Mozambique - Flood Emergency Recovery Project

Document of The World Bank Report No T-7370-MOZ TECHNICAL ANNEX FOR A PROPOSED CREDIT OF SDR 22 4 MILLION (US$30 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR A FLOOD EMERGENCY RECOVERY PROJECT April 7, 2000  CURRENCY EQUIVALENTS US$1.00 = Meticais 14,500 April 6, 2000 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS ANE National Road Administration BoM Bank of Mozambique CAS Country Assistance Strategy CFM Caminhos de Ferro de Mogambique EDM Electricidade de Mo,ambique EMRO Economic Management and Recovery Operation FERP Flood Emergency Recovery Project GDP Gross Domestic Product -HPC Highly-Indebted Poor Country IDA International Development Association IMF International Monetary Fund [NE National Institute of Statistics INGC Instituto Nacional de Gestao de Calamidades MADR Ministry of Agriculture and Rural Development MAE Ministry of State Administration MINED Ministry of Education MOH Ministry of Health MOPH Ministry of Public Housing NGO Non-Governmental Organization NPV Net Present Value OCHA Office of the Coordinator of Humanitarian Affairs PRGF Poverty Reduction and Growti Facility PRSP Poverty Reduction Strategy Paper SADC Southern Africa Development Community SARCOF Southern Africa Regional Climate Outlook Forum SDR Special Drawing Rights SOE Statement of Expenditure UEM Universidade Eduardo Mondlane UN United Nations UNDP United Nations Development Programme VAT Value Added Tax Vice President: Callisto Madavo, AFRVP Country Director: Michael Sarris, AFC02 Team Leaders: James Coates, AFMMZ Johannes Zutt, AFC02  MOZAMBIQUE FLOOD EMERGENCY RECOVERY OPERATION Table of Contents A. BACKGROUND AND STRATEGY .................................... ,.1 BACKGROUND.1. THE LOODS... PRELIMINARY DAMAGE ASSESSMENT .2.... OVERALL ECONOMIC IMPACT. 5. RELIEF EFFORTS.7 GOVERNMENT RESPONSE... B. STUDIES AND TECHNICAL ASSISTANCE.. 1. SHORT-TERM RECOVERY....... VULNERABILITY REDUCTION.. ... C. IDA'S RESPONSE AND STRATEGY ..12. THE ELEMENTS OF ID A'S RESPONSE .12. INTERNAL ADMINISTRATIVE MEASURES ....................................4]... LESSONS LEARNED ...................................4 RATIONALE FOR IDA INVOLVEMENT ................................. 14 D. DETAILED PROJECT DESCRIPTION ................................ 15. PROJECT O BJECTIVES ..............................................OBJECTIVES.......................................................................................515 ... PROJECT DESCRIPTION ..................... 1 5 PROJECT COST AND FINANCING ....................1....i...5 ... .. ......................................... 1.5. E. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION ....................................... 16 PROJECT ORGANIZATION AND MANAGEMENT .. .. ..................................1- ... . . ...... 6 .... I 1. PROCUREMENT ..1.6.. DISBURSEMENTS .17.. FINANCIAL MANAGEMENT AND MONITORING . 18. RETROACTIVE FINANCING . 18... SPECIAL ACCOUNT ..... PROJECT SUSTAINABILITY . 18... F. BENEFITS AND RISKS .s... PROJECT BENEFITS ..18. PROJECT RISKS ..1.. ATTACM ENTI ......... POSITIVE LIST OF IMPORTS . 2.0.. ATTACM ENT. 2.....1. A. SUMMARY OF PROCUREMENT AND DISBURSEMENT ARRANGEMENTS . 21 B. SUMMARY OF DISBURSEMENT ARRANGEMENTS .2.. ATTACHMENT 3...... MONITORING INDICATORS .23... ATTACHM ENT 4 .....  BALANCE OF PAYMENTS, 1 998-2001 ........................... 2 4. ATTACHMENT 5 ............................. GOVERNMENT FINANCES, 1998-2001 .......................... 25  TECHNICAL ANNEX FOR A PROPOSED IDA CREDIT TO THE REPUBLIC OF MOZAMBIQUE FOR A FLOOD EMERGENCY RECOVERY PROJECT (FERP) A. BACKGROUND AND STRATEGY Background 1. Mozambique has made tremendous strides in the past few years. A sound economic reform program has been inplemented, with substantial support from external partners. The transition from war to peace and from a central planning system to a market economy is reaping results. Mozambique's growth rate has accelerated and last year was among the highest in the world. Heavily reliant on food aid just a decade ago, the country now produces almost enough food to feed itself. Mozambique ranks first in 20 countries on an "optimism index" in a survey of business people active in Africa. But there are daunting challenges which face the nation, its people, and its partners. Mozambique is still one of the poorest countries in the world. Poverty, isolation, illiteracy, and disease characterize the everyday life of most Mozambicans, who often feel that the benefits of growth are not reaching them. Mozambique's growth and poverty reduction strategy is based on environmentally sustainable and inclusive private sector growth. Per capita income in Mozarnbique, at US$230 in 1998, is below the average for sub- Saharan Africa (US$480) and the low income group (US$520). The Human Development Index, an index of income, education and life expectancy, ranks Mozambique 169fi out of 174 countries. Key social indicators for Mozambique continue to be below the averages of Sub-Saharan Africa and those of low- income countries as a whole. 2. Mozambique is very exposed to natural hazards. From 1965 to 1998, twelve floods, nine droughts, and four typhoon landfalls have occurred in various parts of this long coastal country. Unusually heavy floods in 1971 and 1977 were comparable to those this year, resulting in 300 to 500 deaths and affecting half a million people each. Droughts have been even more devastating, by several orders of magnitude. Drought and famine in 1980, 1983, 1985 and 1992, exacerbated by ongoing warfare and political-economic instability, resulted in 100,000 deaths and affected over 17 million people. This combination of hazard exposure and historical vulnerability has created a situation in which, from 1965 to 1998, the annual average death toll due to droughts, floods, typhoons and epidemics was 3,300 people, with an annual average total of nearly one million people affected. The Floods 3. From February 4 to 7, 2000, due to the effects of cyclone Connie, Maputo city received 455 mm of rainfall, or nearly half the average annual total. Similar exceptionally heavy rains across southern Mozambique exacerbated normal seasonal flooding, inundating low-lying areas. From February 20 to 22, heavy rainfall associated with cyclone Eline boosted rainfall totals in neighboring South Africa, Zimbabwe and Swaziland, filling reservoirs on river basins draining through southern Mozambique and triggering more extensive flooding, particularly along the Limpopo, Incomati and Umbeluzi rivers. It was the first time in recorded memory that all three river systems flooded at the same time in Mozambique. Although flooding has receded from peak levels recorded in early March, continuing rainfall together with releases from dams upstream have kept river levels high, perpetuating flood risks and slowing the drainage of river basins back to normal seasonal conditions. In early March, heavy rainfall affected the Save, Buzi and Pungoe river basins causing additional flooding in these areas further to the north. As of March 27, river levels were still high and rainfall patterns had not retumed to their normal states, with the consequence that ecological systems continued to be in perilous condition and renewed flooding remained a distinct possibility.  - 2 - 4. The provinces currently most affected are Maputo, Gaza, Inhambane, Sofala and Manica. The total population in the five affected provinces is about five million. The flooded area constitutes about 11 to 12 percent of cultivated land in the affected provinces. According to the Instituto Nacional de Gestao de Calamidades (INGC), as of March 23, 640 people have lost their lives and about two million people, or 12 percent of the national population, are experiencing severe economic difficulties due to the flooding, including 491,000 people who are either displaced or trapped in flood-isolated areas. As the waters recede, high levels of standing and contaminated water have exposed many of these people to heightened risk of diarrheal disease, cholera and malaria. About 70 percent of these people were very poor even before the disaster, living on less than US$0.40 per day. As a result of the floods, many have lost all of their capital assets-including their homes, their crops, and their livestock-and require basic life-supporting services to survive this difficult time. Opportunities for on- and off-farm work in their home areas have also been foreclosed, at least until the rains end and the flood waters recede. Small traders and entrepreneurs in the affected areas have been hit especially hard, as many have suffered heavy losses of inventory with minimal or no insurance coverage. As a result, there is likely to be an increase in poverty in the affected region (offset to some degree by growth associated with the reconstruction effort) until activity in agriculture, trade and industry are restored to former levels. 