Burkina Faso - Economic Management Reform Support Operation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20725 IMPLEMENTATION COMPLETION REPORT (IDA-3 1410) ON A CREDIT IN THE AMOUNT OF SDR 11 MILLION (US$ 15 MILLION EQUIVALENT) TO BURKINA FASO FOR AN ECONOMIC MANAGEMENT REFORM SUPPORT OPERATION July 19, 2000 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 1999) Currency Unit = CFA Franc (CFAF) CFAF 590 = US$ 1 US$ 1 = SDR 0.7372 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CET Common External Tariff EMRSO Economic Management Refonn Support Operation ERC Economic Recovery Credit DGI Direction Generale des Imp6ts GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries ICR Implementation Completion Report IDA International Development Agency IMF International Monetary Fund MIGA Multilateral Investment Guarantee Agency MOF Ministry of Economy and Finance MTEF Medium Term Expenditure Framework PASA Programme d'Ajustement du Sector Agricole PER Public Expenditure Review PFP Policy Framework Paper SAC Structural Adjustment Credit SECAL Sector Adjustment Loan SSA Sub Saharan Africa SYGADE Systeme de Gestion Automatisee de la Dette SYGASPE Systeme Integre de Gestion Administrative et Salariale des Personnels de 1' Etat TF Trust Fund UNDP United Nations Development Program VAT Value Added Tax WAEMU West African Economic and Monetary Union Vice President: Callisto Madavo Country Director: Hasan Tuluy Sector Manager: Charles Humpphreys Task Team Leader/Task Manager: Celestin Monga  FOR OFFICIAL USE ONLY CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 8 6. Sustainability 8 7. Bank and Borrower Performance 9 8. Lessons Learned 10 9. Partner Conmnents 11 10. Additional Information 19 Annex 1. Key Performance Indicators/Log Frame Matrix 20 Annex 2. Project Costs and Financing 21 Annex 3. Economic Costs and Benefits 22 Annex 4. Bank Inputs 23 Anex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   ProjectID: P058282 Project Name: ECONOMIC MGMT REFORM Team Leader: Celestin Monga TL Unit: AFTM4 ICR Type: Core ICR Report Date: Julv 19, 2000 1. Project Data ATame: ECONOMIC MGMT REFORM L/CITFNumber: IDA-31410 Countrv/Department: BURKINA FASO Region: Africa Regional Office Sector/subsector: KN - Macro/Non-Trade KEY DATES Original Revised/Actual PCD: 07/15/1998 Effective: 12/29/98 Appraisal: 00/00/0000 MTR: Approval: 11/05/1998 Closing: 06/30/99 Borrower/lmplementing Agency: BURKINA FASO/THE MINISTRY OF ECONOMY; BURKINA FASO/PLANNING AND FINANCE Other Partners: STAFF Current At Appraisal Vice President: Callisto Madavo Jean-Louis Sarbib Country Manager: Hasan Tuluy Hasan Tuiuy Sector Manager: Charles Humphreys Charles Hurnphreys Teanm Leader at ICR: Celestin Monga Miguel Saponara ICR Primary Author: Jerome F. Chevallier; Jean-Claude Tchatchouang 2. Principal Performance Ratings (HS=Highly Satisfactory,S=Satisfactory, U=Unsatisfactory,HL=Highly Likely, L=Likely, UN=Unhkely, HUN=Highly Unlikely, HIU=Highly Unsatisfactory,H=High, SU=Substantial, M=Modest, N--Negligible) Outcome: S Sustainability: L Institutional Development Impact: M BankPerformance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Rationale and Objective of the Economic Management Reform Support Operation (EMRSO). The overall objective of the credit was to help Burkina Faso to partially offset the reduction of revenue resulting from the adoption of the new CET regime, while other reforms in revenues and expenditures were to restore relative fiscal stability. The credit would also provide support to the Govemment's efforts to improve revenue mobilization from resources other than trade taxes, and achieve improved prograrnming and management of public expenditures, in particular, in the social sectors and poverty reduction programs. Consistent with Bank policy governing adjustment lending (R96-55, R80-122), the credit rationale was to smooth the transitional cost of structural reforms. It was determined that without extemal financing the revenues lost due to substantial reduction in extemal tariffs and the temporary disruptions associated with the implementation of the WAEMU's new CET would lead to insufficient funding for the social sectors, lower levels of investment, and lower living standards and future growth. In helping to mitigate these costs, the EMRSO would contribute to the social sustainability of reform programs. The proposed credit was an integral part of the Bank's strategy to assist Burkina Faso in maintaining macroeconomic stability and financial sustainability, and in gaining competitiveness. The policy measures supported by the credit were considered essential to the enhancement of Burkina Faso's growth prospects. The reforms were also necessary to create an environment conducive to private sector-led economic growth while helping to ensure an orderly transition toward greater regional and global integration. Also, by focusing on revenue mobilization and the reallocation of public resources towards two priority areas, namely education and health, the operation was expected to ensure that these two key sectors would not suffer from budgetary cuts during the transition period and to have a direct and positive impact on poverty alleviation. Design. The EMRSO credit was a well-prepared adjustment operation designed on the High Impact Adjustment Lending model of the Africa Region. It was proposed as both a one-tranche operation and the first of a series of such operations related to up-front policy reforms to be implemented prior to Board presentation. Specific policy actions supported by the EMRSO included: * lowering the maximum tariff rate from 31 percent to 25 percent; * lowering the statistical tax from 6 percent to 4 percent; * abolishing the special intervention tax; * finalizing the automation of the customs-clearance procedures for imports; issuing the list of public enterprises to be privatized/liquidated; * issuing budget guidelines for the preparation of the 1999 budget, including sectoral targets for health and education; * strengthening public expenditure programming and management, particularly in the social and basic infrastructure sectors; * finalizing the computerization of six additional border customs offices; and * introducing withholding tax at customs and on purchases from wholesalers to be applied against the profit tax. The use of a single tranche operation was justified by Burkina Faso's good track record in -2 -  implementation and the coherent medium-term program for public finance reform. The main advantage of single-tranching with ex-ante conditionality was that it enhanced political acceptability of the reform program. It was expected that, after one or two of such operations, the Govemment would be able to formulate comprehensive medium-term programs in key sectors that could be supported either by ordinary multi-tranche adjustment operations or by a progressive shift to budgetary support. To guard against the risk of launching a series of one-tranche operations with different focuses, which would eventually lead to a reform process lacking coherence, the EMRSO also provided a clear indication of links with future adjustment operations. Policy areas to be covered in the follow-up credit (SAC III) were identified, and the progress benchmarks expected to precede it were identified. A medium-term policy matrix was attached to the Board document. The four triggers for proceeding with another single tranche adjustment operation were defined as "substantial progress" in the following policy areas: (i) adoption of a medium-term expenditure framework for the six key ministries identified in the 1999 budget guidelines, and completion of a thorough public expenditure review in education and health (according to the agreed steps and