Madagascar - Interim poverty reduction strategy paper and joint assessment

Report No.: 21423 MAG THE INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND REPUBLIC OF MADAGASCAR Joint Staff Assessment of the Interim Poverty Reduction Strategy Paper (I-PRSP) Prepared by the Staffs of the International Development Association and The International Monetary Fund Approved by Callisto Madavo and Kemal Dervis (IDA) and Anupam Basu and Masood Ahmed (IMF) November 28, 2000 I. Introduction 1. This document presents an assessment of the Interim Poverty Reduction Strategy Paper (I-PRSP), submitted by the Malagasy authorities on November 24, 2000. The I- PRSP reflects the steps taken so far by the goverunent in formulating a comprehensive poverty reduction strategy and describes its plans for preparing a full PRSP. The assessment evaluates the government's poverty reduction strategy, and the process and time frame envisaged for completing a full PRSP. The assessment was jointly prepared by staffs from IDA and the IMF. 2. Madagascar is one of the poorest countries in the world today. More than 70 percent of its population live in poverty, four out of five of them in rural, isolated areas without road access. Four out of ten children are malnourished, and one third of the population has a life expectancy below 40 years. Malaria and respiratory diseases account for over half of all illnesses. Water, electricity and sanitation access in rural areas is almost absent. Over the last years, macroeconomic reforms have produced positive real per capita growth for four consecutive years, a first in three decades. However, this growth needs to accelerate and deepen so that the most vulnerable and the rural population participate in the benefits of this growth. Higher government revenues, associated with economic growth, also need to better benefit Madagascar's poor. A strategy that prioritizes policy reforms and targets poverty reduction interventions more effectively needs to be developed and implemented. II. The I-PRSP Process 3. Building on Existing Strategies. The I-PRSP builds on a significant number of existing poverty and sector strategies, many of them developed in a participatory way. In 1999, Government, with assistance from LJNDP embarked on the formulation of the Strategie Nationale de Lutte Contre la Pauvrete (SNLCP). The draft SNLCP provided a good starting point for the I-PRSP formulation. So did several existing sector strategies, including those for rural development, education, private sector development and health I  (see Annex 7). Several of these strategies had been developed with extensive input from, and consultation with, a wide variety of stakeholders, including communities and user groups. 4. Organization of the Process. The PRSP process is being organized by a specially formed technical secretariat (Cellule Technique) which has to date organized two large consultations. Created by decree, the Cellule Technique is composed of representatives of the central Government (11), local Government (2), civil society (2), and the private sector (3). Work on the I-PRSP proceeded in six working groups (rural development, education, health, infrastructure, private sector development and macroeconomic growth, and institutional development) which were established by the Cellule Technique. In the first consultation, held at the beginning of September 2000 and attended by about 500 invited participants, each of the working groups discussed a sectoral technical paper prepared by Government staff. Based on existing background information (including the SNLCP), the working group concept papers, and feedback from the first consultation, Government staff completed a first draft of the I-PRSP on October 20. A second consultation on November 10, 2000, focused on this first draft. It was attended by 320 invited guests. Each of the six working groups discussed the three strategic areas for poverty reduction put forward in the draft interim paper. 5. The planning of the two large consultations as well as the composition of the working groups has been largely determined by the Government staff of the Cellule Technique, also responsible for writing the I-PRSP. The first consultation was announced with an advance notice of two days. The invitations for the second consultation, aimed at discussing the draft I-PRSP included a summary of this draft. The full document was made available at the conference site. 6. Participation in Preparation of the I-PRSP. Participation of civil society and private sector representatives increased significantly from the first to the second consultation. About one third of participants of the second consultation were from civil society.' 7. Substance and form of the dialogue varied widely across the different working groups. Consequently, reporting of the substantive discussion to the closing plenary session was uneven and so is the reflection of the substantive comments in the I-PRSP. The composition of the different working groups varied, with some having a fruitful mix of representatives from civil society. The experience from these two consultations has provided the Government with valuable lessons for the consultation process of the full PRSP. 8. Donor Support of the I-PRSP and Donor Coordination. The donor community in Madagascar has worked very closely together in providing the Government and the Cellule Technique with feedback on the I-PRSP process. Two joint aide memoires were Of the 320 persons attending the second consultation, 3 1 percent were representatives of the government and public administration, 31 percent from civil society (NGOs, media, private sector, community-based organizations, producers associations, professional associations, religious groups, and labor unions), 19 percent from bi- and multilateral partners, 15 percent from implementing agencies, and 4 percent were mayors and parliamentarians. 