Mozambique - Public Sector Reform Project

Report No. PID10764 Project Name Mozambique-Public Sector Reform Region Africa Sector Civil Service Reform Project ID MZPE72080 Borrower(s) Government Of Mozambique Implementing Agency Government Of Mozambique Unit for the Reform of the Public Service, UTRESP Address: Rua Radio, Maputo Contact Person: Adelino da Cruz Tel: 258 82 302 258 Email: dacruz@zebra.uem.mz Environment Category C Date PID Prepared October 12, 2001 Projected Appraisal Date March 31, 2001 Projected Board Date July 30, 2002 1. Country and Sector Background Although Mozambique's policy performance has been good (the overall CPIA rating for 2000 was above the average for Africa), starting from a very low base following the civil war, there are substantial concerns about the sustainability of that performance. The critical problems are as follows:quality of civil servants: civil servants in Mozambique are among the most poorly educated in Africa; they are also poorly paid; technical and professional staff are particularly poorly paid compared to the private sectorweak accountability: there is no accounting profession in Mozambique, and not a single Mozambican qualified to international standards; weak oversight by the National Assembly and citizens; and almost no follow-up on the implementation of policiescomplex service delivery processes: centralized, complicated and confusing.2.1 Main sector issues"We want a public sector that transmits efficiency a new culture for the public service should be developed as we advance toward a market system." The Prime Minister.In this quotation, the Prime Minister admits that the public service is inefficient and not well organized to support Mozambique's transformation from a centrally planned to a market economy.From its independence in 1975 to the mid-1980s, Mozambique followed a central planning model and launched a radical Marxist experiment. This was quickly disrupted by the civil war which thrived from the mid-1970s to the Peace accord in 1992 and destroyed social and productive infrastructure. Civil war, compounded with poor policy choices and disastrous economic management, brought the country to the verge of collapse.Market-oriented economic reforms in place since 1987 have reduced inflation and attracted foreign investment. A new constitution was enacted in 1990. Since the signing of the peace agreement in 1992, the country has successfully held two democratic elections. In this relatively stable  political environment, economic growth has been impressive, exceeding 10 percent on average in the past few years. However, the challenges of development remain daunting. The public sector is staffed with poorly qualified civil servants, who are very badly paid. Not surprisingly, many are corrupt. A high proportion, especially of the better educated, are based in Maputo. Many citizens do not receive any public services at all. The rest suffer from very poor service delivery. Public servants, many of whom are still directly involved in service delivery still treat the receipt of public service as a privilege not a right. Processes need profound restructuring. Over-regulation exemplifies the situation. A 1996 World Bank study, "Mozambique, Administrative Barriers to Investment: the Red Tape Analysis", describes the lengthy, unpredictable and highly complicated administrative processes for investment, leading to significant costs at the outset and during the life of the business, lending lost output and employment. An outdated legal and regulatory framework, uncertainties of changing legal rules, lack of transparency and poor training of public servants in the implementation of the rules make life difficult for businesses as well as citizens New research confirms that the situation did not improve much since that study. Rated with 74 other countries on the time and cost of entry of a start-up firm, Mozambique comes second to last (Djankov, La Porta, Lopez-de-Silanes and Schleifer, NBER Working paper 7982, 2000).The public sector is still very much functioning on a self-centered paradigm. The notion of accountability of the public servant to the users and citizens is still relatively new, and participation of citizen groups or the private sector in the oversight of public administration, as well as in information-sharing, is still poorly developed. This is partly because civil society is still relatively poorly organized.The issues discussed below are based upon the studies and workshops undertaken over the past 3 years. These are summarized in Box l.Service delivery is still highly centralizedThe Mozambican State still functions in a paradigm of centralism and hierarchy. A strong centralist tradition accounts for a public sector "under-administered" outside the capital. Devolved local administration covers only the larger municipalities. There is a dual subordination to the center, through the sector ministries and governors and provincial administrations. The traditional practice of treating provincial services as extensions of central programs has done little to encourage the staffing of local administration with qualified staff. Similarly, equipment, and infrastructures are very limited outside the capital, and working conditions generally very poor.Following a constitutional change in 1996, 33 municipalities were created in 1997. However, many of the regulations remain to be enacted. There is the potential for conflict between the municipalities and the deconcentrated administrations of the sector ministries. This first step towards genuine decentralization needs to be accompanied by structured policies of transfer of powers and resources, which obviously must be gradual, in view of the extremely low capacities at the municipal level. In particular the capacity of municipalities and the local office of ministries to manage finances is very weak. Although there is a widespread appreciation that gradualism is required, there is no clear timetable for the reforms.The move of key public sector functions down to different sub-national tiers of government must occur in parallel with a change of the role of the center, from a provider to a facilitator. Functions