5. The flooding devastated the affected areas and caused considerable loss of life and property. Break points in the transportation system, resulting from destroyed roads, bridges and railways, separated people in the affected areas from food, water, and essential services. More permanent structures such as schools, clinics, and municipal buildings have also sustained damnage or been emptied of their contents. In addition, electrical and telecommunications grids have been ripped asunder, and water systems and sanitation systems have been rendered inoperable through siltation. Preliminary Damage Assessment 6. From March 12 to 24, 2000, a World Bank team traveled to Mozambique to assess the flood and cyclone damage sustained in the country following heavy rains in February and March. This assessment was prepared in close consultation with the Government, the Core Group of Mozambique's external partners (convened by the Government of Mozambique to assist in the response to the emergency), and the International Monetary Fund (IMF). The team's report, entitled, "A Preliminary Assessment of Damage from the Flood and Cyclone Emergency of February-March 2000" (the "Damage Assessment"), was published on March 27, 2000. In preparing this assessment, the team attempted to determine the direct costs, indirect costs, and reconstruction costs to date of the recent flood and cyclone disaster. The cost of emergency relief activities was also estimated. In Table 1 (next page), and in this document generally: * Direct costs refer to physical damage to capital assets and inventories, valued at same-standard replacement costs. * Indirect costs refer to flow effects such as output losses and foregone earnings. * Relief costs refer to (i) the provision of life-supporting services (e.g. food aid, health care, safe water and sanitation) to populations whose access to these services has been lost as a result of the disaster and (ii) assistance to these populations to enable them to resume sustainable livelihoods. * Reconstruction costs refer to costs for rebuilding damaged infrastructure to standards optimally designed to reduce vulnerability and risk of loss through future disaster, taking into account Mozambique's resources, policy framework, and level of development. 7. Preliminary Bank staff estimates of the disaster's direct costs total US$273 million, or about six percent of projected GDP for 2000. Indirect costs are estimated at US$212 million and reconstruction  - 3 - costs are estimated at US$428 million. Direct costs to the public sector total about US$ 135 million (in health, education, government property, water and sanitation, energy, roads, railways, and agricultural infrastructure) and indirect costs total about US$10 million to US$11 million (chiefly in the power and railway sectors). Direct costs to the private sector total about US$130 million (in housing and private property, agriculture, livestock, fisheries, industry, trade and tourism) and indirect costs about US$190 million, including the indirect costs of damage to the roads network. Direct Indirect Relief Reconstruction Food aid 35.5 - Health 15.7 5.2 25.8 Education 18.7 0.5 37.3 Housing and private property 29.1 43.6 Government property 5.2 6.0 10.2 Sub-total: Social Sectors 68.7 47.2 116.9 Water and sanitation 13.4 6.6 13.4 Energy and telecommunication 13.6 7.4 - 15.5 Roads 47.0 30.0 11.0 87.2 Railways 7.3 10.7 - 49.2 Sub-total: Infrastructure 81.3 48.1 17.6 165.3 Agriculture** 57.9 63.0 - 57.9 Livestock 7.9 0.8 - 7.9 Fisheries 8.5 6.1 - 8.5 Industry** 25.7 68.0 - 30.8 Trade 15.7 15.0 - 15.7 Tourism 2.0 10.5 - 2.5 Sub-total: Productive Sectors 117.7 163.4 - 123.3 Sub-total: Environment 2.0 - - 2.8 Sub-total: Disaster Prevention 3.4 - - 19.4 Grand Total 273.1 211.5 64.8 427.7 Source: The World Bank. Notes: * Less than US$500,000. ** Lost sugar cane production is included in agriculture; lost refined sugar production is included in industry. See text for definition of columnn headings. 8. In reading Table 1, several items are worth notice. First, the totals in each co:lumn combine public sector and private sector losses. Second, estimated costs to the public sector are generally more reliable than estimated costs to the private sector, which contains multiple actors who compete with one another and have limited obligations of public disclosure, making financial infomnation difficult to collect and interpret. Third, relief costs are limited to costs associated with providing basic services; they attempt strictly to exclude rehabilitation or reconstruction costs; and they do not attempt to capture extraordinary relief costs (e.g. for family reunification, food aid distribution, and emergency (air-bome) rescue operations) that would significantly add to the total. Fourth, estimates of reconstruction costs are highly preliminary, as specialists have only just begun to reassess the exposure of the affected assets to catastrophic losses and the economic impacts of these losses or to identify and cost-out effective strategies for vulnerability reduction. Further details of the damage sustained as a result of the flood and cyclone disaster follow (see also the Damage Assessment):  -4 - * The human cost: As of March 23, 640 people have lost their lives due to the flooding and about two million people are experiencing severe economic difficulties, including 491,000 people who are either displaced into camps (with almost 100 camps in total) or trapped in flood-isolated areas. * Agriculture: About 140,000 hectares of cultivated land, or 12 percent of total cultivated land in the affected provinces, was inundated. This land was mainly planted with maize and rice by poor farming families who experienced a total loss of the planted crop. Livestock losses include an estimated 20,000 cattle, 4,000 goats, sheep and pigs, and 180,000 chickens. Total losses in the agriculture and livestock sectors, including commercial agriculture, are estimated at about US$65.8 million. * Health: Out of 356 health facilities in the affected provinces, 52 were significantly damaged by the floods, including two urban and four rural hospitals. Together with losses in drugs, medical equipment, furniture and other supplies, total losses in the health sector are estimated at about US$15.7 million. * Education: The disaster damaged or destroyed about 500 primary schools (i.e. one in four schools in the affected provinces) as well as seven secondary schools, two technical colleges and the Universidade Eduardo Mondlane (UEM). About 208,000 primary school students have been officially out of school since March 3, though efforts are being made to reintegrate them into the school system in their current locations so that they can rejoin the ordinary promotion in September. Total damages in the sector are estimated to be about US$18.7 million. e Housing: It is estimated that flooding forced at least 50,000 families, or some 250,000 people, to abandon their homes and their possessions. The vast majority of these people ar.e extremely poor, and lived in rural areas or in informal settlements around the major towns. Their homes were typically constructed of local materials, and were essentially destroyed or washed away completely, along with most of their possessions. Middle- and higher-income groups, who lived in more permanent structures, also suffered sizeable losses, primarily of personal effects. Taken together" losses among both groups are estimated to exceed US$29 million. = Water: Total damages to water supply, sanitation, and drainage systems in the affected areas are estimated to be about US$13.4 million. This includes moderate damage to urban water supply and sanitation systems in Chokwe and Xai Xai, and relatively severe damage to sanitation and drainage systems in Maputo and Matola. * Energy and telecommunications: Electricidade de MoVambique (EDM) suffered about US$12 million in direct damage to its networks, including more than US$3.5 million to each of the rural networks of Gaza and Maputo provinces. Revenue losses to EDM and to privately-owned Hidroelectrica Cahora Bassa (HCB), which lost its 533kV line into South Africa, will amount to about US$3.7 million per month until repairs are completed. Damages to telecommunications infiastructure were mostly concentrated in Xai Xai (some 2,500 lines), with resulting revenue losses more than offset by increased intemational telecommunications traffic as a result of the emergency. * Transport: Large sections of road (including the EN 1 trunk road linking Maputo to the north as well as municipal roads in Maputo, Matola, Chokwe and lower Xai Xai) were extensively damaged or destroyed. In addition, large sections of therailbed of the Limpopo railway line, connecting Zimbabwe to the port of Maputo, were washed away. Total direct damages to roads and railways are estimated to be about US$54.3 mnillion. Reconstruction to design profiles able to provide greater resistance to flood damage would cost an estimated US$135 million.  -5 - * Trade, Industry and Tourism: Total losses to the private sector are estimated to r each about US$50 million in direct costs and almost US$100 milion in indirect costs. The new Maragra sugar plantation, which was just about to enter production, lost it entire crop, resulting in an estimated production loss of US$18 million over two years (at world prices). Large drinks enterprises like Coca-Cola and Cervejas 2M lost as much as US$10 million due to transport bottlenecks. Direct damages and lost production in the fisheries industry are estimated to total about US$15 million and in the tourism industry about US$12 million. In addition, smaU traders in the affected areas are believed to have lost inventory, either directly to flood damage or indirectly to the theft which folowed, valued at about US$10 nmiUion. * Environment: It has not been possible, at this early stage, to estimate the environmental costs of the disaster, but the location and removal of landmines that have migrated as a result of the flooding is estimated to cost about US$2 million. * Disaster prevention and preparedness: Meteorological and hydrological observing systems essential for monitoring and forecasting hydro-meteorological hazards in Mozambique were lost during the floods and wil need to be replaced. In addition, existing flood protection embankments now require emergency repairs. This is estimated to cost about US$3.4 million. Overall Economic Impact 9. Macroeconomic framework prior to the flood and cyclone disaster: Mozambique's economic performance before the flood and cyclone disaster was strong, marked by rapid growth, low inflation and growing private investment. Economic growth was expected to reach 7 percent in 2000, continuing a trend of rapid expansion led by small holder agriculture in which GDP growth averaged 5.5 percent annually between 1987 and 1996 and 10.8 percent between 1997 and 1999. As a resullt, real GNP per capita increased by 9.3 percent in 1998 and 6.9 percent in 1999, and was expected to grow 5.1 percent annually over the period 2000 to 2004. Inflation dropped sharply from almost 50 percent in 1996 to 2 percent on average in 1999, and was expected to remain below 7 percent in 2000 (see Table 2 below). Underpinning this high-growth and low-inflation environment were prudent fiscal and monetary policies, accompanied by substantial external aid and a sound program of structural reform (based on privatization, financial sector reform and trade liberalization). The current account deficit before grants grew in 1999 as a result of high import demand linked to large investment projects, but it was expected to improve in 2000 and 2001 as large industrial projects such as the Mozal aluminum smelter become net exporters. 