will strengthen the capacity of the Office of the Prime Minister - i.e. the managers of the policy process - through adequate staffing, training and equipment and will build capacity to link policy and resources more closely, especially through the Medium Term Expenditure Framework (MTEF) and the 12

20 Poverty Reduction Strategy Plan (PARPA), and monitor implementation. These activities will also help to realign the center of govemment on policy and monitoring as service delivery is progressively decentralized. The project will also provide capacity building support for reorganizing district administration and improving working conditions at the district level through the provision of training and equipment. Also, since it is important to be able to demonstrate progress while long-term structural changes are planned and implemented, the project will provide funding support to the GoM Quick Wins Program through the PIF. The quick wins will involve reengineering existing process to improve the delivery of services. Linkages will be established between restructuring and reengineering capacity building support under this project and the sectoral reform targets set for the first PRSCs. The PIEF will in effect provide funding to build the capacity of the sector ministries to prepare for the reforms the implementation of which would be funded by the PRSC. 1.2 Professionalization Objective: Motivate public servants to become more responsive to the needs of citizens and businesses and increase professionalism. There are immediate and long-term issues to be addressed. The leaders, managers, and key technical and professional staff essential to prepare and implement the reforms needed under this project and the sectoral reform programs have to have the incentives needed to become fully committed to reform and to their roles in the reform programs. There is an immediate need to enhance their conditions of employment to achieve this. There is also a medium term need to reform the salaries in the public service to meet the needs of a restructured and reoriented public sector: restructured for decentralized service delivery, and reoriented to service the public and facilitate business development. These basic medium term reforms of pay and conditions can only be executed alongside the restructuring, since the restructuring will help to define which are the key positions that are below market. In addition, some restructuring may be required to create the resources needed to pay the higher salaries. The process of preparing the restructuring plans will trade off higher salaries against other uses of funding to meet the redefined objectives of the ministries concemed. Since the restructuring plans will be prepared during phase I and for the most part implemented in phase 2, it will only be possible to implement the more basic, longer term pay reforms in phase 2. Thus the project will fund capacity building for the preparation of a sustainable medium term pay strategy, the design of a scheme to enhance the salaries of key staff in the short term, and the associated implementation plans, as well as substantial training in the skills required for the current and progressively reformed public service. It is assumed that the funding for the salary enhancement will be funded by the budget. To underpin the strategy, studies will be undertaken into both supply and demand aspects of the labor market of which the public sector is part. The enhancement would begin during Phase 1 and the implementation of the strategy would take place over a number of years, as resources became available, partly as a result of the restructuring. 13

21 The mainstreaming of gender and HIV-AIDS programs as part of public sector reform will be carried out with the support of other donors who are members of the Public Sector Reform Donor Working Group and who participated in the appraisal. Capacity building support will be given for the following: * Support design and implementation of sustainable medium term pay strategy to establish the priorities for raising the salaries of civil servants within the context of the revenue expectations of government and the policy priorities established in MTEF (study is nearing completion); * Prepare plans to introduce results oriented performance management for senior managers and in key central coordination agencies; * Reform Human Resources Management processes to improve responsiveness and efficienicy, and to encourage the increasing professionalization of the public service, including establishing equal opportunities for women Governance Objective: Improve allocation, efficient use and accountability ofpublic resources. The important reforms of expenditure management and accountability (referred to as the SISTAFE reform in Mozambique) which are part of the Government's Public Sector Reform Strategy and Implementation Plan, will be supported by the G10 group of donors, led by the IMF. The project will support the governance agenda by helping to establish an accounting profession for the first time in Mozambique, raising the policy profile of procurement reform, decentralizing procurement capacity, and strengthening the oversight capacity of the National Assembly through technical assistance and training for its Secretariat. 1.4 Program Coordination Objective: Enhance UTRESP and CIRESP capacity to coordinate and monitor the reforms and communicate with key stakeholders. * Build capacity of UTRESP to coordinate, administer, and monitor the Government's Public Sector Reform Program, including those parts supported by other donors, through training, advisory services and equipment. * Build change management capacity at UTRESP and in ministries. * Establish Council of Advisors drawn from outside the public service. 3 Governance PFM / Program Coordination CSR 3.7 8/ / Total Project Cost I % % 1/ CSR= Civil Service Reform; PFM= Public Financial Management Note: The figures in total may not add up due to rounding. 14

22 The non-bank funding for Public Sector Reform consists of two multi-donor pools: one to support the expenditure management reforms (to be implemented by the Ministry of Planning and Finance), the other to support restructuring, govemance and human resources management (implemented through UTRESP). 2. Key policy and institutional reforms supported by the project The objective of the project itself is to enhance institutional capacity to bring about institutional reforms in service delivery through improvements in accountability and incentives. Many of the policy objectives of these refomis have already been discussed by the Council of Ministers and are reflected in the Public Sector Reform Strategy approved by the Council and launched by the President. The theme of the reforms is to improve the delivery of services to the poor through a gradual process of reengineering, restructuring and decentralization. Improving the accountability of the public service to the public will facilitate that process. This will require the introduction of improved systems of accountability and a determination by the GoM to respond positively to information on the delivery of services to the poor generated by those systems. A substantial commitment to the establishment of a public accounting profession in Mozambique will also be required, including a major training program. 3. Benefits and target population The benefits of the program include: * an improved quality of life for the Mozambican people through the cost-effective provision of public services; * a reduction in poverty through better targeting of subsidies to the poor and the effective implementation of public policies that will promote private sector development; * service delivery staff in ministries, agencies, local govemment and the private sector motivated to perform well; * public servants who are accountable for their decisions and actions and promoted on the basis of merit alone; * policy decision-making and service provision that is more transparent to the beneficiaries. The people of Mozambique are the ultimate beneficiaries and target population, in particular the poor, who have such weak access to public services. 15

23 4. Institutional and implementation arrangements Leadership and Coordination To provide political leadership for the reform process, the President and the Council of Ministers established the Inter-ministerial Commission for the Reform of the Public Sector (CIRESP). The Prime Minister is the president of CIRESP, and the Minister of State Administration is the vicepresident. Other members are the Ministers of Justice, Public Works and Habitation, Education, Planning and Finances, Agriculture and Rural Development, Tourism, Industry and Trade, Labor and Health. CIRESP reviews all proposals for reform prior to their submission to the Council of Ministers (CM) and monitors the implementation of the reform program. The Technical Unit for the Reform of the Public Sector (UTRESP) has been set up to support CIRESP. Project implementation will be coordinated by UTRESP. CIRESP, whose President is the Prime Minister, and which is responsible on behalf of the Government for the implementation of its Public Sector Reform Strategy, will be accountable for achieving the project's overall objectives. Oversight will be provided by the Council of Ministers. All IDA funds will flow through UTRESP to the participating ministries and agencies. However, ministries and agencies will be responsible for the implementation of their parts of the project, as identified in the Implementation Plan for the GoM Public Sector Reform Strategy. There will be three flows of funds to UTRESP: from IDA, a multi-donor pool, and the GoM. UTRESP has established a Public Sector Reformn Donor Coordination Group, with which it works in the design of this program and associated funding arrangements. This group will meet regularly throughout the project. UTRESP will be responsible for all financial reports and for coordinating procurement. Auditing will be carried out by a private accounting firm. Responsibility for implementing the project - meeting its individual results - will lie with the participating agencies themselves: the MPF, AT, Secretariat to the Assembly, MAE and the sector ministries. They would draft TORs, prepare training plans, hire consultants, and acquire equipment, but with technical and procurement support from UTRESP. UTRESP would discuss problems with the agencies if they appear to lag in the implementation of their component, and if necessary refer the matter to CIRESP. UTRESP will have a particularly close relationship with UTRAFE, the Ministry of Planning and Finance's coordination agency. UTRAFE is being supported by donors, including the Bank, interested in supporting reforms in budget allocation and execution and expenditure tracking. The Integrated Financial Management Information System (the introduction of which will be supported by other donors in a separate project) is at the heart of these reforms. The policy targets associated with these financial management reforms will become the benchmarks in adjustment operations, as outlined in the PER. UTRESP's staff include the Director, implementation coordinator, and specialists in financial management and salary policy, governance, public administration, and restructuring. The Director, financial management and public administration staff are in place. The rest will be recruited by effectiveness. All are or will be Mozambicans. These specialists will provide technical support to implementation agencies and will monitor the implementation and impact for the GoM Public Sector Reform Strategy. The unit is also staffed by a financial management specialist and a procurement specialist. Administrative support staff are already in place. Parttime advisors are recruited according to the needs. The Director also has access to an advisory panel of senior staff drawn from key ministries (Finance, Justice, Industry and Commerce and State Administration). UTRESP has two intermittent international advisors. UTRESP also has a 16

24 journalist on staff who prepares press releases and is responsible for developing a cadre of journalists who understand the challenges of public sector reform. In summary, UTRESP will undertake the following tasks: * prepare progress and other reports for CIRESP; * provide opinions on policies, legislation and studies concerning public sector reform; * collaborate in the management of the Performance Improvement Facility; * collaborate in the management of the Training Fund; * disseminate information on reform; * monitor the reform process in the sectors; * organize meetings with stakeholders; * support and monitor the development and implementation of quick wins; * facilitate access to technical assistance for the reforms in the sectors; and * maintain contact with and support the reform units in the Provinces. Focal points have been established in all ministries. These are the Permanent Secretaries (PS) who have worked with UTRESP in the preparation of the reform strategy and will assist in the implementation of the reforms. A committee of key PSs meets with the Director/UTRESP each month. CIRESP meets with the Director of UTRESP about every two months. The Director is in almost daily contact with the President of CIRESP, the Prime Minister. 17

25 Institutional arrangements Council of Ministers (CM) President Inter-ministerial Commission for the Reform of the Public Sector (CIRESP, Presidential Decree March 2000) Prime Minister Technical Unit for the Reform of the Public Sector (UTRESP, Council of Ministers Decree, April 2000) Director 1 Procurement Specialists Fn lunit Unit Procurement Arrangements: The Procurement Specialist at UTRESP will be responsible for ensuring that all procurement actions particularly those which are funded from the proposed grant will be carried out in accordance with procurement guidelines of the Bankc. The latter will report directly to Director of UTRESP and will be primarily responsible for managing procurement actions and will act as a focal person for all procurement related matters of the proposed operation. He will-also be responsible for ensuring that all procurement activities funded by the IDA Grants are implemented in accordance with Bank guidelines. Since a major portion of the proposed grant is earmarked to fund consultant services, a draft procedures manual for the recruitment of consultants has been prepared. Among other things, the procurement specialist will also carry out the following activities: (a) prepare, review and implement the procurement plan; (b) prepare and finalize needed procurement documents (i.e. draft RFP's, draft contracts, draft advertisements, etc.); (c) train relevant staff on procurement matters; and (d) assist in the design of a procurement records management system. A detailed procurement plan for the first year of project implementation has been prepared with the assistance of the Bank during appraisal. The first year detailed plan together with a five-year procurement plan will be presented to IDA prior to grant effectiveness. It has also been agreed that in the event that the volume of procurement tasks increases substantially and the need for additional support arises, UTRESP will consider the possibility of recruiting additional procurement staff for the project. 18

26 Financial Management' Under the supervision of the Director/UTRESP, the Financial Manager of UTRESP is responsible for ensuring that financial management and reporting procedures for the Public Sector Reform Project will be acceptable to the Government, the World Bank and other Cooperating Partners. The principal objective of the Project's Financial Management System (FMS) will be to support management in their deployment of limited resources with the purpose of ensuring economy, efficiency and effectiveness in the delivery of outputs required to achieve desired outcomes, that will serve the needs of the people of Mozambique. Specifically, the FMS must be capable of producing timely, understandable, relevant and reliable financial information that will enable management to plan, implement, monitor and appraise the Project's overall progress towards the achievement of its objectives. For the Project to fully deliver on the aforementioned objectives, its FMS will be developed in accordance with the Financial Management Assessment Report presented in Annex 5a. Salient features of the financial management arrangements include: (i) Retention of a Financial Management Consultant to advise on the selection and installation of the Project's computerized FMS, to prepare the Project's Financial Procedures Manual and to train staff in the operation of the system; (ii) appropriate financial management staff in place (i.e. Financial Manager, Project Accountant, Procurement Specialist and support staff); (iii) capacity building; (iv) the budget will be approved in line with the Govermment process; (iv) the establishment of a Fixed Assets Register and a Contracts Register; (v) monthly bank reconciliations, monthly Status of Funds Report and monthly reporting to the MPF; (vi) timely production of quarterly Financial Monitoring Reports (FMRs); (vii) robust banking and cash flow management including variance analysis; (viii) Project activities will be periodically reviewed by the Audit Unit (IGF) at the MPF; (ix) Project Financial Statements will be prepared in compliance with Intemational Accounting Standards; (x) an annual extemal audit will be undertaken on terms of reference acceptable to the Bank. By grant effectiveness, the Project will not be ready for report-based disbursements. Thus, at the initial stage, transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook) will be followed i.e. direct payment, reimbursement and special commitments. When project implementation begins, the quarterly Financial Monitoring Reports (FMRs) produced by the project will be reviewed. When the reports are considered adequate and produced on a timely basis, and the recipient requests conversion to report-based disbursements, a review will be undertaken by the Task Team to determine if the project is eligible. Supervision activities will include: review of quarterly FMRs; review of annual audit reports and management letter as well as timely follow up of issues arising; annual SOE review; participating in project supervision missions as appropriate; and updating the financial management rating in the Project Status Report (PSR). The overall conclusion of the financial management assessment is that, provided the conditions outlined in Section G are met by UTRESP prior to grant effectiveness, the Bank's financial management requirements will be met. 'Please refer to the detailed Financial Management Assessment Report that was prepared jointly by the Financial Manager of UTRESP and FMSs from the World Bank (February 14, 2002). 19

27 Monitoring and Evaluation External evaluations of the program will be carried out mid-way through and towards the conclusion of phase 1. However, these reviews do not substitute for sound project management practices, which require constant monitoring of program activities and regular evaluation of their impact. While financial and procurement audits are certainly key aspects of program monitoring and evaluation, equally important are assessment of the efficacy of program management systems and the impacts, planned and unplanned, of program activities - particularly in relation to the achievement of program targets. This means that systems must be in place that enable the collection of data, the compilation and analysis of disparate forms of information, and the development of conclusions and recommendations to inform future project action. To that effect, a project database has been prepared by UTRESP with support from a consultant funded by DANIDA. The database is based upon the Government's PSR Implementation Plan and includes information on components, results to be achieved, indicators, inputs, source of funding, schedule, and GoM responsibility. Monitoring and evaluation activities are the responsibility of the Director/UTRESP and the UTRESP team as a whole. Each member of the team will be involved in one aspect of M &E or another (generating, analyzing, or making decisions based on monitoring data). The information produced through the program's monitoring and evaluation initiatives will provide important input into the external evaluations and reviews conducted periodically throughout the life of the program. The periodic Governance and Corruption Surveys, which include data on service delivery, will provide a basis for monitoring improvements. The baseline survey will take place in This survey covers perceptions and experience of civil servants, households and business people. The program design also recognizes that monitoring and evaluation is a critical and ongoing function of central government itself. Ministries must be able to track key trends in the sectors for which they are responsible and to use monitoring information to identify the need for action. For that reason, a major activity is planned to develop a monitoring system under the restructuring component (component 1). Systems will be developed and piloted that will help get critical information into the hands of policy makers when it is needed. To support this, training in monitoring and evaluation techniques and in the new M & E system will be provided to targeted individuals in the civil service. D. Project Rationale 1. Project alternatives considered and reasons for rejection The preferred option is Adaptable Program Lending (APL). The APL encourages sustained institution building, which is consistent with the aims of the program. GoM found the long-term commitment on the part of GoM itself and its cooperating partners to the transformation of the public service through APL very appealing. GoM also believes that the triggers associated with APL provide good incentives to implement the required reforms. A Technical Assistance Project was considered. Technical Assistance Projects tend to be for a shorter period than what will be required to achieve the overall objectives of the project, given its focus on behavioral change. Moreover, Technical Assistance Projects lack the flexibility that will be required to support the reform of the public service. 20

28 The range and scope of the project were given substantial consideration during the initial preparation. Although public sector reform is by its very nature broad in impact and implication, it was decided to focus the project in its first, three-year phase on accountability, salary reform, and preparing for decentralization of service delivery. Reforms in these areas are the necessary -conditions for the success of a longer-term program of improving the efficiency and effectiveness of the public service. Therefore, the scope of the first phase of the project was cut back during the initial preparation. The number of ministries to pilot the restructuring was reduced. It is anticipated that the salary reform will be very incremental, given human resources management as well as budgetary constraints. Even the accountability program was cut back in the light of the capacity of the government and other agencies of accountability to implement the reforms. As the preparation proceeded, and the Country Team began to talk in terms of an early PRSC as the principal means of providing support to the Government, the project became increasingly focused on what needs to be done to establish the essential fiduciary conditions for an effective PRSC; in other words, what needs to be done for the Government to build its capacity to manage the funds to achieve the poverty alleviation objectives of the Government and the Bank, and for there to be adequate accountability for the users of the budgetary support. Thus a strong overarching focus of the Government's program became the improvement of expenditure management. Since a group of donors known as the GI0 agreed to fund all the expenditure management reforms under the leadership of the IMF, it was not necessary to provide support for this part of the Government's program from the Bank project. A number of donors who are members of the GIO, including its chair,and the IMg participated in the appraisal of this project. Even this focused program reform raises substantial management challenges. The implementation arrangements discussed above attempt to balance decentralized day-to-day management by subcomponent managers, based in the institutions with principal responsibility for that component, with strong coordination and monitoring by UTRESP. One issue with APLs is deciding what to do if the triggers are not achieved. This has been the case with a number of public sector reform APLs. Even when the language in the PAD has been strong the tendency has been to proceed to the second phase, perhaps with a delay of some months or a year and a softening of the triggers. In some instances triggers are being treated as "floating." Since APLs represent a long-term commitment by the Bank and other donors to supporting a major transformation of the public sector, it is reasonable to have a fairly "realistic" attitude to triggers. On the other hand motivation diminishes if they are not treated seriously. The approach in this project is to have a few, realistic, demanding but not over-ambitious triggers. The second APL issue concems the number of phases. Most APLs have three or four phases. It is the view of the project team that there should, at this stage, be two. This is linked to the clear need for "adaptability." Every public sector reform program in the developed and developing worlds has made major adjustments en route. The directions taken by the reforms have invariably not been those predicted when the reforms began. The objective has been clear, although sometimes that has been adjusted, too, but the path to the achievement of the objective has not been as obvious. GoM has a clear development objective for the ten-year period, but no one can be sure how precisely to get there. The first basic building block phase is clear; what exactly should happen next is not: hence a clear first phase and a less clear second phase. It is very likely that as phase one proceeds subsequent phasing and content will become clearer. The Mid-term Evaluation will provide an opportunity to clarify the way ahead. 21

