Madagascar - Second Structural Adjustment Credit Project - Supplemental Credit

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P7382-MAG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTAL CREDIT OF SDR 15.2 MILLION (US$ 20 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR THE SECOND STRUCTURAL ADJUSTMENT CREDIT July 5, 2000 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT (Exchange Rate of May 2000) Currency Unit = Malagasy Franc (FMG) US$ = FMG 7,213 SYSTEM OF WEIGHT AND MEASURES Metric US Equivalent I meter (m) 3.28 feet (ft.) I square kilometer (kM2) 0.386 square miles (sq. mi.) I hectare 2,47 acres (a) 1 metric ton (m ton) 2,204 pounds (lb.) MALAGASY FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan CAS Country Assistance Strategy CiSco School District (Circonscription Scolaire) CAS Country Assistance Strategy CNC National Coordinating Committee for Cyclone Damage (Comnite National de Coordination des Degdts Cycloniques) CRESED II Second Education Sector Development Project (Prcoet de Developpement du Secteur de l'Education) CRESAN II Second Health Sector Support Project (Deuxieme Projet d'Appui au Secteur de la Sante) CNS National Relief Council (Conseil National de Secours) CSB Primary Health Centre (Centre de Sante de Base) EPZ Export Processing Zone EU European Union FID Social Fund (Fonds dI'ntervention pour le Developpement) GDP Gross Domestic Product IDA Intemnational Development Association IMF Intemnational Monetary Fund INSTAT National Statistical Institute (Institut National de Statistiques) NGO Non-Governmental Organization PRGF Poverty Reduction and Growth Facility SAC-2 Second Structural Adjustment Credit SEECALINE Second Community Nutrition project Vice President: Callisto Madavo, AFR Country Director: Hafez Ghanem, AFC08 Sector Manager: Larry Hinkle, AFTM3 Task Team Leaders: Jesko Hentschel, Christos Kostopoulos, Bienvenu Rajaonson  ii FOR OFFICIAL USE ONLY REPUBLIC OF MADAGASCAR SUPPLEMENTAL CREDIT FOR SAC-2 Credit Summary Borrower: Republic of Madagascar Amount and Term: SDR 15.2 million (US$20 million equivalent), on standard IDA terms, with a 40-year maturity, including a 1 0-year grace period. Objectives and Description: The supplemental credit is an integral part of IDA's strategy to help Madagascar respond to the impact of the three successive cyclones. The proposed supplemental credit would provide Madagascar with fast-disbursing foreign exchange to partially compensate for lower export earnings and higher import needs in 2000 and 2001 due to three cyclones that devastated parts of the island in February, March and April 2000. These have created an unanticipated financing need that would endanger the government's reform effort that is otherwise proceeding on track. Counterpart funds generated will assist the government in its planned reconstruction effort. Benefits and Risks: The main benefits will be to assist Madagascar in overcoming an unanticipated financing need, thereby maintaining macro- economic stability and meeting government's pressing reconstruction requirements. Possible risks relate to the financing need being larger than anticipated, capacity constraints in the public sector, and the non-transparent use of funds. Appropriate supervision and monitoring will address these risks. Poverty Category: Not applicable. The poor were the most severely affected by the cyclones. Though not targeted at the poor, the credit would assist the poor by helping the government contain inflation, providing foreign exchange for key imports (especially rice), and contributing resources for the restoration of basic services in the cyclone-affected areas. Disbursement: The supplemental credit is in one tranche. The government intends to draw on the available funds in two installments. The full credit amount (US$20 million) is expected to be disbursed by December 31, 2001. Maps: IBRD 20035R1 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTAL CREDIT TO THE REPUBLIC OF MADAGASCAR FOR THE SECOND STRUCTURAL ADJUSTMENT CREDIT 1. I submit for your approval the following report and recommendation on a proposed supplemental development credit to the Republic of Madagascar for SDR 15.2 million (US$20 million equivalent). The proposed credit would be on standard IDA terms with a maturity of 40 years. The credit supplements the on-going Second Structural Adjustment Credit (Credit 3218-MAG). The supplemental credit aims to ensure that Madagascar has sufficient resources to cover an unanticipated financing need arising from the three cyclones that hit the country from February to April 2000. The counterpart funds will provide budget support for the government's reconstruction effort. I. Summary 2. Madagascar was struck by three consecutive cyclones - Eline, Gloria and Hudah - in quick succession in February, March and April 2000.1 The island is highly exposed to storms that form over the Indian Ocean. On average, three storms hit the island per year as was the case in 2000. However, this year's impact both in terms of human suffering as well as physical damages has been the most severe in years with damages even higher than those estimated to have been caused by the 1994 cyclones Daisy and Geralda. In 2000, more than 1 million inhabitants were affected by the cyclones, resulting in over 200 people dead and over 400,000 people in need of emergency assistance. Winds and heavy rains caused serious damage to homes, schools and health centers. Thousands of hectares of forests were destroyed, and roads were swept away, isolating many villages. Destruction of a large share of the rice, vanilla and coffee harvests will substantially increase import needs of rice and lower export proceeds. The human and environmental impact of the cyclones is considerable, especially since it came on top of a drought in the south of the country that has lasted for months and has the potential for causing food shortages in the next few months. 3. Madagascar is a low-income country with a GNP per capita of US$250. Per capita income fell by almost 50 percent (in real terms) over the past three decades. Today, life expectancy, health and education indicators are at or below the unsatisfactory averages for sub-Saharan Africa. Literacy stands at 46 percent and almost half (44 percent) of children under the age of three are stunted. Access to basic public services is scarce. In 1997, 75 percent of the Malagasy population were income-poor with rural poverty most severe. The government's central objective is to steadily reduce the incidence of poverty to 35 percent by 2015. Recently, the government drafted a preliminary version of an anti-poverty strategy which will serve as a basis for development of a Poverty Reduction Strategy Paper (PRSP). Although Gloria is classified as a tropical storm, for purposes of presentation we do not distinguish it from the two cyclones, Eline and Hudah.  2 4. The cyclone damages in 2000 are estimated to be US$137 million (about 4 percent of GDP), of which US$76 million are private damages and US$61 million are public. The cyclone caused income losses in the order of US$77 million for 2000, or approximately 2 percent of GDP. Public reconstruction needs amount to US$92 million, expected to be covered over a two-year period, July 2000 - June 2002.2 These public reconstruction costs, losses in export revenues, as well as additional import needs of the private sector, are estimated to result in financing needs of US$75 million in 2000 with needs in 2001 of US$65 million and in :2002 of US$41 million. The financing gap in the year 2000 is expected to be filled by additional debt relief from the Paris Club (US$19 million), multilateral and bilateral donors (US$23 million), and the IMF (US$33 million). It is anticipated that IDA resources - including the proposed SAC-2 supplemental - will help the government in its reconstruction effort and will allow the private sector to play an important role in overcorming cyclone-related setbacks. 