Mozambique - Financial Sector Technical Assistance Project

Page 1 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I. Basic Information Date prepared/updated: 09/12/2005 Report No.: AC392 1. Basic Project Data Country: Mozambique Project ID: P086169 Project Name: MZ-Financial Sector TA ProjectFinancial Sector Technical Assistance Task Team Leader: Sherri Ellen Archondo Estimated Appraisal Date: September 28, 2005 Estimated Board Date: December 1, 2005 Managing Unit: AFTFS Lending Instrument: Specific Investment Loan Sector: General finance sector (100%) Theme: Standards and financial reporting (P) IBRD Amount (US$m.): 0.00 IDA Amount (US$m.): 10.50 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: BORROWER/RECIPIENT 1.40 AFRICAN DEVELOPMENT BANK 10.20 UK: BRITISH DEPARTMENT FOR INTERNATIONAL DEVELOPMENT (DFID)0.50 GERMANY: GERMAN TECHNICAL ASSISTANCE CORPORATION (GTZ) 2.40 GERMANY: KREDITANSTALT FUR WIEDERAUFBAU (KFW) 1.20 SWEDEN: SWEDISH INTL. DEV. COOPERATION AGENCY (SIDA) 1.00 16.70 Environmental Category: C - Not Required Simplified Processing Simple [] Repeater [] Is this project processed under OP 8.50 (Emergency Recovery) Yes [ ] No [X] 2. Project Objectives The project's overall development objective is to improve the soundness and depth of the Mozambican financial sector and increase financial intermediation. This will be achieved by: (a) strengthening the banking sector and enhancing the capacity of the BoM in terms of banking supervision, management of the of the banking system and financial infrastructure, including the real time gross settlement system (RTGS); (b) improving financial accountability and transparency by introduction of IFRS to commercial banks (first phase) and corporate entities (second phase); (c) improving money and government bond market efficiency and depth, including the introduction of a central securities depository (CSD), and related assistance; and (d) strengthening public debt management capacity, including development of a debt management strategy and reorganization and strengthening of the Public Debt Department of the MoF. Page 2 3. Project Description A comprehensive financial sector reform program was prepared and will be funded jointly by the various development partners. The program will be comprised of ten components, of which IDA will fund four technical and one administrative component. The IDA project cost is estimated to be US$10.5 million, broken down as follows: (a) Strengthening the Banking Sector, including the Bank of Mozambique (BoM) (US$4.8 million); (b) Improving Financial Accountability and Transparency (US$3.6 million); (c) Strengthening Public Debt Management (US$1.05 million), (d) Supporting Improved Money and Government Bond Market Efficiency and Depth (US$1.95 million); and (e) Project Management (US$1.0 million). Component 1: Strengthening the Banking Sector, including improving the Institutional Capacity of BoM: This component will support activities to strengthen the banking sector by (i) strengthening the institutional capacity of the BoM, include supporting the process of implementing international practices in off-site and on-site supervision and improvements of financial market infrastructure and information technology; (ii) divestiture of Government from the banking sector; and (iii) the strengthening the training capacity at the Instituto Formaçao Bancario (IFB) Component 2: Improving Financial Accountability and Transparency. This component will support (i) transition to IFRS of the banking sector (phase 1) and (ii) the transition to IFRS of the Mozambican corporate sector (phase 2). Component 3: Strengthening Public Debt Management: This component will support efforts to introduce a comprehensive public debt management framework which includes policies and strategies to ensure, inter alia, better coordination of the issuance of debt between the BoM and the MoF. In particular, it would support (i) formulation of a debt management strategy that will be adopted by the Government; (ii) strengthening of the organizational structure to facilitate strong internal procedures and operational controls in the Public Debt Department of the MoF; (iii) consolidating and reconciling the debt database for all public debt; (iii) development of capabilities for debt forecasting and risk and cost analysis of new borrowings; and (iv) improving the Government