29 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned) Latest Supervision Sector Issue Project (PSR) Ratings _(Bank-financed projects only) Implementation Development Bank-financed: Progress (IP) Objective (DO) Technical assistance to strengthen Capacity-Building: Public Sector S S legal institutions and build legal and Legal Institutions capacity; assistance to MAE to Development Project, Cr formulate and implement civil (Completed) service reform policies, improve public sector personnel management, and build administrative capacity within the ministry and its provincial offices. Technical assistance for municipal Local Government Reform and S S government policy and capacity Engineering (PROL), Cr building in three areas: legal, (Completed) financial and administrative, and technical. Strengthening of the capacity of municipal governments in the areas of management, finance, and the provision of infrastructure services. Assisting the Government in the operation of legal, institutional, and fiscal frameworks. Providing training to municipal officials and staff. Pilot of a municipal grants mechanism, laying the foundation for an inter-governmental fiscal system. Municipal Development Project (MDP) Further developing and extension of Decentralized Planning and a decentralized system for planning Finance Project (DPPF). and managing public investments (in preparation) through community participation in a wide number of Districts in two or more Provinces and assistance to Ministries of Planning and Finance and State Administration to develop legal framework and procedures for decentralization. Includes component on institutional Agricultural Sector Public S S development (analysis of the Expenditure Program structure of the Ministry of (PROAGRI) 22

30 Agriculture and Fisheries (MAP), its decision-making, and restructuring, including assessment of its human resources and strengthening of MAP, at both the central and provincial levels. Includes component on Education Sector Strategic S S strengthening the institutional Project (ESSP) capacity of the education ministry in organizational structure, policy and planning, financial management, and monitoring and evaluation. Including improvement of sector Health Sector Recovery Program S S institutions, support services and (MHS) sub-national health management systems and development of human resources capacity. Other development agencies 2 DANIDA * Support to the judicial sector * Support to the Assembly of the Republic * Support to Tax reform * Support to SISTAFE * Support to Poverty Monitoring Unit in MPF * Support to Justice Sector Strategic Planning DFID * Support to customs reform * Support to MPF and UTRAFE European Commission * Support to Justice Sector * Support to Finance Sector * Poverty reduction budget support! Support to Treasury reform Frederick Ebert Foundation * Support to Parliamentary Commissions * Improving participation of local communities in local level decision-making IMF * Support to improved financial management * Support to tax reform 2 A fuller documentation of other donor projects is being carried by the Donor Working Group in Public Sector Reform. In addition, a group of donors known as the GI 0, are plaining to support the introduction of the SISTAFE reforms. 23

31 IRISH AID * Macro budgetary support * Support to Public Sector Strategy preparation (via UNDP) * Capacity building for reform at provincial level (Niassa and Inbambane) Netherlands Embassy * Support to MPF * Support to the National Directorate of Water Affairs NORAD Capacity building for decentralized planning (Cabo Delgado) Norwegian Embassy * Support to the continuation of the UNDP "SIFAP project * Support to reform of financial management in the public sector Portuguese Cooperation * Institutional Partnership for Modern Administration * Technical Cooperation for Strengthening Institutional Capacity for Public Financing * Suppoit to judiciary _ SIDA * Capacity building of the Administrative Tribunal * Support to the modemization and decentralization of public administration (MAE) * Capacity building of the public accountability system Swiss Development Cooperation * Support to decentralization and municipalities * Supporl. to fiscal reform in MPF UNDP * District Planning and Finance Project (UNCDF, Nampula) * Preparatory assistance for support to decentralization and deconcentration process in the public administration * Support to the Parliament * Support to SIFAP * Justice sector project * Global program for accountability and transparency _ 24

32 * Support to PROAGRI * Decentralized planning (component in support to MPF central level) USAID * Support to MIC * Support to Labor Consultative Commission and Enterprise Owners' Association * Support to Customs reform * Support to PROAGRI * Support to the Policy Unit in MTC * Support to Parliamentarians (Sunny Project) * Legislative strengthening * Greater Accountability and Transparency Imitative * Alternative Dispute Resolution IP/DO Ratings: HS (Highly Satisfactory); S (Satisfactory); U (Unsatisfactory); HU (Highly Unsatisfactory). 3. Lessons learned and reflected in the project design } Sector & Themes x KM Lessons from Mozambique projects Several lessons have been learned from the Capacity Building: Public Sector and Legal Institution Development Project. Capacity constraints First, capacity constraints in Mozambique are severe even by African standards. The Bank should therefore guard against overestimating recipient capacity to implement. Specifically, project objectives should be clear, concrete and achievable in the short term. Implementation arrangements should be simple. Objectives and outputs should be practical. To this end, a participatory design of the logical framework for the Public Sector Reform and the first phase of the forthcoming project was adopted. With the help of two facilitators (a World Bank consultant and a local consultant), working groups have been formed around the key issues previously defined as priorities for the reform agenda. Groups, dealing with governance, decentralization, the role of the state, policy processes, financial management and human resources management, and composed of members of relevant sector ministries or public institutions and the private sector worked together towards the definition of key actions and practical performance indicators. 25

33 Long-term activity Second, capacity building, especially when there is so little capacity to start. with, is inherently a long-term activity. The duration of a normal Bank project can serve to launch and undertake a stage of the process. Capacity building projects should be designed within a framework of longterm Bank commitrnent. This is one of the main reasons why this project chose the APL structure. Training of staff before the implementation stage Third, where implementation capacity is especially scarce, projects should ensure that local staff has the necessary skills, and that dedicated persoinel for the project are identified and mobilized. Bank projects should consider developing the necessary implementation skills during project preparation or through an initial period devoted to training those responsible for the management of the project. Selection of the Director of the UTRESP and his staff were done according to these objectives, while the Administrator for the project, already trained in financial management, received complementary training in public procurement. Oversight body Fourth, where reforms are multi-sectoral, no single ministry will be able to lead the reform process; it is difficult to exercise authority over equals. In this case, a legally established committee of ministers has taken responsibility for the reforms, led by the Prime Minister himself. Lessons from public sector reform in the Africa region The project design has drawn upon the Bank's own experience of public service reform and capacity building. The paper "Reforming Public Institutions and Strengthening Governance," recormmends five broad changes in the Bank's approach. Each will be significantly addressed in this program: * Shift focus from the content of public policy-to the way policy is made and implemented. One sub-component of the program will do just this; * Address a broad range of mechanisms that promote public sector reform. The project covers the mutually supportive activities of restructuring, incentives and accountability; * Emphasize good fit over best practice. The Bank team worked closely with the GOM team; Over 50 Mozambican civil servants participated in the preparation of the logical frarnework; * Enhance institutions through longer-term programmatic lending. A 10-year APL is proposed for a program that focuses on capacity building; * Develop skills to do better institutional work. Above all else, the program is setting out to develop skills to reform processes and institutions. The program also addresses many of the challenges identified in the Africa Region Annex to that report. There is strategic prioritization: the program will begin by building capacity to manage change and by reforming pay. This will motivate staff to pay more attention to the achievement of the results citizens and businesses need and expect. Fundamental reform to the state structure will include focusing the core civil service on policy formulation and monitoring, and promoting the decentralization of service delivery. The program will set out to link sector reform initiatives and thus avoid "stove-piping;" there is representation from the key sectors in the Mozambican team 26

34 preparing the project. There has been close collaboration among Bank staff responsible for the preparation of institutional reforms in the social and economic sectors and between macroeconomic and public sector management specialists. The project also draws upon the lessons learned from the first PRSCs. First of all, it is important for basic expenditure management and governance capacity to be in place prior to increasing the incidence of donor support in the form of budget support. This project will begin to put that capacity in place. Secondly, it is important to link policy reform for poverty alleviation to capacity building on an on-going basis. Governments have to develop their own capacity to prepare the very reforms in the sector and coordination ministries that will form the policy targets in the series of PRSCs. The project's Performance Improvement Facility will provide the means for this. Thirdly, it is even more important to have strong donor coordination in the era of PRSCs. The donors supporting this program, and hence the PRSC, have worked together closely in the preparation of this project, and some have agreed to pool their funding for public sector reform. A final lesson concerns the need for close coordination not only among members of the Bank's country team in the preparation of the project but also with other donors. Many members of the country team were consulted during the preparation since one of the objectives of a project such as this is to provide support to sector programs in key matters beyond their control, such as pay reform and improved expenditure management and accountability, as well as redefining the role of central government as sector programs are decentralized. Other donors' program are impacted in the same way: there is a Donor Public Sector Reform Working Group chaired by the Director/UTRESP and coordinated by DFII). 4. Indications of recipient commitment and ownership Early in the life of the new govermment, the President established by decree the Inter-ministerial Commission for the Reform of the Public Sector (CIRESP) chaired by the Prime Minister. The Council of Ministers then resolved to set up the Technical Unit for the Reform of the Public Sector (UTRESP), which has subsequently been provided with its own budget. The Director/UTRESP reports directly to the Prime Minister. The vice-president of CIRESP, the Minister of State Administration, has personally participated in all the stakeholder workshops. The action plan prepared by UTRESP and the outline of the strategy have both been presented to and approved by CIRESP and the Council of Ministers. The President officially launched the Strategy for the Reform of the Public Sector on National Day, Senior civil servants have been involved in the preparation of the strategy and the reform process. Many participated in the February, 2000 workshop that defined the issues to be addressed. Over forty participated in the preparation of the logical framework in February, Commitment can only come with understanding. All ministers, permanent secretaries and national directors have taken part in a training program to prepare them for their jobs leading and managing the public service. Funding was provided from a trust fund adrninistered by the Bank. Senior civil servants participated in a specially designed two-week training program on civil service reform in Mozambique. Ownership has been broadened by taking the program to key stakeholders. All stakeholder meetings have been covered by the press (there was one forjournalists). There was recently a 30- minute television program on the public sector reform program. 27

35 The interactions between UTRESP and the donor cormmunity have also demonstrated ownership in the sense that plans have been announced to the donors that can be the basis for the donors to hold the government accountable. UTRESP has set up a core group of donors with which it discusses the emerging strategy and plans. The group consists of UTNDP, Britain, Denmark, Ireland, Sweden, the Netherlands, Italy, Portugal, EC, Norway, Switzerland, United States and the Bank. Britain, Ireland, UNDP, and Denmark are also currently funding UTRESP. 5. Value added of Bank support in this project * Past involvement in the sector: Through a capacity building project and an IDF grant, the Bank team has already developed a close working relationship with the implementation agency for the public sector reform, the UTRESP. * Technical leadership on Public Sector Reform: The Bank has provided technical assistance to UTRESP, and is a member of the donor working group on public sector reform. Many of the studies that provide the analytical underpinnings for the Government's program and the project have been funded and received technical input from the Bank. These include the PER, CFAA and CPAR. * Capacity and knowledge: the Bank has the required experience in the sector, as well as the capacity and instruments to put in place a large-scale and long-term project. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4) The project will have a positive economic impact through improving economic management and the services provided to the businesses important for economic growth. Improved expenditure management should help to reduce the fiscal deficit and make the flows of resources to key development programs more predictable. 2. Financial (see Annex 4 and Annex 5) A key theme of the project is the cost-effective provision of high-priority public services. Improved and more efficient delivery of public services, as well as the closing of low-priority activities should improve the overall financial position of government. Furthermore, improved financial control and accountability will ensure better value for money, improved service delivery, and less waste, theft and corruption. The budgetary impact of the public sector reform is also being addressed during project preparation with the active involvement of the Ministry of Planning and Finance. 3. Technical The Mozambique PSR utilizes lessons learned in other reform programs. The general strategy consists of a specific Mozambican approach, incorporating on a pragmatic basis some of the trends seen in other parts of the world, such as an emphasis on performance management, greater professionalization of the workforce, and a focus on enhancing transparency and reducing corruption across the public service. 28

36 4. Institutional 4.1 Executing agencies: See Section C Project management: Effective project management is essential to assure the achievement of project inputs, outputs and impact, as well as providing financial accountability with due diligence, and to conduct transparent procurement procedures in the award of contracts. The institutional arrangements for managing the project and for ensuring the sustainability of results build upon experiences gained from similar project in other countries and from earlier stages of reform. The key executing agencies have been fully involved in the design of the current reform program and will participate in execution and management through the Council of Ministers, the Inter-ministerial Committee for the Reform of the Public Sector (CIRESP, a committee of the Council of Ministers), and through a committee of the task managers for each of the departments/agencies involved in the project. Project management will be coordinated by the Technical Unit for the Reform of the Public Service, which will report to CIRESP, which is chaired by the Prime Minister; the Minister of State Administration is the vice-chairman. 4.3 Procurement: An initial review of UTRESP's procurement management arrangements of the proposed project has been carried out. A full-time Procurement Specialist with World Bank procurement experience has been recruited. Based on the initial review, the mission believed that the procurement capacity of UTRESP is not a major issue. For example, funds under the PHRD Grant were disbursed almost completely and in a very timely manner. UTRESP is fully equipped with sufficient office equipment and is staffed with very competent and qualified personnel such as a Project Advisor, Project Accountant, Administrative Officer and a good number of support personnel. It has also already prepared and completed a detailed financing plan which was use as the basis for the procurement plan. The latter was prepared with the assistance of a consultant and was completed, presented and cleared by IDA prior to negotiations. 4.4 Financial management: Although the country fiduciary risk is assessed as high (CFAA Report, December 2001), the Project Risk is considered moderate as the following measures will be taken from the Project's inception to establish a strong control environment and to mitigate financial management risks: (i) a Financial Management Consultant (FMC) was retained and advised on the selection and installation of the FMS; (ii) the Financial Procedures Manual has been prepared and the FMC will train staff in the operation of the financial management system; (iii) The budget will be approved in line with the Government process; (iv) Financial Manager and support staff appointed; (v) Monthly bank reconciliations will be prepared and independently approved; (vi) Quarterly Cash Flow Management and quarterly FMRs; variances will be examined and remedial action will be taken in a timely manner; (vii) Fixed Assets and Contracts Registers will be established and regularly updated; (viii) Project Financial Statements will be prepared in compliance with International Accounting Standards; (ix) Project activities will be periodically reviewed by the IGF; (x) Regular Bank supervision missions, including SOE reviews and timely follow-up of 29

37 management letter issues; (xi) An annual external audit will be undertaken on TORs acceptable to the Bank by relevantly qualified and experienced auditors. IFAC Auditing Standards will be followed and audit reports will be submitted to the Bank within 6 months after the year-end. However, care must be exercised in ensuring the timely availability of Counterpart Funds. In conclusion, provided the financial management arrangements summarized in Annex 5a 3 are satisfactorily addressed in practice, the Project financial management risk is assessed as being moderate. The challenge for Project Management will be to convert from the "drawing board" to practice. 5. Environmental Environmental Category: C (Not Required) N.A. 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. N.A. 5.2 What are the main features of the EMP and are they adequate? N.A. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: N.A. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? N.A. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the enviromnent? Do the indicators reflect the objectives and results of the EM1'? N.A. 6. Social 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The positive impact of improved service delivery, and savings from increased effectiveness and efficiency, should be felt nationwide. Government has involved civil society organizations and the private sector throughout Mozambique in the discussion of its public sector reform strategy. These same groups will also be involved in monitoring the project's success. Retrenchment is less of an issue in Mozambique's reforn program than in many countries since the public service is relatively small. The problem is poor quality staff rather than too many. 3The detailed Financial Management Assessment Report was prepared jointly by the Financial Manager of UTRESP and FMSs from the World Bank (February 14, 2002) and is available on the Project file. 30

38 6.2 How are key stakeholders participating in the project? Stakeholder workshops have been held with ministers, officials, trade unions, journalists, religious groups, businesses, youth groups, provinces, NGOs, donors, political parties and the National Assembly. See D How does the project involve consultations or collaboration with NGOs or other civil society organizations? See 6.2. Also an advisory committee will be appointed with representation from outside as well as inside government (ex-ministers, academics, civil society leaders and some prominent private sector managers). See D What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Widespread publicity about the GOM Strategy and the project, and continuing consultations with intended beneficiaries. See D How will the project monitor performance in terms of social development outcomes? The project main objective is to improve service delivery. Another key aspect of the project is to open up the Mozambican administration to allow citizens to be better informed, and to make the administration more responsive to citizen's needs through increased participation. Several instruments needed to monitor performance in social development will be established by the project (guidelines for conducting client surveys of service delivery by local and central organs). Mechanisms will also be established to inform citizens (regulations on public information dissemination, website) and to listen to their demands (complaint mechanisms, hotlines, etc.) 7. Safeguard Policies 7.1 Do any of the following safeguard policies apply to the project? Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Forestry (OP 4.36, GP 4.36) Pest Management (OP 4.09) Cultural Property (OPN 11.03) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* No No No No No No No No No No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. NA 31

