Madagascar - Country assistance evaluation

Report No. 38213 Madagascar Country Assistance Evaluation December 13, 2006 Country Evaluation and Regional Relations Independent Evaluation Group Document of the World Bank Contents PREFACE .................................................................................................................. Ill SUMMARY OF CAE RATINGS .................................................................................. V SUMMARY ................................................................................................................ vi1 1. BACKGROUND............................................................................................ 1 2. BANK STRATEGY AND ASSISTANCE ....................................................... 5 Policy Dialogue and Key Focus of Country Assistance Strategies .................... 5 The Bank Country Assistance Objectives ............................................................. 7 The Lending Program .............................................................................................. 8 Quality of Lending .................................................................................................... 9 Economic and Sector Work .................................................................................... IO Partnerships ............................................................................................................ 12 PROGRESS IN ACHIEVING BROAD-BASED GROWTH ......................... 15 PROGRESS IN ACHIEVING GOOD GOVERNANCE ................................ 27 PROGRESS IN ACHIEVING HUMAN AND MATERIAL SECURITY ......... 33 OVERALL OUTCOME AND CONTRIBUTIONS........................................ 45 The Bank ................................................................................................................. 47 The Government ..................................................................................................... 48 Other Development Partners ................................................................................. 49 External Factors ..................................................................................................... 50 7 . FINDINGS AND RECOMMENDATIONS.................................................... 53 Findings ................................................................................................................... 53 Recommendations ................................................................................................. 53 I  Table 1. Selected Economic Indicators. 1995-2005 .................................................... 2 Table 2. Summary Table: CAS Objectives. Commitments. and ESW (FY94-06) ........ 8 Table 3. Planned and Actual Lending. FY94-05 ......................................................... 9 Table 4 . Madagascar-IEG Ratings by Commitment (FY94-05) ................................ 9 Table 5 . Comparative Business Climate Indicators (200412005) .............................. 17 Table 6. Selected Indicators for the Agncultural Sector and Environment.................19 Table 7 Road Transport Indicators........................................................................... 21 Table 8. Poverty Outcomes (1993-2005) ................................................................. 23 Table 9. Summary of Outcome Ratings for Broad-Based Growth ............................ 24 Table 10. Summary of Outcome Ratings for Governance ........................................ 32 Table 11. Selected Education Indicators Tracked Under Vanous Programs ............35 Table 12. Selected Health Status and Nutrition Indicators......................................... 38 Table 13. Summary of Outcomes in Human and Material Security ........................... 42 Table 14. Overall Outcome Ratings ........................................................................... 45 Figure 1. Governance Indicators (WBI)...................................................................... 28 Box 1. IEG-IFC Overview of IFC Operations in Madagascar. 1995-2005 ..................................................................................................................... 11 Annexes ANNEXES A: STATISTICAL TABLES ..................................................................... 55 ANNEX B: LIST OF PEOPLE MET .......................................................................... 71 ANNEX C: GUIDE TO IEG’S COUNTRY ASSISTANCE EVALUATION METHODOLOGY ...................................................................................................... 77 ANNEX D. MANAGEMENT ACTION RECORD........................................................ 81 Attach ment ATTACHMENT 1: COMMENTS FROM THE GOVERNMENT................................. 83 ATTACHMENT 2: CHAIRMAN’S SUMMARY........................................................... 85 ii Preface Tlus Country Assistance Evaluation (CAE) reviews the Bank's assistance strategy for Madagascar for the period 1995-2005 (FY94 06). It looks at the relevance, efficacy, efficiency, and impact o f Bank's assistance to Madagascar durmg tlus period. The C A E i s based o n a comprehensive review of W o r l d Bank documents, government policy statements and documents, a n d development literature o n Madagas- car, as w e l l as mterviews with government officials, Bank staff, offi- cials f r o m other donor agencies, representaisves of nongovernmental orgaruzations, the academc community, and private sector represen- taisves. A Bank m s s i o n visited Madagascar f r o m the October 10-28, 2005. The contribubons and the cooperahon o f government officials a n d agencies, the r e g o n a l W o r l d Bank office, c i v i l society, private sec- tor, a n d donors are gratefully acknowledged. A list of people mter- viewed is m Annex B. The Management Acbon Record i s attached as Annex D Comments f r o m the Bank's Regional Management have been mcor- porated m the report. The report was also sent to t h e Government whose comments are attached m Attachment 1 . The CAE was written by Zeynep Taymas (Task Manager) with contributions by Roger Key, Robert Lacey, and Patrice H a r o u (Con- sultants). The peer reviewer was John Johnson. Maria Claudia Pachon and Victor H u g o Orozco provided research assistance, while Silvana Valle a n d Jaruce J o s h provided admuustraisve support. Summary of CAE Ratings Obrectives of Bank Assistance Outcome for Obrectives of Bank Assistance Ratings Broad-BasedGrowth Moderately Unsatisfactory Higher growth through establishing an Business environment improved, but mixed progress in Moderately Unsatisfactory enabling environment for PSD infrastructure services (par. 3.2-3.10 and 3.20-3.21); Higher growth rates achieved but poverty did not change appreciably (par. 3.20-3.21). Increased agricultural productivity Rice and other crop yields stagnant; institutionsand Unsatisfactory infrastructure to support the sector in poor state (par. 3.11-3.1 3). Improved natural resource management legislation Inplace! but too institutions and Moderately Satisfactory weak enforcement capacity. Rate of deforestation reduced. Four and a half percent of county's total area designed as protected areas (par. 3.14-3.15). Better access to roads Some institutional improvements. But Bank-financed road rehabilitation likely to be incomplete and national road proaram far behind schedule bar. 3.16-3.191. Good Governance Moderately Unsatisfactory Reduce corruption, increase transparency, Anticorruption Agency active; asset declaration Moderately Unsatisfactory and strengthen judiciary requirements (Head of State excluded), anti-money laundering legislation, decree on entry to public service passed; a number of reforms made in customs administration. Corruption still widespread (par. 4.2- 4.5). Improve public sector management Some public financial management improvements in Moderately Unsatisfactory place. New procurement code and oversight agencies established. Madagascar still in need of substantial improvement in public expenditure management. Low tax to GDP ratio (par. 4.6-4.131. Human and Material Security Moderately Satisfactoly Increase in pro-poor expenditure Share of education expenditure increased but that of Moderately Satisfactory health expenditures constant (par. 52-55). Improve access to and quality of education Primary school enrolment increased but quality of Moderately Satisfactory education not improved at all levels. Severe regional disparities persist (par. 5.6-5.1 1). Moderately Satisfactory access to clear water and sanitation progress in clean water and sanitation access (par. 5.12-5.1 8). Protect vulnerable group through targeted Nutritional Indicators Improved in targeted areas; the Satisfactory interventions Social Fund effective in delivenng small-scale infrastructure, but institutional impact limited and better targeting needed (par. 5.19-5.25). Overall Moderately Unsatisfactory V Summary 1. Madagascar, with its r i c h natural resources, has t h e potenbal to stand out among developmg econormes. Yet its long-term eco- normc a n d social development p a t h was u n e v e n a n d mostly d o w n h i l l as a result of diripte and xenophobic policies, parbcularly m the 1980s. Average per capita mcome declined, a n d stocks of human, physical, and natural capital were steadily depleted. Poverty, largely structural m nature, became widespread. At t h e b e g m u n g of t h e Country Assistance Evaluabon (CAE) period (1995), t h e prospects for Madagascar t o achieve h g h g r o w t h rates a n d poverty reducbon seemed remote. M o r e important, there seemed to be n o serious com- mitment t o change by the governments p r i o r t o 2003. 2. Throughout t h e CAE period under review 1995-2005 (FY94- 06), the Bank’s overarchmg goal was t o help alleviate constramts pre- ventmg Madagascar f r o m a c h e v m g its full g r o w t h potenhal, parhcu- larly m non-tradibonal sectors. Durmg this period, t h e Bank commit- t e d about US$1.9 b i l l i o n m IDA resources, of w h i c h over 60 percent was a m e d at t h e obective of broad-based growth. T h e Bank was one of Madagascar’s largest donors, a n d a major player m supportmg high-priority structural r e f o r m a n d mstitubonal change. A f t e r several decades of extremely difficult dialogue, Madagascar’s Authoribes be- gan, m the rmd-l990s, to implement serious structural reforms. H o w - ever, progress durmg the first six years of t h e review period seemed t o b e driven more by financial necessity than by real commitment t o reform. This changed after the crisis o f 2002. The Bank responded with a major mcrease m IDA resources, and became a close adviser to the President. The Bank also aligned its program with t h e PRSP w h c h has strong government ownership. 3. The Bank’s response was b m e l y and appropriate to t h e new circumstances. However, i t is already b e c o m g clear that capacity limitations and weak governance hamper progress toward strategx objechves. Implementahon of the ambihous reform programs i s prov- mg to be slower and more difficult than anbcipated. The extent to w h c h the President’s vision and goals are shared withm the rmddle a n d lower ranks of his admuustrabon i s unclear. The grounds for op- turusm remam fragile, a n d there i s a hgh degree of polibcal risk m the country, as well as some potenbal reputabonal risk for the Bank. vii SUMMARY 4. While h g h e r growth has been acheved, it has n o t been broad- based and poverty was as high m 2004 as it was a decade before. Bank support has been of cribcal mportance m helpmg m p r o v e t h e m- vestment climate m Madagascar, and thereby p r o m o t m g g r o w t h m some export-oriented sectors. On the other hand, t h e results of Bank‘s mvolvement m d r a s t r u c t u r e m support of private sector develop- ment have been rmxed, with visible improvements m a n transport a n d telecommurucabons, but n o t much progress m electricity a n d wa- ter supply M o r e importantly, Madagascar’s g r o w t h process gener- ated only l i m i t e d and cyclical u r b a n employment, but made n o sys- temabc m o a d s m t o poverty, parbcularly m r u r a l areas. Agricultural g r o w t h was msufficient to raise r u r a l mcomes and enhance food secu- rity The Bank was unable to find the appropriate design a n d rmx of mtervenbons for complex mulb-faceted agricultural sector issues. On the other hand, progress was made m m p r o v m g natural resource management, thanks m part to Bank-sponsored first Nabonal Envi- ronment Action Plan that set the basis for a 15-year program. Defor- estabon has been virtually elimmated m protected areas, but c o n m - ues at a slower pace m other areas. Although important environmental mstitubons have b e e n established, their effecbveness remams a serious issue. Inshort, important progress has been made o n t h e environmental agenda, but this is n o t yet sufficient to ensure sustamable conservabon of ecosystems. 5. Progress m m p r o v m g governance has been slow Corrupbon is s t i l l widespread. Durmg the early part of the period under review, Bank support contributed to reducmg the sources of illicit gam through privatizabon and liberalization measures. Since 2003, the Bank focused o n t h e mstitubons to fight corrupbon, the effecbveness of w h c h is yet to be seen. I nthe public sector, several issues raise concerns about the appropnateness of budget support as the m a m mtrument of resource transfers to Madagascar. These mclude the long-standing discrepancy between budgetary allocation and execution, the recent deterioration m public expenditure management as evidenced by the HIPC Expendi- ture and Management benchmarks, the l o w tax to GDP ratio, and the lack of a clear decentralization framework. 6. Inthe social sectors, the results have been also muted. Primary educabon enrollments have mcreased, but retention a n d complebon rates a n d learrung outcomes remam problematic, while other parts of the education system have languished. The Bank contributed t o m- creased p r m a r y school enrollments through a safety n e t package of measures, teacher recruitment and mcenbves, and classroom con- strucbon. Some key health mdicators improved m a d y through ver- hcal programs supported by t h e Bank, but service delivery i s meffi- cient, mcomplete, a n d unequal. Bank-supported n u t r i b o n a n d social fund acbvibes were relatively successful a n d responsive, but w e r e viii  SUMMARY unable to outweigh the broader poverty context. The shift m public expenditures toward basic services has been modest so far, and fur- ther progress i s constramed by the l o w ratio of tax revenue to GDP, slow decentralizabon process, and weaknesses m service delivery ca- pacity and governance. 7 The overall outcome of the Bank's assistance t o Madagascar durmg 1995-2005 i s rated as moderately unsabsfactory Despite higher growth, growth was n o t broad-based, poverty has n o t de- creased appreciably, and governance has n o t improved. The outcome has been d l u e n c e d to a large extent by factors outside the Bank's control, such as polibcal crises, weak government commitment t o re- f o r m p r i o r t o 2003, and exogenous events, mcluding adverse terms of trade a n d natural disasters. FINDINGS 0 It i s difficult t o monitor donor-supported program outcomes m Madagascar, as the country suffers f r o m a n overload of m- dicators, most of w h i c h are neither closely monitored nor reli- able, and, at times, mconsistent. 0 Unless links between t h e d y n a m c sectors and the r u r a l ar- eas -where the great majority o f the poor are located - can be improved, g r o w t h m Madagascar will n o t be pro-poor. 0 An mcrease m a i d flows to assist a committed government i s consistent with the need to scale up a i d t o meet t h e Millen- mum Development Goals. B u t w h e n it exceeds the country's absorphve capacity and runs ahead of t h e mstitubonal reforms necessary for t h e i r sustamability, it can have l i m i t e d effecbve- ness, as the experience m Malagasy transport sector demon- strates. In general, PRSCs seem to b e good m t r u m e n t s for brmgmg coherence to a government's plans, for p r i o r i b z m g budget al- locabons m line with agreed targets, and for acceleratmg and coordinatmg policy and financial support f r o m the Bank and other donors. But, m Madagascar, madequate preparatory w o r k and capacity building prior t o PRsCs have been b e h m d serious mplementabon problems that have disrupted re- source flows t o beneficiaries. Whether or n o t this i s o n l y a transitional problem remams t o be seen. 0 Targeted acbvibes addressmg specific constramts of the poor can be effective m protectmg vulnerable groups. The r e t u r n t o this mvestment could have been mcreased if set m the context of a social risk management strategy designed t o lower vul- nerability rather than respond t o repeated cmes m Madagas- car. IX SUMMARY Staff presence m the field has been cribcal for ensurmg stronger donor coordinabon and unproved mplementabon. RECOMMENDATIONS Develop C A S Scenarios: While the m p e t u s for r e f o r m m Madagascar appears t o be strong, the Bank needs t o develop a l o w case scenario m the CAS, m t h e event of renewed polibcal mstability and/or a w e a k e m g of t h e Authoribes’ commit- ment t o reform. Since natural disasters are highly prevalent a n d recurrent events m Madagascar, the CAS should also treat this phenomenon as a risk mtegral t o its program, with focus o n mibgabon and vulnerability reducbon measures. M o n i t o r i n g Indicators: A s the Bank and other donors jomtly adopt results-oriented programs, there i s an urgent need t o de- f i n e a f e w crihcal mdicators a n d strengthen support t o stabs- bcs for thelr reliable monitormg. Until t l u s is sabsfactorily ad- dressed, it will remam difficult to assess t h e effectiveness of donor-supported programs. 0 Strengthen the G r o w t h a n d Governance Aspects of the Strategy: The g r o w t h strategy needs t o be refocused o n reach- mg t h e r u r a l poor, by w o r k m g jomtly with t h e Government a n d other donors t o develop a n mnovabve vision a n d imple- mentabon program t o r a s e r u r a l mcomes and address struc- tural poverty S t r e n g t h e m g mplementabon of envlron- mental plans w o u l d also help protect Madagascar’s uruque bio-diversity The Bank also needs to mtensify its support for good governance, by focusmg more sharply on: (a) key sec- tors (especially the judiciary a n d extracbve mdustries); (b) re- solvmg the land quesbon; (c) s t r e n g t h e m g decentralized m- stitubons (d) tackling lugher-level corrupbon more effecbvely; a n d (e) enhancmg evaluabon and auditmg capacity Limit the Role of Budget Support: Considerahon should be given t o limit programmabc budget support until there i s a credible and sustamed m p r o v e m e n t m revenue collecbon a n d public expenditure management system. Projects designed to address specific sectoral issues, bottlenecks, and capacity con- stramts, will be cribcal for mcreasmg Madagascar’s absorptwe capacity a n d t h e effecbveness of programmabc mstruments. V i n o d Thomas Director-General Evaluabon X I.Background 11 . Madagascar i s a large island country, with a per capita in- come of US$290. It i s mostly rural, with about 80 percent of the coun- try’s 17 million people livmg m r u r a l areas. Agricultural acbvibes ac- count for a large p o r b o n of t h e r u r a l sector, and have the largest share m terms of GDP contribubon. Madagascar has many natural re- sources and advantages: rich mmeral deposits, fertile land with plen- tiful ram, an environment conducive t o many types of tourism, m- cluding a uruque ecosystem, varied topography, several climabc zones, and a coastal peruneter of about 3,000 miles, w h c h provides access t o rich maribme resources. 1.2 At the beginning of the CAE period, the likelihood of Madagascar achieving r a p i d growth a n d a reduction in poverty seemed slim. Average per capita mcome was w e l l below its level of t h e 1960s. In1993,70 percent of the populabon was poor. Long-term neglect of lnfrastructure and harmful envlronmental pracbces m agri- culture resulted m a gradual erosion of the nabon’s physical mfra- structure and natural resources. Failure to mvest m human resources to match demographic growth l e d t o a deterioration m mdicators of educabon, health, and nutribon. Most unportantly, there seemed to be n o serious commitment to change by governments, prior t o 2003. 1.3 Over the years, there has been a large gap between the country’s economic potential a n d i t s performance. Madagascar’s economc performance has n o t been consistent; periods of reforms and growth have alternated with economc and polibcal crises. Ln the md-l970s, the country underwent a socialist revolubon, resultmg m dirigste economc policies. Per capita mcomes declined, affected by market distorbons, xenophobia, and unproducbve mvestments. President Ratsiraka’s government launched a series of reforms m the md-1980s t o liberalize the economy Although these reforms were rather gradual and piecemeal, the economy responded posibvely- for- e i g n mvestment rose, non-tradibonal exports doubled, and for t h e first time m many years, GDP growth was posibve. 1.4 T h e economic liberalization of the mid-1980s was accom- panied by a l o n g transition t o political pluralism. A polibcal crisis m 1991, however, brought reforms t o a halt, and persisted until 1993 when a populist r e p m e (under President Zafy) came to power and emphasized a development strategy of self-reliance. T h e new gov- ernment undertook some piecemeal reforms o n trade liberalizabon, 1 CHAPTER1 BACKGROUND but these w e r e not e n o u g h to k e e p t h e economy from declirung: p e r capita GDP growth w a s negahve durmg 1991-95. Polibcal tensions weakened t h e decision m a k m g process, and finally resulted m t h e m p e a c h m e n t of President Zafy, a n d the reelechon of Ratsiraka as the President of Madagascar m 1996. 1.5 T h e year 1997 m a r k e d the beginning of private sector-led growth and efforts to integrate Madagascar into the w o r l d economy. T h e government u n d e r t o o k several reforms (see par. 3.2-3.6), w h i l e r e m a m g somewhat hesitant m h s process. These reforms, c o u p l e d with the preferenbal trade agreement of A f r i c a n Growth Opportunity A c t (AGOA), resulted m a n mcrease m f o r e i g n direct m v e s t m e n t (FDI), a surge m exports, a n d high sustamed growth rates ( a v e r a p g 4.5 percent durmg 1998-2000). 1.6 Madagascar's progress was halted by a deep political a n d economic crisis at the beginning of 2002.1 Although the crisis w a s short-lived, i t s i m p a c t w a s devastatmg: GDP declined by almost 13 percent, and t h e mcidence of p o v e r t y mcreased. The n e w government headed by President Ravalomana embarked on m a n y reforms, m c l u d - mg those a i m e d a t restormg p r i v a t e sector confidence. In2003 and 2004, the economy rebounded, with growth reachmg 9.8 percent a n d 5.3 percent, respectwely. Nonetheless, a t e n d 2004, r e a l p e r capita m- come w a s less than i t s 2001 level, and t h e p o v e r t y rate h i g h e r than i t s pre-crisis level. Table 1. Selected Economic Indicators, 1995-2005 I 1995197 1998/2000 2001 2002 2003 2004 2005p Real GDP growth 2.5 4.5 6.0 -12.7 9.8 5.3 6.4 Of which primary sector 2.1 2.1 4.0 -1.3 1.3 3.1 3.6 Inflation, consumer pnces 24.5 9.4 6.9 15.9 -1.2 13.8 5.0 Total investment (% GDP) 5.4 14.9 18.5 14.3 17.9 24.4 24.9 Of which private investment 2.0 7.7 11.2 9.5 10.1 15.0 14.0 Of which FDI 0.3 1.o 2.0 0.2 0.2 1.0 Exports of goods and services 22.2 25.6 29.1 16.0 21.5 28.4 22.0 (%GDP) Tax Revenue (% of GDP) 8.7 10.7 9.7 7.7 10.0 10.9 10.8 Fiscal deficit, excl. grants (% 8.6 74 8.1 7.7 9.3 13.1 9.5 GDP) External debt (% GDP) 18.8 122.2 89.5 97.9 88.7 117.7 Per capita ODA commit. 22.6 33.5 28.1 21.0 45.1 65.5 (US$) Memo: Population growth I 3.0 3.1 2.9 2.8 2.7 2.7 2.7 Source: World Bank internal database and IMF Statistical Appendix report, Sept 2005. 2  1 CHAPTER BACKGROUND 1.7 Between crises, Madagascar h a d five years of sustained growth, but only a small percentage of the population was able to move out of poverty. The gams were confined to the urban areas. The percentage of the p o p u l a h o n m extreme poverty2 r e m a m e d basically constant. Poverty m rural areas mcreased steadily until 2005. (For a discussion o f the e v o l u h o n o f poverty, see par. 3.21.) These develop- ments reflected the p a t t e r n of growth: the enclave nature of some g r o w t h sectors, the concentrahon o f labor-mtensive m a n u f a c t u r m g and the growth of E x p o r t Processmg Zones (EPZ) m Antananarivo a n d a f e w other urban areas, a n d the poor performance of agriculture a n d the r u r a l sectors. 1.8 Madagascar i s highly dependent o n foreign a i d for the im- plementation of its program.3 h d flows have fluctuated m line with cn- ses and penods of reform. After the Ratslraka Admuustration began its reform efforts m the second half of 1990s, o f f i a a l development assistance (ODA) per capita (excluding debt relief) mcreased sharply t o an average of about US$39. TIUS fell to US$23 m 2000 as donors became disap- pomted with the slow pace of reform and perslstent govemance 1ssues. A s expected, per capita ODA fell further m the c m i s year of 2002, but rose sharply m 2003-2004 to an average of over US$50, reflecting the do- nors’ confidence m Ravalomana’s government. IDA flows followed more or less the same trend, and averaged about US$lO per capita dur- mg 1995-2005. 1.9 Madagascar‘s recent political and economic performance has l e d to a strong optimism about the future of the country. There IS cer- tardy room for a somewhat m o r e upbeat mew, but caution m u s t b e ex- erased as well. While earlier governments were often ambiguous and hesitant m t h e n commitment to reform, the present government IS m u c h more engaged and decisive. Nonetheless, the country’s prospects r e m fragde as the challenges ahead are daunting. Madagascar will need to sustam hgh g r o w t h rates m its non-traditional sectors, n o t a modest achevement m tlus hghly competitive global envnonment. At the same time, ways will have t o b e f o u n d to make m o a d s mto u n w a v e n n g rural poverty and persistent r e g o n a l disparities. Pervasive govemance issues will need to b e addressed at all levels, mcluding grand corruption. TIUS IS all the more unportant because Madagascar IS likely to see a substan- tial mvestment mcrease m large-scale rrurung and possibly rn off-shore oil and gas exploration. W h i l e these can bnngunportant development benefits, they can also exacerbate corruption and create social conflict. 3 CHAPTER1 BACKGROUND NOTES 1 .Elections were contested by two major candidates: mcumbent president Ratsiraka, and l u s contender Ravalomanana. Mediation efforts failed, and there were practically two different governments m place. The stand- off grew fierce with parts of the lugh- lands isolated from the coastal areas due to road blocks and destruction of bridges. Activities m several sectors (including transport, tounsm, and the EPZ) came to a complete halt; about 150,000 workers lost their jobs m the formal sector alone; farm- ers’ mcomes were drastically reduced. The political cnsls ended six months later when Ravalomanana’s government was recogruzed mternationally 2. The extreme poor are defined as those who cannot afford to buy a basic food basket even i f they spend everytlung they earn o n food items. 