Mozambique - Country Assistance Strategy Progress Report

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 35319-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY ASSISTANCE STRATEGY PROGRESSREPORT FOR THE REPUBLIC OF MOZAMBIQUE FOR THE PERIOD FY04-FY06 February21,2006 AFC02 Africa Region The InternationalFinanceCorporation Sub SaharanAfrica Region The Multilateral InvestmentGuaranteeAgency This documenthas a restricteddistributionand may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  The CountryAssistance Strategy is datedOctober 20,2003 Currency Equivalents US $1 = Metical24,221 (as ofFebruary 2006) Abbreviations and Acronyms AAA Analytic andAdvisory Activities MDG Millennium Development Goals AAP Africa Action Plan M&E Monitoringand Evaluation APL Adjustable ProgramLoan MIGA MultilateralInvestment Agency BPES Economic and Social PlanProgress MTEF MediumTerm Economic Framework Report MMR MaternalMortality Ratio CAS Country Assistance Strategy NGO Non-GovernmentalOrganization CEM Country Economic Memorandum NWD NationalWater Development CFAA Country FinancialAccountability PAF PerformanceAssessment Framework Assessment PARPA Action Planfor the Reductionof CPAR country ProcurementAssessment Absolute Poverty Review PER Public ExpenditureReview CPPR Country Portfolio Performance PES Economicand Social Plan Review PODE EnterpriseDevelopment Program ESSP Education Sector Strategic Program PRGF PovertyReduction and Growth ESW Economic and Sector Work Facility FDI Foreign Direct Investment PROAGRI NationalProgram for Agricultural FY FiscalYear Development G18 Group of EighteenDonors PRSC PovertyReduction Support Credit GDP Gross DomesticProduct PRSP PovertyReduction StrategyPaper GEF Global EnvironmentFacility PSR Public Sector Reform Project HIPC Highly IndebtedPoor Country SADC SouthernAfrican Development IAS InternationalAccounting Standards Community IBRD InternationalBankfor Reconstruction SAPP SouthernAfrica Power Pool and Development S ISTAFE IntegratedFinancialManagement IDA InternationalDevelopmentAgency InformationSystem IFC InternationalFinance Corporation SME Small- andMedium-sized Enterprises IMF InternationalMonetaryFund SPN Supervision IMR Infant Mortality Rate SWAP Sector Wide Approach JSA Joint StaffAssessment TA TechnicalAssistance LEN Lending USMR Under FiveMortality Rate IDA IFC MIGA Vice President: GobindNankani Lars H.Thunell, Exec. Yukiko Omura, Exec. Director: Michael Baxter RichardRanken Philippe Valahu(Acting) Task Team Leader: PaolaRidolfi BabatundeOnitiri Thomas Vis  REPUBLICOF MOZAMBIQUE COUNTRY ASSISTANCE STRATEGY PROGRESSREPORT (FY04-06) TABLE OF CONTENTS I.Introduction.................................................................................................................... 1 11. Country Context ............................................................................................................ A. Challengesandconstraints to achievingthe developmentobjectives ..................1 3 111. Progress towards Mozambique's long-termdevelopment objectives ......................... 4 IV. Progress towards implementingthe CAS................................................................... 6 A. Introduction........................................................................................................... 6 B. Objectives....................................................................................... _ ...................... 6 C. Outcomes............................................................................................................... 7 D. Instruments............................................................................................................ 7 E. Monitoring andEvaluation.................................................................................... 9 v. Resultson the Ground................................................................................................... 9 VI. Results Framework for Achieving Impact................................................................. 10 A. preparationo fthe PARPAI1.............................................................................. 10 B. Donor Harmonization.......................................................................................... . . 11 C. Harmonizationwith the PAF andthe AfricaAction Plan................................... 11 VI1 The Way Forward . ...................................................................................................... A. CAS Program...................................................................................................... 12 12 B. Risks.................................................................................................................... 12 Appendix I: CAS ResultsFramework(FY04-FY07). ProgressReport ......................... 13 Appendix 11:CAS ResultsFramework(FY04-FY07). Alignmentwith PARPA 11,PAF andAAP...................................................................................................................... 33 Appendix 111:Resultson the Ground................................................................................ 43 Appendix IV:Performanceofthe BankGroup's Program.............................................. 48 Appendix V: Implementationofthe PARPA ................................................................... 52 Appendix VI: ProgressImplementingthe ParisDeclaration............................................ 53 Appendix VII: Performance Assessment framework (PAF) ............................................ 54 Appendix VIII: Africa Action Plan.................................................................................. 60 Appendix IX: MillenniumDevelopmentGoals............................................................... 61  FOROFFICIAL USE ONLY  This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.  Tables Table 1: Basic Macroeconomic Indicators ......................................................................... 2 Table 2: Economic and Social Indicators .......................................................................... 3 Table 3: Bank Group Lendingand Non-Lending Program ............................................... 8 Table 4. Lending Activities. FY03-FY06 ........................................................................ 49 Figures Figure 1: Governance Indicators: Mozambiquevs. Regional Average............................. 6 Box Box 1: Summary of Key Results Achievedduring the CAS PRPeriod.......................... 10 Annexes Annex A1 . Key Economic and Program Indicators ....................................................... 62 Annex A2 . Mozambique at a Glance.............................................................................. Annex B2 - Selected Indicators o f Bank Portfolio Performance and Management ........ 63 65 Annex B3 - IBRDADA Program Summary..................................................................... 66 Annex B3 - (IFC & MIGA) ............................................................................................. 67 Annex B4 - Summary of Non-lending Services .............................................................. 68 Annex B5 - Key Economic Indicators............................................................................. 69 Annex Bfj - Key Exposure Indicators.............................................................................. 71 Annex B7 - Operations Portfolio (IBRD/IDA and Grants............................................... 72 MAP IBWN o.24288R  I.INTRODUCTION 1. The objective ofthis CAS ProgressReport is to assess progress in implementingthe first two years of the FY04-07 results-based CAS, and to confirm the relevance and validity of the CAS objectives, outcomes and instruments. This mid-term review comes as the Government i s finalizing its second Poverty Reduction Strategy (PAWA), and it takes into account the Bank's new results framework for Africa, "Meeting the Challenge o f Africa's Development: A World Bank Group Action Plan" (Africa Action Plan, AAP). This Report covers the period from October 2003 to January 2006, during which Government has embraced n e w avenues of dialogue with its partners, achieving stronger coordination and deepening the harmonization process. The C A S program has helped improve harmonization through the PRSC program and has better articulated sectoral dialogues. 2. This Progress Report shows how the Bank's program can be aligned with the objectives of the second PARPA, and its results framework with the Performance Assessment Framework (PAF). The Report also provides an opportunity to take stock of developments in implementing the P A W A and inharmonizing donor and government programs around the PAF. 3 . During the period of this CAS, the Bank has sharpened its focus on harmonization by adopting the principles o f the Paris Declaration on Aid Effectiveness and on results through a process that culminated in the Africa Action Plan. This Progress Report highlights the areas of consistency between the PAF indicators and the AAP country monitoring tool indicators, and identifies those A A P indicators that can be realistically monitored inMozambique. 4. The Report assesses the effectiveness of the World Bank Group's program, including IFC and MIGA, and demonstrates that donor harmonization was a result attained pari passu with strong internal coordination. Through this first joint CAS, the Bank Group has successfully increased the effectiveness of its programs in Mozambique by broadening the scope of its interventions and instruments. In this respect, the focus on results helped create new means of internal cooperation driven by a results agenda. 5. The analysis and conclusions o f this CAS Progress Report incorporate the outcomes of consultations with Government, civil society organizations, private sector representatives and donors conducted inMaputo inDecember 2005. 11. COUNTRYCONTEXT 6. This CAS Progress Report covers FY04-06, a period of fundamental change in Mozambique's development. Moving into a second decade o f peace in 2002, Mozambicans begunto see concrete results from their commitment to peace and long-term development. Inthe 1990s, political commitment and support from the international community helped fuel a rapid recovery from three decades of conflict. Inflows o f foreign direct capital investments and concessional assistance contributed to high levels of growth, which has averaged eight percent a  Republic of Mozambique: Country Assistance Stratem Progress Report Page 2 of 72 year since the 1992 Peace Accords, and has been accompanied by structural reforms and increased Government spending inthe social sectors. 