Mozambique - Flood Emergency Recovery Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: MZ-24415 IMPLEMENTATION COMPLETION REPORT (IDA-33360) ONA CREDIT IN THE AMOUNT OF US$30 MILLION TO THE REPUBLIC OF MOZAMBIQUE FOR THE FLOOD EMERGENCY RECOVERY PROJECT 12/19/2002 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective July 31, 2002) Currency Unit = Metical US$ 1.00 = 23,710 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS BOM Banco de Mocambique BOP Balance of Payments CAS Country Assistance Strategy DCA Development Credit Agreement EMPSO Economic Management ans Private Sector Operation ERL Emergency Recovey Loan EU European Union FERP Flood Emergency Recovery Program GDP Gross Domestic Product GOM Governnent of Mozambique HIPC Highly-Indebted Poor Country IDA International Development Association IMF International Monetary Fund INGC Instituto Nacional de Gestao de Calamidades MOP Memorandum of the President NGO Ncn-Govenmental Organization OCHA Office of the Coordinator of Humanitarian Assistance OP Operational Policy PARPA Plano de Accao para a Reduqao da Pobreza Absoluta PEMR Public Expenditures Management Review PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PSR Project Status Report QAG Quality Assurance Group ROCS Roads and Coastal Shipping SDR Special Drawings Rigths TTL Task Team Leader UN United Nations UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for Intemational Development WFP World Food Program WHO World Health Organization Vice President: Callisto Madavo Country Director. Darius Mans Sector Manager: Philippe Le Houerou Task Team Leader: Dipac Jaiantilal  MOZAMBIQUE Flood Emergency Recovery Project CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 7 5. Major Factors Affecting Implementation and Outcome 9 6. Sustainability 11 7. Bank and Borrower Performance 12 8. Lessons Leamed 14 9. Partner Comments 16 10. Additional Information 16 Annex 1. Key Performance Indicators/Log Frame Matrix 18 Annex 2. Project Costs and Financing 19 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6. Ratings of Bank and Borrower Performance 24 Annex 7. List of Supporting Documents 25 Annex 7.1. Table: Inflation and Exchange Rates, 2000-2001 26 Annex 7.2. Table: Selected Economic Indicators, 1999-2001 27 Annex 7.3. "Technical Annex for a proposed credit of SDR 22.4 million (US$30 million 28 Equivalent) to the Republic of Mozambique for a Flood Emergency Recovery Project" April 7, 2000 Annex 7.4. "Changes to IDA portfolio in Mozambique, as a Result of the Flood 55 Emergency" Annex 7.5. Table: "Evolution of the donor response to the Govemment's appeal for the 57 Reconstruction Program for 2000/2001, as of 30/04/05" Annex 7.6. Govemment/Implementation Agency Comments 58   MOZAMBIQUE FLOOD EMERGENCY RECOVERY PROJECT (Credit No. IDA-33360) IMPLEMENTATION COMPLETION REPORT Preface This is the Implementation Completion Report (ICR) for the Flood Emergency Recovery Project (FERP) in Mozambique, for which a Credit IDA-33360, in the amount of SDR 22.4 million (US$30 million equivalent) was approved on April 20, 2000, and made effective on August 9, 2000. The Credit was closed on December 31, 2002, as initially envisaged. This ICR was prepared by Dipac Jaiantilal, Senior Economist and Task Team Leader, PREMI. James Coates and Johannes Zutt, co-task team leaders during the main part of the credit life, made very useful contributions to the Report. It was reviewed in June 2002 by Philippe Le Houerou, Sector Manager, PREMI, and Johannes Zutt, Acting as Country Director at the time of the Review. It was approved by Darius Mans, Country Director for Mozambique, Angola and Malawi. The Borrower contributed to the preparation of the ICR through information provided to the author, and agreed to the content of the Report. I would like to acknowledge and thank also the following colleagues: Hassan Zaman, Senior Economist, PREMI and Maria Teresa Benito-Spinetto, Research Analyst, PREMI, who provided written comments for the Review meeting; Maria Teresa Benito- Spinetto updated the Annex Tables 7.1 and 7.2; Peter G. Moll, Senior Economist, PREMI who proofread several drafts of this ICR. Preparation of this ICR began in November 2001. It is based on discussions with Bank staff, Government Officials and other donors.   Project ID: P070432 Project Name: Flood Emergency Recovery Project Team Leader: Dipac Jaiantilal TL Unit: AFTPI ICR Type: Core ICR Report Date: December 20, 2002 1. Project Data Name: Flood Emergency Recovery Project L/C/TFNumber: IDA-33360 Country/Department: MOZAMBIQUE Region: Africa Regional Office Sector/subsector: Power (20%); General transportation sector (20%); Health (20%); General education sector (20%); General agriculture, fishing and forestry sector (20%); KEY DATES Original Revised/Actual PCD: 03/10/2000 Effective: 08/09/2000 Appraisal: 03/16/2000 MTR: Approval: 04/20/2000 Closing: 12/31/2001 12/31/2001 Borrower/lnqplementing Agency: GOVERNMENT OF MOZAMBIQUE/MINISTRY OF FINANCE AND PLANNING AND BANK OF MOZAMBIQUE Other Partners: STAFF Current At Appraisal Vice President: Callisto Madavo Callisto Madavo Country Manager: Darius Mans Michael Sarris Sector Manager: Philippe Le Houerou Philippe Le Houerou Team Leader at ICR: Dipac Jaiantilal James H. Coates and Johannes Zutt ICR Primary Author: Dipac Jaiantilal 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institntional Development Impact: M Bank Peiformance: S Borrower Performance: S QAG (if available) ICR Quality at Entiy: S HS Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 3.1.A. Project Development Objective of FERP (Flood Emergency Recovery Project). The  project was designed to assist the Government of Mozambique (GOM), in view of the damage caused by the floods and cyclones Connie and Eline, in implementing its program to maintain macroeconomic stability, by helping to finance the costs of imports required for rebuilding physical, social and economic infrastructure, and for re-establishing production levels. The GOM would be able, through the FERP, to withdraw proceeds of the credit in a quick fashion, on the presentation of statements of expenditure for imports appearing on a positive list, which included electricity, petroleum products, construction materials, medical supplies, school supplies, agricultural equipment, industrial machinery, electrical equipment and machinery. It must be made clear at the outset that: (i) FERP was only one small piece of the World Bank's overall response to the emergency, as the Bank made use of a broad range of instruments it has available to create a comprehensive response, and (ii) the Bank's response was designed to take into account and to influence positively, the response of the International Community, including the United Nations (UN) system, other multilateral and bilateral donors and Nongovernmental Organizations, or NGOs. Besides FERP, the other important elements of IDA's response were: the first comprehensive multisectoral damage assessment of the damages resulting from the emergency, accelerated debt relief, and rehabilitation financing through restructuring as necessary, active projects in the IDA portfolio. Preliminary damage assessment preparation was quickly done by a World Bank multisectoral team, in close cooperation with the Government, a core group of donors working with the Government on reconstruction assistance, and the IMF, in an open and transparent way, which resulted in its wide acceptance. The assessment results were contained in the document titled "A Preliminary Assessment of Damage from the Flood and Cyclone Emergency of February-March 2000," completed on March 27, 2000. This assessment is summarized in the Technical Annex of the FERP credit (see Annex 7.3.) The assessment made a clear distinction between relief and reconstruction, which had not been, until then, fully grasped by most other donors and GOM, and helped to shift their orientation away from humanitarian relief towards rehabilitation and reconstruction. It computed estimates of the direct damages, putting them at US$ 273 million, and the reconstruction costs at US$ 428 million. Thus anxiety about the size of the damage was contained", and the ability of the GOM to respond to it increased correspondingly. It made an important contribution to the Govemment's own overall assessment, which was presented at an Intemational Donor Conference on Reconstruction that took place in May 2000. Debt relief of additional US$ 10 million was facilitated on April 6, when the World Bank Board, in the context of the Enhanced HIPC Framework, approved accelerated debt relief to