3. Nonetheless, Madagascar i s not among t h e largest aid recipients m Afnca: dunng the 1995-2004 period, it ranked 19th out of 29 African countries m terms of per capita aid. 4 2. Bank Strategy and Assistance Policy Dialogue and Key Focus of Country Assistance Strategies 2.1 T h i s CAE reviews the period 1995-2005 ( M U - 0 6 ) . To assess the relevance of Bank's objectives m Madagascar durmg t h s penod, one needs t o b n e f l y review how each country assistance strategy re- sponded to specific economc and social situations a g a m t the back- g r o u n d of political cycles and cnses. 2.2 T h e FYM-07 country assistance strategy intended to h e l p Madagascar sustain a n d deepen the reforms started in the 1980s, w h c h showed that a strong private sector response w a s possible w h e n major constramts to p r i v a t e sector development (ED) w e r e lifted. With cautious o p b m s m , it v i e w e d Madagascar as a potenbal A f r i c a n success story, p r o v i d e d the authoribes p u r s u e d thelr com- m i t m e n t t o a renewal a n d mtensificabon o f e c o n o m c reform, and ad- dressed constramts to accelerated growth. This o p b m s m was, h o w - ever, short-lived. The FY94-96 c o u n t r y assistance strategy comcided with the President Z a f y p e r i o d durmg w h i c h there w a s l i t t l e progress m reform, a n d the l e n d i n g p r o g r a m w a s less than 60 percent of the possible IDA envelope. An acbve p o l i c y dialogue w a s nevertheless m a m t a m e d to convmce the government of the need to reform. 2.3 T h e FYO7-09 country assistance strategy was launched at a time w h e n Madagascar's development policy was becoming more pragmatic and private sector friendly. The Bank's policy dialogue un- derscored the need for a p r o f o u n d and convmcmg transformation pro- gram. The Bank's strategy was of t h e v i e w that o f n o h g short of turrung the country m t o a busmess-friendly M a u r i b u s o r Singapore would b e g o o d enough. h s was a p e n o d o f Iugh l e n d i n g and mtensive policy dialogue t h r o u g h structural adjustment credits (SACs) that em- phaslzed private sector development, m a d y m non-traditional sectors. The SACs were mtended to g v e a strong signal to the mternational community that a n Irreversible, fundamental transformation was tak- mg place m the country The Bank operated m the hgh case, satisfied with progress on SAC-I and IMF programs and Madagascar's vlgorous efforts to attract mvestors. 2.4 T h e Bank's assistance continued f r o m FYOO through part of FY02 without a n e w CAS, p e n d i n g the preparabon of a full Pov- erty Reducbon Strategy Paper (PRSP). Durmg thls period, a n m t e n m - 5  2 CHAPTER BANK STRATEGY AND ASSISTANCE PRSP was prepared, leading to the heavily mdebted poor countries (HIPC) decision p o m t (December 2000). This period, as m other HIPCs, l e d t o greater emphasis o n I m p r o v m g public expenditure management systems and basic service delivery. T h e triggers to reach the HIPC completion p o m t were chosen p r m r i l y m these areas. Dur- mg this period, an important p a r t of the Bank’s assistance was to help the government prepare the PRSP and meet HIPC triggers. 2.5 T h e EY03 I n t e r i m C A S was the Bank‘s response to the PO- litical crisis of 2001. The emphasis was o n assisting private sector re- covery, restormg public services, and p r o v i d i n g targeted assistance t o those worst affected. Thls mvolved a major restructurmg of the exlst- mg portfolio, as w e l l as an Emergency Economc Recovery Credit. Durmg t h e crisis, the Bank mamtamed its presence m the field, and kept a n acbve portfolio. l ’ h s proved t o be quite effective for a bmely response t o the crisis, n o t only by m o v m g project acbvibes forward as m u c h as possible m very difficult circumstances, but also by provid- mg policy advice t o the n e w government. Inthe process, t h e Bank be- came a close advisor t o the n e w President. 2.6 T h e M04-06 C A S was the first to b e anchored in the PRSP It i s also a CAS of s t o c k t a h g , parbcularly with respect t o the cribcal issues of h o w t o reorient the Bank’s assistance for g r o w t h to become more pro-poor and for social sector programs to have na- b o n w i d e Impact. Inresponse, the FY04 CAS foresaw a transition to programmabc lending, with agreed overall sector stratepes. Building o n the relabve success of the EPZ m Madagascar, the Bank also adopted a strategy of ”bettmg o n w m e r s ” through an mtegrated g r o w t h poles approach to promote r e p o n a l development. Inline with the PRSP, reducmg r u r a l poverty and ensurmg the competibveness of local rice became explicit CAS objecbves, the first b m e durmg t h e pe- r i o d under review 2.7 This CAE reviews the progress in achieving Bank’s ob- jectives, as pursued in these country assistance strategies. While d o m g so it relies to t h e extent possible o n quantitabve outcome mdi- cators, some of w h c h were presented m country assistance strate- pes. However, several caveats need t o be menboned regarding the use o f mdicators. First, the last populabon census m Madagascar took place m 1993. A s a result, f o r example, the current school-age populabon remams uncertam. Second, it i s difficult t o find consis- t e n t series of mdicators covermg the C A E period. For mstance, over the years, there have b e e n shifts m t h e choice of educabon mdicators monitored (see par. 5.6). Tlurd, major survey dates such as Enquite Pkrzodique Aupris des Mknages (Household Livmg Condibons Survey- EPM) d o n o t necessarily comcide with the CAE period. Fourth, for the last two years, each rmrustry has been operatmg with a system o f quantitabve targets (a private-sector msplred mcenbve scheme m- 6  CHAPTER2 AND ASSISTANCE BANKSTRATEGY troduced by President Ravalomana). While this S I a commendable mikakve, it may also produce an mcentive t o d a t e results. Fifth, Madagascar currently suffers f r o m a n overload of mdicators,' n o t all of which are closely monitored. For most of those, n o reliable esb- mates exist prior to 2002. The Bank Country Assistance Objectives 2.8 Overall, the objectives that the Bank has pursued c a n b e grouped under three PRSP pillars: broad-based growth, good gov- ernance, and human and material security. Another unportant func- tion of the Bank m Madagascar, though understandably n o t an explicit one m CASs, has been to respond to crises, whether ansmg f r o m politi- cal disturbances or natural disasters. The three broad objeckves were mcluded m all CASs, although the emphasis, the strategy, and the mo- s m a d y because Madagascar's dality of mterventions vaned. T h ~ was development process has been periodically affected by polibcal msta- biLity, policy mconsistency, or natural disasters. Therefore, the Bank had to tailor its assistance toward the objecbves according to existing situations, at any g v e n period. 2.9 T h e Bank's objectives were relevant, a n d the sequencing of interventions appropriate, despite some gaps. Durmg the first half of the CAE period under review, t h e immediate growth agenda was to put Madagascar o n a sustamed growth path, by stoppmg the bleed- mg m the overextended and mefficient public sector and by establish- mg t h e precondibons for private sector mvestment. This strategy was successful m enabling economc growth, but by 2002, its madequacy m reducmg poverty was apparent. The strategy h a d failed to ensure that poor people could take advantage of the opportunibes bemg cre- ated m a growmg economy, therefore m s s m g the objective of "broad- b a s e d growth (par. 3.20-3.21). The Bank was unable to find a n ap- propriate strategy and related mstruments t o address r u r a l poverty. At the same bme, i t was recogruzed early o n that growth and im- proved social services w o u l d m s s certam vulnerable groups. There- fore, the Bank supported projects a m e d at attackmg poverty directly and creatmg safety nets, probably more so than m many other African countries. It was only with the advent of HIPC and the PRSP era that the Bank started t o focus more explicitly o n poverty impact. Also, it is only then that t h e Bank's emphasls shifted toward improvmg public expenditure management, an area that h a d been relabvely neglected m the Bank's assistance. Although natural disasters are highly preva- l e n t and recurrmg events m Madagascar, the Bank strategy did n o t treat them as a risk mtegral t o the program, with appropriate mibga- b o n and vulnerability reduckon measures.2 7 CHAPTER2 BANKSTRATEGY AND ASSISTANCE The Lending Program 2.10 During the period of lT94-06, the Bank’s lending program consisted of 36 IDA credits/grants and 6 supplements for a total of US$l,8Sl million, of wluch about 23 percent was fast disbursmg. Table 2 summarizes the lendingprogram and economc and sector w o r k w i h each of the three PRSP pillars, subdimded m t o 10 s u b obectives. Table 2. Summary Table: CAS Objectives, Commitments, and ESW (FY94-06) Commitments % of total CAS Oblectives (US$ million) Commitments ESW ~ 1. Broad-Based Growth 1,134.5 60 a. Achieve higher GDP growth through an enabling environment for PSD. 575.7 31 Strategy for High Growth and Poverty Alleviation (1994) b. lncrease agncutturalproductivity 135.5 7.2 Pnvate Sector Assessment (1995) c. lmprove naturalresource management 75.0 4 Agenda for Growth and Poverty Reduction- CEM (1999) d. Enable better access to roads 348.3 19 Rural and Environment Study (2003) Diagnostic Trade Integration Study (2003) Tounsm Sector Study (2004) Development Policy Review (2005) Investment Climate Survey (2005 -) 2. Good Governance 109.0 6 a. Reduce corruption, increase transparency 30.0 2 CFAA (2003) and strengthen thepdiciay Decentralization ( 2004) b. lmprove public sector management 79.0 4 PER (2005) 3. Human and Matenal Security 637.6 34 a. lncreasein p r e p r expenditures 125.0 a Poverty Assessment (1996) b. lmprove access to and quality of Socio Economic Differences in Health, Nutrition, and education 97.0 5 Population (2000) c. Provide affordable basic heath care and access to clean water and sanitation 145.0 8 Education and Training Policies (2001) d. Protect vulnerable groups through 270.6 14 Poverty and socioeconomic developments, 1993-1 999 (2002) targeted interventions TOTAL COMMITMENTS 1.881.I 100 Source: World Bank internal database and IrnageBank. 2.11 Reflecting the Bank’s core objective of promoting eco- nomic growth in Madagascar, about 60 percent of the l e n d i n g pro- gram was allocated for that purpose. Also, t h e CAS implementatron rate improved with government ownerslup (Table 3). M o s t projects n o t mibally mcluded m t h e CAS program were poverty targeted: the Second Community N u t r i b o n and Thud Social Fund a n d Community Development F u n d projects were new phases of ongomg operatrons requested by the government, while mcro-finance was a n e w actrvity Other n e w l y mtroduced projects such as t h e Regonal Development a n d Rural Water Sector Pilot projects auned at reducmg r e g o n a l me- 8  CHAPTER2 BANKSTRATEGY AND ASSISTANCE qualibes. A relatively i m p o r t a n t share of Bank‘s assistance (about 15 percent) w a s channeled through c o m m u n i t y - d r i v e n and d i r e c t l y tar- geted schemes. Table 3. Planned and Actual Lending, FY94-05 FY94-96 FY97-99 FY00-02 FY03 FY04-06 Planned 300-375 450 ’/ 160 650 ’/ Actual 215.7 419.5 421.I 162 662.8 High case scenario; 21 Approved lending as of February 16,2006. 1’ Source: World Bank internal database.. Quality of Lending 2.12 The Independent Evaluation Group (IEG) ratings of Madagascar’s closed projects are slightly better than the average rat- ings for Africa, but slightly worse than the Bank‘s overall averages. Durmg FY94-05, IEG r e v i e w e d a t o t a l of 36 closed I D A - f i n a n c e d pro- jects m Madagascar, representmg US$961.6 million m Commitments (Table 4). O u t c o m e w a s r a t e d sabsfactory for 68 percent of t h e closed projects (by commitments). T h ~ iss l o w e r than t h e B a n k - w i d e average of 79 percent, but a b o u t t h e same as t h e A f r i c a R e g o n average. Fifty percent of projects w e r e d e e m e d to b e resilient to risk, t h i s r a b o b e m g b e l o w t h e B a n k - w i d e average, but above the A f r i c a n average. Table 4. Madagascar-IEG Ratings by Commitment (FY94-05) Total Total Outcome % Resilience to Region evaluated Evaluated satisfactory Risk % (US$) (USSM) (No.) (US$) Madagascar 961.6 36 68.2 50.1 AFR 32,725.5 891 68.6 48.8 World Bank 232,108.5 3,135 78.6 70.8 Source: World Bank internal database (February,2006). 2.13 Portfolio implementation has been a recurring problem. Both t h e FY94 and FY97 c o u n t r y assistance strateges started with a sharply deteriorated portfolio. At t h e b e g m n m g of FY97, half of com- m i t m e n t s w e r e a t n s k . O v e r t h e FY98 to FYOl period, portfolio per- formance gradually unproved, as h s became a n area of emphasis for the Bank. T h e portfolio became hgh mk w h e n t h e crlsis hit m 2002. In FY03, a major portfolio r e s t r u c t u m g sought to r e s p o n d to t h e n e w government’s p r i o r i b e s and ensure its o w n e r s h p . Tkus has b e e n m- strumental m lmprovmg disbursement rates, w h c h rose to 35 percent of commitments, c o m p a r e d to 20 percent dumg t h e p r e v i o u s decade (investment projects only). T h e portfolio sharply deteriorated m FY06, with large projects m t h e transport and agriculture (accounting for 33 percent of commitments) b e m g considered a t risk. Concerted efforts 9 CHAPTER2 BANKSTRATEGY AND ASSISTANCE have n o w unproved the portfolio, with 10 percent of commitments be- mg at risk. Economic and Sector Work 2.14 T h e Bank has carried out a substantial amount of ESW in support of i t s strategic objective of promoting broad-based, private sector-led growth. Nearly all h s w o r k IS of hgh quality, lnfornung the Bank‘s policy advice and gwding the client‘s reform efforts. But the Bank’s ESW could benefit f r o m wider dissemmation (a comment heard by the IEG m s s i o n o n several occasions). Durmg the r e n e w period, there have been three CEMs or then equvalent, a Diagnostic Trade In- tegration Study, and analytical w o r k focusmg o n key sectors such as muung, tounsm, and the EPZs. Impediments to private mvestment are thoroughly researched and documented m a n Investment Climate As- sessment (ICA), while the r e m a m g reform agenda m the financial sec- tor i s reviewed m a Financial Sector Assessment (both m 2005). The re- f o r m of public finances and decentralizabon have benefited f r o m several analytical pieces, especially m recent years. There has been a Public Expenditure Review (PER), a Country Procurement Assessment Report (CPAR), a Country Financial and Accountability Assessment (CFAA)? and a detailed decentralization study, to underpm the move to programmabc lending. A hgh-quality Rural and Envlronment Sec- tor Review was produced m 2003 t o reshape the Bank’s policy m t h e rural sector. 2.15 W h i l e the Bank’s poverty analysis was of high quality a n d relevant, relatively little formal w o r k was undertaken on h u m a n de- velopment for much of the CAE period. The Bank‘s m-depth analysis of poverty trends m 1993-994 provided a thorough stocktakmg of the m p a c t of economc growth o n poverty and contributed t o a re- evaluation of Bank strategy that was ultimately reflected m FY04 CAS. The Bank was also an unportant player m re-building Madagascar’s poverty database and analytical capacibes, and made substanha1 use of trust funds to provide financial and t e c h c a l support. On social sec- tors, the only formal report was o n the educabon sector m 2001, w h c h gave substantial momentum to the Bank’s dialogue and.program. In the health sector, a much-needed sector note is under preparabon after a 17-year mterval smce the previous sector report. The first social pro- tection strategy note IS also under preparation. 10  CHAPTER2 BANKSTRATEGY AND ASSISTANCE Box 1. IEG-IFC Overview of IFC Operations in Madagascar, 1995-2005 Overall, IFC mvestments and technical assistance (TA) m Madagascar were aligned with its strategy of supporting privatizations, small and m e d i u m en- terprlses (SMEs) and export-oriented enterprlses. IFC's direct investments in Madagascar were successful: Between FY95 and FY05, IFC supported seven projects -m hotels, agribusmess, banlung, and textiles-for US$16.0 million, with four direct mvestments and three mdirect mvestments through the African Enterprise Fund (AEF). Between FY90 and FY94, IFC supported SIX projects -m agribusmess, textiles, private equity, and bankmg-for US$10.6 million, through four direct mvestments and t w o mdirect mvestments through AEF All the direct mvestments that reached early operating maturity were evaluated as havmg successful outcomes, with satisfactory IFC w o r k quality The key drivers behmd the success of the IFC direct mvestments were: ( i) projects m competitive export-oriented opera- tions m textiles and shrimps, with trade preferences that provided access to U S and E U markets; (ii)projects with Export Processmg Zone (EPZ) status that reduced the admmlstrative barriers for domg busmess and granted fis- cal mcentives; and (iii) strong sponsors, with w h o m IFC h a d long-standing relationship m the country and elsewhere. Five of the eight direct mvest- ments h a d financmg support f r o m other developmental m t i t u t i o n s . T w o direct mvestments mvolved the privatization of t w o banks, though they were n o t oriented to support SMEs. IFC supported SMEs in Madagascar initially through the Afrcan Enterptrse Fund (AEF): Three of IFC's seven FY95-05 mvestments and two of IFC's SIX FY90-94 mvestments supported SMEs, through the AEF program. IEG-IFC evaluated the AEF program m 2000 and found its mvestments to have only a 56 percent development outcome success rate and a 44 percent mvestment outcome success rate -based on a sample of 57 enterprlses approved durmg FY93 to FY98, representing 50 percent of the population. Thls was unsus- tamable and the evaluation recommended that the AEF program be discon- tinued or modified. IFC phased o u t the AEF program durmg the 1999-2001 period and n o w supports SMEs mdirectly -on a wholesale basis -through financial mstitutions and n e w mitiatives. The n e w mitiatives mclude: i) an SME Solutions Center (SSC) p i l o t which began operations in June 2004; and ( ii) a n IDA-IFC micro, small and m e d i u m enterprises (MSME) mitiative pilot program, approved m July 2005. Donors and mvestors have contributed to the full commitment of US$11.5 m i l l i o n for the Madagascar Risk Capital F u n d that u n d e r p m the SSC concept, and IFC has selected Busmess Partners International (BPI), as the fund manager. While it is early to assess the re- sults of the SSC mitiative, IFC S I setting up a self-evaluation system to track the results. IFC provided TA to improve the investment climate, and opened an Indian Ocean regional onice: According to the recent (2005) Investment Climate Assessment (ICA) by the W o r l d Bank, busmesses identified the t o p five con- stramts to private sector g r o w t h m Madagascar as: macroeconomic mstabil- ity, cost of financmg, access to financmg, corruption, and anti-competitive practices. Based on the Institutional Investors Country Credit Risk (IICCR) score, Madagascar has been a high-rlsk country (i.e., a frontier country m IFC's definition) over the review period. FIAS- m close collaboration with U S A I D -assessed the admmstrative barriers t o foreign direct mvestments (FDI) m 1999 (at a cost of US$226,000). The FIAS study recommended re- forms related to busmess registration, employment of expatriate workers, 11 CHAPTER2 BANKSTRATEGY AND ASSISTANCE Box 1 (continued) l a n d acquisition, customs procedures, taxation procedures and EPZs. The FIAS report was discussed at a roundtable m Antananarivo, attended by public and private sector participants a n d the donor community Though the Government accepted the recommendations of the report and sought FIAS assistance m drafting a n action plan, i t was n o t implemented due to the political crlsls that emerged. Since 2002, the n e w Government has begun ad- dressmg deficiencies m the busmess climate. At the request of the Govern- ment, IFC also did a leasmg TA operation m FY05 (at a cost of US$128,000) to establish a legal and regulatory framework for the leasmg mdustry IFC was m t r u m e n t a l m the passmg of a n e w leasmg l a w by the Parliament in De- cember 2004. IFC 1 s currently idenhfymg potential mvestors and techmcal partners for a leasmg project. IFC opened a n I n d i a n Ocean r e g o n a l office m Antananarivo m August 2004 to facilitate its operations m Madagascar a n d neighbormg countries. IFC 1 s also providing advlsory services for the priva- tization of the operations of a contamer termmal and 12 auports, as w e l l as for the structurmg of mdependent power production projects (IPPs); these measures are expected to improve the quality of mfrastructure services and help reduce the cost of d o m g busmess. Challenges and Opporfunitzes: The long-term sustainability of manufac- tured exports m the context of eroding trade preferences 1 s one of the fun- damental challenges for Madagascar. Malagassy textile firms need to mte- grate better m t o the global value cham. In addition, SME access to finance f r o m commercial banks will depend on reforms to facilitate the recovery of nonperformmg loans. Source: Independent Evaluation Group-IFC. Partnerships 2.16 Madagascar benefits f r o m substantial bilateral and multi- lateral donor support, although t h e number of donors i s limited. For example, over 50 percent of the overall 2004 budget was financed by external resources, and this rabo i s over 70 percent for the mvestment budget. IDA and European Uruon (EU) are the m a m donors accountmg for over 70 percent of t h e aid flows t o t h e country Cluef among bilat- eral donors are the United States and France, though other bilateral do- nors, such as Japan, Germany, Norway, and Switzerland, also play key roles m certam areas, such as governance, envuonment, and the r u r a l sector. 2.17 Developing partnership among donors was given particular importance in t h e FY03 I n t e r i m a n d FYO4 CASs. After the cnsis, the ”Fnends of Madagascar” donor meetmg (co-chaued by the Bank, EU, and the United N a b o m Development Program, UNDP) was very effec- tive m rallymgsupport for the recovery effort. The move to PRSC lend- mg further strengthened donor cooperation by basmg it o n a common policy and mdicator m a t r x endorsed by t h e Bank, African Develop- ment Bank, and EU. Regular local donor coordination meetings are tak- 12  CHAPTER2 BANKSTRATEGY AND ASSISTANCE mg place o n specific sector/themes to better coordinate actmities. As mentioned m Box 1above, jomt IDA/IFC pilot p r o g r a m to develop small and m e d i u m enterpnses i s underway, but it i s too early t o assess i t s results. 1.There are about 90 mdicators m the "Politique Generale de 1' Etat," and about 1000 NOTES actions/indicators m the PRSP Implementation report. 2. Hazards o f Nature, Risks to Development: An I E G Evaluation of W o r l d Bank Assistance for Natural Disasters, World Bank, Independent Evaluation Group, 2006. 3. While the PER and CPAR are of h g h quality, the IEG Evaluation mission did, how- ever, hear some criticisms of the CFAA for providing "off the shelf " solutions rather than engaging the Authorities m an m-depth and participatory dialogue. 4. "Madagascar Poverty and Socio Economic Developments: 1993-1999," Report No. 23366, September 20,2002. 13 3. Progress in Achieving Broad- Based Growth 3.1 Broad-based, private sector-led g r o w t h has been, a n d re- mains, a central objective o f t h e Bank’s interventions in Madagas- car. The g r o w t h ohective mvolves a large agenda that mcludes im- p r o v m g the mvestment climate and p r o v i d i n g an enabling environment for private sector development m a l l sectors, i m p r o v m g mfrastructure, mcreasmg agricultural produchvity, a n d better man- agement of the country’s bountiful natural resources. HIGHER THROUGH GROWTH ENVIRONMENT ENABLING FOR PRIVATE SECTOR DEVELOPMENT 3.2 During the early part of the period under review, the Bank focused o n ”getting the prices right” in Madagascar. To that end, t h e Bank supported liberalizahon of the exchange rate a n d capital ac- count; mdependence of t h e Central Bank; the abolibon of nearly a l l subsidies (especially those for rice produchon); a sigruficant reducbon m i m p o r t tariffs; and t h e e l i m a h o n of a l l export taxes.1 3.3 T h e n t h e Bank focused o n ”microeconomic” reforms, with the objective o f generating large foreign investment f l o w s t o realize Madagascar’s economic potential. These reforms (some mcluded m SAC I1and related techrucal assistance projects) consisted o f im- provements t o t h e busmess environment (such as streamlirung of busmess start-up procedures, enhancmg t h e enabling envuonment for the EPZs, facilitatmg tourism achvihes); reducmg the role of the State m producbve a n d commercial acbvibes through a program of divesh- ture; establishmg a sound banlung sector (privabzmg state-owned banks, strengtherung regulabon and supervision); a n d promotmg transparency and establishmg regulatory frameworks m the sectors with hgh g r o w t h potential (such as m g and fisheries). In addi- bon, the Bank support a m e d at i m p r o v m g t h e quality and quantity of mfrastructure services, such as electricity and telecommurucabons that are crihcal for E D . 3.4 The results of the divestiture program supported by the Bank were significant, despite considerable delays a n d d i l u t i o n o f conditionality 2 The parastatals SOLIMA (petroleum distribubon), H A S Y M A (cotton), a n d T E L M A (telecommurucabons) were privat- 15  3 CHAPTER BROAD-BASED PROGRESS IN ACHIEVING GROWTH ized, resultmg m a competibve envlronment parbcularly m petroleum distribubon and telecommumcabons; S I R A M A (sugar) was put under management contract; the nabonal avline was also put under private management, and a n transport was liberalized; as a result, there have b e e n important reducbons m alr tariffs for b o t h mternabonal and domesbc routes, as w e l l as for telecommumcabons. Autonomous regulatory agencies have been established for aviabon and ports. I n the p o r t sector, the contamer t e r m a l has been ceded t o a foreign concession. The northern railway has also been concessioned, and shows signs of unproved performance after an m i b a l period of poor management. 