Mauritius First Public Sector Performance Development Policy Loan Region

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB6561 Operation Name Mauritius First Public Sector Performance Development Policy Loan Region AFRICA Country Mauritius Sector Central government administration (40%); Other social services (30%); General public administration sector (30%) Operation ID P Lending Instrument Development Policy Lending Borrower(s) GOVERNMENT OF MAURITIUS Implementing Agency MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT Date PID Prepared May 4, 2011 Estimated Date of Appraisal October 11, 2011 Estimated Date of Board December 15, 2011 Approval Corporate Review Decision Other Decision {Optional} I. Key development issues and rationale for Bank involvement 1. The World Bank programmatic DPL series in Mauritius effectively supported a reform program to raise competitiveness. The aim was to transform Mauritius from a labor intensive economy based on trade preferences to a high value added, knowledge and services economy, underpinned by strong economic competitiveness. Reform was broadly successful in achieving its objectives and brought fundamental change to the economy. Furthermore, the reforms helped build the country s resilience, consolidating fiscal expenditures and reversing the upward trend in public debt. 2. The DPL series also supported a short-term fiscal stimulus package that partially contained the impact of the global crisis. The world economic crisis led to a deceleration of GDP growth from 5.9 percent in 2007 to 3 percent in 2009 and 4.4 percent in Public debt to GDP interrupted its declining trajectory and increased to 59.9 percent of GDP in 2010 compared to 54 percent of GDP in The downturn was partially contained thanks to a shortterm fiscal stimulus package made possible because of the Government s relatively comfortable fiscal position prior to the onset of the crisis that provided the fiscal space for a counter-fiscal policy and expansionary monetary policy. Stimulus measures cumulatively accounted for about 7.5 percent of GDP spread over In 2010, the economy rebounded but has not yet returned to 2008 levels in many sectors (i.e. tourism sector, or labor intensive exports of goods). Other areas, such as financial intermediation and real estate, are performing relatively better, driven by large net capital inflows to the banking sector and record FDI. 1

2 3. Looking forward, the reform agenda remains unfinished and critical constraints to economic development still need to be addressed. Notably, while there was significant progress in increasing the competiveness of the private sector, improvements in the performance of the public sector were much more modest. Public sector performance is emerging as a binding constraint for further development. Public enterprises and parastatals that provide critical services such as water and electricity urgently need to enhance their efficiency. Public sector management, needs further strengthening particularly in management of the civil service and governance of public enterprises. Competitiveness is still hampered by substantial time consuming business and trade permits. 4. A new government came into power in 2010 with a commitment to continuing the basic direction of structural reforms, but with an increased emphasis on social programs. The GoM requested to the Bank a new series of programmatic DPLs to continue supporting public sector efficiency to raise competitiveness and improve support to the vulnerable. The programmatic approach of four operations over the next four years, running concurrently with the mandate of the existing administration focuses on the Government s twin objectives of increasing competiveness of the economy and addressing exclusion and poverty. II. Proposed Objective(s) 5. The development objective of the programmatic series is to improve the performance of the public sector in Mauritius so as to more effectively support and empower the vulnerable and enhance economic competiveness. The proposed operation will achieve this by supporting reforms articulated around three pillars: (i) strengthening services to support and empower the most vulnerable; (ii) improving business and trade competiveness, and (iii) raising the efficiency and effectiveness of the civil service and public enterprises. The programmatic approach of four operations over the next four years, running concurrently with the mandate of the existing administration focuses on the Government s twin objectives of increasing competiveness of the economy and addressing exclusion and poverty. III. Preliminary Description 6. The proposed DPL, in an amount of US$20 million is the first in a series of four annual programmatic operations in support of the Government s medium-term reform program. The DPL series is aligned with the mandate of the new Government, which began in 2010 and which will come to an end in The DPL series represents the principle pillar of the Country Partnership Strategy, which has also recently been extended to 2014 in line with the Government s mandate. 7. The new programmatic DPL series assists the Government in its effort to enhance public sector performance through a series of second generation reforms. It builds on the successful previous series of DPL operations implemented between (which focused primarily on trade and competiveness), by broadening the agenda to focus on performance of the public sector, where it has been recognized that additional efforts are needed if Mauritius is to unlock its full potential to produce inclusive and balanced growth. 2

