Madagascar - Restructuring and Additional Financing of the Governance and Institutional Development Project. Project Paper

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FROM: Vice President and Corporate Secretary OFFICIAL USE ONLY IDA/R /1 Streamlined Procedure For meeting of Board: Tuesday, May 22, 2007 Madagascar - Restructuring and Additional Financing of the Governance and Institutional Development Project Project Paper May 3, 2007 Attached is the Project Paper regarding a proposed Restructuring and Additional Financing of the Governance and Institutional Development Project. (IDA/R ). This project will be taken up at a meeting of the Executive Directors on Tuesday, May 22, 2007 under the Streamlined Procedure. Distribution: Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA Directors and Department Heads, Bank, IFC and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

2 Document of The World Bank FOR OFFICIAL USE ONLY Report No: MG PROJECT PAPER ON A PROPOSED RESTRUCTURING OF THE GOVERNANCE AND INSTITUTIONAL DEVELOPMENT PROJECT (CREDIT 3829-MAG) AND ON A PROPOSED ADDITIONAL FINANCING (CREDIT MAG) IN THE AMOUNT OF SDR 3.4 MILLION (US$5.0 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR April 25,2007 Public Sector Reform and Capacity Building Unit (AFTPR) Africa Country Cluster 1 (AFCS1) Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

3 CURRENCY EQUIVALENTS Currency Unit = Malagasy Ariary (MGA) US$1 = 1, MGA US$1.53 = SDR 1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BdG CAS CDE CG CNFA cos CQ CR ENAM ENMG FM GDLN GoM IC ICB IDA IGE IGF MAP M&E NLIM NSO PDO PEFA PGDI PREA PRSP QCBS SBD SDR SIGFP SOE sss UNDP Bureau de Gestion (Management office) Country Assistance Strategy ContrGle des Dkpenses Engage'es (Office Responsible for Control of Budget Execution) Coordonnateur Gknkral(Genera1 Coordinator) Centre National de Formation Administrative (National Administrative Training Center) Conseil d 'Orientation et de Suivi (Training and Monitoring Council) Consultants' Qualification Comitk Restreint (Restricted Committee) Ecole Nationale de 1 'Administration Malgache (National School of Administration) Ecole Nationale de la Magistrature et des Grefes (National School of Magistrates and Court Clerks) Financial Management Global Development Learning Center Government of Madagascar Individual Consultants International Competitive Bidding International Development Association Inspection Gknkrale de 1 'Etat (Internal Audit Inspectorate attached to Office of President) Inspection Gknkrale des Finances (Internal Audit Inspectorate attached to Ministry of Economy, Finance and Budget)) Madagascar Action Plan Monitoring and Evaluation National Leadership Institute of Madagascar National Statistics Office Project Development Objective Public Expenditure and Financial Accountability Assessment Governance and Institutional Development Project Programme de Rkformes pour 1 'Eficacitk de 1 'Administration (Reform Program for the Efficiency of the Administration) Poverty Reduction Strategy Paper Quality and Cost Based Selection Standard Bidding Documents Special Drawing Rights Systgme Intkgrk de Gestion des Finances Publiques (Integrated Financial Management Information System) Statement of Expenses Single Source United Nations Development Program

4 FOR OFFICIAL USE ONLY MADAGASCAR RESTRUCTURING OF THE GOVERNANCE AND INSTITUTIONAL DEVELOPMENT PROJECT (CREDIT 3829-MAG) AND ADDITIONAL FINANCING (CREDIT MAG) Table of Contents. ' I I1. I11. Iv. V. VI. VI1. VI11. Ix. INTRODUCTORY STATEMENT... 1 BACKGROUND AND RATIONALE FOR RESTRUCTURING AND ADDITIONAL FINANCING... 1 PROPOSED CHANGES... 3 CONSISTENCY WITH THE CAS AND SAFEGUARDS... 6 ECONOMIC ANALYSIS... 6 APPRAISAL OF ADDITIONAL FINANCING... 6 EXPECTED OUTCOMES... 7 BENEFITS AND RISKS... 7 FINANCIAL TERMS AND CONDITIONS FOR ADDITIONAL FINANCING... 8 List of Annexes Annex 1: Achievements of the Overall Program... 9 Annex 2: Revised Project Description by Component Annex 3: Revised Allocation of Credit proceeds Annex 4: Revised Results Framework (Expected Outcomes) Annex 5: Implementation Arrangements List of Boxes Box 1 : Achievements of the PGDI Program... 9 Box 2: Overview Restructuring and Additional Financing List of Tables Table 1 : Project Components by Financing Sources Table 2: Revised Allocation of Credit Proceeds (without additionalfinancin a) Table 3: Allocation of Credit Proceeds for Additional Financing Table 4: Revised Financial Summary Table 5: Thresholds for Procurement Methods and Prior Review This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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6 i Project Paper Data Sheet Date: April 25,2007 Country: Madagascar Project Name: Governance and Institutional Development Project (PGDI) and Additional Financing - Project ID: PO74448 and P Recipient: Republic of Madagascar Responsible agency: Office of the President - - P - Revised estimated disbursements (Bank FY/US$m) Team Leader: Guenter Heidenhof Sector Manager: Helga Muller Country Director: Ritva Reinikka Environmental Category: C Bank policies? oyes *No Revised project development obj ectives/outcomes The development objective of the Governance and Institutional Development Project (PGDI) and the additional financing is to improve the efficiency and transparency of government and public services in Madagascar in line with the Madagascar Action Plan (MAP)- by: (i) reforming the public finance system; (ii) strengthening capacity building and public sector service delivery; (iii) reinforcing the Rule of Law and the fight against corruption, and (iv) supporting monitoring and evaluation and conducting key statistical surveys for MAP implementation. Does the scaled-up or restructured project trigger any new safeguard policies? No P For Additional Financing [ ] Loan [XI Credit [ ] Grant For Loans/Credits/Grants: Total additional Bank financing (US$m.): Proposed terms: Standard Credit (IDA) US$5 million Financing Plan (US$m.) Source Local Foreign Total Recipient IDA Total Deviation fiom the initial amount due to exchange rate fluctuation between SDR and USD.