7. A rapid and well-managedtransition from emergency recovery to long-term development planning during the second half o f the 1990s culminated in 2000 in a clear definition of medium- term objectives in Mozambique's PRSP, the Plano de Acqa"o para a Redu@o du Pobveza Absoluta (PARPA). Inthis period, the Government embarked on a program of reforms aimed at maintaining macroeconomic stability, improving public financial management, ensuring long- term sustainability of infrastructure investments, improving human development, and attracting foreign direct investment inmega-projects. TABLE1:BASICMACROECONOMIC INDICATORS 2003 2004 2005 Percentage, unless otherwise indicated Real annualGDP growth rate 7.9 7.5 7.7 Nominal GDP (Meticais trillions) 114 134 153 NominalGDP (US$billions) 4.79 5.91 6.72 Inflation(period average) 13.4 12.6 6.3 Gross domestic savingslGDP 10.1 12.3 11.9 InvestmentlGDP 25.9 20.7 22.2 Government revenueexcl. transferslGDP 12.9 12.6 13.8 Govt. expenditurelGDP 26.5 24.7 27.1 AidlGDP 15.7 14.4 13.5 Interest rate (commercial lending rate) 24.7 22.0 19.5 Current account deficitiGDP (excl. grants) -19.9 -14.1 -17.0 Exchangerate (000 MtlUS$) 23.8 22.6 22.8 NPV of external debdexport 102 84 84 Sources: World Bank: Country Economic Memorandum,World Development Indicators. 8. A consistent program of structural reforms brought about fundamental institutional change with a direct impact on growth. Reforms were introduced in the financial, transport, telecommunications, urban water and mining sectors. At the same time, n e w legal and strategic frameworks were introduced in energy and decentralized service delivery, and renewed efforts were made to modernize public financial management and improve governance. These reforms had a direct impact on growth and living conditions through an improved performance in the business environment -- especially for mega-projects -- and increased access to services. 9. Sustained growth and increased spending in the social sectors contributed to a 16 percent decline inpoverty in the six years from 1997,reaching 54 percent in 2003'. Inequality remained low by regional standards, and progress was made toward the key Millennium Development Goals (MDGs) o f infant mortality and primary enrollment. ' Forfurther details see Fox L,Bardasi E, Van den Broeck K. ,Poverty in Mozambique: Unraveling Changes and Determinants. Africa Region Working Paper SeriesNumber 87, August 2005.  Republic of Mozanzbiaue: Countw Assistance StratemProgress Report Page3 of 72 TABLE ECONOMIC SOCIAL INDICATORS 2: AND Indicator i Latest sir l e y e a r ~ 1 1996-2002 2003-05 ' population (millions) 18.4 19.4 I Population growth (annual,percent) 2.0 1.7 1 Gross NationalIncome per capita (Atlas method, US$) 220 290 3.9 6.3 20.7 19.4 69 54 42 41 122 101 12.1 16.2 , Access to an improved water source ( 9 ofpopulation) 24 42 Literacy (96 ofpopulation aged 15+) 40 45 Gross primary enrolment (% of school-agepopulation) 106 110 Male 107 121 Female 95 100 i Sources: World Bank,Country Economic Memorandum, World Development Indicators,Live Data I Base. 10. In 2003 and 2004 Mozambique went through peaceful local, Parliamentary and Presidential elections, although with very low turnouts. There was significant political change in but a few instances, and only at the municipal level. While the Presidential election saw the same party remain in power, it did result in a change o f leadership. Mozambicans, including a new generation of non-politicized youth, have started to demand increasedparticipation and improved accountability as the close links between political and economic governance have became more evident. One particularly contentious issue has been that large-scale foreign investments have generated GDP growth, but with no substantial impact on employment, A. Challenges and constraints to achievingthe development objectives 11. The main challenges to achieving Mozambique's development objectives include a sharp increase inthe incidence of HIV/AIDS, long limited by post-conflict isolation, which has started to take a major toll on society and the economy. Mozambique also faces a r i s k of complacency arising from dependency on donor funding and mega-projects; weak institutions that continue to hinder the consolidation o f the democratic process and economic growth; and comption and weak governance. 12. Structural obstacles and inefficiencies have continued to hinder t h e development of a domestic private sector, and especially o f a vibrant small and medium enterprise sector, which i s crucial to sustained employment growth and poverty reduction. Government and its development partners broadly agree that the high dependency o n donor assistance and mega-projects is not sustainable. Employment-generating growth will require: improved productivity in agriculture, which will be attained primarily by improving rural infrastructure to allow increased access to inputs and markets; sustainable management of natural resources, focusing on further development of miningand tourism; and concerted efforts at reform of the business environment. A second generation of reforms addressing the institutional infrastructure and aimed at  Republic of Mozambiaue: Countw Assistance Stratem Progress Report Page4 of 72 consolidating the macroeconomic and fiscal framework has been initiated but still largely remains to be completed. 13. Structural reforms underway will help promote pro-poor growth. As the 2005 Country Economic Memorandum showed, if there are no further growth-generating reforms Mozambique's growth rate would fall to an average o f 5 percent per year o v e r the medium term. Such a slow-down would be the consequence o f the end of the post-conflict rebound in agriculture growth and declining donor assistance as a share o f GDP, as well as two other factors. These factors, the increasing incidence o f HIVIAIDS and the possible recurrence of natural disasters, could reduce growth by one percentage point of GDP per capita per year each. Growth i s expected to continue to have an impact on poverty reduction, and, with a 5 percent growth rate, and assuming an unchanged level of inequality, poverty could fall from 54 to 40 percent by 2007, a decline that would allow Mozambique to attain the poverty MDGby 2015. 111. PROGRESSTOWARDSMOZAMBIQUE'S LONG-TERM DEVELOPMENT OBJECTIVES 14. Real annual GDP growth has been sustained above the 7 percent minimum PARPA target through the end o f 2005, due inpart to continued investments in large-scale capital projects. The business environment has benefited from improved transport and telecommunications, as w e l l as from legal reform and administrative simplification. Nevertheless, much remains to be done before Mozambique's business environment can facilitate sustained employment-generating growth. The financial sector also continues to be fragile, particularly on the service side, although renewed support in the areas o f supervision and accounting practices has strengthened the sector over the recent years and has helped prevent the reoccurrence o f financial crises. A combination of consistent support for policy reform, institutional strengthening and infrastructure financing has led to unprecedented improvements in access, sustainability, quality of services and costs. Progress has been made in establishing the institutional framework in particular in infrastructure sectors, in transport and energy in particular. Nevertheless, Mozambique continues to have some o f the lowest access rates to infrastructure services in the world, and the post-conflict reconstruction effort will remain one o f the country's main development challenges inthe years to come. 15. Mozambique has had success in moving toward the key MDGs on under-five mortality, maternal mortality, and immunization. There have been improvements in the health sector structure that supports the fight against HIVIAIDS. The epidemic, however, has already reached over 16 percent o f the population, with peaks o f 26.5 percent in Sofala and 20.5 percent in Maputo, well above the PARPA target of maintaining the prevalence rate below 16 percent. Rapid improvements in primary education have continued to position Mozambique as the country with the fastest growing access to education in the region; actions taken over the past two years are expected to have an impact on quality, completion and gender equality. Implementation o f the decentralized framework for public service delivery began in 2004, providing increased budgetary and administrative responsibility at the local level. Procurement practices are expected to improve following the approval o f a new Procurement Code in 2005, which foresees the creation of an independent regulator and judiciary mechanisms that will be introduced in the coming two years.  Republic ofhfozarnbiaue: Countw Assistance Stratem Progress Report Pane 5 o f 72 16. Macroeconomic management has been generally good. The exchange r a t e hasbeen well managed, and the response to the oil price spike in 2005 was adequate (although the necessary pass-through of price increases to the consumer resulted in an increase inp r i c e inflation in mid- 2005). The public resource management system has seen notable improvements in reporting on budget allocation and expenditure management in the priority sectors of the PARPA. Coordination between the Ministry o f Finance (restructured from the f o r m e r Ministry o f Planning and Finance in 2005) and line ministries has improved. Budget transactions are expected to become more reliable as the delayed rolling out o f the new integrated financial management program is completed. Revenue collection, however, has been u n e v e n over the past two years, partly due to the introduction o f a new income and value added tax regime in 2004. 17. The Government's public sector program experienced considerable delay, with consequences for implementation o f civil service reform as well as for the governance agenda, and most critically for the business environment. Recently there has been some better progress, with the approval of the Anti-Corruption Law in 2004, and the creation o f a permanent anti- corruption authority. However, the delayed disclosure o f a Governance and Anti-Corruption Diagnostic Survey Report raised concerns about high-level commitment to better governance. Transparency and accountability remain limited, and corruption continues to be widespread. As illustrated in the figure below, Mozambique performs better than the regional average under all governance indicators with the exception o f control of corruption. The results of the Diagnostic helped identify the priority areas for reform and are being usedto revise the Government's 2001 Anti-Corruption Strategy.2 The Government organized a National Seminar on the draft Anti- Corruption Strategy in Maputo at the end of 2005, and i s now integrating the findings, conclusions and recommendations into the Anti-Corruption Strategy. There i s agreement among the Government's partners on the urgency of a broad reform o f the legal and judicial system, based inpart on a Legal and Judicial Assessment supported by the Bank. 