Documentof The World Bank FOR OFFICIAL USE ONLY ReportNo.: 26034-MAG PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OF SDR21.9 MILLION (US$30MILLIONEQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR A GOVERNANCEAND INSTITUTIONALDEVELOPMENT PROJECT October 22,2003 Public Sector Reformand Capacity BuildingUnit CountryDepartment 8 Africa Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective October 21,2003) Currency Unit = Malagasy Franc (FMG) FMGl = US$0.000168 US$1 = FMG5,900 January 1 -- December 31 FISCALYEAR ABBREVLATIONS AND ACRONYMS APL Adaptable Program Lending BN-P Bureau national duprojet CAS Country Assistance Strategy cc ChambreKour des comptes CCM Commission centrale des march& CDE ContrGle des ddpenses engagkes CFAA Country Financial Accountability Assessment CNFA Centre national deformation administrative CNTEMAD Centre national de til&-enseignement de Madagascar C P M Commission provinciale des march& CRROC Cellule de riforme et de renforcement des organes de contrble CSLC Conseil supe'rieur de lutte contre la corruption CPAR Country Procurement Assessment Review CQ Consultant's Qualifications DLC Distance Learning Center EMP EnvironmentalManagement Plan ENAM Ecole nationale d'administration deMadagascar ENMG Ecole nationale de la magistrature et des greffes EPA Etablissements publics a caract2re administratif EU EuropeanUnion FMR Financial Monitoring Report GDLN Global Development Learning Network GoM Government of Madagascar GPN General Procurement Notice HIPC Highly-Indebted Poor Countries IBRD Intemational Bank for Reconstructionand Development ICB International Competitive Bidding IDA International Development Agency IFMIS IntegratedFinancial Management Information System IGE Inspection gdnkrale de 1Etat IGF Inspection g4n&raledes Finances L C Least Cost Selection M&E Monitoring and Evaluation N C B National Competitive Bidding NGO N o n Governmental Organization N S National Shopping PAD Project Appraisal Document FOROFFICLAL USEONLY PAIGEP Projet d'appui institutionnel ii la gestion publique PCOP Plan comptable des opirations publiques PHRD Policy and Human Resources Development Fund PPF Project PreparationFund PRSP Poverty Reduction Strategy Paper QCBS Quality- and Cost-Based Selection RFP Request for Proposals SIGFP SystBme intdgrd de gestion desfinances publiques SOE Statement o f Expenditure SPN Specific Procurement Notice TEF Titre d'engagementfinancier TOR Terms of Reference UNDP UnitedNations DevelopmentProgram USAID United States Agency for InternationalDevelopment WBI World Bank Institute Vice President: Callisto E.Madavo Country Director: Hafez M.H.Ghanem Sector Manager: Jit Bahadur S. Gill Team Leader: Guenter Heidenhof This document has a restricted distribution and may beusedby recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. MADAGASCAR GOVERNANCE AND INSTITUTIONALDEVELOPMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supportedbythe project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 2. Key policy and institutionalreforms supported by the project 3. Benefits and target population 4. Institutional and implementationarrangements D.ProjectRationale 1. Project alternatives considered andreasons for rejection 10 2. Major relatedprojects financed by the Bank and/or other development agencies 11 3. Lessons learned and reflected inthe project design 12 4. Indications o fborrower commitment and ownership 12 5. Value added o f Bank support inthis project 12 E.Summary Project Analysis 1. Economic 13 2. Financial 13 3. Technical 13 4. Institutional 14 5. Environmental 16 6. Social 17 7. Safeguard Policies 18 F. Sustainability andRisks 1. Sustainability 18 2. Critical risks 19 3 , Possible controversial aspects 20 G. Main Conditions 1, Effectiveness Condition 21 2. Other 21 H. Readinessfor Implementation 21 I.CompliancewithBankPolicies 21 Annexes Annex 1: Project Design Summary 22 Annex 2: Detailed Project Description 29 Annex 3: EstimatedProject Costs 44 Annex 4: Cost-Effectiveness Analysis Summary 45 Annex 5: Financial Summary 50 Annex 6: (A) Procurement Arrangements 51 (B) FinancialManagement and Disbursement Arrangements 58 Annex 7: Project Processing Schedule 66 Annex 8: Documents inthe Project File 68 Annex 9: Statement o f Loans and Credits 69 Annex 10: Country at a Glance 70 Annex 11: Letter o f Development Policy 72 MADAGASCAR Governance and Institutional Development Project ProjectAppraisal Document Africa Regional Office AFTPR late: October 22, 2003 Team Leader: Guenter Heidenhof sector Manager: Jit Bahadur S. Gill Sector(s): General public administration sector (100%) 2ountry Director: Hafez M.H.Ghanem Theme(s): Public expenditure, financial managementand ?roject ID: PO74448 procurement (P), Other public sector governance (S) Lending Instrument: Technical Assistance Loan (TAL) [ ]Loan [XI Credit [ ] Grant [ ] Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m): $30.00 Proposed Terms (IDA): StandardCredit Grace period (years): 10 Years to maturity: 40 Commitmentfee: 0.5% Service charge: 0.75% [DA - 11.97 18.03 30.00 Total: 23.14 1I 34.86 II 58.00 I I Borrower: REPUBLIC OF MADAGASCAR P Responsible agency: OFFICE OF THE PRESIDENT BureauNational du Projet Address: AntananarivolMadagascar Contact Person: Rajaonary Raoilison, Directeur Tel: (261) 202220911 Fax: (261) 202220912 Email: mpaigep@dts.mg Estimated Disbursements( Bank FYlUS$m): Project implementation period: 2004 2008 (5 years) - Expected effectiveness date: 01/01/2004 Expected closing date: 06/30/2009 'CE PAD F" P* Mare 2m A. Project Development Objective 1. Project development objective: (see Annex 1) The main objectives o f the project are to assist the Government o f Madagascar (GoM) inimplementing the poverty reduction strategy which is set out inthe Poverty Reduction Strategy Paper (PRSP) by: 0 Rationalizing and modemizing budget and public expenditure management, 0 Improving accountability and transparency o f Govemment operations, and by Strengthening the capacity o f public institutions to deal with complex change processes. The project, which will be implementedover a period o f five years, intends to pave the way for subsequent budget support under a PRSC presently scheduled for FY05. Ithas been designed as a technical assistance operation which includes IT-system design and implementation, institutional development, capacity building,organizational and regulatory changes. 2. Key performanceindicators: (see Annex 1) The performance indicators are specified in Annex 1. They include (i) number o f institutions to which the new integrated financial management system has been rolled out, (ii) accuracy and timeliness o f reporting in the areas o f public finance, (iii) reduction o f the discrepancy between budget allocation and actual expenditures, (iv) compliance rate with public finance rules and regulations, (v) increase o f the capacity o f local training institutions, and (vi) expedition o fjudicial proceedings. B. Strategic Context 1. Sector-related Country AssistanceStrategy (CAS) goal supportedby the project: (see Annex 1) Document number: 25001-MAGDate of latest CAS discussion: November 14, 2002 Madagascar plunged into a deep political crisis at the beginning o f 2002. After the general elections in December 2001 two parallel Govemments were established, each with its own central bank, leading to a freezing o f Madagascar's assets abroad, a suspension o f foreign exchange and a closure o f the treasury bond market for several months. Economic activity fell sharply and poverty increased. The political crisis ended in July 2002 with the departure o f the previous President. The new Government subsequently presented its reconstruction and development program to the international community. The Madagascar Interim CAS o f 2002 outlines the World Bank response to the post-crisis challenges. The main objective o f the interim CAS is to limit the impact o f the crisis on the poor and to support the Government's recovery program. Under the broad umbrella o f good govemance, this program focuses on (i) supporting the most vulnerable in society, (ii) assist private sector firms to restart production and create employment, and (iii) ensure adequate public services. A new CAS, covering the period FY04-06, has been prepared; the new CAS and the full PRSP are scheduled for discussion by the Board at the same time as the proposed project. A central theme of the new CAS are govemance reforms, inline with one o f the strategic objectives o fthe PRSP. The proposed project, the new CAS and the full PRSP are inherently linked to each other: The CAS will be the Bank's business plan for the PRSP, while this project will provide the technical basis for the implementation o f the PRSP and the HIPC completion point triggers. 2. Main sector issues and Government strategy: Madagascar is one o f the poorest countries in Africa with a per capita income o f U S 2 4 0 (in 2000), 70 - 2 - percent o f the population in poverty and half o f the children malnourished. Poverty in Madagascar has many causes. L o w agricultural productivity, a stagnant land market, lacking access to markets (roads, electricity), a still small (although rapidly growing) light labor-intensive manufacturing sector, and high illiteracy rates feature prominently. After years o f development assistance, the poverty rate in Madagascar remains at the very highlevel o f 69%. The public sector is crucial to reduce poverty: education and health services are needed for the poor to be able to take better advantage o f economic possibilities, rural roads will help connect markets, basic services like water, sanitation, electricity will improve living conditions directly and can spur local economic development. Further, the public sector will have to play a role in the longer runto knit a social safety net for those who cannot make it on their own. Currently, only a fraction o f vital and needed basic and social services reach the poor. A number o f reasons are responsible for this. First, domestic revenues o f the central and sub-national levels o f government are limited; exploitation o f several natural resources are far below potential, especially in the mining sector. Second, service delivery is weak. The Malagasy budget system requires urgent renovation as available credit lines - especially in the social sectors - are underutilized. A complicated expenditure chain with numerous controls coexists with only limited computerization. Third, decentralization has not yet contributed to more effective pro-poor service delivery in the county. Key elements of the decentralization strategy remain to be defined; local governments will need to be appropriately prepared and trained to assume service delivery functions. This situation was further aggravated by the political crisis o f 2001l2002 which brought the country to a complete standstill. Since July 2002, the new Government has outlined its political, social and economic strategy which is consolidated in the recently finalized PRSP. The PRSP centers around three strategic objectives: (i) restoration o f the rule o f law and strengthening o f good govemance, (ii) economic growth, and (iii) development and social protection. The project will assist Government in operationalizing human the first objective. Inthis context, the Government has identified the following elements that form the basis for the operational agenda: Publicfinancereforms: The public finance system in Madagascar faces four main challenges: First, budget and expenditure information is incomplete and unreliable. It does not provide the necessary basis for strategic decision making. Key reason is an outdated budget and expenditure management system that requires fundamental overhaul. Second, the budget preparation process is weak because o f the fragmentation o f preparation responsibility between the ministries implicated in the budget preparation process and the lack o f reliable information about budget execution, both on the income and on the expenditure sides. Third, the internal and external control functions are nonfunctional and undersourced, regular audits are almost nonexistent, except on an ad hoc basis. Fourth, the system o f public procurement i s flawed by comption and numerous inefficiencies. Under the World Bank funded Public Management Capacity Building Project (PAIGEP I)the old Government begun to target some of these weaknesses. In particular, it simplified and modemized the budget and accounting framework, the "plan comptable des opkrations publiques" (PCOP). The PCOP forms the basis for more reliable information from the treasury. Analytical work such as the recently completed Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Review (CPAR), however, has emphasized the need to further deepen and consolidate the reforms to ensure that the system o f public finance will gradually be adjusted to international standards. In line with the recommendations o f this analytical work the G o M has initiated a comprehensive reform process to improve the system o f public finance: At the center o f the reforms is the introduction of a computerized and integrated budget and expenditure management system encompassing all agencies - 3 - involved in public financial management and at all levels o f government. This system will rationalize the existing procedural and institutional set-up inview o f increasing the operational efficiency. Complementary reforms will focus on improving the efficiency o f the procurement system as well as on improving internal and external controls. As a first step the Government has merged the finance and the budget ministries which had been recommended by various development partners for several years. Complementary reforms will focus on strengthening transparency and accountability by improving internal and external controls. In addition, the public procurement system will be adjusted inline with the recommendations o f the CPAR. Fightagainstcorruption: Inthe Transparency InternationalCorruption Perception Index o f 2003 Madagascar was rated 88th out o f 133 countries. For the G o M the corruption is one o f main sources for the lack o f progress in the socioeconomic development o f the country; it has therefore decided to make the fight against corruption a cornerstone o f its political agenda. Main objectives are to improve transparency and accountability o f Government operations and to raise awareness about the implications o f corruption. The G o M has established an Anti-Corruption Commission (Conseil Supkrieure de Lutte contre la Corruption) which i s placed under the authority o f the President. The Commission will develop and coordinate the Government's program; it i s also tasked to set up an independent Anti-Corruption Agency which will have investigative authority. In addition, the Government has passed a decree which requires public and elected officials to regularly declare all their assets and those o f their close relatives, regardless o f where these assets are held. In response to the significant overspending o f the President's special find under the old regime the new Government has mandated the Auditor General to conduct regular, semi-annual audits o f all special funds. In an attempt to reduce discretionary powers, the Government is presently reviewing the approval processes, inparticular inareas that provide services to the population or to the business community. Legal andjudicialreform: Inthe area o f legal andjudicial reforms the main objective o fthe Government is to restore the credibility o f the judiciary which has been seriously undermined by rampant corruption and inefficiencies. Ultimate goal i s the establishment o f a credible and effective legal/judicial framework that provides equal access to all layers o f society and that fosters good governance, private sector development, gender equity and compliance with international law, thereby contributing to the establishment o f the rule o f law. The Government has identified five broad priority area which will form the basis o f a reform strategy which is yet to be developed: (i) against corruption, (ii) fight expedition o f proceedings, (iii) o f business laws, reform (iv) rehabilitation o f court and prison infrastructure, and (v) humanization o f detention facilities. The reforms intend to further deepen the reforms initiated under PAIGEP Iand to consolidate the achievements, inparticular inthe areas o f training, capacity buildingand codification o ftexts and regulations. The needs o f the private sector is a major consideration inthe formulation o f a legal andjudicial reform strategy. The immediate focus o f the Government i s the development o f an operational strategy validated by all key stakeholders. An independent review o f the judicial system has been scheduled for 2004 which will be supported by the EU and the World Bank. As a first step in the fight against corruption the Government also intends to strengthen internal control o f the judiciary. It has placed under investigation a number o f magistrates because o f corruption charges. Work has also begun to expedite civil and commercial law proceedings. Coordination,monitoring& evaluation: The Government i s working on building an efficient monitoring & evaluation (m&e) system for PRSP monitoring with support by various donors, especially UNDP. To date, however, there does not appear to be a coherent strategy in place where policy planning, service delivery, and management o f public investments are matched with policy analysis, evaluation, data collection, reporting and dissemination. In addition, (policy) coordination i s weak and inefficient. Past efforts have focused on data collection - 4 - activities with little emphasis on the use o f the information collected for policy making. Thus, much remains to be done to reach minimumstandards for an efficient m&e framework which includes improved coordination o f government activities. Such a framework i s an important prerequisite for PRSP implementationto (a) orient policies and programs towards achieving objectives, while efficiently allocating and managing financial and human resources, and (b) provide transparency and accountability, for civil society for whom services are rendered. The Government recognizes the need for such a framework. As a first step, it has installed in all ministries project coordinators whose main finction is to monitor and evaluate implementation and consistency with overall policy objectives. It i s envisaged to establish at the level of the Presidency a policy coordination, monitoring & evaluation infrastructure to improve strategic decision making and to ensure that key Govemment strategies are adequately implemented. Service deliveryimprovement: Public sector activities in Madagascar are highly centralized, leading to low execution rates o f public investments and poor performance at the service delivery level. To address this problem, the Government has embarked on a two-tier strategy: (i)To produce visible resultsinthe short termthe Government intends to focus on a limited number o f public services with large public-private interface. These services are likely to include customs, land titling, primary education and the commercial sections o f the courts. Key objective i s to build a case for broader reforms by significantly improving the efficiency o f these services. (ii) A t the same time the Government intends to shift responsibilities more and more to the service delivery level. Inthis context, the main strategy i s to strengthen the local communities. This is based on the assessment that the local communities are the main instruments for the delivery o f more and better services to the population. This approach is in line with the recommendations o f a recently completed decentralization ESW conducted by the Bank which confirms the need to focus on the local communities and to slow down the devolution o f authority to the autonomous provinces. Inclose collaboration with the development partners the Ministry for Decentralization and for the Development o f the Autonomous Provinces i s presently working on an operational strategy aimed at strengthening the capacity o f the local communities. It i s anticipated to develop a common platform for capacity building which will be supported by development partners. Training and capacity building: It is the Government's view that the training and capacity building needs in the context o f the implementation o f its reform program are substantial. The reform program will require significant investments in institutional and human resource development. The institutions that are at the center o f the reform process will need assistance to manage and implement the complex change processes triggered by the various reforms. Comprehensive awareness creation, training and capacity buildingwill be required to ensure the sustainability o f the reforms. The focus o f the Govemment i s therefore to strengthen the ability o f key institutions that are tasked to effectively manage institutional change and governance reforms, in particular the Ministries o f Justice, Budget and Finance. The Govemment also believes that without efficient local training institutions its ambitious reform program cannot be implemented and sustained. At the present stage the capacity o f local training institutions to deliver professional training in particular in the areas o f public finance management, general administration, monitoring & evaluation, legal andjudicial reforms i s limited. To reduce Madagascar's dependency on costly overseas training the Government has begun to upgrade some o f the key institutions and to enhance their capacity. It has made available to the National School for Magistrates and Clerks o f the Court (Ecole Nationale de la Magistrature et des Greffes, ENMG) new facilities which would enable the school to significantly enhance its training program. Similar plans exists for other institutions such as the National School o f Administration (Ecole Nationale &Administration de Madagascar, ENAM) and the National Center for Administrative Training (Centre National de Formation Administrative, CNFA). In line with these attempts to improve quality and quantity o f local training the Government has also requested to integrate Madagascar into the Global Development - 5 - Learning Network (GDLN) initiated by the World Bank. 3. Sector issuesto be addressed by the project and strategic choices: The project which would be implementedover a period o f 5 years will focus on improving the operational efficiency o f the public finance system o f the GoM. To this end, it will deepen and further consolidate the reforms initiated under PAIGEP Iand support the development and implementation o f an integrated financial management system for the various levels o f Government. It will also enhance accountability and transparency o f Government operations by strengthening internal and external controls. The project will assist the G o M to adjust the public procurement system in line with international standards and to strengthen coordination, monitoring and evaluation capacity inthe public administration. It will support the fight against corruption as well as legal andjudicial reforms. The project will enhance the capacity o f local institutions to deliver high-quality training in areas required for the sustainability o f the reforms. C. Project Description Summary 1. Project components (see Annex 2 for adetailed description andAnnex 3 for a detailed costbreakdown): The project will enhance and further deepen previous reforms initiated under the Public Management Capacity Building Project (PAIGEP I)which closed in December 2002. It can build on significant analytical work, inparticular the recently completed Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Review (CPAR) as well as two major ESW that focused on decentralization and poverty. The project which would be implemented over a period o f five years consists o f two components: Component 1 Improvement of transparency and economic governance - This component would support a comprehensive reform o f the public finance system in Madagascar, mainly at the central government level. The component would includefour sub-components: (i) Integrated public financial management system. The budget o f the central government would be prepared and managed on the basis o f a comprehensive computerized system to which all agencies involved in budget and expenditure management (Finance and Budget, line ministries, central and de-concentrated offices o f central govemment) would be connected. The system would encompass the whole national budget: wages, non-salary operating costs, investment, debt service, income mobilization (customs, taxes). This would include the roll-out o f the integrated system developed and tested in the province o f Toamasina under PAIGEP Ito the other five provinces. (ii) Internal and external audit and control functions. The G o M has prepared a proposal to comprehensively reform the internal and external audit functions in view o f strengthening capacity andputtinginplace an adequate framework. This work has been complemented and further refined by the CFAA. The project will assist the G o M in implementing the recommendations to strengthen internal and external controls. It will particularly focus on adjusting the existing institutional and procedural framework to international standards. In this context, the project will support the establishment o f an independent internal audit function in the Ministry o f Finance and Budget ('Inspection Generale des Finances'), the strengthening o f other control functions ('Brigade du Tresor', 'Inspection Generale de l'Etat', 'Controle des Depenses Engages', Conseil de Discipline Financiere et Budgetaire') and the transformation o f the 'Chambre des Comptes' into a 'Cour des Comptes' (Auditor General). (iii) Procurement reform. Based on the findings o f the CPAR, the project will assist the G o M in adjusting the public procurement system to international standards. This will include a comprehensive reform o f the existing regulatory and institutional framework as well as significant capacity building activities to ensure compliance with the new rules and regulations. (iv) Change management, coordination, monitoring & evaluation. This sub-component will support the G o M to effectively manage complex reforms. It will assist the G o M in strengthening monitoring and evaluation, in particular in view o f the implementation o f the - 6 - PRSP. It will support the development o f adequate mechanisms to coordinate andtrack the implementation o f government policies, in particular at the level o f the Presidency. This will include support to the newly created Anti-Comption Commission as well as capacity building activities for Government in the use o f information for decision making, management, public investment oversight, policy analysis, evaluation and reorientation o f policies and programs within the context o f the PRSP. Component2 Capacity buildingand strengtheningof local traininginstitutions - This component would focus on institutional development and capacity building activities in selected government institutions. Capacity buildinginthe Ministry of Economic Affairs, Finance and Budget aims at complementing the significant changes triggered by the reforms under component 1. To continue the reforms initiated under PAIGEP Ithe Ministry of Justice will receive some support to improve its operational efficiency to implement key reforms identified by the government (expedition o f civil and commercial proceedings, strengthening o f intemal control to combat corruption). The component will also support the Government's intention to foster the credibility o f the overall reform program by improving the delivery of selected public sewices with a large public-private intevface (for example customs, primary education, land titling). To ensure that capacity building activities can be adequately implemented, the project also aims at strengthening selected local institutions that would deliver professional training and capacity building inparticular in administrative and financial management as well as procurement. Project support will focus on the Ecole Nationale de I'Administration de Madagascar (ENAM) and the National Center for Administrative Training (Centre National de Formation Administrative, CNFA). Inaddition, the project will continue to provide assistance to the institution that i s responsible for the training o fjustices and court personnel (Ecole Nationale de la Magistrature et des Greffes - ENMG). The ENMG received support under PAIGEP I.The project would further strengthen the institutional capacity o f ENMG, and provide it with the resources that it requires to improve its training facilities, enhance its training curriculum and deliver high quality training. In line with the government's strategy to strengthen the capacity for the provision o f in-country training support the project will include the establishment o f a Distance Learning Center inMadagascar as part o f the Global Development Learning Network. In addition, the project will support the establishment of a project management system for the change process to ensure effective implementation o f the reforms. Only a part o f the total financing requirements will be taken care o f under the proposed investment project. It is envisaged that the project will cover the funding needs during the first three years o f implementation; with the beginning o f the fourth year the Government will progressively take over funding o f the project implementation through its annual budget. Investment lending would then mainly focus on training, capacity building and specialized technical advice, while modernization and recurrent costs will be gradually integrated into the Government's budget. With total projected costs o f US$58.0m, investment lending will cover US$30.0m. Future adjustment assistance under PRSCs is expected to complement the investment project and will ensure that the reforms continue to be implemented as planned. In case this budgetary assistance does not materialize a supplemental credit will continue to assist Government in implementing the reform agenda. - 7 - Improvement o f transparency and economic governance Capacity buildingand strengthening o f local training 16.00 27.6 12.00 40.0 I institutions Project management 3.20 5.5 1.60 5.3 Contingencies 2.10 3.6 0.80 2.7 PPF Refinancing 1.58 2.7 1.58 5.3 Unallocated 3.02 5.2 3.02 10.1 Total Project Costs 58.00 100.0 30.00 100.0 Total FinancingRewired 58.00 100.0 30.00 100.0 2. Key policyand institutionalreformssupportedby the project: The project would (continue to) comprehensively reform the public finance system in Madagascar. It would rationalize the existing procedural and institutional set-up by introducing an integrated financial management system that would improve fiscal discipline, the predictability o f allocations and the effectiveness of expenditure management. The operational efficiency o f internal and external control mechanisms and institutions will be strengthened to enhance accountability andtransparency o f government activities. A new system for coordination, monitoring & evaluation will ensure that Government policies are adequately implemented. Complementary reforms focus on enhancing the credibility o f the reform and the capacity o f public institutions to design and manage complex change processes in the area o f institutional reform. The Ministries o f Justice, Budget and Finance will receive assistance aimed at enhancing their capacity and operational efficiency. In parallel, local training institutions will be strengthened to build up capacity in areas critical for the implementation o f the reforms, and to reduce Madagascar's dependency on overseas training. 