timetable defined during negotiations); (ii) implementation of the newly adopted "reform of the state" consistent with the MTEF approach, especially its provisions on the decentralization of the use of a share of public resources, local recruitment for contractual positions in education and health, and merit-based promotion system at the national level (steps and timetable defined during negotiations); (iii) implementation of the rural development strategy currently under preparation (steps and timetable defined during negotiations), (iv) implementation of the privatization program as of December 1998, according to the schedule in the Policy Framework Paper for 1998-2000. The main risk facing the program was identified as political: the reform agenda proposed for a relatively short period of time could encounter some political resistance heightened by the presidential elections, scheduled for November 1998. The operation was prepared over a seven-month period. The borrower's input was substantial, as the Government carried out several studies and public finance management and tax exemption prior to the appraisal mission. The Bank also provided background analytical work on the budgetary implications of the regional integration process for Burkina Faso. 3.2 Revised Objective: Project objectives remained unchanged and project design was not modified. 3.3 Original Components: The reform program supported by EMRSO had three major elements: (1) public finance reform, including progress towards the convergence to a Common External Tariff (CET), which was to be introduced on January 1, 2000 by all members of WAEMU; (ii) rationalization of public expenditure management and strengthening of public adrninistration; and (iii) continued implementation of public enterprise reform. 3.4 Revised Components: Components were not modified. -3 -  3.5 Quality at Enl?y: The quality at entry is rated satisfactory. EMRSO had a narrow objective, which was directly linked to the post-devaluation country assistance strategy (1994) emphasizing economic stabilization and to the 1996 CAS. EMRSO was fully justified because without budget support, Burkina Faso would not have been able to reduce its custom duties in preparation for closer regional economic integration, which was an important aspect of its development strategy as stated in the 1998-2000 PFP. The design of EMRSO took into account the lessons from previous adjustment lending in Burkina Faso. One of the lessons from the 1991-94 SAC I and ERC experience is that single tranche adjustment operations may be more suited to a country like Burkina Faso, where capacity for implementing reforms is weak, and political opposition to important elements of the reform program lingers. Unexpected difficulties in specific reform areas slowed down the whole reform process in the case of SAC I, which was a comprehensive and ambitious undertaking. On the other hand, the success of the ERC, a single tranche operation, was largely due to its simple design. Accordingly, the Bank opted for a series of single tranche adjustment credits to underpin an expanded structural reform program described in the 1998-2000 PFP. 4. Achievement of Objective and Outputs 4.1 Outcome,/achievement of objective: The program successfully achieved its objectives and has maintained them after the closing date (June 1999). This assessment is based on the following factors: * the new CET with lower external tariffs was successfully introduced on January 1, 2000 and all members of WAEMU, including Burkina Faso, have implemented it; * the EMRSO helped offset the loss of revenues resulting from the lowering of custom duties and the financial gap was timely funded; and * the EMRSO has stimulated the Govenmment's commitment to pursue public finance reform; as a result, total Govemment revenue as a percentage of GDP has increased steadily since 1997. The four triggers for proceeding with another single tranche adjustment operation were met, as described below. 4.2 Outputs by components: Public Finance. The performance of Govemment finance in 1998 was consistent with program targets, especially conceming revenue. Total revenue amounted to CFAF 199 billion (13.1 percent of GDP), exceeding the program's objective of 13 percent of GDP. Government revenue increased to 13.5 percent of GDP in 1999 (15 percent, including taxes paid by the treasury related to public investment activities), compared with a program target of 14.3 percent of GDP. Rating: Achievement of the Public Finance component was fully satisfactory. - 4 -  Box 1. Key Fiscal Refomns Under IDA - and Fund-Supported Programis, 1997-2000 Actioni Status Fiscal reforms Introduce WAEMU's product classification Done in April 1999 Eliminate special intervention tax and introduce WAEMUs CET, Done, Rate reduced to 20 percent in January 2000 lowering maximum tariff rate from 37 percent to 25 percent Eliminate special VAT payment procedures for importers of raw Done materials and for enterprises registered under the investment code Eliminate all remaining exeviptions on public coCtracts and enhance Done in June 1999 monitoring of taxation for foreign-financed proAe fes Complete computerization of tax revenue collection, enhance monitoring Done in 1999 of large enterprises, and iniProve recovery from defaulters Introduce a withholding tax at sourcu on imports and purchases from Done in January 2000 wholesalers and producers Introduce a withholding tax at source on ayment for services Done in January 2000 Reduce the business 4rofit tax from 40 percentto 35 percent Done in 2000 Computerize wage and public investment expenditure Ong6ing Conducst review ofpublic invest6.ent Conducted in 1998-99 Ht3nnonize .the budgetary systemn within the WAEMU framnework Done Table 1e Burkira Faso: output and Publc Finance Indicators, 1996-2002 1996 1997 1998 1999 2000 2001 Eat. Prog. Est. Prog Est. porno pRw.e Proj (Annual pei cetage changed a unless oth.nrwiie sp12 2f1ed) GDP and pnoces GDP al constalt prnces 6.0 4 8 6-2 6.2 5.3 5.8 5 7 5.7 6.6 GDP deraior 4.2 2 2 - -32 -.8 -2 1.7 -1.4 - 5 2 0 2.3 Consumer price(arutual avera3ge) 6.1 2 3 2.5 5.0 2.3 -1. 1S l.S 2.0 Consumer plnces (ded fipd) 6.9 -0.1 2.5 1.0 2.3 0.7 1-5 2 04 0 Cenrtal govelrimnal fblance3 Reenueall 12.3 13.1 13,0 13.1 14,3 15.0 137 1414 14.5 Domestic pnmau y exnenditioreiadanetlanding 10 7 11.9 12a2 12.6 14n1 14.7 139 1;9 1i. Overall dsca balance, enueding grtnes -9.0 -1 0.2 -1s 0 3 -9 S -10.0 -c12s3 -i 0.4 -s1 e0 -9 7 overall fuscal balst, including gtoss 2 -0.6 -3 2 -3fu -2.9 Au6 -3.4 -5 1 -3 0 -3.5 Primary balance (dficit .)3/ 1 7 1 1 ns 9 s 0 2 0.t -0 2 0 4 0.S cuirrent primary balance 31 3.0 4 0 3 .S 3.6 4.2 4cS 3 9 4 3 4.9 Nominal GDP (in billimesof CFA ftancs) 1,29S 1,390 I,S1S 1,s22 1,629 1,589 1,74S 1.713 1.869 sources: Buddacat,6 authonitiw3; and staffestinate3 and pnj.etionst 1/ From 1999 on, revenue includes taxes paidby conitractors on fomegnl-firianced public investments rising checks issued by the treaury, for an arn.unt eq,wvrdent to about l S percent or GDP, 2/ For the pwjection ye.rr t999-2002, the grans expected to cover the financing gap at not included. 