Documentof The World Bank FOROFFICIALUSEONLY ReportNo. 27893-COM MEMORANDUMOF THE PRESIDENT OFTHE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVEDIRECTORS ONA TRANSITIONAL SUPPORT STRATEGY UPDATE FOR THE UNIONOFCOMOROS February11,2004 CountryDepartment8 Africa Region This document has a restricteddistribution and may be usedby recipients only inthe performance o ftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. UNIONOF COMOROS TRANSITIONAL SUPPORT STRATEGY UPDATE CURRENCYEQUIVALENTS Currency Unit= Comorian Franc (KMF) US$1= KMF 394 (31 December 2003) WEIGHTS AND MEASURES Metric system FISCAL YEAR January 1 December 31 - ACRONYMS AND ABBREVIATIONS AAA Analytical and Advisory Activities JSDF Japan SocialDevelopmentFund AFD Agence FranGaise de Dtveloppement KMF ComorianFranc AfDB African DevelopmentBank LICUS Low IncomeCountriesUnder Stress AU African Union (former OAU) MDG Millenium DevelopmentGoals BADEA Banque Arabe pour le Dtveloppement MDTF Multi-Donor Trust Fund Economique en Afrique NGO Non GovemmentalOrganization CAS CountryAssistance Strategy OAU Organizationo fAfrican Unity CDF CommunityDevelopmentFund (now: African Union) CEM CountryEconomicMemorandum OIF Organisation Internationale de la CPIA CountryPerformanceInstitutional Francophonie Assessment OP OperationalProcedures CPPR CountryPortfolio PerformanceReview P.C. Per Capita DCA Development CreditAgreement PCF Post Conflict Fund EERC Emergency EconomicRecoveryCredit PEFA Public Expenditureand Financial EU European Union Accountability FADC Fonds d ilppui aux Dtveloppement PIP Public InvestmentProgram Communautaire PRGF Poverty Reductionand GrowthFacility FY FiscalYear PRSP PovertyReductionStrategy Paper GDP Gross DomesticProduct SMF Staff Monitored Program GNP Gross National Product SSP ServicesSupport Project GRIC GovernanceResearch IndicatorCountry TA Technical Assistance HIPC Heavily IndebtedPoor Countries UN United Nations HDI HumanDevelopmentIndex UNDP United NationsDevelopmentProgram IDA IntemationalDevelopment Association UNFPA UnitedNationsPopulationFund IDF InstitutionalDevelopment Fund UNICEF UnitedNationsInternationalChildren's IFAD IntemationalFundfor Agricultural EmergencyFund Development US$ United States Dollar IF1 IntemationalFinancialInstitutions WBI World Bank Institute IMF IntemationalMonetaryFund WDR World DevelopmentReport ISS Interim Support Strategy WHO World HealthOrganization Vice President: Mr.CallistoMadavo Country Director: Mr.HafezGhanem Task Team: Mr.Wolfgang Fengler, Mr.Aurklien Kruse, Ms.Anna van der Wouden, Mr.Willemvan Eeghen FOROFFICIAL,USEONLY UNIONOF COMOROS TRANSITIONAL SUPPORT STRATEGY UPDATE Table of Contents EXECUTIVE SUMMARY ....................................................................... 1 . Background......................................................................................................................... I PoliticalSituation......................................................................................................... 3 3 Hopes for reconciliation...................................................................................................... 3 . . . The challenge o fpoor governance ...................................................................................... Stalledprogress and new hope............................................................................................ 4 5 I1 Economicand Social Context. Government'sStrategy.......................................... . 6 Poverty.......................................................................................................................... 6 Macroeconomic developments ........................................................................................... 7 Government's Strategy and outlook ................................................................................... 9 I11 PastBankEngagement.Progress Under The BankInterimSupportStrategy.10 . Interim Support Strategy................................................................................................... 10 I V StrategyUpdate....................................................................................................... . 12 12 Non-lending activities ....................................................................................................... 14 Bank's program to meet the objectives ............................................................................. Key objectives ................................................................................................................... 12 Normalizing relations........................................................................................................ 15 16 Risksand mitigation measures.......................................................................................... Donor coordination and partnerships................................................................................ 17 Annexes Annex 1 Short-Term ResultsMatrix............................................................................. 19 Annex 2 Remittances .................................................................................................... Transitional agreement of December 20. 2003 .............................................. 20 Annex 3 Variance of remittances to the three Comoran islands .................................. 21 22 Annex 4 23 Matrix o f Donor Activities ........................................................................... LICUS Service DeliveryModel.................................................................... Annex 5 25 Annex A 2 Comoros at a glance ...................................................................................... Annex B3 IBRDADA Program Summary ..................................................................... Annex B 2 Selected Indicators o f Bank Portfolio Performance and Management..........30 32 Annex B 4 Summary o fNon-Lending Services .............................................................. 33 34 Annex B8 Operations Portfolio ...................................................................................... 35 This document has a restricteddistributionand may be used by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed without World Bank authorization . . Boxes Box 1 Timeline o f Events inthe Union o f Comoros....................................,,, 5 Box 2 Main features of the I-PRSP.............,............................................. 9 Chart Chart 1 Comoros per capita income (1982-2000). ............................................. 6 Tables Table 1 Economic Indicators. ............,.,......,,............................................ 8 Table 2 InterimSupport Strategy (November 2000). .................................,...... 12 Table 3 Bank Assistance for January 2004-December 2005. ............................... 16 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. EXECUTIVESUMMARY 1. The three islands that form the Union of Comoros have been under considerable stress experiencing more than twenty coups or attempted coups since gaining independence from France in 1975. Consequently, the Comoran population has experienced a gradual decline in living standards. Gross National Income (GNI) declined from approximately US$600 per capita in 1992 to US$380 today. The Human Development Index (HDI) stands at 0.528 ranking Comoros 134thout o f 175 countries. In recent years, many Comorans have left the country to reside inFrance. *. 11. In 1997, one of the three islands, Anjouan, seceded from Comoros and political instability followed. In 2001, there were hopes that stability would return and economic growth would resume following the signing o f the reconciliation agreement in February o f that year. This agreement called for the reintegration o f Anjouan into the Union together with the islands of Grande Comore and Moheli. The Interim World Bank Support Strategy (ISS) that was presented to the Board on November 14, 2000 shortly after the government had signed a declaration with the Anjouanese rebels, supported the reconciliation attempts and proposed interventions that would reverse declining economic and social trends. iii. Thereconciliationattempts,however,didnotcometofruitionandthepopulation has not seen a reversal in its fortunes. Eventhough a new Constitution was adopted in a referendumheld in December 2001, and presidents were elected for the Union and the three islands in early 2002, the subsequent political process stalled. Legislative elections were postponed and strong disagreements ensued betweenthe three island parties and the Union on the sharing o f power and financial resources. An IMF Staff Monitored Program (SMP) from July 2001 to June 2002 was not renewed following its closure. Since then, Comoros has not had an integrated national budget and the island o f Anjouan has continued to collect its own revenues, decide on its own expenditures and to recruit its own civil servants. IMFis currently