5. The government requested assistance from IDA to respond to the direct reconstruction needs of the emergency as well as to mitigate the potential macro-economic impacts. IDA's response includes (a) technical assistance to the government in assessing the damage and its implact; (b) portfolio restructuring to meet short- and medium-term reconstruction needs; (c) supplemental financing for the Third Social Fund Project and for the Second Structural AdLjustment Credit; and (d) assistance to the government to develop a long-tern cyclone vulnerability mitigation strategy. This Report spells out IDA's overall response to the emergency and details the proposed supplemental financing to the Second Structural Adjustment Credit. The supplement to the Third Social Fund Project is presented in a separate Memorandum of the President (Report No. P7380-MAG), presented to the Board of Executive Directors at the same time as this Report. II. The Impact of Cyclones Eline, Gloria and Hudah 6. Cyclones Eline, Gloria and Hudah. Cyclones Eline, Gloria and Hudah made landfall on the east coast of Madagascar on February 16, March 2 and April 2, 2000, respectively. Depending on the level of human impact and physical damage assessed, between 9 and 20 districts (of 111 total) were classified by the government as heavily affected, with at least 33 more classified as moderately affected having experienced a medium impact through winds, rain and flooding. Eline, the first to hit, struck the central east part of the country. The second cyclone, Gloria, struck the northeast coast and snaked southwards. The third cyclone, Hudah, made landfall in the same area as Gloria, but proceeded west across the northern tip of the country. Nearly all of the national territory was at least lightly affected by at least one of the three cyclones. 7. In all of the most affected districts, agriculture is the main source of income with more than 90 percent of the workforce employed there. The northernmost, heavily- affected districts of Antalaha, Andapa, Maroantsetra and Sambava comprise the backbone of Madagascar's cash crop production of vanilla, coffee and cloves. Subsistence farrning 2 Public reconstruction needs exceed public damages because reconstruction will be at cyclone-proof standards in several sectors. This is in-accordance with the standard construction practice of the current sector investment programs in the health and education sector, supported by IDA.  3 in maize, rice and manioc dominates activity in the other hardest hit areas in the East of the country to the south of Tamatave. Although sparsely populated, the affected areas have a low average landholding of around 0.4 hectare. Over 90 percent of the population lives in simple bamboo dwellings which were largely destroyed by the cyclones. 8. The hardest hit districts had the highest stunting rate of children, the lowest density of doctors per person, and the lowest access rates to infrastructure such as electricity or latrines. Table I presents several living standard indicators aggregated across different areas according to the strength by which they were hit by the cyclones. Although the most heavily-impacted areas do not rate the worst in all indicator categories, the stunting rate and doctor availability rates suggest severe deprivation in these areas. Table 1: Social Indicators of Affected Areas Stunting Rate Literacy Rate Doctors Electricity Access, Sanitary Access (percent children (percent adult per 1000 percent (private toilet), below 3) population) percent Seecaline, 1998 Census, 1993 M1. Plan, Cens-us, 1993 Census, 1993 1998 Heavy Impact (9) 51.1 62.7 0.88 1.9 31.5 Moderate Impact 43.3 55.3 1.30 3.5 20.1 (44) Light Impact (32) 46.7 68.5 1.79 10.3 39.6 No Impact (16) 40.9 44.2 1.21 3.7 18.8 National Average 44.5 57.1 1.39 5.4 26.1 Source: CNS database. 9. Human and Poverty Impact. The direct human impact of the consecutive cyclones was high. More than 200 people lost their lives, more than 1 million people were affected directly as their houses were damaged or destroyed, and parts or all of their agricultural production lost. Of these, more than 400,000 were in need of immediate and urgent help as they had to flee the destroyed area or were isolated from the outside. 10. The impact on the already poor rural population in the affected districts is very severe and requires targeted reconstruction activities. Income and asset losses to the economy are small on the aggregate but with the poor bearing the brunt of these income losses, it means that many of them risk even greater poverty. The cyclone impacted the poor in the following ways: (i) Asset Losses: It is estimated that about 60 percent of houses in the most affected areas were totally or partially destroyed with hundred thousands of people losing all or a large part of what they owned - houses, livestock, tools, and other belongings. Although houses were small and simple, material costs and time invested in reconstruction put an enormous strain on household resources. To buy materials like nails, many families will need to save for weeks or even months. In the cash crop area in the North-East, vanilla and coffee trees were uprooted by winds or died in the floods. They represented the most valuable asset for small-holder farmers. In the rice growing areas, destruction of irrigation systems will lower yields in the next years if not rehabilitated quickly.  4 (ii) Income Losses. Wit]hout support, a large percentage of families in the affected areas will fall even deeper into poverty. Especially in the tree crop sector, incomes will only recuperate in two to three years. In the short-run, prices for staples such as rice are likely to increase (especially if a shortfall of foreign exchange were to lead to an exchange rate devaluation), further lowering real incomes of the poor. If the washed- away rural and provincial roads remain impassable, trade of agricultural produce and integration in the off-farm labor markets will be limited. (iii) Higher Health Risks: With a number of health centers as well as roads destroyed, access to both preventive and clinical services is impaired and needs urgent attention. A post-cyclone survey conducted by the National Relief Council (CNS) indicates that malnutrition rates in several districts are on the rise. With water levels receding, water contamination is reduced. The incidence of malaria might increase, however, in the coming months. (iv) Disruption of the Education Cycle: In the ten most affected educational districts, it is estimated that schools for 223,000 students at all levels had been destroyed. Although many villages and towns set up provisional teaching facilities in make-shift halls or tents, the cyclones disrupted the school year at a very intense time of learning. 11. Overall, a key priority of the government and its partners in the short run is to mitigate the urgent needs oi the poor. With many private assets of the poor destroyed and income earning possibilities impaired, it is crucial to rehabilitate roads, water systems, education and health facilities as well as ensure seed distribution and nutritional aid. If the government and donors do not respond swiftly and effectively to this emergency, the poor of affected regions may continue to suffer long after the floods recede, in turn compromising the accumulation of human capital required for Madagascar's sustained growth. 12. Environmental Impact. The cyclones had an extensive physical impact on the environment. The area of forest heavily damaged is estimated to be 7,000 km2. In Antalaha, where cyclone :Hudah made landfall, roughly a quarter of the trees are completely uprooted and a half lost major branches. Many of these darnages occurred in the largest national park of Madagascar, the Masoala environmental park. There and in other hard-hit districts, deforested areas are scarred by numerous landslides. The impact of the cyclones on biodiversity and the many endemic plants and animal species is unknown to date and will require careful monitoring. 13. The main threat of the cyclones to the environment is linked to poverty as many affected families are in search of food. Burning of the fallen wood on hillsides provides rice land for two years before the soil becomes too depleted for further cultivation. This does not allow natural regeneration of the forest and destroys the habitat of many species. Also, the deforested hillsides left behind by the slash and burn practices increase the impact of future cyclones because deforested hillsides are more prone to erosion and lose their water-retention capacity. Hence, in deforested areas the impacts of cyclones are larger due to increased flooding and mnudslides. Rapid relief and reconstruction efforts of vital  5 infrastructure would therefore also- limit the pressure on the environment in the affected areas. 14. Damages and Income Losses. In close cooperation with the Government, other donors and several NGOs, IDA conducted a preliminary damage assessment (see Box 1 in Section III). Total infrastructure and asset damages are estimated at US$137 million or slightly less than 4 percent of GDP (US$76 million private, US$61 million public). Table 2 provides a breakdown of these damage costs by sector. Roads, bridges, ports, railroads, and two airports record the highest damage in the public sector with US$31 million. In the social sectors, 1727 primary schools, 173 secondary schools, 82 primary health centers (CSB1) and 86 district health facilities (CSB2) were damaged or destroyed. In the agricultural sector, irrigation systems were especially affected in the eastern part of the country around Tamatave. Private asset damage fell largely on households as they lost houses, belonging (including livestock) and vanilla, coffee and clove trees. Table 2: Asset Damage Estimates, by Public and Private Sector (US$ millions)' Sector Damage Estimate Reconstruction Need Private 76 n.a.2 - Industry 9 n.a.2 - Housing & Assets 26 na2. - Vanilla, coffee, clove 41 41 trees Public 61 92 - Education 11 33 - Health 1 5 - Agriculture 12 15 - Transport 31 31 - Water & Elect. 