Document of The World Bank MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A

Transcription

1 Document of The World Bank Report No MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF MALI July 7,2003 Country Department for Mali AFC15 Africa Region

2 CURRENCY EOUIVALENTS Currency Unit = CFA Franc (CFAF) US$ 1 = CFAF (June 30,2003) WEIGHTS AND MEASURES Metric System GOVERNMENT FISCAL YEAR January 1 - December 31 ACRONYMS AND ABBREVIATIONS AAA CAS CEM CFAF CMDT CPAR CPPR CSLP ECOWAS EDM ESSD ESW EU FSDP GDLN GDP GEF GNP HIPC HIV/AIDS HUICOMA IDA IDF IEC IF IFC IMF LIL MAP M&E MDGs MDRI MIGA MOF MSME MTEF NEPAD NGOs NPV OED OHADA Analytical and Advisory Activities Country Assistance Strategy Country Economic Memorandum CFA Franc Compagnie Malienne de Ddveloppement Textile (Malian Textile Company) Country Procurement Assessment Report Country Portfolio Performance Review Cadre Stratdgique de Lutte Contre la Pauvretb (Poverty Reduction Strategy Paper) Economic Community of West African States Energie du Mali (Mali Energy) Environment and Social Sector Development Economic and Sector Work European Union Finance Sector Development Project Global Distance Learning Network Gross Domestic Product Global Environment Facility Gross National Product Highly Indebted Poor Countries Human Immunodeficiency VirudAcquired Immunodeficiency Syndrome Huilerie CotonniBre du Mali International Development Association Institutional Development Fund Information, Education and Communication Integrated Framework for Trade for Mali International Finance Corporation International Monetary Fund Learning and Innovation Loan Multi-Sector Aids Program Monitoring and Evaluation Millennium Development Goals Mission for Decentralization and Institutional Reform Multilateral Investment Guarantee Agency Ministry of Finance Micro Small and Medium Enterprises Medium Term Expenditure Frameworks New Partnership for African Development Non Governmental Organizations Net Present Value Operations and Evaluation Department (World Bank) Organisation pour I 'Harmonisation du Droit des AfSaires en Afrique (Organization for the Harmonization of Business Law in Africa)

3 OMVS PAAA PAIB PASAOP PDUD PER PNIR PRODEC PRODE S S PRSC PRSP PSIA QAG RIAS SMEs SWAP TSP UEMOA UN UNCTAD UNDAF UNDP WAEMU WBG WTO Organisation pour la Mise en VaIeur du Fleuve Sdndgal (Organization for the Development of the Senegal River) Improving Learning in Primary Schools Grassroots Hunger and Poverty Project Agricultural and Producer Organizations Project Urban Development and Decentralization Project Public Expenditure Review Rural Infrastructure Project Education Sector Expenditure Program Integrated Health Sector Investment Project Poverty Reduction Support Credit Poverty Reduction Strategy Paper Poverty and Social Impact Analysis Quality Assurance Group Regional Integration Assistance Strategy Small and Medium Enterprises Sector-wide Approach Transport Sector Project West African Economic and Monetary Union United Nations United Nations Conference on Trade and Development United Nations Development Assistance Framework United Nations Development Program West African Economic and Monetary Union World Bank Group World Trade Organization Vice President : Callisto E. Madavo Country Director : A. David Craig CAS Task Team : Judith Press, Allison Coppel, Eavan O Halloran

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5 COUNTRY ASSISTANCE STRATEGY REPUBLIC OF MALI Table of Contents... EXECUTIVE SUMMARY I. INTRODUCTION... 1 I1. COUNTRY DEVELOPMENT PROGRAM AND PROSPECTS... 2 A. The Poverty Reduction Strategy Paper (PRSP)... 2 B. PRSP Pre-Requisite Pillar: Accelerated and Re-Distributive Growth... 5 C. PRSP Pillar 1 : Promote Institutional Development While Improving... Governance and Participation D. PRSP Pillar 2: Develop Human Resources and Improve Access to Quality Basic Services E. PRSP Pillar 3: Develop Basic Infrastructure and Productive Sectors I11. IMPLEMENTATION OF THE LAST CAS A. Assessment of Performance B. Portfolio Management C. Other Bank Group Activities D. Lessons Learned E. Partners and Participation IV. PROPOSED ASSISTANCE STRATEGY A. Strategic Elements of the FY04-06 CAS B. Assistance Program CAS Theme: Promoting Growth CAS Theme: Developing Human Resources CAS Theme: Public Finance Management and Governance C. Lending Scenarios V. RISKS & RISK MITIGATION VI. MEASURING RESULTS VI1. CONCLUDING REMARKS Page BOXES: Box 1 : Box 2: Box 3: Box 4: Box 5: Box 6: The Participatory Process During the Preparation of the PRSP... 3 Poverty. Social Indicators and the MDGs... 4 The Cotton Sector and the Reform Program... 7 Mali s External Partners CAS Preparation: A Consultative Process Bank Activities on Regional Integration... 32

6 TABLES: Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Slowly Improving Social Indicators... 4 Macroeconomic Performance Health Indicators Education Indicators Triggers for Bank Assistance Program Actual Bank Lending Operations AAA Program IDA Lending Operations CAS Scenario Triggers ATTACHMENTS: Millennium Development and PRSP Goals Reform Program of Office du Niger Debt Sustainability Core Labor Standards in Mali On-Going Projects IMF-World Bank Relations CAS ANNEXES: Al: A2: B2: B3a: B3b: B4: B6a: B7: B8a: B8b: B9: B10: Key Economic and Program Indicators. Change from Last CAS Mali at a Glance Indicators of Bank Portfolio Performance & Management IBRD/IDA Program Summary IFC and MIGA Program, FY Summary of Non-lending Services Key Economic Indicators Key Exposure Indicators Statement of IFC s Held & Disbursed Portfolio Operations Portfolio (IBRD/IDA & Grants) PRSP Pre-requisite: Accelerated & Sustainable Growth CAS Summary of Development Priorities MAP: IBRD 32484

7 EXECUTIVE SUMMARY 1. Mali is one of the poorest countries in the world due to its limited resource base, landlocked status, vulnerability to external shocks, poor infrastructure, low levels of human development and weak administrative capacity. Despite these constraints, Mali has made commendable progress on the economic, political and social fronts over the past decade. Annual real growth rates for averaged about 5 percent. The private sector is increasingly playing a much larger role in the economy, and civil society and stakeholders are strengthening partnerships with Government with greater responsibility for development activities. Mali has also recorded important improvements in certain social indicators since the mid- 1990s which indicates that it should make progress towards meeting some of the Millennium Development Goals (MDGs). 2. In parallel with this progress, Mali achieved a remarkable political transformation with an increasingly strong democratic process taking root throughout the 1990s, culminating in the peaceful transfer of power between two democratically elected leaders in This has placed Mali in the forefront of African countries moving to a truly democratic and pluralistic political system and provides a strong platform for pushing forward on further economic and institutional reforms under the leadership of a committed Government. While governance, capacity and institutions still need strengthening, the overall framework for a more effective, transparent and decentralized administration is gradually taking shape. 3. Board Discussion. The following issues are suggested for Board discussion: 0 Is the proposed program an appropriate support to the implementation of Mali s PRSP? 0 Is the proposed approach to programmatic lending and PRSCs suitable? 0 Are the triggers applied to the CAS for the base, high and low cases appropriate? 0 Does the CAS identify sufficient mitigating measures to address the risks, including the risk posed by the impacts of the crisis in C6te d Ivoire? 4. PRSP. Mali recently finalized its Poverty Reduction Strategy Paper (PRSP) which lays out a comprehensive strategy for fighting poverty and provides a cohesive framework for all donors and development partners. The issue of sustained and equitable growth is the cornerstone of the PRSP. Despite achieving strong average growth rates since 1994, there i s a considerable degree of fluctuation in the annual growth rates, e.g. the growth rate is estimated to drop from 9.7 percent in 2002 to -1.1 percent in This is a result of the economy s vulnerability to external factors such as unfavorable climatic conditions, terms of trade shocks and record low prices in the cotton sector due to cotton subsidies in the US and Europe. In addition to these traditional vulnerabilities, Mali s economy in was severely affected by the crisis in neighboring CGte d Ivoire which disrupted transport, trade, investment and private sector activity in the western Africa region. Continued strong support from the international community is needed to help Mali manage these external shocks, sustain robust growth and make progress on achieving the PRSP goals and the MDGs. 5. The implementation of the Bank s FY99-01 CAS has been satisfactory as Mali fulfilled nearly all of the triggers in the base case scenario and most of the triggers in the high case scenario. The CAS focused on supporting stable economic growth and sustainable human development. The Bank supported Mali s macroeconomic stabilization, economic

8 - iv - liberalization and structural reforms and invested in economic diversification and infrastructure, particularly in the rural sector. These interventions contributed to the strong economic growth rates since At the same time, the Bank provided financial and technical support to the health and education programs in Mali which facilitated the improvement in some social indicators. Moreover, during the previous CAS period, Mali reached the Completion Points of the Original and Enhanced HIPC Initiatives in September 2002 and March 2003, respectively. The debt relief provided under the Enhanced HIPC Initiative was sufficient to allow the debt sustainability ratio to drop to an acceptable level. 6. Objectives. The progress achieved to date and the continued reform program outlined in the PRSP provide an excellent starting point for the Bank s CAS for FY The CAS is fully aligned with the PRSP and selectively focuses on three main themes which directly support the PRSP pillars: (i) promoting growth; (ii) developing human resources; and (iii) public finance management and governance. The CAS combines a mix of Bank instruments including: (i) programmatic support (through S WAPs and PRSCs); (ii) community driven development operations; (iii) specific lending operations that target the growth objective and support necessary infrastructure; and (iv) a wide-ranging AAA program which is focused on building the knowledge base for the three main themes. In particular, the CAS concentrates on capacity building and strengthening the framework for programmatic support to Mali: firstly, to strengthen the sector-wide approaches in the social sectors and, moving on from there, to finalize the necessary core diagnostic work and establish the appropriate framework for a full move to PRSCs. 7. Lending Scenarios. Mali is currently in the base case. The base-case scenario allocates up to US$390 million, of which up to 29 percent could be in the form of IDA grants during IDA- 13. This scenario is predicated on continued good macroeconomic performance, satisfactory implementation of the PRSP, progress on strengthening governance and strong portfolio performance. Lending could increase to US$462 million under the high-case scenario if there is accelerated progress on these criteria. It is possible for Mali to reach the high case given: (i) its strong track record in implementing macroeconomic and structural reforms; (ii) that the PRSP provides a more comprehensive and cohesive framework than in the past, focusing on outcomes and the MDGs; and (iii) that progress on key sectors - such as health and education - has been strong since 1998, providing a solid platform for continued good performance and achievement of PRSP targets, particularly with stronger programmatic support from donors in the years ahead. 8. Risks. The implementation of the CAS faces several risks: (i) natural risks from adverse climatic conditions which influence agricultural output; (ii) volatility of commodity prices, exacerbated by agricultural subsidies in the industrialized countries; (iii) uncertain external assistance; (iv) continued negative impacts of the CBte d Ivoire crisis; and (v) weak capacity. The Bank will take all necessary steps described in the CAS to help mitigate these risks. 9. Measuring Results. The CAS focuses on defining and measuring results in the framework of the overall monitoring and evaluation of the PRSP. The CAS measurable indicators are the PRSP targets for 2006 which focus on making progress towards the MDGs. In parallel with the annual PRSP Progress Reports and related JSAs, the Bank will assess the achievements of the CAS.

9 I. INTRODUCTION 1. The last ten years have witnessed significant economic and political change in Mali. Since 1994, economic growth rates have averaged more than 5 percent. This strong performance was the result of a series of macroeconomic stabilization, economic liberalization and structural reforms that were supported by the World Bank, IMF and other donors. The comprehensive reform program has transformed Mali s economy into a marketoriented one where the private sector is playing an increasingly important role, thus laying a more solid foundation for accelerated growth. 2. In parallel with the positive economic developments, the political landscape in Mali has also been transformed. In 1991, the 23-year dictatorship of General Moussa TraorC was overthrown and President Konare was democratically elected a year later. Since then, Mali has been characterized by an increasingly stable democracy, culminating in the 2002 elections won by President TourC. This peaceful transfer of power between two democratically elected leaders was a first in Mali s history and places Mali in the forefront of African countries moving to a truly democratic and pluralistic political system. 3. Notwithstanding this progress, Mali remains one of the poorest countries in the world and is ranked 164 out of 173 countries in the 2002 UNDP Human Development Index. The country s limited resource base, land-locked status, vulnerability to external shocks, underdeveloped infrastructure, low levels of human development and weak administrative capacity combine to create difficult social and economic conditions. In 2001,63.8 percent of the population was estimated to be living in poverty. Between 75 and 80 percent of Mali s population of 11.3 million lives in rural areas and is dependent on agriculture. The economy is vulnerable to recurrent drought, poor environmental conditions and large fluctuations in international commodity prices. However, while Mali s social indicators remain among the poorest in the world, some are showing progress, particularly since 1998 (see Table 1). Building on and strengthening this progress will be critical for Mali as it faces major challenges in achieving the Millennium Development Goals (see Attachment 1 for details). 4. Mali reached the Completion Points of the Original and Enhanced HIPC Initiatives in September 2000 and March 2003, respectively. The debt relief provided to Mali under the Enhanced HIPC Initiative was sufficient to allow the debt sustainability ratio to drop to an acceptable level. In May 2002, the Government adopted the Poverty Reduction Strategy Paper (PRSP) which lays out a comprehensive strategy for fighting poverty and provides a strong and cohesive framework for all donors and development partners. The Bank s FY04-06 Country Assistance Strategy (CAS) is designed to support the PRSP. The Bank s strategy builds on the lessons learnt from implementing the previous CAS and is based on the outcome of a one-year consultative process with representatives from central and local Government, civil society, private sector, non-governmental organizations (NGOs) and other development partners. The PRSP, with the support of the Bank s CAS, provides a solid framework for moving towards achieving the MDGs.

10 COUNTRY DEVELOPMENT PROGRAM AND PROSPECTS A. The Poverty Reduction Strategy Paper (PRSP) 5. The PRSP was adopted by the previous Government in May 2002 and then reconfirmed by the new Government (GoM) in October The overall macroeconomic framework was then updated to take into account the impacts of the C8te d Ivoire crisis and was endorsed by the Bretton Woods institutions in March The strategic axes of the PRSP are as follows: e e e e Pre-Requisite Pillar: Accelerated and Re-Distributive Growth. The growth objective is the cornerstone of the PRSP and must be sufficiently robust to ensure successful implementation of the PRSP. To achieve growth, the GoM aims to continue macroeconomic and structural reforms and to facilitate the diversification of production and exports through strengthening the supporting framework for development of the private sector as the prime engine of economic growth. Pillar 1: Promote institutional development while improving governance and participation. Within a context of decentralization, the GoM aims to reinforce institutional capabilities, improve public sector management through modernization and reform, combat corruption, strengthen the rule of law and the judiciary system, and reinforce civil society. Pillar 2: Develop human resources and improve access to quality basic services. The strategy concentrates not only on improved, decentralized health (including population and nutrition) and education service delivery, but also on complementary living standard aspects, such as housing, water, and sanitation, as well as employment, social protection, and gender. Pillar 3: Develop basic infrastructure and productive sectors. This pillar integrates the following development challenges: (i) improved transportation, energy, communications, and industrial zone infrastructure; (ii) a diverse and competitive primary sector that is able to provide food security and national resource management; and (iii) a business environment favorable to private sector development able to actively contribute to economic growth. 6. The GoM translated the ambitious program laid out in the PRSP into the program-budget. The PRSP builds upon a widespread consultative process (Box 1) and its poverty diagnostic is based on the availability of service delivery, spatial analysis and the effects of poverty on health and education. Growth is the under-pinning of the PRSP and the three PRSP pillars target poverty reduction while identifying specific measures needed to integrate the poor and reduce gender as well as rural and urban disparities. 7. Assessment of the PRSP. The PRSP provides an overall credible poverty reduction strategy. According to the Joint Staff Assessment (JSA), the following are the strongest areas of the PRSP: (i) the consultative and participatory process, notwithstanding the large size of the country and its thinly spread population (see Box 1); (ii) the poverty analysis,

11 -3- despite the limited availability of data; (iii) the comprehensiveness of the strategy and its focus on macroeconomic stability, high and sustainable growth, human development, the strengthening of access to basic social services, private sector development and good governance; (iv) the efforts to draw up a long-term strategic vision consistent with sectoral strategies; and (v) the attempt to cost the strategy. The PRSP also makes a notable assessment of the risks associated with the implementation of the strategy, including Mali s vulnerability to exogenous shocks. Box 1: The Participatory Process During the Preparation of the PRSP The PRSP clearly lays out the process followed in its preparation, which has drawn from and built upon a tradition of implementing consensus-based policies and debating major issues and strategies. Consultation activities for the formulation of the PRSP included two notable elements. First, eleven thematic discussion and working groups were established under an overall National Technical Committee. Second, consultations on the draft PRSP were held at the national level, in each of the eight regions, and in the district of Bamako. This approach resulted in the identification and inclusion in the PRSP of the major development constraints and strengths of each region, the consideration of certain specific regional issues in PRSP projects and programs, the buy-in to the PRSP process by regional and local actors, and the establishment of regional and local committees to steer and implement the PRSP. However, hrther work is required to mainstream participation and consensus building in the management of public affairs and to strengthen and sustain the dialogue with the poor during the consultation process. Development partners also played a key role in this process, notably the UNDP, the European Commission, the Netherlands, Canada, USAID, Sweden, and Belgium. I [Source: Joint StaffAssessment, (JSA) Mali PRSP The JSA noted a number of areas where the PRSP could be improved. First, there is a need to deepen the policy analysis once the expenditure data from the 2001 household survey becomes available in 2003 (see Box 2). Second, while there is a comprehensive coverage of the development challenges, there is a lack of prioritization in outlining them. The GoM is beginning to prioritize, as exemplified by the framework letter introduced by the President to the GoM in October 2002, where employment, health, education, and increasing purchasing power were indicated as Mali s top four priorities. Third, the GoM needs to ensure that components of all existing sector strategies are adequately reflected in the PRSP (notably those for transport, drinking water supply and sanitation, urban development, and soil fertility). Fourth, there is a need to reinforce and build upon existing mechanisms to monitor and evaluate strategy implementation and outcomes. Finally, the PRSP proposes a widening of the economic base to better withstand external shocks (climate, regional instability, international commodity prices) and emphasizes that growth should be driven by the private sector with a strong foreign investment focus. It is critical for Mali to develop new sources of growth through diversification of the agricultural base into fmits, vegetables and Arabic gum, development of agri-business and transformation of agricultural products (i.e. textiles), expansion of mining, development of the tourism and handicrafts industries and promotion of small and medium-sized enterprises in services, communications and other non-agricultural sectors. However, a clear, integrated strategy on pro-poor growth, including diversification of growth sources, has yet to be articulated.

