56814 FAST TRACK BRIEF May 10, 2010 The IEG report "Mozambique Country Program Evaluation, 2001-08," will be discussed by CODE on May 10, 2010 Mozambique Country Program Evaluation, 2001-08 During the period FY01-08, the World Bank was Mozambique's largest development partner, providing over $1.3 billion in International Development Association (IDA) funds. The Bank's strategy, which was aligned with and sought to support the government's poverty reduction strategy, focused on three pillars: economic growth, including macroeconomic management, financial and private sector development, rural development, and infrastructure; poverty reduc- tion and human development; and governance. The evaluation finds that the Bank's strategy for Mozambique and its program were relevant to the country's development needs. The Bank's program was generally aligned with those of other development partners that provide general budget support, especially after FY05. Har- monization of procedures with other development partners also progressed, although there is scope for further improvement. The Bank's program was substantially effective in supporting macroeconomic management, infrastructure development, access to education and health care, urban water, and some areas of governance (such as budget management and execution). However, the program fell short of its intended results with respect to the inclusiveness of growth, stimulating private sector development, improving agricultural productivity, achieving better quality of social services, countering the perception of increasing corruption, improve- ments in the judiciary system, and stemming the spread of HIV/AIDS. Going forward, IEG recommends that the Bank help Mozambique sustain high growth and re- shape its pattern to make additional gains in poverty reduction; give priority in analytic work to infrastructure, agricultural productivity, education quality, and HIV/AIDS; and support im- provements in the efficiency of public expenditures. M ozambique is a country of over 20 million people, has a per capita income of $370 (GNI, Atlas me- thod), and occupies an area of 800 thousand square kilometers in southeast Africa. About 70 percent of the pop- ulation live and work in rural areas. Following years of con- tions were held in 1994. Since then elections have been held regularly. After the cessation of conflict, Mozambique achieved impressive economic growth (albeit from a low base) and has become an example of successful post-conflict reconstruction and development. Mozambique's develop- flict, the economy was in shambles by the mid-1980s when ment has been strongly supported by official development the country, in the midst of civil war, joined the World Bank. assistance (ODA) with average annual disbursements The civil war ended in 1992, and the first democratic elec- amounting to $1 billion (12 percent of GDP). World Bank Assistance candor and technical expertise in the analytical work were appreciated by the client and development partners, who Bank strategy. The reduction of poverty and improve- would like to see the Bank prepare more of such work. ments in social services has been, and still is, the most im- There were, however, important knowledge gaps in certain portant objective for Mozambique's development strategy. areas, which the Bank could have addressed in its analytical The Bank has supported the government's Action Plan for and advisory work. These areas include improving the yields the Reduction of Absolute Poverty (PARPA--the Portu- of smallholder agriculture, improving the quality of basic guese acronym for PRSP), and the FY01 and FY04 Country education, constraints in the battle against the spread of Assistance Strategies (CASs) shared the same strategic objec- HIV infections, priority actions to improve rural water tives and pillars and covered the same policy areas. The supply, and problems with electricity reform and railway overall intent was to help Mozambique promote growth to concessions. Similarly, no public expenditure review (PER) improve the country's standard of living and to reduce po- was conducted after 2003. verty, primarily through maintaining macroeconomic stabili- ty and promoting private sector initiative, particularly for small and medium-sized domestic enterprises (SMEs) as well Findings as in agriculture and infrastructure. To this end, human re- Pillar I: Stabilization, Reform, and Growth sources needed to be developed through the provision of improved education, water, and health services; and public Macroeconomic stability. Mozambique's macroeconomic sector performance needed to be improved through capaci- performance has been generally good or improving when ty-building measures and better governance. Close coordi- measured by aggregate indicators like growth, inflation, bal- nation among the government and the development part- ance of payments, external debt, and the budget. Transfers ners, including the Bank, was to help mobilize the needed under the PRSC series helped fund the budget, in turn stabi- assistance and increase the chances of its efficient use. lizing the real economy. Prior actions ensured some in- creased domestic revenue mobilization, and those aimed at Relevance of strategy. Overall, the Bank's assistance strat- public expenditure management helped improve govern- egy during the review period was relevant and closely aligned ment capacity in this area. In addition, the PRSCs allowed with the government's plan outlined in the PARPA. The the Bank to