2 3 - Public Buildings 3 3 - Prevention 1 2 Source: Joint Damage and Reconstruction Assessment (May 2000). 1 To convert the local currency cost component of damages and reconstruction needs into US dollars, a uniform exchange rate of I US$ equal to FMG 7,213 was used (month average for May 2000, Intemational Financial Statistics from the IMF). Since then the Malagasy Franc has appreciated by around 12 percent (till June 30, 2000). This would lower the dollar estimate of the local cost component of the damage and reconstruction estimate which is not above one third of total damages/reconstruction costs in any sector. 2 Reconstruction needs for industry and housing (private sector) were not assessed since these assets have to a very large extent already been restored by firms and households. 15. Total income losses (60 percent of which fall on the farming sector) are estimated at US$77 million in 2000, representing approximately 2 percent of GDP. Table 3 presents sector estimates of income losses before taking into account the reconstruction effort. As private reconstruction is underway and a large part of public reconstruction is expected to be completed next year, income losses in 2001 should be limited to US$31 million. These income losses do not directly translate into a lower GDP growth rate as private and public reconstruction (partly foreign financed) will give a boost to specific sectors, especially construction and transport. Overall, growth of GDP in 2000 is expected to only fall 0.5 percent short of expectations, from the pre-cyclone prediction of 5.3 percent to a post- cyclone forecast of 4.8 percent.  6 Table 3: Income Losses due to Cyclones, by Sector, 2000-2002 (before reconstruction) (VS$ million) Sector 2000 2001 2002 Industry 6 2 0 Agriculture 47 19 12 Of which -rice 21 8 0 -manioc 8 0 0 -maize 2 0 0 -vanilla 9 8 8 -coffee 4 3 3 - cloves 2 1 1 -pepper 0 0 0 - livestock I 0 0 Services (incl Transport) 24 10 1 Total 77 31 14 Source: staff calculations. 16. Reconstruction Needs. The same multi-organizational working groups that appraised damages also estimated reconstruction needs and developed sector reconstruction strategies. E3stimated reconstruction needs in the public sector total US$92 million (refer to Table 2). Reconstruction cost estimates in the education (US$33 million) and health (US$5 million) sectors include costs associated with rehabilitation to cyclone- proof standards which also confirms to current standard practice of construction in these sectors. In the transport sector, reconstruction plans cover immediate repair works. A multi-donor funded transport rehabilitation effort is planned over the next years that will upgrade a large part of the national and provincial road network. In the agricultural sector, the Government plans to distribute about US$3 million in seeds, in addition to repairing the damaged irrigation systems. Reconstruction needs of the private sector have in large part been already met as most private households and firms have rebuilt their assets. 17. The government's priority is to solve major transport bottlenecks at the beginning of the reconstruction effort. S;uch priority is important to reach now-isolated areas. It could also have an important positive effect on containing price rises of food (especially rice) and construction. Trucking prices have risen as high as 30 to 50 percent in the affected areas since the cyclones because of the damage to roads and bridges. 18. Economic Impact. Ihe primary macroeconomic impact of the cyclone has been due to losses in earnings to the private sector (producers, intermediaries, and exporters) and foreign exchange pressure for additional cyclone-related imports in 2000 and beyond. As mentioned above, reduced income earnings are around 2 percent of GDP. In the absence of a concerted reconstruction effort, GDP per capita (which grew at a rate of 2.0 percent in 1999) would level off after four years of positive growth. The Government is committed to the reconstruction effort and has programmed additional capital goods expenditures of  7 US$23 million in 2000. As stated above, this and additional private sector reconstruction activity is expected to contain the reduction in GDP growth due to the cyclones to 0.5 percent. 19. On the external side, the shortfall in exports and additional import needs are expected to translate into a current account worsening of US$75 million for 2000 (equivalent to 45 percent of foreign exchange reserves of the Central Bank). The export shortfall will be primarily due to reduced vanilla exports (US$12.9 millions), although the cyclone has also affected exports of coffee (US$5.4 million), and cloves (US$2.8 million). Additional imports reflect public and private sector needs, especially additional needs for the import of rice (US$8 million). The actual commercial imports of rice will have to be closely monitored in the next months since production losses capture only damages due to the cyclones. If the drought in the south of the country continues, it is possible that foreign exchange needs for food imports might be substantially higher.3 20. Extra import needs also stem from Government's reconstruction effort and private sector needs. The current account balance (excluding grants) is expected to deteriorate from -7.3 percent to -9.1 percent of GDP in 2000. The impact of the cyclones on exports and imports is expected to last until 2002. Given the country's low level of reserves, US$226 million or 9.6 weeks of imports, it would be impossible for Madagascar to meet these additional demands without external support. 21. On the fiscal side, the US$92 million net public reconstruction investments are programmed over the period July 2000 - June 2002. To meet these reconstruction targets, the government plans to use 25 percent of that amount in the latter half of 2000. This would increase programmed public investment by about 10 percent. To meet such higher investment expenditures, government revenues can unlikely be increased as they are already set at ambitious levels. Part of the needs can be obtained through reprogramming planned expenditures and government will raise 20 percent of the public reconstruction needs through such expenditure switching measures in the years 2001 and 2002. Apart from foreign financing, the other options to cover the unanticipated financing needed carry risks. Increased domestic borrowing could raise interest rates even further, stifling private investment at a time when it is badly needed. Resorting to overall credit expansion - apart from being limited by the existing IMF program -- could increase inflationary pressures. 22. National and International Response. After the first two cyclones, the government launched an international call for help on March 7, 2000, to solicit emergency assistance for the most affected populations and support for the rehabilitation of damaged and destroyed infrastructure. The National Relief Council (CNS) coordinated the relief effort while the National Coordinating Committee for Cyclone Damage (CNC) organized the damage assessment and reconstruction effort. The emergency relief program comprised food assistance, distribution of basic essential goods and spot repairs of basic infrastructure. About US$12.8 million of external assistance has been provisionally committed for this relief effort. The French army made deliveries of rice, equipment and 3 A joint report by the Food and Agricultural Organization and the World Food Program released on June 1, 2000, warns of a serious potential food shortage due to the drought in the south of the island.  