10. Mozambique reached the completion point under the HIPC Initiative in June 1999 and received debt relief amounting to about US$3.7 billion (US$1.7 bilion in NPV terms), of which US$975 million (US$381 million in NPV terms) was granted by IDA. Mozambique reached the decision point under the Enhanced HIPC Framework in April 2000 and is expected to reach the completion point in early 2001. Thereafter the NPV of debt-to-export ratio for Mozamnbique wil be 150 and the debt service-to-export ratio will be about 5 percent on average over the next ten years, improving Mozambique's external viability and sustainability. Interim debt relief already planned before the flood and cyclone disaster allowed for an increase of expenditures of about 1 percent of GDP compared to the initial fiscal programn. These additional expenditures are being directed to poverty reduction programs outline in the Government's Interim PRSP and Poverty Action Plan. 11. In support of the economic ieform prograrn, Mozambique benefited from an IDA-financed structural adjustment credit, the Economic Management and Reform Operation (EMRO). This operation, which amounted to US$150 million and was fully disbursed in 1999, was part of the interim debt relief  -6 - granted to Mozambique in the context of the HIPC Initiative and it took the form of a grant. Additional program support is planned for 2001 under the new Country Assistance Strategy. A first review under the IMF's Poverty Reduction and Growth Facility (PRGF) Arrangement took place in February 2000, before the emergency. Despite some concems about a weakening of performance on stmctural reforms, the second installment under the program was approved by the IMF Board on March 27, 2000. Actual Projection Pre-Floods Post-Floods 1998 1999 2000 2001 2000 2001 Real GDP (annual growth rate) 12.0 9.0 7.0 7.2 5.4 7.9 Inflation (annual average %) 0.6 2.0 6.6 5.0 9.5 5.0 External current account: Before grants -20.5 -31.7 -23.0 -15.7 -31.5 -18.4 After grants -12.4 -21.5 -16.3 -9.1 -19.7 -11.0 Fiscal balance: Before grants -10.7 -12.1 -12.1 -10.7 -16.0 -11.5 After grants -2.4 -1.2 -5.2 -4.4 -7.0 -5.1 Memorandum item: GDP (Mt billions) 46,134 52,913 60,177 67,790 61,471 69,673 Source: World Bank, IMF and Govemment of Mozambique estimates. 12. Economic impact of theflood and cyclone disaster: The flood and cyclone disaster constituted a large exogenous shock to Mozambique's economy. The potentially large fiscal and monetary effects of this shock are being contained by the authorities' commitment to macroeconomic discipline as well as the generous response of Mozambique's extemal partners. 13. According to the preliminary damage assessment prepared by World Bank staff, the total direct costs of the disaster amount to about US$273 million, which represents about 6 percent of Mozambique's GDP. As a result of crop losses, capital losses, and damage to public and private infrastructure resulting from the disaster, it is estimated that economic growth in 2000 will slow down to 5.4 percent, compared to 7.0 percent projected before the disaster. In 2001, GDP growth is expected to accelerate to 7.9 percent, boosted by reconstruction activities and the re-building of productive assets. Since the beginning of February 2000, transport bottlenecks combined with lower supply of goods have put pressure on prices. According to the National Institute of Statistics (INE), the February consumer price index increased by 7.6 percent compared to January, the highest monthly increase in two years. It is expected that inflation will increase to 9.5 percent in 2000 and return to its projected pre-disaster path in 2001 as constraints to supply are relieved and imports enter the country. In this context, the authorities agree that maintaining strict monetary discipline will be important to avoiding a resurgence of inflationary expectations and an erosion of external competitiveness. 14. The external current account deficit before grants is projected to deteriorate by US$325 million in 2000 (about 8.5 percent of GDP) and by US$58 million in 2001 (about 2.7 percent of GDP), as a direct result of the floods. The main impact will be felt on the trade balance due to an increase of imports- particularly of construction materials, equipment and capital goods-of about US$277 million in 2000 and US$58 million in 2001. The impact on exports is likely to be limited as production for the export market, other than sugar, is relatively low in the affected areas. The services account is expected to deteriorate as a result of a reduction of tourism and transport freight revenues of about US$23 million in  - 7 - 2000. Despite sizeable expected inflows of external assistance, the current account after grants is still projected to deteriorate by 3.4 percent of GDP in 2000 and 1.9 percent in 2001 (see Attachment 4). The estimated total effect on the balance of payments shows a financing gap of US$206 mtillion in 2000 and US$49 million in 2001. This external gap will be reduced by accelerated debt relief from IDA and the IMF under the enhanced HIPC framework as well as the deferral of debt service granted by the Paris Club. The remaining external gap is expected to be financed by additional donor grants, reprogramming of existing IDA credits, additional financing under the IMF PRGF program, and this proposed IDA Flood Emergency Recovery Project. The International Donor Conference to be held in Rome, Italy, in May will serve to confirm pledges made to date and secure any additional assistance required fally to meet Mozambique's external financing needs. 15. On the fiscal side, the restoration of public infrastructure and services in the affected areas will have a sizable impact on the budget, both on revenue and expenditures (see Attachment 5). Based on current projections, the overall fiscal deficit before grants will widen to 16 percent of GDP in 2000 (compared to the initial projection of 12.1 percent) and to 11.5 percent of GDP in 2001 (compared to 10.7 percent). Provided that all pledges of additional external assistance made in response to the disaster materialize, and there is no reallocation of assistance from the regular to the emergency budget, it is expected that most of the increased fiscal deficit will be funded by this additional assistance. Taking pledged additional assistance into account, current projections show a residual financing gap of about US$33 million in 2000 and about US$9 million in 2001. The counterpart funds generated by the balance of payments assistance under the Flood Emergency Recovery Project will contribute to financing the budget and thus to closing the fiscal gap. On the expenditure side, it is projected that additional public spending, mainly on capital items, will total about US$215 million in 2000 and US$85 million in 2001. Lower revenue from VAT and taxes on income and profits will be more than offset by increased revenue from import duties and taxes on goods and services for reconstruction as well as an increase of customs duty collections on the additional large imports of sugar at the current level of surcharges. 16. In an effort to fight inflationary pressures, the authorities intend to maintain domestic financing of the budget at the level projected before the floods, linking the financing of additional expenditures to the availability of external aid. Adjustments to the macroeconomic framework necessary to accommodate the fiscal and monetary effects of the floods will be made in agreement with the IMF. 17. The authorities are currently exploring policy options for supporting the most vulnerable people among the populations affected by the disaster. In addition, alternative schemes for assisting private small businesses adversely affected by the floods are also being considered (with particular attention being focused on the needs of these businesses for affordable credit). Whatever alternatives are ultimately selected, it is expected that the authorities will avoid interfering with market mechanisms to the extent possible, and will institute mechanisms that help to ensure an accountable, transparent, and fair administration of these schemes. In addition, any scheme providing credit to the private sector will be carefully evaluated with respect to its effects on macroeconomic stability. The Government is likely to present and discuss these issues with external partners during the International Donor Conference being convened in Rome, Italy, on May 3-4, 2000. Relief Efforts 18. When flooding first occurred in Maputo province in early February, the situation, though worrisome, appeared to be manageable. Only later, when dam releases and heavy rainfall in the Limpopo catchment area caused that river to send a wall of water through Chokwe and lower Xai Xai in the middle of the night, did the situation become an emergency. News from Chokwe and Xai X.ai was slow to reach the broader international community, but as media images of the flooding were broadcast, a substantial