Mali - Interim strategy note for the period FY14-15

 Document of The World Bank FOR OFFICIAL USE ONLY REPORT No. 76233-ML INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY INTERIM STRATEGY NOTE FOR THE REPUBLIC OF MALI FOR THE PERIOD FY14-15 May 20, 2013 Country Department West Africa 3 Africa Region International Finance Corporation Africa Region Multilateral Investment Guarantee Agency This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.  CURRENCY EQUIVALENTS Unit of Currency = Franc CFA 1USD = 498.86FCFA WEIGHTS AND MEASURES Metric System GOVERNMENT FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activity ISN Interim Strategy Note ACDI Agence Canadienne de Développement International (Canada MDG(s) Millennium Development Goal(s) Development Agency) ACE African Coast to Europe MIGA Multilateral Investment Guarantee Agency AFD Agence Française de Développement (French Development Agency) MTEF Medium-Term Expenditure Framework AfDB African Development Bank NGO Non-Governmental Organization AMADER Malian Agency for Development of Rural Electricity NPL Non-Performing Loan BCEAO Banque Centrale des États de l'Afrique de l'Ouest (Central Bank of NTB Non-Tariff Barriers West African States) CAADP Comprehensive Africa Agriculture Development Program ODA Official Development Assistance CAS Country Assistance Strategy OP Operational Policy of the World Bank CDD Community-Driven Development PAPU Plan d’Appui aux Priorités d’urgence (Plan for the Emergency Priorities) CPIA Country Policy and Institutional Assessment PCNA Post Conflict Needs Assessment CPPR Country Portfolio Performance Report PEFA Public Expenditure and Financial Accountability CPS Country Partnership Strategy PFM Public Financial Management CSCRP Strategic Framework for Growth and Poverty Reduction PER Public Expenditure Review CSO Civil Society Organization PRG(s) Partial Risk Guarantee(s) CT Collectivités Territoriales (local administrative entities) PSD Private Sector Development DPL Development Policy Loan PETS Public Expenses Tracking System DPO Development Policy Operations PRED Plan de Rélance Durable du Mali (Sustainable Recovery Plan) DSA Debt Sustainability Analysis PRODEJ Justice Development Program EC European Commission PRSP Poverty Reduction Support Paper ECOWAS Economic Community of West African States PSPSDN Special Program for Peace, Security and Development in the North EITI Extractive Industries Transparency Initiative SAWAP Sahel and West Africa Program ESW Economic and Sector Work SDR Special Drawing Rights ERC Emergency Recovery Credit SDVM Stratégie de développement des villes du Mali (Strategy for the Development of the Cities of Mali) EU European Union SIL Specific Investment Loan FCFA Franc of the African Financial Community SLWN Sustainable Land and Water Management FDI Foreign Direct Investment SME Small and Medium Enterprises FSAP Financial Sector Assessment Program SPF State and Peace-Building Fund FY Fiscal Year RCF Rapid Credit Facility GDP Gross Domestic Product TAL Technical Assistance Loan GPRSF Growth and Poverty Reduction Strategy Framework UN United Nations IDA International Development Association UNICEF United Nations Children’s Fund IDB Islamic Development Bank WAAPP West Africa Agriculture Productivity Program INSTAT l’Institut national de la statistique (Mali’s National Statistics Institute) WAEMU West Africa Economic and Monetary Union IFC International Finance Corporation WARCIP West Africa Regional Communication Infrastructure Program IMF International Monetary Fund WBG World Bank Group IBRD IFC MIGA Vice President Makhtar Diop Jean Philippe Prosper Izumi Koyabashi Director Ousmane Diagana Yolande Duhem (Execurive VP) Task Team Leader Paola Ridolfi Jerome Cretegny Michel Wormser Co-Task Team Leader Fily Sissoko Bouaré Frank Douamba (VP and COO)  ACKNOWLEDGEMENTS This Interim Strategy Note (ISN) was prepared by a World Bank Group team led by Paola Ridolfi and Fily Sissoko Bouaré under the guidance of Ousmane Diagana, Country Director. The Bank Team members include: Sebastien Dessus, Emanuela Di Gropello, Paul Jonathan Martin, Arnaud Dornel, Asbjorn Wee, Laura Bailey, Colin Scott, Cheikh Ahmed Diop, Daniel Kirkwood, Boulel Toure, Hawa Maiga Togola, Safiatou Dicko Ba, Maimouna Mbow Fam, Celestin Niamien, Alexandre Arrobbio, Mahamadou Bambo Sissoko, Aissatou Diack, Zie Ibrahima Coulibaly, Bleoue Nicaise Ehoue, Yeyande Kasse Sangho, Setareh Razmara, Pierre Joseph Kamano, Fabio Galli, Dahlia Lotayef, Maman-Sani Issa, Ruxandra Costache, Wolfgang Chadab, Michel Rogy, Fabrice Karl Bertholet, Moussa Diarra, Moussa Fodé Sidibé, Nicola Woodroffe. For the Global Center on Conflict, Security and Development, the team included Joel Hellman, Yongmei Zhou, Alexandre Marc, Anne Sophie Ducreux, Marcelo Fabre, and Mamadou Woury Diallo. For the IFC, the team includes Frank Douamba, Jerome Cretegny, Mahamoud Magassouba and Malick Fall. For MIGA, the team includes Conor Healy and Manabu Nose. This document has benefited from extensive and thoughtful discussions with the Malian authorities, civil society, private sector representatives and development partners. The World Bank Group greatly appreciates their collaboration and support in the preparation of the ISN. In particular, the Bank would like to thank the Malian authorities, private sector and civil society. Special thanks to H.E. Mr. Tiéna Coulibaly, Minister of Economy, Finance and Budget and his staff.  TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................................... vi I. INTRODUCTION........................................................................................................................... 