12 -4- Box 2: Poverty, Social Indicators and the MDGs While the income indicator data of the 2001 survey have not been hlly aggregated and analyzed, it is expected :hat thepoverty level on an income basis will be less than the 70 percent recorded in 1996: this reduction is :xpected as a result of the strong average real GDP growth rate of 5% since the 1994 devaluation. According :o an access-to-services index constructed from the 2001 household survey data, 63.8% of the population were :stimated to be living in poverty in On this basis, poverty affects 75.9% of the rural population, versus mly 30.1% of the urban population. Poverty levels are the lowest in Bamako with only 28.6% of the population considered poor, while the highest levels are in Kidal with 92.8% of the residents being poor. In terms of poverty depth, the region of Mopti has the highest rate of 53.1% while Bamako has the lowest of 14.8%. Gender Issues and Poverty. Gender analysis of poverty reveals a strong interconnection of the status and Dpportunities available to women and overall poverty. For example, maternal and child mortality rates significantly drop with the rise in the level of the mother s education; the more educated mother is also more aware of contraception possibilities. According to a 1997 survey led by the Observatory for Employment and rraining, women make up 65% of the informal sector but only 32.75% of the formal sector. While a full gender analysis does not yet exist for employment, according to the 2001 Demographic and Health Survey, 40% of women (aged 15 to 49) work in agriculture, of whom only 58% are paid for their work. For the remaining 60% who do not work in agriculture, only 8% are not paid for their work. Health and education indicators in Mali, despite improvements, are among the lowest in the world with a significant disparity between rural and urban areas as demonstrated by the access-to-services index described above. Fewer rural children attend school, notably fewer girls, and rural infant and child mortality rates are significantly higher than in urban areas. The poor are less likely to use health services, particularly the rural poor, and tend to spend proportionately less on health care. The 2001 Demographic and Health Survey confirms that health behaviors are influenced by the mother s education level and access to basic services and information. Mali is expected to face a major challenge in achieving the Millennium Development Goals (MDGs) as there is (i) weak capacity in delivering basic services; (ii) poor cross-sectoral integration of activities; and (iii) long delays in carrying out policy reforms. As shown in Attachment 1, there is a lack of baseline data for many goals. Achievement of the goals, however, is further complicated by the lack of an integrated strategy to do so, reflecting the multisectoral aspect of reaching MDGs. For example, the 2001 Demographic and Health Survey revealed that health conditions are tightly related to factors outside of the health sector, such as monetary income. However, the PRSP treats such issues as child mortality as a health issue. Despite these constraints, there has been an important positive trend since 1997/98 in improving certain health and education indicators as shown in Table 1. Table 1: Slowly ImDroving Social Indicators Life expectancy 50 yrs yrsc Gross primary enrollment rate 35% 59% Student-to-teacher ratio 80a 71 Access to health care (15 km) 49%b 66% Utilization (assisted births) 37%b 41% Access to water 48% 51% a = 1999; b = 1998; c = 2002

13 -5- I Box 2: Poverty, Social Indicators and the MDGs (cont d) I The 2002 PRSP concentrates on developing basic social services (Le. primary school education, basic health infrastructure) which would set the foundations for a solid development framework. At the same time, the Ministry of Health staff acknowledged the need for the multi-sectoral approach and efforts are intensifying toward articulating such an approach and the accompanying institutional mechanisms to support it. It is expected that once more of the framework is in place, progress will accelerate. Therefore, while Mali is unlikely to reach many of the MDGs by 2015, it still may achieve several, notably education enrollment rates, particularly as Mali is eligible for the Education-For-All (EFA) initiative. With resource constraints being lifted as a result of additional external support under EFA, the challenge will be to reinforce the capacity and enabling administrative environment to successfully implement the GoM s strategy and use available resources to reach the MDGs. I The environmental and sanitation MDGs also will need considerable attention from the GoM to make progress. Increasing population pressures and urbanization will lead to large additional investment needs for water supply facilities and require increased attention to environmental issues to ensure that Mali s development remains sustainable. Mali needs to produce reliable, robust and current statistics in order to monitor progress towards the MDGs. The establishment of an effective Monitoring & Evaluation framework is a core focus of the Bank s and donors work in the context of their support to the PRSP. I B. PRSP Pre-Requisite Pillar: Accelerated and Re-Distributive Growth Recent Macro-Economic and Growth Performance 9. The PRSP was prepared after a decade-long period of growth and good macroeconomic performance. Despite a number of adverse shocks, real GDP growth has averaged about 5 percent per annum between , enabling real per capita GDP to rise by 2.5 percent per year. The GoM has been successful at limiting inflation to single-digit figures and reining in the fiscal deficit in line with the convergence obligations under the West African Economic and Monetary Union (WAEMU) regional integration agreement. Mali also made good progress on revenue generation with revenues reaching more than 17% of GDP (well above the Sub-Saharan Africa average). Table 2: Macroeconomic Performance 1999 and 2002 Real growth rates (%) GDP Exoorts GNFS I (estimate) Shares of nominal GDP (%) Gross domestic investment/gdp I 20.0 I 18.9 I- Inflation (CPI for Bamako) I 4.9 I Source Malian authorities and staff estimates

14 Mali s economic performance remains fragile in view of the economy s vulnerability to climatic conditions, fluctuating terms of trade, dependence on ports in neighboring countries and the concentration of its exports in three primary sector products. The favorable average real growth experienced since the 1994 devaluation masks significant annual volatility. Economic growth fell to 3.5 percent in 2001 owing to the cotton sector crisis and difficulties in food crop production. However, GDP growth in 2002 rebounded and is estimated at 9.7 percent due to the sharp increase in gold, cotton and cereal production. The fluctuations in growth reflect Mali s economic structure, which is biased towards agriculture (the main source of livelihood for 75-80% of the population) and services. These two sectors accounted for 38% and 36% of GDP, respectively, in Mali s economy is relatively outward looking, with trade in goods representing around 53% of GDP in The share of manufacturing in GDP and exports has been limited, due to low productivity, high costs and low quality of basic services (energy, water, telecommunications), high overall transaction costs of doing business, and a financial sector inadequately oriented to serve as intermediary between savings and investments. 11. Mali s macroeconomic performance can be attributed to the effective implementation of macroeconomic stabilization and economic liberalization policies since the 1994 devaluation of the CFA franc which created the foundations of a market-led economy and encouraged private sector development. Recent economic developments have been influenced, however, by weak performance of the country s cotton sector (see Box 3). The sector, which achieved impressive growth and significant gains in the world export market share following the 1994 devaluation, experienced a severe financial and structural crisis in 2000 in the wake of the falling international cotton price. Coverage of the sector s losses by transfers from the budget to the cotton parastatal company (Compagnie Malienne pour le De veloppement des Textiles), risked derailing Mali s otherwise satisfactory fiscal and economic performance over a decade-long process of economic and structural reforms. The emergence of gold as Mali s leading export product since 1999 has fortunately helped mitigate some of the negative impact of the cotton sector crisis. 12. Significant market reforms have been achieved during the 1990s, beginning with the liberalization of grain markets, the easing of price controls and the implementation of proinvestment policies to remove distortions in the incentive framework. More recent measures include the application as of January 1,2000 of the common external tariff (CET) under the WAEMU agreement, which reduced import duties below a 20% ceiling and greatly simplified the tariff structure. To modernize the tax system and offset the potential customs revenue loss related to the introduction of the CET, the GoM successfully implemented a comprehensive tax reform program with Canadian assistance, including introduction of the value added tax and simplification of the tax structure. The economy responded positively to these changes which reinforced the significant positive growth trend emanating from the 1994 devaluation. The combined effect of these policies has created the foundations of a market-led economy and encouraged private sector development. Gold and cotton together comprise over 80 percent of export earnings, while livestock - exported primarily to West Africa regional markets - accounts for about 8 percent of export earnings. Cotton has historically been the number one export earner ahead of gold, although gold has only recently surpassed cotton export revenues and today accounts for about 55 percent of export receipts.

15 Mali s macroeconomic performance has generally been within the GoM s targets and it has managed to attract both multilateral and bilateral funds aimed at deepening structural reforms and enhancing its socio-economic situation. The fifth review of Mali s PRGF concluded in February 2003 that Mali continued to implement its program in a satisfactory manner in the first nine months of All the quantitative performance criteria, benchmarks, and financial performance indicators were observed. The structural performance criteria and structural benchmarks for 2002 were also met. The sound macroeconomic performance was achieved in the face of a downward adjustment in expenditures (except for priority poverty reducing items) in line with a shortfall in revenues owing to the Cote d Ivoire crisis. The sixth and final review is underway and is expected to be completed by August The Bank is continuing to work closely with the IMF in supporting the PRSP, including monitoring debt sustainability in the post-completion point framework, and cooperating on public expenditure management and cotton sector reforms. Box 3: The Cotton Sector and the Reform Program Cotton production in Mali has expanded remarkably in the years following the devaluation of the CFA Franc in 1994, from 293,021 tons of seed cotton in 1994/95 to 522,903 tons in and 459,123 tons in 1999/2000. In the 1990s, Mali became the first exporter of cotton lint in Sub-Saharan Africa. However, from 1999 to 2001, the sector experienced a severe financial crisis, due in part to the fall in world cotton prices and also to weak management of CMDT, the cotton parastatal company. The crisis took a dramatic turn in June 2000 with the decision of a large number of farmers to boycott cotton cultivation for the 2000/2001 cropping season due to the fact that CMDT was offering a relatively low price for seed cotton because of its financial difficulties. As a result, production for 2000/2001 decreased to 241,000 tons of seed cotton, i.e. barely more than half the production of the previous year. With the support of the World Bank, the GoM prepared and adopted a comprehensive restructuring plan for the cotton sector. This plan was approved in October 2001 and spells out the long-term vision for a competitive model for the sector and the structural changes needed to make the transition from the monopsony organization and restore the sector s profitability, sustainability and competitiveness. It includes: (i) the downsizing of CMDT, as well as structural reforms to change the sector s organization; (ii) disengaging the state and involving the private sector and farmers associations; (iii) breaking up the monopoly into regional entities through the sale of agro-industrial assets to private operators; and (iv) liberalizing seed and oil trade through, inter alia, privatization of the oil seed company. The GoM established a unit, the Mission de Restructuration du Secteur Coton (MRSC), reporting directly to the Prime Minister, to manage the implementation of the restructuring plan. The reform program is supported by the Bank s Third Structural Adjusfment Credit (SAC-3): the latest supervision of the SAC-3 indicated that the cotton sector reforms are broadly on track. As far as the next stages of the reform process are concerned, the MRSC and the GoM indicated that it is preparing a comprehensive plan to lead to the full privatizatiodliberalization of the sector by 2005/2006, as foreseen in the letter of sector policy development. This plan would comprise: (i) the full privatization of CMDT in the next 12 to 18 months (ii) the full liberalization of the sector over a 3-4 year transition period, allowing for several key functions to be progressively and safely transferred to the private sector and farmers organizations; and (iii) continued and increased support to institutional and capacity-building activities. At the same time as Mali has been making commendable progress on cotton sector reform, the world cotton industry is suffering through one of its most painful periods for producers in developing countries. Average international cotton prices last season were the lowest since and, when adjusted for inflation, rank as the lowest in history, halving the incomes of many developing country cotton producers. Subsidies to agricultural producers in the United States and the European Union are the single biggest force driving down world prices and Sub-Saharan Africa is most deeply affected. The cotton farmers of western and central Africa are among the lowest cost producers in the world. Yet, despite this comparative advantage, the cotton industry in Africa is losing world market share and cotton farmers are falling further into poverty.

16 -8- Box 3: The Cotton Sector and the Reform Program (cont d) According to analysis conducted jointly by the World Bank, the IMF and the International Cotton Advisory Committee, cotton producers in developing countries face annual losses of about US$9.5 billion as a result of subsidies benefiting rich countries. Total losses to developing country producers have amounted to US$23 billion over the past four years. Removal of direct subsidies worldwide would have a net positive effect of 3 1 cents per pound on average international cotton prices. Despite the successful efforts of the cotton industry to expand the demand for cotton, which will reach a record in , and despite an expected reduction of supply and higher economic growth in major economies, excess production will continue to affect prices in international markets and cotton prices are expected to remain well below the long-run average for the next several years. Future Policy Orientation. 14. The GoM aims to continue structural reforms to: (i) promote strong and sustainable economic growth; (ii) reduce poverty and raise living standards in the long term; and (iii) ensure financial viability in the medium term. New sources of growth will need to be promoted, as cotton and gold production alone will be insufficient to ensure high sustainable growth. In addition to promoting diversification of export products, the GoM intends to encourage and support efforts in processing of primary products prior to sale domestically or in export markets. Particular emphasis is being placed on targeting the West African regional market where some of Mali s potential export products have a comparative advantage. Efforts will also be intensified to improve facilitation of trade and transport systems. The GoM is working towards continuing to improve market mechanisms and toward establishing a sound and transparent judicial and regulatory environment conducive to national and foreign private investment, as well as to increased investment in infrastructure and human resource development. Monetary policy, consistent with the fixed exchange rate of the WAEMU, will aim to increase the efficiency of the banking system by improving financial intermediation. The GoM intends to continue to promote the sound development of micro-finance, in particular by reinforcing the supervisory capacity. It also intends to better manage new loan commitments through, inter alia, pursuing financing sources that maximize the grant element of future commitments. Macroeconomic Outlook. 15. Mali s current dependency on a narrow export base and its high vulnerability to drought and international commodity markets make the achievement of sustained growth fragile. The growth prospects for 2003 are less favorable than anticipated as a result of a combination of external factors: (i) insufficient rainfall at the start of the season2, (ii) depressed world prices for cotton, (iii) expected decline in gold production (given current information on reserves), and (iv) negative impacts from the crisis in CBte d Ivoire with respect to trade, transport, public finances and Malian workers remittances from CBte d Ivoire. Beyond 2003, two macroeconomic scenarios have been prepared based on different assumptions about the impact of the crisis in neighboring CBte d Ivoire. As a result, cotton production is now expected to fall by about 25 percent to 430,000 tons, instead of remaining at the 2001/02 level of 571,000 tons, and cereal production is forecast to fall by 3.7 percent.

