Madagascar - Poverty reduction strategy paper and joint IDA-IMF staff assessment of PRSP preparation status report

Report No. 25180-MAG MADAGASCAR STATUS REPORT ON THE POVERTY REDUCTION STRATEGY PAPER (PRSP) AND JOINT IDA/IMF STAFF ASSESSMENT November 25, 2002 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPENT ASSOCIATION MADAGASCAR Joint Staff Assessment of PRSP Preparation Status Report Prepared by the Staff of the International Monetary Fund and the International Development Association Approved by Jose Fajgenbaum and Martin Fetherston (IMF) and Callisto Madavo and Gobind Nankani (IDA) November 25, 2002 1. Madagascar's Interim Poverty Reduction Strategy Paper (PRSP) was presented to the Executive Board of the International Development Association on December 19, 2000, and the Executive Board of the International Monetary Fund on December 21, 2000. The I-PRSP had spelled out a timetable and process for the completion of the full PRSP by May 2001. In their discussion of the I-PRSP, Executive Directors of both institutions agreed with the Joint Staff Assessment of the I-PRSP that the time schedule for producing the PRSP was tight and noted that this ambitious timetable could under~ mine the quality of the PRSP. Consequently, the authorities revised the participatory and processing schedule of the PRSP with a completion of the PRSP anticipated in early 2002. Following a large number of thematic and regional workshops, a first draft of the full PRSP was discussed at a national validation meeting in November 2001. 2. Madagascar plunged into a deep political crisis following contested presidential elections at the beginning of 2002. The crisis lasted until July 2002, causing a severe recession and social hardship. During the crisis, the PRSP process was suspended. The new administration has now revitalized the process and planned a number of new work- shops and technical work to be carried out. The government outlines these steps in the accompanying PRSP Preparation Status Report. 3. Participation Process and Institutional Structure. Staff agree with the Status Report's description of the past and planned participatory process and PRSP institutional structure and recommend that the government adopt a methodology that would facilitate the inclusion of workshop results in the final document. During 2001, fifteen workshops discussed various aspects of the PRSP in all parts of the country. Civil society participa- tion was strong, largely due to targeted civil society support of several bilateral donors and the UNDP. In part, these workshops lacked professional facilitation, which made synthesis difficult and led to several complaints from participating groups that the dis- cussions were not reflected in the PRSP. Staff agree with the Report's proposed addi- tional workshops (rural poverty, governance, national workshop) but would recommend that professional facilitation be relied on to crystallize workshop recommendations and  -2- facilitate subsequent integration into the full PRSP. Staff believe that the institutional structure of PRSP preparation, as described in the Status Report, is appropriate and underscore the need that the six thematic working groups accelerate their work in the coming months according to the terms of reference indicated in section IV of the Status Report. 4. Poverty Analyses. Since the completion of the I-PRSP, significant progress has been made with respect to preparation of analytical background work (by several donors and government agencies) including: (i) sector expenditure reviews in education, health, sanitation and water; (ii) a new poverty profile for 2001; (iii) study on the dynamics of poverty between 1999 and 2001; (iv) development of a detailed geographic poverty map; (v) a study on the priorities of poor rural communities; (vi) several analyses of the budget process, among them the HIPC Expenditure Tracking assessment; and (vii) a gender report. Further, the national statistical institute (INSTAT) has, jointly with Cornell University, produced a number of detailed studies on the social impact of the crisis in selected sectors (rural, health, education, transport) which could be an important input for developing a full PRSP that is responsive to the changed poverty profile. Staff share the assessment of the Status Report that these analyses constitute a good base for the full PRSP. 5. Development of full PRSP. Staff recommend that in addition to the areas outlined in the Status Report, government examine in more depth three areas that would feed into the full PRSP. First, staff suggest that the government include in the full PRSP a detailed short- and medium-term action plan on budget and anti-corruption reforms. Over the last years, lacking or insufficient internal controls resulted in irregularities of a number of public fiscal transactions. In addition to the regular semi-annual external audits which have now been mandated, strengthening of the internal audit and control functions would be important. Further, little progress has been made since regarding pro- poor budget planning and monitoring. Budget planning, especially for public investment, continues to be largely donor-driven, and it would be important that the full PRSP includes an action plan on how investment planning can be more strategically undertaken. Developing a system to monitor budget execution rates in selected sectors over time and link budget execution to physical achievements is a major step for adequately implementing and monitoring the full PRSP. Closely linked, staff recommend that the full PRSP include an evaluation of existing anti-poverty programs (as recom- mended in the JSA of the I-PRSP). 