of state organizations at the center should be reoriented towards formulating, monitoring and facilitating the implementation of policies.To assist in the design of the project a study is being - 2 -  undertaken of the administrative constraints to service delivery. This study will compare the formal and informal service delivery systems in key sectors. Interviews with Bank's team leaders in the key sectors have taken place. Future work will include studies in Mozambique that will compare what actually happens on the ground with what laws and administrative manuals say should happen, and assess the impact that the divergence between principle and practice has on frontline service delivery.Civil servants lack the skills and incentives to serve citizens and businesses well Despite continuing efforts to improve the educational level of its population, Mozambique is still facing an acute shortage of higher-educated people. In 1999, total enrollment in higher education was 11,600, but the total number of new higher education graduates in Mozambique was only 483 in 1998.The result is that out of over 100,000 civil servants (excluding the armed forces), only about 3 percent have a degree, almost all of whom are based in Maputo. Furthermore, 52 per cent of managers do not have the qualifications required for their jobs.On the demand side low working conditions and pay levels compared to the "international donor sector" and even to the private sector impede the public sector from attracting enough skilled staff. Absence of a sound human resources management policy, and of links between recruitment and promotion and performance are aggravated by the complexity of the rules and lack of clarity of the mandates. A recent study has shown that only 13 per cent of civil servants are appointed through a competitive process -- family and party connections are more important. Poor formal incentives are breeding ground for corruption. Very few channels of communication exist between top civil servants and their staff and little knowledge of the rules contributes to slow implementation and lack of individual initiative. Public institutions are not assessed in terms of performance against expected results but, if at all, in terms of following procedures correctly.Furthermore, as a result of the very recent democratization and of years of armed conflict, the public sector tends to be somewhat politicized. Top civil servants and governors are appointed by the leaders of the party in power more on the basis of their loyalty than their technical merit.There is little accountability for the use of scarce resourcesDespite some improvement in terms of a more transparent and comprehensive budgeting process, several factors contribute to a relatively poor allocation and use of resources. There findings were confirmed by the draft PER and draft CFAA, July, 2001: the functional classification is not sufficiently disagregated, hindering the efforts to efficiently measure and monitor the impact of public expendituresthe Inspectorate General of Finance (internal audit) and the National Administrative Tribunal (external audit) lack trained and qualified staff as well as budgetary resources. There is no value for money auditthe MTEF has not been formally institutionalizedthe level of extra-budgetary flows leave important resources unaccounted forneither parliament, civil society nor the private sector participates effectively in the planning, budgeting and financial management processthe legal framework for accountability is deficient inasmuch as public information about the Government's performance is insufficient. The current framework does not require leaders to declare their assets and liabilities, there is no freedom of access to information in place that would provide for citizens to be better informed, there is no whistle-blower legislation in place that would provide protection to citizens who report corrupt practice, and the rules of evidence do not require leaders and other public officials to explain how they became wealthy while in office. Annex 4, Improving -3 -  Expenditure Management, brings together the findings of the draft CFAA and PER with the ogjectives of the Government's reform strategy. The analysis covers the allocation of resources, managing budget execution, cash and assets, and accounting for the uses of resources. It outlines a plan of action for the preparatory year, the first year of the project, and the subsequent years. The team responsible for the CFAA assumes that this project will be the principal mechanism by which financial accountability will be improved in preparation for the first PRSC.Policy coordination, monitoring and evaluation are weak Public policies are not formulated according to a standard format. Little effective analysis precedes their submission to the Council of Ministers. The linkage between policy and resources is weak. There is little coordination either at the center or in the provinces in the preparation and implementation of policies, and there is virtually no monitoring of the implementation of policies or evaluations of their impact.Box lAnalytical Underpinning for the ProjectA number of preparatory activities have been undertaken by the Bank and the Government over the past three years:Review of Public Sector Reform in Mozambique, July, 1998, carried out by Bank staff in collaboration with Government.Reform of the Mozambican Public Sector: Strategy and Actions, August, 1998, Government of Mozambique - based upon above study.Workshop on public sector reform issues, February, 2000: meeting of senior officials and academics to identify administrative constraints and possible solutions.Pay policy study, ongoing, 2000-2001: preparation of sustainable pay reform options and design of medium term donor support scheme.Policy process study, ongoing, 2001: study of the process by which policy is formulated, decided upon, implemented and monitored.Workshops in 2001 to discuss reform issues with groups of stakeholders: permanent secretaries, NGOs, religious groups, journalists, trade unions, donors, private sector, and national directors. Each participant completed a questionnaire identifying