17 -9-0 Base-Line Scenario: The assumption is that the effects of the closing of the Bamako- Abidjan corridor will fade gradually during the third quarter of 2003 and that economic activities will return to their usual level by the end of the year. Downside Scenario: Even with a return to a tenuous peace in C6te d Ivoire, it is possible that the crisis in C6te d Ivoire will continue to have a negative impact throughout 2003 and beyond as it could take time to re-open the Bamako-Abidjan trade corridor and for the Ivoirian economy to regain momentum and positively impact neighboring economies such as Mali. 16. Base-Line Scenario. The macroeconomic framework presented in the PRSP was revised by the authorities late in 2002 and the medium-term projections were adjusted accordingly. The 2003 growth rate has been revised downward to -1.1 percent. Growth is expected to rebound in 2004 (see Annex l), and to average 3.5 percent a year over the period as against 5.0 percent a year over the period Potential sources of this growth are expected to come from developing the industrial sector, especially for textiles and agribusinesses, from diversifying the agricultural export base into fruits, vegetables and Arabic gum, from expanding mining, from developing the tourism and handicrafts industries, and from promoting small and medium-sized enterprises in services. Inflation is estimated to average 3.0 percent over the period , and the external current account deficit (excluding official transfers) to narrow from an average 11 percent of GDP over to seven percent over Underpinning the projections for growth is the assumption that Mali will be able to attract foreign savings, including private capital, to supplement domestic saving. Gross domestic saving would remain at a historically high level over the next few years, partly as a result of higher government saving, and average about 14 percent of GDP a year over the next 3-6 years. However, this growth rate will be insufficient to finance total domestic investment, which is projected to average about 22 percent of GDP a year. Hence, Mali will still need to continue to attract a high level of foreign investment, with annual net foreign private capital inflows continuing to amount to about 2% percent of GDP. 18. Fiscal policy reflects the poverty reduction targets that the GoM defined in the PRSP. This policy aims at increasing poverty-reducing expenditures while lowering the basic fiscal deficit. In order to keep overall government spending at about 27% of GDP, the authorities intend to increase total government revenue by 1.8 percentage points of GDP to 19.0% in 2003, with tax revenue rising by 1.6 percentage points of GDP to 15.8%. About one-third of the improvement i s expected to be due to a recovery in tax receipts once the crisis in C6te d Ivoire has ended. In addition, the GoM will seek to broaden the tax base by rationalizing the tax system, simplifying it for smaller enterprises, and increasing the efficiency of the tax administration. To reduce shortfalls in the mobilization of domestic resources, the GoM will ensure the strict application of laws and regulations governing the granting of tax exemptions to businesses and, more generally, intensify anti-fraud efforts. The effectiveness of the tax reforms implemented in recent years will be assessed and additional measures will be identified to help raise the tax revenue-to-gdp ratio. Measures will also be introduced to improve the quality of macroeconomic accounting and analysis. Nevertheless, under this scenario, the GoM will need additional assistance in calendar year 2003 to support the implementation of the PRSP program; the Bank could provide assistance through a

18 - 10- supplemental credit to the on-going SAC-3, provided that the GoM has outlined appropriate actions to take to respond to the situation. 19. Downside Scenario. This scenario assumes that the C8te d Ivoire crisis would further dampen economic activity and put upward pressure on domestic prices. It would be difficult to achieve the GoM revenue targets and higher expenditures would be needed to address security and refugee considerations. The economy would be affected through the direct impact of higher transport costs on cotton competitiveness and by the indirect impact of lower income on demand for domestic goods. Real GDP growth beyond 2003 could be negatively affected by up to 2 percentage points. There would be a corresponding increase in the fiscal deficit, assuming the GoM was able to maintain the level of social spending and public investment. Meanwhile, government revenue would remain stable relative to GDP but be lower in nominal terms. Under this scenario, it is likely that GoM would require additional assistance in calendar year 2004 to support the implementation of the PRSP program. 20. Debt Sustainability. Mali reached the Completion Points of the Original and Enhanced HIPC Initiatives in September 2000 and March 2003 respectively. The debt relief provided to Mali under the Enhanced HIPC Initiative allows the debt to fall to an acceptable level, unless there is a significant external shock. The net present value (NPV) of Mali s debt is projected to decrease from $1.5 billion at end-december 2002 to $1.1 billion in The debt-to-export ratio is projected to drop to 119% in 2003, rising to 142% in 2014, and gradually declining thereafter. This assumes that the GoM will only take on new loans under concessional or highly concessional terms and that these loans are targeted to support effective implementation of the PRSP (see Attachment 3 for further details on debt sustainability). C. PRSP Pillar 1: Promote Institutional Development While Improving Governance and Participation 2 1. The 2002 elections solidified the democratic process in Mali, and the formation of a multi-party Government in October 2002 provided a strong platform to push forward on further institutional reform under the leadership of President TourC. During the GoM s first Council of Ministers meeting, President TourC challenged all Ministers to implement a results-oriented development policy based on the PRSP and he emphasized that strengthening governance would be his top priority. This confirmed recognition that Mali had been making important strides in improving governance and reforming institutions in the past and, with the adoption of the PRSP, this was again placed at center-stage. 22. The challenge laid down by the President is ambitious as the Malian administration has been characterized to date by: (i) slow decision-making; (ii) insufficiently qualified human resources with a lack of appropriate material resources; and (iii) a poorly adapted development and institutional management framework, which has hampered the GoM s ability to elaborate effective development policy and mobilize the necessary resources. Furthermore, planning and development structures are dispersed within different ministries with inadequate coordination mechanisms between them. The judicial system itself is characterized by: (i) complicated and costly procedures; (ii) inadequate access, concentrated in Bamako; (iii) irrelevant legislation and regulation unable to keep up with social, political, economic, cultural, and environmental changes; (iv) lack of trained personnel combined with

19 a lack of judicial inspection and accountability; and (v) unclear division between political and administrative affairs within the judiciary system. 23. Governance. In 1999, the GoM launched the National Policy to Fight Corruption. Since then, implementation has been progressing, albeit at a slow pace due to the sheer complexity of the issues coupled with the weak judicial system. In July 2002, the GoM formed an ad hoc committee on corruption as part of the Prime Minister s office, which led to the Council of Ministers adoption of several committee recommendations to create and strengthen internal inspections and limit procurement abuses. The committee s work benefited from the Bank-prepared Recommendations to Reinforce the Anti-Corruption Program published in April 2002 at the GoM s request. Efforts need to be enhanced to implement further recommendations from the Report. 24. Public Expenditure Management. The GoM has made some strides in improving public finance management. Efficiency and efficacy in the budget preparation procedures have improved since the introduction of program-budgets in 1998 and the increase in the number of Inspectors and Magistrates. The Lois de Re glement 1997 to 2001 have been produced, adopted by the Cabinet and submitted to Parliament for approval. In addition, improved inspections and a newly adopted nomenclature have increased transparency and monitoring of budget implementation. The GoM is committed to strengthening these reforms and to implementing the recommendations of the World Bank-led Country Financial Accountability Assessment (CFAA). As part of the HIPC Expenditure Tracking Assessment, the GoM has made very strong progress on implementing measures outlined in the related action plan to improve public expenditure management, and has just created a ve rzjkateur inde pendunt, similar to a general accounting office. Furthermore, the GoM is preparing a referendum to separate the section des comptes from the Supreme Court to create an independent Cour des Comptes (a judicial court). 25. With the 2003 Budget, the authorities have introduced a three-year medium-term expenditure framework. A procedures manual for budget execution has been prepared and internal audit functions have been strengthened. Also, the capabilities of the Court of Accounts have been strengthened with additional staff and new facilities to enable clearing the backlog of work and ensuring timely completion of responsibilities in the future. With a view toward strengthening the budget information system, mechanisms to integrate the computer systems of the treasury, budget, and financial control departments are being developed, and will be tested and installed in the coming year. Additional measures will be pursued to ensure continued improvements in public expenditure management. 26. Procurement. In 1995, the GoM implemented a public procurement code and procurement regulations. While private sector procurement functions relatively well, Government procurement suffers from inefficiency due to weak capacity in human and administrative resources, and a lack of decentralization of procurement procedures. Corrective measures are being taken to improve transparency by reducing leeway for subjective decision-making in public procurement procedures, and by filling in regulatory and administrative gaps that could leave room for corruption. The GoM has also indicated that it intends to strengthen monitoring structures to ensure that adopted codes and laws are applied, as well as develop an ethics code. Improvement in human resource management and an increased focus on the responsibility of the public procurement body, combined with greater vigilance among all stakeholders, will help fill this gap.

20 Participation. One of the strengths of the Malian democracy i s the developing participative framework. Over seventy political parties exist and are grouped into three major coalitions at the national level. Civil society is vibrant with over 1,500 registered NGOs and as many as 2,500 associations. The media are free and over thirty newspapers and 120 radio stations are operating. The recently created National Council of Civil Society Organizations of Mali should help channel civil society dialogue with GoM and the donor community. In the framework of the PRSP, it will be critical to institutionalize participatory mechanisms that involve stakeholders in the implementation, monitoring and evaluation of poverty-oriented programs. 28. Decentralization and Deconcentration. In 1992, the GoM embarked on a participative decentralization process and there are now 703 local-level municipalities (communes), 49 sub-regional districts (cercles), 8 regions and the district of Bamako (with the status of a region). While the Mission for Decentralization and Institutional Reform (MDRI) effectively piloted decentralization throughout the 1990s, the concomitant deconcentration process lags behind. Effective and efficient decentralized government and service delivery is hampered by poor resource mobilization, weak capacity, inconsistency between national sectoral programs and local development plans, poor governance and a weak institutional framework. In response, the Commissariat for Institutional Development, reporting to the new Junior Minister attached to the Prime Minister and charged with State Reform and Institutional Relations, prepared an action plan through a participatory process in January 2003 with the objective of improving: (i) central state reform and public sector management; (ii) decentralization and deconcentration; (iii) human resource capacity building; and (iv) communications and partnerships with service users. D. PRSP Pillar 2: Develop Human Resources and Improve Access to Quality Basic Services 29. Health. Progress has been made in health since 1998 (Table 3). The GoM has reinforced its accountability and management capacity, notably through the preparation of a medium-term expenditure framework (MTEF) which costs programmed investments and links activities to results in order to more effectively allocate resources towards achieving the PRSP objectives and MDG targets (see Attachment 1). The attainment of Original HIPC and Enhanced HIPC Initiative targets encouraged an acceleration in reform implementation (e.g. health personnel recruitment and a rise in budget allocations to the health sector). While Mali s health indicators are among the poorest in the world, the implementation of the first phase of the ten-year health and social development program (PDDSS), which targets basic health care and decentralized community management, has led to a significant improvement in access to health care. The results are most notable for the poorest quintile, where infant and child mortality rates dropped 23% and 24% respectively from 1996 to However, health service utilization is still low and the quality of health care is still poor due to: (i) unavailable and poorly trained personnel in regional and rural health centers; (ii) a lack of supplies; (iii) inaccessibility of health centers outside of Bamako; (iv) high transaction costs for dealing with multiple donors which has exacerbated the Ministry of Health s low absorptive capacity; and (v) poor resource allocation, including over-emphasis on infrastructure investment without taking into account operating costs.

21 - 13- Table 3: Health Indicators PRSP Goal for MDGs Access to health- care (15km) 49 66% 80% Not Indicated Maternal Mortality Ratio (per ,000) Infant Mortality Ratio (per ,000) Child Mortality Ratio (per ,000) Fertility Rate (children per Not Indicated woman HIV/AIDS Rate 3.4% Women; 2% Women; 1% 1% 2.4% Men (1996) 1.3% Men 3 1. Education. Progress has also been made since 1998 in education (Table 4). To reach the HIPC targets, difficult education reforms were enacted to focus attention on primary schooling. Politically sensitive budget allocation reforms accelerated teacher recruitment, the purchase of teaching materials and classroom construction. The first phase (PISE) of the ten-year education program (PRODEC) continues to lay the groundwork for improvement, particularly in primary education. The Ministry of Education is currently preparing a medium-term expenditure framework (MTEF), along similar lines to the MTEF work in the health sector. This framework will encourage better donor coordination and thus contribute to improved prospects for resource pooling. Gross enrollment, primary school (%) Gross girls' enrollment, primary school (%) Gross enrollment, secondary school (%) Gross girls' enrollment, secondary school (%) University enrollment Studentlteacher ratio, public primary schools Repeat rate, primary schools (%) % Primary in education budget % Education in national budget (with social Table 4: Education Indicators ,774 (1997) 29,482 (2002) (1998) PRSP Goal for MDGs Not Indicated Not Indicated Not Indicated Not Indicated Not Indicated Not Indicated 50 Not Indicated 13 Not Indicated Efforts should be intensified in the education sector to: (i) improve access for the poorest; (ii) improve education quality, including linkages between education, professional training, and the current job market; (iii) reinforce decentralized and deconcentrated management; and (iv) reinforce overall institutional management. Moreover, the crosssectoral linkages between infrastructure levels (roads, transport) and accessibility to schools also need to be enhanced. Despite some efforts3, teaching quality is still poor and curricula are often not pertinent to actual needs; for example, vocational training is often more theoretical than practical. Quality issues can, in part, be attributed to a lack of access, teachers (for example, the university student-to-professor ratio is about 624: l), teaching One notable effort is the successfkl Improving Learning in Primary Schools Program, which is financed mostly by a Bank LIL. Students are initially taught in a national language (materials are available in eleven out of the thirteen) before French is introduced, using a dynamic pedagogy that differs from the traditional learning-by-rote.

22 -14- materials, books, infrastructure, and laboratory equipment, as well as the poor organization of the Koranic school system. Moreover, high-school and university scholarships are poorly and opaquely managed, often causing disruptive student strikes. 33, The GoM has adopted measures to transfer health and education responsibilities from the central to the regional and local levels and is in the process of establishing an appropriate resource transfer mechanism, which would require substantial capacity building, particularly at the regional and local levels. To be effective, the mechanism should foster greater consistency between sectoral programs and local development plans as well as improvements in local-level financial responsibility. 34. Gender. As described in the poverty analysis in Box 2, the inadequate opportunities for women in Malian society contribute to the high levels of poverty and, accordingly, gender issues are at the forefront of Malian policy. In 2002, the GoM adopted the Promotion of Women, Children, and Family Policy and Action Plan for The first part of this document, which is aligned with the PRSP, analyses health, education, the judicial system, economic opportunities, the environment, and institutional development in terms of gender, while proposing priority actions for improving the situation of women. One of the most important gender issues is the higher HIV adult prevalence rate for women than for men (Table 3) which needs specific attention. E. PRSP Pillar 3: Develop Basic Infrastructure and Productive Sectors 35. Primary Productive Sectors. While the GoM has been implementing important reforms for laying a solid framework for accelerated growth, Mali suffers from a limited resource base and its economy is poorly diversified, with production concentrated heavily in agriculture. Implementation of agricultural policy is guided by the National Rural Development Master Plan as well as the 1999 National Environmental Action Plan which were both integrated into the PRSP. A striking element of Mali's economic performance over the last decade is that remarkable strides have been made in rural development by an adequate combination of policy reform, investment, technology improvements and strong donor coordination. Perhaps most important have been the comprehensive reforms in the cotton sector which include the partial restructuring and the proposed privatization of the national cotton company (CMDT, Compugnie Mulienne de De'veloppement des Textiles) and its cottonseed oil subsidiary (HUICOMA, Huilerie CotonniBre du Mali). The details of these reforms are described in Box 3. Another important success story has been the ongoing reforms of the OfJice du Niger that build on measures taken since the 1980s which have led to a six-fold rise in rice production (see Attachment 2 for more details). 36. A further identified growth area - livestock - is being supported through the Pastoral Charter, which is currently under review by the National Assembly and which delineates rights and responsibilities for farmers and herders, particularly property rights and access to range resources and land use. To better tackle soil degradation, the GoM is currently preparing the National Soil Fertility Management Plan. As water management is key to rural development, the National Irrigation Strategy, prepared under the National Rural Infrastructure Program (PNIR), mainly concentrates on large irrigation, and pilot actions and operations are underway to expand small irrigation. There is significant potential in agricultural diversification into fruits, vegetables and Arabic gum, development of agribusiness and transformation of agricultural products (e.g. textiles). Other potential sources of

