Document of The World Bank Report No: 27567 BU - FOROFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT INTHE AMOUNT OF SDR 18.1 MILLION (US$26.0 MILLIONEQUIVALENT) TO THE REPUBLIC OF BURUNDI FOR AN ECONOMIC MANAGEMENT SUPPORT PROJECT December 30,2003 Poverty Reduction and Economic Management Country Department 09 Africa Regional Office This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank Group authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 03,2004) CurrencyUnit = Burundian Franc (FBU) FBu 1 = US$O.O009 US$ = FBu 1060.5 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS BRB Banque de la Republique du Burundi CAS Country Assistance Strategy CFAA Country Financial Analysis Assessment CPAR Country Procurement Assessment Report DFID Department for International Development DGD Direction GCnerale des Douanes DGI Direction GenCrale des Imp& DGMP Direction GCnerale des MarchCs Publics E.U European Union EERC Emergency Economic Rehabilitation Credit EMSP Economic Management Support Project FDI Foreign Direct Investment FM Financial Management FMR Financial Monitoring Report FMS Financial Management Specialist GDP Gross Domestic Product GPN General Procurement Notice GTS Government Transitional Strategy HIPC Highly Indebted Poor Countries IDA International Development Association IDF Institutional Development Fund IMF International Monetary Fund I S Interim Strategy I S 0 International Standards Organization ISTEEBU Institutde Statistiques et d'Etudes Economiques du Burundi LJR Legal and Judicial Reform LJSA Legal and Judicial Sector Assessment MOF Ministry of Finance MTEF Medium Term Expenditures Framework NGO Non Government Organizations PA Project Account PAD Project Appraisal Document PCU Project Coordination Unit PER Public Expenditures Review FOROFFICIAL USEONLY POM Project OperationalManual PRSP Poverty ReductionStrategy Paper PSC Project Steering Committee REGIDESO Regie de Distribution d'Eau et d'ElectricitC SCEP Service Charge des Entreprises Publiques SDR Special Drawing Rights SPN Specific ProcurementNotice TC Technical Committee TGOB Transitional Government of Burundi TSS TransitionalSupport Strategy UNDP UnitedNations DevelopmentProgram Vice President: Callisto E. Madavo Country Director: EmmanuelMbi Sector Manager: CadmanA. Mills Task Team Leader: MathurinGbetibouo This document hasa restricted distribution andmay beused by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization. BURUNDI ECONOMIC MANAGEMENT SUPPORT PROJECT CONTENTS A. Project DevelopmentObjective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 4 C. Project Description Summary 1. Project components 2. Key policy and institutionalreforms supportedby the project 3. Benefits and target population 4. Institutional and implementationarrangements D.Project Rationale 1. Project altematives considered and reasons for rejection 11 2. Major related projects financed by the Bank andor other development agencies 11 3. Lessons learned and reflected inthe project design 12 4. Indications o f borrower commitment and ownership 12 5. Value added o f Bank support inthis project 12 E. Summary Project Analysis 1. Economic 12 2. Financial 13 3. Technical 14 4. Institutional 14 5. Environmental 15 6. Social 16 7. Safeguard Policies 17 F. Sustainability and Risks 1. Sustainability 17 2. Critical risks 17 3, Possible controversial aspects 19 G. Main Conditions 1. Effectiveness Condition 20 2. Other 20 H. Readiness for Implementation 20 I.CompliancewithBankPolicies 20 Annexes Annex 1: Project Design Summary 21 Annex 2: Detailed Project Description 25 Annex 3: Estimated Project Costs 35 Annex 4: Qualitative Assessment of Financial and Economic Returns Summary 36 Annex 5: Financial Summary 37 Annex 6: (A) Procurement Arrangements 38 (B) Financial Management and Disbursement Arrangements 53 Annex 7: Project Processing Schedule 55 Annex 8: Documents inthe Project File 56 Annex 9: Statement of Loans and Credits 58 Annex 10: Country at a Glance 60 Annex 11: Policy Matrix 64 Annex 12: Project Organizational flow chart BORROWER 1.53 I 0.00 I 1.53 [DA 1.90 24.10 26.00 Total: 3.43 II 24.10 I1 27.53 I - - I ~ -. - _ _ Borrower: REPUBLIC OF BURUNDI Ministry of Finance Responsible agency: MINISTRY OF FINANCE, REPUBLIC OF BURUNDI Ministry of Finance Address: Ministry o f Finance, Bujumbura, Burundi Contact Person: Mr.Skleus Nezerwe, ProjectCoordinator Tel: 257 22 2775; or 257 92 2740 Fax: 257 22 3827 Email: nezenves@yahoo.com Estimated Disbursements ( Bank FY/US$m): FY 1 2004 2005 2006 2007 I 2008 I 2009 Annuall 0.50 II 5.50 II 7.00 II 6.00 I 2.00 19.00 1 5.00 I 24.00 I 26.00 III Project implementation period: 03/2004 to 0712009 Expected effectiveness date: 03/30/2004 Expected closing date: 0713012009 A. Project Development Objective 1. Project development objective: (see Annex 1) The development objective o f the proposed Economic Management Support Project (EMSP) is to increase the efficiency of Burundi's macroeconomic, financial, and administrative management by strengthening accountability and transparency through improved procedures and controls. This inturn will raise the effectiveness o f public expenditure for growth and poverty reduction, and help reduce transaction costs for private economic activity. The recurrent politico-ethnic conflict suffered by the country since independence in 1962 and the more recent outbreak o f civil war in 1993, subsequent to the assassination o f the democratically elected Hutupresident, Melchior Ndadaye, imposed a huge toll on Burundi. Hundreds o fthousands o f people lost their lives, were displaced, or out-migrated, including several employees o f the public administration. Economic management has been especially weakened ina Government where, in addition to the brain drain o f key personnel, focus on emergency concerns has given capacity building in good governance low priority. There is a consensus among donors, including the Bank and the IMF, and with the Government on the severe inefficiencies and disruption of the economic management apparatus. This diagnosis was more recently confirmed by the Public Expenditure Review (PER), undertaken in the context o f the Emergency Economic Rehabilitation Credit (EERC), itself a key operation under the Bank's Interim Strategy for assistance to Burundi during the period 1999 -2001. One o f the fundamental conclusions o f the PER was the need to address the dire state o f the budget process, with a focus on repairing the basics o f budget coverage, budget execution, and financial controls. As a first step, an Institutional Development Facility (IDF) granted to the Government o f Burundi is attempting to strengthen the capacity o f central ministries for policy formulation and implementation. This initial step now needs to be complemented, deepened and extended to other central government departments critical in enhancing overall management o f public affairs, through the proposed Economic Management Support Project. In addition to supporting procedural improvements in public financial management, the Project will address key human resource concerns, including training as well as personnel management, as described later inthis document. 2. Key performance indicators: (see Annex 1) The Economic Management Support Project will be implemented over a five-year period, beginning in March 2004. Triggers and indicators have been developed and agreed upon with the Government o f Burundi to determine progress in implementation, and performance benchmarks in macro-economic, financial and humanresources management have been defined in terms o f both outcomes and process. - 2 - Component Key Performance Indicators 1. Strengthening Macroeconomic Data Collection Improvedtools for macroeconomic analysis and and Analysis for InformedPolicy Formulation. economic statistics Improvedanalysis of impact of public finance instrumentson macroeconomic aggregates Improved public finance forecasting capacity inthe ministries o f planning and finance 2. Increasing Transparency and Improving Expandedbudget coverage Governance for the Public Financial and Better link betweenresource allocation and social Administrative Management sector goals in accordance with poverty reduction strategy Improvedfiscal performance 3. ReformingPublic ProcurementSystem and Better procurement administration, with updated Modernizing Private Sector Legal and Regulatory public procurement code Framework. Strengthenedfinances of restructured public enterprises 4. Defining Legal and Judicial Reform Strategy Defined legal andjudicial reform strategy and StrengtheningOversight Structures Capacity Strengthenedoversight structures B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supportedby the project: (see Annex 1) Document number: 23635-BU Date of latest CAS discussion: March 07, 2002 (Board date) Because the conditions in Burundi have not been conducive to the elaboration o f a Country Assistance Strategy (CAS), Bank interventions between 1999-2001 and 2001-2003 have taken place within the context o f an Interim Strategy (IS) and a Transitional Support Strategy (TSS) respectively. The proposed operation was included in the March 2002 TSS as the Multi-Sector Capacity-Building Project and was planned for delivery in FY2003. However, preparation o f the project was postponed in order to allow for an adequate involvement o f the new Government structures which have emerged from recent political developments --and the project i s hence being submitted for approval inFY2004. The delay also allowed the preparation team to take full account of, then pending, conclusions o f the PER and the participatory diagnostic assessment o f the public procurement system. Both pieces o f sector work helped elaborate the two key major components o f the project. Pending the elaboration o f a full CAS, the fluid political and economic context in Burundi calls for a Bank strategy characterized by three elements: (i) a focus on the urgent basic problems, (ii)pragmatic adaptability to a changing situation, and (iii) close Bank-led coordination on especially donor assistance in economic management. The current operation, by its content and through its preparation and prospective implementation mechanism, fits within this strategic context. 2. Main sector issues and Government strategy: Long standing major issues in the area o f economic governance in Burundi have to do with the consequences o f recurrent conflicts, themselves a consequence o f an inadequate power sharing across ethnic groups and regions. Not only have the conflicts depleted the stock o f human capital, but also they have contributed to create a culture o f avoidance and impunity in public administration, in turn, breeding further resentment and degrading services. Thus the administration which preceded the current coalition Government o f transition presented the Government Transitional Strategy (GTS) for 2001-2003 at the Paris Conference, in December 2000, with the following strategic objectives: (i) consolidating peace and - 3 - national reconciliation; (ii)promoting good governance; (iii) rehabilitating, reinstalling and reinserting refugees and victims of conflicts; (iv) reducing poverty through public financing o f infrastructures reconstruction; and (v) promoting growth through economic reforms. These goals are consistent with, and supported by, the TSS. Strategies seeking to promote good governance focus on establishing systems o f transparency and accountability across the public sector and ensuring popular participation in decision-making processes. Proper management o f economic, financial and human resources i s essential if these strategies are to contribute to growth and address poverty reduction objectives. 3. Sector issues to be addressed by the project and strategic choices: The state of public finance and main challenges for recovery. Both the external current account and the fiscal deficit in2002 were smaller than had been expected, with the overall fiscal deficit (after grants) at just 1.4% o f GDP compared to 5.2% o f GDP in2001, and a corresponding sharp decline ininflation, from 9% in 2001 to virtual price stability in 2002 (see Table 1). In Burundi's situation, however, this did not reflect positive developments, but largely a compression in expenditures --including a drastic decline in capital spending financed from domestic resources, which was only in part offset by an increase in aid-financed expenditures. Overall, public investment declined from 6.4% o f GDP in 2001 to 5.2% in 2002. Table 1: Burundi Selected macroeconomic and fiscal aggregates, -- 2000-2003 (inpercent) --2002 2000 2001 2003 (est.) Annual change in: GDP growth -0.9 2.1 4.6 1.0 Inflation (yearly average) 24.3 9.3 -1.4 9.0 Export volume 5.5 4.9 -20.7 50.0 Import volume 1.7 4.3 -1.2 5.0 I n percent of GDP: External deficit 10.0 6.8 5.7 8.0 Fiscal deficit (including grants) 1.8 5.2 1.4 7.3 Domestic revenue 19.2 20.0 20.4 19.4 Current expenditure 18.8 21.6 20.6 21.2 (of which, civilian salaries) 3.5 3.9 4.1 4.9 Capital expenditure 6.1 6.4 5.2 8.7 (of which, domestically funded) 1.7 3.4 1.1 3.6 ~~ ~~ Sources: Compiled from various recent IMF and World Bank data. Accordingly, for 2003 and beyond, macroeconomic and fiscal policy should provide greater breathing space for developmental expenditure, by means of: (i) a less tight fiscal stance overall; (ii)an increase in aid - especially untied budget support; and (iii) restraint in current expenditure. The SDR 19 million IMF program for 2003, targets a recovery o f public investments to 8.7% o f GDP, which among other things entails accepting a temporary increase in inflation (although still in single digits). This, however, depends crucially in the first instance on an increase in available financing, from both budgetary and external resources. It is very difficult to see how such an increase in domestic and external financing can materialize without a sharpening o f the instruments o f budgetary and financial control that have been degraded by ten years o f insecurity and economic decline, as explained later. In Burundi, therefore, expenditure control appears as the urgent priority not to contain inflation or restore fiscal sustainability - - 4 - as in the usual situation - but as the necessary means to create fiscal space for higher developmental expenditure for post-conflict recovery, growth, and ultimately poverty reduction, Raising investment efficiency. As noted, the medium-term economic program for Burundi should provide room for some recovery o f investment from the currently severely depressed levels. However, the disrepair o f the structures for project appraisal and investment programming, calls for an urgent effort to raise both the allocative and use efficiency o f capital spending. Such an effort would underpin the higher developmental expenditure permitted by the macroeconomic framework, and thus justify the additional aid to finance it. Next only to restoring expenditure control, a reinforcement o f investment project selection and design and o f the process o f public investment programming is the other key challenge o f public expenditure and financial management in the country in the coming years. In close coordination with the Bank, DFID is preparing a targeted capacity-building planning and public investment technical assistance intervention, which will complement the EMSP activities to strengthen budget coverage and expenditure monitoring and control. In due course, the improvement in public investment programming should also constitute a major building block for a medium-term expenditure framework for Burundi, currently precluded by the uncertain circumstances and need to address the immediate urgent problems. Key challenges of EMSP. Against this background, the project addresses some o f the key weaknesses in Burundi's financial and administrative management. Since the 1990s, donors (including the Bank and the Fund) and Government documents have underlined the compromised state of economic, financial and administrative management in Burundi, and the growing concern with corruption. There is in Burundi an unusual degree of consensus between govemment and donors, and among donors, on the diagnosis o f the many public financial and administrative management problems: (i)tools for macro-economic management are outdated; (ii) medium-term expenditure programming is non-existent; (iii)budgetpreparationprocessisweakandpurelymechanical; (iv) extrabudgetary funds and accounts have proliferated; (v) in budget execution, the observance o f physical and financial monitoring procedures is haphazard; (vi) internal and external audit have virtually ceased to operate; (vii) human resources in the Ministry o f Finance, the Ministry o f Planning and the budget offices o f the line ministries have become fewer, older and unmotivated, with basic skill gaps now evident, training and retraining are non-existent, and competency levels are low; (viii) public procurement code is outdated and a procurement reform action plan has only beenprepared recently and its adoption pending; (ix) public financial oversight structures are extremely weak; and, (x) the financial situation o f public enterprises is precarious. Yet, there are assets on which to build. The public financial management apparatus still retains a degree o f discipline and service ethics. The organizational architecture o f the core economic management ministries - Finance and Planning - is acceptable and does not call for major alterations (although accountability i s hampered by some functional duplication with competing ministries - mainly, the anomalous location o f the Inspectorate o f Finance in the Ministry o f Good Governance and Privatization). At working levels, senior staff are at their posts, basic documents are found, some reliable statistics exist, requests for information are met. Most importantly, the new govemment leadership in the area o f economic management i s clearly committed to a process o f institutional improvement with neither illusion nor defeatism. Thus, the public financial and administrative management situation in Burundi engenders grave concerns but not cynicism. Broad thrust of EMSP. The project will therefore promote the rehabilitation and rebuilding o fthe public financial and administrative management by helping the government: (i) macro-economic update modeling and improve data collection and analysis for informed policy formulation through the establishment o f a computerized database and operational economic model; (ii) increase transparency and improve governance inpublic and administrative management by reforming and computerizing procedures, - 5 - producing operating manuals, creating databases and networked computers, overhauling codes, and training personnel; (iii)strengthen public procurement by updating the public procurement code, defining an action plan for the reform o f the public procurement administration, and establishing a framework for monitoring the implementation o f public procurement processes, with a view to achieving the objectives o f transparency, competition, economy and efficiency, faimess and accountability; (iv) support the modernization o f the legal and regulatory framework o f the private sector; and (v) define a legal and judiciary reform strategy and strengtheno f public financial oversight structures. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project has been formulated in close collaboration with major concerned donors, particularly the UK Department for Intemational Development, and fits into a broader program o f assistance for capacity-building and institutional reform in Burundi. The project structure, described below, should therefore be seen in the context o f an overall aid effort characterized by both an unusual partnership with other donors and a need to respond to fluid developments in a pragmatic and realistic manner. Continuing coordination and complementarity will be assured, under Bank leadership, among other things through a small subgroup o f donor representatives in Bujumbura interacting regularly on public expenditure management issues. The Bank will therefore remain closely involved in all aspects o f the inter-related public financial management cycle, whether or not it provides specific assistance through the proposed EMSP or in other ways. Table 2 summarizes in tabular form the interventions by the major donors. While the largest single intervention is through the proposed IDA project, other substantial assistance is being provided or prepared by DFID, the EU, UNDP, France and Belgium. Many o f the interventions shown inTable 2 are first steps or intermediate steps, which will call for further sustained effort over several years in order to produce durable institutional improvement. It is also important to underline the lesson o f international experience that effective assistance to improve public financial management cannot be focused on the Ministry of Finance in isolation from the other entities o f government, and must include attention to the also important functions o f planning and extemal audit, as well as to the budgeting capacity o f the line ministries. - 6 - Table 2: BURUNDI: Primary focus of major donor assistanceto strengthen public financial management. Area World Bank DFID EU UNDP /France Belgium Legal and Governance issues V V Macro Framework i Macro modeling and statistics V Budget financingmebt management V Revenue Tax policy V Tax administration V Customs V Budget Preparation Budget coverage and classification V Public investment policy and programming v V Payroll and personnel management V Budget Execution Treasury and accounting 7 V Procurement V Internal audit External audit Legislative oversight Informatics and Training Revenue computerization Treasury/payroll computerization General training in basic budgeting V Training in specific areas/issues V The project includes four technical components: Component 1. Strengthening Macroeconomic Data Collection and Analysis for Informed Policy Formulation: Sub-component 1:Improving statistics production capacity and reliability Sub-component 2: Strengthening national capacity for poverty assessment and monitoring Sub-component 3:Expandingtechnical capacity ineconomic modeling Sub-component 4: Dissemination of economic and statistical information Component 2. Increasing Transparency and Governance in Public Financial and Administrative Management: Sub-component 1:UnifiedBudget Sub-component 2: Treasury andAccounting Sub-component 3: Revenue Network (Internal Revenue and Customs) Sub-component 4: Financial Computerized Network Sub-component 5: Civil Service Management and Payroll Sub-component 6: Human Resources Development and Training - 7 - Component 3. Reforming Public Procurement System and Modemizing Private Sector Legal and Regulatory Framework: Sub-component 1: Strengthening the public procurement administration; Sub-component 2: Support to the modemization of the regulatory framework for the private sector. Component 4. Defining Legal and Judicial Reform Strategy and Strengthening Oversight Structures Capacity: Sub-component 1: Support to the preparation o f the strategy for the reform o f the legal andjudicial sector, and Strengthen the Tribunal de Commerce and Establish a Centre PrivC d'Arbitrage (Private Arbitration Center). Sub-component 2: Strengthening o f oversight mechanisms: Commission Finances et Budget de 1'Assemblde Nationale (Parliament National Committee on Finance and Budget), Cows des Comptes (Court o f Accounts), Inspection Gdndrale d'Etat (General State Inspectorate), Inspection Gdndrale des Finances (General Inspectorate o f Finance), and Media. Indicative Bank- Yo of Component costs Yo of (US$M) Total Component 1: Strenghtening macroeconomic data collection 2.56 9.3 and analysis for informed policy formulation. Component 2: Increasing transparency and govemance in 16.73 60.8 15.80 60.8 public financial and administrative management. Component 3: Reforming public procurement system and 3.35 12.2 3.15 12.1 modernizing private sector legal and regulatory framework. Component 4: Defininglegal andjudicial reform strategy 1.72 6.2 1.63 6.3 and strengthening oversight structures capacity. Component 5: Project coordination, management, 3.17 11.5 3.00 11.5 monitoring & evaluation. I Total Project Costs 27.53 100.0 26.00 1 100.0 Total Financing Reauired 27.53 100.0 26.00 I 100.0 2. Key policy and institutional reforms supported by the project: Good govemance through transparency and accountability, a prerequisite for the resumption o f extemal assistance and for the post-transition Government to regain the confidence o f the people, is the key objective o f the project. The project therefore fits also into the Good Governance Program established by the Government in partnership with UNDP, seeking to promote good govemance, peace and security. The mid-term strategy o f the Transitional Government o f Burundi (TGOB) recognizes the importance o f transparency, and accountability for the growth, stability and security process. While the Arusha Accord emphasizes govemance and accountability in public resources management and promotes inclusion, the interim PRSP stresses the importance o f establishing poverty-reducing programs and strengthening the links between resource allocation and priority programs. The proposed EMSP will, among other things, support the Government o f Transition in its efforts to strengthen the links between the priority programs identified inthe PRSP and budgetary allocations in coming years. More specifically, the project will support institutional reforms inthe areas o f budgeting,procurement, and govemment personnel management -inthe context o f the broader donors' program for assistance to institutional reform in administrative, fiscal, and expenditure management. - 8 - 3. Benefits and target population: There are three main observations in terms of benefits and target population under EMSP. First, the principal benefit expected from the project is to help strengthenthe Government capacity to manage the economy. In particular, the project is expected to raise the allocative and use efficiency o f current and investment expenditure, including expenditures financed by development assistance and, to that extent, enable the provision o f a higher level of aid. The project will also help restore the Government's ability to design and implement policy, through its assistance to the Ministry of Development Planning and Reconstruction, Statistical Institute (ISTEEBU), Ministry of Finance, and Ministry of Good Governance, and to reinforce financial oversight structures (the Parliamentary National Committee on Finance and Budget, the General Inspectorate of Finance, the General State Inspectorate and the Court of Accounts as supremeaudit institution. Second, a major component o f more efficient public resource use consists of the strengthening o f the public procurement function, through improvement of procurement administration and update the Procurement Code as well as strengthening the capacity o f the Tribunal o f Commerce and the creation of a Private Arbitration Center, the good functioning of which is important to improve the investment climate, and hence support the private sector. Finally, as an outgrowth o f the institutional and capacity improvements supported by EMSP, the Government o f Transition will be better able to link its budgetary allocations in the future years to the pro-poor priority programs identifiedinthe PRSP. 4. Institutional and implementationarrangements: Institutional development and capacity building being at the core o f the proposed operation, it i s necessary that the implementation o f the reforms supported by EMSP be an integral part o f daily responsibilities of, thus be vested to, the concerned ministries and administrative structures. Thus in addition to having the responsibility o f the overall implementation o f EMSP, the Ministry o f Finance will be in charge o f the technical implementation o f the public financial and administrative management and public procurement administration sub-components o f the project. The Ministry o f Economic Planning and Reconstruction will perform similar responsibility for the first component o f the project dealing with the tools o f macroeconomic management; the Ministry o f State for Good Governance and Privatization will be responsible for technical implementation o f the support to privatization sub-component; and the Ministry o f Justice, the legal andjudicial reform strategy sub-component The institutional and implementation arrangements designed are based on the results o f the assessments conducted in the course o f the PER, in 2001 and 2002, the IDF grant for technical assistance on macroeconomic management, and three preparatory missions in December 2002, February/March and June 2003, and o f a Quality Enhancement Review held in M a y 2003. All these assessments have indicated that although the level o f human resources i s currently low, it would be more sustainable to build on existing human resources and structures than provide substitution technical assistance. Hence the decision to establish a Program Steering Committee to oversee project activities, a Technical Committee and a Project Coordination Unit (PCU) located in the Ministry o f Finance, the latter being also responsible for managing the economic - 9 - reforms under the IDA financed Economic Rehabilitation Credit. Project administrative structures: The main implementingagency for the project will be the Ministryo f Finance. Other implementing ministries include the: 0 Ministry o f Development Planning and Privatization, 0 Ministry o f Good Governance and Privatization, 0 Ministryo fJustice, and 0 Ministryo fCivil Service. The overall project coordination is entrusted to a Program Steering Committee (PSC), chaired by the Minister o fFinance and composed o f 0 Ministero fFinance, 0 Minister o f Development Planning and Reconstruction, 0 Minister o fGood Governance andPrivatization, 0 Minister o fJustice, 0 Minister o f Civil Service, 0 Secretary o f the National Secretariat for Social and Economic Reforms, and 0 Project Coordinaor as secretary. A Technical Committee (TC) will be created to be the link between the PSC and the PCU (see below), It will be staffed with representatives o f the implementing ministries who will coordinate project technical activities in their respective ministries, in which they will play a key role o f focal points. The Project Coordinator will be the secretary o f the TC. A Project Coordination Unit (PCU) will be responsible for the overall management of financial resources, accounting, procurement and reporting o f the project in accordance with the provision o f the Credit Agreement and Project Operational Manual (POM). It will be a light structure led by a Project Coordinator who will report to the Minister o f Finance and will be assisted by an Administrative and Financial Officer, and a Procurement Officer. Financial Management, Accounting, and External Audits The principal objective of the Project's financial management system (FMS) will be to support management in the distribution o f limited resources with the purpose o f ensuring economy, efficiency and effectiveness in the delivery o f outputs required to achieve project objectives. Specifically, the FMS must be capable o f producing timely, understandable, relevant and reliable financial information that will enable management to plan, implement, monitor and appraise the Project's overall progress towards the achievement o f its objectives. Relevantly qualified, experienced and independent auditors will be appointed on approved terms o f reference. The external audit will cover all IDA and counterpart funds at all levels o f Project execution. - 1 0 - Disbursement Arrangements and Flow of Funds Funds of IDA financed-projects in Burundi are generally channelled through Special Accounts (SA) and Project Accounts (PA). Counterparts funds o f Borrower's contribution are usually received through the Project Accounts. These accounts are managed by the Project Coordinating Unit. The Special Account o f EMSP will be maintained at the Banque de la Ripublique du Burundi (BRB) --thecentral bank, whereas its Project Account ina commercial bank acceptable to IDA. The chart inAnnex 6B illustrates the proposed banking and funds flow arrangements. A Project Operational Manual will provide a detailled administrative, financial management, accounting, and procurement procedures for the project. Detailed institutional and implementation arrangements o f the project are provided in Annex 2, Section on component 5: Project Coordination and Management . D. Project Rationale 1. Project alternatives considered and reasons for rejection: Giventhe uncertainties inBurundi,the alternative o f an ambitious and large-scale budgetreform program, including an MTEF and bottom-up sectoral programming, would be premature. On the other hand, piecemeal interventions would be unlikely to succeed inthe current situation o f institutional disrepair inseveral related areas ofpublic sector management, The EMSP therefore relies both on substantial coordination with other donors and, insofar as its own expenditure and accounting activities are concerned, on a model developed with some success elsewhere inAfrica, as discussed in Section 3. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-fjnancei projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Poverty alleviation Private Sector Development S S (Cr. 2359-Bu) (closed) Economic Rehabilitation Credit S S Economic and Democratic Governance (ongoing) European Union Good Governance (ongoing) '/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), P (Highly Unsatis - 11 - 3. Lessons learned and reflected in the project design: Ingeneral, as noted earlier, experience shows that effective assistance to improve public financial management cannot be focused on a Ministry o f Finance in isolation from the other entities o f government, and must include attention to the important functions o f planning and external audit, as well as to the budgetingcapacity o f the line ministries. Specifically, the proposed project has drawn lessons from an IDA project inBurkina Faso, which facilitated the development o f a computerized expenditure circuit and public accounting system functioning in real time and linking 1,000 computers throughout the country. Under local Burkinabe management, this successhl system was later expanded to include payroll, revenue and civil service management. Although this expansion was envisaged in the initial scheme, it was carried out under a separate UNDP project. While the general approach appeared to fit the specific requirements o f Burundi, a review o f the Burkina experience suggested that it would have been more efficient to integrate these different aspects into a single project, as is being proposed under the EMSP. Also, the design o f the capacity-building components o f the project has drawn from the lessons o f experience inother post-conflict cases, and mainly to: (i) focus on the urgent problems, (ii) the training level as basic as the existing keep skillgaps, and (iii) the training to government staff already inplace. target 4. Indications of borrower commitment and ownership: The political context which has prevailed inBurundi since the onset o f the civil conflict has led the first crisis government to shift from fiscal reforms to emergency measures. Recognizing the difficulty o f carrying our reforms and fiscal adjustments in a post-conflict and emergency context, the donor community has expressed earlier concems about the commitment o f Burundian authorities to implement the reforms made in previous public expenditure reviews. However, both through the dialogue leading to the proposed EMSP, and from the realization o f the need to improve budgeting and procurement in order to justify a recovery o f aid (which fell from about US$300 million a year before 1992 to a 1992 - 2000 average o f under US$ 100 million), the Government understands the necessity to improve economic management and is fully prepared to lead and cooperate actively in the implementation o f EMSP. The commitment o f the Minister of Finance, as the main interlocutor for the project, is especially relevant inthis context. 