1 II. COUNTRY CONTEXT.................................................................................................................. 3 A. General Economic and Political Context ......................................................................................... 3 B. Recent Political and Security Developments ................................................................................... 3 C. Recent Economic Developments and Economic Outlook ............................................................... 5 D. Debt Sustainability ........................................................................................................................... 6 E. Poverty and Social Context .............................................................................................................. 7 F. Gender and Equity ......................................................................................................................... 15 G. Governance .................................................................................................................................... 16 H. Regional Integration....................................................................................................................... 18 III. WORLD BANK GROUP INTERIM STRATEGY ................................................................... 19 A. Recent World Bank Group Engagement in Mali ........................................................................... 19 B. Rationale for an ISN and Principles of Engagement ..................................................................... 23 C. Resources and Instruments ............................................................................................................ 32 D. Coordination and Partnership ........................................................................................................ 34 E. Implementing the ISN .................................................................................................................... 36 F. Monitoring and Evaluation of Bank Support ................................................................................. 36 IV. RISKS AND RISK MITIGATION ............................................................................................. 37 Annex 1: ISN Results Framework ......................................................................................................... 40 Annex 2 - Country Assistance Strategy (FY08-FY11) Completion Report ........................................... 42 Annex 3: Mali – FY08-11 - Country Assistance Strategy- Completion Report ..................................... 84 Annex 4: IFC and MIGA Program ......................................................................................................... 86 Annex 5: Consultations Summary .......................................................................................................... 90 Annex 6: Joint IDA/IMF Debt Sustainability Report ............................................................................. 93 Annex 7: Mali at a Glance .................................................................................................................... 107 Annex A2 –Mali: Key Economic & Program Indicators - Change from Last CAS............................. 109 CAS Annex B2 - Mali Selected Indicators* of Bank Portfolio Performance and Management .......... 110 CAS Annex B3 Mali IBRD/IDA Program Summary ........................................................................... 111 CAS Annex B3 Mali: IFC Investment Operations Program ................................................................ 112 CAS Annex B4 - Summary of Non-lending Services Mali .................................................................. 113 CAS Annex B6 – Key Economic Indicators – Mali ............................................................................. 114 CAS Annex B8 (IFC) for Mali Committed and Disbursed Outstanding Investment Portfolio ............ 117 iv TABLES Table 1. Poverty trends 2001-2010 and Geographical Distribution…………..………………...10 Table 2. Estimated Poverty Headcount…………………………...……………………………..11 Table 3. MDG Status and Trends ................................................................................................. 13 Table 4. Priority Pro-Poor Public Expenditure, 2011-13 ............................................................. 14 Table 5. Bank Portfolio under Implementation............................................................................ 22 Table 6. Planned Lending FY14-15…………………………………….………………………31 Table 7. Proposed AAA……………………………...………………………………………….32 FIGURES Figure 1: Mali World Governance Indicators ............................................................................... 18 Figure 2: Donor-funded pre-crisis programs by region and number of activities ........................ 35 BOXES Box 1: Key elements of the Government’s Transition Roadmap ................................................... 1 Box 2: Developing Statistics........................................................................................................... 7 Box 3: Portfolio Monitoring ......................................................................................................... 20 MAPS Map 1: Poverty Headcount Rate, at Department Level, 2009/10 ................................................. 11 Map 2: Mali (IBRD33443R) ....................................................................................................... 