'Thecomplete Report and a description o f this work can be found at: http:/lwww.worldbank.orglwbilgovernancelmozambiquelindex.html ipdf1Relatorio-Final-da-Pesquisa-ingles.pdf  Republic ofMozambigue: Countrv Assistance Stratem Progress Report Page 6 o f 72 FIGURE: GOVERNANCE 1 INDICATORS: MOZAMBIQUE vs. REGIONALAVERAGE MOZFlMBIQUE (2004) I Voice and Rccountability - P o l i t i c a l s t a b i l i t y J Governnent Effectiveness Regulatory Q u a l i t y Rule of Lau I II I Control of corruption I B 25 50 5 188 Conparison uith r e g i o n a l average (Subsaharan Africa>Clouer bar) Country's Percentile Rank (8-100) Iv. PROGRESSTOWARDSIMPLEMENTING THE CAS A. Introduction 18. This Progress Report reflects the outcomes indicators ofPARPA I1a n d the latestPAF, confirming the harmonization of the CAS with Mozambique's own development goals and indicators. It aligns the CAS framework with the PAF, which includes both outcome and intermediate indicators tracked on an annual basis. The CAS outcomes resulting from the alignment constitute a subset o f the PARPA and PAF outcome indicators, as s e t forth inthe 2003 CAS. This confirms the harmonization of the Bank's results framework with Mozambique's development outcomes and ensures that the CAS outcomes will be tracked. B. Objectives 19. Considerable progress has been made inparticular toward achieving the longterm objectives of the CAS Results Framework, which were derived from the P A R P A . The CAS objectives were aligned with the targets o f the 2000-2005 PARPA, and the R e s u l t s Framework outcomes and indicators reflected the PAF indicators at the time. The CAS R e s u l t s Framework was consistent with the objectives and indicators o f the 2000 PARPA, which w a s developed at a time when the harmonizedPAF poverty monitoring system was only at aninitial stage of development, The PARPA development goals continue to be relevant, andthe long-term objectives of the CAS remain alignedwith Mozambique's development objectives. At the end of the period covered by this Progress Report, the Government was about to complete preparation of the PARPA I1for 2006-2009. The long-term objectives andtargets of PARPA I1 reflect continuity with the objectives and targets o f the first PARPA, with a stronger focus on the  ReDublic of Mozambiaue: Countw Assistance Strategy Pronress Report Page 7 of 72 productive sectors and, in some cases, an updated baseline for the targets, reflecting new information collected over the past two years. C. Outcomes 20. Appendix Iprovides a detailedupdate on the status of the CAS outcome indicators and a summary of B a n k Group's activities that served as inputs. An alignment o f the CAS outcome indicators, which remain relevant, with the most recent PAF indicators and, w h e r e possible, with the Africa Action Plan Country Monitoring Tool, is presented in Appendix 11. There has been progress towards the PARPA and the CAS outcomes in particular in l o w e r i n g infrastructure costs and raising access, improving efficiency and quality o f the education system, improving Government's monitoring and evaluation capacity in planning and budgeting. M o r e time will be required to see concrete results arising from reforms introduced in support of the business environment and public financial management. D. Instruments 21. Implementation o f the CAS has been informed by two main developments inthe partnership with Mozambique over the past two years: (i) increased Government's ownership of its development objectives, which resultedfrom implementation o f the PARPA, and the preparation process of PARPA 11; and (ii) an increasingly harmonized development environment, emerging inparticular from stronger cooperation among the program aid partners that signed the 2004 Memorandum o fUnderstanding.Details on the program are included inAppendix IV. 22. The CAS program was implemented in accordance with the original plan, with a few exceptions: a Maputo Development Program was added shortly after the C A S was discussed by the Board to support progress on the decentralization agenda; it was decided to support the Legal and Judicial Capacity Building Programthrough a restructured Public Sector Reform project; the Bank's PRSC cycle was brought in line with the Government's budget -- and donors' budget support -- cycles, given progress with PARPA implementation and donor harmonization; which entailed advancing PRSC 3 by six months and mergingit with PRSC 2. Over the past two years, the Bank also deepened its commitment to decentralize its program to Mozambique, with three cluster leaders now supporting the program out o f the Maputo Country Office, and over 50 percent of the current portfolio managed by staff based inMaputo or inthe region. 23. Coordination with IFC and MIGA has led to stronger programs in tourism, small and medium Enterprises (SMEs),HIVIAIDS and large capital investments. 24. The regional development agenda was extended to include two GEF-funded environmental operations, and IDA-funded operations are planned for the remaining period of CAS implementation in trade facilitation, water resource management and infrastructure telecommunications, while the regional Southern Africa Power Pool operation w a s delayed. 25. The non-lendingprogram was strengthened to include analytical work on constraints to agricultural productivity, rural access to telecommunications, growth poles and regional  Republic ofbfozambiaue: Countw Assistance Stratem Progress Report Page 8 of 72 development, updated assessment of poverty and gender, and the country' s environment and social framework. TABLE3: BANK ROUPLENDING AND N O ,LENDING PROGRAM OngoingPortfolio New Lending A A A PROAGRI; PRSCprogram; Completed PoDE; Roads andBridges 11; PER2; Value ChainAnalyses; Contract Coastal andMarine TransfrontierConservation FarmingandSupply Chain Financing; Biodiversity; Areas andTourism; CEM (completed); Rural Strategy; Mineral Resources; Smallholder Agricultural Impact o f Extension; Telecommunications; Development; MiningpolicyTA (completed); Energy Reform andAccess; Moatize DialogueT A (completed). Southern Africa Gas Regional: Pipeline; Communications On-going: Roads and Bridges; Infrastructure; Regional Growth Study for the Railway and Ports WesternIndianOceanMarine Zambezi Valley; PER TA; Restructuring; HighwayDevelopmentand PSIA on LaborMarket; BeiraRailway; CoastalandMarine Rural Telecommunications; Financial Sector TA ContaminationPrevention Zambezi River Basin Regional Project; - Water ResourceManagement; IFC Southwest IndianOcean Country Environmental PEP Africa: Tourism Sector FisheriesProject; Assessmenticountry Social Assessment; Development Initiative; Zambezi River BasinSupport Horticulture Development Sector Study SME HIV/AIDS program IFC: MIGA Advice on regulatory issues andsupport Momamining; to SMEs (on-going); MarromeuSugar MIGA EnterpriseBenchmarking ProgramStudy Education Support Strategy; Technical and Vocational PER 2 (completed); Higher Education; Education; PER TA (ongoing); HIViAIDS MAP; PRSC; Poverty and Social Impact Assessment RegionalTreatment MaputoUrbanDevelopment on Primary School Fees (completed); AcceleratedProgram(TAP); Technical andVocational Education National Water (completed); DevelopmentI,11; NWDPII HealthStatus Report (completed); Supplemental; Achieving the Health MDGs Public Sector Reform; (completed); Municipal Development; DecentralizedPlanningand Marginal Budgeting through Bottlenecks Finance TA; Poverty andGender Analysis SME HIVIAIDS (partof PEP Africa) Mozal Linkage Public Sector Reform; PRSC 111; PER2 (completed); PRSCI, 11 LegalCapacity (component of Legal andJudicial Assessment restructuredPublic Sector (completed); Reform) GovernanceandAnti-Corruption Diagnostic (completed); Procurement Reform TA (ongoing); CommercialDebt Reduction TA (ongoing)  Republic of Mozambigue: Countw Assistance Stratem Progress Report Page 9 of 72 E. Monitoringand Evaluation 26. The PAF monitoring process requires an effective monitoring system linked with line ministries and with decentralized levels o f government to track progress in implementing the PARPA. The Government has requested assistance to strengthen the Country's M&E systems and a PAF working group i s supporting this effort. The Bank has provided support through CAS preparation, the PRSCs, and this Progress Report, advising mainly on managing the change from output and project-based objectives to results. Specific support has been p r o v i d e d on portfolio M&E and aPortfolio Review on Monitoring and Evaluation Framework was compjeted in 2005. A dedicated seminar on M&E will be part of the Country Portfolio Performance Review scheduled to be h e l d inMarch 2006. v. RESULTSOK THE GROUND 27. The findings of this CAS Progress Report are based on an assessment of the status of CAS outcomes, conducted through interviews with Government officials, private sector associations, donors, civil society, and taking into account the findings o f the sector working groups involved in the biannual reviews o f the PAF over the past two years. A summary of the status of each outcome, and the corresponding intermediate indicators, is provided inAppendix I. A detailed description o fthe mainresults is includedinAppendix 111. 28. There have been significant results on the ground over the past t w o years. Thirty-five outcomes were identified in the CAS Results Framework, with 49 corresponding intermediate indicators, Twenty outcomes have been achieved, and considerable progress has been made toward the remaining 15. Information i s available on every intermediate indicator, and all but four were monitored through Bank or Country systems. The Bank has provided support for five notable areas o f progress towards Mozambique's development outcomes: (i)improved connectivity and increased sustainability o f transport investments; (ii) increased teledensity and reduced cost of telecommunication; (iii)increased access to primary education; (iv) improved capacity in managing water resources and natural disaster prevention; and (v) improved reliability, quality and sustainability o f urban water supply. 29. The Bank Group has contributed to achieving these results by helping to address some key constraints to the business environment through it support for reducing the cost and increasing the sustainability o f infrastructure services, including transport, telecommunications, water and energy. New investments, and a strong sector dialogue -- helped by t h e Joint Reviews, and by the better harmonization required for coordinated budget support -- h a v e helped enhance the effectiveness of the Bank's support. A strong focus on the fiduciary framework and on governance, and a renewed attention to the financial sector, contributed to shaping the government's agenda, and acted as a catalyst for some donor programs. The Bank has started to work on ensuringa sustainable use o f natural resources for long-term growth. Bringing resources  Republic of Mozambiaue: Country Assistance StratemProgress Report Page 10 of 72 closer to the beneficiaries has beenpursuedthrough a strongprogram of support for a sustainable framework for service delivery at the district, provincial andmunicipallevel. Box 1: SUMMARY OF KEY RESULTSACHIEVED DURINGTHE CASP R PERIOD (see Appendices Iand I11for details) Telecommunications. The cost o f mobile telecommunication dropped dramatically after competition was introduced, and a second operator entered the market in 2 0 0 3 . Teledensity reached 5.5% in mid-2005, three times higher than the 1.6% CAS projection. Access to telecom services has increased substantially, domestic and international p r i c e s have been reduced, quality o f service has improved, and telephone retailhesale services, including in the informal sector, have also grown. Connectivity. Institutional reforms and investments inroad maintenance have