5. Value added of Bank support inthis project: The value added o f Bank support stems inpart from its experience in other post-conflict situations in the region (e.g., Democratic Republic of Congo, Republic o f Congo and Rwanda), as well as from its capacity to lead and coordinate other donor activities into a coherent overall public financial management reform program. E. Summary Project Analysis (Detailed assessments are inthe project file, see Annex 8) 1. Economic (see Annex 4): 0 Costbenefit NPV=US$million; ERR = % (see Annex 4) 0 Costeffectiveness 0 Other(specify) Given its nature, an institutional development and capacity building project such as EMSP is not conducive to a traditional quantitative cost benefit analysis. Qualitative inferences on the economic and - 12- social gains as a result o f the project can, however, be made. Since EMSP will enhance the capacity to formulate and implement economic policies, the overall efficiency o f the economy should improve. More specifically, reforms undertaken in the area o f public finance and public procurement will enhance the efficiency o f public resources, and administrative reforms will strengthen the Government control over personnel expenditures and begin redressing the deterioration inthe Government's human resource base. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR= % (see Annex 4) Fiscal Impact: As noted, the proposed project will have a positive impact on the quality o f public sector management. To that extent, it will permit better control o f aggregate expenditures and thus a more sustainable fiscal posture. Equally important, the institutional improvements expected from the project should lead to higher economic rates o f r e m o f individual investment projects and o f public investment as a whole, thus permitting greater aid inflows for productive expenditures as well as much better programming o f counterpart fhds to reduce the typical disbursementdifficulties linked to insufficient local budget cover. Accordingly, the EMSP can contribute over time to a lower overall fiscal deficit at the same time as it fosters an improvement in the quality o f public spending; thus the fiscal impact i s likely to be positive on both accounts. The expected development impact o f each project component are discussed below: Component I, Strengthening macroeconomic data collection and analysis for informed policy formulation: Through this component, EMSP will help Government update macroeconomic modeling, improve data collection and analysis for informed policy formulation with an expected positive impact on Government readiness to implement reforms, including fiscal and administrative decentralization. Component 2. Increasing transparency and governance in public financial and administrative management: This component will improve public accounting and reporting, including links to debt management and to the monetary accounts o f the central bank (Banque de la Rdpublique du Burundi) cash management, budget coverage and implementation, and the completion of an updated Chart of Accounts. The component would also assist to cany out a civil service census, among other things leading to the implementation of a computerized payroll system, and facilitate putting in place a unifiedbudget and an integrated public expenditures computerized system. A public accounting advisor would be contracted for advice and capacity-building. Component 3. Reforming public procurement system and modemizing private sector legal and regulatory framework: This component would help the government strengthen public procurement including the adoption and the implementation o f a new legal, regulatory and institutional framework; and would support the modemization of the private sector regulatory framework, including the strengthening of the technical and regulatory capacity o f SCEP. Component 4. Defining legal and judicial reform strategy and strengthening the capacity o f financial oversight institutions: Through this component, the government would be enabled to elaborate a legal and judicial reform strategy, strengthen the parliament's finance and budget committee, and the General Inspectorate o f Finance, as well as contribute to putting in place the General State Inspectorate, help supporting the creation o f the Court o f Accounts - the supreme audit institution --and a private center o f - 13- arbitration, and strengthen the Tribunal o f Commerce. The latter two would have the added effect o f improving the business environment and sustaining private sector emergence by providing reliable dispute resolution mechanisms. 3. Technical: To meet the challenges presented by the lack o f capacity inthe country, the project would provide extensive process facilitation, staff education, on-the-job training with short-term technical assistance, study tours to other countries, and systematic in-country training.Whenever required and feasible, training o f trainers will be carried out. Strengthening macro-economic data collection and analysis for informed policy formulation will entail focusing on institutional and knowledge building in the Ministry o f Planning and ISTEEBU and facilitating the elaboration o f instrumentsto collect data and more complete and reliable social and economic data for the preparation o f national accounts and other reports produced by the Government. These would include reports on PRSP implementation, policy notes reviewing recent economic developments and providing realistic forecasts o f key economic indicators, and any other report needed to facilitate dialogue with donors, especially discussions involving the central bank o f Burundi. The second component on improved transparency and governance in public financial and administrative management has a large training sub-component. In addition, DFID envisaged carrying out intensive workshops on public expenditure programming and budget preparation and execution, which will be coordinated with the EMSP program through the PCU. 4. Institutional: 4.1 Executing agencies: The Ministry o f Finance is the executing agency of the project. It will be assisted by the PCU. The technical responsibility for the implementation o f project sub-components remains with the implementing and beneficiary agencies, namely the Ministry o f Finance, the Ministry o f Planning, the Ministryincharge of Good Governance and Privatization, the Ministryof Civil Service, and the Ministry o f Justice (See Section C4 above for the description o f the implementation arrangements). 4.2 Project management: Day-to-day project activities would fall under the responsibility o f the PCU which would also serve as Secretariat to the Program Steering Committee and provide technical and financial expertise to implementing agencies, especially in the areas o f procurement, disbursement, financial accounting, project monitoring and reporting. 4.3 Procurement issues: The project will be autonomous for its own procurement activities. Thus, bids will be advertised, evaluated, and awarded within the Project Coordination Unit. The setting-up o f the PCU was at its early stage during project appraisal --the project coordinator and the head o f administrative and financial management department were then recruited. The PCU team will comprise a Procurement Specialist whose recruitment will be launched early January 2004 so that hehhe might be on board by the end o f February 2004. The formal capacity assessment o f the PCU in accordance with Procurement Services Policy Group (OPCPR) Guidelines dated JulylS, 2002 will be carried out before the credit effectiveness. The project is considered high risk as any project without demonstrated experience inprocurement at their launching. -14- One o f the sub-components o f the proposed project is designed to support the implementation o f the procurement reform action plan so that the Burundi procurement system is in a position to achieve the objectives usually pursued by a well functioning procurement system. In this regard, the project will support an important training program aimed to reinforce the capacity o f all the parties involved in the procurement process. Thus, the project will be well equiped to implement the action plan that will result from the capacity assessment o f the PCU. 4.4 Financial management issues: An assessment o f the financial management arrangements of the project included a review of the systems o f accounting, reporting, auditing, flow o f funds and internal controls. The Project Management arrangements are acceptable if they are considered capable o f recording correctly all transactions and balances, supporting the preparation o f regular and reliable financial statements, safeguarding assets, and are subject to auditing arrangements acceptable to the Bank. The Project is at high risk until the FM and other operational systems are well defined and documented, and personnel are trained. The client has been tasked with producing an FM timeline to effectiveness that is realistic. The FM team will return for a review once the systems are more developed and the Project Coordination Unit has been fully staffed. For the Project to satisfactorily deliver on its objectives, a FMS will be developed in accordance with the Financial Management Assessment Report presented inthe Annex 6B. Overall, the control environment in Burundi is weak and needs improvement. In order to establish an acceptable control environment and to mitigate financial management risks, the measures outlined inthe Action Plan in Annex 6B should be implemented. Moreover, the preparation o f Manual o f Financial and Accounting Procedures, satisfactory to IDA, is a condition o f EMSP effectiveness. 5. Environmental: Environmental Category: C (Not Required) 5.1 Summarize thc steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The proposed project is primarily a technical assistance operation for capacity building. Its development objective is to increase the efficiency o f the country's macroeconomic, financial and administrative management. Since the project will only deal with government institutional structures and simply facilitate the re-establishment o f the central administration, no adverse environmental impact is foreseen. In accordance with the Association's operational environmental assessments (OD 4.01, Annex E), the proposed project had been placed in Category C and did not require an environmental assessment. Based on late discussions to construct a building for government entities carrying out especially activities under Component 2 o f this project, however, a site specific Environmental Management Plan has been prepared and is to be disclosed prior to Board presentation o f the operation. 5.2 What are the main features o f the EMP and are they adequate? The construction of the buildingwill be on a state-owned site with no lien against the property. The site specific EMP is exclusively contruction related. 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: The site specific EMP has been discussed with the Borrower and submittedto IDA on January 04,2004. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA -15- report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? The site i s state owned, A letter from the Ministryo f Public Works dated December 29, 2003 (Ref. 720/CAB/99812003) confirms the ownership by the state and releases the site for the purpose o f EMSP to the Ministry of Finance. 5.5 What mechanisms have been established to monitor and evaluate the impact o fthe project on the environment? D o the indicators reflect the objectives and results o f the EMP? An independent environmental watchingdog institution, the Institut National pour la Conservation de 1'Environement et de la Nature, and the Direction Gknkrale de I'Urbanisme et de 1'Habitat o f the MinistryofPublic Works will monitor the EMP implementation. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social dcvelopment outcomes. The formulation o f Burundi's I-PRSP showed that the inefficient management o f scarce resources results in suboptimal allocation to the poor and vulnerable groups. Inaddition, the current weak budgeting capacity precludes a strong linkage between pro-poor Government policies and actual budgetary allocations and expenditures. It is difficult to envisage a recovery o f basic public services - particularly in basic health, primary education, water and sanitation, without addressing the inefficiencies in public expenditure management. Finally, institutional improvements in budgeting and procurement should help reduce corruption - which typically harms the poor and increase effective participation o f key stakeholders inthe - budgeting process. Promoting a gender-sensitive public service The EMSP is committed to help foster gender equity inthe public service. An early activity will be the commissioning o f a baseline survey to assess the status o f women inthe public service. Other planned activities include sensitization training for senior managers on gender issues and career development training for women public servants. 6.2 Participatory Approach: How are key stakeholders participating inthe project? The EMSP's design is the result o f a participatory process that included key implementers o f the program, such as: the Ministries o f Finance, Development Planning and Reconstruction, Good Governance and Privatization, Justice, Civil Service and the Chamber o f Commerce o f Burundi. The EMSP preparation team was also able to benefit from consultations with civil society, NGOs, and the private sector that took place as part o f the I-PRSP process. Inaddition, parliamentarians from all parties provided input. Representatives o f the five key financial partners o f public service reform in Burundi, namely DFID, UNDP, the French cooperation through the Service de Cooperation et d'Action culturelle, the E.U. and the Embassy o f Belgium, participated in the preparation o f the project. During implementation, the Program Steering Committee which is multi-departmental will ensure that the interests of all public and private agencies concerned are taken into account, and organizations in the decision and policy makingprocess will be sought . 6.3 H o w does the project involve consultations or collaboration with NGOs or other civil society organizations? See 6.2. - 16- 6.4 What institutional arrangements have beenprovided to ensure the project achieves its social dcvclopment outcomcs? See 6.2 6.5 How will the project inonitor performance interms o f social development outcomes? Although, as noted, EMSP is expected to have a positive indirect impact on social outcomes, as assistance to the financial management infrastructure, the project itself does not have specified social development objectives. However, annual reviews will assess progress o f social indicators, and social and beneficiary assessments, as well as audits will be conducted on a regular basis. 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. This project complies with all applicable Bank policies. F. Sustainability and Risks 1. Sustainability: The Government o f Transition is committed to the successful completion o f Project activities, which will not only strengthen government institutions, agencies and processes, but also enhance the likelihood o f attaining national reconciliation, lasting peace and good governance. The Transitional Government is particularly committed because the project will leave behind good practices and results as its inheritance to an elected government at the end o f its mandate, in December 2004. 2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1): The project is high risk, as any project under Burundi's current circumstances; the political, implementation, and fiduciary risks are all high. Special attention has therefore been given to strategies to reduce these risks, to the extent possible. The first critical risk is political, Le., the failure o f the Arusha Accord and consequent return to political instability and violence in the country, especially if the international community fails to support the country's transitional institutions. No specific strategies can be incorporated in the project itself to reduce this general risk, but strong donor support is needed for the design and implementation o f a disarmament, demobilization and reintegration (DDR) program, and for economic and social recovery. A national DDR program has been elaborated and is being appraised from finding inthe context o f the Multi-Country Demobilization and Reintegration Program. -17- The second risk lies inthe current weakness o f the institutional and implementation capacity o f the public administration. The risk will be mitigated by the substantial and coordinated program o f technical assistance provided by the Bank and other donors; by especially close Bank and other key partners' assistance inthe implementation o f project activities and inthe monitoring of their progress; and by the fact that mid-course corrections are permitted by the project structure and implementation arrangements in order to address emerging difficulties or new opportunities. - 18- Finally, the fiduciary risk is addressed through the effectivenes conditions and requirements described earlier and regular visits o f the Financial Management team. Risk Risk Rating I Risk Mitigation Measure From Outputs to Objective Political instability H Control the project life through the use of short implementation period. Political climate should be reviewed at the end o f each period. Weak capacity H Close coordination with donors and Bank implementation assistance. Fiduciary risk. H Project administrative and financial management procedures should be strictly adhered to. Satisfactory condition o f services should be negotiated with staff involved inthe project management. The Chart o f Accounts for the H An adhoc steering committee composed of Government accounting system may not experienced people should be established. It be properly prepared. should work on agreed terms o f reference. A system o f compensation should be established for members o f the committee. Once established the chart of accounts should be reviewedand tested before implementation. Weak implementation capabilities H A Macroeconomist, a specialist inPublic finance, a Procurement Specialist will be employed to reinforce the PCU capacity. Projecl administrative and financial management procedures should be strictly adhered to. An Internal Audit fimction will be established. Project activities within the implementing S Focal points established inthe implementing ministriesmay not be properly executed. ministries, should be managed by experienced persons. Overall Risk Rating H Risk Rating H (High Risk), S (Substantial Ri: I, M (Modest Risk), N(Negligib1eor Low Risk) - 3. Possible Controversial Aspects: None. -19- G. Main Loan Conditions 1. Effectiveness Condition The Borrower has prepared and furnishedto the association the POM, in form and substance satisfactory to the Association; The Borrower has prepared and furnished to the Association the Manual o f Financial and Accounting Procedures, in form and substance satisfactory to the Association; The Borrower has prepared a shortlist, satisfactory to the Association, o f firms to be invited to submit proposals for purposes o f conducting the audit referred to in Section 4.01 (b) (i) f o the Development Credit Agreement o f this project, under terms o f reference satisfactory to the Association; and The Borrower has deposited into the Project Account an initial amount equivalent to fifty million BurundiFrancs (BIF 50,000,000). 