working with the Comoran authorities to establish an integrated budget and a fiscal framework. iv. Following this prolonged period o f tension and unrest, an encouraging development occurred on December 20, 2003. Under the auspices o f President Thabo Mbeki o f South Africa andwith active involvement o f the Prime Ministers o f Madagascar and Mauritius, as well as the FrenchMinister o f Cooperation, the President o f the Union and the three presidents o f the islands signed an agreement to end the institutional crisis. The agreement sets out transitional measures for the division o f competencies between the Union and the islands, inparticular customs administration and budget execution, and provides for strengthening of key institutions. Legislative elections for the Union and the islands are scheduled for March-April2004. The agreement calls for a heavy involvement and support from the donor community to increase the likelihood o f success. - 1 - Objectives v. This update o f the previous Interim (now: Transitional) Support Strategy' for Comoros i s based on Low Income Countries Under Stress (LICUS) -principles. It covers a period o f 18-24 months and has two main objectives: (i)maintaining basic social services; and (ii) supporting the process o f reconciliation and facilitating the transition to a viable institutional structure. To reach these two objectives the Bank would: (i) re-orient its existing portfolio toward projects that use communities as the key deliverers o f services which have proven in Comoros to be more successful than those projects executed by the government; (ii) propose a new Services Support Project (SSP) that would help maintain the delivery o f social services to the poorest segments o f the Comoran society as well as address most urgent health and water sector needs; and (iii) if the reconciliation process proves sustainable, participate in a joint effort by all the relevant donors to ensure the basic functioning o f key public institutions through a Multi- Donor Trust Fund (MDTF). In addition, the Bank would continue to support the I-PRSP process, carry out a rural sector review, and a poverty and social expenditure assessment, as well as address governance issues and work on empowering civil society with the support o f the World Bank Institute (WBI). vi. Proposed total new lending for the period covered by this strategy would amount to US$13.3 million. The Bank also proposes to co-finance the MDTF in the amount o f around $1.5 million, initially with funding from the Post Conflict Fund (PCF) and in a subsequent phase from the LICUS Trust Fund.Inline with its mandate, Bank co-financed activities would be restricted to the overall economic management aspects o f the agreement and the strengthening o f economic institutions, customs inparticular. vii. This TSS Update presents two scenarios. In the event o f a successful reconciliation, marked by a stable macro-economic environment and implementation o f an agreed-upon budget, the Bank would move towards an engagement centered around the I-PRSP and granting o f interim debt relief. It would also resume lending for projects to be executed by government institutions. Once a full PRSP i s in place, a full Country Assistance Strategy would then be presented to the Board. Should the reconciliation process stall, the Bank would limit its involvement to supporting community-based activities and analytical work, and would not be in a position to proceed with co- financing the MDTF. viii. The following issues are suggested for Board discussion: 0 Does the Board consider that the Bank's strategy based on the LICUS principles i s appropriate? 0 Does the Board agree to focus IDA lending on community-based projects untilthe political situation stabilizes? 'ISSshave been replaced by TSSs with the introduction of OPiBP 2.30 - 2 - MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ONA TRANSITIONAL SUPPORT STRATEGY UPDATE OF THE WORLD BANK GROUP FOR THE UNIONOF COMOROS I.POLITICALSITUATION Background 1. The Comoros comprises the three Comoran islands that declared independence from France on July 6, 1975: Moheli, Anjouan and Grande Comore. A fourth island o f the archipelago, Mayotte, has remained under French sovereignty. The central government o f the country is located in Grande Comore. Comoros i s a small state with a population o f about 550,000 o f which approximately 50 percent live in Grande Comore, 42 percent inAnjouan and 8 percent inMoheli. GDP per capita was estimated at US$414 in2002, downfrom about US$610 inthe early 1990s. 2. For many years, the situation in Comoros has been marked by poverty, poor govemance and extreme political instability. Comoran politics have been characterized by rapid changes in direction and numerous coups involving foreign mercenaries. The ensuing instability has prevented the emergence o f effective institutions, and the lack o f government commitment toward socio-economic development has led to widespread disillusion with the State. 3. Dissatisfaction with the central government and declining living standards have also fueled separatism in Anjouan, culminating in the secession attempt o f 1997, which completely isolated the island. The leaders' inability to reach an agreement on the reintegration o f Anjouan and the deteriorating economy eventually led to riots and unrest on Grande Comore. The country's army intervened in response and took power in a bloodless coup on April 30, 1999. Hopes for reconciliation 4. Following the imposition o f an embargo on Anjouan by the Organization o f African Unity (OAU) and regional neighbors, and after intense negotiations during July and August 2000, the govemment signed a joint declaration with the Anjouanese rebels on August 26, 2000. The declaration called for a reunification of the country with a large degree o f autonomy for each island. 5. Subsequently, in February 2001, all parties signed a Framework Agreement for National Reconciliation in the town o f Fomboni (Moheli). The agreement outlined the path to reunification and democratization o f the country, including a referendum on the new Constitution, a govemment o f national unity, and presidential and legislative elections. With assistance from donors, much o f this was implemented, although with delays. The new Constitution was adopted on December 23,2001, and with it, the country changed its name to Union o f Comoros. Anjouan agreed to resume its participation in national institutions, albeit in practice with important restrictions with respect to fiscal andbudgetary harmonization. 6. The Constitution contained provisions for electing a president and forming a government on each o f the three autonomous islands, as well as at the central level. During April and May 2002, in elections that entailed some controversy, the existing leaders o f Anjouan, Moheli and o f the Union were elected presidents. On Grande Comore, Abdou Soule El Bak, a political opponent o f the Union President Azali, was elected to the new position o f islandpresident. Stalled progress and new hope 7. It was not long before new lines o f confrontation emerged. The agreements had left room for interpretation and negotiation on the specific respective responsibilities and prerogatives o f the four governments. These became an object o f contention, particularly between the newly formed government o f Grande Comore and the central Union government, located on the same island. In July 2002, disagreements crystallized over fiscal and budgetary issues, particularly with respect to modalities for tax collection and customs administration. 8. Attempts to resolve these issues at a meeting in Paris in October 2002, during a joint World Bank and IMF mission in December 2002, at a second meeting in Paris (so- called "Paris 11") sponsored by the Organisation Internationale de la Francophonie (OIF) in May 2003, and at South African brokered negotiations in August 2003 were not successful. The Union and island governments were not able to agree on a coordinated execution o f the budget for 2003. Attempts by both the central and the Grande Comore governments to collect the same taxes has had a negative impact on business. Given the lack o f a single unified budget for the entire nation, public financial developments have beenextremely hard to measure with accuracy, especially at the level o f the islands. 9. Nevertheless, after the failure of previous attempts to reach an agreement, new hope emerged towards the end o f 2003. Negotiations led by the South African President Thabo Mbekiduring his visit to Comoros inDecember 2003 paved the way to the signing o f an agreement ("Accord sur les Dispositions Transitoires aux Comores ") by all parties inMoroni on December 20, 2003 (Annex 2). With emphasis on institutionbuildingand division o f competencies, the agreement calls for the holding o f parliamentary elections in March-April 2004. This recent development brings about a new opportunity for the national reconciliation process and provides for transitional arrangements that - if implemented - would steer Comoros towards greater institutional stability and normalization o f relations with the international donor community. - 4 - Box 1 Timelineof Eventsinthe Union of Comoros - 6 July 1975 IndependencefromFrance.The islandsof GrandeComore, Moheliand Anjouan form Islamic Republic of Comoros. The islandof Mayottevotes to remainunder Frenchadministration. Aug. 1975 First coup d'Etat: President Ahmed Abdallah toppled in coup assisted by French mercenary Bob Denard. 