3 8. For each of the three pillars that will be supported by this operation, prior actions have been identified that create the basic institutions to unlock the reforms. The specific measures that have been agreed as prior actions for the first DPL are presented in Annex 1. IV. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts 9. The Government invests significant resources in efforts to support the poor and help move them out of poverty, leading to relatively good social indicators. At 8.5 percent (about 106,000 persons), poverty is low but nevertheless persistent. The Government implements an array of social assistance programs, including multiple cash and in-kind programs, active labor market programs, community interventions, and social care services. Notwithstanding these significant investments, the Government plans to give more attention to the social integration agenda so that it can address the widespread concern that the benefits of economic growth have not been enjoyed by all. This effort should involve not only increasing financing, but also improving the effectiveness and efficiency of, existing interventions that have suffered from several shortcomings. Social Aid is not adequately targeted and reaches only around 13 percent of the poor, and around 36 percent of benefits go to those in the wealthiest two quintiles. Exclusion is a result of the Social Aid legislation, which is outdated and relies on categories of eligibility that exclude many of the poor. Government is exploring whether and how to amend the existing legislation so as to more effectively reach the poorest. 10. The DPL series is expected to alleviate poverty through the following four channels: (i) social protection programs will be more effective in protecting the poor; (ii) improved education access for most vulnerable groups will allow them to move out of poverty; (iii) streamlining NTBs will help create jobs, as they disproportionally affect more heavily SMEs that do not have the financial means to deal with them; and (iv) better public services through the reforms of civil service and public enterprises. Environment Aspects 11. Few if any of the reforms supported by the DPL series is likely to have significant direct effects on the environment, natural resources, and forestry. If supported, reforms in SOEs, such as water or energy, will be focused on improved management of public companies with no direct relationship to investment in these areas. Beyond the immediate focus of the DPL, other Government policies and development objectives such as increasing tourist arrivals by 2015, expanding the port and airport, relieving traffic congestion, making the business climate more investor friendly may have environmental impact. Historically, the record of environmental management, though not perfect, has been relatively good. 1 Furthermore, all Development Partners recognize the strategic importance of environmental protection and AFD, UNDP and the EC are actively providing technical support in this area. 1 See EU, Mauritius Country Strategy Paper , Annex 3, Executive Summary of the Country Environmental Profile. 3

4 V. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 20 Borrower/Recipient IBRD Others (specifiy) Total 20 VI. Contact point World Bank Contact: William David Wiseman Title: Senior Economist Tel: Fax: wwiseman@worldbank.org Location: Nairobi, Kenya (IBRD) Borrower Contact: Title: Tel: VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: 4

5 Annex 1: Proposed Prior Actions for DPL1 and potential areas for triggers for DPL2 Constraint Objective No Prior actions Next actions I. Strengthening Services to Support and Empower The Most Vulnerable Government empowerment programs are fragmented, do not often reach the poor, and are ineffectively delivered. Government s Corporate Social Responsibility (CSR) initiative leverages significant resources for poverty reduction but the initiative is poorly coordinated with Government investments, and it is not well monitored. Government s principle welfare program, Social Aid, does not reach the chronically poor and does not provide effective incentives to move off welfare. Transform empowerment programming into an effective and efficient tool for attacking poverty by (i) consolidating programs, (ii) improving pro-poor focus; (iii) improving program design, and implementation capacity, and (iv) developing monitoring systems to strengthen performance dynamically. Ensure that sufficient guidance is given to corporations in order to ensure that they channel their resources in an effective way, without reducing flexibility, and ensure that these investments are monitored to assess efficiency and whether or not they are meeting their development objectives Improve coverage of Social Aid to the poorest and provide incentives, for those who are able to work, to take-up employment. II. Improving Business and Trade Competiveness 1 Restructuring of the National Empowerment Foundation (NEF) along functional lines, approved by the NEF Board and Ministry of Social Integration and Economic Empowerment, and Ministry of Finance and Economic Development, and made effective through recruitment of key staff and appointment of Programme Committees 2 Signing of an agreement between the NEF and an accredited university for the provision of a certificate in Social Work. 3 Revised Guidelines for Corporate Social Responsibility (CSR) approved and issued by the Minister of Finance and Economic Development in consultation with the Ministry of Social Integration and Economic Empowerment providing detailed guidance on implementation by corporations and/or NEF under the three National Programmes, namely (i) Social Housing, (ii) Child and Family Development, and (iii) Community Empowerment. A strategic plan for each operational pillar of NEF and a Monitoring and Evaluation Framework, approved by the NEF Board. Cabinet approval of proposal to improve targeting of Social Aid to the poorest. 5