3.5 G i v e n the government’s reluctance, the privatization proc- ess was protracted, dragging o n for several years. This h a d negative consequences o n the sectors mvolved (particularly sugar a n d cotton). The Bank spent considerable b m e a n d effort m assistmg with the con- clusion of transactions, w h c h raises t h e quesbon of the opportunity cost of Bank’s efforts. But m the end, private sector parbcipabon m a l l these large public enterprises sent a n important signal t o the mterna- honal community confirmmg the pro-busmess direcbon of policy m Madagascar. 3.6 Bank-supported reforms resulted in a much stronger bank- ing sector, though there i s still a large unfinished agenda. Int h e early 199Os, weak public sector banks were a major source of macroeconomc m t a b i l i t y Restructurmgs and privatizations supported by the Bank re- sulted m the establishment of financially sound banlung mstitutions. However, the banks are cartelized; fees and spreads are hgh; even blue c h p borrowers are unable t o obtam credit for longer than five years; and penetration - only about 2 percent of the population have bank ac- counts - r e m excepbonally l o w even by Sub-Saharan A f n c a n stan- dards. Despite severe lack of access to credit m the r u r a l areas, the Bank decided n o t to contmue with the second phase of an APL whch con- sisted of a successful mcro-credit program.3 3.7 Although s t i l l far f r o m ”Mauritius or Singapore stan- dards,” considerable improvements have occurred in Madagascar’s investment climate with Bank support. There i s n o w an effecbve commumcabon between the public and private sectors; a one-stop- shop has reduced the t u n e needed t o establish a new busmess by half, but the number of days needed t o deal with licenses i s still higher than the Sub Saharan Afnca average (Table 5); o b t a m g w o r k per- mits and visas for foreign staff has become m u c h easier; the bme needed t o clear a contamer through customs has been reduced (below t h e African average), a n d a n e w l a w m 2003 gave foreigners for the first tune the nght t o o w n land m Madagascar, but i t s pracbcal impact has been muted so far. Notwithstanding these posibve developments, 16  CHAPTER 3 BROAD-BASED PROGRESS IN ACHIEVING GROWTH mvestors’ confidence m Madagascar r e m m low, as reflected m low FDI mflows. 3.8 T h e l a n d issue in Madagascar remains one of ill-defined property rights, despite recent changes. Thls has several negabve consequences. First, it may l m p e d e agricultural development smce it acts as a brake o n mvestment by farmers.4 Second, it restricts access t o credit smce banks cannot use u n t i t l e d land as collateral. Thud, it i s a major obstacle f o r tourist development smce firms require secure title before u n d e r t a k m g major mvestments. According to the Investment Climate Assessment, nearly a l l firms r e p o r t h a v m g to m a k e “infor- mal’’ payments to obtam a n d / o r r e t a m access to land. Table 5. Comparative Business Climate Indicators (20042005) Madagascar Mauritius Average SSA Infrastructure Quality (2004) Number of power outages per year 78.0 5.0 28.0 % of output lost due to outages 10.7 2.5 5.4 % of output lost in shipment 1.8 0.8 3.8 Average No. of days clear customs (2004) 7.0 4.0 8.0 Average No. of days to deal with licenses (2005) 356.0 132.0 251.5 Availability of financing (2004) % of investment from retained earnings 76.0 56.0 63.0 YOof investment from banks 12.1 16.0 14.2 Source: The World Bank database, Doing Business, February 2006; ICA 2005; IMF; DTIS. 3.9 T h e electricity sector i s a major obstacle to economic ex- pansion. There has been n o mcrease m the rate of electricity coverage smce 1995: then, as now, only some 10 percent o f the p o p u l a b o n h a d access to electricity (3 percent m r u r a l areas). The q u a l i t y o f service today i s a t a historical low,5 and J I R A M A (the Electricity and Water Company) i s financially a n d techrucally bankrupt. The roots o f the current crisis l i e m strategx decisions taken m the 1990s, f o r w h i c h the Bank shares responsibility 6 The Bank and other donors adopted t h e p o s i b o n that mvestment m generabon s h o u l d b e l e f t t o the p r i v a t e sector.7 J I R A M A received support only f o r mamtenance and im- provement of current facilibes. A s private mvestment failed to mate- rialize, J I R A M A resorted mcreasmgly to thermal generabon based on diesel f u e l to meet mcreasmg demand. High diesel f u e l prices, com- b m e d with a failure to mcrease tariffs m l i n e with costs, and t h e per- sistence o f severe governance issues withm the enterprise, m e a n that the m a r g m a l cost of servicmg n e w clients has for some b m e exceeded substanbally the revenue earned from them. JIRAMA has, therefore, been p r o h i b i t e d from connectmg n e w clients smce M a y 2005. All n e w mvestors m u s t arrange for t h e n own electricity generation, w h i c h se- riously u n d e r m e s Madagascar’s attracbveness and competibveness. 17 CHAPTER 3 PROGRESS IN ACHIEVING BROAD-BASED GROWTH J I R A M A has been operating under a two-year management contract with a foreign partner smce 2004. However, the partner has been able t o d o little t o address the fundamental problems of t h e enterprise, w h c h are largely polihcal m nature. I n2005, with t h e Bank's support, a p l a n was prepared t o restore J I R A M A commercially and techrucally, and t h e Authorihes mdicated t h e u acceptance of this plan, mcluding substantial tariff mcreases. The mplementabon w o u l d be followed by donor-supported mvestment m h y d r o generation. 3.10 Overall, Bank-supported policy reforms, coupled with improved macroeconomic situation, did succeed in stimulating growth. Inparticular, the sectors directly or mdirectly targeted did w e l l after 1996. Before the onset of the political crisis m the first h a l f of 2002, the real output of t h e EPZs grew at 22 percent per year and ex- p o r t revenues by 25 percent p e r year. Tourism arrivals doubled t o over 100,000 per year, and tourism became the country's second most important foreign exchange earner. Shrimp exports expanded by 15 percent annually, as a result of large-scale shrimp farmmg. There are mdicabons that t h e arhsan subsector expanded rapidly, as well. I n addihon, there has been, more recently, addibonal foreign mvestment for the exploration of two large muung deposits. All these favorable developments were, m large part, a direct result of Bank-supported legal and regulatory reforms. These enhanced activihes h a d unportant spm-off effects m other sectors. Construction rose at a n annual rate of 1 1percent, while transport a n d other services saw yearly expansion rates of 6 and 8 percent respecbvely SECTOR AGRICULTURAL 3.11 T h e agricultural sector, though critical for poverty allevia- tion, was relatively neglected in the Bank's strategy. The Bank's strategy focused o n getbng g r o w t h gomg m non-tradibonal sectors. The reforms of t h e rmd-l990s, mcluding exchange rate depreciabon, reduchon of i m p o r t barriers, elimmabon of agricultural subsidies and other price distorhons, liberalizabon of markets, a n d privabzabons, established a relahvely balanced mcenbve structure for the sector? But t h e Bank's overarclung objecbve of mcreasmg crop yields was n o t reached. The Bank was unable t o address m a coordinated manner the difficult issues of research and extension, r u r a l credit, a n d roads and u r i g a b o n mfrastructure, whose deficiencies have been behmd the l o w r u r a l produchvity (For example, the potenbal benefits o f market lib- eralizahon w e r e offset by the deterioration m r u r a l roads.) This m a d y reflected the Bank's mability to find the appropriate design a n d rmx of mtervenhons for complex, multifaceted agricultural sector issues m Madagascar (variety a n d diversity of agro-ecolopcal zones; r e p o n a l mfrastructure and constramts, parbcularly r u r a l isolation; different types of households m v o l v e d m agricultural producbon; and SO on).g 18  CHAPTER 3 BROAD~BASED PROGRESS IN ACHIEVING GROWTH 3.12 With t h e FY03 CAS, the B a n k put a stronger emphasis o n agricultural sector issues. Tlus was necessitated by the l i m i t e d success m the sector due to a lack of appropriate pnority-sethng and regonal planrung, and weak m t i t u t i o n a l coordinabon. The Bank‘s approach i s u n d e r p m e d by the Rural and Envrronment Sector Review (2003), w h c h takes a holistic view of rural development by emphasumg land use planrung. Land use planrung w o u l d fully mtegrate considerations of poverty reduction, food security, r u r a l development, envvonment, and biodiversity and provide a c o m o n spatial reference framework for the actions of a l l national programs. Intlus way, it w o u l d set the stage for a fully mtegrated approach that seeks to maxmuze synergy between vanous sector mterventions and programs. Tlus approach 1 s bemg mcorporated m t o the Bank’s n e w lending program (the Fort- Dauphm component of the G r o w t h Poles Project, and the Watershed Management Project under preparabon). FY07 strategy m e d to de- velopmg project synerges, but n o t with m u c h success. It r e m a m to be seen whether these new mterventions will be more successful than the previous projects. At t h e same tune, uncertambes remam, and a donor consensus i s n o t yet reached regarding the nature of future extension services m Madagascar. 3.13 G r o w t h lagged persistently in the agricultural sector. The expansion of the sector trailed growth m the rest of the economy, and failed to raise r u r a l mcomes. Food crops have suffered f r o m long- standing l o w producbvity Rice yields, the m a m food stable for the Malagasy people,lO accountmg for about 50 percent of the value added m the sector, have remamed relabvely low,’l despite Madagascar’s m- herently favorable conditions for tlus crop. Revenues f r o m export crops (vanilla, clove, coffee) have been d e c h g m relative terms, m a d y be- cause of unfavorable w o r l d prices. Industrial crops (cotton and sugar) suffered f r o m the l o n g privatization process of the parastatals mvolved. Currently, extension services are meffective-or rather nonexlstent- as a result of the failure of t h e top-down Tram and Visit extension system. Research 1 s n o t geared to labor-mtensive farmmg w h c h 1 s t h e mode of operabon for the majority of Malagasy farmers. Mamtenance of vnga- tion schemes is n o t assured m a sustamable manner, m a d y because of the mability of users’ associations to recover costs and unclear land ten- ure rights. Table 6. Selected Indicators for the Agricultural Sector and Environment Indicators Target 1995 2000 2004 Average paddy nce yields (tonslha) 2.4 (FY04CAS) 2.1 2.1 2.4 Paddy nce production (kglcapita) 177 155 160 Fertilizer use (kglha) 4.5 3.1 3.1 Vaccination coverage for cattle (%) 60 (FY99) 57 - Average annual deforestation rate (%) 0.6 (FY04CAS) 1.3 1.3 1 Protected areas % of land area 4 (FY04CAS) 1.9 3 Source: FAOSTATS, WB Africa regional database, Ministry of Agriculture. 19  3 CHAPTER BROAD-BASED PROGRESS IN ACHIEVING GROWTH 3.14 In Madagascar, the Bank has h a d l o n g involvement in natural resource management a n d environment. The fact that Mada- gascar i s a biodiversity hotspot has been h e l p f u l m that regard. There has been strong support f r o m the donor and the NGO communibes t o p u s h the environmental agenda ahead. The f i r s t Nabonal Envvon- ment Acbon Plan (NEAP) was produced m 1988, a n d set the basis for a 15-year program.12 The m a m objechves of h s program were: ( i) t o arrest environmental degradahon and promote sustamable use of natural resources; and ( iit) o strengthen the framework a n d mstitu- hons t o m a m t r e a m t h e environment m mvestment and policies. The first two phases of t h e donor-supported environment program are completed, and the third one was approved m M a y 2004.13 Although the Bank’s financial contribubon t o the programs i s relabvely small at about 25 percent, it continues to play a n m p o r t a n t catalytic role m t h e sector. T h e program has been mstrumental m establishmg an effecbve platform for sustamed donor support a n d coordinabon f o r protechon of environment. 3.15 Government ownership of the environmental agenda has improved over time, a n d progress has b e e n made in implementing it. The legslation for the protecbon of country’s natural resources a n d the promobon of environmental management was enacted. Im- portant environmental mstitubons were established, although mstitu- honal effechveness r e m m s a serious issue g w e n t h e v numbers and overlappmg responsibilibes, as w e l l as t h e v weak enforcement ca- pacibes. Community-based approaches for natural resources man- agement are bemg implemented (to date there have been over 100 management contracts with the communes), but progress i s con- stramed by weak capacity of the communes, a complicated contract- mg process, a n d unclear l a n d tenure and property rights.14 The gov- ernment a n d donors designated 4.5 percent of t h e nahonal territory as protected areas. Deforestabon has been virtually elirmnated m pro- tected areas, but c o n h u e s at a slower pace m other areas. These posi- h v e developments are due t o many factors: reform o f the forest ser- vice, w h c h i s n o w mtegrated m the Mirustry of the Environment, moratorium o n a l l forest concessions until management plans are pre- sented; devolubon of property rights and/or management responsi- bilihes to local communibes; and the strong commitment of the Presi- dent, w h o announced m a n mternabonal conference m 2003 his objechve of securmg at least 10 percent o f the land as protected for- ests. ROADTRANSPORT 3.16 Insufficient road transport has l o n g been, a n d remains, a major obstacle to higher agricultural productivity, provision of so- cial services, a n d rural poverty alleviation. Today, over 80 percent of 20  CHAPTER 3 BROAD-BASED PROGRESS IN ACHIEVING GROWTH the total road network i s m poor condibon, and many m a m roads are impassable durmg the ramy season. H a l f of a l l r u r a l communibes have n o reliable road access, l o w e r m g their producbvity a n d m a k m g them heavily dependent o n monopolisbc traders. 3.17 T h e Bank’s objectives in the sector were to improve the road network a n d to help set up the appropriate institutional framework. This mcluded a Road Mamtenance Fund (RMF) for fi- nancmg road mamtenance acbvibes. However, until 1999/2000, there was n o sustamed change m the formulabon a n d conduct of transport sector policy, despite substanbal donor mterventions (for example, the last of the Bank‘s seven h g h w a y projects closed m 1995). A s a re- sult, mamtenance was neither properly orgaruzed nor adequately fi- nanced. Between 1970 a n d 2000, about 30,000 kilometers of road were lost d u e t o madequate mamtenance. 3.18 This disappointing performance l e d to a 10-year hiatus in Bank lending for the road sector, followed a by an ambitious pro- gram. It was only m 1999 that the government produced a sabsfactory Sector Policy Letter (requested by the Bank a n d other donors mvolved m t h e sector), and established a ”first-generabon” R M F The Bank re- sponded m 2000 with a n Adaptable Program L o a n (APL) t o be im- plemented m several phases. A highly ambitious program supported largely by the EU and t h e Bank was put m place. Early results were encouragmg. In 2003, and especially m 2004, there were major m- creases m periodic a n d routme mamtenance of b o t h paved and un- paved roads thanks to the R M F (Table 7).Construcbon a n d rehabilita- b o n achvibes also accelerated, almost a l l financed by the EU. Table 7. Road Transport Indicators Before CAS target indicators 2002* 2003 2004 2005* (FY061 Paved road construction and rehabilitation (km)”’ 91 32 1,041 628 Earth road rehabilitation (km) 102 98 100 248 Critical point maintenance (km) Insignificant 158 1,073 349 Total (km) 193 288 2,214 1,225 16,900 Routine maintenance financed by RMF (km) n.a. n.a. 6,819 7,031 YOof rural population with access to reliable road transport 45 52 * No reliable data exist for the pre-2002 penod. However, it is known that very little maintenance took place. **Actual figures January-August, projections September-December. *Including major periodic maintenance Source: Ministry of Transport and Public Works. 3.19 Unfortunately, the institutional reforms and enhanced gov- ernance required to sustain the massive increase in construction and 21 CHAPTER 3 BROAD~BASED PROGRESS IN ACHIEVING GROWTH maintenance activity have lagged seriously behind. Although the RMF is bemg transformed mto a "second-generabon" entity with legal autonomy, and has enabled a substantially unproved routine mamte- nance effort, it 1 s s t i l l under-resourced.'5 An autonomous Road Author- ity, for w h c h the Bank has been pressmg for a number of years, is s t i l l n o t m place, although progress toward its establishment is being made.16 Policy coordination has been enhanced by the merger of the Mirustnes of Transport and Public Works, but the huge mcrease m funding has stramed the absorptive capacibes of both public and pri- vate sectors. T h e performance of the Bank's Project Implementation Unit (PIU) was lughly unsatisfactory After mdependent audits re- vealed senous shortcommgs, the unit was closed d o w n m June 2005. These shortcommgs have adversely affected the Bank's share of t h e road program. Only about half the rural road rehabilitation w o r k o n g - nally programmed under APL2 will be realized. The nabonal roads re- habilitabon program financed by APL3 i s seriously behmd schedule, and there are major ongomg problems with a large contract. T h ~ re- s flects, m part, Bank's madequate supervision efforts at all levels. 3.20 In sum, w h i l e higher growth rates have b e e n achieved, there have been some important gaps in Madagascar's economic performance. This hgher growth has n o t been broad-based. Rural isolabon has n o t been reduced. Economc expansion has been con- fined to a few modern sectors. In t h e process, Madagascar m a y have become dangerously dependent o n t h e garment trade. Many compa- rues m EPZ have succeeded largely because of preferenbal bilateral and multilateral trade agreements. These agreements are n o w expir- mg. This will expose the EPZ to serious shortcommgs -l o w produc- bvity, high non-labor costs, and lack of verbcal mtegrabon (for exam- ple, m cotton produchon), etc. -which, unless addressed, will undermme Madagascar's ability to retam these mobile acbvibes and adversely affect employment m the EPZs. The country's future com- petibveness remams a n 1ssue.17 There was little analybcal w o r k m the Bank's program prior t o these developments, untilrecently 18 (The Bank's relabvely slow anbcipabon of the expnabon of trade agree- ments, was also observed m I E G s 2006 Report entitled: Assesstng World Bank Support for Trade, 1987-2004). 3.21 T h e poor did not participate fully in this growth. Overall, the country has made n o systemabc m o a d s m t o poverty as measured m mcome and consumption terms (Table 8). Durmg 1993-99, extreme poverty mcreased,lg suggestmg that growth bypassed the poorest groups. The poverty rate m 2004 was 72 percent, h g h e r than the rate m 1993 and the pre-crisis level. Some regons have progressed, while others fell behmd.20 The poverty rate m Antananarivo, t h e capital city, moved rapidly d o w n or up with economc swmgs, with some overall mprovement m 1994-2005. Even m the sectors where growth oc- curred, i t did n o t reach the poor as m u c h as was expected. The EPZ 22  CHAPTER 3 BROAD-BASED PROGRESS IN ACHIEVING GROWTH expansion was effecbve m creatmg employment at t h e l o w end of the earrungs scale. However, the employment represented only 1.4 per- cent of the labor force m 2001, far below what is needed t o buoy t h e nabonal labor market. Moreover, EPZ proved t o be hghly sensibve t o swmgs m economc activity m t h e subsequent years. At the same bme, other growth sectors did n o t generate large-scale employment opportunibes.21 This mdicates that growth alone has n o t been suffi- cient t o address structural poverty 22 The prelirmnary results of t h e Household Survey- EPM 2005 show a decrease m the poverty rate (68.7 percent), w h c h can be largely attributed t o rismg rice producer prices and recovery measures after the 2002 crisis.23 It r e m a m t o be seen whether t l u s recent favorable trend will be sustamed. Table 8. Poverty Outcomes (1993-2005) (CAS target) 1993 1997 1999 2001 2002 2004 2005* 2006 Poverty incidence (%) 70.0 73.3 71.3 69.6 80.7 72.1 68.7 68.0 Rural (%) 74.5 76.0 76.7 77 1 86.4 77.3 73.5 Urban (%) 50.1 63.2 52.1 44.1 61.6 53.7 52.0 Poverty gap (YO) 30.3 33.6 32.8 34.8 47.6 31.6 - Extreme poverty 59.0 63.1 61.7 - incidence (Yo) Population living in 8.8 10.0 10.3 10.6 12.6 11.9 11.9 poverty (millions) ‘Preliminary results of EPM 2005. Source: Successive rounds of EPM and Madagascar Development Policy Review: Sustaining Growth for Enhanced Poverty Reduction, Report No. 32167-MAG, dated May 16,2005. SUMMARY OF OUTCOMES 3.22 Higher growth was achieved, but it was narrowly based and has yet to have a significant impact on poverty. Regarding the okqective of restormg growth, substantial progress was made m 1995- 2005, especially a g a m t the background of declirung mcomes for the preceding 30 years. But the Bank’s overarchmg goal of reducmg pov- I almost as hgh as it was over a erty was n o t a w e d : the poverty rate S decade ago. Agricultural growth was m u f f i c i e n t to raise rural mcomes and enhance food security, and the Bank’s support for the sector was modest. On t h e other hand, steady progress was made m natural re- source management, but it is n o t yet sufficient for sustamable conserva- b o n of ecosystems. Overall, the acluevement of tlus okqective was mod- erately unsabsfactory (Table 9). 3.23 B a n k support of strong growth was largely relevant, but there were k e y gaps a n d failures. The Bank can c l a m credit for pro- viding sigruficant support t o the turnaround m economc growth. It put growth at the center of its dialogue, its economc analyses and 23 CHAPTER3 BROAD-BASED PROGRESS IN ACHIEVING GROWTH advice w e r e mostly pertment and c e r t a d y mfluenttal, and lending mcluded basic reforms to lmprove the mvestment climate. Overall, the Bank's presence, dialogue, a n d resolve gave crucial m o m e n t u m t o structural reforms, leading t o higher economc growth. Bank support for private sector development was m a d y concentrated m urban ar- eas. Int h e absence of agreement o n overall strategy a n d necessary m- stituhonal reforms m the r o a d transport sector, the Bank was unable to support improvements to the mfrastructure. Tlus was regrettable smce well-targeted mvestments could have eased the problems of iso- lahon a n d the provision of public services. T h e current crisis m the electricity sector has its roots m poor strategc decisions datmg f r o m the rmd-1990s, for w h c h the Bank shares p a r t of t h e responsibility. Table 9. Summary of Outcome Ratings for Broad-Based Growth Objective Outcome Higher growth Moderately Unsatisfactory Increased agricultural productivity Unsatisfactory Better access to roads Moderately Unsatisfactory Improved natural resource management Moderately Satisfactory Overall Moderately Unsatisfactory 1.These reforms were supported by SAC I(approved m FY97) and related techrucal NOTES assistance operations. 2. In December 2001, pnor to the second tranche release of SAC 1 1, the Board ap- proved a waiver permitting a change m the TELMA pnvatization conditionality from "transfer of assets" to "pomt of sale;" the actual change of ownerslup was not com- pleted until June 2004. At the same time, the closmg date for the credit was extended by one year. Followmg t h e 2002 political cnsis, the government requested a restruc- turmg of the conditions for the third tranche release. The sale of A i r Madagascar as- sets was changed to a management contract with a foreign operator, and several con- ditions were dropped. 3. Limited IDA resources were cited as the reason. 4. O n the other hand, the current lugh cost of land titling m Madagascar may exceed the private economic benefit resulting from it. See the study by Hanan Jacoby and Bart Minten, "Is Land-Titling m Sub Saharan Afnca Cost Effective-Evidence from Madagascar, November 2005." 5. According to the 2005 ICA Review, Malagasy firms face one of the most unreliable electncity r e p e s and the lughest production losses from power outages among the countnes surveyed. Obtamg a new electncity connection requlres 49 days m Mada- gascar, compared to 18 days m Chma and 2 days m Mauritius. Power outages are fre- quent, and have worsened recently with adverse unpact o n export and tounsm sectors. 6. A number of actions, mcluding, a tariff adjustment formula, were supposed to be taken to strengthen JIRAMA before the Energy I1project went to the Board or became effective. These actions were not carried out, but the Bank went ahead, anyway It i s also noteworthy that the Bank chose an mvestment project to promote private sector participation, despite the hgh degree of political sensitivity mvolved. 7 As the IEG's Report entitled "Pmer for Dmelopment-A Revim of World Bank Group's Expenence with Pnvate Partinpation in the Electncity Sector, 2003" notes that the Bank's 24  CHAPTER 3 BROAD-BASED PROGRESS IN ACHIEVING GROWTH advice for pnvate sector participation m the electricity sector h a d become exclusively focused o n unbundling a n d pnvatization in a global environment o f reduced private capital flows, particularly m l o w mcome, h g h - r i s k countries l i k e Madagascar. 8. The Bank was also quite responsive by p r o v i d i n g a paper with clear recommenda- tions to address rice policy issues that arose durmg 2004/2005 w h e n there was a sharp mcrease m nce pnces, as a combmed result o f A n a r y depreciation a n d w o r l d rice price mcreases. 9. For example, the Agricultural Extension Support Program Project (itself based o n a p i l o t project), w l u c h was supposed t o b e the first phase of a long-term (15-20 years) program, could n o t be sustamed because transport and marketing constramts w o u l d prevent the translation of farmers’ productivity mcreases m t o mcreases m mcome. Similarly, the second Irrigation Project h a d modest lnstitutional impact a n d unlikely sustamability because it lacked mtegration with extension, watershed management, credit, and management t r a m g . 10. Rice has a special place for the Malagasy farmer: about 85 percent of farmers g r o w me, and it IS the source of food security a n d cash mcome. It IS generally acknowledged that farmers will n o t divers* thelr production unless thelr food security SI ensured. 1 1.Rice productivity has been stagnant smce 1960, with yields hovermg around 2+ tons per hectare. The w o r l d average productivity is around 4 tons per hectare. 12. In a n IEG report entitled: ”Effectiveness o f Environmental Assessments a n d NEAP. A Process Study, June 1996” the Madagascar NEAP faired relatively w e l l m a comparative analysis m v o l v m g five other countries. 13. The h r d phase of the program mtroduced a t r u s t fund, m part to be funded by IDA S I a source of mcome for financmg enwonmental activities m the future. 14. There have been also problems with the partial transfer of national p a r k visitation fees t o the communes, as stipulated m the contracts. 