8 relief material (blankets, imedical supplies, cholera kits, soap, plastic rolls) as well as a four-wheel drive vehicle. The World Food Program (WFP) distributed food and basic emergency necessities in the hardest hit and isolated areas (US$2.9 million). Medecins sans Frontieres also went immediately to the most affected areas to provide medical services and monitor health conditions. NGOs such as CARE and Agro Action are distributing seeds. Other donors and NGOs are active in rescue and relief efforts, providing humanitarian aid and undertaking damage assessments in affected sites. Additional food aid and community nutrition activities will be needed over the next few months in the hardest hit areas to offset income losses. A working group led by the government estimates these needs at US$9 million. III. IDA's Response to the Cyclones 23. After the cyclones hit Madagascar, the Bank received a request from the government for emergency assistance. In close coordination with its international and national partners, IDA developed the following multi-pronged response to the emergency situation. Based on IDA's experience with emergency assistance to date, the response addresses Madagascar's short, medium, and long-term needs. .) Joint Damage and Reconstruction Assessment 24. In response to the government's request, IDA sent a technical mission to Madagascar that established the need for further IDA involvement and initiated a joint damage and reconstruction assessment. In May, a large IDA mission evaluated and completed the joint assessment of damages and reconstruction needs together with the government and several international and national partners (Box 1). Box 1: Partnership Coordination IDA coordinated its response to the cylones very closely with its partner organizations. (i) During the first IDA mission in April 2000, a donors' meeting agreed that working groups in seven sectors be established comprising health, nutrition, education, transport, agriculture, private sector and macroeconomic issues, and vulnerability mitigation. (ii) After the preliminary danmage assessment was completed, a steering committee was formed comprising the UN organizations, the World Bank and the Government of Madagascar. This steering committee organized a two-day conference at which all established working groups appraised the preliminary damage assessment. This conference was held on May 22-23 in Antananarivo. Besides the Government, the UN system and IDA, participants included the African Development Bank, the European Community, several bilateral donors and several NGOs like CARE and Medecins sans Frontieres. In addition to assessing damages and reconstruction needs, the working groups also discussed programming and phasing of sectoral investments as well as the potential contributions of different international donors. (iii) The steering committee included the outputs from the working groups and produced a final document "Evaluation des degats et Programme de Reconstruction durable post cyclonique pour Madagascar" on May 26. This document is to be published by the steering committee in July. (iv) In addition to bilateral d[iscussions with many of its partners, IDA based the restructuring of the existing portfolio and the design of its supplemental credits on the joint damage and reconstruction assessment.  9 ii) Portfolio Restructuring to Meet Short and Medium-Term Reconstruction Needs 25. Given the need for timely financial support, restructuring the existing portfolio, as opposed to designing a new multi-sector cyclone relief investment project, is the fastest and most flexible way to meet Madagascar's reconstruction needs. Four on-going IDA operations in Madagascar will be restructured (Table 4) within the existing legal frameworks in order to provide financing for rehabilitation needs. The main objectives of these projects will not change. Table 4: IDA Financing of Reconstruction Effort Through Existing Portfolio, by Sector/Project (US$ millions) SECTORIPROJECT TOTAL FINANCING BY FY IDA 2001 2002 FINANCING Education/CRESED II (Cr. 3046-MAG) 11.0 4.0 7.0 HealthICRESANHI (Cr. 3302-MAG) 2.3 1.0 1.3 Nutrition/SEECALINE (Cr. 3060-MAG) 2.5 1.3 1.2 Transport APL-1 (Cr. 33640-MAG) 5.5 2.3 3.2 TOTAL 21.3 8.6 12.7 (a) Second Education Sector Development Project (CRESED II): IDA funds in the amount of US$11 million (out of a total credit amount of US$65 million) will be made available for reconstruction of primary and secondary schools in the six most- affected districts located in the provinces of Antsiranana and Toamasina. CRESED II will finance the reconstruction of around 414 classrooms in FY2001 and 700 classrooms in FY2002. To facilitate a rapid response, the following actions will be undertaken: (i) simplification of the project's manual of procedures, (ii) strengthening of management capacity at the central and district levels, (iii) certification and adoption of a uniform anti-cyclone classroom design depending on the region and characteristics of the school, and (iv) strengthening of financial management. (b) Second Health Sector Support Project (CRESAN II): An amount of US$2.3 million will be made available by CRESAN II (total credit amount of US$40 million) mostly for the eleven health districts located in Toamasina and Antsiranana. Of this, US$1.5 million will be used for large reconstruction or rehabilitation works, such as health centers and hospitals, and US$800,000, for small repairs works. Actions will be undertaken to accelerate credit effectiveness (scheduled for the first quarter of FY01) so that the emergency program can start as soon as possible. (c) Second Community Nutrition Project (SEECALINE): With the possibility of increasing malnutrition due to the cyclones, community nutrition activities under SEECALINE (total credit amount US$27.6 million) will be extended to the ten most- affected districts. IDA will make US$2.5 million available to this end. It is anticipated that cyclone-related activities will start on August 1, 2000.  10 (d) Transport Sector Reform and Rehabilitation Project APL: At the time of effectiveness (scheduled for first quarter FY01), US$3.1 million will be allocated under APL-1 (total credit amount US$48.4 million), the first of a series of loans under the APL package, for the purchase of emergency metallic structures, including bridges. A further US$2.0 million will be used for cyclone-related repairs of key roads (originally included in the project). The project will also support the development of a strategy for the prevention and the mitigationl of the effects of natural catastrophes, including cyclones (US$0.4 million). In addition, the procurement process for road maintenance has been accelerated and the capacity of the line ministry strengthened to manage the emergency works. iii) Supplemental Financing for the Third Social Fund and for the Second Structural Adjustment Credit 26. Supplemental IDA financing in the amount of US$18 million for the Third Social Fund (FID) project for rnulti-sectoral investments is being proposed (see separate Memorandum of the President Report No. P7380-MAG). FID could productively apply such additional funding to the cyclone reconstruction effort while continuing its normal activities at the current pace and not jeopardizing the quality of its work, given its proven implementation capacity. Activities to be financed would span the spectrum of FID activities, including construction of schools and prim'ary health centers but also micro- irrigation schemes at the community level. All implementation modalities defined under the on-going FID III will continue to apply for the supplemental credit. Beneficiaries are expected to contribute a minimum of 20 percent of the cost of each sub-project in cash or in kind. During the May mission, a rapid beneficiary survey was conducted in priority areas for intervention after the cyclones. Even though not statistically representative, the survey concluded that beneficiaries' priorities lie with the rapid rehabilitation of primary schools, health posts and water systems. CNC will ensure that the activities carried out under the FID supplemental credit will be well coordinated with other reconstruction activities. 27. Public sector reconstruction coupled with export losses and additional private import needs are expected to create a need for residual balance of payments support. Supplemental financing in the amount of US$20 million is being proposed under SAC-2 in order to fill the unanticipated financing gap in 2000 and 2001. The government has indicated that it intends to draw on the funds in two installments, matching its foreign exchange and domestic resource needs arising from reconstruction. To that end, the government and IDA have agreed on a transparent mechanism that will monitor progress of the complete reconstruction effort. The details of this supplemental credit are covered in Section IV. iv) Long-term Cyclone Vulnerability Mitigation Strategy 28. IDA worked with gove,rnment and other partners to evaluate the existing cyclone vulnerability mitigation strategy. While Madagascar's early warning systems were used to alert the population to the approaching three cyclones, the system does require improvements. The present system is a patchwork, comprising both national and  I1 international actors, and has emerged over years of successive disasters. Responsibilities for various aspects of disaster reduction, from prevention and preparedness to relief and reconstruction, and for dealing with specific hazards, have grown organically over the years during successive administrations through a series of sometimes overlapping decrees. As a result, responsibilities and resources are allocated through dispersed and ad hoc arrangements that, even so, manage to function surprisingly well. Nevertheless, the growing emphasis on prevention and the need to manage disasters more effectively in general is creating a positive pressure to clarify the institutional structure and roles and responsibilities so that capacity building efforts can be focused to achieve disaster reduction results. 