1975-1997: Severalcoups d'Etator attempted coups.Decliningliving standards, poor govemance. Aug. 1997 Islandof Anjouan secedesfrom Comoros.Riotsand unreston GrandeComorefollow. Nov. 1998 President Abdoukarim dies. Interim President Massonde and secessionists try to take advantageof the situation.The OAUtries to broker a peaceaccord. Apr. 1999 Coup on GrandeComore ledby ColonelAzali Assoumani. Aug. 2000 Joint declarationbetweengovernment and Anjouanese rebels. Feb. 2001 FrameworkAgreement for NationalReconciliation(Fomboniagreement). Dec.2001 NewConstitutionadoptedandchangeof name to "Union of Comoros". Apr.1May2002 Presidential Elections for the Union and the islands: Colonel Azali Assoumani elected Presidentof the Union;MohamedBacar:Anjouan; Abdou SouleEl Bak: GrandeComore; and MohamedSaidFazul:Moheli July 2002 New lines of disagreement emergebetweenthe Unionand the islands Oct. 2002 Paris Imeetingto resolve the continuingcrisis May2003 Paris I1meeting Dec. 2003 New Agreement under auspices of President Mbeki of South Africa and Prime Ministers of Mauritiusand Madagascar. MarlApr.2004 Legislativeelectionsexpected. The challenge of poor governance 10. While Comoros experienced some violence between 1997 and 1999, casualties remained low, partly because o f the geographical separation o f the islands. In this sense, Comoros i s not a typical war-tom, post-conflict country recovering from heavy loss o f human and physical capital. Nonetheless, the indirect costs o f the secessionist conflict remain high. During the crisis, instability increased in Anjouan. The island's leadership was overthrown twice (in 1999 and 2001) and a group o f young militias emerged, after a failed invasion attempt o f the national army in 1998, further destabilizing the island. 11. Comoros' main challenge remains poor governance and the resulting socio- economic decline. The Govemance Research Indicator Country (GRIC) 1996-2002 shows that Comoros compares poorly to the regional average on five out o f six measures o f governance2, although it compares more favorably to the regional average on measures o f "voice and accountability". Identification o f entry points for future reforms requires a solid understanding of the roots o fpoor govemance in Comoros as well as the bottlenecks hampering positive changes in governance. 12. Years o f political instability have eroded the legitimacy and accountability of the State andprevented the emergence of strong and effective public institutions as evidenced by the virtual collapse o f government service provision. Little progress has beenmade in creating effective island level governments or representative local government structures. The institutional vacuum has been partially filled in Anjouan through the election o f thirty mayors. A fledgling mayoral systemhas also begunto emerge inGrande Comore. The Govemance Research Indicator Country (GRIC) 1996-2002 suggests that Comoros measures lower than the regional average o n political stability, government effectiveness, regulatory quality, rule o f law and control o f corruption. Percentile ranking o n voice and accountability in Comoros in 2002 was 34.3 percent compared to a regional average o f 3 1.O percent. - 5 - 13. In this weak institutional environment corruption is prevalent. Customs, which provides some two thirds o f the country's revenues are widely considered a major source of corruption. Unconventional business practices have also flourished. Examples include the single-source contracting for the country's telephone code, Anjouan's efforts to provide off-shore banking facilities outside of any legal framework, the lack o f intemational competitive bidding in state-managed oil or rice imports, and the "double privatization" o f the port o f Mutsamudu (first by the Union, then by Anjouan). The few companies o f intemational standing that were active in Comoros have left the country in recent years, reflecting a poor environment for private sector activity. 11. ECONOMIC AND SOCIAL CONTEXT, GOVERNMENT'S STRATEGY Poverty 14. In 2001, per capita GN13was US$380, only slightly above its 1982 level and significantly below its highest point in 1992, when per capita GNI stood at US$650 (Chart 1). Ranked at 168 in the world, Comoros i s one of the poorest nations. Although no updated poverty profile i s available since the last 1995 survey, some indicators are known. Life expectancy stands at 60 years and the infant mortality rate is 76 per 1,000 births. High rates of malnutrition among children (43 percent o f children less than two years o f age suffer from moderate malnutrition), and its effect on resistance to infectious diseases suggest that the mortality rate will continue to be high. Levels o f education and health are low despite the fact that many Comorans invest remittance funds inprivate or religious social services. Public service delivery i s poor and opportunities to acquire wealth through formal sector activities are very limited. A large number o f Comorans have left their country in search o f better fortunes. It is estimated that approximately 20 to 25 percent o f the people of Comoran origin live outside Comoros, mainlyinFrance. 15. Against the background o f economic decline and a lack o f domestic resources to finance public services, remittances from the Comoran Diaspora have been a dominant force inshapingComoros' economy and society, both stabilizing the extemal balance and creating disincentives for local entrepreneurship (Annex 3). Chart 1. Comorosper capitaincome(1982-2000) 1982 1984 Source: WorldBank WDIDatabase 2003 3GNIper capita, Atlas method, current US$ - 6 - Macroeconomic developments A limited resource base and an erosion of competitiveness 16. Comoros i s an economy centered around local services (47 percent) and agriculture (41 percent), with a very small industrial base (12 percent). Consumption represents 101 percent o f GDP, and i s driven by remittances and characterized by rural subsistence economy. Foreign exchange eamings stem from exports o f cloves, vanilla, perfume essence (Ylang-ylang) and remittances from the Comoran diaspora. Comoros was part o f the French franc zone and the Comorian franc (KMF) is now pegged to the euro. In 1994, the KMF was devalued by 30 percent, while the other currencies o f the French franc zone were devalued by 50 percent in foreign currency terms. In Comoros, however, this devaluation was not accompanied by appropriate macroeconomic and structural policies. As a result, the gains in competitiveness attained in 1994 were eroded and the economy continues to be plagued by high production costs, slow growth and chronic fiscal deficits. Low growth and a continuous decline in GDPper capita 17. Between 1998 and 2003 Comoros witnessed six consecutive years o f negative per capita GDP growth. GDP growth rebounded somewhat to reach 2.5 percent in 2002 (up from 1.9 percent in 2001 and -1.1 percent in 2000), in part due to favorable increases in intemational prices o f Comoros' key exports (Table 1) and to the resulting expansion o f the construction sector. The resumption o f external support in late 2001 and 2002 also contributed to a slight rebound in the GDP growth. For 2003 a similar GDP growth o f about 2.5 percent i s expected. In spite o f these favorable developments, Comoros was unable to reverse the trend of a negative GDP per capita growth. Preliminary projections for 2004 are along the same lines with real growth expected to reach 3 percent. Rising inflation and afragile fiscal situation 18. After climbing to almost 6 percent in 2001, inflation declined to 3.3 percent in 2002 and i s expected to retum to higher levels at 5.5 percent for 2003. The country's overall balance o f payments remained slightly positive in 2002 (0.8 percent o f the GDP) as a result o f the favorable developments o f Comoros' terms o f trade in 2002. For 2003, Comoros i s likely to register a current account deficit (excluding official transfers) o f 1.4 percent o f GDP. The overall fiscal deficit reached 6.2 percent o f the GDP in 2002, and the government continued to accumulate substantial intemal and extemal arrears. Due to weak and unreliable data, the fiscal outcomes for 2003 are still largely unknownalthough it is likely that the fiscal deficit 2003 will be lower than the 2002. For 2004, it is expected that inflation will go down to 4.5 percent with fiscal balances and the current account