2. Other [classify according to covenant types used in the Legal Agreements.] H. Readiness for Implementation ixI 1.a) The engineering design documents for the first year'sactivities are complete andready for the start of project implementation. 0 1.b)Notapplicable. H2. Theprocurement documentsfor thefirst year'sactivities are complete andready for thestartof project implementation. H3. The ProjectImplementationPlanhasbeenappraisedandfoundto berealistic andofsatisfactory quality. 0 4. Thefollowingitemsarelackingandarediscussedunderloanconditions (SectionG): I. Compliance with Bank Policies KI 1.This project complies with all applicable Bankpolicies. 0 2. Thefollowing exceptionstoBankpolicies arerecommendedforapproval. Theprojectcomplieswith all other applicable Bank policies. Mathurin Gbetibouo Cadman Atta Mills Emmanuel Mbi Team Leader Sector Manager Country Director - 20 - Annex 1: Project Design Summary BURUNDI: Economic Management Support Project I KeyIndicators Performance Data Collection Strategy CriticalAssumptions Sector Indicators: jectorl country reports: from Goal to Bank Mission) To implement socio-economic 0 Arusha Agreement e Annual independent Political stability reforms for enhancing implemented survey 0 Government commitment economic recovery and laying 0 National accounts to economic and social thefoundation for sustained 0 Inclusive Peace Accord statistic reforms growth andpoverty reduction. completed 0 Sustained political e Improved governance dialogue and fiscal management Project Development htcome I Impact 'roject reports: from Objective to Goal) Objective: ndicators: To increase the efJiciency of 0 Improved macroeconomic Central Bank report 0 Impact of IDA Economic Burundi's economic,financial modeling, forecasting Review of treasury Rehabilitation Credit on and administrative and economic statistics records public arrears (internal management by strengthening Regular reports on taxes and external) accountability and 0 Better allocation of i- collectionfrom duties 0 Positive outcome of transparency in order to resources, national and D G I and DGD Peace Accord reduce transaction costsfor external, infavor of Client survey operations Agreements; effective andpotent poverty social sectors; 0 National accounts 0 Stability of international reduction. 0 Improvedfiscal Macroeconomic model. coffee prices performance; 0 Positive outcomes of 0 Unij?ed & transparent HIPC negotiations and budget audited; Paris club negotiations. 0 Increased customer satisfaction with MOF operations. -21- Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical Assumptions Iutput from each Iutput Indicators: 'roject reports: from Outputs to Objective) :omponent: ) Updatedmacroeconomic Established computerized e Quarterly progress Incentive structure rodel, improved data data base. reports conducive to staff ollection and analysisfor Operational economic Quarterly and annually retention rlformed policy formulation. model. macro-economic e Economic and statistics projections reports. Quarterly economic Key governmental staff in updates the Ministry of Development Planning and Reconstruction, and the Ministry of Finance and other agencies including the Central Bank trained. 8 ISTEEBU key staff trained and database created by ISTEEBU in collaboration with the BRB , L) Increased transparency Audit and studies Monthly project Preparedness of and improved governance of completed. implementation report Government structures to public financial and 8 Procedures reformed. e Mid-term project implement reforms, administrative management. and computerized. implementation review includingfiscal and Database created. e Supervision mission and administrative Computerizedfinancial quarterly reports decentralization: system network Interviews and simple operational. survey to assess application of knowledge and skills in thejob 3) Reforming public e Public procurement code Intermediary reports 8 Political and vested procurement system and updated. e Strategy document interests do not impact modernizing private sector Action plan for reform of e Client satisfaction survey regulatory reform system. legal and regulatory the Public procurement e Detailed implementation framework. administration adopted evaluation reports and by Cabinet. workshops with business Frameworkfor community and monitoring Government. implementation of Public procurementprocess established. e Steering Committee established. New decentralized structure set up. Information technology installed. e New Procurement code - 22 - approved by Cabinet. 9 Defining legal andjudicial a Legal andjudicial reform a Intermediaryjudicial a Political interests do not 'eform strategy and strategy defined. strategy, including obstruct theprocess trengthening oversight a Oversight structures cost-benefit analysis of tructures capacity established and the Observatoire de la strengthened Justice a Journalists trained. a By-laws of the Cour des a Parliament and media Comptes approved by trained in budgetary Parliament andpublished process by the Bulletin oficiel du a Equipment and space Burundi and Le provided. Renouveau a Assessment, audit and bidingprocessfor REGIDESO completed. a Tribunal of Commerce and Arbitration Center operational a Judges trained in Business Law 0 Documentation, equipment and ofice spaceprovided Project Components / nputs: (budget for each 'reject reports: :fromComponents to Sub-components: :omponent) 3utputs) 'I)Improvednational in millions) Innual report of national accounts and macroeconomic JS$2.42 zccount framework 2) Increased transparency JS$15.80 and governance ofpublic financial and administrative management 1. Unified Budget 2. Treasury and accounting 3. Revenue network 4. Financial computerized network 5. Civil Service management andpayroll 6. Human Resource Development and Training 3) Reformedpublic procurement system and JS$3.15 modernized legal and regulatory framework 1.Public Procurement Admin. 2. Private sector legal and regulatoryframework: support to privatization. - 23 - 4) DeJined legal and judicial JS$1.63 reform strategy and strengthened oversight structures capacity -I.Support Reform Strategy: thepreparation of the Strategy - Strengthen the Tribunal of -Commerce. Suppor the creation ofa private arbitration center 2. Oversight capacity: - Parliament National Commission ofFinance and Budget -- Inpection Cour des Comptes Generale des Finances - Inspection Genirale d'Etat -Media 5) Project coordination, JS3.00 management, monitoring and evaluation. -24- Annex 2: Detailed Project Description BURUNDI: Economic Management Support Project By Component: Project Component I US$2.42 million - StrengtheningMacro-EconomicAnalysis and ImprovingData Collectionfor Informed Policy Formulation After years o f conflict, Burundi has recently embarked on a post-conflict assistance program supported by the International Monetary Fund (IMF) while implementing at the same time an economic rehabilitation project as part of the World Bank Transitional Support Strategy to help finance its rehabilitation program. In implementing both operations, the Government is committed to deepening institutional and structural reforms for sustained economic recovery and poverty reduction and to establishing a track record for early access to debt relief under the Enhanced Highly Indebted Poor Countries (HIPC) initiative. This will require, among other things, a stronger capacity for macroeconomic analysis, and better and more comprehensive data to guide economic policy decisions and realistic budgets during a difficult time o f economic adjustment. Accordingly, the macroeconomic component o f the EMSP would build on the initial results achieved under the Technical Assistance on Macroeconomic Management IDF grant to improve the Government's capacity to formulate a coherent macroeconomic and fiscal strategy through macroeconomic analysis and modeling, forecasting and economic statistics. This component would help the Ministryo f Planning and the "InstitutNational des Statistiques et &Etudes Economiques" (ISTEEBU) to develop instruments and collect more complete and comprehensive social and economic data for national accounts and other economic reports to be produced by the Government. These would include the reports on the implementation o f the PRSP process, policy notes that would review recent economic developments and contain realistic forecasts o f key economic indicators and other reports needed in its dialogue with donors in a collaborative effort involving the "Banque de la RCpubliquedu Burundi'' (BRB). This component would also strengthen data management inthe economic core agencies which would improve the quality o f economic statistics for decision making. This would include: 0 Extensive staff training in the use o f macroeconomic forecasting models, macroeconomic policy analysis and short-term macroeconomic assessment. This would consist o f courses and seminars for key government personnel in economic ministries and core agencies including the Central Bank, the National Institute o f Statistics and Economic Studies (ISTEEBU) and the Macroeconomic Planning service o f the MinistryofDevelopment Planningand Reconstruction. 0 Further strengthen the capacity within the Ministry o f Development Planning and Reconstruction and related institutions to collect and process statistical information, leading to timely and reliable availability o f national accounts estimates and projections. 0 Assistance to strengthen the capacity o f the Ministry o f Finances for regularly updating medium-term projections o f government revenue and expenditure outlook. Training and consulting advice to set up and staff an interministerialthink tank inthe Ministryo f Finance. 0 Expand technical capacity in economic modeling in the Ministry o f Economic Planning and Reconstruction (The Macroeconomics Management Group) whose role would be to harmonize data - 25 - collection and forecasting methods. 0 Training personnel to manage economic statistics, develop forecasting tools and alternative scenarios. 0 Developing regular updates on medium-term projections o f the government's revenue outlook, including alternative scenarios based on assumptions for growth and other key parameters and harmonize external debt data provided by the Ministries o f Finance and Planning and the Central Bank. The increase o f the efficiency o f the collection and use o f statistical data will require ISTEEBU to establish a computerized database to complement and complete the ad hoc databases that are being constituted such as the Gender and the Human Indicators database and network that will enable other agencies (including the Education and Health Ministries, etc..) to access and use the data inreal time. The methodology o f national accounts being currently elaborated under the IDF grant for technical assistance in Macroeconomic Management would be upgraded. The staff o f ISTEEBUwill be trained in the analysis and maintenance o f the data sets. For the system o f national accounts to become firmly established and to accomplish these objectives, it will be necessary to provide a low but steady level o f external assistance during one complete cycle o f national accounts preparation, including the administration and processing o f the related surveys and to the use and dissemination o f the information generated. Overall, the component would achieve the following objectives: 0 Expand the range o f economic information available through the system o f national accounts. 0 Develop a simple modeling capacity to allow simulation o f the impacts o f alternative economic policy scenarios. 0 Improve accuracy andtimeliness by revamping the data collection procedures. 0 Strengthen the human resources involved inthe preparation o f national accounts, macroeconomic framework and projections to guarantee the long-term sustainability . Sub-component 1: Strengthening the reliability o f statistics and the Government's economic forecasting capacity and improving collection and analysis o f data for policy formulation. This will require improvements in the collection and analysis o f financial statistical data and information, technical assistance for computer programming and statistical analysis and equipment to improve macroeconomic planning and Statistics. Sub-component 2: Strengthening national capacity for poverty assessment and monitoring. This sub-component will allow for training o f selected staff o f key ministries in the monitoring o f key macroeconomic variables. It will make available on a regular and timely basis, economic information needed to assist the private sector inundertakingproduction and investment decisions. Sub-component3: Expandtechnical capacity ineconomic modeling to allow the Government maintain economic and financial stability and make better informed macroeconomic decisions and ingeneral manage the economy better. Sub-component4 Dissemination o f economic and statistical information. This will include the support o f the publication of quarterly newsletter to keep the authorities and their partners abreast o f the changes in the economic situation (fiscal , monetary and real sectors) and studies and seminars in debt management and fiscal sustainability for selected staff from various ministries. - 26 - Project Component 2 US$15.80 million - Increasing Transparency and Governance in Public Financial and Administrative Management: Since the early 1990s, many documents produced by donors (Bank and IMF among others) and the Government have underlined the sore state o f financial and administrative management, characterized by its inefficiency, formalism, opacity and arbitrariness. Five main constraints have been identified: (i) regular procedures have been are abandoned; (ii) texts and manuals have disappeared; (iii)control legal procedures and responsibilities are redundant, overlapping, and inefficient; (iv) information is neither managed nor utilized; and (v) training and retraining i s inexistent. In the budgeting system, the problems are: (i) procedural deterioration (systematic use o f exceptions and exemptions); (ii)proliferation o f extra budgetary accounts, special funds and special treasury accounts; (iii)abandonment o f budget annuality; (iv) abandonment o f specialization o f budget accounts; (v) late or inexistent regularization; (vi) incomplete, inaccurate and late accounting for commitments; and (vii) lack of regularization procedures. In payroll management, the largest item of expenditure, coherence between the payroll and civil service management is lacking, resulting in: (i)proliferation o f non-salary allowances (indemnitks permanentes); (ii) swelling o f extraneous payments; (iii)inflated pay scales; (iv) exceptional promotions; (v) non-enforcement o f penalties; (vi) lack o f incentives; and (vii) lack o f training. Finally, the weak budgetary procedures have had a serious negative impact on treasury operations (cash flow management) and public accounting, leading to: (i)the maintenance o f double books, thereby making it difficult to differentiate payables from receivables; (ii) swelling o f temporary imputations and difficult account consolidation; (iii)difficult account centralization, absence o f year-end and beginning balances; and, (iv) accumulation o f payments without commitments, and absence o f regularization o f ministries' accounts at the Central Bank, and several other problems. This state o f affairs is causing concerns in customs and internal revenue, with rampant corruption, inflated and uncontrolled exemptions, delays in tax collection and debt transfer to the public sector. Other donors, France and the European Union notably, support activities linked to this project. For example, France has agreed to finance the revenue aspect o f the project (Internal Revenue and Customs), and provide technical assistance to the Internal Revenue Service while the European Union will finance part o f the necessary civil service reform. Restoring the efficacy o f the basic budgeting and accounting systems will be achieved through the following seven sub-components: Subcomponent One - Unified Budget: Aims at improving particularly budget legibility, transparency, comprehensiveness, and execution procedures as well as improving data on debt, exemptions, and public enterprise financial operations. The subcomponent involves the acquisition o f a minimum amount o f equipment (computers) to prevent the total collapse o f