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8 1 I.. INTRODUCTORY, STATEMENT 1. This Project Paper seeks the approval of the Executive Directors to restructure the Governance and Institutional Development Project (Credit 3829 MAG; P074448) and to provide an additional financing (Credit MAG, P105026) for the project in the amount of SDR 3.4 million (US$5 million equivalent) for the Republic of Madagascar. 2. The proposed restructuring would require a modification of the project s development objective and of some key performance indicators. While the project s performance to date has been satisfactory, it is now necessary to restructure the project to allow for the following: (i) adjust existing components based on the recommendations of the midterm review; (ii) add a new component to strengthen the alignment with policy priorities of the Government of the Republic of Madagascar; and (iii) reallocate the credit proceeds. 3. The proposed additional financing would help finance the costs associated with scaled-up activities that would enhance the development impact of the project. In particular, it would assist Government in strengthening the monitoring and evaluation framework for its new development strategy - the Madagascar Action Plan (MAP) - and would help conduct some key statistical surveys to support MAP implementation. 11. BACKGROUND AND RATIONALE FOR RESTRUCTURING AND ADDITIONAL FINANCING 4. The Governance and Institutional Development Project (PGDI) was approved by the Board on October 22, 2003, and declared effective on March 3, The project is scheduled to close on June 30, The project aims at supporting governance and institutional development reforms in the context of the Government s development strategyinitially the PRSP ( ) and now the Madagascar Action Plan (MAP) which provides the strategic framework for all development activities in the country for the period. This program is also supported by other development partners including the European Commission, African Development Bank, France, Norway, Germany, MCA and UNDP. The IDA contribution is a SDR 21.9 million credit of which SDR million (about 70% of the original credit) has been disbursed by April The remaining funds are fully committed. 5. The initial Project Development Objective was to assist the Government of Madagascar (GOM) in implementing its poverty reduction strategy which is set out in the 2003 Poverty Reduction Strategy Paper (PRSP) by (i) rationalizing and modernizing budget and public expenditure management, (ii) improving accountability and transparency of government operations, and (iii) strengthening the capacity of public institutions to deal with complex change processes.

9 2 6. The project has the following project components: i. improvement of transparency and economic governance through supporting a comprehensive reform of the public finance system in Madagascar, mainly at the central level; capacity building, and strengthening of local training institutions which focuses on institutional development and capacity building activities in selected government institutions such as the Ministry of Finance and Budget, and the Ministry of Justice; and establishment of a project management system for the change process to ensure effective implementation of the reforms. 7. Since its inception, the project has consistently been rated satisfactory both with regard to implementation progress and to achieving the development objectives. It has also met all relevant World Bank disbursement, procurement and fiduciary obligations. Achievements of the project are summarized in Annex 1. They include: the deployment of an integrated financial management system to improve transparency and accountability of government operations, the strengthening of internal and external controls, the design of a new procedural and institutional framework for public procurement, change management support for the key decision-makers within government and comprehensive training and capacity building activities in the areas of development planning, public financial management and procurement; as well as the development of a regulatory and institutional framework to improve governance and to fight corruption. 8. The project s midterm review, conducted in 2006, confirmed the good implementation progress and the very high level of Government ownership, flexibility and effective partnership with the Bank. The review in particular commended the flexible and innovative approach of the project which has allowed it to respond to Government s needs and adapt to policy priorities as they arose. The review noted the need to better adapt the initial Project components to the policy priorities of the Government and recommended a formal restructuring of the Project to reflect these adjustments. 9. Given the project s successful implementation experience to date, the Government has requested the Bank to scale-up activities with the goal of enhancing the development impact of the project. The Government has requested additional financing mainly to strengthen baseline data and the monitoring and evaluation framework for its new development strategy, the Madagascar Action Plan (MAP). The MAP was launched in November 2006 and is the Government s second-generation PRSP that lays out an ambitious development plan for It outlines the commitments, strategies and actions that are expected to ignite rapid growth and lead to the reduction of poverty. The MAP recognizes the critical need for improving the country s statistical base and for developing a comprehensive monitoring and evaluation (M&E) framework that will allow for effective implementation of the strategy. 10. The project had supported the implementation of the government s initial development strategy (PRSP) and provided some limited funding for monitoring &