participate in the dialogue on macroeconomic- strategic alignment with the PARPA enabled the Bank to be management, even though the IMF took the lead. The ex- selective and to capitalize on its comparative advantage un- ternal debt position of the country also improved apprecia- der each of the three pillars--growth, social services, and bly, largely due to the Heavily Indebted Poor Countries governance. Harmonization and alignment were advanced (HIPC) Initiative and the Multilateral Debt Relief Initiative as the Bank agreed with the government and other devel- (MDRI) arrangements. The economy also responded posi- opment partners to support a common reform agenda and tively to reforms. Maintaining annual growth that averaged select triggers for Poverty Reduction Support Credits 7-8 percent for almost 15 years was a commendable (PRSCs) from a commonly agreed-upon set. achievement. Bank program. Support as delivered was broadly in line Nevertheless, despite the positive performance of growth with the strategy. Most of the proposed lending program and overall macroeconomic performance, a number of con- was implemented, and the credits that were not foreseen cerns have remained. First, although inflation was reduced were consistent with the areas of Bank focus and within significantly from the early days after independence, it fluc- lending targets. The Bank also participated in Sectorwide tuated during the period reviewed and averaged 11.5 per- Approaches (SWAps) in agriculture and health, but moved cent. The risk of macroeconomic instability lingers, espe- away from them to PRSCs as the core of its assistance pro- cially in view of swings in the global food prices and the gram. However, the primary focus of prior actions in uncertainty surrounding global developments in petroleum PRSCs during the evaluation period was on public financial and other primary commodities markets. Second, the pace management (PFM) and macroeconomic policy, while at the of growth has been fueled to a large extent by ODA, but the sector level several of the prior actions for agriculture were sustainability of this support is unclear given recent global not met and there were no prior actions in health. financial developments. In addition, growth has been driven by agricultural catch-up (until about 2003), and private in- Analytical work. Overall, the analytical work delivered by vestment in physical capital (for example, through mega- the Bank was relevant, of high quality, and connected with projects) that has not yet substantially addressed the chal- the lending program. Some of the Bank's analytical pieces lenge of creating more jobs and making growth more evenly were essential inputs to establishing the reform agenda. The distributed. 2 Financial sector development. The main objectives of ment yielded some positive achievements, such as biological financial sector development (FSD) reforms were met. The monitoring of marine ecosystems and strengthened capacity Bank's technical assistance followed up on the findings of for environmental management by communities. However, the Financial Sector Assessment Program and helped to several prominent project objectives, notably the protection strengthen the central bank's balance sheet, as well as its of coastal habitats and private sector tourist development, supervision of the banking system. These Bank efforts con- were not achieved. tributed to a steady improvement in the overall soundness of the banking system as reflected in improvements in a num- Energy. The Bank's initial strategy of improving the energy ber of indicators, such as the proportion of nonperforming sector through the unbundling of generation, transmission, loans, capital adequacy ratios, and increased competition and distribution into separate companies to facilitate bring- among banks. In contrast, progress in financial intermedia- ing in private operators proved inappropriate for conditions tion, access to finance (particularly by SMEs), and the devel- in Mozambique and was replaced by a strategy to strengthen opment of the non-bank financial sector remains a chal- existing institutions. With Bank support, access to electricity lenge. was expanded through cost-effective grid intensification. Solar electric panels for some 300 schools and health centers Private sector development. The results achieved in PSD were introduced, but Bank-supported pilot expansion of fell below expectations. Progress in the development of the electricity service by creating independent, private electrical SME sector was slow. The Bank program successfully pro- grids in isolated rural areas did not succeed. With World vided some business extension services to SMEs and some Bank (WB)/International Finance Corporation (IFC)/ Mul- technical assistance (TA) to strengthen a couple of govern- tilateral Investment Guarantee Agency (MIGA) support, a ment agencies, but the Bank-supported line of credit faltered new 865-kilometer pipeline was constructed and is opera- and had to be altered to allow larger firms to borrow. While tional, exporting natural gas from Mozambique to South the enclave mega-projects may have done well because of Africa, representing a major demonstration of the potential their special circumstances, the performance of smaller do- for integrating energy markets in the region. mestic businesses remained sluggish. Hence, the contribu- tion of PSD to generating employment and spreading the Transport. With Bank and other development partners' benefits of growth was limited. support, the