the existing system and equipment, which i s both obsolete and in bad disrepair. The work on improving the budgeting process will be closely coordinated with the DFID-financed advisory services on planning, project appraisal and public investment programming - to be located inthe Ministry o f Planning. Sub-component Two - Treasury and Accounting: Includes the ongoing audit o f the Treasury, an updating o f the Chart o f Accounts and improvements in the public accounting structure, particularly regarding the links with the BRB, cash management, and the links between general accounts and budget. Work on this subcomponent will be closely linked with the debt management advisory services to be - 27 - financed by DFID, and the PCU will include some debt management expertise in order to strengthen the sustainability o f the DFID intervention. Sub-component Three - Revenue Network (Internal Revenue and Customs): Concerns the reorganization and computerization andlor upgrade of fiscal services and the installation o f an effective integrated fiscal identification system. It also involves work to prepare for the impact o f COMESA on Burundi's fiscal and customs systems and a review o f the exemptions system. Sub-component Four - Financial Computerized Network: Entails the installation o f a computerized management system for the expenditure cycle, expenditure control being at the core o f the system. All other elements (accounting, payroll, civil service management, customs, intemal revenue, debt management, external financing coordination and investment planning, Central Bank) will be linkedto this system, usingthe same technical foundation. Sub-component Five - Civil Service Management and Payroll Payroll reform will require a special operation, i.e. a civil service census, and civil service reform will be a fairly long-gestating task (pay scales, switch from career management to budget management, voluntary leave). The project will facilitate the establishment o f a computerized system to consolidate and regularly update civil service files, and strengthen controls over personnel recruitment. Sub-component Six Human Resources Development and Training: One o f the most challenging aspect - o f the project will be to cover the urgent needs for skills in accounting and financial control . Inadditionto targeted training in these areas, the project will, through the PCU, assure coordination with the DFID-financed intensive workshops on basic public expenditure programming and budget preparation and execution. Finally, the need to provide suitable premises for all o f the government entities carrying out the activities under this component especially became evident late during appraisal. Thus, a building would be constructed in accordance with environmental guidelines. Project Component 3 US$ 3.15 million - Reforming Public Procurement System and Modernizing Private Sector Legal and Regulatory Framework. Sub-component 1. Strengthening the Public Procurement Administration The current Direction GCnCrale des MarchCs Publics (DGMP) is under performing and is under heavy criticism from both public and private sectors. The broad complaints include: (i)cormption; (ii) lack of technical competence; (iii) deliberate misinterpretation o f existing procurement regulations, especially for the handling o f complaints; (iv) use o f technical specifications limitingbids to one possible supplier; (v) unprofessional attitude vis-a-vis procurement as only price seems to be the determining factor; (vi) communication o f prices to other competitors out o f proposals, received earlier than the bid opening date scheduled; (vii) procedures unnecessarily long; (viii) deliberate late communication o f bid evaluation results in order to avoid timely complaints; (ix) systematic postponement of bid evaluation committees due to conflicting agendas of the members; (x) arrangements during the supervision o f works between the supervisor and the contractor; and (xi) systematic delays in commissioning o f works leading to lengthy payment delays. - 28 - To a large extent, the complaints find their origin in the fact that the central procurement system generates conflict of interest situations.DGMPhas arole inthe descriptionof the goods to be procuredand inthe operationandcontroloftheprocurementcycle; it alsohandlesprocurementrelatedcomplaints. The dialogue with stakeholders about the procurement reform has been underway since the beginning of 2001. Finally a procurementreform action plan was adopted during a workshop organizedin October 2003. The Government has obtained and IDF grant to support the implementation o f the procurementreform actionplan. This sub-component is designed to complement and scale up activities to be realized with the support of the grant; it will finance amongother, the following activities: Establishment of a decentralized procurement system and setting of a new institutional framework. The empowerment o f the owners o f the budget to manage their resources i s one of the major recommendation of the procurement reform action plan proposed by the Steering Committee. The institutional framework proposed by the action plan i s comprise o f institutions aimed to review and control the application of the procurement law, an independent control system, and recourse mechanisms that are not controlled by the contracting agencies. The project will provide support to the setting -up and strengthening of all the institutions that will result from the new institutional framework. e Introduction and dissemination of the new legal framework. The procurement reform action plan recommends the revision and modernization of the procurement code. The drafting of the new procurement code will be financed by the IDF grant. The project will finance activities toward the dissemination o f the new procurement code and action aimed to develop familiarization of the users with the new legal framework. Drafting and dissemination of guidelines, manuals, standard bidding documents and model of contracts. The necessity to provide tools that would facilitate implementation and enforcement of the new procurement code i s considered crucial by the Steering Committee. Appropriate procurement practices would be eased by user friendly guidelines, manuals and standing bidding documents to be developed and disseminated. 0 Introducing of information technology in the public procurement and provisions of access to procurement data to all interested partners. Procurement management, supervision o f contracts, provision o f timely and accurate information for all the partners would become easily available and more efficient through the introduction of modern equipment and technology in the contracting agencies and in the administration in general, provided these new instruments are well used. I t will include among other things the creation of procurement web site that would provide information about business opportunities, rules, guidelines, data and statistics pertaining to procurement. e Establishing quality management and strengthening the bureau of standards in respect of public procurement. I t i s essential to ensure that the technical specifications o f the works and goods to be procured are in compliance with recognized international quality standards and that -29 - the works and goods procured are meeting the requirements requested. In this respect, emphasis will be put o n the public health goods such as drugs and reagents, foods products and product causing environmental hazards. The project will support the development and dissemination of tools and practices aimed to widespreading the suitable standards and quality management in public procurement. e Providing continuous training in public procurement to all concerned persons, authorities or companies. There i s a huge need of procurement training since each contracting entities will advertise, evaluate and award contracts. T o date most o f the institutions do not have enough qualified staff. The institutions that will have to ensure that the new rules are observed and properly enforced need also be trained so that they can fulfill their responsibility. A comprehensive assessment of training needs and an action plan to strengthen the capacity o f all the parties involved in the procurement process will be carried out through the IDF grant. The project will finance the implementation o f the training action plan inparticular the development of in-country training facilities. Sub-component 2. Support to the Modernization of Private Sector Legal and Regulatory Framework The disengagement o f the State from the productive sectors o f the country and the mobilization o f new financial resources through Foreign Direct Investment (FDI) are amongst the highest Governmental priorities as defined in the TSS. The privatization process was interruptedby internal difficulties in 1993 but relaunched in September 2002. The Government o f Transition has recently reaffirmed its commitment to privatization by creating a Ministry o f Good Governance and Privatization. A recent Cabinet meeting has established a list o f public enterprises to be privatized by 2005. These include: COTEBU (Burundi Textiles Complex), ONATEL (National Telecommunication Office), OTB (Burundi Tea Office) , ONAPHA (National Pharmaceutical Office), INABU (Burundi National Printing Office), REGIDESO (Water and Electricity Distribution Authority), SOSUMO (Mosso Sugar Factory), SOGESTAL: MUMIRWA (Muminva Washing Stations Management Company), BRARUDI (Burundi Breweries and Soft Drink Manufacturers), B C B (Bujumbura Credit Bank), OCIBU (Burundi Coffee Board). For all these entreprises, the Government has established a timetable for full or partial privatization. The objective o f the Transitional Government is to gradually reduce government participation, and establish a legal and institutional framework to promote private sector development and enhance competitiveness. The Government targets loss-making companies which could nevertheless respond to market opportunities and monopolies. The proposed EMSP will help strengthen existinginstitutional framework to boost the privatization program. In the case of semi-public companies, the government envisages gradually reducing its equity participation and fragmenting the shares and plans to revive some state enterprises, while keeping them under its supervision. In the case o f REGIDESO, the project will help establish its financial situation before putting it under private management by financing fixed assets re-evaluation and biding process. The project will also support and strengthen the capacity o f the "Service Charge des Entreprises Publiques" (SCEP) as a technical public privatization body facilitating the privatization process. In addition, the proposed project would provide limited funds to ensure continued dialogue with Government on the privatization process of the public enterprises and update recovery and liquidation regulations and prevent the selective and sporadic processing o f rescue packages and delays in decision-making on dissolution and liquidation. Project Component 4 US$1.63 million - - 30 - Defining Legal and Judicial Reform Strategy and Stregthening Oversight Structures Capacity. Sub-component 1.Defining Legal and Judicial Reform Strategy. This sub-component proposes to assist the Government in conducting a comprehensive assessment o f the legal and judicial sector and in elaborating a plan for reform o f the sector in light o f this assessment. The Project will not be involved inthe implementation o f the reform itself. Law andjustice sector activities must be approached strategically, bringingtogether all the elements that promote the rule of law through holistic and comprehensive sector reform programs. Such an approach entails the following steps: 0 Legal and Judicial Sector Assessment; 0 Development o f a comprehensive plan for legal andjudicial reform; 0 Identification o f priorities and sequencing based on available capacity and incoordination with other active donors; and, Dialogue with the stakeholders throughout process. A critical first step inthis approach is to assess and diagnose the Legal and Judicial system by carrying out a thorough Legal and Judicial Sector Assessment (LJSA). This assessment will provide not only baseline knowledge o f Burundi's laws, legal systems and institutions, but also for a constructive dialogue with stakeholders in Burundi for their input and support. A preliminary overview o f the legal andjudicial sector in Burundi reveals the following serious weaknesses that need to be thoroughly documented by the LJSA financed by this project: (i)outdated legal and regulatory framework; (ii) management and weak coordination o f legal sector institutions; (iii)low competence and morale o f public sector legal personnel; (iv) inadequate number o f professionally trained legal personnel in the country; (v) constrained independence and low integrity o f the judicial system; (vi) ignorance and poverty o f the majority o f citizens; (vii) excessively limited and poorly maintained work environment for all public institutions in the legal sector, (iii) and skewed ethnic representation. The results of the LJSA will be usedby the Government in developing a comprehensive plan for legal and judicial reform (LJR) which takes into account Burundi's legal, economic, social and political environment as well as its resource and capacity constraints. It is this plan that will serve as the basis for the identificationand preparation of legalandjudicial reform activities to be carried out by the Government at a future time. This Project Sub-component has as its context the Government's own commitment to reform o f the legal sector, which dates back to May 31, 2002, when the Ministry o f Justice adopted a Sector Policy (2002-04). The Sector Policy is by its very nature broad in scope. Since its adoption, the Ministry of Justice has prepared an Action Plan to be financed by the Government through Donors' contributions, as stipulated in the Arusha Accord for Peace and Reconciliation (2000), upon which the Sector Policy draws. The Action Plan focuses on legal reform through the provision o f training, equipment and infrastructure. The Government's intended legal reforms under the Action Plan would come at an opportune moment as the Transition Government has recently embarked on its pacification and govemance work program, in May 2003. Some o f the diagnostic activities to be financed by the Project in respect o f judicial reform are as follows: Objective: Judicial independence, integrity and professionalism: (i) o f legal and institutional review framework with a view to identifying the shortcomings o f the existing system and making suitable proposals for reform; and, (ii)review o f obstacles to the existence o f a professional cadre o f magistrates and legal professionals, arising from the existing pay and incentive system, as well as o f working conditions. 0 Objective: Judicial eflciency: (i) o f resource mobilization, allocation and management systems review - 31 - inthe judicial sector with a view to identifying impedimentsto a more efficient Judiciary and making proposals for the establishment of a well funded and efficiently managed judicial sector; (ii) carrying out o f a needs assessment with respect to infrastructure, equipment and training for the judicial sector; (iii)review of mechanisms for judicial control of public finances with a special emphasis on strengthening the Cour des Comptes; (iv) review o f operation o f the court system (including role o f legal professionals such as lawyers, clerks-of-the court, etc.) and the Ministry o f Justice with a view to establishing a systematic inventory o f the major operational bottlenecks and making proposals for improvement, including: (a) strengthening o f the Ministry o f Justice and the courts through appropriate organizational reform and capacity building; (b) reforming the resource mobilization, allocation and management systems o f the judicial sector to maximize resources; and (c) development and implementation o f an efficient case management system for the maintenance o f an adequate inventory and effective tracking o f court cases. Objective: Judicial transparency and accountability: (i) Review o f existing and proposed oversight mechanisms, involving active participation o f civil society; (ii)designing o f mechanisms to ensure adequate participation o f stakeholders, including the judicial sector, Government, the business community and civil society, inthe preparation and implementation o f the Project. Objective: Judicial access, delivery and affordability: (i) review o f access by the poor to judicial services through an action-research aimed at identifying the needs o f poor communities, especially in rural areas, with respect to legal and judicial services and making proposals on how to ensure that the legal needs o f such communities are met; and, (ii) review o f the quality o fjudicial services in specific areas, including the availability and dissemination o f legal andjudicial information andjudicial services available to the business community. Objective: Monitoring and evaluation of W R Plan: (i) monitoring and evaluation o f the LJR ensure plan; (ii)organize consultation dialogue with stakeholders on the LJR plan through a workshop organized by the Ministry o f Justice. Participants will include government officials, members o f the Judicial Reform Commission, judges, legal professionals, the private sector and civil society. In discussing the results o f the LJR plan, participants will outline priorities for judicial reform. This work will strengthen Government's readiness for implementation o f its legal andjudicial sector reform plan and prepare the ground for it to take charge o f such long-term sustainable reform necessary for national reconciliation, economic development, growth and poverty reduction in Burundi. On institutional and implementation arrangements, the Ministry o f Justice and the Bar will be represented on the Project Steering Committee. By associating