response was initiated by the international community, including the United Nations, major international  -8 - donors, local and international NGOs, and-significantly-Mozambique's immediate neighbors. In the period of acute crisis, helicopters, largely provided by South Africa and Malawi, rescued over 11,000 people stranded on trees, roofs, and small patches of high ground, and transported them to safer areas. The floods displaced around 245,000 people, who have been left destitute, having lost their dwellings and all their possessions. Approximately 100 accommodation centers were established to assist people requiring life supporting services during this time of acute need. 19. The flood emergency has created extraordinary demands for coordination of assessments and relief and recovery operations andresourcing. Under the circumstances, the Government has been visible and effective in organizing institutional coordination, with considerable support from donors, the United Nations system, and a large number of local and international NGOs. Together, these organizations have distributed food, clothing, medical supplies, water purification equipment, shelter and school materials, through the accommodation centers, to those in most need. Government Response 20. Responsibility for inter-ministerial and international emergency coordination falls under the INGC. The Minister of Foreign Affairs and Cooperation has taken direct responsibility for this coordination effort, which involves inter-ministerial coordination within the Government both sectoraUy and at the level of the affected provinces and districts. This effort has been supported by a parallel UN inter-agency, inter-sectoral coordination structure chaired by the Office of the Coordinator for Humanitarian Affairs (OCHA) and the United Nations Development Program (UNDP). Both arrangements were supported by Mozambique's major development partners. The monitoring and coordinating of NGO activities has been reasonably successful, given the enormous influx of organizations, persons, and resources in a brief period of time. 21. In responding to the emergency, sectoral ministries presented detailed reports on damages, needs and relief activities, as well as on meteorological and hydrological conditions in daily briefings. Additional coordination meetings were held at the sectoral level on food, agriculture, water and sanitation, health, shelter and information, generally on a daily basis. UN agencies met three times per week to coordinate UN agency sectoral activities. UN and donor support was particularly crucial in the assessment of damages and needs and the issuance of assessments and appeals to identify and channel resources for both the relief and recovery phases. Joint Government-UN appeals were issued on February 24 and on March 22, itemizing relief and rehabilitation requirements by sector. The International Donor Conference being convened in Rome, Italy, in May will mobilize fiurther external resources required for Mozambique's sustainable recovery and vulnerability reduction, and the Bank's preliminary damage assessment will serve as an input into the Government's preparation of its appeal for that Conference. In addition, the Southern Africa Development Community (SADC) held a Heads of State Summit in Maputo on March 14-15, 2000, in response to the flood emergency in Mozambique. At this meeting, it was decided to reopen a five-year old discussion to create a regional institution to handle international calamities at the next Summit, to be held in August 2000 in Windhoek, Namibia. Efforts are also being made to strengthen the Southern Africa Regional Climate Outlook Forum, which monitors hydro- meteorological conditions in southern Africa and is able to provide early warning of possibly significant climatic variation. 22. Medium- and long-term rehabilitation and reconstruction fall outside the INGC mandate, and are being coordinated sectorally, using pre-existing institutional arrangements to the extent possible. Within the social sectors, the Ministry of Health (MOH) is working with donors, NGOs and UN agencies to provide emergency and routine care in the areas of health, nutrition, and water and sanitation in accommodations centers and elsewhere in the affected areas, until facilities are rebuilt or otherwise restored. As part of this effort, it has been registering incoming foreign NGOs and guiding them towards  - 9 - the most needy locations as well as holding regular coordination meetings. The Ministry of Education (M1NED) is working to ensure that primary and secondary education is returned to normal conditions as soon as possible and that affected school children complete the current school year and graduate in time to join the ordinary promotion next September. It is currently coordinating incoming external support; assessing the affected areas and preparing detailed plans for relief and reconstruction; obtaining tents, textbooks and leaming materials for temporary schools; and providing pedagogical anrd psychological support to teachers and pupils to address the psychological impact of the flood disaster. The Ministry of Agriculture and Rural Development (MADR) is working in the short term to recover agricultural production through the timely distribution of basic agricultural inputs (Ag-Packs) using agencies that have a pre -flood presence in the area as well as recognizable experience in agricultural input procurement. 23. A long-term MADR strategy, which the Ministry of Public Housing (MOPH) and MICOA have also considered, involves encouraging people who live on the flood plains to pursue less risky livelihoods than cattle ranching and crop farming in an area that cycles between flood and drought. MOPH is considering providing land and basic building materials (e.g. blocks and roofing materials, possibly for purchase using subsidized credit) and moving essential services (clinics, schools, water and sanitation) to higher ground to encourage people to relocate to safer areas, but because no person Mill be forced to relocate unwillingly, the success of such a program is hard to predict. It will be important, in this context, to review earlier attempts to relocate these populations after the 1977 flood and to consider issues of land use in the area, which includes (inter alia) 90 percent of Mozambique's irrigated farmland as well as fertile peat soil deposits. The rich potential of this irrigated agricultural land is likely to remain very attractive to most poor farmers who previously lived there, particularly as the area is also prone to drought. The Ministry of State Administration (MAE) has also considered moving Government offices to higher ground, but costs could prove prohibitive, and it is more likely to rehabilitate and refurbish damnaged buildings where they currently are. 24. The repair and reconstruction of infrastructure has also received Government attention. The National Water Administration (DNA) has created an Emergency Commission to manage, coordinate, and implement its response to water supply and sanitation needs, with the assistance of appropriately contracted technical assistance. Electricidade deMo9ambique (EDM) has already initiated immediate actions to restore electrical power to priority customers (hospitals, schools, water supiply facilities, communication facilities, and industries) and customers that can be reconnected with minimal effort. Other repairs are being made provisionally, pending more permanent repairs involving the replacement of compromised assets or restoration to their previous state. While the current plan envisions rebuilding assets as they were and where they were, EDM (with donor assistance) will also consider upgrading and/or relocating assets where this can be done efficiently, but it will take some months, and input from consultants, to incorporate risk reduction into permanent repair plans. In roads, the National Road Administration (ANE) will postpone less urgent work planned for 2000 to undertake immediate repairs to trunk roads as well as high-priority tertiary roads (e.g. those providing access to large populations, accommodation centers, and critical services). In the emergency repair phase (expected to last one to two months), ANE will complete minimal work required to ensure the secure passage of vehicles. On trunk roads, this will include grading, rebuilding road-bearing dykes, and constructing temporary bridges over newly (re)opened river channels on the Limpopo flood plain. Less important secondary and tertiary roads will be repaired in two to four months. For the remainder of 2000 and 2001, rehabiliitation will aim to return damaged roads to appropriate design profiles, with reinstalled drainage. Although it is unlikely that wholescale resiting of trunk roads on the flood plains will be economically efficient, as any road across the flood plain involves hazard exposure of similar order of magnitude, reconstruction to an improved standard on original sitings is likely to be desirable. In railways, Caminhos de Ferro de Mo9ambique (CFM) has already started work on restoring traffic to the Goba and Ressano Garcia lines, and it aims within four to six months to complete emergency repairs to the Limpopo line to permit the resumption of limited and low-speed train traffic between the port of Maputo and Zimbabwe. Full  - 10- rehabilitation of the Limpopo line will occur later, with works dependent on site visits, risk assessments, and engineering and design studies, as well as resolution of outstanding issues regarding the planned concession of the line to a private operator. 