118 v EXECUTIVE SUMMARY From 1991 to the coup of March 2012, Mali was considered a beacon of democracy and political stability. Following two peaceful democratic transfers of power during the past 20 years, the country was on track to organize a third presidential election. Mali’s progress in building a democratic political system did not, however, translate into an effective and accountable governance system. A complex crisis on three fronts (conflict and insecurity in the North, institutional and political turmoil in the South, and humanitarian and food insecurity across the country) has eroded the base of Mali’s economy and society. In 2012, the country suffered from the effects of the 2011 drought, the conflict in the North and mounting political instability in the South. Prospects in 2013 appear brighter: the liberation of the Northern regions, with assistance from African and international forces, led by France and the swift adoption by the Malian authorities of a transition roadmap to restore democracy and peace have opened the door for the international community to resume development assistance. Drivers of the conflict in Northern Mali are linked to long-standing problems in Mali’s governance and social structures, however, the causes and consequences of the conflict also go well beyond the country’s borders, extending to the whole Sahelo-Saharan area. Long- standing drivers of fragility in Mali are linked to problems in Mali’s governance and social structures, but are also regional to a large extent, and as such they require responses that span the Sahel and neighboring countries, including in particular the Maghreb. The Bank’s contribution will involve supporting national programs while facilitating regional cooperation on infrastructure, agriculture and knowledge sharing in poverty, statistics and analysis of fragility and disaster risk management. This will involve strengthening and working with regional organizations such as the Economic Community of West African States (ECOWAS) and West Africa Economic and Monetary Union (WAEMU). Innovative partnerships with national and regional think-thanks, coalitions and programs are also necessary. The World Bank Group (WBG), with International Finance Corporation and Multilateral Investment Guarantee Agency, will facilitate private sector investments, both in Mali and in the region, exploiting synergies to accelerate the recovery. The Bank has continued to support the urgent needs of the Malian people throughout the 2011-12 events. It intends to accelerate its interventions and strengthen its focus on food security, equitable access to services, economic recovery for job creation and infrastructure development. The Bank’s response has been articulated in four phases: (i) Temporary suspension of disbursements and lending activities, immediately following the military coup, in accordance with the relevant Operational Policy (OP7.30 on Dealing with De Facto Governments), until the reinstatement of an internationally recognized government; (ii) Immediate response after an assessment mission in June 2012, followed by a fiduciary assessment in August 2012 and preparation of re-engagement policy notes covering Poverty, Gender, Health, Education, Agriculture and Infrastructure. During this second phase, a Country Portfolio Performance Review (CPPR) was also conducted in December 2012. The Portfolio Review helped identify gaps in the ongoing program and activities to be restructured in light of the new country priorities, and it included a detailed Gender Portfolio Review to better integrate vi the gender dimension into the ongoing program; (iii) Preparation, on a fast track basis, of new operations in education, agriculture, safety nets and a budget support operation, between March and June 2013, for a total of USD180 million; (iv) Formulation of a new strategic framework based on dialogue with Malian authorities, civil society and key bilateral and multilateral partners, including the United Nations. The strategic approach, program and monitoring framework proposed in this ISN build on the findings of the Gender Portfolio Review and present the gender dimension as a central element in all Priority Areas. The two-year WBG ISN for FY14-15 proposes a selective program in support of post- conflict recovery and long-term development objectives, underpinned by a Fragility Assessment. This ISN program aims to both rapidly provide support to meet the needs of populations across the country and initiate new activities to better address long-term governance challenges. The WBG recognizes the centrality of the human development challenges that Mali faces in the aftermath of the 2011-12 period of conflict and insecurity and proposes a strong program focused on strengthening capacities and delivering basic services. The program is articulated around three priority areas: (i) laying the foundations for long-term accountability and stability; (ii) protecting human capital and building resilience; and (iii) preparing the conditions for economic recovery. In recognition of the national and regional dynamics that led to the instability, each of these priority areas will include a combination of programs with a national reach and targeted regional lending and non-lending programs to improve the knowledge base on the drivers and impact of the crisis. vii I. INTRODUCTION 1. In March 2012, a month before scheduled presidential elections, a military coup ousted the government in place since the 2007 democratic elections. Following successful mediation under the auspices of the Economic Community of West African States (ECOWAS), a transitional Government of National Unity has been in place since August 2012, recognized by the international community, with a mandate of restore sovereignty over the entire territory of Mali and organize fair and transparent