the Bar, the process would build national consensus in the legal community which is a very important aspect o f any legal andjudicial reform program. Inaddition to the Legal and Judicial Sector Assessment, the Project will strengthenthe Tribunal de Commerce, by funding particularly the training o fjudges inbusiness law, and by providing equipment and work space. It will also facilitate the creation of a private arbitration center (Centre PrivB dyrbitrage) by providing initial starting expertise and investment, with a view to rendering the institution self-sustaining before the end o f the project. All these supported institutions will contribute to improve the investment climate, hence support the emergence o f a robust private sector. Sub-component 2: Strengthening of oversight mechanisms: Parliament National Commission of Finance and Budget, Cour des Comptes, Inspection GCnCrale des Finances, Inspection GCnCrale d'Etat. - 32 - Increasing transparency and improving governance o f the public financial and administrative management system requires able and functioning oversight structures with a clear mandate. The Project would provide resources to clarify the mandate o f such institutions and to strengthen their capacity to perform their duties. Knowledge and capacity building activities such as training, reorganization and introduction o f computerized information management concepts and systems under this sub-component would focus particularly on the following oversight mechanisms: Parliament National Commission o f Finance and Budget, Cour des Comptes, Inspection GCnCrale des Finances, and Inspection GCnCraled'Etat. Project Component 5 US$3.00 million - Project Coordination and Management: Overall project coordination, management and administration is enthrusted to three structures: the Steering Committee, the Technical Committee, and the Project CoordinationUnit. Program Streering Committee (PSC): The overall coordination and oversight of the project will be carried out under the umbrella o f the Steering Committee, created by an ArrdtC o f the Minister o f Finance. The PSC, chaired by the Minister of Finance and co-chaired by the Minister o f Planning, has the authority to: (i)approve project annual work programs and budgets; (ii) review progress towards achievement o f project objectives; (iii)issue general guidelines for project implementation and (iv) decide on major corrective actions. The PSC will meet at least once a quarter or as often as necessary upon the invitation o f its Chairman. Members o f the PSC include the: (i) Minister o f Planning; Vice-Chair; (ii)Minister of Good Govemance; (iii) Minister o f Justice; (iv) Minister o f Civil Service; and, (v) Secretary o f the Secrktariat National de Suivi des Rkformes Economiques et Sociales. Project Technical Committee: This committee will serve as the link between the PSC and PCU (see below). It will be staffed by representatives o f project executing entities. Its members will coordinate technical activities intheir respective line ministries, inwhich they will play a key focal point role. Project Coordination Unit: Support to implementing agencies will be provided by the Project Coordination Unit (PCU). It is a light structure whose primary responsibility is to provide technical and financial expertise to implementing agencies, especially in the areas o f procurement, disbursement, financial accounting, project monitoring and evaluation. In addition it will assure overall financial management, accounting, procurement and reporting. The technical responsibility for the implementation o f project sub-components would remain with the implementing agencies. The Ministry o f Planning will oversee the implementation o f the first component on macroeconomic management capacity building.The Ministry of Finance will oversee the execution of the second component on increasing transparency and govemance in public financial and administrative management, and the third component on increasing transparency and govemance for efficient allocation o f goods and services, in collaboration with the MinistryofGood Governance and Privatization. The Ministry ofJustice would execute component four on legal and judicial capacity building. The project will be under the responsibility o f the Project Coordinator who reports to the Minister o f Finance. The coordinator will be assisted by an Administrative and Financial Management Officer and a Procurement Officer. A Macroeconomist and a specialist in Public Finance will provide advisory services technical aspects o f the project to the PCU. FinancialManagementand Accounting, PeriodicReportingand ExternalAudits: A Special Account will be created for the project. The Project Operational Manual will describe the details and workings o f the disbursementprocedures modeled after existing systems used by other IDA - 33 - operations in Burundi and in the Central African Region. The Finance Section o f the PCU will be responsible for the preparation and maintenance o f all project financial records in compliance with generally accepted accounting principles. Audits o f the PCU accounts will be carried out annually by independent external auditors. The Project Operational Manual will have a detailed section on financial management and accounting procedures. The project will finance the costs to staff, equip and operate the PCU office, contract short-term consultant services to provide technical support in specific areas and establish a computerized integrated project management system. Detailed descriptions o f the structures, their mandates and operating procedures and the relationships between various agencies and units will be provided inthe Financial Procedures Section o f the Project Operational Manual prepared by the financial specialist o f the PCU under the supervision o f IDA'S Financial management Specialist. - 34- Annex 3: Estimated Project Costs BURUNDI: Economic Management Support Project Local Foreign Total Project Cost By Component US $million Component 1: Strenghtening macroeconomic data collection and 2.56 analysis for informed policy formulation. Component 2: Increasing transparency and govemance inpublic 1.67 15.06 16.73 financial and administrative management. Component 3: Reforming public procurement system and 0.46 2.89 3.35 modemizing private sector legal and regulatory framework. Component 4: Defining legal andjudicial reform strategy and 0.22 1.50 1.72 strengthening oversight structures capacity. Component 5: Project coordination, management, monitoring & 0.76 2.41 3.17 evaluation. Total Baseline Cost 3.43 24.10 27.53 Physical Contingencies 0.00 0.00 0.00 Price Continaencies 0.00 0.00 0.00 Total Project Costs' 3.43 1 24.10 27.53 Total Financing Required 3.43 24.10 27.53 Local Foreign Total Project Cost By Category US $million US $million US $million 1.Goods 0.50 7.05 7.55 2. Works 0.94 4.62 5.56 3. Services and Consultant services 0.95 10.60 11.55 Total Proiect Costs' 3.43 24.10 27.53 Total Financing Required II 3.43 I1 24.10 I1 27.53 II I Identifiable taxes and duties are 0 (US$ni) and the total project cost, net of taxes, is 27.53 (US$ni). Therefore, the project cost sharing ratio is 94 44% of total project cost net of taxes. - 35 - Annex 4: Qualitative Assessment of Financial and Economic Returns BURUNDI: Economic Management Support Project The proposed project seeks to improve the overall efficiency and effectiveness o f public resources management by strengthening accountability and transparency through improved procedures and controls. This in turn will raise the effectiveness o f public expenditures for growth and poverty reduction and help reduce transaction costs for private economic activity. Given the nature o f the operation, there is little potential for cost recovery. High financial and economic returns and benefits, however, are still expected from better public resources management, in terms o f improved resource efficiency and indirectly, poverty alleviation. Furthermore, the moderate local contribution and incremental cost after project life will not impose an undue burden on government budget and will be much more than offset by the positive impact on public resources management. Specifically, under Component 1o f the project, by improving the tools for macroeconomic analysis and economic statistics and by sharpening the analysis o f the impact o f public finance instruments on macroeconomic aggregates, the Government will be in a better position to target public expenditures for a more potent andbroader poverty alleviation. In addition, under Component 2, reforms to be undertaken in public finance to increase transparency and accountability will generate better link between resource allocation and social sector goals in accordance with poverty reduction strategy. Furthermore, the reforms will result in an increase in revenue collection, hence a better fiscal stance, which will enhance the prospects o f the country resuming with more external developmental assistance. Finally, under Components 3 and 4, with the reforms to be undertaken on the public procurement administration, the regulatory framework for private sector, and with the strengthening o f oversight structures and o f reliable dispute resolution mechanisms, the project will contribute to create an enabling climate for private sector activities and investment. This will in the long run contribute to shifting the supply response o f the overall economy and will result in a more sustained GDP increase, after years o f underperformance. - 36 - Annex 5: Financial Summary BURUNDI: Economic Management Support Project Years Ending I Year1 I year2 I Year3 I year4 1 Year5 I Year6 I Year 7 Total Financing Required Project Costs Investment Costs 2.8 4.0 6.2 6.5 5.1 0.0 0.0 Recurrent Costs 0.5 0.6 0.6 0.6 0.6 0.0 0.0 Total Project Costs 3.3 4.6 6.8 7.1 5.7 0.0 0.0 Total Financing 3.3 4.6 6.8 7.1 5.7 0.0 0.0 Financing IBRDllDA 3.0 4.3 6.5 6.8 5.4 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 3.0 4.3 6.5 6.8 5.4 0.0 0.0 Main assumptions: -37- Annex 6(A): Procurement Arrangements BURUNDI: Economic Management Support Project Procurement General Country Procurement Assessment Report (CPAR) and keys issues. The last Burundi procurement Assessment Report was carried out in 1986. Burundi public procurement is now governed by rules and regulations published in May and August 1990, hence the findings and the conclusions o f the last CPAR are no more relevant. A CPAR is planned during the fiscal year 2004, its main mission is scheduled in March 2004, and the final report is to be delivered by June 2004. The methods and mechanisms o f the current procurement code are outdated. Moreover, ten years o f political turmoil and economic recession have considerably weakened the public procurement administration. Thus the transparency and the efficiency o f the procurement process are jeopardized by (i) delays inthe procurement process resultingfrom the lack o f procurement planning and the lack o f qualified staff; (ii)insufficient time given to bidders to prepare their offers despite the existence o f suitable provisions in the current procurement code, resulting in endless claims and complaints; (iii)lack o f confidentiality inthe bid evaluation providing opportunities to influence bid evaluation and contract award, leading to complaints by bidders and corrupt practices; (iv) high propensity to use direct contracting for goods and works and single source selection for services; (v) delays in payment o f suppliers and contractors for contracts financed on national resource leading to lost o f interest and confidence o f the private sector to compete in biddings not finance, this factor has also led to inflated rates as this factor -delays inpayment- i s eventually taken into account in the submissions; and (vi) inadequate supervision o f contracts execution as evidenced among others by frequent delays in resolving disputes and conflicts, and by important contract amendments which may conceal corrupt practices. Procurement reform process. The Government is willing to address these weaknesses. A Steering Committee aimed to organize the brainstorming on the procurement reform and to coordinate its implementation was established by the ordinance N o 5401649 dated June 16, 2003 o f the Ministry o f Finance. This committee has organized consultations o f stakeholders on a proposal o f a procurement reform action plan which ended with the workshop on the procurement reform action plan organized by the government on October 30, 2003. The recommendations o f the workshop will be submitted to the Cabinet meetingfor review and adoption inJanuary 2004. The government has solicited and obtained an IDF grant to support the implementation o f the procurement reform. Contribution of the proposed project to the procurement reform. The IDF grant aimed to support the procurement reform was signed on December 4, 2003. This grant will finance consultant services to : (i) reform the legal and institutional framework ; (ii) provide institutional support ; and (iii) strengthen the capacity buildingo f the institutions linkedwith this sector. The activities supported by the IDF grant need to be complemented, enhanced and scaled-up. In this regard, the proposed operation would support the development of modem tools to manage the procurement process. The project would be focused on the links between the execution o f the budget and the procurement process in particular the commitment and the payment o f public contracts. The strengthening o f the mechanism aiming to enforce the procurement regulations and the capacity o f all the institutions involved in the intemal and external control o f the procurement process are the other areas where the project will focus on. - 38 - Use of BankGuidelines Procurement o f civil works and goods required for the project and to be financed from the proceeds o f the credit shall be governed by the Guidelines for Procurement under IBRD Loans and IDA Credit, published in January 1995 and revised in January and August 1996, September 1997 and January 1999. National Competitive Bidding will be carried out in accordance with the Project operations manual acceptable to IDA, It has been agreed with the government during the project preparation that the procedures to be contained in the operations manual will ensure economy, efficiency, transparency, and fair participation. These procedures will specifically ensure that : (i) bids are advertised in national newspapers with wide circulation; (ii) bid documents clearly explain criteria for the bid evaluation and award; (iii) are the bidders given adequate response time (minimum four weeks) to prepare and submit bids: (iv) bids are awarded to the lowest evaluated bidder and not arbitrarily; (v) eligible bidders, including foreign bidders, are not precluded from participation and ; and (vi) no domestic preference margins are applicable to domestic manufacturers and suppliers. Aggregate values for N C B or other non-ICB procurement methods for goods and services, as stated in Table A, are limitative and cannot be exceeded without prior IDA'Sno-objection, and the project unit is responsible for maintaining a tracking system to monitor such procurement, alerting the Bank inthe case o f non-compliance. Consultant services contracts financed by IDA will be procured in accordance with the Bank's Guidelines for the Selection o f Consultants by World Bank Borrowers (January 1997, revised in September 1997, January 1999 and May 2002). The World Bank's Standard Request For Proposal (SRFP) will be used as needed (lump-sum, time based and/or simplified contract for short term assignment and individual consultants) as well as the sample evaluation report for the selection o f consultants. Advertising A General Procurement Notice (GPN) will be preparedjust after the negotiation and publishedby January 2004 in the UnitedNations Development Business. The GPN will be updated on a yearly basis as long as I C B for goods contract and consultant contracts exceeding US$ 150,000 equivalent will be foreseen in the annual procurement plan. Specific Procurement Notices (SPN) will be required for goods to be procured under ICB and expression o f interest (EOI) for consultant services estimated to cost the equivalent o f US$ 100,000 or more will also be published in national newspapers o f wide circulation and internationally for large contracts. ProcurementCapacity The setting-up o f the Project Coordination Unit (PCU) was at its early stage at the project's appraisal, since only the project coordinator and the head o f administrative and financial management department were recruited. The PCU team will comprise a Procurement Specialist whose recruitment will be launched early January 2004 so that he might be on board by the end o f February 2004. The formal capacity assessment o f the PCU in accordance with Procurement Services Policy Group (OPCPR) Guidelinesdated Julyl5, 2002 will be carried out before the credit effectiveness. The project i s considered high risk as any project without demonstrated experience inprocurement at their launching. ProcurementPlan The Project Coordinator has prepared the first draft o f the detailed procurement plan (DPP) for the first - 39 - year. The DPP will be reviewed and finalized before the credit effectiveness. The procurement plan shall contain all relevant information including the procurement methods, timing o f each milestone in the procurement process and the estimated cost o f the contracts. The procurement plan will be updated at least once a year and forwarded to IDA for its review and approval. All bank financed procurement shall be undertaken in accordance with the approved plan. ProcurementImplementationArrangements The PCU will be autonomous for procurement matters which is in line with the recommendations o f the procurement reform action plan presented by the steering committee on procurement reform and adopted by stakeholder during the workshop on the procurement reform organized in October 30, 2003. So, the PCU will be responsible for carrying