29. With the assistance of IDA and other donors, the government has formulated a vulnerability mitigation plan. The plan includes four areas: (a) development of a National Strategy for Risk Management that also includes the rationalization of the legal and institutional framework for the response to disasters and would assign clear mandates for various institutions in disaster management; (b) mobilization of permanent resources for risk mitigation which can include the establishment of a permanent 'disaster fund'; (c) capacity building in the key agencies (CNS and CNC); and (d) improvement of information systems such as the early warning system and a vulnerability monitoring system. The govermnent assigns high priority to carrying out this strategy. Various donor organizations, including IDA, have pledged financial support for the implementation of the strategy. IDA's contribution will come through the recently approved Transport Sector Reform and Rehabilitation Project APL (effectiveness expected August 2000) which includes US$0.4 million to support the development of a strategy for the prevention and mitigation of effects of natural catastrophes, including cyclones. 30. Lessons Learned. In designing IDA's response to the emergency, the team drew from OED experience, from advice from the Bank's Disaster Management Facility and from Bank teams involved in responding to recent similar emergencies in different parts of the world, such as Honduras and Mozambique. From these, three key lessons were incorporated in the formulation of IDA's strategy. First, any response to such an emergency situation should be rapid, efficient and fast-disbursing. Thus the Bank's effort to assist Madagascar in rapid assessment of the damages and the choice to respond by using existing operations, with either supplemental credits (and quick disbursing as in the case of the SAC-2) or restructuring. Second, procurement and implementation arrangements should be flexible. Hence, in the restructuring effort of ongoing operations, the team reviewed and simplified procurement and implementation arrangements. The third lesson pertains to the importance of monitoring and evaluation. Thus, several monitoring tools will be used to keep track of macro-economic performance, disseminate information about cyclone rehabilitation efforts, and determine the impact of cyclone rehabilitation on people in the affected areas (Annex 1). 31. Lessons were also drawn from the experience of two previous rehabilitation projects in Madagascar in 1984 and 1994 supported by IDA.4 Three evaluation results were 4 Implementation Completion Report of the Cyclone Emergency Rehabilitation Project (Report No.: 17378).  12 incorporated in the design of the IDA response. First, successful program implementation, and prompt reconstruction, hinges on having a strong coordination unit. The government and IDA have agreed that CNC will be reinforced with sufficient qualified staffing, equipment, and an operating budget to coordinate effectively the reconstruction effort. Second, stringent moniloring is instrumental in focusing assistance on key activities for the success of the program and in enhancing flexibility in project implementation. To this end, the government and IDA have agreed that CNC will furnish detailed monthly information updates to regional and national consultative groups to be established as part of this cyclone reconstruction effort. The groups will be composed of the government, donors and non-governmental organizations. The consultative groups will receive detailed monthly reports on the entire reconstruction effort as part of government's effort to ensure transparency. Meetings conducted every two months will discuss the progress made and future plans. Annex 1 spells out the specifics of this monitoring arrangements. Third, the complexity inherent in multisectoral reconstruction programs can be mitigated by early agreement on the reconstruction strategy and donor coordination for the channeling of assistance into priority sectors. The joint damage assessment conducted by the government, IDA, other donors and non-governmental organizations, outlines specific sector rehabilitation strategies that will form the basis for phasing of the reconstruction effort. 32. Rationale for IDA Involvement. The CAS (discussed by the Board on February 18, 1997, Report IDA/R97-7) advocates faster and broad-based economic growth partly through higher foreign investment as a necessary means to achieve sustainable poverty reduction. With its response to the emergency, IDA aims to: (i) contribute to the effective and rapid reconstruction of productive and social infrastructure in the most affected and poorest areas of the country, thereby helping poor families to regain their income earning potential and providing crucial access to functioning schools and health centers. (ii) help maintain macro-economic stability by contributing to covering unanticipated financing needs that threaten to jeopardize the implementation of the reform program Madagascar is currently undertaking. Accordingly, IDA's response would contribute to sustaining growth, reducing pressure of the reconstruction effort on the domestic credit market, thereby creating more room for the private sector as a vital actor in the reconstruction effort. This will contribute to upholding the confidence of foreign investors in the country. IV. The Proposed Supplemental Credit for the Second Structural Adjustment Credit 33. Macroeconomic S3ituation and Resource Needs. Madagascar's economic performance has substantially improved in recent years. Per capita income growth has been positive, averaging 1.5 percent since 1997, which is a first for Madagascar in a decade. Inflation has declined from about 50 percent in 1995 to single digits in recent years. Fiscal management has improved, and the budget deficit (including grants) declined from an average of 6 percent of GDP in the mid-1990s to about 1.2 percent of GDP in 1999. New export earnings from export processing zones (EPZ) and tourism have lowered the dependence on traditional agricultural exports. The current account deficit (including  13 grants) declined from about 6 percent of GDP in mid-1990s to about 2.7 percent of GDP in 1999. 34. Madagascar faces the challenge of reconstruction at a critical time in its adjustment program. It is important that the government overcomes the reconstruction challenge in a transparent and judicious fashion to maintain international and domestic credibility. The joint damage assessment conducted by government and donors estimated public reconstruction costs at US$92 million for the 24 month period July 2000 - June 2002. Together with compensation for crop losses, US$62 million, and additional private imports, US$27 million, the total additional financing needed for 2000 to 2002 amounts to US$181 million (Table 6). For the remainder of 2000, the financing needed due to the cyclones amounts to US$75 million to compensate for cyclone-related export shortfalls and higher import needs, including private sector reconstruction. These figures are based on IMF and initial government projections; they were updated using the work of the joint working groups for reconstruction assessment in May/June 2000. The figures will be revisited in September 2000 at the mid-term review under the current Poverty Reduction and Growth Facility (PRGF). Table 5: AMadagascar: Selected Economic Indicators, 1997-2001 Actual Projection Before cyclones After cyclones 1997 1998 1999 2000 2001 2000 2001 Real GDP growth (in percent) 3.7 3.9 4.7 5.3 5.6 4.8 5.7 Agriculture 1.9 2.1 3.4 3.8 5.2 0.8 3.5 Industry 4.7 5.3 4.3 5.5 5.8 5.5 6.0 Services 4.6 5.1 5.5 5.8 5.8 6.7 7.5 Inflation (CPI, in percent) 4.5 6.2 9.7 7.6 5.0 9.9 8.0 Exports, FOB (in US$ millions) 505 519 594 657 721 627 704 Imports, CIF (in US$ millions) 802 791 885 1009 1066 1054 1114 Current account deficit (percent 7.8 7.9 6.5 7.3 7.0 9.1 8.4 of GDP, before grants) Current account deficit (percent 2.4 4.8 2.7 2.4 2.3 4.2 3.8 of GDP, after grants) Fiscal deficit % GDP (before 7.7 8.1 4.8 5.5 4.3 6.3 4.9 grants) Fiscal deficit % GDP (after 2.4 4.6 1.2 0.7 1.1 1.5 1.6 grants) Source: Government of Madagascar, IMF and staff estimates. 