Mozambique to cover 100 percent of IDA debt service due over the following twelve months, so that IDA debt service obligations did not become an obstacle to Mozambique's ability to respond to emergency rehabilitation needs. Rehabilitation financing through IDA was carried out through the reprogramming, as necessary, of existing projects in the IDA portfolio, to provide assistance for rehabilitating physical and social infrastructure, as this was believed to be a faster and more flexible way to meet Mozambique's rehabilitation needs than designing and implementing a new multisectoral flood -2 -  rehabilitation project (see Annex 7.4). Of particular note is the ROCS II project, that had a 'set-aside for emergencies' in the DCA, providing for the use of a set amount of resources - up to US$ 6 million - under streamlined procurement review and approval procedures (i.e. negotiated sole source). Bank staff favored rehabilitation through existing projects because it rightly feared that aid, flowing in an emergency context, would otherwise lead to bypassing existing governments systems and safeguards, thus rolling back some gains made in building capacity and ownership since the end of the war. Background. Up to the occurrence of floods in February-March 2000, Mozambique had been making considerable progress in macroeconomic stabilization and growth since it first launched economic reforms in 1987. These reformns brought a shift from the failed central planning system towards a market-oriented economy and a reduction in the role of the state in the economy. A sound economic program was implemented, that together with the lasting peace accord, brought about growth rates that have been among the highest in the continent, and even worldwide. GDP averaged 5.5 percent during the period 1987-96, accelerating to 10 percent in 1996-1998. Inflation had remained high until the mid-90's, but fell sharply from 54 percent in 1995 to 2.9 per cent in 1999, following the partial privatization of the two largest state banks. Underpinning this high-growth and low-inflation perfonnance until 1999 were prudent fiscal and monetary policies, accompanied by substantial external aid and a sound program of structural reforms based on privatization, financial sector reforms and trade liberalization. Fiscal adjustment was accompanied by a shift of resources to the social sectors, and the implementation of better policy strategies in health and education led to improved social indicators. In spite of these good results, Mozambique remained one of the most indebted countries in the world, suffering from acute internal and external imbalances, and it continued to be extremely dependent on foreign assistance for the delivery of basic social services. It 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. Per capita income in Mozambique, at US$210 in 2000, was below the average for sub-Saharan Africa (US$500) and the low income group (US$410). The Human Development Index, an index of income, education and life expectancy, ranked Mozambique 170 out of 173 countries. Key social indicators for Mozambique continued to be below the averages of Sub-Saharan Africa and those of low-income countries as a whole. In addition, 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 in 2000, 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. -3-  The Unprecedented Flooding. 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 had receded from peak levels recorded in early March, continuing rainfall together with releases from dams upstream kept river levels high for most of March 2002. The provinces most affected were Maputo, Gaza, Inhambane, Sofala and Manica, with a total population of about five million. The flooded area constituted about 11 to 12 percent of cultivated land in the affected provinces. According to the official agency for disaster management, or Instituto Nacional de Gestdo de Calamidades (INGC), 700 people lost their lives and about two million people, or 12 percent of the national population, experienced severe economic difficulties due to the flooding, including 491,000 people who were either displaced or trapped in flood-isolated areas (see pages 32-36, for estimates of the disaster's costs included in the (Technical) Annex 7.3, with a breakdown in terns of the human, sectoral and overall economic impact). As the waters receded, high levels of standing and contaminated water 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 lost all of their capital assets - including their homes, their crops, and their livestock - and required basic life-supporting services to survive this difficult time. Opportunities for on- and off-farm work in their home areas were also foreclosed until the flood waters receded. Small traders and entrepreneurs in the affected areas were hit especially hard, as many suffered heavy losses of inventory with minimal or no insurance coverage. As a result, there was an increase in poverty in the affected region. 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 also sustained damage or were emptied of their contents. In addition, electrical and telecommunications grids were ripped apart, and water systems and sanitation systems rendered inoperable through siltation. In sum, the flooding devastated the affected areas and caused considerable loss of life and property. During the flood, the Bank received a request from the Government of Mozambique for emergency assistance. Thus the Bank responded through the damage assessment, rehabilitation financing, accelerated debt relief and this project of emergency financing, FERP. 3.1.B. Assessment of FERP Project Objective and Design. The Project's primary objective was defined in a clear manner: to help maintain macroeconomic stability at a time when the hard-earned gains mentioned above were at risk of being lost, due to the extent of the calamity. From the Bank's global experience it was clear that the role it should concentrate on, was in contributing to macroeconomic management of the shock, and to the conceptualization and financing of the reconstruction phase. There is no doubt this was an important objective, and its identification was done quickly, as required by the circumstances, amongst a number of options. -4 -  The FERP credit amount of US$30 million equivalent was based on an assessment of the adverse effects of the floods on the balance of payments, after taking account of several factors. The first one was the revised set of macroeconomic projections of the budget and BOP deficits, considering indicators such as growth, inflation, and other variables, obtained by working with Government, IMF and the donors, particularly USAID and Netherlands. This was done by late March 2000, only three weeks after the call to action. Secondly, the assistance expected from other bilateral and multilateral donors, including the IMF, was taken into account, according to the indications obtained in loco from these donors. It is worth mentioning that these expectations were largely met in the International Conference of Donors, that took place in May 34, in Rome. To the request of US$450 million, donors announced US$453 million in pledges in Rome, and confirmed US$470 million after Rome. Thirteen months after the floods, US$192 million had been disbursed, and US$348 million was committed in signed agreements (see Annex 7.5 for more details per country and international organization.) The third factor taken into account was the support for short and medium term rehabilitation provided by IDA through restructuring and reprogramming of ongoing operations in the portfolio. IDA enhanced access and changes to its portfolio were already mentioned in 3.1 .A, namely the reprogramming of US$17.5 million of ROCS II in response to the floods plus $2.5 million for emergency road repairs. Another laudable aspect of the development objective was the aim of helping avoid a greater budget deficit after grants, in that the counterpart funds generated by the sale of foreign exchange would provide the Government with an important source of non-inflationary finance for its emergency recovery program, at a time when there would be obvious pressure for additional government expenditures, and diminished revenues due to lower than projected economic growth. Subsequently the appropriate instrument, an ERL, or Emergency Recovery Loan was chosen, firstly because of its emergency nature, and secondly, because it could include a quick-disbursing balance of payment support operation to help achieve stabilization of foreign exchange, money and commodity markets. In effect, an ERL was the