10 3 evaluation activities - mainly training and capacity building. At the time of project approval, more substantive funding for monitoring & evaluation was not considered as important as other institutional development needs. This situation changed significantly with the process of elaborating the MAP as it became apparent that many of the development areas targeted under the MAP lack reliable statistical data. In addition, there is no consistent policy for monitoring & evaluation in place with a procedural and institutional framework flawed by unclear and often overlapping responsibilities. To address this issue, the Government intends to develop a consistent monitoring & evaluation framework to support the MAP S implementation. It has identified the need to establish a reliable set o f social and economic data, to strengthen analytical and forecasting capabilities within the public administration and to prepare a National Strategy for Statistical Development. 11. The Government and the Bank agree that the project is the best instrument to provide support in this regard because of: (i) its successful implementation track record to date; (ii) the obvious synergies between the project s on-going activities and the new demands of the MAP framework; and (iii) its cross-cutting and multi-sectoral nature that is appropriate for the challenges of a multi-dimensional monitoring & evaluation framework. 12. Due to the advanced disbursement and commitment status o f the project, and despite full rationalization and prioritization of project activities conducted as part of the project restructuring, the existing project resources are deemed insufficient to address the demand for additional support to the MAP. As a result, the Government has requested additional financing for an amount of US$5 million PROPOSED CHANGES 13. Project development objective. The proposed changes will require a slight modification of the project s development objective to reflect the link to the new development strategy of the Government. The modified PDO is stated as follows: to improve the efficiency and transparency of government and public services in Madagascar in line with the Madagascar Action Plan (MAP). Additional changes to the project design include: (i) the reorganization of the existing components, and (ii) the addition of new project components in line with the policy priorities of the Government. A revised Project Description by Component is provided in Annex 2, a revised allocation of Credit Proceeds, is provided in Annex 3; and the revised and updated Results Framework is attached in Annex Adjustment of existing components. These adjustments will include: (a) Reorganization of project components. To better align the project to the priorities outlined in the MAP, the existing three project components would be reorganized into the following four components: (i) reform of the public finance system, (ii) capacity building and public sector service delivery, (iii) Rule of Law and fight against corruption, and (iv) program coordination. This reorganization would also acknowledge changes to some subcomponents since the inception of the project, in particular the strong emphasis on leadership development and change management support as a cornerstone of the capacity building agenda, as well as the comprehensive support to strengthen public financial management and

11 4 procurement in priority ministries (e.g. education, health, nutrition, transport, agriculture, and environment). Annex 3 provides more details about the revised allocation of Credit Proceeds for the reorganized project components. (b) Adding of new sub-components. Based on a comprehensive dialogue with the Government and other development partners, project funding has been provided for some activities that emerged during the implementation of the project. While these activities are in line with the objective of the project to provide assistance for the implementation of the development strategy of the Government, they are not explicitly mentioned in the initial PAD. These activities include: Increased revenue performance has become a top priority of the Government. To achieve this, the Government has initiated a reform of the revenue agencies (customs and tax administrations). The project is providing assistance to improve efficiency and effectiveness of these administrations through procedural and institutional changes. Project funding is focusing on modernizing operations, as well as on training and capacity building. This complements ongoing assistance by other development partners, in particular the IMF, France and the World Customs Union. To address the significant demand in both public and private sectors for leadership development and change management, the Government established in late 2006 the National Leadership Institute of Madagascar (NLIM). The NLIM intends to complement technical training which is provided by other local training institutions, in particular the Ecole Nationale de l Administration Malgache, ENAM and the Centre National de Formation Administrative, CNFA (both are supported by the project). The project has provided seed money to set up the NLIM and to develop its curricula and training program and further support is envisaged for technical assistance, equipment and operating costs. To strengthen implication of civil society in State affairs is a key objective of the MAP. Based on the Government s request, the project has provided some funding to conduct a pilot citizens score card exercise for a few selected health centers. It is envisaged to use the experience from this pilot to enhance and further deepen participatory monitoring of government activities. The project will provide funding for these activities, mainly for technical assistance. This will complement activities by NGOs and other development partners. 15. Activities supported by additional financing. The additional financing would support the implementation of activities which would scale-up the project s impact and development effectiveness. It would focus on two main areas (i) the development of a consistent monitoring & evaluation framework to assist MAP implementation and (ii) financial support for key statistical surveys which are considered critical for the MAP. These activities would be summarized under one new project component (Component 4 in Annex 2) Monitoring and Evaluation of the MAP and Key Statistical Surveys. This component has the following sub-components:

12 5 Development of a consistent monitoring & evaluation framework This sub-component would focus on developing and implementing a consistent monitoring & evaluation strategy for the whole of Government. A key element of this strategy is the National Strategy for Statistical Development which is currently being prepared. This strategy will include the development of a revised regulatory and procedural framework for government statistics which would integrate and coordinate all relevant government activities. In addition, the institutional responsibilities of the relevant government institutions (e.g. President s Office, Prime Minister s Office, Ministry of Plan, Ministry of Finance and Budget, Structural Adjustment Secretariat, and National Statistics Office) will need to be clarified. Project funding will provide technical assistance to address these issues; it will also help modernize the relevant institutions. Significant training and capacity building activities will complement these activities; they will focus on improving the operational efficiency of the aforementioned key institutions and of the sector ministries in the area of monitoring & evaluation. This will include an upgrading of the capacity of local training institutions to design and deliver relevant training courses. Key statistical surveys to support MAP implementation This sub-component would assist the Government in conducting some key statistical surveys that are important for evaluating the progress of MAP implementation: As a top priority, the Government has identified the need to update its key economic and social data based on a new population census. The last census was completed in 1993; the economic, social, and administrative structure of Madagascar has profoundly changed since then. As a consequence, many of the existing baseline data is outdated. The Government is in the process of soliciting support by development partners for the population census which is estimated to cost about US$18 million. The project will support a complete cartographic survey of Madagascar which is a pre-requisite for the census and would already provide important information about the socio-economic changes in the country. Support will focus on consulting services and equipment; complementary funding for the cartographic survey will be provided by UNFPA and MCA. Financing will also be provided for strengthening the capacity in the National Statistic Office to develop and implement additional statistical surveys which will provide important information for the implementation of the Government strategy such as the External Trade Index, the Consumer Price Index, the Industrial Production Index, and the Index of Industrial, Energy and Mining Related Production. 16. Implementation arrangements. The implementation arrangements for the activities covered by the additional financing would be the same as for the ongoing project. The Office of the President will continue to monitor and coordinate the implementation of the project. Further details concerning oversight, technical implementation, financial management, monitoring and evaluation are summarized in Annex 5.

13 6 17. Project funding will include the financing of a limited number of government staffs salaries until December 3 1, 2007, mainly to recruit technical specialists recruited into the President s Office and in the National Statistics Office. These expenditures are in line with the requirements of recurrent cost financing parameters as specified in BP 6.00 of April 2004 and the relevant Guidelines of April 16, In view of the limited flexibility in the recurrent budget, the Government is not able to pick up the funding in World Bank support would allow the Government to gradually integrate these recurrent expenditures into subsequent budget years. IV. CONSISTENCY WITH THE CAS AND SAFEGUARDS 18. The restructured project will better reflect the revised implementation priorities set forward by the Government in the MAP. These priorities are in line with the new FY07-11 Country Assistance Strategy (CAS) for Madagascar which emphasizes the importance of responsible governance and accountability as key systemic elements to create an enabling environment for growth and investment, as well as to improve services to the people. The CAS, which was presented to the Board in April 2007, also emphasizes the need to improve the statistical baseline and the monitoring & evaluation system of the Government because o f the results-based nature of both the CAS and the MAP and because of the critical role of monitoring & evaluation in ensuring successful implementation of the MAP 19. The safeguards environmental category Cy) remains unchanged. The restructuring and additional financing proposal does not involve any exception to Bank policies. V. ECONOMIC ANALYSIS 20. The economic analysis for the restructured project including the proposed additional financing remains unchanged; the project is expected to have a significant impact on the efficiency and effectiveness of Government operations. VI. APPRAISAL OF ADDITIONAL FINANCING 21. The activities supported by the additional financing are expected to have a positive fiscal impact. The development of a new monitoring & evaluation system for the Government and the collection of baseline data to assess the impact of government policies will ultimately result in better use of public resources. The project design corresponds to technical and financial standards and best practice that exist for such interventions. The procurement plan for the restructured project has been reviewed and approved. The procurement and financial capacity of the implementing agency has been subject to regular evaluations that have confirmed the overall good quality of procurement and financial management arrangements.

14 7 VII. EXPECTED OUTCOMES 22. The revised results matrix for the project is summarized in Annex 4. Expected outcomes include: (i) an increase in the number of indicators under the Public Expenditure and Financial Accountability Assessment (PEFA) which are rated By and above; (ii) an increase in the percentage of population reporting an improvement in service delivery for selected public services, and (iii) an improvement in the ranking of Madagascar in the annual Transparency International Anti-Corruption Perception Index. 23. Some of the key results indicators to measure implementation progress and success include: (i) an increase in the number of public institutions executing their annual budgets through the new integrated financial management system; (ii) a significant number of sector ministries with budget execution rates of 90 percent and above; (iii) an increase in the percentage of public procurement processes that are assessed as conforming to the new procurement regulations; (iv) a significant number of sector ministries that meet the targets of their annual work plans; (v) an increase in the number of qualified trainers and staff in the areas of development planning, public financial management, procurement, and monitoring & evaluation, and (vi) the reduction of the proportion of average expenditure paid by households for bribery for public services. VIII. BENEFITS AND RISKS 24. Some of the key benefits of the project include: (i) increased transparency and accountability of government operations based on comprehensive public financial management and procurement reforms; (ii) transformation of the annual budget into a management instrument that supports timely and accurate tracking of implementation of government policies; (iii) significantly enhanced government capacity in the areas of development planning, public financial management, procurement, and monitoring & evaluation. The project also contributes to simplifying complex administrative proceedings and to rationalizing the institutional framework within which the public administration operates. It builds on modem methodologies (e.g. leadership development, rapid results) to improve operational efficiency of the administration. 25. The project benefits from a strong sense of Government ownership and a close affiliation with the Government s core agenda. Some adjustments are necessary to improve the consistency with the Government s agenda. To-date, implementation has made good progress as evidenced by the achievements of the project which are outlined in Annex 1. Implementation capacity of the Government team has been regularly evaluated with positive results overall. 26. The Project carries substantial risk: its implementation poses a significant challenge for the Government because of the complexity of the changes supported by the project activities and the substantive capacity building needs to ensure success and sustainability of the reforms. To mitigate existing risks a comprehensive project monitoring and evaluation