conditions of the roads have improved. An independent Road Board, with majority representation from Rural development and sustainable management of the private sector, was established to guide allocation and natural resources. Results of the Bank's interventions in monitor use of funds. However, more needs to be done to agriculture, rural development, and natural resource man- further improve access for the rural population, by improv- agement were also below expectations. Bank assistance ing or building feeder roads. Bank-supported concessioning through the Agricultural Sector Public Expenditure Program of Mozambique's three main port-railway systems achieved (PROAGRI), a SWAp supported by many bilateral devel- partial progress toward increasing traffic on the country's opment partners, achieved a number of its objectives, in- railways and through its ports. While international port traf- cluding decentralization of the Ministry of Agriculture; im- fic had by 2008 reached 11.1 million tons, surpassing the provements in the financial, procurement, and audit target; traffic on the railways reached 3.5 million tons, half management systems; and some improvement in agricultural the target level. An Infrastructure Assessment planned for research planning. However, the program did not have a FY07 was dropped, which meant that no formal analytical significant impact on the productivity of smallholders. work was carried out during the evaluation period. While eight development partners continued their support to the second phase of PROAGRI, the Bank withdrew. Based on the elements presented above, the overall out- Instead, the Bank's broad sector objectives were subsumed come of the first pillar of Bank assistance is rated moderately under the PRSC series. However, the PRSCs have so far satisfactory not provided an effective platform for dialogue on the agri- cultural sector, and PRSC triggers have made only very Pillar II: Poverty Reduction and Human Development modest contributions to progress on either policies or tech- nical issues in the sector. In addition, the Bank completed Poverty reduction. The incidence of poverty declined im- but did not publish the Agricultural Development Strategy. pressively from 69 percent in 1997 to 54 percent in 2003, The Bank resumed support to agriculture in 2006, and fi- while poverty remained higher in rural areas (55 percent) than nanced the Market-Led Smallholder Development project, in urban areas (52 percent). The results of the 2009 household but it has so far experienced delays. In natural resource income and expenditure survey were not available to this management, the Coastal and Marine Biodiversity Manage- evaluation. There is, however, concern that the rate of decline 3 in absolute poverty may be slowing down. Although overall to government capacity constraints, design limitation, and weak growth was impressive during the review period and the un- coordination. This raises a serious concern as HIV/AIDS pos- derlying macroeconomic performance was satisfactory, it was es one of Mozambique's most daunting challenges. not evenly distributed with the benefits of growth not reach- ing the majority of the population, particularly those in rural Access to safe water and sanitation. With the agreement areas. Average growth rates in the agricultural sector were of development partners, Bank support to increase access to lower than the rapidly growing industrial sector dominated by water and sanitation was directed at developing sustainable capital-intensive mega-projects. Furthermore, agricultural institutions in urban areas. Through these, the Bank sup- growth was driven by catch-up (compensatory) gains and ex- ported the privatization of water service delivery in five ci- pansion into new areas rather than productivity improve- ties under the umbrella of a government parastatal responsi- ments. ble for managing Mozambique's water resources. Bank assistance was successful, but its urban focus meant that All PRSCs carried a government commitment to maintain Bank projects had negligible impact on access to potable budget allocations to six PARPA priority sectors (health, water in rural areas. There was also little evidence of signifi- education, rural development, basic infrastructure, good cant improvement in average access to sanitation in rural governance, and sound macroeconomic and financial man- towns. agement) at 65 percent of the total, which was met. Howev- er, the budget could have better focused the allocation of On the above basis, the outcome of the second pillar of expenditures on activities that would translate directly into a Bank assistance is rated moderately satisfactory. strong positive impact on poor households or at the small- holder farm level. Pillar III: Governance Education. The Bank and 14 other development partners Budget allocation and execution. The main objectives in contributed to the formulation and implementation of the this area were achieved. With Bank and other development government's 1999 Education Sector Strategy Program partners' support, the government introduced reforms that (ESSP) to improve access to and the quality of education. A have changed the face of the budget system in Mozambique. large number of schools and related infrastructure was rehabi- While in 2001 the country did not have the elements of a litated or constructed, enrollment increased substantially, and budget system, today it has: almost complete budget cover- access for the poor and in rural areas