35. Assisting Madagascar to meet the unforeseen financing needed arising from the cyclones (US$181 million over the period 2000 to 2002) is of paramount importance to keeping the adjustment program on track. The additional financing need for 2000-2002,  14 representing both private and public iequirements, amounts to approximately 80 percent of the stock of foreign reserves at end 1999. As stated above, over the period 2000-2002, central govemment reconstruction needs have been estimated at US$92 million, eighty percent of which would be extemally financed. The advent of the three cyclones imposes additional financing needed which should be overcome while maintaining macro-stability and adjustment on track. This means that it is important for Madagascar to avoid (a) resorting to domestic credit, which would be inflationary, (b) increasing public sector borrowing, which would put pressure on the private sector, or (c) depleting already low reserve levels. Either of these options would weaken Madagascar's stabilization gains. Table 6: Financing needed due to Cyclones' (US$ million) Total 2000-02 2000 2001 2002 Resources needed 181 75 65 41 Public reconstruction2 92 23 45 24 Offset of crop losses 62 30 17 15 Additional private imports 27 22 3 2 Financing of additional needs 181 75 65 41 Paris Club3 19 19 0 0 IMF 33 33 0 0 IDA 59 18 34 7 SAC-2 20 10 10 0 FID-3 18 4 12 2 Other 21 4 12 5 Other Donors Reconstruction (incl. ADB, EU) 52 5 26 21 Government of Madagascar reprioritization of 18 0 5 13 public expenditures 1/ Both the government expenditure and balance of payments needs are additional, over and above, amounts planned prior to cyclone; figures are rounded. 2/ The public reconstruction effort is scheduled to last from July 2000 to June 2002. 3/ Total Paris Club debt (including previously planned and additional) relief 2000 is expected to be US$33.3 million. 36. Madagascar's additional financing needed (US$181 million) for the period 2000 to 2002 is expected to be met by extemal and domestic efforts. On the extemal side, Paris Club additional debt relief (US$19 million), the IMF (US$33 million), IDA (US$59 million), and other donors (US$52 million) are providing the majority of the resources, while govermment is providing an amount (US$18 million) equivalent to twenty percent of the public sector reconstruction needs (US$92 million). The financing needed for 2000 amounts to US$75 million; it is expected to be met by the aforementioned debt relief from the Paris Club, US$33 million from the IMF, US$18 million in additional IDA support, and US$5 million in other multilateral and bilateral support. IDA's response and the government's proposed phasing of its withdrawal under the supplemental credit was closely coordinated with the IMF to provide emergency financing under its Poverty Reduction and Growth Facility. Both the African Development Bank and the European  15 Union have indicated that they will actively support the reconstruction effort. The proposed financing scenario responds to the government's reconstruction need. The budget support provided by the proposed SAC-2 supplemental operation would complement IDA assistance from project restructuring and the FID supplemental. It also enables the government to undertake quick and decisive reconstruction activities in high priority areas that suffer from cyclone damage and chronic poverty. 37. Progress and Experience of the On-going Structural Adjustment Operation. On April 29, 1999, the Board of Directors of the World Bank approved SAC-2 in the amount of US$100 million. This credit builds on the first adjustment operation and assists the government to continue implementing its reform program. The program rests on four pillars for high growth: (a) macroeconomic stabilization; (b) privatization; (c) an improved business environment; and (d) strengthened public finances. 38. The credit was signed on June 10, 1999 (Cr. 7294-MAG), and became effective on June 30, 2000. The effectiveness date was postponed twice. The principal cause of this delay was difficulty in the privatization of the petroleum distribution company "SOLIMA". The privatization of "SOLIMA" faced complicated technical problems coupled with a weak institutional structure in implementing the privatization. These problems partly stemmed from this being the first large-scale non-financial privatization for the government and were compounded by a tough political constraint as prices of oil products had to be raised following the rise of crude oil prices in the international market. 39. After successful completion of the effectiveness conditions, disbursement of first tranche of the credit, amounting to US$25 million, is now being processed. The second tranche, amounting to US$30 million, depends in part on the privatization of Air Madagascar, the national airline, which is to take place at the end of 2000 or in the first quarter of 2001. Since the government has now gained knowledge and experience in privatizing large companies, disbursement of the third and last tranche (approximately US$45 million linked to the privatization of TELMA, the state telephone company) is less likely to be delayed and is expected in 2001. 40. Objectives of the Supplemental Credit. The objectives of this supplemental credit to SAC-2 are twofold: (i) to provide fast-disbursing foreign exchange to partially compensate for unanticipated and pressing financing needs in the balance of payments; and (ii) to provide counterpart funds to government for the planned reconstruction effort, thereby alleviating borrowing needs from the private sector which could crowd-out much-needed private sector investment activity. 41. Credit Description and Phasing. The supplemental credit to SAC-2 would consist of one tranche in the amount of US$20 million. The tranche would be available immediately after effectiveness of the supplementary credit. However, the government has indicated that it would withdraw the funds in two installments of US$10 million, with the first withdrawal immediately after effectiveness and the other in 2001. Government proposes to phase the withdrawal so as to help meet financing needed for next year; and meet needs of domestic reconstruction in a timely manner. Thus, timing of the second  16 installment would in part be deternined by the rehabilitation work in health and education, both high priority sectors fDr the government. The government plans to withdraw the second installment when (i) 350 destroyed primary schools in the 10 most heavily damaged school districts (CiScos) are rehabilitated in a cyclone-prone manner and appropriately staffed and equiipped; and (ii) 33 of the 82 destroyed primary health centers (CSB1) are rehabilitated in a cyclone-prone manner, appropriately equipped and staffed with medical personnel. A stringent monitoring system for the entire public reconstruction effort has been agreed between the government and IDA (Annex 1). 42. Monitoring. Since the supplemental credit to SAC-2 contributes to closing an unanticipated financing need in the balance of payments and the budget that could otherwise undernine the reform effort, the government, IDA and the IMF will jointly monitor macro-economic performance including the evolving adverse impact of the cyclones on exports and import needs. For 2000, the program would be deemed a success if (a) growth does not fall below 4.8 percent; (b) inflation does not rise above 10 percent; and (c) the reform agenda, including private sector development and public sector reform, remains on track. 43. The government has put in place a transparent monitoring mechanism. This effort would not be linked to the actual use of counterpart funds under the SAC-2 operation but rather provide the basis for a global monitoring of the reconstruction effort, including funds from IDA, other donors and domestic resources. The principles of this monitoring system are: (i) Formation of Consultative Groups. Consultative groups will be forned both at the national level as well as in the two most affected regions.5 These groups will consist equally of public officials, and donor and civil society representatives (non- governmental organizations, community groups). The consultative groups will meet every two months at the national and regional level with CNC. These consultative groups will (a) be informed by government about the progress of the reconstruction effort; (b) discuss with government bottlenecks in the cyclone rehabilitation efforts and help CNC exert pressure on the relevant rehabilitation institution to eliminate these bottlenecks; and (c) act as independent parties to disseminate information about the cyclone rehabilitation efforts, increasing transparency. The groups will remain active until the cyclone rehabilitation efforts have been completed, which is expected to happen around mid 2002. (ii) Reconstruction Information Dissemination. CNC will furnish monthly reports to the national and regional consultative groups specifying (i) type of infrastructure rehabilitated to date; (ii) its geographic location; (iii) costs of rehabilitation; (iv) source of funds used for the reconstruction; and (v) future reconstruction plans. The regional consultative groups will also be furnished with detailed inforrnation about contractors chosen by type of reconstruction plus the contract arnount awarded. CNC will facilitate the meetings of the consultative groups at the regional and national level. S The two areas comprise (i) the districts severely affected by cyclones Gloria and Hudah; and (ii) the districts severely affected by Eline.  