Zambia - Health Sector Support Project

c#az~, t6 LL C- X Documt of Tbe World Bank FOR OMCIAL USE ONL Replt No. P-6417-ZA HEMORANDUM AND RECOMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 38.7 MILLION TO ZAMBIA FOR A HEALTH SECTOR SUPPORT PROJECT OCTOBER 14, 1994 MICRPOGRAPHICS Report Nc: F- 6417 ZA Type: MOP This document has a restricted distibution and may be used by recipients only in the performance of their official duoies. Its contents mav not othrwise be disclosed withu World Bauk authoization.  CURRENCY EQUIVALENTS (August 1994) US$1.00 = K 700 K1"') = US $0.14 FISCAL YEAR Government Fiscal year = January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DANIDA Danish International Development Agency GRZ Government of the Republic of Zambia ICB International Competitive Bidding IDA International Development Association LCB Local Competitive Bidding NFA Not Financed by the Association (IDA) ODA British Overseas Development Administration SDR Special Drawing Rights SIDA Swedish International Development Agency UNICEF United Nations Children's Fund WHO World Health Organization  FOR OFFICIAL USE ONLY ZAMBIA HEALTH SECTOR SUPPGRT PROJECT CREDIT AND PROJECT SUMMARY BoRRowER: The Republic of Zambia IMm NTIG AGENCY: Ministry of Health BENEFICARY: Not applicable POVERTY: Not applicable AMOUNT: SDR 38.7 million (US$56 million equivalent) TERMs: Standard IDA terms with 40 years maturity CoMMTMENT FEE: 0.50 percent on undisbursed balances beginning 60 days after signing less any waiver FINANCING PLAN: See Schedule A NEr PRESENrT VALUE: Not applicable. Project design based on cost-effectiveness STAFF APPRAISAL REPORT: 13480-ZA document has a restricted distibution and may be used by recipient only in the performae ottbelr Ia iiai duties Its conents may not othwise be disclosed witout World Bank authoo.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO ZAMBIA FOR A HEALTH SECTOR SUPPORT PROJECT I. I submit for your approval the following memorandum and recommendation on a proposed development credit to Zambia for SDR 38.7 million, the equivalent of US$56 million, on standard IDA terms, with a maturity of 40 years, to help finance a project for health sector support. The project has significant cofinancing on a grant basis from a number of bilateral and multilateral donors. 2. Bacftround. The rehabilitation and reform of social service delivery is a key area of concern in Zambia's adjustment program and in the Government's overall development strategy, as stated in the Policy Framework Paper. The health sector has not been able to adequately respond to increasing demand for basic health care services to help households address problems of illness and disease. Funding cutbacks in all social sectors, during the economic crisis of the 1980s, led to severe dilapida- tion of existing health inrastructure and inappropriate capital investments. Nevertheless, the 1993 World Development Report shows that Zambia is among those countries whose health outcomes are far lower than what could be expected, given its level of spending on health. 3. The causes of the inefficiencies are: "verticalization", where health interventions, staff and management systems were organized around specific diseases and interventions, from central level to health facility, in response to growing dependence on donor assistance; "over-centralization", with inability to react to changing social, demographic, political, macro-economic and physical environ- ments; and "over-sophistication", with the health system driven by health professionals' demands for new and expensive technology that fails to respond to the majority of health needs. The Govermnent has launched a major health reform program to address these issues, primarily by decentralizing management of health services to the district level. The aim is provide all Zambians with "equit of access to cost-effective quality health care as close to the family as possible. The Government has identified the need for reform in the areas of management and accountability, community participa- tion, public/private partnerships, and human resource development. This opens the doors to (re)examining what health care is provided and how it is delivered (types of services, access, organi- zation), whpt inputs are used to deliver it (efficiency), and exploring new possibilities in terms of financing (identifying, mobilizing, and more effectively allocating resources for health care). Improved service delivery at community and district levels will henceforth be the focus for achieving this goal, for it is here that the health service system and communities can most effectively interact. 