deteriorating only slightly at -1.5 and-2 percent respectively. - 7 - Overall fiscal balance, incl. Grants -3.4 -0.8 -1.9 -3.6 -6.2 -1.1 Current account balance -10.3 -7.9 -2.7 -0.2 -0.8 -1.4 (excluding off. Transfers) Current account balance -3 -1.3 -1.7 1.8 1.1 -1.1 (including off. transfers) Externalpayment arrears 80.8 82.1 81.9 86.9 98 104.2 (in US$million at endperiod) External Debt 19. Inits 28 years o findependence, Comoros hasbecome heavily indebted and carries a debt burden that it i s unable to service, in spite o f receiving almost all of its international aid on concessional terms. In2002, total external debt was estimated to have reached 97.6 percent o f the GDP. Comoros already has large arrears to multilateral creditors (African Development Bank (AfDB), Banque Arabe Pour le De'veloppement Economique en Afrique (BADEA)) and will have to face a sharp increase in its debt service payments to International Development Association (IDA) in the next five years, when the grace period of seven Bank projects comes to an end. 20. Given that Comoros is not able to sustain its external debt burden, it is crucial for the country to obtain debt relief and to normalize its relations with external creditors. In the absence o f debt relief, debt payments to IDA alone will increase from $1.2 million in 2003 to $2.0 million in 2006. If Comoros were to reach the Highly Indebted Poor Countries (HIPC) decision point its debt service payments to IDA and the IMF would be reduced by about half. Given the HIPC December 2004 sunset clause, concrete progress by the Government would need to be rapidly made to be eligible for this debt relief. The immediate impact o f HIPC debt relief on Comoros' cash flow would, inthe first instance, be limited as Comoros will have to clear substantial accumulated arrears owed to other creditors. The main benefit from HIPC would therefore come from normalizing relations with its external creditors, which would allow for new lending and the resumption o f positive net flows to Comoros. - 8 - Government'sStrategy and outlook PRSPprocess 21. The Comoran authorities have produced a draft I-PRSP, which was validated in three participatory workshops held on each island in May 2003. Additional workshops were heldwith the Diaspora inMarseille and Paris, leading to a national seminar with the Diaspora in Comoros inSeptember 2003. 22. By and large, the PRSP consultation process has remained on track despite political tensions. However, the deterioration o f the political and social climate has decreased the relevance o f the draft I-PRSP. The main achievement o f the PRSP process has been in bringing the Union and the three island authorities and stakeholders together to discuss common issues, even if the content of the strategy appears increasingly disconnected from the institutional, political and social realities that the country i s facing. 23. While producing the I-PRSP i s an important achievement, the next steps and the ability to move towards a full document will depend on the general political evolution o f the country. Unless the institutional situation improves and a reliable budgetary framework i s established, the I-PRSP i s unlikely to be implemented. The absence o f a central government budget and a realistic macroeconomic program and the absence o f an IMF Staff Monitored Program to be followed by a Poverty Reduction and Growth Facility (PRGF), will also constrain the availability o f HIPC and complementary donor support. Following the signing o f the December 2003 agreement, IMF i s working with the Comoran authorities on establishing an integrated budget and a fiscal framework for the country. This would pavethe way to a SMP and subsequently PRGF. Box 2. M a i n features of the I-PRSP The Comoros draft I-PRSP i s based o n three major building blocks: (1) An in-depth analysis o f poverty inComoros supported by available quantitative and qualitative data. (2) An analysis o fpotential growth sectors, particularly agriculture and fishing. (3) A list o f "Strategic axes" for implementing the Poverty Reduction Strategy. The I-PRSP recommends focusing the government's attention on sectors which have altogether strong growth potential and an immediate effect on employment and poverty. In Comoros, the agricultural and fishing sectors have been identified as top priorities, given their relative labor intensity and important export-led growth potential. Most importantly, the I-PRSP also identifies the political crisis as a major obstacle to poverty reduction, and improvements ingovernance as a sine qua non condition for breaking the poverty trap. Based on this analysis, the I-PRSP defines five strategic axes for economic growth and poverty alleviation: 1) creating the conditions for sustainable economic development 2) fostering private sector development 3) promoting agricultural development 4) reinforcing govemance, justice and security 5) focusing o n social services and social service delivery - 9 - 111. PASTBANKENGAGEMENT,PROGRESSUNDERTHE BANK INTERIM SUPPORT STRATEGY 24. Donor assistance has not been able to prevent the decline in GDP per capita. The Bank has carried out 19 projects since the Comoros joined the Bretton Woods Institutions in 1976: four Infrastructureand Roadprojects; three Educationprojects, three Healthand Population projects, two Rural projects, one Social Fund, one Private Sector Project, one Structural Adjustment credit, one Emergency credit, and three other projects (Coconut Rehabilitation, Development Bank, Regional Oil Spill Contingency). A majority o f the completed projects have been rated unsatisfactory. Capacity constraints, institutional instability and poor governance were stated as causes o fpoor project outcomes. 25. Comoros was in arrears to the World Bank from 1998 to January 2000. Following settlement o f arrears by the government, the suspension o f disbursements was lifted on January 6, 2000. The World Bank held a Country Portfolio Performance Review (CPPR) inMarch2000, on thebasis ofwhich itrestructured andre-launched project activities. InterimSupportStrategy 26. InNovember 2000, an InterimSupport Strategy (ISS) was presented to the Board. Its objective was to support Comoros in its transition out o f the secessionist crisis. Under the base case scenario, the Bankwas to prepare an Infrastructure Project andprovide non- lendingservices inthe form of a Country Economic Memorandum (CEM) and a grant for institutional capacity building. Under the high case scenario, which assumed an endto the separatist conflict andprogress on national reconciliation, the Bank was also to prepare an Emergency Economic Recovery Credit (EERC) (Table 2). 27. By mid-2001, Comoros entered the high-case scenario as tangible and decisive progress towards national reconciliation had been made as demonstrated by the preparation o f an integrated budget and the resumption o f government transfers to Anjouan. The Bank prepared an EERC in the amount o f US$6 million to further support the transition out o f the secessionist crisis. The EERC, which representedhalfo fthe total support provided by the international community, became an important factor in the transition process. Evaluation of lending activities under the ISS 28. The performance of the Bank projects has been mixed. The Bank's proactive engagement through the EERC has had a positive overall impact on the provision o f basic social services and helpedsubstantiallyto stabilize the fragile socio-economic situation in Anjouan. However, the EERC was not sufficient, by itself, to support and sustain the transition process and to bring about a reversal inthe decline o f per capita incomes. 29. The Social Fund has become an important pillar o f the Bank's engagement. It has been performing well and with U S $ l l million, it i s the largest project in the portfolio. In a difficult institutional environment, the project has deliveredservices to the poor and was - 10- among the first projects to be operational in all three islands. The Infrastructure, Water and Environment (IWE) project, however, performed poorly and was closed in FY03. The project was unable to disburse funds for road rehabilitation and water supply as a result o f complexities associated with implementation o f required sector reforms, the new decentralized framework for the country, and difficulties within the implementation unit. Evaluation of non-lending activities under the ISS 30. Rather than conducting a CEM, Bank support was reoriented toward activities deemed to have a greater impact in the changing context. Inter alia, the Bank (i) made available two trust funds (one capacity building grant and a PRSP trust hnd) to support the elaboration o f a development vision for Comoros; (ii) mobilized a Post Conflict Fund grant to ensure the reintegration o f Anjouanese militias (US$SOO,OOO); (iii)supported the PRSP process; (iv) helped set-up a computerized Public InvestmentProgram (PIP); and (v) provided technical assistance on budget management, including an in-depth evaluation o f salary arrears, an analysis o f the structure o f the civil service, and a civil service census inAnjouan. 