only instrument offering the possibility of speedy processing, as well as quick-disbursing funds. The project team's response to the emergency was quick, taking a mere 45 days from concept review to Board. This was important not only for the need of funds to be made available in a timely fashion, but for the positive "signaling" effect against the negative expectations that the floods generated initially, particularly noticeable on the exchange rates (refer to the table of Annex 7.1) According to Banks procedures and rules, ERLs require that funds may be disbursed only against a positive list of imports. This entails a greater amount of administrative work embedded in the implementation arrangements than a straightforward adjustment operation. For example, the Central Bank was required to present invoices of imports to justify disbursements (a fact that caused the Governor of BOM to raise complaints about the positive list, which he characterized as a return to the more restrictive and outdated adjustment credits). To minimize the potential adverse impact of this requirement on the emergency nature of the support, the arrangements for procurement and disbursements were streamlined to the extent feasible, while seeking to ensure that overall legitimate concerns about due diligence, transparency and accountability were addressed. For example, the positive list was made very broad and the procurement limits were - 5-  increased as much as was reasonable in the Mozambican context. 3.2 Revised Objective: NA 3.3 Original Components: The size of the credit was set at US$30 million equivalent, the residual projected financing gap as explained above. The Credit would finance 100 percent of the foreign costs of imports on the positive list, excluding import duties and taxes. In order to make the ERL approximate a balance of payment or budget support operation, as explained earlier, the list included a wide range of items, viz.: (i) construction materials, vehicles, electricity and fuel that are needed for rehabilitation of physical infrastructure, including transport, water, sanitation, power, buildings, etc. and for the recuperation of private enterprise; (ii) agricultural inputs (including fertilizers and seeds), equipment, materials, machinery and fuel needed to reestablish agricultural outputs; (iii) livestock, animal products, and veterinary medicines; (iv) medical supplies and equipment needed for hospitals, health centers, and health posts that were damaged; (v) school supplies and equipment needed for schools and educational facilities that were partially or totally destroyed; and (vi) machinery, spare parts and equipment for commercial and industrial companies. No disbursements would be made to cover used goods, luxury goods, or military equipment. The Credit would also finance 100 percent of the foreign costs and 80 percent of the local costs of consultant services (including audits) for purposes of the project, up to a ceiling of US$ 335,000 equivalent. Since the key was to make the disbursement procedures as simple as possible, the team encouraged the GOM to consider requesting IDA to make direct payments for bulk items such as petroleum products and electricity, which were included in the positive list for this very reason. In the end the credit was almost fully disbursed in about four months against petroleum products imported in bulk by Mozambique. 3.4 Revised Components: NA 3.5 Quality at Entry: A quality at entry report was carried out on March 2001, by a QAG panel of reviewers, with an overall assessment rating of "satisfactory". The assessment of the several aspects of the project carried the rating "satisfactory" for six aspects: (a) "technical, financial and economic aspects"; (b) "poverty and social aspects"; (c) "fiduciary aspects"; (d) "policy and institutional aspects"; (e) "implementation arrangements" and (f) "risk assessment and management", while the aspect of "concept, objectives and approach" carried the rating "highly satisfactory". This ICR take the view that the overall "Quality at Entry" of the project is "highly satisfactory", chiefly because the FERP was an entirely appropriate supplementary intervention, very rapidly prepared in a highly strategic Bank response to the flood emergency. Not only were the concept, objectives and approach very satisfactorily dealt with, but so also were the technical and economic aspects, the implementation, management and risk assessment arrangements of FERP. The project was in line with the Bank Group's CAS, aimed at reducing poverty in Mozambique -6 -  through sustainable and broad-based economic growth. It also was in accord with the Government poverty reduction objectives and strategy, articulated in the Program of the Government 2000-2004 and in the PARPA (The Plan of Action of Reduction of Absolute Poverty) 2000-2004. It was important to make available resources to stabilize the commodities and foreign exchange markets in order to maintain the gains in the macroeconomic management achieved in recent years, underpinning the experienced rapid economic growth, in the face of the strong supply shock that the floods represented. These resources were also key to managing a potential deepening of the budget deficit and to financing the import requirements of reconstruction efforts after the emergency relief. FERP contributed to these objectives not only directly, but also indirectly by helping to mobilize balance of payments support of other multilateral and bilateral donors, through the revision of the macroeconomic framework, and support given to the Intemational Conference. The FERP credit itself did not contain a specific plan of action to address issues of disaster management at national and regional level, including capacity building. That was by design, rather than from having ignored the fact that Mozambique was (and still is) prone to repeated natural disasters, or that the country needed to enhance its capabilities to address the issue [see pages 40-42, for ways and costing vulnerability reduction, disaster prevention and preparedness included in the (Technical) Annex 7.3]. It resulted from the explicit recognition of coordination of efforts among donors: these capacity building and disaster management aspects were left to other agencies and donors, such as the United Nations, the EU and the Netherlands, which were already, and continue to be, active in these areas. The reasoning was that the latter were better equipped to contribute to the solution of these issues, in large part because they already had relationships with the relevant entities, or were executing related programs, and had capacity in-house to provide further support. In short, there was no need for the Bank to get involved in an area where other competent donors were willing and able to take the lead and where the Bank at the time did not have an obvious comparative advantage. In that way, the Bank was freed to concentrate its activity, for quick delivery, in the areas of its comparative advantage in Mozambique. This decision was put to the test when in 2001, the Government had to organize relief efforts, and mobilize donor support, upon the occurrence of the floods in the Zambezi and Manica Rivers River, affecting predominantly the region center and the north of the country. The fact the Government was able to respond quickly and appropriately, with the support inter alia of the United Nations System, to the emergency after the 2000 floods indicates that, at least to some extent, capacity-enhancement in the relevant institutions had in fact occurred. 