3. Benefitsand target population: The mainbenefits o fthe project include: 0 Effective budget and expenditure management and control; improved efficiency in the use o f public resources; 0 Reduced corruption, improved transparency and accountability o f Government operations; Better coordination and monitoring o f the implementation o f Government policies; 0 Increased quality and capacity o f local training institutions, in particular in the areas o f public finance, general administration and monitoring & evaluation; and 0 Improved service delivery and operational efficiency o f key Government institutions. 4. Institutionaland implementationarrangements: The Government o f Madagascar through the Office o f the President and the Chief o f Staff would be responsible for ensuring that the project i s undertaken as planned. The Government will also establish a coordination mechanism to ensure effective coordination and implementation o f all governance related reforms including the ones supported by this project. The institutional arrangements for the implementation o f the project build on the experiences under - 8 - PAIGEP I: goveming body for the project i s the Steering Committee which consists o f the Permanent The Secretaries o f all involved ministries and institutions. The Steering Committee i s chaired by a Project Coordinator who is a seasoned and experienced practitioner. The Coordinator directly reports to the Chief o f Staff. The Steering Committee will coordinate the reforms and advise the Chief o f Staff in the Presidency on design and implementation issues. The Steering Committee members are accountable for the timely and decisive implementation o f the reforms intheir respective area o f responsibility. The day-to-day management o f the implementation activities would be ensured by the Project Secretariat (Bureau National du Projet, BNP) which consists o f qualified technical staff. The BNP is headedby a Director who reports to the Project Coordinator. The role o f the BNP and o f the Project Coordinator is to catalyze, monitor & evaluate the implementation o f the various components and sub-components, to ensure the integration o f donor activities, to maintain the project accounts, to manage disbursements and to publish financial and progress reports on a regular basis. The BNP will contract out all consultancy assignments. At the level o f the ministries and institutions project implementation teams would be set up to operationalize the reforms. These teams report to the Permanent Secretary. 5. FundsFlow The flow o f funds from IDA credit and the government i s presented as follows : (Credit h d s ) (Counterpart funds) Special Account Project Account Suppliers o f goods, works and services To ensure timely and reliable flow o f funds, a special account will be opened in a local commercial bank under conditions satisfactory to IDA. The contractors/suppliers will submit their invoices to the BNP who will pay them after appropriate authorization and approval. The special account would be replenished on the basis o f documentary evidence, provided to IDA by the BNP, justifying the payments made from the account for works, goods and services that are eligible for financing under the credit. All supporting documents will be retained by the BNP and made available for review by periodic Bank supervision missions and external auditors. - 9 - D. Project Rationale 1. Project alternativesconsideredandreasons for rejection: Traditionalinvestmentloanvs. phasedapproach (APL) The project includes complex interventions in the area o f public finance reforms which could also be implemented in phases or through a piloting approach which constitute typical elements o f an Adaptable Program Lending (APL). An A P L approach would, however, contribute no additional value because (i) the key weaknesses and deficiencies o f the public finance system are well established, and (ii) an integrated financial management system has already been piloted in one province. Based on these experiences the project proposes the implementation o f the new system on a 'turn-key' basis within a fixed timefi-ame. Investment loanvs. budget support In principle, support to the Government could also be provided through budgetary assistance. At the present stage, however, the weak framework for public financial management does not allow for a move towards increasedbudgetary assistance. Consolidation and further deepening o f the reforms initiated by the Government through technical assistance will be required to qualify Madagascar for budget support under the planned PRSC. Once the PRSC i s inplace, investment lending will focus predominantly on specialized technical assistance and capacity building while modemization needs and recurrent costs will be progressively integrated into budgetary assistance. Broadvs. narrowfocus The project could address exclusively public finance which constitutes the key element o f the reform agenda. Such a narrow focus would not adequately reflect key reform priorities o f the Government and the World Bank, in particular the urgent need to operationalize legal and judicial reforms. The inclusion o f these reforms would also allow to capitalize on the work and the achievements o f PAIGEP I. Lengthof the project The project has been designed for five years. Though a shorter time horizon has been considered, the complexity o f changes that need to be addressed during implementation, particular the integration o f the new computerized financial management system into day-to-day operations, would need sufficient time to institutionalize. On the other hand, the implementation period should not be too long to avoid reform fatigue. The Project Implementation Plan will identify specific milestones and triggers to adequately sequence interventions and monitor progress. -10- 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project Ratings (Bank f'inance - (PSR) irojectsonly) mplementation Development 3ank-financed Progress (IP) Objective (DO) 'ublic sector management, public Public Management Capacity inance reforms, legal andjudicial BuildingProject (P040019) - eforms completed, ICRperformance rating 'S' (outcome) jovernance, mining Mineral Resources Governance (P076245), new project, just approved konomic Policy and Governance Second Structural Adjustment Credit (P057378) - completed, ICRperformance rating 'SI (outcome) iura1development Rural Development Support S S Project (PO5 1922) clommunity development Community Development S S ,Proiect (P055166) * ~ Ither development agencies European Union Support to economic and public financial management, governance, judicial reform France Support to municipal development, legal andjudicial reform, public financial management UNDP Support to governance and anti-corruption activities, strengthening of m&e system, decentralization USAID Support to community development, governance, legal andjudicial reform Germany Management support to the Ministryo fFinance, communi! development African Development Bank New governance program (planned) Switzerland Inter-communal cooperation PlDO Ratings: HS (Highly Satisfactory), S (satisfactory), U (Unsatisfactory), I (Highly Unsati - 11 - 3. Lessonslearnedandreflectedin the project design: The previous Public Management Capacity Building Project (PAIGEP I)encountered significant implementation problems and delays. Main issues included: (i) a fragmented and complex project agenda which lacked a clear operational focus, (ii) a weak project management set-up without clear and decisive leadership at both technical and political levels, (iii) resistance to procedural and institutional change in areas that were critical for the success o f the project, in particular the Treasury, (iv) lack o f capacity to design and manage complex change processes, and (v) a focus on analysis rather than implementation and tangible changes. The proposed project design reflects the implementation difficulties encountered under PAIGEP I:The main emphasis o f the project are comprehensive public finance reforms; the operational agenda has been extensively discussed with the various stakeholders and agreed upon with Government. For the introduction o f the integrated financial management system the Project ImplementationPlan (PIP) foresees a carefully sequenced and prioritized roll-out. The new system will be designed and implemented on a 'turn-key' basis by an experienced intemational contractor. This contractor will be subjected to regular quality control and independent audits. This approach will mitigate implementationrisks and management problems which typically occur in a large-scale IT-project. To address capacity buildingconstraints and to overcome potential resistance, significant training and awareness creation activities have been built into the project. These activities will be complemented by regular workshops to discuss implementation problems and concems. The project management set-up was reviewed and a number o f significant changes were agreed upon: (i) the project will be attached to the Presidency (under the authority of the Chief o f Staff) to underline the critical importance o f the reforms and to ensure adequate policy coordination. (ii)An experienced full-time Project Coordinator has been nominated to ensure that the reforms receive the attention they require. This Coordinator will report to the Chief o f Staff. (iii) Role and composition o f the Steering Committee have been changed. It will consist o f Permanent Secretaries and will be chaired by the Project Coordinator. The members o f the Steering Committee have responsibility for implementation o f the reforms in their respective areas based on an agreed action plan. (iv) The Project Coordinator will be supported by a technical secretariat which will be further strengthened inparticular in the areas o f project management, monitoring & evaluation and procurement. It is envisaged to conduct regular impact assessments and independent reviews o f the implementation progress; the findings will be discussed and the recommendations integrated into a revised implementation plan. 4. Indicationsof borrower commitmentand ownership: The World Bank has received strong and reassuring signals from the Government for the implementation o f the reforms. The key aspects o f the project have been discussed in detail with the Government and other relevant stakeholders. All interlocutors have actively contributed to the design of the project through discussions and concept papers which formed the basis for the scope and focus o f the project. The Government which is in power since 2002 has placed specific emphasis on improving govemance in Madagascar. It has underlined that the upgrading o f the system o f public finance, better coordination and use o f public resources, more transparency and accountability, a reduction o f corruption, and progress in operationalizing judicial reforms are at the heart o f its agenda. The intended implementation o f the project under the authority o f the Presidency confirms the high importance the Government attaches to the reforms; the nomination o f the Chief o f Staff is likely to ensure the necessary leadership to decisively pushforward an ambitious reform agenda. 5. Value added of Bank supportinthis project: For the new Government the World Bank i s considered a key advisor inthe areas o f economic management - 1 2 - and poverty reduction. In the eyes o f the Government comprehensive World Bank experience with public finance reforms will be critical for the design and implementation o f the Madagascar reforms. In this context, the World Bank is expected to make available for Government considerable comparative experience inparticular with regardto the integrated financial management system. With regard to legal andjudicial reforms the World Bank is requested to complement activities of the EU which i s the lead development partner inthis area. Moreover, a key objective o f World Bank support i s to ensure consistency and complementarity o f assistance o f bilateral and multilateral development partners o f Madagascar. The development partners are in broad agreement about the need to comprehensively reform the public finance system, and to operationalize other reforms. Under the leadership of the Government discussions have focused on identifying needs, specifying areas o f support and enhancing coordination. In this context the role of the World Bank is to work collaboratively with other partners and the Government to define a program o f assistance that fits the needs of the country. Finally, World Bank projects in Madagascar cover a wide range o f activities. It can build on extensive experience inmany sectors. E. Summary Project Analysis (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic (seeAnnex 4): 0 Costbenefit NPV=US$ million; ERR = YO(see Annex 4) 0 Costeffectiveness 0 Other (specify) The project is expected to significantly improve economic management inMadagascar by (i) introducing an integrated financial management system, which allows for compilation o f timely and reliable information on budget allocation, commitment and actual expenditures; (ii) reforming public procurement and reinforcing the control mechanisms with regard to the use o f public resources; (iii) supporting open and transparent public management including better access to information to allow meaningful oversight and participation in decision making; (iv) strengthening coordination, monitoring and evaluation capacity to enable the consistent implementation o f Government policies; and (v) building capacity o f key institutions to effectively manage and implement complex change processes. 2. Financial(see Annex 4 andAnnex 5): NPV=US$ million; FRR = % (see Annex 4) Fiscal Impact: The project i s expected to have a positive fiscal impact. The introduction o f the new integrated financial management system will strengthen public financial management and control; these interventions would ultimately result in better use of public resources. The reform o f the public procurement system focuses inter alia on generating more value for (public) money. Both reforms activities would enable the Government to make more resources available for the provision o f key social services in line with the strategic goals and objectives o f the PRSP. In addition, the project would increase transparency and accountability o f government operations and thus, ultimately contribute to more effective control o f government expenditures. 3. Technical: The proposed project design, in particular the design o f public finance reforms corresponds to financial management, IT- and public sector standards developed in similar projects all over the world. The integrated financial management system will be based on a modular IT-architecture which i s open for - 1 3 - future extension, in particular the devolvement o f responsibilities to other institutional levels o f Government. It will also be able to cater for the specific needs o f the communes in the area o f economic management. 4. Institutional: 4.1 Executing agencies: The project will be implementedby the Presidencyunder the authority o f the Chief o f Staff who will be advised by the Project Coordinator. The BureauNational du Projet (BNP) will continue to administrate and supervise the project activities. This unit will be responsible for: (a) procurement, including all contracting for works andpurchases, and the hiring o f consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with IDA, and (d) financial record keeping, the Special Account and disbursements. 4.2 Project management: The Project Coordinator will chair the Steering Committee which consists o f the Permanent Secretaries o f all targeted institutions. Day-to-day management o f the project will be ensured by the project implementation unit (Bureau National du Projet, BNP) which consists o f adequate technical staff and i s headed by a Director who reports to the Project Coordinator. The B N P has already implemented the previous World Bank project (PAIGEP I), its performance has been satisfactory and it was able to effectively manage project implementation. The technical capacity o f the BNP will be further strengthened, inparticular in the areas o f project management, monitoring & evaluation, and procurement. At the level o f the ministries and institutions targeted by the project change management, teams will be set up to ensure that the proposed reforms are adequately institutionalized. - 1 4 - InstitutionalArrangements Project mplementa 4 - l Teams Donors Ministry of Finance andBudget I Justice Ministry Consultantsand Contractors 4.3 Procurement issues: The third Country Procurement Assessment Review (CPAR) for Madagascar was conducted in November 2002, followed by a workshop inJune 2003 for the validation o f ajoint CPAWCFAA action planto ensure rapid implementation o f procurement reforms. Key elements o f the intendedprocurement reforms are: (i) revision o f the draft procurement code to ensure transparency, to simplify procedures, and to comply with international standards, (ii)establishment o f effective procurement institutions to ensure that the new regulations will be adequately applied and to provide sufficient oversight and control and to improve efficiency through adequate delegation o f responsibilities, and (iii)implementation o f adequate training and capacity building to ensure the sustainability o f the procurement reforms. The existing Procurement Code o f 1998 will continue to be applied until the enactment o f the new code. The World Bank ascertained that deficient features identified in the 1995 CPAR have been properly addressed. IDA standard bidding documents (SBDs) are widely used. An area o f concern, however, i s the cumbersome and overly bureaucratic approval process for contract signing by the Government which causes unnecessary delays. In addition, insufficient programming and procurement planning contribute to delays in project implementation which results in slow disbursement. To mitigate risks o f delays for the proposed project, proper prerequisites for the use o f Bank standard bidding documents, including evaluation reports for National Competitive Bidding procedures (NCB) have been agreed upon with Government during -15- negotiations. The procedures manual will be updated as a part o f the Project Implementation Plan. A Procurement Capacity Assessment of the BNP, including training needs and arrangements, was conducted as part o f the project preparation. On the basis o f the initial assessment, an action plan was drafted to address areas where the BNP needs to be strengthened. The action plan includes: (i)the recruitment of a procurement officer; (ii) a specific section on procurement in the Project Implementation Manual to be finalized before Credit effectiveness; (iii) the organization o f the filing o fprocurement-related documents; (iv) procurement training sessions for project staff; and (v) the financing o f independent procurement and technical audits to be carried out on a regular basis (see Annex 6 for details). Since a large portion o f the Credit funds will be used for technical assistance and consulting assignments, early attention will be given to advance planning o f recruitment and timely search for expressions o f interest through international advertising to obtain the best possible pool o f candidates from which strong short lists can be compiled. 4.4 Financialmanagement issues: The financial management arrangements o f the BNP (Bureau National du Projet) responsible for the implementation o f the Govemance & Institutional Development Project have been reviewed to determine their adequacy with the Bank requirements. The review recommended the implementation o f some corrective actions to strengthen the project's financial management system and to build its capacity to produce quarterly Financial Monitoring Reports (FMRs) with the designed format provided inthe Annex A o f the FMRs Guidelines for World Bank-financed Projects. Among the measures to be implemented are the following: (i) review o f the project's Chart o f accounts to reflect components and activities outlined in the PAD to satisfy reporting requirements; (ii) o f the current accounting manual o f procedures in order update to include the new organizational structure, the new chart o f accounts, the outline o f the new financial management system to be used by the project including the content and format o f the quarterly FMRs to be submitted to IDA; (iii)recruitment o f a consultant in charge of the design and implementation o f a computerized system to allow the timely production o f financial reports required for managing and monitoring project activities; and (iv) recruitment o f an accounting firm acceptable to IDA to audit the project accounts. 5. Environmental: EnvironmentalCategory: C (Not Required) 5.1 Summarize the steps undertaken for environmental assessment and E M P preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. d a 5.2 What are the main features o f the EMP and are they adequate? d a 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: n/a d a 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts andproposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? d a 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives andresults o f the EMP? d a - 1 6 - 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. To date, the economic management process i s to a large extent organized as an administrative exercise with only a marginal role o f stakeholders outside the administration. Consequently, other stakeholders, in particular Parliament do not actively participate inmonitoring public spending and evaluating government's performance. The project intends to open the door for a more pro-active participation o f Parliament in the economic management process. It foresees some initial support to Parliament to allow for a meaningful participation inthe debate about public expenditures. Inthe area o f legal andjudicial reform a key objective is to expedite civil and commercial law proceedings to improve the credibility and the reliability o f the judiciary as well as the delivery o f services for the relevant groups o f the society. 6.2 Participatory Approach: How are key stakeholders participating inthe project? The project design reflects the need to build internal and external support for the different components o f the reform agenda. Lessons learnt from previous operations indicate that a lack o f ownership and a "donor-driven" approach to technical assistance significantly affect the achievement o f sustainable results. Consequently, all key stakeholders have been involved in the development o f the project. Extensive consultations took place with public servants, public managers, Parliament, civil society organizations and other donors to determine scope and focus o f the interventions. It is envisaged to keep these key stakeholders actively involved during the implementation o f the reform agenda. To this end, project funds will be made available to support a wide range o f stakeholder activities (workshops, focus groups, surveys, studies, fora etc.). This consultation process which will be complemented by a systematic analysis will assess progress and impact of the reform process, identify potential problems and conflicts and design strategies to maintain support. 6.3 H o w does the project involve consultations or collaboration with NGOs or other civil society organizations? The intended support for the Ministry o f Justice will entail funding for consultation with civil society organizations, to identify problems andbottlenecks inthe area o f legal andjudicial reforms. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? To ensure that the intended reforms achieve the development objectives significant resources for monitoring & evaluation have been built into the project. These activities will be complemented by review and impact assessment to adequately measure reform progress. 