improved markedly. age, improved budget classification, a consolidated single However, there were concerns about the program's lack of treasury account (for most goods and services), adequate progress in enhancing the quality of education. In 2003, the budget controls, and fiscal transparency. Although the sys- Bank decided not to engage in the second phase of this pro- tem has substantially improved, the government is still gram. The Bank subsequently agreed in FY09 to contribute working on including all wage and salary expenditures in its $79 million from the Fast Track Initiative for the improve- newly introduced financial management information system, ment of basic education. Bank support to higher education e-SISTAFE. On the other hand, the Bank's assistance paid assisted in the achievement of key performance indicators insufficient attention to significantly improving the efficien- related to internal efficiency rates, annual number of gra- cy of public expenditures that the analytical work identified duates, increased regional distribution of enrollments, and the as problematic. introduction of new degrees. The Bank is now moving most of its attention to supporting vocational and tertiary education Monitoring and evaluation capacity. The objectives in and outcomes so far are encouraging. M&E capacity building were partially achieved. Two impor- tant tools have helped create the conditions for a better Health. The health system was in disarray at the end of the monitoring and evaluation (M&E) system: the PARPA and civil war. As in the education sector, the Bank chose to follow the overhauling of the PFM system. With Bank support, the the government's strategy for the development of the health government's ability to monitor programs and plans were sector and started its support with a SWAp--the Health Sector enhanced, although there is room for improvement. How- Recovery Program. Together with other development partners, ever, the advances in managing and monitoring the budget the Bank successfully supported the construction of numerous have not yet translated into better government evaluation ca- health facilities, improved a number of institutions, trained pacity. many health professionals, and contributed to increased health service access. This contributed to improvements in key health Reducing corruption. This objective was not achieved. indicators, including infant and maternal mortality rates. In The Bank expected that as a result of the assistance the gov- contrast, the HIV/AIDS program has not progressed well due ernment would carry out governance surveys. A survey for 4 2004/05 was conducted, but no other survey has been car- vatizations, SME linkages, SME capacity building, access to ried out after 2005. Dealing with corruption requires better finance for SMEs, and the tourism sector. tools and creativity than the Bank displayed in its assistance. International indicators show that the levels of perceived IFC promoted private sector development by helping im- corruption changed little. The government prepared an an- prove foreign investors' perception of Mozambique through ticorruption strategy for 2006-10 but has not advanced mega-projects that led to follow-on projects; improving ca- much in implementing it. Despite the fact that many cor- pacity of some SME firms; advising on privatization efforts ruption cases were brought to court in the last years of the to support private ownership; helping improve the business evaluation period, the fight against corruption was not com- enabling environment in the tourism sector; and supporting plemented by an increased number of high-profile judg- SME linkages with large projects (although on a limited ments. scale). IFC's efforts to help develop the private sector were less successful in increasing access to finance for SMEs; The justice system. Bank assistance intended to reinforce improving corporate governance of some enterprises; ex- the capacity of the judiciary but had little influence. Judicial panding the positive investment climate that was created for sections for commercial disputes were not established as mega-projects to the entire economy; helping improve over- scheduled under the Bank's strategy. Neither the legal all business enabling environment; and supporting agribusi- framework nor the efficiency of courts in resolving business ness, health, and education. disputes improved. The government did not revise all the codes, but the number of cases sentenced increased. The IFC's strategy remains relevant in the country context. Mo- evaluation could not ascertain whether access to justice has zambique faces the challenge of broadening its growth base. improved. IFC can play a role in this area through greater focus on improving the overall business environment, increasing its The overall outcome of the third pillar of Bank assistance-- support to indigenous SMEs, and ensuring the sustainability governance--is rated moderately satisfactory. In reaching this of its SME linkages programs. conclusion, the evaluation placed greater weight on the re- sults for the objective of improved budget allocation and The evaluation of IFC activities addresses evaluation ques- execution for two reasons: first, this pillar directly covers an tions that are somewhat distinct from those underlying the important part of the Bank's assistance, provided as direct evaluation of the Bank's program (see Annex B for an out- budget support, and second, the budget is relatively large, line of the latter). Accordingly, there