23 -15- growth exist in the expansion of mining, development of the tourism and handicrafts industries and promotion of small and medium-sized enterprises in services 37. Private Sector Development. The GoM has concentrated on creating a legal and regulatory framework conducive to private sector development. It has been able to attract private investment in the gold, telecommunications, energy and water sectors, as well as large external funding in infrastructure. Measures have been taken to harmonize the legislative and regulatory environment under the Organization for the Harmonization of Business Law in Africa (OHADA) Treaty; measures have also been taken to address core labor standards (see Attachment 4). Furthermore, the GoM instituted a public enterprise reform action plan for in order to reduce the number of state-owned enterprises from thirty-three to eighteen. Currently, the GoM retains a majority holding in ten non-bank enterprises and minority holding in eight. However, about 90% of Mali s economy still remains in the informal sector. Small and medium enterprises (SMEs) comprise a significant share (over 65%, although largely informal) of the private sector. Limited access to short, medium and long-term credit instruments for business startup and investment is a primary constraint for SMEs. As highlighted in the JSA of the PRSP, there is a risk of slower-thananticipated development of the private sector into a dynamic engine of growth. Therefore, the GoM will need to continue to push ahead with reforms and incentives for developing the private sector. 38. Financial Sector. Private sector development is contingent upon financial sector development and access to sustainable finance. The GoM has been implementing various reforms to improve confidence and competitiveness in the financial sector. In 1992, the GoM began consolidating and liberalizing the state-owned and uncompetitive sector while opening it up to competition and creating the necessary legal and regulatory framework for sustainable growth. In 2001, the BMCD bank was restructured, privatized and merged with BDM-SA to create the largest bank in Mali and the twelfth largest bank in the UEMOA, thereby increasing Mali s presence in the regional financial market. The BIM-SA bank is currently being restructured and privatized. The GoM is further creating a financial enabling environment by continuing to lay the necessary legal and regulatory framework, especially on a regional level (having adopted the Uniform Acts of OHADA), diversifying the financial sector to support non-bank financial institutions, fostering access to credit on a decentralized level through micro credit, and modernizing financial systems as a whole. 39. Transport Sector. The program of reforms and investments in the transport sector in the 1990s targeted the following: (i) enhance and sustain efficiency of the sector s operation; (ii) improve and maintain infrastructure, especially for roads and rail; and (iii) open access to the remote and poorest areas. Progress on this reform program to date has been insufficient and transport costs are extremely high in Mali, accounting for approximately 30% of product prices. While railway transport is the cheapest mode for long distance and bulk traffic, about 80% of international traffic is by road due to inefficient railway operations and the poor condition of railway track and equipment. Before the crisis in C8te d Ivoire, between 70 and 80% of Mali s trade was transported along the Bamako-Abidjan corridor. The crisis highlights the importance of improving alternative transport corridors to Conakry, Lomi, Cotonou, Dakar, Accra, and Takoradi, in the context of a regional approach to transport infrastructure. However, until these alternatives are better developed, the use of ports further away than Abidjan has resulted in significant price increases. The railway company s

24 -16- performance is expected to improve following the award of the concession of railway services between Dakar and Bamako to a joint venture of private investors in February Energy. The GoM has made important steps on reform and on increasing efficiency in the energy sector. Until 2001, unreliable power supply was a major constraint for business expansion in Mali and tariffs were below economic cost. The state power utility Energie du Mali (EDM) was poorly managed and lacked finds to ensure quality and reliability of services and to expand access to electricity. In 1999, the GoM issued a policy letter with the following goals: (i) sector liberalization, allowing initiatives from communities and the private sector; (ii) institutional reforms to orient the State s responsibility to activities of strategic and regulatory nature; (iii) valorization of national energy resources (renewable energy, hydroelectricity); (iv) protection of forestry resources through sustainable exploitation benefiting rural populations; and (v) pursuing petroleum research. The goal is improved sector efficiency, a withdrawal of the public sector from operations, and to extend service coverage. To that end, the GoM has restructured the sector by adopting a new Electricity Law and its implementation texts, which ends EDM s monopoly and has opened the sector to competition, under a regime of transparent regulation by an independent agency. Reform processes and institutions need to be strengthened to foster a lasting competitive business environment attractive to private investors and operators. The imperative to provide energy services to the poor calls for a spectrum of energy services, innovative service delivery mechanisms, with participation by communities, NGOs and the private sector. 41. Environment. In 1999 with the adoption of the National Environmental Action Plan (NEAP), the GoM strengthened its policy for the environment with seven strategic axes, four of which were to strengthen national capacity, restore degraded areas, organize a permanent system of control and monitor the environment. However, implementation of the strategy has to date been ad hoc and partial. Soil degradation is the number one environmental issue in Mali: to improve its focus on this issue, the GoM is currently preparing the National Soil Fertility Management Plan and has requested Bank support through various operations including the PASAOP and the proposed Rural Community Based Development Project (para. 80). As water management is key to rural development, the National Irrigation Strategy, elaborated under the National Infrastructure Program (PNIR), concentrates on both large irrigation schemes as well as pilot actions and operations for small irrigation. Biodiversity also requires significant attention, although capacity for biodiversity management is extremely weak. The GoM is trying to address this through a Banksupported pilot (the Rural Infrastructure Project) geared to exploring community-based conservation in an arid area while addressing structural issues at the national level. 42. Regional Integration. Mali is a member of the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (UEMOA). The ECOWAS Heads of State endorsed the New Partnership for African Development (NEPAD) and confirmed the role of the ECOWAS Secretariat as lead agency for implementation and monitoring. The UEMOA countries signed the Convergence, Stability, Growth and Solidarity Pact (Pacte de Convergence, de Stabilitk, de Croissance et de Solidaritk), which commits all member countries to achieve macroeconomic convergence, and established a multilateral surveillance system. In 2000, the UEMOA s Customs Union eliminated all intra-regional tariffs and established the Common External Tariff, which has created new opportunities and a market that can support medium-size agro-industries in the

25 - 17- region. The ECOWAS Customs Union is due to be in place by The UEMOA also adopted a General Competition Law which sets rules and procedures related to cartels, abuses of dominant position within the UEMOA economic space, and state aid to enterprises. 43. Mali plays a key role in regional harmonization of sectoral policies in power, transport, telecommunications, and agriculture. Potential markets in the region for Mali s products include livestock products, fruits (mangoes) and even rice in the medium run. But success will depend on improvement of business practices in the region, development of market information systems (to be aware of business opportunities) as well as the elimination of non-tariff barriers (including illegal payments at checkpoints) which dramatically slow the speed and ease of goods across the region. As a landlocked country lacking a viable transportation system, whose economy i s based on the primary sector and raw materials, it is extremely important that Mali be well integrated in the western Africa region. The context i s all the more urgent considering the recent impact of the CGte d Ivoire crisis, which clearly displays the need for further diversification of trade routes within the region. 44. In May 2002, Mali signed the Water Charter with Senegal and Mauritania, the other members of the Organization for the Development of the Senegal River (Organisation pour la Mise en Valeur du Fleuve Se ne gal). This agreement provides a framework for the OMVS countries to manage the Senegal River Basin more efficiently. Guinea is expected to join soon. A similar effort is also beginning with the Niger River Basin IMPLEMENTATION OF THE LAST CAS A. Assessment of Performance 45. The last CAS was prepared in a context of strong growth achieved since the 1994 CFA franc devaluation and was based on the 1997 Government strategy - Propositions Pour Une Croissance Durable et de De veloppement 2r 1 Horizon Within this framework, the Bank s CAS was structured around two main axes: (i) stable economic growth; and (ii) sustainable human development. 46. Regarding the first axis - supporting stable economic growth - good progress was made on growth and macroeconomic stability (see Para. 9) with the support of the Bank s structural adjustment lending and the IMF s PRGF facility. The Bank also provided support to broad-based growth by supporting the rural sector through the Grass Roots Hunger and Poverty Project (PAIB)4 and the Agricultural Services and Farmers Organization Project (PASAOP), and by expansion of irrigated areas and building feeder roads through the Rural Infrastructure Project (PNIR). A Financial Sector Operation was also prepared to support the goal of creating an enabling financial environment to allow for private sector-led growth (see Table 5 for Bank operations approved since the last CAS). The combination of the SAC, Financial Sector Project and the Bank s Analytical and Advisory Activities (AAA) program, The Grassroots Hunger and Poverty project (PAIB) had already surpassed expectations by reaching 186 villages and 172,000 people by the 2002 mid-term review compared to the original end-of-project goals of reaching 130 villages and 130,000 people.

26 - 18- together with operations such as the PAIB and PASAOP has proven to be an effective use of Bank instruments to support the growth objective. Health Sector Table 5: Actual Bank Lending Operations FY99-03 FYOO Rural Infrastructure FYOl Education Sector 45 Farmers Org. FY03 I Hunger & Poverty Total Financial Sector Basic Education Pilot Structural Adjustment I TOTAL As regards the second axis - human development - the Bank supported the GoM s efforts to improve access to and quality of social services through: (i) the Health Sector Project (PRODESS) which focuses on improving the overall efficiency and effectiveness of health delivery systems through cost recovery and further participation by the private sector; and (ii) the Basic Education Pilot and Basic Education Project (PRODEC) which target improving the quality and relevance of basic education while keeping the costs of education and training within affordable levels. The Bank s support to the health and education sectors is contributing to strengthening further the performance of social sectors indicators which have shown important improvements since as outlined in Tables 3 and Overall, Mali has performed well on the implementation of the CAS. As shown in Table 6, Mali fulfilled nearly all of the triggers in the base case scenario and fulfilled most of the triggers in the high case scenario. While Mali made commendable progress, the implementation of the CAS suffered from frequent changes in Government, weak administrative capacity and unclear institutional roles and structures. Moreover, participation with stakeholders and partnerships with the private sector, civil society and NGOs were fledgling so initial delays were encountered in ensuring a more participatory approach to the implementation of projects. As a result, there were difficulties encountered in the overall performance of the portfolio which meant that the high case trigger for portfolio performance was not met. The previous CAS period was extended to ensure also that the preparation of this CAS was fully aligned with the PRSP. 49. Client Survey. The April 2002 Client Survey, complemented by a feedback session in November 2002, concluded the following: a) the Bank should strengthen its own decentralization and deconcentration process to be closer to Malian realities. The Bank was already taking, and will continue to take, concrete actions to strengthen the skills-base of the Bamako office. It is also taking advantage of the availability of expert staff based in the western Africa region; b) the Bank needs to help the GoM to strengthen itsjiduciary management in order to shift to programmatic support. As Mali moves to a more programmatic approach,

27 - 19- strengthening the analytical base on core fiduciary issues is a centfal focus of the Bank s work. Moreover, the Bank is working in close collaboration with other development partners to ensure that they also move at the same pace towards programmatic support; and c) the Bank shouldplay a catalyzing role to increase beneficiary participation and make them more accountable. In the context of all operations, the Bank has ensured that beneficiaries and local partners take on an increasingly important role in the design and implementation of development programs. The success of the PAIB project which is being implemented by local community groups and NGOs is a good example of the effectiveness of involving beneficiaries. The Bank is also providing support through its social sector and rural operations to strengthen capacity at local levels and to ensure a more decentralized service delivery. B. Portfolio Management 50. The quality of the portfolio, which currently includes ten investment projects and one adjustment project, declined from FY98 to FY02, as evidenced by the rise of at-risk projects and overall slow implementation. There is an issue of absorptive capacity in Mali, as in many IDA countries, with the disbursement rate dropping from 20% in FY98-00 to 15% in FYO The reasons for these weaknesses stem from: (i) inadequate institutional frameworks; (ii) slow procurement; (iii) weak financial management; (iv) cumbersome donor procedures; and (v) poor GoM implementation capacity At the start of FY03, the Bank worked with the GoM to prepare a Portfolio Improvement Program (PIP), which outlined a full action plan to strengthen the performance of IDA S projects, and a Country Portfolio Performance Review (CPPR) was held in January 2003 (see para. 52 below). Since then, strong corrective actions have been taken and the three identified problem projects are now rated satisfactory. While slow disbursement and weak management still hamper some other projects in the portfolio, and the PIP is being updated to tackle these issues, the disbursement ratio increased to 17.6% in FY03. As of July 1,2003, there are ten projects in the portfolio (see Attachment 5)5, down from fifteen in FYOl, which will allow efforts to be concentrated on strengthening the performance of those projects still under implementation. The Improving Learning in Primary Schools LIL Project closed on June 30,2003.

28 Table 6: Triggers for Bank Assistance Program Base Case Status High Status I r"' Paper I Education IApproval of a 10-year sector plan by Sector Dec ComitP de pilotage named. Agreement on management team within Ministry of Education by Dec. 1998,thieved,thieved, RODEC egan 8/0 1,thieved, RODEC egan 8/01 Full compliance with PFP Achieved targets Expansion of tax revenue from Achieved, now 13.2% of GDP to 15% of GDP 17% (2000) Agreement on teachers' salaries Achieved (as (1999) part of HIPC) Agreement to reform secondaq & higher education scholarship program Availability of resources to implement education reforms Achieved (as part of HIPC) Achieved Public Enterprises Rural Development Maintain 1996 level of scholarship (F CFA 4.2 billion) I Base Case Action plan implemented for improving EDM's financial situation, including tariff increases in 1998, 1999 & 2000 Satisfactory arrangements for strengthening EDM's management,thieved (as chieved, rivatization egan 1999 ichieved, rivatization egan 1999 Implement redeployment plan to hgoing ensure better balance between staff of MDRE based in the capital and in Status High Status Privatization of EDM underway Privatization of SOTELMA Implementation of new MDRE No organizational structure. Implementation of a rural road strategy Full privatization achieved Not yet achieved No Completion of cotton sector strategy (June 1999) Ingoing, near ompletion ichieved.,ool ' I I erformance :Y99-00: 2 FY99-00: 2 FYOI: 0 FY02: 3

29 The 2003 Country Portfolio Performance Review (CPPR) aimed to build on the PIP, further pinpoint system blockages and initiate constructive dialogue with GoM, donors, and civil society partners. The CPPR produced an action plan, validated by GoM in March 2003, that sets a timeline to solving specific problems within each project and generic problems affecting many projects such as inadequate institutional framework, weak human resource capacity, poor monitoring and evaluation and insufficient donor coordination. It was also recognized that the complex and varying donor procedures were one of the main causes of the slow disbursement and the GoM called on the Bank and other donors to work more closely together to harmonize their procedures. The Bank agreed with GoM to hold another CPPR in 2004, when the frequency of future reviews will be determined (remaining on an annual basis or reducing the frequency to every eighteen months or two years). The frequency will depend on: (i) progress made in resolving issues; and (ii) whether better mechanisms have been put in place, such as a necessary GoM portfolio management system, and a partners forum supporting a shift to programmatic and budget support. The Country Office will continue to reinforce its capacity for portfolio management. 53. With the goal of addressing institutional development and capacity building, Mali s participation in WBI programs has increased significantly over the last two years to reach 470 participants in FY02. Participation will continue to increase further once the Global Distance Learning Network (GDLN) is underway and the Distance Learning Center is built. A much greater number of Malian nationals will have access to not only WBI courses, but also courses offered from other GDLN sites in industrialized and developing countries. 54. OED Results. OED s evaluations of projects closed since FY99 revealed mixed results for project performance. Out of the eight projects evaluated during this period, four were rated satisfactory for outcome while the other four were rated marginally satisfactory. Only 62.5% were likely to be sustainable. Those not deemed to be sustainable were either unable to create a viable legal and regulatory framework for sustainability (Mining Capacity Project), unable to strengthen the framework put in place (Second Power Project), or unable to ensure long-term financing, (Agricultural Services Project). Fifty percent (4) of the projects made substantial institutional impact on institutional development, with one of those having a high impact. In three of the projects with only modest institutional development impact, sustainability was rated as unlikely. Overall, these ratings highlight the importance of preparation, capacity building, monitoring and evaluation in order to effectively build and strengthen institutional frameworks to sustain viable institutional structures. C. Other Bank Group Activities 55. To promote foreign direct investment, private sector investment, and communication infrastructure investment, in November 2002 MIGA provided guarantee coverage to National Telecommunications Company of Senegal (Sonatel) for its investment in IKATEL. This represents the largest foreign investment in Mali to date. 56. has a small investment portfolio of US$8.4 million in Mali. Of this, US$4.8 million is concentrated in the gold mining sector, where IFC was active in the 1990s. An additional gold mining investment was paid off in the past year as the mine closed. The balance of the portfolio is a series of small investments in the hotel industry, including the Grand Hotel, a second hotel by the same operator, and a small inn; and in the printing/packaging and construction materials industries. The IFC is in preliminary