h e l p e d extend roads to areas impassable since the war. A considerable proportion o f the road n e t w o r k is in good condition. Institutional support to the sector has included the incorporation of the social dimension and improved planning capacity, and a focus on road safety. Fullmaintenance o f about 60% o f the national road network (paved and unpaved) is expected to b e achieved by 2009. W a t e r resources management and natural disaster prevention. Capacity in w a t e r resources has increased greatly, and a draft National Water Resources Policy has been prepared together with a development strategy. Mozambique has signed a M e m o r a n d u m of Understanding with the Government o f Portugal o n the transfer of the Cahora B a s s a hydropower plant to majority Mozambican ownership, which is likely to create opportunities for development o f the country's hydro-power potential and better management of Mozambique's Zambezi Basin. Urban water supply. The level of service incities served through the delegated management model has improved steadily over the past three years: hours o f supply have i n c r e a s e d through a combination o f repairs and improved operational efficiency; delegated management andthe strong economic regulation have resulted in a significant flow o f funds to the sector. The MDG for sustainable coverage for urban water supply to reach 70 percent shouldbe met. Primary education. Substantial progress has been made in increasing access to primary education, particularly in lower primary schools (grades 1 through 5). The G o v e r n m e n t approved the Education for All Fast Track Initiative (EFA FTI). Actions have been taken to improve quality, reduce repetition and increase completion rates. Other initiatives focus on school health and HIV/AIDS prevention. VI. RESULTSFRAMEWORKACHIEVING FOR IMPACT A. Preparation of the PARPA I1 30. PARPA 11(2006-09) is currently in the final stage o f preparationby a team coordinated by the Ministry of Planning, and it is expected to be finalized during the first half of 2006. Compared to PARPA I,PARPA T I is better balanced between the social and the productive sectors, with a planto further reducepoverty by supportingthe productivesectors. Preparation of  Republic of Mozambiaue: Countw Assistance Stratem Progress Reuort Pane 11 of 72 PARPA I T started from the vision document Agenda 2025, prepared by civil society organizations in 2003, and it involved a broad consultation process through the Poverty Observatory, and PARPA working groups. The donors have commented o n t h e latest draft of PARPA 11, focusing on M&E, and the need for broader objectives and a larger number o f targets than inthe PAF. B. Donor Harmonization 31. The past two years saw the development o f a more mature dialogue between the Government and i t s development partners. Increased ownership and better articulated, realistic development priorities accompanied the harmonization process which developed from the 2004 Memorandum of Understanding between Government and donors providing budget support. Government chose Joint and Mid-year Reviews as the chief vehicle o f donor support, replacing the traditional pledging approach of Consultative Group meetings. Donor assistance continued to contribute for about 50 percent o f total spending, although aid modalities changed substantially, rapidly shifting from sector and project funding to direct budget support. Increased harmonization has helped focus on the PARPA objectives, catalyzing Government's and donors resources toward the priority sectors of the PARPA. While coordination o f t h e budget support donors increased predictability of resource flows, and monitoring o f long-term objectives and medium-term targets, budget support still only accounts for 30 percent of total aid. C. Harmonizationwith the PAF and the Africa Action Plan 32. This Progress Report proposes a harmonization of the CAS with the PAF outcomes and with the AAP Country Monitoring Tool, with the objective of defining the CAS Results Framework as a sub-set of the PAF. The relevant PAF indicators have been selected and associated with long-term objectives. At the same time, the CAS needs to b e harmonized with the Bank's new country monitoring tool in the AAP. The CAS outcomes w i l l constitute a subset of the AAP. The CAS Results Framework will become a mechanism to ensure consistency between the country system, the PAF, and the AAP Country Monitoring Tool. 33. The Country Monitoring Tool indicators of the AAP were selected t o comply with two criteria: 0 consistency with the CAS outcomes, and 0 measurability, assured by the consistency with the PAF, including indicators monitored through the country systems. 34. The intermediate indicators were updated to take into account progress made in implementing the CAS program. The reformulation aims at providing a realistic set o f actions that can be completed in the next two years. The intermediate indicators bear a direct correlation with Bank's activities and their reformulation takes into account the status of program implementation.  Republic ofhfozambiaue: Countw Assistance Stratem Progress Report Pane 12 of 72 35. The PAF matrix i s designed to include only indicators tracked by statistical agencies and line ministries. The result i s a CAS monitoring tool harmonized with Mozambique's own monitoring system, donors' M&E indicators, and the Bank's AAP country m o n i t o r i n g tool. VII. THEWAY FORWARD A. CAS Program 36. The Government confirmed its request for support from the Bank in the priority areas o f the CAS. M o v i n g forward, the CAS plan will include a stronger emphasis o n t h e cross-sectoral synergies in the program, introducing more attention to growth poles and r e g i o n a l integration, natural resource management and local development. B. Risks 37. The risks identified in the CAS continue to apply. However, while p o l i t i c a l developments have fortunately not resulted in instability or conflict, the rise inthe HIViAIDS h a s beenhigher than expected. As regards debt sustainability and the risk o f aid dependency identified inthe CAS, harmonization and increased ownership have helpedmitigate the risks of aid dependency and avoid the risk of Dutch disease. 38. The Bank will continue to support Mozambique through the program set forth inthe CAS. The program will be implemented with emphasis on strengthening the accountability framework with Government, development partners, civil society and private sector, in support o f implementation of PARPA 11.  3 k h2, .. i   v, 3 v h d Y CCI   h v  00 3  h v a 4 h v 3  * M e h e h  c;' Y I !  A 1 Y L-40 h v  7- n n v v & h & h  n v .. e3 Yn h 8 5 3 m 8 N n8  h v  I h v I n v n -tl z h I  I n 0 CI 9 0 6+ b Y 0 p: 3 8 il 0 R BY 4 U .. H  W N  E - 3 - v i I  0 M  T-r .9 C Y -a Y 2 I  vl 3 cn c-; U aI d Y n 0 e h Y d rl .5 k e! vl h v3  h 9, h h E Y . . .-m a, h L Pm .-> 0 ."EC U Ym *E 2 .:. 4Fua .:. m z gm - 1 3 c Y P  e e e e  a a a a m 10  .Y 44 W m  a  00 m  .-E0 U 3 TH N -2 L L v cY v) .-M G .e L -.- XI *, l 0 a, * h Y2 m c 3 .e -aE 0 w Y e0 0 0 BI? L U 2 c 0 x  0 d  I E a 3 d e e  . c5 vmr 2a c eea Ei ICS a *- ceac L e . . a c +Ce L .r 2cl 2ir .r .r za ii r b I b r ..r rC c - P  APPENDIX111:RESULTS ONTHE GROUND 1. There have been significant results on the ground over the past t w o years. Thirty- five outcomes were identified in the CAS Results Framework, with 49 corresponding intermediate indicators. Twenty outcomes have been achieved, and considerable progress has been made toward the remaining 15. Information i s available on every intermediate indicator, and all but four were monitored through Bank or Country systems. (i) improved connectivity and increased sustainability o f transport investments; (ii) increased teledensity and reduced cost o f telecommunication; (iii)increased access to primary education; (iv) improved capacity in managing water resources and natural disaster prevention; and (v) improved reliability, quality and sustainability of urbanwater supply 2. Improved connectivity and increased sustainability of transport investments. Mozambique has been remarkably successful in reestablishing connectivity, a post- conflict objective pursued through consistent investments in infrastructure, institutional reforms, and capacity building for the past twenty years. The Bank has been the main partner in the sector, and it has contributed to the sustainable rehabilitation o f the national road network. Reforms in the sector have aimed at ensuring the long-term financial sustainability o f investments. The RoadFundand an independent road agency established in 2000 are among the first generation o f reforms supported by the Bank, and have proven successful in maintaining the network on a cost-recovery basis. 3. At the same time, investments in maintenance have helped extend roads to areas impassable since the war, with a considerable increase in the proportion o f the road network in good condition. Institutional support to the sector has included the incorporation o f social dimensions and improved planning capacity, as well as a focus on road safety. Over the same period, donors have made renewed efforts to harmonize their sector financing. Based on current donor commitments and road fund revenues, full maintenance o f about 60 percent o f the national road network (paved and unpaved) i s expected by 2009. Moreover, the second phase of the current program will be financed through a sector wide approach, which will include a focus on rural roads as well as restructuring o f the border post with South Africa at Ressano Garcia. The latter will involve the establishment o f a one-stop border stop that will reduce customs processing time, and so i s expected to have a positive impact on transport cost and the business environment. 4. Good results have been attained in re-establishing railways, the key means of communication until the war. Following the restructuring o f the national railway company, Companhia de Ferros de Mocambique E.P,the concession of the Sena rail line paved the way for connecting Beira with the Zambezi Valley, the area with the highest development potential in the country. The concession was successfully brokered by t h e Bank in 2004 in coordination with the IFC, which i s also involved in the feasibility studies for a coal mining concession at Moatize at upper end o f the Sena railway. Contracts for the rehabilitation o f the line have been awarded, and it is expected that once 43  the line i s reopened passenger and freight traffic will rise to 2 million tons per annum, andnew development opportunities will open up along the entire Zambezi Valley. 5. In addition to this progress in roads and railways, over the past two years, port concessions have been completed in Maputo, Beira and Nacala, with tangible results on transport times and reduced costs for freight previously transported from the South African port of Durban. 