4. Achievement of Objective and Outputs 4.1 Outcopne/achievenzent of objective: The project outcome is rated "satisfactory". The immediate objective of the credit, to stabilize the macroeconomic environrnent in the short run, in the face of the strong negative extemal shock, was in large part attained. The extemal position improved compared to the previous year, as measured by the current account after grants, and while the overall budget deficit increased for reasons unrelated to flood-related costs (the increase was planned in the budget for 2000), the FERP credit had a positive impact on the primary budget deficit, due to its very nature of a credit to the Govemrnment. Prices and exchange rates stabilized by mid 2000, while growth, even if .7-  smaller than the post-flood projection, was preserved in the year 2000, and a resumption of strong growth was witnessed in 2001 (see table in Annexes 7.1 and 7.2) As a positive outcome, it is worth mentioning the leveraging of further bilateral external financing that this operation contributed to, with regard to bolstering the flows of external funds to maintain macro-stability and meet reconstruction needs. By revising the macro framework quickly, jointly and openly, not only were the fears of collapse of the currency, spiraling inflation and recession dampened, but also the contributions of the donors were bolstered and the objectives of greater foreign inflows were attained. Indeed the Project succeeded to act as a catalyst for the support of other multilateral and bilateral agencies, largely shown in the assistance confirmed at the International Reconstruction Conference of May, specifically convened for this purpose. More detailed comments follow. Concerning the balance of paymnents, the current account deficit after grants for the years 2000 and 2001, at 17.6 per cent and 8.8 per cent respectively, was lower than FERP estimates, with gross international reserves at the end of the year having been temporarily strengthened at the end of 2000 from 5.5 months to 6 months of imports. FERP financing contributed directly to the reduction dollar for dollar of the overall BOP deficit, and indirectly through the catalytic effect of the Bank support on increased assistance from other donors. The actual outcome of the fiscal deficit after grants, at 4 per cent in 2000, was a lower than projected deficit largely due to higher than expected grants, and in 2001, a slightly higher deficit, due to the higher than anticipated capital expenditures'. The counterpart funds generated by the sale of foreign exchange provided a source of non-inflationary finance to the budget, reducing the overall fiscal deficit in the amount corresponding to the value of FERP credit. As for inflation, after jumps in the monthly rates of February, March and April, totaling 11.5 per cent, due to shortages caused by the losses of production as a result of the floods, the inflation rate tended to stabilize over the rest of the year of 2000 - the accumulated rate of the year never exceeded the 12.3 per cent reached in May, and by end-November was at 9.9 per cent, to end the year at 11.4 per cent, approximately the same level as in April. In general, it is difficult to disentangle the partial effects derived from a single factor on objectives and outcomes, when the latter depend on several factors - unless there is available a tested model, disaggregated enough to estimate the effects in a fairly accurate way, which is not the case here. This means that the effects of the FERP can not be computed in an isolated fashion. Nevertheless, there can be no doubt that its financing, together with the donor grants it helped to mobilize, and the positive expectations it created, had a beneficial impact on the control of the inflation in 2000. In other words, the absence of FERP would have led to a worse inflation outcome'. Regarding exchange rates, a similar path as that of inflation rate occurred in the year 2000. The Metical depreciated in three months about 18 per cent from February to April 2000, while in the next six months the depreciation rate was a tiny 2.4 per cent. This stabilization of the metical was largely a result of the "signaling effect" of the IDA credit approval on the market, which believed that enough resources would be forthcoming from the international community to help the economy to overcome the macroeconomic consequences of the floods. - 8-  As for the resumption of growth and productive capacity, there was a sharper than anticipated decline in growth in year 2000, with a growth rate of GDP of a mere 1.6 per cent (compared to the post-flood projection of 5 per cent.) This was however more than compensated by a stronger rebound in 2001, when the estimates by the Government indicate an increase of GDP to about 13.9 per cent". 4.2 Outputs by components: NA 4.3 Net Present Value/Economic rate of return: NA 4.4 Financial rate of return: NA 4.5 Institutional development impact: The objective of the credit, being that of macroeconomic stabilization as a result of an emergency, did not require, strictu sensu, a component for institutional development. Nevertheless, both in the MOP and in the Technical Annex, appended here as Annex 7.3, it was understood that other donors with more experience in this area would play the necessary important role in developing the capacity of the national institutions to face similar catastrophes with more swiftness, efficiency and comprehensiveness. The UN system, for example, was well placed by mandate and worldview to deal with strengthening the INGC and working with the Government Committee for Emergency Management, headed by the Prime Minister with'the Minister of Foreign Affairs as its operating Secretary. It contributed to improvements in capacity of Government structures dealing with disaster management, including the INGC and corresponding sectoral units, mainly via UNDP/OCHA, UNICEF, WFP and WHO. Also, the Dutch, Italians and French were supporting various aspects of flood control, dike rehabilitation, irrigation rehabilitation along the Limpopo Valley, in some cases with large programs, the EU supported such activities along the Zambezi River, and USAID was investigating dam reconstruction. While we believe that the Bank's choice was right, an expert assessment of the progress made in this area at a latter stage would complement nicely the initial assessment by the Bank, which included a disaster management specialist, and could have been included in the planning exercise to make it possible to evaluate professionally the results achieved in these crucial areas, and if necessary, propose reinforcing measures. For the reconstruction effort, the institutional framework was provided by the Ministry of Finance, in close coordination with other relevant line ministries. The Bank's assistance was via budget support, and other Donors were encouraged to go the same route, as many did. 5. Major Factors Affecting Implementation and Outcome 5. 1 Factors outside the control of government or implementing agency: The extension of the credit followed naturally existing Bank rules for the ERLs, or Emergency - 9-  Recovery Loans requiring under OP 8.50 that the funds be disbursed against a positive list of imports. The Bank staff recognizes nevertheless that (i) money is fungible, (ii) these requirements run contrary to the spirit of the a liberalized forex market the Bank have encouraged countries to follow, and (iii) in many recent cases such as in Honduras, and Bangladesh, ERLs were used only for quick disbursing BOP support on an emergency basis. These rules are outside the control of the Government and could not be by-passed. The result was that the Central Bank had to come up with invoices of commercial imports of petroleum products bought on a competitive basis, with an additional administrative burden for the involved parties. Following the preparation of the FERP, and in response to their experience, the staff proposed a change in the procurement rules for future credits governing the Bank's Emergency Recovery Credits, such that the component of quick-disbursing BOP support be structured the same way as adjustment lending without conditionality linked to macro policies, when extended to countries with an IMF program in place - with the fiduciary concerns addressed through the monitoring proper use of the counter value funds, or the enhanced budget resource envelope. Absent an immediate solution, and to minimize the problems encountered by the inclusion of the positive list, the project team proceeded not only to broaden the positive list and to increase the procurement limits as much as advisable, given Mozambique's record of public financial management, but additionally sought to waive the limit of 50 per cent on withdrawals against any single class of eligible expenditures. This accommodated in particular the request made by the GOM in October 20, 2000, for most of the funds to be used to finance imports of petroleum products. Another supporting reason for the waiver was the terms of trade losses to Mozambique due to the rise in oil prices in the world markets in year 2000. 