national elections by end of July 2013. With United Nations (UN) Security Council backing, a coalition of Malian and foreign troops launched military operations in Northern Mali in January 2013. A political roadmap identifying milestones to restore democratic order was adopted by the Parliament in January 2013. The roadmap envisages the establishment of an elected government and the re-building of trust in the Government of Mali (see box 1). A Commission on Dialogue and Reconciliation was established by the Council of Ministers in March 2013 comprised of a president, two vice presidents and thirty commissioners appointed by the Interim President. Box 1: Key elements of the Government’s Transition Roadmap The Roadmap for the Transition in Mali aims to restore its territorial integrity and to organize free and fair elections. In addition, it suggests that the transitional government should deliver on the following objectives:  Establish functioning institutions across the country.  Establish a climate of peace and security in areas under government control and protect transitional institutions.  Restore rule of law--fight against abuses and extrajudicial arrests and establish fair judicial treatment of all legal violations.  Fight corruption, nepotism, exclusion and impunity.  Prepare for the post-war return of displaced persons and refugees.  Restore social cohesion and harmony between communities. 2. The consequences of the March 2012 coup on the institutional, security and humanitarian fronts continue to affect Mali. This Interim Strategy Note (ISN) proposes a two-year framework for the World Bank Group (WBG)’s post-conflict engagement in Mali. During FY14-15, the ISN will allow the WBG to support basic service delivery functions and activities, and economic rebound. These are essential for accelerating post-conflict recovery and creating the conditions for stability. 3. The ISN program focuses on short-term actions in support of the priorities for the transition as articulated in the Plan for the Emergency Priorities (Plan d’appui aux priorités d’urgence, PAPU) and the Sustainable Recovery Plan (Plan de Rélance Durable du Mali, PRED). While reaffirming the relevance of the Poverty Reduction Support Paper (PRSP) 2012-17 as the medium-term framework for resource mobilization and allocation in support of 1 growth and poverty reduction, the authorities also acknowledge through the PAPU the emergence of new realities and related implementation delays and difficulties. Thus, the PAPU combines programs from the PRSP (mostly aimed at preventing rapid deterioration of human development indicators) with transition–related actions from the political roadmap which were not contemplated in the PRSP. These notably include actions to restructure security services, promote reconciliation through dialogue between communities, facilitate and support the return of the government administration, refugees and displaced populations in Northern regions, organize elections, rehabilitate damaged infrastructure, encourage the development of labor intensive economic activities, and strengthen State legitimacy and the rule of law. Implementing the PAPU would cost FCFA2850 billion (USD5.7 billion) over the period 2013-14. 4. To this end, the ISN program has a dual focus: it maintains the course of the ongoing engagement in support of urgent needs while scaling up efforts to target the longer-term drivers of the crisis. The WBG maintained a continuous engagement throughout this period, and the existing portfolio plays a key role in supporting populations in those parts of the country not directly affected by the conflict. At the same time, the ISN recognizes that the portfolio is not sufficient to address the current challenges, and that a combination of restructuring certain ongoing programs and launching additional activities is required to more squarely address weak government legitimacy and lack of social integration in order to reduce the risk of a return to conflict in the future. This dual focus on short-term needs and longer-term structural issues allows the WBG to apply the necessary flexibility to support Mali’s transition in the coming years while undertaking the necessary preparatory work and knowledge generation required for a more calibrated and ambitious country strategy to be launched after the ISN period. 5. The elements of this ISN have been discussed with a wide range of stakeholders in Mali, including through formal consultations held in Bamako in March 2013. These consultations brought together over one hundred and seventy stakeholders, including members of the government and elected representatives from the North: Gao, Kidal and Timbuktu. The National Assembly, minority leaders of the Tuareg and Bellah communities, heads and representatives of national institutions, academia, development partners, and civil society actively participated in the consultations. 6. The WBG recognizes that the conflict in Mali was caused by a combination of national and regional dynamics, and that a solution will require both national and regional responses. Mali is an integral part of the Sahel region, and the analysis and proposals in this ISN should be read in the context of the WBG’s evolving strategy in support of stability and development in the region. Elements of the Mali ISN, and the projects and programs contemplated herein, will have development implications for other Sahel countries and vice versa. A fragility analysis of recent political, economic and sectoral developments supports the ISN, which should also be understood in the context of the evolving risk picture in Mali and the Sahel (as outlined in chapter 4). 