Zambia - Economic and Social Adjustment Project

 Economic and social adjustment project Report No: ; Type: Report/Evaluation Memorandum ; Country: Zambia; Region: Africa; Sector: Macro/Non-Trade; Major Sector: Economic Policy; ProjectID: P003222 Zambia: Economic and Social Adjustment Program (Credit 2577- ZA) The Implementation Completion Report (ICR) for the Zambia Economic and Social Adjustment program (Credit 2577- ZA, in the amount of US$150 million equivalent, approved in FY94, with an IDA reflow of US$13.7 million equivalent, approved in FY95) was prepared by the Africa Regional Office. The Borrower's evaluation of the program is included as Annex I. The project closed on time, on December 31, 1995, and was fully disbursed. The purpose of the operation was to provide Zambia with critical balance of payments support and to assist policy reform in three key areas: (i) restoration of macroeconomic stability and reform of public sector management (in the context of an IMF program and a series of adjustment operations); (ii) stimulation of a supply response through removal of constraints to export production and development of a market for state land; and (iii) improved delivery of vital social services. The project achieved nearly all of its objectives. Macroeconomic stability improved, non-traditional exports increased sharply, and the delivery of social services improved. Zambian Airways was liquidated, ending its drain on the budget. Incentives for civil servants were improved, and in-kind severance pay (houses, land, vehicles) was approved to ease retrenchment. The duty drawback scheme for exporters was expanded and simplified. Social sector spending increased sharply, allocations for key recurrent costs were increased, and reforms began on the delivery of social services, notably decentralization of health services. A waiver was granted on some politically controversial land law amendments; they were passed six months later. Macroeconomic stability remains fragile, however. Output growth has not recovered and the revenue base continues to stagnate, due to a deterioration of the situation of the state mining company, three years of drought, and continued weaknesses in the civil service. The ICR rates project outcome as satisfactory, sustainability as uncertain, and institutional development as moderate. OED concurs with these ratings, and also rates Bank performance as satisfactory. Although most of the agreed measures were carried out, their impact is still unclear; sustainability will depend largely on accelerated and broad- based growth in output and employment, and improved living standards. The project's main lessons, as noted in the ICR, are that: (i) budget targets for the social sectors can be an effective tool for their improvement, provided that actual disbursements are monitored closely and that sectoral policy reforms proceed in parallel; (ii) performance indicators for the social sectors should permit evaluation of the results, not just monitoring of expenditures; and (iii) adjustment programs should be simple, particularly when administrative capabilities for monetary and fiscal management are weak. The ICR is of satisfactory quality. No audit is planned.