4. The Government has undertaken a strategic planning exercise that matches resources with national goals to define the basic package of care that should be delivered to all Zambians. This exercise has convinced policy nakers to make tough trade-offs that they were reluctant to make in the past, such as reallocating fumds, decentralizing decision-making authority, and moving away frm vertical programs to instead package services to improve efficiency and equity in delivery. The exer- cise has strengthened Zambian ownership of the health system while producing a national Strategic Plan that outlines basic policies and sets the stage for joint government and donor support to the health reforms. Since August 1993, all districts have received funding for non-personnel recurrent costs directly, first on a pilot basis financed by donors, then by the Govermment since January 1994. Continued funding is contingent upon the development and approval of district plans that include monitorable indicators; district management must also have proven accounting capacity to handle these finds locally. Substantial consensus- and capacity-building activities have been and continue to be  -2- undertaken, using donor and Project Preparation Facility funds, by training and involving health staff in all nine provinces and all 61 districts in the definition and vlanning of their own agendas. 5. Projie Ob_iectives. The project would support the Govermment's health sector reform pro- gram with a view to improving access of the whole population to, and the effective utilization of, good quality primary health care, nutrition interventions and family planning services. Fulfilling these objectives would contribute to the social sustainability of the adjustment program and strengthen the human capital base necessary for the future growth and development of Zambia. 6. Project Descriltion. The project would support a share of the Government's health sector reform program agreed to by a core group of donors. The project would support three major compo- nents: (1) Policy Development and Operations Research to help refine the basic policy framework and adapt operational strategies; (2) District impiementation of the health reform, through financing of investments such as civil works, training and equipment, and of recurrent costs including supplies, drugs, maintenance and logistics; and (3) Monitoring/quality control and evaluation, particularly through beneficiary assessments. IDA would play the role of "lender of last resort", by supporting those elements of the agreed program for which there is no other donor funding. 7. IDA funding would provide a "buffer" by filling gaps between identified resource needs and available funding, within the national investment and recurrent budget proposals. The exact mix of domestic, donor and IDA funding over the life of this project will therefore be determined annually, based upon joint agreement on the investment plan and recurrent budget. Financing will be structured so that Zambia assumes an increasing share of the recurrent budget, and so that IDA will not (expli- citly or implicitly) finance ineligible expenditures, e.g., land purchases or taxes. Cofinancing will be done on a parallel basis, with each donor funding "full contracts" (complete sets of goods that do not depend upon administrative obligations of other donors to complete the procurement), except for recurrent budget support to Districts, where national procedures acceptable to all financiers have been developed. A breakdown of the costs and the financing plan are shown in Schedule A. The estimated procurement and disbursement schedules are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in Zambia are shown in Schedules C and D respectively. The Staff Appraisal Report No. 13480-ZA is attached. 