Mozambique - Health Sector Recovery Program Project

Document of The World Bank Report No. 14373-MOZ STAFF APPRAISAL REPORT REPUBLIC OF MOZAMBIQUE HEALTH SECTOR RECOVERY PROGRAM NOVEMBER 7, 1995 Human Resources Operations Division Southern Africa Department Africa Regional Office  CURRENCY EOUIVALENTS (August 1995) Currency Unit = Metical (pi. Meticais) 1000 Meticais = One Conto US$1.00 = Mt 10,210 Mt 1.00 = US$0.0001 FISCAL YEAR Government Fiscal Year: January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AFDB African Development Bank AIDS Acquired Immune Deficiency Syndrome APES Agentes Polivalentes Elementares de Saiude CAS Country Assistance Strategy CRDS Centro Regional de Desenvolvimento Sanitario (Regional Center for Health Development) CW Civil Works DAF Direc,ao de Administrasao e Finan,as (Directorate of Administration and Finance) DANIDA Danish International Development Agency DNPC Direcgao Nacional de Planifica,co e Cooperacao (National Directorate of Planning and Cooperation) DNS Direcgao Nacional de Saude (National Directorate of Health) DPES Departamento de Planificacao e Economia Sanitaria (Department of Planning and Health Economics) DPS Direcqao Provincial de Saiude (Provincial Directorate of Health) DRH Direcgao de Recursos Humanos (National Directorate of Human Resources) EE Empresa Estatal (Parastatal Enterprise) EU European Union FARMAC, E.E. Parastatal Pharmaceutical Enterprise FINIDA Finnish International Development Agency GACOPI Gabinete de Coordenacao de Projectos de Investimento GDP Gross Domestic Product GOM Government of Mozambique GPO General Provincial Operations HC Health Centers  HDF Rural Health Development Fund HEALTH I Health and Nutrition Project (1989-95) HEALTH II Health Sector Recovery Program (HSRP) HIS Health Information System HIV Human Immuno-deficiency Virus HMDP Health Manpower Development Plan HSRP Health Sector Recovery Program IBRD International Bank for Reconstruction and Development [CB International Competitive Bidding IDA International Development Association IMF International Monetary Fund INS Instituto Nacional de Saude (National Institute of Health) LCB Local Competitive Bidding MCH Maternal and Child Health Care MEDIMOC, E.E. Parastatal Import/Export Enterprise for Medical Supplies MHS Mozambican National Health Strategy MOF Ministry of Finance MOH Ministry of Health NCB National Competitive Bidding NDF National Drug Formulary NEPs Nucleos de Estatistica e Planifica,ao NGO Non-Governmental Organization NHS National Health System NORAD Norwegian Agency for International Development OPEC Organization of Petroleum Exporting Countries PDH Provincial Directorates of Health PHC Primary Health Care PTIP Piano Trienal de Investimentos Publicos (Triennial Public Investment Program) RH Rural Hospital RHC Rural Health Center SAR Staff Appraisal Report SAREC Swedish Agency for Research Cooperation SBD Standard Bidding Documents SCC Systematic Client Consultation SDC Swiss Development Cooperation SDR Special Drawing Rights SIDA Swedish International Development Agency SOE Statement of Expenditures SCF/UK Save the Children Fund/United Kingdom TB Tuberculosis UHC Urban Health Center UNDP United Nations Development Program UNFPA United Nations Population Fund UNICEF United Nations Children's Fund USAID United States Agency for International Development WB World Bank WFP World Food Program WHO World Health Organization   STAFF APPRAISAL REPORT REPUBLIC OF MOZAMBIQUE HEALTH SECTOR RECOVERY PROGRAM Table or Contents CREDIT AND PROGRAM SUMMARY ........................................... i 1. INTRODUCTION: COUNTRY AND SECTOR OVERVIEW ........................... I A. Background . ................................................... I B. The Economic Environment ........................................... 2 C. Sector Issues, Policy and Strategy (1996-2005) ............................... 8 D. Country Assistance Strategy .......................................... 16 E. Lessons of Past IDA Experience ........................................ 17 F. The 1996-2000 Integrated Health Sector Program ............................. 19 11. THE PROGRAM .................................. 21 A. Sunmmary of Program Objectives .................................. 21 B. Detailed Program Description . .................................. 22 C. Program Costs .................................. 30 D. Program Financing ................. ................. 30 11. PROGRAM IMPLEMENTATION ................ .................. 33 A. Implementation Arrangements ................................... 33 B. Program Monitoring and Reporting ................................... 36 C. Procurement .................................. 38 D. Disbursement ................. ................. 41 E. Program Accounts and Audits . .................................. 42 IV. BENEFITS AND RISKS ................. ................. 44 A. Benefits .................................. 44 B. Risks .................................. 44 C. Environmental Considerations . .................................. 44 D. Economic Analysis ................. ................. 45 V. ASSURANCES, CONDITIONS AND RECOMMENDATIONS .......... .. .............. 46 A. Assurances Obtained During Negotiations ............. .. ................... 46 B. Conditions . ..................................................... 47 C. Recommendation . ................................................. 47 List of Tables Table l: Social Indicators in Mozambique and Sub-Saharan Africa .......................... I Table 2: Financing Plan (US$ Million, including taxes and contingencies) 1996-2000 ............... 31 Table 3: Procurement Arrangements (US$ million) ................................... 39 Table 4: Allocation and Disbursement of IDA Credit (US$ Million) ......................... 41 Table 5: Estimated Disbursements of IDA Credit (US$ Million) ............................ 42 This report is based on the findings of a Bank appraisal mission which visited Mozaznbique in February, 1995, comprising Messrs. Ricardo Silveira (Sr. Economist, Mission Leader); Kees Kostermans (Public Health Specialist), Eugene Boostrom (Sr. Public Health Specialist); Uche Mbanefo (Sr. Financial Analyst); Arthur Fields (Procurement Specialist): and Joaquim Durao (Financial Analyst, ConsultanE). Messrs. A. Edward Elmendorf (Prin. Management Specialist); Xavier Coll (Prin. Health Specialist); and David Peters (Health Specialist) reviewed the project design. Mr. Howard Barnum and Ms. Akiko Macda did the economic analysis in section IV.D. Mmes. Natalia Moncada and Guadalupe Prado provided logistical support in the preparation of the report. Mr. Roger Grawe and Ms. Katherine Marshall are the managing Division Chief and Department Director respectively for the operation.  List of Figures Figure IA: Health Sector as Share of GDP ........................................ 4 Figure IB: Health and GDP per Capita .......................................... S Figure 2: Health Sector Program (1996-2000) ..................................... 21 Figure 3: Program Expenditures by Cost Category .................................. 30 List of Boxes Box 1: The Importance of Human Capital ......................................... 2 Box 2: The Evolving MOH Policy or, Cost Sharing .................................. 6 Box 3: Causes of Implementation Failures in the Early Years of Health I ...................... 18 Box 4: Health I Accomplishments . ............................................. 19 Box 5: Movement Toward an Integrated Health Sector Approach in Mozambique ................ 20 Box 6: Integrated Program Implementation ........................................ 36 Annexes: Annex- 1.1 Ministry of Health Organizational Chart Annex-1.2A Letter of Sector Policy Annex-1.2B Letter of Counterpart Assurances Annex-2. IA Program Cost Summary (US$ '000, including taxes) Annex-2. 1 B Program Cost Summary (US$ '000, including taxes and contingencies) Annex-2. 1C Program Cost Summary by Year (US$ '000, including taxes and contingencies) Annex-2.2A Estimates of Donor Financing by Year (US$ '000, excluding IDA) Annex-2.2B Estimates of IDA Financing by Year (US$ '000, detail by sub-component) Annex-2.3 Estimated Credit Disbursement Schedule (US$ million) Annex-3. 1 Implementation Plan Annex-3.2 Outline of Implementation Manual Annex-3.3 List of Indicators Annex-3.4 IDA Supervision Plan Annex-3.5 Health Sector Training Program Schedule Annex-3.6 Technical Assistance by Objective (US$ '000, IDA only) Annex-3.7 Economic Analysis of the Basic Package Annex-4. 1 Documents Available in Program Working File Map: IBRD No. 26934 . . . . . . . . . . . . . . ..  - i - REPUBLIC OF MOZAMBIOUE HEALTH SECTOR RECOVERY PROGRAM CREDIT AND PROGRAM SUMMARY Borrower: Republic of Mozambique. Implementing Agency: Ministry of Health (MOH). Beneflciaries: Primarily women and children living in the rural areas, through increased coverage and improved quality in the health system. Health staff, through the implementation of the Health Manpower Development Plan and improved working conditions. Amount: Program: US$ 355.7; IDA: SDR 66.3 million (US$ 98.7 million equivalent). IDA Terms: Standard with 40-year maturity. Poverty Category: Program of Targeted Interventions. The beneficiaries of the MOH's basic health services are primarily women and children living in the rural areas of the country. The Program is aimed at the reconstruction of the rural health system, particularly in districts heavily affected by the war. Through the (re)construction of health centers and health posts, the Rural Health Development Fund of the Program aims to bring health services to the least serviced areas of the country, which are also the poorest. The emphasis on basic and preventive care, which underscores the National Health Strategy, ensures that components aimed at improving pharmaceuticals and medical supplies and health staff training will reach primarily the poor. Program Objectives: The ultimate objective of the Mozambican National Health Strategy (MHS), supported by this Program, is the improvement of the health status of the population, in general, and a decrease in infant and child mortality, in particular. MHS objectives are to be achieved through an increase in health coverage of the population from the present 40 percent