6. Increased teledensity and reduced costs of telecommunications. The cost of mobile telecommunication dropped dramatically after competition was introduced and a second operator entered the market in 2003. A new Telecommunications L a w w a s enacted in 2004 and an independent regulator set up, with technical assistance from the Bank; it is expected that the reformprocess, initiatedin2001, will be completed in2007. Greater competition has resulted in substantially increased access to telecom services, reduced domestic and international prices, and overall improvements in the quality of service, It has also stimulated growth o f telephone retailhesale services, including in the informal sector. As a result o f these reforms, teledensity reached 5.5 percent inmid-2005, driven largely by an expansion in the mobile market. This exceeds CAS projections (1.6 percent by 2006) by a factor o f three. The total number o f telephone subscribers is now around 1.3 million in total (of which about 1.27 million are mobile). T h e development impact of this increased teledensity i s likely to be significant as it helps reduce the cost of doing business, and improves access to markets and services, including inrural areas. 7. Considerable progress has been made with support from the Bank in the development of a Universal Access policy and program, including broadband, for which a strategy, draft policy, decree and regulatory provisions are in place. While privatization of the state-owned operator, Telecomunicaq6es de Moqambique, has been delayed, the company's continued expansion program includes plans to connect all provincial capitals via a fibre-optic network by 2010. The Bank plans to provide support through a n e w analytical activity on rural telecoms funded under the Africa Action Plan, undertaken in collaboration with the proposed Regional Communications Infrastructure Program and a WBI-supported regional connectivity study for academic institutions. 8. Increasedaccess to primary education. Substantial progress has been made in increasing access to primary education, particularly in lower primary schools (Ensin0 Primario do Primeiro Grau or EPI, grades 1 through 5). From 1992 to 2003, the gross admission rate to grade 1 rose from 59 percent to 123 percent, the gross enrollment rate (GER) inEPl increased from 60 percent to 113 percent, and the number o f lower primary schools rose from 2,800 to over 8,000, representing the greatest-ever expansion o f access to the system. By 2004, there were 3 million EP1 students studying in more than 8,400 primary schools and being taught by about 48,000 teachers. 9. While the achievements in increasing enrollment over the last 10 years are laudable, the educational system i s at a crossroads. Completion, repetition, and dropout rates have not followed the trend o f these impressive advances. The proportion of pupils who complete the full lower or upper primary education cycle (through grade 5 or grade 44  7, respectively) remains well below expectations in Mozambique relative to neighboring countries and countries at similar levels o f income. Completion rates also vary substantially by gender and across provinces and districts. Girls and children from low- income families in remote rural communities, particularly in the north and central regions, are at a greater disadvantage. Analyses by age indicate that o f 100 pupils who gain access to grade 1, only 37 reach grade 5; by grade 7, only 15 pupils remain in the system, and by grade 12 only a single pupil remains. For those pupils w h o stay in the system, it is difficult to ascertain learning achievement as there i s no national assessment mechanism. Against this background, since 2004 the Ministry o f Education and Culture (MEC) has been working to identify the underlying, multifaceted causes behindthe poor primary school completion rates so as to re-evaluate the appropriateness of current policy responses. This i s especially important if Mozambique i s to achieve the goal o f universal completion of primary schooling (grade 7) by 2015 and, more broadly, a sustained reduction in poverty. It is expected that the actions taken by the Government will have a direct impact on the quality o f education. 10. Since the approval o f the CAS, the following education-related achievements can be identified: (a) approval o f the Education for All Fast Track Initiative (EFA FTI), including adoption o f the indicative framework; (b) approval of a n e w sectoral strategy for education (ESSP I12005-2009), which incorporates the lessons learned from several studies of the sector to improve the quality o f education and the efficiency of the system; (c) a new curricula for primary education, launched nationwide in 2004, which i s expected to have a direct impact on the quality of education; (d) an expanded national program of Direct Support for Schools (DSS), going beyond EP1, and now covering EP2 schools, and important initiatives on school health and HIV/AIDS prevention; (e) a n e w strategy and training modality for primary school teachers, approved in 2005, to accelerate the supply o f qualified teachers and improve deployment practices; (0 elimination o f primary school fees starting in the school year 2005; (g) an increase in the budget for primary and post-secondary education from 5 percent o f GDP in 2003 to 5.2 percent in2005. 11. Improved capacity in managing water resources and natural disaster prevention. Mozambique remains very vulnerable to droughts and floods, both of which frequently damage the economy, owing to largely underdeveloped water resources - the national storage capacity i s only five percent of annual renewable water resources (excluding Cahora Bassa, which i s a single purpose development in a remote location). It is estimated that a storage capacity o f some 40 percent at least is required to develop a modern economy. The Bank produced last year a study entitled "The Role of Water in the Mozambique Economy - Identzfiing Vulnerability and Constraints to Growth'I, which i s being followed by a Country Water Resources Assistance Strategy to identify strategic investment opportunities in the water sector. 12. The capacity o f the government in water resources has increased greatly, a draft National Water Resources Policy has been prepared together with a development strategy. The International Rivers Unit (GRI) has: been engaged in negotiations with several riparian countries including South Africa, Swaziland, Zimbabwe, Malawi and 45  Tanzania; concluded seven agreements on international rivers (including the Inkomati, Maputo, Limpopo, Zambezi, and Lake Niassa); and engaged in a number of joint river basin studies with neighboring countries. Recently, Mozambique has signed a Memorandum of Understanding with the Government o f Portugal on the transfer of the Cahora Bassa hydropower plant from majority Portuguese to m a j o r i t y Mozambican ownership. Once Mozambique achieves majority ownership, there could be new opportunities for development o f the country's hydro-power potential, and better management of Mozambique's Zambezi Basin, and inparticular o f the sensitive Zambezi delta region. 13. Improved reliability,quality and sustainabilityof urbanwater supply. Since the formulation o f the National Water Policy in 1995, the urban water sector has made considerable progress in the introduction o f a policy o f delegated management. The creation in 1998 o f an asset holding company (Fundo de Investimento do Programa de Agua, FIPAG) and the Regulatory Board for Water Supply (Conselho de Regulaqiio de Abastecimento de Agua, CRA) laid the ground work for improving service levels and attracting investment. While Mozambique i s a predominately rural country, urban growth i s rapid (by 2015 about 30 percent o f the population will be living and working in urban areas), and SO development of an efficient urban water sector i s critical. It i s expected that by 2015 the asset holding company will have 14 cities or city clusters under i t s responsibility, or about 80 percent o f the urban population. The level o f service in cities served by FIPAG has improved steadily over the past three years. Inparticular, the hours of supply have increased through a combination o f repairs and improved operational efficiency. Delegated management, the separation of asset management from operations, and the strong economic regulation have resulted in a significant flow of funds to t h e sector. 14. A key factor supporting this effort is the uncompromising attitude of FIPAG and Government towards financial sustainability. This investment will increase sustainable coverage, and it i s expected that the MDG for sustainable coverage for urban water supply will be met at 70 percent. It should be noted that improved data collection has allowed to correct the baseline for access to clean water in the September 2005 PAF and inPARPA I1from a 46 percent target in20005 to a baseline o f41 percent and a target of 43 percent by 2007. The Bank has supported these achievements, through a well- coordinated program including the IFC and MIGA, as well as through increased harmonization, and a broad cross-sectoral approach. 15. The Bank Group has contributed to achieving these results by helping to address Some key constraints to the business environment through it support for reducing the cost and increasing the sustainability o f infrastructure services, including transport, telecommunications, water and energy. N e w investments, and a strong sector dialogue -- helped by the Joint Reviews, and by the better harmonization required for coordinated budget support -- have helped enhance the effectiveness o f the Bank's support. A strong focus on the fiduciary framework and on governance, and a renewed attention to t h e financial sector, contributed to shaping the government's agenda, and acted as a catalyst 46  for some d o n o r programs. The Bank has started to work on ensuring a sustainable use of natural resources for long-term growth. 16. As regards in particular the agriculture sector, agriculture growth which has contributed to poverty reduction in rural areas has been due primarily to extensive cultivation with some crop diversification. There has been progress in particular in improving food security with the adoption o f short cycle, protein rich varieties of maize, disease tolerant cassava clones and nutrient enhanced sweet potatoes. O v e r the past two years, the Bank has carried out a number of studies to identify the main issues that are affecting the sector. These studies include: an Agricultural Strategy, a study on Contract Farming, V a l u e Chain analyses o f key Commodities, and an assessment of Impact of Extension. These studies are now being utilized by the Government to develop its o w n rural development and agriculture strategies. These, in turn, will p r o v i d e key inputs to PARPA11. 17. Under the ongoing SWAP investment - PROAGRI- concerted efforts have been made to improve public institutions - especially research, extension and animal health support systems. In addition, support i s being provided to ensure security of land tenure for smallholders through land use surveys and issuance o f certificates. These activities will be further supported under PROAGIU11, which will receive support from the Bank through direct budget support instruments in the future. The Bank i s also preparing a new investment - the Smallholder Agricultural Development project - that would pilot a demand-driven approach to agricultural growth. 