6.5 H o w will the project monitor performance interms o f social development outcomes? During project implementation the reform progress will be subject to regular independent audits and evaluations. The findings o f these studies will be made public to initiate follow-up discussions and to enable an adequate adjustment process. At institution level, mechanisms for internal feedback and opportunities for process innovations (quality circles, focus groups etc.) will be established to increase motivation and to provide feedback to the reform process. - 1 7 - 7. SafeguardPolicies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. d a F. Sustainability and Risks 1. Sustainability: Critical factors for the sustainability o f project benefits are: 0 Degree of government'scommitment during the implementationof the project Despite the high risk to implement such complex reform program continuous government's commitment is expected because o f the broad consensus about the need to comprehensively reform the existing system o f public finance and to significantly strengthen the accountability framework. 0 Capacity to effectively managethe project implementation Inlightofthe implementationdifficulties under PAIGEP Ia significant effort has beenmade to ensure that new project will not face similar problems: Project implementationwill be based on a carehlly sequenced action plan with clearly identified milestones which will be independently monitored and evaluated. To assess the performance o f the project implementation team, a particular emphasis will be put on tangible results to be achieved within a specific timeframe which would allow necessary adjustments incase o f delays and other implementation difficulties. 0 Capacity andincentivesto institutionalizethe project The project will put a heavy burden on the administrative capacity o f the government machinery to effectively deal with the significant changes triggered by the introduction o f an entirely different public expenditure management system. The targeted institutions will need to dedicate a substantial amount o f their (rather limited) administrative capacities to integrate the new system into the existing institutional structures and procedures. To address these challenges a significant amount o f training and capacity building has been built into the project to ensure that the changes introduced by the reforms can be adequately dealt with. With PPF funding a comprehensive training needs assessment and a review o f the capacity o f local training institutions have been conducted to ensure that the implementation o f the reforms does not face major capacity building constraints. - 1 8 - Degree of government'scommitmentbeyond the implementation of the project The govemment will need to ensure sustainability o f the reforms beyond the implementation o f the project. The govemment will ensure that the costs for modemization, further equipment, training and capacity required to maintain and sustain the reforms will be integrated into the annual budget when financing under the project i s coming to an end. Buildingenduring ownership and support While ownership and support for the different components o f the project are strong, the government must ensure that this support is adequately maintained during and beyond the implementation o f the project. Complex systemic and institutional changes which are part o f the reform agenda will only be effective if they are widely publicized, accepted and integrated into day-to-day operations. This is particularly important for the new public procurement legislation which needs to be decisively enforced. With regard to the systemic changes, the government will monitor their effectiveness on a regular basis - preferably based on periodic independent evaluations. At the institutional level mechanisms for feedback and opportunities for process innovations (quality circles, focus groups etc.) need to be established to guarantee ownership and provide upward feedback to management about the viability o f the reforms. 2. Critical Risks(reflecting the failure o f critical assumptions found inthe fourth column o f Annex 1): The program carries highrisk (see detailed risk assessment below); it poses a significant challenge for the Government because o f the complexity of the changes triggered by the project and the substantive capacity building needs to ensure success and sustainability o f the reforms. To mitigate the risks the project foresees significant upfront investments in local training and capacity building. In addition, the integrated financial management system will be implemented on a turn-key basis by an experienced contractor to avoid typical problems o f large-scale IT introduction. Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Political commitment to implement the M Continued high-level dialogue with G o M to PRSP is not maintained reconfirm commitment From Components to Outputs Lack o f leadership seriously undermines M Continued high-level dialogue to stress the need the implementation o f the project for political leadership o f reforms Stakeholders and public sector agencies H Buildintemal and external support for change are not responsive to changes; they do not process; ensure stakeholder participation during sufficiently collaborate design and implementationo f reform program Resistance and delays endanger the H Buildintemal support for change process envisagedreforms; compliance with new through comprehensive training and capacity institutional and procedural framework i s building;enforce sanctions for noncompliance low Capacity (managerial, staff, H Buildinto the reformprogramcomprehensive administrative, technical) to implement training, capacity building, coaching and complex reforms not adequate specialized technical assistance; provide incentives for staff & manager who can act as multipliers; strengthen quality and capacity o f - 19- local training institutions Capacity to implement and manage the H Implement new system on a "turn-key" basis; new integrated financial management complement implementation with significant system not sufficient training, capacity building, coaching and specialized technical assistance Overall Risk Rating H FMRiskAnalysis Risks Riskrating RiskMitigationMeasures AccountingPolicies Moderate Reviewof the currentChart o f accounts and andProcedures I update of the accountingmanual of proceduresto satisfy reportingrequirements (FMRs). ExternalAudit Substantial - Local auditors who intendto audit the financial statementsof Bank financed projects were invitedto enter into partnershipwith internationalauditing - firm to strengthentheir capacity. Recruitmentof auditors basedon - QCBSmethod;of Reinforcement the accountingprofession after the completionofthe ROSCmission. MonitoringandReporting Moderate The reportingsystem needs to be reviewedto meet Bank requirements.The introductionof FMR reporting will require some actions: update of the accounting manual of procedures, implementationof an appropriate computerizedsystemanduserstraining. InformationSystems Moderate Design and implementation o f a new computerizedsystem by a consultant to allow timely production of financial information includingFMRs. 3. PossibleControversialAspects: The enhanced control mechanisms introduced by the reforms (in particular with the integrated financial management system) can initially meet some resistance in the public sector. Similarly, the introduction o f the new procurement code which will change the existing "rules o f the game" and interfere with well-established "spheres o f influence" i s likely to be opposed at some levels o f the public sector. To effectively overcome initial resistance comprehensive capacity building and awareness creation activities are built into the project. The government is also aware that new rules, procedures and guidelines must be decisively enforced to ensure compliance. - 20 - G. Main Credit Conditions 1. EffectivenessCondition (i) Borrowerhasopenedaprojectaccountanddepositedcounterpartfundtherein; and The (ii) BorrowerhasputinplaceanaccountingandfinancialsystemfortheprojectacceptabletoIDA. The 2. Other [classify according to covenant types used in the Legal Agreements.] Financial Covenants (i)TheProjectImplementationUnit(BureauNationaZduProjet,BNP)willmaintainorcausetobe maintainedrecords and accounts to reflect inaccordance with sound accounting practices the operations, resources and expenditures; (ii) records, accounts,specialaccounts,SOEsshallbeauditedbyindependentauditorsacceptableto the IDA; and (iii) BNPwillproducequarterlyFMRs. the H. Readiness for Implementation 0 1.a) Theengineeringdesigndocumentsforthefirstyear's activitiesarecomplete andreadyforthestart o f project implementation. Kl 1.b)Notapplicable. ixI2. The procurement documents for the first year's activities are complete andready for the start of project implementation. IXI 3. The Project ImplementationPlanhas beenappraisedand found to be realistic and o f satisfactory quality. 0 4. Thefollowingitemsarelackingandarediscussedunderloanconditions (Section G): I. Compliance with Bank Policies iXi 1. This project complies with all applicable Bank policies. 02. ThefollowingexceptionstoBankpoliciesarerecommendedforapproval. Theprojectcomplieswith all other applicable Bank policies. - Team Leader Sector Manager -21 - Annex 1: Project Design Summary MADAGASCAR: Governance and Institutional Development Project iector-related CAS Goal: Sector Indicators: Sector/ country reports: from Goal to Bank Mission) Iigher and more 3verall poverty rate declines ?overty mapping, pro-poor lasic economic and relevant ustainable rates of kom presently 69% to 60% in ;urveys, statistical data. olitical stability maintained. conomic growth that reach l008. he poor; improved delivery if basic servicesin key ocial sectors. 'roject Development 3utcome I Impact Project reports: from Objective to Goal) Ibjective: ndicators: To assist the Government of ?RSP implementation Progress reports on PRSP 3overnment's commitment to vladagascar (GM) in xogresses as projected. implementation. mplement the PSRP mplementingthe Poverty naintained. ieduction Strategy Paper PRSP). [ncreasedpro-poor allocation Annual budget, expenditure s f public resources. tracking surveys. Qualitative audit o f the policies made by Government against the PRSP strategic objectives. htput from each Output Indicators: Project reports: from Outputs to Objective) :omponent: I. Reliableandtimely budget Specific indicators allow for Annual reviews, analysis o f 'olitical environment mdexpenditure information tracking budget execution viability o f indicators irovides strong leadership anc s readily available to key :ontinues to actively support itakeholders for strategic he implementation process. lecision making purposes. Treasury submits statement o f Report submitted by Treasury. Stakeholders, public sector monthly accounts and gencies, beneficiaries, and commitments by the 15th o f he political level are the following month. .esponsive to the envisaged :hanges, they collaborate and mcourage the implementatior ifthe reforms. Treasury submits final Final accounts submittedby accounts within 6 months Treasury. after the end o f the fiscal year to the Auditor General. Auditor General submits Audited accounts submitted Decisive Government actions -22 - iuditedaccounts and "lois de )y Auditor General. r i l l be taken to overcome reglement" by November 15 :sistance or delays in o f the following year to nplementation the envisaged Parliament dministrative, financial, istitutional andjudicial :forms. ,. Accountability and Internal and external control ransparency o f Government and audit services publish Reports and evaluations. lperations has improved regular reports identifying [nternal and external audit bottlenecks. *eports. Governance efforts lead to a Transparency International reduction o f corruption (as Clorruption Perception Index. measured by the Transparency International Corruption Perception Index). Compliance with rules and Annual Report. regulations as well as sanctions are systematically enforced as evidenced by an annual report issued by the Anti-Corruption Commission. 1 .Government's strategy to Justice reform strategy Strategy document estore credibility o f the validated by relevant udiciary developed; stakeholders. mplementation o f the strategy ias begun. Processing o f civil and Independent audit. commercial law cases expeditedbased on new service/case load standards. Law reform program adopted Annual progress reports. andprogressively implemented. . Capacity o fkey institutions Capacity buildingplans 2uarterly progress reports; I manage change effectively developed and implemented fc annual independent trengthened; local training the Ministries o f Justice, :valuations o f operational istitutions upgraded. Budget and Finance. :fficiency o f the respective institutions. Training quality and capacity Quarterly progress report, o f ENMG, ENAM and CNFA annual independent improved. :valuations. Development Learning Center Progress reports, annual operational, training program independent evaluation. validated. - 23 - -. iputs: (budget for each roject reports: from Componentsto omponent) lutputs) 1. Improvementof JS$32.lm(see Annex 2 for Ionthly progress reports o f Capacity to implement transparency and economic etails). nplementing agencies. :omplex reforms is available. 1.1 Development and toll-out o f new integrated Implementationof an 'Inancial management system integratedfinancial o all 22 ministries i s managementsystem. Iroceeding as scheduled. .nnual independent - Conceptual design of the valuations & impact Zapacity to effectively new systemcompleted and ssessments. nanage complex new budget system is available. ,udit reports publishedby - Site preparation finalized iternal/external control Yew structures, systems and istitutions. xocesses are used. - Wide-area network inplace. Rules and regulations are - Training of relevant staff idequately applied, non-application will be dealt with accordingly. - Facilities management Sufficient number o f trained staff remained inkey - Hardware procured and positions. Government institutions are - Legislative framework responsive to changes. reviewed and amended. Reformproposals are developed and implemented based on a participatory approach to generate and maintain necessary stakeholder support. Communication and collaboration between key stakeholders i s effective and constructive. Donor collaboration in particular inthe area of publil finance remains efficient. Government progressively integrates recurrent costs into the annual budget. 1.2 Strengtheningof internaland external - 24 - control mechanisms. -1.2.1 Strengtheningof IGE Organizationand institutional framework reviewedandadjusted. - New operating manuals in place. - Modernization and training completed. 1.2.2 Establishmentof IGF - Conceptual framework for IGF developed. - IGF established and operational. - Basic equipment procured andtraining completed. 1.2.3 Strengtheningof the -Brigade du Trksor Transformationinto a directoratefinalized. - Modernization and training completed. -1.2.4 Strengtheningof CDE Organizationaland institutional framework reviewedand adjusted. - Modernization and training completed. 1.2.5 Strengtheningof Cour des Comptes - Standardizedprocedures and auditing techniques developed. - Modernization and training completed. - Collaborationwith external auditors definedand operationalized. 1.2.6 Operationalize DisciplinaryCommission - Regulatoryframework validated. - Training completed. 1.2.7 Strengthening ParliamentaryOversight - Training and capacity building completed - 25 - - Basic equipment procured. .3 Completionof rocurementreforms. New procurement legislation pproved. Revised institutional .amework operational. .4 Strengthening change nanagement, coordinating, nonitoring& evaluation. M&E system operational at l e Presidency. Coordination mechanisms 3 place. Anti-corruption strategy lefined. Equipmentprocured. Training and capacity uilding completed. !.Capacitybuildingand S$16.0 m(see Annex 2 for donthly progress reports of itrengthening of local etails) implementing agencies. raininginstitutions. !.l Support for the Supervision missions. Ministryof Budgetand Finance Beneficiary assessments & . Institutional audit surveys. :ompleted. . New institutional Annual independent urangements and operating evaluations & impact nanuals inplace. assessments. . Trainingandcapacity milding finalized. 2.2 Support for the Ministry of Justice. - Justice reform strategy defined, inparticular expedition of civil and commercial law proceedings. - New service standards and evaluations methods operational. --- Judicial Services. Inspectorate strengthened. Training and modernizatio completed. 2.3 Pilot service delivery - 26 - nprovement Services with large ublic-private interface ientified Strategy developed and nplement to improve fficiency o f service delivery .4 Strengtheningof local raininginstitutions. .4.1 Support for ENMG Modemization of new iuilding completed. New curricula and training naterials developed. Training o f trainers .ompleted. Training fund for Justice )ersonnel operational. !.4.2 Support for ENAM New curricula and training naterial developed. Organizational ,estmcturing of ENAM :ompleted. . Core group o f trainers .ecruited and trained. . Modernization o f facilities :ompleted. 2.4.3 Supportfor CNFA .New curricula and training naterial developed .Training facilities upgraded mdmodemized -- Professional staff trained Training fund for technical staff established 2.5 Establishmentof a DevelopmentLearning Center - D L C infrastructure set up and operational. -- Staff recruited and trained. Initial D L C training program developed. - Monitoring & evaluation systeminplace. 3. EffectiveProject JS%3.2m (see Annex 2 for Progressreports o f - 27 - Management System in etails. .mplementing agencies. place. . BNP operational, necessary Work and procurementplan staff recruited. ipproved by BNP Steering - Oversight and control Committee. system (at the Presidency and Ministryof Budget and Monthly progress reports. Finance) inplace, necessary staff recruited. - Procurement and Project monitoring and disbursement reports evaluation system operational. - (quarterly). Communication and public information strategy Annual surveys and implemented. independent evaluations to - Surveys/questionnaires and measure impact/progress o f evaluations to measure impact the reforms. designed and implemented. - 28 - Annex 2: Detailed Project Description MADAGASCAR: Governance and Institutional Development Project By Component: Project Component 1. Improvement of transparency and economic governance - US$32.10 million The strengths and weaknesses o f Madagascar's budget and expenditure management system have been subject to numerous studies over the last years. Key problems include complex, non-transparent and time consuming procedural arrangements with often unclear or overlapping roles and responsibilities at the institutional levels, lack o f capacity as well as weak internal and external control mechanisms. Hence, budget execution is inefficient and subject to significant delays. Initial reforms focused primarily on streamlining and rationalizing the rules and regulations governing public expenditure management, on capacity building and training and on integrating various administrative functions to improve efficiency and effectiveness. These reforms have been supported by the World Bank Public Management Capacity BuildingProject (PAIGEP I) closed in December 2002. Considerable which progress was made to simplify the expenditure circuit, improve budgetary reporting, and computerize key elements o f the budget execution system. Overall resource allocation, however, didnot improve. Based on a comprehensive reform o f the budget classification system and the introduction o f a new chart o f accounts the quality, frequency, availability and timeliness o f budgetary and accounting information has somewhat improved. The backlog in the production o f final accounts (and their submission to the Auditor General) has been reduced from 8 years in 1995 to 2 years in2002. While these reforms have been important first steps much remains to be done, however, to bring Madagascar's public finance system to international standards. A main bottleneck is, for example, the Treasury Department whose operational efficiency and transparency is low. The recently completed CFAA has confirmed the need to decisively continue the implementation o f public finance and broader economic governance reforms. The Government has committed itself to enhance and further deepen previous reforms. The Government has identified key priority areas in which World Bank support has been requested. These areas include (i) the development and introduction o f an integrated financial management system for the central government to improve operational efficiency o f budget and expenditure management, (ii) the strengthening o f internal and external control mechanisms to improve oversight andenforce compliance, (iii) the reform o f the public procurement system to ensure its conformity with international standards, and (iv) the improvement o f change management, coordination, monitoring & evaluation to ensure consistency and efficiency o f policy implementation. Project Component 1.I Implementation of an integrated public financial management system US$25.00 - million Objective o f the development o f an Integrated Public Financial Management System (Systkme Intkggrk de Gestion des Finances Publiques, SIGFP) is to provide timely, accurate and up-to-date information on budget allocations, commitments and actual expenditures. Key components o f such a system include (i) a budget preparation sub-system which would standardize the preparation o f the annual budget, (ii) a budget execution and expenditure management sub-system to monitor and account for revenues and public expenditures, and (iii)reporting and control sub-systems to ensure transparency, accountability, and compliance with the budget or with existing regulations that govern public expenditure management. The three different functions o f budget preparation, budget implementation and accounting will be integrated into an uniform IT-system providing up-to-date access to and information about all relevant budgetary - 29 - processes. Following international best practices, the system will be based on an open, module-based client-server-architecture which allows for future enhancement and adjustment o f financial control and oversight. It would also interface with other systems already in place (customs, revenue agencies). The integrationwill provide managers with tools to plan, manage, and control public resources. A major input for the design of the new system will be the financial management system that has been piloted in the province o f Toamasina (with assistance under PAIGEP I). This system has been developed to serve the needs o f the administration at the provincial level. A validation process for this system is presently ongoing (with PPF funding) which will determine to what extent this system can serve as the basis for the development o f a country-wide financial management system. The new financial management system will require significant investments in equipment, IT infrastructure, training and capacity building. It will include all actors, country-wide, who are involved in budget preparation and monitoring, expenditure management, income collection and financial reporting. When completed, it would consists o f 1,800 work stations which are integrated into a single country-wide network. The implementation o f the new system will pose a major challenge inparticular to the Ministry o f Finance. Experience in other countries indicates that it i s more efficient to contract out the responsibility o f implementing the design and installation o f the integrated financial management system to an experienced international company. This "turn-key" solution i s standard practice in the private sector for large IT projects to avoid typical implementation problems o f complex projects. Under this arrangement the "lead" contractor would be in charge o f designing, prioritizing, sequencing and supervising all project components including the procurement o f goods and services. The work o f the "lead" contractor would be subjected to regular quality controls and independent audits. An assessment o f all existing systems and equipment has been conducted with PPF funding, together with a (fully costed) needs assessment and a feasibility study for the wide-area network. The findings o f this preparatory work form the basis for the subsequent cost estimates. Funding under the project will be provided for goods and equipment, inparticular in soft and hardware (US$17.0 million); the installation o f a wide-area network (US$l .O million); consultants services including specialized training and IFMIS project management (US$2.0 million); rehabilitation and maintenance o f offices for IT equipment (US$5.0 million). Project Component 1.2 Strengthening of internal and external control mechanism US$4.10 million - To bring the system o f public finance to international standards Madagascar will need to improve the operational efficiency o f the institutions that provide fiduciary oversight and control. In Madagascar, which follows the francophone "model", these institutions include: the General Government Inspectorate (Inspection GenCrale de 1'Etat - IGE), the Commitment Control (Controle des Depenses EngagCes, CDE), the intemal control cadre o f the Treasury (Brigade du Tresor), the Auditor General (Cour des Comptes) and the (presently non-existent) general internal control cadre (Inspection GCnCrale des Finances - IGF). Significant analytical work has been completed to identify the problems and bottlenecks in the area o f fiduciary oversight: In 1998, the IMF analyzed the public finance system. In 1999, the Government commissioned a comprehensive review o f the oversight mechanisms with support by the European Union. In2001, the European Union undertook another in-depth analysis of the public expenditure system. The recommendations o f these reviews, o f the Government work group (Cellule de REiforme et de Renforcement des Organes de Contrdle, CRROC) together with the findings o f the recently completed CFAA form the basis for the proposed reforms. Work i s under way to develop a sequenced and prioritized implementation - 30 - plan. 1.2.1. GeneralGovernment Inspectorate (Inspection Gknkrale de Z'Etat, IGE) (US$l.O million) The main function o f IGE is the internal audit o f the executive branch. In the francophone system it represents the highest internal audit authority complementing the internal audit service at the level o f the Ministry of Finance (IGF) and the internal control system of the Treasury (Brigarde du TrCsor) and the sector ministries (contraleur financier). In Madagascar, the IGE is attached to the Presidency. At the national level, IGE includes a general directorate, four task forces and a number o f departments; at the level o f the autonomous provinces, it includes six inter-regional directorates. IGE which has a total workforce o f 112 currently has 28 inspectors and 12 auditors. Key problems and weaknesses o f IGE include: (i) the role and operational objectives o f IGE need to be clarified. The present design could confuse the fiduciary role o f IGE with a broader monitoring & evaluation role. The CFAA recommends to shift the fiduciary responsibilities o f IGE to a newly created IGF and to reduce the function o f IGEto a monitoring & evaluation function inthe Presidency. There is need to revisit the role and responsibilities o f IGE and its relationship with other internal/extemal oversight institutions, (ii) the operational efficiency o f IGE i s weak due to lack o f resources and skilled personnel. Audit manuals andprocedures are outdated and require fundamental revision. IGEis presently not able to adequately fulfill even basic auditing or monitoring functions. To address some o f the existing problems funds were made available by the Government to cover basic equipment and human resources needs (in particular recruitment o f 34 new government inspectors). In addition, operational manuals were developed to clarify the role and responsibility o f IGE and its oversight activities. The European Union i s providing some assistance to improve the operational efficiency o f IGE; this assistance will come to an end in 2003. World Bank support will complement these initial activities and is aimed at consolidating the role o f IGE in line with the recommendations o f the CFAA. Support will focus on organizational development (US$50,000), additional operational manuals (US$170,000), modernization and equipment (US$120,000) as well as training and capacity building(US$660,000). 