25. During the emergency period, the Government and the intemational community have focused on minimizing the results of the disaster and ensuring that sufficient food, water, essential drugs, and shelter are available to persons displaced by the floods. Only in the last few weeks, as this process has been brought under control, has the Government started to consider what the private sector needs to realize its economic recovery. This is a complex matter, not least because differing segments of the private sector have been differently affected by the floods. First and foremost, there are thousands of subsistence farmers who will require life-supporting services at least until the next harvest, as well as assistance in resuming their ordinary lives. Second, there are various traders, ranging from electronics dealers in downtown Xai Xai to small shopkeepers operating in isolated villages, who have lost significant quantities of inventory, most without having insurance. Finally, there are the large businesses, including multinationals such as Coca-Cola, which have lost considerable assets in monetary terms, but which also have insurance coverage that will enable them to recover from the disaster with minimal financial losses. The process of determining what the rural farmer and small goods trader require to resume economic activity, and how this requirement can best be satisfied, is just beginning, with the Govermment meeting with the private sector and the intemational community, including donors and NGOs, to develop a strategy. Discussion of these issues is still highly preliminary, and it has included the possibility of establishing some kind of fund providing small-scale businesses with matching grants. B. STUDIES AND TECHNICAL ASSISTANCE Short-Term Recovery 26. Short-term recovery efforts will depend on rapid but also comprehensive on-site assessments of damage resulting from the flood and cyclone emergency. Most sectoral institutions within the Government of Mozambique have already planned and initiated this work. To improve data quality in the agriculture sector, MADR has planned to complete, by mid April, both a regular annual crop assessment (with WFP and FAO) and an assessment of the flood's impact on agricultural non-crop production. In parallel, the National Directorate of Livestock and Forestry will assess flood impacts on these subsectors. Using an IDA credit, MOH has already launched a tender for technical assistance to provide a more precise assessment of damage to affected health facilities as well as detailed designs for rehabilitation and reconstruction, taking into account measures for disaster prevention and mitigation. In education, MINED has contracted a Mozambican company to carry out detailed assessments in the districts where flood waters have receded. UNESCO has agreed to provide an architect, and guidelines and plans for site assessment, procurement and construction already exist. In addition, the Ministry will carry out its regular April school survey of enrollment and dropout rates and prepare revised reconstruction cost estimates once the flood waters have receded. Detailed information about water supply and sanitation facilities has already been collected for Chokwe and Xai Xai by Africon, a South African consultancy firm, and further information, for Maputo and Matola, is being collected by engineers from the Universidade Eduardo Mondlane. Fairly good information already exists about damages in large-scale infrastructure (roads, bridges, railways, and electrical installations), but this is constantly being improved as construction engineers visit sites and plan or initiate repairs. The largest information gap that still exists concerns damages to public buildings, private housing, and commercial and industrial property. Obtaining robust numbers, particularly for losses suffered by subsistence farmers and small-scale traders, will be critical to designing interventions aiming to promote their economic recovery.  Vulnerability Reduction 27. Damage and losses sustained during the current floods expose the vulnerability of people, services, and infrastructure to flood events of similar or greater magnitude. Meteorological and hydrological observing systems essential for monitoring and forecasting hydro-meteorological hazards were lost during the floods and will need to be replaced. In addition, existing flood protection embankments now require emergency repairs (see Table 3 for cost estimates). 28. In light of Mozambique's geography and disaster history, future floods, typhoons and droughts are inevitable. Cyclone activity along the coast continues as this document is issued. Reconstruction provides an opportunity to evaluate hazard exposure, reassess or develop standards., and incorporate appropriate measures for reducing or transferring risks of future loss and damage. To this end, the Bank is discussing with the Govermment a study of the structural integrity of existing dams within Mozambique as well as a study of the desirability of new flood protection measures on Mozambique's major rivers, and in particular of flood-control dams on the Save river and on the Limpopo river at Mapai. Direct- Reconst. Meteorological systems: _ Instrumentation' 0.12 0.12 Station infrastructures 0.10 0.20 Immediate enhancements 0.73 Medium-term enhancements'4 2.89 Hydro-meteorological stations rehabilitation 0.10 0.60 Sub-total: Hazard monitoring and forecasting 0.42 4.54 Flood protection Existing embankments - emergency measuresW 2.00 10.00 Priority rehabilitation of affected dams and equipment 1.00 1.00 Structural integrity of dams - investigation 0.10 Feasibility study of Mapai Dam on Limpopo for flood control 0.50 Desk study for siting possible flood control dam on Save River 0.10 New flood protection measures (including dredging) - investigation 0.55 Sub-total: Flood protection 3.00 12.25 Enhanced disaster reduction capacity Regional cooperation' (see Table 4 below) 0.60 Evacuation plans - preparation and dissemination 0.50 National-level sectoral plan preparation/coordination (see Table 4) 1.00 Strengthened national-local coordination for high risk areas (Table 4) 0.50 Sub-total: Enhanced disaster reduction capacity 2.60 Total 3.42 19.39 Source: World Bank estimates. l Estimated replacement costs of instrumentation lost at Xai-Xai4assangena, Chokwe, Sabie, Moaimba, Barragem de Pequenos Libombos, Barragem de Conrumana, Chibuto, Machanga and Mambone. 2 Direct losses refer to reconstruction costs for meteorological stations at Xai-Xai and Massangena; replacement costs refer to estimated cost of relocating them to safer locations. 3 Estimated costs of equipment for improving cyclone tracking and forecasting and communication of information to the public, including upgrading the PDUS and MESSIR and installing HPRT and television equipment. 4 Estimated costs for upgrading GPS for MWI I DigiCORA and installation of 2 weather radars to improve rainfall forecasting. 5Includes investigation ito additional emergency measures. 6 Includes cooperation on flood risk analysis and reduction, climate forecasting and disaster reduction.  - 12 - 29. The Government's strategy for long-term disaster reduction is articulated in its national emergency management policy and draft national action plan. On the policy side, prevention and preparedness are stressed. Specific elements include involvement of civil society, sectorally integrated approaches, development of sector- and hazard-specific disaster management plans, community-based approaches and civic education, promotion of risk reduction incentives, institutional capacity building, and creation of financial reserves and materials in consideration of especially high-risk areas. On the institutional side, INGC was created in 1999 by statute within the Ministry of Foreign Affairs and Cooperation to oversee disaster preparedness and prevention in Mozambique. Thus, sound policy and statutory bases already exist for future institutional development in these areas. There also appears to be considerable intemational interest in providing support. Additional consultation with the Govermment of Mozambique and international donors is needed to identify the precise nature of the technical assistance that INGC and other Government agencies now require and the Bank's possible role in providing any such assistance (see Table 4). Institution Local-National Level National-Regional Level INAM Replace and enhance climate and Support continued/enhanced GOM (hazard emphasis) weather monitoring and forecasting participation in the Southern Africa Strengthen public information Regional Climate Outlook Forum capabilities for early warning (SARCOF) for seasonal climate forecasting DNA Replace and enhance river monitoring Cooperate regionally on watershed (hazard emphasis) and flood forecasting management, including flood control, Implement flood control projects land use management, and Build flood protection embankments information sharing INGC Develop institutions (mostly human Improve GOM participation in SADC (hazard/ resources) for interministerial sectoral regional cooperation on disaster vulnerability coordination, focusing on high-risk reduction emphasis) local areas GOM Sectoral Create or designate and support focal As appropriate, contribute to regional Institutions points for intersectoral, inter- watershed and land use management (vulnerability ministerial coordination on disaster initiatives on main regional river emphasis) prevention and preparedness catchment areas World Bank Include identification, reduction and Support regional watershed and land Role in Support transfer of disaster risk into sectoral use management initiatives on main of GOM project design and implementation regional river catchment areas (vulnerability Study hazard and vulnerability as emphasis) needed for calculating risks Source: World Bank staff. C. IDA'S RESPONSE AND STRATEGY The Elements of IDA's Response 30. During the flood, the Bank received a request from the Government of Mozambique for emergency assistance. The Bank's response is being closely coordinated with the IMF and with other donors