47  APPENDIX Iv:PERFORMANCEOF THE BANKGROUP'S PROGRAM LendingApproved in FY04-FY06 1. As of February 2006, five operations and two PRSC credits h a v e been approved for a total of $377.5 million. The CAS financing plan for FY04-FY07 i s $560 million (including $30 million for the IBRD Southern Africa Gas guarantee that was erroneously identified as IDA financing in the CAS plan). A further four investment operations, a regional project and one PRSC credit are scheduled to be delivered b e f o r e the end of the CAS period. The new lending program approved over the past two fiscal years included $140 million under the First Pillar - Improving the Investment Climate - of which $110 was for the Beira Railway, $10.5 for the Financial Sector TA and $20 million for the Trans Frontier Conservation Area Program; $15 million was approved for the National Water Development Project I1Supplemental, and $42 million in grant w a s approved for the Decentralized Planning and Finance project under the Second P i l l a r on Improving Service Delivery. The PRSC program included two credits o f $60 million and $120 million approved in FY05 and FY06. A Legal and Judicial Capacity Building LIL originally planned for FY05 under Pillar 111, improving Capacity and Accountability, will be incorporated as a component in a restructured Public Sector Reform program. 2. The transition from a program supported under IDA13 to IDA14 required some adjustment in the scope o f a few operations, as well as in the approval schedules. Delays inimplementingthe Government's Public Sector Reformprogram led to the decision not to proceed with a second phase o f Bank support, and to start the process of restructuring the existing first phase to inter alia incorporate a Legal Capacity component. 3. One operation not included in the plan - the Maputo Development Program - was added shortly after the CAS was approved as a result o f a demonstrated willingness to systematically tackle the institutional and financial bases for sustainable municipal development from the newly elected President o f the Municipal Council of Maputo, and as part of a strong focus on decentralization which includes also a Municipal Development Project and a Decentralized Planning and Finance Project. The Sustainable Rural Development Project was prepared as the second credit o f a Transfrontier Conservation Areas operation with a focus on developing conservation areas for tourism, which was approved at the end o f 2005 with GEF financing. A new rural operation, the Smallholder Agricultural Development Project, i s under preparation, reflecting the Bank's commitment to help government unlock the potential for rural growth at the local level and linkingrural producers to markets. The operation will build on the findings of a Contract Farming and Supply Chain Financing study. 48  TABLE LENDING 4. ACTIVITIES, FY03-FY06 Pillar Status Name IDA GEF Improving the SPN Beira Railway 110 Investment Climate SPN Financial Sector TA 10 SPN Trans Frontier ConservationAreas I1 20 10 LEN Smallholder Agricultural Development 30 6.5 LEN Roads and Bridges APL2 100 Subtotal 270 16.5 Expanding Service SPN Decentralized Planning 42 Delivery SPN National Water Development ProgramI1Suppl 15 LEN Technical and Vocational Education 30 LEN Maputo Urban Development 30 Subtotal 117 Building Capacity Legal and Judicial Capacity O* and Accountability PRSC Program Closed PRSC1 60 SPN PRSC2 120 LEN PRSC3 Subtotal 180 Regional SPN HIV/AIDS TAP 25 LEN West Indian Ocean Marine Highway 11 LEN Southern Africa Power Pool 10 LEN Zambezi River Basin 1 LEN Telecom Infrastructure LEN SW Indian Ocean Fisheries LEN SADC Capacity Building LEN Regional Trade Facilitation Subtotal 36 Total 603 *To be incorporatedinrestructuredPublic Sector Reform Project The Non-lendingProgram 4. The non-lending program was supported the three pillars, a n d incorporated 17 pieces of analytical work, including two core pieces o f Economic and Sector Work - the Second Public Expenditure Review and a Country Economic Memorandum - and seven technical assistance activities. The Second Public Expenditure Review and the Country Economic Memorandum were completed in FY04-FY06, together with studies of value chains, contract farming, technical and vocational education, the health status, constraints to achieving the health MDG, legal and judicial status, governance and anti-corruption, and the poverty and social impact o f changes in primary school fees. The program of technical assistance included activities aimed at strengthening capacity to implement the PARPA, focusing in particular on public expenditure management, as well as technical 49  assistance in t h e main productive sectors. Technical advisories from IFC and MIGA complemented the non-lending program. 5. WBI recently included Mozambique among its group of Focus Countries, and committed to expanding its program o f activities. Currently, WBI is involved in capacity building program addressed mainly to local government officials and in the area of governance. In particular, WBI i s participating in preparation o f the new M a p u t o Urban Development Program. IFC Program 6. IFC's committed portfolio totals U S 1 2 4 million and consists o f eight projects in agribusiness, primary metals production, oil & gas, and general manufacturing sectors, includingfour operations in the small- and medium-sized enterprise sector. IFC's main investment has been in the Mozal aluminum smelter near Maputo. IFC support ($120 million) for the first phase in FY97 was crucial to the USSl.3 billion project, and was IFC's largest single investment at the time. Mozal entered production in June 2000, six months ahead of schedule, and its production more than doubled Mozambique's total exports in 2001 from 1999 levels. IFC also provided $25 million to the second phase of Mozal, which doubled production capacity. IFC has further supported Mozal' s HIV/AIDS programs, and i s assisting the company with an SME l i n k a g e program to expand its local sourcing to Mozambican firms. InFY05, IFC approved $3 million in the form of grant funding for the creation o f the Mozambique SME financing and technical assistance facility. The facility was established on a pilot basis as an IFC-administered program to provide an integratedpackage o f risk capital and technical assistance (TA) to selected SMEs. One SME project under the responsibility o f the facility was approved and committed during FY05. The Private Enterprise Partnership for Africa (PEP Africa) i s in the process o f setting up a Tourism Sector Development Initiative and an SME HIViAIDS Program. IFC i s currently working on four potential projects for investment potential of $15million, and its SME facility i s also analyzing five high probability SME projects for direct investment and technical assistance. In addition, the PEP Africa program i s considering i s considering several interventions that would help improve the investmentclimate. MIGA Program 7. Mozambique joined MIGA in 1994, and i s MIGA's fourth-largest host country and the largest in Africa. The portfolio consists o f eighteen guarantees totaling $262 million in gross exposure ($192 million in net exposure), including $ 7 2 m i l l i o n to Sasol, $20.8 million for the Moma mining project, and $13.9 million for the M a p u t o Port. An apparel industry outreach program to HongKong took place in September 2003 under the MIGA-Swiss Partnership. In FY04, MIGA's work focused on p r o v i d i n g advice and assistance to the Investment Promotion Centre to advance the free zone work program under the Enterprise Development Project (PoDE) o f the World Bank. MIGA i s currently working on four applications for investment potential o f $100 million. With regard to the 50  new program in Mozambique, MIGA has a new Small Investors Program (or SIP) program. Quality of the Bank's portfolio 8. The current program includes nineteeninvestment operations a n d one PRS Credit for a total of $1billion, including $120 million under PRSC I1and $123 million ingrants. The portfolio has an average age o f almost 4 years. One operation - the H I V / A I D S Response project -- i s in problem status, but i s expected to be upgraded at Mid-Term review in March 2006, while the Public Sector Reform Project i s at risk and it will b e restructured in March 2006 and a component on Legal Capacity will be included. Two operations that were under this category inthe first quarter -- the M u n i c i p a l Development Project and the Decentralized Planning and Finance Project -- have been upgraded to marginally satisfactory over FY06. A review o f the projects cost savings in the portfolio was completed in FY06. The review identified about $60 million d o l l a r s in potential savings across the portfolio, o f which $40 million, or 67 percent, i s m a d e up by nine projects all scheduled to close in 2006. The review concluded that five of these projects may be extended to enable the full use o f the funds and achieve t h e development objectives. T h e implementation o f these projects was also affected by weak implementation capacity coupled with ambitious project design. 9. Overall, the Mozambique portfolio ranks above the Bank's o v e r a l l program and the Africa region's average with respect to portfolio quality indicators, and disbursements are currently on track. Issues still remain, however, mainly due to unresolved issues inherited from past strategies through an old portfolio, as well as structural, institutional and administrative constraints to program implementation. These issues include late or insufficient availability o f counterpart funds, limited capacity in procurement a n d financial management, and weak monitoring and evaluation capacity. A Bank assessment found that inadequate allocation of counterpart funds is related to three main causes: i)the Government's inability to generate enough fiscal revenue, which compromises its ability to cover its recurrent costs; ii)a deficient budget preparation process for counterpart funding; and iii)inadequate disbursement systems for counterpart funds. As regards M&E, a portfolio review completed in FY06 found that the project M&E systems are consistent with CAS objectives. However, capacity to monitor the indicators i s uneven across the portfolio and in general it requires strengthening. Other issues affecting the portfolio quality is the slow start up o f projects due to weak implementation capacity. The Bank has addressed these portfolio issues through assistance in fiduciary areas, including the move o f the regional procurement hub function to Maputo, biannualportfolio reviews, and quality reviews focusing on specific projects at risk. The next Country Portfolio Performance Review is planned for March 2006. 