6. Second, the full PRSP would need to clearly define a three-year program of priority actions, costing, and monitoring indicators (including intermediate ones). As mentioned in the JSA of the I-PRSP, such prioritization of actions and costing would be needed to tum the strategy from paper into reality. In November 2001, a joint aide- memoire of the donor community also stressed this point when reflecting on the first draft of the full PRSP. 7. Lastly, Madagascar's growth strategy needs to be examined. A recent study found that high overall economic growth in Madagascar from 1997 to 2001 led to a noticeable  -3- decline in urban poverty. But rural poverty, on the other hand, remained very high and even increased, largely due to a lack of progress in raising agricultural productivity. Further, the growth pillars of the economy (textiles, mining, fishing, tourism) did not spread welfare to poor rural areas, which lack basic infrastructure and access to markets. The poverty impact of growth would need to be raised significantly in the future if long- term poverty reduction targets are to be achieved. 8. Donor Support. The multi- and bilateral donor community (16 organizations and mission representatives) have accompanied the process of PRSP preparation through five joint aide-memoires. A sixth aide-memoire will be transmitted to the government shortly, following the planned PRSP workshop on governance. Madagascar's partner organiza- tions also stand ready to provide immediate technical assistance outlined in the Status Report, specifically the African Development Bank (through a grant linked to its Adjust- ment Credit), UNDP, and the World Bank (through a Project Preparation Facility for a Governance Project). 9. Timetable. Staff believe that the timetable outlined in the Status Report-with completion of the full PRSP planned for March 2003-is ambitious. Given the need to (i) develop a new macro-economic framework by 2005/6; (ii) reformulate priority actions to take into account the impact of the crisis on the poor; (iii) establish a priority action program, especially with respect to budget planning and management; and (iv) ensure a preparation process with maximum feedback from civil society, completion of the full PRSP could be delayed. Staff will continuously support the government through technical advice to help advance the completion date as much as possible. 10. Recommendation. The staff of the World Bank and the IMF consider that progress on the development of the full PRSP, as evidenced in the PRSP Preparation Status Report, is satisfactory and provides a sound basis for continued access to Fund concessional assistance and IDA adjustment lending. The staff recommend that the respective Executive Directors of the World Bank and the IMF reach the same conclusion. Republic of Madagascar Ministry of Economy, Finance, and Budget Adjustment Technical Secretariat (STA) STATUS OF THE PRSP PROCESS INTRODUCTION This document reviews the work done to develop Madagascar's poverty reduction strategy, as outlined in the Poverty Reduction Strategy Paper (PRSP). It provides an overview of the various stages in the preparation of the PRSP since the process began in September 2000: the institutional framework for coordination of the work, the participatory process, the progress made with poverty analysis, the major constraints affecting finalization of the paper, and the work program. Finalization of the full PRSP was suspended from January to August 2002 owing to the crisis that faced the country during the first half of the year. The timetable for finalizing the full PRSP has been delayed as a result, as the new context and new government policy directions have required technical work to adjust and update the paper. Madagascar will reach the completion point a year later than initially scheduled (December 2002). The completion point will now be reached around June 2004, after one year of implementation of the full PRSP. [I.] INSTITUTIONAL FRAMEWORK A Technical Unit attached to the Office of the Prime Minister was established at the beginning of the process to develop a poverty reduction strategy for Madagascar. This Technical Unit consists of high-ranking government officials, elected officials, academics, and representatives of the private sector and civil society. The Adjustment Technical Secretariat (STA) and the National Secretariat for Self-Promotion and Development (SNAD) act as the secretariat for the Technical Unit to coordinate its activities, organize the participatory process, prepare analyses of all aspects of the poverty dynamic, and draft the PRSP. Six technical commissions headed by high-ranking officials from the Technical Unit have been selected to lead and direct the work at the sectoral level: - production - investment - private sector; - rural development; - infrastructure; - health - education; - institutional development.  -2- During the initial stages in the preparation of the PRSP in 2001, when eight thematic workshops, six regional workshops and one national workshop were organized, the six technical commissions could not work on a continuous basis owing to this busy schedule. Since the work to finalize the PRSP resumed in September 2002, the Ministry of Economy, Finance and Budget has coordinated the activities of the Technical Unit (pending selection of its members) and the STA has acted as secretariat. II. INITIAL STAGES IN THE PREPARATION OF THE PRSP 1. Strengthening of the participatory process • The Interim Poverty Reduction Strategy Paper (I-PRSP) for Madagascar was prepared in November 2000 and enabled Madagascar to reach the "decision point" and benefit from debt service of 50 percent, representing approximately US$50 million per year. e This phase of the process was followed by a series of eight thematic workshops: rural poverty reduction, Mahajanga, February 27-28, 2001; reduction of gender inequalities, Toamasina, March 5-6, 2001; poverty reduction and AIDS, Antsiranana, March 26-27, 2001; combating brush fires, reforestation, and the environment, Fianarantsoa, April 4-5, 2001; improving governance, Toliary, April 12-13, 2001; urban poverty reduction, Antsirabe, July 12-13, 2001; health, Antananarivo, July 30-31, 2001; education, Antananarivo, August 2-3, 2001 • Following these thematic workshops, a first draft of the full PRSP was prepared. This document was then discussed and debated in regional workshops in the six provincial capitals: October 29-30, 2001, Antsirabe; October 30-31, 2001, Fianarantsoa; October 30-31, 2001, Toamasina; November 5-6, 2001, Antsiranana; - November 7-8, 2001, Mahajanga; - November 8-9, 2001, Toliary. • A national dialogue workshop was organized on November 15-16, 2001 with the participation of representatives from Madagascar's provincial capitals, and following this the provisional version of the full PRSP was prepared (December 2001). 2. Objectives of the thematic, regional and national workshops The primary objectives of these workshops are to improve the content of the I-PRSP, look at and develop topics that required further study (thematic workshops), and enhance the participatory process by holding broader discussions with the people (regional workshops)  -3- with a view to developing national ownership of the poverty reduction strategy (national workshop) and finalizing the full PRSP. 3. Analysis of the participatory process Each thematic and regional workshop brought together around 100 participants on average, and 450 persons participated in the national workshop. All groups concerned with the development of the poverty reduction strategy were represented at these thematic and regional workshops: government, elected officials, private sector, civil society, NGOs, and professional and religious groups and associations. An analysis was made of the participatory process in September 2002 to measure the representativeness of the participants. The results are summarized in the following tables. • Thematic workshops The profile of the participants in the thematic workshops can be summarized as follows: public sector: government and elected officials: 35.7 percent; private sector: associations, civil society: 44. l percent; donors: 11.8 percent; other: 6.1 percent. Table 1: Average Representativeness of Participants in Thematic Workshops Group Profile(%) Government 32.0 Elected officials 3.7 Journalists 2.2 Civil society 22.6 Private sector 9.4 Associations 12.l International organizations 11.8 Organizers 6.1 Total 100 .. Regional and national workshops The distribution profile for participation in the regional validation workshops and the national workshop was as follows: public sector: government and elected officials: 37 percent; private sector: associations, civil society: 45 percent; donors: 8.2 percent; other: 7 .9 percent. Table 2: Average Representativeness of Participants in Validation Workshops Group Profile(%)  -4- Government 35.l Elected officials 1.9 Journalists 1.6 Civil society 31.6 Private sector 8.0 Associations 5.7 International organizations 8.2 Organizers 7.9 Total 100 In short, looking at all the workshops conducted in 2001 to enhance the participatory process, the average profile of the participants can be summarized as follows: - public sector: government and elected officials: 34.8 percent; - private sector: associations, civil society: 45.8 percent; donors: 10 percent; other: 6.6 percent. Table 3: Average Representativeness of Participants in the PRSP Workshops Group Profile(%) Government 32.9 Elected officials 2.9 Journalists 1.5 rnext 3 lines of table are illegiblel - International organizations 10.0 Organizers 6.6 Total 100 III. RECENT DEVELOPMENTS 1. New poverty profile The poverty profile included in the last version of the PRSP covers 1999. In 2001, INSTAT conducted a detailed survey of representative households at the national level, by province and by milieu. The data from this survey were used to define and provide a new poverty profile for Madagascar. The survey was conducted during the last quarter of 2001. Despite the crisis, the data were processed quickly. INSTAT, with the help of the World Bank and Cornell University, issued the results for this new poverty profile in October 2002 and these results will be used as a benchmark for developing the new strategy, in line with the new government policy. The economic and social difficulties resulting from the political crisis led to changes in the poverty profile, which need to be analyzed in detail. In June 2002, INSTAT also conducted a rapid study of the impact of the crisis on the standard of living.  -5- Another survey of the population was conducted by INSTAT in cooperation with FOFIFA: the ILO and Cornell University project. This survey identified Madagascar's development priorities in a participatory way. The results of these studies and surveys will be taken into account in the final paper. 