17 (iii) Participatory Beneficiary Assessment. To monitor the impact of the cyclone rehabilitation effort on people in the affected areas, the government will commission participatory beneficiary surveys to be conducted every six months, starting in February 2001. The beneficiary assessment will be conducted by an independent party, subject to non-objection from IDA. Each assessment will randomly select four communities per district in four out of the ten most affected districts. In each community, 30 randomly selected households will be interviewed about local reconstruction efforts in the education, health, irrigation, transport, water and electricity sectors. The results of this participatory beneficiary assessment will be made publicly available to the consultative groups. Additionally, the government is planning to request the National Statistical Institute (INSTAT) to include an additional module in the household survey already planned, which would provide data on the reconstruction effort in the most affected zones. 44. Credit Implementation, Procurement and Disbursement. Implementation, procurement and disbursement arrangements remain as in the original credit agreement. Coordination of overall program activities remains the responsibility of the Technical Secretariat for Adjustment, but the Government has designated CNC to report on the formation and working of consultative groups and to oversee the preparation of the beneficiary assessments. Disbursement will follow the Bank's simplified procedures applicable to all adjustment operations. 45. Poverty Category. The poor were the most severely affected by the cyclones.. Though not targeted at the poor, the credit would assist the poor by helping the government contain inflation, providing foreign exchange for key imports (especially rice), and contributing resources for the restoration of basic services in the cyclone-affected areas. V. Benefits and Risks 46. Benefits. IDA's overall response will contribute to the effective and rapid reconstruction of productive and social infrastructure in a stable macro-economic setting. Specifically, the supplemental credit to SAC-2 will (i) help maintain macro-economic stability by contributing to meeting unanticipated financing needed which would otherwise endanger government's reform plans; (ii) provide resources to government's reconstruction effort thereby reducing pressure of the reconstruction effort on the domestic credit market and creating more room for the private sector as a vital actor in the reconstruction effort; and (iii) engage Government and all its domestic and foreign partners in a transparent monitoring effort of the entire reconstruction program. 47. Risks. The program has three main risks: (i) Evolving information on the drought in the south of the country might reveal yet greater foreign exchange needs than presently estimated. Therefore, close monitoring of food and cash crop production in the cyclone and drought areas is essential to  18 anticipate and, if necessary, respond to such a situation. Regular reviews will take place under the existing PRGF program of the IMF. (ii) Government might not be able to meet its admittedly ambitious targets in the reconstruction effort if capacity constraints continue which have held up implementation of the Madagascar portfolio in the past. Simplification and streamlining of procedures and capacity reinforcement designed to expedite implementation address this risk. Further, close supervision using the established monitoring system shoudd identify bottlenecks early-on. Counterpart funds generated by the credit will likely finance the reconstruction effort in a timely manner. Further, a Portfolio Review mission by IDA is planned for the first quarter of FY2001 to take stock of implementation progress and to tackle any bottlenecks in projects contributing to the reconstruction effort. (iii) A non-transparent use of funds could reduce the efficiency of the government reconstruction effort and also undermine trust of financing organizations as well as civil society. Therefore, the established monitoring system aims to track the use of funds in the whole reconstruction effort on a monthly basis. 48. Recommendation. I am satisfied that the proposed Supplemental Credit will comply with the Articles of Agreement of the International Development Association and recommend that the Executive: Directors approve it. James D. Wolfensohn President by Shengman Zhang Washington, D.C. July 5, 2000 Annexes  ANNEX 1 Page 1 of 3 SUPPLEMENTAL FOR THE SECOND STRUCTURAL ADJUSTMENT CREDIT MONITORING ARRANGEMENTS I. FORMATION OF CONSULTATIVE GROUPS AND INFORMATION STRATEGY National Level 1. A consultative group in support of the post-cyclone rehabilitation will be formed at the national level. This consultative group's principal mission is to advise the National Coordinating Committee for Cyclone Damage (CNC) ensuring better coordination of post- cyclone rehabilitation in Madagascar. 2. The group will be led by the CNC. 3. It will be comprised of public officials responsible for social, economic and infrastructure issues, the National Relief Council (CNS), and donors and civil society representatives (non-governmental organizations and community groups). Representatives from the public sector, civil society and donors will be equally represented in the group. 4. The group will meet every two months with the CNC during the rehabilitation period between August 2000 and June 2001 and as necessary. These meetings will be presided over by the Prime Minister or his representative. 5. During the meetings of the consultative group, the CNC will present updates on the reconstruction effort, including (i) a detailed description of the type of infrastructure rehabilitated, (ii) geographical location, and (iii) exact cost. Additionally, the report will include (i) total disbursements of funds received for reconstruction to date; (ii) geographical distribution of disbursed funds; and (iii) committed and planned rehabilitation work to be conducted in the future. 6. Arrangements for the establishment, functioning and organization of the consultative group will be made official and Article 14 of Decree no 84/443 on January 5, 1985 related to the creation and attribution of CNC will be revised to this effect. Regional Level 1. Two consultative groups will also be formed at the regional level before August 1, 2000 in the most affected regions by the cyclones Hudah, Eline and Gloria. The first group will be established in Antalaha for the SAVA region and Maroantsetra; the second group will be in the Mahanoro, Vatomandry, Anosibe an' Ala and Marolambo regions. 2. The regional consultative groups will be presided over by the CNC and will meet every month.  ANNEX 1 Page 2 of 3 MONITORING ARRANGEMENTS 3. The regional consultative groups will be composed of the regional and local branches of CNC, mayors of the affected regions, local public sector officials from Ministries of Agriculture, Transport, Education and Health, several community groups, local and national non-governmental organizations as well as donor organizations working at the regional level. Representatives from the public sector, civil society and donors will be equally represented in the groups. 4. The regional CNC will report on (i) ongoing and planned rehabilitation investments per locality, (ii) type of investment, (iii) disbursements to date, (iv) geographical location, (v) contractors chosen to undertake the work, (vi) and amount of the contract awarded. 5. Costs arising from the regional CNC meetings, including printing of material, travel costs of local representative, etc. will be borne by the CNC. 6. The CNC permanent secretariat will be assisted during the rehabilitation phase by an accounting consultant and a civil engineer. The costs associated with these two positions will be borne by the CNC. II. PARTICIPATORY BENEFICIARY MONITORING 1. The CNC will conduct a participatory beneficiary assessment every six months of the planned reconstruction effort, the first one to be conducted in February 2001. 