39 F. Sustainability and Risks 1. Sustainability Sustainability will depend upon: * political leadership: the President, Prime Minister and Council of Minister support the reforms; * firm local ownership: the project is based upon the GOM reform strategy and Implementation Plan; * systematic participation of stakeholders: there is an ongoing series of stakeholder consultations, and an Advisory Committee will be established; * clearly defined change management bodies at all levels (mainstreamiing reform): change managers are senior staff in the ministries; * adherence to work plan: targets have been widely publicized; * capacity to maintain long-term vision while achieving immediate objectives: GOM and project have a 10 year vision, as well as a Quick Wins Program; * a judicial sector with the capacity to support the public sector in its role as a regulator and guarantee fair treatment for citizens and businesses: other donors supporting reforms in judicial sector. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1) Risk Rislk Rating Risk Mitigation Measure From Outputs to Objective GoM remains committed to reform M Continue dialogue with political leadership GoM continues to involve all key N Frequent interaction with stakeholders stakeholders in reform process Capacity to lead the reforms is developed M Training for management team; early salary and retained reform GoM leadership of reform process fully M Continue dialogue with interministerial in place committee GoM prepared to make tough salary S Wages study will lay out options, costs, choices benefits From Components to Outputs Timely availability of counterpart funds M Dialogue with interministerial commission of which Minister of Finance is member Adequate UTRESP procurement and M Bank to train UTRESP staff financial management capacity Overall Risk Rating M Risk Rating H (High Risk); S (Substantial Risk); M (Modest Risk); N (Negligible or Low Risk). The CFAA Report for Mozambique (December 2001) assessed the risk of waste, diversion and misuse of funds in the country as high. However, this inherent risk is mitigated in UTRESP by ensuring that the robust financial management arrangements, outlined in Annex 5a, will be in place by grant effectiveness. 32

40 3. Possible Controversial Aspects The salary reform supported by the project will be controversial, since it is likely to focus the greatest increases at the top of the salary scale. The GOM, through CIRESP, has already agreed to this policy in principle. The restructuring will result in re-assignments and possibly some losses of jobs. The introduction of performance management will introduce a system of rewards and discipline that most will find unfamiliar and some may resist. G. Main Grant Conditions 1. Effectiveness Condition General conditions: * Project Implementation Manual (Financial Procedures Manual, Procurement Plans, Procurement Procedures Manual) acceptable to IDA prepared and adopted; * TORs for first half-year's activities/inputs prepared; * UTRESP fully staffed (appointment of an implementation coordinator, a monitoring and evaluation specialist, a restructuring specialist, a governance specialist, a quick wins specialist and a salary reform specialist, all with experience and terms of reference acceptable to the Association). Financial Management Conditions: * FMS (Financial Management System) satisfactory to the Association installed and capable of producing FMR (Financial Monitoring Reports); * Financial Monitoring Report formats agreed; * Project Accounts opened; * Relevantly qualified external auditor appointed on approved terms of reference. Financial Covenants There are no special requirements. H. Readiness for Implementation [ ] l.a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ x ] L.b) Not applicable. [x] 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. [x] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] 4) The following items are lacking and are discussed under grant conditions (Section G): 33

41 I. Compliance with Bank Policies [x ] 1. This project complies with all applicable Bank policies. [ ] 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Hay BrianD. Team Leader, AFTPR S ager, AFTPR Co Director, AFC02 34

42 Annex 1: Project Design Summary MOZAMBIQUE: Public Sector Reform Project Hierarchy of Objectives Key Performance Indicators Data Collection Critical Strategy Assumptions Sector-related CAS Sector Indicators: Sector/ country (from Goal to Goal: reports: Bank Mission) Increasing economic * Poverty headcount reduced opportunities. to 60% by Improving Govemance * New public accounting and empowerment. system implemented by Improving human * 90% health posts staffed capabilities. with trained personnel by * 55% grade 10 students pass exams by Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal) To transform the public * Access to basic health and * Poverty assessments * GoM sector so that the poor education services; remains throughout Mozambique significantly improved by * Service delivery committed receive the services they surveys to reform need and the economy can afford and entrepreneurs throughout Mozambique are encouraged to invest. _ Project Development Outcome/ Impact Indicators: Project reports: (from Objective: Objective to Purpose) To support the By the end of Phase 1 of the * Review of progress * GoM Govemment to restructure program, the following should with triggers 6 leadership the public service for have been achieved: months before end of reform decentralized service of Phase I process delivery, professionalize the public service, and improve govemance. * At least six reengineering "quick wins" will have been implemented that will be recognized by the Ministries' clients (through service delivery surveys) as improving the quality of its services. fully in place 35

43 Project Development Outcome / Impact Indicators: Project reports: (from Objective to Objective: Purpose) * Three ministries will have begun to implement their plans to reengineer, restructure and decentralize the delivery of services (implementation to mean: structures have been revised and staffing changes made). * The regulations required to establish a professional accounting body will have been approved by the Council of Ministers. * A process will have begun under which key technical and professional staff will have their salaries increased in line with the Salary Reform Strategy and the restructuring plans (the number to be impacted, and thus the exact indicator, will be determined during the first year of the project in accordance with the Strategy, once it has been approved by the Council of Ministers). * The new policy process by which policies are formulated and submitted to the Council of Ministers, and which will link policy to resources and involve widespread consultation, will have been designed and have begun to be implemented. Output from each Output Indicators: Project reports: (from- Outputs to Component: Objective) Objectives and Activities 1. Restructuring,: To begin a process of restructuring central government so that service delivery will be improve through decentralization and rationalization of procedures. 36

44 Performance improvement * Restructuring and * Progress reports model institutionalized in reengineering plans six ministries restructuring completed with high staff and decentralizing plans involvement. approved by Council of Ministers. Performance Improvement * PIF in place by end of Facility in place. First round of applications to At least three ministries the PIF processed by end of will have begun 2004, and implementation implementing the plan. underway by end of 1 st phase. At least 6 reengineering * Studies to identify potential * Feedback from "Quick Wins" quick wins completed. hotlines, implemented with * Studies to reengineer suggestions concrete and visible selected processes boxes and web impact on service delivery completed. sites established * Implementation of quick in ministries and wins completed. agencies as * Information campaign on vehicles for new procedures/services feedback and completed. participation of * Service delivery surveys citizens. implemented. * Service delivery surveys show better service delivery. Manual on process of * Report on policy * Progress reports formulating and formulation completed. evaluating public policies. Policy analysis units * Middle level staff, strengthened or specialists, senior managers established in key and ministers trained in the government institutions. policy formulation and evaluation process. Communication within * GOVNET established. public service facilitated * Staff trained in GOVNET. through GOVNET. 2. Professionalization: To motivate public servants to become more responsive to the needs of citizens and businesses. 37

45 Support design (including * Medium Term Pay Strategy * Salary Review * GoM prepared funding and administrative completed and adopted by Study to make tough arrangements) of a Council of Ministers by end salary priority Medium Term Pay of choices Strategy. Design of a scheme to * Scheme designed and enhance the salaries of key implemented by end of first staff in the short term phase. Human resources * Civil services statutes * Progress reports management strengthened revised to promote greater and decentralized. professionalism. * HRM departments strengthened at the center and sub national levels. * Effective decentralization of key hiring and promotion decisions in place. 3. Governance: To improve allocation, efficient use and accountability ofpublic resources. New established institute * Strategic plan for * Progress reports of accountants has establishment of become a member of the Accountancy profession East, Central and completed. Southern Africa * Professional accounting Federation of Accountants body established. and has promulgated the * Procurement capacity of International Federation public procurement entities of Accountants' assessed and appropriate. accounting and auditing * Training programs standards to its members. developed. Procurement code * Dissemination and training completed capacity on new Procurement code. building for procurement implementation. 38

46 Support to oversight role of National Assembly Establish technical office in the National Assembly to support deputies. 4. Program Coordination: To enhance UTRESP and CIRESP capacity to coordinate and monitor the reforms and communicate with key stakeholders. Effective management * Reports on progress, plans, * Progress reports and coordination of policy finance and accounting, development and procurement submitted on implementation of public time and of high quality sector reforms throughout the project. technical support. * Council of Advisors established. * 70% of contracts under * Supervision UTRESP signed on time in reports * Governance and corruption survey results. Service delivery * EEC strategy implemented. improvements monitored * Regular radio and television and reported regularly to programs to discuss issues stakeholders. relating to the public sector. Project Components / Inputs: (budget for each Project reports: (from Components Sub-components: component) to Outputs) Inputs: Proiect Budget Component 1: $ 9.6 million * Quarterly * Timely Restructuring progress availability of counterpart funds Component 2: $ 1.1 million * Annual Professionalization disbursement reports Component 3: $11.7 million * Annual audit Governance Component 4: $ 3.2 million * Project reports Program Coordination Total $25.6 million 39

47 Annex 2: Detailed Project Description MOZAMBIQUE: Public Sector Reform Project The President launched the Public Sector Reform Strategy in June The ten-year strategy was prepared for CIRESP, inter-ministerial commission on public sector reform, by UTRESP, its technical secretariat. The strategy has been discussed with a wide range of stakeholders. UTRESP already prepared a detailed and costed draft action plan for the three first years of activities, that will be discussed with the sectors, and then sent to CIRESP for approval. The strategy is summarized below. GoM Public Sector Reform Strategy (in italics, Bank project's component) Component 1 (restructuring): Improving service delivery through decentralization and Institutional restructuring Objectives: To enhance capacity of institutions at the local level to provide public services; to restructure units of central Government for improved public service delivery. Results: Improved delivery of public services as a result of restructuring and capacity building of local organs and enhanced participation of citizens in governance; A more effective state with enhanced capacity to deliver public services. Component 2 (restructuring):: Strengthening the policy formulation and monitoring process Objective: To enhance capacity of the Government and administration to formulate and monitor public policies. Result: Creation of an effective system of intersectoral committees to deal with the formulation and evaluation of important national policies. Component 3 (professionalization): Enhancing professionalism in the public sector Objectives: To improve the institutional framework for human resource management at central and provincial levels; To improve the employment conditions in the public service so as to promote the hiring of qualified personnel and the retention of key staff; To effectively implement the national training system in public administration. Results: Greater professionalism in the management of hurnan resources in the public sector at both central and provincial levels; Public sector better equipped to recruit, retain and monitor the performance of qualified staff, particularly those in senior policy and management positions; Well-functioning national training system in public administration with significant training capacity. Component 4 (governance): Improving financial management and accountability Objectives: Strengthen financial planning and budgeting systems to improve the efficiency of resource allocations in the public sector; strengthen expenditure management to increase control and to improve social and economic outcomes of resource allocations in the public sector. Results: Better integration between sectoral policies and budgets; Higher economic and social rates of return on public expenditures because of better targeting and resource management and enhanced accountability and transparency through quality audit and inspection mechanisms. Component 5 (governance): Promoting good governance and combating corruption Objectives: A comprehensive national anti-corruption strategy approved and implemented; Quality of the govemance system improved. Results: Greater understanding among policy-makers and the citizens at large of the root causes of corruption and the needed legal, institutional and capacity building remedies; improved functioning of the judicial sector, legislative system and electoral administration. Component 6 (program coordination): Management of the Reform Process Objectives: UTRESP well-equipped to lead, coordinate and monitor the public sector reform process. Results: Highly effective leadership and management of the reform process at both central and local levels with active participation of citizens and stakeholders. The project is aiming to support the implementation of this strategy through the provision of technical assistance and training, procurement of equipment and vehicles and funding of incremental operating costs. The project description details the various activities it is proposed the IDA grant will support. IDA support will consist of four components. 40

48 By Component: Component 1: Restructuring (US$9.6 million) Objective: To restructure central government for improved service delivery, through further decentralization and rationalization ofprocedures. The GoM strategy links enhancing the capacity of institutions at the local level to deliver services and restructuring the center of Government to realign its role towards the core functions of policy making and monitoring and evaluation. The PSR project will mainly take responsibility for activities aiming at realigning the center, since other donors and two World Bank projects are already providing support to local governments and local authorities. Quick Wins The necessity to build early support for the reform program has been acknowledged by the GoM. To that effect, each Ministry has proposed "quick wins", i.e., concrete actions that are inexpensive, can be carried out in the relatively short term, are visible, and have a direct and positive impact on service delivery. The Prime Minister has asked that Ministries report to him as President of CIRESP on progress with quick wins. The project will fund the process of reengineering studies leading to the quick wins and the cost of implementing the quick wins. Quick Wins to Date: * physically opening up all counters separating civil servants from the people; * posting complaints books in all offices, as well as dedicated phone lines to make complaints; * reducing to 90 days the land use approval process; * introducing quick process of visa application directly at the frontier; * approving a decree defining public service standards; * providing special access for large taxpayers. Restructuring of key ministries At the request of the Prime Minister, UTRESP will support the preparation of restructuring plans in all ministries along the lines of the vision/plan recently prepared for the Ministry of Education. UTRESP will undertake preparatory work that will include guidelines, mapping the public service, an analysis of the existing structures, and other ground rules for the process. With support from donors UTRESP will also help to establish and train change management teams in all ministries in the period before effectiveness. Bidding will take place under the project for consulting firms to work with the ministerial change management teams to prepare the restructuring plans and then possible work with the ministries in the implementation of the plans. During the first phase, key ministries will be benefiting from this exercise, and in particular Education and Health. Since some of these ministries have already undertaken reforms, this activity will build on progress to date. For example, the Ministry of Health is improving planning and budgeting in the provinces and aims to decentralize service delivery. Education has asked for support for decentralizing activities. The functional review of key ministries will set the agenda and build commitment for the subsequent restructuring. Key elements of this functional review process will be: strong linkages between the ministry's mission and the objectives defined in PARPA; the links with the Salary 41

49 Enhancement Scheme now under preparation (the functional review will be the basis for the individual performance contracts); a close involvement of the staff of the ministry at all levels during the functional review, in order to create support for follow-up implementation; formulation for plans to deconcentrate/decentralize service delivery. Once approved, the restructuring, re-engineering and decentralization plans for the 6 key ministries will be implemented (including the adjustment of staffing tables to reflect the recommendations of the functional review and the revision of job descriptions for senior staff) through a Performance Improvement Facility (PIF - see Annex 13 for an outline of how the fund will be operated). The PIEF will provide flexible financing to facilitate performance improvement and provide incentives for ministries to do so. Access to the PIEF will be conditional upon the development of the restructuring, re-engineering and decentralization plan. Further drawdowns will be contingent on clear improved performance against the identified performance indicators. The PIEF will thereby assist the sector ministries to prepare the reforms of processes, structures and policy needed to implement PARPA. The achievement of these reforms would form the targets for successive PRSCs. Policy and monitoring The results of a study commissioned by UTRE,SP of the process by which policies are formulated, decided upon, implemented and monitored characterized this process as unsystematic and uncoordinated. In order to prepare the GoM's central management units to play their "white collar" role (i.e. policy making and monitoring), the policy processes will be rationalized and staff trained. The project will build capacity to link policy and resources more closely, especially through the Medium Term Expenditure Framework (MTEF) and the Poverty Reduction Strategy Plan (PARPA). This will "raise the political profile of MTEF", as-recommended in the PER and CFAA, and create the legal basis for the MTEF. It will strengthen or establish policy analysis units in key government ministries and other institutions (PR, GPM, MAE, MPF), provide support for analytical reviews and/or evaluations of selected policies, and create a central depository (database) of public policies (with associated analytical reviews and evaluations). Capacity building of middle level staff, specialists, senior managers and ministers in the policy formulation and evaluation process will be an important element of this reengineering process. Another key aspect of this process will be the installation of GOVNET to facilitate communications among staff within the public sector, and of GOVSYS - an electronic documentation center to promote enhanced information sharing with the public. As noted in several countries,-introduction of electronic mail may have a strong positive impact on behavior by encouraging dialogue, speeding decisions, and even flattening hierarchies. Phase 2 The restructuring plans prepared in Phase I will be rolled out in Phase 2. The current GoM policy favors deconcentration plus a modest expansion in the number of local authorities, largely because of capacity constraints. The degree of decentralized service delivery during phase 2 will depend largely on the success of the decentralization policy which is supported by a number of donors, including two Bank projects. At this slage, the issue of overlapping competencies between local sectoral administration and territorial administration will need to be systematically addressed. The policy itself is one of proceeding at the rate at which capacity is developed and demonstrated. Fiscal decentralization will follow the development of capacity. During this phase all other ministries will prepare and implement their restructuring plans. The implementation of 42

50 the plans will be supported by the PIEF. The built-in reward mechanism will promote reform where there is strong commitment. The quick wins program will continue. As Phase 2 proceeds, the center of government will increasingly focus on policy formulation and monitoring and evaluation. Component 2: Professionalization (US$ 1.1 million) Objective: Motivate public servants to become more responsive to the needs of citizens and businesses and increase professionalism. Quality rather than quantity has long been identified as the principal staffing issue in the country. Although there may be a need to change some staff, the most obvious needs are to attract and retain qualified staff, provide staff with on-the-job training through locally-based training institutions, and rationalize, speed-up and improve human resources management at all levels. Incentives: salary enhancement scheme The project will support the design of a sustainable medium term pay strategy that will establish the priorities for raising the salaries of civil servants within the context of the revenue expectations of government and the policy priorities established in MTEF and PARPA. The project will support the design of a donor supported scheme that will provide the basis for supplementing the salaries of key staff within the framework of the medium term pay strategy and on the basis that the salaries will eventually be sustained by the GoM's own funds. The project will support the preparation of plans to introduce results oriented performance management for senior managers and in key central coordination agencies. Alternative policy scenario are being developed by the Government's multi-agency task force. A PPF-financed study salary survey will provide information on salaries paid in the private sector and parastatals for positions and skills that are most difficult to retain in the public sector. Options will be constrained by what is thought to be affordable, at the moment a wage bill of no more than seven per cent of GDP, as indicated in the PARPA targets. The scenarios vary by allocating the additional resources to different ranges of "key technical, professional and managerial staff." All those receiving salary supplements would have to sign performance contracts. The Government favors disbursing donor support through normal budgetary channels. The salary enhancement fund will be transitional, and phased out over a yet to be agreed period of years. Implementation of this strategy can only take place alongside the restructuring, which will help define the key positions. It will therefore be done during the second phase. Meanwhile, the leaders, managers, and key technical and professional staff essential to prepare and implement the reforms needed under this project and the sectoral reform programs have to have the incentives needed to become fully committed to reform and to their roles in the reform programs. There is an immediate need to enhance their conditions of employment to achieve this. The project will fund the design of a scheme to enhance the salaries of key staff in the short term. Human resources development Reforms supported by this activity will include the following activities, aiming at improving the current HRM systems: 1. System improvement: 43