2  drafted by eleven bilateral and multilateral donors; one after the first consultation in September and one after completion of the draft I-PRSP at end-October.2 The first joint aide memoire emphasizes the importance of (i) strengthening the participatory process; (ii) planning the process of developing a results-based PRSP in detail, including the use of logical frameworks and professional facilitation of the consultations; (iii) developing results-based indicators and arrangements for the use of debt relief funds in the I-PRSP; (iv) announcing concrete steps on institutional reform in the I-PRSP; and (v) drawing on existing knowledge about poverty reduction. Repeating many of these points, the second joint aide memoire also produced a list of suggestions which the donor community judged as important in the development of the full PRSP.3 A third such aide memoire is planned which will re-emphasize the importance of professional facilitation to help prioritize within and between program interventions, as well as broadening the participatory process. All bilateral and multilateral partners that drafted the joint aide memoires have actively participated in the consultations and many organizations have provided technical and financial inputs to the process thus far.4 Staff feel that the effectiveness of these efforts can be further enhanced with improved aid coordination and closer alignment of donor projects and programs with the PRSP process. III. Main Features of the I-PRSP 9. In the view of staff, a major achievement of the I-PRSP is that it sketches a comprehensive poverty reduction strategy that goes beyond existing poverty reduction policies. It specifies not only long-run targets linked to achieving the International Development Goals but also sets concrete targets to be achieved in 2001 and over the next three years. The poverty reduction strategy has been translated into a clear and comprehensive list of short-term actions that the Government intends to take. Staff assess that the components of the poverty reduction strategy presented in the I-PRSP are realistic and that they emphasize the appropriate areas: (i) macroeconomic growth that 2 The bilateral and multilateral partners having drafted and signed the joint aide memoires were: African Development Bank, Embassy of Germany, Embassy of Japan (second aide memoire only), Embassy of the United Kingdom, European Commission, French Agency for Development, French Development Cooperation, International Monetary Fund, Swiss Development Corporation (first aide memoire only), United Nations Development Program, United States Agency for International Development, and the World Bank. 3 Suggestions included: (a) improved identification of the determinants of poverty in Madagascar; (b) strengthened orientation of the strategy towards the poorest of the poor ensuring their participatiot in the creation and distribution of wealth; (c) further analysis and development of measures to improve governance and reduce corruption; (d) impact assessment of sectoral poverty reduction programs; (e) evaluation of the impact of fiscal and monetary policy on poverty reduction, especially through the influence of these policies on the pattern of growth; (f) formulation of a multi-sectoral HIV/AIDS prevention campaign; (g) clarification as to how the decentralization process with the creation of autonomous provinces will influence the implementation of poverty reduction programs; (h) formulation of a plan to increase agricultural productivity and intensification closely connected to reducing slash and burn practices in rural Madagascar; and (i) establishment of an appropriate poverty monitoring system to effectively evaluate the implementation of the PRSP. These points form key ingredients of this Joint Staff Assessment. Among these, the African Development Bank is supporting the PRSP process with a special facility under its Structural Adjustment Loan, geared to strengthen the participatory process. 3  benefits the poor, especially in rural areas; (ii) development of essential basic services; and (iii) improvement of institutions and governance. A. Poverty Analysis 10. The I-PRSP provides a very candid assessment of the country's social conditions including: its geographical location, lnk to labor markets, gender, basic service access, and education and health. The I-PRSP combines new information from the 1999 household survey in the poverty profile with other information on human development from the UNDP, the Demographic and Health Survey, and a number of analytical studies which have been carried out.5 The poverty analysis does not, however, draw sufficiently on participatory poverty assessments which incorporate the views of the poor. The full PRSP should include such qualitative analyses. B. Poverty Monitoring 11. Staff assess the progress of designing a poverty monitoring system in Madagascar, as presented in Annex VIII of the I-PRSP, as substantial and satisfactory. The preliminary list of indicators to be followed as well as their data sources (surveys, administrative data, qualitative and quantitative monitoring through rural observatories) is comprehensive and well thought through. Several areas - inter alia indicators on poverty outcomes as well as on budget management and efficiency of resource use - will need to be expanded before the full PRSP is completed. Further, staff agree with