1.2.2. General InternalAudit Cadre (Inspection Gknkrale des Finances) (US$0.2m) To strengthen the existing framework o f internal control in Madagascar and to ensure adequate inspections o f the use o f all public resources, the CFAA has recommended the establishment o f a general internal audit cadre (Inspection GenCrale des Finances) in the Ministry o f Finance. To avoid a duplication o f the role and responsibility o f IGF and IGE it is envisaged to transfer some o f the fiduciary responsibilities from IGE to the newly created IGF. IGF would then have primary responsibility for the internal audit o f the executive branch while IGE, which is attached to the Presidency, would focus on a broader monitoring & evaluation role. It is envisaged that IGF would have about 15 audit specialists who would closely liaise with other control institutions to establish a comprehensive and effective system o f internal audit and control in Madagascar. The project will assist Government in operationalizing the recommendations o f the CFAA. Support would focus on specialized technical assistance to develop and set-up the procedural and institutional framework o f IGF (US$lOO,OOO), some basic equipment (USS50,OOO) as well as training and capacity building (US$50,000). 1.2.3.Internal ControlCadre of the Treasury(Brigarde du Trksor) (US$OSm) The main function o f the Brigarde du TrCsor is to ensure that expenditure management regulations are adequately applied in the treasury department. It evaluates on a regular basis the work o f accounting officers at the national and regional treasuries and performs special reviews on request by the treasury -31 - management. The internal control cadre, which was established in 1999, has only 12 staff. It i s attached to the Permanent Secretary o f the Ministry o f Finance. Since the creation o f the Brigarde du Tresor cases o f misappropriation and misuse o f funds by the treasury have been significantly reduced. Key problems and weaknesses o f the unit include: (i) to lack o f resources the Brigarde du TrBsor has due not been able to perform its regular control functions; the work o f accounting officers i s not evaluated on a regular basis. It i s estimated that about 30 specialists would be necessary to cover the basic control needs; and (ii) the role and responsibilities o f the Brigarde du TrCsor needs to be clarified in light with the recommendations o f the CFAA. This would include the transformation o f the Brigarde du TrCsor into a directorate and the extension o f its control competences to include public institutions and the accounting officers o f the rural communities World Bank support would focus on training and capacity building (US$250,000), some basic equipment (US$150,000) and targeted technical assistance, in particular in the area o f organizational development (us$loo,ooo). 1.2.4. Commitment Control (Contr6ledes Dkpenses Engagkes: CDE) (TJS$l.O million) The key function o f CDE, which is attached to the Presidency, i s to ensure the fiduciary control o f commitments initiated by ministries, departments and agencies inthe context o f the execution o f the annual budget (followed by control o f legal compliance by the public accountant prior to payment). CDE's a priori oversight focuses on approving all commitments made by government services (Titres d'Engagement Financier: TEF). CDE may also intervene at a later stage by performing oversight o f services rendered. Complementary a posteriori oversight i s handled by IGE, which monitors adequate use o f public resources. CDE includes a general directorate, central commissions attached to the ministries, inter-regional commissions attached to the six autonomous provinces and inspection posts attached to the former prefectures representing seven financial districts. CDE employs 40 government inspectors, 28 auditors and 360 support staff. With its limited staff CDE is supposed to validate the commitments o f the 32 ministries, six autonomous provinces and 18 prefectures. Key problems and weaknesses include: (i) attachment o f CDE to the Presidency confuses its fiduciary the role with a broader monitoring & evaluation function. The CFAA recommends the integration o f CDE into the Ministry o f Finance in line with the "traditional" fiancophone institutional set-up; and (ii)the operational efficiency o f CDE is hampered by lack o f resources and skilled personnel. Consequently, CDE has not been able to adequately fulfill its control functions. Some measures were taken by the Government in 2001 to improve the functioning o f CDE; 10 additional government auditors and 45 contractual agents were recruited and miscellaneous equipment was provided as a first step to improve CDE services. Inconnection with efforts to expedite control process the European Union has provided some basic support for modernization and the development o f a new operational manual. IDA support will focus on strengthening the operational efficiency o f CDE through training and capacity building (US$600,000), further modernization and equipment (US$250,000) as well as targeted technical assistance to refine the role and function o f the institution (US$150,000). - 32 - 1.2.5. Auditor General (Chambre/Cour des Comptes) (US$1.1million) The Auditor General's main function is to perform annual independent audits o f government accounts, as well as management audits o f public institutions and enterprises. The Auditor General (Chambre des Comptes) was transformed into a Revenue Court (Cour des Comptes) in November 2001 as part o f the reorganization o f the Supreme Court. The Revenue Court comprises at least three specialized chambers: the Oversight Chamber for the Government budget, the Oversight Chamber for the autonomous provinces, public institutions o f administrative nature (Etablissements Publics Li Caractdue Administratif EPA) and decentralized territorial subdivisions (court o f appeal), and the Oversight Chamber for Public Enterprises. The financial tribunals, which are the extension o f the Revenue Court in the autonomous provinces, judge the administrative accounts of the decentralized territorial subdivisions and perform a posteriori oversight o f the actions o f these subdivisions. For many years, the audits o f government activities were neglected. For the fiscal years 1978-1992 and 1972-1977 the Government was exempted from producing final public accounts. Since 1993 some final accounts were produced but the lack o f resources o f the Auditor General has led to a significant backlog in producing audited accounts. Presently, the treasury accounts o f the year 1998 are under review. Similarly, the Auditor General was not able to fulfill its function vis-&vis other government institutions or public enterprises. Inthe past, the majority o f these institutions did not submit their accounts for review as required by the law. Under the new Government compliance with reporting requirements has improved but remains deficient. To improve operational efficiency o f the Auditor General the Government in 2001 provided MGF 600 million in investment credits and MGF 2.1 billion from HIPC funds, which were used for some basic equipment and to rehabilitate the Auditor General's headquarters. In addition, 12 new magistrates were recruited in 2001; thus increasing the workforce to 17 financial magistrates. Additional training o f qualified candidates is ongoing. France supported the establishment o f Financial Courts o f Fianarantsoa and Mahajanga as a first step to make operational oversight functions inthe autonomous provinces. World Bank support will focus on improving the operational efficiency o f the Auditor General. Inline with the recommendations o f the CFAA it will also assist Government to revisit the procedural and institutional set-up to ensure greater independence o f the Auditor General (the relationship between the Audit General on the one hand and the Supreme Court and the Ministry o f Justice on the other hand causes some concerns). Support will include training and capacity buildingo f (existing andnewly recruited) magistrates (US$500,000), some modernization (US$250,000) and targeted technical assistance in the area o f institutional and procedural development aimed at standardizing procedures and auditing techniques (US$150,000). The project will also provide assistance to the Auditor General to contract out independent audits (US$200,000). 1.2.6. DisciplinaryCommission(Conseil de Discipline FinunciBre et Budgetuire) (US$O.l million) In 1998, the Government established a Commission to enforce fiscal and budgetary discipline (Conseil de Discipline Financikre et Budgetaire). The main function o f the commission i s to investigate violations o f public finance regulations and to issue appropriate sanctions. Since its inception, the commission has not been operational due to lack o f resources, uncertainty about its mandate and competences and a weak regulatory framework which lacks clear operational guidelines. The CFAA has recommended to adequately staff and make operational the commission. The commission will be placed under the jurisdiction o f the Auditor General because o f its far-reaching authority. World Bank support would assist Government in implementing the recommendations o f the CFAA. Assistance would focus on training and capacity building (USS50,OOO) as well as technical assistance to - 33 - operationalize the regulatory framework o f the commission (US$50,000). 1.2.7. Parliamentary Oversight (US$0.2 million) Parliamentary oversight in the area o f public finance is weak and inefficient. For many years, Parliament didnot receive audited accounts o f government, public institutions andpublic enterprises as required by the law, mainly because annual accounts were not produced. To date, only the audited accounts for 1997 have been submitted to Parliament. The Parliamentary control function i s significantly hampered by lack o f resources and capacity. The responsible Public Finance Committee i s not adequately equipped to analyze the reports o f the Auditor General and to initiate a Parliamentary debate about the findings. Project support will complement major assistance by the European Union (about US$2.0 million) and focus on enhancing the capacity o f Parliament in the area o f public finance, in particular, to scrutinize the work o f the Auditor General. To this end, assistance will be provided for training and capacity building o f the Members o f the Public Finance Committee (US$80,000), some basic equipment to enable research and preparation o f reports (US$60,000) as well as for some funds to commission studies and evaluations in the areas o f public finance (US$60,000). Project Component 1.3 Procurement reform US$1.OO million - Public procurement in Madagascar is weak and a main source o f corruption. The present institutional set-up comprises a Central Tender Board in Antananarivo (Commission Centrale des Marchb: CCM) and Provincial Tender Boards in each province (Commission Provinciale des March&: CPM). Significant analytical work has been completed to identify the problems and bottlenecks in the area o f procurement: In 1999, the Government commissioned a comprehensive review o f the procurement with support by the European Union. The recommendations o f the respective work group (Cellule de Riforme et de Renforcement des Organes de C o n t d e , CRROC) together with the findings o f the recently completed CPAR form the basis for the proposed reforms. Key problems and weaknesses o f the existing system include: (i) lack o f transparency; (ii) complex overly andbureaucratic procedures, (iii) outdated regulatory framework that does not comply with an international standards, (iv) inefficient procurement institutions that are not able to deliver adequate services, and (v) limited capacity o f the public administration inthe area o f public procurement. Inline with the recommendations o fthe CPAR procurement reforms will focus onthe following areas: Development o f new procurement regulations The new regulations will fundamentally overhaul the outdated procurement systems andprocedures in Madagascar. It aims at consolidating the fragmented legal, institutional and organizational framework for processing public procurement, and at establishing a transparent procurement system with uniform rules andprocedures for the entire public administration. 0 EstablishindStrengtheningo f effective procurement institutions To ensure that the new regulations will be adequately applied a revised institutional framework will be put inplace which aims at (i) improving operational efficiency through adequate delegation o f responsibilities, and at (ii) providing sufficient oversight and control. 0 Training and capacity building To ensure the sustainability o f the procurement reforms, significant investments incapacity building (awareness creation, training andmonitoring) at all relevant levels o f the public service are required to ensure that the new regulatory framework will be adequately applied. Project support will be provided for training and capacity building(US$0.6 million), modernization and equipment (US$O.1 million) as well as targeted technical assistance to assist Government in - 34 - operationalizing the regulatory and institutional framework (US$0.3 million). Project Component 1.4 Strengthening change management, coordination, monitoring 8 evaluation US$ - 2.00 million At the present stage, most ministries, departments and agencies do not have a focus on performance and results. A common theme o f many reforms over the last years has been better management o f the public sector, the results have been by and large disappointing because a culture o f service delivery is lacking in the civil service. At the same time the need for a strengthened performance orientation i s critical, in particular, in view o f Madagascar's difficult fiscal situation and in light o f the significant development challenges ahead. In addition, accountability and transparency in the public sector i s weak; corruption remains a serious problem as revealed by the Transparency International Corruption Index o f 2003 (Madagascar ranked 88th out o f 133 countries). Under these circumstances the Government has decided to (i)set up an effective system of (policy) coordination, monitoring & evaluation which would ensure that key Government strategies such as the PRSP and other policy decisions are adequately implemented, and to (ii) make the fight against corruption a key priority area. To operationalize these objectives the Government has begun to establish at the Presidency an infrastructure that i s tasked with the coordination o f government activities and with the development of a monitoring & evaluation system. World Bank support will be provided for the design and implementation o f this new infrastructure. It will complement major support by other donors, inparticular, UNDP. World Bank support will focus on financing short and longer-term consultancy services that will be required to operationalize and implement the Government's strategy (US$O.9 million), training and capacity building (USS0.4 million) as well as some basic equipment to set-up the new infrastructure (US$0.2 million). Inthe area of corruptionthe Government has recently established an Anti-Corruption Commission (Conseil SupBrieur de Lutte contre la Corruption) inthe President's Office. The main objective o f the commission is to raise awareness about corruption, advise Government on a viable anti-corruption strategy and coordinate all governance and anti-corruption efforts. This will include the development o f rules o f ethics for the public sector; also value-based training to promote commitment to public service and to combat corruption, as well as a fundamental reform o f campaign financing to improve transparency. The commission is also responsible for the establishment o f an independent Anti-Corruption Agency (with investigative authority) which will operationalize the Government's anti-corruption strategy. The project will support the work o f the commission by providing funding for consultancy services that are required to define and implement the Government policy (US$0.2m), for training and capacity building (US$0.2 million) as well as for some basic equipment (US$O.lmillion). This support will complement planned or ongoing support by other donors, inparticular, UNDP, U S A I D and the European Union. Project Component 2. Capacity building and strengthening of local training institutions US$lS.OO million - The reforms initiated by the Government require significant investments in institutional development and capacity building. This i s particularly important for the institutions that are at the center o f the reform process. They will need assistance to effectively manage and implement the complex change processes triggered by the various reforms. The project will support institutional development and capacity building in two ministries: the Ministry of Finance and Budget which will implement the ambitious public finance reforms, and the Ministry o f Justice, which aims at developing and implementing a reform strategy to improve operational efficiency o f the judiciary and to combat corruption. These changes will be complemented by significant investments in training and capacity building. Ideally, - 35 - training should be provided locally, to reduce costs and the dependence o f Madagascar from overseas training. This calls for strengthening local training institutions that are critical to deliver the type o f training required by the reforms supported by this project (public financial management, general administration, monitoring & evaluation, legal andjudicial reform). The project will therefore support the National School for Magistrates and Clerks o f the Court (Ecole Nationale de la Magistrature et des Greffes, ENMG, and the National School o f Administration (Ecole Nationale d'Administration de Madagascar, ENAM).It will also assist Government in connecting Madagascar to the Global Development Leaming Network (GDLN)by establishing a Development Learning Center. Project Component 2.1 Support to the Ministry of Finance and Budget US$2.00 million - The introduction o f the new integrated financial management system and the implementation o f the recommendations o f the various analytical studies and reports, in particular, the report o f the government work group (CRROC) and the recently completed CFAA, will fundamentally change the operations o f the Ministryo f Finance and Budget. Over the past years, this ministry has already seen a number o f important reforms: With previous World Bank assistance (PAIGEP I) an integrated framework for budgeting and accounting including a new chart o f accounts (Plan Comptable des Op6rations Publiques: PCOP) was implemented, which permitted the standardization o f transactions in the area o f public finance. The Treasury (including the regional treasuries) and the Budget Planning Office were (partially) computerized to improve operational efficiency. An integrated financial management system was developed and tested in the province o f Toamasina; this experience will provide an important input for the introduction o f the comprehensive financial management system funded under this project. Just recently, the directorate charged with the development o f the operating budget (Budget Directorate) and the one responsible for the investment budget (Public Investment Directorate) were merged into a single General Directorate o f Public Expenditure. Work on adjusting the regulatory framework for public finance including the revision o f public accounting regulations is ongoing. While all these reforms are important buildingblocks for the intended consolidation o f the system o f public finance much remains to be done to improve the operational efficiency o f the system andto bringit to international standards.Important areas that needto be addressed include: In the context of the introduction o f the new integrated financial management system the institutional and regulatory framework needs to refined and existing operating manuals need to be revised. The new system is likely to have a significant impact on the existing institutional and procedural set-up. To avoid friction these implications have to be adequately dealt with. The new financial management system will also require a full integration o f the recurrent budget, the investment budget and the payroll which are currently prepared and managed separately. Overall compliance with public finance rules and regulations remains low. One o f the key findings o f the CFAA i s that a significant part o f the budget is implemented without proper reference and authorization. This situation seriously undermines the integrity and credibility o f the budget. There i s the need to tighten the regulatory framework for budget execution and to strictly enforce compliance. These activities will need to be complemented by adequate training and capacity building. Another finding o f the CFAA i s that the present payment authorization system i s significantly flawed because o f inconsistencies in the authorization process. The CFAA recommends to designate in every ministry one person with the full responsibility for budget executing (from the commitment up to the payment stage) to improve transparency and accountability. This reform process will require institutional and procedural changes as well as training and capacity building. Timely and accurate disbursement o f public resources has been identified as another key problem area. This relates in particular to efficiency problems at the Treasury Department which requires - 36 - improvement to speed up the process o f payment releases. Previous attempts to reform this department have failed, mainly due to resistance to change. To pave the way for a fundamental reform the Government -with assistance from the World Bank and France - has decided to initiate an organizational audit o f the Treasury to address these problems. The current change process needs to be complemented by adequate awareness creation and capacity buildingactivities. 0 Fixed asset management and inventory controls need to be systematically enforced on the basis o f a revised regulatory framework to ensure the adequate use o f public goods. The Ministry o f Finance and Budget is at the center o f all these changes. The project design reflects the implementation difficulties encountered under PAIGEP I,especially the issues o f change management and absorptive capacity o f the administration. Significant assistance in the form o f capacity building and technical advise will be provided to ensure that the Ministry o f Economy, Finance and Budget is able to adequately manage and decisively implement the intended reforms. In this context, technical advise i s aiming at supporting the government to introduce a prioritized and sequenced program o f reforms over time, which takes into account the absorptive capacities o f the administration. One key aspect inrelation to prioritization will be to identify the intermediate reform measures and their impact in relation to improvement o f public finance. Technical advise should also contribute to support change management, especially in relation to institutional issues linked to the introduction o f an integrated financial management system or the significant reform o f procurement. World Bank support will consequently focus on capacity building(US$1.6 million), the development o f new operational manuals incorporating the relevant changes (US$0.25 million) and specialized technical assistance in the area o f institutional and procedural development (US$O. 15 million). IDA support will complement the assistance by other development partners, in particular the African Development Bank (reform o f the Large Taxpayer Division and the establishment o f a Fiscal Policy Unit in the Ministry o f Finance); France (technical assistance for the restructuring o f the Treasury and the Revenue Directorate), and Germany (assistance for the coordination o f the reforms). Project Component 2.2 Supportto the Ministry of Justice US$2.50 million - The Government has identifiedjustice reform as a critical element to consolidate a democratic state which i s governed by the rule o f law. Inthis context, the fight against the significant corruption inthe judiciary i s a cornerstone for the Government's program to improve governance. In addition, within the framework o f economic liberalization and development o f a market economy, the existence o f a transparent and reliable judicial system, particularly inthe area o f business law, is considered indispensable. The support needs identified by the Ministry o f Justice are numerous and diverse. They include: the establishment o f the new jurisdictions specified in the Constitution (administrative and financial tribunals; HighCourt o f Justice); the construction and opening o fnewjurisdictions (e.g. Mampikony District Court), particularly in isolated areas; the reform o f procedural statutes; training and capacity building o f magistrates and other personnel, establishment o f the General Inspectorate o f the Justice System to improve internal control and combat corruption; codification and publication laws and regulations. The Ministry o f Justice has drafted an ambitious work program that centers around the following reform priorities: (i)rehabilitation o f the judicial and prison infrastructure, (ii) strengthening o f the mechanisms for combating corruption; (iii)expedition o f judicial processes; (iv) improvement o f the regulatory framework for the judiciary; and (v) humanization o f prison life. These broad priorities are broken down into detailed sub-components and action plans. It is particularly noteworthy that, in relative terms, legal reform i s considered to be of secondary importance incomparison to institutional reform, which adequately reflects the key problem area. Emphasis i s placed on the need to promote good governance and, in particular, efforts to stem corruption and upgrade human resources, as well as the political will to see - 37 - short-term objectives identified and then reached. The judiciary receives or will receive support from a number o f development partners: 0 The European Union is planning a major reform program to improve the communication infrastructure o f the judiciary and to modernize prisons. A needs analysis is under way to help identify potential support areas. 