31 C omnnitment bist, -xcuding grants and boraign-finanecd prolects. Public Expenditure Management and Public Administration. Data indicate that efforts have been successful in redirecting domestic resources toward human capital formation. However, the bias introduced by recent large, foreign-financed, infrastructure projects has limited the increase in the share of social sectors in total expenditure. In 1999, current expenditures were broadly in line with program targets, despite a wage bill, which was about 6 percent higher than initially expected, mostly due to the wage scale adopted in January 1999 when the new merit-based promotion system was introduced. Progress was achieved in reallocating spending toward social sectors. On a commitment basis, excluding common budgetary expenditures,but including foreign-financed capital expenditures, the share of expenditures on primary education in total budget expenditures increased from 9 percent in 1996 to 11.5 percent in 1998, thereby reaching the program target. However, the ratio declined to 10.8 percent in 1999, reflecting the large spending in infrastructure investment for other sectors. - 5-  Excluding foreign-financed investment, progress was more marked, as the share of expenditures on primary education increased from 14.5 percent in 1996/97 to 16.9 percent in 1999. For health, the share over total expenditures remained stable over the period when foreign-financed investment is included. The share, excluding foreign-financed investment, increased however from 11.3 percent in 1996 to 13.9 percent in 1999. In confonmity with the action plan presented in the policy matrix of the EMRSO, the authorities have greatly improved their budgeting and expenditure practices over the past years. A comprehensive public expenditure review in 1995 and a public expenditure incidence analysis in the education, health, and water sectors in 1996 and 1997 contributed to the understanding of equity issues, although not of the rationale and efficiency of expenditures in those sectors. Following the adoption of the HIPC Decision Point document of the original HIPC Initiative in November 1997 and the EMRSO by the Boards of the Bank and the Fund, the Govermment defined budgetary monitoring indicators; adopted a programn for regular consultations between the Bank and the authorities on all budgetary issues; and established a multi-year program to enhance staff capabilities on PER-related matters. An interministerial committee was set up to coordinate the subsequent work on public expenditure management. As a result of these efforts, the 1999, 2000, and 2001 budget guidelines were significantly improved: in conformity with the HIPC social targets, the share of actual public expenditure for health and education in the budget has increased; a shift to performance budgeting was made for six key ministries (Health, Finance, Interior, Defense, Basic Education, and Secondary/Technical education), with outcome indicators to monitor efficiency, and increased accountability for line managers. A Medium-Tenm Expenditure Framework for 2001-2003 is currently under preparation. It will be presented to Parliament in October 2000 with the 2001 budget bill. More work is still needed to analyze the reasons for Burkina Faso 's inefficiency of public spending in relation to comparable poor countries (service quality is low, unit costs high and outcomes disappointing). The Government recognizes this weakness and completed in late 1999 and early 2000 a series of PER studies in social sectors. Findings of these studies should guide Government efforts in the context of the implementation of the Poverty Reduction Strategy Paper (PRSP). A Participatory Poverty Assessment (PPA) is also to be designed to shed light on issues of expenditure efficiency from the point of view of beneficiairies. Implementation of the public administration reform approved in 1998 has progressed well. The merit-based promotion system is being gradually extended to all ministries. In the education and health sectors, contractuals are being recruited locally, which should enable the two concemed ministries to extend their reach at a lower unit cost. A study is underway to explore practical steps for an efficient decentralization of public spending. Rating: Achievement of the Public Expenditure Management and Public Administration component is rated satisfactory. Box 2. Civil Service Reform Approve and implemeni law on civil service end-1998 Approved in April 1998, and entered into force end-1998 Approve and implemeni master plan for institutional refornis and modernization of public administration including: Introduction of merit-based promotion system Done in January 1999 Larger recourse to contractual staff Ongoing since 1999 Approve law on decentralization and deconcertration Done in December 1998. Implementation ongoing Introduce a single personnel file, encompassing those of the Ministries of Done in March 2000 Finance and of the Civil Service -6 -  Public Enterprise Reform. Implementation of the public enterprise reform component was slower than expected. The 1998 tranche of the program was not fully implemented according to the schedule in the policy matrix. The liquidation of five public enterprises was delayed, as well as the call for bids for the hotel company. The 1999 tranche was also delayed. The preparatory work for the telecommunications regulatory framework was not initiated on time, making it impossible to grant cellular telephone licenses before the end of 1999. A regulatory agency for the telecommunications sector was put in place in October 1999, but the recruitment of the investment bank expected to bring ONATEL, the telecommunications company, to the point of sale was not achieved in 1999. The liquidation of FASO FANI, a textiles company, was not completed. The privatization of Air Burkina was further delayed. Finally, the strategic study on the remaining portfolio was not launched in 1999. Rating: On the basis of the above, despite progress made in several areas, achievement of the public enterprise component is rated unsatisfactory. Box 3. Progress on Public Enterprise Reforms and Privalization Strengthen institutional framework for privatization, so as to speed up Done process Comnplete ongoing privatization of 41 enterprises Privatize 21 enterprises Done Put up for sale or liquidate by Dec. 1997 8 enterprises Done Put remaining 12 enterprises up for sale by March 1998 Done with some delays Review the strategy for the remaining enterprises in government portfolio Done Select four new companies for privatization in 1998 Done In teleconmmunications, grant two cellular phone licenses, and Done in April 2000 operationalize regulatory agency Done in March 2000 Approve privatization and liberalization of energy sector Done 4.3 Net Present Value/Economic rate of return: Not applicable 4.4 Financial rate of return: Not applicable 4.5 Institutional developmient impact: Implementation of the reform program supported by EMRSO has contributed to a modest development of institutions so far. However, it has laid the bases for a major overhaul of public administration, which is a prerequisite for a sound development of institutions in the public sector. Under the ongoing reform of public administration, the stage has been set for linking budget allocations and staff promotions to performance. Steps have been taken to modernize personnel management in several ministries. The budget process is becoming more results-oriented with the introduction of a rolling Medium Term Expenditure Framework. On the decentralisation agenda, a general framework was adopted in the 1998 law, which created some independent local govemments: the province (45) and the city ('commune"). A first set of urban communes and all provinces have been identified by the law. Villages, i.e. communities that will not be able to become a commune, will be administrative entities within the administrative province, under the - 7 -  direct control of the State representative (High Commissioner). The law provides explicitly for the creation of additional communes, in urban and rural zones, if these can present a sustainable budget. Devolution of powers from the State to local governments has been outlined, but is not effective yet. The State retains control on these entities, ex-ante or ex-post, depending on the instance, notably on financial matters. The 1998 law provides that decentralization will be effective in 2003. As a first major step to make decentralization work, the Government is currently reviewing the necessary changes in budget management and procedures that would allow provinces, and cities to effectively function as autonomous entities. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of governmnent or implementing agency: Besides the usual impact of climatic variations, no particular factor outside the control of Government directly affected implementation of the program or its outcome. The risk related to a possible decline of exports due to unfavorable commodity prices or short-temi economic evolution in East Asia did not materialize. 5.2 Factors generally subject to government control: The political situation in Burkina Faso deteriorated following the death of a joumalist at the end of 1998. A report by an independent commission implicated people close to the President, including members of presidential security forces. The Govemment was slow in taking action, which unleashed demonstrations and civil unrest in some urban areas. Its credibility in implementing reforms, particularly those aimed at improving governance, was somewhat undermined in late 1998 and in early 1999. In May 1999, the Government issued a major study on the long-term sources of growth and the competitiveness of the Burkinabe economy. The study was prepared by a local team with help from international consultants. It showed that serious constraints were hampering development, including a low degree of openness, high input and factor due to inefficient public monopolies, and low labor productivity due to poor education and health indicators. The study served as the basis of a workshop on competitiveness held in Ouagadougou in May 1999 with the participation of the Government, the Bank, donors, the private sector and civil society. A very lively and candid discussion ensued at the workshop, which proved to be a very successful forum for all stakeholders to debate issues the country is facing and ways to address them. Following the workshop, the Minister of Economy and Finance presented the findings at a special full day cabinet meeting convened by the Head of State. Beyond its policy findings and conclusions, the study has demonstrated the benefit of a participatory process where civil society can play a critical role in defining the development agenda. Fostering such a process gives all stakeholders the opportunity to develop ownership and commitment to the necessary reforms. It has led to a much more dynamic and transparent environment in developing the CAS under preparation, a new private sector development strategy and the Government's Poverty Reduction Strategy Paper. 5.3 Factors generally subject to implementing agency control: Not applicable 5.4 Costs and financing: Not applicable 6. Sustainability 61 Rationale for sustainability rating: -8 -  The sustainability of the reform program supported by EMIIRSO is likely In previous phases of the public finance reform program, ownership was weak, resulting in long delays in the implementation of difficult measures. The organization and functioning of the civil service remained in large part influenced by Burkina Faso's socialist past. The EMRSO and the subsequent adjustment operation (SAC III) have contributed to improve the policy dialogue with the Bank. The influence of reformers in Government has been reinforced by success in the implementation of the WAEMU's CET. While it is highly unlikely that any future Government would take steps to undo the reforms already in place, implementation of the remaining structural reform agenda will be a test of the country's leadership and willingness to adopt policies needed to sustain growth and significantly reduce poverty, such as adopting education and health policies to raise human capital, improving the business environment, developing infrastructures to decrease input and transaction costs. Overall, budget management is becoming more results-oriented with the introduction of a rolling three-year MTEF. However, sustainability of the public finance reform program in Burkina Faso also hinges on the country's capacity to attract foreign aid and to generate increased exports and Government revenues needed to fund the important expenditure program ahead. 6.2 Transition arrangement to regular operations: A third structural adjustment operation in an amount of SDR 18 million (US$ 25 million) was approved by the Bank Board in December 1999. The reform program supported by the new operation had four major elements: (i) establishing a tax-friendly business environment through the further lowering of tax ant tariff rates; (ii) improving the efficiency of public expenditure by extending the MTEF to new sectors; (iii) increasing the transparency of budgetary procedures; and (iv) enhancing competitiveness through an appropriate regulatory framework for utilities, including telecommunications. These elements are very much in line with the medium-term reform program laid down in the EMRSO policy matrix. 7. Bank and Borrower Performance Bank 7.1 Lending: Bank performance from identification to completion was satisfactory The reform program supported by the EMRSO was formulated through intensive consultations between the Government, the IMF and the Bank. The Bank team effectively assisted the Borrower in identifying the main policy issues and in designing the reform program to address them. As described earlier, the team also took into account lessons from previous experience in single tranche operations. 7.2 Supervision: During program implementation, the Bank maintained a close dialogue with the Borrower and its main partners. Bank staff visited Burkina Faso five times in 1999 to supervise program implementation, participate in the public expenditure review and prepare the following adjustment operation. The Bank helped Government officials realize that in the absence of vigorous reforms, Burkina Faso would not make significant progress in alleviating poverty. Through its policy dialogue, the Bank also carefully nurtured ownership of the reform program in the country and contributed to raising awareness of the challenges and opportunities of regional integration. 7.3 Overall Bank performance: Rating: Based on the above, the Bank's performance is rated satisfactory -9-  Borrower 7.4 Preparation: Government performance in the preparation of the operation was satisfactor.y The Ministry of Economy and Finance funded several important background analytical work and study tours in the United States and in Ghana for its core team, This helped prepare the reform program and the key policy measures supported by EMRSO. 7.5 Government implementation performance: Overall, the Government has shown strong commitment to the reform program, despite delays in the implementation of the public enterprise component. The Government performed well on the macroeconomic stabilization front, as well as in the implementation of policy measures to improve public expenditure management and public administration. The Government also implemented all the reform measures specified in their Letter of Development Policy, albeit with some delays in the privatization program. There was a strong ownership of reforms supported by EMRSO by the Minister of Economy and Finance and strong support by key sectoral ministries and some other donors (IMF, European Union, Switzerland, and the Netherlands). The EMRSO accounts are currently being audited in the framework of the preparation of the 1998 budget execution report. 