Government's proposal made in the I-PRSP that part of the savings from debt relief in the next calendar year be used to build a good monitoring system. This should include the implementation of a new multi-topic household survey (instead of the light priority surveys implemented over the last years) which would provide a proper baseline against which progress can be assessed in the coming years. Staff recommend that the full PRSP includes a systematic, participatory evaluation of the impact of poverty reduction programs. Such community monitoring can build on the rural observatories which will be established in all parts of the country in the next months. C. Macroeconomic Growth and Stability 12. The medium-term macroeconomic framework spelled out in the document illustrates the Government's commitment to further structural reform, prudent fiscal policy, and declining and moderate inflation. Detailed budgets in the next years will reflect the implementation of the poverty reduction strategy. The I-PRSP reconfirms the government's commitment to key reforms in fiscal policy that are supported by the on- going IMF program. 13. However, in the opinion of staff, the macro scenarios presented have two shortcomings. First, the baseline growth rate of 7 percent over the period 2000 to 2015 is achievable but only under very favorable circumstances. The full PRSP should develop an alternative scenario, for example, based on the more recent growth experience over the past four years of about 4.5-5 percent. 5 For example, by the INSTAT/Cornell University team and the MADIO project. 4  14. Second, while the I-PRSP clearly states that the success or failure of poverty reduction in Madagascar hinges on spreading income growth to rural areas, the PRSP will need to be more specific on how such broad-based rural income growth can be achieved. Staff agrees with the focus on strengthening farmer associations, developing micro- finance institutions, promoting income-generating activities, and improving the rural roads network. However, the PRSP needs to clearly prioritize public interventions aimed at reducing rural poverty. D. Structural and Sectoral Policies 15. In order to achieve these growth targets, the I-PRSP appropriately emphasizes development of agriculture, protection of the environment, establishment of a favorable legal and institutional set-up for the development of the private sector, and strengthening of the private sector. The staff concurs with this emphasis, and welcomes in particular the comprehensive privatization program underway, the reinforcement of the judicial system, and the necessary improvement of the business law. E. Basic and Social Service Delivery and Safety Nets 16. The I-PRSP is very candid about existing poor performance in the delivery of basic services: education, health, water, sanitation, electricity and transport. It also rightly points to the urban bias in service provision. In each sector, the I-PRSP outlines medium-term targets (up to 2003) as well as short-term actions. These targets are well chosen and address key problems such as the urgent need to improve the quantity and quality of service provision in rural areas. 17. The development of an effective strategy to fight poverty in this area will prove to be challenging. First, the I-PRSP contains a large number of outcome targets (literacy rate, malnutrition rate, etc.) as well as input targets (number of schools to be built, numbers of teachers to be hired). However, input and output targets are not always systematically linked. Much analytical work will be necessary to obtain a realistic plan of the quantity and cost of inputs needed to effectively influence outcomes. Major health problems such as malaria will need to be addressed more comprehensively. Actions to make reproductive health services more accessible, especially in rural areas, will also have to be discussed - teenage pregnancy is very high and increasing. Also alarming are the rapid increases in HIV/AIDS infection rates, albeit from a low base. Staff commend the Government for having launched - in parallel with the I-PRSP process - an HIV/AIDS awareness and prevention campaign, being coordinated by a multi-sector working group. 18. Second, the long list of targets and public actions needs to be prioritized. This will necessitate more analytical work illustrating the synergies and trade-offs between alternative interventions both within and across sectors. Further, more consultations need to be centered around the ranking of interventions. This needs a thorough facilitation process. 19. Lastly, the PRSP needs to address how the poorest of the poor can be reached and how they can benefit from programs preferentially. The I-PRSP does not spell out how 5  this can be achieved. Methods such as geographical targeting based on detailed poverty maps, and self-targeting schemes at the community level need to be increasingly relied upon. F. Institutional Development and Governance 20. The I-PRSP places emphasis on public sector reform which would improve currently weak budgetary accounting and control systems as well as transparency in public resource use. In particular, the government intends to strengthen the monitoring of budgetary execution and the auditing and budgetary control functions, streamline the expenditure process, and provide more timely reports on the budget execution. The 1- PRSP also states that the State Audit Office and the Audit Court will be strengthened through a review of their functions, increased resources and better training. The staff agrees that this will increase transparency and improve control by civil society on the use of public resources. 