out the procurement for all the project components. Under the supervision o f the Project Coordinator, the procurement specialist will be responsible for the following task : (i) preparation o f the general procurement notice and its annual update; (ii)preparation o f the specific procurement notices ; (iii)preparation and update o f the annual procurement plan; (iv) draft bidding documents and request o f proposals ; (v) review reports o f the evaluation committee; (vi) draft reports o f the contract commission ;(vi) draft contracts and ensure that contracts are managed properly. During negotiations, it was agreed that a Project Operational Manual (POM) satisfactory to IDA will be one o f the prerequisites o f the credit effectiveness. The P O M will describe with sufficient details, the roles and responsibilities o f the parties involved in the procurement process, the procurement methods to be used and will provide the standard bidding documents and forms to be used for NCB, shopping, request o f quotations, and request o f proposals. The P O M will also indicate the requirements for an adequate procurement filing system. The procurement process should be in line with the procurement reform action plan above mentioned. It recommends that the procurement activities should be in the hands o f the entities which have the budget. Therefore, it is expected that a procurement evaluation committee would be constituted on an ad hoc basis which should include members o f institutions involved in the implementation o f the project. The proposals o f award made by the evaluation committee would be presented to the Contract Commission to be established within the PCU. The Procurement Specialist as Secretary o f the Contract Commission will have to make sure that the reports and decisions presented are in compliance with the rules and guidelines described inthe credit agreement and spelled out inthe POM. ProcurementMethods Civil Works. The total cost o f works is estimated at US$ 7,5 million equivalent. It would include the construction o f a new and functional building for the Ministry o f Finance and rehabilitations o f various buildingfor administrations covered by the project. Contract o f works estimated to cost US$ 500,000 equivalent or more would be procured through International Competitive Bidding (ICB) procedures, using IDA Standard Bidding Documents. Contract for Works estimated to cost less than US$ 500,000 up to an aggregate amount o f US$ 500,000 equivalent will be procured through National Competitive Bidding(NCB) procedures acceptable to IDA. Small works would be limited to rehabilitation and small extension o f existing offices. Small works estimatedto cost less than US$ 50,000 equivalent per contract up to an aggregate amount o f US$ 200,000 may be procured on the basis o f quotations obtained from at least three qualified contractors in response to a written invitation. The written invitation would include a description o f the works, basic technical specifications, completion date and if necessary the plan o f the works. The contract shall be awarded to the contractor who offers the - 40 - lowest quotation provided that the bid is substantially responsive to the conditions specified in the written invitation. Goods. The total cost o f Goods contract is estimated at US$5,5 million equivalent. It would include items such as computers, office equipment, vehicles. To the extent practicable, goods and equipment would be combined in packages estimated to cost US$ 150,000 equivalent or more and would be procured through International Competitive Bidding(ICB) procedures, using IDA Standard Bidding Documents. National Competitive Bidding (NCB) as described in the Project Operations Manual may be used for contract for Goods estimated to cost less than US$ 150,000 equivalent up to an aggregate amount o f US$0.9 million. National Shopping or International Shopping may be used for procurement o f readily available off-the-shelf goods and sundry items that cannot be grouped or standard specification commodities estimated to cost less than US$ 50,000 equivalent up to an aggregate amount o f US$0.47 million. The procedures will have to be in conformity with paragraph 3.5 and 3.6 o f the Guidelines and June 8, 2000 Memorandum "Guidance Procurement Note on Handling Procurement under Shopping Method" issued by the Bank. Consulting Services and training Contracts estimated to cost the equivalent o f US$ 100,000 or more, would be procured through Quality-and Cost-Based Selection (QCBS). The contracts for services estimated to cost less than the equivalent o f US$ 100,000 per contract may be procured under contracts based on Consultants' Qualzjications in accordance with the provisions o f paragraphs 3.1 and 3.7 o f the Consultant Guidelines. Financial and technical audit estimated to cost less than the equivalent o f US$ 100,000 may be procured under Least Cost Selection (LCS) in accordance with the provisions o f 3.1 and 3.6 o f the Consultant Guidelines. Consultant for services that meet the requirements o f section V o f the consultant guidelines, may be selected under the provisions for the Selection of Individual Consultants, i.e. inessence through the comparison of the curriculum vitae o f at least 3 qualified individuals. N o civil servant can be hired as consultant. Single source selection would be used exceptionally in accordance with paragraph 3.8 -3.11 o f the Consultant Guidelines. To ensure that priority is given to the identification o f suitable and qualified national consultants, short-lists for contracts estimated under US$ 100,000 equivalent may be comprised entirely o f national consultants (in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines), provided that a sufficient number o f qualified individuals or firms (at least three) are available at competitive costs. Training, workshops, conference attendance and study tours would be carried out on the basis o f approved annual work programs that would identify the general framework o f training or similar activities for the year, including the nature o f traininglstudy tourslworkshops, number o f participants, and cost estimates. -41 - Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) I'Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies. 2'Includes civil works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii)re-lending project funds to local government units. - 42 - Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method Consultant Services ExpenditureCategory QCBS QBS SFB LCS CQ Other N.B.F. Total cos< A. Firms 5.39 I 0.00 I 0.00 1 0.92 I 1.84 1 1.23 1 0.00 9.38 (5.30) (0.00) (0.00) (0.90) (1.80) (1.20) (0.00) (9.20) B. Individuals 0.00 0.00 0.00 0.00 0.00 1.87 0.00 1.87 (0.00) (0.00) (0.00) (0.00) (0.00) (1.80) (0.00) (1.80) Total 5.39 0.00 0.00 0.92 1.84 3.10 0.00 11.25 (5.30) (0.00) (0.00) (0.90) (1.80) (3.00) (0.00) (11.00) 'Includingcontingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit. - 43 - Prior review thresholds (Table B) Works. Contracts estimated to cost the equivalent of US$200,000 or more would be subject to IDA prior review. In addition, the first three contracts of works estimated to cost less than the equivalent of US $ 50,000 would be subject to IDA prior review. Goods. Contracts estimated to cost the equivalent of US$ 150,000 or more and the first three contracts below the below the equivalent of US$150,000 would be subject to IDA prior review. Consultant services. Contracts estimated to cost more than US$ 50,000 equivalent for individuals and more than US$100,000 equivalent for firms would be subject to IDA prior review procedures. All other goods, civil works and services contracts would be subject to post review by IDA during implementation support missions and by auditors during the technical and financial audits. Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$thousands) Method (US$ millions) I.Works >500 ICB All > 50 NCB All contract >200 <50 Three quotations Firstthree contracts only 2. Goods >150 ICB All >50 NCB First3 contracts <50 Shopping None (Post Review) 3. Services Consultants firms >loo QCBS All 50 See Section V of Guidelines All (TOR, Contract, CV) I I <50 See Section V of Guidelines Post review 14. Miscellaneous II II II 15. Miscellaneous II I I I 6. Miscellaneous Total value of contracts subject to prior review: 15,000,000 Overall Procurement Risk Assessment: High Frequencyof procurementsupervisionmissions proposed: One every six months (includes special procurement supervision for post-review/audits) Once every six months, implementation support missions will be carried out. During these missions a selective post review of contracts awarded below the threshold will be conducted. The project activities would be subject to annual technical audits carried out separately from financial audits. ' Thresholdsgenerallydiffer by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement" andcontact the RegionalProcurementAdviser for guidance. - 44 - Annex 6(B): Financial Management and Disbursement Arrangements BURUNDI: Economic Management Support Project FinancialManagement 1. Summary of the FinancialManagementAssessment ControlEnvironment World Bank and Government documents have underlined the sore state o f economic, financial and administrative management inBurundi and highlightedmany managerial inefficiencies, vacuous formalism, opacity and arbitrariness. While established systems decline, corruption becomes a growing and major concern. In the area o f financial and administrative management specifically, the main constraints identified include: Tools for macro-economic management are outdated; A well defined chart of accounts for the Government accounting system has not been developed; Regular financial management procedures are disregarded; Legal texts and manuals need to be updated; Financial internal and external control and procedures are disarticulated and inefficient; Training and retraining are non-existent, and competency levels are low; Public procurement code i s outdated and an action plan for the reform o f the public procurement administration i s under preparation; Legal institutions and oversight structures are extremely weak; Budgetmonitoring within ministries is weak. The condition o f services within the Civil Service is poor. There is shortage of qualified staff for financial management purposes inthe decentralized units. Although the control environment in Burundiis unsatisfactory, the Government has undertaken key reforms to mitigate control weaknesses including : 0 HumanResource Development 0 Public Expenditure Review 0 Improvinggovernance, transparency and accountability 0 Revenue mobilization Furthermore, a commission has been set up to review the Government Accounting Chart o f Accounts. The Country Financial Accountability Assessment (CFAA) has been initiated by the Government o f Burundi and World Bank. An identification mission took place in November 2003. The main assessment is planned for January 2004. ProjectManagement Structure The overall project coordination is entrusted to the Project Steering Committee (PSC) and the Project Coordination Unit(PCU). A Technical Committee (TC) will be created and will be the link between the PSC and the PCU. - 45 - The Technical Committee will be staffed with representatives o f participating ministries including the Project Coordinator who will be the secretary. A qualified professional has been appointed as focal point in each participating ministry. While working closely with the Project Coordination Unit, the focal point will also act as an adviser for the implementingministry. The focal point will not be involved inthe management o f funds. The PCU is a new structure and has little or no experience in the implementation of World Bank financed projects. A qualified and experienced Project Coordinator has been recruited based on acceptable recruitment processes. Thus, the daily supervision of accounting activities will be carried out by the Administrative and Financial Officer who will be assisted by a Chief accountant and an assistant accountant. An internal audit function will be required to ensure strong supervision and quality assurance at various stages o f the project. Where there is difficulty in recruiting a well trained and qualified internal auditor, terms o f reference o f the project external auditors will be reviewed to include extended supervision work through interim reviews. Planning, Budgeting and Budgetary Control The project will ensure the existence o f suitable work plans. Planning will be done within the guidelines issued inthe Project Operational Manual to be adopted prior to project effectiveness. A well defined budgeting andbudgetary control system will be put inplace. Annual budgets will be prepared based on specific guidelines contained in the project operational manual and on annual work plans. The Project Appraisal Document and the Project Operational Manual will include a disbursement schedule. They will be used as the basis for the preparation o f annual budgets. The plan will be updated as part o f project implementation. The budget format will be based on project components and will be integrated into the project accounting system. The budget will be used as a management tool. Expenditures will be authorized in accordance with agreed budgets. Accounting System Financial Management Manual The accounting system o f the project will be based on well documented Manual o f Financial and Accounting Procedures. Proper books o f accounts will be kept on double entry principle using the cash based system. Written job descriptions with defined duties, responsibilities, lines o f supervision and approval limits will be established. Definition o f responsibilities should ensure segregation o f duties for proper accountability. Staff and Transaction Recording The project will be under the responsibility o f the Project Coordinator who reports to the Minister - 46 - o f Finance. He will be assisted by a Macroeconomist, a specialist in Public Finances, a Procurement Specialist and an Administrative and Financial Officer (Directeur des Affaires Administratives et Financibres, DAF) who will fulfill the function o f a chief financial officer (CFO). An accounting unit will be created for project activities under the control o fthe CFO. Thus, the accounting system should allow for the proper recording o fproject financial transactions, including the allocation o f expenditures in accordance with the respective components, disbursement categories and sources o f funds. Controls over the preparation and approval o f transactions should be put inplace to ensure that all transactions are correctly made, recordedand reported. A well defined chart of accounts will be put inplace. The chart o f accounts should be developed in a way that allows project costs to be directly related to specific work activities and outputs o f the project. The accounting system will be managed through an accounting software. This should facilitate the production o f the required project financial reports. Accounting staff will be adequately trained to maintain the system and appropriate controls will be instituted to safeguard the confidentiality, integrity and availability o f the data. The accounting system will be able to generate financial monitoring reports. Books of Accounts Although a computerized accounting system will be put in place, Project Management should ensure that proper books o f accounts are kept. This will be achieved through a well defined filing system that allows authorized users easy access to accounting and supporting documents on a permanent basis. Registers for FixedAssets, Contracts, In-coming and out-going Cheques, should be properly maintained. ReportingArrangements Integrated Management Information System The project will put in place an Integrated Management Information System. The system should integrate the Budgeting, Operating and Accounting Systems to facilitate monitoring and reporting. System generated formats for periodic reports will be developed and agreed with project management. An action plan will be reached with the borrower before Board Presentation. Financial Monitoring Reports(FMRs) Consolidated quarterly FMRs will be produced to include: e Sources and Uses o f Fundsby Credit Categories and Project Components e Output Monitoring Report e Procurement Monitoring Reports Financial Statements In compliance with International Accounting Standards (IAS) and World Bank requirements, the project will produce annual financial statements. Financial Statements will include: e A Statement of Cash Receipts and Payments which recognizes all cash receipts, cash payments and - 47 - cash balances controlled by the project. 0 A Balance Sheet that shows Assets and Liabilities. 0 A Statement o f Sources and Uses of Funds. 0 Notes inrespect o f significant accounting policies and accounting standards adopted by management and underlyingthe preparation of financial statements. 