31. The PCF grant helped support a comprehensive demobilizationheintegration package on the island o f Anjouan, led by the African Union (AU) and the OIF, the objective o f which was twofold: (i) to reduce the immediate threat represented by the militiamen and (ii)to contribute to local economic development by training the demobilized youth in small-scale activities that could be carried out at the village level. While the project was successful in addressing the first issue, progress was more modest with respect to professionalreintegration. 32. The Bank focused on a series o f informal reports that were considered increasingly relevant to Comoros' changing policy environment. These reports consisted of: (i) assessment o f the energy sector in response to Comoros' energy crisis; (ii) an an analysis o f remittances to support the PRSP-process and help prepare the Services Support Project; as well as (iii)an evaluation o f the budget management framework according to the Bank's standardized assessment for HIPC-countries ("1 5 HIPC benchmarks"). LessonsLearnedfrom the Past and Current Bank Engagement 33. Insummary, the key lessons learned from evaluating the Bank's portfolio inthis unstable and changing environment are that: (i)projects implemented through communities have been more successful than those implementedthrough the government; (ii)activities need to be designed with a flexible set o f tools to remain operational; (iii) expected outcomes o f the activities need to be set at a realistic level thereby closing the expectation-achievement gap; (iv) donor coordination and joint efforts are essential in bringing about positive developments inComoros; (v) the PRSP process has proved to be a good mechanism to bring parties together to discuss common development problems and solutions. These lessons are applied inthis strategy update as laid out inthe following section on the Bank's program. - 11- Table 2. InterimSupport Strategy(November 2000) Activity Status ~ Infrastructure project Presentedto the BoardinMarch 2001 Lending EERC (under high case) Presented to the Board in August 2001. The EERC was complemented by a PCF-financed reintegration project targeting young Anjouanese militia CEM Instead o f preparing a CEM, the Bank has: (i) supported the PRSP-process starting inMarch 2002, (ii)preparedinformalESWsonEnergy, Education Non-lending and Remittances, and (iii)produced an evaluation o fthe budget system. Capacity building grant The IDF has been made available in 2001. In (IDF) addition, PRSP and PEFA-trust funds have been mobilized in2002 and early 2003. IV. STRATEGY UPDATE Key objectives 34. The World Bank proposes a strategy that takes into account the lack o f political stability, the profound institutional weaknesses and the absence o f a coherent macroeconomic framework. The strategy update has two key objectives for the next 18- 24 months: (i) maintaining basic social services; and (ii)supporting the process o f reconciliation and facilitating the transition to a viable institutional structure. 35. In the relatively short timeframe o f this strategy update the Bank aims at fully supporting Comoros in its reconciliation process thereby laying the foundations for a more normal relationship leading to a full PRSP, paving the way for a full Country Assistance Strategy. At the same time, however, the strategy i s designed to support activities that seem to work irrespective o f political instability. The Bank maintains flexibility to withdraw financial support from the government and focus exclusively on community-based activities in the event the reconciliation process was to fail and instability continues. Bank's programto meet the objectives 36. To achieve these key objectives the Bank would: (i) re-orient its existing portfolio toward projects that have used communities for service delivery and have proven to be more successful than those projects executed by government; (ii) propose a new Services Support Project (SSP) that would help maintain the delivery o f basic services to the poorest segments o f the Comoran society; and (iii) the reconciliation process proves if sustainable, participate in a joint effort by all the relevant donors to ensure the basic functioning o f key public institutions by co-financing a Multi-Donor Trust Fund. - 12- Moreover, the Bank would continue to support the I-PRSP process, carry out a rural sector review and a poverty and social expenditure assessment as well as address governance issues and work on empowering civil society with the support o f the World Bank Institute (WBI). Reorienting the existingportfolio 37. Under the new strategy the Bank's portfolio will be restructured and streamlined so as to make it more suitable to the existing institutional capacity o f the country. InJune 2003, a Pilot Agricultural Services project and the IWE project were closed, and an Education project was closed in December 2003. Currently there are two active projects: one supporting Health and a Social Fund.As of January 2004, total commitments amount to US$19.9 million and undisbursed balances to US$2.1 million. Both o f these active projects are expected to close in June 2004 and are considered to be performing satisfactorily in terms o f meeting development objectives, and implementation progress. For the foreseeable future follow-up activities inthese sectors will be carried out through community-based operations. New lending 38. The strategy proposes one single comprehensive Services Support Project (SSP) o f US$13.3 million, which i s presented to the Board in conjunction with this strategy. The SSP builds on the achievements o f the successful Social Fund closing at the end o f FY04. The SSP has been designed to fit the current institutional context, addressing selected poverty reduction goals as spelled out in the draft I-PRSP. The SSP seeks to maintain service delivery with a particular emphasis on disadvantaged communities (Annex 4). Its main activities include small-scale social and economic infrastructure, and support for the most urgent health and water sector needs. The SSP also focuses on strengtheningthe basic capacity o f local communities, municipalities, civil society and other development partners to conduct a local development process which i s participatory and transparent. Supporting transition with other donors: the Multi-Donor Trust Fund 39. While past efforts have not succeeded in overcoming the institutional crisis, it i s critically important for the Bank to support the efforts to resolve the crisis with the help o f key development partners o f Comoros: South Africa, Madagascar, Mauritius, France, the OIF, the AU, the UNfamily, the EuropeanUnion, andthe IMF.It is hard to envisage how sustainable economic development and poverty reduction can be brought about without a sustainable resolution o f the political crisis. To increase the likelihood that the December 2003 agreement will lead to stability in Comoros, the international community has agreed to coordinate its assistance for the transition through a Multi-Donor Trust Fund. The MDTF would support Comoros in the implementation o f the budget and the new fiscal framework that i s expected to be agreed upon with the IMF in the very near future. It would also build and strengthenthe key government institutions and provide assistance to ensure that key public functions are undertaken properly such as the collection and sharing o f customs revenues between the islands, the execution o f the budget and the regular payment o f Comoros' debt service obligations. - 13- 40. The Bank proposes to co-finance the MDTF inthe amount o f around $1.5 million, initially with funding from the Post Conflict Fund and in a subsequent phase from the LICUS Trust Fund. In line with its mandate, Bank co-financed activities would be restricted to the overall economic management aspects o f the agreement and the strengthening o f economic institutions, customs in particular. Disbursements from the MDTF and the Bank financing would be based on the achievement o f specific benchmarks agreed upon by the Comoran authorities and the donor community. 