0 Support by France focuses on business law reforms and implementation o f the trade and company register. A technical advisor was made available to the Ministryto assist in refining the reforms. Efforts have also been made in the area o f criminal law, computerization o f the Ministry and the jurisdictions (with complementary support by the World Bank under PAIGEP I) and preparation for dissemination o f legal statutes. In addition, France provides targeted support to the National School for Magistrates and Clerks o f the Court (EcoleNationale des Magistrats et des Greffiers, ENMG), specifically with respect to training student magistrates, for the establishment o f two financial tribunals (Fianarantsoa and Mahajanga). The program is presently under evaluation, but it appears certain that a technical advisor for the Ministry will remain inplace to consolidate the actions already under way. 0 The United States (through USAID) focuses its assistance mainly on the improvement o f governance. Main target area i s the development o f extra-judicial methods for settling disputes specifically through the training o f arbitrators and mediators for business matters. World Bank support aims at complementing activities o f other development partners, in particular the European Union, and at consolidating the reforms initiated under PAIGEP which focused on the modemization o f business law, publication o f existing texts to the relevant stakeholders, improving human resources by the creation o f a National School for Magistrates and Clerks o f the Court. Project assistance, which will be closely coordinated with other development partners will focus on the following areas: 0 Expedition o f civil and commercial proceedings with the objective to significantly reduce the current backlog and to increase the efficiency o f the proceedings. In this context a national forum onjustice will be organized to discuss the issue o f expedited proceedings. The recommendations o f this forum would form the basis for an action plan to be implemented with assistance under this project. Inthis context, it will not be sufficient to consider only the time frame inwhich decisions are rendered, or the quality o f the instructions given. The effectiveness o f representatives o f the law, lawyers and bailiffs will also need to be considered, as will the concept o f a charter for the banking profession establishing a commitment not to hinder the freezing o f bank accounts or the seizure o f intangible assets. To further improve the efficiency o f the judiciary service standards and evaluation methods used in judicial work will be examined and re-evaluated. One o f the goals i s to increase the case load handled by the various magistrates in line with international standards. Technical assistance will be provided for the design and the dissemination o f these methods. This will include support to improve the communication infrastructure o f the judicial system in collaboration with the lead development partner in this area, the European Union. The National School for Magistrates and Clerks o f the Court, will be tasked with training and capacity building on the basis o f the newly developed evaluation methods and service standards (both pre-service and in-service training). 0 To ensure effective oversight and to combat corruption the internal control cadre o f the Ministry o f - 38 - Justice, the Judicial Services Inspectorate, will be further strengthened. The existing system o f oversight will be rationalized. It is envisaged to transform the inspectorate into the General Inspectorate o f the Justice System as specified in the Constitution. In this context, a detailed inspection system with procedural manuals needs to be developed and implemented. These activities will be complemented by capacity buildingand specialized training o f relevant staff. Project support comprises training and capacity building (USS0.5 million), equipment and other modernization needs (US$1.5 million) as well as targeted technical assistance to implement the reforms (USS0.5 million). Project Component 2.3 Improvement of selected public services US$1.70 million - To ensure credibility o f institutional reforms the Government intends to fundamentally overhaul a limited number o f public services with large public-private interface. Key objective is to improve service delivery and produce visible results in the short term. The identification o f these services is presently ongoing; services could include customs, land titling, primary education and the commercial sections of courts. It is anticipated to base the reforms o f these services on a broad participatory approach, involving relevant stakeholders andor beneficiaries in the design and implementation o f the change process. Regular impact assessment will complement the implementation o f the reforms. The Government initiative can build on some experiences to improve and strengthen decentralized service delivery: UNDP is financing capacity building activities at the commune level in two provinces (Fainarantsoa and Toliara). In addition, UNDP is supporting regional development o f Ambato Boeny in the province o f Majunga. It is envisaged that this support will be extended to another region (Ambalavao) inthe province of Fianarantsoa. The European Union is currently developing a rural development program that will provide investment finance and institutional support to rural communes in the provinces o f Tulear and Fianarantsoa. The European Union and France will also provide assistance for customs reforms. France supported social and political development at the commune level. It also provided assistance for the establishment o f administrative and financial tribunals in two provinces. It is anticipated to provide technical advise to the new ministry to refine and operationalize the reforms. The World Bank assistance presently focuses on investments and some basic capacity buildingat the commune level. Development partners have agreed to support this reform initiative o f the Govemment which could provide the basis for a broader reform program if the initial reforms are successful. Support under this project will focus on capacity building, workshops as well as beneficiary and impact assessments aimed at reforming selected public services (US1.0 million). Additional support will fund some basic equipment (IT, fumiture) to improve efficiency o f public services (US%0.5 million) and specialized technical advise to operationalize the intended reforms (USS0.2 million). Project Component2.4 Strengthening of local training institutions US$7.30 million - The implementation o f the reforms supported by this project will require major investments in human resources development and professional training, in particular in the areas o f public finance management, general administration, monitoring & evaluation, legal andjudicial reforms. Ideally, the bulk o f the training should be delivered locally for reasons o f efficiency. This would require local training institutions that are able to deliver high-quality training and capacity building in the above mentioned priority areas. At the present stage, the capacity o f the local training institutions in question is weak. The project will therefore support the strengthening o f three local training institutions, which play a major role in the provision of capacity building required under this project, also to reduce Madagascar's dependency on overseas training: - 39 - 0 The National School for Magistrates and Clerks of the Court (Ecole Nationale de la Magistrature et des Greffes: ENMG) has been in operation for six years, with major support by the World Bank under PAIGEP I. its existence it has trained 108magistrates and 179 clerks inall areasrelevant During to their work. This has allowed the Govemment to increase the number of legaljurisdictions by from 33 to 37 and thus bringing the legal system closer to the population. The additional staff has also contributed to a substantial reduction in the backlogs o f court decisions: from 1999 to 2001 the backlog o f penal court orders has been reduced by 21%, and that o f civil and commercial court orders by 14%. More than 20% o f magistrates and clerks have received pre-service training from this institution, and virtually all have attendedat least one session o f in-service training. ENMGis currently at a critical juncture of its development. Because it has demonstrated its value the Government has decided to provide it with new facilities which will allow it to expand. Since its inception the school has suffered from an inadequate operating budget and lack o f funds to design and organize training programs. PAIGEP Isupported the process of setting up ENMG and, in particular, provided funding for training and some office equipment. In the past, France and the US provided some assistance to enable training and capacity building. France has also supported the collaboration with overseas training institutions. The project will continue to support ENMGto consolidate the achievements under PAIGEP Iand to complement the legayjudicial reforms initiated by the Govemment. The support needs of the school are substantial. The new facilities need to be adequately equipped to enable acceptable work conditions. The training program (initial and continuing education) of the school must be revisedin view of new demands in the area of legal and judicial reform (for example expedition of proceedings and intemal controls). A training program for the professional staff of the school needs to be initiated to enable the school to meet these new demands. The overall training concept will have to be revisited. It i s anticipated to make in-service training mandatory with a significant impact on the career development. Training and capacity buildingmust be adequately funded to allow broad participation. Collaboration with other training institutions inthe region and overseas has to be improved to ensure that the school meets intemational standards. World Bank support will focus on equipping the new facilities o f the school (US$2.0 million), on the development o f new curricula and training material (USS0.7 million), on the training o f trainers and other professional staff (US$O.S million), on providing funds for training o f magistrates, clerks and other personnel in the judicial system (US$1.3 million) and on other specialized technical assistance to enable the school to fulfill its mandate (US0.3 million). 0 The National School of Administration (Ecole Nationale d'Administration de Madagascar, ENAM) was created 20 years ago to the key training institutions for the public servants. The school i s focusing on professional training and development; different types o f basic training and continuing education are provided for administrators and inspectors in the civil service. In 1990, ENAM established a training branch specifically for the needs o f the revenue agencies. The school is organized as a public institution (dtablissementpublic d caractzre administvat$ EPA), it receives its funding from the Government budget. Key problems include: (i) capacity for basic training and limited continuing education that does not meet the demand (the total capacity is presently 250 against a potential demand o f more than l,OOO), (ii)lack ofmodem equipment and training facilities, (iii) outdated curricula and training material, (iv) lack o f qualified trainers; at present the school has three permanent and 80 part time trainers. To address these problems, the school has developed a reform program that centers around the following objectives: (i) the improvement of quality of training and professionalization o f trainers, (ii)modernization of curricula and training material, (iii)expansion into areas o f high demand, in particular in the area o f public finance, and (iv) improvement of the overall - 40 - administration o f the school. The school has conducted an analysis to identify the training needs in the public administration. Key findings include the need to substantially enhance training for the sub-national levels o f Government and to improve capacity building in the area o f public finance. On the basis o f these findings, it is planned to further enhance the services o f the school to cover areas o f high demand (public finance, general administration). The extension o f the capacity o f the school (both in terms o f capacity and areas covered) will require significant investments (equipment, staffing, training material, curricula development etc.) and will have a major impact on the administrative structure o f the school. World Bank support will be provided for the following areas: (i)Establishment ofa commission to review the existing curricula andtrainingmaterials with the objective o f adjusting them to the existing demand. The commission will also develop new curricula and training materials in line with the expansion o f the school into other areas. Support will be provided for consultancy services (USS0.3 million), equipment and office material (US$O. 1 million). (ii)Organizational restructuring of the school to modernize school administration and improve operational efficiency. Support will cover consultancy services (US$0.05 million) and capacity building(US$0.05 million). (iii)Creation o f a high-caliber core group o f qualified trainers who are able to deliver training in line with international standards. Support will be provided for specialized training and capacity building (USS0.6 million). (iv) Support to upgrade and modernize the facilities o f the school. Support will focus on equipment o f training rooms (US$0.5 million), modemization o f the library (US$0.2 million) and new training material (US$0.2 million). The National Center for Administrative Training (Centre National de Formation Administrative, CNFA) was founded in 1963. Its main objective is the basic training (two years) o f middle level candidates for the civil service inMadagascar. It is the principle training institution for technical level staff o f the administration. It is also involved in continuing education for the technical levels o f the administration. Over the years, CNFA has trained more than 3000 civil servants, mainly revenue agents, financial management specialist and administrators in all branches o f Government. CNFA is organized as a public institution attached to the Civil Service Ministry. Key problems include: (i) limited capacity for basic training that does not meet the demand (the total capacity is presently 220 against an estimated demand o f 350), (ii) modernize equipment, training facilities, curricula and needto training material, (iii)lack o f qualified professional training cadre. The center presently does not receive donor funding. World Bank support will focus on the development o f new curricula and updated training material (USS0.2 million), on the training o f professional staff (US$0.3 million), on some equipment to increase the capacity o f the center and modernize its training facilities (USS0.6 million), and on providing funds for training o f technical level civil servants mainly at the sub-national levels o f Government (USS0.4 million). Project Component 2.5 Establishment of a Development Learning Center US$2.50 million - The Global Development Learning Network (GDLN) Program has completed its third year o f operation with some success indeveloping programming and content. Already operational ineight countries inAfrica and in more than fifty around the world, the Development Learning Centers are today successful learning tools. After two year o f operations, the DLCs in Dakar and Benin has already reached the objectives o f the thirdyear interms o f operating costs recovery, the leaming program andthe number of clients. -41 - With Mauritania, Kenya, Burkina Faso, and Mali, Madagascar will benefit from this new learningnetwork as part o f the third phase o f the GDLN deployment. Moreover, the D L C in Antananarivo will be part o f a Francophone African DL network already including Benin, Burkina Faso, Cote d'Ivoire, Mauritania, Senegal. These five Centers benefit from a close relationship with the World Bank Institute (WBI) GDLN Services Department in Paris, France. The WBI and other World Bank units deliver many learning activities themselves through the network. The GDLN Services Department inPans, inaddition, facilitates provision o f activities from many other learning institutions, all over the world. These include other international agencies (such as Agence FranGaise de Ddveloppement, The Institut de la Banque de France, etc.. .), learning institutions indeveloping countries and universities in Canada and Europe. Distance learning is a fairly recent concept for Madagascar. The first center to allow for such activities is the National Distance Leaming Center o f Madagascar (Centre National de TdId-Enseignement de Madagascar: CNTEMAD), founded in 1992 and affiliated with the University o f Antananarivo, which offers multilevel correspondence courses to students located throughout the country. The distance learning initiative will aim to: (i) improve the quality o f training and capacity building in Madagascar, (ii) strengthen the environment o f policy reform andbuildingthe capacity in the public and private sectors; (ii) help coordinate all the local training institutions in regard to the national capacity building policy by puttingin coherence, through the DLC Board, all the courses and training offered by the existing training institutions. The main target audience o f the GDLN comprises o f decision makers from the public sector and civil servants in general. Due to the limited budget allocations available to governments, the public sector has not represented a large part o f the GDLN trainees but the number o f civil servant trainees i s growing and has reached an encouraging fifty percent in certain counties. Some GDLN Centers have now signed agreements with government administrations presenting the D L C and the GDLN as the main training tool for civil servants. A detailed training needs assessment, covering the public and private sectors and civil society, is being conducted as input for the Center's business plan. The consultant undertaking the study will have access to similar studies conducted in other countries, such as Benin, Cote d'Ivoire, and Senegal, to give Madagascar the advantage o f experience in other counties. Funding for the D L C to be provided under the project will include : 0 D L C construction, equipment and installation. This component will set up the institutional, physical and human resource requirements for the DLC. It will be implemented by the project implementation unit.(US$l. 1million). Support o f the DLC operations. The component will support the D L C operations and assist in establishing its viability and training program. It will be implemented by the DLC. (US$1.2 million). 0 Monitoring & Evaluation. This component will support monitoring and evaluation activities aimed at ensuring the sustainability o f the center. It will be managed by the project coordination unit with considerable input and collaboration from the DLC. (US$0.2 million). The project will finance the D L C operations during the first four years o f operations on a decreasing basis. The first year, the project will cover 80% o f the Center's operating costs. The second year, it will cover 60%, the third year 40%, and the fourth year 20%. The management staff o f the D L C will elaborate a business-plan which will describe the management policy o f the Center. The business-plan will help the D L C to reach financial sustainability by the fifth year o f implementation. - 42 - Project Component 3. Effective Project Management US$3.20 million - The Bureau National du Projet (BNP) established as the management structure for the Public Management Capacity Building Project (PAIGEP I) will continue to administrate and supervise the project activities. This unit will be responsible for : (a) procurement, including all contracting for works and purchases, and the hiring o f consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with IDA, and (d) financial recordkeeping, the Special Account and disbursements. Adequate operation o f the BNP i s a key factor for the implementationo f the project. The BNP consists o f a director, five technical staff and support staff. It i s attached to the Presidency. The BNP together with a Project Coordinator at the Presidency will ensure the coordination between the different stakeholders affected by and institutions participating inthe project. A Steering Committee consisting o f the Permanent Secretaries o f all targeted institutions has been set up to provide advice and general guidance during project implementation. The Steering Committee i s headed by the Project Coordinator who reports to the Chief o f Staff at the Presidency. The members o f the Steering Committee are responsible for the coordination o f project activities and the facilitation o f the implementation intheir respective areas. The project will finance the recurrent costs (salaries and operation costs) o f the BNP, o f the Project Coordinator and two technical advisors (one at the Presidency, the other one at the Ministry o f Finance) who are deemed necessary to ensure adequate project implementation, extemal auditing and accounting assistance (consultants) (USS2.2 million). Additional short term consultants will be recruited for the assistance to the BNP during the supervision o f the project, in particular for regular independent audits o f implementation progress and impact assessments (USs0.4 million). The project will also fund additional equipment (USS0.3 million) and relevant training o f the BNP staff (USS0.3 million). - 43 - Annex 3: Estimated Project Costs MADAGASCAR: Governance and Institutional Development Project 1. Improvement of Transparency and Economic Govemance 12.90 19.20 32.10 2. Capacity Buildingand Strengthening of Local Training 12.10 3.90 16.00 Institutions 3. Project Coordinationand Management 2.50 0.70 3.20 PPF 0.00 1.58 1.58 Unallocated 1.62 1.40 3.02 Total Baseline Cost 29.12 26.78 55.90 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 1.10 1.oo 2.10 Total Project Costs' 30.22 27.78 58.00 Total Financing Required 30.22 27.78 58.00 N o physical contingencies have been calculated. The estimed costs of components 1-3 are compounded Innually by 1%. Goods Services incl. training Recurrentcosts Contingencies PPF Unallocated Total Project Cost: 23.14 34.86 58.00 Total Financing Required 23.14 34.86 58.00 1 Identifiable taxes and duties are 0 (US$m)and the total project cost, net of taxes, is 58 (US$m). Therefore, the project cost sharing ratio is 5 1.72% oftotal project cost net oftaxes. - 44 - Annex 4: Cost Effectiveness Analysis Summary MADAGASCAR: Governance and Institutional Development Project The economic analysis comes to the conclusion that the benefits triggered by the project interventions clearly outweigh the costs. Although it is not possible to quantify all benefits, the analysis o f quantifiable factors confirms that planned investments and other additional costs generated by implementation o f the project will over a period of ten years be largely compensated by the expected benefits. The quantifiable benefits accrued over ten year period represent a net present value o f U S 1 6 7 million (see details below). These benefits consist of savings made from inadequate use or misuse o f public resources as well as from additional costs paid by households andthe private sector due to corruption. These benefits are by-and-large indirect; the beneficiaries are households, private enterprises and the administration. The estimated benefits exceed the costs for implementing the project, which - apart from the initial investments - consists o f increasing recurrent costs o f the targeted departments and agencies which benefit from the project. The overall net present value amounts intotal to 80 million dollars for the ten year period. To facilitate the quantification o f benefits the project activities have been grouped under two components: (i)enhancement oftransparency and efficiency ofthe public finance system, and (ii)improvement of governance and o f public services. In addition, for the Global Development Learning Center, which will be funded by the project, a marketing study is underway which will evaluate the costs and the benefits o f the center. 1.Enhancement oftransparency and efficiency of public finance system 1.1.Identification/quantificationofbenefitsand of beneficiaries The activities under this component provide for the most important benefits. They include: (i)capacity building and institutional development support to the Ministry o f Finance, Economy, and Budget: (ii) strengthening o f internal and external control functions o f the system o f public finance; (iii) o f reform public procurement, and (iv) design and implementation of a monitoring & evaluation framework for the PRSP. Other capacity buildingelement (i.e. support to ENAMand CNFA) have been included. The total benefits generated by these activities will actually reach a net present value o f more than US$120m over the period o f 10 years. In this context, three elements will constitute the main sources o f such benefits: the integrated public finance management system which will rationalize and streamline expenditure management, the procurement reform which will overhaul the existingprocurement system, and the strengthening o f internal and external control mechanisms to ensure adequate use o f public resources. The positive impact will be reinforced by qualitative benefits, in particular improved transparency and accountability. The estimates are based on the average annual amount of the misusehadequate use of public resources which amount to approximately 40 million dollars per year. This figure is derived data reported by " Brigade d'Inspection des Tr&sors" and by the "Inspection G&n&ralde I'Etat (IGE)". These data are complemented by estimates o f other misuses o f public resources which are presentedinthe following table: - 45 - Table 1 MisappropriationlMisuse of Public Resources 1999 2000 2001 2002 Average (in millionFMG) [inmillionFMG) (in millionFMG) (inmillionFMG) n millionFMG) Misuse reportedby the IGE 12,121.66 6,314.73 254,157.06 3,380.07 68,993.38 Misuse reportedby Brigadede 30,960.21 1,734.17 6,48 1.03 5,578.03 11,188.36 TrCsor Misuse inthe BudgetChain' 19,120.51 27,003.20 51.38 117.30 1,573.10 Misuse through publicprocurementi 66,634.35 88,159.54 109,3 12.50 92,344.79 89,112.79 Misuse of fund inGovernment Autonomous Agencies 43,081.86 8,048.90 260,638.09 8,958.10 90,18 1.74 Total in millionFMG 171,918.59 131,260.54 630,640.06 110,378.29 261,049.37 The total benefits were calculated based on an annual reduction o f 10% o f the misuse/misappropriation o f public resources. Inaddition, it was assumed that the reduction will peak as o f year 6: Table 2 summarizes the evolution o f benefits until 2014: Table 2 Net Present Value Enhancement of transparency and efficiency of the public finance system I . ... _I c. I 3 1 2004 1 4.01 3.72 2005 8.03 6.89 2007 16.06 11.81 2008 I1 20.08 13.67 2010 24.10 14.06 2011 24.10 13.02 2012 24.10 12.05 2014 1 24.10 10.33 Total 1 204.82 121.45 Inthis context, it is expected that the new integrated financial management system andimprovement of the internallexternal control mechanisms will have the greatest impact on the use o f public resources. Improved controls and modernization will significantly decrease misappropriation or misuse o f public expenditures which often occw in the form o f cash deficits inthe treasuries, through falsification o f payment documents, false entries, and other misuses o f the budget. It is estimated that such misuses amount to around US$26 - 46 - million per year. Procurement i s another major source o f misuse o f public resources, mainly due to corruption. The amount o f misused i s estimated at least at 13 million dollars per year. The intended procurement reform will fundamentally overhaul the existing system. Additional benefits are to be expected by the implementation of a monitoring & evaluation framework for the PRSP; though these benefits are difficult to quantify it i s anticipated that the new system will lead to a qualitative improvement o f government activities and related public expenditures. 1.2. costs The net present value o f the activities to enhance transparency and efficiency o f the public finance system will be about US$60 million: Table 3 Net PresentValue Activity Costs Enhancementof transparency and efficiencyof the public finance system I Year I NominalCost I Net Presentvalue I 6.40 I 5.93 2005 11.70 10.03 2006 17.50 13.89 2007 8.50 6.25 I 2008 I 6.90 I 4.70 I 2009 4.75 2.99 I 2010 5.50 3.21 2011 III 6.00 1II 3.24 2012 6.00 3.00 2013 6.00 2.78 2014 6.00 2.57 I Total 1 85.25 I 58.59 1 These costs will include the investments required to develop and implement an integrated financial management system, including the increased recurrent costs for the operation o f such a system, procurement reforms and the investments necessary to strengthen intemavextemal control mechanisms (initial investment, supplementary operating costs, increased staffing etc.). 