51  APPENDIX v:IMPLEMENTATION OF THE PARPA 1. Strong country ownership and internal coordination in implementing the PARPA had a tangible impact on poverty. The PARPA program i s integrated into the budget cycle and the democratic process through the economic and social plan, the Plan0 Econdmico e Social (Economic and Social Plan, PES), discussed in the National Assembly, a n d its progress report, the Balanqo do Plano Econdmico e Social (Progress Report of the Economic and Social Plan, BPES), which assesses performance on implementationo f the PES in the previous year. This process has been strengthened over the past two years, thanks to better monitoring effort supported by dialogue with donors around the PAF. 2. The PARPA i s increasingly linked to the budget through the 2001-10 Medium Term Economic Framework (MTEF), which streamlines public expenditure around t h e projected macroeconomic framework and PAWA objectives. Involvement of c i v i l society and the National Assembly was weak during PARPA implementation but it improved with the creation o f an Observatdrio da Pobreza (a Poverty Observatory), including c i v i l society as well as private sector association, and as dialogue around preparation o f PARPA 11. 3. Implementation of the PARPA i s assessed by the Bank and the Fund through yearly Joint Staff Advisory Notes (JSAN). The 2005 JSAN found that efforts in implementing the PARPA program should be strengthened, in particular to ensure fiscal performance and debt management to reduce vulnerability. The revenue to GDP ratio fell from 12.9 percent in 2003 to 12.6 percent in 2004, mainly due to a lower tax collection (caused by a shortfall in the value-added tax reimbursements related to mega-projects, delays incurred by corporations in complying with payments under the new corporate tax code, and appreciation o f the metical). Concerns about Government revenue were partially mitigated by an improved performance in 2005 -- estimates show that revenue performance has improved to 13.8 percent o f GDP, mainly as a result o f modernizing and tightening the tax administration, which includes a more extensive use of IT; however, weaknesses in public expenditure management remain. The J S A N concluded that PARPA implementation should be strengthened, particularly in the areas of business environment, financial sector, data reporting system, and preparation of subsequent planning and progress reports. 4. The Government continued to maintain high spending in the s i x PARPA priority sectors of education, health, agriculture, basic infrastructure, good governance, and macroeconomic and financial management. Spending execution rates were high in education, health, with the exception o f HIV/AIDS, infrastructure and governance. 52  APPENDIX VI: PROGRESSIMPLEMENTINGTHE PARIS DECLARATION 1. Mozambique has made considerable progress in implementing t h e principles of the Paris Declaration on Aid Effectiveness o f March 2005. 2. Ownership. Mozambique has maintained strong ownership during preparation and implementation o f the PARPA, further deepened during preparation of the PARPA 11, with clear priorities linked to the Medium-Term Economic Framework and the Economic and Social Plan. 3. Alignment. Progress has been made in strengthening the fiduciary systems during implementation of the PARPA. Mozambique has slowly but consistently implemented t h e recommendations of the 2001 and 2003 Public Expenditure Review, the 2001 Country Financial Accountability Assessment and 2002 C o u n t r y Procurement Assessment Review (CPAR). Concrete results have included the design and rolling out o f an integrated financial management system, SISTAFE, across central a n d line ministries. Aid flows are increasingly predictable thanks to alignment around the PAF. Technical cooperation flows are increasingly implemented within the harmonized framework of sector dialogue through the PAF. Mozambique's own procurement system has not been adopted by donors, although a reform program has been put in place through the approval of a new Procurement Code in 2005 and it i s expected that d o n o r s will adopt it. 4. The use of the country'sown public financialmanagementsystem is expected to increase with the complete roll out o f SISTAFE. Progress has been made also in implementing a number o f Sector Wide Approach programs (SWAPS) which built on the definition of broadly accepted fiduciary systems. there still remains a heavy dependence on projectimplementationunits. 5. Harmonization. The percentage of donor financing channeled a s direct budget support (program aid), is currently at around 30 percent, and it is expected to continue to increase in the coming years around the PAF dialogue. Increasing numbers o f missions are conductedjointly by partners co-financing programs, and cooperation has increased inpreparationo f analytic work. Joint analysis will form the basis ofthe next CAS, which i s expected to be ajoint strategy. 6. Managing for results. The Government has taken full ownership in leading the process of definition and periodic reviews o f the PAF as a results-oriented framework usedto assessprogress inimplementing the PARPA andinthe impact o f aid financing. 7. Mutual accountabilitybetween Government and the mainpartners is considered to be strong as a result o f PARPA implementation. The dialogue has developed particularly with regard to commitments in six areas: (i)alignment with Government's policies and systems, (ii)increased predictability of aid flows, (iii) elimination of bilateral conditionality, (iv) reduced transaction costs, (v) transparency o f aid flows and conditions, and (vi) enhanced Government capacity and leadership. 53  c 0 c 0 4 .  I I 9x -. Pn 2 d-6  'i 1 0 W ---t--- r u 1::  4 m N o\ N 0 m - r n n N U 0 a - X  E I m t- 2L B .- 5 V e,  I I I I I 4  APPENDIXVIII: AFRICA ACTION PLAN Country Monitoring Tool Table 1: Outcome Indicators of progresslresults I I I I I I Outcome indicatorsof progressiresuits (Source)[UniffScaie] Objectives 'italics denoteAAP outcomes Country has operationaldevelopmentstrategies (Paris 1) p/N] Y - I w 1strategies StatisticalCapacityScore(IDA-DEC) 10-IOO] CplA scoresfor transparency,accountabilityandcorruptionin the pubilcsector (CPIAlP-61 g $ $ u 8 Developingin- countryinstitutional pEFA PublicFinancialManagementPerformanceMeasurementFramework 9 5 s .# %' capacity - (IDA 7 4 J W l Identifythe drivers GDPgrowth(WDI)[annualreal%] 7.5 7.7 7.9 private investmentas a share of GDP (WDI)[Yo] 11.3 10.5 11.9 Private Sector Development Costrequiredfor businessstariup as a % of GNipercapita(IDA14)[WDi] 95 Timerequiredfor businessstart up,(IDA 14)jdaysj 153 Timeforcustoms/procedura/requirementsforexports (DoingBusiness indicators) [days] 40 :reate an 'Export Total trade as a %of GDP currentprices (WDij 59.8 61.2 62.7 'ush" - Extent of exportdiversification(3 largestproduct share in exports, WITS) [%] 69.3 66.1 63.5 Growth Rate of exports of good and nonfactor services constant prices (National Accounts)[%I 23.9 5.4 3.9 populationwith access to an improvedwater source (lDA14) (MDG 7) [% of totalpopulation] 42 losing the nfrastructureGap population with telecommunications access,phonesubscribers (IDA 14jjper 1000people] 55 Householde/ecMficationrate (IDA 14) (% of households] ;upport Regional Intra-regional exports (YOof total exports) ntegration Index of transDortcosts in transitcorridor FED1 14h40m 13h50rn 3uildinq skills Researchersin R&D (permillionof population) ~ Wake agriculture Cereaicropyields (FAOjjMilHa] nore productive snd sustainable - lrrlgatedperimeter[Ha] I I ?.educe Poverty population below$l/day PovertyLine (IDA 14) (MDG 1) [YOof total population] 154.1 I 54.1 Connectthe Poor to Markets Ruralaccess to all seasonroads (iDA 14) [% ofruraipopulation] I ~ Maternalmortalityrate (MDG 5) [per 100,000 live births] Under-5child mortalityrate (IDA 14) (MDG4) [per 1,0001 147 Health ITN utilizationfor those at risk ofmalaria (countrydata from HD) (MDG Sjis', of population] prevaienceof HiVtotal, (lDA 14) (MDG 6) [% ofpopulation aged 15-49] 15 16.2 - primarycompletionrates, (DA 14) (MDG 2) [% ofrelevantage group] 52.4 Education Ratio ofgiris to boys inprimary and secondaryeducation(lDA 14) (MDG 3)[%] Social Protection Resilienceto shocks:schoolattendance,health,nutritionand consumption I status during shocksof the pooresttwo quintilesof the population [TED] Country Level 60  APPENDIXIX: MILLENNIUM DEVELOPMENT GOALS 61  ANNEXAI: KEYECONOMICAND PROGRAMINDICATORS Change from Last CAS Forecast in Current CAS Actual Estimate CAS PR Forecast 2004 2005 2006 2007 2004 2005 2006 2007 Growth rates GDP 11.9 9.8 7.0 n.a. 7.5 7.7 7.9 7.0 Merchandise exports (FOB) 54.7 11.9 30.3 n.a. 13.9 -0.6 7.4 12.2 Merchandise imports (CIF) -2.2 10.3 4.9 n.a. 4.2 7.5 4.1 9.8 Inflation (GDP deflator YO) 8.8 5.0 5.0 n.a. 9.1 6.3 7.5 6.5 National accounts ( O hGDP) Resource balance (X-M) -15.7 -14.8 -11.6 n.a. -8.3 -10.4 -10.0 -12.4 Gross investment 25.4 26.8 26.2 n.a. 20.7 22.2 23.8 26.4 Public finance (% GDP) Fiscal balance 2.8 2.8 2.8 n.a. 2.31 3.1 3.7 Foreign financing 7.6 6.8 6.0 n.a. 9.9 10.8 10.5 Changes in international reserves (Million $US- minus denotes increase) -63 26 -80 n.a. -212.0 83.0 7.9 -98.0 Program FY04 FY05 FY06 FY07 FY04 F Y 0 5 FY06 FY07 Lending (US$ million) 150 145 175 90 57 170 200 200 62  ANNEXA2 MOZAMBIQUEGLANCE - AT A Sub- POVERTY and SOCIAL Saharan Low- r-_.__ - ~ ~ Mozambique Africa income Development diamond' 2004 Population, mid-year(millions) 19.1 703 2,310 Life expectancy GNI per capita (Atlas method, US$) 250 490 450 GNI (Atlas method, US$ billiOnSl 4.8 347 1,038 - Average annual growth, 1998-04 I Population (%) 2.0 2.3 1.9 Laborforce (%) 2.1 2.4 2.3 GNI Gross primary Most recent estimate (latest year available, 1998-04) Poverty (% ofpopulation below nationalpoverty line) 54 Urban population (% of totalpopulation) 27 36 30 Life expectancyat birth IYearSl 41 46 58 1 Infant mortality (per 7,000 live births) 101 103 82 Child malnutrition (% of children under 5) 24 44 1 Access to improved water source Access to an improved water source (% ofpopulation) 42 58 75 Illiteracy (% ofpopulation age 75+) 55 35 39 i Gross primary enrollment (% of school-agepopulation) 110 87 92 Mozambique Male 121 94 99 _ _ Low-mcorne group Female 100 80 85 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 1 Economic ratios, GDP (US$ billions) 3.4 2.3 4.8 5.9 Gross domestic investmentiGDP 11.7 25.5 25.9 20.7 Exports of goods and servicesiGDP 4.1 14.1 28.3 30.9 T r a d e Gross domestic savings/GDP -2.5 -8.4 10.1 12.3 I - Gross national savingsiGDP -0.2 -1.9 11.3 12.5 Current account balance/GDP -14.1 -38.4 -19.9 -14.1 Interest paymentsiGDP 0.1 2.4 3.0 2.5 Total debtiGDP 42.6 323.1 94.9 78.7 Total debt serviceiexports 7.8 28.6 25.4 24.0 Present value of debWGDP 28.8 24.4 Present value of debucurrent year exports 102.0 84.0 i Indebtedness 1984-94 1994-04 2003 2004 2004-08 (average annual growth) GDP 4.1 8.4 7.9 7.5 7.4 Mozambique GDP per capita 3.1 6.1 5.9 5.6 5.6 1 - Low-income WOUD Exports of goods and services 7.6 18.6 13.8 23.9 4.7 STRUCTURE of the ECONOMY I 1984 1994 2003 2004 Growth of investment and GDP (%) (% of GDPj Agriculture 30.2 35.3 24.4 23.3 Industry 20.0 16.1 28.1 29.2 Manufacturing .. 9.5 13.9 14.8 40 4 I Services 49.8 48.8 47.6 47.5 Private consumption 87.4 94.3 79.5 77.2 1.20! 99 00 01 02 03 04 General government consumption 15.1 14.1 10.3 10.4 I Imports of goods and services 18.4 48.0 44.1 39.2 GDI *GDP 1984-94 1994-04 2003 2004 1 Growth of exports a n d imports (X) (average annualgrowth) I Agriculture 2.3 5.9 9.1 8.3 Industry -3.0 17.3 10.1 5.1 Manufacturing .. 