15. The R M F is funded m a d y f r o m fuel taxes. It currently has barely enough t o cover current let alone penodic mamtenance. Moreover, a sigruficant p o r t i o n of its mcome is received n o t directly f r o m the fuel comparues but mdirectly through the Treasury T h s mcreases financial uncertamty as does the practice of u s m g the Fund for major rehabilitation and even construction work, whch it is n o t yet equipped t o support. 16. The donors, mcluding the Bank, share some of the responsibility for the slow pro- gress. Initially the Bank’s preference was for a delegated contract management agency; only inJune 2003, did it start to call for an autonomous agency 1 7 The W o r l d Economic Forum’s G r o w t h Competitiveness Index a n d Busmess Com- petitiveness Index g v e Madagascar a very low rankmg o n a l l perceived mdicators, except Macroeconomic Environment. 18. Analysis of these issues appears m the Development Policy Review a n d m the P A D for the G r o w t h Poles Project, b o t h completed m 2005. Inaddition, the Bank has played a leading role m orgamzmg a w o r k m g party c o m p r w n g representatives o f b o t h EPZ comparues and the government. T h s group meets regularly t o discuss the perspectives for the sector, a n d m particular h o w t o meet the challenges posed by the changmg mternational environment. One o f the key measures b e m g pursued is a trade agreement with Mauritius w h c h w o u l d enable hgh-quality Mauritian fiber a n d cloth t o b e made m t o garments m Madagascar. 19. Extreme poverty figures are n o t available beyond 1999. 20. InToliara and Mahajanga, some modest g a m were recorded m g r o w t h penods, but the overall trend was flat. In Fianarantsoa, Toamasma, a n d Antsiranana, poverty levels rose. 21. ”Madagascar Development Policy Review. Sustamng G r o w t h for Enhance Poverty Reduction,” Report No. 32167-MAG, M a y 16,2005. 25  3 CHAPTER BROAD-BASED PROGRESS IN ACHIEVING GROWTH 22. Poverty is structural i f a substantial change m economic or social conditions o f the household SI required t o address it. 23. The 2004 a n d 2005 EPMs were conducted over different time periods, w h c h makes a temporal companson problematic. As household consumption (particularly, that of r u r a l households) i s very seasonal, there w o u l d b e differences m poverty rates, depending o n w h e n surveys were carned out. Also, 2005 EPM notes only a 1.6 mcrease m average household consumption, m real terms, w h c h i s relatively low. 26 4. Progress in Achieving Good Governance 4.1 Improved governance and public sector management are essential components of Madagascar's strategy to achieve higher growth a n d poverty reduction. The important, albeit reluctant, re- f o r m impetus displayed by t h e Ratslraka admuustrabon durmg the first years of t h e period u n d e r review was u n d e r m e d by corrupbon a n d lack of transparency. The current President was elected o n an es- senbally anb-corrupbon platform. H i s highly personalized style of government brought n e w d y n a m s m to the campaign for better gov- ernance. On the other hand, t h e donors have raised the issue of con- flict of mterest, resultmg f r o m the expansion of his compames and those belongmg to h i s immediate family 1 CORRUPTION AND TRANSPARENCY 4.2 During the early part of the period under review (1995- 2001) w h e n corruption was not acknowledged as a n issue by the gov- ernment, the Bank aimed at reducing the sources of i l l i c i t gain a n d at increasing transparency. The 1990s' liberalization of the foreign ex- change markets, the reforms to the banlung sector, t h e divestiture pro- gram, competitive licensmg systems for fishmg and "wung, a l l sup- ported by SACS, were unportant actions rn that regard (par. 3.3). 4.3 Since 2003, the Bank also started to focus on the institutions to fight corruption, and there has been significant progress in that re- gard. There i s an anti-corruption law, a Superior Counsel for the Strug- gle a g a m t Corruption, a n d an anticorruption agency (BIANCO), w h c h has mvesbgative powers. But then mdependence i s m quesbon smce they are attached to the Presidency B I A N C O (inoperabon smce md-2004) has already mvesbgated several hundred cases, m a d y re- lated t o petty corruption. In addibon, mplementabon decrees requne asset declaration by public servants (not r e q w e d for the Head of State); a procurement oversight agency has been established; custom services have unproved; measures have been taken t o reduce corruption m the justice system, but the application of unproved service standards has made little headway; laws have been passed to regulate commercial en- terprlses and court procedures, as w e l l as to reduce the backlog of cases m Antananarivo. Also, there have been some reforms m the allocabon of, and accountability for, public financial resources (see par. 4.7). 27 CHAPTER4 GOODGOVERNANCE PROGRESS IN ACHIEVING 4.4 These measures, important though they are, have thus far had only a l i m i t e d impact on the prevalence o f corruption. Contm- u e d governance problems, notably m the judicial a n d mmng sectors, but also more generally, remam major obstacles to mvestment a n d t h e carrymg out of busmess acbvibes. "Large-scale" corrupbon, for ex- ample m the rmrung sector, i s n o t yet forcefully addressed by the gov- ernment.2 Governance m tlus sector does n o t m e e t the standards agreed by the Bank m the context of the Extracbve Industries Review w h c h , smce 2004, w o u l d govern Bank's assistance t o such achvibes. W o r l d Bank Institute's (WBI) Governance Research Indicators (Figure 1 )show Madagascar m 2004 to be above most of the Sub-Saharan Af- rican countries' averages m the areas of control of corrupbon a n d regulatory quality. But these f a l l far short of the standards m coun- tries such as South Africa and Mauribus, w h i c h Madagascar w o u l d like t o emulate. At the same bme, the country does n o t fare as w e l l m voice and accountability, polibcal stability, government effecbveness, a n d the rule of l a w Madagascar's r a n k m g m the Transparency Inter- nabonal Index of Perceived Corrupbon worsened m 2004 after show- mg steady improvement m the two preceding years. Figure 1. Governance Indicators (WBI) 0 10 20 30 40 50 BO 70 Counlw's Fwmtlb Rank (04w) I rnrsss E1998 tu2004 1 'OUfCe: D. Kaufmann A. Kraay, and M. Mastruzzi (2005); Governance Matterj IV: Governance d Indicators for 199E-2005 ( h t t ~ : / h . w o d bank.o~/wbi/aovemance/~ubs/qovmatters4. htrnl). The higher the number, the hgher the ranking of the country. 4.5 T h e persistence of governance problems should certainly n o t b e interpreted as a failure of the measures taken in the past three years. These go m the right direcbon, a n d should be extended a n d deepened. The mgramed habits o f several generabons cannot be eradicated m so short a time. The credibility o f the judiciary has, for example, been seriously undermmed by decades o f corrupbon and 28  4 CHAPTER PROGRESS IN ACHIEVING GOODGOVERNANCE mefficiency 3 Nonetheless, it i s encouragmg that governance i s a t t h e forefront of t h e government's private sector-led g r o w t h strategy, a n d that the issue i s openly discussed. This i s m sharp contrast t o the pe- r i o d before the current government, when there was widespread derual." But t o be able to assess the progress m this difficult area, the Bank needs to set clear benchmarks/indicators, w h c h are currently lackmg. PUBLIC MANAGEMENT SECTOR 4.6 Until the start of the HIPC process, the Bank's involvement in public sector reform was relatively limited. Inparticular, the Bank refused to engage itself m wide-rangmg c i v i l service reform m Mada- gascar. Tlus was due m part to t h e unfortunate expenences with such reform programs elsewhere, especially m Sub-Saharan Africa. It was also due to the fact that such a program m Madagascar w o u l d have en- tailed confronting considerable political controversy and techrucal complexity The need for wholesale change m t h e economy was so wide-rangmg at the begmnmg of the review period that the Bank de- cided t o concentrate o n removmg the obstacles to pnvate sector-led m- vestment rather than o n attempting to reform Madagascar's public sec- tor. Some public expenditure reforms were, nonetheless, mcluded as condibons m Structural Adjustment Credits (SACS) that were accom- parued by a techrucal asslstance operabon to support public sector re- s form. T h ~ was, however, an unsatisfactory experience.5 4.7 During the HIPC process, public sector reform was trans- formed f r o m a marginal area of focus to one of the major pillars of Bank assistance to Madagascar. T h s was mevitable g w e n the deci- sion t o move to programmatic lending. Madagascar was n o t yet ready for t l u s shift: and it thus became urgent t o put m place the pre- requisites for receivmg PRSCs. Under t h e PRSCs, Madagascar began m p l e m e n t m g a program of acbons t o strengthen budget formulabon, execubon, control, monitormg, and auditmg7 (underpmned by the recommendabons of the C F A A a n d CPAR). In2005, t h e government mtroduced a performance management system for a l l m s t r i e s . The medium-term expenditure framework (MTEF) has been established, agamst the Bank's recommendabon, however (see par.6.10), and measures are underway to strengthen treasury management. Transi- bonal financial management systems are funcbonal m two sites; m- plementation regulabons of the n e w Procurement Code are issued; a n d a new Procurement Oversight Agency i s established. 4.8 Nonetheless, Madagascar remains among the HIPC coun- tries that require substantial upgrading of their public expenditure management (PEM) systems. I n2004, the country m e t only 4 o u t of 16 HIPC Expenditure Trackmg a n d Management benchmarks, com- pared t o 7 benchmarks m 2002. Madagascar i s the only country that 29  4 CHAPTER PROGRESS IN ACHIEVING GOODGOVERNANCE showed deteriorahon m three benchmarks.8 Of parhcular concern i s the deterlorahon m the budget o u t t u r n mdicator, according t o which, actual expenditures m Madagascar are ”not close” t o the level and composihon o f the origmal budget allocations. The substanhal gap be- t w e e n approved a n d executed budget has been a long-standing prob- l e m m Madagascar.9 4.9 Accountability for the use of public resources i s another area of weakness. Auditing capacity nationally i s weak. W i h the government, responsibilihes are divided between the Presidency and the new corps of financial m p e c t o r s bemg established m the Mirustry of Finance. Internal auditing capacity m a l l muustries, with t h e excep- h o n of Economy a n d Finance, is either non-existent or very weak. A General Inspectorate of Finances was established m 2004, but suffers f r o m the lack of qualified personnel. In a n important advance, the backlog of budget implementahon audits i s bemg gradually cleared. 4.10 T h e adoption of the programmatic approach (PRSCs) seems to b e problematic in v i e w of the relatively w e a k public man- agement capacity. The program to improve the P E M system i s pro- gressmg, but durmg implementahon it encountered widespread pro- cedural difficulhes and delays as a result of thm capacihes m a l l muustries. These, coupled with overall revenue shortfalls, a weak cash management system, and the premature switch t o program- budgeting, resulted m problems m getting resources m a hmely fash- i o n t o ”front-line” achvihes. (These difficulhes were discussed m depth m t h e 2005 Country Program Review S e m a r ) . PRSCs can per- mit more resources t o be transferred rapidly, but d o n o t yet provide assurance that public resources will either be allocated as planned or reach mtended beneficiaries. I nthis vem, concerns were expressed by many mterviewed m t h e field about t h e lack of transparency and re- sults when a i d i s delivered through budget support. 4.11 T h e poor domestic revenue collection effort has also b e e n a major constraint o n the provision of public services. Madagascar’s tax revenue hovered at or below 10 percent of GDP for m u c h of the 1990s, and e v e n m 2004 it was below 1 1percent, compared with a Sub-Saharan Africa tax to GDP average of 19 percent. This has forced the Authorihes to resort frequently to unplanned expenditure reduc- hons t o acheve their overall public deficit targets. The m a m cause o f Madagascar’s poor tax performance i s a strong culture o f tax exemp- hons m the most d y n a m c sectors of t h e economy (the EPZs, muung, a n d tourism), h g h tax rates combmed with a narrow base, a complex tax code that encourages discrehonary mterpretahons, and weak a n d corrupt customs a n d tax admuustrahon. T h e Bank did little t o address the tax r e f o r m issue (except customs), b o t h for revenue raismg and reducmg a d m t r a h v e burden o n the private sector.10 30  4 CHAPTER PROGRESS IN ACHIEVING GOODGOVERNANCE 4.12 In Madagascar, the obstacles t o decentralization are for- midable.” The public a d m s t r a h o n i s hghly centralized with nearly 90 percent of public expenditures allocated to the central authoribes. Moreover, half the amount destmed m prmciple for the communes is, m fact, managed at the central level. Financial capacihes at the com- m u n a l and r e g o n a l levels are constramed by msufficient and poorly targeted transfers and a regulatory framework that leave the collec- b o n of most local revenues I II the hands of mefficient de-concentrated state agents.12 Cooperation and coordinabon between the communes, t h e central government, a n d de-concentrated officials are madequate, especially m the social sectors. The Bank’s earlier efforts for effectwe decentralization were n o t pursued because of lack o f political will and a clear strategy. 4.13 In 2004, the government put in place a n e w structure with t h e a i m o f facilitating communal development and strengthening the representation o f central government at t h e communal level. The Bank assisted m the preparation of the legal and regulatory framework. Twenty-two n e w regons were established, managed by competihvely selected chefs nommated by the President. All deconcentrated gov- ernment officials worlung m the communes are to report to these chefs and not, m the first place, to t h e v central muustry The Bank S I support- mg h s reform through t r a m g of regonal chefs and then staffs, as well as through other mterventions. The latter mclude refonrung t h e transfer system and l m p r o v m g local revenue collection capacity (iru- tially o n a pilot basis); relnforcmg the general management capabilities of the regons and communes; and establishmg a local development fund that will provide block grants to communes for mvestment and capacity building. It i s too early to assess the lmpact of these efforts. SUMMARY OF OUTCOMES 4.14 Overall, the outcome o f Bank’s support f o r achieving good governance i s rated moderately unsatisfactory (Table 10). The Bank has provided timely support for efforts undertaken by the current government to tackle long-standing governance problems. A number of key laws, regulahons, and mstitubons are n o w operahonal. T h e v Impact, however, i s yet to be seen, w h c h may, m part, b e due to the long-term nature of the governance problem. But it should also be noted that the track record of such mstituhons m curbmg corrupbon i s yet t o be observed m a number of countries where they have been m existence for a longer period o f m e . Corrupbon m Madagascar i s still perceived t o be widespread a n d endemc. There has been a re- cent deteriorahon m H I P C expenditure management benchmarks, a n d Madagascar ranks m the lower end of other HIPC countries, de- spite ongomg public expenditure reforms. Also, the Bank has failed to make a sigruficant impact o n domesbc resource mobilizabon and decentralization. 31 CHAPTER4 PROGRESS IN ACHIEVING GOODGOVERNANCE Table I O . Summary of Outcome Ratings for Governance 0 blective Outcome Reduce corruption, increase transparency, and Moderately Unsatisfactory strengthen judiciary Improve public sector management Moderately Unsatisfactory Overall Moderately Unsatisfactory 1.InthIS regard, some suggestions were made to the President of Republic h e l f , NOTES whch have not been yet taken mto consideration. 2. The Bank IS supporting operational and financial audits of major public mtitutions m the rmrung sector. 3. Implementation of a reform strategy m the judiciary is bemg supported by several donors, mcluding the Bank. However, it IS hampered by lack of resources, as the al- ready scant budgetary allocation to the Justice Mirustry was reduced still further m 2005. T~ISraEes concerns about the sustamability of the government’s reform efforts m tlus sector. 4. Several Bank staff mterviewed pomted out that the Authorities even requested the Bank to remove the word ”corruption” from all its official documents concermng Madagascar. 5. M 9 7 Public Capacity Building Project (PAIGEP) was overambitious and over- designed. As there was no successful prevlous attempt to secure the necessary degree of political backmg for deep-seated public sector reform, the project had a hgh nsk of fail- ure. Inparticular, both the Bank and the government failed to pay sufficient attention to the fact that the central muustnes had fragmented and overlappmg responsibilities. Re- form m thIS area should have been a pre-requlsitefor further attempts at restructuring. A number of project components had to be closed dunng Implementation. These m- cluded civil service reform and decentralization. The project failed to acheve almost all its objectives. 6. The PAD of the Governance and Institutional Development Project dated October 2003 (p. 10) stated that: “At the present stage, the weak framework for public financial management does not allow for a move toward mcreased budgetary asslstance.’’ None- theless, seven months later PRSC I went to the Board (June 2004). 7 For example, PRSC-I has 85 measures m its policy matnx, of whch 45 are for PEM. 8. Update on the Assessments and Implementation of Action Plans to Strengthen Ca- pacity of HTPCs to Track Poverty-Reducmg Public Spending, IMF, April 12,2005, p.13. 9. ”Madagascar Public Expenditure Review 2004,’’ Report No. 30331-MG, p.37, World Bank, February 2005. 10. The tax component of PATESP, the key techrucal asslstance instrument for PSD, was dropped to slmphfy the project. 11.These are thoroughly analyzed m ”Madagascar Decentralization,” Report No. 25793-MAG, November, 2003. 12. Contrary to thelr commitments under the first PRSC, the Authorities failed to m- crease budgetary commitments m 2005 to the communes from t h e r 2004 levels. 32 5. Progress in Achieving Human and Material Security 5.1 T h e h u m a n development sectors w e r e in d i r e n e e d o f re- f o r m at t h e b e g i n n i n g o f t h e CAE period, a n d t h e B a n k w a s en- gaged f r o m t h e start in education a n d h e a l t h sector reforms. I n i b a l l y this t o o k the form o f project support. In2000, the Enhanced HIPC Iru- b a b v e helped sharpen the strategc and operabonal focus. The focus shifted t o w a r d mcreased p u b l i c expenditures m favor of social sec- tors, m o r e effecbve delivery of these services, as w e l l as the formula- b o n of sector strateges m health and educabon. The n e e d f o r m e - diate action after the constitubonal crisis of 2002 brought n e w challenges that sharpened the p o v e r t y focus further. PUBLIC PRO~POOR EXPENDITURES 5.2 P r i o r t o t h e advent o f HIPC a n d t h e PRSC instrument, t h e B a n k m a d e o n l y modest efforts t o direct p u b l i c expenditure t o w a r d t h e needs o f t h e poor. These efforts consisted o f support t h r o u g h so- cial sector projects a n d the SACS.By and large, these efforts w e r e mef- fectual. There w e r e several reasons. First, government failed t o gener- ate a buoyant domesbc revenue base, with the consequence that resources were always a t a prermum. This did n o t p r o v i d e m u c h room f o r change by channeling mcremental resources to the poor. Second, the sector strateges supported by the early health and educa- b o n operabons w e r e not strongly enough defined t o p e r m i t a serious reallocation of resources t o w a r d o r withm the sector. Thlrd, there w a s msufficient focus o n results, and actual expenditures w e r e persis- tently b e l o w budgets. 5.3 At t h e e n d o f t h e 1990s, greater focus w a s b r o u g h t t o social sector policies a n d p u b l i c expenditures. This was triggered by a combmabon o f factors. With the development of targets f o r the social sectors u n d e r HIPC and later u n d e r the PRSC, a clearer basis for allo- catmg p u b l i c expenditures w a s established. Tlus process w a s carried f o r w a r d with the remforcement of educabon strategy u n d e r Educa- b o n f o r All (EFA) a n d h e a l t h strategy m the context of developmg m e d i u m - t e r m expenditure frameworks (MTEFs). 5.4 During t h e last three years, t h e Bank’s emphasis s h i f t e d to t h e effectiveness of b u d g e t resources f o r social sectors, in a d d i t i o n t o increased p u b l i c expenditures f o r these sectors. Expenditure alloca- 33 CHAPTER5 HUMAN AND MATERIAL PROGRESS IN ACHIEVING SECURITY bons for the educabon sector as a percentage o f total public expendi- tures mcreased f r o m a n average of 12 percent m 1995-2000 to 15 per- cent durmg 2001-04, w h i l e the r a b o of health expenditures remamed constant at a r o u n d 7 percent. Durmg tlus period, the Bank’s analybc work m health and education sectors helped sharpen understanding of the weaknesses m s e m c e delivery, and thus of sectoral pnorities for public expenditure. The 2005 PER p r o v i d e d addibonal analysis m these (and other) sectors and reviewed progress and r e m a m g m u e s m all aspects of the budgetary/expenditure cycle. I nthe context of the HIPC and PRSC process, operabons targeted poverty f r o m the start. These were reflected m action plans to: ( i ) changes m service delivery on track the basis of agreed mdicators; and (ii) facilitate the budgetary and ex- penditure process t o get a larger p r o p o r t i o n of resources t o the m- tended beneficiary The Bank helped put m place a m o r e functional process of m o n i t o r m g outcomes through these operabons. As a result of these acbons, many of the lacunae of the first half of the p e r i o d are now b e m g addressed, but there i s a long w a y t o go to g w e the poor bet- ter access t o public services, especially m r u r a l areas. 5.5 T h e m o v e t o PRSC s u p p o r t has created d i f f i c u l t i e s f o r so- cia1 sectors. PRSC nnplementabon encountered m a n y pracbcal a n d procedural problems. Inaddibon, t h e a b r u p t shift t o p r o g r a m budget- mg m 2005 caused considerable confusion and delays, as a result of w h c h b u d g e t execubon w a s slowed. W h i l e this situabon w a s s d a r f o r a l l m s t r i e s , the social sector m s t r i e s experienced great diffi- culbes m nnplementmg decentralized budgets. A revenue shortfall m late 2004 a n d 2005 a d d e d t o the problems. As a result, budgetary allo- cabons w e r e n o t met, a n d the expenditure shares o f social sectors are s t i l l w e l l b e l o w their needs. W h i l e these m a y b e transibonal difficul- bes, u r g e n t attention i s needed to i m p r o v e financial management, and especially to accelerate resource f l o w s t o decentralized levels of ser- vice delivery where the p o o r are m o s t directly affected. EDUCATION SECTOR 5.6 T h e u n d e r l y i n g objective o f Bank-assisted r e f o r m s w a s t o achieve across-the-board efficiency gains in t h e sector. The savmgs were t o b e p l o u g h e d back m t o mvestments m q u a l i t y a t a l l levels, w h i l e expanding access at the p r i m a r y level. Increasmg budgetary al- locabons w e r e also envisaged. T h e approach h a d l i m i t e d success, but some posihve results w e r e nonetheless acheved, m o s t l y m the last f i v e years w h e n the government t o o k clearer leadership and devel- o p e d the EFA program. Some educabon mdicators are presented m Table 1 1.T r a c h g progress m educahon is, however, m a d e d i f f i c u l t by several shifts m the choice o f mdicators m recent years.1 34  5 CHAPTER PROGRESS IN ACHIEVING HUMAN AND MATERIAL SECURITY Table 11, Selected Education Indicators Tracked Under Various Programs (CAS SSA target) Average 1995 2000 2001 2002 2003 2004 2006 (2003) Primary gross 92 103 105.9 123.1 141.9 147.7 - 94.7 enrollment rate (%) Primary net 60.6 66.9 70.1 82.2 96.8 - 63.7 enrollment rate (%) Primary school 30.1 35.8 - 39.5 47.0 - 58.0 59.2 completion rate (YO) Studentteacherratio 37 50 52 59 57 60 - 44.7 in pnmary schools Pass rate at CEPE 63.5 49.1 62.2 59.7 72.7 - (end-pnmary) exam (%I Number of textbooks - - 0.9 0.9 1.0 1.0 per primary school student Textbooks distributed - - 3.0 6.0 2.0 - (million) Source: World Bank EdStats, MENRS Statistical Yearbook 2004, World Bank CAS 2003. 5.7 There were several achievements in the education sector. Inp r i m a r y education, enrollments mcreased rapidly, especially m t h e l a s t f e w years, a n d there w e r e some m o d e s t m p r o v e m e n t s m s t u d e n t f l o w s through t h e system. T h e n u m b e r of c h i l d r e n e n r o l l e d m t h e five-year p r i m a r y cycle g r e w from 1.5 million m 1994 to 3.6 million by 2005.2 E n r o l l m e n t s also g r e w r a p i d l y m r m d d l e and high school. A f t e r t h e crisis of 2002, a safety n e t package of measures w a s i m p l e m e n t e d u n d e r EFA to l o w e r t h e cost of e d u c a h o n to t h e family and keep at- r i s k p r i m a r y age c h i l d r e n m school. T h i s m c l u d e d t h e e l i r m n a t i o n of school fees and p r o v i s i o n of free textbooks and kits scolazres (back- packs with basic school supplies). Teacher r e c r u i t m e n t w a s mcreased, a n d a system of mcentives w a s put m place to encourage teachers to accept posts m isolated areas. Teacher t r a m g w a s stepped up. Class- room construchon, rehabilitation, a n d r e p a i r achvities w e r e ex- panded. 5.8 Numerous inefficiencies a n d dysfunctions s t i l l beset the education system. T h e student teacher r a h o of 60 reflects a c o n t m u m g shortage of teachers, w h i c h i s exacerbated by t h e n u n e v e n g e o g r a p h c d i s t r i b u h o n to p o o r e r a n d less accessible areas. Infrastructure i s o f t e n o v e r c r o w d e d or m poor r e p a v . Efficiency of l e a r m n g 1s h a m p e r e d by teachers’ absenteeism; their m s u f f i c i e n t m a s t e r y of t h e French lan- guage; a n d l a c k of textbooks, t e a c h m g materials, and school supplies. M o s t c h i l d r e n do not complete e v e n t h e p r i m a r y cycle. R e p e t i h o n and drop-out rates m p r i m a r y e d u c a t i o n are h g h and c o m p l e h o n rates (47 35  5 CHAPTER PROGRESS IN ACHIEVING AND MATERIAL HUMAN SECURITY percent m 2003) remam unsahsfactory, agamst an average of 59 per- cent for Sub-Saharan Africa. The mternal efficiency of other levels o f the educahon system is comparably l o w Whether learrung outcomes have unproved i s unclear.3 N o t enough attenhon has been pad t o secondary, tertiary, techrucal, and professional educahon. Access, quality, a n d relevance of a l l are madequate. 