41. Other donors have requested that the Bank contribute to this effort to assist in leveraging a coordinated approach. IDA funds are not appropriate for this purpose, since the transitional program financed by the MDTF i s grant based (due to risky environment and poor debt sustainability analysis), and Bank co-financing requested i s small in size but must be delivered extremely rapidly to support the transition ina timely manner. The PCF and, under these exceptional circumstances, LICUS Trust Fund facility respond to the need to mobilize rapid support for the strengthening o f institutions, early efforts at policy reform and capacity building. Like the Social Services Project which provides support through community based development, the MDTF would not be administeredby the government, but by the UNDP, which is the only international development agency with apresence on the ground. Non-lendingactivities Building knowledge and empowering civil society 42. Preliminary experience in LICUS countries suggests that ESW d other forms f policy dialogue need to play a more important role in identifying the root causes o f institutional instability and poor governance. In order to build knowledge and empower civil society, this strategy proposes a combination o f (i)support to the PRSP process; (ii) simplified ESW; and (iii)governance technical assistance by WBI. These three instrumentsshould reinforce each other and complement the SSP. The three activities will also benefit from the project's capacity to collect service delivery data. 43. PRSP. The Bank will continue to support the PRSP process through an existing trust fund and the proposed analytical work. Given the complementarities with other interventions, the PRSP process will play an even more important role in providing a platform for civil society to voice its ideas. Inthe context o f Comoros, the process should aim at being selective and realistic. The precise nature o f the PRSP process, inparticular its link to the HIPC process, will also depend on the progress o f the political transition. However, emphasis should be laid on deepening the dialogue with stakeholders, in particular local communities on the three islands, so as to contribute to the national reconciliationprocess. 44. This strategy entails the preparation o f two formal pieces o f ESW: (i) Rural sector review. Comoros has agricultural potential and most poor people live in rural areas. The rural sector review will analyze how Comoros can - 14- overcome constraints to productive activities in the rural sector, such as existing land tenure arrangements, distortions in the fiscal and tariff regimes, and the lack of financing and the existence o fkey hurdlesinthe supply chain. (ii)Poverty and social expenditure assessment. A national census and a household survey will be completed in 2004, allowing Comoros to significantly improve the focus of its policies. Basedon this census and household survey, the Bank proposes to conduct a poverty assessment which will update recent poverty trends in Comoros and provide a profile key characteristics o f Comoros' poor. The assessmentwill be combined with a public expenditure analysis focusing on the delivery o f social services to the poor. This analysis would provide essential inputs to the PRSP and baseline data for poverty targeting o f donor projects. 45. Governance technical assistance. The media remains a relatively dynamic and independent stakeholder, and hence an entry-point for govemance support. With the support o f the WBI, the Bank will carry out a govemance assessment and strengthen the capacity o f Comoran joumalists. Such training will be closely coordinated with the activities under the SSP and the planned ESW so as to leverage the accountability effect o f the project. Normalizing relations 46. The Bank will resume normal lending activities if the reconciliation process allows for the resumption o f normal economic activities with a stable macroeconomic environment and the implementation o f a budget in the context o f a coherent macroeconomic program supported by the IMF under a PRGF. Key elements of a normal relationship between Comoros and IDA would consist of: (i) finalization o f the I- the PRSP; (ii) granting of interim debt relief; (ii)accelerated progress towards a full PRSP leading to the preparation o f a full CAS and permanent debt relief under the completion point o f the HIPC initiative; and (iv) normalization of Comoros' relations with key donors and multilateral creditors. 47. Inthe event the reconciliation process stalls, the Bank will continue to restrict its engagement to community-based activities and analytical work, and would not be in a position to co-finance the MDTF. - 15 - Table 3. Bank Assistance for January 2004 -December 2005 Country Characteristics Bank Assistance Context Progress in Lending reconciliation Services Support Project Stable macro- Grant assistance SUCCESSFUL economic environment Financing o f Multi-Donor Trust Fund RECONCILIATION Agreed upon budget AAA and implementation o f Rural sector review (early FY05) a unifiedfiscal and Poverty and social expenditure assessment (end budgetary framework. FY05) WBI governance technical assistance Continued support to PRSPiHIPC-process to help Comoros reach HIPC decision point Reconciliation Lending attempts fail Services Support Project NO Macro-economic AAA RECOXCILIATION situation remains Rural sector review (early FY05) unstable Poverty and social expenditure assessment (end Growth is weak or FY05) negative WBI governance technical assistance No unified budgetary Continued but limited support to PRSP process and fiscal framework. focusing on conflict mitigation Donor coordinationand partnerships 48. Against the background o f Comorosyinstitutional instability and the difficulty o f working in Comoros, donors have reinforced their cooperation and coordination. The Bank and the UNDP have taken the lead in this effort, organizing several multi-donor meetings and drafting multi-donor Aide-Memoires. 49. All donors consider the prevailing govemance environment as the single greatest obstacle to development in Comoros. In light o f this, and given the looming debt crisis, all donors have agreed to limit their lending operations as much as possible, to emphasize instead grant-based assistance and systematically exploit synergies between their respective programs (see the Matrix o f Donor Activities inAnnex 5). This i s particularly important given the likely negative effects o f reduced donor support on poverty and economic growth. 50. In addition to the existing close cooperation and the planned Multi-Donor Trust Fund, the Bank has agreed with development partners to create the following synergies in its assistance: 0 The Services Support Project (SSP): The new project has been designed in close collaboration with development partners, including the Agence Franqaise de De'veloppement (AFD), the International Fund for Agricultural Development (IFAD), the European Union and the UNDP. Moreover, the IFAD i s preparing a parallel project concentrating on the economic empowerment o f the rural population. The EU - 16- i s focusing on the education sector, while the AFD will finance rural water in communities inAnjouan. These activities are complementary to those o f the SSP. 0 The PRSP: The Bank will continue working closely together with development partners, specifically the UNDP and the French Cooperation, to support the PRSP process. This cooperation will be extended to include financing o f a household survey which will provide new baseline data for targeting the poor. This will be particularly relevant for the PRSPprocess and communitycentered interventions by the donors. Risksandmitigationmeasures 5 1. This strategy faces four main risks: (i) Failure of the reconciliation process. The main risk o f the strategy i s that the past repeats itself and the reconciliation fails. Given the entrenched interests that risk i s very real. The risk i s reduced, however, by the strong commitment and concerted supportprovided by the international community both interms of political and economic assistance. Indeed the December 2003 agreement enjoys high level, visible and broad backing and contains built-in incentives for the agreement to work. Success in the implementation o f the agreement would entail the normalization o f relations with Comoros' partners as well as substantial debt relief. New aid flows would gradually become available as Comoros meets the benchmarks agreed upon by its regional partners and the entire donor community. On the other hand, failure o f the reconciliation process would imply a virtual stop o f all new support to the government and in all likelihood a continued decline inper capita incomes. (ii) Weak institutional capacity: Another risk i s that weak institutional capacity will hamper the implementation of the December 2003 agreement. The entire donor community i s fully cognizant o f this risk and has committed itself to the provision o f extensive technical support for the functioning o f key public institutions. The Bank will contribute to this joint effort o f the donor community by financing the services o f highly qualified and experienced personnel to follow the implementation o f those aspects o f the December 2003 agreement related to economic management and revenue collection. (iii) Insufficiency of resources and default. Comoros has large domestic arrears as well as international arrears' to multilateral creditors. Moreover, it will see a sharp increase in its debt service payments to IDA inthe coming years. These heavy debt