2. Improvement of governance and public services 2.1. Identificatiodquantification of benefits and of beneficiaries These activities include anti-corruption measures, the reform o f the judicial system, capacity building and institutional development for the Ministry o f Justice, support to the School o f Magistrates (EcoleNationale de la Magistrature et des Greffes, ENMG) as well as the improvement o f targeted public services. The total benefits are estimated at about US$47 million after 10 years. They entail the potential saving made by the users o f public services (households and private enterprises) based on a reduction o f corruption, and improved tax revenues. - 47 - The potential savings by households and private enterprises will have a net value o f about US$25 million after ten years; they were estimated on the basis o f extra costs paid by public service users in three departments identified by a Transparency International survey as the most corrupt ones (traffic police, customs andjustice). These costs are on average US$l5 million as the table below indicates: Table 4 Extra cost of Public Service Users due to Corruption Gap of Fiscal Revenue Amount Amount inmillion FMG in US Dollars Traffic Police4 5,490.00 844,615 Customs (users extra costf 24,270.00 3,733,846 Customs (Gap of fiscal Revenue)6 48,540.00 7,467,692 Administration 7,500.00 1,153,846 Justice 16,498.00 2,538,154 Total 102,298.00 15,738,154 The remaining benefits through reduced Corruption in other departments was estimated. The total benefits were then calculated on the basis o f an annual decrease o f 10% in corruption. I t was also assumed that these savings will peak as o f year six. Other benefits will be derived from reforming customs. The assessment is based on a revenue loss o f US$7 million (30% o f annual average revenues o f about US$25 million). A decrease in corruption o f 10% per year will allow the Govemment to recover US$22 million after ten years (with the hypothesis that benefits will stagnate as o f the sixthyear). Table 5 summarized the net present value over a period o f ten years: Table 5 Net Present Value Improvement of Governance and Public Services Year Nominal Benefit Net Present value' 9.44 I 5.10 1 2012 9.44 4.72 2013 I I1 9.44 1I 4.37 I 2014 1 9.44 I 4.05 1 Total 1 78.99 1 46.73 1 - 48 - In addition, improved transparency, accountability and credibility in the administration and inthe justice system will generate important indirect benefits, inparticular trigger increasedinvestments. 2.2. costs The net present value o f activities supported by the project amount to US$22 million over the ten year period. These costs include investment and recurrent costs. Table 6 Net PresentValue Activity Costs Improvementof Governance and Public Services Year NominalCost Cost Netresent Value (uS$m) (uS$m) 2003 2004 1.80 1.67 2005 4.40 3.77 2006 5.00 3.97 2007 3.50 2.57 2009 2.50 1.58 2010 II 2.75 1.60 2013 2.75 1.27 I 2014 II 2.75 1.18 Total I 32.95 I 21.84 I The most significant investments will be required by the intended support for the Government's anti-corruption activities. These activities entail the establishment o f an anti-corruption commission (CSLCC). Costs related to justice reform are limited. They mainly result from an increase in operating costs o f the justice administration and o f the tribunals. Support to the ENMG will focus mainly on upgrading o f the existing infrastructure which will result in increased recurred costs. .Footnotes:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . This amountis basedonthe recurrentbudgetexcludingpersonnelemolumentswhich hasbeenmultipliedwith acoefficient of0.8. 2% ofthis amount was estimatedto be misusedor misappropriated. This amount is basedon the PublicInvestmentProgramwhich hasbeenmultipliedby a coefficientof0.7. 5% ofthe amountwas estimatedto be misusedor misappropriated. A depreciationof 8% per year was usedfor the calculationofthe netpresent value. The assessmentof the misuseis basedonthe assumptionthat out of atotal of 100.000 Govemment vehicles circulating inthe country 20% are misappropriatedwhich amounts to 300, 000 FMGper year. 10%ofthe value ofcustoms revenue (estimatedat 168 Billion of FMG) that would bepaidby honesthouseholdsand enterprises to receivegoods ontime and in goodcondition. It is estimatedthat 30% of the value of customsrevenue(estimated at 168 Billion of FMG) are misusedby customs officials. The net present value calculationwas basedon adepreciationrate of 8%. - 49 - Annex 5: Financial Summary MADAGASCAR: Governance and Institutional Development Project Years Ending 2004-2009 IMPLEMENTATIONPERIOD ' * * $ I Year1 I Year2 I Year3 I Year4 I Year5 I Year6 IYear7 Total Financing Required ProjectCosts Investment Costs 8.0 9.0 12.0 14.0 9.0 1.o 0.0 Recurrent Costs 1.o 1.o 1.o 1.o 1.o 0.0 0.0 Total ProjectCosts 9.0 10.0 13.0 15.0 10.0 1.o 0.0 Total Financing 9.0 10.0 13.0 15.0 10.0 1.o 0.0 Financing IBRDllDA 7.0 7.0 7.0 4.0 4.0 1.o 0.0 Government 2.0 3.O 6.0 11.0 6.0 0.0 0.0 Central 3.O 3.O 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 , Total Project Financing 9.0 10.0 13.0 15.0 10.0 1.o 0.0 Main assumptions: (i) IDA support will cover the bulk ofthe fundingneeds duringfirst three years ofproject implementation, (ii) Governmentwill progressively take over fundingfor projectimplementationthrough its annualbudget, (iii) After the first three years of projectimplementationinvestment lendingwill continue to cover training, capacity buildingand specializedtechnical advise. - 50 - Annex 6(A): Procurement Arrangements MADAGASCAR: Governance and Institutional Development Project Procurement General 1. The third Country Procurement Assessment Review (CPAR) has been conducted in November 2002 for Madagascar and a workshop took place on May 2003 for the validation o f a joint CPAWCFAA action plan to ensure rapid implementation o f procurement reforms. The Procurement Code issued in 1998 will continue to govern untila new code will be set up and adopted. N o special exceptions, permits or licenses need to be specified in the Credit documents for international competitive bidding since Madagascar procurement practices allow IDA procedures to take precedence over any contrary provisions o f local regulations. Use of Bank Guidelines 2. Goods and works financed by IDA will be procured in accordance with IDA Guidelines for Procurement under IBRD Loans and IDA Credits dated January 1995 and revised in January 1996, August 1996, September 1997, and January 1999. Bank Standard Bidding Documents (SBD), and Standard Evaluation Report (SER) will be used for both International Competitive Bidding (ICB) and National Competitive Bidding(NCB) procedures. N C B advertised locally will be carried out in accordance with the Madagascar's procurement laws and regulations, acceptable to IDA provided that they assure economy, efficiency, transparency, and broad consistency with key objectives o f the Bank Guidelines. For N C B procedures, the Government gave assurance during negotiations that the following principles would be adhered to: (i) all bids would be submitted in one envelope to be opened publicly; (ii) systems point would not be used for bid evaluation for works; (iii) award o f contracts would be announced to all the bidders; (iv) any bidder would be given adequate response time (at least four weeks) for preparation and submission o f bids; (v) bid evaluation and bidder qualification criteria would be clearly specified in bidding/pre-qualificationdocuments and will not be applied arbitrarily; (vi) eligible firms would not be precluded from participation; (vii) no preference margin i s granted to domestic contractors and suppliers; (viii) contracts would be awarded to the lowest evaluated bidder in accordance with predetermined and transparent methods; and (ix) bid evaluation reports would clearly state the reasons to reject any non-responsive bid. To mitigate risks o f delays for the proposed project, proper prerequisites for the use o f Bank standard bidding documents, including evaluation reports for National Competitive Bidding procedures (NCB) have been agreed on with the Government during negotiations and the Procedures Manual would be submitted to and found acceptable by IDA. 3. Consultancy services financed by IDA will be procured inaccordance with IDA Guidelines for the Selection o f Consultants by World Bank Borrowers dated January 1997,revised in September 1997, January 1999 and May 2002 . The Standard Request for Proposals (RFP) as developed by the Bank will be usedfor the selection o f consulting firms. Simplified contracts, acceptable to the Bank, will be used for short term assignments, i.e. those not exceeding six months, or for those costing less than US$200,000. The Government has been briefed during appraisal as well as negotiations about the features o f the most recent consultants Guidelines, inparticular with respect to advertisement, proposals opening and the various steps o f IDA review. Procurement methods (Table A) 4. Procurement o f Works. The project will finance works contracts for an estimated total amount o f US$4.4 million equivalent, o f which IDA will finance US$2.4 million, including (i) works for the civil establishment o f a Development Learning Center, and (ii) works related to the rehabilitation and -51 - improvement o f existing facilities for the introduction o f an integrated financial management system. Civil works procurement shall be carried out through National Competitive Bidding (NCB) procedures. Contracts for small works, estimated to cost less than US$50,000, will be procured through quotations procedures. 5. Procurement o f Goods. The project will finance the purchase o f goods for an estimated total amount o f US$9.32 million equivalent, o f which IDA will finance U S 4 . 6 million, including: (i) fumiture and IT equipment for the rehabilitation o f training facilities and the modernization o f libraries, (ii) equipment for the establishment o f a Wide-Area Network for the integrated financial management system, (iii) fumiture and equipment for the Development Learning Center, (iv) vehicles and motorcycles, and (v) sector-related scientific, technical and financial books and documentation. Most o f the goods will be procured through (a) I C B procedures when costing more than US$250,000 per package, (b) N C B when costing between US$250,000 and US$50,000, (c) National Shopping (NS) procedures acceptable to the Bank, based on the evaluation o f at least three price quotations and in accordance with provisions o f paragraph 3.5 and 3.6 o f the Guidelines, for items costing less than US$50,000, including office equipment, furniture, training materials, office supplies and documentation, and (d) also, to facilitate speedy procurement, vehicles may be procured from the UnitedNations Agency IAPSO. 6. Consultancy Services and Training. The project will finance the contracting o f consultancy services for studies, technical assistance and training up to an estimated total amount o f US$38.96 million, o f which US$20.32 million will be financed by IDA. Firms. Firms will be recruited on the basis o f the Quality and Costs Based selection (QCBS) method, using the Bank's Standard Request for Proposals, to provide services including (i) the design and introduction o f an integrated financial management system on a turn-key basis; (ii) the technical assistance for organizational design, institutional development, training and capacity building; (iii)project management and supervision support, independent audits and review, and (iv) the project's auditors. Selection based on consultants qualifications (CQ) can be used for the recruitment o f training institutions and for assignments that meet criteria set out inpara. 3.7 o f the Guidelines. Single Source selection can be used to extend the contract o f firms contracted under the PPF (using as a rule QCBS) to assist the government in designing and supervising specific sub-components and for contract which amount do not exceed US$lOO,OOO or equivalent. For contracts based on a short list o f consultants estimated to cost US$lOO,OOO or less per contract, the short list may consist entirely of national consultants if a minimumo f three qualified ones are available. Individuals. Individuals will be recruited incases where a firm i s not needed. Such individuals will be selected and recruited on the basis o f qualification and experience inaccordance with Bank Guidelines. 7. Incremental Recurrent Costs. The project would finance incremental recurrent costs up to an amount o f US$3.4 million equivalent. Incrementalrecurrent cost would include: (i) expenditures for the operating costs o f the Development Learning Center, to a total aggregate o f US$1.2 million, (ii) expenditures for the contracting o f auxiliary personnel required for the implementation o f the project, to a total aggregate of US$1.3 million; (iii) expenditures and supplies for the operation and maintenance o f facilities requiredfor the implementation o f the project (such as expenditures for office supplies, rental fees, services, operation and maintenance o f equipment financed out o f the proceeds o f the Credit, as well as for domestic and international travel and per diems relatedto project implementation activities, to a total aggregate o f US$O.9 million. All procurement withinthis category shall be done according to the Project Implementation Plan manual. The approval by IDA and the adoption by M o f o f this manual i s a condition o f effectiveness o f the Credit, and any amendment to such manual will have to be also acceptable to IDA. - 52 - Advertising 8. A general procurement notice (GPN) will be prepared and issued upon Board Approval in the United Nations Development Business listing all contracts above US$500,000 for works and US$250,000 for consultants. It would be updated annually for any outstanding major procurement. Specific Procurement Notices for works to be procured -will be advertised in the national press o f wide distribution. Requests for expression o f interest will be published in local newspapers and inthe UNDB for consultancy contracts estimated to cost more than US$250,000. Responses will be recorded in a register established at the BNP. Since a large portion o f the Credit funds will be used for technical assistance and consulting assignments, early attention will be given to advance planning o f recruitment and timely search for expressions o f interest through intemational advertising to obtain the best possible pool o f candidates from which strong short lists can be compiled. The related biddingdocuments, as applicable, will not be released -ortheshortlistforconsultant serviceswillnotbeprepared-beforeeightweeks aftertheGPNhasbeen published. Specific procurement notices will be advertised in the national press o f wide circulation and internationally for large contracts. Sufficient time will be allowed to obtain bid documents and to prepare bids. IDA Review 9. All contracts for construction o f civil works above US$500,000 and for goods above US$250,000 will be subject to IDA's prior review procedures. The use o f IDA's standard bidding documents will considerably expedite the prior review process as IDA review will primarily focus on invitations to bid, bid data sheets, contract data, technical specifications, bill o f quantitieshchedule o f requirement and other contract specific items. The review process would cover about 80 percent o f the total value o f the amount contracted for works. Procurement post review o f contracts awarded below the threshold levels will apply and should cover 20% o f contract in term o f number, in the event samples o f post reviews indicate major problems, additional reviews, financed by the Borrower, should cover the remaining portion o f contracts. Draft standard bidding documents for N C B will be reviewed and agreed upon with IDA prior to Credit effectiveness. 10. For consultant services, prior review will include the review o f budgets, short-lists, selections procedures, terms o f reference, letters o f invitation, proposals, evaluation reports and draft contracts. Prior IDA review will not apply to contracts for the recruitment o f consulting firms and individuals estimated to cost less than US$lOO,OOO and US$50,000 equivalent respectively. However, IDA prior review will apply to the Terms o f Reference o f such contracts, regardless o f value, to single-source hiring, to assignments o f a critical nature as determined by IDA or to amendments o f contracts raising the contract value above the prior review threshold. For contracts estimated to cost less than US$lOO,OOO and more than US$50,000 the borrower will notify IDA o f the results o f the technical evaluation prior to opening the financial proposals. Documents related to procurement below the prior review thresholds will be maintained by the borrower for ex-post review by auditors and by IDA supervision missions. The Project Unit will be required to maintain all relevant procurement documentation for subsequent review by IDA. The Project Unit will submit to IDA periodic procurement schedules detailing each procurement package inprogress and completed as part o f the normal project reporting exercise. ProcurementImplementationArrangements 11, Procurement responsibility for the project rests with the respective services within BNP. BNP will be responsible for the quality o f these procurements and adherence to Bank procedures. The tasks o f BNP will comprise: (a) maintaining a register o f all interestedbidders; (b) maintaining a detailed list o f technical specifications o f goods and services to be financed by the project; (c) preparation o f the procurement plan and calendar; (d) preparation andor finalization o f pre-qualificationbidding documents and requests for proposals; (e) bid evaluation and preparation o f evaluation reports; (f) contract approval process; (g) - 53 - receipt o f goods and services and dispatching; and (h) processing intemational and local price quotations. Procurement Capacity Assessment 12. A procurement capacity assessment was conducted during project's appraisal, and the findings are highlighted in the table below. During appraisal, assurance was given that BNP will: (a) recruit a procurement specialist; (b) submit a draft procurement plan for the first year acceptable to IDA; and (c) give assurance that it will (i)apply the agreed procurement procedures and arrangements; (ii) standard use bidding documents acceptable to the Bank (annexed to the Manual o f Procedures of the PIP); and (iii) annually review the procurement plan with IDA. Action Planto Strengthen BNP'sProcurementManagement Capacity I1 Tasks Resnonsibilitv Due Date Finalization o f nroiect Manual o f Procedures II BNP II Prior to oroiect effectiveness II Establishment o f filing system BNP Prior to project effectiveness Recruitment o f Procurement Officer(s) for BNP BNP Prior to project effectiveness ProcurementPlan 13. The Procurement Plan for works, goods and services to be procured by BNP during the first implementation year o f the project has been agreed between the Government and the Bank during negotiations. It will be part o f the Project Implementation Plan (to be approved by Government and acceptable to the Bank before credit effectiveness). For each subsequent year, the procurement plan related to the agreed Annual Work Program will be updated and submitted to the Bank for review and approval. These plans show and will show the step-by-step procedures for procurement, contract packages for goods, works and consultants services and training, estimated cost and the procurementhelection method, the activities which follow procurement, such as manufacture, shipment, delivery and installation o f goods; mobilization, construction and completion o f works. It is mandatory that all procurement be carried out in accordance with the formally agreed procurement plan (original and formally up-dated). Therefore, for the purpose o f this project, agreed Procurement Plans will determine procurement methods and it i s not necessary to set up aggregate total amounts. - 54 - Table A: Project(US$ Costs by ProcurementArrangements million equivalent) 6. PPF 0.00 0.00 1.58 0.00 1.58 (0.00) (0.00) (1.58) (0.00) (1.58) Total 2.75 8.77 46.48 0.00 58.00 (1.40) (4.40) (24.20) (0.00) (30.00) -55 - Table A I: Consultant Selection Arrangements (optional) (US$ million equivalent) (13.32) (0.00) (0.00) (0.00) (4.80) (0.90) (0.00) (19.02) B. Individuals (0.00) (0.00) (0.00) (0.00) (0.00) (1.30) (0.00) (1.30) Total 23.16 0.00 13.00 2.80 38.96 (13.32) (0.00) (0.00) (0.00) (4.80) I (2.20) I (0.00) I (20.32) I I\Includingcontingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesesare the amounts to be financed by the Bank Credit. - 56 - Prior review thresholds (Table B) Goods costing more than US$250,000 and works costingmore than US$500,000per contract per contract will be subject to prior review by IDA. All other contracts will be subjectedto post review. All procurement documents for consulting contracts with firms for amounts exceeding US$100,000 per contract selected on the basis of a short list and any contract involving individual consultants exceeding US$50,000 per contract will be subject to prior review by IDA. In addition, for consultant contracts with firms exceeding US$lOO,OOO per contract, the technical evaluationreport will also be requiredby IDA for prior review. All other contracts will be subjectedto post-review. Table 6: Thresholds for Procurement Methods and Prior Review' Contracts Subject to Prior Review (US$ million) Higher than 50 NCB DLC (0.6) Less than 50 Price auotations None 2. Goods Higher or equal to 250 ICB All (1.3 1) 50-250 NCB, IAPSO IAPSO (0.2) Less than 50 National Shopping None 3. Services Consultants, training, workshops, other services a) Firms Higher than 100 QCBS All (14.65) Below 100 QCBS, CQ, Other None b) Individuals Higher than 50 IC All (1.1) Below 50 IC None Total value of contracts subject to prior review: US$18.0million Overall Procurement Risk Assessment: Average Frequencyof procurementsupervisionmissionsproposed: Oneevery six months (includes special procurement supervision for post-review/audits) "Thresholds generally differ by country andproject. Consult "Assessment of Agency'sCapacity to Implement Procurement"and contactthe Regional ProcurementAdviser for guidance. - 57 - Annex 6(B): Financial Management and Disbursement Arrangements MADAGASCAR: Governance and Institutional Development Project FinancialManagement 1. Summary ofthe FinancialManagementAssessment Countrv issues. The CFAA diagnostic completed in June 2003 determined that the country public financial management including budgeting, financial accounting and auditing systems poses a major fiduciary risk. The designation o f the BNP to assure the implementation o f this project is therefore appropriate given its considerable experience in managing World Bank funds in operations o f this nature. The CPFA (Country Profile o f Financial Accountability) carried out in September 1998 confirmed also the weak capacity o f the accounting profession in Madagascar. A number o f accounting firms were operating below the international standards due to the lack o f regulatory framework, proper accounting and auditing standards, clearly defined guidelines and procedures for systematic peer reviews, continuing education requirements, quality control mechanisms to harmonize methodology. To improve the capacity and the competitiveness of the local auditing firms, the following measures have beentaken: (i) obligation for local auditors to enter into partnership with international accounting firms while auditing BanWIDA financed projects in order to improve the quality o f audit reports and ensure practical training and real transfer o f methodology in the areas of organization and execution o f audit assignments; and (ii) use o f QCBS method rather than the Least Cost for the recruitment of auditors. Strengths and weaknesses. The BNP has the following strengths inthe area o f financial management: (i) a strong experience in managing World Bank funds for being responsible for the implementation of the Public Management Capacity Building Project (PAIGEP I) closed in December 2002: the staff in which place i s qualified with practical accounting experience and very knowledgeable with the Bank procedures; (ii) neworganizationalstructurerecentlyapproveddefinesthelinesofresponsibilitiesandauthoritythat the exist and provides an overall framework for planning, coordinating and controlling operations; (iii) the accounting system in place follows generally accounting standards acceptable to the Bank; (iv) the project internal controls are globally satisfactory: proper authorization to initiate and execute transactions, appropriate segregation o f duties, appropriate documentation and records, adequate measures for safeguarding assets (fixed assets, furniture, cash and bank balances); and (v) audit reports for the previous project (PAIGEP I) have always been received in time with unqualified opinions. The main deficiencies noted inthe systemare the following: (i) Chart of accounts not yet updated to reflect the new components and activities described in the PAD; (ii) integration of the accounting system with all other financial non management systems such as budgeting, treasury and fixed assets management; and (iii) incapacity of the existing accounting software -- still running on MS-DOS -- to produce the project financial statements as well as quarterly Financial Monitoring Reports (FMRs) with the designed format presentedinthe Annex A of the FMR Guidelines issued in November 30, 2001, by the World Bank. These weaknesses are summarized inthe following table which also provides relevant measuresto address them. - 58 - I SignificantWeaknesses I Resolution I Chart of accounts not reflecting yet the project Review of the chart of accounts to reflect new components and components and activities outlined inthe PAD. activities outlined in the PAD in order to facilitate budget monitoring and ensure timely production of both financial statementsand FMRs. Accounting manual of proceduresnot updatedyet Invitation of the consultant having implemented the previous to reflect the new organizational structure, accounting manual o f proceduresto bring necessary update and the new Chart of accounts, the outline of the to provide users training. new F M system to be implemented, the format and content of FMRs Non integration of the accounting system with all Recruitment o f a consultant in charge of the design and other financial managementsystems suchas implementation of a new computerized system fully integrated budgeting, treasury and fixed assets management. and capable of producing timely financial statements and quarterly FMRs. Incapacity of the project financial management systemto produce automatically financial Users training. statementsand auarterlv FMRs. Vacancy in procurement. Recruitment of a procurement specialist. Absence of acceptable arrangementinauditing. Recruitment of an accounting firm acceptable to IDA to carry out the audit of project accounts. To help the accounting staff in performing their duties, a new accounting manual o f procedures has been developed; in addition, the new computerized system will be functional before project implementation begins. Implementing entitv. The Government o f Madagascar - through the Office o f the President and the Chief of Staff -would be responsible for ensuring that the project is undertaken as planned. The institutional arrangements build on PAIGEP I: The goveming body for the project i s the Steering Committee which consists o f the Permanent Secretaries o f all involved ministries and institutions. The Steering Committee will coordinate the reforms and advise the Chief o f Staff in the Presidency on design and implementation issues. The Steering Committee members are accountable for the timely and decisive implementation o f the reforms in their respective area o f responsibility. The Steering Committee i s chaired by a Project Coordinator who is a seasoned and experienced practitioner. The Coordinator directly reports to the Chief o f Staff. The day-to-day management o f the implementation activities would be ensured by the Project Secretariat (Bureau National du Projet, BNP) which consists o f qualified technical staff. The BNP is headed by a Director who reports to the Project Coordinator. The role o f the BNP and o f the Project Coordinator i s to catalyze, monitor & evaluate the implementation o f the various components and sub-components, to ensure the integration o f donor activities, to maintain the project accounts, to manage disbursements and to publish financial and progress reports on a regular basis. The BNP will contract out all consultancy assignments. At the level of the ministries and institutions project implementation teams would be set up to operationalize the reforms. These teams report to the Permanent Secretary. - 59 - Funds-flow. The flow o f funds from IDA credit and the govemment i s presented as follows : h m n t (Credit funds) (Counterpart funds) II BNP: Specd Account Project Accourd Suppliers o f goods, wmks and services To ensure timely and reliable flow o f funds, a special account will be opened ina local commercial bank under conditions satisfactory to IDA. The contractors/suppliers will submit their invoices to the BNP who will pay them after appropriate authorization and approval. The special account would be replenished on the basis o f documentary evidence, provided to IDA by the BNP, justifyingthe payments made from the account for works, goods and services that are eligible for financing under the credit. All supporting documents will be retained by the BNP and made available for review by periodic Bank supervision missions and external auditors. StaffinR. The finance and accounting function i s headed by a Chief accountant supported by an assistant. The accounting staff in place is qualified and has both relevant training and experience to discharge efficiently their assigned responsibilities. On the other hand a procurement specialist needs to be recruited. The recruitment o f this key-staff should be completed prior to effectiveness. Accounting Policies and Procedures. The accounting system in place uses journals, ledgers and trial balances to enter and summarize transactions. It operates on a double entry accrual principles and follows generally accounting standards acceptable to the Bank. The financial statements are prepared under the historical cost convention. Project accounts will be maintained in Malagasy currency (FMG). As a result, the opening and closing balances o f the Special Account (SA) held in US$ should therefore be translated at the rate ruling respectively on the opening and closing dates. Expenditures made out o f the SA should be stated at the rate ruling on the transaction dates. The actual exchange rates used should be disclosed. Fixed assets bought for use by the BNP will be depreciated at the following rates: Furniture and equipment: 20% Vehicles: 20% Computers: 30% Whereas consumable stores are written o f f on purchase. - 60 - To ensure timely production o f both financial statements and FMRs in compliance with IDA requirements, the current chart o f accounts will be reviewed and a consultant will be recruited for the design and implementation o f a new computerized system. The existing accounting manual o f procedures will be also updated to provide all relevant information to facilitate adequate record keeping and the maintenance o f proper control over assets. Reporting and Monitorina. The BNP will put inplace a computerized financial management system capable o f producing the following reports : 1.Annualfinancial statements comprising: a) Summary o f sources and uses o f h d s by componentslproject activities with a balance sheet; b) Special Accounts statements; c) Statement o f Expenditures; d) Other relevant financial reports required for the project management. 