5.9 Bank support for primary education was ineffectual in the early years, but toward the e n d of the period, the B a n k h e l p e d raise primary enrollments a n d lower the cost of education for the poor. Throughout the C A E period, the Bank supported p r i m a r y educahon, but h s h a d l i m i t e d unpact m the early years due t o recurrmg project unplementahon difficulties a n d delays and weak unplementahon o f policy reforms. Construchon and rehabilitation of classrooms were somehmes o f poor quality and the Mirustry of Educahon encountered widespread difficulhes m supplymg teachers. Inputs were provided to raise the quality of educahon, but a n mternal IEG assessment f o u n d resources n o t used efficiently, the monitormg o f classroom level out- comes weak, a n d little evidence of progress. Government leadership improved after md-2002, and the Bank established a good dialogue o n educahon policies, a n d supported the formulabon of t h e EFA pro- gram. The Bank was quick m p r o v i d i n g support after the 2002 crisis, as mentioned above. These achons were effechve m raismg enroll- ments and m l o w e r m g t h e cost of educahon t o the poor.4 5.10 Several factors nevertheless reduced the effectiveness of Bank support in addressing the problem of poor primary education quality. First, a major policy issue, namely the queshon of language of mstruction, was n o t addressed. Second, policy measures agreed under the programmatic approach were n o t effechve m addressmg quality and retention =sues. Teacher shortages and geographc unbalances per- sist. The student teacher ratio rose m 2000-04, yet only 50 percent of the targeted new teachers were recruited m 2004/05. ‘lkrd, as mentioned above, the Bank moved too rapidly t o PRSC lending without t h e gov- e r n m e n t undertakmg adequate unplementation arrangements o n the ground. 5.11 Bank support for other parts of the education system was inadequate. The Bank provided almost n o support for secondary edu- cation, w h c h i s n o w facmg acute pressures as a result o f r i s m g pri- m a r y enrollments. In2005 the Bank started t o support the govern- ment m preparmg a strategy for post-primary educahon reform. The Bank supported an m i h a l reform of technical education and voca- tzona2 truznzng (WET), but this provided few lasting results. W E T s t i l l has h g h costs relative t o its output, a n d i s poorly attuned t o labor market demands. Bank-supported reforms o f hzgher education h a d some m i h a l success m dealing with the issue o f perpetual students, restormg n o r m a l functiorung, and strengtherung uruversity manage- 36  5 CHAPTER HUMAN AND MATERIAL PROGRESS IN ACHIEVING SECURITY ment. However, these reforms did n o t lead t o a broader revitalizabon of the higher educabon system, or free up resources for primary edu- cahon as was expected. The Bank‘s operations did n o t mclude any fo- cus o n literacy, a n omssion that risks standing m the w a y of the goal of poverty reduction. HEALTH SECTOR 5.12 Initially, the Bank’s objective was broad sector reform, in- volving revitalization of basic services with a n emphasis o n preven- tive activities. It was seekmg t o m p r o v e the sector policy framework, strengthen mstitutional coordinabon mecharusms, a n d mcrease t h e efficiency and sustamability of public expenditures for health. The m a m emphasis was o n systemc reforms to upgrade overall health services, especially those that w o u l d b e most beneficial to the poor. However, t h e program proved to be ambibous and complex, a n d lacked government ownership. As a result, i t failed t o deliver im- provements m services at t h e local level. 5.13 A simpler, more direct approach was adopted in 1996. Tlus was built around strengthemg of priority disease control programs and epidemologxal surveillance, greater availability of essenbal drugs, m p r o v m g access t o and quality of district health services, and remforcmg t h e management and planrung capacibes of Mirustry of Health (MOH), especially with regard to decentralized management. This approach brought mprovements m some priority programs such as d a n t mortality, malaria and tuberculosis treatment, and drug availability Nonetheless, t h e impact o n service delivery at the local health care centers was hampered by shortages of staff, their uneven deployment t o poor and less accessible areas, poor equipment a n d mamtenance, shortage of drug supplies, weak management and chroruc under-funding. Service utilizahon rates remam l o w 5 5.14 Fertility a n d population issues have n o t b e e n a n explicit focus of the Bank’s operations. The Bank supported important as- pects of reproducbve health m its health sector projects. It also sup- ported lower fertility mdirectly by t h e efforts to brmg and retam g r l s m the education system. Today t h e populahon growth rate contmues at over 2.7 percent annually, but a decline m fertility m recent years suggests the start of the last stage of a demographc transibon. The to- tal fertility rate (TFR) declined f r o m 6 m 1997 t o 5.2 by 2003/04. If the present trend contmues, TFR w o u l d reach replacement level m around 20 years, easmg pressures o n resources and basic services, and facilitating a reducbon m poverty 5.15 M o s t health outcomes have been improving, but some are proving more obstinate. On the posihve side, child and d a n t mortal- ity rates were reduced notably m 1997-2004 (Table 12). Child vaccma- tion rates rose. There is also evidence of declirung hospital mortality 37 CHAPTER5 PROGRESS IN ACHIEVING AND MATERIAL HUMAN SECURITY f r o m malaria. An mcreasmg number of tuberculosis pabents are bemg cured. As a result, life expectancy m Madagascar mcreased f r o m 53.5 years m 1992 to 55.7 years m 2003/04, and 1 s among the hghest m Sub- Saharan Africa. These results are largely due t o a limited number of vertical programs. Further progress can be made by c o n t i n u g and ex- tending these activities, but more sustamable and deeper progress will depend o n systermc mprovements m health care provision and fund- mg as well as an expansion of complementary public health mvest- ments that are n o t yet assured. On the d o w n side, maternal mortality barely moved over 1997-2004. HIV prevalence among pregnant women is rismg rapidly, though Madagascar r e m a m a low-prevalence country Crucially, a wide gap has been observed between better-off and poor groups for all major health status and service mdicators.6 Table 12. Selected Health Status and Nutrition Indicators (CAS SSA target) average 1992 1997 2003104 2006 (2003104) Life expectancy 53.0 53.5 55.7 46.7 Total fertility rate 6.1 6.0 5.2 5.2 Infant mortality rate (per 1,000 live births) 93 96 58 101 Child mortality rate (per 1,000 live births) 163 159 94 120 171 Low height for age at age 3 (%) 51 48 45 40 Children underweight for age (%) 40.9 40 41.4 35 Children with all DPT3 vaccinations (%) 32 36 53 65 58.7 Maternal mortality 507 4aa 469 Assisted childbirths (%) 49 47 51 Contraceptive prevalence (YO) 5 10 la Source: Demographic Health Surveys, except life expectancy: UNDP Human Development Reports. DDP WATER SUPPLY AND SANITATION 5.16 Inadequate access to safe drinking water a n d to sanitation services has been a n d remains a major health hazard. Since the early 1990s, there has been n o sigruficant improvement m either the rate of access or m the quality of the services provided. Yet, m a Sector Strat- egy and Action Plan approved by the government m 1995, the overall objecbves m the sector were quite ambibous: t o mcrease by 2010, the access t o safe drlnkmg water f r o m 29 percent t o 79 percent, and t o sanitabon services f r o m 16 percent to 51 percent. 5.17 T h e Bank’s initial intention was to support this ambitious agenda with a major presence in the sector, includinga project cover- ing both urban and rural water supply and sanitation, as w e l l as ESW. However, there was only a relabvely small-scale ”pilot”, yet 38  CHAPTER5 AND MATERIAL PROGRESS IN ACHIEVING HUMAN SECURITY hghly successful Rural Water and Sanitation Project, and a sector strat- egy note by Bank staff. N o operation m the sector is planned at present. But the work begun u n d e r the Rural Water Supply Project will con- h u e to be supported o n a small scale under P E S .With current over- all access rates to protected water estimated at 35 percent and 20 per- cent for sanitation (much less m rural areas and small urban centers), the government’s 2010 global targets seem unattamable. Tlus is due to three m a m longstanding constramts w h c h the sector continues t o face. First, mvestments, despite mcreasmg smce 2002, are s t i l l m u f f i c i e n t to keep pace with demographc growth.7 Second, service quality has dete- norated due to madequate management models and lack of an efficient cost recovery system, particularly for the water systems m s m a l l towns. %d, techrucal and operational capacity is limited m the Mirustry at central and provmcial levels, as well as m NGOs and t h e pnvate sector. 5.18 Bank’s involvement in the sector was hindered by uncer- tainty about t h e future legal status, structure, a n d degree a n d nature o f private sector participation in J I R A M A (the electricity a n d water company). This delayed the implementahon of the Water Law, a pre- requisite for the reforms m t h e sector. It was n o t untillate 2004 that the mstitubonal problems of JIRAMA began to be addressed. Inaddi- hon, there were disagreements among Bank staff m t h e water and electricity sectors concerrung t h e best way t o solve the problems at JIRAMA.8 A s a result of all these factors, the Bank lacked a major lending mstrument to support reform m the water and sanitabon sec- tor m Madagascar. T h e sector r e m a m mred m the problems of 10 years ago, and lack of access t o safe drmkmg water a n d adequate sanitabon services contmue t o u n d e r m e country’s social develop- ment. TARGETED ACTIVITIES POVERTY REDUCTION AND SUPPORT FOR VULNERABLE GROUPS 5.19 In Madagascar, t h e Bank has supported a n array o f tar- geted activities to address k e y areas of vulnerability o f the poor. These have mcluded the creahon of a social fund to carry out labor- mtensive public works and m p r o v e public service delivery, and food security/nutrihon operations. Support for safety nets for vulnerable groups became a parhcular priority for the Bank m t h e aftermath of the 2002 crisis and a d o m a n t feature of health, educahon, a n d other lending (see par. 5.7 a n d 5.24). 5.20 Food insecurity a n d malnutrition are long-standing a n d widespread problems in Madagascar. Broad trends m malnutrition usually track the poverty rate. The proporhon of children with l o w height for age at age 3 (stuntmg) was 51 percent m 1992, a n d 45 per- cent m 2004, a g a m t a CAS target of 40 percent m 2006. The propor- h o n of children underweight for their age showed n o decisive trend 39  5 CHAPTER HUMAN PROGRESS IN ACHIEVING AND MATERIAL SECURITY (Table 12). Agamst tlus difficult overall n u t r i b o n picture, there w e r e marked improvements m specific problem areas, mcluding a reduc- b o n m anerma, more widespread v i t a m A supplementabon, reduc- b o n of iodine deficiency, and de-wormmg. 5.21 T h e Bank has been a consistent long-term supporter of tar- geted food security a n d nutrition activities. The Bank’s projects9 m tlus area grew f r o m small p i l o t acbons to a successful national pro- gram. An m-depth m p a c t evaluation of the Community N u t r i t i o n I1 Project (SEECALINE) conducted m 2004 -whose provlsional results were shared with the rmssion-found greater declines m the rate of transibonal malnutrition (weight for height) m project sites than else- where, even though SEECALINE targets the most problematic zones. Importantly, these projects were lnstrumental m raismg the profile of nutrition as a key development issue, mcluding under t h e P E P 5.22 Improvements in basic nutrition indicators could have been more pronounced. There are several reasons for the relabvely slow progress. First, a n u t r i b o n project cannot compensate for a broader poverty picture. Second, despite good o w n e r s h p a t the pro- ject level, there was weak mter-muustend coordination.*O %d, donors sometimes h a d diffenng views o n pnonties for the sector. The move t o the PRSC approach for nutrition after 2004 was a calculated nsk. The PRSC process 1s allowmg the government to take a more active leader- slup role with respect t o mternal and donor coordination. On the other hand, the first year of PRSC was charactenzed by late release of funds, shortfalls m resources relative to needs, and megular payments. If the PRSC approach is to be successful, it will need to overcome these prob- lems qulckly, allocate mcreased resources for nutrition, track results care- fully, and assure lugh standards of transparency 5.23 During 1994-2005, the Bank supported three social fund projects with good results. Operabonally, t h e creabon of a social fund was a l o g c a l choice for Madagascar m the early 1990s, m v i e w of the a d m s t r a b o n ’ s weak capacity t o manage small development projects o n a decentralized basis. The social fund provided a n operabonal mecharusm for such programs. T h e project outcomes were generally sabsfactory, parbcularly with respect to physical outputs. This ap- proach also contributed t o the creation of a class of contractors able t o carry o u t smaller public works. The Social Fund also p r o v e d to be a flexible tool for delivermg emergency assistance m the wake of natu- r a l a n d other disasters. On t h e other hand, targetmg resources t o t h e poorest communes ran m t o capacity difficulbes, and as a result, the better-off communes benefited disproporbonately. The creation of so- cial lnfrastructure was n o t well coordinated with t h e Mirustries of Health and Education, and subsequent staffing or supply problems were common. Inthe absence of a clear decentralizabon framework, t h e mstitubonal impact was limited.ll 40  CHAPTER 5 HUMAN PROGRESS IN ACHIEVING AND MATERIAL SECURITY 5.24 W h e n emergencies arose, the Bank was a responsive part- ner, willing to reorganize a l l or parts of the ongoing project portfolio to accelerate or add critical activities. Several events smce 2000 re- quved urgent programs of emergency asslstance: cyclones m 2000, the constitutional crisis of 2002 and more cyclones m 2004. The Bank made supplemental credits available as needed. Also, the Bank was flexible m restructurmg and accelerating ongomg projects to meet emergency needs arlsmg f r o m the cnses. For example, as menboned above, after the 2002 political crisls, the Bank financed n o t just the rehabilitation of schools but also the cost of waivmg school fees and emergency books and school supplies. Similarly, m the health sector, t h e Bank showed great flexibility by restructurmg its assistance to support a more pov- erty-targeted approach: temporary waiver of user fees, recapitalization of t h e Central Drug Procurement Agency (SALAMA) to assure essen- b a l drug distribution, urgent rehabilitation works (outsourced t o Social Fund), distribution of subsidized mosquito nets and anti-malanal drugs, and scaling up of H l V / A I D S prevention activities. 5.25 Bank-financed targeted activities or emergency interven- tions were not, however, supported by a systematic social protection strategy. Support for vulnerable groups was a component of t h e strat- egy proposed m t h e 1996 Poverty Assessment. However, further analysis of the areas of vulnerability of the poor and an appropriate strategy to manage social risks did n o t b e g m untilwell after the 2002 polibcal crisis. At that tune, the Bank, l i k e government, became caught up m a crisis-driven approach because a longer-term strategy was rmssmg. W h i l e a short-term response was necessary a n d justified m the crisis environment of 2002, the need for a clearer a n d more cost- effecbve strategy became mcreasmgly apparent. There is still msuffi- cient knowledge of t h e costs of programs, too m u c h reliance o n emer- gency response mstead of prevention, poor targeting, and an absence of overall monitormg and evaluahon of effecbveness. PROGRESS TOWARD THE MDGS 5.26 M o s t of the MDGs are l i k e l y to b e missed. Progress to- w a r d achievmg t h e MDGs was reviewed by the Malagasy authoribes m collaborabon with the UNDP m September 2004.12 A jomt Bank/Fund staff view o n progress was presented to the I M F Board for t h e Fifth Review under the PRGF (December 2004). After a r e v i e w of the available evidence and analysis, IEG finds that if current poli- cies and trends are sustamed through 2015, Madagascar will acheve i t s M D G s for gender equality and 100 percent enrollment m primary educabon, could under certam condibons slow the spread of HIV/AIDS, could reduce child mortality further, and could reduce mortality l i n k e d t o malaria. However, there is little likelihood of r e a c h g the core goals of halvmg extreme poverty and malnutrition, attalrung a 100 percent complehon rate m primary educabon, and re- 41 CHAPTER5 HUMAN PROGRESS IN ACHIEVING AND MATERIAL SECURITY d u c m g maternal m o r t a l i t y by three quarters. Although the Bank has c o m m i t t e d i t s support to the M D G s a t t h e global level, it would b e h e l p f u l i f Bank staff w o r k m g o n Madagascar w e r e to mtegrate the M D G s m o r e fully mto the country strategy and operahons and r e p o r t m o r e explicitly o n progress. At present the M D G s get l i t t l e attenhon m Bank documents. 13 SUMMARY OF OUTCOMES 5.27 T h e Bank's assistance provided moderately satisfactory outcomes in h u m a n a n d material security (Table 13). The shift m p u b l i c expenditures t o w a r d basic services has been modest so far, and further progress i s constramed by the low fiscal revenues. Inp r i m a r y educahon, enrollments have mcreased, but retention a n d completion rates a n d l e a r m n g outcomes r e m a m problematic. Indicators m the h e a l t h sector are rmxed. H e a l t h mdicators f o r the p o o r are laggmg, a n d service delivery i s mefficient, mcomplete, and unequal. Bank's social protechon acbvibes have been relabvely successful a n d respon- sive, but better targetmg t o the poorest areas a n d a n earlier focus o n social r i s k management c o u l d have mcreased t h e n effechveness. Table 13. Summary of Outcomes in Human and Material Security Objective Outcome Increase pro-poor expenditures Moderately Satisfactory Improve access to and quality of education Moderately Satisfactory Provide affordable basic health care and access to clean water Moderately Satisfactory Protect vulnerable groups through targeted activities Satisfactory Overall Moderately Satisfactory 1 .The mdicators of CRESED I1were replaced by the HIPC mdicators, w h c h , m turn NOTES were replaced by those of the PRSC operations. The EFA program has other similarly mtended mdicators, and there is a gradual convergence with those used by the EU m its budget support operations. The Mirustry o f Education also produces annual statis- tics with a selection o f sector mdicators, m c l u d i n g for other levels o f education. The consequence o f tlus situation IS that time series are n o t available m easily accessible f o r m for a conslstent set of mdicators. 2. The latest official statistics claim a net p m a r y enrollment rate of 98.2 percent. Ths figure 1s subject to caution: gwen that the last population census took place m 1993, the current school-age population is uncertam; enrollment data are collected a d m t r a - tively and may m some mtances be maccurate o r subject t o bias. The hgh net enroll- ment rate does n o t correspond with vlsual lmpressions that many children are n o t m school. A n e w population census S I urgently needed, as w e l l as a techrucal review of the reliability of education statistics. 3. CEPE (end-pnmary exammation) pass rates rose m 2001-05, but the absolute num- ber of children succeeding a t the CEPE (around 207,000 m 2005) is still only about a tlurd of the relevant age cohort. The absolute number o f children passmg the BEPC (end-middle school exammation) was stagnant over the penod. 42  5 CHAPTER HUMAN PROGRESS IN ACHIEVING AND MATERIAL SECURITY 4. Payments were made t o school districts t o p e r m i t the waivmg/elimmation o f school fees. Under EFA, the Bank also msisted o n accompanying actions t o address systemic dysfunctions: the target for annual teacher recruitment was set at around 2,000 a n d teacher t r a m g was improved; regulations related t o school management were passed t o mcrease student l e a m g time a n d t o improve learrung outcomes; a system o f automatic promotions f r o m grade 1t o 2 a n d f r o m 3 t o 4 was put m place t o reduce repetition rates; a n d guidelines were prepared f o r the district education au- thorities (CISCO) to reduce repetition a n d drop-out rates. 5. The failure to l o w e r maternal mortality appreciably between 1993 and 2003/2004 i s a stark mdicator of the poor quality and l o w utilization of health services. 6. For example, the &ant mortality rate m 1997 for the poorest qumtile of households was 119 w h i l e it was 57 for the richest qumtile. See Gwatkm, Davidson R., S Rustem, K Johnson, R Pande and A. Wagstaff, Soao-Economic Diflerences in Health, Nutrition and Population in Madagascar, HNP/Poverty Thematic G r o u p of the W o r l d Bank, M a y 2000. The study was based o n the 1997 Demograpluc H e a l t h Survey (DHS). As the D H S did n o t collect household mcome data, an mcome p r o x y was constructed o n the basis of household asset ownerslup. For a l l 8 HNP status mdicators analyzed a n d for 22 of 23 HNP service mdicators, there were marked gaps between the poorest and richest quintiles. A follow-up analysis o f the 2003/04 D H S is recommended to exam- m e h o w tlus situation evolved m the m t e r v e m g years. The 2004 D H S shows w i d e gaps between u r b a n a n d r u r a l households, confirming that sharp disparities persist. 7 In 2003, for example, sector mvestments, wluch amounted to US$12 million, pro- v i d e d 150,000 additional people with safe water, whereas the population mcreased by more than 400,000 in the same year. 8. Even w i h the water sector staff, there were different views c o n c e m g the applica- tion of the cost recovery pnnciple. Cost recovery w o u l d have unplied a much lugher water tariff m p r o m c i a l towns than m the capital city, where unit production costs are substantially lower. Tlus was considered unacceptable to some water sector staff, and also to country management w i h the Bank, w l u c h was concerned about the difficulty of getting such a politically sensitive pnnciple acknowledged m Madagascar. 9. Food Security a n d N u t r i t i o n Project (SECALINE) a n d Community N u t r i t i o n I1Pro- ject (SEECALINE). 10. A National Council for N u t r i t i o n (CNN) a n d its executive secretariat National Nu- trition Office (ONN) have been created to lead the implementation of n u t r i t i o n policy a n d coordinate actions. ONN n o w oversees SEECALINE a n d assures its continued funding under the government budget (includingthrough PRSC lending). 1 1 .Tlus is consistent with the general findings of IEG’s evaluation entitled The Effec- tiveness of World Bank Support for Community-Based and-Dnven Dmelopment, wluch f o u n d that “much more success has been aclueved m C B D / C D D projects o n quantita- tive goals, such as the construction of mfrastructure, than o n quantitative goals, such as capacity enhancement o r quality o f t r a m g . ” 12. See UNDP, Madagascar. Rapport sur les Oblectifs du Millinawe pour le Dheloppement 2004, prepared under the auspices of the Malagasy authorities with the support of the UN system, dated September 2004. 13. Five major poverty related documents were presented t o the Board m late FYO4 a n d FY05, none of w l u c h reported explicitly o r mearungfully o n the MDGs. 43 6. Overall Outcome and Contributions 6.1 T h e overall outcome of Bank's assistance to Madagascar during 1995-2005 i s rated as moderately unsatisfactory. The Bank strategy was relevant for Madagascar a n d the Bank assistance h a d some success, particularly the recent mcrease m growth, but the out- come was less than satisfactory m m a n y areas, as reviewed m the pre- vious parts of this CAE (Table 14). At the same tune, it should b e noted that the outcome of Bank's assistance has been to a large extent adversely affected by factors outside its control such as polibcal c m e s a n d the poor performance of non-reforrmst governments prior to 2003. T h s chapter assesses the resilience to risk of Bank's assistance, a n d reviews the contribubons of the Bank, the government, other de- velopment partners, as w e l l as external factors. Table 14. Overall Outcome Ratings Obiective ~~~~ Outcomes Overall Moderately Unsatisfactory Broad-based growth Moderately Unsatisfactory Good governance Moderately Unsatisfactory Human and material security Moderately Satisfactory TO RISK RESILIENCE 6.2 T h e resilience to risk of the Bank's assistance program i s rated likely, but several caveats are needed to b e expressed in that regard. Inits dialogue and operabonal support for economc a n d sec- toral policy changes, the Bank has generally sought to implement changes that are unlikely to b e reversed once m place. The respon- siveness of g r o w t h performance has further implanted the v i e w that reforms can brmg long-term benefits, n o t just adjustment costs. I n contrast with earlier regunes, the current a d m s t r a b o n (at the hgh- est levels) i s decisive and unusually r e f o r m rmnded, a n d this p e s some confidence that policies and outcomes will b e sustamed. On the other hand, it i s unclear how m u c h the commitment and dynarmsm of the upper echelons of the current a d m s t r a t i o n have filtered down to the staff responsible for the implementahon o f the r e f o r m agenda. 45 CHAPTER 6 OVERALL OUTCOME AND CONTRIBUTIONS 6.3 Overall resilience to risk will also depend o n the extent to which the Bank‘s assistance i s able to address structural poverty. In that regard, the Bank’s r e g o n a l development approach through the In - tegrated G r o w t h Poles project is a lugh-risk and complex undertakmg, whose success will depend o n the government’s continued commit- ment, and close supervlsion by the Bank. To address r u r a l poverty, the Bank will need to develop m o v a t i v e approaches to agncultural sector issues. At the same time, good governance is critical t o Madagascar’s future, and requues a sustamed approach l e d f r o m the top, with visible and consistently applied sanctions a g a m t those w h o abuse t h e u posi- tion. W h i l e a good start has been made o n the m t i t u t i o n a l front, it i s m p o r t a n t that measures be taken to address conflict of mterest lssues and hence enhance the emphasis o n good governance advocated by na- tional leaderslup. Moreover, unjustified mterference by the lughest level of government m project mplementation and staff h m g and fir- mg, need to be stopped. 