obligations risk jeopardizing key social expenditures and increase the likelihood o f default to IDA. The proposed strategy foresees maintaining positive net flows from IDA in the immediate future through the existing project and proposed new lending. At the same time, the work needed to put in place an I-PRSP process and a sound macro- economic program is intensified in very close collaboration with the IMF and the other donors. Comoros will only be able to benefit from the HIPC initiative before the sunset clause applies in December 2004, if it i s able to show a satisfactory track record by December 2004. - 17- (iv) Political interference in implementation of SSP project. There i s a risk that the Union and the islands authorities will interfere with the decision-makingprocess of the SSP and undermine the demand-driven and community based dimensions of the project. This risk has been mitigated in the design of the project by creating a strong, independent and autonomousproject management. Inaddition, the projectwill be closely supervisedby the Bank on a regularbasis. James D.Wolfensohn President By ShengmanZhang Washington,DC February 11,2004 - 1 8 - Annex 1 Page 1of 1 Short-TermResultsMatrix Expectedoutcomes intwo IntermediateOutputsand Supportby the World years Indicators Bank andDevelopment partners Increasednumber o f students 0 Government continues to pay (i) EUEducation Project 0 inFADC built or rehabilitated salaries; and (ii)counterpart 0 IFADRural Development built or rehabilitated schools / funds o f active donor projects Project classrooms 0 Diaspora fund continue to co- Bank Services Support Increased number o f persons in finance local services at existing Project project intervention areas rate 0 Bank ESW will provide benefiting from a reduction in SSPwill complete at least 3g4 baseline data and analysis transport time and cost small-scale infrastructure focusing on poverty, service Increasednumber o f projects delivery and agricultural communities with development 0 At least 44 communities will production plans meeting participatory benefit from at least one sub- 0 Bank and other relevant process criteria project donors continue to support At least 50% o fthe population the PRSP process. inproject intervention zones will have access to drinking water within 1km A t least 50% o fpopulation in project intervention zones indicate knowledgelsatisfaction with their participation in community development plans Pillar 2 :Facilitating transition to a viable institutional structure - 0 Integratedbudget agreed upon 0 Agreement on a new fiscal Technical assistance from and implemented framework including: (i) relevant development 0 Satisfactory performance o f revenue sharing; (ii) revenue partners customs as per December 2003 collection; and (iii) expenditure 0 Fundingthrough the MDTF agreement sharing. 0 Bank and other relevant Creation o f institutions as per donors continue to support December 2003 agreement the PRSP process Target values are as o fproject mid-term which coincides with the end of this strategy period. - 19- Annex 2 Page 1of 1 Transitional agreement of December 20,2003 (i) OnDecember20,2003thePresidentoftheUnionofComoros, AzaliAssoumani; the President o f hjouan, Mohamed Bacar; the President o f Moheli, Mohamed Said Fazul; and the President o f Grande Comore, Abdou Soule El Bak, signed an agreement for national reconciliation under the auspices o f President Thabo Mbeki o f South Africa. (ii) TheagreementwassignedinthepresenceofthePresidentofSouthAfrica,Thabo Mbeki; Prime Minister o f Mauritius, Paul Berenger; Prime Minister o f Madagascar, Jacques Sylla; Deputy Foreign Minister o f Tanzania, Abdulkader Shareef; Secretary General o f the OIF, Abdou Diouf; Minister o f Cooperation and Francophonie o f France, Pierre Andre Wiltzer, Ambassador o f France and Representative o f the European Union, Jean-Pierre Lajaunie; Representative o f the United Nations, Mamadou Kane; and Secretary General o f the Indian Ocean Commission, Wilfrid Bertile. (iii) The agreement sets out transitional measures inthe following key areas: 0 Customs. The agreement calls for a joint customs administration under the authority of the State, represented by the Union government. To ensure independence, transparency and efficiency o f customs, a Customs Council consisting o f international experts and Comorans will be set up. Furthermore, an international Harmonization Committee will be formed with a mandate to oversee harmonization of norms, structures and macro-economic data. The signingparties have invitedthe World Bank to sit inthis Committee as well as to provide international experts to the Customs Council. 0 Budget. Two weeks from the signingo f the agreement a transitional budgetwill be put in place. The agreement sets out distributional shares o f the budget for each of the islands, the execution o f which will be under the surveillance o f the Harmonization Committee. The Harmonization Committee will also establish a system to control the expenditures and to ensure their transparency. After the adoption o f legislation for the sharing o f competencies, a consolidated budget will be implemented. 0 Legislative elections. Elections are to be held in March and April 2004 under the scrutiny o f a Monitoring Committee consisting o f the signing parties as well as international community. This Committee will be chaired by the African Union. 0 Exceptionalarrangementsfor Grande Comore. A retroactive payment will be made for the island of Grande Comore to cover expenses the island was entitled to since January 2003. 0 Security arrangements. The African Union is invited to provide civilian and military observers for the duration o fthe transitional period. - 20 - 0 Support from the internationalcommunity.The agreement calls for technical and financial assistance from the donor community to support the transitional measures. -21 - Annex 3 Page 1of 2 Remittances (i) Remittances playacentralroleinComoros' economyandsociety. Comorosis among the leading countries in the world interms o f remittances per capita and the share o f remittances relative to total exports. An estimated 20 to 25 percent o f the people o f Comoran origin live abroad (some 150,000 to 200,000 people), o f which between 85,000 and 150,000 are living in metropolitan France, many with French citizenship. The diaspora maintains strong ties to the Comoros and remits over 15 billion Comoran Francs (over US$35 million) annually, representing almost twice the product o f total merchandise exports. Since the late 1990s, remittances increased substantially, which pushedthe current account into surplus (see chart below). Key components of Balanceof Payment1984 2002 - 30 20 10 -10 -20 -30 Year Source: "Remittances in Comoros", Draft report, World Bank Africa Region (ii) However,remittancereceiptsthroughformalchannelsvaryenormouslybetween the three islands. With roughly equal populations, Grande Comore and Anjouan receive respectively 91 percent and 7 percent o f the total. If one considers net transfers, the difference becomes even starker, because Anjouan has a negative balance of transfers (56 percent o f transfers were outbound), whereas Moheli has roughly equal amounts of ingoing and outgoing transfers and Grande Comore a strongly positive balance (79 percent inbound). - 22 - Annex 3 Page 2 of 2 Variance of remittancesto the three Comoranislands (2001,2002, in KMF m) Source: "Remittances in Comoros", Draft report, WorldBank Africa Region, (based on Western Union data) (iii) Given its financial weight and direct contribution to the economic life of Comoros, the diaspora has an important role to play in the country's development. This strategy and the SSP seek to harness those inflows, which are naturally based on community/village links, by allowing diaspora money to be used as matching funds for community development projects. One o f the advantages i s to provide an outlay for diaspora development investment that i s entirely transparent and secure, thus encouraging altogether the formal channels for remitting diaspora money, productive use o f remittances and continued financial involvement o f an otherwise increasingly skeptical diaspora. The diaspora also constitutes a pool o f human capital which ought to be mobilized, be it for development projects or for accountability enhancing activities. - 23 - Annex 4 Page 1of 2 L I C U S Service Delivery Model (i)The2004WorldDevelopmentReport(WDR2004)describesatraditionalmodelof service delivery (illustrated in chart below) which includes three groups o f interacting stakeholder: (i) citizens, as clients, influence policymakers; (ii) policymakers influence service providers; which in turn (iii)deliver services to the clients. Service delivery failures occur when any o f these relationships breaks down. For instance, when citizens are unable to influence public action (break on the left side o f the triangle), when service providers' salaries are not paid (break on