6 Constraint Objective No Prior actions Next actions Parallel and uncoordinated efforts to review and recommend on improving the business regulatory framework but no clear mandate for implementing recommendations undermine the government effort to improve the business environment. Dispersed information on Non-Trade Measures (NTMs) makes it difficult to have an overarching view of trade constraints, reduces transparency and raises trade costs. The current Customs appeals mechanism has different procedures for different types of appeal questioning its transparency and raising the administrative cost of revenue collection. Improve the quality of regulation making it less restrictive to business while effectively protecting consumers and environment. Facilitate trade by consolidating all information on NTM 4 Approval by Government of the composition and mandate of an inter-ministerial technical committee chaired by the Ministry of Business, Enterprise, Consumer Protection and Cooperatives to streamline business regulations and NTBs 2. in a single portal. 5 Create an on-line trade portal under the leadership of the Ministry of Foreign Affairs, Regional Integration and International Trade that lists the current Non Tariff Measures (NTM) at the National Tariff Line level and all related administrative requirements. Establish a nonjudicial rule-based independent and impartial Customs appeal process which would significantly increases transparency, predictability and efficiency of the clearance system. III. Raising Efficiency of the Public Sector No agency has the mandate to champion public enterprise reform, which undermines Transform the office of Public Sector Governance (OPSG) into a public sector reform champion to (i) monitor the overall 6 Government s approval of the revised mandate of the Office of Public Sector Governance (OPSG) to assist ministries to monitor performance of Public Enterprises in achieving a 5 Create a structure to support sector ministries with technical expertise to improve quality of existing regulations and upcoming new regulations. Cabinet approval to make legally binding the content of the online trade portal. Draft Legislation for a new Customs appeals process is approved by Cabinet Adopt supporting legislation to empower OPSG. 2 This which would include:(i) members from existing initiatives, (ii) representatives of the five ministries responsible for 80 percent of regulations (namely Ministry of Finance and Economic Development, Ministry of Tourism and Leisure, Ministry of Agro Industry and Food Security, Ministry of Industry and Commerce and the Ministry of Health and Quality of Life, and; (iii) the JEC and MCCI; and (iv) the Board of Investment. 6

7 Constraint Objective No Prior actions Next actions efforts to raise efficiency in public companies and parastatals. performance of public enterprises; (ii) oversee implementation of public enterprise performance improvement; and (iii) provide support to ministries and parastatals in implementing performance enhancing reforms. percent return on investment and overseeing corrective actions, where required, to meet this target. Dispersed information on Non-Trade Measures (NTMs) makes it difficult to have an overarching view of trade constraints, reduces transparency and raises trade costs. Government decision to reduce Cess funding to 4 percent of sugar sales in order to raise competitiveness of the sugar sector undermines the provision of services provided by Cess-funded institutions Facilitate trade by consolidating all information on NTM in a single portal. Raise the efficiency of the Cess-funded institutions to provide services and support competitiveness of the sugar sector. 7 Adopt a Public Enterprise Monitoring and Information and Tracking System (PEMITS), with financial and non-financial indicators, and request Public companies and parastatals to provide the required information (on line or manually). 8 Government s approval of an action plan and financing requirements for the restructuring/consolidation and efficiency gains of the CESSfunded parastatals in line with already announced commitments in the ERCP, Budget Speech and mid-term review of the MAAS. Quarterly reports with financial and non-financial information on public companies and parastatals are published on the OPSG website. Implementation of the action plan to raise efficiency of the CESS funded agricultural parastatals. 7

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