6.4 Capacity limitations in the m i d d l e a n d l o w e r echelons o f the Malagasy administration severely limit Madagascar’s absorp- s b e seen, for example, m the r o a d transport sec- tive capacity. T h ~ can tor, where the large lnfusion of financial resources was n o t matched by t h e ability of either the public or t h e private sectors t o implement t h e program m a sustamable manner. T h e program m Madagascar re- quires a n mtensive supervision effort, as well as more systemabc a n d careful oversight f r o m Bank central services, notably procurement. 6.5 T h e sustainability of projects has often been impaired by the creation of Project Management Units (PMUs), other n e w institu- tions, and too much reliance o n NGOs for implementation. P M U s disband at projects’ closure or struggle financially to survive for a short while h o p m g for other ad. Envuonmental, as w e l l as Social Fund pro- jects have been mplemented too often by NGOs or donors w i t h o u t enough links with or mvolvement of the communes, precluding an eventual c o n b u a t i o n o f the acbvities u p o n sponsors’ departure. W h i l e t h e Bank has made a commendable effort at developmg national msb- tubons and strengtherung local capacity, at tunes it was m t r u m e n t a l m creatmg too many mstitubons with overlappmg responsibilibes. For mstance, t h i s has been the case for envuonmental activibes. Also, it has proven especially difficult t o create autonomous agencies that function soundly and are financially sustamable. 6.6 In the social sectors, achievements are s t i l l fragile, thus re- silience to risk relatively low. The gams m p r m r y school enroll- ment were m p a r t achieved by l o w e n n g t h e cost of access, but larger budget allocabons will be needed t o c o n h u e m this posibve direc- bon, m p r o v e the quality a n d relevance of educabon, and raise learn- mg outcomes. Inaddihon, capacibes at t h e base are weak and will re- quire sustamed attenbon. Inhealth, the programs that contributed t o 46  6 CHAPTER OVERALL OUTCOME AND CONTRIBUTIONS posibve health outcomes such as lower child mortality are largely verbcal, while t h e broader task o f l m p r o v m g service delivery a t the base i s progressmg only slowly Inhealth too, enough budget re- sources have n o t yet been made available to m e e t needs. Sustamed acbon is needed t o r e d o r c e monitormg and evaluabon, planrung, a n d implementabon capacibes at the l e v e l of t h e health and school districts, accomparued by a keen focus o n constramts to service qual- ity a n d a marked mcrease m the f l o w of resources t o t h e front Line of service delivery The policies promulgated a t the center should m each case be supporbve of decentralized development acbvibes and should seek t o put m place supportwe mstituhonal structures. A m o n g the m a m constramts i s the difficulty of attracimg a n d retauung quali- fied teachers a n d health workers t o poor and less-accessible locabons. Without progress o n this key issue, t h e a i m of reachmg the poor will remam elusive. All these are l o n g t e r m challenges, a n d t h e rate of progress at this l e v e l i s likely to b e a key long-term d e t e r m a n t of h o w effecbvely services can be delivered t o t h e poor. With the accel- erated move to program budgetmg and budgetary support, m a n y de- centralizabon issues have n o t yet worked out, l e t alone implemented. The Bank 6.7 T h e Bank's objectives in Madagascar were relevant, and the focus of i t s assistance improved over time. The Bank has h a d a robust agenda of basic reforms that w e r e necessary for Madagascar t o resume growth, even w h e n successive governments w e r e reluctant t o undertake such reforms. Bank assistance contributed m a sigruficant w a y to h s turnaround m econormc growth. The partnerslup with the IMF and donors was generally robust, despite occasional tensions (see par. 6.13). Without the Bank's presence, it i s possible that Malagasy reformers w o u l d have made progress, engagmg with the I M F and/or major donors. However, the Bank's presence gave crucial m o m e n t u m to structural reforms. With the FY04 CAS, t h e Bank made a genume effort to reorgaruze, redefine, a n d anchor its assistance m the PRSP The Bank helped sharpen the focus o n systemc issues a n d service de- livery m health and educabon. It played a promment role m catalyz- mg the H I V / A I D S program. At t h e same bme, it developed success- ful mtervenbons to channel resources m t o small-scale d r a s t r u c t u r e rehabilitation and other acbvibes, such as nutrition, that targeted vul- nerable groups. The Bank made a major contribubon to the environ- ment by helpmg develop the first NEAP, and followmg up with a 15- year APL to implement the actions envisaged. The Bank was a re- sponsive partner and contributed effecbvely to the economc recovery and the revitalizabon of social and economc services after the 2002 crisis. 6.8 T h e Bank's assistance h a d some shortcomings as well. The prmcipal one was the relabvely small mvolvement m agricultural de- 47 CHAPTER 6 OVERALL OUTCOME AND CONTRIBUTIONS velopment, b o t h m terms o f knowledge transfer and mvestment, given the extent of r u r a l poverty. ”Stroke of the pen” measures, such as elimmation of subsidies a n d liberalization of markets, did little to revive the sector. The Bank focused m o r e o n sectors with h g h growth potenbal where the payoffs were quicker and lugher but the m p a c t o n poverty limited. The Bank spent an mordinate amount of effort on p r i v a b z m g a f e w major public enterprises. But because tlus process required a l o t of political capital on the p a r t of the government, the Bank chose t o neglect m relabve terms, untilvery recently, other im- portant areas -such as public sector reform, energy sector reform, a n d the land issue -w h i c h were also considered t o be polibcally very difficult. The Bank‘s approach m the electricity sector has been one of the factors m the current electricity crisis. Inthe health sector, Bank‘s support has not yet been effecbve m addressmg issues such as the availability and management of medical personnel m poor or less- accessible areas, r e d o r c e m e n t of the management capacibes o f the health districts, mcreasmg budget allocabons for the sector m l i n e with reasonable needs, and establishmg stable cost recovery policies. Ineducation, the Bank focused on p r i m a r y education, but secondary educabon, w h i c h is n o w feeling the pressure o f mcreased p r i m a r y school enrollments, was sidelined. 6.9 T h e B a n k deserves credit f o r l e a r n i n g f r o m past experi- ence a n d becoming m o r e f l e x i b l e a n d willing t o innovate in some areas, sometimes against i t s o w n tenets. An example of h s i s the In- tegrated Growth Poles Project, t h r o u g h w h i c h the Bank i s ”piclung w m e r s ” to emulate the success o f EPZs o n a wider r e p o n a l basis. The conclusion of the recent R u r a l and Environmental study i s that the enabling envvonment for the r u r a l sector should mclude a n ac- ceptable ratio o f price of fertilizers to price of p a d d y (both a t farm- gate). 1 Once removed at Bank’s advice, a subsidy o n fertilizer use i s now thought to b e justified, m v i e w of environmental externalibes. It remams t o b e seen, however, h o w h s will translate mto pracbce. The recent PER advises a g a m t the m t r o d u c b o n of sectoral MTEFs -a n approach strongly advised for other countries -mamly because ”such a n mitiabve bears the risk o f divertmg scarce resources at the level of line m s t r i e s at a tune where government i s implementing sigrufi- cant public sector reforms.” The Government 6.10 Until v e r y recently, successive governments were reluctant partners in t h e implementation of Bank-supported programs. A g a m t the background o f periodic polibcal upheavals, h s has been a n important reason for Madagascar’s relabvely slow progress m de- velopment. Misguided government policies put a serious brake o n the country’s ability to reach its economx potenbal. The overall effective- 48  CHAPTER 6 OVERALL OUTCOME AND CONTRIBUTIONS ness of the Bank’s assistance was m u c h less than i t rmght have been, mostly because of lack of government ownership, poor governance, weak capacity, and the recurrmg problem of periodic policy reversals. For example, m u c h more progress could have been achieved m allevi- atmg r u r a l isolahon, i f there h a d been an agreement o n t h e strategy a n d mstituhonal framework for road transport early on. 6.11 T h e government’s commitment t o reform and i t s perform- ance have improved significantly since 2002. There i s a strong own- e r s h p of t h e PRSP program, and determmahon to follow through with related achons. At the same time, the n e w government’s deep distrust of what has been put m place by the previous admuustrahon (including m the context of donor-financed projects) has resulted m mterference and staff changes with negahve consequences o n project implementahon and results. Overall, government performance needs to improve considerably i f Madagascar is to attam the levels of g r o w t h and development of w h i c h it i s capable. M a n y long-standing issues require urgent attenhon, mcluding r u r a l isolahon, decentraliza- hon, governance (parhcularly m judicial a n d rmrung sectors), and m- efficiency and lack of transparency m t h e power sector. The leader- ship and signals provided f r o m the top m favor of private sector-led g r o w t h are admrable; however, for these to be enhanced, conflicts of mterest issues need to be addressed m earnest. Other Development Partners 6.12 D o n o r cooperation i s generally strong a n d productive. Overall, the donor community expressed satisfachon with the consul- tahon process and cooperahon with t h e Bank. This is, m general, made easier by the fact that there are relatively few donors m Mada- gascar. There was consensus that t h e cooperahon with the Bank im- proved considerably with the establishment o f the local office and t h e postmg of the task managers m the field. Throughout the review pe- riod, t h e Bank has worked closely with the IMF m s u s t a m g the gov- ernments’ reform programs. While the I M F has taken the lead m mac- roeconomc policy dialogue, the Bank has focused o n structural reforms. T h e relabonshp has been mutually self-supportmg. There was, however, a major disagreement m 2003 w h e n the Bank advo- cated suspension of l m p o r t dubes o n capital goods a g a m t the advice of t h e I M F 2 There has been close collaborahon among Madagascar’s partners m t h e context of the PRSP process and support to PRSCs, parhcularly m the areas of public expenditure management, decen- tralizahon, and governance. Inthe transport sector, the Bank works closely with the other partners, m a d y the EU and the Agence Fran- Caise d e Developpement (AFD). Overall, different approaches, time- tables, and procedures contmue to a d d t o the uncertamty and a d m - 49  6 CHAPTER OVERALL OUTCOME AND CONTRIBUTIONS istrabve burden faced by the Authoribes, although efforts are under- w a y for their harmomzation. 6.13 D o n o r coordination c o u l d b e further enhanced by w e l l - formulated, government-owned strategies a n d plans. For m u c h of the CAE period, coordinabon acbvibes were largely neglected by the governments, and it was l e f t t o the donors themselves to ensure that thelr programs were adequately coordinated. Donors were better m some sectors than others m ensurmg t l u s coordinahon. For example, while donor coordinabon i s exemplary m the area of environment, it i s m u c h less so m r u r a l development. Int h ~ area, s the Bank’s program of small grants was perceived by some donors as u n d e r m g their efforts to develop a successful mcro-credit scheme. Inthe agricultural sector, for example, there i s n o t yet a clear v i e w among donors as to h o w the extension services should be orgamzed. This, m part, reflects the lack of a strong government program m this area, w h c h i s bemg currently developed. Overall, the shift to PRSC lending i s puthng the burden of a i d coordinabon more squarely o n the government, for w h c h t h e capacity is rather weak. External Factors 6.14 T h e external environment has been relatively unfavorable t o Madagascar during t h e r e v i e w period. While t h e prices of several of its most important exports -vanilla, graphite, tourism services, shrimp -have remamed stagnant or even fallen m real t e r m , the cost of m p o r t e d petroleum, o n w h c h t h e economy i s w h o l l y dependent, has risen sharply, notably smce 2002. Although textile exports f r o m the EPZs have contmued t o grow, t h e mternational outlook i s m u c h less p r o m s m g followmg t e r m a t i o n of the Multi-fiber Agreement and gwen the mpending changes m t h e terms of AGOA. 6.15 D u e to i t s geographic location, Madagascar i s frequently hit by natural disasters. Natural disasters (cyclones, tropical storms, crop pests) brought occasional setbacks t o livmg conditions m terms of food msecurity (harvest losses), and damaged road mfrastructure a n d social mfrastructure. M o s t of t h e cyclones cause m u u m a l damage, but durmg the period reviewed, cyclones caused severe damage m 2002 and agam m 2004. 50  6 CHAPTER OVERALL OUTCOME AND CONTRIBUTIONS 1.” Madagascar, Rural and Envronment Sector Review,” Report No.26106-MG, De- NOTES cember 2003, Volume I ,p. 17 2. Immediately after the political cnsis of 2002, a key component of Bank’s recom- mended recovery package was a zero tax rate o n imported capital goods. T h ~ was s strongly opposed by the I M F Inthe event, the tax exemption was extended to cover a wide range of electrical and electroruc goods; t h e Authorities fell substantially short of their revenue targets; and the comcidence of the tax shortfall and sharply mcreased imports with external and mtemal shocks (rismg imported fuel pnces, cyclones, and the need to import substantial quantities of nce) led to serious macroeconomic msta- bility, accompamed by a sharp exchange rate devaluation, m the first six months of 2004. 51 7. Findings and Recommendations From the CAE period under review, the following findings can b e distilled a n d recommendations made: Findings It i s difficult to monitor donor-supported program outcomes m Madagascar, as the country suffers f r o m a n overload of mdica- tors, most of w h c h are neither closely monitored n o r reliable, and, at times, mconsistent. Unless l i n k s between t h e d y n a m c sectors and the r u r a l areas- where the great majority of the poor are located-can be m- proved, g r o w t h m Madagascar will n o t b e pro-poor. An mcrease m aid flows to assist a committed government is consistent with the need to scale up aid to meet the M i l l e n m u m Development Goals. But w h e n it exceeds the country's absorp- tive capacity and runs ahead of the mstitubonal reforms neces- sary for then sustamability, it can have l i m i t e d effecbveness as the expenence m Malagasy transport sector demonstrates. Ingeneral, PRscs seem to be good mstruments for brmgmg co- herence to a government's plans, for prioritizmg budget alloca- bons m line with agreed targets, and for accelerabng and coor- dinating policy and financial support f r o m the Bank and other donors. But m Madagascar madequate preparatory w o r k and capacity building prior to PRscs have been behmd serious m- plementation problems that have disrupted resource flows to beneficiaries. Whether or n o t tkus 1 s only a transibonal problem remams to be seen. Targeted acbvities addressmg specific constramts of the poor can be effecbve m protecting vulnerable groups. T h e return to tlus mvestment could have been mcreased i f set m the context of a social risk management strategy designed to lower vulner- ability rather than respond to repeated crises m Madagascar. Staff presence m the field has been cribcal for ensurmg stronger donor coordination and Improved Implementation. Recommendations Develop CAS Scenarios: While the unpetus for reform m Madagascar appears to be strong, the Bank needs to develop a 53 CHAPTER7 AND RECOMMENDATIONS FINDINGS low case scenario m the CAS, m the event of renewed polibcal m t a b i l i t y and/or a weakerung of the Authoribes’ commitment to reform. Since natural disasters are hghly prevalent and re- current events m Madagascar, the CAS should also treat tlus phenomenon as a risk mtegral to its program, with focus on mitigabon and vulnerability reduction measures. Monitoring Indicators: A s the Bank and other donors jomtly adopt results-onented programs, there is an urgent need to de- fine a f e w critical mdicators and strengthen support to stabsbcs for the= reliable monitomg. Until h s is satisfactorily ad- dressed, it will remam difficult t o assess the effectiveness of do- nor-supported programs. Strengthen the G r o w t h and Governance Aspects of the Strategy: The g r o w t h strategy needs t o b e refocused o n reach- mg the r u r a l poor, by worlung jomtly with the Government and other donors to develop a n m o v a t i v e vision and mplementa- t i o n program t o raise r u r a l mcomes and address structural pov- erty The Bank also needs t o mtenslfy its support for good gov- ernance, by focusmg more sharply on: (a) k e y sectors (especially the judiciary and extractive mdustries); (b) resolvmg the land question; (c) strengtherung decentralized m t i t u t i o n s (d) tackling lugher-level corrupbon more effecbvely; and (e) enhancmg evaluabon and auditing capacity Limit the Role of Budget Support Consideration should b e g w e n t o limit programmatic budget support untilthere i s a credible and sustamed m p r o v e m e n t m revenue collection and public expenditure management system. Projects designed to address specific sectoral issues, bottlenecks, and capacity con- stramts, will be critical for mcreasmg Madagascar’s absorpbve capacity and the effectiveness of programmabc m t r u m e n t s . 54  ANNEXA TABLES STATISTICAL Annexes A: Statistical Tables Annex Table 1. Madagascar -at a Glance Annex Table 2: Madagascar -Economc and Social Indicators (1994-2004) Annex Table 3: Madagascar -Development Assistance and W o r l d Bank Lending Annex Table 4: Madagascar -AAA, Research and Publicahon, 1995-2005 Annex Table 5: Ratmgs for Madagascar and Comparator Countries Annex Table 6: Madagascar -Comparahve Bank Budget by Cost Category, 1994-2005 Annex Table 7- Madagascar -W o r l d Bank's Seruor Management, 1994-2005 Annex Table 8: Madagascar -Millenruum Development Goals 55  ANNEXA TABLES STATISTICAL Annex Table 1. Madagascar - At a Glance sub- POVERTY and SOCIAL Madagascar Saharan Africa Low- income Ievelopment dlamond' 1 2004 Population, mid-year (millions) 17.3 719 2,338 GNI per capita (Atlas method, US$) 3M) 600 510 0 GNI (Atlas method, US$ billions) 5.2 432 1,184 Average annual growth, t998-04 T Population (%) 2.9 2.2 18 Labor force I%) 2.9 1.o 21 Gross )i pnmary Most recent estimate (latest year available, 1% I) capita enrollment Poverty (% of population below national poverty line) 71 Urban population (% of total population) 27 37 31 Life expectancy at birth (years) 58 46 58 Infant mortality (per 7,OOOiive births) 78 101 79 Child malnutrkion (% of children under 5) 33 44 Access to improvedwater source - Access to an improvedwater source I%ofpopulation) 45 58 75 I Literacy (% ofpopulation age 75+) 71 65 61 Gross primary enrollment (% of schod-age population) 120 95 94 Madagascar Male 122 102 101 . . .. Low-fncwne group Female 117 88 88 KEY ECONOMIC RATlOS and LONG-TERM TRENDS 1984 1994 2003 2004 Economic ratios' GDP (US$ billions) 2.9 3.0 5.5 44 Gross capital fonnationlGDP 8.6 10.9 17.9 27 5 Exports of goods and servicedGDP 13.3 22.0 23.1 31 7 Trade Gross domestic savingdGDP 4.0 3.3 8.9 11 1 Gross national SavingdGDP 2.1 1.4 13.0 17 3 Current account balancdGDP -6.0 -9.4 4.9 -9 4 Interest paymentdGDP 2.1 0.7 0.6 07 Total debt/GDP 72.8 137.6 90.5 79 8 Total debt servicdexports 30.2 9.3 5.4 62 I Present value of deWGDP 26.8 Present value of deWexports 114.8 Indebtedness - 1984-94 1994-04 2003 2004 200448 (average annual growth) GDP 1.2 2.7 9.8 5.3 65 Madagascar GDP per capita -1.5 0.3 6.8 2.6 39 Low-income group Exports of goods and services 4.0 0.7 45.4 -5.6 64 STRUCTURE of the ECONOMY (% or GDP) Aonculture Householdfinal consumption expenditure General gov't final consumption expenditure 11.2 51.7 86.2 9.8 8.0 66.5 89.8 6.9 13.7 55.5 81.9 9.2 14.2 55.2 79.7 9.2 5 0 1 I -GCF 'O'GDP (average annual growth) 199444 I Growth of exports and imports (%) AgflCUltUre 2.3 1.9 1.3 Industry 1.2 2.5 14.5 Manufactunng 0.6 3.2 15.3 Services 1.1 3.0 10.4 Householdfinal consumption expenditure 0.4 3.2 12.5 4.7 General gov't final consumption expenditure 0.8 2.9 24.2 -6.6 Gross capital formation 3.4 9.2 33.8 57.6 Imports of goods and services 0.1 7.6 69.9 Note: 2004 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing. the diamond will be incomplete. 56  ANNEX A TABLES STATISTICAL Madagascar PRICES and GOVERNMENT FINANCE Inflation I984 1994 2003 2004 Inflation (%) Domestic prices (% change) Consumer pnces 39.1 4.8 27.0 implicit GDP deflator 10.3 41.7 2.8 14.3 Government finance (% of GDP, includes current grants) Current revenue 15.1 9.1 12.8 16.0 Current budget balance Overall surplusldeficit 8.1 1.7 -4.3 -1 1.2 1.5 6.7 3.4 -9.1 1 -GDPdeflator -0'CPI I TRADE 1984 1994 2003 2004 Export and Import levels (US$ mill.) (US$ millions) Total exports (fbb) 337 447 94 1 884 2.0w T Shnmp 22 58 54 62 Vanilla 53 63 195 108 Manufactures 42 191 640 653 Total imports (cif) 41 1 642 1,521 1,634 Food 48 79 96 83 Fuel and energy 98 72 213 204 "1 Capital goods 68 143 208 300 98 99 00 01 02 03 Export price index (2000=100) 118 108 158 176 Import price index (2000-100) 75 100 97 103 EExports Elmports Terms of trade (2000=100) 156 109 164 170 BALANCE of PAYMENTS 1984 1994 2003 2004 Zurrent account balance to GDP (%) (US$ millions) Exports of goods and services 390 653 1,261 1,264 imports of goods and services 513 874 1,752 1,944 Resource balance -122 -221 -491 -680 Net income -132 -146 -80 -72 Net current transfers 77 90 303 340 Current account balance -177 -277 -268 -411 Financing items (net) 184 269 285 431 Changes in net reserves -7 8 -17 -20 Memo: Reserves including gold (US$ mil/ions) 68 62 397 467 Conversion rate (DEC, /oca//US$) 115.3 616.5 1,238.3 1.868.9 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 2,139 4,076 4,952 3,481 IBRD IDA 25 251 14 1,021 0 1,975 0 2,269 1 13 23 Total debt service 122 65 69 80 IBRD 3 5 0 0 IDA 3 13 20 27 Composition of net resource flows Official grants 68 116 186 251 Official creditors 160 56 182 433 Pnvate creditors 3 -5 0 -3 Foreign direct investment (net inflows) 9 6 13 Portfolio equity (net inflows) 0 0 0 0 World Bank program Commitments 45 53 222 260 A. IBRD E Bilateral B - IDA F - Private ~ Disbursements 30 60 195 318 D -Other multilateral Principal repayments 2 9 9 11 C-IMF G -Short-term Net flows 29 50 186 307 Interest payments 4 8 12 16 Net transfers 24 42 174 291 Development Economics 9/8/05 57  - - m .- 7 c m co h d h w r - m N W m N G .- m N N n t N 0 mcv U N u a s Ln LD LD N Lo . m m - m P m w m d - W h 'D .-- - - W m m d a N m d 7 T m LD m W 0 I n m 0 00 m m " N CT h 0 N w r n u.- " h 0 e LD LD W N - I n 0 N 0 T m x 0 LD m .- T- - m N d W W m LD h h m a 0 Loo m - 'D T .- T W Lo LD m h N h N - w m W w m m 0 h s N N h 8 LD Lom h % T N - " m 0 " W 0 m m h d s N m I hn h m N Ln 7 m * N - e - m m m L D w N m m - 0 m 0 0 m 0 00 s d co N m m d m m a . - m T m - . N - d . N - 0 d I n W m LD z 0 m m m 0 0) 0 N m LD T N 7 m N - W 0 d m ? E 0 W r- z - 0 0 m LD - N d m 0 h .- m d 0 W 0 m N m W 0 W N W LD m N m N 0 m e s 00 0 7 d h 0 h T- 0 N N 00 N Lo W LD m 0 m N .- '0 h L D d - 7 m W m h 0 0 N Lo N W LD n I 4 F N m N N N - d T co h T LD 0 W ln m W m m m m o 0 h 0 W N n Lo l ? N m N h 7 e z m 0 0 0 m 0 h d 0 r- 0 m h (D LD N LD 7 N m 0 9 : : N m h 7 0 0 0 m h LD 0 N LD d 7 W ul N 0 0 W N I n N * m h 7 N - d 0 h m xi .- T 7 (D 0 m I-: h LD d N d 7 W T I (0 m m 7 0 0 LD 0 W z - 0 0 0 U m m 4 3 2 8 co W N 0 m N 0  d W N m N 0 0 h 0 h w m m P S 7 (D 7 d 7 W 7 d m W N d W m -! $? m h n l m W m 0 0 h m d N m LD e z N W U W m h 9 d' m 0 7 $? W b . - Lnm W m c7 0 0 m h 0 W h 2 m W v 7 W m N h N m N W 0 m 0 h d h W - d - 0 W m 0 0 m m =: 0 m Lo 7 h .-- N 8 z 7 m z d 3 z z - h 7 0 m N 0 m W N m W h B - 0 0 m 8 N % Z W 0 z N z W m In 7 m h m 3 - a 0 x m N m m m o m d N N r- - 7 m 0 'D m m d 0 m 0 * m m * m h m W d m m B 7 m ZW o m W m W $? w m 0 h 0 W w W N h 7 m Ln m W P- h 7 h r- m d 0 m 0 m 0 m d m m LD 0 ? - (D m 7- w d N m m 0 8 N m m h W m .-- W LD W N 7- 7 W 7 0 0 0 O 0 m h h m 7 $! LD d m d m s w W m 0 m N m z 7 h T m m d m m N W 0 m w z W 0 N m 9' m IC W d m m TKi m 0 m h m * h m -f c'1 d m m N 7 W - W c W z 0 % W m N m 0 0 m d m z 5 L m 0) m N m m 0 7 0 m m 0 m W (D N Ln c 0  ANNEXA TABLES STATISTICAL Table 3b: World Bank Commitments by Sector Board, 1994-2005 Sector Board FY94- Fiscal year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Education 65.0 65.0 Energy and Mining 51.9 46.0 5.0 32.0 135 Environment 30.0 40.0 70 Economic Policy 70.6 100.0 50.5 221 Financial Sector 16.4 16 Health, Nutrition and 27.6 40.0 20.0 10.0 18.0 115.6 Population Public Sector 13.8 4.6 50.0 30.0 98 Governance Pnvate Sector 13.1 23.8 23.8 61 Development Rural Sector 46.4 89.1 135 Social Protection 18.3 40.0 15.0 128.1 175.0 376 Transport 65.0 80.0 150.0 295 Urban Development 35.0 35.0 Water Supply and 17.3 17 Sanitation Overall Result 83.3 46.4 86.0 173.2 114.9 131.4 109.6 267.7 43.8 162.0 230.0 193.0 1,641.3 Source: World Bank internal database as of February15 2006. 