51 Phase 2 a. revised civil service statutes (EGFE - General Status of Civil Servants-, SCR - Compensation and Remuneration System) to promote greater professionalism in the public sector and reflect the new role of the state in public management; b. improved systems and more effective processes for the management of the SCR (recruitment, promotion, etc.); c. revised State Career and Remuneration System (SCR) with links to SIFAP (Public Service Training System) and salary reform; d. adoption of Gender Strategy for the public service. 2. Strengthening and restructuring of Human Resources Management departments at both central and provincial levels through: a. re-profiling of HRM departments based on outcome of special functional reviews of these units; b. establishment of performance indicators for these departments; c. adjustment of staffing tables following their functional review; and d. comprehensive HRM training. 3. Decentralization of HRM: a. institutionalization of a decentralized personnel information system in the public sector (joint use by TA, MPF and MAE; b. information technology infrastructure in place in all ministries at the central and provincial levels to maintain the register of public servants (SIP, Personnel Information System); c. pilot testing of the decentralized operation of SIP, followed by full implementation of the system; d. linking of SIP to the SIFAP system; e. adjustment of SIP to medium term pay reform strategy; 4. Specific support for rare skills: a. feasibility study for creating a special career path for policy specialist at the center; b. definition of a special career for ICT specialists. Experience with pay reform programs shows that progress will be slow. The Medium Term Pay Strategy will be in place in Phase 1, some refomis across the board will have been implemented, but much of the salary enhancement for key staff linked to performance contracts will remain to be implemented in Phase 2. The rate of progress will depend on the rate at which performance contracts can be drafted and the funding available from the budget. 44

52 Component 3: Governance (US$ 11.7 million) Objective: Improve allocation, efficient use and accountability ofpublic resources. Accounting and procurement The GoM PSR Strategy supports improving expenditure management and accountability as a high priority. The section of the Strategy outlining the principal problems complains of poor budget execution, incremental budgeting, unclear responsibilities, too much extra-budgetary spending, and weak accountability and auditing, including weak parliamentary supervision. To address these problems the Strategy includes the following objectives: * promotion of MTEF based budgeting at central, provincial and district levels; * improving budget execution; * introducing a chart of accounts in line with the new functional budget classification; * linking budget execution to the results to be achieved in programs and projects; * establishing SISTAFE (IFMIS); * improving the accountability of GoM to the Assembly; * making sure there is accountability for all public funds; * gradual fiscal decentralization; * expand the use of contraction obligations in the use of public funds; * improve the regulation of procurement in the public sector, including monitoring the application of rules; * improving internal and external auditing; and * introduce legislation to underpin the above reforms. The Government is aware that accountability and procurement systems will have to be dramatically improved for donors to be able to rely more heavily on budget support, in particular, the series of PRSCs. This appreciation is reflected in the Draft Letter of Sectoral Policy. The Government's draft Anti-corruption Strategy recognizes the importance of improved accountability systems in combating corruption. UTRESP has drafted a detailed Implementation Plan for the first three years of the Strategy, which approximately coincides with the first phase of this APL. The plan includes measures suggested in the CFAA and PER, such as: a single treasury account, double entry bookkeeping, improved budget coverage, IFMIS, and MTEF as the basis for the annual budget. The plan also includes steps to improve procurement, an improved framework for regular audits and expenditure tracking, the implementation of the new law on public finance and of new procurement rules, a functional review of the Administrative Tribunal, with a view to new operational regulations. The Plan, and the associated budget, includes substantial provision for the development of training capacity and for training itself, at all levels of Government. Substantial funding for IT is also anticipated, in particular to support the introduction of IFMIS. The Bank and other donors have undertaken to support the implementation of this part of the Strategy as a matter of high priority. It is foreseen that the installation of the IFMIS will be funded through the G-10 group of donors. Considering the importance of this activity for the country, the Bank project will include a high contingency that would allow this project to fund part of the IFMIS, should this be needed. The Bank's project will focus its support on the establishment of an accounting profession. This will require consulting, institutional development, training and equipment support including procurement of vehicles. The project will 45

53 also build capacity in the National Assembly to provide legislative oversight, through organizational, technical, administrative and operational reforms, the creation of a Technical office to support the deputies, and training of its staff. The Bank's project will also support procurement reform and capacity building. Phase 2 The program will continue to provide capacity building support, through training, as needed to improve budget preparation, cash management and accounting, with a focus on the implementation of IFMIS (SISTAFE). With funding support from other donors, the IFMIS will be rolled out during the second phase, having been piloted in the first. Two approaches to the piloting have been suggested: top down (Ministry of Finance first) and bottom up (starting with a willing and prepared ministry, perhaps Education). The intention is for the IFMIS to cover the whole of Government, central and local. The MTEF, which will be linked to the PARPA priorities, will become the basis for the budget, not, as now, a technical exercise. The Council of Ministers will become much more actively involved in determining MTEF priorities than is the case now with the budget. The MTEF will be a true setting of priorities not just an incremental, three-year budget. The MTEF will become a very participatory process, inside and outside government. During phase 2, the Administrative Tribunal will itself be decentralized. At the moment the only office is in Maputo. It will have developed better auditing capacity in phase one; this capacity will be spread to the provinces. The Assembly will continue to develop its oversight capacity, and become increasingly able to respond effectively to the recommendations of the AT. The accounting profession, established in phase 1, will progressively raise its standards in phase 2. The training of bookkeepers and accountants will increasingly cover those in deconcentrated and decentralized service delivery units in phase 2. It is not clear at this stage what parts of the program will be financed through the project, since much will depend on the progresses made during the first phase. Component 4: Program Coordination (US$3.2 nmillion) Objective: Enhance UTRESP and CIRESP capacity to coordinate and monitor the reforms and communicate with key stakeholders. CIRESP and UTRESP will be supported by a number of long-term Mozambican consultants, and 'intermittent international advisors. Funding will be provided for UTRESP to carry out studies of key issues as they arise. The project will fund a Council of Advisors drawn from outside and inside the civil service. An Information Center for the public sector reform program will be set up. Wide-spread dissemination of reform plans, activities and progress reports will take place through a regular updating of a public sector reform web site, the setting up of an information center in Maputo, and regular publications of key documents of interest. In order to accompany the reforns and change processes outside the capital, provincial public sector reform offices with adequate staffing and technical infrastructure will be established. 46

54 Regular training of staff of UTRESP and provincial reform offices, Permanent Secretaries and members of CIRESP in facilitation and management skills to lead the reform process will be financed throughout the project. 47

55 Annex 3: Estimated Project Costs MOZAMBIQUE: Public Sector Reform Project 1. Restructuring Professionalization Governance Program Coordination Total Baseline Cost Contingencies Total Project C'ost Civil Works Goods, Equipment & Vehicles Consultants' Services and Audits Training Grants for PIF Plans Operating Costs Note: Figures may not add up due to rounding. Total Project Cosl

56 Annex 4: Cost Benefit Analysis Summary (Cost-Effectiveness Analysis Summary) MOZAMBIQUE: Public Sector Reform Project None 49

57 Annex 5: Financial Summary MOZAMBIQUE: Public Sector Reform Project Project Costs Investmnent Costs Recurrent Costs Total Financing Sources (% of Total) IDA 51% 49% 67% 91% 57% Government 9% 9% 9% 9% 9% Others 40% 42% 25% 0% 34% Total 100% 100% 100% 100% 100% Note: Figures in total rmay not add up due to rounding. 50

58 Annex 5a: Financial Management Assessment Report 4 MOZAMBIQUE: Public Sector Reform Project A. GENERAL 1. The Inter-Ministerial Commission for the Reform of the Public Service (CIRESP) was established by Presidential Decree No 5/2000 (March 28, 2000) and is chaired by the Prime Minister. The Council of Ministers created the Technical Unit for the Reform of the Public Service (UTRESP) as a Secretariat to CIRESP. 2. Under the supervision of the Project Director, the Financial Manager of UTRESP is responsible for ensuring that financial management and reporting procedures for the Public Sector Reform Project will be acceptable to the Govermment, the World Bank and other Cooperating Partners. 3. The principal objective of the Project's Financial Management System (FMS) will be to support management in their deployment of limited resources with the purpose of ensuring economy, efficiency and effectiveness in the delivery of outputs required to achieve desired outcomes, that will serve the needs of the people of Mozambique. Specifically, the FMS must be capable of producing timely, understandable, relevant and reliable financial information that will enable management to plan, implement, monitor and appraise the Project's overall progress towards the achievement of its objectives. For the Project to fully deliver on the aforementioned objectives, it's FMS will be developed in accordance with the Financial Management Arrangements presented in Section C of this Annex. B. SUMMARY RISK ASSESSMENT Inherent Risk: 4. The CFAA Report on Mozambique (December 2001) stated: "The public sector financial management environment in Mozambique denotes a situation of high fiduciary risk: material receipts and payments are excluded from the budget and from the Government accounting and reporting systems; accounting systems and standards are outmoded; internal and external auditing require substantial support; and parliamentary oversight requires strengthening. Because of the high fiduciary risk, the World Bank takes special measures to ensure adequate financial management of its portfolio. Project management units are often established to manage IDA-financed projects and Bank funding is "ring-fenced" to mitigate fiduciary risk ". Control Risk: 5. Although the country fiduciary risk is high, the Project financial management risk is considered moderate provided: (a) the financial management arrangements described in Section C of this Annex are satisfactorily addressed; and (b) the grant effectiveness conditions outlined in Section G of the PAD are met. 4 Please refer to the detailed Financial Management Assessment Report that was prepared jointly by the Financial Manager of UTRESP and FMSs from the World Bank (February 14, 2002). 51

59 C. FINANCIAL MANAGEMENT ARRANGEMENTS Financial Management Staff: 6. Staff include: Financial Manager, Project Accountant, Procurement Specialist and support staff. Varying levels of staff training will be required in fmancial, management and government accounting; information systems and computer applications; and procedures relating to the utilization of funds (e.g. Special Accounts, SOEs, Special Comrnitments, Procurement, FMRs etc.). On-the-job coaching will also be provided. Financial Management System (FMS): 7. In order to ensure that an acceptable FMS will be in place by grant effectiveness, a Financial Management Consultant will be retained: (i) to advise on the selection and installation of the Project's computerized FMS; (ii) to prepare the Project's Financial Procedures Manual 5 (FPM, including records management); and (iii) to train staff in the operation of the system. Provision has been made in the budget for hardware and software requirements as well as training. Accounting Policies and Control Procedures: 8. The Chart of Accounts will facilitate the preparation of relevant monthly, quarterly and annual financial statements, including information on the following: (a) total project expenditures; (b) total fnancial contribution from each financier; (c) total expenditure on each project component/activity; and (d) analysis of that total expenditure into civil works, various categories of goods, training, consultants and other procurement and disbursement categories. 9. Project accounts will be maintained on a cash basis, augmented with appropriate records and procedures to track commitments and to safeguard assets. Accounting records will be maintained in dual currencies (i.e. Meticais and US Dollars). Annual financial statements will be prepared in accordance with International Accounting Standards (IASs). 10. All accounting and control procedures will be documented in the FPM, a living document that will be regularly updated by the Financial Manager. 11. Project activities will be periodically reviewed by the Audit Unit (IGF) at the MPF. Planning and Budgeting: 12. The Financial Manager, in consultation with the Project Director, Procurement Specialist and other members of the Project Team, will be responsible for preparing the Project's Quarterly/Annual Cash Flow Forecasts. The Forecast will be modeled on the suggested presentations contained in the World Bank publication: Financial Monitoring Reports (FMRs) for World Bank Financed Projects: Guidelines for Recipients (OPCS, November 30, 2001). Detailed procedures for planning and budgeting will be documented in the FPM. 5 A consultant will be retained to develop the Procedures Mamual for the Performance Improvement Facility. 52

60 Procurement of Goods, Works and Services: 13. World Bank and Government procurement regulations will be observed. The financial management staff will be conversant with those procedures, as intemal control issues and the incurring of liabilities on behalf of the Project will be matters of concem to the financial management function. A Procurement Report, showing procurement status and contract commitments, will be prepared quarterly for consideration by the UTRESP. 14. Procurement procedures will be documented in the Project Implementation Manual. Banking Activities-Flow of Funds (To be finalized with the Loan Dept) The FMU will maintain 3 bank accounts as follows: (a) Special Account with Bank X in US Dollars/Meticais, that will show: * Dollar/Meticais cost of transfers to Part I Account with Bank X; * Dollar/Meticais cost of payments to suppliers; * Dollar advances (Meticais equivalent cost) from the IDA Ledger Grant Account; * Opening and Closing Balances. (b) Current Account in Meticais with Bank X (Part 1 Account) to which draw-downs from the Special Account will be credited once per month (towards the end of the month) in respect of incurred eligible expenses. Following the immediate payment of those liabilities, the balance on this account should be zero at the end of each month. (c) Current Project Account in Meticais with Bank X (Part 2 Account) to which Counterpart Funding will be deposited. Initially, a three months float will be provided and, thereafter, it will be replenished monthly. 16. In addition, an IDA Ledger Grant Account (Washington) in US Dollars/Meticais/SDR will be maintained to track drawdowns from the IDA grant i.e. (a) cost of transfers to Bank X; (ii) cost of direct payments to suppliers; and (iii) opening and closing Balances. 17. Bank accounts will be reconciled monthly and reconciliations will be approved by the Financial Manager on a timely basis. Identified differences will be expeditiously investigated. Control procedures over all bank transactions (e.g. check signatories, transfers, advances etc.) will be documented in the Financial Procedures Manual. Withdrawals/Disbursements: 18. By grant effectiveness, the Project will not be ready for report-based disbursements. Thus, at the initial stage, transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursement and special commitments. In due course, provided the quarterly Financial Monitoring Reports (FMRs) produced are considered adequate and available on a timely basis, and provided the recipient requests 6 Project fumding will comprise the IDA Grant, Counterpart Funds and the proposed Multi-Donor Pool (proposed funding from Denmark, Britain, Ireland and some others is still under discussion). 53

61 conversion to report-based disbursements, a review will be undertaken by the Task Team to determine if the project is eligible. Fixed Assets/Civil Works/Consultants: 19. A Fixed Assets Register will be prepared, regularly updated and checked. Regarding Construction/Capital Work in Progress (if appropriate), controls will be established to ensure that payments are made only for certified work (including physical verification). Contracts Register will be maintained for all contracts. Control procedures will be documented in the FPM. Financial Reporting and Monitoring (Monthly, Quarterly and Annually): Monthly Reporting 20. In compliance with Government reporting requirements, the UTRESP will be responsible for preparing a Monthly Return (Statement of Expenses - "Prestacoes de Contas") to the MPF for consolidation into the National Accounts of Mozambique. 21. The Financial Manager will also prepare a monthly Status of Funds Report for the Project Director. Quarterly Financial Monitoring Reports (FMRs) 22. The Financial Manager, in collaboration with the Project Director and Procurement Specialist, will prepare quarterly FMRs on a timely basis that will include: Consolidated Financial Reports comprising a statement showing for the period and cumulatively (project life or year to date) inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances of the project; and supporting schedules comparing actual and planned expenditures. The reports will also include a cash forecast for the next two quarters. Consolidated Physical Progress Reports comprising narrative information and output indicators (agreed during project preparation) linking financial information with physical progress, and highlight issues that require attention. Consolidated Procurement Reports providing inforrnation on the procurement of goods, work, and related services, and the selection of consultants, and on compliance with agreed procurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlight key procurement issues such as staffing and building recipient capacity. In addition to procurement progress, the reports will include information on all authorized contract variations. Information on complaints by bidders, unsatisfactory performance by contractors, and any major contractual disputes may also be included. 23. Indicative formats for Financial Monitoring Reports (FMRs) are outlined in the World Bank publication: Financial Monitoring Reports for World Bank Financed Projects: Guidelines for Recipients (OPCS, November 30, 2001). 54

62 Annual Financial Statements 24. The Project Financial Statements will include: * Consolidated Statement of Sources and Uses of Funds (showing IDA, Counterpart Funds and funds from other donors); * Project Balance Sheet as at the reporting date; * Notes on significant accounting policies and accounting standards adopted by management when preparing the accounts; and on any supplementary information or explanations that may be deemed appropriate by management to enhance the presentation of a "true and fair view"; * A Statement reconciling the balances on the various Bank Accounts (including the IDA Special Account) to the bank balances on the Statement of Sources and Uses of Funds; * SOE Withdrawal Schedule, listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount; * A Cash Forecast for the next two quarters. External Audit 25. Relevantly qualified, experienced and independent auditors will be appointed on approved terms of reference. Audited financial statements (Consolidated) will be submitted to the Bank within six months after the financial year end. 26. Besides expressing a primary opinion on the financial statements in compliance with International Auditing Standards (EFAC pronouncements), the auditor will be required to include a separate paragraph commenting on the accuracy and propriety of expenditures withdrawn under SOE procedures and the extent to which these can be relied upon as a basis for grant disbursements. 27. Regarding the Special Account, the auditor will also be expected to form an opinion as to the degree of compliance with World Bank procedures and the balance at the year-end. 28. In addition, the auditor will be required to prepare a separate Management Letter giving observations and comments, and providing recommendations for improvements of accounting records, systems, controls and compliance with financial covenants. Financial Management Supervision 29. Supervision activities will include: review of quarterly FMRs; review of annual audit reports and management letter as well as timely follow up of issues arising; annual SOE review; participating in project supervision missions as appropriate; and updating the financial management rating in the Project Status Report (PSR). Grant Effectiveness - Required Actions and Next Steps 30. Salient issues to be addressed: * FMS installed; * Financial Procedures Manual developed; * Counterpart Funds and Special Accounts opened; World Bank advised of authorized bank signatories/specimen signatures. * Initial capacity building completed e.g. FMS, Special Account, SOEs and computer skills. 55