2 II. COUNTRY CONTEXT A. General Economic and Political Context 7. Situated in the heart of the Sahel, Mali is a vast, semi-arid, landlocked and lightly populated country with the largest territory in the ECOWAS community. With a high population growth rate but uneven population density1, and relatively limited natural resources, Mali is extremely vulnerable to climate change. It is particularly affected by droughts and desertification. Uneven growth patterns and lack of a customized investment strategy in the Sahelian, desertic areas of the country with nomadic populations contributed to regional imbalances. 8. The Malian economy is characterized by a narrow range of exports that are its main source of export earnings (gold, cotton) and a rain-fed subsistence agriculture that provides income for a majority of the population. Excluding 2012, annual GDP growth averaged 5 percent in the last decade. This economic growth performance, compared to a population growth rate of 3.6 percent, has been too modest to reduce poverty. Given Mali’s exposure to significant exogenous shocks, economic growth has been also volatile, making investment risky. Low aggregate private and public investments (at 15 percent of GDP in 2011, excluding Official Development Assistance (ODA) finance and gold-related investment projects) prevent deep economic diversification and the necessary productivity gains to reduce underemployment. Prospects for sustained growth and job creation will depend on increasing agricultural productivity, strengthening micro and macro-economic resilience, fostering regional integration, organizing the informal sector, and addressing population growth, malnutrition and gender disparities. This requires action in a number of areas, including irrigation, education and skills development, basic service delivery and safety nets, infrastructure, as well as continued improvements in the business environment and regional policy coordination. B. Recent Political and Security Developments 9. Mali has experienced conflict on a regular basis since independence in 1960. The first rebellion took place in 1964. Since then, rebellions have been cyclical and recurrent. The last one of 2012 and the subsequent March coup have, however, resulted in unprecedented levels of insecurity and fragility. The conflict was triggered by a combination of regional events linked to the revolution in Libya and the returning fighters and heavy weapons, compounded by the presence of criminal networks and terrorist groups in the North. However, the conflict was primarily caused by long-standing problems in Mali’s governance and social structures. Key among them are:  Limited state presence and institutional capacity, which seriously weakened the state’s legitimacy and challenged the social contract. In the North, the state remained almost entirely absent outside the main cities, deepening mistrust, resentment and a sense of alienation from the Malian state. 1 Population density in Mali is 11 persons per km2 on average and as low as 1 person per km2 in the Saharan regions. 3   The consequent inability of the state to defend its territorial integrity and exert its presence across the country in the context of a gradual collapse of security. This opened the door for organized criminals and terrorist networks to operate. The Malian army’s performance was also weakened by internal tensions resulting from governance weaknesses.  The mounting tensions and prejudice that exist between social groups, even in the South. The frequency of the rebellions, and the way they have been handled by the various Malian Governments, have negatively affected the relationships between regional and social groups. Tensions have also been exacerbated by perceived biases in interventions and opacity in management of post-conflict programs such as the Special Program for Peace, Security and Development in the North (PSPSDN in the French acronym).  High population growth linked to high rates of fertility, which aggravates malnutrition and poor health and sanitary conditions, and education failures. High population growth linked to high rates of fertility aggravates malnutrition in mothers and children, which in turn exacerbates under-five mortality. The uneven geographic distribution of the population across the vast Malian territory stretches limited resources and poor public services, making it difficult to address these health challenges. Further, poor health conditions compromise human capital development, reducing economic productivity and growth, thereby trapping these populations in the vicious cycle of poverty. Human capital development is also compromised by the limited access to and low quality and relevance of education services which have resulted in lack of opportunities for the youth to meaningfully engage in society and lack of necessary skills for the labor market.  Climate change, repeated drought, food insecurity, and loss of livestock in the North, which have further stressed a volatile region. Combined with poor progress in development in general, these factors have caused an increase in trafficking and criminal activity as a means of income, and have allowed criminal and terrorist networks to recruit from the region’s large number of unemployed youth. 10. Development partners did not fully anticipate the sudden collapse of the Central Government. The Malian democracy was long hailed as a model in Africa and relatively a good performer in economic development. Extensive work and assessment on governance challenges did not translate into sufficient actions to combat corruption and nepotism. Simplistic approaches, portraying the Tuareg either as victims or as “terrorists