61  ANNEXA STATISTICAL TABLES Annex Table 4: Madagascar- Selected AAA, Research and Publications, 19952005 Document Title Date Report No. Document Type Country Assistance Strategy Madagascar-lntenm country assistance strategy (Vol. 1) Madagascar-lntenm 1012312002 25001 Country Assistance Strategy country assistance strategy (English) Document Madagascar-Country assistance strategy (English) 1012012003 27063 Country Assistance Strategy Document Poverty Reduction Strategy Paper Madagascar-lntenm poverty reduction strategy paper and joint assessment (Vol. 1) 11/28/2000 21423 Poverty Reduction Strategy Madagascar-lntenm poverty reduction strategy paper and joint assessment (English) Paper (PRSP) Madagascar-Poverty Reduction Strategy Paper (PRSP) and joint IDA, IMF staff I012212003 27017 Poverty Reduction Strategy assessment (English) Paper (PRSP) Madagascar-Poverty Reduction Strategy Paper (PRSP) First Annual Progress 0910312004 30036 Poverty Reduction Strategy Report and joint assessment (English) Paper (PRSP) Country Assessments Madagascar-Etude de la gestion des depenses publiques (French) 0613012003 27432 Country Financial AccountabilityAssessment Economic and Sector Reports Madagascar-A strategy for high growth and poverty alleviation an economic 0712911994 3274 Economic Report strategy note (English) Madagascar-An agenda for growth and poverty reduction country economic 1011411998 8473 Economic Report memorandum Madagascar-Education and training in Madagascar towards a policy agenda for 06/22/2001 22389 Economic Report economic growth and poverty reduction (Vol. 1 and 2) Vers une politique nouvelle pour la croissance economique et la reduction de la pauvrete: un resume des principaux defis (French1English) Madagascar-Public Expenditure Review (PER) 2004 - The challenge of poverty 0212512005 30331 Economic Report reduction (English) Madagascar-Towards a school-based strategy for improving primary and secondary 0812611994 13450 Sector Report education (English) Madagascar-New horizons building a strategy for private-sector, export-led growth - 0513111995 14385 Sector Report a private sector assessment (English) Madagascar-Poverty assessment (English) 0612811996 14044 Sector Report Madagascar-Decentralization (English) 1110512003 25793 Sector Report Madagascar-Rural and environnemental sector review (Vol I-2), Madagascar- 1211812003 26106 Sector Report Revue du secteur rural et environnemental - rapport principal (French) Madagascar-Development policy review - sustaining growth for enhanced poverty 0511612005 32167 Sector Report reduction fVol. 1-2) 63 ANNEX A TABLES STATISTICAL _______~ ~ Document Title Date Report No. Document Type Working Papers Participation in education (English) 02/28/1995 18182 Departmental Working Paper Participation in poverty assessments (English) 06/30/1995 18178 Departmental Working Paper Education and training in Madagascar towards a policy agenda for economic growth 09/30/2001 22984 Departmental Working Paper and poverty reduction - a summary (Vol. 1) Education and training in Madagascar towards a policy agenda for economic growth and poverty reduction - a summary (English) Le partenanat Madagascar-Banque Mondiale 1997 (Vol 1) Le partenanat 01/01/1997 17295 Working Paper Madagascar-Banque Mondiale 1997 (French) Le partenanat Madagascar-Banque mondiale 1998 (Vol 1) Le partenanat 01101/ I 998 19734 Working Paper Madagascar-Banque mondiale 1998 (French) Le partenanat Madagascar-Banque Mondiale 1999 (Vol 1) Le partenanat 01/01/1999 20930 Working Paper Madagascar-Banque Mondiale 1999 (French) Le partenanat Madagascar - Banque Mondiale 2000 (Vol 1) Le partenanat 0110112000 22624 Working Paper Madagascar-Banque Mondiale 2000 (French) Socio-economic differences in health, nutrition, and population in Madgascar (English) 05/01/2000 30575 Working Paper Changes in poverty in Madagascar 1993 - 1999 (Vol. 1) Changes in poverty in 0713 112001 22710 Working Paper (Numbered Madagascar 1993 - 1999 (English) Series) Incentives and obstacles to growth lessons from manufacturing case studies in 11/01/2001 28427 Working Paper (Numbered Madagascar (English) Series) Republic of Madagascar tourism sector study (English) 11/01/2003 27676 Working Paper (Numbered Series) Madagascar-Impact des combustibles ligneux sur I'environnement (French) 10/31/1995 ESM176 ESMAP Paper Madagascar-Financial policies for diversified growth (English) 0713111993 12242 Publication Population growth, shifting cultivation, and unsustainable agricultural development a 0313111994 WDP234 Publication case study in Madagascar (English) Valuing tropical forests methodology and case study of Madagascar (English) 0813111995 14980 Publication Madagascar-An agenda for growth and poverty reduction (Vol. 1) Madagascar-An 08/31/1999 19605 Publication agenda for growth and poverty reduction (English) Education and training in Madagascar toward a policy agenda for economic growth 01/01/2002 24328 Publication and poverty reduction (French) Education and training in Madagascar toward a policy agenda for economic growth 01/01/2002 24328 Publication and poverty reduction (Vol. 1) Education and training in Madagascar - toward a policy agenda for economic growth and poverty reduction (English) Source: World Bank database as of December 15,2005. 64  ANNEXA TABLES STATISTICAL Annex Table 5: Ratings for Madagascar and Comparator Countries Annex Table 5a. Key IEG Ratings (by Project Approval Year) FY94-05 lnst Dev Total Total Outcome lnst Dev lmpact Evaluated Evaluated Outcome % Sat lmpact % 'Subst Sustainability Sustainability IW (No) % Sat($) (No) % Subst ($) (No) % Likely ($) % Likely (No) Madagascar 478.4 15 89.6 73.3 48.4 40.0 63.6 50.0 Burkina Faso 338.2 11 80.6 81.8 43.6 45.5 80.1 81.8 Senegal 588.1 18 77.7 83.3 66.4 61 .I 67.7 71.4 Tanzania 858.9 13 100.0 100.0 100.0 100.0 100.0 100.0 Uganda 1,214.7 21 92.6 89.5 36.7 57.9 78.5 87.5 Africa 14,111 361 78.4 70.7 39.3 42.8 69.2 62.5 World Bank 124,343 1,605 81 .O 78.2 51.2 50.4 80.5 74.6 Key IEG Ratings (by Project Exit Year) FY94-05 Total Total Outcome Inst. Dev. Inst. Dev. Evaluated Evaluated Outcome % Sat Impact Impact Sustainability Sustainability ($MI (No) %Sat ($) (No) % Subst ($) % Subst (No) % Likely ($) % Likely (No) Madagascar 961.6 36 68.2 66.7 37.8 38.9 50.1 51.4 Burkina Faso 778.9 26 86.5 80.8 35.6 38.5 64.7 68.0 Senegal 988.5 31 78.2 77 4 49.4 45.2 56.7 52.0 Tanzania 2,353.0 34 71.7 85.3 62.0 76.5 69.0 81.8 Uganda 2,340.6 47 82.6 75.6 36.1 44.4 54.9 52.4 Africa 32,725.5 891 68.6 61.0 33.3 33.3 48.8 43.5 World Bank 232,108.5 3,135 78.6 73.1 46.1 42.5 70.8 61.8 Source: World Bank internal database. IEG Rating Aggregates- By Net Commitments and Number as of February 14,2006. 65 0 a a Y $ r) 3 Y 9 a Y c) 3 Y 3 Y 3 Y 3 s 2 3 N 3 n n n e 4 n c 2 2 0 n c 0 n n c 3 n c k 0 4 % 2 W co ANNEXA TABLES STATISTICAL Annex Table 7: Madagascar-World Bank’s Senior Management 1994-2005 ~ ~~ _____~ ______~ _____~ ~ Year Vice-president Div. Chief/ Country Director Resident Representative 1994 Edward V. K. Jaycox Francisco Aguirre-Sacasa Michel Palein 1995 Edward V. K. Jaycox Francisco Aguirre-Sacasa Michel Palein 1996 Callisto Madavo Andrew. P Rogerson Philippe Le Houerou 1997 Callisto Madavo Michael N. Sarns Philippe Le Houerou 1998 Callisto Madavo Michael N. Sarris Philippe Le Houerou 1999 Callisto Madavo Michael N. Sams Philippe Le Houerou 2000 Callisto Madavo Hafez M. H. Ghanem Hafez M. H. Ghanem 2001 Callisto Madavo Hafez M. H. Ghanem Hafez M. H. Ghanem 2002 Callisto Madavo Hafez M. H. Ghanem Hafez M. H. Ghanem 2003 Callisto Madavo Hafez M. H. Ghanem Hafez M. H. Ghanem 2004 Callisto Madavo Hafez M. H. Ghanem Hafez M. H. Ghanem 2005 Gobind Nankani James Bond James Bond Source: WB Directones 1994-2005 68  ANNEXA TABLES STATISTICAL Annex Table 8: Madagascar-Millennium DevelopmentGoals 1990 1994 1997 2000 2003 2004 Goal 1: Eradicate extreme poverty and hunger Percentage share of income or consumption held by poorest 20% 4.9 Population below $1 a day (%) 46.3 58.2 61 Population below minimum level of dietary energy consumption (%) 40 37 Poverty gap ratio at $1 a day (incidence x depth of poverty) 17.6 23.5 27.9 Poverty headcount, national (%of population) 73.3 71.3 Prevalence of underweight in children (under five years of age) 45.2 40 33.1 Goal 2: Achieve unwenal primary education Net pnmary enrollment ratio (% of relevant age group) 64.8 64.5 67.7 78.6 Pnmary completion rate, total (%of relevant age group) 34.7 29.5 33.1 35.8 46.8 46.8 Proportion of pupils starting grade 1 who reach grade 5 21.1 51.1 33.6 Youth literacy rate (% ages 1524) 70.1 Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliament (%) 7 4 8 4 4 Ratio of girls to boys in pnmary and semndary education (%) 97.6 96.6 Ratio of young literate females to males (% ages 1524) 94.1 Share of women employed in the nonagncuitural sector (%) 24.2 Goal 4: Reduce child mortality Immunization, measles (% of children ages 12-23 months) 47 63 46 55 55 55 Infant mortality rate (per 1,000 live births) 103 95 84 78 78 Under 5 mortality rate (per 1,000) 168 156 137 126 126 Goal 5: Improve maternal health Births attended by skilled health staff (% of total) 47.3 46.2 Maternal mortality ratio (modeled estimate, per 100,000 live births) 550 Goal 6: Combat HIVIAIDS, malaria, and other diseases Contraceptive prevalence rate (%of women ages 15-49) 19.4 19 16.9 Incidence of tuberculosis (per 100,000 people) 191.8 199 204.5 210.2 216.1 216.1 Number of children orphaned by HlVlAlDS 18000 30000 30000 Prevalence of HIV, total (%of population aged 15-49) 1.3 1.7 1.7 Tuberculosis cases detected under DOTS (%) 52 69.8 71.6 77.2 77.2 Goal 7: Ensure environmental sustainability Access to an improved water source (%of population) 40 45 Access to improved sanitation (% of population) 12 33 Access to secure tenure (% of population) CO2 emissions (metnc tons per capita) 0.1 0.1 0.1 0.1 Forest area (% of total land area) 22.2 20.2 GDP per unit of energy use (2000 PPP $ per kg oil equivalent) Nationally protected areas (% of total land area) 4.3 4.3 Goal 8: Develop a global partnenhip for development Aid per capita (current US$) 34.3 22.4 58.9 20.8 31.9 31.9 Debt sewice (% of exports) 44 10 26 5 5 5 Fixed line and mobile phone subscribers (per 1,000 people) 2.8 2.7 3.5 7.8 21 21 Internet users (per 1,000 people) 0.1 2 4.3 4.3 Personal computers (per 1,000 people) 1.5 2.3 4.9 4.9 Unemployment,youth female (% of female labor force ages 15-24) Unemployment,youth male (% of male labor force ages 15-24) Unemployment,youth total (% of total labor force ages 15-24) Other Fertility rate, total (births per woman) 6.2 5.8 5.2 5.2 GNI per capita, Atlas method (current US$) 240 240 250 250 290 300 GNI, Atlas method (current US$) (billions) 2.8 3.1 3.6 3.9 4.9 5.2 Gross capital formation (%of GDP) 17 10.9 12.8 15 17.9 24.4 Life expectancy at birth, total (years) 52.8 53.5 55.7 55.7 Literacy rate, adult total (% of people ages 15 and above) 70.6 Population, total (millions) 11.6 12.9 14.1 15.5 16.9 17.3 Trade (%of GDP) 44.6 51.6 51.8 68.7 53.1 71.7 Source: World Development Indicators database, April 2005.. Note: Figures in italics refer to pen& other than those specified, 69  ANNEXB LIST OF PEOPLE MET Annex B: List of People Met AND AGENCIES~PARASTATALS OF MADAGASCAR GOVERNMENT ANDRIAMAROLOHY, Gregoire Expert, Fonds Routier, Ministere de Transport et Travaux Publics ANDRIAMAMPIANINI, Lala Directeur Executif, Fonds d'Appui au Developpement de I'Enseignement Supeneur - CRESED II ANDRIAMANANTSOA, Josue Lala Directeur des Etudes et de la Planification, Ministere de la Sante et du Planning Familial (MSPF) ANDRIAMPARANY, Blanchard Directeur National, Projet de Surveillance et Education des Ecoles et des Communautes en Matiere d'Alimentation et de Nutrition Elargie (SEECALINE) ANDRIANANTENAINA, Jaono Conseiller du Secretaire General, STA ANDRIANARIVELONA, Paul Adjoint Pedagogique, Circonscnption Scolaire d'Anvonimamo, MENRS ANDRIANIIRINA, Gilbert Directeur General, OMERT HACHE, Rodrigue Directeur General, JIRAMA HARISON, Victor Directeur General, lnstitut National des Sciences Comptables et de I'Administration d'Entreprises HERIMINO, Rabodoholivololonirina Chef de Service de la Participation Communautaire, MSFP LALASOA RANDRIANASOLO, Directeur General, Ministere de la Population, de la Protection Sociale et des Loisirs Brigitte MASO, Bruno Michel Chef de la Circonscnption Scolaire (CISCO) de Mahajanga I, MENRS NlRlNA ADRIANDRAZAINA, Chef de la Circonscription Scolaire (CISCO) d'Antanananvo Avaradrano, MENRS Rakotoarijaona Seth NIRINARISON, Rabezanahary Medecin Inspecteur, Chef de Service de Sante de District Ambatolampy, Region Antsirabe, MSPF POIRIER, Guy Conseiller Technique, Fond Routier, Ministere de Transports et Travaux Publics RABARIMANDIMBY, Berojo Research Assistant, FOFIFA, Alaotra RABEMANANJARA, Tsiparina Chef de Service Communication, CSLCC RABESAHALO, Henri Directeur, Programme de Bonne Gouvernance, Presidence RABETOKOTANY, Josiane Coordinatrice de I'Unite d'Appui.Technique du Programme Education Pour Tous (EPT), Ministere de I'Education Nationale et de la Recherche Scientifique (MENRS) RADAVIDSON, Benjamin Ministre d'Economie et Finances Andriamparany RADlHARlSOA , Monique Directrice Generale des Eaux et Forets, Ministere de I' Environment and des Forets RAFALIMANANA, Fanja Aviation Civile de Madagascar RAJAON, Davida Directeur General, Fonds d'lntervention pour le Developpement RAFOLISY, Patrick Secretaire Executif, CSLCC RAJAONA, Rolland Directeur, Electncite, JIRAMA RAJERISONA, Henn Consultant, Autorite Routiere RAKOTOARIANA, Claude Macroeconomiste, STA 71 ANNEXB LIST OF PEOPLE MET RAKOTOARISOA, Jacqueline Directnce General de I'Environnement, Ministere de I' Environment et des Forets RAKOTOBE, Pascal President, Universite d'Antananarivo RAKOTOMALALA, Remi Responsable, Suivi et Evaluation, Projet CRESAN-2, MSPF RAKOTONDRAMBOA. Noel Secretaire General, Presidence RAKOTONDRANAIVO,Alphonse Infirmier, CSB II Behenjy, MSPF RAKOTONDRINIBE, Hery Zo Communication Specialist, PSDR RAKOTONIRINA, Jacqueline Medecin, Centre de Sante de Base II (CSB) Behenjy, Distnct de Sante Ambatolampy, Region Antsirabe, MSPF RAKOTONIRINA, Victor Solo Coordinateur National, Protection et Gestion Durable des Ressources Naturelles, Ministere de I' Environment et des Forets (GTZ project) RAKOTONORADRAZANANY, Chef Zone d' Pedagogique, Anvonimamo, MENRS Martin RAKOTOSOA, Henvola Chef Service Suivi Evaluation, CSLCC RAKOTOVAO, Jean-Mane Director, Information Systems, MAEP RALAINIRINA, Paul Richard Coordinateur National, Projet CRESAN-2, MSPF RAMAMPANJAKA, Jose Richard Directeur, Eau, JIRAMA RAMANAMISATA, Jean Pascal Directeur, CGGT, Ministere de Transports et Travaux Publics RAMANANDRAIBE Magistrat President, CSLCC RANAIVOHARIVONY, Bakolalao RAMANANTSOA, Rodolphe Coordinator, Energy Project RAMANDIMBIARISON, Zaza Former Vice Prime Minister RAMANGASON, Guy Suzon General Director, ANGAP RAMAROSON, Lantonirina Director, Regional Alaotra, MAEP RAMAROZATOVO, Rene Directeur General, BIANCO RANAIVOSON, Daniel Directeur des Investissements, Ministere de Transports et Travaux Publics RANARIVELO, Valencia Responsable Information, Education et Communications, SEECALINE RANDRIAMAHANDRY, Francois Directeur General, Aviation Civile de Madagascar RANDRIAMALANDY, Venant Conseiller du Directeur General, Aviation Civile de Madagascar RANDRIAMAMPIONONA, Roland Ministre de Transports et Travaux Publics RANDRIANASOLO, Jose Bertin Secretaire General, FISEMA RANDRIANASOLO, Rad0 Directeur Administratif et Financier, CSLCC RANDRIANONIMANDIMBY, Oliva Project Auditor, Ministere de Transports et Travaux Publics RANDRIARIMANANA, Harison Ministre de I'Agriculture, de I'Elevage et de la P k h e RANIRINARISON, Samuel Adjoint de la Planification, Circonscription Scolaire d'Arivonimamo, MENRS RASAMIMANANA, Olga Secretaire General Ministere de Transport et Travaux Publics RASOAFARARI, Martine Directeur, STA RASOAMANANA, Albert Chef de Service des Affaires Generales, MENRS RASOLO, Francois Director General, FOFIFA RATOHIARJAONA, Suzelin Director Help to Producers, MAEP RATOLOJANAHARY, Manus General Secretary, MAEP RATOMAHARO, Malalenirina Responsable Suivi-evaluation, SEECALINE RATSIMBARISON, Rivo Director National, PSDR RATSIMBAZAFY, Philibert Directeur General Internal Audit, Ministere d'Economie et Finances RAVELOHARISON. Ambinintsoa Coordinateur National. Office National de Nutrition 72  ANNEXB LISTOF PEOPLE MET RAVELOJAONA, Josephine Angele Project Director, Rural water, MEM, Direction Water and Sanitation RAVOARAHARISON, Enck Chef de Service Systeme. National d'lntegrite, CSLCC RAZAFIARISOA, Mane Blandine Directrice de I'Ecole Publique Primaire, Mangatany, Anvonimamo, MENRS RAZAFIMAHEFA, lvohasino Fizara Economic Adviser to the Chief of Staff at the Presidency RAZAFIMANANTENA, Tiaray Directeur des Statistiques des Menages, INSTAT RAZAFIMANANTSOA, Georges Directeur General Adjoint, Prevention, BIANCO RAZAFINDRAKOTO, Arsene CSB II Behenjy, Commune de Behenjy RAZAFINDRALAMBO, Guy Coordinator PE3, CELCO, Ministry of the Environment and Forestry RAZAFINDRAVONONA, Jean Directeur General, lnstitut National de la Statistique INSTAT RAZAFIMANDIMBY, Enc Directeur des Transports, Ministere de Transports et Travaux Publics RAZAFIMANDIMBY, Mirama Chef de Service Systeme d'lnformation, CSLCC RAZAFINDRABE, Franck Directeur Suivi Evaluation, CSLCC RAZAFINJATOVO, Hajaninna Ministre de I'Education Nationale et de la Recherche Scientifique RAZAFINJATOVO, Honore Parfait Magistrat, Ministere de la Justice, RAZAFINONY, Guy Gabnel Secretaire General, Secretaire Technique D'Ajustement ROBINSON, Eugene A. Chef, Service Navigation Aerienne ROBINSON, Jean Louis Ministre de la Sante et du Planning Familial ROLAND, Guy Directeur des Routes, Ministere de Transports et Travaux Publics SALAME, Abdou Directeur du Suivi-Evaluation et de la Communication, Ministere de la Decentralisation et de I'Amenagement du Territoire TAHINARINORO, Razafindramary Directeur de la Planification de I'Education Fondamentale, Secondaire et Technique, MENRS TSIKEL'IANKINA, Ernest Directeur de la Formation Technique et Professionnelle, MENRS PRIVATE SECTOR AND NON~GOVERNMENTAL ORGANIZATIONS ANDRIAMAMONJIARISON, Nor0 Secretaire Technique, Comite d'Appui au Pilotage de la relance de I'Entreprise ANDRIANAIVOJAONA, Charles Fisheries Consultant ANDRIANTSITOHAINA, Naina President, Groupement des Entrepnse de Madagascar BESSEY, Christopher Country Representative, Catholic Relief Services, Madagascar BRUNS, Berend Chief Executive Officer, Air Madagascar CLAES, Patrick Administrateur, Directeur General, MADARAIL CLERC, Pierre-Aime Directeur General, Total ESTIME, Jean Robert Director, BAMEX GAUDIN, Thierry Director, Land Resources GIBLAIN, Charles Directeur General, BIONENEX HABERSTROH, Max Ecotourism Adviser to the President HARGREAVES, Jonathan Businessman HIRIDJEE, Azad Businessman ISMAIL, Salim Businessman KASPRZZYK, Zbigniew Manager, Ocean Consultant MINTEN, Bart Pnncipal Researcher, 110 Program, Cornell University PADDACK, Jean-Paul Regional Representative, WWF PEACH, Frank Consultant to Minister of Education 73 ANNEX B LISTOF PEOPLE MET PEZAT, Patrice Directeur General, Orange Mobile RAHAINGOSON, lharizaka Manager, lbonia Glumad Telecommunications RAJAOBELINA, Leon M. Regional Vice President, Conservation International RAJAONARIVELO, Heretina President, Association pour la Gestion et la Valorisation des Ressources Naturelles de Madagascar et Developpement. RAJAONARIVELO, Nor0 Commercial Director, HASYMA RAKOTONDRAINIBE, Charles Directeur General Adjoint, ANGAP RAKOTONDRALAMBO, Director General, ANAE Andnanntahina RAKOTONDRAMBOA. Yveline President of Chapter, Transparency International RAKOTONDRAZAKA, Romuald President+ Directeur General, AGRICO RAKOTONIRAINY, Zaka Harison Directeur General, SIRAMA RAMAROSAONA, Faraniaina Pierre Vice Presidente de la Societe Civile Contre la Corruption a Madagascar Bernard RAMBELO, Michel Directeur, Programme d'action social et economique pour la reinsertion professionnelle RANDRIANASOLO, Bertin Jose Secretary General of the Labor Confederation, RANDRIANONIMANDIMBY, Oliva Cabinet Mpanazaoa RASOLO, Francois Directeur General, FOFIFA RAZAFINJATO, Gerald Directeur, Sandandrano RICHARD, Andreas Directeur General, SALFA - Departement de la Sante de I'Eglise Lutherienne Malgache RODAVIDA, Jacky Businessman SALAM, Herint Businessman SKJORTNES, Marianne Researcher, Center for Intercultural Communication, Norway TOTOBESOLA, Euloge National Coordinator, PDSP I1 VAILLANT, Gilles Former Directeur General, Orange Mobile VINCENT, Xavier Adviser, GAPCM DONOR ORGANIZATIONS AUNE, Jens, B. Associate Professor, Noragnc, Norway BASILI, Francisco Program Coordinator, UNICEF BENAZERGA, Wendy Social Sectors, USAlD BENTEIN, Barbara Resident Representative, UNICEF BOEDTS Bruno African Development Fund, Charge Des Operations Madagascar BOSMAN, Rene Conseiller, Infrastructure et Transports, Union Europeenne CASTAING, Denis Directeur, Agence FranCaise de Developpement DANEVAD Andreas Premier Secretaire, Ambassade Royale de Norvege DROMARD, Philippe Charge de Programmes Developpement Rural, Union Europeenne FREUDENBERGER, Karen Southern Railway Project Coordinator, USAlD GAYLORD, Lisa Rural Sector and Environment, USAlD GIRARDIN, Benoit Charge d'Affaires, Embassy of Switzerland GRANJEAN, Philippe Project Director, Watershed Management Project, CIRAD HENDERSON Patnck Director General, USAlD 74  ANNEXB LISTOF PEOPLE MET JAHJAH, Samir Resident Representative, International Monetary Fund KOMENAN, Andre Division Chief, Human Development, African Development Bank KOURIEH-RANARIVELO, Randa Director, Gesellschaft fur Technische Zusammenarbeit LANGSETH, Petter Norwegian Adviser, Good Governance Program, Presidency LAROCHE,Claude Adviser to MAEP, Franco-Malagasy Cooperation LEHNE Hans Fredrik Norvegian Ambassador LEGROS, Jacques Charge de Programmes, Infrastructures, Union Europeenne MALCIOLN, Yvette N. Development Officer, USAlD METCALF, Chnstopher Peter Former Resident Representative, UNDP MONTAGNE, Pierre Forets and Biodiversity, CIRAD NDIKUYEZE, Andre Representative, World Health Organization PARTIOT, Michel Regional Director, CIRAD PIETRELLI-CHECCUCCI, Mania Deuxieme Secretaire, Union Europeenne RABEMANANJARA, Fidele G. Economist, USAlD RAFAELL, Corinne Democracy & Governance Program, USAlD RAJAOBELINA Haja Assistant Charge de Programme, Agence Japonaise de Cooperation Internationale RANDRIAMIHARISOA, Delphin Environment Officer, EU Delegation RAZAFIMBELO, Honore Fishery specialist and assistant to the resident representative RANDRIATAW, Aubert Expert Genie Rural, CIRAD RHODES, Robert S. Office Chief, Program Development, USAlD SABO lsiyaka Senior Economist, PNUD SANHOUIDI, Jean Victor Boun Representant Resident, Programme des Nations Unies pour le Developpement (PNUD) SARROCA, Oscar Representative and Country Director, World Food Program SIEGE Ludwig Directeur de Programme, Protection et Gestion Durable des Ressources Naturelles, Gesellschaft fur Technische Zusammenarbeit SMITH Martin FA0 Representative in Madagascar THIERRY Benoit Country Program Manager, IFAD TOGAWA Toru Representant Resident, Agence Japonaise de Cooperation Internationale ASSEMBLY NATIONAL FANJAVA Defevo, Depute, President de la Commission de Finances et de I'Economie MANANJARA Arthur Depute RASOLOALINORO, Antsaseheno Economiste-Plannificateur,Responsable de Suivi des Marches Publics TATAGERA, Jeannot Celestin Depute, Rapporteur General de la Commission de Finances et de I'Economie WORLD BANKSTAFF AND CONSULTANTS' INTERVIEWED IN MADAGASCAR BESANGON, Laurent Telecommuications BETTENCOURT, Sophia Rural Sector and Fishenes 1 Including Bank-financed consultants. 75 ANNEXB LIST OF PEOPLE MET BIDANI, Benu Lead Economist BOND, James P Country Director CUSHMAN, Tom Adviser, Gemstones FENO, Paul-Jean Safeguards Officer FOURNET, Bernard Highways Engineer GARNIER, Stephan Power Engineer HEIDENHOF, Giinter Governance HOLSTE, Susanne Transport Specialist ITH, Vichit Change Management Adviser, Pnvate Sector OHLER, Frits FAO, lnvestemnt Center, Watershed Management Project PFEIFFER, Hermann Consultant, Watershed Management Project PORTEUS, Paul Change Management Adviser, Infrastructure PREVOT, Christophe Water and Sanitation Specialist RABARIJHON, Henry Regional Manager, IFC RABEFANIRAKA, Noroansoa Transport Specialist RAFIDINARIVO, Jocelyn Communications Adviser RAJAONSON, Bienvenu Senior Environmental Specialist RANDRIAMANAMPISOA, Senior Economist Dieudonne RANDRIANJOHARY, Alain Pierre Program Officer, Secretariat Multibailleur RASAGAM, Ganesh Private Sector Development (Growth Poles) RAVELOARISON, Josiane Private Sector Development RAZAFIARISON, Laza Statistics RAZAFIARISON, Ziva Rural Development Specialist RENNIE, Anne Financial Sector RKOTONIAINA Patnce Municipal Engineer STANLEY, Michael Mining Specialist 76 Annex C: Guide to IEG’s Country Assistance Evaluation Methodology 1. T h i s m e t h o d o l o g c a l n o t e describes t h e k e y elements of I E G s c o u n t r y assistance e v a l u a b o n (CAE) methodology.1 CAEs rate the outcomes of Bank assistance programs, not the Clients’ overall development progress 2. A Bank assistance program needs to b e assessed on how w e l l it m e t i t s p a r t i c u l a r ob- jecbves, w h c h are t y p i c a l l y a s u b s e t of t h e Client’s d e v e l o p m e n t objecbves. I f a Bank assis- tance p r o g r a m i s l a r g e m r e l a b o n to t h e Client’s t o t a l d e v e l o p m e n t effort, t h e p r o g r a m out- c o m e will b e sunilar to t h e Client’s o v e r a l l d e v e l o p m e n t progress. H o w e v e r , m o s t B a n k assistance p r o g r a m s p r o v i d e only a f r a c b o n of t h e t o t a l resources d e v o t e d to a Client’s de- v e l o p m e n t by donors, stakeholders, a n d t h e g o v e r n m e n t itself. InCAEs, IEG rates only t h e o u t c o m e of the Bank’s program, not t h e Client’s o v e r a l l d e v e l o p m e n t outcome, a l t h o u g h t h e latter i s clearly relevant for j u d p g t h e program’s outcome. 3. T h e experience g a m e d m C A E s c o n f i r m s t h a t Bank p r o g r a m outcomes somehmes d i v e r g e sigruficantly from t h e Client’s o v e r a l l d e v e l o p m e n t progress. C A E s h a v e i d e n t i f i e d B a n k assistance p r o g r a m s w h c h had: sabsfactory outcomes m a t c h e d by good C l i e n t development; unsabsfactory outcomes m Clients w h i c h a c h e v e d good o v e r a l l d e v e l o p m e n t re- sults, n o t w i t h s t a n d i n g t h e w e a k Bank program; and, sabsfactory outcomes m Clients w h i c h did not achieve sabsfactory o v e r a l l results durmg t h e p e r i o d of program i m p l e m e n t a b o n . Assessments of assistance program outcome and Bank performance are not the same 4. By t h e same token, a n unsabsfactory Bank assistance p r o g r a m o u t c o m e does not al- w a y s m e a n t h a t Bank performance w a s also unsabsfactory, a n d me-versu. T h i s becomes clearer once w e consider t h a t t h e Bank’s c o n t r i b u b o n to t h e o u t c o m e of i t s assistance pro- g r a m i s only p a r t of t h e story. T h e assistance program’s o u t c o m e i s d e t e r r m n e d by t h e joint i m p a c t of four agents: (a) t h e Client; (b) t h e Bank; (c) partners and o t h e r stakeholders; a n d (d) exogenous forces (e.g., events of nature, m t e r n a b o n a l e c o n o m c shocks, etc.). U n d e r t h e right clrcumstances, a negabve c o n t r i b u b o n from a n y o n e agent mght o v e r w h e l m t h e posi- b v e contribubons from t h e other three, and l e a d to a n unsabsfactory outcome. 5. IEG measures B a n k performance p r i m a r i l y on t h e basis of c o n t r i b u t o r y acbons t h e B a n k d i r e c t l y controlled. Judgments r e g a r d i n g Bank performance t y p i c a l l y consider t h e relevance and i m p l e m e n t a b o n of t h e strategy, t h e design and s u p e r v i s i o n of t h e Bank’s l e n d i n g mtervenbons, the scope, q u a l i t y and follow-up of diagnosbc work and o t h e r AAA acbvibes, t h e consistency of t h e Bank’s l e n d i n g with i t s n o n - l e n d i n g work and with i t s safe- g u a r d policies, and t h e Bank’s p a r t n e r s h i p acbvibes. ’In h s note, asszstanceprogram refers to products and services generated I IIsupport o f the economc devel- opment of a Client country over a specified period o f time, and client refers to the country that receives the benefits o f that program. 