7.6 Imnplementing Agencv: Performance of the implementation units was adequate. The three major divisions in the Ministry of Economy and Finance in charge of the project (Secretariat Technique pour la Coordination des Programmes de Developpement Economique et Social, the Direction Generale des Imp6ts, and the Direction Generale du Budget) achieved their goals as stated in the program. 7. 7 Overall Borrower performance: Rating: Overall, Borrower's performance is rated satisfactory. 8. Lessons Learned Two key lessons leamed from the design and implementation of the EMRSO are: (i) the timing for disbursement has to be consistent with the Government budget cycle and its financial plan; and (ii) donor practices that tend to favor project financing outside the Government budget must evolve. Timing. External financial assistance is more effective when made at the beginning of Government's fiscal year, so that the support is known in advance to be available and can be used as a basis for making domestic budget management more predictable. Single-tranche operations are efficient and effective, but should be tied more to the budget cycle as their purpose, in this case, was to provide compensatory financing for a reform program that was well defined in advance. The EMRSO, approved on November 5, 1998, was for an amount of SDR 11 million (US15 million equivalent). It was declared effective immediately and the single tranche was released in December 1998. The credit was mostly used to finance the end-of the year financial gap. Adjustment operations would be more effective if the financial resources were made available to the Government at the beginning of their fiscal year and included in budgetary planning. Project Financing. Public financial management reform, which was central to the EMRSO, is limited by donor practices of tying their financing to specific projects that are administered outside the usual budgetary system, and which transit through the investment budget. Such practices tend to delay the move towards performance budgeting, and help eliminate distortions created by the current dual budgeting system, where donor-funded projects drain capacity away from the Government. - 10-  The decision to channel a larger share of Bank assistance through the budget, coupled with an intensified dialogue on public finance management and the use of public funds, may help improve the budget process substantially. This approach would require, as a foundation: (i) a set of well prepared program budgets in all key sectors (education, health, rural development, and infrastructures) within a medium-term expenditure framework which is consistent with Government objectives and priorities; (ii) the implementation of public finance reforms aiming at improving accountability, and the auditing and evaluation system; and (iii) Government commitment to delegation of responsibilities, greater decentralization of budgetary procedures while maintaining sound management of public finance. Such an approach would be consistent with the PRSP and HIPC Initiatives, as it would help achieve poverty-oriented results through prioritization of public expenditure and the use of performance indicators. Consistent with the CDF, budgetary support operations would provide the instrument to link financial inputs to desired outcomes, and would redirect the Bank's administrative resources towards strategic advice and knowledge-based assistance. 9. Partner Comments (a) Borrower/implementing agency: Below is an implementation report received from the Ministry of Economy and Finance in November 1999. Implementation Report 6. The second structural adjustment credit (SAC II, known as EMRSO) for SDR 11 million or US$15 million), was adopted on November 5, 1998. Its primary objective was to support the country's global adjustment program described in the 1998-2000 Policy Framework Paper. It was intended to support Burkina Faso in its West African regional integration process, with the entry into force on January 1, 2000 of a CET [common external tariff] adopted at the level of the WAEMU, and to improve the daily management of the economy and public finance, in accordance with the medium-term development prospects defined by the Government in the 1998-2000 PFP. More specifically: (i) the regional integration component involved adoption of the WAEMU's convergence criteria; and (ii) the component having to do with management of the economy and public finance involved mobilization of resources, management of Govemment spending, and improving statistics. Accomplishment of the Primary Macroeconomic Objectives * Restoring Economic Growth 7. During the 1994-98 period, the macroeconomic objectives were generally achieved. Real GDP increased at an average annual pace of 3.6 percent from 1985 to 1998, rising from CFAF 663.1 billion to 1,056.3 billion. At first, between 1985 and 1990-91, the performance of the GDP was marked by repeated phases of growth followed by recession. The economy is highly dependent on the primary sector, mainly agriculture. During that time, weather conditions were irregular, thereby affecting agricultural production, and the performance of that sector largely determined the overall growth in GDP. 8. From 1991 to 1994, the average annual growth rate was 1.3 percent. Although this situation can be attributed to a gloomy intemational economic environment and unfavorable world prices for raw materials, the causes were more deep-seated. They include the following: a steady decline in the terms of trade during this period, reflecting the loss of economic competitiveness; poor implementation of the reforms required under the Structural Adjustment Program, which also forced the economic system to" - 11 -  contract"; and most importantly, rumors and expectations of a CFAF devaluation in 1993, which were not conducive to establishing a climate of confidence for investors. Following the January 1994 devaluation, real GDP declined by 1.2 percent, reflecting a drop in the secondary sector of 2.4 percent and in the tertiary sector of 2.7 percent. This reduction was mainly attributed to a contraction in domestic demand linked to the lower purchasing power of households and to the wait-and-see attitude adopted by economic operators. 9. Since the devaluation, however, trends seem to point to a growing expansion in GDP, with increases of 4.1 percent in 1995, 6.2 percent in 1996, 5.5 percent in 1997, and 5.7 percent in 1998. Although the primary sector continues to be the engine of economic growth, the other two sectors are not lagging behind. Price Trends 10. After the price increase in 1994 due to the mechanical effect of devaluation, the consumer price index rose at a steady but slackened pace. Inflation was 6.1 percent in 1996, 7.3 percent in 1997, and 4.9 percent in 1998. The 1998 rate can be explained by the 1997 harvest, which was smaller than anticipated and thus drove up prices of farm products. * Public Revenue 11. Since 1994, Government finance has improved as a result of increased budget revenue and effective Government spending controls. From 1996 to 1998, current revenue increased by 24 percent, and the share of tax revenue on average accounted for 92 percent. Despite these promising results, the tax ratio stagnated at 12 percent of GDP, somewhat higher than in 1990, as did the ratio of the Government's own revenue to GDP, which stabilized at 13 percent. A change in the structure of tax receipts occurred, however, as taxes on goods and services went from CFAF 29.9 billion to 54.6 billion between 1996 and 1998, for a 82 percent rise, while taxes on foreign trade increased by only 5.5 percent in those two years. The increase was irregular to boot, since that revenue rose by 13.6 percent from 1996 to 1997, but then declined by 5.5 percent in the 1997-98 period. Thus the share of fiscal receipts from international trade dropped from 50.8 percent to 43.5 percent of fiscal revenue between 1996 and 1998. 