15 8 framework (see Annex 4) has been developed that will serve as a reference point for the implementation of the reform program. In addition, independent quality assurance mechanisms have been put in place to evaluate reform implementation on a regular basis and to provide regular feedback about implementation bottlenecks. IX. FINANCIAL TERMS AND CONDITIONS FOR ADDITIONAL FINANCING. 27. Additional financing will be provided by an IDA Credit with standard financial terms and conditions, repayable in 40 years, including a grace period of 10 years.

16 9 Annex 1: Achievements of the Overall Program The achievements of the Governance and Institutional Development Project (PGDI) are summarized below. The summary is based on the results of the Mid-Term Review of the program which was conducted in the second half of Current ISR rating is satisfactory. Box 1: Achievements of the PGDI Program2 Public finance reforms Procurement reforms Revenue agency reform Fight against corruption Strengthening of local training institutions Major Outputs Establishment of a reform coordination unit in the Ministry of Finance and Budget Development of an integrated financial management system and deployment of the system to all key treasuries Organizational restructuring of the Treasury Establishment of an internal control cadre for the Treasury (Brigade de TrCsor) Institutional strengthening of other internal and external control mechanisms (e.g. Inspection GCnCrale de l Etat, Auditor General, Finance Commissions of Parliament) Comprehensive training and capacity building support to institutionalize public finance reforms at the level of the sector ministries New procurement regulations approved by Parliament New procurement oversight authority established and operational Comprehensive training and capacity building to institutionalize procurement reforms at the sector ministries level Customs reform action plan developed and implemented. Plan focuses inter alia on modernizing customs operations and on addressing corruption in the customs service Modern regulatory framework in the fight against corruption developed that includes anti-corruption framework legislation, asset declaration, strengthening of investigative authority, establishment of a specialized investigative unit to prepare court proceedings etc. Anti-corruption Commission and Anti-corruption Bureau set up and operational Anti-corruption survey(s) conducted and published Capacity of local training institutions significantly enhanced to deliver training in high priority areas such as development planning, public financial management and procurement National Leadership Institute established and operational Global Development Learning Center under construction to integrate Madagascar into the global distance learning network Impact More transparent, timely and accurate reporting and more effective internal control. Increased capacity in public financial management Madagascar procurement regulations are in line with international standards Increased capacity in public procurement More transparent and efficient customs operations meeting revenue targets outlined in the annual budget Entirely new framework for the fight against corruption put in place which is regarded as an efficient instrument to address corruption in the public sector More high quality training can be organized and conducted locally Assessment is based on the results of the mid-term review of the Madagascar PGDI, July 28,2006

17 10 Area Major Outputs Impact Leadership development and capacity building Legal and judicial reforms Leadership support for senior government level strengthened results focus and team orientation Establishment of a reform unit in the President s Office Development of the Madagascar Action Plan Introduction and successful application of the rapid results methodology to improve cross-sectoral collaboration and to generate visible and tangible results in the short term (e.g. increased rice production, better primary health care and increased revenue generation at the commune level) Significant reduction of the backlog of cases at the lower courts (more than 35,000 case in Antananarivo and other jurisdictions) Development of a statistical baseline to monitor court performance Establishment of pilot jurisdictions which operate on the basis of transparent service standards Comprehensive training and capacity building for magistrates and court clerks Improved consistency of government policy and focus on results New development strategy (Madagascar Action Plan) provides orientation and guidance to all government services Accelerated proceedings at the level of the lower courts Monitoring & evaluation framework to oversee performance of lower courts

18 11 Annex 2: Revised Project Description by Component The Governance and Institutional Development Project (PGDI) took off in March The project aims at supporting governance and institutional reforms in the context of the Government s development strategy, which is the Madagascar Action Plan (MAP). The elements of the initial project as well as the restructuring proposal and the proposed additional financing are summarized in Box 2 below. Box 2: Overview Restructuring and Additional Financing Initial Project Proposed Restructuring and Additional Financing Comments Project Development Objective Component 1 To assist the Government of Madagascar (GoM) in implementing the poverty reduction strategy which is set out in the Poverty Reduction Strategy Paper (PRSP) Improvement of transparency and economic governance (i) Development of an integrated financial management system (ii) Strengthening of internal and external controls To improve the efficiency and transparency of government and public services in Madagascar in line with the Madagascar Action Plan (MAP) Reform of the public finance system (i) Budget preparation and execution improved (ii) Internal and external control mechanisms strengthened Component was reorganized to integrate all reforms of the public finance system. New sub-component focuses on revenue agency refarms (iii) Completion of procurement reforms (iv) Strengthening change management, coordination, monitoring & evaluation (iii) Public procurement system operates in line with international standards (iv) Revenue agencies (customs, tax administration) strengthened Change management, coordination and monitoring & evaluation was transferred to component 2 (v) Public financial management and procurement in selected public institutions strengthened