63 * Relevantly qualified external auditor appointed on approved terms of reference. Conclusion: 31. Subject to the Required Actions and Next Steps presented above being satisfactorily addressed by the UTRESP prior to grant effectiveness, the Bank's financial management requirements will be satisfied. 56

64 Annex 6: Procurement and Disbursement Arrangements MOZAMBIQUE: Public Sector Reform Project Procurement: Procurement requirements for the entire project will be carried out at the UTRESP but in close collaboration with the beneficiaries of the project. The focal institutions of project components will be responsible for the preparation of lists of requirements and annual procurement plans for works, goods and services that are to be procured under their respective components. A Procurement Unit to be established within UTRESP under the guidance of a Procurement Officer (to be recruited by UTRESP) will consolidate the individual needs and procurement plans of such institutions into an overall annual procurement plans for the project. The consolidated annual work plans and procurement plans of the project will be reviewed by the Advisory Panel of UTRESP, and subsequently agreed with the Bank. Procurement methods (Table A): Procurement of all IDA-financed works, goods, and services will be carried out in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits (January 1995 and revised in January and August 1996, September 1997 and January 1999). Consulting services by firms or individuals financed by IDA will be awarded contracts in accordance with the Bank's Guidelines: in Selection and Employment of Consultants by World Bank Recipients (January 1997, revised in September 1997 and January 1999). The appropriate World Bank standard bidding documents will be used for all International Competitive Bidding (ICB) and National Competitive Bidding (NCB) with any appropriate modifications. The World Bank's Standard Request for Proposals (RFPs) will be used for the selection of consultants. Advertising: A General Procurement Notice (GPN) for consulting services, goods and works was submitted to the Bank for publication in the United Nations Development Business prior to negotiations. The GPN will be updated at least once a year and submitted to IDA for review. Procurement Plan: A procurement plan for consulting services, goods and works for the first year of project has been prepared. The plan includes relevant information on consulting services, goods and works as well as the timing of each milestone in the procurement process. The procurement schedule will be updated every quarter and reviewed by IDA at each supervision mission. The detailed implementation plan is included in the PIP. Performance Improvement Fund (PEY) Plan: The proposed IDA Grant will also finance procurement activities associated with the implementation of the PIEF Plans. Funding of these activities will be made on the basis of an appraisal conducted in accordance with the guidelines and eligibility criteria specified in the PIF Manual. Furthermore, the PIF Plans will be carried out in accordance with the PIF Memorandum of Understandings to be received, reviewed and selected, approved and executed by CIRESP and relevant Ministries under terms and conditions agreed with IDA. 57

65 Procurement of Goods, works and services under the PIF will be in accordance with the procedures set forth in the PIF Manual. Such goods, works and services will be used exclusively in the carrying out of the PIF Plan. Disbursement of funds under the PIF will be based on a positive list of activities as described in the PIF manual. Civil Works: Civil works will consist of small rehabilitation of offices estimated at around US$0.6 million of which about US$0.4 million will be funded by the proposed Grant. Contracts will be awarded on the basis of National Competitive Bidding (NCB) procedures acceptable to IDA. Minor works costing less than the equivalent of US$50,000 per contract up to aggregate amount not to exceed $200,000 equivalent may be procured under lump-sum, fixed price contracts on the basis of quotations obtained from three qualified domestic contractors invited in writing to bid. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to IDA, and relevant drawings were applicable. The awards will be made to the contractors who offer the lowest price quotation for the required work, provided they demonstrate they have the experience and the resources to complete the contract successfully. Goods: The total cost of goods for the entire project is estimated at US$6.0 million of which approximately US$3.5 million will be funded by the proposed Grant. Approximately US$0.7 million of the IDA funding for goods is earmarked for PIF Grants. Procurement will be bulked where feasible into packages valued at US$100,000 equivalent or more and will be procured through ICB procedures. Goods estimated to cost US$100,000 equivalent or less per contract up to an aggregate amount of US$1,500,000 will be procured through NCB procedures that are acceptable to IDA. Goods that are estimated to cost less than US$50,000 equivalent per contract up to an aggregate amount of US$400,000 equivalent may procured through National Shopping procedures for goods available in the local market and/or through International Shopping procedures for goods that cannot be supplied within the country and/or through the Inter-Agency Procurement Services Office of the UNDP (IAPSO). Procurement through LAPSO be carried out for goods that are estimated to cost less than $100,000 equivalent per contract. Services: The total cost of consultant services for the entire project is estimated at US$24.0 million of which about US$13.2 million equivalent will be funded by the proposed Grant. Approximately US$4.2 million of the IDA funding for consultant services is earmarked for PIF Grants. Except as detailed below, consulting services will be selected through competition among qualified short-listed firms based on Quality- and-cost-based Selection (QCBS) in accordance with the provisions of Section II of the Consultant Guidelines. Services for audits estimated to cost US$100,000 equivalent per contract may be selected through Least-Cost Selection as prescribed in paragraph 3.1 and 3.6 of the Consultants' Guidelines. Selection of individual consultants will be carried out in accordance with the provisions of paragraphs of Section V of the Consultants' Guidelines. 58

66 Services for very small assignments for which the need for preparing and evaluating competitive proposals is not justified and which are estimated to cost less than $50,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.7 (Selection Based on Consultants' Qualifications) of the Consultants' Guidelines. Services for sector studies, market studies and surveys of limited scope estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.5 (Fixed Budget Selection) of the Consultant Guidelines. Only in exceptional cases that meet the conditions set forth in paragraphs of the Consultant Guidelines, consultancy services estimated to cost US$100,000 equivalent or less up to an aggregate amount of US$400,000 may be procured on single-source basis subject to prior clearance with the Bank. To ensure that priority is given to the identification of suitable and qualified national consultants, short-lists for contracts estimated to cost US$100,000 equivalent or less may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultants' Guidelines. Review by the Bank: Prior Review Prior to commencing any procurement activity for goods, works and services the proposed procurement plan will be presented to the Bank for its review and approval. The proposed plan for the selection of consultants will be reviewed in accordance with the provisions of paragraph 1 of Appendix 1 to the Consultant Guidelines. The first three procurement packages for goods, works or services irrespective of their value will be reviewed by IDA in accordance with the Bank's Prior Review Procedures. Goods and Works IDA's prior review procedures will apply to all purchases for which the contract value is equivalent to US$200,000 or more for works. With respect to each contract for goods estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines will apply. Consultants ' Services The Bank will review the Terms of Reference for all Consultancy Services. Contracts for services above US$250,000 for firms and US$50,000 for individuals require the prior review no objection by IDA. Training Approximately US$12.4 million is earmarked for training activities of which about US$7.8 million will be funded by the proposed Grant. Approximately US$1.3 million of the total IDA funding for training is earmarked for PIF Grants. Training programs will consist of study tours, seminars, workshops which are geared toward improving management and skills of public servants. The 59

67 training activities will be subject to the Bank's prior review and approval. All training will be carried out in accordance with Bank and Government approved annual training plans that identify the nature of training, institutions involved, cost estimates, contents of courses, and reporting requirements. The training plan will be reviewed by IDA on a quarterly basis PostReview With respect to each contract not subject to prior review, post review will be conducted m accordance with the procedures set forth in paragraph 4 of Appendix I to the Guidelines. Operating Costs: Approximately US$0.7 million of the IDA funds is earmarked for incremental costs. This would include support for expenditures that pertain to project implementation, management and monitoring, including office supplies, equipment maintenance, communication costs, vehicle operation, travel and supervision costs, but excluding salaries of officials of the Recipient's civil service. Of the total estimated amount, about US$0.3 million is estimated to be utilized to support incremental operating requirements of demand-driven programs through the Performance Improvement Facility and about US$0.4 million is estimated to be utilized by relevant technical units to support operating requirements of activities that deals with the promotion of good governance and campaign against corruption and management of the reform process. Procurement Methods IX Table A: Project Costs by Procurement Arrangements (US$ million e auivalent) Civil Works (0.31) (().13)4 (0.44) Goods, Equipment & Vehicles (1.67) (0.88) (0.32) - (2.87) Consultant Services (8.91) (8.91) Trairing (6.51) (6.51) Grants for the PIF Plans 3 _ (0.65) - (5.88) (6.53) Operating Costs (0.32) (0.32) Total Project Cost of which IDA Funded by IDA 7. (1.84) (0.32) (21.75) (25.58) ricb = Intemational Competitive Bidding; NCB= National Competitive Bidding; NIS = National and International Shopping; Other = Other procurement selection procedures (see Table A2 below). 2 1 Figures in parenthesis are the amounts to be financed by the IDA Grant. All costs includes contingencies. 3 Performance Improvement Fund 4 /Procurement of small works on the basis of quotations obtained from three (3) domestic contractors. Note: Figures in total may not add up due to rounding. 60

68 Annex 6, Table A2: Consultants Selection Arrangements (US$ million equivalent) j/ A. Finns (0.3) (6.4) (0. 1) (0.1) - (6.9) B. Individuals (1.2) - (0.2) (2.0) Total (1.5) (6.4) (0.3) 0.3) (0.4) (8.9) T'Including contingencies Note: QCBS = Quality- and Cost-Based Selection; CQ = Selection based on Consultant's Qualifications; LC= Least Cost; FB = Fixed Budget; SS = Single Source Selection;. Figures in parentheses are the amounts to be financed by the Bank grant. Note: Figures in total may not add up due to rounding Table B: Thresholds for Procurement Methods and Prior Review _7 Civil Works >200,000 NCB Prior Review <200,000 NCB First three contracts prior review. All others post-review Goods >100,000 ICB Prior Review <100,000 NCB Post Review <50,000 NS/IS Post Review Consultants Finms >250,000 QCBS Prior Review <250,000 QCBS Post Review <100,000 CQ Post Review Individuals >50,000 IC Prior Review <50,000 IC Post Review Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions proposed: special procurement supervision for post-review/audits). One every six months (includes An assessment of UTRESP procurement capacity has been conducted, and a report has been prepared. The report indicates "Average" risk based on the following: (i) UTRESP has hired a Procurement Specialist who has previous experience in a World Bank project; (ii) implementation of procurement under the PHRD Grant and PPF were carried out smoothly and in a timely manner (i.e. PHRD grant was fully committed as planned and procurement actions under the PPF were initiated promptly); (iii) strong and clear reporting arrangements between UTRESP, CIRESP and other key stakeholders; and (iv) UTRESP has used procurement rules of the Bank and other Donors and very little procurement was initiated using government rules since it was established a year ago. UTRESP will also ensure that all procurement staff are adequately trained on World Bank procedures and if the 61

69 need arises, additional staff would be hired to facilitate implementation of day-to-day procurement tasks under the project. It is noted that the procurement process of all goods and services contracts, and selection of all officers under the project as well as the evaluation process of received bids and proposals will be carried out by the UTRESP in close collaboration with other implementing agencies and relevant GOM entities as appropriate. In addition, a detailed Procurement Plan with timelines of the procurement processing steps for the first year implementation of the project has been prepared. To the extent feasible, smaller activities have been grouped into larger contracts for economy and efficiency. Disbursement: Use of Statement of Expenditures (SOEs) Disbursements would be fully documented except for contracts below the equivalent US$200,000 for works, US$100,000 for goods and US$250,000 for consulting firms and US$50,000 for individual consultants. For such contracts and particularly training expenditures, the recipient would be allowed to submit withdrawal applications based on Statement of Expenditures (SOEs). All supporting documents for such applications would be retained by UTRESP and made readily available for periodic review by IDA during supervision missions and by extemal auditors. All expenditures related to contracts above the equivalent of US$200,000 for works, US$100,000 for goods, US$250,000 for consulting firms and US$50,000 for individual consultants would be fully documented, and would not be paid from SOEs. The SOE methodology will also be used for Operating Cost and Training expenses. Special Account (SA) To facilitate payment of expenditures by the project, two Special Accounts (A & B) in US Dollars would be established in the Central Bank. Special Account A is the primary account which will be used for disbursing funds associated with project activities other than those which relate to the Performance Improvement Fund. Funds for the latter component will be deposited under a separate account called "Special Account B". The Authorized Allocation to the Special Account A would be US$1.7 million while Special Account B would be US$0.8 million. IDA would make an initial estimated deposit of about one half of these amounts for each Special Account immediately after effectiveness until the aggregate amount of withdrawals from the Grant Account plus the total amount of all outstanding special commitments entered into by IDA pursuant to Section 5.02 of the General Conditions shall be equal or exceed the equivalent SDR of the Authorized Allocation to the Special Accounts. The SDR triggers are 4,000,000 XDRs for Special Account A and 1,500,000 XDRs for Special Account B Flow of Funds IDA's share of eligible expenditures would be paid from Special Accounts, except for expenditures greater than twenty (20%) per cent of the outstanding advances to the Special Accounts, which could be made directly by IDA. The Recipient can ask IDA to make direct payments or issue Special Commitments for amounts less than 20% of the advances to the Special Accounts. For withdrawals of the Authorized Allocation, the Recipient shall furnish to the Association a request or requests for deposit into the respective Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, 62

70 the Association shall, on behalf of the Recipient, withdraw from the Grant Account and deposit into the respective Special Account such amount or amounts as the Recipient shall have requested. Disbursements under Special Account B will be based on an annual report integrating the results of the monitoring and evaluation activities as descnbed in the PIF manual. The annual report will be prepared no later than March 31, 2004 and thereafter on an annual basis no later than March 31 of each year. An advance of up to 3 months of approved activities will be deposited to Special Account B after receipt by IDA of the list of eligible activities/grants. The grantees will have to document the initial advance in order to receive additional funds. Project Accounts/Counterpart Fund Accounts A project account would be opened at the Central Bank under termrs and conditions satisfactory to IDA. The project account would be used for deposits and withdrawals related to govermnent contributions and others non-ida sources. UTRESP would ensure that disbursements are effected in accordance with Bank procedures and would have financial monitoring responsibility. An amount in local currency equivalent to $50,000 will be deposited immediately after grant effectiveness, and replenished on a regular basis, to finance the recipient's share of project costs. Quarterly reports Quarterly reports and forecasts will be prepared by the project and submitted to the IDA for review. Allocation of grant proceeds (Table C) It is estimated that the project would be implemented over a period of about three (3) years starting in March 2003 and the closing of the project is set for June Disbursements of IDA funds will be done through traditional disbursement mechanisms. It is expected that the project will become effective in March Table C: Allocation of Grant Proceeds Civil Works % of foreign expenditures and 80% of local expenditures Goods, Equipment and Vehicles % of foreign expenditures and 80% of local expenditures Consultants' Services and Audits % Training % Grants for PIF Plans % of amounts disbursed Operating Cost % Refunding of Project Preparation Advance 0.6 Unallocated 1.7 Total

71 Annex 7: Project Processing Schedule MOZAMBIQUE: Public Sector Reform Project Time taken to prepare the project (months) 17 months First Bank mission (identification) October 2001 Appraisal mission departure March 2002 June 2002 Negotiations May 2002 December 2002 Board January 2003 Planned Date of Effectiveness March 2003 Prepared by: Bank team together with GoM Technical Unit for the Reform of the Public Sector (UTRESP) Preparation assistance: PHRD US$260,000; PPF US$599,000; multi-donor pool; national budget. Bank staff who worked on the project included: Harry Gamett Helene Grandvoinnet Reynaldo Castro Nelia Dinkin Jose Kastrup Jose Janeiro Anthony Hegarty Marius Koen Joao Tinga Francesco Sarno Subhash Dhingra Maria Isabel Nhassengo-Massingue Task Team Leader, AFTPR Public Sector Specialist, AFTPR Operations Specialist, AFTPR Program Assistant, AFTPR Counsel, LEGAF Senior Finance Officer, LOAG2 Manager, Financial Management, AFTFM Sr. Financial Management Specialist, AFTFM Financial Management Analyst, AFTFM Procurement Specialist, AFTPC Procurement Specialist, AFTPC Procurement Assistant, AFC02 64

72 Annex 8: Documents in the Project File MOZAMBIQUE: Public Sector Reform Project See Box I in main text for list of studies carried out in preparation of the project. A. Project Implementation Plan GoM has prepared detailed Implementation Plan for its Public Sector Reform Strategy B. Bank Staff Assessments C. Other *Including electronic files 65

73 Annex 9: Statement of Loans and Credits as of December 12, 2002 MOZAMBIQUE: Public Sector Reform Project Difference between Original Amount in US$ Millions expected and actual disbursementsa Project FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm ED P MZ-EMPSO P MZ-Municipal Development Project P MZ-Roads and Bridges MMP P Higher Education Project P MZ-Communication Sector Reform P Mineral Resources Project (NRMCP) P Coastal & Marine Biodiversity Mgmt P Enterprise Development P Railway & Port Restr P Coastal Management P National Water P Transborder Parks P Education Sector Strategic Prog.(ESSP) P National Water I P Transborder Parks P Health Sec Recovery P MZ Gas Engineering (ENGY) P nd Road and Coastal Rev'd Total: ,

74 MOZAMBIQUE STATEMENT OF IFC's Held and Disbursed Portfolio Jun In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1996 AEF Cahora Bassa BIM-INV BMF /01 MOZAL Maragra Sugar Polana Hotel SEF Ausmoz SEF CPZ SEF CTOX SEF Cabo Caju SEF ROBEIRA Total Portfolio: Approvals Pendi g Commitment FY Approval Company Loan Equity Quasi Partic 1999 Mozal Swap BIML SEF Grand Prix Total Pending Commitment:

75 Annex 10: Country at a Glance MOZAMBIQUE: Public Sector Reform Project Sub- POVERTY and SOCIAL Saharan Low- Mozambique Africa Income Development dlamond' 2001 Population. mid-year (millions) ,511 Life expectancy GNI per capita (Atlas method, US$) GNI (AUas method, US$ billions) ,069 Average annual growth, Population (%) G/N Labor force (%) GNI per -primary ' Gross Most recent estimate (latest year available, ) capita \,' enmollment Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) 26 Access to improved water source Access to an improved water source (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (%of school-age population) Mozambique Male Lowincome group Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS EconomIc ratlos GDP (USS billions) Gross domestic investmenttgdp Trade Exports of goods and servires/gdp Gross domestic savings/gdp Gross naftonal savings/gdp e Current aocount balance/gdp Domestic Interest paymentswgdp sav h Investment Total debvgdp 1/ savlgs Total debt service due/exports Present value of debvgdp 2/ Present value of debvexports 2V Indebtedness (average annual growth) GDP Mozambique GDP per capita Low-income group Exports of goods and services STRUCTURE of the ECONOMY (% of GOP) Growth of Investment and GDP(% Agricuture so Industry s Manufacturing Services Private consumption s oo o0 General govemment consumption GDI -GDP Imports of goods and services (average annual growth) Growth of exports and Imports (%) Agriculture Industry so Manufacturing Services Private consumption o 01 General govemment consumption so Gross domestic investment Exports -> ports Imports of goods and services Note data are prelirrinary estimates. The dianionds show four key Indicators in the country (in bold) conpared vith Its income-group aveage. If data are nrissing. the dlamond vaii be inconffete 68

76 Mozambique PRICES and GOVERNMENT FINANCE 18s Inflation (%) DomesOc prkes 8 (% change) Consumer prices so Implicit GDP deflator 34, o Government flnance (/ of GDRP includes current grants) 0. I Current revenue ss Current budget balance GDP defiator ecpi Overall surplus/defldct TRADE (US$ milions) Export and Import levels (USS mill.) Total exports (fob) l,e Cashew Prawn * - Manufactures ,oo00 Total imports (clf) ,200 1,157 Food Fuel and energy Capital goods o Export price index (1995=100) go Importpricelndex(1995=100) *iexports lnsiports Temmsof trade (1995=100) BALANCE of PAYMENTS (US$ millions) Current account balance to GDP (%) Exports of goods and services o Imports of goods and services ,540 1,511 Resource balance T79 Net income I " I* Net current transfers o Current account balance ,152-1,007 - Finandng items (net) ,220 1,314 Changes in net reserves _0 Memo: Reserves including gold (USS millions) Conversion rate (DEC, local/us$) , ,689.5 EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) Composition of 2000 debt (USS mill.) Total debtoutstandingand disbursed 1/.. 8,326 6,322 7,136 IBRD G:567 B. 760 IDA ~ C 219 Total debt service 1/ A IBRD IDA F: 1,75i Composition of net resourre flows Official grants Offical creditors2/ Private creditors Foreign direct investment Portfolio equity.... E: Wodd Bank program Commitments3/ A -IBRD E -Bilateral Disbursements 3/ * B -IDA D -Other rriultilateral F -Private Principal repayments C -IMF G -Short-tenn Net flows Interest payments Net transfers Development Economics 10/9/01 69

77 Annex 11: President Chissano's Speech on Public Sector Reform MOZAMBIQUE: Public Sector Reform Project This summary appeared in Mozambican news service AIM: E CHISSANO LAUNCHES REFORM OF PUBLIC SECTOR Maputo, 25 Jun (AIM) - Mozambican President Joaquim Chissano on Monday declared that the country's public sector "has generally operated with low levels of efficiency, and has provided citizens with poor quality services." He was speaking at a rally in the Maputo suburb of Bagamoio marking the 26th anniversary of the country's independence - the moment chosen by the government to launch a ten-year programme to reform the public sector. Chissano noted that there was now a generalised trend for civil servants "to demand illicit payments for providing the services which are job of the public administration. This undermines the trust that should exist in the relations between state and society." The President stressed the urgency of making changes to "raise the moral and ethical standards of public servants, transforming them so that they do indeed serve the public." Chissano said that the government wants a public service that is "flexible, decentralised, free of red tape, simplified, modernised, competitive, and concerned with the results and quality of the services provided to the citizens." The public sector must be "transparent with regard to the use of public property and resources, as well as regards procedures and the presentation of results " It must be "endowed with qualified, professional staff, who are always ready to make necessary changes, and are aware of their duties and responsibilities to society." Chissano stressed that this reformed public sector must be "intransigent in fighting against corrupt or fraudulent practices.' The staff it employs must "serve the citizens and not serve themselves." Furthermore, the public sector should be democratised. Chissano wanted to see participatory mechanisms institutionalized "which allow us to identify more securely the desires and needs of citizens, and also create a space for the participation of society in the search for solutions to the problems of development." There would be two phases to the reform programme. From 2001 to 2004 the basic conditions would be established for "the profound transformation of the public sector". The foundations for the new organisation, planning and management of the public administration would be laid in this period, and some short term measures introduced that should "significantly improve the performance of staff'. In the following period, up until 2011, programmes with a much broader impact would be implemented. "In this stage, the public sector should function in a qualitatively better manner than at the start of the reform, and present new standards and values that clearly excpress an irreversible change in the mission of the public sector -- a sector essentially working for results and for the citizens", declared Chissano. At the top of the list of specific reforms is the "rationalization of procedures and the decentralisation of administrative structures and processes" in order to make them "more efficient and accessible to citizens". Much attention, Chissano promised, will be given to the system of managing human resources in the public administration in order to improve "levels of professionalism, competence and ethics". He laid a heavy stress on the fight against corruption, as a phenomenon that "destabilises institutions, drains society's confidence in the state, and attacks national unity itself'. "Corruption inhibits the development of the private sector, scares off foreign investment and puts at risk continued foreign aid and cooperation", Chissano wamed. "It seriously erodes citizens' confidence in the govemment and in state institutions. It prejudices the effectiveness and results of public policies". "The social and economic cost of corruption is immense, and weighs in an unjust and disproportionate manner on the most vulnerable strata of the population", the President declared. He added that both "grand corruption", involving large sums of money, and "petty corruption" that affects people's day-to-day lives, "produce equally perverse effects". Grand corruption "diverts, to the benefit of a few, resources which could generate wealth and minimise the effects of absolute 70

78 poverty", Chissano continued. "It damages the image of the country and compromises the credibility of our state internationally". As for petty corruption, it was "only petty when considered in isolation. The multiplication of such acts thousands, or perhaps millions, of times means that it reaches incalculable sums". Chissano gave examples that are wearyingly familiar to all Mozambican families. "The mother or father of a family who must "offer thanks" in order to enroll their son at school, the patient who is only cared for if he gives the health worker "a little envelope", the driver who must "buy a beer" or "speak like a man" to the police in order to avoid a fine or the seizure of his driving license, the small businessman who is resigned to paying "something extra" to the notary to obtain his certificate quickly, all these and other situations are occurring with alarming frequency", the President declared. But he rejected the common argument that corruption is caused by low wages in the public administration. "That argument is false", he said, "since it cannot explain the large number of honest staff members, who do not abuse their position to their own benefit". Wages in the public sector were indeed below what would be desired, "but we are still a poor country, and the state can only pay what national production allows", Chissano said. As for specific measures, Chissano promised increased modernisation and computerization of procedures. This would not only speed matters up, but it would cut out many personal contacts altogether. There would be "a significant reduction in the influence of the human factor on dealing with requests and authorisation, in collecting taxes and fees, and in other direct contacts between the citizens and the public sector", he said. Some of the new measures are extremely simple. All civil servants who deal with the public must wear a badge with their names, so that citizens can identify them when maling complaints. In health units, the prices for all medical services and all drugs must be fixed on the walls. There are also promises to simplify mechanisms for importing used cars, to publicise the rights and duties of Mozambican emigrants, and to create channels whereby complaints and suggestions can be phoned in. Chissano also promised "direct channels of communication between society and the government which guarantee security and eliminate threats of reprisals against citizens who exercise their legitimate right to denounce acts of corruption". (AIM) 71

79 Annex 12: Letter of Sectoral Policy MOZAMBIQUE: Public Sector Reform Project REP0i3LICA DE MOI;AMBIQUE MINISTERIO DO PLANO E FINANQAS GABINETE DA MINISTRA N../GVM/MPFIo2 Maputo, September Mr. Jamne Wolfnsohn, President World Bank Washington DC USA SUBJECT: LETTER OF SECTORAL POLICY: PUBLIC SECTOR REFORM Introducton 1. The overriding development objecie of the Govemment of Mozambique is a substantial reducuon in the levels of absolute poverty in the country. The fight against poverty has been of central conoem since independence, with high priority being given to expenditures on health and education togeher with eforts to rehabilitate basic infrastructure. Since 1987, siructural reforms have been enacted to induce rapid and sustained economnic growth and improve incomes through the creation of an economy based on private Initiative and market foroes, As a result. Mozambique has recently achieved sinificant annual economic growth rates and some improvement in per capita income. 2. In spite of these achievements, the country remains one of the poorest in the world and poverty clearly remains Its key challenge. In order to provide a short- and long-term strategic fraunework for addressing poverty, the Govemrment has adopted the Action Plan for the Reduction of Absolute Poverty , which represents the country's Povefty Redudion Strategy PapW. The Action Plan recognizes that rapid, Inclusive growth is an essential tool for poverty reduction through its generation of public end private resources and improved economic opportuniies. Thus, the strategy combines short-tern programmes that cirectly benefit the poor with medium and longterm policies to promote balanced. rapid growth in order to create a virtuous circle' of acoelerated and sustainable progress in the fight against poverty. 3. The Poverty ReducUon Strategy Identifies six priorities, or 'fundamental area of action' to promote human development and broad-based growth. These are: (I) education, (ii) health, (ii) agriculture and rural development, (iv) basic infrastructure, (v) 72

80 good govremanoe, and (vi) macro-economic and financial management. By including the last two fundamental areas of action, the Government recognizes that hee exists a direct correlation between the achievement of broad-based soco-economic development that reduces the Incidence of poverty and the performance of the public sector. Sustained economric growth and increased welfare provision demands that the public secior provides the essential policy environrent infrastructure, and services responsively, efficiently and effectively. 4. In order to improve the performance and responsiveness of the pubic sector, the Govemment has adopted a comprehensive Pub#i Sector Reform Strategy The Strategy builds upon discete anod partial reform actions that have been undertaken over the past several years that focused upon: Institutional reform through measwes to decentralize and deconcentrate, including the establishment of municlpalites, reform of the budget system, the establishment of a training progranme for civil servants, the rationalization of human resources through a new career and remunerafton systm, salary decompression and a human resource management data base. Background and Scope of Public Sector Reform 5. Govemment's commitment to widen and accelerate on-going, partal sector reform was made evident with the creation of the lnfter-mbirgte4w Publ:c Sector Reform Commintee (CIRESP) In March 2000, the establishment of the Public Sector Refom Tecohncal Unit (UTRESP) in June 2000 and the speech made by the Prsident on June 2 5 h 2001 launching the new comprehensive Public Sector Reform Stategy. There now exists high-level consensus on the need for oomprhehnsive reform and the oommitment to tum plans into operational acton. 6. The overall goals of the Public Sector Reform Stategy may be summarized as being: a) Redefine and reinforce the role of the Slate and its pubfic administration; b) Improve the quality of service delivery; c) Strengthen democratic participation of citizens at different evels of govemment; d) Decentralization; e) Consolidation of mechanisms aimed at fhting corruption; and f) Promotion of transparency and good governance. 7. The Council of Ministers has decided that the reforms will cover al institutions financed directly by the State. The National Assembly, has also resolved to include its Secretariat among Fe insttutions to be covered under the reforms. It will kfous upon restructuring the State so that public serwvants become more responsive to public needs and resul-orientated. The Stralegy includes a VQuick Wins Programme' which gonsists of highly visible measures that will be successfully Implemented in a relively short time. 8. The reforms will be carried out in two interrelated phases. The first phase covering the years is intended to create the basic conditions needed to transform the public sen*or. Reform policies, programes and methodologies will be developed and refined, in some cases through implementng pilot schemes. Other basic foundations for reform such as an anti-corruption programme and a medium-term pay policy wil be initiated. The second phase ( ) will build an the experience 2 73

81 gained in the first phase to viden the refonms across Ute pubic service in order to bring about the complete transformation of all institutions of the public servioe. 9. CIRESP, chaired by the Prime Minister, will provide politkcal leadership, review all reform proposals prior to submnission to the Council of Ministers and monitor their implementation. A small team of coon specialists to provide technical gudance and coordination staffs the UTRESP. The Director of UTRESP will interact with all Permanent Secretaries on a day-to-day basis and through regular meetings of committees established for this purpose. The views of stakeholders outside the public service will be regularly sought while close liaison will be established with inth sted donors. Puiorftte. and ComponenX of Public Sector Refom 10. The first phase of the reform programme includes six main components: a) Improving service delivery through decentraliation and insitutional restructuring, b) Strengthening the policy formultion and monitoring process; c) Enhancing professionalism in the public sector, d) Improving rinancial management and accountability; e) Promoing good govemance and oombating corruption; arnd fl Management of the reform prooess. 11. The component to improve swice delivery through decntralization and institutional restrctudng seeks to enhance service delivery at th local level, thrugh restcwing. capacity buding and increased partidtpafon, while creasting a more agile and capable State able to facilitate national development. It wgl include: a) Revised lgal and policy fra#ework Including: new law enacted on local authorities, lgislation on municipalities, regulason for decetralized service provson, o*ent surveys, improved Iformation dissmination, simplif commercial regulations and laws on tourism and customs procedures; b) Institutional reform including: functional review of Govemment units and restructuring of key ministries, revienv of local authority adminisrative procedures, expansion in fe nwnber of municipalities, reorganization of distrct administration, establishrmnt of 'localities' as further tier of local government, new forms of partcipation In local affairs, new land registraion procedures, one-stop shops piloted; c) Human resource development Including: training of local authority staff in simplified administrative procedures, irnproving working conditions of local authority staff, civil servant capaciy building on new legislation and proodures. 12, The component to strengthen polic forlation and mnioring seeks to create an effective inter-sectoral mechanism to guide and coordinate the formulation and evaluation of important national policy. It will lnclude: a) To formulate the legal and policy frameworks for the policy proces induding: manual on process of policy formulation, monkoring and evaluation and guidelines for inter-sectorel coordinatori; 3 74

82 b) Institutional reform including: establishing policy analysis units in key ministries, analytic evaluation of selected policies, inproved IT communications within government and with the public; c) Human resource development Including: training on pulic policy developed, capacity building of mid-level staff in policy formulation, training staff in the use of electronic information systems. 13. Enhancing professionalism in the public sector w9ll pursue the effective impementation of the nationat public administraon training system and improve employment conditions in the pubic service. a) Revised legal and policy framewok including: decree to establish High Level Institute, creation of IFAPA's, Interfinkg SIFAP and SCR, adoption and plnnentation of medim term pay policy, introduction of performance improvement management. b) Institutional reform including: making operational High Level Institute and IFAPA's. consolidation of intituional base of SIFAP and the ceation of a training fund, adoption of performarce contracts for senior staff, improved job descriptions, review of pensions system. c) Hwnan resource development Incduding: wide -staff training and devefopment programmes, training in result-iented management. 14. The component to impove fnanciaf management and accournabty will improve financial planning and budgeting to increase the effidency of resource alocaton and strengthen expenditure management to increase control and accountability as well as improve social and economic outcomes. a) Revised legal antd policy framework incuhi: legislaion and regulatons to modernize the financial planning, budgeting and maagement instruments, clarified egal administrative status of each public enttty, adoption of new procurement regulations, regular audit introduced, reform of fiscal and customs litigation, decorncentration of Administrative Tribunal. b) Institutional reforms inctuding: introduction of single treasury account, rationalization of bank account procedures of spending units, introduction of double entry accounting, improved budget coverage, gadual instalation of Integrated financial rnanagement information system, MTEF uulized as base for annual budget; c) Human resource development including: training of selected staff in use of integrated financial management system, training of seleced staff to improve financial planning, specialized accountancy training. IT training, training padliamentarians in budget analysis and expenditure management, training of Administrative Tribunal staff. 15. Promotig good govermano and combating comnftn will lead to the impneentation of a comprehensive national anticorruption srtey and legislabon and improved funcdioning of the judicial sector, legislative systems and the eletoral administration. It w*ll include: a) Review of eal and policy framework includin: review and redrafting of the existing proposal of a national anti-corruption straty, enactment of anticorruption laws and associated regulations, Implementation of Governance, 4 75

83 Ethics and Deontology law, Integrated strategy for the judicial sedor, revision of electoral legislation, sbutegy to reborm parliamentary management; b) Institutional refofm including: creation of new and additional Instituinal mechanisms to implwnent anti-corruption lgislation, enhanced capacity of the judiciary to handle oorruption cases, establish data base on corruption. reform of electoral administration and impoved voters register, creation of inter-institutional task forces for Implementation of proriy judicial reform actions; c) Human resource development intcluding: training of all civil servants In professionalism and ethics, training of magistes to deal with coruton cases, training of Inspecton units on corruption, pubic awareness campaign. trining of SGAR staff. 16. Under he cornponent Managament of the Reftrm Process the capacity of UTRESP will be reinforced to provide highly effective leaderstip, technical support and management at both the central and local levels. RegLiar updating of the PSR Strtegy will be undertaken and a monitoring and evaluation capacity establihed. Finandal and procurement capacities will be created to enable UTRESP to manage donor funding of the reform process and programme. 17. A contal requcret identified in all components of the Reform Programme is buiwd capactes and h*wbing to equip the Public Service with the technical and managerial skills required In a modem service. Urder the SIFAP (Training System in Public Administration) civm servants without secondary education are targeted to reoeive training in human and financial resources management. The SIFAP WMil mainly rely on non-formal education modalities (modular system, short term courses, distance education) and guarantees that training Is positively rewarded via career progress. It is planned to establish a complementary High Level Insitute to provide managerial training for senior staff. 18. In the drive towards operational efficiency, fudi advantage must be taken of the opportunites provided by elecrnic information, data andng and communicaions technology. In order to do so, there Is need for coordinalion, compatibiit and a degree af standardization between systems, equipment and user training requirements throughout the public service. Therefore, Govenment has prepared an 1nrpWmenteJon Strategy for the Information and Communicaton TechnooAies to provide the technical fwaework, institutional arrangements and necessawry Integration of computer and other electrnic hardware and software. Through systems such as GOVNET and GOVSYS govemrnent will seek to maximize the potential of elctronic communications to transfer information within govemment and to make Irmfonaton readily available to the publlc. Computer-based management systems such as the Staff Information Syslems and the Financial Management Information System wil be wwdened in coverage to provide woceible, up-o-date management tools. 19. The goal of Public Sector Reform Is to restore service to fe peopbe. For this to be achieved, people must be able to voice their needs and opirdons and partipate in decision-maling. The process of establishing paterships between govenment and stakeholders will be extended to all elements of fe publi sector. Stakeholdews, from the national to most local level, must be provided the opportunity to articulate needs, establish t ptiorities and monitor service delive. The govemnment's decentralzation policy will be pursued vigorously and the capacities of lower tiers of govermment will be 5 76