18.2 15.4 10.2 Services 6.4 6.2 4.7 8.8 Private consumption 3.0 4.0 10.1 9.1 General government consumption 5.7 9.1 10.8 5.0 1-40 1 Gross domestic investment 2.5 12.6 4.4 -13.9 Exports -Imports I Imports of goods and services 2.1 8.0 13.1 4.2 Note: 2004 data are preliminaryestimates. Group data are for 2003 *The diamonds show four key indicators in the country (in bold) comparedwith its income-group average. If data are missing, the diamondwill be incomcrlete. 63  PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 - -_______._ Domestic prices inflation (%) (?A change) I20 I Consumer prices 30.0 63.1 13.4 12.6 Implicit GDP deflator 17.7 54.7 8.9 9.1 Government finance (% of GDP, includes current grants) Current revenue 16.0 17.9 16.6 15.5 99 00 01 02 03 04 Current budget balance -3.6 3.0 1.8 1.o Overall surplusldeficit -15.3 -12.9 -10.3 -9.1 I GDP deflator +CPI TRADE I 1984 1994 2003 2004 ____ .____ (US$ rnillionsj Export and import levels (US$ mill.) Total exports (fob) 96 164 1,044 1,504 2 500 - Cashew nuts and raw cashew 15 15 9 29 Prawn 28 63 76 92 Aluminum 568 880 Manufactures 3 15 19 Total imports (cif) 540 881 1,741 2,035 Food 53 159 188 Fuel and energy 82 249 259 Capital goods 201 400 790 I Export price index (1995=1OOi 110 91 87 110 98 99 00 01 02 Import price index (1995=100i 94 91 91 102 C Exports rn Imports Terms of trade (1995=100) 117 100 96 108 BALANCE of PAYMENTS 1984 1994 2003 2004 (US$ millions) 1 Current account balance t o GDP (%) Exports of goods and Sewices 157 355 1,353 1,828 Imports of goods and services 583 1,018 2,108 2,320 Resource balance -426 -662 -756 -492 Net income -50 -202 -198 -340 Current account balance before grants -476 -864 -953 -832 Financing items (net) 539 917 1,076 1,044 Changes in net reserves -63 -52 -122 -212 Memo: Reserves including gold (Us$ millions) 38 209 947 1.159 Conversion rate (DEC,locai/US$J 42.4 5,918.1 23.782.3 22,581.3 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 ~. ~~ .~ ~ Composition of 2004 debt (US$ mill.) If I.<%millinns1 Total debt outstanding and disbursed 1,438 7,272 4,543 4,651 I iBRD 0 0 0 0 G 345 IDA 0 714 1,232 1,475 Total debt service 17 117 356 450 IBRD 0 0 0 0 IDA 0 4 8 6 Composition of net resourceflows Official grants 168 565 514 539 Official creditors 612 219 142 255 Private creditors 198 0 17 -92 Foreign direct investment 0 35 342 245 I D: 683 World Bank program Commitments 0 427 163 206 A - IBRD E Bilateral - Disbursements 0 176 159 201 8. IDA D- Other multilateral F - Private Principal repayments 0 0 2 2 G -Short-term Net flows 0 176 157 199 interest payments 0 4 6 4 Net transfers 0 172 151 195 ~ Development Economics 2/16/06 64  ANNEXB2 SELECTEDINDICATORS* OF BANKPORTFOLIO PERFORMANCEAND - MANAGEMENT Indicator 2003 2004 2005 2006 Portfolio Assessment Number of Projects Under Implementation a 17 16 17 19 Average Implementation Period (years) 3.3 3.7 4.5 4.3 Percent of Problem Projects by Number a , c 5.9 6.3 17.6 5.3 Percent of Problem Projects by Amount a, 1.o 6.8 14.1 5.3 Percent of Projects at Risk by Number a , d 11.8 6.3 29.4 0.5 Percent of Projects at Risk by Amount a,d 9.0 6.8 18.0 7.8 Disbursement Ratio (%) e 12.4 14.9 24.6 9.0 Portfolio Management CPPR during the year (yes/no) Yes Yes Yes Supervision Resources (total US$) 1314 2084 1660 Average Supervision (US$/project) 77 115 97.66 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 33 7 Proj Eva1by OED by Amt (US$ millions) 1,869.8 498.9 % of OED Projects Rated U or HU by Number 15.2 0.0 % of OED Projects Rated U or HU by Amt 6.6 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 65  ANNEXB3-IBRD/IDA PROGRAM SUMMARY CAS Annex B3 IBRDlIDA Program Summary - Mozambique As Of Date 0113012006 Proposed IBRDllDA Base-Case Lending Program a Fiscal year Proj ID Sfrategic Rewardsb Implementation b (H/M/L) Risks (H/M/L) 2006 PRSC 2 120.0 H L Financial Sector Technical Assistance 10.5 H H Small Holders Dev SIL 30.0 M M TFCA and Tourism Development 20.0 M M Technical & Vocational Edu &Training 30.0 M H Result 210.5 2007 MZ-Maputo Urb Dev Prgm APL (FY07) 30.0 M MZ-PRSC 3 DPL (07) 70.0 H MZ-Roads & Bridges Phase 2 APL (FY07) 100.0 M Southern Africa Power Market (APL 2) 10.0 H Result 210.0 Overall Result 420.5 66  ANNEXB3 (IFC & MIGA) Mozambique- IFC and MIGA Program,FY 2003-2006 IFC approvals (US$m) 0.20 20.89 Sector (YO) Finance& Insurance 100 Food& Beverages 11 Oil, Gas and Mining 89 Total 100 100 0 0 Investmentinstrument(%) Loans Equity 100 89 Quasi-Equity Other 11 Total 0 11 0 0 MIGA guarantees (USSm) 262.35 311.40 67  ANNEXB4-SUMMARY OFNON-LENDING SERVICES CAS Annex B4 -Summary of Nonlending Services Mozambique - As Of Date 01/30/2006 Product Completion FY Cost (US$OOO) Audience a Objective * Completions Government and Anti-Corruption 2004 85.0 Gov, don.,WB, pub1 Know., publ., probl. Country Status Report on Health 2004 133.5 Gov, don.,WB, pub1 Know., publ.,prcbl. Vocational Education 2004 50.0 Gov, don.,WB, pub1 Know., publ., probl. Public Expenditure Review, Vol. 2 2004 85.0 Gov, don.,WB. Know., probl. Legal and Judicial Sector 2004 80.4 Gov..don.,WB Know., publ., probl. Rural Development Strategy 2004 100.0 Gov. don..WB, pub1 Know., publ., prcbl. Education PSIA 2005 85.0 Gov, don.,WB, pub1 Know., publ., probl. Impact of Extension Services in Rural 2005 85.0 Gov, don.,WB, pub1 Know., publ., probl. Contract Farming 2005 85.0 Gov, don..WB. pub1 Know., publ., probl. Private Sector Value Analysis Chain 2005 100.0 Gov, don.,WB, pub1 Know., publ., probl. CEM on Sustainable Growth 2006 200.0 Gov, don.,WB, pub1 Know., publ., probl. Underway PER TA 2006 45 Gov, don ,WB, pub1 Know., publ., probl. Marginal Budgeting by Bottlenecks 2006 50 Gov, don ,WE, pub1 Know., publ., probl. Moatize Dialogue 2006 20.0 Gov, don ,WE, pub1 Know., publ., probl. Decentralization and Local Service Del. 2006 50.0 Gov, don ,WE, pub1 Know., publ., probl. Horticulture Development 2006 85.0 Gov, don ,WE, pub1 Know., publ., probl. Poverty and Gender Analysis 2007 150.0 Gov, don ,WE, Know., publ., probl. Procurment Reform TA 2007 100.0 Gov, don ,WB, pub1 Know., publ., probl. Planned Poverty Assessment 2007 15 Gov.,don.,WB Know., pubi., probl. PSlA Labor Market 2007 70 Gov, don.,WB, pub1 Know., publ., probl. Country Water Resource Assistance 2007 30 Gov, don.,WB, pub1 Know., publ., probl. CENCSA 2007 30 Gov, don.,WB, pub1 Know., publ., prcbl. Increased Energy Access in Rural Area 2007 50 Gov, don.,WB, pub1 Know., publ.. probl. Regional Growth Study 2007 50 Gov, don.,WB, publ. Know.. publ., probl. CAS 2007 100 Gov, don.,WB, pub1 Know., publ., probl. a. Government,donor, Bank, public dissemination. b. Knowledgegeneration, publicdebate, problem-solving. 68  ANNEXB5 - KEYECONOMICINDICATORS ~~ Estimate Projected Indicator 2002 2003 2004 2005 2006 2007 National accounts (as '%I of GDP) Gross domestic product a 100 100 100 100 100 100 Agriculture 24 24 23 23 23 23 Industry 26 28 29 3 0 32 32 Services 49 48 47 4 7 45 45 Total Consumption 89 90 88 88 86 86 Gross domestic fixed investment 30 26 21 2 2 24 26 Governmentinvestment 13 12 9 12 12 12 Private investment 17 14 11 10 12 15 Exports (GNFS )b 29 28 31 3 1 31 31 Imports (GNFS) 48 44 39 4 1 41 43 Gross domestic savings 11 10 12 12 14 14 Gross nationalsavings c 11 11 12 11 13 13 Memorandum items Gross domestic product 4092 4786 5912 6720 6882 7545 (US$ million at current prices) GNIper capita(US$, Atlas method) 220 230 250 290 315 3 2 5 Realannual growth rates (%, calculatedfrom 1995 prices) Gross domestic product at marketprices 8.2 7.9 7.5 7.7 7.9 7.0 Gross Domestic Income 13.1 9.2 8.3 6.6 8.7 6.9 Real annual per capita growth rates (%, calculatedfrom 1995 prices) Gross domestic product at marketprices 6.0 5.9 5.6 5.9 6.1 5.2 Total consumption 6.3 8.1 6.7 4.9 3.8 5.8 Private consumption 6.8 8.0 7.2 4.1 3.5 5.3 Balance of Payments (US$millions) Exports (GNFS)b 1189 1353 1828 2060 2168 2320 MerchandiseFOB 810 1044 1504 1726 1799 1903 Imports (GNFS)b 1959 2108 2320 2755 2855 3259 MerchandiseFOB 1543 1741 2035 2387 2514 2768 Resourcebalance -770 -756 -492 -696 -687 -939 Net current transfers 0 0 0 0 0 0 Currentaccountbalance beforegrants -943 -953 -832 -1144 -1200 - 1496 Official CapitalGrants 400 514 539 550 654 670 Currentaccountbalance after grants -543 -440 -293 -594 -546 -827 Net private foreign direct investment 380 342 245 135 209 3 4 8 Long-term loans (net) 620 185 160 283 243 453 Other capital(net, incl. errors& ommissions) -358 35 100 93 86 124 Change inreservesd -98 -122 -212 8 3 8 -98 Memorandum items Resourcebalance(% o f GDP) -18.8 -15.8 -8.3 -10.4 -10.0 -12.4 Realannual growthrates ( YR95 prices) Merchandiseexports (FOB) 15.8 16.2 13.9 -0.6 7.4 12.2 Merchandiseimports(CIF) 40.9 -0.5 4.2 7.5 4.1 9.8 69  Mozambique- Key EconomicIndicators (Continued) Estimate Projected Indicator 2002 2003 2004 2005 2006 2007 Public finance (as YOof GDP at market prices)e Current revenues incl. current grants 15.8 16.6 15.5 16.8 17.7 18.4 Current expenditures 13.9 14.8 14.5 14.5 14.5 14.6 Current account surplus (+) or deficit (-) 1.9 1.8 1.o 2.3 3.1 3.7 Capital expenditure 16.1 12.2 10.2 12.6 12.9 13.1 Capital grants 6.9 5.9 4.6 4.7 5.9 5.5 Foreign financing 12.5 10.0 7.5 9.9 10.8 10.5 Monetary indicators M2IGDP 28.0 28.3 25.6 27.9 28.0 28.4 Growth o f M 2 (9'0) 21.5 18.7 5.9 25.0 16.0 15.7 Price indices( YR95 =loo) Merchandise export price index 63.4 70.3 88.9 102.7 99.7 94.0 Merchandise import price index 105.9 120.1 134.8 147.1 148.9 149.3 Merchandise terms o f trade index 59.8 58.6 66.0 69.8 67.0 63 .O Real exchange rate (USS/LCU) f 46.8 45.5 56.7 Real interest rates Consumer price index (% change) 16.8 13.4 12.6 6.3 7.5 6.5 GDP deflator (YOchange) 17.0 8.9 9.1 6.3 7.5 6.5 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units."An increase inUSS/LCUdenotesappreciation. Source : LDB February 15,2006 70  ANNEXB6-KEYEXPOSURE INDICATORS Actual Estimate Projected Indicator 2002 2003 2004 2005 2006 2007 Total debt outstanding and 4592 4543 465 1 4910 5122 5544 disbursed(TDO) (US$m)a Net disbursements (US$m)a 631 197 162 290 248 456 Total debt service (TDS) 308 356 450 445 4 9 4 557 (US$m)a Debt anddebt service indicators ("/I TDOiXGSb 374.9 324.2 248.2 233.0 230.7 233.0 TDOiGDP 112.2 94.9 78.7 73.1 74.4 73.5 TDSiXGS 25.1 25.4 24.0 21.1 22.3 23.4 ConcessionaliTDO 51.4 58.2 64.3 64.3 67.2 67.1 IBRD exposure indicators (%) IBRD DSipublic DS 0.0 0.0 0.0 0.0 0.0 0.0 Preferredcreditor DSipublic 84.9 76.8 83.1 80.9 84.7 77.0 DS (%)c IBRD DSiXGS 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$m)d 0 0 0 0 0 0 Of which present value of guarantees(US%m) Share of IBRD portfolio (%) 0 0 0 0 0 0 IDA TDO (US$m)d 985 1232 1475 1693 1916 2124 IFC (US$m)commitments Loans 0 0 1.2 0 .. Equity andquasi-equity ie 0 0 18.5 0 MIGA 262.4 311.4 MIGA guarantees(USSm) a. Includespublic andpublicly guaranteed debt, privatenonguaranteed,use o f IMF credits and net short- term capital. b. "XGS" denotes exportso f goods andservices,includingworkers' remittances. c. Preferredcreditors are defined as IBRD, IDA, the regionalmultilateral developmentbanks, the IMF, and the Bank for InternationalSettlements. d. Includespresentvalue of guarantees. e. Includesequity and quasi-equitytypes of bothloanand equity instruments. 71  ? P  MAP SECTION