19 12 Initial Project Proposed Restructuring and Additional Financing Comments strengthening of local training institutions (i) Support for the Ministry of Budget and Finance (ii) Support for the Ministry of Justice (iii) Pilot service delivery improvement (iv) Strengthening of local training institutions (v) Establishment of a Distance Learning Center Capacity building and public sector service delivery (i) Change management capacity and leadership quality improved (ii) Management capacity in selected public institutions strengthened (iii) Service delivery processes in selected public sector institutions improved (iv) Local training institutions strengthened (v) Global Development Learning Center established New component reflects (i) strong emphasis of change management and leadership development as a key element of the government s capacity building agenda. (ii) integrates financing of the National Leadership Institute (NLIM) (iii) integrates support for Distance Learning Center under the subcomponent that deals with local training institutions Component 3 I Project Management Rule of Law and fight against corruption (i) Quality of legal and judicial services in selected areas improved (ii) Regulatory and institutional framework for the fight against corruption developed New component reflects emphasis of government s development strategy on legal and judicial reforms, the fight against corruption, as well as more transparent government operations (iii) Implication of civil society in State affairs strengthened (iv) (Finance) commissions of Parliament (National Assembly and Senate) strengthened New subcomponent focuses on support to civil society activities to monitor State affairs ComponentQ ~ Monitoring & evaluation of the MAP and key statistical surveys (i) Procedural and institutional framework for the implementation of the MAP strengthened (ii) Key statistical surveys to support MAP implementation conducted New component for which additional financing is requested Component 5 Program Coordination No change to old project management component

20 13 The revised components and main changes to the existing project are summarized below: Project Component 1 - Reform of Public Finance System (US$16 million) The objective of this component is to support in a holistic manner the reform of the public finance system in Madagascar. The restructuring of the component reflects the Government request to incorporate revenue agency reforms and comprehensive capacity building activities at the sector ministry level into the reform agenda. In addition, the component will support simplification of budget preparation and execution procedures. The restructuring reflects implementation experience with public finance reforms since the inception of the project, in particular the need to increase assistance for the institutionalization of public finance reforms at the level of the Malagasy public administration. The component comprises the following sub-components: a. Improvement of the budget preparation and execution processes (US$11.O million). Support will focus on improving transparency and timeliness of the public preparation process, including the development of a budget framework paper and the strengthening of the relevant planning and preparation functions in the Ministry of Finance., The subcomponent will continue to finance the development of an integrated financial management system (SystBme Inte'gre' de Gestion des Finances Publiques, SIGFP) which will provide timely, accurate and up-to-date information on budget allocations, commitment and actual expenditures. At the time of negotiations of the initial project the development of this system was estimated to cost US$25.0m. In the course of the project implementation these cost estimates have been adjusted downwards to US$11.Om (excluding capacity building). The savings from this sub-component have been used to support revenue agency reforms, and to substantially increase the assistance for change management, institutional development and capacity building. b. Strengthening of internal and external control mechanisms (US$0.5 million). Project support will focus on improving the operational efficiency of the Malagasy institutions that provide fiduciary oversight and control. These institutions include: the General Government Inspectorate (Inspection Gkne'rale de 1 'Etat - IGE), the Commitment Control (ContrGZe des De'penses Engage'es - CDE), the internal control cadre of the Treasury (Brigade du Trksor), the Auditor General (Cour des Comptes) and the general internal control cadre (Inspection Ge'ne'rale des Finances - IGF). c. Reform of the public procurement system with the objective to upgrade it to international standards (US$1.5 million). Continued support will be provided for public procurement reforms, in particular the implementation of the new procurement regulations have consolidated the fragmented legal, institutional and organizational framework for processing public procurement. To ensure that the new regulations will be adequately applied assistance will continue to be provided for the new Procurement Oversight Institution as well as for procurement entities in the sector ministries.