level to 60 percent by the turn of the century, with better quality of services provided. Program Description: Through the coordination of all major donors and the government, the Program, which encompasses all activities of the MOH, will finance a five-year time slice of the MHS. In accordance with the sector's strategy, teams from the MOH have defined objectives and identified and prepared the various components, under the overall coordination of the MOH's Planning Directorate. The Program will address the following areas: (a) resumption of and improvement in the guality of health services provided so that the overall sector investment strategy yields a higher level of services, as the sector expands, by: (i) rehabilitating and expanding the network of first level health facilities; (ii) rehabilitating and expanding the network of rural hospitals and rehabilitating the network of provincial and central hospitals; (iii) strengthening laboratory facilities in hospitals and health centers; (iv) assuring stability in the provision of medical supplies, pharmaceuticals and laboratory reagents; (v) supporting a national maintenance strategy in the sector; (vi) supporting an institutional nutrition program for severely malnourished  - ii - children and for in-patients; and (vii) supporting general provincial operations for health. (b) improvement of sector institutions, suoport services and sub-national health management systems by: (i) establishing policies and procedures and expanding storage capacity aimed at improving the supply system for medical supplies and pharmaceuticals; (ii) strengthening the provincial health management system, in coordination with decentralization of functions to the provinces; (iii) improving the sector's information system; and (iv) enabling national implementation of the Program, including the development of sector policy and systematic evaluations of the Program based on comprehensive consultations with ultimate clients. (c) development of human resources capacity, by: (i) implementing a time-slice of the Health Manpower Development Plan; (ii) developing the national capacity for health personnel training; (iii) promoting continuing education of health workers; and (iv) enhancing university medical training. Benefits and Risks: The main benefits of the Program will be increased coverage and quality of health services and increased equity in access to services with a shift of resources toward rural areas and a basic package of health care. The main beneficiaries of improved base facilities will be women and children through MCH programs. The Program will also generate important external benefits by assisting the MOH in the coordination and implementation of projects undertaken by all donors. Finally, the Program will assist in increasing the transparency and efficiency of the sector's budgetary process by moving virtually all off-budget health expenditures into the budget. The main risk of the Program is MOH's potential difficulty to implement fully parts of the sector's extensive number of activities, leading to bottlenecks and inefficient service provision. To mitigate this risk, the Program is designed to support the improvement of management capacity in the MOH and aims to coordinate and consolidate donors' activities so that implementation and capacity constraints are substantially alleviated. Estimated Financing Plan (US$ million, including taxes and contingencies): Source of Financing Local Foreign Total GOM 104.6 11.9 116.5 Other Donors 32.7 107.7 140.4 IDA 39.5 59.2 98.7 Total 176.8 178.9 355.7 Estimated IDA Disbursements (USS million): FY96 FY97 FY98 FY99 FY00 FY01 Annual 7.1 17.4 23.0 25.0 19.2 7.0 Cumulative 7.1 24.5 47.5 72.5 91.7 98.7 Cumulative % 7.2% 24.8% 48.1% 73.5% 92.9 100.0% Project ID: MZ-PA-1792  STAFF APPRAISAL REPORT REPUBLIC OF MOZAMBIQUE HEALTH SECTOR RECOVERY PROGRAM I. INTRODUCTION: COUNTRY AND SECTOR OVERVIEW A. Background 1.1 With a population of about 17 million, mostly rural and poor, subject to periodic drought and just emerging from nearly two decades of internal warfare, Mozambique is generally regarded as one of the world's greatest development challenges. Yet Mozambique has the potential to change from its present situation. There are substantial prospects for economic development in the country if investment is allowed to flow towards economic opportunity. The potential returns to increased investment in human capital in Mozambique are enormous in terms of improvements in social welfare and as stimuli to economic growth. The absolutely low starting point of Mozambique in terms of basic social indicators, access to and quality of social services indicates that the "marginal dollar", wisely spent, can yield high returns. Peacetime has made it possible for the government to reestablish effective communication with the population in areas formerly cut off by the war and to collaborate with communities in the planning and implementation of programs intended to help them to improve their lives. 1.2 In absolute terms and in comparison with other Sub-Saharan African experience, Mozambique's social indicators are low, as shown in Table I which provides the most recent estimates available. Table 1: Social Indicators in Mozambique and Sub-Saharan Africa Social Indicator Mozambique Sub-SaharanAfrica Illiteracy Rate (%): Population 15+ [Females 15+] 67 [78.7] 50 [62.3] Primary Gross Enrollment Ratio (%): Total [Females] 63 153] 66 [58] Primary Student/Teacher Ratio: 55 41 Life Expectancy (years): Total [Males, Females] 48 [46 Males; 49 Females] 52 Population/Physician: 48,000 26,670 Population/Nursing Person: 4,400 2,180 Infant Mortality Rate (per 1000 live births): Total [Urban,Rural] 162 [89 Urban; 140-300 Rural] 107 Under-Five Mortality Rate (per 1000 live births): 282 179 Maternal Mortality Rate (per 100,000 live births): 1,100 690 Population Annual Growth (%): 2.7 2.8 Total Fertility Rate [estimate for Year 2000] 6.5 [6.9] 6.1 [5.6] Daily K/Calorie: Total [Share of Requirement (%)] 1,680 [77] 2,120 [931 Sources: Government of Mozambique and UNICEF, The Situation of Children and Women in MozambiQue. 1993, UNDP Human Development Report. 1993, and World Bank World Development Report. 1994. Note: the data are best estimates for the latest available years.  -2- B. The Economic Environment Macroeconomic Retrospective 1.3 Since Mozambique became independent from Portuguese rule in 1975 it has faced an extremely difficult economic situation due to a combination of factors including economic mismanagement, natural disasters and a civil war. Constant economic deterioration further depressed the already low living standards of the people. In 1987, after an agreement with the IMF and the Bank, an Economic and Social Rehabilitation Program (PRES) was launched. The program helped reverse the decline in GDP and allowed a slight annual GDP growth of some 1.5 percent between 1987-91. Despite the increase in GDP, urban poverty increased. The spread of the civil war and the resulting exodus of the population from rural areas to the cities in search of a secure life, coupled with the decline of expenditures on human resources and the withdrawal of the government's subsidies for staple foods, contributed to a deterioration of the nutritional and health conditions of the overall population. 1.4 In the last seven years, the Box 1: The Impontance of Human Capital adjustment process in Mozambique has progressed on several fronts: establishing a .. the primary determinant of a country's standard of market for foreign exchange, initiating living is how well it succeeds in developing and utilizing financial sector reform, freeing domestic the skills, knowledge, health, and habits of its trade and prices, continuing enterprise population. It has been estimated that human capital-- reform, and strengthening public expenditure education, on-the-job and other training, and health-- controls. The Bank and the IMF have comprises about 80 percent of the capital or wealth in worked closely with the government in the the United States and other advanced countries. Even design of Mozambique's adjustment if such estimates are somewhat exaggerated--and I do program. The government's performance in not believe any exaggeration is large--these estimates implementing the program has been clearly indicate that human capital can be neglected at implemeontinygoo, athepougracomplcas ben a country's peril. The importance of human capital to reasonably good, although complicated by growth is perhaps excessively illustrated by the severe external shocks. Aid from, and trade outstanding records of Japan, Taiwan, Hong Kong, with, the former Soviet Union stopped in South Korea, and other fast growing Asian 1991, and key markets in Eastern Europe economies ... Neglect of human capital and world markets were lost. The result was a loss of foreign by most economists after World War II in the 1950s and exchange amounting to over 8 percent of 1960s led to a seriously distorted view of the growth GDP. The civil war caused an increase in process. and ultimately to a failed vision of what is the percentage of displaced households from necessary 1o achieve economic progress and reductions 30 percent in 1988 to over 50 percent in ofpoverty. The World Bank gave very little attention to 1992, severely affecting agricultural human capital at that time, both in its lending policies production. In addition, in 1992 the and in its research and country studies. Gradually, the agriculture sector was further devastated by Bank, as well as the profession, began to change its agriultre scto wasfurher evatate by approach to development. lam happy to know that now the most severe drought of the century. apocvdvlpet ahpyonwhto thso, exmost sevres drougt mofsth cindstury not only is research on human capital thriving at the Also, export prices of most agro-industrial Bank, but the Bank's lending practices also have shifted exports declined. Rough estimates suggest a little towards health, education and training programs. that the external shocks reduced output by at least 5 percent p.a. on average, thus Gary Becker, Nobel Laureate in Economics accounting for two-thirds of the reduction in December 16, 1994 lecture at the World Bank the growth rate of GDP to 1.7 percent p.a. in 1990-92.  -3- 1.5 In 1993, with improved security, better weather, some partially restored infrastructure, and continued structural reform, GDP growth reached 19 percent, and inflation fell from 55 percent in 1992 to 44 percent by year end. Agricultural production rose by 21 percent as the sector recovered from the 1992 drought and displaced households resettled in rural areas. Increased agricultural marketing and improved security led to a sharp increase in commercial activities in rural areas. Traffic and passenger flows were restored throughout the country and railroad traffic rose following repairs to the transport corridors. However, industrial production in the formal sector is stagnating because widespread smuggling and effective negative protection have undermined the capacity of local firms to compete, while exporters have no access to effective duty exemption regimes. An over-regulated business environment and the slow pace of privatization of large industrial firms are also factors. Although the Mozambican economy is expected to continue growing in 1994/95 at an annual rate of 5.8 percent, the macroeconomic situation remains unstable due to high domestic inflation and rapid population growth. Public Expenditures and Fiscal Stability 1.6 Although economic growth will increasingly come from private sector activity, at present nearly fifty percent of GDP comes from government investment and consumption. Therefore, it is crucial that public expenditures be transparent and reflect the priorities laid out by the government. The Triennial Public Investment Program (PTIP) is the instrument used by government to account for and rationalize medium-term investment decisions. Since its inception in 1992, the PTIP has been continuously improved to better plan and control all investment activity outside the private sector (i.e., including donor support) and to identify recurrent expenditures which are often built into investment projects. In parallel, off- budget recurrent expenditures have gradually been integrated (or at least accounted for) in the budget. Financing of the 1994-96 PTIP comes largely from donors, who contribute about 80 percent of the total. Taxes and other internal revenues cover approximately 70 percent of the recurrent budget.' 1.7 To succeed, an integrated sector operation such as the Health Sector Recovery Program must be implemented in a fiscally sustainable environment. What this means is not only that the Program should be affordable by the government budget, but that the resulting budget should be consistent with the restoration of macroeconomic stability, albeit in the context of long-term economic growth. While significant progress has been achieved in reducing the fiscal deficit after grants, this has to date been done mainly by increasing the mobilization of grants. To promote future fiscal sustainability and reduce aid dependency, it is important to reduce the fiscal deficit before grants through increased revenues and rationalization of investments. A key component of the government's program to raise revenues is the reform of customs announced at the March 1995 Consultative Group Meeting, another important factor is the introduction of a value-added tax over the medium-term. Rationalization of the investment program is being achieved through the development of integrated sectoral investment programs that are consistent with sectoral priorities and available future recurrent funding. Besides increased efficiency in the use of external resources, the development of such programs should generate savings in technical assistance. In total, the fiscal deficit before grants would fall from about 30 percent of GDP in 1994 to less than 15 percent by 1999. This level would be consistent with the expected reduction in Mozambique's aid dependency over the medium to long-term and sustained economic growth. 'The last public expenditures review exercise for Mozambique took place in 1992. An updated review of social sectors expenditures was carried out in 1994.  -4- Human Resources and Sustainable Growth 1.8 Human resources development must be firmly linked to and even embedded in macroeconomic policy Figure 1A Health Sector as Share ot GDP decisions, which affect the supply of and demand for human capital. Likewise, 2% ........... - policy measures that distort market prices, .........: impede the movement of labor from less 2%.. productive to more productive .5. . ....... : employment, and even discourage employment growth can lead to the 1.0% inefficient utilization of human capital and the distortion of spending on human 0.5% resources development. The poor o0 _ [Rcr performance of the Mozambican economy has influenced human resources s0 81 82 83 84 85 86 87 88 8 90 91 92 93 94 development in two ways. Slower growth Year has put pressure on pubic expenditures for education, health, and population programs. It has also reduced the capacity and incentives for private households to spend on these measures. 1.9 Reduction in poverty and lasting improvement in the lives of Mozambicans will require a substantial investment in the social sectors. In the period 1990-94, investment expenditures in the social sectors averaged about 6 percent of the total investment budget, while the share of recurrent expenditures amounted to less than 16 percent, on average, over the same period. The government realizes that these levels are inadequate, and recent tangible reallocation of resources to health and education underscores the priority now being afforded to poverty reduction and sustainable growth. Health Sector Expenditures and Financing 1.10 Profile of Public Expenditures. In 1980, health sector expenditures accounted for about 6.7 percent of total public expenditures.2 For the next decade, expenditures declined sharply before stabilizing at approximately 3 percent in 1990.3 During the period 1991-93 the health share of public expenditures experienced a continuous increase from the level achieved in 1990 up to 4.2 percent (1993), with an estimated sharp decrease in 1994. The graph below shows that the per capita health spending reached the peak of US$ 4.67 in 1982, with a decline in the following two years even as GDP per capita increased. This decline has never been recovered. Between 1980-94, expenditures on the health sector as a share of GDP declined from about 2.5 percent to under 1.5 percent. Budget estimates for 1995 show a sharp increase in health expenditures from the previous year and will likely reverse this long-term trend, indicating the commitment of the newly elected government to human resources development in general and to the health sector in particular. 2 Note that these estimates do not include the significant government spending on health activities by the military. 3As compared to an average of some 5 % for other low-income countries in sub-Saharan Africa (though the share of the public sector in GDP is higher in Mozambique than in most African countries).  -5- Figure I B: Health and GDP per Capita 5 . 300 4 250 .. . .:.: . -::- :-x-s. . . --..-... . -.-.. ... . . :4L: ~~~~~~~~~~~~~~200 2.5 15 0 - . .. I : U S S 2 ........................ Health 1.5 _ 100 GDP ............~~~~~~~~~~~~~~~~~~~~~..... Hat 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 Hel| Year | +GDP 1.11 Household Financing. The basis of a cost sharing scheme within the health sector was established in 1977. However, it became relevant only since 1987, after adjustments in fees and procedures. Cost sharing, excluding drugs, represented about 4.2 percent of government recurrent health expenditures in 1987. Despite new revenues from fees charged at "special clinics" which were introduced in 1990, the cost sharing ratio excluding drugs still declined to 3.1 percent in 1991. In 1990/91, cost sharing on drugs was about 3 percent of total drug expenditures. During 199 1/1993 the cost sharing ratio (including drugs and "special clinics") increased from 4.3 percent to 4.8 percent of the government financed health expenditures. Cost recovery from regular outpatient and inpatient fees has decreased over the same period, from 0.6 percent to 0.2 percent of the public expenditures, while that from the "special clinics" has increased from 1 .4 percent up to 2.5 percent, partially due to the extension of such services to the Beira Central Hospital. Considering only the Maputo Central Hospital, the amount collected by "special clinics" increased five fold, at current prices, between 1991-93. During the same period the cost sharing in drugs increased from 2.2 percent to 4.2 percent of the value of drugs distributed in the sector. This increase resulted from a 50 percent adjustment of the exchange rate used to calculate the "official price" of drugs dispensed by the health units; in mid-1994, it was estimated that the indirect subsidy to the "official price" of drugs was more than 75 percent. 