2. Quarterly FMRs The FMRs comprises a financial reports, physical progress reports and procurement reports to facilitate project monitoring. The FMRs should be submitted to IDA within 45 days o f the end o f the reporting period (quarter). Models of these reports will be determined as part o f project appraisal and be agreed at negotiations. Their content and format will be presented inthe project accounting manual o f procedures. Information Svstems. The project will use a computerized and integrated financial management system capable o f recording and producing in a timely manner financial reports required for managing and monitoring project activities. This computerized system would inparticular facilitate: annual programming o f activities and project resources, record-keeping (general accounting and cost accounting) financial and budgetary management o f the project, fured assets management, procurement management, follow-up o f project implementation progress, monitoring o f key indicators to assess the results and impact o f the project, preparation of quarterly Financial Monitoring Reports as required by the BankiIDA.The TORSo f the consultant in charge o f the design and implementation o f this computerized system has been reviewed by the Bank Financial Management Specialist. This computerized system will be fully functional before project implementation begins. Impact of Procurement arrangements. Apart from the vacancy in procurement, procurement arrangements do not present substantial risk. Action Plan. The present action plan agreed with the borrower describes main actions to be taken to strengthen the BNP financial management system and to buildits capacity to produce quarterly Financial Monitoring Reports. -61 - Actions Datedue bv Responsible 1 Agreement on terms o freference for external auditor Completed BNP/ IDA and consultants incharge o fthe update o fthe accounting manual o fprocedures and the implementation o f the new computerized system. 2 Invitation o f the consultant having implemented the Completed BNP previous manual o f procedures to submit his financial proposal. 3 Finalization and issuance o f the Request for Proposal Completed BNP (RFP) concerning the provision o f services for the design and implementation o f a new computerized system. 4 Negotiations and award o f the contract to the consultant Completed BNP invited to update the accounting manual o f procedures 5 Consultant starts the update o f the accounting manual o fprocedures: 0 First draft o f the manual for BNP and IDA Completed Consultant comments 0 Final draft incorporating BNP and IDA comments; Completed Consultant 0 Implementationof the manual o f procedures and users training. 10/31/2003 Consultant 6 Reception o f proposals, evaluation, negotiation and 10/3112003 BNP award o f the contract to the firm selected to implement the new comtmterized svstem. 7 Recruitment process o f external auditors: 0 Finalization and issuance o f the Request for Proposal (RFP); Completed BNP 0 Reception o f proposals, evaluation, selection; 10/24/2003 BNP 0 Appointment o f external auditors 10/28/2003 BNPIIDA 8 Consultant starts the design andimplementation o f the new computerized system: 0 Installation o f the computerized system 11/30/2003 Consultant 0 System testing to ensure compliance with 12/15/2003 Consultant management's expectations and IDA specifications: 0 Corrective actions and retesting; 12/22/2003 Consultant 0 Complete users training and start operating the 01/09/2004 Consultant system; 0 Obtain user acceptance and approval 01/12/2004 BNP 9 Production o f the first FMRs (Jan, Feb, March 2003) 0511512004 BNP and submit them to the Bank. Supervision Plan. Periodic review o f the implementationprogress will be carried out by the Project team. - 62 - 2. Audit Arrangements Internal Audit. Since the project organizational structure is centralized, no intemal audit function is required at the present time. However, to ensure the efficient use o f funds, the Chief accountant o f the BNP and the Monitoring & Evaluation specialist could play the role o f internal auditors. For this purpose they will carry out periodic controls to ensure that: (i) project is complying with the Bank procedures (in the procurement, financial management, disbursement) and agreements described in the procedures manual/ DCA; (ii) assets financed under the credit are adequately protected. External Audit. The project financial statements will be audited annually by independent and qualified auditors acceptable to IDA, in accordance with International Standards o f Auditing. The auditors will provide a single audit opinion on the annual financial statements for each operation it supports. The auditors will be also required to carry out a comprehensive review o f the intemal control procedures and provide a management report outlining any recommendations for their improvement. The audit report will be submitted to IDA not later than 6 months after the end o f each fiscal year. The auditors should be recruitedprior to Board presentation. The terms o f reference o f the audit will be reviewed by the financial management specialist o f the Bank/IDA. 3. DisbursementArrangements Allocation of credit proceeds (Table C) The credit would be disbursedover a period o f 60 months (the Project completion date would be December 31,2008 and the Credit closing date i s June 30,2009), as follows: (i) percent o f foreign and 80 percent 100 o f local expenditures for contract works; (ii)100percent o f foreign and 80 percent o f local expenditures for goods; (iii) 85 percent o f foreign and 75% o f local expenditures for consultancies (including audits); (iv) 100 percent for training and seminars; and (v) 85 percent for incremental operating costs. Disbursement o f Credit proceeds would be made against six categories (base costs): (i) contract works (US$4.0 million); (ii) goods (US8.48 million); (iii) consulting contracts (US$26.22 million); (iv) training and workshops (US$9.2 million); and (v) incremental operating costs (US$3.4 million). A Project Preparation Facility was requested for an amount o f US$1.58 million. - 63 - Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds I Expenditure Category IAmount in US$million I Financing Percentage 2.40 100 percent o f foreign and 80 percent o f 1.Works I local exuenditures 2. Goods 4.60 100 percent o f foreign and 80 percent o f local expenditures 3. Consultants' Services and Audits 16.12 85 percent o f foreign and 75 percent o f local exuenditures 14. Traininn I 4.20 I 100 Dercent o f exDenditures I 5. Recurrent costs 1.10 85 percent o f expenditures 6. PPF refinancing 1.58 Total Project Costs with Bank 30.00 Financing Total 30.00 DisbursementArrangements: Method of Disbursement. The borrower will use transaction-based disbursements (traditional mode) in accordance with procedures outlined inthe Bank's Disbursement Handbook. Minimum Application Size. The minimumapplication size for direct payments and special commitments to be withdrawn directly from the Credit Account is US$400,000, representing 20% o f the special account authorized allocation. Use of statements of expenditures (SOEs): Disbursements will be made against Statement o f Expenses (SOEs) for contracts and goods not requiring the Bank's prior review. Therefore disbursements for all contracts for: goods of less than US$250,000, for works o f less than US$500,000, for consulting services, training and publications by firms and individuals o f less than US$lOO,OOO and US$50,000 respectively; and all incremental operating expenses, and training would be made on the basis o f SOEs and certified by the BNP. SOE statements will be audited annually by independent auditors acceptable to the Bank. All SOEs supporting documentation will be kept therefore by the BNP and made available for review by Bank supervision missions and external auditors. Special account: Payments from the Credit proceeds would be administered by the BNP from a Special Account. The Special Account would be maintained in U S dollars in a commercial bank selected by the Borrower and acceptable to the World Bank. The authorized allocation, sufficient for about four months o f eligible expenditures, would be US$2,000,000; however, the initial allocation would be limited to US$l,OOO,OOO untilthe aggregate amount o f withdrawals from the Credit Account plusthe total amount o f all outstanding special commitments entered into the Bank shall be equal to or exceed SDR 2,200,000. The Special Account would be managed by the BNP which would be responsible for preparing disbursement requests. - 64 - These requests would be submitted on a monthly basis. Replenishment requests would be submitted at least on a monthly basis and would be supported by reconciled bank statements and other required documents. Disbursements will be made under the authorized signature from a designated representative of the Borrower. The Special Account would be audited annually by independent auditors acceptable to the Bank. - 65 - Annex 7: Project ProcessingSchedule MADAGASCAR: Governance and Institutional Development Project Time taken to prepare the project (months) 14 26 First Bank mission (identification) 11/01/2001 11/01/2001 /Appraisal mission departure I 0811512002 I 0811812003 I Negotiations 0911012002 09/04/2003 Planned Date of Effectiveness 01101l2003 01IO1I2004 Prepared by: GuenterHeidenhof(TTL, AFTPR) Preparation assistance: A Japan PHRD grant for US$203,000 (TF026791) was received and used for project preparation by the recipient for the following preparation activities: (a) a review of system of public finance, (b) a proposal for an integrated monitoring & evaluation system, (c) the development o f systems and procedures for pro-poor inter-governmental transfers that would ensure the availability of adequate resources for the various levels o f Government, (d) a comprehensive training plan for local governments in all relevant areas o f financial management, and (e) an institutional analysis of training institutions in Madagascar which could provide training to public officials. The grant was successfully executed by the project implementing agency. All planned outputs were completed, in part with complementary hndingthrough a Project Preparation Facility. Bank staff who worked on the projec included: Name Speciality Guenter Heidenhof (AFTPR) Team Leader Dieudonne Randriamanampisoa Public finance and institutional reforms, economic analysis (AFTPl) Jesko Hentschel (AFTPl) Economic reforms, link to macroeconomic program Catherine Laurent (MNSED) Public finance reforms Emile Finateu(AFTFM) Public finance reforms Bertrand de Chazal (AFTFM) Public finance reforms, linkto the CFAA Gervais Rakotoarimanana (AFTFM) Financial management Slaheddine Ben-Halima (AFTPC) Procument reform Sylvain Rambeloson (AFTPC) Procurement andprocurement reform Jean-Marc Baissus (LEGLR) Justice reform Wolfgang Fengler (AFTPl) Decentralization Frank-Borge Wietzke (AFTPl) Decentralization Maryanne Sharp (AFCMG) Decentralization, project management Raj Soopramanien (LEGMS) Justice reform, anti-corruption activities Jean-Eric Rakotoarisoa (Consultant) Justice reform Madeleine Chungkong (AFTPR) Project management, team assistance - 66 - Mavo Ranaivoarivelo (AFC08) Project management, team assistance Lanto Ramanankasina (AFC08) Project management, team assistance Pierre Demangel (MNSED) Peer reviewer Jan Walliser (AFTP4) Peer reviewer Odile Keller (PEFA Secretariat) Advisor, public finance reforms - 67 - Annex 8: Documents in the Project File* MADAGASCAR: Governance and institutional Development Project A. ProjectImplementation Plan Work plan, detailed project descriptions, comprehensive cost estimates, procurement plan for year 1 o f project implementation B. Bank Staff Assessments Country Financial Accountability Assessment, June 2003 Country Procurement Assessment review, June 2003 C. Other Madagascar PRSP and action plan, updated July 2003 Country Assistance Strategy for Madagascar, upstream review (draft), July 2003 Interim Country Assistance Strategy for Madagascar, October 2002 ImplementationCompletion Report o f Public Management Capacity BuildingProject, June 2003 Implementation Completion Report o f Structural Adjustment Credit 11, June 2003 Reports o f the Cellule de Riforme et de Renforcement des Organes des Contrdes (CRROC), March 2003 Feasibility study for the strengthening o f the internal control mechanisms, January 2003 Feasibility study for the Development Learning Center, November 2002 Development o f a pro-poor transfer system study, January 2003 Feasibility study and cost estimates for the integrated financial management system, March 2003 Strengthening o f the monitoring & evaluation system inMadagascar, UNDP study, April 2003 Concept and evaluation reports for the pilot integrated financial management system inToamasina, April 2002 and 2003 Madagascar: Decentralization, ESW June 2003 Madagascar: Poverty and Socio Economic Developments: 1993-1999, ESW, December 2001 Changes in Poverty in Madagascar: 1993-1999, ESW, July 2001 MinistryofJustice, Work program2003 Government o f Madagascar, National Governance Program, workshop results, January 1998 Democracy and Governance, Strategic Assessment for USAID/Madagascar Integrated Country Strategic Plan (FY2003-2008), June 2003 Transparency International: National Integrity Survey, Report April 2002 Madagascar: Public finance administration, IMF review, September 1998 *Including electronic files - 68 - Annex 9: Statement of Loans and Credits MADAGASCAR:Governance and Institutional Development Project 24-Sep-2003 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose iBRD IDA Cancel. Undisb. Orig Frm Rev'd PO80345 2003 Emergency Economic Recovery Credit 0.00 50.00 0.00 0.00 0.00 0.00 PO76245 2003 MINERAL RESOURCES GOVERNANCE PROJECT 0.00 32.00 0.00 32.01 0.60 0.00 PO73689 2003 Rural Transport Project - APL - Phase2 0.00 80.00 0.00 82.82 4.15 0.00 PO72160 2002 Second Private Sector Development Projec 0.00 23.80 0.00 23.97 8.66 0.00 PO72987 2002 Multisectoral STI/HIV/AIDS 0.00 20.00 0.00 17.26 -2.62 0.00 PO55166 2001 COMMUNITY DEVELOPMENT PROJECT 0.00 110.00 0.00 72.05 -10.30 0.00 PO51922 2001 MG .Rural Development Support Project 0.00 89.05 0.00 82.90 -12.96 0.00 P052208 2000 Transport Sector Reform and Rehabilltat. 0.00 65.00 0.00 27.98 10.39 0.00 PO51741 2000 Second Health Sector Support Project 0.00 40.00 0.00 22.48 8.31 0.00 PO52186 1999 MICRO FINANCE 0.00 16.40 0.00 7.09 4.97 0.00 PO01559 1998 EDUCATION SECTOR DEV 0.00 65.00 0.00 26.56 26.86 0.73 PO01564 1998 RURAL WATER SEC.PIL0 0.00 17.30 0.00 8.97 9.05 0.00 PO01568 1998 NUTRITION II 0.00 27.60 0.00 2.76 3.07 0.00 P048697 1997 URBAN INFRASTRUCTURE 0.00 35.00 0.00 11.13 11.68 9.33 PO01533 1996 MG ENERGY SECTOR DEVELOPMENT PROJECT 0.00 46.00 0.00 6.85 10.23 3.41 ~ Total: 000 71715 0.00 424.82 72.09 13.47 MADAGASCAR STATEMENT OF IFC's Heldand DisbursedPortfolio June 30 2003- InMillions USDollars Committed Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990191 AEF FIARO 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1997 AEF GHM 0.78 0.00 0.00 0.00 0.78 0.00 0.00 0.00 1995 AEF Karibotel 0.22 0.00 0.00 0.00 0.22 0.00 0.00 0.00 1992193195 AQUALMA 0.43 0.00 0.00 0.00 0.43 0.00 0.00 0.00 1991 BNI 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 BOA-M 0.00 0.82 0.65 0.00 0.00 0.82 0.65 0.00 1983189 Nossi-Be 0.00 0.14 0.00 0.00 0.00 0.14 0.00 0.00 Total Portfolio: 1.43 3.76 0.65 0.00 1.43 3.76 0.65 0.00 Auorovals PendineCommitment FY Approval Company Loan Equity Quasi Partic 2001 Besalampy 0.02 0.00 0.00 0.00 2001 COTONA111 0.01 0.00 0.00 0.00 Total PendingCommitment: 0.02 0.00 0.00 0.00 - 69 - Annex IO: Country at a Glance MADAGASCAR: Governance and Institutional Development Project Madagascar at a glance 913103 Sub- POVERTYand SOCIAL Saharan Low- Madagascar Africa income Developmentdiamond. 2002 Population,mid-year (miliions) 16.4 674 2,511 GNi per capita (Atlas method, US$) 240 470 430 Lifeexpectancy T GNi (Atias method, US$billions) 4.0 317 1,069 Average annual growth, 1996.02 Population 1%) 3.0 2.5 1.9 Laborforce (77) 3.2 2.6 2.3 SNi Gross Most recent estimate (latest year available, 1996-02) Der primary apita nroilment Poverty(% ofpopulation below nationalpoverty line) 69 Urban population(% oftotalpopulation) 31 32 31 Lie expectancyat birth (years) 55 47 59 1 Infant mortality (per 1,000live births) 64 91 76 Chiid malnutrition(% of childrenunder 5) 33 Access to improvedwater source Access to an improvedwater source (% ofpopulation) 25 55 76 illiteracy (% ofpopulationape 15+) 32 37 37 Gross primaryenrollment (% of school-agepopulation) 102 76 96 -Madagascar Male 104 65 103 Low-incomegroup Female 100 72 66 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 GDP (US$ billions) 4.5 4.6 Gross domesticinvestmenffGDP 16.5 14.3 Exportsof goods and services1GDP 29.1 16.0 Trade Gross domestic savings1GDP 15.3 7.7 Gross nationalsavings1GDP 17.2 6.3 Current acwunt baiance1GDP -1.3 -5.9 interest payments1GDP Total debffGDP 91.9 94.2 Total debt service1exports 26.4 15.6 11.6 21.9 II Presentvalue of debffGDP 46.4 49.9 Presentvalue of debffexports 163.5 301.1 indebtedness 1982-92 1992.02 2001 2002 2002-06 (averageannual growth) GDP 1.5 2.5 6.0 -12.7 6.3 -Madagascar GDP per capita -1.2 -0.5 3.0 -15.2 5.6 Low-incomegroup Exportsof goodsand services 2.6 2.1 6.0 -43.7 15.7 STRUCTURE of the ECONOMY I (% of GDP) Agriculture 34.2 112.4 26.6 32.1 40 Industry 13.4 46.3 14.7 13.3 20 Manufacturing .. 40.3 12.6 11.3 0 Services 52.4 225.5 56.7 54.7 2 0 Privateconsumption .. 76.4 64.2 401 \ Generalgovernment consumption 6.3 6.2 imports of goods and services .. 32.3 22.6 -GDI -GDP iaveraoe annual arowthl 1982-92 1992-02 zooz Growth of exports and Imports (Oh) I Agriculture 2.5 1.9 4.0 -1.6 T LI I 2.7 2.5 7.6 -20.6 I1'' Industry 2o Manufacturing 0.6 2.9 10.7 Services 1.0 3.0 6.1 1:;:: 12: Private consumption 0.1 2.9 General governmentconsumption 0.1 1.4 1;:; -% Gross domesticinvestment imports of goods and services 5.2 5.6 22.6 -31.4 -2.4 5.4 11.6 -31.0 -Exports *Imports Note: 2002 data are preliminaryestimates. Group data are through 2001. *The diamondsshow four key indicatorsin the country (in bold) comparedwith its income-groupaverage. if data are missing,the diamond will be incomplete. - 70 - PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation(Oh) (% change) I Consumer prices 15.3 7.4 15.8 Implicit GDP deflator 7.3 15.4 1 Government finance (% of GDP, includes current grants) Current revenue 11.6 8.8 97 B8 B9 a0 0, hl Current budgetbalance 0.5 -1.5 Overall surpluddeficit -6.4 -6.7 O -GDP deflator ' O ' C P I TRADE 1982 1992 2001 2002 (US$ millions) Export and Importlevels (US$ mlll.) Total exports (fob) 284 324 965 499 ,200 I T Coffee 94 32 3 3 Vanilla 3 51 164 120 Manufactures 158 572 313 Total imports rcifl 552 547 1.118 729 Food 128 58 84 61 Fuel and enerqv 134 72 168 217 Capital qoods 117 129 164 92 Export price index (1995.100) 104 91 131 135 98 97 98 99 00 01 import priceindex (1995=100) 92 94 95 Exports Imports Terms of trade (7995=1001 98 140 142 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) 1 Current account balanceto GDP (%) I Exports of aoods and services 377 496 1,317 730 Imports of qoods and services 656 733 1,462 1,029 Resource balance -280 -237 -146 -299 Net income N/A -134 -59 -70 Net currenttransfers 7 163 146 99 Current account balance N/A -209 -59 -271 Financinqitems (net) 228 157 218 Chanqesin net reserves NIA -17 -98 53 Memo: Reservesincludinqsold (US$ millions) N/A 85 398 363 Conversionrate (DEC. iocal/US$J 349.7 1,864.0 6,591.5 6,592.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composltlon of 2001 debt (US$ mill.) Total debt outstandinqand disbursed 1,933 3.911 4,159 4,296 IBRD 31 20 0 0 IDA 187 887 1,409 1,652 I F,7o G: 239 Total debt service 110 96 156 166 IBRD 3 4 0 0 IDA 2 10 30 32 Compositionof net resource flows Officialarants 88 126 89 66 Officialcreditors 199 85 Privatecreditors 48 -8 Foreiqndirect investment 58 4 Portfolioeauitv D:442 World Bank program Commitments 32 24 243 130 A - IBRD E -Bilateral Disbursements 34 37 97 163 8 IDA D .Other multilateral F Pnvate . Principalrepavments 1 7 19 21 C IMF -- 0. Short-term Net flows 33 31 78 143 Interestpavments 3 8 11 11 Net transfen 29 23 67 132 DevelopmentEconomics 9/3/03 -71 - Additional Annex 11: LETTER OF DEVELOPMENT POLICY MADAGASCAR: Governance and Institutional Development Project LEPREMtERRIINISTRE, REPWBLIQUEDEMADAGASCAR CHEF DUGOUVERNEMENT 7unindra;rara Fahufuhmta PimaPosm - - Ars'TML4"VQ, le35 Acdt 2003 W J 5 G l P M l S P l G Monsieur le Directeurdes PpQrations de le Banqur Mondiale pour les Seylchefles Maurice et Madagascar $01-ANTANANARIVO Qbiet Lettredepolitiqueen matibrede BonneGouvernanceet de Ddveloppement lnstrtutronnel MonsieurleDire&eur, Je vous prie de tmuver ci-joint la Eettre de palitiqw en matiere de Bonne Gcuvemance et de Devetoppementlnstitutionneldu Gouvemementde Madagaecar. Cette Is#mde politlquese r4fbre au premier axe principal du Document Sti-at&gique pour la R(?ductionde la FauvrrttE!(DSRP) qui vise Ea restauratbnd'un Etatde droit et la bOnne gouvsrnance Le renfoorcement des acquis du Projet d'kppui lnstitutiannalB la Gestion Publique (PAIGEP) au niveau du Minist&fede I'Ewnomie des Finances et du Budget et du Ministere de la Justice, qui avsit dejA b&n&fici&de I`appui financier de la Banque Mmdiale, est essentiel t4 Ea mise en o~uvr@ la bonne gouvemancedans laquelle de le Oouvemement s`sngage. -L Aussi, je remercie vatre institutionde sa dispanibilitl! a maintenir son appui dans CB damsline. Vu I'impadance de ce`t ax0 strat4gique, !e Gouvernement sauhaite que les negodations de t'awecrtcf en we du Programme pour la Banne Gouvernance, le DCveloppement lnstitutionnel et la Reduction de la Pauvretti (PGDI) puisse se tenir #ana les meilleursdCIlais possibtes. Veuillez agrber, Monsieur le Diredeur, i'expression de ma considWtion distingute - 72 - Unofficial Translation PRIME MINISTER, REPUBLIC OF MADAGASCAR HEAD OF GOVERNMENT Tanindrazana-Fahafahana-Fandrosoana ANTANANARIVO, August 28,2003 No. 1566lPMlSPlG To: Country Director for Seychelles, Mauritius and Madagascar 101- ANTANANARIVO Subject: Letter of Development Policy for the Governance and InstitutionalDevelopment Project Dear Sir, Please find attached the Letter o f Development Policy relatedto the Governance and Institutional Development Project for Madagascar. This letter o f development policy aims at the first main line of action inthe PRSP which focuses on restoring the rule o f law and on establishing good governance. The support, through the Governance and Institutional Development Project (PAIGEP), to the Ministry of Economy, Finance and Budget, and to the Ministry of Justice, who have already benefited financial support from IDA, is key to implementing policies of good governance to which the Government i s hlly committed. Hence, Iexpress my thanks to your institution for its readiness to provide support inthis area. Giventhe importance of this strategic area, it is the Government's wishes that the negotiations of the agreement on the Governance and Institutional Development Project could take place as soon as possible. Sincerely, (Signed) Jacques SYLLA - 73 - THE GOVERNMENT OF THE REPUBLIC OFMADAGASCAR LETTER OF GOOD GOVERNANCE AND INSTITUTIONAL DEVELOPMENT POLICY 1. The Poverty Reduction Strategy Paper (PRSP) adopted by the Government o f Madagascar inthe first half o f 2003 contains the Government's strategy and action plan for speeding up economic development and halving within ten years the incidence o f poverty, currently about 70 percent and particularly high among the rural population. The strategy focuses on the following three main lines o f action: (i) restoring the rule o f law and establishing good govemance as a social norm; (ii) rekindling and fostering economic growth by substantially enhancing its social base; and (iii) encouraging the development o f systems that ensure the safety o f persons and property and provide social protection. This strategy, developed through a participatory process that has involved all o f the vital elements o f the country, inparticular civil society, the private sector, local elected officials, and public administration, was formulated by government agencies as part o f operational plans encompassing the programs o f action o f the ministries for the next five years. 