21 14 d. Support for revenue agency reforms (US$1.O million) (new sub-component). Increased revenue performance has become a top priority of the Government. To achieve this the Government has initiated a reform of the revenue agencies (customs and tax administrations). The Project is providing assistance to improve efficiency and effectiveness of these administrations through procedural and institutional changes. Project funding will focus on modernizing operations, as well as on training and capacity building. This complements ongoing assistance by other development partners, in particular the IMF, France and the World Customs Union. e. Related capacity building support for public sector institutions (US$2.0 million). To ensure the sustainability o f public financial management and procurement reforms, significant investments in capacity building (awareness creation, training and monitoring) at all relevant levels of the public service will be provided to ensure that the changes to the regulatory and institutional framework will be adequately applied. Support will focus on training and capacity building activities for all key ministries, in particular health, education, public works, transport, environment and agriculture. Funding under this component will be provided for goods and equipment, in particular in soft and hardware including the installation of a wide-area network, consulting services including specialized training and project management; rehabilitation and maintenance of offices; as well as for training and capacity building activities.. Project Component 2 - Capacity building, and public sector service delivery (US$12.5 million) The objective of this component is to support the change management and institutional development processes in the context of the implementation of the Government s development strategy (Madagascar Action Plan, MAP). This will include leadership training and development for senior government officials to manage and implement far-reaching reforms. Support will also include an upgrading of local training institutions as well as the establishment of a Global Development Learning Center (GDLN) and of a National Leadership Institute of Madagascar (NLIM). The component comprises the following sub-components: Improvement of change management capacity and leadership quality (US$6.0 million). The project will support change management processes in the context of the implementation o f the MAP, in particular in the President s Office, in the Prime Minister s Office and in priority ministries such as education, health, transport and public works. Based on the demand of the Government, the support for this sub-component has been significantly scaled-up. Assistance will include leadership support (coaching and advising) of senior government officials (President, Prime Minister, Ministers, Permanent Secretaries) by the Leadership Center of Harvard University and the Kennedy School of Government, in the United States. The program will focus on key leadership challenges both at the institutional and individual levels to ensure consistency and to improve efficiency of the core government team. Support will also include the piloting of innovative change management methodologies such as the rapid results approach to

22 15 accelerate reform implementation and to assist Government to overcome existing procedural and institutional constraints that hamper the effective implementation of the reform program. Strengthening of management capacity in selected public institutions (US$2.0 million). To assure adequate implementation of the development strategy of the Government project support will be provided to selected public sector institutions (Ministries of Finance, Education, Health, Transport, Public Works, Agriculture and Justice) to adequately manage and decisively implement the reforms outlined in the Madagascar Action Plan (MAP). This will include set up and support for dedicated technical teams in the targeted institutions that are tasked to monitor the reform activities. Specialized technical assistance will be provided in the area of institutional and procedural development. Improvement of service delivery processes in selected public sector institutions (US$O.S million). Key objective is to improve service delivery and produce visible results in the short term. Targeted services include customs, land titling, primary health and nutrition services and the lower courts. Support under this project will focus on developing service standards, on capacity building, workshops as well as beneficiary and impact assessments aimed at reforming selected public services. Strengthening of local training institutions (US$3.0 million). Local training institutions play a major role in the provision of capacity building required under this project. They will be enabled to deliver high-quality training and capacity building, in particular in the areas of public finance management, general administration, monitoring & evaluation, legal and judicial reforms. Support will be provided to the following institutions: > National Leadership Institute of Madagascar (NLIM) (new element of the subcomponent). To address the significant demand in both public and private sectors for leadership development and change management the Government established in late 2006 the NLIM. The institute intends to complement technical training which is provided by other local training institutions, in particular the Ecole Nationale de 1 Administration Malgache (ENAM) and the Centre National de Formation Administrative (CNFA), both are supported by the Project. The project has provided seed money to set up the institute and to develop its curricula and training program. Further support is envisaged for technical assistance, equipment and operating costs of NLIM. > National School of Administration (Ecole Nationale de Z Administration Malgache, ENAM). World Bank support has been provided for the following areas: (i) review and modernization of curricula and training materials; (ii) organizational restructuring of the school to modernize school administration and improve operational efficiency. P National Center for Administrative Training (Centre National de Formation Administrative, CNFA). World Bank support is focusing on the development of

23 16 new curricula and updated training material, on the training of professional staff, on some equipment to increase the capacity of the center and modernize its training facilities, and on providing hnds for training of technical level civil servants mainly at the sub-national levels of Government. P National School for Magistrates and Clerks of the Court (Ecole Nationale de la Magistrature et des Greffees, ENMG). The project will continue to support ENMG to complement the legal/judicial reforms initiated by the Government. The support will focus on the modernization of the curricula and the training program, on equipping the new facilities of the school, on the training of trainers and other professional staff, on providing funds for training of magistrates, clerks and other personnel in the judicial system and on other specialized technical assistance to enable the school to fulfill its mandate. Establishment of a Global Development Learning Center (GDLN) (US$1.O million). Support will continue to be provided for the establishment of a GDLN and for the integration of Madagascar into the GDLN network. The project will finance the construction of the GDLN including the equipment and other installations. It will support the development of a training program. The project will also finance operating costs for the center on a decreasing basis. The first year, the project will cover 80% of the center's operating costs. This will be reduced by 20 percent for each of the following years. Project Component 3 - Rule of law and fight against corruption (US$2.17 million) The objective of the component is to assist Government in promoting transparency, accountability and good governance; and in particular, in reducing corruption. Project assistance, which is closely coordinated with other development partners, will focus on support for legal and judicial reforms, on strengthening the institutional and procedural framework in the fight against corruption, on improving the implication of civil society in State affairs, and on enhancing the oversight function of Parliament. The component comprises the following sub-components: Improvement of the quality of legal and judicial services (US$0.6 million). Project support will be provided to expedite civil and commercial proceedings with the objective to significantly reduce the backlog and to increase the efficiency of the proceedings. To further improve the efficiency of the judiciary service standards and evaluation methods used in judicial work will be examined and re-evaluated. Technical assistance will be provided for the design and the dissemination of these methods. To ensure effective oversight and to combat corruption the internal control cadre o f the Ministry of Justice, the Judicial Services Inspectorate, will be further strengthened. The existing system of oversight will be rationalized. Development of a regulatory and institutional framework to fight corruption (US$1.O million). The project will continue to provide assistance to the Anti-Corruption Bureau and the Anti-Corruption Commission which were established in 2002 as key