0 A Management Assertion that Bank fhds have beenexpended inaccordance with the intended purposes as specified inthe World Bank legal agreement. The report will be prepared in accordance with the Guidelines for Borrowers on Financial Monitoring Reports. Monitoring Reports Monthly Activity Reports will be prepared by Project management. In addition to this, Internal Audit and ExternalAudit interimreports will be produced. - 48 - Insummary, financial Management risks will be reduced through the proper implementation ofthe action planbelow: FinancialManagementAction Plan Issue RemedialAction Recommended Due Date Project A Project Coordination Unitshould be established by the Borrower on Completed Coordination terms and conditions acceptable to the Bank including the recruitment Unit o f kev staff. Project A Project Implementation Plan should be prepared, discussed and agreed Before Effectiveness Implementation with the World Bank. Plan Government The Chart o f Accounts for Government Accounting System should be Withinsix Accounting chart updated, reviewed and agreed with the World Bank. months of o f accounts Credit Effectiveness. Financial The FPM will be prepared to document the financial management Credit Effectiveness Procedures procedures to be used for the project Manual Reporting Formats o f Financial Monitoring Reports (FMR) should be determined Completed Arrangements and agreed with IDA Accounting An Integrated Accounting System for the project should be put inplace. Credit Effectiveness system Internal Audit Terms o f reference for the internal audit function within the project will Within six months oi Arrangements be prepared, and an intemal auditor responsible for carrying out project Credit Effectiveness related functions will be appointed. Audit of Terms o f Reference for the audit o f the financial statements o f the Credit Effectiveness project project will be updated and agreed with IDA. These will spell out the financial scope and coverage for the recruitment o f External Auditors. statements 2. Audit Arrangements Internal Auditing As an important part of the ongoing monitoring of the systemo f intemal controls, the internal audit function will provide an independent assessment o f the adequacy of, and compliance with, the established controls and procedures. The Internal Audit Department will report directly to senior management in order to ensure the independence of the function. It will be staffed with competent, well-trained individuals who have a clear understanding o f their role and responsibilities. The frequency and extent o f internal audit review and testing o f the internal controls will be consistent with the nature, complexity, and risk associated with the project's activities. Internal audit reports will address internal control deficiencies, or ineffective policies or procedures. Project management will be expected to correct the deficiencies ina timely manner. - 49 - External Auditing Qualified independent auditors will be appointed by Project Management. The selected auditors will be acceptable by IDA interms o f independence, qualifications and experience. The audit will be based on terms o f reference agreed with IDA. The extemal audit work will include all World Bank funds, other funds and Government funds (ifavailable) o fthe project. The financial statements o f the project will be audited every six months. The date o f the first audit will be determined in consultation with IDA. Inaddition to the audit report, the auditor will be required to prepare a Management Letter where internal control weaknesses and recommendations for improvements, are highlighted. A single audit opinion will be issued on project income and expenditures, special accounts and statement o f expenditure. The audit reports along with Management Letters will be sent to IDA and all other financing partners not later than four months after the end o f each preceding period. Supervision Financial Management Supervision will be done by the project World Bank Financial Management Specialist over the project life to ensure the implementation o f strong financial management systems. Statement Of Expenditure (SOE) reviews will be undertaken where necessary, in compliance with World Bank requirements. The Project Status Report (PSR) will include a financial management rating. 3. DisbursementArrangements Banking Arrangements World Bank Financed-Projects activities in Burundi are generally controlled through Special Accounts (SA) and Project Account (PA). Counterpart funds are usually received through the Project Account. These accounts are managed by the Project Management. The following bank accounts will be maintained by the PCU for project funds: 0 Special Account: Denominated inUS dollars, this will serve as the main project account into which will be deposited project implementation funds from IDA. It will be maintained in the central bank, the Banque de la Rdpublique du Burundi. 0 Project Account: This will be denominated in local currency and counterpart funds from the Government o f Burundi may be deposited on this account in accordance with project objectives. The account will be maintained ina commercial bank acceptable to IDA. The Special Account and the Project Account will be managed on an imprest basis, with the Special Account receiving an initial advance and then replenishment on presentation o f adequate justifications o f eligible expenditures. Disbursement of IDA Funds to Project Management - 50 - IDA funds will be disbursed to the Project Management for activities based on Financial Monitoring Reports (FMRs) that include financial reporting, procurement and contract management with physical implementationprogress. An initial deposit advance will be made into the Special Account. The advance will be meant to cover project expenditures for six months as indicated in the initial six-month cash flow forecast. Flow of Funds The diagram below illustrates the FundsFlow arrangements: FUNDS FLOW ARRANGEMENTS o f Burundi ID Project Special Account Account Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage 1. Goods 5.17 100%o f foreign expenditures and 95% o f local exDenditures 7.08 II 100% II 10.82 100%o f foreign expenditures and (including audits) and training 95% o f local expenditures for consultant services (including audits), and 100% for training 4. Refinancing o f Project Preparation 0.45 Amount due pursuant to Section 2.02 (b) Advance o f the project Development Credit Arrreement 5. Incremental operating costs 2.48 100%o f foreign expenditures and 95% ~ o f local exnenditures Total Project Costs with Bank 26.00 Financing Total 26.00 -51 - Annex 7: Project Processing Schedule BURUNDI: Economic Management Support Project I Proiect Schedule I Planned I Actual I Time taken to prepare the project (months) 12 12.5 First Bank mission (identification) 1111112002 1111112002 IAppraisal mission departure 0811812003 0811812003 I Negotiations 1210812003 1211812003 IPlanned Date of Effectiveness III 0313012004 III III Prepared by: MinistryofFinance and MinistryofDevelopment Planning and Reconstruction Preparation assistance: Bank staff who worked on the project included: Name Speciality Mathurin Gbetibouo Country Manager, TTL Willen Zijp Operations Adviser Eric R. Nelson Senior Economist Pamphile Kantabaze Senior Operations Officer JeanNdenzako Economist Siaka Bakayoko Senior Financial Management Specialist Emmanuel Tchoukou Financial Management Specialist Rudy R. Chizungu Consultant, InstitutionalDevelopment Capacity Building Abdousalam Drabo Consultant, Social Sector Elizabeth 0.Adu Chief Counsel Isabella Micali Drossos Senior Counsel Chukwuma Obidegwu Lead Economist Sameena Dost Counsel Erinna Dia Consultant, Project Costing Prosper Nindorera Procurement Specialist Joseph Kizito Financial Management Specialist Achille S. Toto Research Analyst, Public Finance Liton Nimbona Consultant, Macroeconomics and Statistics Rosalie MinaniKigeme Acting Senior Program Assistant Paula J.White Language Program Assistant Nad&geNouviale Language Program Assistant Aurore Simbananiye Program Assistant Felicia Anwonton Editor Jean Van Eename Consultant, Public Procurement Romaine Ndorimana Consultant, Gender Gerard Boulch Consultant, Public Finance Pascal Dooh-Bill Consultant, Legal Evariste Niyonkuru Consultant,Legal -53 - IDeo-MarcelNiyungeko IMunicipalEngineer I - 54- Annex 8: Documents in the Project File* BURUNDI: Economic Management Support Project A. Project Implementation Plan A project implementation plan for the first year o f activities has beenreviewed and submitted to IDA. B. Bank Staff Assessments Public Expenditures review, 2001-2003, C. Other Training inMacroeconomic Modelling techniques Politique Sectorielle du Ministbre de la Justice (2202-2004) Politique Sectorielle du Ministbre de la Fonction Publique (2002-2204) Cadre StratCgique IntCrimaire de Croissance Economique et de Lutte contre la PauvretC (Juillet 2002) Evaluation de la Situation du Systime Statistique du Burundi en vue de 1'Claboration d'unprogramme d'appui au renforcement des capacitCs statitisques (Observatoire Economique et Statistiques Sub-Saharienne, AFRISTAT --Avril2003) UnPlanGlobal de Formationpour 1'Administration Publique; Rapport de Mission PNUD --Project BDI/97/007 Accord de Cessez-le-feu entre le Gouvemement de Transition du Burundi et le Mouvement Conseil National pour la DCfense de la DCmocratie-Force pour la Dtfence de la DCmocratie (CNDD-FDD) Projet de RCforme des MarchCs Publics au Burundi, Plan &Action de la RCfonne (Ministire des Finances, Novembre 2003) *Including electronic files -55 - Annex 9: Statement of Loans and Credits BURUNDI: Economic Management Support Project 24-NOV-2003 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Frm Rev'd PO74602 2002 BURUNDI-ERC 0.00 54.00 0.00 14.92 -1.00 0.00 PO71371 2002 BURUNDCHlViAlDS and Orphans 0.00 36.00 0.00 36.48 1.79 0.00 PO65789 2001 Regional Trade Fac. Project-Burundi 0.00 7.50 0.00 3.90 0.17 0.00 PO64961 2001 Public Works and Employment Creation 0.00 40.00 0.00 29.20 -13.61 0.00 PO64510 2000 Supplemental (Grant)-Social Action Project 0.00 12.00 0.00 16.64 1.96 0.00 PO0216 1995 Supplemental HealthiPopuiatlon II 0.00 21.30, 0.00 10.01 2.23 2.26 Total: 0.00 170.80 0.00 111.14 -8.66 2.26 - 56 - BURUNDI STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions USDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2001 AEF Florex 0.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 AEF V&F Export 0.57 0.00 0.00 0.00 0.57 0.00 0.00 0.00 Total Portfolio: 0.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 0.00 0.00 - 57 - Annex I O : Country at a Glance BURUNDI: Economic Management Support Project Sub- POVERTY and SOCIAL Saharan LOW. Burundi Africa income Developmentdlamond' 2002 Population, mid-year (millions) 7.1 688 2,495 Life expectancy GNi per capita (Atlas method, US$) 90 450 430 GNI (Atlas method, US$ billions) 0.64 306 1,072 Average annual growth, 1996-02 Population (%) 2.0 2.4 1.9 Labor force (%) 2.4 2.5 2.3 GNI Gross per primary Most recent estimate (latest year available, 1996-02) capita nroliment Poverty (% ofpopulation below nationalpoverty line) Urban population (% of totalpopulation) 10 33 30 Life expectancy at birth (years) 42 46 59 1 Infant mortality (per 1,000 live births) 110 105 81 Child malnutrition (% of children under 5) 45 Access to imDrovedwater source Access to an improved water source (% ofpopulation) 78 58 76 I Illiteracy (% ofpopulation age 15+) 50 37 37 Gross primary enrollment (% of school-age population) 65 86 95 -Burundi Male 73 92 103 Low-income group Female 58 80 07 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios. GDP (US$ billions) 1.o 1.1 0.69 0.72 Gross domestic InvestmentlGDP 14.5 15.0 6.9 7.9 Trade Exports of goods and services/GDP 10.2 8.7 6.5 6.6 Gross domestic savings/GDP -2.2 -5.1 -4.8 -4.5 T Gross national savingsiGDP 22.0 6.6 Current account balance/GDP -5.5 -3.5 Interest payments/GDP 0.2 1.3 0.7 0.6 Totai debWGDP 22.4 94.4 155.2 167.5 Total debt service/exports 7.5 36.4 41.6 36.3 Present value of debt/GDP 94.1 Present value of debtlexports 1172.3 Indebtedness I 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) Burundi GDP 4.3 -1.6 3.2 3.6 GDP oer caoita 1.4 -3.6 1.3 1.7 Low-income WOUD I STRUCTURE of the ECONOMY 1982 1992 2001 2002 (% of GDP) Agriculture 56.9 52.5 50.0 49.3 Industry 15.4 20.8 18.7 19.4 Manufacturing 8.9 15.0 Services 27.7 26.7 31.3 31.3 Private consumption 91.6 95.0 91.3 91.7 General government consumption 10.7 10.1 13.5 12.8 Importsof goods and services 26.9 28.8 18.2 18.9 1982-92 1992-02 2001 2002 Growth of exports and imports (%) (average annualgrowth) Agriculture 3.3 -0.3 3.8 3.9 I 150T Industry 4.3 -1.5 16.1 25.3 100 Manufacturing 5.4 -9.0 Services 4.9 -0.9 3.5 3.5 50 Private consumption 3.3 -4.0 -12.0 12.5 0 General government consumption 4.9 -1.7 14.7 0.9 .so Gross domestic investment 3.3 1.1 2.8 6.9 Importsof goods and services 0.1 5.5 -5.7 22.5 *The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamondwili be incomplete. - 58 - Burundi PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation (Oh) (% change) 40 T Consumer prices 5.9 1.8 14.0 3.8 30 Implicit GDP deflator 5.7 5.7 13.4 12.9 20 Government finance 10 I (% of GDP, includes current grants) 0 Current revenue 15.2 19.7 21.4 19.4 97 98 99 00 01 Current budget balance 0.4 4.9 3.8 2.2 -GDPdefIator *CPI Overall surplus/deflcit 4.4 -8.5 -3.0 -1.1 TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 89 77 48 57 I 200 7 Coffee 78 49 52 54 Tea 3 9 14 15 Manufactures 3 11 1 1 Total imports (cifl 214 214 157 183 100 Food 25 11 12 12 Fuel and energy 30 26 21 22 Capital goods 51 78 66 66 0 00 01 Export price index (1995=100) 90 54 59 60 96 97 98 99 import price index (1995=100) 94 95 92 93 tEi Exports Imports Terms of trade (1995=1001 96 57 64 65 BALANCE of PAYMENTS 1982 1992 2001 2002 1 (US$ millions) Current account balance to GDP ( O h ) I Exports of goods and sewices 103 95 51 61 Imports of goods and sewices 273 312 142 150 Resource balance -169 -218 -90 -69 Net income -8 -14 -12 -10 Net current transfers 196 87 Current account balance -60 -24 Financing items (net) 73 31 Changes in net reserves 31 -13 -7 -10 Memo: Reserves including gold (US$ millions) Conversion rate (DEC,/ocal/US$) 90.0 208.3 830.4 930.7 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstanding and disbursed 227 1,022 1,070 1,204 IBRD 0 0 0 0 IDA 66 473 582 648 G 96 Total debt service 8 40 23 24 IBRD 0 0 0 0 IDA 0 5 14 16 Composition of net resource flows Official grants 33 151 126 Official creditors 51 88 0 28 Private creditors 1 -2 2 -2 Foreign direct investment 1 1 0 Portfolio equity 0 0 0 C: 13 World Bank program Commitments 21 50 48 90 A IBRD E Bilateral ~ Disbursements 18 49 12 36 B IDA D Other multilateral ~ F Private Principal repayments 0 2 10 11 C IMF -- G Short-tern --- Net flows 18 48 2 25 interest payments 0 3 4 4 Net transfers 18 44 -2 21 Note I nls taDle was produced rrom tne uevelopment tconomics central database. - 59 - Additional Annex I 1 Policy Matrix BURUNDI: Economic Management Support Project Component 1: Strengthening Macroeconomic Data Collection and Analysis for Informed Policy Formulatic Outcome Indicators Outcome Benchmarks by Outcome Monitorable outputs December 2004 I2005 Benchmarks by December 2006 0 Computerized Key governmental Personnel 0 Operational Data bas database operational inMinistryof Development ddata Planning and Reconstruction 0 Reports effectively a 0 Capacity and Finance and other core mned strengthened agencies, including Central All targeted staffs eff Lon. 0 Bank, trained 0 Economic model operational Capacity within Ministry o f Development Planning and 0 Economic and Reconstruction strengthened Quarterly Statistics reports publicatio available and ISTEEBU's key staff trained nof disseminated. and database created by economic ISTEEBU in collaboration data and with the BRB Statistics Quarterly progress reports Quarterly and annual macro- economic projections . Quarterly economic updates - 60 - + Component 2: Increasing Transparency and Governance inPublic Financial ai ,dministrat&e Management Objective Outcome Indicators Outcome Benchmarks by Outcome Benchma December 2004 / 2005 by December 20( 2) Increased transparency *Audits and studies * Financial management * Computerized and governance in completed accounting structure improved, financial manageme public financial and especially that o f BRB, cash system installed administrative *Procedures reformed and management and links between management computerized budget and General accounts * Training facilities * created Database created * Ne w budget nomenclature effectively operational * Customs' * computerized syster Computerized financial * Plan Comptable renovated upgraded and fiscal network system strengthened identification systen or put inplace * Computerized payroll system effectively integrate established on basis o f Civil Service Census * Process o f Budget formulation and execution improved implementing PER validation mission findings -61 - + Component 3. Increased Transparency and Governance for Efficient Allocation Services: Objective Outcome Indicators Outcome Benchmarks by Outcome Benchma December 2004 / 2005 bv December 200 3) Reforming Public * Public Procurement Code * Steering Committee * Detailed Procurement System updated established implementation and Modernizing evaluation reports Private Sector Legal * Action plan Public * Strategy document issued prepared and and Regulatory Procurement administration workshops for busir Framework. reform adopted by Cabinet * New decentralized structure community and set up Government conduc * Framework for monitoring implementation o f Public * Information * Client satisfaction Procurement established technology installed survey completed * Privatization process * New Procurement Code * Equipmentand of resumed and intensified approved by Cabinet space acquired * SCEP's capacity as technical privatization body strengthened * REGIDESO asses to support the privatization and audited process * Biding process of REGIDESO comple * Continuous suppo to speed up privatization proces, provided Outcome - 62 - Component 4. Defining Legal and Judicial Sector Strategy and Strengthening Oversight Struct Objective Outcome Indicators *Benchmarks by December OutcomeBenchma * Legalandjudicial 2004 I2005 by December 200 *IntermediaryJudicial Strategy * Inspection GenerL sector strategy defined definedand cost-benefit des Finances andstrengthening analysis for creationof strenghtened oversightstructures * Oversightstructures Obsewatoire de la Justice establishedand strengthened completed * Inspection Genen * Tribunal of Commerce * d'Etat created By Lawsofthe Cour des operational andstrengthened Comptes approvedby * Alloversight Parliament andpublishedby structures including the BulletinOfficieland Cours des Comptes, Renouveau Inspection Generalt * Parliament andmedia traine' Etat andInspection Generale des Finan inbudgetaryprocess trained * Judges andprosecuting attorneys trained * Judges of Tribunal of Commercetrainedin * Equipmentandsp Business Law acquired * Documentationand office space provided for the Tribunal of Commerce * Sector Strategy finalized - 63 - I I 0 0 I