1 .12 External Financing. The MOH estimates that external aid for recurrent expenditures increased from US$ 24.1 million in 1989 to US$ 32.9 million in 1991. It is also estimated that 41 percent of the donor support was used for technical assistance (mainly doctors), 49 percent for drugs and other medical supplies, and 10 percent for other operating costs. Almost all investments in the sector (90 percent of total) have been covered by grants and credits.4 The investment component of donor support has been 4The MOH estimates often differ from donors' figures, for several reasons. Donor estimates may include implementing overheads, preparation periods, program managers' salaries, and audits. Also, there are time lags between actual expenditures and disbursements, in some cases of more than one year. In 1991, based on disbursement figures - recurrent and investment - disbursements for the health sector as a share of total external financing for some major donors were as follows: Italy/ltalian  -6- Box 2: 7he Evolvng MOH Policy on Cost Sharing Following the IDA -financed study on cost sharing in the health sector (Recuperacao de Custos na Saude em Mocambique), done in 1989/90, the MOH has taken some key policy decisions regarding the cost sharing scheme, in view of the need to increase the ratio of cost sharing while effectively protecting the "vulnerable groups" of the population. These policy decisions can be summarized as follows: (i) Drugs * Maintain an indirect subsidy on all drugs dispensed by the health units of the National Health System (NHS). The proportion of this subsidy should decrease over time in order to gradually adjust the "official price "to market prices, through adjustments to the artificial exchange rate used to calculate the prices at which drugs are sold to consumers by the NHS. * Maintain a single fixed fee for drugs dispensed by the rural primary health care health facilities, as well as free dispensing of drugs to inpatients at all NHS health facilities. In the medium term steps should be taken to initiate cost sharing in drugs, medical supplies and auxiliary diagnostic materials and procedures provided to inpatients. (ii) Outpatients and Inpatients * Differentiate fees according to the level of the health care unit providing the service and between general and specialty outpatient consultations. * Introduce, in the central andprovincial hospitals, differentialfeesforinappropriate use of emergency services by patients. * Differentiate inpatientfees according to the levels of health care units to inpatient lodging conditions. (iii) Preventive Services v All preventive activities (such as vaccinations), because of their positive externalities, will continue to be free to the whole population. Improvements in the organization and collection offees should be sought, as well as in the capacity to monitor the effects of the userfees scheme (and any adjustments to it) on patients' access to and use of health services. Due to the prevailing poverty of the majority of the population, in both rural and urban areas, revisions of the definitions of "vulnerable groups' and of the types of services to be given free of charge or with subsidies in their cost should be continuously undertaken. The MOH has already started to take the steps necessary to implement the policy decisions referred to above. It is expected that with the full implementation of those decisions the global recovery from user fees could gradually reach between 10-15 percent of recurrent expenditures by the year 2000. increasing, more than doubling its share of total aid to the sector from 17 percent in 1990 to 35 percent Cooperation (15.3%); IDA (10.5%); DenmarkIDANIDA (9.7%); Norway/NORAD (9.5%); Switzerland/SDC (9%); UNICEF (8.8%); Sweden/SIDA (7.8%); and USAID (6.8%).  -7- in 1991. Efforts are being made by both government and donors to ensure strong coordination in support of the global, geographic and sectoral priorities which have been established. This is the only way to ensure a more equitable allocation, rationalizing and keeping track of public health expenditures and of external funding. The existence of a large number of separate projects in the sector (122 in 1994) is recognized by government and donors to weaken the already-fragile managerial capacity in the sector, and the need for parallel administrations directed by donors does not facilitate institutional development within the sector. The basis of this coordination reflects a desire at the highest levels of the MOH, best expressed by the former Minister of Health Leonardo Simao, "to move away from a Ministry of Health Projects and towards a Ministry of Health Services", avoiding individual projects and duplication of services as well as contradictory and often inequitable policies, decisions and activities. Program Affordability 1.13 Despite the significant expansion in services expected to be achieved through the Health Sector Recovery Program, recurrent costs induced by investment in health facilities are expected to rise by less than 2 percent per year. The reason for this low increase is that much of the health facilities infrastructure work in the sector is either rehabilitation or upgrading of existing structures. The overall number of health personnel is expected to remain effectively at the present level, i.e., fluctuating less than 5 percent during the Program life (paras. 1.47, 1.48). Moreover, a significant share of civil works (e.g., construction of warehouses) is likely to yield net savings of recurrent resources. The financing of incremental recurrent costs directly linked to infrastructure expansion/upgrading will be covered by increases in the sector budget, while costs linked to improvements in the quality of services will be mostly built into the overall cost of the Program and largely financed by donors on a declining basis over time (e.g., maintenance, supervision activities, transportation, etc.). An increasing share of cost recovery will help ensure long term stability of local resources. 1.14 The annual increase in the sector's recurrent expenditures to be financed by the GOM is estimated at 4 percent between 1996 and 2000, compounded on a sharp initial increase of about 40 percent for 1995. This figure translates into an increase in recurrent public spending from about US$ 0.80 per capita in 1995 to about US$ 1.10 per capita by the year 2000. Despite an estimated modest growth in overall recurrent public expenditures between now and the end of the century (averaging less than 2 percent p.a.), the share of health in the overall recurrent budget will increase only slightly from about 6.2 percent in 1995 to 6.9 percent in 200o5. The health sector investment budget is also anticipated to grow at 4 percent p.a. during the life of the Program compared to 3 percent for the overall investment budget. (paras. 2.58 and 5.2) 5 According to the 1995 budget structure.  -8- C. Sector Issues, Policy and Strategy (1996-2005)6 1 .15 The health sector situation is conditioned by: (a) absolute poverty of most of the population, with the resulting low and declining living standards; (b) better access to and greater use of health care by the urban population compared to the rural population; (c) limited government funding of the social sectors for more than a decade; (d) worsening income distribution among the various social groups; and (e) due to the end of the war, increased political pressure to rebuild the health care network in rural areas. Main Health Problems 1.16 Mozambique has a typical pre-transitional epidemiological pattern. Infant mortality rate stands at about 162 per thousand and child mortality rate at 282. Total fertility rate is 6.5 with no indications of change. As in most sub-saharan countries, the main health problems in Mozambique are infectious and parasitic diseases, particularly diarrhea, acute respiratory infection, measles, tuberculosis, malaria, pneumonia and child malnutrition. Among adults the principal cause of morbidity is malaria, while tuberculosis is the main reason for hospitalization and in patient mortality. Recently available facility- based data indicate that the spread of HIV infection is still limited but rapidly on the increase. 1.17 Malnutrition is frequently a major compounding factor in morbidity and mortality, especially for children. Data from spot surveys indicate that chronic malnutrition among children as measured by stunting (height-for-age) is present in 30-40 percent of those surveyed, while acute malnutrition, measured by wasting (weight-for-height) is present in about 6 percent of children. It is generally accepted that there have not been any significant improvements in nutritional conditions in the rural areas despite peace. There is some evidence that malnutrition has increased during the last few years, and most of the population have food reserves for less than four months, with almost 60 percent of the population having no food reserves.' Both chronic and acute nutritional problems directly aggravate the other health problems of the population. Health Sector Principles and Objectives 1.18 Mozambique inherited a health system located mostly in the urban areas (except for some scattered health units run by religious organizations) and providing almost exclusively curative care. One month after independence the government nationalized the health sector and prohibited the private practice of medicine, intending to make all medical resources available to every citizen. As a result, the bulk of modern health care is provided through the National Health Service, which is based on the following mandates: (a) extend the health network and the benefits of the National Health Service throughout the country, giving priority to preventive medicine; (b) develop a national curative care program both in the urban and the rural areas, with priority to primary health care units; and (c) define and implement adequate strategies aimed at fighting major endemic diseases. 6 The MOH document: Public Health Sector in Mozambique: A Post-War StrategyforRehabilitation andSustainedDevelopment (1992) outlines the strategy for the sector. Five other MOH documents provide background for the strategy: (i) Revisdo da Politica Nacional de Saude: Estrategias e Accoes Prioritarias (1991); (ii) Gastos, Financiamento eAfecta,cdo de Recursos no Sector de Satide em Mo,cambique (1991): Evolucao Historica e Perspectivas Futuras (1991); (iii) PrivatizaVdo da Medicina; (1991) (iv) Previsdo das consequencias do Fim da Guerra no Sector da Saude (1990); and (v) Health Manpower Development Plan (1991). 7Source: Centro de Intersecoes, a statistical unit supported by Medecins sans Frontieres (1993)  -9- 1.19 Through a series of policy adjustments which began in 1991, the following principles have been affirmed as the basis for the National Health Policy: (a) maximizing the benefits from the use of available resources; (b) fairness in distributing resources and equity in the access to health care across regions and social groups; (c) freedom of users to choose their health care providers; (d) co-existence of public and private sector; and (e) preservation of the basis and positive experiences gained through the National Health Service in areas such as primary health care and essential drugs. 