24 17 instruments of the Government to reduce corruption. Support includes technical advisory services as well as support for surveys and other instruments that establish and track baseline information about the incidence of corruption. Additional support will be provided to harmonize and further develop the regulatory framework for governance and corruption in Madagascar, including an anti-corruption legislation and decrees to operationalize the regulations of the law. Implication of civil society in State affairs (US0.2 million) (new sub-component). The strengthening of civil society and of social accountability are key objectives of the MAP. Based on Government request the project has provided some funding to conduct a pilot citizens score card exercise for a few selected health centers. It is envisaged to use the experience from this pilot to enhance and further deepen participatory monitoring of government activities. The project will continue to provide funding for these activities, mainly for technical assistance. This will complement activities by NGOs and other development partners. Strengthening of finance commissions of Parliament (US$0.37 million). Project support will focus on enhancing the capacity of the finance commissions of the two chambers of Parliament (National Assembly and Senate) in the area of public finance, in particular, to scrutinize the work of the Auditor General and to strengthen its role as an external oversight institution (analyze the reports of the Auditor General and to initiate a Parliamentary debate about the findings). Assistance will be provided for training and capacity building of the members of the Public Finance Committees, some basic equipment to enable research and preparation of reports as well as for some funds to commission studies and evaluations in the areas of public finance. Project Component 4 - Monitoring & evaluation of the MAP and key statistical surveys (US$5.0 million) (new component for which additionalfinancing is requested) This new project component aims at scaling-up the impact of project activities and at improving its development effectiveness. Financing would focus on two main areas (i) the development of a consistent monitoring & evaluation framework to assist MAP implementation and (ii) financial support for key statistical surveys which are considered critical for the MAP. The component comprises the following sub-components: Development of a consistent monitoring & evaluation framework (US$2.5 million). Funding would focus on developing and implementing a consistent monitoring & evaluation strategy for the whole of Government. A key element of this strategy is the National Strategy for Statistical Development which is currently being prepared. This strategy will include the development of revised regulatory and procedural framework for government statistics which would integrate and coordinate all relevant government activities. In addition, the institutional responsibilities of the relevant government institutions (e.g. President s Office, Prime Minister s Office, Ministry of Plan, Ministry of Finance, Structural Adjustment Secretariat, and National Statistics Office) will need to

25 18 be clarified. Project funding will provide technical assistance to address these issues; it will also help modernize the relevant institutions. Significant training and capacity building activities will complement these activities; they will focus on improving the operational efficiency of the aforementioned key institutions and of the sector ministries in the area of monitoring & evaluation. This will include an upgrading of the capacity of local training institutions to design and deliver relevant training courses. Key statistical surveys to support MAP implementation (US$2.5 million). Funding would assist government in conducting some key statistical surveys that are important for evaluating the progress of MAP implementation: As a top priority the government has identified the need to update its key economic and social data based on a new population census. The last census was completed in 1993; the economic, social, and administrative structure of Madagascar has profoundly changed since then. As a consequence, many of the existing baseline data is outdated. The government is in the process of soliciting support by development partners for the population census which is estimated to cost about US$18 million. The project will support a complete cartographic survey of Madagascar which is a prerequisite for the census and would already provide important information about the socio-economic changes in the country. Support will focus on consulting services and equipment. Financing will also be provided to strengthen the capacity in the National Statistic Office to develop and implement additional statistical surveys which will provide important information for the implementation of the Government strategy such as the External Trade Index, the Consumer Price Index, the Industrial Production Index, and the Index of Industrial, Energy and Mining Related Production. Project Component 5 - Program Coordination (US$2.0 million) The objective of this component is to support the Bureau de Gestion (BdG) du Programme pour la Bonne Gouvernance, le De'veloppement Institutionnel et la Re'duction de la Pauvrete' (PGDI) to administrate and supervise the PGDI project activities. The project will finance the recurrent costs (salaries and operation costs) of the BdG, of the National Coordinator and other technical advisors who are deemed necessary to ensure adequate project implementation. Funding will also include external auditing and accounting assistance (consultants). Additional short term consultants will be recruited for the assistance to the BdG during the supervision of the project, in particular for regular independent audits of implementation progress and impact assessments. The project will also fund additional equipment and relevant training of the BdG staff, Project funding for components 2 and 4 will include the financing of a limited number of government staffs salaries until December 3 1, 2007, mainly to recruit technical specialists recruited into the President's Office and in the National Statistics Office. These expenditures are in line with the requirements of recurrent cost financing parameters as specified in BP 6.00 of April 2004 and the relevant Guidelines of April 16, In view of the limited flexibility in the recurrent budget the Government is not able to pick up the funding in World Bank support would allow the Government to gradually integrate these recurrent expenditures into subsequent budget years.