30 discussions with Saur Int l concerning financing for the capital expenditures of Energie du Mali, the integrated powedwater utility. The IFC financing is being developed jointly with IDA, which backed the privatization. A potential investment of up to US$lOO million by IFC and other commercial sources is envisaged. The IFC and the Bank s energy team have also played a role in helping Saur and the GoM address disputes concerning the reduction in tariffs, the associated compensation to be paid to Saur, GoM arrears, and the state of the utility upon assumption of control by Saur. 57. Mali is expected to be one of the countries to implement an integrated micro, small and medium-sized enterprises (MSME) support program, implemented by IFC with IDA support. The program is currently being finalized and will consist of establishment of a commercial micro-finance bank, capacity building for banks and other lending intermediaries, Business Development Services to firms, and support to improve the enabling environment for SMEs. Support from IDA is under discussion from the proposed Sources of Growth Project in FY05, and possibly from the existing Financial Sector Development Project. IFC and other commercial sources would invest up to US$3 million in the capital of the micro-finance bank. D. Lessons Learned 58. A thorough analysis of the implementation of the Bank s previous CAS, including OED s evaluations of closed projects, indicates important lessons which have been taken into account in the selection and design of future Bank activities in Mali. 59. An efficient institutional framework increases sustainability and accelerates service delivery. Institutional weaknesses, noted for nine active projects (PNIR, PASAOP, PPIP, Manantali, FSDP, PAAA, PRODESS, PRODEC, and TSP), primarily stem from: (i) frequent GoM reshuffles - since 1992, the GoM has changed twelve times; (ii) poor donor coordination for meetings and procedures, which leads to multiplicity of tasks for civil servants; (iii) complex procedures, particularly for procurement and disbursement, complicated by an absence of motivation and sanction, absence of follow-up, and weak human resources; and (iv) insufficient post-project planning from the onset, putting sustainability at risk. 60. Trained and motivated human resources are vital. Key structures need to be continually reinforced: (i) central administration, particularly in the various ministry offices of administration and finance (Directions administratives etfinanci&es), where lack of training, motivation, and accountability contributes to slow procurement, poor financial management, and slow disbursement; (ii) decentralized and deconcentrated administrative structures, particularly for the health and education sectors, where personnel is often lacking or poorly motivated because of low salaries; and (iii) civil society and the private sector, where there are large deficiencies in planning, management, procedures, and monitoring and evaluation Decentralization of service delivery and community-driven development increase grassroots participation and help adapt development programs to local realities. By supporting community-driven development, the Bank was able to contribute to improved service accountability and increased local participation in the preparation and implementation of development programs. Aspects of decentralization were included in

31 seven on-going Bank-financed operations from the last CAS (PRODEC, PRODESS, PAAA, FSDP, PASAOP, PNIR, and PAIB). 62. Monitoring and evaluation (M&E) needs to be conceived from the beginning by all stakeholders. The 2003 CPPR revealed five active projects (ongoing: PASAOP, PPIP, PRODESS, PRODEC, and TSP) where insufficient M&E affects program quality. Adequate M&E resources which include necessary funds for training need to be allocated from the onset. Stakeholder involvement to determine indicators will better pinpoint not only how to measure progress, but also the capacity limits of doing so. 63. The right combination of instruments can create good results. A striking element of Mali s economic performance over the last decade is that remarkable strides have been made in rural development by an adequate combination of policy reform, investment, technology improvements and strong donor coordination. This has been the case for cotton development, irrigated rice cultivation and, to a lesser extent, micro-finance and integrated rural development in southern Mali. This lesson has been taken into account and guides the Bank s assistance policy by prioritizing the Bank s ability to mobilize and package structural adjustment, policy reforms, knowledge and investment around the PRSP. E. Partners and Participation 64. Mali s economic and political stability, progress on reform and participatory traditions, and a large number of active donors position it well for development partnerships. Overall, it is expected that the PRSP will greatly facilitate donor coordination, particularly as the participatory process of the PRSP involved all donors and because the PRSP lays out one comprehensive framework for all donor activities. As part of the PRSP process, the GoM holds regular meetings with major donors (Commission mixte), chaired by the Minister of Economy and Finance. Donors also meet among themselves on a monthly basis, with the chair rotating every six months and alternating between bilateral and multilateral partners. With respect to the UN system, the Bank participates in their monthly coordination meetings; Mali is a Roundtable country and a meeting is planned for December Multilateral Box 4: Mali s External Partners European Union just signed their strategy with the GoM and will be principally involved in budget support (Mali s largest donor in this area), the transport sector, and institutional development and decentralization and, to a lesser extent, supporting the Office du Niger, Malian culture, and civil society. The United Nations System recently completed its Development Assistance Framework (with participation from the World Bank). The activities of the UNDP center around the environment, governance, and education. WHO is involved in several health programs. Human development in a broader sense is supported particularly by UNFPA (reproductive and women s rights) and UNICEF (children s issues). FA0 and WFP are active in food security, soil and water conservation (WFP also in education and nutrition). There is also a UNAIDS country program coordinator. Arab Bank for Economic Development in Africa supports transport and rural development projects, including potable water and irrigation schemes. Islamic Development Bank finances the Manantali dam, rural development projects including potable water and irrigation schemes, and the construction of health centers.

32 France supports institutional capacity building and development, including for the judiciary branch, decentralization, health and education, urban and rural infrastructure, including the Manantali Dam, and the transport sector. Belgium supports decentralization, health and education, and rural development, mainly in livestock and water (for drinking and energy). It also funds various initiatives through trust funds, for example, the FY03 poverty assessment. Canada is very active in institutional development, notably in budgets and the judiciary system. It also supports health and education, rural infrastructure, including the Manantali Dam and the para-public AGETIPE, urban infrastructure, the environment and micro finance. Switzerland intervenes very locally, usually in partnership with large, government programs, in rural development and the environment, governance and decentralization, supporting artisan industries, and small health programs. The United States through USAID does not give direct government support, but channels funds through American NGOs in four areas: health, democracy (large decentralization and civil society program including capacity building), education, economic growth, including trade promotion, financial sector development (notably micro finance), and agricultural promotion (highlighting the animal feed industry). Germany is active in supporting the decentralization process and institutional development, health, education, professional training, child trafficking, rural development including natural resource management, rural infrastructure, rural finance, and food security, communications, transport, and mines. Sweden began intervening in Mali only since 2000, and currently provides budget support with technical assistance and is active in education, private sector development in partnership with the IFC/WBG SME department, human rights and democracy, and is considering natural resource management through household energy (with participation from the Bank). Saudi Arabia finances the Manantali Dam and is involved in transport. Kuwait also finances the Manantali Dam as well as several irrigation and hydraulic projects. 65. International NGOs and civil society are crucial partners in development activities in Mali. Civil society is vibrant with over 1,500 registered international and national NGOs and as many as 2,500 national associations. Many organizations are well organized into three confederations, which recently created the National Council of Civil Society Organizations of Mali to better channel civil society dialogue with GoM and the donor community. Partnerships, more than just participation, are also becoming increasingly important in development activities. For example, civil society groups and international NGOs completely manage local capacity building and development projects through the Banksupported Grassroots Hunger and Poverty project (PAIB). 66. In the context of its project portfolio, the Bank works in partnership with a number of major donors in Mali (see Attachment 5). With regard to the health program, coordination has improved considerably since the GoM instituted joint missions and the donor community

33 elected a lead coordinator (chefde Jile). The education program also benefits from joint missions although donor coordination i s weaker and i s one of the main causes for slow implementation of the program. Across all the donor-financed programs and projects, the GoM is taking action to ensure that joint missions are more comprehensive in their coverage in order to discourage donors from conducting additional, separate missions. Overall, while these mechanisms provide a framework for more effective donor coordination, the multiplicity of donor procedures impedes efficient project implementation, as noted during the 2003 CPPR. The Bank is currently working with other donors on strengthening the framework for a programmatic approach to the social sectors through pooling resources for PRDSS and PRODEC. It is expected that this will avoid the multiplicity of procedures and allow the concentration of capacity building efforts in the programming and implementation of these sector-wide programs. 67. Strengthening the programmatic approach to the social sectors is regarded as a solid building block for both the donor community and the GoM to move towards full budgetary support to the implementation of the PRSP. Most donors, as well as the Bank, have clearly indicated their intention to provide budgetary support in the near future. It is important that donors work together to ensure proper sequencing of the programmatic approach so that they are on board at the same time and that ownership is fully with the GoM. In order to achieve the objective of effective budgetary support, two important areas of capacity building are essential: (i) to build capacity for the GoM to use its own fiduciary and disbursement procedures in an efficient and transparent manner; and (ii) to build capacity for establishing a comprehensive and effective M&E framework for the PRSP, against which budgetary support programs can be measured. Building this capacity is a core element of donor programs, including the Bank. While these capacity building efforts are being pursued, the GoM, donors and the Bank are working in parallel to ensure greater harmonization of procedures to the extent possible and are deepening their experience with programmatic support to the social sector programs. IV. PROPOSED ASSISTANCE STRATEGY A. Strategic Elements of the FY04-06 CAS 68. Focus on the PRSP. The PRSP lays out a comprehensive strategy for fighting poverty and provides a cohesive framework for the activities of all donors and development partners. As already described in Paragraph 8, the JSA of the PRSP highlighted a number of areas where the PRSP needs to be improved. The Bank s CAS focuses on these areas of weakness and proposes lending and non-lending activities to assist the GoM to continually strengthen the implementation of the PRSP. In particular, the Bank s AAA work will focus on strengthening the growth strategy, linking the sectoral strategies to the PRSP and ensuring sufficient cross-sectoral linkages with the goal of developing a more comprehensive approach to reaching the PRSP indicators and ultimately the MDGs. Progress towards the objective of strengthening the PRSP will be closely monitored in the context of the annual JSAs of the PRSP Annual Progress Reports. 69. Selectivity. The Bank s CAS has been designed to support the implementation of the PRSP and to complement the interventions of other donors, a collaboration aided by Bank

34 involvement in the pre aration of the 2002 United Nations Development Assistance!? Framework (UNDAF). The program selectively focuses on the following themes: 0 Promoting growth through combining policy support from the SAC and the Poverty Reduction Support Credits (PRSCs) with an approach of increasing agricultural productivity and diversification through the rural sector operations and through promoting non-rural sources of growth which are driven by the private sector (SME development, mining). The Bank will also invest in transport infrastructure as a driver of growth. Finally, the AAA program has been structured towards a greater understanding of the sources of growth and the necessary legal and incentive frameworks to maximize the potential sources of growth. This theme covers the PRSP Pre-Requisite Growth Pillar and PRSP Pillar 3: Develop Basic Infrastructure and Productive Sectors. 0 Developing Human Resources. The focus is on working with donors to strengthen the programmatic approach in the health and education sector wide programs (SWAPS), with the goal of moving to full budgetary support via the PRSCs. Furthermore, the participatory process of preparing the CAS (see Box 5) revealed that stakeholders in Mali would like to see the Bank s strategy incorporate the following: (i) the evolving role of the State, particularly to allow for beneficiaries to be fully involved in all stages of projects and programs; (ii) strengthening governance to ensure that projects and programs - particularly those for the social sectors - are more participatory and transparent; and (iii) capacity building. The CAS emphasizes the participation of all development partners in Bank activities and proposes that capacity building for stakeholders be streamlined into the planning and implementation of policies and programs. This theme covers PRSP Pillar 2: Develop Human Resources and Improve Access to Services. 0 Public finance management and governance. The Bank s program focuses on the public sector financial accountability mechanisms covering public expenditure, procurement, and financial management systems. The fiduciary analysis will cover the country s policies and priorities and will continuously identify action plans to address remaining weaknesses. The fiduciary cross-cutting issues are crucial to the on-going Bank programs, the planned operations, as well as the preparation for the PRSCs. With regard to strengthening governance, the Bank will focus on assisting the GoM to implement the recommendations of the Anti-Corruption Program and on providing support to decentralization. This theme is integral to PRSP Pillar 1 : Promote Institutional Development, Improve Governance and Participation. To contribute to the harmonization of donor support of the PRSP and to help Mali achieve the MDGs, the UN system of donors, including the Bank, prepared the UNDAF.

35 Consultative actions led in : Box 5: CAS PreDaration: A Consultative Process Mopti Retreat, May 31- June 4, Over sixty participants - representing the State, collectivities, civil society, private sector, and donors - brainstormed on CAS possibilities, basing their reflections on the PRSP, the MDGs, and field visits to Bank-financed projects. Rural Development Strategy Discussions, October 29-31, Bank staff, primarily from the RD sector, held internal discussions for two days, then invited counterparts to join them in a discussion of the Bank s work, past & future, to support rural development in Mali. Clieni Survey Feedback Workshop, November 5, Over forty-five participants (representing the State, collectivities, civil society, private sector, and donors) provided pragmatic suggestions to improving the Bank s service delivery and enhancing its programming during the next CAS period. Country Portfolio Performance Review, January 7-10,2003. Led by the Minister of Economy and Finance, and after months of preparation, more than one hundred participants representing the State, collectivities, civil society, private sector, and donors reviewed the Bank s portfolio for the first time since 1995 and proposed concrete immediate and medium-term actions to improve its quality and performance. Regional consultations in SPgou, Mopti, and Timbuktu, February 15, 22, and 24, Bringing together local development actors and representatives from key central structures, the sessions focused on pinpointing blockages to the decentralization and deconcentration process, and the implications for Bank operations in Mali. Bamako Consultation, March 20, This workshop allowed over seventy participants to debate the contents of the CAS before it was finalized. Gender Focus, At all stages of the consultative process, women were actively consulted and involved and gender-sensitive issues were frequently raised during the discussions. 70. The overall direction of the CAS is to move away from structural adjustment operations and stand-alone investment operations in the social sectors and to move towards multi-sectoral, budget support operations in those areas. At the same time, the Bank will continue to focus its strengths in supporting rural development and promoting sources of growth. While it is active in urban and transport activities, it is important to emphasize that the Bank is not the lead donor in these sectors but rather provides complementary financing to that of other donors. 71, Bank Lending Instruments. The Bank s support to Mali will continue to be through a selection of lending instruments, combining support from structural adjustment or PRSC lending with community-driven operations and specific investment operations: a) support through Structural Adjustment Credits (SAC), moving to Poverty Reduction Support Credits (PRSC) in the third year of the CAS implementation. The Bank s positive experience with structural adjustment in Mali has shown that policy-based lending i s an effective mechanism of support. Future support will continue to focus on macroeconomic issues, public sector management (including decentralization) and reforms in the cotton sector. As the overall fiduciary framework is strengthened and donor coordination enhanced, the Bank would move to further programmatic support to the PRSP through PRSC lending in FY06 (in the high case, the PRSCs could be introduced in FY05). The core diagnostic work for programmatic lending - such as the CFAA, CPAR, CEM, Poverty Assessment and PER - will all be in place by the time the PRSCs are

36 introduced and this would under-pin the programmatic transition. In the future, PRSCs are expected to account for about 30% of the annual IDA allocation. b) community-driven development operations which focus on raising the productivity of labor and capital through supporting the productive sectors and fighting HIV/AIDS. These operations will draw from the successful experience to date with the IDA-financed Grassroots Hunger and Poverty Project (PAIB); and c) the Bank will continue its support through traditional investment operations concentrating on specific needs in the transport sector and in private sector development with the goal of enhancing the competitiveness of Mali s economy. The Bank will continue to ensure that these investment operations are developed as part of a comprehensive sectoral framework and in close partnership with other donors. 72. Monitoring and Evaluation. To assess CAS performance, the Bank will monitor the CAS support to the PRSP using PRSP indicators (see Table 10 and the CAS Matrix in Annex B9). The Bank will closely monitor portfolio performance indicators for all IDA-financed operations in order to evaluate the effectiveness of specific operations in achieving desired outcomes. In addition, the Bank will have regular consultations with the GoM, civil society and the donor community to get feedback and monitor implementation of CAS priorities. The CAS will also monitor progress on key MDG targets as indicated in Attachment 1. The quality of Mali s statistical system will be a key factor in the success of the monitoring and evaluation effort and capacity building for M&E will be a priority. In particular, the Bank and other donors will assist the GoM to: (i) rationalize the selection of monitoring indicators to ensure their utility as management tools; (ii) enhance feedback loops to ensure that the monitoring and results indicators are used in planning and policy formulation processes; and (iii) support the involvement of civil society in the M&E of the PRSP. B. Assistance Program CAS Theme: Promoting Growth PRSP Pre-Requisite Pillar: Accelerated and Re-Distributive Growth PRSP Pillar 3: Develop Basic Infrastructure and Productive Sectors 73. As highlighted in the JSA, the key challenge in the medium (and long) term remains how to broaden the economic base and strengthen growth so that the country is in a better position to withstand the impact of adverse climatic conditions and external shocks. The Bank s strategy will focus on helping Mali to: (i) develop and diversify sources of growth through improving the financial and business environment for increased private sector development, including for micro, small, and medium enterprises (with involvement fi-om the Bank-IFC SME department); (ii) build and maintain necessary infi-astructure; and (iii) involve decentralized government, deconcentrated services and local populations while building capacity.

