Document of The World Bank Report No: ICR2720 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H7950) ON A GRANT IN THE AMOUNT OF SDR33.2 MILLION (US$ 50 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FOR A RAPID RESPONSE DEVELOPMENT POLICY GRANT ( RRDPG) December 25, 2013 Poverty Reduction and Economic Management AFTP1 Country Department AFCS3 Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of December, 2013) Currency Unit = Malawi Kwacha (MWK) MWK 424 = US$1 US$ 1.00 = SDR 0.65 MALAWIAN GOVERNMENT FISCAL YEAR July 1-June 30 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ATAF Automatic Tariff Adjustment Formula CABS Common Approach to Budget Support CAMA Consumers Association of Malawi CAS Country Assistance Strategy CEM Country Economic Memorandum CPCGRP Comprehensive Package Competitiveness, Growth and Poverty Reduction DfID Department for International Development DP Development Partner DPO Development Policy Operation ECF Extended Credit Facility EFD Electronic Fiscal Devices ERP Economic Recovery Plan ESCOM Electricity Supply Corporation of Malawi ESW Economic Sector Work EU European Union FISP Farm Input Subsidy Program FY Fiscal Year GDP Gross Domestic Product GNI Gross National Income GoM Government of Malawi HDI Human Development Index IBLC In-Bond Landed Cost ICR Implementation Completion Report IDA International Development Association IFA Input for Assets IHS3 Third Integrated Household Survey IMF International Monetary Fund IRLADP Irrigation, Rural Livelihoods and Agricultural Development Project LIPW Labor Intensive Public Works i M&E Monitoring and Evaluation MASAF Malawi Social Action Fund MERA Malawi Energy Regulatory Authority MGDS Malawi Growth and Development Strategy MoAFS Ministry of Agriculture and Food Security MoF Ministry of Finance MWK Malawi Kwacha MRA Malawi Revenue Authority NAO National Audit Office NGO Non-governmental Organization NOCMA National Oil Company of Malawi NSO National Statistical Office PAC Public Accounts Committee PDO Project Development Objective PFM Public Financial Management PIL Petroleum Importers Limited PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PWP Public Works Programs RBM Reserve Bank of Malawi RRDPG Rapid Response Development Policy Grant RRP Rapid Response Program SDR Special Drawing Rights TA Technical Assistance TAMA Tobacco Association of Malawi TCC Tobacco Control Commission UNDP United Nations Development Programme USD United States Dollar WFP World Food Programme Vice President: Makhtar Diop Country Director: Kundhavi Kadiresan Sector Manager: John Panzer Task Team Leader: Appolenia Mbowe ICR Team Leader: Temwa R. Gondwe ii MALAWI RAPID RESPONSE DEVELOPMENT POLICY GRANT CONTENTS A. Basic Information ...................................................................................................................... v B. Key Dates ................................................................................................................................... v C. Ratings Summary ...................................................................................................................... v D. Sector and Theme Codes ......................................................................................................... vi E. Bank Staff.................................................................................................................................. vi F. Results Framework Analysis ................................................................................................... vi G. Ratings of Program Performance in ISRs .............................................................................. ix H. Restructuring (if any) ............................................................................................................... ix 1. Program Context, Development Objectives and Design ................................................. 1 1.1. Context at Appraisal ................................................................................................ 1 1.2. Original Program Development Objectives (PDO) and Key Indicators (as approved) ............................................................................................................................ 2 1.3. Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification .................................................................................................... 3 1.4. Original Policy Areas Supported by the Program (as approved) ............................. 3 1.5. Revised Policy Areas (if applicable)........................................................................ 4 1.6. Other significant changes ......................................................................................... 4 2. Key Factors Affecting Implementation and Outcomes ................................................... 5 2.1. Program Performance .............................................................................................. 5 2.2. Major Factors Affecting Implementation: ............................................................... 6 3. Assessment of Outcomes ................................................................................................. 10 3.1. Relevance of Objectives, Design and Implementation .......................................... 10 3.2. Achievement of Program Development Objectives .............................................. 11 3.3. Overall Outcome Rating ........................................................................................ 16 3.4. Overarching Themes, Other Outcomes and Impacts ............................................. 17 3.5. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ...... 17 4. Assessment of Risk to Development Outcome .............................................................. 17 5. Assessment of Bank and Borrower Performance .......................................................... 19 5.1. Bank Performance .................................................................................................. 