77 ANNEXC GUIDETo IEG’s COUNTRY EVALUATION ASSISTANCE METHODOLOGY Rating Assistance Program Outcome 6. Inr a t m g the outcome (expected development impact) of an assistance program, IEG gauges the extent to w h c h major strategc objectwes w e r e relevant a n d achieved, without a n y shortcommgs. Inother words, did the Bank do the right thmg, and did it do it right. Programs typically express their goals m terms of h g h e r - o r d e r objecbves, such as p o v e r t y reducbon. The country assistance strategy (CAS) m a y also establish mtermediate goals, such as i m p r o v e d targetmg of social services or p r o m o h o n of mtegrated r u r a l development, a n d specify how they are expected t o contribute t o w a r d a c h e v m g t h e h g h e r - o r d e r objecbve. I E G s task IS t h e n t o validate whether the mtermediate objectwes w e r e the right ones and whether they p r o d u c e d sabsfactory n e t benefits, and whether the results c h a m specified m the C A S w a s valid. Where causal linkages w e r e not fully specified m the CAS, it i s the evaluator’s task t o reconstruct this causal c h a m f r o m the available evidence, a n d assess rele- vance, efficacy, and outcome with reference t o the mtermediate and h g h e r - o r d e r objectives. 7 For each o f the m a m objecbves, the CAE evaluates the relevance of the objecbve, the relevance of the Bank’s strategy towards m e e t m g the obecbve, m c l u d i n g the balance be- t w e e n l e n d i n g a n d non-lending mstruments, the efficacy with w h i c h the strategy was m- plemented a n d the results acheved. This i s done m two steps. The first i s a t o p - d o w n re- v i e w of whether the Bank’s p r o g r a m achieved a parbcular B a n k objecbve o r p l a n n e d outcome a n d h a d a substantwe i m p a c t o n the country’s development. The second step i s a bottom-up r e v i e w o f the Bank’s products a n d services (lending, analytical and advisory ser- vices, and a i d coordinabon) u s e d t o acheve the objective. Together these two steps test t h e consistency of findings from the products and services and the development i m p a c t dimen- sions. Subsequently, an assessment i s made of the relabve c o n t r i b u b o n to the results achieved by the Bank, other donors, the Government and exogenous factors. 8. Evaluators also assess the degree of C l i e n t ownership o f mternabonal development prioribes, such as the M i l l e n r u u m Development Goals, and Bank corporate advocacy priori- bes, such as safeguards. Ideally, any differences on dealing with these issues w o u l d b e i d e n t i f i e d a n d resolved by the CAS, enabling the evaluator to focus on whether the trade- offs adopted w e r e appropriate. However, m other mstances, t h e strategy m a y b e found to have glossed over certam conflicts, or avoided addressmg k e y C l i e n t development con- stramts. Ineither case, the consequences c o u l d m c l u d e a dimubon of p r o g r a m relevance, a loss of Client ownershp, a n d / o r unwelcome side-effects, such as safeguard violabons, a l l of w h i c h m u s t b e taken m t o account m judgmg p r o g r a m outcome. 78  ANNEXC GUIDETo IEG’s COUNTRY METHODOLOGY ASSISTANCE Ratings Scale 9 IEG utilizes six r a t m g categories for outcome, rangmg f r o m highly satisfactory to lughly unsabsfactory. H i g h l y Satisfactory: The asslstance program achieved at least acceptable progress toward a l l major relevant objectives, had best practice development impact o n one o r more of them. N o major shortcommgs were identified. Satisfactory: The asslstance program achieved acceptable progress toward a l l major relevant objectives. N o best practice achievements o r major shortcommgs were identified. Moderately Satisfactory: The asslstance program achieved acceptable progress toward most of its major relevant objectives. N o major shortcommgs were identified. Moderately Unsatisfactory: The asslstance program did n o t make acceptable pro- gress toward most of its major relevant objectives, or made acceptable progress o n a l l of them, but either (a) did n o t take m t o adequate account a key development constramt or (b) produced a major shortcommg, s u c h as a safeguard violation. Unsatisfactory: The asslstance program did n o t make acceptable pro- gress toward most of its major relevant objectives, and either (a) did not take m t o adequate account a k e y de- velopment constramt or (b) produced a major short- commg, such as a safeguard violation. H i g h l y Unsatisfacto r y : The asslstance program did n o t make acceptable pro- gress toward any of its major relevant objectives and did n o t take m t o adequate account a key development constramt, while also producmg at least one major shortcommg, such as a safeguard violation. 10. The institutional development impact (IDI) can be rated as: high, substuntzul, modest, or negligible. ID1measures the extent t o w l u c h the program bolstered t h e Client’s ability t o make more efficient, equitable and sustamable use o f its human, financial, a n d natural re- sources. Examples of areas mcluded m j u d p g the mstituhonal development m p a c t o f the program are: t h e soundness of economc management; 0 the structure of the public sector, and, m parbcular, t h e c i v i l service; the mstitubonal soundness o f t h e financial sector; 0 the soundness of legal, regulatory, a n d judicial systems; 0 the extent of monitormg a n d evaluabon systems; t h e effectweness of a i d coordinabon; the degree of financial accountability; the extent of building NGO capacity; and, 0 the level of social and environmental capital. 79 ANNEXC ASSISTANCE GUIDETO IEG’S COUNTRY METHODOLOGY EVALUATION 11. Sustainability can be rated as highly likely, likely, unlikely, hzghly unlikely, or, if avail- able d o r m a t i o n i s msufficient, non-evaluable. Sustamability measures t h e resilience t o risk of the development benefits of the country assistance program over bme, talung m t o ac- count eight factors: techrucal resilience; financial resilience (including policies o n cost recovery); economc resilience; social support (including conditions subject to safeguard policies); environmental resilience; ownership by governments and other key stakeholders; mstitubonal support (including a supportive legal/regulatory framework, a n d or- garuzabonal and management effecbveness); and, resilience to exogenous effects, such as mternabonal economc shocks or changes m t h e political and security environments. 80  Annex D: Management Action Record Major Monitorable IEG Recommendations Requiring a Management Response Response 0 Develop C A S Scenarios: While the unpetus for 0 The Country Team concurs, particularly that reform m Madagascar appears to be strong, the the CAS needs to mtegrate natural disasters Bank needs to develop a l o w case scenario m the or crlses as a rlsk mherent to the program CAS, m the event of renewed political m t a b i l i t y and present mitigation measures to the ex- and/or a weakerung of the Authorities’ commit- tent possible. The team will develop the ment to reform. Since natural disasters are highly CAS, mcluding scenarios if necessary, m prevalent and recurrent events m Madagascar, the consultation with F R M and OPCS. CAS should also treat this phenomenon as a rlsk mtegral to its program, with focus o n mitigation and vulnerability reduction measures. M o n i t o r i n g Indicators: As the Bank and other 0 The Country Team agrees with this recom- donors jomtly adopt results-oriented programs, mendation, and S I currently w o r k m g with there S I a n urgent need to define a few critical m- the Government to define a few results ori- dicators and strengthen support to statistics for ented mdicators m the development of Gov- theu reliable monitormg. Una thls i s satisfactorily ernment’s program (Madagascar Action addressed, i t will remam difficult to assess the ef- Plan). The n e w CAS will also p a y mcreased fectiveness of donor-supported programs. attention to M&E. 0 Strengthen the G r o w t h a n d Governance Aspects 0 The Government a n d Country Team agree of the Strategy: The growth strategy needs to be with the primary mportance of g r o w t h and refocused o n reachmg the r u r a l poor, by w o r k m g governance, and the need for g r o w t h to jomtly with the Government and other donors to reach the r u r a l poor. The Government Pro- develop a n m o v a t i v e vlsion and mplementation gram (MAP) and the CAS 1 s currently bemg program t o ralse r u r a l mcomes and address struc- developed, together with other donors t o tural poverty The Bank also needs to mtenslfy its determme the most efficient use o f resources support for good governance, by focusmg more and divlsion of labor to move f o r w a r d o n sharply on: (a) key sectors (especially the judici- this agenda. Current thlnkmg S I that Gov- ary and extractive mdustries); (b) resolvlng the ernance w o r k will be focused o n key sectors land question; (c) strengtherung decentralized m- with special attention p a i d to areas where stitutions (d) tackling higher-level corruption the Bank has programs. A C E M o n G r o w t h more effectively; and (e) enhancmg evaluation and I also planned for FY08. S auditing capacity 0 Limit the Role of Budget Support: Consideration 0 The Country Team agrees that at thls stage should be given to limit programmatic budget it should limit its programmatic budget support until there i s a credible and sustamed m- support, and have done so for FY07 (reduc- provement I IIrevenue collection and public ex- mg the PRSC amount to 50% of the FY06 penditure management system. Projects designed amount). We will continue to weigh these to address specific sectoral lssues, bottlenecks, and considerations carefully w h e n m o v m g for- capacity constramts, will be critical for mcreasmg w a r d o n the PRSC program, a n d are explor- Madagascar’s absorptive capacity and the effec- mg greater use of SWAPS w h i c h provide tiveness of programmatic mstruments. greater financial controls and a concerted sector reform effort. 81 Attachment 1: Comments from the Government MISISTERE DE L’ECONOMIE DES FINANCES ET 5U BUDGET --*- L e Ministre de I’Economie, des Finances et du Budget B Monsieur I’Adrninistrateur pour Mtid;iguswr BANQUE MONDIALE WASHINGTON ETATS - UNlS D’AMERIQUE Un projet de rapport sur I’kvaluation kttrospective de l‘aide de la hnquc Mandiak ii A4ahgwar nous a tite m s m i s pour obstwations. Jr vous tmnsmets en m e x e nos cornmenurns en vue d’appuyer la presentation quc \oiis comptez realiscr aup& des instances concernees. 83 ATTACHMENT 1 COMMENTS FROM THE GOVERNMENT Cora men& OR Madagascar CAE The Gouenunent would like to empbizr! the significant break from the pre-2002 era tcr the current one, Since wc tmk over in 2002, vie finalixed ow Poverty Rcductian Statqg and the irnp!menmxim of the PRSP hm resultEd in many positive outcomes EL? shown iR aur Annul Progress Repbns, which we have shared with you reguMy. a Economic growth rebounded rapidly aftw thc 2003 crisis and has avrmged aroiznd 5 perccnt since 2004. 0 Our r a d s program has improved access 0t'th-t: rural popuiatioti to rrliablc trnnsprt (increased from 45% in 2003 tu 57% in 2005). As G result. progrt.ss has k e i i made on seducing poverty, which dwtined 10 68.7% from its peak level of 80% at the time of the 2002 crisis. Rural povekty declined to 73.5% in 2005 Trom 77.2% in 2001. D FvZoee children iliv in sciiuol today - net primslry eiiralslrrnt rates exceed 90% up froin 70% in 2VO2. And niure of them complete primary school - the primary completion rate has incrcnsL.d fiom 3 3% in 2003 to 60% in 2m5. L3 hmunimtion rates improved from 62% in 2002 to 87% in 20M, nnd more wumcn give birth in heatih centers than before. Infant and child mortality r a m declined significantly beween 1997 rind 2003104, with the child mortality rate declining lEurii L 6J to 94 per I000 over this period. Chronic matnutritiand t x r e a d from 43% I I 1997 to 35% in 2005. 0 Access to safe drinking w t e r in rural areas also improved increasing from 3 2% io 16O/O kt\vvcen 2003 and 2905. However, the Government has recognized that additional efforts are needed to overcome some of the main dcvdopment challenges and canstmiatrsts and improve the conditioiis to meet the MDGs, This i s why the Government has prepared the Madagascar Action Plan (oue rtew PRSP) which ts a mare ambitious stratqy md which targets scaling up of devel~prnent efforts with the expectation of higher levels o f finaiicial assistance, hloth from the private sector, internal resource mobilization. and from donilrs. fndeed. the eight focus d e e a of the MAP specific;ally target those sectors highlighted in the rcport as - needing. critical attention such as rural developmetit and infmtwctupe. 84 Attachment 2: Chairman’s Summary CHAIRMAN’S SUMMARY COMMITTEE ON DEVELOPMENT EFFECTIVENESS (Meeting o f October 16,2006) 1. The Informal Subcommittee (SC) o f the Committee on Development Effecbveness (CODE) met on October 16,2006 to discuss the Madagascar Country Assistance Evaluation (CAE), prepared by the Independent Evaluation Group (IEG). 2. Background. The Madagascar C A E covered the penod o f FY94-06. IEGrated the overall out- comes o f the Bank’s program as moderately unsatisfactory, noting that despite higher growth since 1998, it was not broad-based, poverty did not decrease appreciably and governance-related problems remain prevalent. The major lesson from the evaluation was that although an increase in aid flows to assist a committed government i s consistent with the need to scale up aid to meet the Millennium Development Goals, poor absorptive capacity and unfinished institutional reforms are likely to senously limt aid effec- tiveness. Among other findings o f the evaluation were: (i) overload o f monitoring indicators which are neither monitored nor consistent; ( iineed to link the dynamic sectors with rural areas t o promote pro- ) poor growth; (iii)senous implementation problems o f the Poverty Reducbon Support Credits, mainly due to inadequate preparatory work and capacity building; (iv) need for a better social n s k strategy; and (v) cntical importance o f staff presence in the field for stronger donor coordination and improved implemen- tation. Loolung forward, the CAE recommended: (a) developing a l o w case scenano in the next country assistance strategy t o mitigate n s k s in the event o f renewed political instability, weakening o f the authon- ties’ commitment t o reform and occurrence o f natural disasters; (b) defining a few cntical performance indicators and strengthening statistical capacity to ensure proper monitonng; (c) strengthening the growth and governance aspects o f the strategy, and refocusing the growth strategy o n the rural poor; and (d) lim- iting programmatic budget support until there i s credible improvement in revenue and expenditure man- agement systems. 3. Management agreed with the recommendations o f the C A E and noted that the new country assis- tance strategy will pay close attention to the lessons learned from the evaluation. At the same time, man- agement felt that: (i)the C A E understated the impact o f the political crisis o f 2001/2002 o n the outcome o f the Bank’s program; (ii) the Government’s commitment to senous reform in 2002 made it difficult to compare economic policy and outcomes throughout the entire penod o f the evaluation and that the report would have benefited from greater distinction between the two penods -before and after 2002; and ( iii) according to the preliminary results o f the 2005 household survey, the incidence o f poverty has declined. 4. The Malagasy authonties provided wntten comments, where they emphasized the significant changes and related positive outcomes after change in government in 2002, but also acknowledged the need for additional efforts to overcome development challenges and constraints. I t was also stressed that the new and more ambitious Poverty Reduction Strategy Paper (PRSP), which targets scaling up o f de- velopment efforts with the expectation o f higher levels o f aid flows, specifically targets sectors identified as pnonties in the CAE. 85 ATTACHMENT2 SUMMARY CHAIRMAN’S 5. Main Conclusions and Next Steps. The Subcommittee broadly agreed with the findings and recommendations o f the CAE. Members stressed that lessons coming out o f the IEG assessment need to be properly reflected in the next country assistance strategy document. They concurred with the need to re-focus the Bank’s assistance program o n the needs o f the rural poor, as well as improving governance and human capacity Among other issues that drew particular attention o f Subcommittee members were: the importance o f focusing on selected key areas, such as governance, basic infrastructure semces, health and education inthe environments o f l o w absorptive capacity and weakinsbtutions; the need to develop a l o w case scenano in the new country assistance strategy that will account for the n s k s o f political insta- bility, lack o f reform ownership and natural disasters; and the importance o f con’muous efforts directed to pnvate sector development in close cooperation with other members o f the World Bank Group and donor partners. Management stressed that all p n o n t y sectors identified by the evaluation are also included in Madagascar’s new PRSP and will be the focus o f the upcoming country assistance strategy The following points were raised: 6. The role of budget support. M a n y members concurred with the IEGrecommendation to focus on cntical sectoral bottlenecks for development rather than providing across-the-board budget support. Among pnority areas identified were governance, human capacity and infrastructure (especially electnc- ity and roads). At the same time, a few members stressed that instead o f scaling down budget support, the Bank needs to increase efforts in helping the authorities to improve their absorptive capacity and the use o f country systems. Management acknowledged the need for more selectiwty, but also underlined the im- portance ofbudget support for the overall scaling up o f the impact o f aid. Management noted that institu- tional and absorptive capacity vanes by sector and that some sectors are able to absorb more resources than presently available. Management stressed that there are difficult trade-offs that will need to be made, given the modest size o f International Development Association (IDA) envelope in Madagascar and the government’s h g h expectations from the Bank’s assistance. 7 Country Assistance Strategy scenarios. Several speakers agreed that country assistance strat- egy should include a l o w case scenano to account for the country’s vulnerability to natural disasters and climate change and the possibility o f renewed political instability and decline in reform ownership. A member was interested whether IEG recommendation to develop a l o w case scenano should be seen in a broader context o f applying the new governance strategy in the exceptional nsk countnes and i t s link to IDA performance-based allocabon (PBA) system. Management explained that i t was trylng to move away from “cases model” because it contradicts the IDA P B A system, which i s based on Country Policy and Institutional Assessment. Management noted that the next country assistance strategy will proceed with presenting a base case scenano, but will also mention that the Bank’s program will be revisited and re- adjusted in case o f political instability or emergence o f other exogenous factors. Regarding the link to new governance strategy, management stressed that at present Madagascar i s not an obwous candidate for scaling down assistance based on poor governance performance. IEG clanfied that i t s recommendation to develop a l o w case scenano was not dnven by governance issues, but the need to send a clear signal that the Bank’s support and cooperation are predicated on the continuation o f reform process. 8. Governance. Several speakers noted with concern the persistent problems in the area o f govern- ance and high incidence o f corruption. A member pointed that the country needs more time for building requisite institutional and human capacity to tackle corruption and improve governance. Management noted that despite persistent problems, compared to many other countnes inthe region, Madagascar does relatively well on many dimensions o f governance. IEG agreed that significant progress had been made on governance since 2003, but added that institutional set-up for addressing corruption in many sectors very often does not meet the Bank standards (e.g. extractwe industnes). Several members were concerned that despite recent improvements in governance, there has been a wsible detenoration in fiscal indicators (e.g. particular reference was made to Madagascar’s l o w tax to GDP ratio), which needs to be addressed 86  2 ATTACHMENT SUMMARY CHAIRMAN’S in the next country assistance strategy - an issue especially important in light o f Madagascar being Multi- lateral Debt Relief Initiative-recipient country Management concurred with the members’ concern, and noted that it will continue close cooperation with the Fund to help the government developing a compre- hensive fiscal reform strategy 9 A member asked for elaboration on the concern mentioned in the evaluation regarding associa- tion o f the co~ntry’sleadership with successful businesses and possible appearances o f conflict o f inter- est, and stressed that any mention o f specific corruption concerns should be substantiated. IEG clanfied that the example quoted was a perception that had been raised with them, and that i t was sending wrong signals for pnvate sector development and compebtion. IEG noted that the evaluation reported that the Bank has been engaged in dialogue with the authonties on that subject and recommended a few best prac- tice solutions, on which n o action has been taken as o f today Management added that in case o f Mada- gascar, the small size o f the country and i t s pnvate sector might have been a factor that had further exac- erbated the perceptions o f possible conflict o f interest. Management noted that the Bank has been closely engaged in improving procurement and business regulations. 10. Environmental resource management. A member was interested in the lessons learned f r o m the relatively successful history o f environmental resource management for the broader public sector governance agenda. Management replied that one o f the major factors that contributed to successful out- comes in the sector was the Bank’s continuous long term involvement and intensive dialogue wth the au- thonties. 11. Infrastructure.Several members underlined that the case o f Madagascar demonstrated the in- ability o f the pnvate sector alone to prowde adequate infrastructure services, even when the government establishes an appropnate incentive system. In this context, they urged increased support for improving country’s infrastructure, especially electncity and transport with an emphasis o n the rural areas. A mem- ber noted that the repeating pattern o f unsatisfactory ratings o f the Bank’s assistance outcomes in poor countnes might be linked to deficiencies in the structural design o f the Bank’s strategies through the last decade, reflected in disregard for the real sector challenges in favor o f macroeconomc stability and pnva- tization - important, but not sufficient condihons for broader pnvate sector-led growth and poverty reduc- tion. Management agreed that lack o f basic infrastructure and electncity supply in particular, imposes significant costs o n pnvate sector development in the country 12. Rural poverty. Members broadly concurred with the IEG observation that poverty reduction in rural areas remains a major challenge, and urged strongerjoint efforts for reonentingthe policies towards more pro-poor growth. At the same time, they noted that reorientation towards agncultural and rural de- velopment should complement and not come at the expense o f the momentum generated in other areas - e.g. investment climate and export-onented activities. Management noted that some constraints to rural development/agnculture lie outside the agnculture sector, and that many issues affecting rural areas are being currently addressed through project work in other sectors: roads, community development invest- ments, etc. 13. Private sector development and the role of InternationalFinance Corporation (IFC). Sev- eral members noted that IFC activities in Madagascar amount t o only a small fraction o f the Bank’s port- folio and encouraged more active participation in the areas o f financial sector development, improwng investment climate and small and medium enterprise (SME) development. Management replied that the next country assistance strategy i s being developedjointly by IDA and IFC. IFC representative clanfied that the volume o f IFC activities in the country has sharply increased following the opening o f IFC coun- try office in 2003. H e added that presently IFC i s focusing its activities on the financial sector, provision o f technical assistance and SME development -jointly with IDA. A speaker mentioned tounsm as a 87 ATTACHMENT 2 ’s SUMMARY CHAIRMAN promising area for potential IFC involvement. IFC representative informed that IFC, in cooperation with other donors, i s provlding technical assistance t o attract investors in the tounsm sector. A speaker asked whether the IEG evaluation o f the financial sector performance was accurate, gwen the significant growth inpnvate credit. IEG clanfied that despite growth, the total amount o f credit as share o f GDP remains ex- tremely low, and that long-term credit i s s t i l l unavailable. 14. Coverage. Some members felt that an overall assessment based o n the country performance throughout the entire penod o f 1995-2005 did not do justice to the government’s renewed c o m t m e n t t o reforms and positive trends after 2002. Inthis context, a few speakers suggested diwding the assessment into separate sub-penods to better reflect o n the country developments. IEG clanfied that the nature and purpose o f CAEs involve a longer-term assessment o f the outcomes o f the Bank’s assistance. 15. Ownership and capacity. Members welcomed the positive changes in country ownershp o f the reform process since 2002, but stressed that it needs t o be further strengthened and consolidated. Man- agement agreed with the importance o f buildingcapacity and added i t will be featured in the new country assistance strategy as a cross-cutting issue along with governance. 16. Monitoring. Members concurred with IEG observation that the quanhty o f monitonng indicators should be reduced to a smaller and more manageable number allowing for proper monitonng o f progress in implementation. Management noted that the Bank i s workmg with the authonties t o improve monitor- ing and statistical capacity 17 Emergency assistance. A member was interested in the share o f the Bank’s emergency assis- tance in the overall portfolio, including projects restructured as a result o f emergency response, and whether they had significant impact o n the assistance outcomes. Management explained that the post- emergency reonentation and specific emergency response constituted only a small frachon inthe Bank’s portfolio. 18. Staffing. A member was interested inthe impact o f staffpresence inthe field. IEGreplied that all indicators point to overall improvement in cooperation with donors and better understanding o f country issues when Bank staff were based in the field. Pietro Veglio, Chalrman 88