84 radically strengthened, a number of new Municipalities will be created and a fourth tier of government at the most local level, the locality, wil be introduced. Efforts to eradicate poverty and social marginalisation will require greater responsiveness on the part of the public sector coupled with deliberate moves to empower the communiy, In all Its forms, to better its welfare and economic well-being. Implementing the Reforms 20. With the Public Sector Reform Straty and institutional arrangements In place, the Govemment wishes to move as quickly as possible to implementation. As a first step a detailed Implementation Plan for the first three years of the reform programme Is In the final stages of preparation. the proposed World Bank Adaptable Loan Programme together with the Phase 1, Public Sector Reform ProJect, covering Its first three years will provide an important element of implementation finance. The World Bank ProJect will provide signficaft contributions to the implementaion of five of the six components of the Reform Sbttegy. Ofter donors have expressed interest in funding other areas of reform, notabty those concemed with promoting good governance, combating corruption and judicial sector reform. There is good reason to be confident that other donor funding will be made available to enable the Govemrment to impment all parts of Kts strategy. Close laison will be maintaned with the donor group and it is hoped that a flexible, multidonor bsket fund will be estblished and funded. Coinclusion 21. While the Government is fully committed to the Implerentafion of the polides and actions outlined in this letter, the collaboration and continued support of our development partners wil be essential. Thus, the Govenment Is appreciative of the joint Initiative with the World Bank to establish a line of credit to facilitate the implementation of the activities contained in the Publc Sector Reform Projecl. Available funds will be drawn upon judidously, and in accordance with te Project documentation, to obtain the expertise and equipment required to move the reform programme forward. The Government looks forward to contirued cooperation and collaboration with the World Bank and other development partners so that the vital reforms to our public sector can be canied out In a oonsidered but expeditious manner. Yours sincerely, Vice MiniIsbr of Planning and Finance 6 77

85 Annex 13: Performance Improvement Facility: An Outline MOZAMBIQUE: Public Sector Reform Project Outline of Performance Improvement Facility 1. The PSR Project will provide the resources needed to implement reengineering, restructuring and decentralization through the a Performance Improvement Facility (PIF). 2. To access the PIF, a Ministry will prepare a PIF Plan describing a set of restructuring activities to achieve its strategic restructuring objectives, and submit it to CIRESP for approval. Approval will be granted following the PIF Manual eligibility criteria and guidelines, and will be formalized by a PIF Grant Agreement between CIRESP and the ministry. Purpose and Uses of the Facility 3. The Perfornance Improvement Facility (PIF) will be a flexible instrument used to finance ministry-led programs to improve priority services. The Facility will provide resources to meet the direct costs of implementing the strategically identified performance improvement plans and key capacity building interventions. Such plans and interventions will have a direct bearing on specific target improvements in services delivered by that ministry. During the first phase, imnprovements in service delivery will emphasize "quick-wins"'. 4. To access the PIF, a ministry will initially prepare a strategic plan. Resources for capacity building will be accessed as soon as a ministry has developed a credible strategic plan and has diagnosed its requirements to deliver the strategy. Thereafter, funds for technical assistance and training in strategic planning, operational planning and performance appraisal will be drawn down according to agreed targets and standards for service improvements, as described in a PIF Plan, describing a set of restructuring activities to be carried out by any of the Recipient's Ministries through a PIF grant. Performance Improvement Cycle 5. The Facility will be used to operationalize a performance improvement cycle (PIC) in a ministry. In summary, the key features of the PIC will include: * Three inter-linked planning processes: at the strategic, operational and individual level; * During the strategic planning review process each ministry will re-examine its organization's mission and vision (based on their respective external and internal environment) together with policies, strategies and associated objectives for achieving them; * Ministries will be required to ascertain critical factors to measure performance to achieve their objectives. They will also identify capacity and resources (professional skills, leadership, HRD, management structures, management and operating processes) needed to implement the strategic plan; * Following the strategic planning phase, an operational planning process (at departmental and divisional levels) will begin. This process should run in tandem with the Government's existing budget process. At this stage, Ministries will be expected to identify priorities for the next financial year taking into account budget constraints, ceilings and external sources available. Therefore, outputs will be related to expenditures. Deliverables anticipated from 7 A "quick-win" is defined as a significant improvement in service delivery which has minimal demands for budgetary resources and technological changes. 78

86 this process include objectives and targets, outputs, performance indicators, activities and output-based budgets; At the individual level, ministry employees, starting at the top, will discuss and agree on three or more individual objectives that should be linked to ministry's targets identified in its operational plan. Development and training needs arising from this will also be agreed, prioritized and scheduled. 6. It is anticipated that performance reviews of all three plans (strategic, organizational and individual) will be undertaken at least twice a year. This process will include review of progress towards achieving the specified "quick-wins" for the year. 7. There are four distinct phases of the PIC: * Review of strategic plans; * Annual planning and activity budgeting; * Independent evaluation of plans and budgets; * Monitoring, evaluation and appraisals. Review of strategic plans 8. The ministry will be required to set the direction of their organization for the next three years through a review of their current strategic plans and defining new plans. The ministry's management will: * Assess the extent to which current functions and activities match each Ministry's mission, vision and goals; identify poorly performing or duplicated functions/activities; agree upon new functions and activities; which ones should be discontinued, and what are the "quick wins"; * Define strategic performance indicators ("critical success factors") to monitor progress and for reporting purposes; * Prepare a revised strategic plan for the ministry with a central focus on achieving the quick wins. This strategic plan will be within the Medium Term Expenditure Framework agreed between the ministry and the Ministry of Planning and Finance (see Box 1 below); Box 1: Strategic Planning to be within Medium Term Expenditure Framework The strategic plans by ministries using PIF will be within the Medium Term Expenditure Framework (MTEF) agreed between the ministry and the MPF 8. This ensures the relevance of the plans. When the GoM launches the implementation of a comprehensive MTEF in ministries, it is anticipated that: 8 In proper practice, the credibility of a ministry's strategic plan should influence the ministry's allocation in the MPF. Therefore, in the ideal situation, a draft strategic plan should be the basis of negotiations for resources allocation between the ministry and MPF well before the final MTEF is promulgated as part of the annual budget guidelines. In any case, the final strategic plan must be consistent with the final MTEF. 79

87 (a) Strategic planning by ministries will be an intermediate but mandatory phase of the MTEF process. Preceding phases will include macroeconomic forecasts and definition of sector policies and strategies; (b) This will be a framework for ensuring a fi-ri link between public service reform and public financial management reform programs. Annual planning and activity budgeting 9. On the basis of the strategic planning results, the ministry will: * Project expected outputs to achieve during the year, together with activities required to achieve the outputs; * Prepare budgets for the activities. Priorities will be within the resource envelope available; * Finalize plans and budget; * Have its employees agree on how they will contribute to reaching the objectives. This will be done by setting and agreeing objectives for each individual, based on the Performance Review and Appraisal process whereby individual performance is linked with the ministry's goals and objectives, and development needs and identified and planned for. Evaluation of plans and budgets 10. During this stage, Ministries will submit plans and budgets (a PIF Plan) to a central team responsible for the technical management of the PIF. The plans and budget will be evaluated by the team, which will have expertise to check the requirements. The evaluation team will develop a set of standard criteria for examining plans and budgets. 11. On the basis of this evaluation, a ministry will be cleared to access the PIF resources to implement its PIF plan, to the extent that these are not already funded from GoM revenues or by other donors. Specific interventions that could be financed by PIEF include: * Technical assistance and consultancies at all stages of the PIC; * Contract-hire of technical and professional staff to fill crucial skills gaps; * The performance-based payments to technical and professional staff responsible for accomplishing specific tasks in the annual work plan; * Demand-driven training focusing on equipping public servants with knowledge and skills to achieve the capacity and performance improvements specified in the strategic plan; and * Work tools and equipment needed to accomplish the priority "quick-win" services improvements. Monitoring, evaluation and appraising 12. During the year there will be continuous monitoring and evaluation of implementation of the PIF plans supported by PIF in each ministry, with particular focus on progress in the "quick-wins' targets. Monitoring and evaluation in each ministry rnay take the form of: * Monthly review sessions where the Ministries' management provide updates on implementation actions; * Repeat Service Delivery Surveys to assess customer satisfaction and other participatory approaches; 80

88 * Impact assessment studies of new implemented policies and procedures; * Financial and value-for-money audits by the Administrative Tribunal; * Staff appraisals. Box 2: PIEF plans, staff appraisals and performance-based incentives All technical and professional staff in a ministry involved in the implementation of PIC with support from the PIF will have individual work plans derived from their respective departmental PIF plans. The results of monitoring and evaluating performance against the PIEF plans will therefore be the basis of annual staff appraisals. Under the new policy whereby the traditional practices of automatic annual salary increases and promotions based on schemes of service will be abandoned, the results of the performance-based staff appraisals will be the basis for determining the annual salary increments and promotions. In this way, the PIF will support the introduction of performance-based incentives across the civil service. 13. Ministries will maintain adequate documentation to support the results of the M & E process. In addition, Ministries will demonstrate commitment and learning through continuous improvement by: * Reporting to key stakeholders on their performance (success and areas for improvements) with respect to achieving "quick-wins" and other key results highlighted during the annual planning and budget process; * Providing comments and action plans resulting from audits and reviews undertaken during the period; * Disseminating results to the appropriate level within the ministry and outside for follow-up and action; * Recognizing and rewarding individual performance and sanctioning lack of performance; * Improving procedures to accommodate feedback from monitoring functions. Accessing PIF by Ministries 14. Once these plans and budgets have been assessed and funding levels approved by the central technical team, the ministry will prepare a cash flow plan indicating cash requirements from the PIEF during the year, and on this basis submit an application for the funds to the Facility Manager (UTRESP Director). These arrangements will be formalized through a PIEF Grant Agreement between CIRESP and the ministry. 15. The Facility Manager will make the necessary arrangements to disburse cash or other resources to the ministry according to the Ministry's cash flow plan. 16. Further drawdowns will be contingent on clear improved performance against the identified key performance indicators. 81

89 Box 3: Link to Budget and Institutional Incentives Detailed design of the Facility implementation arrangements will be specified in consultation with the Ministry of Planning and Finance. In this process the designer will explore: * The opportunities and framework for linking the PIC with the budget process, and particularly the implementation of the MTEF in the pilot ministries; and * The scope for availing budgetary incentives to ministries that are assessed to make good progress in the PIF application. Facility Administration Arrangements 17. The Director/UTRESP will be designated PIF "Facility Manager". In this role, the Facility Manager will be assisted by the UTRESP team. 18. With regard to PIF, the specific activities to be undertaken by the UTRESP will include: * Creating awareness of the PIF in ministries through information; * Distributing application forms and guidance needed to lodge requests for financing from the PIF, and verifying and processing applications for funding; * Supporting procurement by Ministries; * Developing checklists to guide the technical team in the evaluation of annual plans, applications for financing and performance reports received from Ministries; * Authorizing approved disbursements from the PIF; * Providing regular progress reports on Ministries' results with respect to PIF-financed activities to CIRESP. Accounting and reporting 19. Accounting for the PIEF will follow the Bank guidelines to ensure that financial management, procurement, accounting and reporting systems are complied with. 20. The UTRESP Finance Manager will be responsible for the following specific aspects of fund management: * Estimating annual financing needs identified during the annual planning and budgeting process and matching them against amounts to be made available; * Day-to-day management of the PIF account including maintaining a cashbook and reconciling bank statement against cashbook balances; * Maintaining a suitable management information system to allow for recording, tracking, monitoring and evaluating PIF flows; * Making authorized payments from the PIEF account to ministries and departments; * Ensuring that adequate financial controls are in place to maintain propriety and proper accountability for expenditure; * Designing standard formats for filing reporting returns; 82

90 * Collecting and consolidating returns from Ministries; * Reporting periodically on fund flows for management's use and audit purposes. 21. The regular accounting reports that will be prepared on the fund by the UTRESP Financial Manager include the following: * Annual financing requirements by ministries; * Deposits received into the PIF by type of donor; * Disbursements made by ministry and type of release; * Allocations utilized during a period or in the year to date; * Schedule of any backlogs, in terms of approved applications for which there is no funding available. 83

91 1. Scope of the CPAR Annex 14: CPAR 2002, Executive Summary MOZAMBIQUE: Public Sector Reform Project The Country Procurement Assessment Review (CPAR) of Mozambique was carried out by Bank staff in cooperation with the technical unit (UTRESP) of the Inter-ministerial Commission for the Reform of the Public Sector (CIRESP) and participation of donors well established in the country. The CPAR is an economic and sector work (ESW) made to verify the strength and weakness of the country's procurement policies, organization and procedures, and, in particular to: (i) provide an analysis of the country's public sector procurement, including the legislative framework, organizational responsibilities and capabilities, present procedures and practices, and how well these work in practice; (ii) undertake a general assessment of the institutional, organizational risks associated with procurement process and; (iii) develop a detailed action plan to bring about institutional improvements. The CPAR findings and action plan will be discussed with the Government and main donors operating in Mozambique to agree on a common line of action for any needed reform of the procurement system. 2. Overall Assessment The CPAR indicates that the Mozambican procurement system has serious institutional, legislative and manpower weaknesses which have a negative impact on the use of Government funds and those from donors and international organizations. These weaknesses affect every sector of procurement and commercial activities including imnports and banlcing services. The CPAR report describes these deficiencies in detail but also proposes an action plan to support the country's objectives to reform and achieve standards of transparency, economy and efficiency on par to international benchmarks for public procurement. The CPAR also indicates the risks likely to be encountered in the process of reform and the most suitable tools to overcome them through sustained Bank and donors support. 3. CPAR linkages to CAS and fiduciary ESWs The CPAR constitutes an integral part of IDA' s Country Assistance Strategy (CAS). Its recommendations such as support of decentralization, building up of capacity for service delivery at central, provincial and district level are consistent with reform initiatives proposed under other 'fiduciary" ESWs such as the Country Financial Accountability Assessment (CFAA) and the Public Expenditures Review (PER). In addition, coordination with donors based in Mozambique and engaged in similar reform initiatives, such as SIDA is seen as a priority and was made part of the development action plan based of main CPAR recommendations. 4. Main Weaknesses of the Mozambican Procurement System Based on national statistics for the year 2000, Mozambique has imported about US$1300 million of goods and executed US$150 million worth of civil works. These are significant amounts for a developing country. Their monetary value is bound to greatly increase in forthcoming years, provided that a sound public procurement system is in place. The CPAR has reviewed therefore the Mozambican system to assess whether it would satisfy the criteria of transparency, economy, efficiency and accountability necessary to guarantee a sound use of public and donor funds. These criteria are based on whether (i) a comprehensive and transparent legal framework is in place and assures suitable and transparent regulations for public procurement, (ii) a clearly defined organizational structure is in place in order to assure application of the same regulations and adequate 84

92 monitoring of procurement, and (iii) well trained, experienced, evenly distributed procurement staff are used by the public procurement implementing agencies. Based on the assessment, Mozambique's procurement system has NOT satisfied any of these requirements and needs to be substantially improved. A brief summary of the main weaknesses of the Mozambican procurement system are listed below. For a more detailed description and comments, please refer to Volume 1 (Part B) and Volume Legal and Regulatory Framework for Public Procurement Mozambique has no adequate legal and regulatory framework for procurement. Present legislation concerning procurement of goods and works is fragmented into various pieces of legislation both old and new, each of which is inadequate to guarantee an efficient implementation of public procurement. In addition, there are no regulations concerning procurement of services, apart of a few rules on the selection of consultants for design and supervision of civil works contracts. Finally, no new procurement laws and regulations have been released suitable to recent Government decentralization programs, thus effectively postponing any effective transfer of authority to the Provinces. Lacking adequate procurement regulations, implementing agencies have presently no access to bid documents, guidelines, procedures manuals or similar written documentation which would guide them through the procurement process. Hence the need for a reform leading to the creation of comprehensive procurement legislation preferably based on internationally recognized model laws, such as the UNCITRAL (see Volume HI, Annex 1) and integrated into the overall legislative framework of the new Public Finance Law. The new legislation, to be integrated into an overall legislative frameworks such as the new Public finance law, may fumish a more comprehensive coverage of procurement including new provisions for procurement of services, commodities and private concessions; allowing for the establishment of monitoring authorities at central and provincial level; establishing higher procurement authority to provincial offices; introducing the modalities for use of electronic procurement, etc. 4.2 Institutional There is no a central directorate or tender board in Mozambique with specific function of overseeing the procurement process, establish procurement policies and promote development of procurement staff. The National Directory of Patrimony (NDC) located in the Ministry of Planning and Finance (MPF) is heavily engaged in the management of state assets and does not have the authority and the expertise required to exercise an overall monitoring and policy role. Since spending and procurement authorities are basically the same in Mozambique, Govemment agencies and their subsidiary institutions procure within the limits of their allocated resources. Procurement monitoring within Government agencies is however inadequate. Evaluation committee do not always include qualified staff and independent observers are usually absent. "Reception commissions" required by law for both procurement of goods and works to monitor awards and contract implementation are seldom if ever used. Hence the need for a new Central Policy Directorate, based in the MPF or in the President's office, as one of the first steps towards the monitoring and overall transparency of the procurement process in Mozambique. 4.3 Procurement regulations for goods, works and services Presently in use national regulations for goods (Decree No. 42 of 28 December, 1989 ) conceming procurement of goods and requisition of services by State bodies and subordinate institutions (as amended by Decree No. 29 of 23 September, 1997); works (Decreto-Lei No de 19 Fevereiro de 1969) and consulting services are inadequate for the needs of modem and efficient public 85