19 5.2. Borrower Performance ........................................................................................... 20 6. Lessons Learned ............................................................................................................... 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .............. 22 Annex 1: Bank Lending and Implementation Support/Supervision Processes ................ 23 Annex 2. Summary of Borrower's ICR and/or Comments on Draft ICR ........................ 24 Annex 3. List of Supporting Documents .......................................................................... 28 Annex 4: Malawi at a glance ............................................................................................ 29 Annex 5: Map of The Republic of Malawi ....................................................................... 32 iii List of Tables Table 1: Prior Actions for the RRDPG .................................................................................. 5 Table 2: Indicators for pillar 1, and baseline, target and actual values ................................ 13 Table 3: Indicators for pillar 2, and baseline, target and actual values ................................ 16 Table 4: Outcome rating ...................................................................................................... 16 Table 5: Malawi: Selected Economic Indicators ................................................................. 27 iv A. Basic Information Malawi - Rapid Response Country: Malawi Program Name: Development Policy Grant Program ID: P126155 L/C/TF Number(s): IDA-H7950 ICR Date: 07/26/2013 ICR Type: Core ICR THE Lending Instrument: DPL Borrower: GOVERNMENT OF MALAWI Original Total XDR 33.20M Disbursed Amount: XDR 33.20M Commitment: Revised Amount: XDR 33.20M Implementing Agencies: Ministry of Finance Co-financiers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/11/2011 Effectiveness: 07/24/2012 Appraisal: 05/15/2012 Restructuring(s): Mid-term Approval: 07/17/2012 Review: Closing: 06/30/2013 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Not Applicable Quality of Implementing Satisfactory Not Applicable Supervision: Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: v C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA): (Yes/No): Problem Program at Quality of No None any time (Yes/No): Supervision (QSA): DO rating before Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 25 25 General agriculture, fishing and forestry sector 25 25 General energy sector 20 25 Public administration- Other social services 30 30 Theme Code (as % of total Bank financing) Other human development 20 20 Other social protection and risk management 30 30 Public expenditure, financial management and 30 30 procurement Rural markets 20 20 E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Makhtar Diop Country Director: Kundhavi Kadiresan Kundhavi Kadiresan Sector Manager: John Panzer John Panzer Program Team Leader: Appolenia Mbowe Appolenia Mbowe ICR Team Leader: Temwa Roosevelt Gondwe ICR Primary Author: Temwa Roosevelt Gondwe F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) To support the Authorities' efforts towards (i) achieving and maintaining macroeconomic stability and restoring the functioning of a market-based economy to ensure a quick growth vi rebound, and (ii) protecting the poor and the most poor in the short run while improving transparency of delivery systems. Revised Program Development Objectives (if any, as approved by original approving authority) N/A (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Reduction in fiscal deficit as a percentage of GDP Value Fiscal deficit of 7.0% Fiscal deficit of Fiscal deficit of (quantitative or N/A of GDP 2% of GDP 0.8% of GDP Qualitative) Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments (incl. % Target exceeded achievement) Indicator 2 : Increase in volume of fuel imports in millions of litres Value (quantitative or 160 million litres 300 million litres N/A 293million litres Qualitative) Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments Substantially met. Fuel imports are market driven, and the market is now (incl. % fully functional achievement) Indicator 3 : Increase in net earnings of an average tobacco farmer in Kwacha terms Value (quantitative or Mwk 160,483 Mwk 252,393 N/A Mwk 349,308 Qualitative) Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments (incl. % Target exceeded achievement) Increase in the ratio of total Labour Intensive Public Works related Indicator 4 : expenditure to total expenditure Value (quantitative or 1.5% 6.5% N/A 4.9% Qualitative) Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments (incl. % Target substantially met achievement) vii Increase in the ratio of total fertilizer and seeds subsidy related Indicator 5 : expenditure to total recurrent expenditure Value (quantitative or 7.5% 12% N/A 14% Qualitative) Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments (incl. % Target exceeded achievement) Submission of the Farm Input Subsidy Program procurement audit report Indicator 6 : to Parliament FISP Procurement Value No procurement audit No procurement Audit not (quantitative or N/A for FISP audit for FISP submitted to Qualitative) Parliament Date achieved 06/30/2012 07/30/2012 06/30/2013 Comments (incl. % Target not met achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Number of FISP beneficiaries Value 1.5 million 1.5 million (quantitative or 1.4 million households households households Qualitative) Date achieved 06/30/2012 07/31/2012 06/28/2013 Comments (incl. % Target met. achievement) Indicator 2 : Increase in tobacco sales Value (quantitative or US$177 million US$300 million US$361 million Qualitative) Date achieved 06/29/2012 07/31/2012 08/30/2013 Comments (incl. % Target exceeded. achievement) viii G. Ratings of Program Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) H. Restructuring (if any) Not