1.20 Within this framework, the objectives set for the health sector and re-stated in the Letter of Sector Policy (Annex-1.2A) are: (i) to reduce mortality, morbidity and suffering, especially among high risk groups such as women, children and all those displaced due to the war and natural disasters; (ii) to keep primary health care as the basis for the provision of good quality and sustainable health care and make it accessible to the majority of the population; (iii) to develop the technical and managerial capacity of the MOH for planning, implementing and evaluating health care and support services. Health Services Delivery 1.21 Primary Health Care is the driving strategy of the Mozambican health system.8 Four levels of care have been established. The first level is made up of health centers and health posts. Basic curative and preventive out-patient services are provided in an integrated way: when a mother arrives with her sick child at a clinic, the mother hears the daily health education talk, the child is treated, child and mother receive needed vaccinations, and the mother receives family planning services or her pregnancy is checked. This integrated approach minimizes the chance of missed opportunities for preventive services. The health center also provides obstetric care for uncomplicated deliveries. The second level is constituted by rural hospitals (in the rural areas) and general hospitals (in towns). These hospitals play a crucial role in the health care delivery system, because they can both offer some specialized health care and also provide technical and organizational support to peripheral primary health care units. The third level is composed of provincial hospitals with basic specialties (internal medicine, general surgery, pediatrics and obstetrics/gynecology). Finally, the fourth level is made up of central and specialized hospitals providing the highest level of referral for curative care in the country. 1.22 The priority given to first level health care, to provide a basic package of preventive, promotive and curative health services, was clearly demonstrated by the rapid growth in the numbers of Health Centers (from 120 in 1975 to 223 in 1982) and Health Posts (from 326 in 1975 to 1,195 in 1985). The number of hospitals did not change. An Essential Drugs Program, launched in 1986 within the National Drug Policy Framework, aimned at covering the most basic needs at the first level of health care. 1.23 Basic Package of Health Services. The basic package of services which the MOH is attempting to provide to the majority of the population, although it is not formally defined as a 'package", includes 8The Mozambican Health System was one of the leading examples for the World Health Organization when it adopted Primary Health Care as the strategy to achieve its goal Health for All by the year 2000 in the famous conference of Alma Ata in 1978.  -10- essential curative services (e.g., care for malaria, diarrhea with dehydration, acute respiratory infections, moderate and severe malnutrition, trauma and delivery and postpartum care), preventive and health promotion activities (e.g., immunization, antenatal care, health and sanitation education, nutritional monitoring, family planning), and appropriate referral services. MCH services are offered in an integrated way to minimize missed opportunities. 1.24 Health Network Rehabilitation and Development. Based on the objectives listed above, the Health Sector Recovery Program mandates giving high priority to preventive medicine, but without neglecting the role of curative services in delivering integrated health care to the population. Primary health care is to continue to be the basis of the public health care delivery system, and its coverage is to be expanded in the rural areas. Promoting and protecting the health of high risk populations and preventing and controlling transmissible diseases continue to be priority objectives. Similarly, the assurance of timely referral of patients to higher tiers of the health care system constitutes an important concern. Finally, improved management, efficiency and quality of health units, better equipment and infrastructure maintenance, and gradual improvement of clinical technologies (including diagnostic facilities) up to regional standards are also priorities. 1.25 In infrastructure rehabilitation/reconstruction, priority is to be given to the primary level of care. However, rural secondary care has always been weak in Mozambique and attention also will be given to upgrading and expanding the rural hospital network. In particular, all rural hospitals must become capable of offering emergency surgical and obstetric services. The upgrading of rural health services will be a contribution of the health sector to restoration of normal life in the countryside. Some resources will also be dedicated to upgrading health services in the peri-urban areas which have become swollen with rural migrants, not all of whom will return to the countryside. In the rehabilitation process, therefore, first priority will be given to rural primary level facilities and rural hospitals, and, where appropriate, to primary level facilities in peri-urban areas. 1.26 An important element of the rehabilitation strategy is to continue to redress the imbalances inherited from colonial rule. To achieve this, in the rural areas hospitals need to be rehabilitated or extended and some existing health centers upgraded to rural hospitals, construction of Polyvalent Village Health Workers (APES)-staffed community health posts in villages will be promoted, and efforts will be made to gradually introduce preventive activities in all health posts. In the urban areas, the primary health care network should be extended through health centers with maternity services, but only where justifiable by population increases. In the larger cities (Maputo, Beira, Nampula and Nacala), construction or extension of general hospitals should be foreseen as a solution to relieve pressure on central hospitals, thus allowing for improved service delivery and for lower-cost inpatient and outpatient services. 1.27 Rural/General Hospitals: The existing Rural Hospital network (24 Rural Hospitals) should be rehabilitated by the year 2005, and another 15 Rural Hospitals should be introduced in the system. Most of the new proposed Rural Hospitals (RHs) should result from the conversion and expansion of existing Health Centers (HCs). Criteria for the selection of such facilities include population size and density, availability of roads, and the economic importance of the district. Nationally, the planned increase will provide one rural hospital per 475,000 inhabitants (as opposed to one per 61 1,000 now), with improved equity in their distribution among the provinces. 1.28 First Level Facilities In Rural Areas: Rural Health Centers in Mozambique were initially designed as relatively large units, with correspondingly high staff levels and operating costs. They have  -11- often operated inefficiently, because larger units are more difficult to manage and because the difficulties of rural transport make a catchment area with a radius of more than a few kilometers unrealistic. In the future, physical accessibility and population density will be more important criteria in determining the size and location of rural health facilities. In general, fewer, if any large health centers will be built, and more reliance will be placed on the provision of a larger number of small facilities situated closer to people's homes. These health facilities will have preventive, promotive and curative functions. All the health centers will be able to carry out normal, deliveries and deal with some of the important common complications of childbirth. 1.29 The goal is that by the year 2005, the number of first level facilities should be close to the number which existed before the war: 1,284 primary health care units, including 173 health centers, 661 smaller health centers, and 450 health posts. To achieve that goal will require that: (a) 173 health centers be rehabilitated and extended, of which 92, in district capitals, will have maternity wards; (b) 509 health posts be converted to small health centers, and 152 new small health centers built; (c) 450 village health posts be rehabilitated or built. 1.30 First Level Facilities In Urban Areas: The urban areas are in a favorable position, compared to the rural areas, and no significant expansion is expected in their facilities. Efforts should concentrate on improving service quality and efficiency. The strategy dictates that: (a) 38 existing urban health centers be renovated, with maternity wards added; (b) 48 existing urban health posts be converted to small health centers; and (c) 36 small health centers be constructed in peri-urban areas. Thus, by the year 2005 the urban areas will have the equivalent of one health center and four small health centers for every 50,000 urban inhabitants. 1.31 Provincial and Central Hospital Network: Urban hospitals, which are relatively well-developed, absorb a disproportional amount of health sector expenditures and present ample opportunities for improving efficiency. It should be possible to improve the quality and increase the volume of their services without a proportionate increase in resource allocation. The strategy for the rehabilitation of third and fourth level facilities encompasses: (a) physical rehabilitation of hospitals, which have had essentially no maintenance during the past two decades; (b) preparation of development policies for the city hospital network; (c) organizational steps to improve service quality and efficiency.  -12- 1.32 Pharmaceuticals. Since 1976, Mozambique has had a National Drug Formulary (NDF) which includes, under their generic names, a limited list of drugs and medical supplies deemed essential to diagnose, prevent and/or treat the great majority of diseases in the country. The small, well organized Formulary explains clearly which drug can be described at which level of care and by which level of health worker. The use of generic names in prescribing drugs was made mandatory and the purchase of drugs was restricted to those included in the NDF. A Ministerial Decree urged the preparation of therapeutic protocols for treatment of the most common diseases, later published as a Therapeutic Guide. The use of the protocols approved for treatment of major endemic diseases is compulsory. In spite of a relatively effective essential drugs program, lack of foreign exchange and wartime shortages of drugs in the health facilities hampered the effectiveness of the health system and affected the trust of the population. Specific problems limiting the availability of drugs are irregular imports due to donor dependency, irregular distribution, and leakages mainly at the service delivery level. 