2. As regards the first line o f action, which aims at good govemance, the Government intends to continue, strengthen and accelerate measures and reforms launched a few years ago. Indeed, since the 1990s and especially since the resumption o f activities after the socio-political crisis that rocked the country in the first half o f 2002, the Government has been buildingthe capacities o f its agencies in order to improve the economic management system and public administration, especially with regard to the management o f public finances, the decentralization process, civil service reform, legal- andjudicial-system reform, and the economic information system. These measures have been supported by the Intemational Development Association (IDA) since 1996 through the Public Management Institutional Support Project (PAIGEP) whose closing date was December 31,2002. They made it possible to place the macroeconomic framework on a sounder footing through rigorous budgetary and monetary policies, liberalize the market and prices, disengage the Government from the productive sectors, and refocus the State's mission (over and above its fundamental prerogatives) on functions aimed at regulating and easing the way for private sector initiatives. The results have been encouraging but insufficient. Some achievements were even weakened by the crisis o f 2002. 3. The Govemment confirms its commitment to the reform process. It is resolved to redouble the efforts put forth and to consolidate achievements by deepening the reforms and extending the measures to other relevant areas. The Government therefore requests additional support from IDA in order to further implement the PRSP strategy in such areas as good govemance, the management o f public finances, combating corruption, and capacity building. - 74 - Good governance and combating corruption 4. The Government considers the establishment o f good governance in all areas (political, administrative, and economic) o f the management o f public affairs to be the main thrust o f the implementation o f its development and poverty-reduction strategy. Indeed, various problems in those areas hinder any systematic effort to achieve sustainable development and reduce poverty. In public administration, the physical working environment is neglected, the human, material, organizational and financial resources are inadequate, the civil servants lack motivation, the management o f public finances i s insufficiently monitored, and many units are plagued by corruption. The government machinery is no longer credible, and decentralization is behind schedule. The Government intends to tackle inpriority these governance issues, whose solution i s indispensable to the success o f any development strategy, before undertaking any further action aimed at quick and sustainable development and at poverty reduction. 5. To ensure that an efficient program o f good governance is developed, implemented, and followed up, the Government will set up a coordinating committee to spearhead and supervise all actions and reforms aimed at establishing good governance in the management o f public affairs. The main institutions, ministries and civil society organizations having a stake inthe improvement o f the business environment and o f the services provided by the public sector in Madagascar will participate in the work o f the committee. Its presiding officers will be designated by the Office o f the President o f the Republic, and the newly appointed President o f the anti-corruption task force (Conseil sup6rieur de lutte contre la corruption or CSLCC) will be one o f its members. 6. The Government firmly reiterates its determination to combat corruption and considers transparency and good governance to be pillars o f public management. In September 2002 it adopted two decrees, one instituting the CSLCC and the other establishing an obligation o f personal assets disclosure by top government officials and law officers. It will continue in the same direction, first by actually putting in place the CSLCC in 2003 and later by setting up an anti-corruption agency after conducting a study on the organization o f such a body. The mission o f the CSLCC, acting directly under the authority o f the President o f the Republic, is to develop a national strategy for combating corruption and to steer the reforms necessary in this area. The anti-corruption agency will be responsible for implementing the strategy. Some o f the measures o f that strategy are formulated in the PRSP: (a) strengthening procedures to combat corruption and meting out punishment inproven cases o f bribery; (b) setting up, in all public agencies, one-stop offices and complaints bureaus where users o f public services may register their grievances; (c) reducing corruption and favoritism incivil service; (d) disseminating texts on standards o f behavior, professional ethics, andpropriety; and (e) stepping up information, education and communication (IEC) activities, and in particular reintroducing civics inthe school curricula. Reform and modernization o f public finances 7. The scope o f the reform o f public finances, which is crucial to the establishment o f good governance, is so extensive that the implementation o f the measures intended to ensure a new, transparent, and efficient system are expected to take three to four years. Consequently, if tangible results are to be achieved early on in the process, activities in this area must be rated in order o f priority. The reform aims at reestablishing budgetary procedures as a whole, restoring - 75 - universally accepted practices in the administration o f public accounts, and streamlining and strengthening the State budget monitoring system. 8. A review o f fundamental provisions goveming public finances is the main prerequisite of reform in this area. As regards the relevant constitutional provisions, a draft organic law on public finances will be ready for consideration by the Parliament in 2004. The bill, currently in preparation, introduces (inkeeping with the PRSP) the concept o f "program budget", stresses the liability o f expenditure authorizing officers, and strengthens parliamentary control. The preparation o f the finance law will start early in the year. In fact, the process will commence with the validation o f general macroeconomic guidelines just before the middle o f the previous year, with a view to formulating the general budget framework and launching budget meetings for the various ministries early in the second half o f the year. The draft finance law for year n will be ready around the end o f September o f year n-1 and submitted to the Parliament in October. 9. In the mediumterm, modemizing the system of public finances will enhance coordination with the financial partners whose new approach is to give preference to budgetary support over project financing. As regards future assistance, it i s probable that the funds necessary for the activities financed will be gradually transferred to IDA'Sfuture "Poverty Reduction Adjustment Credit" (CARP), to which Madagascar will start having access in 2005, and that technical assistance fundingwill be reduced accordingly. 10. The process o f drawing up the budget was streamlined in October 2002 when the Public Investment Directorate was integrated into the General Directorate o f Public Expenditure (DGDP). Unification will be further pursued through the establishment o f a consolidated budget encompassing operational outlays other than wages, the wage bill, and investments, including public debt (as from 2004), with a concomitant strengthening o f the DGDP and o f the sectoral ministry directorates responsible for public finances and the budget. Throughout the budget chain, these units will be entrusted to professional staff experienced in public finances. The entire procedure o f budget execution, from planning to monitoring, will be computerized and streamlined to eliminate administrative bottlenecks. 11. The Government will pursue its efforts for greater efficiency inbudget execution by: ---- shortening and accelerating expenditure procedures; enhancing the accountability and the capacities o f the staff; streamlining the process and introducing procedural manuals; ensuring procedural and accounting transparency; - introducing half-yearly audits o f special funds managed by agency directors (a practice to --- which the Government committed in September 2002); establishing an internal audit system, conducting audits and inspections on a systematic basis; and promoting greater equity in budget allocations by supporting priority sectors through increased social expenditure and by providing adequate funding for priority activities o f grassroots organizations. 12. To ensure that reliable and up-to-date information on the situation o f public finances is available to decision makers, the Government i s designing a management chart incorporating feedback from all levels o f the budget execution chain. Eventually, once all budget execution centers are integrated into a single electronic network, the chart will be updated automatically when data is -76 - entered by the base units. This integrated system for the management o f public finances (SIGFP) is currently being implemented as a pilot application in the Furitany [province] o f Toamasina and inthe central units in order to assess the advisability o f extending it to the whole o f Madagascar in the medium term or opting for alternative software, taking into consideration the respective technological parameters, cost o f maintenance, and sustainability o f the process. The Government considers the SIGFP to be a key factor in the reform o f the management o f public finances, because the system i s expected to ensure consistency among the various activities, transparency o f budget execution, improved internal account keeping by means o f linkingtransactions, and availability of up-to-date information for budget-execution monitoring and decision-making. An assessment o f the capacity-building requirements o f computerization points to a need for considerable investment in hardware, networking, and, especially, human resources. However, given the absorption capacity o f the units concerned and the gradual extension o f the system in the future, complete coverage by SIGFP will be possible only in the long term. Consequently, priorities will be established in order to implement as soon as possible the reforms and investments most urgently needed. 13. As regards accounting management, the separation o f the functions o f authorizing officers and public accountants i s a universally accepted principle and should be reinstated. A regulation establishing standardized nomenclature to be used in documents supporting authorizations will take effect inthe first quarter o f 2004. 14. As regards expenditure control, the Government has set up a committee to examine and reform oversight units (Comiti de riflexion et de riforme des orgunes de contrble or CRROC), whose task is to redefine the mission and function o f bodies responsible for monitoring State expenditure, namely the Expenditure Commitments Oversight Office (CDE), the General Inspectorate o f State (IGE), the Audit Office, and the Public Procurement Committee. The CRROC has reviewed these four bodies in detail and has rated in order o f priority the capacity-building measures that they require. On the basis mainly o f recommendations formulated in studies carried out during 2002-2003 as part o f the "Country Financial Accountability Assessment" (CFAA) and the "Country Procurement Assessment Report" (CPAR), these measures were validated at a workshop organized for that purpose in June 2003. The implementation o f the reform program has been launched and i s expected to last several years. The legal and regulatory texts governing the monitoring bodies will be reviewed to ascertain their conformity with international auditing and monitoring standards, and to ensure the effectiveness and efficiency o f follow-up. In the interest of efficiency, effectiveness, transparency and accountability in the management o f public finances, strengthening the rule o f law, and combating corruption, the Prime Minister, as head o f the Government, may delegate the relevant supervisory powers to the Minister o f the Economy, Finances and the Budget who will thereby be empowered to ask directly the State inspectors o f the IGE or the CDE (to be renamed "Financial Audit Office" or CF) to monitor and audit operations in the Minister's own department. The implementation o f this program will be supported with adequate training and capacity building,basic equipment, and expert technical assistance. 15. Part o f the reform o f public finances will consist o f reestablishing financial discipline. Accordingly, the Government will provide the Financial and Budgetary Disciplinary Council (CODIF) with the staff, training and capacity building required for it to be operational. No decision has yet been made as to the definitive place o f the CODIF in the administration: its subordination to the Audit Office has more disadvantages (limited, lengthy, and tortuous referral procedures culminating in insignificant punishments) than advantages (compliance with the - 77 - principle o f separation o f the authorizing and accounting functions). 16. As part o f the reform o fpublic finances, the Government has launched a detailed examination of the system o f awarding public procurement contracts. Some institutional changes have started as a result o f the CRROC review. Until a regulatory authority is set up, a Directorate responsible for regulating contract awards has been established in the Ministry o f the Economy, Finance and the Budget. Furthermore, terms o f reference have been drawn up for a study on reforming the system. 17. Compared with other countries o f Sub-Saharan Africa, the tax rate in Madagascar, in terms o f government revenue, is one o f the lowest in the region (not more than 12 percent o f GDP, compared with ratios above 15 percent elsewhere). Increasing tax and customs revenue i s therefore a priority for the Government, which plans to reform the system by a general reorganization o f the services and by building their capacities, through training and computerization, for example. As regards customs, a new method o f inspecting merchandise before it is loaded was adopted in 2002 in partnership with an internationally known company; and the implementation o f an efficient information processing software system, SYDONIA++, is expected to begin in 2003. As regards tax collection, reorganization continues on the basis o f the tax enhancement exercise conducted in pilot tax centers, and this operation will be gradually extended to the rest o f the country. Given the scope o f the reform o f the units responsible for collecting government revenue, many donors, such as the African Development Bank and France, support the Government's efforts. The contribution o f the World Bank i s specifically used for the implementation o f SYDONIA++. The justice system 18. To ensure the rule o f law in Madagascar, the Government has started to modernize and strengthen the legal andjudicial sector, seeking to raise the standing and dignity o f the law officers so that they may fulfill their mission: establishing a system o f impartial and equitable legal process respectful o f human rights and reassuring to investors. In particular, the status and working conditions o f judges have improved; the sector's capacities are being built through the newly founded National School for Magistrates and Court Registrars (ENMG), a professional school for law officers; laws are compiled and published; the distance between the judicial system and the persons subject to trial i s bridged; and the recovery o f the sector is under way. The Government will continue to put forth efforts to consolidate the independence, transparency, accessibility, and credibility o f the system o f justice, and has accordingly set five objectives: (a) Rehabilitating the judicial and prison systems and infrastructures on a national scale, by continuing to provide furniture, office and computer equipment, legal documentation, and means o f quick communication between central units in the Ministry o f Justice and the courts o f law. (b) Strengthening procedures for combating corruption in the judicial sector, by means of prevention and repression measures, and through activities for educating the population; increasing the number o f sanctions as a deterrent against various forms o f bribery; and building the capacities o f inspectors in the area o f professional ethics through specialized training. (c) Speeding up trials through legal reforms aimed at shorter deadlines and procedures, reducing the duration o f remand in custody, and administering punishments alternative to imprisonment. - 78 - (d) Improving the legal framework for business through the intensive training o f judges hearing commercial disputes, by revising and speeding up commercial court procedures and by further reforming business law. (e) Humanizing incarceration, in particular by improving the living conditions o f prison inmates. The above measures, which specifically aim at the Government's stated objectives, will be carried out after a methodical examination o f the courts o f law currently under way and after the formulation o f a strategy through a nationwide exchange o f views on the justice system. (f) Providing a reasonedjustification for all court decisions. (g) Carrying out inspections on a systematic basis. Monitoring and evaluation o f PRSP imulementation. Integrated information system 19. The Government is extremely interested in monitoring PRSP implementation to ensure an inflow o f information on the activities o f the sectoral ministries and analyze the impact o f sectoral policies on the development o f the country in general and, in particular, on the population sections that they directly concemed. The PRSP provides for the implementation o f an integrated system aimed at the following objectives: ---- supplyingthe Government with real-time information on the state and evolution o fpoverty; assessing the impact o f the poverty reduction strategy; evaluating the effectiveness o f the policies and proposing appropriate readjustments; and providing all development actors with pertinent information necessary to the decision-making, monitoring and evolution processes. The measures required in order to achieve these objectives will be taken through the following structures: (i) a steering committee, which will be the contracting authority and decision-making agency authorized to check and validate work carried out at the national level; (ii) an expert committee, which will have supervisory and executive authority over the operation and will be responsible for harmonizing studies carried out on specific subjects at the national level and establishing a system to provide information and assistance necessary for decision making; and (iii) a user group or an interministerial or interregional committee with monitoring authority: an advisory body through which all stakeholders may exchange information and participate in the evaluation o f the activities carried out by the various departments and decentralized implementing units. The information obtained through this mechanism will allow reporting to the President o f the Republic inreal time on the state o f poverty and the progress o f the various reforms. Improvement o f the services provided bv the public sector in some key areas 20. Inaddition to basic reforms inthe areas of public finances andjustice, good governance will also be applied to the operations o f some public services with which the people have daily contact. These enhancements consist o f streamlining, simplifying, clarifying, and improving the function o f these services in order to provide better services to the users. The entities identified as requiring such improvements are: the customs service, primary education, the commercial - 79 - courts, the land titling service, the traffic police, and the local communities. As a rule, these entities are not subject to any performance standards, and the procedures for access to the services that they provide are not always known to the population. The Government will take measures to bring about, in the short term, a visible improvement o f the services rendered to the public by these entities, thereby enhancing the credibility o f all reforms undertaken. Simple measures will be taken at once. At the same time, a more extensive but fast-paced review o f problems encountered by the public will be conducted in order to determine what other measures may be taken immediately. Training 21. Training key staff in all areas is crucial to the implementation o f the reforms that have been planned. This training should consist o f providing technological knowledge and technical know-how and in developing the ability o f professional staff to cope with various situations in life, placing emphasis on behavior and professional ethics. To enable as many key agents as possible to receive adequate training, the Government has adopted a strategy of redefiningthe missions and roles of Madagascar's training institutions, streamlining the function o f those institutes to maximize their quality/cost ratio, reviewing cumcula to ensure that they meet the requirements o f the reforms necessary for good governance, and providing the institutions with the resources necessary for normal and sustainable operation. Two studies have been carried out: an assessment o f training requirements in the government departments and public organizations, and an evaluation o f the training institutions' capacity and need for reinforcement. On the basis o f these studies, the Government plans to build M e r the capacities o f three training centers - the National Civil Service Training School (ENAM), the National School for Magistrates and Court Registrars (ENMG), and the National Administration Training Center (CNFA) -and to set up a new Distance Training Center (CFD) with advanced-technology equipment enabling the trainees to attend courses taught by some o f the worlds outstanding experts. 22. ENAM's mission is to provide initial training and continuing education to such senior civil servants as administrators, tax inspectors, prison administration inspectors, etc. The institution i s therefore key to the reform o f public finances and judicial administration. However, its insufficient teaching staff, inadequate equipment, and limited student capacity allow it to only offer essentially theoretical courses and scanty practical training or professional exchanges. There are plans to broaden the training that it provides in high-demand areas, particularly in the management o f public finances; review its structure and function; build its capacities further; change its physical layout; and outfit it with appropriate equipment, in order to enable it to attain its objectives in view o f the extensive reforms undertaken on a national scale. 23. CNFA's mission is to train middle management staff for government agencies. As far as public finances are concerned, it trains tax collectors, tax and customs inspectors, and deputy-heads o f financial units - officials who, although indispensable to ministry services, are in relative short supply compared to needs. The CNFA must be strengthened by increasing its student capacity, modernizing its training equipment and installations, and raising the efficiency o f its administrative and teaching staff. CNFA's structure and training program will be reviewed in 2004. 24. The ENMG was founded in 1997 to reduce the lack o f domestic training for judges and court registrars. Until then, judges were recruited among the graduates o f the Institute o f Legal -80 - Studies (IEJ) at the Antananarivo Law School, andtheir training was inadequate by international standards. Henceforth, all judges who are appointed must be ENMG graduates. The ENMG was set up with IDA support under PAIGEP 1. To continue operating, it relies on support from the Government and from external, technical and financial, partners, in particular for operating expenses, the provision o f proper facilities, and the strengthening o f technical, material, and human resources. More specifically, insofar as the continued operation o f the School i s concerned, the Government plans to hire a consultant to conduct a feasibility study aimed at evaluating the long-term needs o f the School and the assistance that will have to be provided by the State and the beneficiaries when financial assistance from external partners is no longer available. 25. Advanced technologies developed in recent years make it possible for a course to be offered simultaneously at many centers throughout the world. Accordingly, the Government set up the CFD to enable as many local civil servants as possible to derive benefit from the best training provided in other countries. A feasibility study, carried out in partnership with the "Global Development Leaming Network" (GDLN), which i s affiliated with the World Bank, concluded that Madagascar had every reason to set up CFD, since such a center would allow public and private sector staff to participate in tele-seminars provided by top specialists and high-level institutions, and in exchanges o f experience among experts and economic policy makers in different countries, at a reduced cost. Conclusion 26. The Government plans to carry out the measures necessary for implementing policies o f good governance, combating corruption, capacity building, and poverty reduction under a program o f action for which it requests the support o f the international community, and in particular IDA. Specifically, the contribution o f IDA will be used for: - supporting the establishment o f good governance in the management o f public affairs, particularly as regards the management o f public finances and combating corruption; - helpingthe Govemment to monitor the implementation o fthe PRSP; - consolidating PAIGEP 1 achievements in the units o f the Ministry o f the Economy, Finances and the Budget, particularly in the General Directorates o f the Treasury and o f Public - Expenditure, with a view to installing an integrated system o f public finances; financing the installation o f the SYDONIA++ software in the General Directorate o f Customs - to ensure quick compilation of reliable data on foreign trade; pursuing the reinforcement o f the legal and judicial system already begun under PAIGEP 1; - and promoting capacity building on a national scale through a broad training program designed for staff entrusted with ensuring good governance. This measure will include building the capacities o f training institutions. 27. Through the policy described, the Government aims at improving and strengthening the socio-economic environment in order to foster the development o f the country and restore Madagascar's credibility, first among its own population and, at the same time, among its technical and financial partners and the private investors, to ensure that they all, through their support and their contributions, help expedite development and make it sustainable. This restored credibility presupposes rigorous management o f public finances, the elimination o f corruption, transparent business law, economic stability, and the availability o f reliable and -81 - up-to-date economic information. The Government is confident that the population will take ownership of this policy and that the international community will back the implementation o f the proposedmeasures. - 82 - MAP SECTION
Groupe de la Banque mondiale · Project Appraisal Document
Madagascar - Governance and Institutional Development Project
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Groupe de la Banque mondiale
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Project Appraisal Document
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Madagascar
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Banque mondiale