5.2 Factors generally subject to government control: After the approval of the credit by the Board, there was a delay of around two months in submitting the required proper documentation, namely the implementation agreement to be executed on behalf of the Government as the Borrower, and the Bank of Mozambique, the implementation agency. This delay happened despite the fact that (i) a sample implementation agreement was provided during Credit negotiations, and (ii) the legally required documents evidencing that the execution and delivery of the DCA had been duly authorized and ratified by the Borrower and the Bank of Mozambique, and the DCA was legally binding on these parties. The Government attributed the delay of the legal opinion to a vacancy in the position of the Attorney General. Another delay was related to the auditing contract. There was correspondence exchanged first, for the request and subsequent approval of "no objection" to use the auditor that had been working with BOM to do the work on a single-source selection basis, and later for the high auditing fees included in the proposed contract, compared to average annual cost of project audits. Under advice from the Bank, BOM undertook to renegotiate the fees, which were cut down to one half or less than the amount that the auditors initially proposed, from US$42,500 to a maximum of US$22,200 per quarterly audit, calculated on a piece work basis. This negotiation saved money to the Government in the two audits that were done on this project, though the longer process also contributed to the delay in the effectiveness date of the loan - which then was only possible by August 9, 2000. -10-  5.3 Factors generally subject to implementing agency control: There was a delay of two months in the presentation of the 2001 audit, which was submitted in March, 2002 instead of January 31, 2002. 5.4 Costs andfinancing: In SDR terns, 97 percent of the US$30 million equivalent credit was disbursed by the end of calendar year of 2000, and 98.6 percent in August 2001. Of these amounts, only US$13,800 were used for audit services payments - less US$31,600 than the total cost of the audit, because of the less then totally efficient mechanisms in the implementation problems. The major part of the credit was used to finance imports of petroleum products needed for the emergency relief efforts and restoration of production levels of goods and services, at a time when oil prices were also experiencing a sharp temporary upward spike. 6. Sustainability 6.) Rationalefor sustainability rating: The project sustainability is rated "Likely". We take sustainability as referring to the probability of maintaining beyond the short term the achievements generated in relation to the primary objective of macroeconomic stability of this credit. As generally is the case with such an objective, that probability depends primarily on the continued commitment of the authorities, their preparedness and decisiveness in taking the appropriate corrective measures. Seen from this viewpoint, the sustainability of this particular project, aiming at short term macro-stability and the financing of imports, does not depend on the way it was designed. Therefore, it does not make much sense to take sustainability as one of the main characteristics of this project. Despite Mozambique's generally good record in macroeconomic stability, there have been some worrisome signs in the recent past. Namely, we have witnessed the resurgence of inflation in 2001, excessive monetary growth in the last two years, and a deterioration of the primary fiscal deficit in the same period. However, these problems did not result as a consequence of the flood emergency, but from other unrelated reason. In particular, the problems in the banking and financial sector peaked in this period, and the ad-hoc resolution of the two bankrupt banks with the largest government participation took a huge toll on the public resources and led to a sharp increase in domestic debt, serviced at the prevailing very high market interest rates of above 30 percent. Nevertheless, the macroeconomic program agreed with the IMF in the context of PRGF continues to be on track, with the authorities being determined to maintain it so, and the policy dialogue proceeding between the Government and the multilateral organizations in order to devise the appropriate remedies to these problems. The successful negotiations and recent approval of the EMPSO adjustment credit, aiming inter alia at addressing the financial sector related problems, and those of the public expenditure management area, give reason for confidence that a return to stability will be achieved, as the Authorities put efforts to address defacto the underlying causes of recent macroeconomic instability. In 2002, the annual inflation rate has been coming down steadily from a peak of around 22 percent in 2001, and it is projected to return to a single digit level by the end of the year.  In terns of medium and long term sustainability, since the country is bound to be subject to other natural disasters of cyclical nature, the factors that become more important are the strengthening of the institutional capacity for disaster prevention, forecasting ability (early warning systems) and preparedness in general. In particular, it is important to improve flood management at local, provincial, national level and at regional-SADC level, including contingency planning. Despite some intentions stated in the MOP document, in the context it was designed, this project in itself did not contribute directly to efforts in these areas. Progress was achieved mainly by the other channels, on account of the relative comparative advantages of the actors involved this project, namely by the United Nations and selected bilateral donors. The enhanced access of the sector projects, including reallocation of funds to reconstruction, to the extent that they supported measures to improve long term sustainability in these sectors, can be considered an IDA contribution, more than a FERP contribution. No doubt progress was at least partly achieved, as the Government response to the 2001 floods in the center part of the country attests, but certainly there is much room for improvement. 6.2 Transition arrangement to regular operations: An emergency loan of this nature is by definition a transitory arrangement, designed to contribute to bring back a situation of stability with a minimum of disruptions. Unresolved issues in terms of long term sustainability may be worth pursuing in Mozambique by the Bank, perhaps explicitly recognizing them in the next CAS, given the recurrent nature of the disasters. This need not be done necessarily in the form a separate project, as it could well be addressed in the context of a programmatic lending instrument. 7. Bank and Borrower Performance Bank 7.1 Lending: Lending by Bank was highly satisfactory. The project was rapidly identified, appraised and negotiated during a single mission, from March 12 to 29, 2000, and approved by the Board on April 20, 2000 (approval was delayed by a Board recess due to the 2000 Spring Meetings.) The preparation benefited from the experience of Bank teams that prepared responses to hurricanes in Guatemala and Honduras, the Turkey flood and earthquake, and the Bangladesh flood, and assistance from a well-chosen set of peer reviewers and quality assurance team. Besides the two co-leaders of the project, one Washington-based and the other Maputo-based, the large mission comprised a good mix of skills: a specialist in disaster mitigation, sector specialists capable to prepare the crucial Damage Assessment, macroeconomists because of the objective defined, specialists in procurement, disbursement, and financial management, and a lawyer. The costs were contained as many sectoral staff that were to come to Mozambique in March or April for project preparations or appraisals, were persuaded to adjust their arrival with the timing of the core team. 7.2 Supervision: Bank supervision was satisfactory. A positive feature was that one of the TTLs was the Resident - 12 -  Representative, who met the Governor of BOM on a weekly basis to discuss the Bank's issues; hence although no formal supervision mission was carried out, there was an effective continuous supervision out of the Resident Mission (Country Office), with attention to the monitoring of the flow of funds. Somewhat contrasting with the swiftness of the project until the Board approval was the delay in turning the credit into effectiveness. The project became effective in August 9, 2000, due to mentioned delays in (i) the contract with the auditor, (ii) the formal agreement between the borrower and the implementation agency, and (iii) the issuance of the legal opinion. An additional delay, this time to effect disbursements, occurred in order to verify the appropriateness of the procurement procedures underlying the imports of the petroleum products. Once procurement procedures for oil imports were found to be satisfactory in September 27, 2000, disbursements followed quickly with 97 percent of the credit amount disbursed by the end of the year. In October 20, 2000, in response to a request of Government, IDA decided to lift the cap of 50 percent on disbursements against any single item on the positive list. The mentioned delays did not prevent the project from achieving in essence its objectives, and one cause of delay, the renegotiation of the audit contract, saved the GOM about US$ 45, 000. Three PSRs reported briefly the main aspects of the life of the project, in a timely and accurate manner. 