8. Project Implementation. The Government, IDA and core donors have agreed on the following implementation process for the reform program. The Government is currently refining its "Strategic Plan" which outlines the framework and standards for the new system including: content and cost-effective delivery methods for the basic package of care; roles and responsibilities of each level of the health system; and policies aimed to improve utilization of drugs, supplies and human resources. This plan was the main focus of the joint donor mission in April 1994, along with an implementation strategy detailing the criteria and means by which district plans will be funded, executed and monitored. It is complemented by an action plan to harnonize planning, budgeting, disbursement and accounting mechanisms that will enable all donor support to be channeled through one system, whether supportive of broad sectoral operations or specific program activities. The Strategic Plan will be updated annually by Government and discussed with donors in the first half of each calendar year. It will identify the needs for donor support in policy developmnent and reform implementation. Based upon the Strategic Plan, the Government will prepare a rolling five-year investment programn and an annual recurrent cost budget. These documents will be discussed with donors (including IDA) during the last half of each year, starting in October 1994. Each donor will then bilaterally structure its support on the basis of the Strategic Plan, investment program and budget.  -3- The donors who provide 80 percent of total donor funding have indicated their conmitment to this system, and they agree to fund only items included in the core documents. Other donors will likely follow suit, once the new system is in place and the Government is in a position to decline donor funding outside the agreed framework. 9. Proiect Sustainabilitv. The project will strengthen the capacity of the health sector to res- pond to evolving epidemiological and financial circumstances, thereby developing sustainable services. Recurrent costs will be financed on a sliding scale, as 're-tooling" of the delivery system from the present inefficient, centralized system will require short-run cost increases. The Goverment is conmitted to ensuring sufficient domestic funding of the health systemn and has already increased its funding for District non-personnel recurrent costs in the 1994 budget. The Government is also com- mitted to developing a comprehensive health financing framework and already has authorized some local cost recovery measures. The linkages between quality, costs, and fees are being addressed. 10. Lessons from Previous IDA Involvement. The Bank Group has not been involved in the Zambian health sector before. Health sector experiences in other countries demonstrate, however, the need for more comprehensive and integrated sectoral involvement to ensure sustainable development impact. Zambia is currently pursuing a similar approach to donor support in the agriculture sector and has also asked for IDA involvement there. 11. Raonale for IDA Involvemnt. IDA has played a key role in supporting the health reforms over the last two years, together with UNICEF and WHO. Moral support for the reforms must now be followed by flexible, yet targeted and timely lending. In each of the three areas outlined above, there is a need for a "donor of last resort" (1) to fill the gaps after other (mostly bilateral) donors have adjusted their support to meet specific requirements and restrictions (e.g., several Northern European donors are limited from providing support to urban health care, despite its significance in Zambia), and (2) to enable the Government to realize their strategic sector plan overall. While in full agreement with these principles, UNICEF and WHO do not have the necessary financial resources to provide this support. 