1.33 The flight of importing companies and of retail pharmacy owners before and after independence led to the creation of the parastatals MEDIMOC to ensure the import and export of pharmaceutical and medical supplies and FARMAC to keep the abandoned retail pharmacy network working properly. Since 1986, MEDIMOC also has been in charge of internal distribution of pharmaceutical products to the provincial level. Both organizations are in the process of adapting to the health service expanded coverage and the renewed possibility of road transportation and decentralized stockholding which have been made possible by peace. 1.34 Every effort will be made to keep health personnel supplied with essential drugs. The objective is to maintain (and hopefully surpass), during the program life, the annual per capita level of pharmaceuticals provision of about US$1.20 achieved in 1992-93. To achieve this and improve quality, the rehabilitation strategy is to enhance and improve the National Pharmaceutical Policy, based on the Essential Drugs Concept, centralized procurement of generic drugs, and development of a quality assurance system. Rational use of pharmaceuticals will be promoted at all levels of the health care system in order to protect the public and improve the efficiency of drug use; this is specially important since drugs absorb a large share of health sector recurrent expenditures. 1.35 Maintenance. After almost two decades without proper maintenance, all facilities at all levels of the health care system are in serious need of rehabilitation, as are diagnostic and support facilities. Much too often, capital investments are made in health facilities, equipment and vehicles without adequate provision for maintenance. The result is that the new structures and equipment deteriorate rapidly and have to be replaced prematurely, so that much of the original investment is wasted. Adequate systems of infrastructure and equipment maintenance need to be developed urgently. 1.36 The implementation of the health sector program, with provision of new or renovated buildings, new medical equipment, furniture and vehicles, will require the following corresponding efforts to improve maintenance: (a) formulation and adoption of policies, strategies and approaches specifically related to maintenance of health care facilities, medical equipment and vehicles, as part of overall national health policies; (b) development of a national maintenance plan, which defines the responsibilities of the central, provincial and district levels for each type of maintenance for the broad categories of facilities,equipment and vehicles;  -13- (c) establishment of information systems capable of receiving, assimilating and disseminating technical information to the health sector; (d) strengthening of technical service infrastructures attached to national health systems, with provision of a framework for effective and sustainable maintenance and repair services, with consideration of the recurrent cost implications of maintenance; and (e) strengthening of national maintenance training capacity and training of national, provincial and local staff, including technicians, operators and users, within the existing training facilities. Institutional Development 1.37 The MOH institutions evolved to provide central planning, management and support for the developing structures, health services and human resources of the sector. More recently, they have been made responsible for building the foundations for the decentralization of health services delivery and for delegation of greater financial and administrative autonomy to provinces and then to district authorities. This will parallel efforts to improve both the quality and the regional distribution of health services, along with increased coverage within regions. The main objective of institutional development activities in health is to improve the efficiency of resource utilization in the sector, especially with regard to human resources which are the binding resource constraint. Therefore, the MOH's institutional development activities focus progressively on strengthening the central, provincial and district levels to take on their new roles and responsibilities, and on strengthening linkages among and more effective management within health units, especially hospitals. Actions required and planned include systems development, procedural designs, pre-and in-service training, and the establishment of improved supervision, monitoring and feedback. Initial focus is on the priority areas of training, personnel management, financial management, supplies, maintenance, and supervision. 1.38 Management. Decentralization and Policy Development. A major goal of the rehabilitation strategy is the development of a management framework supported by an internal management development capacity that would gradually improve the delivery of health services at all levels of the health system. In this commitment to management change, the MOH will be guided by the following principles: (a) incremental management change, beginning with what exists and improving upon it, rather than introducing something entirely new; the changes will begin modestly and later increase in scope and intensity; (b) flexibility, to take advantage of unexpected opportunities and adapt to changing circumstances, with emphasis on provincial level management which should be developed early in the program; (c) collaboration among government, donors and NGOs to ensure compatibility and to forge links that allow for learning from each others' experiences. 1.39 Furthermore, the use of resource allocation as a means of implementing government health policy implies reform of the present system of financial management. Procedures must be developed to strengthen the links: (a) between health planning and administrative systems (for example, by making  -14- budget categories correspond to planning categories such as levels of health care); (b) among the various administrative levels of the national health service; (c) among departments of the MOH; (d) between the MOH, the Ministry of Finance and Plan; and so on. Such reform will not be easy, but is essential to effectively translate health policy into action more effectively. 1 .40 Supplv System. Improved distribution of pharmaceutical and medical supplies to health care units should lead to more efficient use of available resources and ultimately to better health care. The strategy considers the need to integrate the existing MOH distribution system (fragmented by project-driven procedures and financing), to establish stock management policies at all levels of the distribution chain, and to develop adequate stock control procedures for both pharmaceutical and medical supplies. Efforts will be made: (a) to develop or refine standard lists of medical supplies and to prepare a catalogue focussing on those items used at primary and secondary levels of health care, to facilitate better management; and (b) to develop management capacity at the health unit and provincial levels. 1.41 Strengthening management capacity should be complemented by provision of better storage facilities, including rehabilitation/construction of: (a) regional pharmaceutical warehouses in Maputo, Nacala and Beira; and (b) 14 new provincial or inter-district warehouses (10 for medical supplies and 4 for pharmaceutical) in 8 provinces. 1.42 Information System. The health information system, as a key element for better health management, is also in need of rationalization, and the elements related to the primary and secondary levels of health care, systematically improved since 1989, must be further revised. Design and development of an "integrated" health information system covering epidemiological data, services, finance, human resources and supplies is a necessary step towards better policy definition and improvement of health sector management. Only necessary data should be collected, analyzed and interpreted in as simple a form as possible, and channeled rapidly to those who will use it -- including those who generated the data in the first place. Human Resources Development 1.43 Mozambique's national policy regarding human resources for the health sector has developed progressively since Independence, when personnel who had gained health care experience during the struggle for independence joined those trained earlier as the core of the national health staff. New types of health workers were developed in Mozambique to meet specific needs of a health system designed for high coverage with basic services. Both the system and its new types of personnel were featured at the Alma Ata conference which launched the worldwide Primary Health Care movement in 1978. More than 10,000 health workers were trained between 1976 and 1992, although from 1982 the intensified war, targeting health workers and teachers, forced them to concentrate in provincial and district capitals. A 1991 MOH review of the national health manpower policies and situation found the majority of health workers to be hospital-oriented, concentrated in cities (1/4 in Maputo) and hospitals, and either untrained or trained only at a basic level. In 1990, the MOH re-authorized the private practice of medicine (outlawed soon after independence). 