Mozambique - Financial Sector Technical Assistance Project

Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC1746 Date ISDS Prepared/Updated: 09/06/2005 I. BASIC INFORMATION A. 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 B. Project Objectives [from section 2 of PCN] The Government of Mozambique (GoM) is committed to an overall objective of poverty reduction through economic stabilization and the promotion of economic growth. During the past decade, the GoM has taken key steps to provide a stable economy, consistent and comprehensive fiscal and monetary policies, enhanced financial sector management and supervision, a gradual reduction of government bureaucracy, strengthening of institutional capacities, and improved governance. The GoM recognizes that the scope and efficiency of the financial sector plays an important role in facilitating growth, and that reforms in the financial sector need to continue to be pursued. Page 2 The GoM has worked closely with the International Development Association (IDA) and other donors partners to prepare and implement comprehensive development and investment frameworks, in particular, the Poverty Reduction Strategy (PARPA in Portuguese, 2001-2005), which emphasizes economic growth, public investment in human capital and productive infrastructure, and institutional reform to improve the environment for private investment. IDA has, in turn, worked with the GoM to prepare its Country Assistance Strategy (CAS) in support of the PARPA. The CAS, presented in 2003, focuses on three areas: (i) improving the investment climate; (ii) expanding service delivery; and (iii) building public sector capacity and accountability structures. The core of the Mozambican financial sector is the banking sector, comprised of 12 commercial banks. A key weakness of the sector is limited access to financial services by Mozambican households, notably in rural areas, and by private enterprises, especially micro, small and medium-sized enterprises (SMEs). Sustained high interest spreads and transaction costs reflect structural problems. Further strengthening of banking supervision, as well as implementation of International Financial Reporting Standards (IFRS) by the commercial banks and divestiture of the GoM of its remaining holding in the banking and insurance sectors, continues to be a priority of the GoM. The macro-monetary framework needs to be strengthened. Continued successful implementation of the HIPC (Heavily Indebted Poor Country) agreements depend, in part, on the GoM