key constraints.Draft Country Financial Accountability Assessment, July, 2001.Draft Public Expenditure Review, July 2001.Interim PARPA.Civil Service Management System: An Analysis of Reforms To Date and Emerging Next Steps, Draft, July, 2001.Politica Salarial a Medio Prazo, UTRESP, Draft, May, 2001.Improving Expenditure Management in Mozambique, World Bank, July, 2001.Administrative Constraints to Decentralized Service Delivery, World Bank, August, 2001.Future studies: changing role of government and decentralization; governance baseline survey (households', businesses', and public servants' experiences and perceptions of service delivery).2.2 Government strategyIssued in August 1998, the "Reform of the Mozambican Public Sector, Strategy and Actions" (Republic of Mozambique), describes the different areas already undergoing reforms, and the need for articulating a strategy to move "in the direction of a new organizational culture for the public sector, centered on efficacy and transparency", as well as the changes to be made to transform the public sector, currently centered around the delivery of service, to a "facilitator". This document, presented at the 1998 CG meeting together with a public sector study jointly undertaken by the World Bank and the GOM, provides the first underpinning diagnosis for the elaboration of the public sector reform strategy. Reform actions of the past few years have focused on three main issues: the rationalization of human resource, through the establishment of a new Career and Remuneration System, measures of salary decompression and the implementation of a Human Resources Management System (computerized database), as well as the establishment of a program of training for public servants (Public Service Training System, SIFAP) and a -4 -  State Administrative Inspectorate.institutional reform through measures towards deconcentration and decentralization (creation of local governments, municipal elections)reform of the budget system, with the enactment of a new Budget Law (1997) and its corresponding regulations.Over the past year, following the 1999 elections, the President established the Inter-ministerial Commission for the Reform of the Public Service (CIRESP), chaired by the Prime Minister. The Council of Ministers then set up the Technical Unit for the Reform of the Public Service (UTRESP) to be a secretariat to CIRESP. CIRESP recently approved the reform strategy prepared by UTRESP: Estrategia da Reforma do Sector Publico 2001-2011.The strategy defines public sector reform as the cross and multi-sectoral reforms in processes and institutions needed to support reforms in the separate sectors leading to improvements in the delivery of services to all citizens and businesses.The Council of Ministers has decided that the reform will cover all institutions financed directly or indirectly by the State, except the Parliament; and will focus on restructuring the State so that public servants will become more results-oriented.The Strategy includes a Quick Wins Program, which consists of identification of measures that could be successfully implemented in a relatively short period, and would be highly visible, partly to build up support for the reform program. The CM has requested that all ministries prepare and implement quick wins; The Prime Minister has been given responsibility for this program.The GOM Strategy takes account of the GOM's poverty reduction objectives set forth in PARPA. Good governance is described in PARPA as one of the fundamental conditions for poverty reduction, improved public service delivery and sustainable economic growth. Stakeholders consulted as part of the PARPA process stressed the need for good governance (and in particular decentralization and deconcentration policies that favored participative development at the local levels). They also highlighted the need for the State to improve its capacity to act energetically on its policy and program choices, as well as the importance of fighting corruption and establishing a more mutually supportive relationship between public institutions and citizens.President Chissano launched the reform of the public sector, based upon this Strategy, on June 25th , 2001 National Day, in a speech to the nation. A summary of his speech can be found in Annex 4. Key points from the speech are shown in Box 2.Box 2Quotations from the President's Speech Launching the Public Sector Reform ProgramNational Day, June 25, 2001, Bagamoio barrio, MaputoThe public sector has generally operated with low levels of efficiency and has provided the citizens with low levels of efficiency.There is now a generalized trend for civil servants to demand illicit payments for providing the services that are the job of the civil service.Examples of corruption: The mother or father of a family who must "offer thanks" in order to enroll their son at school . The patient who is only cared for if he gives the health worker "a little envelope" ..the driver who must buy a beer or "act like a man" to the police to avoid a fine.The Government wants a public service that is flexible, decentralized, free of red tape, simplified, modernized, competitive, and concerned with the results and quality of services provided to the citizens.The public service must be transparent endowed with qualified, professional staff.I want to see participatory mechanisms institutionalized which allow us to identify more securely the desires and needs of citizens.At the top of the list of reforms is the rationalization of procedures and the decentralization of administrative structures and processes in order to make them more efficient and accessible to the - 5 -  citizens.From 2001 to 2004 the basic conditions would be established for the profound transformation of the public sector.Up to 2011, programs with a much broader impact would be implemented .the public sector will be a sector working for results and for citizens. 2. Objectives To support the Government to put in place basic accountability capacity, prepare for restructuring the public service to decentralize service delivery, and improve wage incentives. 