21. Before finalization of the full PRSP, the reform agenda in this area will have to be further elaborated in several respects. First, a recent audit of the European Commission highlighted the need for comprehensive strengthening of the accounting and control systems. While the concern is largely reflected in the I-PRSP, the full PRSP will have to go further than the I-PRSP on planning the implementation of the needed reforms. 22. Second, as mentioned above, some prioritization of the measures proposed in the I-PRSP will be necessary. The large number of necessary reforms specified represent recognition by the government of the need for rapid improvements in these areas, but will nonetheless tax the implementing capacity of the government. Therefore, reforms will need to be accompanied by donor efforts to deliver the required technical assistance and the necessary resources in a timely manner. 23. Third, the impact of ongoing decentralization process on the implementation of the poverty reduction strategy will have to be examined carefully in the full PRSP. The government has embarked on an ambitious program of decentralization, with the establishment of six autonomous provinces that should increase the role of civil society and the poor in the management of public resources, and improve the quality of service delivery. The staff views positively this process but notes that the decentralization process will have to be matched by adequate implementation and resource-raising capacity at the local level. The transfer of responsibilities and financial resources will have to be carefully phased. G. Arrangements for Using Interim Debt Relief 24. The I-PRSP appropriately presents a framework for allocating interim debt relief from the HIPC Enhanced Initiative, which will need to be submitted to the National Assembly in the form of a supplementary budget. Specific budgetary lines will be opened to allow the close tracking of these expenditures. The staff views the provisional allocation as broadly appropriate, and welcomes the commitment of the government to present to Parliament and civil society semi-annual reports on the use of these resources. 6  It will be important that the full PRSP costs more precisely the different priority action programs. IV. Process Towards Preparing the Full PRSP 25. Participatory Process. Staff believe that the participatory process of reaching the full PRSP could have been spelled out in more detail. Annex VII of the I-PRSP includes a very detailed and comprehensive description of the participatory process underlying the many sector development strategies underway in Madagascar today. Further, the document spells out convincingly that both sector (health, education, etc) as well as topic (e.g. gender and poverty) consultations in all regions of the country will be building blocks for the preparation of the full PRSP. But the I-PRSP lacks a precise description of how the different sector strategies are going to be brought together in a cohesive and consultative way involving all key stakeholders. The document also does not spell out clearly how the poor and vulnerable groups themselves are going to be included in this process. 26. Time Line. Staff consider the timeline for producing a quality PRSP as too tight. The I-PRSP goes a long way in carving out the poverty reduction strategy and technical inputs from various studies currently being carried out should be completed in early 2001. But staff are also of the opinion that the quality of the full document will depend on proper facilitation of in-depth regional and national consultations as well as on broad participation and reflection. Staff judge the time allocated for these consultations as too short. Hence, staff will communicate to the Government that, if needed, proper reflection and discussion should have precedence over adhering to the tight time schedule, if the Boards agree. 27. Filling Knowledge Gaps. The I-PRSP states that the full document will draw on a number of analytical studies which are in the process of being prepared. Staff feel comfortable that the planned collaborative studies from the statistical institute, INSTAT, Cornell University and the World Bank on the dynamics of poverty, land tenure, rural poverty, and the role of infrastructure will fill important knowledge gaps. Additionally, a number of rural observatories will assume their monitoring tasks soon which has the potential to provide important insights into the functioning of the rural economy before the full PRSP is completed. 28. Risks. There are two types of risks in developing the full PRSP and implementing the actions outlined in the I-PRSP. The first risk relates to external shocks. Madagascar was hit hard this year by both natural disasters (cyclones, draught in the South) and by sharply deteriorating terms-of-trade due to the rise in the price of oil. Such shocks could endanger the maintenance of sustained growth, necessary to reduce poverty. The second risk relates to the political climate given two upcoming elections at the provincial (December 2000) and national (December 2001) level. While the Cellule Technique is committed to developing the full strategy as outlined in the I-PRSP, political considerations could weaken the implementation of a truly participatory and inclusive process. 