2. Poverty reduction actions already taken by the government The crisis has seriously affected the most vulnerable segments of society and reduced their access to health care and education. To avoid this negative social impact, the government adopted a priority emergency economic and social recovery program, which forms part of an overall recovery program. In this context, the government decided to suspend school fees for a limited period of time starting at the beginning of October. Teachers paid by the Associations [of Parents] of Students in Public Primary Schools (FRAM) will be paid by the government. Health care and essential drugs were made free at public health centers for a transitional period. The cost of these measures is estimated at FMG 63 billion (0.2 percent of GDP) and is covered by the HIPC Initiative budget. The arrears of cotton producers to HASYMA were also paid. 3. Government's new political vision The objective of the government is to rapidly eradicate poverty while ensuring respect of democratic principles, introduction of the rule of law, good governance, and institutional development, and at the same time respecting Malagasy popular wisdom. [Sentence in Malagasy follows.] IV. TECHNICAL WORK SINCE THE PROCESS WAS RESUMED IN SEPTEMBER 2002 1. Resumption of work The resumption of the work to finalize the full PRSP began with a technical information meeting on September 16, 2002 on the status of the PRSP and the next steps to finalize the PRSP, followed by a meeting with the donors on September 19, 2002. 2. Cooperation with the technical and financial partners The community of donors 1 is cooperating with Madagascar in the preparation of the full PRSP, as it did for the interim PRSP. During the most recent meeting on September 19, 2002, their comments and suggestions focused on: - clarification of the actions, and timetable for their implementation, as well as the related budget estimates; 1 The community of donors consists of Madagascar's technical and financial partners, including the French Development Agency, the German Embassy, the U.S. Embassy, the French Embassy, the British Embassy, the Japanese Embassy, the Russian Embassy, the Swiss Embassy, the African Development Bank, the World Bank, the French Cooperation Agency, the International Monetary Fund, USAID, and the European Union.  -6- - selection of relevant impact indicators and establishment of a tracking system involving INSTAT and other institutions; - development of an effective strategy to combat corruption and improve natural resource management with specific targets and tracking indicators; - critical assessment of sectoral policies for better formulation of sectoral strategies; - enhancement of the role of the private sector and redistribution of growth in the macroeconomic outlook; - consideration of other dimensions of poverty such as security, geographic isolation, and social marginalization. These comments will be taken into account in the full PRSP. Cooperation will continue during program implementation. 3. Technical work Following the technical meeting on September 16, 2002, the work program for the six technical commissions was prepared. The technical commissions have met regularly, once a week, since October 2002 to perform the tasks required through to the finalization of the full PRSP. • The commissions are chaired by high-ranking officials and a made up of representatives of the ministries, civil society, the private sector, and NGOs. • The STA provides leadership and coordination for the technical commissions; this will be increased later. • The main responsibility of the technical commissions for each sector is to review the current version of the PRSP, bearing in mind the new policy directions resulting from the new socio-political situation. • The anticipated results of the work of each commission are: - sectoral vision and policies with well defined strategies and objectives, bearing in mind the Program for the Implementation of the General Government Policy presented by the government to the National Assembly in March 2002, the Recovery Plan presented in July 2002, and the results of the World Summit on Sustainable Development in August 2002 and other international resolutions supported by Madagascar (Millennium Summit, NEPAD, etc.). Consideration will also be given to cross-sectoral analysis, such as the environment, AIDS, and gender; - detailed action plans with priorities and a measurement matrix; - budget for each program, identifying possible financing; - performance and impact indicators. • The work of the technical commissions will be used to develop the macroeconomic framework for programs of the Ministry of Economy, Finance and Budget. The cost and prioritization of activities will be coordinated with the commissions until realistic estimates of the program costs for 2003-2006 are obtained, without losing sight of the primary objective, namely rapid, sustainable development.  -7- • To make the full PRSP operational, estimates of the resources required for implementation will be provided, distinguishing between financing already identified or expected, and financing that still had to be sought. The full PRSP will provide a medium-term outlook for the programs and will serve as a basis for developing the annual budget. The actions set out in the full PRSP will become part of the government's program, with clear prioritization. Currently, the six commissions are in the process of finalizing their work: proposed drafting of the final PRSP and development of action plans with performance and impact indicators, program budgets, and the measurement matrix. This work is expected to be completed during the first week of December 2002. 