providing assistance to Mozambique in response to the emergency. IDA is responding to the disaster in the following ways:  - 13 - * Preliminary damage assessment: In close cooperation with the Government, the Core Group of donors working with the Government on reconstruction assistance, and the IMF, World Bank staff have prepared a preliminary assessment of the damage resulting from the flood and cyclone emergency. This assessment, entitled "A Preliminary Assessment of Damage from the Flood and Cyclone Emergency of February-March 2000", was completed on March 27, 2000, and will be an important contribution to the Government's own overall assessment and to an International Donor Conference on reconstruction scheduled for early May 2000. * Debt relief: On April 6, the World Bank Board, in the context of the Enhanced HIPC Framework, approved accelerated debt relief to Mozarnbique through various modalities to cover 100 percent of IDA debt service due over the next twelve months (about US$ 10 million), so that IDA debt service obligations do not become an obstacle to MozamLbique's ability to respond to emergency rehabilitation needs. * Emergency financing: The Government has an urgent need for emergency financing to cover additional import needs generated by the emergency while maintaining macroeconomic stability. The proposed fast-track Flood Emergency Recovery Project (FERP) would help to mLeet this need. IDA staff have also been collaborating with the Government of Mozambique and the IMF on a preliminary reassessment of Mozambique's macroeconomic situation. * Short- to medium-term rehabilitation: IDA staff are working with counterpart Government agencies and other development partners to reprogram existing projects in the IDA portfolio, to provide high- priority and fast-disbursing assistance for rehabilitating physical and social infrastructure. In view of the extent of the damage and the need for immediate assistance, IDA staff believie that reprogramming the existing program is a faster and more flexible way to meet Mozambique's short- and medium-term rehabilitation needs than designing and implementing a new multisectoral flood rehabilitation project. Seven of the 13 ongoing IDA operations in Mozambique, including the four sector investment projects in roads, agriculture, health and education, will be restructured as needed within existing credit amounts and used to finance rehabilitation expenses. However, certain ongoing operations may require supplemental funding to cover sectoral reconstruction needs - if sufficient support from other donors is not received. It was agreed at negotiations for this Project that IDA and the Government will undertake a joint review of Mozambique's emergency fufnding requirements priorto June 30, 2000, and in that contextpropose supplemental financing for IDA projects as needed. All proposals for project restructuring requiring Board approval will be consolidated in a single Memorandum of the President to be presented to the Board, independently of this Flood Emergency Recovery Project, at a later date. IDA is also reviewing and modifying, as necessary, projects and non-lending services currently scheduled or under preparation to ensure that future IDA support addresses the Government's development agenda adjusted to reflect priorities resulting from the damage. * Long-term reconstruction: The Mozatnbique CAS was discussed by the Board on December 18, 1997. A new CAS was under preparation at the time of the floods and is scheduled for Board discussion on June 1, 2000. Over the next few weeks, the Government will prepare a reconstruction program, to be presented at the May Donor Conference on the flood emergency. Mozambique's next Consultative Group meeting, scheduled for June 8-9, 2000, will also discuss the response to the flood emergency. In addition, and consistently with IDA emphasis on institutional development, IDA is exploring with the Govermment and other partners ways to strengthen Mozambique's institutional capacity for disaster prevention and preparedness, which may involve preparation of either a  - 14 - freestanding technical assistance operation or addition of a component to an existing or future operation. (See page 11, Table 3, for activities that IDA may support in this context.) Internal Administrative Measures 31. IDA has worked closely with the Government, UJN agencies, bilateral donors, NGOs and the IMF since the onset of the floods in early February, to identify and respond to reconstruction and macro- economic needs. As the crisis deepened in early March, a large multisectoral mission visited Mozambique to design the IDA response. The mission included staff covering the macroeconomy, water, roads, railroads, energy, agriculture, health, education, municipal government, private sector, industry and disaster management, as well as financial management, legal, disbursements and procurement specialists. The latter group worked with IDA and Government teams to formulate the adjustments needed to enable existing operations to be responsive to reconstruction needs arising from the disaster. The IDA FHPC team responded rapidly, designing afrontloading of the delivery of IDA debt relief to free up resources for emergency and reconstruction expenses in the year following the crisis. The Bank's Disaster Management Facility provided advice and staff for the mission. Lessons Learned 32. In designing its response to the emergency, the team drew from the advice of OED and from mission staff based in the Bank's Disaster Management Facility. Advice was also taken from Bank teams involved in responding to similar emergencies in different parts of the world, including Bangladesh, Honduras, Nicaragua, Venezuela, and Turkey. Particular importance was attached to leaming from the experience in responding to Hurricane Mitch in Central America, due to similarities in the nature of the disaster, the levels of poverty, and the size and nature of the economy. Key lessons for post-disaster recovery projects noted in a recent Bank publication7 include: (i) the speed of both appraisal and implementation is crucial for success; (ii) mitigation measures should always be included against a repeat disaster; (iii) procurement needs to be flexible, and procurement management needs to start early and perhaps be centralized in one agency; and (iv) community involvement and participation are essential for successful reconstruction work. Another review of emergency lending8 noted that: (v) the simpler the design the better, and that (vi) the institutional framework, and strategic management of emergency and reconstruction, is crucial for project success. Recent experience in Bangladesh (P-7264-BD) and Nicaragua (P-7279-NI) indicates that (vii) flexibility in the design of recovery projects is necessary to permit changes as project implementation yields more information, and (viii) emergency projects must be simple, rapidly executable, sharply focussed, and not burdened with conditionality. Rationale for IDA Involvement 33. The Bank Group's CAS is aimed at reducing poverty in Mozambique through sustainable, broad- based economic growth. It is in full accord with the Government's poverty reduction objectives and strategy as enunciated in the Interim Poverty Reduction Strategy Paper of February 2000, and in its recently approved Five Year Development Plan. The three pillars of the current CAS focus on (i) promoting rapid, broad-based private sector-led growth; (ii) capacity building and development of human resources, and (iii) strengthening development partnerships. The country has a record of strong macroeonomic management in recent years. It has achieved rapid GDP growth (averaging 10 percent per annum over the past 5 years) while reducing inflation to single digits, stabilizing the foreign exchange 7 Gilbert, Roy and Kreimner, Alcira, "Learning from the World Bank's Experience of Natural Disaster Related Assistance", Urban Development Division, World Bank, May 1999, p. 17-18. 8 Kreimer, Alcira, "Lessons Learned from Emergency Lending", Environment Department Working Paper No. 1990-15, World Bank, November 1990.  - 15 - market and reinvigorating the financial market and the private sector through a vigorous program of privatization. In order to maintain the gains on the macroeconomic front, it is essential that resources be made available to the Government to enable it to stabilize the foreign exchange market, manage a potential deepening of the budget deficit, and finance the import requirements of the reconstruction effort. The proposed Flood Emergency Recovery Project will contribute directly to this objective. Designed within the limits of the OP/BP 8.50, the proposed operation will provide foreign exchange to help stabilize the foreign exchange market, and facilitate the import of items essential to the smooth operation of the economy and to the reconstruction efforts in the disaster affected areas. The operation complements balance of payment support promised by other multilateral and bilateral donors. D. DETAILED PROJECT DESCRIPTION Project Objectives 34. The proposed Flood Emergency Recovery Project is part of the first phase of IDA's strategy to assist in the reconstruction of Mozambique. It would assist the Government in implementing its program to maintain macroeconomic stability through financing the import costs associated with rebuilding social and economic infrastructure, and re-establishing production levels in response to the damage caused by the floods and cyclones Connie and Eline. The performance of the projeet would be measured by how well Mozambique maintains macroeconomic stability in 2000 and beyond, especially in terms of the current account deficit and the budget deficit of the Central Government (see Attachment 3). Project Description 35. The Flood Emergency Recovery Projectwill provide immediate, quick-disbursing support to finance a positive list of imports needed for the rehabilitation program while supporting macroeconomic objectives. While the proposed credit would be entirely quick-disbursing, it is only one part of an unbundled set of actions by the Bank Group to respond to the effects of the flood. The project will, inter alia, provide assistance for imports for its recovery program, as follows: (i) construction materials, vehicles, electricity and fuel that are needed for rehabilitation of physical infrastructure, including transport, water, sanitation, power, buildings, etc. and for the recuperation of private enterprise.; (ii) agricultural inputs (including fertilizers and seeds), equipment, materials, machinery and fuel needed to reestablish agricultural outputs; (iii) livestock, animal products, and veterinary medicines; (iv) medical supplies and equipment needed for hospitals, health centers, and health posts that were damaged; (v) school supplies and equipment needed for schools and educational facilities that were partially or totally destroyed; and (vi) machinery, spare parts and equipment for commercial and industrial companies. No disbursements will be made to cover used goods, luxury goods, or military equipment. Project Cost and Financing. 