7  29. Donor Assistance in the Preparation of the full PRSP. Madagascar's bilateral and multilateral partners are planning to actively support the development and implementation of the full PRSP, including: * Technical assistance in strengthening budget procedures and reform by the European Commission and the IMF; * Financing of the participatory process and analytical inputs by the African Development Bank; * Analytical background papers on poverty dynamics and the determinants of poverty by USAID and the World Bank in collaboration with the statistical institute INSTAT and Cornell University; * Economic sector work by the World Bank on education, and water and sanitation; * Organization of a poverty seminar in February, co-financed by the French Development Cooperation and the European Commission; * Technical support by UNDP on establishing a poverty monitoring system and analytical work on urban poverty; * Background work by the French Development Agency on experiences in rural poverty reduction. V. Conclusion 30. In staff views, both in terms of process and content, the I-PRSP constitutes a major step forward in articulating and implementing a comprehensive poverty reduction strategy in Madagascar. It is built on a sound analytical base and highlights the key features of poverty. It recognizes that growth will need to reach the rural areas and cannot be an enclave phenomenon in sectors of great potential. It includes a frank assessment of difficulties faced by existing poverty reduction programs and traces them both to the efficiency of budget use as well as resource distribution between and within sectors. It also presents, convincingly, an emerging poverty reduction strategy that is centered around pro-poor growth in rural areas, basic service delivery, and much needed institutional reform to improve governance. 31. This assessment also highlighted a number of weaknesses of the current document which the Government will need to address when developing the full PRSP. A clearer roadmap of the participatory process is needed. Assumptions on macroeconomic growth are optimistic and alternative scenarios will need to be developed. A strategy of how growth can reach the rural poor has to be more clearly articulated. Prioritization and full costing of the many actions and targets included in the document is necessary, based on improved analysis of the linkages between poverty outcomes and input provision. 32. In the view of staff, the major achievement of the I-PRSP is that it develops in broad terms a comprehensive poverty reduction strategy that goes beyond existing poverty reduction policies, and includes concrete targets to be achieved in the next three years and in 2001. As such, it provides a very good starting point for the work of the coming months. 8  33. Given the above assessment, the staffs of IDA and the IMF consider that this I-PRSP provides a good basis for development of a fully participatory PRSP, reaching the decision point under the HIPC Initiative, and IDA and IMF concessional assistance. The staffs recommend that the respective Executive Directors of the World Bank and the IMF reach the same conclusion. 9   Annex Madagascar: Key Bank/Fund Events Related to PRSP Institution Event Expected Date IMF/World Bank JSA of I-PRSP December 00 IMF/World Bank HIPC Decision Point December 00 IMF New PRGF Arrangement February 01 World Bank Education Economic and Sector Work February 01 World Bank Technical Poverty Notes February 01 IMF Technical Assistance on Budget Reform Approval pending World Bank Rural Development Project May 01 World Bank Community Development Project May 01 World Bank CAS May 01 IMF/World Bank JSA of PRSP September 01 IMF PRGF Review September 01 10   REPOBLIKAN'I MADAGASIKARA Tanindrazana - Fahafahana - Fandrosoana Translation: Original in French MADA GASCAR INTERIM POVERTY REDUCTION STRATEGY PAER November20. 2000   TABLE OF CONTENTS INTRODUCTION ......... .................................................................. 1 Economic and Social Background ..............................................................1I Pursuit and Improvement of the Current Actions ...............................................................2 Participatory Process and Organisational Provisions ...........................................................3 CHAPTER I: CHARACTERISTICS OF POVERTY ............................................................................. 5 1.1 ASSESSMENT OF ECONOMIC PERFORMANCES .........................................................5 Debt situation ...............................................................5 I.2 POVERTY ANALYSIS ................................................................8 1.2.1. Monetary Poverty Analysis ...............................................................8 1.2.2. Aspect of Poverty in the Education Sector ............................................................... 10 1.2.3. Aspect of Poverty in the Health Sector .............................................................. 13 1.2.4. Access to Drinking Water and other Welfare Services ............................................ 16 1.2.5 Human Development Index ............................................................... 17 1.3. CULTIVATION CONDITIONS AND ENVIRONMENT DEGRADATION .................. 17 CHAPTER 11: STRATEGIES FOR POVERTY REDUCTION .................................................................. 19 II.1.- OVERALL OBJECTIVES .............................................................. 19 11.1.1.- Economic Objectives: Challenges in Growth and Investment ............................... 19 11.1.2. Life Quality Objectives .............................................................. 20 11.2. STRATEGY AXIS ............................................................... 20 11.2. 1. - Axis No 1: To improve the economic performances with the participation of the poor ............................................................... 20 11.2.2. Axis n