is imperfect integration representing about 30 percent of GDP, substantially above between the two, and the outcome ratings refer exclusively the norm for developing countries. Therefore, improve- to the Bank's program and not IFC's. IEG is, of course, ments in budget management and allocation constitute an well aware of the desirability of aligning the evaluation ap- important step in strengthening accountability and capacity proaches, and is currently working on a test case--the in the public sector. Eventually these improvements should Country Program Evaluation for Peru--that pilots an evalu- also lead to a reduction in corruption through better control ation of the World Bank Group's consolidated program. of the accounts and better tracking of where resources are spent. The Bank's Role in Partnership and Harmonization IFC's Assistance The Bank's efforts to roll out the main provisions of the Between FY01 and FY08, IFC's objectives, as articulated in Paris Declaration in Mozambique have yielded several fa- the CASs, were to enhance support to SMEs, including im- vorable results, as well as some notable limitations. On the proving the enabling environment for private sector partici- favorable side, the main gains have included greater predic- pation; promote tourism; develop infrastructure and mining; tability of resource transfers in line with an agreed schedule, build and strengthen financial markets; and support health, and a more structured dialogue with the Mozambican au- education, and the agribusiness sectors. IFC invested $56 thorities through coordination and alignment of the general million in nine projects in four sectors: industrial, financial budget support partners with the government's PARPA. At markets, agribusiness, and extractive industries. The active the same time, the main efforts which centered on the Me- portfolio was dominated by two mega-projects: the Mozal morandum of Understanding (MOU) regarding coordinated aluminum smelter plant and development of the Pande and budget support also restricted flexibility. For instance, the Temane gas fields that deliver natural gas to South Africa. Bank was not always able to embrace relevant policy issues IFC also implemented 20 advisory services projects for a (and include these as prior actions in budget support opera- total funding of $11 million. These projects supported pri- 5 tions) if these were not foreseen when the Performance As- severe resource constraints, and contribute only sessment Framework (PAF) indicators were agreed. modestly to economic growth and exports. Sus- tained and broad-based growth in output requires In addition, the Bank's participation in a high number of diversification of production and exports, and the (sector) working groups involves significant transaction creation of a better business environment for a costs. A more streamlined and prioritized approach to these greater participation of these parts of the private could improve efficiency of the policy dialogue. At the same sector in the country's economic activity. The eval- time, some hold the view that a mechanism needs to be uation recommends that the Bank give even higher found to give voice to a broader range of development part- priority to assisting the country's efforts to modify ners. However, any move to increase voice among non- its growth pattern and make it more evenly distri- budget support partners should be considered against the buted, employment-generating, and poverty- need for higher efficiency in the conduct of policy dialogue. reducing. This suggests a need to focus on: Overall Rating o Making credit more accessible to SMEs and the agricultural/rural sector by devel- This CPE rates the overall outcomes against the Bank's stra- oping financial intermediation in these tegic objectives in Mozambique during the evaluation period areas, including through the promotion of as moderately satisfactory. This reflects results achieved under nonbanking institutions and systems like each of the three pillars that can plausibly be attributed, at the network of traders that had operated least in part, to the Bank's program. This is consistent with before independence. the rating of moderately satisfactory that each pillar received, although results varied across subpillars. In particular, this o Assisting improvements in business pro- CPE identifies macroeconomic management and budget cedures and regulations to create a better allocation and execution as subpillars that stood out posi- business environment for the broader- tively, and are rated satisfactory. On the other hand, in four based, smaller domestic businesses and to subpillars the outcomes of Bank assistance were below ex- deal more creatively with the problem of pectations. Under the first pillar, these were private sector collateral. development and rural development including sustainable management of natural resources--both are rated moderate- o Ensuring a firm basis for increased prod- ly unsatisfactory. Under the third pillar, reducing corruption uctivity in the agriculture sector, as well as and improving the justice system are both rated unsatisfacto- supporting services, and better market ry. In sum, although outcomes and the accompanying rat- access to smallholders in poor rain-fed ru- ings on the level of pillars and the overall level were ba- ral areas. Strategic options need to be ex- lanced and positive, this CPE does point to the indicated plored on how to sustainably improve subpillars as areas of concern. yields