12. Although grants have always been at a relatively high level, averaging 27 percent of total revenue between 1985 and 1995, with the exception of 1989, their growth was sharpest in 1996 when they soared by 86.8 percent in comparison to their 1995 level. They accounted for 29.6 percent of total revenue in 1998, as compared to 35.5 percent in 1996. The decline recorded was in grants to the Treasury and not in project grants, which were 76 percent of the total in 1998, as compared to 69 percent in 1996. * Public Expenditures 13. As for expenditures, a real improvement was not observed until 1994, since between 1990 and 1994, total expenditure rose by 73.4 percent, current expenditure by 54 percent--despite the fact that the wage bill was brought under control--and capital expenditure climbed by 111 percent. It was not until 1995 that the budget ratios for Government spending showed an improvement. By 1998, the wage bill accounted' for only 45.5 percent of current expenditure, but this is still higher than the convergence criterion of the WAEMU, set at a maximum of 40 percent. At the same time, current expenditure went from 11.6 percent of GDP in 1995 to 10.4 percent in 1998. 14. During the 1996-1998 period, a considerable effort was made to increase capital expenditure financed from the Government's own resources, from CFAF 15.7 billion to 47.7 billion. As a share of total - 12 -  investment expenditure, it went from 13 percent to 29 percent between 1996 and 1998, and, expressed as a percentage of GDP, it moved from 1.3 percent to 3.1 percent. This outcome is attributed to considerable progress made in budget savings. 15. Budget savings had declined steadily from 1985 to 1994, from CFAF 14.2 billion, or 2.1 percent of GDP, to -22.3 billion, or 2.2 percent of GDP. From 1995 to 1998, however, budget savings rose from 0.6 percent to 2.7 percent of GDP. As for the Government deficit on cash basis, the growth from CFAF 15.1 billion to CFAF 46.5 billion between 1996 and 1998 is due to the evolution of capital expenditures, which recorded increases of 26.7 percent in 1997, and 10.8 percent in 1998, and to constant efforts to reduce payment arrears. * Public Debt and PavmentArrears 16. The outstanding debt has increased steadily since 1985, and even though it went down by 2.5 percent in 1998, it is still at around 52.4 percent of GDP, that is, CFAF 793.1 billion, as compared to 178 billion in 1985. This reflects an average increase in the outstanding debt of more than 12 percent a year. Burkina Faso, however, has received several large debt cancellations: one involving CFAF 660.2 billion in 1989 under the Dakar initiative; and another one valued at 70 billion following the devaluation, part of the Dakar II initiative. Between 1995 and 1998, the average annual growth rate was 4.1 percent for the external debt and 7.5 percent for the internal debt. 17. Despite fluctuations due to various debt reschedulings, the debt service to GDP ratio increased by an average of 7.8 percent a year from 1985 to 1998, evolving at a slower pace than the outstanding debt. Borrowing terms have evolved in the direction of more concessionary loans. The debt service did not exceed 3 percent of GDP, except in 1995, prior to the Dakar II initiative. As a percentage of current revenue, the average from 1995 to 1998 was at around 21.3 percent. Although these levels are still "acceptable," they need to be carefully monitored, since not only is budget revenue still relatively unstable, but also the debt services weighs heavily on the Government budget. 18. Although the external debt service is currently higher than the internal debt service, the gap is not as large as in the previous situation. More restrictive and less concessionary lending terms on the domestic debt explain this trend. The ratio of the external debt service to exports, however, has tended to improve since 1995, moving from 21.2 percent to 15.5 percent in 1998. This is an encouraging development, since it has been a steady trend, and even though the 1998 performance is attributed to a boom in exports, (+36.5 percent), this downward trend is expected to continue. 19. Arrears on the extemal debt have been paid up in full since 1996, with the exception of a sum left pending on loans granted by Libya and the former USSR for less than CFAF 5 billion. As for arrears on the intemal debt, there too the situation has improved, since they have been stabilized at CFAF 16 billion since 1997. Structural Reforms * Impact of the WAEMU 20. Burkina Faso is participating in the integration process ihat was initiated in the WAEMU in 1994. One of the key steps in this process has to do with establishing a customs union in 2000. With this prospect in mind, a transitional preferential trade regime and a schedule of intermediate steps for introducing the CET have been adopted. Accordingly, effective July 1, 1996, the Government adopted a 30 percent - 13-  reduction in import duties on industrial products from approved countries, a measure exempting unfinished products and traditional arts and crafts from all taxes and duties applied on entering member states, and a 5 percent reduction in import duties or fees on nonauthorized products. On July 1, 1997, the reduction on authorized industrial goods was raised to 60 percent. It was further increased to 80 percent on July 1, 1999, and will be at 100 percent as of July 2000. 21. The current fiscal system has four categories of duties and taxes, as follows: a customs duty levied at a uniform rate of 5 percent; an import duty with three rates, corresponding to different categories of products (0 percent for category 1, 4 percent for category 2, and 26 percent for category 3); a special intervention tax of 2 percent; and, a statistics tax of 4 percent. These last two taxes are applied to all imports, since they are for services rendered. Initially, the tax and duty base was the CIF value of imports, but the 1998 appropriation law expanded the base to include customs duties for computation of certain taxes. 22. With implementation of the CET, the tax system will comprise four categories of products and four customs duty rates, at 0, 5, 10, and 20 percent. The CET will also apply a 1 percent statistics tax. In the meantime, Burkina Faso, following the example of all. the other countries, received special authorization to apply intermediate rates. Hence, from July 1, 1998, to June 30, 1999, it has applied a maximum customs duty of 30 percent (i.e., a 1 percent reduction in customs duties, strictly speaking). It has applied the new WAEMU categories since January 1, 1999, and it applies maximum customs taxes of 0, 5, 10, and 25 percent. This reflects a six-point differential in comparison with the current highest rate in the Union. 23. The adoption and implementation of these various measures are expected to result in a decline in fiscal revenue. Simulations have shown that the lost revenue would account for about 1 percent of GDP for the first two years the CET is in force, and for 2 percent for the third year. The impact of the new customs tariff could be considerable during the 1999-2002 period, even after reduction of the debt service under the HIPC [heavily indebted poor countries], estimated at 1.2 percent of GDP. * HMobilization of Government Resources i) Enlarginzg the tax base 24. The Government has taken steps to expand the tax base. To fight tax evasion, it promulgated a law (Law N38/98/ADP of July 30, 1998) to increase collections from that date to the end of December. It covers withholding at the source, the customs band, [cordon douanier], and purchases from wholesalers, to be applied against profit taxes. Draft texts have been prepared and are expected to be submitted to the National Assembly in 1999. The withholding at source is scheduled to be applied in July 2000. 