1.44 In 1992, as part of development of its health sector recovery strategy, the GOM approved the MOH's Health Manpower Development Plan, 1992-2002, through which the Ministry conforms its staff training and deployment program to national health policy goals and upgrades the quality and mix of the staff and of their skills. The plan also provides for the improvement of training capacity. The training institutions involved are the four Health Sciences Institutes (training middle level and specialized workers),  -15- the six Health Training Centers (training lower level workers), and the WHO/MOH Regional Center for Health Development (in Maputo, providing training of trainers and specific courses for workers at mid- level and above). The medical school, founded in 1963, continues to graduate 12-20 physicians per year and is attempting to strengthen its community medicine program in keeping with community needs and national health policy. Polyvalent village health workers (APES), still trained at provincial and district level facilities, are not MOH staff members and are not considered in the plan. 1.45 Health services are only as good as their health workers, who are the most valuable resource of any health system. In Mozambique, it is necessary to increase the productivity of health personnel and to improve the quality of their care. Measures to be taken to accomplish this include the following: (a) rehabilitate and equip training institutions, strengthen teaching staff, and review and revise curricula and training programs and materials; (b) apply stricter educational criteria in the selection of candidates for basic training; (c) place more emphasis on refresher and upgrading courses for existing health personnel; (d) facilitate promotion, including promotion between grades, and base such promotion on more objective criteria, so that personnel will have greater professional and material incentives to perform well; (e) increase support to existing personnel by establishing systems of in-service training and regular supervision and by increasing the flow of professional information; and (f) improve the compensation of health personnel to levels which prevailed at the beginning of the 1980's. 1.46 During the 1980's, many health workers moved from rural to urban areas and from working at the first level of care to higher levels. This applied particularly to doctors and nurses, who were capable of working in hospitals. With the end of the war, special attention will now be paid to encouraging health personnel to work in the rural areas and in under-served provinces where they are greatly needed, and to rewarding them for doing so. Among the measures to be taken will be the following: (a) recruit more trainees from underprivileged provinces and areas, since they will be more prepared to work in such places after graduation; (b) give priority for post-basic training and for promotion to personnel who have served in priority areas; (c) provide housing for rural health personnel; (d) institute a system of allowances to compensate personnel for hardship postings and for lost opportunities to earn additional income; and (e) establish clearer regulations regarding the obligation to serve in rural and other priority areas.  -16- 1.47 The government health budget will be constrained for the foreseeable future. If the real salaries of public health workers are to increase, a limit must be placed on the number of health workers that the government employs. The Ministries of Health and of Planning and Finance have agreed that in the medium term the total number of employees of the national health service should remain effectively at the present level (i.e., fluctuating less than 5 percent) and by the turn of the century it will not exceed 18,000. However, within those limits the numbers of qualified and more highly trained professionals will be increased by the following means: (a) some support personnel will be upgraded to become, or will be replaced by, professional health personnel; the ratio of trained to untrained employees in the health service will be increased from the present 1:1 to 2:1; and (b) the proportion of health workers in the middle and higher grades will be increased; this will be achieved by post-basic training and promotion of personnel from lower grades and by expansion of recruitment for the basic training of middle and high grades. 1.48 The key categories of the basic grade will be medical aides (tecnicos and agentes de medicina), preventive health aides (tecnicos and agentes de medicina preventiva), and maternal and child health nurses (enfermeiros basicos de saade materno infantil). These workers will be the main personnel for the new, smaller health centers and the backbone of the primary level services. They will be trained in sufficient numbers to staff the rehabilitated and expanded rural health services infrastructure. National Programs 1.49 In an attempt to ensure adequate services and better resource management in key program areas, the MOH delineated and implemented national programs in several major areas of health care, with centralized management and strict therapeutic norms. Programs were designed and are being implemented in Environmental Sanitation, TB and Leprosy, Mother and Child Health (including Family Planning, and recently also the Expanded Program of Immunization), Malaria and Bilharzia, and AIDS and Sexually Transmitted Diseases. The MOH has also established over the years its own capacity for nutritional and epidemiological surveillance, health education, staff training, and statistics collection. The National Health Strategy emphasizes integration of the services and management of these programs into the mainstream of the overall MOH program. A number of parastatals associated with the MOH are in charge of general service and support activities such as equipment maintenance and general supplies. D. Country Assistance Strategy 1.50 IDA's Country Assistance Strategy (CAS), presented to the Board jointly with this operation, stresses the need for investment in human resources as key instrument in the country's long-term strategy. The objective of the CAS is to support the Government's program for poverty reduction through sustainable economic growth. In doing so, the CAS focuses particularly on the medium term development efforts directed towards human resources development and economic growth. Economic growth is fundamental to poverty reduction in Mozambique, because the country is too poor to rely only on redistributive policies for sustained poverty reduction. How growth is achieved will also affect poverty. In Mozambique, a poverty reducing growth pattern will involve a shift of resources and opportunities toward human resources and the rural areas where the poorest  -17- populations live. Recent government policy will facilitate this as the marked decrease in military expenditures releases resources for increases in the recurrent budgets for health and education services. E. Lessons of Past IDA Experience 1.51 The only previous IDA-financed project in the sector is the on-going Health and Nutrition Project (Health I). Implementation of Health I progressed at an unsatisfactory pace between 1989-92, having disbursed only about one-fifth of total funds (US$ 6.4 Million, one-third of which being simply the initial deposit in the special account) in contrast with the SAR projection of roughly 50 percent over the same four year period. In 1992/93, the project was substantially restructured to facilitate implementation and to address new sector priorities. 1.52 At the time the project was restructured, an estimated 70 percent of project funds had not yet been contracted. Moreover, some 15 percent of these uncommitted funds were considered unlikely to be spent within the remaining life of the project. The restructuring mission indicated to the government that before additional IDA funds could be made available under a proposed Health Sector Recovery Program, the implementation of Health I had to show significant improvements. In light of the recent important political events which have brought access to a previously unreachable countryside, and guided closely by the country's health strategy outlined above, the restructuring exercise emphasized a reallocation of resources from Maputo to the rural areas, with strong support for pharmaceuticals and training. Approximately one-fourth of the credit was re-directed for these purposes. Also, a preliminary costing exercise for activities proposed for the Health Sector Recovery Program yielded information on likely candidates for early financing within the objectives of Health 1. At the time of the appraisal mission, nearly 80 percent of the IDA credit had been formally (i.e., contractually) committed and more than 50 percent disbursed.  -18- Box 3: Causes of Implementation Failures in the Early Years of Health I Proiect Desizn and Preparation Issues: * The Health I proje(c was identified and prepared during a time when a sector strategy had not been ful/v formulated bh MOH. * Ar effectiveness, most components were at early stages of preparation. Few terms of reference Jor consultancies andfew procurement documents had been prepared, and much of the costing was still tentative. * Shortage of human resources to implement the project was not adequately taken into account, especially given the large numbers of implementing agencies involved. * Sonme of the components were included into the project with little participation (and sometimes even little consultation) by implementing institutions. * The large number of studies contained in the project was not compatible with the MOH's limited ability to absorb information being generated, let alone provide the necessary inputs to their irnplementation. Proiect Implementation Issues: * For most staff of the MOH, this was the first exposure to preparation of TORs, lists of acquisitions, tender documents, etc. * The turnover rate in the MOH was high, especially at senior levels. Few of today's' national directors were in volved in the preparation of thefirst project. As a consequence, the general level of cotmmitment to the project was low, as was knowledge of project details. * Various MOH depariments coexisted without sufficient coordination oreven the minimum exchange of information required for effective implementation of the project. * The MOF's procedures and time requirements for contract approval (averaging 2 months) compounded delays in the MOH's own cumbersome procurement procedures. * Procurement and disbursement arrangements adopted were not suitable for the project. * The Bank took too long to realize that the problems in the project would not correct themselves with time and that substantial reprogramming of activities would therefore be advisable.  -19- 1 .53 Lessons learned in Health I have Box 4: Heath I Accomplishments been applied in the design of the proposed Program. The first project's Health I Accomplishments delays in tendering have been countered by extensive planning and preparation of Supported the developmenr of the National Health tender documents during Program Sector Strategy and the Health Manpower preparation. Recognition of the Development Plan; importance of reliable and direct communication with the Bank led to the Supported the increase in efficiencv of central establishment of All-in-1 communications hospitals operations (on-going), with the MOH, which are being upgraded Provided advance financing for the purchase of and expanded now. Flexibility on the part equipment, primarilv' to be allocated to facilities of the Bank as to reprogramming of ofalthe Bank aeso s to retteproracommin oscheduled to be rehabilitated under the Health Health I resources to better accomplishSetrRce' Sector RecroversX Program, the project's objectives and to contribute to a longer term and broader view of the Financed the preparation 4f architectural designs sector's support and development for the construction of health centers, rural permitted greater responsiveness to hospitals, warehouses and training institutes to be borrower needs and to the changing financed bv IDA and other donors under the national situation. That flexibility also proposed Health Sector Recovery Program; contributed to improved donor coordination and will be especially Assisted in the stabilization of pharmaceuticals' important under the proposed Program. supply; and Provided advance-financing of health staff training originally programmned jor the Health Sector Recovery Program. F. The 1996-2000 Integrated Health Sector Prograni 1 .54 In recent years, the MOH has increasingly taken the lead in encouraging donor coordination with- in the health sector. The National Health Strategy (MHS) acknowledges the cricial importance of donor funding for the development of the health sector and the need to involve donors in the health planning and review process. The Ministry has held regular donor coordinatioin meetings since 1992, to ensure coordinated donor support to the implementation of the health strategy. The MOH has proposed the following principles to its donor partners: (a) The MHS will serve as the framework for all donor contributions to the sector and all donor support should fit within it. (b) Based on the MHS, the MOH will develop a five-year rolling program and an annual budget for recurrent costs. The Program will be discussed and updated annually with all donors and will fully reflect all donor support, emphasizing support consonant with the  -20- strategic plan. The investment program and the recurrent budget will represent a consolidation of the programs from the center, provinces, and districts. (c) For the recurrent budget, all donor support must be channelled to the provinces using a single set of planning, budgeting, disbursement and accounting mechanisms. (d) Procedures for procurement of technical assistance, civil works, pharmaceuticals, goods and services will be coordinated with the aim to gradually consolidate them. (e) Monitoring and evaluation procedures of donors (including formal audits) will be gradually unified and regular supervision coordinated along broad lines of activities. Box 5: Movement Toward an Integrated Health Sector Approach in Mozambique The Health Sector Recovery Program initially was prepared as a regular investment project with narrow objectives and scope. During project preparation, the MOH, IDA and other donors felt that the implementation of yet another individual project (adding to a list of over 120 current health projects) would impose a heavy burden on the capacity of the ministry. Moreover, the project would have perpetuated the provincial fragmentation of external assistance to the country. Also, because the IDA credit would have to be justifiable on its own, the project would inevitably focus on the types of sector activities which IDA finds palatable but which are not necessarily the highest priorities for the sector given existing commitments by other donors. The result would have been an unbalanced program, full of financial gaps in important activities which are usually neglected or avoided by donors. Even if we had produced a successful insular projecl, our impact would have been small, as is the case with some other such projects in the sector. Even the impact of the resulting sector program, the sum of all these insular projects, might well have been small, despite a sound sector strategy which has been developed over a period of overfive years in a continuous active dialogue with all major donors. Because the sector has a coherent and stable strategy, which is accepted by all major donors, it was not difficult for the Bank to come in as donor of last resort. During project preparation, the missions, time and again, prepared tender documentation for activities that were eventually taken over by other donors. In the end, having accepted the overall strategy, the Bank had no difficulty infinancing afew less palatable portions of the whole.  -21- II. THE PROGRAM 2.1 The ultimate objective of the National Fgure 2: Heath Sector Program 1996-2000 Health Strategy (MHS) is the improvement of the 90 health status of the population, in general, and a 80 n G decrease in infant and child mortality, in 70 n DONORS particular. MHS objectives are to be achieved 60 IDA through an increase in health coverage of the 50 population from the present 40 percent level to , 40 60 percent by the turn of the century, with better 30 quality of services provided. Through the 20 coordination of all major donors and the 10 government, the Program will finance a five-year 0 time slice of the MHS. 96 97 98 99 00 Year A. Summary of Program Objectives 2.2 The Program supports the same objectives as the Mozambican National Health Strategy, as outlined in the previous chapter and is focused on basic services, addressing urban/rural inequities, improvement of staff training and institutional development. Being sector-wide, the Program provides an operational framework for the overall Ministry of Health. In accordance with the sector's policy and strategy and under the overall coordination of the Ministry's Planning Directorate, MOH teams identified specific outputs and prepared the various Program components described in this chapter. The Program will address the following areas: (a) resumption of and improvement in the quality of health services provided so that the overall sector investment strategy yields a higher level of services, as the sector recovers, by: (i) rehabilitating and expanding the network of first level health facilities; (ii) rehabilitating and restructuring the network of rural hospitals, and rehabilitating the network of provincial and central hospitals; (iii) strengthening laboratory facilities in health centers and hospitals; (iv) assuring stability in the provision of medical supplies, pharmaceuticals and laboratory reagents; (v) supporting a national maintenance strategy in the sector; and (vi) supporting an institutional nutrition program for severely malnourished children and for in-patients; and (vii) supporting general provincial operations for health;  -22- (b) promotion and improvement of sector institutions, support services and sub-national health management systems, by: (i) establishing policies and procedures and expanding storage capacity aimed at improving the supply system for medical supplies and pharmaceuticals; (ii) improving the provincial health management system, in coordination with a decentralization of functions to the provinces; (iii) supporting and strengthening central administration, thus enabling national implementation of the Program; (iv) improving the sector's information system; and (v) supporting the development of sector policy, including systematic evaluations of the sector's program based on comprehensive consultations with ultimate clients; (c) development of human resources capacity, by: (i) reassessing and implementing a time-slice of the Health Manpower Development Plan; (ii) developing the national capacity for health personnel training; (iii) promoting continuing education of health workers; and (iv) enhancing university medical and health science training. B. Detailed Program Description 2.3 To address these objectives, the Program has three principal domains: (a) Health Services Delivery; (b) Institutional Support; and (c) Human Resources Development. Domain A. Health Services Delivery (US$ 256.2 million, IDA: US$ 62.8 million) 2.4 In this domain, the Program aims to support and improve health services delivery, primarily in rural areas, through: (i) (re)construction, rehabilitation, upgrading and maintenance of infrastructures and equipment in the health sector, which are essential for the provision of services at the first and second levels of health care; and (ii) stabilization of provision of pharmaceuticals, laboratory reagents, medical supplies, and food for in-patients. The goal is to improve the health status of the population particularly in areas where both health indicators and access to health care are below the national averages. This domain also includes all general provincial operations. (paras. 1.21 to 1.36) 2.5 The two infrastructure development components are: (i) Health Facilities Development and (ii) Rural Health Development Fund.  -23- 2.6 Health Facilities Development (US$ 81.6 million, IDA: US$ 16.6 million). The Program will (re)construct, upgrade and rehabilitate health facilities at all levels.9 2.7 The IDA credit will finance: (i) civil works for the rehabilitation of three rural hospitals (Mueda, Gurue and Buzi) and houses for hospital staff; (ii) medical equipment, kitchen and laundry equipment and furniture for the rehabilitated units; and (iii) motor vehicles and bicycles. Recurrent costs, including medical supplies, pharmaceuticals, laboratory reagents, and maintenance for the rehabilitated and (re)constructed units will also be financed by the credit through national programs. 2.8 The EU also supports major reconstruction works to the network of rural hospitals. Despite major planned contributions by other donors, a shortage of donor funds is expected for the higher levels of care. Other donor organizations, including AFDB, DANIDA, FINIDA, NORAD, Italian Cooperation, UNICEF, WFP and many NGOs, are heavily involved in the construction of basic care facilities. 2.9 Rural Health Development Fund (HDF) (US$ 30.7 million, IDA: US$ 15.2 million). The HDF'