37 One of the areas of weakness noted in the PRSP is that there is very little mention of exactly how the proposed PRSP investments will contribute to the sought-after growth rate, largely because Mali has not yet formulated a coherent and integrated growth strategy. For this reason, the FY04 CEM will focus on the growth prospects and will articulate an integrated pro-poor growth strategy. It is expected that the sources of growth will be from diversification of the agricultural base into fruits, vegetables and Arabic gum, development of agri-business and transformation of agricultural products (i.e. textiles), expansion of mining, development of the tourism and handicrafts industries and promotion of small and medium-sized enterprises in services, communications and other non-agricultural sectors. The Integrated Framework for Trade for Mali (IF) (under preparation), an initiative supported by the World Bank, IMF, WTO, UNCTAD, UNDP, and the International Trade Commission, seeks to enhance Mali s integration into the world economy and intemational trade policy discussions. The trade diagnostic study will highlight Mali s comparative advantages and formulate an action plan for capacity building and technical assistance to promote export-led growth, centered around selected agri-industries and some traditional knowledge industries (namely music, handicrafts and tourism). The IF report will be discussed at the next UN Round Table for Trade - tentatively scheduled for December The findings of the IF and CEM diagnostics will provide essential inputs to the design of the multi-sectoral Sources of Growth Project (FY05). While it is too early to pre-judge the recommendations of the IF and CEM, it is expected that the Sources of Growth Project will focus on three components: (i) support to further legal and regulatory reforms to create a more conducive environment for private sector development, with particular emphasis on the communications sector; (ii) the implementation of an innovative SME Department initiative in micro, small, and medium enterprise (MSME) development involving improving access to capital and building knowledge. This would be complementary to the ongoing Financial Sector Project; and (iii) development of the mining sector since, while gold became the largest export eamer for Mali in 2002, it does not contribute as much as it might to the economy s development7. The project will also ensure complementarity with the rural sector operations which focus on diversifying the agriculture base and developing agri-businesses. 76. To ensure selective and adequate coverage of the rural sector in the CAS, the Bank conducted extensive analytical work which identified eight key issues and challenges to rural development in Mali: uneven productivity, poor infrastructure, perpetuation of barriers to decentralization, unfavorable business climate for private sector, limited diversification of income, weak export competitiveness and unfinished privatizations, an inadequate risk management strategy, natural resources constraints and capital depletion. The key conclusion of this analysis is that poverty is synonymous to subsistence agriculture. Therefore, a key priority is to allow farmers to get access to markets, generate cash income, increase productivity through input, equipment and technology and get out of the vicious circle of subsistence agriculture, low productivity and poverty. The mining component will seek to respond to three key GoM concerns: (i) to ensure that Mali offers the optimal package to both attract incoming investors and increase revenues to the budget and the economy; (ii) to strengthen its capacity to track and analyze what mining companies are doing, both in general operations and with respect to environmental concerns; and (iii) to help artisanal and small-scale miners to operate in a more efficient and environmentally friendlier manner. The Bank has a comparative advantage in this area as a result of significant recent mining work in other countries.

38 The fact that poverty is predominantly rural points to the need that growth must come from rural areas to increase rural incomes and provide employment (farm and non-farm). The sources of growth in the rural sector are quite well known and the Bank has experience and knowledge of what kind of investments can stimulate rural growth. The question is more to formulate comprehensive programs, facilitate GoM commitment and mobilize the resources, particularly human, for implementation. For example, the livestock sector is potentially important for growth and poverty reduction in view of its role in the rural economy. The same applies for nontraditional exports (fruits and vegetables, arabic gum, Tiger pea, etc.), for which markets exist and pilot marketing tests have been successful (e.g. mango exports by sea). The actions to be undertaken to support development of these subsectors need to be articulated in a clear and operational strategy fully backed by GoM and stakeholders. The Bank plans to do this in the context of the CEM as well as through the rural operations. 78. The Agriculture Diversification and Competitiveness Program (FY05) aims to build on the knowledge base and raise rural population incomes through promoting high value-added agriculture products, raising agricultural productivity, increasing market access, upgrading irrigation equipment and techniques and improving cotton sector production. The program will be intrinsically linked to the on-going cotton reforms being pursued through the SAC. The objectives of this project respond to the pressing needs for income generation, diversification and food security. The project will complement the on-going two rural development projects, namely the National Program for Rural Infrastructure (PNIR) and the Agricultural Services and Producer Organizations Support Program (PASAOP) which focus respectively on rural infrastructure and environmental protection and agricultural research and support to agricultural and producer organizations. 79. As outlined in Box 3, the Bank has been very active in helping the GoM and stakeholders in the cotton sector to respond to the severe crisis of CMDT in 1999/2000, as well as to prepare and implement a sector restructuring program which is being supported through SAC-3. These reforms have been initiated and the transition to a fully privatized and liberalized sector organization will require strong and steady support for a number of years. Given Mali s comparative advantage in the cotton sector, recovery of the sector remains a high priority and the Bank s program will continue to provide close assistance to the country s efforts in this regard. 80. As already mentioned, Mali s population is predominately rural and dependent on the agriculture sector. While basic infrastructure is essential and is being supported through the PNIR, it alone will not catalyze rural development; rural populations also need sustainable revenue-generating activities. The proposed Rural Community-Based Development Project (RCBD- FY05) aims to create alternatives to rapid city migration by creating rural job opportunities using a participatory approach and by promoting social and productive investments. The operation will also focus on capacity building for local government, deconcentrated service providers and local populations, including civil society. It will build on the community-driven development lessons from the successful Grassroots Hunger and Poverty Project (PAIB) and will complement the activities of the PNIR. 81. The current Urban Development and Decentralization project will be extended to allow for full implementation. As the urban population continues to grow, the Bank will conduct Urban Analysis ESW to take into account rural-urban migration issues and to

39 -31 - determine the priority issues facing urban areas. The results of this study will enable a sound design of a follow-on operation (preparation in FY06) which would focus on secondary cities, including the capitals of each region and on strengthening the capacities of the municipalities and other decentralized entities to manage resources and development programs. 82. A Household Energy and Universal Access Project (FY04) will be jointly financed by GEF, IDA and UNDP. In addition to helping GoM focus on strategy, policy, and monitoring and evaluation, the household energy component will help transfer the management of forest resources to local communities by promoting community-based forest management initiatives, including the introduction and the promotion of efficient charcoal production technologies. It will also empower local communities, NGOs and the private sector to operate demand-side inter-fuel substitution initiatives such as the manufacturing, commercialization and dissemination of improved (wood, charcoal) stoves as well as kerosene and LPG stoves. Due to the vast expanse of Mali, and the low density of population in many regions, it will not be viable to connect the entire country to the grid; thus many areas will depend on appropriate rural electrification schemes. The project takes into account transversal aspects such as solar power for rural health clinics and schools, as well as for agro-industrial transformation. The Netherlands are currently financing an interim Household Energy project. This project will be implemented in parallel to the Western Africa Power Project (WAPP, currently under preparation) which aims to build and reinforce regional electricity transmission lines (see Box 6 for further details of regional activities). Mali will be the beneficiary for about US$70 million of this US$250 million credit, for its 541 kilometer share of the transmission line linking Segou in Mali to Ferkkssedougou in C6te d Ivoire. 83. In a landlocked country as large as Mali, the transport sector is critical to improve access both to and within the country. While the European Commission is the lead donor in financial terms for road investments (about EUR140 million over the next four years), there is still a need for Bank involvement, in particular regarding the policy framework and to help ensure a coherent sector-wide approach. In this respect, the Bank is working very closely with the EU on the preparation of an Interim Transport Project which is near completion (early FY04), focusing on: (i) redundancies for RCFM (railway) staff to increase the efficiency of the firm as it is concessioned; (ii) the rehabilitation of two major roads; and (iii) mitigating the adverse effects on road quality as a result of the C6te d Ivoire crisis. This project will be an integral part of the Bank s regional efforts to develop and improve the transport corridors in western Africa. A planned Transport Sector and Growth ESW (FY04) will focus on the linkages between transport and other sectors and will provide support to the agenda of growth with equity which will be pursued under the Second Transport Sector Program (FY06). This program will be designed in close collaboration with several other donors - EU, France, AfDB, IsDB, Kuwaiti Fund and the Saudi Fund. The Bank financing will be complementary to that provided by these partners. 84. Three Global Environment Facility (GEF) operations will be launched in Mali over the next three years. The Biodiversity Project (FY04) aims to halt and, in some cases, reverse biodiversity degradation trends in key conservation areas and project sites; this project is being prepared and implemented in partnership with France (French GEF). Two

40 large multilateral efforts to improve resource management along the Senegal and Niger River Basins should come to fruition in FY04 and FY06 respectively. Box 6: Bank Activities on Regional Integration As already mentioned in Paragraphs 42-44, Mali is a member of UEMOA and ECOWAS and plays a key role in several regional integration activities. The Bank s 2001 Regional Integration Assistance Strategy (RIAS) seeks to support the objective of deeper regional integration chosen by the countries of WAEMU and ECOWAS by promoting an Open, Unified Regional Economic Space (OURES), and a conducive environment to facilitate the growth of a more efficient and competitive private sector. It also seeks to support the Region s own goals of accelerating growth and alleviating poverty, while recognizing that assistance to individual countries - with a heightened focus on cross-border constraints and opportunities facing a country - will remain the primary vehicle for support from the Bank. The following regional activities all play a core role in the Bank s overall support to Mali: The West African Power Project (WAPP) aims to build and reinforce regional electricity transmission lines through financing a line between CBte d Ivoire and Mali and to assist in developing the regulatory framework for regional power trade within ECOWAS (see para. 82). The harmonization of telecommunications policy and the establishment of a regional regulatory framework is likely to feature as a component of the Sources of Growth Project (FY05). The Bank is providing support to regional water management issues through AAA work and a regional IDF to the Organization for the Development of the Senegal River (OMVS). The proposed transport operations are being designed within an overall regional framework for strengthening and diversifying the transport corridors in western Africa. The Bank s AAA will focus on fast-tracking integration between Mali, Senegal and Guinea A Regional Payments System Credit to the BCEAO is under implementation that seeks to establish payment systems adapted to the market needs of WAEMU and that are internationally acceptable. Support to the implementation of the WAEMU Agricultural Policy (adopted in December 2001). 0 A proposed Institutional and Financial Development Project for the West African Development Bank (BOAD) which would promote the development of integrated financial marketing in western Africa. CAS Theme: Developing Human Resources PRSP Pillar 2: Develop Human Resources and Improve Access to Quality Basic Services 85. The Bank proposes to focus on: (i) solidifying the necessary framework for sustainable human development; (ii) increasing participation and local accountability in deconcentrated service delivery; (iii) improving access to quality services; (iv) working more closely with donors to build capacity of GoM and other development actors; and (v) working with NGOs, the private sector, community groups and civic organizations to reduce the risk of an HIV/AIDS epidemic. 86. The Bank will work with the donor community to seek to transform the ongoing education sector operation PISE into a fully pooled SWAP during the transition to budget support. At present, many donors finance the PISE; while the European Union, the Netherlands and Sweden finance through budget support, other donors are still earmarking funds to be used for specific sub-programs. As previously mentioned, the problems related to the multiplicity of donor procedures and allocation criteria are a major cause of the slow

41 disbursements. If necessary, the closing date of this project may be extended by one year. In FY05, the Bank will undertake Education Sector Strategy ESW in education to help define the focus of the second phase of PRODEC, the ten-year education program, and to strengthen the MTEF for education to feed into the PRSCs in FY06. Furthermore, Mali is a candidate for the Education for All initiative, which should significantly increase funding to the education sector in order to accelerate the rise in enrollment rates while improving education quality. 87. The first phase of PDDSS, Mali s ten-year health and social development program, ends in December 2003 and the Bank s PRODESS support operation is due to close by mid The Bank will consider extending the closing date to finance the early part of designing the second phase. A Health Sector Issues ESW will be carried out in FY05 to provide technical support to the second phase of PDDSS and to feed into the preparation of the PRSCs. It is expected that subsequent support to the health sector will come through PRSCs, to help reduce the current high transaction costs due to the multiplicity of donor procedures. 88. The 2001 Adult HIV prevalence rate was estimated at 1.7%; however, the significant population movements due to the crisis in neighboring Ivory Coast (where the HIV/AIDS prevalence rate is 9.65%) pose a potentially serious threat to Mali. The proposed Multisectoral HIV/AIDS Project (FY04), to be funded through an IDA grant, will, inter alia, support community efforts on fighting HIV/AIDS through capacity building, establish an information-education-communication (IEC) mechanism, and create partnerships particularly with the transport and private sectors to fight the disease. The project will complement other ongoing HIV/AIDS prevention initiatives such as the work of UNAIDS and activities under the HIV/AIDS component of the PDDSS. It will also focus specifically on the gender dimensions of HIV infection as the infection rate for women is higher than for men. CAS Theme: Public Finance Management and Governance PRSP Pillar 1: Promote Institutional Development While Improving Governance and Participation. 89. Given Mali s satisfactory maintenance of macroeconomic stability and its recent completion of the PRSP, the GoM has indicated that it would eventually like to benefit from budget support for the implementation of the PRSP. As already outlined in Paragraph 71, the Bank proposes a gradual move towards the introduction of PRSCs in FY06. As it moves to PRSCs, the Bank s assistance will focus on carrying out the core diagnostic reports (as shown in Table 7), and strengthening public sector management and governance, which were highlighted in the JSA as particular concerns. 90. Given the negative impact of the C6te d Ivoire crisis on the Malian economy, the GoM would need additional assistance in calendar year 2003 to support the implementation of the PRSP program: the Bank is planning to provide assistance through a supplemental credit to the on-going SAC-3, provided that the GoM has outlined appropriate actions to take to respond to the situation. As the Bank moves to introduce PRSCs by FY06, it will continue to provide balance of payments support through a fourth Structural Adjustment Credit

42 (SAC-4, in FY04), which will support continued public expenditure management reforms, budget management reforms and initiate support to decentralization reforms (thus also supporting Pillar 2 of the PRSP), as well as cotton sector reforms (thus supporting Pillar 3 of the PRSP). With respect to decentralization, the focus of the Bank s work will involve strengthening central and deconcentrated levels of GoM, as well as the elected representatives of municipalities, districts, and regions to: (i) assess, focus, and reinforce their structures; (ii) improve accountability, control of public finances, efficient and transparent resource allocation, and overall good governance in public management; and (iii) better integrate public participation. 91. The Bank s AAA program will concentrate on the following: (i) assisting the GoM implement the recommendations of the 2003 CFAA which is being completed in partnership with the Netherlands and Canada; (ii) continuing to work closely with the IMF on implementing the action plan of the HIPC Expenditure Tracking Assessment; (iii) updating the 1998 CPAR and ensuring implementation of the recommendations; (iv) continuing the close dialogue with the GoM on the implementation of the recommendations of the Anti- Corruption Program; and (v) analyzing further necessary policy and structural reforms through the CEM planned for FY04. Table 7: AAA Program Ongoing FY04 FY05 FY06 Priv. Sect. Strategy Note Cotton Poverty Study (PSIA) Livestock Poverty Growth Senegal River Water Resource Mgt Support to Poverty Reduction Info. System (PRIS) Transport Support to Growth & Equity Integrated Framework for Trade PRSP Progress Rpt 1 Review IDF Support to Min. Women CEMISources of Growth with Equity (RPT) CPAR JSDF Support to NGOs Support to PER (CNS)/ MTEF UNDP Roundtable Preparation New Health Education ESW New Urban ESW PRSP Progress Rpt 2 Review Strategic Gender Assessment CPPR STATCAP New Poverty Assessment Niger River Basin support PRSP 2 Review Reg l Program Traditional Energy Sector 92. Mali conducts its own Public Expenditure Reviews (PERs), under an agreement including ex-post review by the Bank and the IMF. To further strengthen the GoM s capacity to prepare PERs, the Bank will provide close analytical and technical assistance throughout FY04 in a framework of dialogue with other donors. The Bank will also continue support to the development of sectoral medium-term expenditure frameworks (MTEF). The last Poverty Assessment was undertaken in 1993; while the work undertaken for the PRSP provided an adequate poverty diagnosis, based on an indicator of access to basic social services, there was very little data available at the time to allow full discussion of the dimensions of poverty (this was indicated in the JSA as a weakness of the PRSP). Through a Belgian trust fund, a full poverty assessment is being undertaken in order to better understand the determinants and dynamics of poverty, as well as the impact of GoM policies and actions on poverty. In FY06, the Bank will again update the analysis of poverty which will, inter alia, allow for a comprehensive assessment of poverty trends since the 2003 analysis.

