Report No. PIC3243 Project Mali-Economic Management Operation Region Africa Sector Non-Sectoral ID Number MLPA1735 Borrower Government of Mali Implementing Agency Ministry of Finance H.E. Mr. Soumaila Cisse, Minister of Finance & Commerce Telephone: (223) 23-16-75; Fax: (223) 22-88-53 Date PID Prepared February 13, 1996 Projected Appraisal Date April 1996 Projected Board Date June 1996 Background 1. Since initiated in 1988, structural reforms have gradually transformed the Malian economy from a closed, heavily controlled system, to one that is relatively open and liberal. Macroeconomic balances have improved but domestic revenue performance has stagnated. Fiscal balance gains have thus come largely through expenditure contraction which cannot be sustained over the longer term without adverse consequences for growth and for achieving key social sector objectives. In addition, the impact on improving competitiveness has been insufficient. Although strong in some sectors, overall the supply response has been insufficient, and the progress made towards the objective of achieving sustained rapid growth remains very fragile. 2. The Government is keenly aware of the need to deepen its adjustment efforts to achieve growth and poverty reduction, and is fully committed to achieving stronger results as it pursues its medium term reform program. Consolidating and expanding competitiveness gains from the 1994 parity change will be important for stimulating the strong supply response needed for growth. Achieving low and sustainable fiscal deficits through increased domestic revenues, will be a central part of this effort. This will also be important for reducing Mali's high level of aid dependence and for reaching the Government's goal of external financial viability over the medium term. Efforts to address gender based biases in access to key factors of production in order to ensure that women can participate more fully in economic activity will be equally important not only for growth but for achieving poverty reduction objectives. Finally, public expenditure policy will have to be made more consistent with poverty reduction. The proposed operation will support a package of measures that will help Government meet these objectives. Objectives 3. The principal objective of the proposed operation is to support the continuation of the Government's efforts to increase revenue mobilization, restructure public expenditures to improve their efficiency and poverty reduction impact, and reduce key constraints hampering the participation of women in economic activity. Description 4. This operation is an adjustment credit with four main components as follows: (i) Increase Domestic Resource Mobilization through a program of fiscal reforms comprising administrative as well as policy reform measures to increase domestic resource mobilization. The credit will also support revision of the mining code to remove unneeded exoneration while ensuring a sector environment that is competitive and attractive to investors. (ii) Improve Expenditure Management and Efficiency through a program of measures to improve monitoring of expenditure execution; reduce and eventually eliminate public transfers to the pension system; and clarify fiscal situation between Government and the energy sector and clear up any net Government obligations. (iii)Enhance Participation of Women in Economic Activity through implementation of key elements of the action plan prepared by the National Commission for the Promotion of Women following the Beijing Conference, including reducing constraints on women's access to land. Other measures include national public education campaigns on female education, traditional practices with adverse effects on women's health, and legal rights of women. Under the Credit, targets will also be set for the recruitment of female primary teachers given the empirical evidence on the positive correlation between number of female teachers and female enrolent. (iv) Enhance Poverty Impact of Restructuring Expenditures through measures to achieve sustained increase in financing of basic health, education and agricultural extension services, especially outside of the Bamako district where the needs are greatest and poverty impact is likely to be greatest. Financing 5. The total amount of the operation, net of taxes and duties, is estimated at US$60 million equivalent. Funds would be released through three regular tranches linked to progress on the overall macro program and two floating tranches that would be linked to the completion of specific reform measures. Co-financing will be sought from interested donors, particularly to finance activities relating to promoting women in economic activity. Implementation -2- 6. Implementation of the program will be coordinated by the Ministry of Finance and Commerce. A technical committee comprising members from the Ministries of Education, Health, and Civil Service and the Commission for the Promotion of Women will have responsibility for the supervision of the program of reforms supported under the credit. This committee will ensure overall coordination of the reforms. The program will be jointly monitored by the Technical Committee in collaboration with the Bank. Sustainability 7. The project preparation process is participatory and places the burden of responsibility for developing and monitoring the program on the Government itself. This is intended to build greater ownership of the program, and therefore would increase the likelihood of producing sustainable benefits. Lessons Learned from Past Operations in the Country/Sector 8. Key lessons from the Operations Evaluation Department's evaluation of the public enterprise adjustment program (PESAP) and the recently completed Implementation Completion Report for the structural adjustment operation (SAL I) include the importance of : (i) Government ownership and a strong constituency in support of reforms; (ii) institutional capacity to implement and monitor reforms; and (iii) clear objectives and effective monitoring of programs to address short term social impacts of reforms. 9. In both operations (PESAP and SAL I), implementation wavered partly as a result of social discontent and political changes. More effort should have been made to involve groups that were likely to be impacted by the reforms in the preparation of the program and to ensure that the reasons for reform were clearly articulated and understood. The political context prevailing at the time of preparation of both operations limited the ability to engage in such a consultative process, and the situation has drastically improved since then. In both operations, the programs designed to address short term adverse impacts were poorly executed and monitored and also affected by lack of distinction between reinsertion programs and payment of employment severance, creating unrealistic expectations on the part of laid-off workers. In particular, the linkage of the privatization of enterprises to tranche releases complicated some of the privatization plans and led to failure to carry out financial restructuring prior to privatization in cases where this would have been useful to clean up liabilities and set enterprise values more realistically. Poverty Category 10. This is a poverty-focused adjustment operation (see paragraph 4 (i) through (iv) above). The program will address poverty reduction by (a) improving public expenditure management; (b) supporting targeted programs; (c) developing poverty reduction measures for basic health care services. Under the credit, the Government will institute annual reviews of expenditure to feed into the next budget cycle. These reviews will evaluate expenditure execution vis-e-vis budget - 3 - allocations, explaining any shortfalls or overruns and propose recommendations for the next budget cycle. These reviews will be discussed with the Bank and the IMF during the mid-year program review. Under the credit, the Government will also set up legal assistance centers for women, operationalize mobile legal clinics, translate into local languages and disseminate all texts pertaining to the legal status of women, organize workshops on setting up micro-enterprises, and create apprenticeship centers for micro-enterprises. In addition, specific needs for staff, maintenance, etc., will be identified in areas such as health, education, agricultural extension in line with sector development objectives and provide budgetary allocations to meet these needs, instead of simply setting targets for sector shares in overall expenditures. This will ensure that increased expenditure resulting from the restructuring (Expenditure Restructuring) embody intrasectoral expenditure shifts that promote poverty reduction. Primary teachers and basic health staff will be recruited and assigned to posts where the needs are most visible and poverty impact is likely to be greatest. Environmental Aspects 11. This is a Category "C" operation; environmental analysis is not required. Benefits and Risks 12. The proposed operation is expected to help the Government of Mali implement appropriate policies to strengthen fiscal stabilization gains, improve poverty impact of public expenditures and reduce constraints to the participation of women in economic activity. These policies will in turn help foster growth. The main risk centers around the Government's ability to implement measures to increase revenues and limit tax frauds, and to reallocate public expenditures for health and education in favor of primary education and basic health care. There may also be strong opposition to efforts to improve women's participation in economic activity, particularly efforts to improve their access to land. These risks would be reduced through extensive IEC campaigns to explain the reasons for the proposed policy reforms. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. - 4 -