the right side o f the triangle), or when there are difficulties in implementingservices, such as poorly trained or absent teachers (break on the bottom o fthe triangle). Service delivery in LICUS-countries (ii)InComoros, significantgapsexistalongboththeleftandrightsides, aswellasthe bottom of the triangle. To provide some relief inthe short term, the SSP seeks to establish a "short-cut" inthe triangle by increasing the client's direct power over providers through heightened monitoring, participation, and choice. In the short- and medium -term, this will strengthen the connection along the base o f the triangle between the citizens and services. Such processes will be conducted through local intermediary bodies, such as village councils (comith depilotage). The goal i s not to provide a comprehensive long term solution to service delivery failures in Comoros, which will eventually require a re- engagement o f the state, but rather to avoid further deterioration o f human capital in the short term. - 24 - Annex 4 Page 2 of 2 (iii) Eventually,theprojectcanalsohelp`amplify' thevoiceofthepoor(whoarethe main victims o f service delivery failures) and foster stronger links on the left side o f the triangle - betweenthe citizens and policy makers - by ways o f demonstration effects and by building bottom-up demand for end-user accountability. To that end, the SSP will introduce community development planning and community-contracting models into the program design. Providing competitive opportunities and incentives to local mayors to respond to community needs via pro-citizen and downwardly accountable processes, will begin to scale up this impact and further decrease the accountability gap between the citizens and policymakers. Transparency at the local level will also be enhanced through project monitoring by local independent media. These measures should all contribute to "strategic incrementalism" (WDR 2004), whereby acute service delivery problems are alleviated alongside with long-term efforts to rebuildstate capacity inservice delivery. - 25 - v) .I a, .I Y i+ .CI 4 Y - .- 4- m . 5 .-M -4 u R c) m e"0 .C n"F c s c .C cw uai .e e E 4 e .-M Y f i 0 z sK p. a n m e, 0 E W ? 2b 3 b i i U 5i 46C c ER c9 i .C c \ a cS cR .C v 4 cn c .C sSc i Annex 2 Page 1of 2 Comoros at a glance 1/20/04 Sub- POVERTY and SOCIAL Saharan Low- Comoros Africa income Developmentdiamond' 2002 Population,mid-year (millions) 0.60 674 2,511 Life expectancy GNI percapita (Atias method, US$) 390 470 430 GNI (Atlas method, US$ billions) 0.23 317 1,069 -.? Average annual growth, 1998-02 i Population (%) 2.6 2.5 1.9 Laborforce (%) 2.8 2.6 2.3 GNi Gross per +pnmary Most recent estimate (latest year available, 1996-02) capita enrollment Poverty(% ofpopulation below nationalpoverty line) Urban population (% of totalpopulation) 34 32 31 I Life expectancyat birth (years) 61 47 59 i Infant mortality(per 7,000iive births) 59 91 76 Child malnutrition(% of children under 5) 26 Access to improvedwater source Access to an improvedwater source (% ofpopulation) 96 55 76 Illiteracy(% ofpopulation age 75+) 44 37 37 Gross primaryenrollment (% of school-agepopulation) 76 78 96 -- Comoros Male 82 85 103 Low-incomegroup Female 70 72 88 KEY ECONOMICRATIOS and LONG-TERMTRENDS 1982 1992 2001 2002 Economic ratios. GDP (US$ billions) 0.11 0.28 0.22 0.25 Gross domestic investmenffGDP 31.4 19.5 13.2 12.9 Exportsof goods and services/GDP 15.7 17.1 15.9 15.8 Trade Gross domestic savings/GDP 6 . 8 -3.1 0.0 0.6 - Gross nationalsavings/GDP 9.5 6.7 16.0 13.7 Currentaccount balanceiGDP -10.2 -19.6 1.8 1.1 Interest paymentsiGDP 0.7 0.7 0.4 0.6 Total debffGDP 64.2 67.1 102.9 100.8 Total debt service/exports 4.3 5.6 3.9 8.1 Present value of debVGDP 33.9 70.0 65.1 Present value of debffexports 135.4 226.8 221.5 Indebtedness 1982-92 1992-02 2001 zoo2 2002-06 (average annual growth) --- GDP 1.7 1.0 1.9 2.5 3.0 Comoros GDP per capita -0.9 -1.5 -0.6 -0.2 0.3 Low-incomearouo Exportsof goods and Services 7.3 -3.8 -10.1 8.8 5.3 STRUCTUREof the ECONOMY I%of GDP) Agriculture 335 374 Industry 141 108 Manufacturing 3 7 4 2 Services 524 51 7 472 472 Private consumption 768 836 837 80 1 General governmentconsumption 299 195 163 193 Importsof goods and services 538 39 7 292 28 1 1982-92 1992-02 *Oo2 (average annualgrowth) Growth of exports and imports (Oh) Agriculture 2.9 4.9 9.5 4.9 3o Industry -3.7 5.8 9.5 4.9 ;: Manufacturing 4.2 4.8 9.5 4.9 0 Services 2.0 -5.3 -14.0 -4.1 -10 Private consumption 1.5 3.4 -4.1 -0.5 -20 -30 Generalgovernmentconsumption -0.1 2.7 69.6 24.1 40 Gross domestic investment -3.7 -5.1 4.4 2.7 =---Expons -.O'lmpons __ ~~ Note 2002 data are preliminaryestimates Group data are through 2001 * The diamondsshow four key indicatorsln the Country (in bold)comparedwith its income-groupaverage If data are missing,the diamondwill be incomplete -31- Annex A2 Page2 of 2 Comoros PRICES and GOVERNMENT FINANCE 1982 I992 2001 2002 Domestic prices Inflation (Oh) (% change) ~ 1_r0 Consumer prices -6.5 2.9 3.3 Implicit GDP deflator 6.5 -6.5 8.5 4.5 Government finance - (% of GDP, includes currentgrants) Current revenue 15.0 16.0 19.1 97 98 99 w 01 02 Current budget balance -6.4 -1.6 -2.9 Overall surDlus/deficit -16.6 -3.6 -6.2 GDP deflator -CPI TRADE I982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 22 17 19 I Vanilla 16 10 13 170 T 60 Cloves 0 4 4 50 Manufactures 40 Total imports (cif) 74 52 57 30 Food 13 12 12 20 Fueland energy 7 10 11 10 Capital goods 5 6 0 Export price inde$1995=100) 125 181 184 96 97 98 99 00 01 Import price inde$1995=100) 64 122 123 Exports Imports Terms of trad$1995= 100) 194 148 149 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balanceto GDP (Oh) Exportsof goods and services 22 48 35 39 I Importsof goods and services 51 111 64 70 2 Resource balance -28 -63 -29 -30 0 2 Net income 1 4 2 0 4 Net current transfers 19 5 31 33 6 8 Current account balance -11 -55 4 3 -10 -12 Financing items (net) 15 55 17 7 -14 Changes in net reserves -4 0 -21 -9 -16 i-18 Memo: Reserves including golcL/S$millions) 11 27 63 72 Conversion ratq'DEC, local/US$) 328.6 265.0 549.3 521.1 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composltlonof 2001 debt (US$ mill.) Total debt outstanding and disbursed 69 188 226 250 IBRD 0 0 0 0 IDA 8 40 79 96 Total debt service 1 4 3 6 IBRD 0 0 0 0 IDA 0 1 1 1 Composition of net resourceflows Official grants ... ... 10 1 Official creditors 16 17 8 9 Private creditors 1 0 0 0 Foreign direct investment Portfolio equity World Bank program Commitments 12 0 17 0 A. IBRD E Bilateral Disbursements 2 3 12 12 B IDA . D Other multilateral F Private - Principal repayments 0 0 1 1 C IMF - G Short-term -.- Net flows 2 2 11 11 Interestpayments 0 0 1 1 Net transfers 2 2 10 10 Development Economics 1/20/04 -32- Annex B2 Page 1of 1 Annex B2-Comoros SelectedIndicatorsof BankPortfolioPerformanceandManagement As Of Date 01/06/2004 Indicator 2001 2002 2003 2004 Portfolio Assessment Number of Projects Under Implementation a 6 6 4 2 Average Implementation Period (years) 3.8 4.8 4.8 6.0 Percent of Problem Projects by Number a r c 0.0 0.0 25.0 0.0 Percent of Problem Projects by Amount a, 0.0 0.0 29.8 0.0 Percent of Projects at Risk by Number a , d 0.0 33.3 25.0 50.0 Percent of Projects at Risk by Amount as 0.0 44.2 29.8 57.8 Disbursement Ratio (%) e 12.2 43.0 34.9 27.4 Portfolio Management CPPR during the year (yes/no) No No No No Supervision Resources (total US$) 341,000 592,000 280,000 265,000 Average Supervision (US$/project) 57,000 85,000 47,000 70,000 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 13 3 Proj Eva1by OED by Amt (US$ millions) 80.1 23.7 % of OED Projects Rated U or HU by Number 53.8 66.7 % of OED Projects Rated U or HU by Amt 55.2 74.2 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the * beginning of the year: Investment projects only. All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. -33- Annex B3 Page 1of 1 Annex B3 IBRD/IDA ProgramSummary -Comoros - As of 01/06/2004 Proposed IBRDllDA Base-Case Lending Programa Fiscalyear Proj ID US$(f4 StrategicRewardsb Implementation b (HIM) Risks ( H M ) 2004 Services Support Roject 13.3 H H Total: 13.3 -34- Annex B4 Page 1of 1 Annex B4 - Summary of Non-LendingServices As of 01lQ6I2QO4 Product CompletionFY Cost (US$OOO) Audiencea Objective Recentcompletions EnergyNote FY03 26,000 Government KnowledgdProblemSolving Underway PRSP FYO4 87,000 Bank Knowledge TSS-Update FYO4 65,000 Bank Knowledge Planned Rural Sector Review FY05 200,000 GovtlBank Knowledgdproblem-solving Povertyand Social Expenditure Assessment: FY05 179,000 GovtlBank Knowledge a. Government,donor, Bank, publicdissemination. b. Knowledgegeneration,public debate,problem-solving -35- I iD m The Core Task Team comprisedWolfgangFengler, Aurelienh s e , Anna van der WoudenandWillem van Eeghen.The teamwas strongly supportedbythe LICUS- team, particularlySarah Cliffe, KathrynCasson and CatherineMoeller, as well as Vincent da Cruz and Cede Wodon, but manyothers contributed. - 3 7 -