25. In addition, with a view to organizing the system of exemptions more effectively to mitigate the distorting effects on the economy, two studies on exemptions have been initiated. The report on the first study was submitted in September 1998. It analyzed the legal bases of the different categories of exemptions, evaluated their financial cost, and included proposals to reduce exemptions to a maximum of 10 percent of tax revenue. The proposals involve simply eliminating special exemptions, reducing exemptions granted under the investment code, and maintaining the exemptions linked to projects financed with external resources and exemptions granted under the system of diplomatic privileges. The terms of reference of the second study have been approved by the Government, and it should be completed in the course of 1999. It will focus on an economic analysis of the costs and benefits of exemptions. 26. The measure designed to bring an end to exemptions involving indirect taxes and foreign trade - 14 -  taxes under the investment code cannot be implemented until the investment code is harmonized in the WAEMU. 27. Finally, as part of the Government's effort to fight fraud, it strengthened the operational capacity of its units in charge of preventing smuggling and fraud by granting additional resources to the National Anti-Fraud Coordination Unit. (ii) Improvement of the customs and tax administration 28. DGI [Tax Department]. In order to ensure effective monitoring of economic operators, the financial agencies must have accurate information on the population of taxpayers. Moreover, registration of taxpayers is essential to provide the Government offices with information. The computerization of the DGI, specifically as regards registration and integrated management of taxes (1998-99), is in the process of being completed. The DGI currently has a software comprising three modules that covers the three main functions of a tax service, namely: identification and monitoring of taxpayers; determination of the tax base; and tax collection. The software was developed to establish the taxpayer registration system and does not allow a registration number to be automatically assigned, and none of the three modules developed can be used. This software must be improved and the file of taxpayers must be updated in real time. To do this, the DGI has developed a project to reform its data processing system, including forecasting. All the wiring and repairs have been completed. Training for software users, scheduled to take place by the end of 1999, has been provided for. With this training, the first part of the DGI's information program, which runs from design of the software to testing, is in its final phase. The computerization of the two main offices of the DGI (Kadiogo I and Houet I) has been completed. The necessary equipment and softwares have been purchased and are currently being tested. 29. Customs. To make the customs service more effective and to improve statistics, the Government has been working to computerize the customs offices since 1996, by installation of the SYDONIA system. The computerization of six additional customs offices, which was supposed to be completed by December 1998 as an extension of this process, was delayed. The work on two offices (repairs and research on an effective equipment) still has to be completed between now and the end of the year. The computerization of customs manifests (December 1998) was tested at the airport. This test was completed in November 1998. A committee has met to finalize it. 30. The measures stipulated by the WAEMU, involving the free circulation of goods, require the system for control of values and origin of goods to be strengthened. Since 1992, Burkina Faso has used the services of the SGS [Societ6 Generale de Surveillance] to ensure the prior control of imported goods. This agency has cooperated in the effort to set up a database on values for Customs. It now has a manual record prepared on the basis of data collected from the SGS and customs offices. It is updated periodically by an ad hoc committee. The system will be further developed with the installation of a new computer program for computerized management of the database. It will be set up with the support of the SGS. After an initial list of values was made available at the end of 1998, a second list of values was drawn up during the second quarter of 1999 and made available to the customs offices. The telephone line that was missing during the first quarter was also obtained in the second quarter. The liaison with the SGS is operational. The database is set up and supplied with data every week. 31. A system to compare the database with value certification statements (SGS) and customs declarations (December 1998) could not be introduced for technical reasons. What happened was that the offices did not include the inspection notices on the declarations. It was therefore impossible to determine which products had been inspected and which ones had not. A final decisran to ensure registration of these -15 -  notices was made during this quarter. 32. The computerization of the offices of the Ministry of Finance is being completed. Priority has been given to the investment expenditure control unit and to payroll management as of December 1998. As for foreign financing, the basic data have been collected. Application of the module has been delayed by problems involving: (i) the availability of data from some lenders; and (ii) consistency between the breakdown of project expenditures and the lack of a breakdown of Government budget expenditures. As for payroll management, the problem of personnel who had to be trained and the delay in ordering computer equipment were the primary reasons for the delay in computerizing payroll management, which was supposed to take place in December 1998. The software has been operational since August 1999. 33. Harmonization of the budget nomenclature in the context of the WAEMU is part of the harmonization of budget procedures in the WAEMU region. With the adoption of the three remaining guidelines in December 1998, it has been completed. * Public Expenditure Management 34. Current expenditures will be maintained at an average of 10.5 percent of GDP during the 1999-2002 period. This measure, which is designed to limit Government spending and gradually change its composition in favor of priority sectors, such as health, education, and infrastructure maintenance, has been carried out since the end of 1998. Current expenditures have in fact been kept at 10.4 percent of GDP in 1998. 