7.3 Overall Bankperformance: Overall Bank performance is considered satisfactory on the basis of the above ratings in lending and in supervision. Borrower 7.4 Preparation: Government preparation was highly satisfactory. Government took seriously the dimension of the disaster, and made efforts in creating conditions for providing the most relief possible, and for preparing the way to reconstruction that would follow the initial emergency phase. It was in agreement with the Bank with regard to the major aspects of the design of the project. 7.5 Government implementation performance: Government implementation performance was satisfactory. It entered into an Implementation Agreement with the Banco de Mocambique whereby the latter was authorized to manage the credit resources in carrying out the project, even if with some delay, as mentioned above. Government appeared committed to its execution. 7 6 Implementing Agency: As the implementation agency, Bank of Mozambique's performance is considered satisfactory. Management of resources was effective and complied with the covenants namely regarding procurement procedures. An audit report was supplied for the year 2000 transactions, in a timely manner, but the last report, as already mentioned, due January 31, 2002, was provided to IDA - 13-  with a delay of two months. 7.7 Overall Borrower performance: Overall borrower performance is considered satisfactory. 8. Lessons Learned 8. 1. The most important lessons learned in this emergency recovery project can be grouped in three broad categories: (i) Speed of intervention; (ii) Catalytic role; and (iii) Process. Below we identify the lessons in each of these categories. A. Speed of Intervention * Providing a speedy response is key, via (a) mobilizing a multisectoral team in loco at an early stage, to produce the macroeconomic and sectoral damage and reconstruction assessment, (b) design of the strategic objectives given the circumstances, in particular to control anxiety, manage expectations, and set the framework for reconstruction, and (c) preparing complementary interventions (eg. debt relief and portfolio restructuring ) to ensure greater Bank responsiveness. * It should be borne in mind that gains in timely response not be diminished because of less flexible, more time-consuming, or less practical processes and procedures (see below 3.) B. Catalytic role The Bank can play an important catalytic role in (a) Knowledge for Action: * Sharing the foundational and analytical documents, such as the damage assessment and the macroeconomic evaluation with other concemed parties, donors and Governments. This sharing contributes not only to a common understanding of the dimensions involved but also maximizes the complementarities among the resource providers, permitting the Bank to concentrate in the areas of its comparative advantage in the particular country. * Enhancing capacities of the Government and locally based organizations to handle the various aspects (organizational, human, financial) of emergencies in ways that reinforce best systems, practices, and processes adapted to local circumstances - rather than intervening in ways that may erode local ownership and leadership. and in (b) Financing: * Promoting partnerships in an open and transparent manner, including there United Nations, other multilateral and bilateral donors. * Helping to convene interested parties, coordinate and leverage external assistance from the intemational community for reconstruction. -14-  C. Process and Procedures The Bank should structure projects and programs that enhance the above roles. Examples of successful practice taken from this project, that contributed to the speedy response by the Bank and better adjustment of the design, implementation and monitoring of the project to local circumstances, are: * Operational satellite link up, very important as it allowed speedy and effective consultations. * Negotiations in the field, with all the Quality Control and Legal Staff support there, pennitted process swiftness in the cycles of the emergency project. * Team leadership members - have one in the Country Office and one in Washington, whenever possible, as in the present case, permitting quick access to appropriate information, knowledge and coordination networks. While the adoption in this particular project to have both as co-TTLs did not cause any less effectiveness, it may be advisable for clear responsibility and accountability that one of them be the TTL and the other be the deputy (or vice) TTL. 8.2. It is worth mentioning soiie areas where we found the Bank could do better: * Sustainability: there is a need to follow through on ensuring long term sustainability of countries capabilities to face successfully natural disasters, including by closer monitoring of the activities if agencies or donors taking the lead in this area. One way to do this through periodic expert assessments of the systems in place. Sustainability oriented actions are better served where capacity enhancing is undertaken properly. * Appropriate Instruments: (a) ERLs, which are supposed to be quick disbursing, continue to require that funds be disbursed against a positive list of imports, even in cases where the countries have a track record of pursuing economic reforms or have agreements on macroeconomic policies agreed with the IMF that are on track. This requirement can be a source of delays and additional administrative work and achieves nothing due to the fungibility of money. Therefore it needs to be revisited, to make this aspect of the ERLs in line with the normal adjustment loan requirements. An attempt in this regard was not successful, but the issue merits reconsideration (particularly in the context of the current OPCS review of Bank procedures, as credit designers, implementing agencies and supervisors end up finding circumventing procedures at the expense of time - a scarce commodity in the emergency situations these ERLs are intended for - and other resources. (b) It is advisable in large projects, such as in roads and infrastructure, as was the case with one of the projects (ROCS II), to add a contingency component capable of providing financing for crisis situations, to be disbursed under special procurement procedures. - 15-  9. Partner Comments (a) Borrower/implementing agency: The Bank of Mozambique, the implementing agency for the Government of Mozambique, in its comments dated June 4, 2002, expressed its agreement with this Implementation Completion Report. BOM concluded that, in overall terms, "(...) [its] content (...) is consistent with the borrower's point of view," and notes that it is also consistent with the Auditor's opinion. The full comments provided by the BOM appear included in the Annex 7.6. (b) Cofinanciers: NA (c) Other partners (NGOs/private sector): NA 10. Additional Information NA - 16-  Text Footnotes 1/ One prominent bilateral donor had publicly estimated reconstruction needs to amount 3.0 billion USS in Southem Africa, and about 1.3 billion US$ in Mozambique, raising concerns that the Mozambican economy could severely contract. 2/ Also in the PARPA (The Plan of Action of Reduction of Absolute Poverty) 2001-2005. The latter was re-stated in the version of April 2001 Council of Ministers approved PARPA, submitted as the first full Mozambique's PRSP to the Boards of IMF and the Bank, and subsequently approved as a basis for country's assistance 3/ Compared to previous years, there was aplanned fiscal expansion in 2000- notice that the overall deficit after grants had been reduced to 1.5 per cent by 1999 - related to an important increase in salaries, the recapitalization of banks and an increase in social spending over and above HIPC-related interest savings (see PEMR in Mozambique, World Bank, 2001). 