12. The latest Country Assistance Strategy (CAS) was reviewed by the Board on March 10, 1994. This health sector support project is a key comiponent of the country strategy, in tenns of both the process adopted for preparing the project and the content of the resulting operation. First on processes: (1) this project is the first in a series of integrated sector operations, designed to ensure full government ownership and control over the aid process; and (2) the project is based on extensive systematic client consultation exercises and will be monitored using beneficiary and stakeholder assessments. These are the two main elements in the process adopted in the CAS. On content, the CAS proposes to assist Zambia in three main areas, all based on the overall goal of poverty reduction: (1) facilitating growth through removal of policy constraints and improving the enabling environment, including fiscal management; (2) improving the provision of infrastructure and the building up of human capital; and (3) targeted intervel-tions to the poor. Improving access to quality health services is critical to meeting these objectives, and support for the health reforms is thus a critical element of the CAS: (1) health is a critical element of human capital formation; (2) the reforms supported by this project will improve the management of fiscal resources in the health sector and will ensure a greater role for private providers; and (3) even though not explicitly targeted to the poor, public health services, focusing on a basic package of care, would proportionately benefit the poor more than other groups, especially by increasing cost sharing of non-basic, tertiary, hospital-based services.  -4- 13. Aareed Actions. With assistance from WHO, UNICEF and IDA, the Government has reviewed the basic framework for health financing. It has also presented a final version of its strategic plan for health, as well as its investment program for 1995-97 and a recurrent budget for 1995, all acceptable to IDA and other donors. As a condition of effectiveness, the Govermnent will assure IDA that the program for 1995 is fully financed. As conditions of disbursements (1) against civil works for District health facilities, the Government will submit standard architectural designs acceptable to IDA; and (2) against provincial and central level hospitals, the equivalent of US$ 10 million will have been disbursed from the IDA credit for District health facilities. The Credit Agreement is structured to ensure that continued IDA disbursements are contingent upon govermnent- IDA agreement on the Strategic Plan and investment program at any point in time during implementation of the program. 14. Envirounental Aspecs. The project has been rated C due to the sector reform nature of the credit. Environmental considerations will be built into the sub-project appraisal and financing criteria and agreed with IDA prior to implementation. Such criteria will be consistent with the recently completed National Environmental Action Plan. The overall impact on the environment is expected to be small but positive: some of the main health problems are due to poor sanitation and water supply, and remedies for those problems will improve both public health and the environment. All of the infrastructure work will be either rehabilitation or expansion of existing facilities. 15. Program Obietrve Category. This forms part of the core poverty alleviation program of IDA. An integral part of the poverty reduction aspects of Zambia's reform program is the improved efficiency and effectiveness of social service delivery - and witiin this the health sector is talcing the lead. The project will therefore also contain major elements of civil service reform and improved private/public mix in service delivery. The services supported are targeted by level of service (e.g., preventive and basic curative services), but not explicitly by income group. 16. cipatory ADproac. The reform program was prepared by the Ministry of Health in consultation with private stakeholders (NGOs, private industry and health service users) and health service providers. The basic principles of the reform to remove the constraints outlined above were identified through beneficiary assessments and other participatory methods. Three different beneficiary assessments were funded by the Association in preparation of the IDA support to the reform program. These dnd the recently completed Participatory Poverty Assessment (which contains large sections on health) form the base-line for evaluation and monitoring. Local participation is a critical element of the reform program as witnessed by the emphasis on partnership and local leadership. Autonomous district health boards (including communrity leaders) manage the overall health service in a district, and community management structures are being established for health centers. Annual beneficiary assessments will be carried out along with stakeholder analyses as an integral part of monitoring progress of the project. 