and markets for crops produced by small-scale farmers to improve production, incomes, and employment. Recommendations Based on the findings of this evaluation, IEG recommends Strengthen the Bank's knowledge of the infra- that the Bank: structure and social sectors. The fact that no formal economic and sector work on infrastructure Help the country sustain high growth but mod- was conducted over the past decade and that the ify its pattern to make significant gains in em- proposed infrastructure review was dropped is wor- ployment and poverty reduction. Although Mo- risome, especially given that the Bank is one of the zambique has experienced strong growth, poverty major lenders in this sector. The problems with and inequality remain high. A key strategic objec- electricity sector reform and with railway conces- tive of the country and its development partners is sions illustrate the need for in-depth analysis. This to promote more sustainable, employment- CPE also found that for projects in the social sec- generating growth. However, growth stemming tors and water supply there was only a modest from the foreign-owned, capital intensive, export- amount of analytical work by the Bank, including oriented mega-projects, had limited impact on em- some on education conducted in collaboration with ployment creation and productivity spillovers. At the government. There were knowledge gaps in the other end are the vast majority of firms, primar- crucial areas such as improving the quality of basic ily SMEs, which sell mostly to the local market, face education, constraints in the battle against the 6 spread of HIV infections, and priority actions to o Helping to improve the efficiency of pub- improve rural water supply. In collaboration with lic expenditures through analytic work and the government and other stakeholders, areas of follow-up lending. The government allo- focus would include: cates a high share (65 percent) of its budg- et to PARPA priority sectors, but the high o Reinstating the infrastructure review, cov- level of absolute poverty and low levels of ering sectors that are likely to continue re- social indicators necessitate further im- ceiving assistance from the Bank. provements in the efficiency of expendi- tures to make room for improved quality o Conducting analysis of constraints to im- of social services, particularly in rural areas. proving the quality of basic education, in- Reinstating PERs alongside the PFM work cluding examining the training, incentives would help serve the objective of rationa- for and accountability of teachers and lizing public expenditures. school administrators, reducing the waste of instruction time, and increasing availa- bility of textbooks, particularly in rural areas. About Fast Track Briefs Fast Track Briefs help inform the World Bank Group (WBG) o Designing improved technical and institu- managers and staff about new evaluation findings and recom- tional strategies to reduce the incidence mendations. The views expressed here are those of IEG and and spread of HIV infection as well as the should not be attributed to the WBG or its affiliated organiza- treatment and mitigation of AIDS. tions. Management's Response to IEG is included in the pub- lished IEG report. The findings here do not support any general o Exploring technical solutions to find the inferences beyond the scope of the evaluation, including any infe- most cost-effective improvements in the rences about the WBG's past, current or prospective overall domestic water system for poor rural performance. households and helping the government formulate a strategy that will create incen- tives for major private manufacturing, in- The Fast Track Brief, which summarizes major IEG evalua- dustrial, and service industries to invest in tions, will be distributed to selected World Bank Group staff. If rural areas to reduce the pressure on urban you would like to be added to the subscription list, please email water supplies and diversify the resource us at ieg@worldbank.org, with "FTB subscription" in the base for rural water supplies. subject line and your mail-stop number. If you would like to stop receiving FTBs, please email us at ieg@worldbank.org, Help the government improve public expendi- with "FTB unsubscribe" in the subject line. ture efficiency. The Bank's assistance strategy did not explicitly state the need to improve the efficien- cy of government expenditures as an objective, al- though the Bank's analytic work identified sectors Contact IEG: (including education, health, roads, and water) Director-General, Evaluation: Vinod Thomas where efficiency could be enhanced. Enhancing ef- Director: Cheryl Gray (IEG-WB) ficiency is critical because: government expenditure Manager: Ali M. Khadr (IEGCR) is high at about 30 percent of GDP. Despite the in- Task Managers: Fareed H. M. Hassan (IEGCR) crease in domestic revenues supported by the Bank Tim L. de Vaan (IEGCR) and other development partners, government reve- nues remained at half the level of public expendi- tures. In addition, grants from the development Copies of the report are available at: partner community finance about one-third of pub- http://www.worldbank.org/ieg/cae lic expenditure, but the sustainability of the high IEG Help Desk: (202) 458-4497 level of grants is unclear, given recent global finan- E-mail: ieg@worldbank.org cial developments. Gains in the efficiency of public expenditure can help improve the quality of social services. These factors suggest a need to focus on: 7