4/ The link between macro indicators other than fiscal deficit after grants and BOP deficit and this operation is more tenuous, which explain why they were not chosen as monitoring indicators. The 2.8 percentage points above the re-estimated target in the average annual inflation in 2000 may be attributed to other factors, namely monetary expansion in excess of the programmed path from late 1999 onwards - monetary expansion was at 42 per cent rate for the year, against a program of 34 per cent. With respect to year 2001, the inflation path continued to be benign until April, month in which both the accumulated rate since the end of 2000 and the 12-month rate was at a negligible 0.5 per cent. However accumulated inflation started to increase rapidly since May, ending the year with the average annual rate of 9.1 per cent. Factors that contributed to the increase in the price level include inter alia the continued banking crisis in two major banks and related bailouts, and excessive monetary expansion of 31 per cent, above the programmed increase of 19 per cent. 5/ The differences between FERP projections and actuals are explained mainly by the fact thai many reconstruction activities were delayed to the year 2001. - 17-  Annex 1. Key Performance Indicators/Log Frame Matrix This project does not have performance indicators as such. MOP Technical Annex states that instead "two monitoring indicators will be used for the implementation of the FERP in 2000 and 200 1". There is no mention of the quantitative values of these monitoring indicators in FERP. Rather, the project documents contain post-flood projections in the context of the new macroeconomic framework. In the table below we compare the post-floods projections of these two indicators as estimated in the documents, and the actual values (or latest estimates): Monitoring Indicators ActuaVLatest Estimates IndicatorlMatrix Projected in PSR 1999 2000 2001 Post-flood Post-flood Actual Project. Actual Project. Actual Overall Fiscal Deficit NA -1.5 -7 -4.5 -5.1 -4.9 Overall BOP Deficit NA -17.5 -12.8 -12.7 -11.7 -10.5 Note: The outcomes were in general better than post-flood projections -18-  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appralsal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million Imports of Goods 29.70 28.53 96 Payments of Services 0.30 0.01 4 Total Baseline Cost 30.00 28.54 Total Project Costs 30.00 28.54 Total Financing Required 30.00 28.54 Project Costs by Procureme nt Arrangements (Appraisal Estimate) (US$ million equivalent) Expenditure Category ICB Procurement Methode N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 29.70 0.00 0.00 0.00 29.70 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.30 0.00 0.00 0.00 0.30 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 30.00 0.00 0.00 0.00 30.00 (0.00) (0.00) (0.00) (0.00) I/ Figures outside parenthesis are amounts to be financed by the Bank loan. All costs included contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. - 19 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equival nt) Procurement Method' Expenditure Category ICB NCB Other N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 28.53 0.00 0.00 0.00 28.53 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.01 0.00 0.00 0.01 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 28.53 0.01 0.00 0.00 28.54 (0.00) (0.00) (0.00) (0.00) (0.00) "Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. vIncludes civil works and goods procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local govemment units. - 20-  Annex 3. Economic Costs and Benefits Not applicable -21 -  Annex 4. Bank Inputs a) Missions: Stage of Project Cycle No. of Persons and Specialty Perfornance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identificatlon/lPreparation March 13-March 25 2 co-TTLs, 2 Macroeconomists, I HS 26, 2000 Disaster Mgmt. Specialist, I Procurement Spec., 2 FMS, I Procurement Spec., I Counsel, I Research Analyst, 3 Transport. Spec., I PSD, 3 Water & Sanitation Spec., 3 HD Spec., 2 Agricult. Spec., I Investm. Offic., 3 Consultants Appraisal/Negotiation March 28-March 10 2 co-TTLs, 2 s 29, 2000 Macroeconomists, I Disaster Mgmt. Specialist, I Procurement Spec., 2 FMS, I Procurement Spec., I Counsel, I Research Analyst Supervision Nov/2000 2 2 co-TrLs S S April! 2001 2 1 TTL, I Macroeconomist S S ICR January 2002 1 Macroeconomist S S (b) Staff. Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 227 Appraisal/Negotiation Supervision 15 ICR 10 Total 252 The amount of US$227,000 in the line "Identification/Preparation" includes also the "Appraisal/Negotiation" estimated staff costs. - 22 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA-Not Applicable) Rating 3Macro policies O H *SUOM O N O NA L) Sector Policies OH OSUOM ON * NA El Physical O H OSUO1 M ON * NA a Financial O H OSUOCM ON * NA 3 Institutional Development O H O SU *M O N 0 NA EC Environmental O H OSUOM O N * NA Social Ol PovertyReduction OH OSUOM O N * NA O Gender O H OSUOM ON * NA Ol Other (Please specif) OH OSUOM ON * NA O Private sector development 0 H O SU O M 0 N 0 NA O Public sector management 0 H O SU O M 0 N * NA O Other (Please speci) O H O SU O M O N * NA -23-  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly UnsatisfactoTy) 6.1 Bankperformance Rating O Lending *OHS OS OLU OHU O Supervision OHS OS OU O HU O Overall OHS O S O U O HU 6.2 Borrowerperformance Rating [ Preparation *HS OS O U O HU O Government implementation performance O HS OS O U 0 HU O Implementation agency performance O HS OS O U 0 HU OI Overall OHS OS Ou O HU -24-  Annex 7. List of Supporting Documents Please refer to the following Annex Tables and Documents, for details mentioned in the principal text: 7.1 Table: Inflation and Exchange Rates, 2000-2001 7.2 Table: Selected Economic Indicators, 1999-2001 7.3 "Technical Annex for a proposed Credit of SDR 22.4 Million (US$ 30 Million equivalent) to the Republic of Mozambique for a Flood Emergency Recovery Project", April 7, 2000" 7.4 "Changes to IDA Portfolio in Mozambique as a Result of the Flood Emergency" 7.5 Table: "Evolution of the donor response to the Government's appeal for the Reconstruction Program for 2000/2001, as of 04/30/05" 7.6 Government/Implementation Agency Comments -25 -  Table 7.1 Inflation and Exchange Rate (month-on-month, except when stated otherwise) Months CPI Inflation Exch. Rate MtWUSD Depreciation 2000 2001 2000 2001 January -0.3 -0.9 1.8 2.5 February 7.6 -0.2 6.9* 3.8 March 2.3 0.7 7.1* 2.4 April 1.6 1.0 2.8* 5.2 May 0.8 2.4 0.7 5.0 June -1.3 2.1 0.2 6.4 July 0.7 2.4 0.8 0.7 August -1.2 1.7 0.5 1.4 September 0.7 1.0 -0.8 0.4 October 0.2 3.8 1.1 1.5 November -1.2 3.4 2.5 1.1 December 1.3 2.8 2.5 0.9 Year Average 12.3 9.1 23.6 31.9 Sources: INE, Instituto Nacional de Estatistica, Mocambique, IMF and World Bank. * Denotes exchange rate impact from the floods, which had largely subsided after approval of the FERP credit in April. -26-  Table 7. 2. Selected Economic Indicators, 1999-2001 Indicators, annual (as 1999 2000 2001 percent of GDP unless Actual Pre-fl. Projec. Actual Pre-fl. Projec. Estim.* specified otherwise) Projec. Post-fl Proiec. Post-fl Real GDP (growth rate) 7.5 7.0 5.4 1.6 7.2 7.9 13.9 Inflation (average per 2.9 6.6 9.5 12.7 5.0 5.0 9.0 cent) External Accounts _ _____ Overall BOP -5.8 -4.4 -12.8 -9.5 -9.6 -11.7 -11.7 C.A. after grants -17.5 -16.3 -19.7 -12.7 -9.1 -11.0 -10.5 Fiscal Balance: _ Before grants -13.2 -12.1 -16.0 -16.1 -10.7 -11.5 -17.8 After grants -1.5 -5.2 -7.0 -4.5 -4.4 -5.1 -4.9 Memo:GDP(Mt.billions 51,915 59,215 59,916 58,905 66,653 67,883 74,6751 Source: World Bank, IMF and Government of Mozambique. *Recent estimates. -27-   Annex 7.3 Document of The World Bank FOR OFFICIAL USE ONLY 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 pThis 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 -28-  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 Mocambique EDM Electricidade de Mocambique EMRO Economic Management and Recovery Operation FERP Flood Emergency Recovery Project GDP Gross Domestic Product HIPC Highly-Indebted Poor Country IDA International Development Association IMF International Monetary Fund INE 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 Growth 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 - 29-  MOZAMBIQUE FLOOD EMERGENCY RECOVERY OPERATION Table of Contents A. BACKGROUND AND STRATEGY 30 Background 30 The Floods 30 Preliminary Damage Assessment 31 Overall Economic Impact 34 Relief Efforts 37 Government Response 37 B. STUDIES AND TECHNICAL ASSISTANCE 39 Short-Term Recovery 40 Vulnerability Reduction 40 C. IDA'S RESPONSE AND STRATEGY 43 The Elements of IDA's Response 43 Internal Administrative Measures 44 Lessons Learned 44 Rationale for IDA Involvement 45 D. DETAILED PROJECT DESCRIPTION 45 Project Objectives 45 Project Description 45 Project Cost and Financing. 