3. Rationale for Bank's Involvement Past involvement in the sector: Through a Capacity Building project and an IDF grant, the Bank team has already developed a close working relationship with the implementation agency for the public sector reform, the UTRESP. Technical leadership on Public Sector Reform: The Bank has provided technical assistance to UTRESP, and is a member of the donors working group on public sector reform. Capacity and knowledge: the Bank has the required experience in the sector, as well as the capacity and instruments to put in place a large-scale and long-term project. 4. Description 1. Initiate reengineering, restructuring and decentralization of service delivery Prepare a long term vision for improving service delivery by moving the point of delivery closer to the intended beneficiary (study will shortly be undertaken of perceptions and experience of public service delivery)Design a change management process for implementing the above visionTrain UTRESP and ministerial staff in change management Support the preparation of process reengineering, restructuring and decentralization plans by five pilot ministries, possibly including MFP and MAE as well as three sector ministries that are keys to poverty alleviationReview training needs in light of reengineering and restructuring, prepare training capacity building plan, and adjust SIFAP to include distance learning (There are ongoing discussions with the Bank on upgrading global distance learning in Mozambique, to include three regional centers, and on establishing distance learning within the country. The current plan is to upgrade the existing center and add two more in the regions over the coming 18 months. Training programs for public servants would provide major demand for these facilities. There are already plans to set up regional training centers for civil servants.)Under Quick Wins Program, provide support to ministries for each to implement at least one service improvement2. Motivate and train public servants to become more responsive to the needs of citizens and businessesSupport implementation of sustainable medium term pay strategy to establish the priorities for raising the salaries of civil servants within the context of the revenue expectations of government and the policy priorities established in MTEF (study is nearing completion)Support implementation of donor supported on-budget fund that will provide basis for supplementing the salaries of key staff within framework of medium term pay strategyPrepare plans to introduce results oriented performance management for senior managers and in key central coordination agencies Establish demand driven public sector training fund3. Improve allocation, efficient use and accountability of public resources Improve the process by which the Council of Ministers exercises its collective responsibility through improving policy formulation, decision-making, implementation, monitoring and evaluation (study will shortly be completed)Strengthen the capacity of the Office of - 6 -  the President and the Office of the Prime Minister as the managers of the policy process through adequate staffing, training and equipmentBuild capacity to link policy and resources more closely, especially through the Medium Term Expenditure Framework (MTEF) and the Poverty Reduction Strategy Plan (PARPA)Strengthen capacity to conduct internal and external auditsStrengthen capacity for cash managementPrepare plan for an Integrated Financial Management Information System (IFMIS)Support implementation of legal framework for procurementPrepare and begin implementation of plan to establish procurement capacity in the sector ministries, including training of procurement staffProvide support to establish Office of the OmbudsmanDevelop anti-corruption prosecution capacity of Office of Attorney-General (an anti-corruption strategy has been drafted)4. Program CoordinationBuild capacity of UTRESP to coordinate, and administer the program through training, advisory services and equipmentEstablish Council of Advisors drawn from outside and inside the public service Restructuring Incentives Accountability Coordination 5. Financing Total ( US$m) BORROWER 0 Total Project Cost 35 6. Implementation To provide political leadership for the reform process, the President and the Council of Ministers established the Inter-ministerial Commission for the Reform of the Public Sector (CIRESP). The Prime Minister is the president of CIRESP, and the Minister of State Administration is the vice-president. Other members are the Ministers of Justice, Public Works and Habitation, Education, Planning and Finances, Agriculture and Rural Development, Tourism, Industry and Trade, Labor and Health. CIRESP reviews all proposal for reform prior to their submission to the Council of Ministers (CM) and monitors the implementation of the reform program. The Technical Unit for the Reform of the Public Sector (UTRESP) has been set up to supports CIRESP. Project implementation will be coordinated by UTRESP. UTRESP will be accountable for achieving the projects objectives. Oversight will be provided by CIRESP. All funds will flow through UTRESP to the participating ministries and agencies.UTRESP is staffed by a Director, and will be staffed by three full-time professional staff specializing in economics, public administration and law, and an administrator. The Director also has access to an advisory panel of senior staff drawn from key ministries (Finance Justice, Industry and Commerce and State Administration). Funding is provided for the Unit by the national budget and a group of donors, including the Bank.Focal points have been established in all ministries. These are senior civil servants who have worked with UTRESP in the preparation of the reform strategy and will assist in the implementation of the reforms. CIRESP meets with the Director of UTRESP about every two months. The Director is in almost daily contact with the President of CIRESP, the Prime Minister, by e mail, phone or personally. He is also frequently in touch with the Vice-President of CIRESP, the Minister of State Administration and his Vice Minister. The Director also has frequent contact with three key -7 -  ministries: Finance, Justice and Industry and Commerce. As the project proceeds there will be more frequent meeting with the focal points in the ministries (these are the Permanent Secretaries).UTRESP will be responsible for all financial reports and for coordinating procurement. UTRESP will appoint financial management and procurement managers. Auditing will be carried out by the Administrative Tribunal. 