93 procurement. The regulations presently in use lack in clear instructions to the bidders concerning the modalities of basic procurement process such as bid opening, negotiations with bidder, price escalation, liquidated damages, delivery and completion time, arbitration etc. In addition, there are no national standard bid documents. As a result bid documents used in Mozambique frequently omit critical instructions such as delivery time, contract signature, penalties for delays, etc. creating subjective evaluations and inconsistent contract awards. Moreover, the national practice of using approved list of contractors and suppliers without periodically updating their financial and technical capability strongly limits open competition, in addition to discriminate towards foreign suppliers. In conclusion, presently used procurement regulations cannot be considered adequate and sufficiently transparent for use of public funds. New, comprehensive standard bid documents, RFPs and contracts should be prepared and used in all competitive national and international tenders. Registration of contractors an suppliers must be upgraded and made to follow precise, transparent and objective qualification criteria. 4.4 Lack of Transparency and Corruption Issues Corruption represents a serious problem in Mozambique. Issues due to lack of transparency, often invisible to outside observers, have negative impact on project implementation and are probably the main reason behind the resistance to needed changes such as decentralization, delegation of authority and opening of the market to more active competition. Corruption is assisted by the lack of a proper set of procurement regulations to which to confoim and the consequent use of non-transparent procurement practices such as subjective listing of contractors and suppliers. Other major causes for the lack of transparency in public procurement are the lack of proper monitoring authorities, the absence of a Code of Ethics and of proper incentives to denounce corruption. Finally, the role of enterprises from neighboring countries, having a strong commercial presence in Mozambique, may be one of the causes for un-needed requests for sole source purchases and restrictive technical specifications. This may explain why, Transparency Intemational (T.I.) corruption perception index for Mozambique was a very low ranking of 81 out of 90 countries Recent initiative (October 2001) by the GOM to stem out corruption through the use of the Administrative Tribunal to approve all contracts, including those financed by extemal donors, might prove to be slow and cause bottlenecks to project implementation. 4.5 Human Resources There is a huge vacuum of professional expertise in Mozambique's public procurement. Until an adequate number of professional staff is created in all sectors related to procurement, there are no realistic chances that funds by the Govemment and donors will be timely and efficiently disbursed. Lack of human resources at provincial offices is a serious problem undermining the process of decentralization and de-concentration of procurement authority undertaken by the Government use of Technical Assistance (TA) and focus on transmission of skills may somewhat compensate the situation, but only on a short term basis. GOM and donors will have to give priority to capacity building in the area of procurement, technical management and supervision to be able to see positive changes in the use of their funds. Mozambique has only a few training institutions such as the University of Mondlane, INSPU and ICM. Focused TA to the institutions with specific courses in procurement management and "training for trainers" courses may be necessary to establish a permanent vehicle for capacity building capacity at national level. IDA may also consider to undertake a Leaming Innovation Loan (L.I.L.) or project in capacity building for decentralized service delivery, with special emphasis in procurement, as presently done in other countries. 86

94 4.6 Decentralization and deconcentration There is a tremendous disproportion of power between the Center (as represented by Maputo) and the rest of the country. Provincial capital expenditures in year 2000 amounted to 3% of total national capital budget. On the other side, provincial own revenues represent les than 3% of total national revenues. Even though the Central Government has deconcentrated a limited amount of power to provincial and district administrations, and devolved power to 53 municipalities following the promulgation of a series of decentralization laws, procurement authority is still concentrated at central ministries level, with little or no delegation to provincial authority. In addition, central ministries have done very little to facilitate transfer of skills to provincial offices through specialized TA [see also section (v) for training], adoption of standard documentation, capacity building, etc. Unless the situation is reverted (through legislation, establishment of substantial monetary thresholds for provincial authorities, capacity building), Sector Wide Approach Program (SWAP) will have performances much below expectations for the foreseeable future. 4.7 Donors Coordination Interest by donors for Mozambique is high. With a few exceptions, such as the PROAGRI agriculture program, coordination between donors has been lacking. This contributes to create a heavy administrative burden on GoM in addition to inconsistent, even overlapping approach to issues and lack of sufficient TA resources in the sectors where there are most needed. Better coordination between donors is therefore a must if a serious reform of procurement has to be undertaken in Mozambique. The Bank is not alone in taking initiatives towards a modernization of the legislative framework and procurement regulations. Other donors such as Sweden, Norway, Switzerland and Portugal have initiated reform initiatives in coordination with the govemment. Of these the "State Financial Management Project" financed since its inception in 1988 by several Swedish Government agencies has the objective the development of a legal framework, capacity building and the drafting of new financial laws. Coordination of TA and where possible, joint financing of similar initiatives, is almost a necessity and has been taken into account in the simplified action plan shown in Table 1, below. Joint financing and even pooling of funds, could be considered therefore for the TA needed for procurement reform under the Public Sector reform project, as already done for the PROAGRI and other projects. 4.8 Performance of IDA and donor financed projects Recent (October 2001) Country Portfolio Performance Review (CPPR) by the World Bank and analysis of results of projects financed by other donors reveals that implementation is far from being effective. There are too many delays due to an overlapping of causes which represent a serious drain of badly needed resources. The main cause is probably the lack of motivation and individual initiative typical of public sector (and financers) bureaucracy. The other main causes are, in that order, lack of managerial and technical staff both at center and provincial offices; lack of planning and adequate bid documents and contracts; lack of decentralization of minor procurement actions; lack of observance of procurement guidelines / good practices ; political interference and widespread lack of transparency, etc. The CPAR mission considers that improvements of 30-40% are feasible in implementation if full commitment to reform is achieved and at least a portion of the reforms proposed (such as legislation, bid documents and focused training) will be carried out. 87

95 5. Action Plan for Procurement Reform In order to eliminate or at least reduce the weakmesses of the procurement system, a reform is needed. This would greatly benefit the Government of Mozambique. Benefits would range from a tangible reduction of the costs of imports and civil works contracts due to more transparent procurement practices, increased competition, but also greater recognition from the donors community making Mozambique more eligible for continued support. The momentum is high due to the Government commitment to improve the management of public funds in six priority areas identified by the PARPA (Poverty Reduction Strategy Paper) and by the establishment of a Interministerial Commission for the Reform of the Public Sector (CIRESP) and its Technical Unit (UTIRESP). Reforms identified by the CPAR have been summarized in an Action Plan for procurement reform in Table 1. The Action Plan, which has been kept simple in order to focus on a few, critical actions, should be seen as part of a long term IDA and donors support seeking to enhance public procurement performance through a coordinated program ofi (i) implementing procurement reforms, (ii) restructuring and empowering provincial authorities and (iii) strengthening training institutions for capacity building. The Action Plan will be discussed with Government and other donors in order to agree on a common strategy and assure sustained support for the reform. A National Team (to be determined by UTRESP in coordination with MPF and prominent ministries) of national experts should lead or at least actively participate to the process. Funding of some of the initiatives may be obtained through the Bank-financed Public Sector Reform Project (PSRP) and support from other donors such as SIDA presently assisting MPF under the State Financial Management project. Additional sources of funding may have to be considered for the longer terrn such as IDF grants, Learning and Innovation Loan (L.I.L.) or even a Decentralized Service Delivery projects to sustain long-term capacity building at central, provincial and district levels and promote more efficient project implementation in key sectors such as agriculture, infrastructure, health and education. 88

96 TABLE 1 PROCUREMENT REFORM - ACTION PLAN Stage 1 (short term 0-9 months) Stage 2 (medium term 9-18 months), Stage 3 (long term -18 to 36 months) ::P_.RisR T A- E C i "*;;; '*- =*- - r _-_- '. POTY:. PROP6SEDTE(GENICAL-ASS-STA'CEi., treporm CTVBJECT IVES. IDA/MPF/ Legislative reform - Stage I * To modemize, make more CIRESP/ IDAgrant (Public Sector Reform Project) or transparent and SIDA LIL/IDF grant on procurement to draft comprehensive the public (international comprehensive procurement regulations procurement rules and consultant and (based on the UNCITRAL model law in practices in Mozambique. National Team) annex 3), to be incorporated into new Finance * Establish adequate law. monetary thresholds for decentralization. * Increase transparency and efficiency of Public Procurement. IDA/MPF/ Training - Stage I. Improve Capacity of UEM Procurement Workshops for implementing Procurement staff / Create agencies / training for trainers courses /TA to new Trainers for training institutions /Preparation for IDA dissemination of good capacity building project. practices to * Provinces/Create specific courses in Training institutions. I MPF/CIRESP Draffing of national standard bid documents * Simplify, standardize and and five main and contracts for the procurement of goods, make more efficient Ministries works and consulting services. procurement process and implementation of contracts at national level. 5U W, 2 MPF/CIRESP Legislative reform - Stage II * Improve quality and Establishment of a new Directorate for transparency of public procurement policy making and monitoring. procurement. 2 MPF/CIRESP/ Training - Stage II * Improve knowledge and UEM Dissemination workshops for new propagate use of sound Provincial procurement regulations for ministerial staff national procurement Ministerial at central and provincial level TA to training practices. offices institutions (continue). * Improve decentralized service delivery of provincial offices. 89

97 2 MPF/ETICA/ Transparency seminars/ Anti-corruption * Improve transparency in CIRESP initiatives/ Drafting of a Code of Ethics. public and private sector procurement. 2 MPF Establishment of public procurement M.I.S. * Improve monitoring and integrated into MPF's IFMIS. record of public procurement activities 3 IDA/Donors/Tr Training -Stage IIIA aining Implementation of Capacity building project Institutions to support de-centralized service delivery. 3 MOW / UEM Training - Stage III B * Improve efficiency, Seminar to civil works contractors and transparency and capacity consultants. to compete of national construction industry 3 MICT/ Training - Stage III C' * Improve efficiency of the Chamber of Seminar to private sector private sector in Commerce/ (Importers, suppliers, consultants). contractual issues, WTO commercial laws and imports. 3 MOW/MPF Establish registration criteria for contractors, * Improve transparency, suppliers and consulting firms. efficiency and competition Establish national criteria for price indexes for national and for price escalation formula. international contracts. 3 GoM/ World Establishment of common procurement * Improve availability of Bank and procedures leading to long term pooling of funds for TA / reduce Iriternational funds for TA (as for PROAGRI). administration donors costs/simplify procurement procedures. Note: Each of the major reform actions, included in Table A, envisages sub-actions, too numerous to be listed in a schematic plan, which will become obvious once the major actions are started. As an example, the drafting of new, modern, standard bid documents for the procurement of works would create the need for subactions in the areas of pre-qualification and post-qualification of bidders; registration and listing of contractors; price adjustment formulas and indexes; performance and securities guarantees; service contracts etc. 90

98 5.1 Risk Assessment Resistance may be expected to any reform initiative proposed under the CPAR. Individuals and organizations may see reform as a loss of their present authority or as an outside interference more than a tool for a necessary modernization of structures and refurbishing of their expertise. Attempts to reduce corruption might be seen as politically motivated or as an unwelcome reduction of opportunities for Mozambican nationals. A risk management strategy is therefore necessary to avoid that reform, like previous Government initiatives, would exhaust before reaching any meaningful results. Table 2, below indicates the areas where reform measures are strongly recommended. It also indicates obstacles to reform and the tools to overcome resistance to changes. TABLE 2 Risk Assessment and Strategy t Ai$ 'OErRF,R ) A1lI s OBST -ClLES'16 -VUEFORiiN - GR; Reform of Procurement Government may prefer to draft its (i) leadership by UTRESP and Regulations own procurement regulations, with use of national team / coordination no reference to UNCITRAL with interested donors such as model. This would perpetuate use SIDA; of fragmented and inadequate laws (ii) new Regulations to be made and regulations. part of new Public Finance Law; and Draft of Bid Documents Initiative to draft bid documents (iii) final product to be made may languish for lack of initiative comprehensive and include as for previous attempts. standard documents for goods, works and services. Establishment of New Policy MPF may resist reform by UTRESP should: (i) work in Directorate interpreting it as a reduction of liaison with MFD to establish the authority or lack of trust in their Policy Body; (ii) strengthen present institution (Patrimonio). Patrimonio functions as monitor of public assets, and (iii) incorporate MFD staff into new Directorate. Long Term Capacity Building Not sufficient funds will be made TA fmancing may be increased by Prograrns and Assistance to available for the purpose. pooling funds with other Donors Training Institutions and through capacity building projects supporting training institutions. Corruption Issues No serious action taken by the MPF to tale lead through new Government. Sporadic actions Policy Directorate. Ethics Code to based on political motivations. No be institutionalized in all GOM monitoring of anti-corruption agencies. initiatives kept. No incentives used to favor anti-corruption initiatives. 91

99 Annex 15: Ministerial Restructuring PROCESS OUTLINE MOZAMBIQUE: Public Sector Reform Government goal is to improve service delivery through increased efficiency, effectiveness and coverage. The functions and structure of Government and its individual parts need to be redefined and re-engineered to ensure they are able to respond to this goal. This must be done within resource constraints of finance and manpower and to reflect the goals and policy priorities of Government (notably PARPA). In the medium term the restructuring should result in a sustainable wage bill i.e. that can be financed entirely from revenue. Although the process is centered at the ministry level there must be a common framework within which any one ministry completes the exercise. A three-stage process is required: 1. Preparation of the framework; 2. Functional redefinition; and 3. Ministry restructuring. 1. Preparation of the Framework Three elements that may be addressed together: * Completion of the Mapping of the Public Sector (consultants/jtresp) to provide a definitive explanation of the current functions, structures and institutions of Government. * Identifying, clarifying and where necessary developing the Ground-rules 9 which will provide constraints and determinants for the restructuring exercise, e.g.: > Policies - PARPA priorities, role of the State vs. private sector, NGO's etc, decentralisation (some of these may still be preliminary 'drafts'); > Explanation/interpretation of legislation/regulations that will irmpinge on restructuring, e.g. new Public Finance Management Law; > Projections of financial resource envelopes based on medium term (10 years) estimates of expenditure ceilings for the public sector and interpretation of their implications for Ministerial operational and staff funding. Imnportant that GoM work towards establishing a sustainable financing of wage bill (and 0 & M) - i.e. revenue based; > Definition of institutional framework (i) overall coordination, (ii) within a ministry and (iii) 'arbitration' on inter-ministerial issues. * Guidelines/Manuals' providing detailed instructions to ministries on the process and institutional arrangements they must adopt. Most likely two 'volumes' require on (i) functional redefinition and (ii) restructuring/re-engineering. Should include explanations of the organisational options available to ministries (e.g. retain functions, pass to other agencies, contracting out, transfer to other ministries, privatise, abandon, etc). Also need to identify training needs, costs and proposals to build capacity to undertake the exercises. 9 Preparation can continue during implementation of Functional Redefinition. ' Preparation of Guidelines on Restructuring can continue during Functional Redefinition although consolidated Guidelines in two distinct parts would be preferable. 92

100 2. Functional Redefinition Two elements that can be implemented together leading to third element: * Each Ministry to complete a Functional Review using the Mapping exercise as starting point. Should result in prelirninary definition of: > Key/Core functions and strategic objectives of Ministries' mandates; > Overlap and duplication of functions between Ministries; > Functions that should be retained in public service but transferred, contracted out, etc; and > Functions that should be privatised or abandoned. [NB at this stage no consideration of operational structure is required] * Analysis (consultants/utresp) of Mapping exercise leading to a preliminary re-articulation of the State's Macro Structure. Review of appropriateness and responsiveness of existing structure to contemporary needs/policy priorities and effectiveness/efficiency leading to an outline of recommendations for change (perhaps re-organisation of ministries etc). * Comparison of two exercises (UTRESP) to identify issues, commnonalities and opportunities leading to recommendations on redefinition of Macro Structure. Tested in consultation with Ministries (workshops for PSs or oversight committee). Agreed recommendations submitted to CIRESP and Council of Ministers for adoption. 3. Ministerial Restructuring Plans" The objective of restructuring is to determine the most appropriate organisational structure responding to redefined functions and enabling improved service provision (efficiency, effectiveness and coverage). It may be carried out for all ministries concurrently, for priority ministries or clusters of ministries sequentially. Should the Macro Structure adopted include the merger of Ministries or the creation of new Ministries then special arrangements will need to be made. Suggested the exercise should be undertaken collaboratively between the Ministry and outside expertise. The restructuring exercise should identify: * Mission statement and strategic objectives; * Organisational structure and distribution of responsibilities; * Operational level at which functions to be undertaken; * Staff requirements - numbers, qualification and cost; * Indicative assessment of equipment requirements; * Recommendations on treatment of functions not regarded as core; * Posts (and personnel?) to be retrenched; * Training and capacity building requirements; * Estimates of operational and staff costs when restructuring complete; and * Implementation plan including costs requirements. The exercise could be extended to include, for example, performance improvement management measures, service provision output targets, policy review, and so forth. However, the scope is probably best kept as straightforward as possible with performance management introduced as a second step. " This exercise should not be treated as a definitive one-off exercise but rather as building the capacity to undertake functional/structural checks/reviews as a periodic exercise as integral part of the prospective MTEF process. 93

101 4. First Steps Assuming the approach outlined above is adopted, then the early steps would include: * Completion of the Mapping exercise; * Briefing for CIRESP on proposed process; * Completion of Guidelines; * Defining the Groundrules, particularly policy framework; * Initial work to define and/or revise medium-to-long term fiscal envelope; * Identify appropriate institutional arrangements in Ministries (and Provinces) to manage the process and undertake necessary capacity building (Danida proposal) * Strengthen UTRESP capacities to oversee the process; * Identify short term funding requirements and donor; Early thought also needed on how to build sustained high-level commitment to restructuring process to drive through difficult decisions. 94

102 MAP SECTION