46 E. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION 46 Project Organization and Management 46 Procurement 46 Disbursements 47 Financial Management and Monitoring 48 Retroactive Financing 48 Special Account 48 Project Sustainability 48 F. BENEFITS AND RISKS 49 Project Benefits 49 Project Risks 49 ATTACHMENT 1 50 Positive List of Imports 50 ATTACHMENT 2 51 A. Summary of Procurement and Disbursement Arrangements 51 B. Summary of Disbursement Arrangements 52 ATTACHMENT 3 53 Monitoring Indicators 53 - 30 -   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 implemented, 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 Mozambique, 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 169th 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 -31 -  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 pattems had not returned to their normal states, with the consequence that ecological systems continued to be in perilous condition and renewed flooding remained a distinct possibility. 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 damage 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 Govermment, the Core Group of Mozambique's external partners (convened by the Govemment 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 I (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 - 32 -  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 rnillion and reconstruction costs are estimated at US$428 mnillion. Direct costs to the public sector total about US$135 million (in health, education, governnent 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. ,,gP#>F'I _ ',t,' Table a ifDIsster-Relited Cob : 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 column headings. 8. In reading Table 1, several items are worth notice. First, the totals in each column combine public sector and private sector losses. Second, estimated costs to the public sector are generally more reliable -33 -  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 information 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): * 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 faming 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. * 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 are 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 Mocambique (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 -34 -  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 infrastructure 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 ENI 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 the railbed 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 million. Reconstruction to design profiles able to provide greater resistance to flood damage would cost an estimated US$135 million. * Trade, Industry and Tourism: Total losses to the private sector are estimated to reach about US$50 million in direct costs and almost US$100 million 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$12 million. In addition, small traders in the affected areas are believed to have lost inventory, either directly to flood damage or indirectly to the theft which followed, valued at about US$ 10 million. * 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 will 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 result, 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 extemal 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 aluminun 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 billion in NPV terms), of which US$975 million - 35 -  (US$381 million in NPV terms) was granted by IDA. Mozambique reached the decision point under the Enhanced HPC Framework in April 2000 and is expected to reach the completion point in early 2001. Thereafter the NPV of debt-to-export ratio for Mozambique will be 150 and the debt service-to-export ratio will be about 5 percent on average over the next ten years, improving Mozambique's external viability and sustainability. Interim debt relief already planned before the flood and cyclone disaster allowed for an increase of expenditures of about I percent of GDP compared to the initial fiscal program. These additional expenditures are being directed to poverty reduction programs outline in the Government's Interim PRSP and Poverty Action Plan. 11. In support of the economic reforrn program, Mozambique benefited from an IDA-financed structural adjustmnent credit, the Economic Management and Reform Operation (EMRO). This operation, which amounted to US$ 150 million and was fully disbursed in 1999, was part of the interim debt relief 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 concerns about a weakening of performance on structural reforms, the second installment under the program was approved by the IMF Board on March 27, 2000. 1I able 2 lecid IE8CnonMmc imdlcnmi1n XB0-2001 (percent of GDP unless otherwise specified) 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 Extemal 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 Government 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 external 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, - 36 -  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 mnillion 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 2000. Despite sizeable expected inflows of extemal assistance, the current account after grants is still projected to deteriorate by 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 million in 2000 and US$49 million in 2001. This extemal 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 IF 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 fully 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 milUion 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 irnport 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, liniking the financing of additional expenditures to the availability of extemal 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 - 37 -  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 Xai was slow to reach the broader intemational community, but as media images of the flooding were broadcast, a substantial response was initiated by the intemational community, including the United Nations, major international donors, local and intemational 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 and resourcing. 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 intemational 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 sectorally 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 - 38 -  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 further 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 Southem 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 Southem Africa Regional Climate Outlook Forurn, which monitors hydro-meteorological conditions in southem 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 the most needy locations as well as holding regular coordination meetings. The Ministry of Education (MINED) 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 learning materials for temporary schools; and providing pedagogical and 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 will 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 damaged buildings where they cunrently 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 - 39 -  technical assistance. Electricidade de Mocambique (EDM) has already initiated immediate actions to restore electrical power to priority customers (hospitals, schools, water supply facilities, communication facilities, and industries) and customers that can be reconnected with minimal effort. Other repairs are being made provisionally, pending more pernanent 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, rehabilitation 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 Moqambique (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 pernit the resumption of limited and low-speed train traffic between the port of Maputo and Zimbabwe. Full 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 Govemment and the international 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 farmner and small goods trader require to resume economic activity, and how this requirement can best be satisfied, is just beginning, with the Government meeting with the private sector and the international 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 -40 -  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 embanlknents 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 Government 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. -41 -  -.TaKbe 3: Ctits of Digaster Frven'idai iiid Prepduess; t mllIoi '. Direct Reconst. MWeeeoirsoagac