7. Sustainability Sustainability will depend upon:political leadership: the President, Prime Minister and Council of Minister support the reformsfirm local ownership: the project is based upon the GOM reform strategysystematic participation of stakeholders: there is an ongoing series of stakeholder consultationsclearly defined change management bodies at all levels (mainstreaming reform): change managers are senior staff in the ministriesadherence to work plan: targets have been widely publicizedcapacity to maintain long-term vision while achieving immediate objectives: GOM and project have 10 year vision, as well as Quick Wins Programa judicial sector with the capacity to support the public sector in its role as a regulator and guarantee fair treatment for citizens and businesses: other donors supporting reforms in judicial sector 8. Lessons learned from past operations in the country/sector Lessons from Mozambique projectsSeveral lessons have been learned from the Legal and Public Sector Capacity Project (the ICR was recently completed).Capacity constraintsFirst, capacity constraints in Mozambique are severe even by African standards. The Bank should therefore guard against overestimating borrower capacity to implement. Specifically, project objectives should be clear, concrete and achievable in the short term. Implementation arrangements should be simple. Objectives and outputs should be practical. To this end, a participatory design of the logical framework for the Public Sector Reform and the first phase of the forthcoming project was adopted. With the help of two facilitators (a World Bank consultant and a local consultant), working groups have been formed around the key issues previously defined as priorities for the reform agenda. Groups, dealing with governance, decentralization, the role of the state, policy processes, financial management and human resources management, and composed of members of relevant sector ministries or public institutions and the private sector worked together towards the definition of key actions and practical performance indicators.Long-term activitySecond, capacity building, especially when there is so little capacity to start with, is inherently a long term activity. The duration of a normal Bank project can serve to launch and undertake a stage of the process. Capacity building projects should be designed within a framework of long-term Bank commitment. This is the reasons why this project chose the APL structure. Training of staff before implementation stageThird, where implementation capacity is especially scarce, projects should ensure that local staff have the necessary skills, and that a dedicated personnel for the project are identified and mobilized. Bank projects should consider developing the necessary implementation skills during project preparation or through an initial period devoted to training those responsible for the management of the project. Selection of the Director of the UTRESP and his staff were done according to these objectives, while the Administrator for the project, already trained in financial management, received complementary training in public procurement.Oversight bodyWhere reforms are multi-sectoral, no - 8 -  single ministry will be able to lead the reform process; it is difficult to exercise authority over equals. In this case, a legally established committee of ministers has taken responsibility for the reforms, led by the Prime Minister himself.Lessons from public sector reform in Africa regionThe project design has drawn upon the Bank's own experience of public service reform and capacity building. The paper, "Reforming Public Institutions and Strengthening Governance," recommends five broad changes in the Bank's approach. Each will be significantly addressed in this program:Shift focus from the content of public policy to the way policy is made and implemented. The second component of the program component will do just this.Address a broad range of mechanisms that promote public sector reform. The project covers the mutually supportive activities of restructuring, incentives and accountability. Emphasize good fit over best practice. The Bank team worked closely with the GOM team; Over 50 Mozambican civil servants participated in the preparation of the logframe. Enhance institutions through longer-term programmatic lending. A 10-year APL is proposed for a program that focuses on capacity building.Develop skills to do better institutional work. Above all else, the program is setting out to develop skills to reform processes and institutions.The program also addresses many of the challenges identified in the Africa Region Annex to that report. There is strategic prioritization: the program will begin by building capacity to manage change and reforming pay. This will motivate staff to pay more attention to the achievement of the results citizens and businesses need and expect. Fundamental reform to the state structure will include focusing the core civil service on policy formulation and monitoring and promoting the decentralization of service delivery. The program will set out to link together sector reform initiatives and thus avoid "stovepiping;" there is representation from the key sectors in the Mozambican team preparing the project. There has been close collaboration among Bank staff responsible for the preparation of institutional reforms in the social and economic sectors and between macroeconomic and public sector management specialists. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues NA 11. Contact Point: Task Manager Harry C. Garnett The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 458-8188 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 -9-  Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending November 16,2001 - 10 -