2. CNC will hire a consultancy firm of high reputation to conduct the beneficiary assessment, subject to non-objection by the International Development Association. 3. CNC will bear the costs of the participatory beneficiary assessments. 4. In consultation with the regional consultative groups (see above), the consultant will select four of the ten most affected districts, and within the districts, four communities each (random selection). Within each of these four districts, 30 households will be selected on a random basis for the beneficiary assessments. 5. The beneficiary assessment will contain the following information: A. Inventory of infrastructure destroyed by the cyclones B. Progress report of works C. Interviews with community members about the (i) speed of reconstruction; (ii) costs of reconstruction for the community; and (iii) quality of reconstruction. The interviews will also include an open-ended question about general views of the reconstruction effort of the government.  ANNEX I Page 3 of 3 MONrTORING ARRANGEMENTS 6. CNC will publish the results of the participatory beneficiary assessments and distribute them to the national and regional consultative groups no later than one month after the final consultant report. III. HOUSEHOLD SURVEY MONITORING. 1. CNC will discuss with INSTAT whether an additional module for monitoring of the reconstruction effort can be included in the household survey. 2. The International Development Association will provide opinions and technical advice to CNC and INSTAT on the design of the questionnaire. 3. CNC will assume all costs of this activity.  7  ANNEX 2 Page I of I SUPPLEMENTAL FOR THE SECOND STRUCTURAL ADJUSTMENT CREDIT TIMETABLE OF KEY CREDIT PROCESSING EVENTS (a) Time taken to prepare: One month (b) Prepared by: Government with assistance of IDA staff (c) Appraisal: May/June 2000 (d) Planned date of Effectiveness: July 31, 2000 (e) Project Closing: December 31, 2001   ANNEX 3 Page 1 of 2 Madagascar at a glance 6/21100 Sub- POVERTY and SOCIAL Saharan Low- Madagascar Africa Income Development dlamond 1999 Populabon, mid-year (millions) 15.0 627 3,536 Life expectancy GNP per capita (Atlas method, US$) 250 510 520 L GNP (Atlas method, USS billions) 3.7 323 1,842 Average annual growth, 1993-99 Population (%) 2.9 2.6 1.7 G G Laborforce(%) 2.8 2.6 1.9 GNP Gross per I primary Most recent estimate (latest year available, 1993-99) capita enrollment Poverty (% of population below national poverty line) 75 Urban populaton (% of total population) 28 33 30 Life expectanry at birth (years) 58 50 63 Infant mortality (per 1,000 live births) 92 92 68 Child malnutrition (% of children under 5) 32 33 36 Access to safe water Access to safe water (% of populaion) 29 43 73 Illiteracy (36 of population age 15+) 54 40 31 Gross primary enrollment (% oschool-age population) 72 78 107 Madagascar Male 73 85 112 - Low-income group Female 70 71 102 | KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 Economic ratloa* GDP (US$ billions) 2.5 3.7 3.8 Gross domestic investmentVGDP ., 13.4 12.5 12.3 Trade Exports of goods and services/GOP .. 18.4 21.4 24.8 Gross domestic savingslGDP .. 9.8 4.6 4.6 Gross national savingslGDP .. 10.4 5.0 6.9 Current account balance/GDP .. -3.0 7.5 -5.8 Domestic Investment Interestpayments/GDP .. 4.1 1.2 . Savings Total debVGDP .. 138.2 118.3 123 Total debt servicetexports .. 44.4 18.7 16.3 Present value of debVIGDP .. Present value of debtlexports .. Indebtedness 1979-89 1989-99 1998 1999 1999-03 (average annual growth) GDP 2.3 1.4 3.9 4.7 5.7 - Madagascar GNP per capita -1.5 -0.9 1.5 2.4 2.7 --Low-income group Exports of goods and services 4.2 3.9 2.1 20.9 8.7 ..... STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of Investment and GOP (%) (% of GDP) Agriculture 29.8 32.9 30.6 30,0 ! Industry 17.2 14.8 13.6 13.8 1i Manufacturing .. 12.9 .. .. Services 53.1 52.3 55.8 56.2 7 95 99 Private consumption .. 81.4 87.9 87.6 -.20 General govemment consumption .. 8.8 7.5 7.9 _ GDI : GDP Imports of goods and services .. 22.0 29.3 32.7 _ 11 1979-49 1989-99 1998 1999 G h of eprts nd imports (average annual growth) G Agriculture 2.2 1.5 2.1 3.4 z Industry -0.6 1.6 5.3 4.3 20 Manufactunng 2.5 0.2 .. 15 Services -0.5 1.7 5.1 5.5 10 Private consumption -1.2 1.9 3.4 38 1 4- General govemment consumption 0.5 0.2 2.1 42 s9 Gross domestc investment 13.5 -0.1 9.0 3.5 .-10 L Imports of goods and services -8.5 4.2 1.6 16.5 -Exports lmports Gross national product 1.6 1.9 4.6 5.5 _ Note: 1999 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.  ANNEX 3 Page 2 of 2 Madagascar PRICES and GOVERNMENT FINANCE 1979 1989 1998 1999 Infation (%) Domestic pricesi (% change) 60 501 Consumer prces 9.0 6.2 9.7 2940 Implicnt GDP deflator .. 12.0 8.4 9.8 30. 20 Government finance (% of GDP, includes current grants) ; o - Current revenue 12.7 10.9 12.1 94 95 96 97 98 99 Current budget balance . 2.7 0.4 3.1 _ P deflator cPI Overall surplus/deficit -6. 8 -7.8 4.1 -GDP deflator --__CP _ TRADE , 1979 1989 1998 1999 197S9 mill98ns) 1998Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 358 519 594 Coffee 77 40 30 Other food 42 16 27 |00 Manufactures 109 405 450 Total imports (cif) 372 791 885 4 00 Food 38 54 45 #i i Fuel and energy 35 102 124 Capital goods 120 149 154 9 9 9 ., Export price index (1995=100) 81 86 83 Import price index (1995=100) 81 84 88 a Exports w Impons Terms of trade (1995=100) 100 102 95 ___ __- BALANCE of PAYMENTS (US$millions)1979 1989 1998 1999 m Current account balance to GDP (%) Exports of goods and services 488 461 801 921 | Imports of goods and services 928 550 1,097 1,216 Resource balance -440 -89 -296 -294 - Net income NIA -189 -85 -54 Net current transfers .. 203 100 142 I K " Current account balance N/A -75 -281 -206 Financing items (net) .. 108 165 260 '10 Changes in net reserves N/A -33 116 -54 .12 Memo: _ _- - Reserves including gold (US$ millions) N/A 20 170 226 Conversion rate (DEC, local/lUS$) 213 1603 5341 6199 EXTERNAL DEBT and RESOURCE FLOWS ._, _ __. _ - - 1979 1989 1998 1999 1 (USS mnillions) Total debt outstanding and disbursed 779 3,452 4.421 4,371 IBRD 29 27 Composition of 1998 debt (USS mill.) IDA 97 670 1,329 1,384 Total debtservice N/A 244 167 169 G 1.525 1,329 IBRD 3 5 2 1 IDA 1 7 22 25 Composition of net resource flows Official grants 33 116 141 C:58 Official creditors 138 164 122 93 C.58 Private creditors 166 -17 -2 -2 Foreign direct investment -7 .. 16 58 } Portfolio equity 0 57 D:930 Worid Bank program Commitments 49 25 115 132 Disbursements 15 73 69 71 A -IBRD E- Bilateral Principal repayments 1 5 13 16 8 - IDA D - Other rnultilateral F - Private Net flows 15 68 56 55 it___________________ Interest payments 3 7 9 10 Net transfers 12 61 47 45 Development Economics 6/21/00  ANNEX 4 Page 1 of 1 CAS Annex B3 (IFC & MIGA) for Madagascar Madagascar - IFC and MIGA Program, FY 1997-2000 1997 1998 1999 2000 IFC approvals (US$m) 2.10 0.70 6.10 2.88 Sector (%) FINANCIAL SERVICES 100 76 FOOD & AGRO-BUSINESS 24 Total 0 100 0 100 Investment instrument(%/6) Loans 0 24 Equity 100 56 Quasi-Equity 20 Other Total 0 100 0 76 MIGA guarantees (US$m) 1.722 1.669 1.590 1.621  ANNEX 5 Page I of I CAS Annex B8 - Madagascar Status of Bank Group Operatons (Operations Portfolio) as of June 21, 2000 Closed Projects Difference Between Last PSR Expected and Actual Board Date Supervision Rating b/ Original Amount In USS Millions Disbursements ' Fiscal DvlpetIpeetto Year Active Projects Obeecives Progress IBRD IDA Cancel. Undisb. Orig. Fffn Rev'd 1990 P001540 FIN SECTOR/APEX S S 0 48 2.68 2.1 1.27 -1.54 1995 P001563 AG.EXTENSION PROJECT S S 0 25.2 0 1.33 4.01 0 1995 P001522 IRRIGATION II S S 0 21.2 0 2.2 2.32 0 1996 P001533 ENERGY SECTOR DEVELOPM S S 0 46 0 20.92 16.66 0 1996 P035669 SOCIAL FUND 2 S S 0 40 0 0 1.7 0 1997 P040019 CAPACITY BUILDING S S 0 13.83 0 2.72 2.01 0 1997 P001537 ENVIRON. II S S 0 30 0 10.18 -2.49 0 1997 P001555 PRIV SECT DEV & C.B. S S 0 23.8 0 9.59 10.24 -2.34 1997 P048697 URBAN INFRASTRUCTURE U U 0 35 0 24.28 13.39 0 1998 P001559 EDUCATION SECTOR DEV S U 0 65 0 58.68 22.41 0 1998 P056487 MINING PROJECT S S 0 5 0 3.72 2.26 -0.22 1998 P001568 NUTRITION II S S 0 27.6 0 23.88 4.87 0 1998 P001564 RURAL WATER SEC.PILO S S 0 17.3 0 14.78 11.35 0 1999 P052186 MICRO FINANCE S S 0 16.4 0 13.88 1.76 0 1999 P057378 SAC II S S 0 100 0 98.87 55.8 0 1999 P064305 SOCIAL FUND III S S 0 15 0 6.03 -5.26 0 2000 P062628 Regional Development S S 0 4.6 0 4.46 1.27 0 2000 P051741 Second Health Sector Support P S S 0 40 0 39 0 0 2000 P052208 Transport Sector Reform and Re # 0 65 0 64.74 0 0 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.  MAP SECTION  m  IBRD 20035R1 Ants7ranana MADAGASCAR g4 PoR-to.,aeslos . . -w -a, jj} AiJ. e w4r tos ANTSIRA F*ftaiftys .