36. The size of the proposed credit, at US$30 million equivalent, is based on the Government's request for emergency assistance and an assessment of the adverse effects of the floods on the balance of payments after taking account of the assistance expected from other donors, including the IMF. The proposed Credit would finance 100 percent of the foreign costs of imports on the positive list, excluding import duties and taxes. Attachment 1 shows the positive list of items to be financed for the proposed credit. The Credit would also finance 100 percent of the foreign costs and 80 percent of the local costs of consultant services (including audits) for purposes of the project up to a ceiling of US$335,000 equivalent. A summary of the proposed procurement and disbursement arrangements is shown in Attachment 2. Consistent with the emergency nature of the proposed support, these arrangements have  - 16 - been simplified and streamlined to the extent feasible, while seeking to ensure that overall concems about due diligence, transparency, and avoiding corruption are addressed. E. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION Project Organization and Management 37. Project implementation arrangements have been streamlined to conform to the emergency nature of IDA's assistance. In addressing IDA's fiduciary responsibilities, IDA will ensure that credit proceeds are administered prudently and only used to finance the import of goods included on the positive list as well as the consulting services that are required for implementation of the project; that required procurement, accounting and auditing procedures are followed; and that appropriate retention of documents is provided to allow for IDA supervision and independent audits. 38. The project will be implemented by the Ministry of Planning and Finance (MPF) with the assistance of the Bank of Mozambique (BoM). The execution of an Implementation Agreement, satisfactory to IDA, defining the assistance to be provided by the BoM, is a condition of effectiveness. If requested, the National Institute of Statistics will provide the overall information on imports based on customs documentation (Documentos Unicos). The BoM will maintain copies of the relevant supporting documentation. The credit will finance 100 percent of the delivered cost of eligible imports, excluding import duties and taxes, of a positive list of goods (Attachment 1) agreed with Government as well as 100 percent of the foreign costs and 80 percent of the local costs of the consulting services required for implementation of the project. Procurement 39. Credit proceeds will be made available to finance public and private sector imports against documentation evidencing that the imported goods were both on the positive list and procured following agreed procurement procedures. Imports financed with credit proceeds would be limited to goods from eligible countries in accordance with the Bank's Procurement Guidelines (Guidelines for Procurement under IBRD Loans and IDA Credits, dated January 1995, revised January and August 1996, September 1997 and January 1999). No more than 50 percent of the credit will be used to finance the import of any class of eligible imports on the positive list without prior approval by IDA. Contracts for consultants financed under the credit will be based on the Bank's Guidelines (Guidelines for Selection and Employment of Consultants by World Bank Borrowers, dated January 1997, revised September 1997 and January 1999). To facilitate the procurement process, the services of a procurement agent may be retained by the Borrower. 40. The credit will be used to finance imports procured in accordance with the procedures presented in Table 5 below. All procurement of imports by the private sector with contracts of US$3.0 million or above will be based on Simplified International Competitive Bidding Procedures subject to prior review by IDA. Imports by the private sector with contracts of less than the equivalent of US$3.0 million will be acquired based on established commercial practices and will not need prior review of IDA. 41. Public sector imports financed under this project will follow Simplified International Competitive Bidding Procedures, as provided underIDA's Procurement Guidelines (Clauses 2.63 and 2.64). Contracts let by the public sector of US$0.5 million or above and contracts awarded after December 31, 2000, will be subject to prior review by IDA. However, to facilitate the speedy import of items required immediately for the recovery effort, public sector imports of less than US$0.5 million equivalent and  - 17 - awarded between February 4, 2000 and December 31, 2000, may be based on International Shopping Procedures in accordance with IDA's Procurement Guidelines (Clauses 3.5 and 3.6). 'The project will finance the importation of fuel and fertilizers by both private and public importers through established international commodity markets, or through simplified procurement procedures provided for under IDA's Procurement Guidelines. Procurement Categories_ Procurement Method Public Sector Procurement Commodities Through established international commodity markets or other channels of competitive procurement as defined in Clause 2.65 of IDA's Procurement Guidelines Goods valued at or more than US$0.5 million Simplified international competitive bidding procedures under Clauses 2.63 and 2.64 of IDA's Procurement Guidelines Goods for contracts awarded between In accordance with intemational shopping February 4, 2000 and December 31, 2000, procedures under Clauses 3.5 and 3.6 ofiDA's valued at less than US$0.5 million Procurement Guidelines Private Sector Procurement Commodities Through established international commodity markets or other channels of competitive procurement as defined in Clause 2.65 of IDA's Procurement Guidelines Goods valued at or more than US$3.0 million Simplified international competitive bidding procedures under Clauses 2.63 and 2.64 of IDA's Procurement Guidelines Goods for contracts valued at less than Based on established commercial practices US$3.0 million Disbursements 42. The proceeds of the credit will be disbursed against 100 percent of the delivered cost of imports, excluding import duties and taxes, of the agreed positive list, and consulting services. To avoid excessive transaction costs for IDA, public and private sector import contracts of less than US$20,000 will not be eligible for financing with credit proceeds. 43. Throughout the period of the credit, disbursements for goods procured by the private sector with contract value less than US$3.0 million will be made against Statements of Expenditures (SOEs). Disbursements for goods procured by the public sector up to December 31, 2000 with. contract value less than US$0.5 million will also be made againstSOEs. Supporting documentation for SOEs will be retained by the BoM and will be available for review by IDA financial management and procurement specialists and project auditors. The Closing Date for this credit is expected to be December 31, 2001. 44. The Borrower may request disbursements through a US Dollar Special Accoumt to be established by the BoM, with an authorized allocation up to US$7.5 million, or 25 percent of the total credit amount. The Special Account will be replenished as and when needed to ensure timely disbursements of funds to cover eligible expenditures.  - 18 - Financial Management and Monitoring 45. The financial transactions pertaining to this operation will be recorded and monitored by the financial management system of the BoM, which has considerable experience and a good track record in managing donor funds in operations of this nature. Appropriate staff wilL be identified within BoM for: managing the project, maintaining proper records and accounts and producing quarterly project financial statements on a timely basis in a format acceptable to IDA. 46. The retention of an independent auditing finn on terms of reference acceptable to IDA is a condition of effectiveness. Quarterly independent audits of the project financial statements (including the Special Account and SOEs) will be undertaken in accordance with international auditing standards and will be submitted to IDA within 30 days of each calendar quarter. The fourth quarter audit report will present the cumulative balances to the end of the financial year. 47. The project's macroeconomic monitoring indicators are described in Attachment 3. Reports on progress against these indicators will be prepared and submitted to IDA quarterly. Retroactive Financing 48. Retroactive financing in the amount of US$6 million equivalent, 20 percent of the credit amount, would be provided to finance expenditures incurred before credit signing, but after February 4, 2000, the approximate date of the onset of the devastation caused by the flooding. Special Account 49. The Borrower may request disbursement through a US Dollar Special Account to be established by the Bank of Mozambique, with an authorized allocation of up to US$7.5 million, or 25 percent of the total credit amount. The Special Account would be replenished as and when needed to ensure timely disbursements of funds to cover eligible imports. Project Sustainability 50. The Project itself is designed to help sustain macroeconomic stability and supports the first phase of IDA's strategy for assisting Mozambique to deal with the destruction caused by the floods. Other parts of that strategy are also important for long-term sustainability, and will be addressed under existing projects in the IDA portfolio, and a combination of new supplemental credits and free-standing projects. Long-term reconstruction concems and institutional capacity strengthening for disaster preparedness (and flood management in particular) will be an integral part of this assistance. The objective, even under existing projects in the portfolio, will not be simply to replace what has been lost, but to improve, redesign, and relocate economic activity, infrastructure and services as needed, to ensure long-term sustainability. F. BENEFITS AND RISKS Project Benefits 51. The project has several benefits. Import financing under the credit will provide timely balance of payments support to the Govemment in view of the additional import demands generated by the effects of the floods and the cyclone. The project will also be critical to maintaining macroeconomic stability while rehabilitating and restoring productive capacity in Mozambique and ensuring procurement and delivery of  - 19 - adequate supplies of essential equipment, materials, and commodities for the reconstruction of public and private assets, and the recovery of the economy in the region. The counterpart funds generated by the sale of foreign exchange will provide the Government with an important source of non-inflationary finance for its emergency recovery program at a time when there will be need for additional government expenditures and pressure on revenues due to lower than projected economic growth. It will complement the support for short- and medium-term rehabilitation that will be provided through the restructuring and reprogramming of ongoing operations in the portfolio, and assistance provided by other multilateral and bilateral agencies. Project Risks 52. There are two major risks. First, there is some macroeconomic uncertainty associated with the economic impact of the floods and the Government's ability to maintain stability in the face of increasing fiscal and external pressures. The project itself will directly address this risk. To this end, it is extremely important that disbursements under the operation not be delayed. Second, emergency recovery programs can provide an environment conducive to misappropriation of resources. The project will address this risk through due diligence in procurement, independent audits, and a periodic review of project accounts by IDA staff. The Bank of Mozambique, the implementing agency of this project, also has substantial institutional experience and a good track record in managing quick-disbursing funds provided by IDA and other donors over the past years. Attachments April 6, 2000 Washington, D.C.  - 20 - ATTACHMENT 1 MOZAMBIQUE FLOOD EMERGENCY RECOVERY PROJECT Positive List of Imports 1. Constiuction materials 2. Water, land and air transport vehicles 3. Agriculture equipment and inputs 4. Livestock, animal products and veterinary supplies 5. School supplies and equipment 6. Medical supplies and equipment 7. Petroleum and fuel products 8. Construction equipment and industrial machinery, spare parts and raw materials 9. Electricity 10. Electrical equipment, machinery, materials and parts  -21 - AT'TACHMENT 2 Page 1 of 2 MOZAMBIQUE FLOOD EMERGENCY RECOVERY PROJECT A. Summary of Procurement and Disbursement Arrangements Procurement Procedures Procurement Categories Procurement Method Public Sector Procurement Commodities Through established international cornmodity markets or other channels of competitive procurement as defined in Clause 2.65 of IDA's Procurement Guidelines Goods valued at or more than US$0.5 million Simplified international competitive bidding procedures under Clauses 2.63 and 2.64 of IDA's Procurement Guidelines Goods for contracts awarded between In accordance with international shopping February 4, 2000 and December 31, 2000, procedures under Clauses 3.5 and 3.6 of IDA's valued at less than US$0.5 million Procurement Guidelines Private Sector Procurement Commodities Through established international cornmodity markets or other channels of competitive procurement as defined in Clause 2.65 of IDA's Procurement Guidelines Goods valued at or more than US$3.0 million Simplified international competitive bidding procedures under Clauses 2.63 and 2.64 of IDA's Procurement Guidelines Goods for contracts valued at less than Based on established commercial practices US$3.0 million  - 22 - ATTACHMENT 2 Page 2 of 2 MOZAMBIQUE FLOOD EMERGENCY RECOVERY PROJECT B. Summary of Disbursement Arrangements Disbursement Category Amount of Credit Percent of Expenditure to be SDR million Financed 1. Eligible imports required for 22.15 100 % of foreign expenditures the Project as Specified in Schedule A 2. Consultant Services including 0.25 80% of local expenditures and audits 100 % of foreign expenditures Total 22.40 NOTE: No disbursements will be made against used or luxury goods, military equipment, or payments for contracts less than US$20,000. The term "local expenditures" means expenditures in the currency of the Borrower for services supplied from the territory of the Borrower and the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower.  -23 - ATTACHMENT 3 Page I of I MOZAMBIQUE FLOOD EMERGENCY RECOVERY PROJECT Monitoring Indicators The proposed Flood Emergency Recovery Project will seek to assist Mozambique to maintain macroeconomic stability by helping to sustain a higher level of imports necessary for rehabilitation and reconstruction. In addition, the counterpart funds generated by the balance of payments support will be used to finance a higher budget deficit linked to reconstruction activities. The following indicators will be used to monitor the implementation of the FERP: * The overall balance of payments deficit in 2000 and 2001 * The overall fiscal deficit after grants in 2000 and 2001. Progress towards meeting these targets will be monitored quarterly, and the indicators will be adjusted, by agreement between the borrower and IDA, as macroeconomic estimates and projections are refined, in line with the Government's economic program.  -24- ATTACHMENT 4 Mozambique lFlood Emergency Recovery Project Balance of Payments, 1998-2001 (US$ rnillion) Actuals Pre-floods Post-floods 1998 1999 2000 2001 2000 2001 Trade balance -620.1 -1086.2 -729.3 -524.2 -1030.8 -581.6 Exports (f.o.b.) 248.2 260.0 310.1 510.6 285.5 510.6 Imports (c.i.f) -868.3 -1346.2 -1,039.4 -1034.8 -1316.3 -1092.2 Services (net) -176.3 -236.3 -306.8 -252.7 -330.1 -252.7 Current account, excluding grants -796.4 -1322.5 -1,036.1 -776.9 -1360.9 -834.3 Unrequited official transfers 1/ 313.2 427.9 302.4 325.1 508.4 335.1 Current account, including grants -483.2 -894.6 -733.7 -451.8 -852.5 -499.2 Capital account 270.0 634.1 256.3 -23.2 294.3 -6.2 Net foreign borrowing 57.3 242.4 142.9 -94.4 189.9 -86.4 Foreign borrowing 306.7 494.9 505.8 268.4 552.8 276.4 Public 2/ 225.3 99.6 164.8 165.0 211.8 173.0 Private 81.4 395.3 341.0 103.4 341.0 103.4 Amortization -249.4 -252.5 -362.9 -362.8 -362.9 362.8 Direct investment (net) 212.7 391.7 113.4 71.2 104.4 80.2 Short-term capital and errors and omissions (net) 8.8 23.1 0.0 0.0 0.0 0.0 Overall balance -204.4 -237.4 -477.4 -474.9 -558.2 -505.4 Financing 204.4 237.4 477.4 474.9 558.2 505.4 Bank of Mozambique -77.2 -55.6 50.0 48.4 88.8 48.4 of which: Gross international reserves (increase-) -92.9 -44.1 57.4 55.7 57.4 55.7 of which: Use of IMF credit (net) 9.6 -7.7 -7.4 -5.8 31.4 -5.8 Netchange in arrears (increase +) 20.4 -761.5 0.0 0.0 0.0 0.0 Debt relief 3/ 261.2 1054.5 427.4 427.0 469.4 457.0 Memo item: Financing gap before additional flood related assistance 0.0 0.0 0.0 0.0 -206.1 -48.5 Sources: World Bank staff estimates and projections. 1/ Includes additional flood related grants. 2/ Includes IDA re-programmed credits and IDA Flood Emergency Recovery Project of US$ 30 million. 3/ Including accelerated debt relief under Enhanced HIPC and the deferral of debt service by the Paris Club.  -25- ATTACHMENT 5 Mozambique Flood Emergency Recovery Project Govermment Finances, 1998-2001 (as % of GDP) Actual Pre-floods Post-floods 1998 1999 2000 2001 2000 2001 Totalcurrentrevenues 11.5 11.7 12.5 12.9 12.9 13.2 Total current expenditures 11.4 12.3 12.7 12.4 13.5 12.1 Total capital expenditure 1/2/ 10.8 11.6 11.9 11.2 15.4 12.5 Deficit before grants -10.7 -12.1 -12.1 -10.7 -16.0 -11.5 Grants 8.3 10.9 6.9 6.3 9.0 6.4 Deficit after grants -2.4 -1.2 -5.2 -4.4 -7.0 -5.1 Financing (net) 2.4 1.2 5.2 4.4 6.5 5.1 External 3/ 4.7 1.4 3.6 3.3 4.9 4.0 Internal -2.3 -0.2 1.6 1.2 1.6 1.1 Financing gap 0.0 0.0 0.0 0.0 0.6 0.0 Memo item: GDP in billion of Mt. 46,134 52,913 60,177 67,790 61,471 69,673 Sources: World Bank staff estimates and projections. I/ Including net lending 2/ Includes,in 1998 and 1999, unallocated expenditures of Mt. 106 billion and Mt. -51 billion, r espectively. 3/ Including accelerated debt relief under Enhanced HIPC and the deferral of debt service by the Paris Club but excludes IDA Flood Emergency Recovery Project.