4. Resumption of the participatory process When the process for drafting the full PRSP was resumed in September 2002, the participatory process was further strengthened. The technical commissions now include members from civil society, who will also be involved in tracking and assessing the programs implemented. In this vein, and with a view to further exploring some important themes, two three-day thematic workshops were scheduled, with one day devoted to meetings with villages and visits to existing sites (tourism sites, infrastructure, etc.) in order to better understand actual conditions in the field: - a three-day regional workshop on the "environment, rapid development, and poverty" was held in Mahajanga on November 5, 6 and 7, 2002 and involved approximately 120 representatives of various public and private entities; - another workshop on "good governance" will be held in Toamasina on November 25, 26 and 27, 2002. Following these two workshops, a second draft version of the full PRSP will be prepared by mid-January 2003 and will include the results of the work of the commissions. A national dialogue workshop will take place in late January 2003. The final version of the full PRSP should be ready by early February 2003 following government validation and presentation to the National Assembly. The final document will be forwarded to the donors in March 2003. V. CONSTRAINTS AFFECTING THE ONGOING FINALIZATION WORK The suspension of the process for six months, as described above, has required a new approach in the PRSP, which will have to take into account the in-depth analysis of the  -8- change in the poverty profile following the crisis and the environmental dimension of poverty. This has led to a revision of the timetable for finalization of the paper and of the initial deadlines. The new timetable, which has a lag of a few weeks over the initial timetable, has generated technical assistance needs, particularly the services of consultants to speed up the finalization of the technical work of the six commissions and to expand the team responsible for final drafting of the PRSP. The proposal is to hire five consultants: one to enhance coordination, one for the health and education commissions, and three to work with the other commissions until the document is finalized. The African Development Bank (AfDB) has been providing financial assistance since 2000, and it will continue to do so until the end of the process. A request for new financing to support the activities to be carried out during the process is being formulated. The United Nations Development Programme (UNDP) may also contribute in the context of the public policy and good governance project, and the project to provide institutional support for public management (PAIGEP) in the context of the PPF. VI. TRACKING AND ASSESSMENT 1. Coordination INSTAT plays a central role in the coordination of the PRSP tracking system. It must work closely with the Tracking-Assessment Directorate in the General Directorate of Planning. INSTAT already designed the PRSP tracking system as part of the interim PRSP and the provisional version of the full PRSP. This system has almost been finalized. Once the various indicators have been defined, INSTAT will be responsible for coordinating the data in cooperation with the Tracking-Assessment Directorate. In addition to its coordination mission, INSTAT will endeavor to put in place a system for studying the impact of implementation of the PRSP. This tracking system has a HIPC tracking component. 2. Participatory tracking method The enhancement of the participatory process will continue during tracking of implementation of the PRSP action plans and assessment of the strategy's impact on poverty levels. Participatory tracking workshops will be organized by the secretariat twice a year in each provincial capital, and sectoral impact analyses will be conducted. These workshops will involve all participants in the development of the strategy during the consultation phases and the results will be provided to the partners. VII. TIMETABLE November 2000 Interim PRSP December 2000 HIPC decision point  -9- February-August 2001 Thematic workshops October 2001 Full PRSP (1st provisional version) October-November 2001 Regional workshops and national workshop January-June 2002 Process suspended September 2002 Resumption of work to finalize the full PRSP October 2002 Resumption of sectoral work of the technical commissions • review of objectives and strategies • action plans with priorities and budgets November 5-7, 2002 Thematic workshop in Mahajanga on "poverty, the environment, and rapid, sustainable development" November 25-27, 2002 Thematic workshop in Toamasina on "good governance" December 6, 2002 Finalization of sectoral work of technical commissions December 15-24, 2002 Macroeconomic framework January 5-10, 2003 Final drafting of the full PRSP January 13, 2003 Full PRSP (2nd provisional version) January 29-30, 2004 National workshop February 2003 Validation by the government (final version) Presentation to the National Assembly Delivery to the donors