17. Project Benefits. The ultimate benefit of the project would be improved health status of the Zambian population (as measured by longer-run outcome measures such as infant mortality and adult morbidity). This will be accomplished by improved service delivery (as measured by output and unit cost indicators, such as coverage rates for ante-natal care, inmunizations, growth monitoring, contra- ceptive prevalence and quality of care indicators), and through improved institutional set-ups and procedures (as measured by process and input indicators, such as amount of drugs and supplies enter- ing the system, clinics rehabilitated, degree of budgetary autonomy of the health boards and number of  - 5- staff trained). Monitoring will be done using beneficiay assessments, review of administrative records and periodic technical audits. 18. ro,ject Risks. The Zambian Governent could conceivably abandon the entire structural reform process, but this risk is being minimized through adjustment lending that includes immediate and visible positive results in terns of refonns in social service delivery systems. This project would help support macroeconomic reforms by improving service delivery within a core public expenditure item. Another risk to the sustainability of the reforms is the continued ad-hoc implementation of cost recovery schemes, in isolation from quality improvements in health services, as perceived by Zambian clients. Resentment over new financial burdens without commensurate exchange of service value is undermining public support for the entire reform process. Discussions are cngoing with Government to review this policy. There is no practical alternative to the proposed sector approach. A traditional investment project would destroy the government-led process of reforms and would not be sustainable institutionally. 19. Recommendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association, and I rcommend tlhat the Executive Directors approve it. Lewis T. Preston President Washington, D.C. October 14, 1994 Attaclunents  -6 - SCHEDULE A ZAMBIA HEALTH SECTOR SUPPORT PROJECF ESTMATED PROJECT COSTS AND FINANCING PLAN Table I Estimated Costs Estimated Costs (US$ million) Project Components Ial Foreign Total Policy Dev./ 5.2 1.8 7.0 Operations Research District Investment & Recurrent Costs Infrastructure Rehab. 22.2 22.1 44.3 Medical equipment 3.2 14.8 18.0 Training 11.4 1.7 13.1 Information system 7.7 1.8 9.5 District Operations 329.2 329.2 Drugs/supplies 5.8 54.5 60.3 Technical Assistance 21.6 32.4 54.0 Monitoring/Evaluation .9 .6 1.5 TOTAL 407.2 129.7 536.9 Table II Financing Plan (US$ million) Local Foreign Total Gov't of Zambia 308.0 32.0 340.0 Donors 70.4 70.5 140.9 IDA 28.8 27.2 56.0 Total 407.2 129.7 536.9  -7- SCHEDULE B Page I of 2 ZAMBIA HEALTH SECTOR SUPPORT PROJLCT Procurement Methods and Disbursments Table HII Procurement Arrangements (US$ million) Proiect element ICB LCB Other NFA Total Civil Works 32.0 5.5 3.0 3.1 43.6 (30.0) (5.0) (3.0) (-.-) (38.0) Equipment 3.8 0.4 0.7 23.3 28.2 (3.6) (0.4) (0.5) (-.-) (4.5) Consultants -.- -.- 2.5 62.3 64.8 (2.5) (-.-) (2.5) Drugs 6.5 -.- 2.0 51.8 60.3 (6.5) f>.> (2.0) . (8.5) Trining -.- -.- 2.3 11.i 13.4 (2.3) (-.) (2.3) Recurrent costs -.- -.- 0.2 326.4 326.6 (0.2) (---) (0.2) Total 42.3 5.9 10.7 478.0 536.9 (40.1) (5.4) (10.5) (-.-) (56.0) ICB: International competitive bidding LCB: Local competitive bidding NFA: Not financed by the Association (IDA) N.B. Figures in parentheses are amounts financed by IDA  - 8- SCHEDULE B Page 2 of 2 Table IV: Allocation and Disbursement of IDA Credit (US$ million) Disbursement Category IDA % of Expenditure Financed Allocation (US$ million) 1. Civil Works a) District Health Facilities 28.0 100% of foreign expenditures, and b) Others (provincialkcentral level) 6.0 90% of local expenditures 2. Equip. Vehicles, Drugs & Supplies 11.0 100% of foreign expenditures, 100% of ex-factory local expenditures and 90% of local expenditures for other items procured locally 3. Consultant Services/Studies 3.0 100% of total expenditures Audit and Training 4. Incremental Recurrent Cost* 0.2 100% of total expenditures 5 Refinancing of PPF 1.5 6. Unallocated 