43 The poverty assessment will also provide a rich basis for the preparation of the FY05 Gender Assessment which will deepen and broaden the Bank's work in addressing gender issues and will feed into the PRSP through facilitating a more gender-responsive agenda. Gender is a crosscutting priority in the PRSP and the Bank will be supporting several nonlending operations to support gender issues. In conjunction with the Japan Social Development Fund (JDSF), the Bank will support the capacity building of communitybased legal aid NGOs that target vulnerable groups (widows and orphans living with HIV/AIDS; victims of harmful traditional practices). Further support to gender issues will be contributed through an FY04 IDF grant for Institutional Support to the Ministry of Women, Children and Family. 94. The planned Poverty and Social Impact Analysis (PSIA) work in the cotton sector will evaluate the impact of the cotton sector recovery program on rural poverty and propose policy recommendations to increase the impact of cotton growth on poverty reduction. This analysis is expected to yield qualitative as well as quantitative results which will feed into the consultations regarding the next phase of the reform program and help fine-tune implementation of the program. A PSIA on macro-growth policies is also proposed to be carried out in conjunction with the CEM. 95. The JSA highlighted the lack of a clear mechanism for Monitoring and Evaluation (M & E) of the PRSP as well as a complete list of quantified results-oriented indicators. The Bank works closely with the GoM and other development partners to strengthen the M&E framework and ensure a more results-based focus. The Bank's PER, MTEF and AAA support to statistical services will contribute to this goal. With respect to participation, the JSA highlighted the need to institutionalize participatory mechanisms that involve stakeholders in the implementation and M&E of programs. Consequently, stakeholders and beneficiaries will be increasingly involved in determining indicators and measuring progress. A range of Observatories (poverty, labor, social affairs, etc.) is providing analyses and thematic studies on their sectors' status, the impact of sectoral policies and makes policy recommendations. These institutions play a key role in dissemination of information. The GoM, with the support of the Bank and donors, is strengthening the dissemination aspect of the M&E system through putting the focus on the establishment of web-based networks of interrelated databases to be developed progressively while, at the same time, strengthening of the communication system at the regional and community level. 96. The Bank will continue to provide support to developing M & E systems through a variety of instruments: (i) under the GRIP project, support is being provided to the Sustainable Human Development Observatory (Observatoire du de'veloppement humain durable - ODHD) and to the National Department of Statistics (Direction Nationale de la Statistique et de 1 'Informatique - DNSI) to improve decision making in poverty alleviation and to carry out the population census and a household survey. The ODHD is operational and is being supported also by UNDP; and (ii) under the proposed CBRD project, support will be extended to the DNSI to enable them to carry out household surveys, monitor the evolution of poverty in rural areas, evaluate the impact of projects on poverty reduction, and help those projects better target poverty stricken communities and areas. The CBRD project will also continue the support provided under the Natural Resources Management project (now closed) to continue strengthening the Environmental Information Systems (EIS) and build capacity in several national agencies which are charged with environmental monitoring.

44 Mali is currently preparing a Statistical Master Plan with the assistance of another World Bank facility the Trust Fund for Statistical Capacity Building, TF-SCB. The TF- SCB is a grant which supports a three-year strengthening program for the statistical system. It will help the country review and update the national strategy for the development of the statistical system prepared since 2001 as the Schema Directeur de la Statistique and format it as a Statistical Master Plan (SMP). Once the Master Plan is adopted by the Government, a STATCAP program could be prepared for a ten-year period to support the cost of recurrent statistical activities (National accounting, Price Index, Social Accounting Matrix, Statistical Yearbooks, etc.) as well as survey programs. 98. The Global Distance Learning Network (GDLN) is a transversal public-private, institutional and civil society capacity building operation planned for FY04. Distance learning will bring quality educational and training programs to a much wider audience in Mali than would otherwise be possible. It is also expected that Mali would benefit from a grant proposed to help launch a portal in the Development Gateway during the CAS period. C. Lending Scenarios 99. The IDA FY04-06 allocation for Mali is set at US$390 million in the base-case scenario, US$462 million in the high-case scenario and US$237 million in the low-case scenario (Table 8). The planned operations for Mali are relatively large (with the exception of the GDLN project) so as to allow for consolidation of the project portfolio around fewer operations. These projects are, to the extent possible, multi-sectoral operations and involve partnerships with donors, NGOs, the private sector and civil society. There is a degree of front-loading of the lending operations primarily because planned FY03 operations were pushed to FY04 as their preparation suffered delays resulting from the 2002 Presidential and legislative elections and the formation of a new Government Base-case scenario. Mali is currently in the base case. Under the base-case scenario, lending for Mali will amount to up to US$390 million. This scenario is predicated on continued good macroeconomic performance, satisfactory implementation of the PRSP, transparency and accountability in public finance management, and portfolio management (Table 9). Strengthening the performance of Bank operations will be a central element of the Bank s assistance to Mali, with a core focus on continued implementation of the actions outlined in the PIP and highlighted by the CPPR. Delays in implementing the PRSP and difficulties in carrying out public finance management and governance measures could prevent Mali from achieving the high case triggers. However, sustained and better coordinated support on these issues from donors and the Bank should help Mali to address these challenges.

45 Table 8: IDA Lending Operations ey(14 I SAC-4 GDLN* Household Energy IDA $ FY05 BASE CASE Rural CBD** Ag. Divers'n & Comp. Sources of Growth IDA $ FY06 50 Transport Sector 2 35 PRSC-1 IDA$ TOTAL 1 FY04 HIV/AID S * SAC-3 Supplemental* Interim Transport** SAC-4 GDLN* Household Energy IDA $ FY05 15 Rural CBD** 15 Ag. Divers'n & Comp Sources of Growth 55 PRSC-1** IDA $ FY06 IDA$ TOTAL 50 Transport Sector PRSC FY04 IDA $ FY05 IDA $ FY06 IDA$ TOTAL Interim Transport** GDLN* HIV/AIDS* Household Energy 38.7 Ag. Divers'n & Comp. 35 HealthEduc Sources of Growth** 50 Rural CBD I I I I I I I * Operations planned to be filly financed by IDA grants ** Operations planned to be partially financed by IDA grants 101. High-case scenario. Lending could increase to up to US$462 million under the highcase scenario, with the PRSCs introduced in FY05 ($35 million) and the allocation to the Second Transport Project increased to $90 million. This scenario is predicated on accelerated progress on the four criteria outlined in Table 9. There is a good possibility that Mali could meet the triggers for the high case due to the following factors: (i) it has a strong track record in implementing macroeconomic and structural reforms, and this good performance is expected to be maintained; (ii) the GoM and development partners are fully committed to the PRSP and its reform program and the PRSP provides a more comprehensive framework for GoM activities and donor interventions; and (iii) progress on key sectors - such as health and education - has been strong since 1998, thus providing a

46 solid platform for continued good performance and achievement of PRSP targets, particularly with a more programmatic support from donors Low-case scenario. The low-case scenario is determined on Mali not being able to meet the base-case criteria. In this case, lending would only be up to US$237 million as the Bank would not do any further adjustment lending and would reduce or delay other lending operations. The PRSCs would be postponed until FY07 (or beyond). If necessary, an investment operation would be prepared to support the health and education sectors, in the absence of budgetary support from the PRSC. The focus of the Bank s work would shift to supporting capacity building to enable Mali to move back to the base case Use of IDA Grants. Mali qualifies for IDA grants as a debt-vulnerable IDA-only country as per the guidelines which set the criteria as part of the IDA-1 3 replenishment framework. On this basis, IDA grants can account for 29% of the lending program although the actual percentage of the lending program which may be financed by IDA grants is established on an annual basis. The strategy for the use of these grants in the Mali program is to apply them to those Bank activities which support the priorities of the PRSP. In FY04, the Global Distance Learning Network Project, the proposed HIV/AIDS MAP operation, and the proposed SAC-3 Supplemental Credit would be financed through IDA grants. The Interim Transport Project in FY04 and the Rural Community-Based Project in FY05 would be partially funded through IDA grants. Table 9: CAS Scenario Triggers Base Case Macroeconomic framework: Continued maintenance of good macroeconomic environment as witnessed by continued satisfactory implementation of the PGRF program and/or attainment of the PRSP macro goals High Case (Base Case plus) Strong macroeconomic performance surpassing the PRSP macro targets Monitoring Mechanisms Supervision of SAC-3 IMF PRGF supervision Analysis of macroeconomic policy measures identified in PRSP, Le. domestic revenue mobilization PRSP Progress Reports Joint Staff Assessment PRSP: Satisfactory implementation of the PRSP and progress towards meeting indicators specified in Annex 1 of the PRSP: Poverty Reduction Targets. Accelerated progress made on implementing the PRSP and achieving the Poverty Reduction Targets outlined in Annex 1 of the PRSP, particularly with respect to achievements in the health and education sectors. PRSP Progress Report Joint Staff Assessment Indicators from Health and Education sector-wide programs

47 Base Case Transparency and accountability in public finance management: Preparation of action plan to implement CFAA, CPAR, and Anticorruption Report recommendations. Government and Parliament adopt this action plan and provide sufficient financing and support for its implementation. High Case (Base Case plus) Strong implementation of the action plan with the following achievements: (i) timing for the Lois de Rsglement should be Monitoring Mechanisms CFAA follow-up CPAR follow-up Anti-Corruption Report follow-up ~ Portfolio management: 25% or less of projects at risk; disbursement rate 1 15% 20% or less of projects at risk; disbursement rate 2 20% CPPR Regular portfolio analysis V. RISKS & RISK MITIGATION 104. Mali enjoys relative stability, both in political terms and in terms of macroeconomic management, thus considerably reducing overall risk. However, there are both exogenous and internal risks to Mali s development and the successful implementation of the FY04-06 CAS, which the Bank s program proposes to mitigate. The PRSP appropriately signaled the following four major exogenous risks that could compromise the achievement of development and poverty reduction objectives, and thus also CAS objectives Natural risks (drought and pest infestation, etc.), which influence agricultural output. To mitigate these risks, the emphasis in the PRSP is on further developing Mali s largely untapped hydrological potential and on ensuring food security is primarily intended to address this vulnerability. The Bank s program supports this goal through the several agricultural and rural infrastructure operations either already under implementation or proposed The volatility of commodity prices (mainly cotton and gold). Mali s vulnerability to volatile commodity prices stems from the lack of diversity in its agricultural production and product transformation. The Bank s program is focused around developing sources of growth and diversifying the economy. Moreover, the Bank s continued support to the cotton sector through the SAC-3 is strengthening further the competitiveness of the sector. The CAS also mitigates the economic risk through promoting stable macroeconomic policies and ensuring sufficient structural adjustment assistance to respond to the negative impacts. Finally, the availability of IDA grant financing in IDA-1 3 will also contribute to ensuring that Mali s debt levels remain sustainable Uncertain external assistance, which is especially important for the strategy s success, given the ambitious government revenue projections and growth rate. This risk can best be mitigated by Mali demonstrating that it is increasing its absorptive capacity and improving the efficiency of public expenditure management. The thrust of the CAS with

48 respect to portfolio management and strengthening the fiduciary framework is designed inter alia to help Mali make a tenable case for sustained and, if possible, increased external support. This risk i s also being mitigated by strengthening donor coordination so that various partners are ready to help cover any unforeseen resource gaps that may emerge Continued negative impacts of the C6te d Ivoire crisis. The impact of the crisis on GoM s revenues can be mitigated through the proposed supplemental lending of the SAC-3. The impact on the flow of exports and imports due to transport bottlenecks and higher costs will be mitigated through the proposed transport sector operations which will help Mali to strengthen other corridors for trade and reduce the cost of using them. Finally, the Bank is working closely on regional integration issues in West Africa which will promote a more integrated approach in the region to transport and infrastructure Finally, as regards internal risks, the main risk is posed by the weak institutional capacity and governance in Mali, particularly on the decentralized and deconcentrated levels. The risk of not been able to sustain a serious legal and judicial reform effort would also endanger the economic development goals and weaken the democratization effort. Several donors are already working with GoM to build capacity on decentralized/deconcentrated levels. These efforts will be reinforced through close follow up on the recommendations of the CFAA, CPAR and the Bank s Anti-Corruption Report in order to ensure that financial mechanisms and institutional structures in place truly respond to needs. The risk of slowerthan required program implementation owing to capacity constraints will be reduced through continued technical support by the World Bank and other donors to build capacity through the PRSP process. VI. MEASURING RESULTS 110. The CAS focuses on defining and measuring results in the framework of the overall monitoring and evaluation of the PRSP. Table 10 outlines the CAS measurable indicators which include the PRSP targets for 2006 which focus on making progress towards the MDGs. In the context of the annual PRSP Progress Reports and related JSAs, as well as through continuous monitoring of the project portfolio, the Bank will assess the achievement of the CAS on meeting the PRSP goals. PRSPKAS Theme Theme: Promoting Growth - PRSP pre-requisite pillar: Accelerated and redistributive growth - PRSP Pillar 3: Develop basic infrastructure and productive sectors CAS Progress Benchmark - Strengthen macro-economic management - Develop and implement growth strategy - Continue cotton sector reform - Monitor budget spending for poverty reduction programs - Strengthen MTEF and programbased budgeting - Strengthen strategy for pursuing agricultural diversification Associated CAS Instrument SAC-4 PRSC I Sources of Growth Project Agricultural Diversification Project Rural Community-Based Dev t Proj. Urban Development Project Interim Transport Project Second Transport Sector Program Bio-diversity project PER CEM

49 -41 - Theme: Developing Human Resources - PRSP Pillar 2: Develop human resources and improve access to quality basic services Theme: Public Finance Management and Governance - PRSP Pillar 1 : Promote institutional development while improving governance and participation I Adequate provision of public nfrastructure ' Expand access to and quality of social service delivery. Maintain or increase ratio of :xpenditures in health and :ducation sectors to GDP (or :xpenditure in priority sectors as a rhare of total expenditures).. Develop and/or strengthen MTEF For priority social sectors.. HIV/AIDS: preventive and :ounseling services in place and a nationwide IEC campaign underway.. Implement action plan of the HIPC Expenditure Tracking Assessment - Update 1998 CPAR and implement recommendations - Implement action plan of the 2003 CFAA - Significantly increased share of Government procurement subject to competitive bidding - Development of MTEF as a tool for annual budget formulation, progressively integrating key sectors - Greater involvement of communities, NGOs and other development partners in the PRSP and poverty reduction programs Integrated Framework for Trade Transport Sector and Growth ESW Urban Analysis ESW Education Sector Project PRODEC - fully pooled Health Sector Project PRODESS Multi-Sectoral HIV/AIDS Project PRSC 1 Rural Community-Based Dev't Proj. Education Sector Strategy ESW Education For All Initiative Health Sector Issues ESW Poverty Assessment SAC-4 PRSC 1 Rural Community-Based Dev't Proj. Global Distance Learning Center Education Sector Strategy ESW Education For All Initiative Health Sector Issues ESW CEM CPAR CFAA PER Poverty Assessment Trust Fund for Statistical Capacity Bldg. PSIA in Cotton Sector JSDF support to NGOs IDF Support to Ministry of Women VII. CONCLUDING REMARKS Mali's PRSP, together with its good track record on economic management and structural reforms, have laid a solid foundation for the Bank's CAS. It is expected that Mali's commitment to the objectives of the PRSP and its strong partnership with the World Bank will result in satisfactory implementation of the PRSP and the CAS. The Bank is committed to working closely with the Malian authorities and all development partners to reach this goal. Washington, D.C. July 7,2003 James D. Wolfensohn President by Shengman Zhang

50 Attachment 1 MILLENNIUM DEVELOPMENT AND PRSP GOALS s and girls alike, will be able

51 Attachment 2 REFORM PROGRAM OF OFFICE DU NIGER Water for Poverty Reduction, Economic Growth and Food Security in Mali Project Project Data The project sought to reduce poverty, increase agricultural production, reduce government subsidies and support agriculture by: 0 providing strong incentives to farmers to increase production; 0 0 Region Country Project Name Dates Sector(s) improving the efficiency of irrigation management; and creating mechanisms for sustainable irrigation development. Africa Mali Office du Niger Consolidation FY90 - FY2000 Agriculture, fishing, and forestry The method included reforming the irrigation agency (Office du Niger or ON), rehabilitation and modernization of irrigation canaldstructures, and agricultural policy reforms (rice price/market liberalization and land tenure). The project also sought to: (i) strengthen and narrow 0 s focus on infrastructure management and agricultural services by divesting its commercial activities and by making its operations more transparent; (ii) forge stronger partnerships between ON, GoM and farmers through performance contracts, training and improved financial management; and (iii) rehabilitate and modernize irrigation networks and increase farmer involvement in water fee determination and management of maintenance. Impacts According to OED, the project appears to have been successful in overcoming institutional problems which have been identified as key constraints to the improvement of O&M performance in other countries. The ON is described as being transformed from a bloated bureaucracy to a lean and efficient organization accountable to both users and government. 0 The GoM has liberalized the rice trade and markets and sustained that reform; The ON was restructured, its financial health restored and the investment program successfully implemented; Reduced milling costs saved GoM $1.6 milliodannum and reduced milling costs to farmers/consumers by $6 milliodannum; Paddy production increased from 98,000 to 27 1,000 tons; Water fee collection rate increased from 60% to 97%; Production of non-rice crops, such as onions (71,000 tons), garlic (800 tons) and pepper (600 tons) increased. Cropping intensity increased from 75% to 120%; Real per capita income increased by $70/annum and production exceeded targeted level by 37%; During the decade population on the scheme doubled from about to , largely due high immigration rate: hence a significant contribution to poverty alleviation; 57 km of canals and main drains were rehabilitated and modernized; The success of the project led other donors to finance even more perimeters in successive tranches - the Bank s investment leveraged 250% more investment from other donors;

52 -45-0 Difficult institutional reforms, particularly those that go beyond a single ministry, should be headed by an independent agency outside the concerned ministriedagencies. Potential Bank Role in Future of Office du Niger 0 Bank could play an important role to facilitate future reform agenda, including: Increased cost recovery to ensure the maintenance of all infrastructure, including primary infrastructure (whose maintenance is currently financed by GOM), and payment o f all or part of the investment cost, given the increased profitability of investments at ON. In parallel, increased empowerment of farmers and increased responsibility for O&M decisions; Further reduction in the part of O&M charges spent on overhead; Increased land tenure security, while maintaining deterrents against non-payment of O&M charges; Strengthening farmers' organizations for better proficiency in input purchase and output marketing strategies; Given the present profitability of irrigated rice and vegetable production, facilitate increased private sector investment in further development of irrigation infrastructure, e.g., through devising mechanisms, in collaboration with MIGA and IFC, for availing long term financing to would-be private investors in the ON zone; Continued support to improving access to markets to facilitate input purchase and output/product distribution; and Further attention to environmental externalities.