35. The Government will prepare a Medium-Term Expenditure Framework (MTEF), to be updated every year, to cover the following: (i) the public investment program; and (ii) recurrent expenses, which must be in line with objectives related to social and infrastructure indicators (1999-2002). Like the previous measure, this one is designed to limit Government spending and gradually modify its composition in favor of priority sectors such as health, education, and infrastructure maintenance. The decision was made to adopt a MTEF approach. Work to prepare this MTEF is under way. The Government is committed to preparing program budgets for the six key ministries identified in the April 1999 budget guidelines. The program budgets presenting a medium-term framework for public expenditures programming in those sectors will be sent to Parliament with the fiscal year 2001 draft budget bill. 36. To improve the effectiveness of Government financial management and budget preparation and monitoring, the Government has begun computerizing the Ministry of Finance, giving priority to the investment expenditures control unit and payroll management. For investments, the expenditure system for investments funded with domestic resources has been in operation since 1996. Implementation of the second one, which pertains to externally-financed investments (including loans and grants), has been delayed because it has taken longer than expected to enter the data on all the financing agreements due to their complexity. As for the payroll, the specific expenditure circuit module was included in the "Integrated Administrative and Wage Management System for Government Employees (SYGASPE)." The system was started up in August 1999. * Strengthening Statistics 37. The 1996 national survey work was completed and the results were published in June 1998. The final 1989-93 accounting series were published in 1998. The 1994-96 series has not yet been completed. But the evaluation plan of the Priority II Survey on Households has been issued. A socioeconomic data bank focusing on priority sectors such as education and health has been created with the preparation of a - 16 -  set of key social indicators. 38. An automated system for management of public debt statistics, using the SYGADE software, was implemented in 1998 when all the necessary equipment was purchased and instlled in the network. A solution must still be found, however, to some problems in the flow of information among the various offices involved, including the Public Debt Department, and theDirecton Generale de la Cooperatton [Cooperation Division], and the Central Bank). * Restructuring Public Enterprises 39. As part of the reorganization of the telecommunications sector, the National Assembly adopted a law authorizing partial privatization of the National Telecommunications Company (ONATEL) in December 1998. It provides for the partial sale of Government shares in ONATEL, the establishment of a regulatory authority, and the opening of the sector to private investors. The implemenfing provisions are in the process of being drafted. The Govermment also approved a law to open the electricity sector to private investment. ATTACHMENT Table 1: Gross Domestic Product (CFAF billion) 1985 1990 1995 1996 1997 1998 GDP at constant prices 663.1 752.1 892.6 947.7 999.5 1056.3 Growth rate 13.1% -1.5% 4.1% 6.2% 5.5% 5.7% Primary sector - 6.7/o 03% 7.3% -1.5% 11.1% Secondary sector -2,0% 2.2% 1.1% 15.90/% 1.4/ Tertiary sector 3.4% 7.3% 6.5% 8.2% 2.6% Table 2: Bsudget Ratios 1985 1990 1995 1996 1997 1998 Tax revenue/GDP 7.7% 9.8% 11.2% 12.1% 12.2% 12.1% Govenmment revenue/GDP 9.5% 11.8% 12.1% 13.1% 13.2% 13.2% Current expenditure/GDP 7.3% 11.4% 11.6% 11.0% 10.2% 10.4% Wages/current expenditure 69.6% 65.0% 46.5% 48.0% 48.3% 45.5% Capital expenditure/GDP 0.9% 0.9% 0.9% 1.3% 2.4% 3.1% -17 -  Table 3: Budaet Balances (CFAF billion) 1985 1990 1995 1996 1997 1998 Budget savings 14.2 3.1 6.4 25.7 41.7 41.3 as % of GDP 2.1% 0.4% 0.6% 2.1% 3.0% 2.7% Overall balance (commitment basis) -9.4 -17.1 -21.3 -1.4 -26.2 -39.0 as % of GDP -1.4% -2.2% -1.9% -0.1% -1.9% -2.6% Excluding grants -25.7 -40.0 -90.8 -89.5 -104.9 -123.2 Overall balance (cash basis) -10.3 -1.9 -38.3 -15.1 -40.0 -46.5 as % of GDP -1.6% -0.2% -3.3% -1.2% -2.9% -3.1% Table 4: Outstanding Debt 1985 1990 1995 1996 1997 1998 Public debt (CFAF billion) 178.0 223.8 699.5 728.7 813.8 793.1 as % of GDP 26.8% 28.8% 61.1% 59.4% 59.2% 52.4% External debt (CFAF billion) 165.5 208.6 667.5 692.6 768.7 753.4 as % of total debt 93.0% 93.2% 95.4% 95.0% 94.5% 95.0% Domestic debt (CFAF billion) 12.5 15.3 32.0 36.1 45.1 39.8 Table 5: Debt Service 1985 1990 1995 1996 1997 1998 Public debt service (CFAF billion) 13.8 20.8 40.4 29.6 35.1 36.5 as % of GDP 2.1% 2.7% 3.5% 2.4% 2.5% 2.4% as % of currentrevenue 22.0% 22.7% 29.1% 18.5% 19.3% 18.3% Extemal debt service (CFAF billion) 12.5 12.6 29.2 24.2 26.6 28.4 as % of exports -24.1% -29.2% -53.4% -37.4% -36.4% -37.5% Domestics debt service (CFAF billion) 1.4 8.2 1.2 5.5 8.5 8.1 as % of the total 9.8% 39.5% 27.7% 18.4% 24.2% 22.2% - 18-  (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10. Additional Information Not applicable - 19 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome/ Ilmact Indicators: -_ _ _ _ GDP/capita over 3% p.a. NA 2.4% estimate for 1999 Double literacy rate from 20% to 40% in NA 18.4 in 1998 2005 Raise life expectancy to 57 years in 2008 NA 54 Limit inflation to 3% p.a. NA 2.7% estimate for 1999 Reduce current account deficit, excluding NA 13.3 % estimate for 1999; grants, to 9% of GDP by 2000 14.8% projected for 2000 Output Indicators: Public Finance: Reduce exemptions, computerize customs NA Tax revenue in 1999 17% higherthan in operations and improve tax administration to 1998, broadly in line with program target offset losses due to phasing in of Common Extemal Tariff (CET) Public Expenditure: Implement the Medium Term Expenditure NA MTEF implemented for six ministries in Framework (MTEF) for education and health 1999, including education and health, and for in 1999, infrastructure sectors in 2000 and all ministries in 2000 all sectors in 2001 Public administration: Initiate civil service reform in Ministry of Civil NA Implementation of merit-based promotion Service, extend to Ministries of Education system; hiring of contractuals in education and Health, and laterto all ministries and health to reduce cost Public enterprise: Implement 1998 tranche of the program, NA 1998 and 1999 tranches were not fully including liquidation of five companies and implemented. There were delays in the call fbr bid for a hotel privatizabon process of the telecommunications and airline companies, and in the liquidation of a textile company End of project The adjustment credit was approved and its single tranche was released following completion of the 1998 reform program - 20 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Credit Amount 15.00 15.00 Total Baseline Cost 15.00 15.00 Physical Contingencies 0.00 0.00 Total Project Costs 15.00 15.00 Total Financing Required 15.00 15.00 - 21 -  Annex 3: Economic Costs and Benefits Not applicable - 22 -  Annex 4. Bank Inputs (a) Missions: ( . - :-le.g..2 Eat M, etc.) ::: . i . Deelp Identification/Preparation 2 Economists 1 Consultant (tax policy expert) Appraisal/Negotiation 2 Economists Supervision I Economist ICR 2 Consutants 3 1 Economist and 2 Peer Reviewers (economists) (b) Staff: -tag- of Project Cycle L- -- . = . ... ... X ... .. No , ': ' ' ' ..................~~~~~~~~~~~~~~~~~~~~~~....... .. Identification/Preparation 28.3 141,300 Appraisal/Negotiation __6.1 ____29,500 S ervision 5.8 25,160 ICR I_3_5 16,005 Total 40.3 195,960 - 23 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating . Macro policies O H *SUOM O N O NA Z Sector Policies O H OSUOM O N * NA L Physical O H O SU O M O N * NA Z Financial OH OSUOM ON O NA X Institutional Development 0 H O SUO M 0 N 0 NA Z Environmental O H O SU O M O N * NA Social ZPoverty Reduction OH OSU OM ON O NA OGender OH OSUOM ON *NA EJ Other (Please specify) O H OSUOM O N O NA Z Private sector development 0 H O SU O M 0 N 0 NA * Public sector management 0 H 0 SU O M 0 N 0 NA LIZ Other (Please specif) OH OSUOM O N O NA - 24 -  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactoly, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating O Lending OHS OS OU OHU Cl Supervision OHS OS OU OHU O Overall OHS OS C U O HU 6.2 Borrowerperformance Rating LI Preparation OHS OS C U O HU O Government implementation performance O HS 0 s C U C HU El Implementation agency performance O HS 0 s C U C HU FI Overall OHS OS C U O HU - 25 -  Annex 7. List of Supporting Documents Not applicable - 26 -