6.3 TO-TAL 56.0 Includes administrative and ruming costs of districts and the HRIT such as staff salaries, per diems, travel costs, office supplies, fuel, equipment maintenance costs and other administrative expenses. Table V: Estimated Disbursements of IDA Credit (US$ Million) FY95 FY96 FY97 FY98 FY99 FY00 FY01 Annual 2.2 5.4 11.2 22.4 11.2 2.8 1.1 Cumulative 2.2 7.3 18.5 40.9 52.1 54.9 56 4% 13% 33% 73% 93% 98% 100%  -9- SCH!EDULE C LTH SE;CTOR SU)PPORT PROJECT TIMETABLE AND KEY PROCESSING EVENTS (a) Time taken to prepare: 20 months (b) Prepared by: The Ministry of Health assisted by donors and IDA' (c) First Bank/IDA mission: August 1992 (d) Appraisal mission departure: July 10, 1994 (e) Date of negotiations: September 26-29, 1994 (f) Planned date of effectiveness: January 2, 1995 (g) List of relevant PCRs/ICRs and PPARs: None Steen Jorgensen and Reiko Nunii (Task Managers). Jean-Louis Lamnboray (Prncipal Public Health Advisor) with conbtions from Julie McLaughlin, Norbert Mugwagwa. Jayshre Baacbcnder and Leo Sinke.  - 10 - SCHEDULE D Page of 2 ZAMBIA Status Of BaMk Group Oeration In ZMIA PFOBR2 - Suvry Statamnt Of Loans and IDA Credits (LOA data as of 8/31/94 - NIS data as of 10/06/94) ........ ...................... .................................... By contry Couttry ZAMWIA kbunt In USS oillion (tess ancellations) ..................... Loan or Fiscal Undis- Closing Credit go. Year Borer Purpose Ban IDA bursed Date .......... ............ ... . .. ........... ....... --- . ... ..... ...... ... .... ... ..... ... Credits 24 Credits(s) closed 718.74 C1S750-mII 1985 ZAMBIA aUYS. IV 12.20 6.87 06130/94(R) C16790-Nil 1986 ZAMBIA TAS II 8.00 3.53 12131/94(R) C17430-1Ill 1987 ZAMBIA COFFEE 1I 20.40 21.18 06/30/99(R) C17460-M11 1987 ZAMBIA AGR. RES.& EXT. 13.00 7.35 12131/96(R) C226b0--MNI 1991 ZAHBIA NWING TAS 21.00 12.04 06/30/97 C2273.-N11 1991 ZAMBIA SOCIAL RECOVERY PROJ 20.00 6.85 07131/97 C24060-NI? 1992 ZAIUIA PIRC TECHNICAL ASSIS 10.00 7.18 12/31/97 C24220-NI! 1993 ZAMBIA MCO. & PROCESS. 33.00 2.01 06/30/99 C24290-NCM 1993 ZAMBIA EDUCTIO REHAB. 1 32.00 27.74 06130/98 C25150-mi1 1993 ZANMIA TRANSPORT ENGINEERIN 8.50 8.99 06/30/97 C25230-Nll(S) 1993 ZAMBIA PIRC 11 100.00 62.62 06/30/95 C24052-MII(S) 1994 ZAMBIA PRIVATIZATICNIIfD. R 16.84 7.74 04/26/95 C25231-NII(S) 1994 ZAMBIA PIRC II 10.00 1.02 06/30/95 c2S350.MI1 1994 ZAMBIA FINANCIAL & LEGAL NA 18.00 17.30 06/30/99 C25770-MIU(S) 1994 ZAMBIA ECON & SOCIAL ADJUST 150.00 101.74 12V31/95 C26210-NU1 1994 ZAMBIA PETROLEIM REHAB 30.00 31.31 06/30/00 TOTAL uober Credits a 16 502.94 350.48 Loans 28 Loam(s) closed 582.13 All ctosed for ZAMBIA TOTAL fLwber Loam * O TOTAL*** 582.13 1,221.68 of which repaid 437.35 3.07 TOTAL held by Bank & IDA 144.78 1,218.60 Amouit sold 28.58 of ihich repeid 28.58 TOTAL undisbursed 350.48 Notes: ....... .............. * Not yet effective **Not Yet Signed T* Total Approved, Repwmients, and Outstanding balance represewt both active and irmtive Loam nd Credits. (R) indicates formally revised Closing Date. (S) indicates SAL/SECAL Loans and Credits. The Net Approved and Bank Repeyment. are historical value, all others are market value. The Signing, Effective, aid Closing dates are based qpon the Loan Department offical data Id ar not taeJn fron the Task Budget file.  - 11 - SCHEDULE D Page 2 of 2 ZAWIA: Statement of IFC Investments as of June 30, 1994 Gross Commitments TYPE OF --- US$ MILLION-------- AMOUNT FY OBLIGOR BUSINESS LOAN EQUITY TOTAL OUTSTANDING 1994 BIG FIVE CAR CAR HIRE 0.6 -.- 0.6 0.4 1991/83 ZANBIA HOTEL PROPERTIES LTD. TOURISM 22.4 -.- 22.4 6.0 1988 MASSTOCK (ZAMBIA) AGRIBUSINESS 8.7 -.- 8.7 2.2 1987 GWEMBE VALLEY DEVELOPMENT AGRIBUSINESS 3.7 0.8 4.5 1984 MPONGWE DEVELOPMENT CORP. AGRIBUSINESS 1.8 0.3 2.1 1984/80 KAFUE TEXTILES TEXTILES 10.7 -.- 10.7 6.3 1982/81 ETHANOL COMPANY OF ZAMBIA CHEM/PETROCHEM 3.7 0.6 4.3 1982/80 ZCCM MINING 53.1 -.- 53.1 4.9 1978/75 CENTURY PRODUCTS LTD. PLASTIC WRAP 0.9 0.2 1.1 1976 DEVELOPMENT BANK OF ZAMBIA DEV. FINANCE -.- 0.5 0.5 -.- 1973/72 ZAMBIA BATA SHOE SHOES 2.1 0.2 2.3 0.2 TOTAL GROSS COMMITMENTS 107.7 2.6 110.3 20.0 LESS: CANCELLATIONS, EXCHANGE ADJUSTMENTS, REPAYMENTS, WRITE-OFFS, & SYNDICATE SALES 87.7 2.4 90.1 NET IFC COMMITMENTS n_2 TOTAL UNDISBURSED 0.2 0.0 0.2 TOTAL DISBURSED 19.8 0.2 20.0 20.0 L:\CAFD1\ZANBIA\INVEST94 .TBL