53 ~ Evolution Yields increased from 1.8 to 5.5 MTka (see figure 1) while the ex-post ERR was 30%, compared to 16% at appraisal; GoM was able to push through difficult institutional reforms involving divestiture and staff layoffs (70% of staff was laid off); Participation was strengthened through farmer membership on management committees, ON Board, and overseeing performance contracts; The project transferred credit responsibility from ON to the State Agricultural Bank and stimulated private investment in farm infrastructure. Credit was initially used for equipment, oxen and fertilizer, with repayment rates of over 95% ; and Water fees are retained in the areas where they are collected; at least 50% are used for maintenance while only 10-12% are transmitted to Head Office for general use. - 7,000 6,000 Q 5, ,000 Y 3,000 a 2,000 1,000 0 of Paddy Yield Z ~~~~~~Cn~~~~~~Cn~~~OO i % % 3 % 6 % % % S ~ $? S % 8 6 % % 8 6 Year N N Fig 1: evolution of paddy yields in ON Lessons Learned For greater impact, sector reforms and investments require a conducive macro framework such as the proper valuation of the national currency, a low inflationary environment and a liberal trade policy. In addition, sectoral reforms should be accompanied by adequate complementary sectoral investments in order to have a major impact. A well-coordinated multi-donor effort is essential for high impact investments which utilize potential synergy and complementarity within and between sectors. Farmer empowerment and transparency is essential for greater water fee recovery and sustainability in irrigation schemes, and the fee setting mechanism should be an independent and transparent process, based on clear needs and free from GoM interference. Greater transparency in land management increases farmers' land security, even in the absence of land titles.

54 Attachment 3 Mali: IDA Lending and Debt Sustainability Introduction The enhanced HIPC Initiative reduced Mali s external debt burden considerably. At its recent completion point in March 2003, Mali s creditors committed themselves irrevocably to reducing Mali s external debt by $417 million in NPV terms as of end-1998, bringing the NPV of debt down from 184 percent to 126 percent of exports as of end This is in addition to the $121 million committed under the original HIPC Initiative. The Boards of the Bank and Fund concluded in March 2003 that in the absence of major exogenous shocks, this relief reduced Mali s debts to a sustainable level. At the same time it is widely recognized that achieving long-term debt sustainability requires prudent debt management on the part of the authorities along with the provision of financing on suitably concessional terms by the international community. Given that the completion point document was presented to the Board in March 2003, the macroeconomic projections underlying the completion point debt sustainability analysis have been retained in this annex. The baseline scenario, predicated on base case IDA lending and a successful diversification of the export base, indicates that Mali s debt to export ratio may increase gradually over the next decade, but is expected to remain under 150 percent, peaking at 142 percent in 2014 and gradually declining thereafter. External debt service is expected to remain below 7 percent and 10 percent of exports and revenues respectively over the projection period. Sensitivity analysis, however, indicates that the NPV debt burden indicators could rise sharply if Mali s exports grow more slowly than projected or if Mali is hit by exogenous shocks (such as declines in the price of gold and cotton or a recurrence of drought). Sensitivity Analysis The baseline scenario is predicated on continued fiscal consolidation, a gradual diversification of the export base, and the absence of major external shocks. Reforms are expected to increase productivity in the cotton sector and to stimulate greater value-added in agricultural production and processing. Reforms to the legal system and regulatory environment are expected to stimulate the private sector and attract foreign investment. The base case scenario also assumes IDA grants at 29 percent under IDA-1 3, Until the successful diversification of the export base is achieved, however, Mali s export earnings remain exposed to price volatility, disruption of transport links, and climatic conditions. The speed with which the private sector will respond to the reforms undertaken by the GoM is not yet clear. An alternative scenario i s therefore provided to indicate the effect on the NPV debt-to-export ratio of nominal annual export growth at 5.1 percent (the average growth rate ) from 2004 onwards (as compared with 6.6 percent average growth from 2004 onwards in the baseline scenario). New borrowing is kept to the levels projected in the baseline scenario, and IDA lending is assumed to be at the level of the base case.

55 The evolution of Mali s debt-to-export ratio is also very sensitive to the terms of new financing. A second alternative scenario therefore assumes a decreased provision of capital grants equivalent to half a percentage point of GDP from 2004 onwards, and an equivalent increase in the level of concessional borrowing. Figure 1 illustrates the impact of these scenarios. In the case of the lower exports scenario, in the absence of any moves to constrain new borrowing, the debt-to-exports ratio would increase gradually and inexorably for the foreseeable future, passing the 150 ratio in In the case of the less concessional financing scenario, the debt-to-export ratio would peak at 151 percent in The debt-to-export ratio would stand 12 percentage points above the baseline scenario at the end of the projection period in Figure 1: Sensitivity Analysis of Debt-to-Export Ratio oc Given that debt service over the next five years i s expected to average $64 million per year while 2002 exports stood at just under $1 billion, debt servicing ratios in the medium term are not expected to present major difficulties. However, the results highlight that given the combination of high levels of poverty reducing spending planned in Mali and the narrowness of the country s export base, an increase in borrowing, even on highly concessional terms, could lead to debt sustainability problems in the long term. It is therefore vital that in the event the key ratios begin to show a clear upward trend, the authorities respond with a policy of curtailing new borrowing, replacing loans with grants, and appropriate measures to encourage growth.

56 Impact of new IDA lending IDA is the single largest creditor to Mali, accounting for 42 percent of the country s borrowing in In assessing the size of the program, therefore, debt sustainability must be a major consideration. The estimates suggest that assuming 29 percent of the IDA- 13 allocation comes in the form of grants, the NPV of debt as of end-2007 would be $79 million higher in the high case than in the low case lending scenario, and around $25 million higher in the high case than in the base case. The difference between the high and low case lending scenarios would be equivalent to slightly over 5 percent of the debt stock in NPV terms. However, if the failure to maintain a good macroeconomic environment such as would trigger the low case lending scenario were to reduce the rate of export growth by a third, then despite the lower rate of disbursements the debt-to-export ratio would be 5 points higher in the low case than in the base case by 2007, and by the debt-to-exports ratio would stand at 170 percent as compared with 142 percent in the base case scenario. Furthermore, as indicated in the CAS theme on promoting growth, the Bank s program itself is aimed at assisting the diversification of the Malian economy and stimulating further sources of growth. The sensitivity analysis would suggest that the evolution of Mali s key debt ratios should be watched carefully, to ensure that if the growth projections turn out to be optimistic, they do not encourage over-lending by IDA or over-borrowing by the country. In the event that exports do not increase at the level projected in the baseline scenario for reasons outside the control of the country, it is essential that the international community respond with a greater level of concessional finance in order to avoid the reemergence of an unsustainable debt burden.

57 Attachment 4 Core Labor Standards in Mali Mali has ratified all 27 ILO conventions (two denounced in 2000, see below) which include the five core labor standards: 1. Prohibition of forced labor 2. The elimination of discrimination in employment 3. Freedom of association 4. Right to organize and bargain collectively 5. The elimination of exploitive use of child labor In 2000, GoM denounced two conventions referring to the minimum working age in both industrial and non-industrial activities. However, attention in 200 1/2002 given to a child trafficking ring from Mali to the Ivory Coast prompted GoM to launch an impressive marketing campaign to raise awareness against child labor during the 2002 African Nations Cup. I

58 On-Going Project Attachment 5 PO46651 /Ewy"' 1 6/26/97 I 9/10/97 I 4/30/98 6/30/04 1 l : 1: 1: 1 1: 1 Saudi Arabia, France, Canada, Germany DEVELELOPMENT (FSDP) 16/27/00 19/18/00 1 4/16/01 4/30/06 EDUCATION SECTOR (PRODESS) AGRICULTURAL AND PRODUCER ORGANIZATIONS (PASAOP) 12/11/01 12/12/01 8/21/02 RURAL INFRASTRUCTURE 6/27/00 9/18/00 6/27/01 (PNIR) 12/31/04 6/30/04 12/3 1/03 12/31/05 12/31/ Netherlands, France, UNDP Canada, USA, Belgium, 4o 13,1 25,27 WHO, UNICEF, Germany European Commission, the Netherlands, France, WHO, Canada, USA, UNICEF, Germany, Belgium The Netherlands I 43.3 I The Netherlands 115 I 19.3 I I The Netherlands PO01730 TRANSPORT SECTOR (TSP) 5/26/94 7/8/94 4/13/95 PO01750 I l l URBAN DEVELOPMENT & DECENTRALIZATION 12/13/96 12/19/96 6/19/97 (PDUD) 1/31/04 12/31/04 12/31/ European Union, France, AfDB, Islamic Devt. Bank, Kuwaiti Fund, Saudi Fund France, Canada NB The Improving Learning in Primary Schools LIL Project closed on June 30,2003.

59 Attachment 6 Mali: IMF -World Bank Relations Partnership in Mali s Development Strategy Mali s development objectives place increased emphasis on poverty reduction and growth, as reflected in its Poverty Reduction Strategy Paper (PRSP) approved by the Government in May Thejoint assessment of the PRSF by the staff of the World bank and IMF was presented and approved by the respective Boards of Directors in March The PRSP process enabled the country to articulate an integrated growth and poverty strategy framework for medium and long term development, building upon the national poverty strategy formulated in 1998 with UNDP assistance and situating Mali s main poverty reduction challenges explicitly within a sound macro-economic framework. Mali also reached its HIPC completion point in March 2003, supported by the joint debt sustainability analysis. The IMF continues to take the lead in assisting Mali in maintaining macroeconomic stability and financial sustainability through setting quantitative targets within the framework of the Poverty Reduction Growth Facility (PRGF), which has been in place since August 1999 and will expire in August Structural measures in the program are coordinated with the World Bank and structural conditionality limited to areas with significant macroeconomic, typically fiscal, implications. Thus the IMF s structural performance criteria focus on cotton sector reforms (measures impacting on the government s transfers to the sector), and structural benchmarks include measures related to public expenditure management (efficient use of HIPC and other resources) as well as civil service reform (primarily issues impacting on the wage bill). The World Bank continues to lead the policy dialogue on structural, social and institutional reforms in a number of sectors. A U S70 million Structural Adjustment Credit was approved by the World Bank Board in December 2001, comprising cotton sector reform and public expenditure management reform measures. Other Bank operations that address, respectively, private sector development, financial sector development, education sector reforms and investment program, and health sector reforms and investment program, have been under implementation for varying lengths of time. Progress i s being made in all these operations, albeit slower than anticipated in some sectors. The World Bank is also leading the diagnostic trade study under the Integrated Framework for Trade (IF), an initiative supported by the World Bank, IMF, World Trade Organization, the UN Conference on Trade and Development, UNDP, and the International Trade Commission. The Mali IF, which is being undertaken in collaboration with USAID, aims to enhance Mali s integration into the world economy and international trade policy discussions. The trade diagnostic study will highlight Mali s comparative advantages and formulate an action plan for capacity building and technical assistance to promote export-led growth, centered around selected agro-industries and some traditional knowledge industries (namely music and handicrafts). The diagnostic report will be discussed at the next UN Round Table for Trade, which is tentatively anticipated to be held December 2003.

60 Bank Group Strategy The current Country Assistance Strategy (CAS) for Mali was approved by the Board in April Its focus is on stable economic growth, and sustainable human development. The next CAS currently being finalized, will be presented to the Board at the beginning of FY04. The new CAS supports elements of the country s PRSP, and the government s desire to enter into new relationships with its development partners based on a gradually-phased transition from projects to programmatic lending underpinned by more effective and efficient use of aid resources. It is envisioned that by the end of the CAS period in FY06 programmatic lending would comprise about a third of the portfolio. The Bank s Third Structural Adjustment Credit (SACIII; US$70 million) to Mali has as objectives, the following: (i) to help Mali restore the basis for stable economic growth by restructuring the all-important cotton sector to make it more efficient and capable of adjusting smoothly to changing international economic conditions; and (ii) to improve the tools for planning and managing public expenditures for more effective poverty reduction. IDA support since FY99 has included lending for two projects aimed at strengthening the basis for stable growth (a rural infrastructure project and a financial sector project); three others focused on human development (a health sector project supporting the country s decadal program - PRODESS; a project to improve learning in primary schools; and a longterm education sector project supporting the country s decadal program - PRODEC) and three in infrastructure. The active portfolio comprises ten projects: three in rural development, three in infrastructure and energy, two in health and education, one on financial sector and one on Structural Adjustment. The performance of the portfolio is satisfactory overall, both in terms of development objectives and implementation progress. Non-lending analytical services under the assistance program have comprised an irrigation strategy, a poverty and household survey, a poverty profile update, and technical assistance on public expenditure reviews. It has also included monitoring of economic developments together with the IMF and other development partners in response to evolving domestic, regional and international economic conditions. This activity has included assessing the impact of the CBte d Ivoire crisis on Mali s economy, in view of Mali s landlocked status and consequent dependence on neighboring countries (particularly CBte d Ivoire) for the handling of its trade flows. The Bank is also supporting capacity building on analytical skills for macroeconomic and poverty analysis, as well as on sectoral medium-term expenditure frameworks. An important element of the Bank s support to Mali is assisting the authorities to strengthen governance and improve accountability in the use of public resources. In this context, work is under way with the Malian authorities on capacity building for managing public financial accountability. These efforts also extend to encouraging greater openness in the Malian administration. An important step in that direction has been recently the willingness to share the contents of the forthcoming CAS with the population and interested donors. The strengthening of the knowledge base and the support for building capacity to handle fiduciary imperatives should position Mali for assistance through a Poverty Reduction Strategy Credit in the new CAS period (FY04-06).

61 Bank-Fund Collaboration in Specific Areas The IMF and World Bank staff maintain a collaborative relationship in supporting the Government s structural reforms. The recent April World Bank-IMF joint mission in Mali reinforced the good working relationships the two institutions entertain. As part of its overall assistance to Mali through lending, country analytic work and technical assistance, the Bank supports policy reforms in the following areas in collaboration with the Fund: Cotton sector reforms The objectives of the cotton sector reforms are to safeguard the main source of growth and income generation of the economy. Difficulties experienced in the late 1990s highlighted the sector s vulnerability to external shocks such as the continued decrease of cotton prices on the international markets. The Government s decision to pull out of productive, industrial and commercial activities has led it to design a reform strategy with the following objectives: (i) the improvement of the flexibility and responsiveness of the institutional structure of the cotton sector; (ii) the reduction of the risks associated with having only one operator; and (iii) the establishment of a higher visibility (transparency and capacity to anticipate) in the management of the sector. These objectives will be achieved through a comprehensive program to redefine the parastatal company s role in core cotton production activities, increasing participation of producers and the private sector in managing the cotton sector, and liberalizing cotton and cottonseed oil markets and enterprises. In view of the budgetary impact of cotton sector losses, the Bank and the Fund collaborate closely on the reform program, with the Bank taking the lead in the policy dialogue and program implementation under the SACIII. Public expenditure management Mali has made significant progress in the last several years to move the public expenditure system closer to the desired level of effectiveness, and the Government is steadily implementing measures in its ongoing reform program. The objectives of the current reform program are: (i) improving the budget preparation process in order to progressively reach a system that establishes solid links between the allocation of public resources and the poverty reduction objectives of the development programs; (ii) improving the efficiency and effectiveness of public expenditure execution; and (iii) improving financial transparency and managerial accountability in the use of budget resources, through an effective expenditures monitoring and control system and information reports on budget execution. These reforms have been supported by the donor community including through successive World Bank projects, and the donor community continues to work with the Government on the ongoing reform program. The reform program is supported by the Bank under the SACIII which includes, among other actions, a better integration of the various budget documents, improving classification of expenditures to enable better poverty-oriented monitoring (including at the decentralized level), automation of budget execution through an integrated information system, actions to improve the timeliness of government account preparation, strengthened internal and ex-post