Applicable ix 1. Program Context, Development Objectives and Design 1.1. Context at Appraisal 1. At project appraisal, President Banda, who came to office after the sudden death of President Bingu Wa Mutharika in April 2012, had just inherited a very difficult economic environment. Under a fixed exchange rate regime, the economy was out of control with base money growth of close to 55 percent, which fueled inflationary pressures and widened the spread between official exchange rate and the black market rate. The foreign exchange market had collapsed and the strengthened government administrative controls further pushed the demand for foreign exchange into the black market. The international reserves were depleted to less than half month of import cover. The drying up of fuel supplies and the loss of external credit lines paralyzed the private sector operations, which resulted in scaled down operations and the laying off of workers. The fiscal deficit under the ‘zero-deficit budget’ was unsustainable. Inflationary pressures were high at the time of appraisal given the large central bank financing of government budget and the devaluation of Kwacha undertaken in 2011. 2. The Banda administration, immediately after assuming office, implemented bold and politically difficult reforms to address the external and internal macroeconomic imbalances while cushioning the poor from the impact of adjustment. Foreign exchange reforms included adoption of a floating exchange rate regime following a one-step devaluation of 50 percent in the official rate ; allowing banks and foreign exchange bureaus to set the rate at which they buy and sell foreign exchange from/to their customers; removing the requirement for foreign exchange earnings to be surrendered to the Reserve Bank of Malawi (RBM); and cancelling the requirement for banks to submit to the RBM for review any application for external payments exceeding US$50,000. The authorities also announced the re-instatement of the automatic adjustment mechanism for petroleum products so that domestic fuel prices track movements in import parity prices. 3. The GoM adopted tight monetary and fiscal policies, to contain aggregate demand so as to achieve a real devaluation. If the reforms adopted were to be effective, aggregate demand had to be suppressed by containing the rise in wages to effect a real devaluation and contain inflationary pressures as relative prices were adjusting and passing through to the real economy. To support these outcomes the GoM put together a pragmatic 2012/13 national budget, which was anchored on 'Zero Net Domestic Financing'; the plan being to effect a significant adjustment in the fiscal balance through fiscal consolidation measures. On the other hand, monetary tightening took the form of increasing the bank rate from 13 percent to 16 percent in May 20121. 1 Further tightening was made in July and September 2012, when the rate was increased to 21 percent and 25 percent, respectively. 1 4. In the absence of these reforms, the macroeconomic imbalances would have significantly worsened leading to a complete collapse of the economy. Under a scenario of no policy reforms prior to the May 2014 general elections, the IMF had projected a continued output and export contraction, import contraction, erosion in the government revenue base, increased resort to central bank financing and rising inflation. It was expected that by the end of 2012 the economy would have slowed down to below 2 percent and that further into 2013 the economy would have entered into a policy induced recession. 5. Support to the GoM reform agenda by development partners (DPs) and IDA was also instrumental in providing the assurances needed that the reform would be sustained. A collective effort by DPs resulted in the significant increase of grants from 4.4 percent of GDP in 2011/12 to 14.4 percent in 2012/13. The Rapid Response Development Policy Grant (RRDPG), which was part of the US$150 million IDA Rapid Response Program (RRP), was critical in providing the much needed financing to support these reforms and the assurances needed by private sector and the public that the reforms would be sustained. In addition to the RRDPG, the RRP comprised of two Additional Financing (AF) operations under the Malawi Third Social Action Fund APL II (MASAF 3) and the Irrigation Rural Livelihoods and Agricultural Development Project (IRLADP). The Program was consistent with the objectives of the FY07-11 Country Assistance Strategy (CAS), and was aligned to the GoM’s Economic Recovery Plan (ERP), and the Malawi Growth and Development Strategy (MGDS 2). 6. At appraisal, the GoM and the IMF were in the process of negotiating a new three year Extended Credit Facility (ECF) following the authorities’ request to cancel the previous ECF program, which was approved by the Fund in 2010 before going off track in June 2011. Specific objectives of the new ECF Program approved by the IMF Board in July 2012 included achievement and maintenance of a stable macroeconomic environment with low inflation; increasing foreign exchange reserves; and undertaking structural reforms to improve the investment climate and promote sustained and inclusive growth. 1.2. Original Program Development Objectives (PDO) and Key Indicators (as approved) 7. As set forth in the Program Document, the key objectives of the grant were to support the recovery of Malawi’s economy through: (i) achieving and maintaining macroeconomic stability, and restoring the functioning of a market-based economy to ensure a quick growth rebound; and (ii) protecting the poor and most vulnerable groups in the short run while improving transparency of delivery systems. The overall RRDPG outcome indicators, identified in the program document were:  Reduction in the fiscal deficit from 7.0% of GDP in 2011/12, to less than 2.0% of GDP by June 2013.  Increase in volume of fuel imports from 160 million litres in 2011/12, to projected 300 million liters. 2  Increase in net earnings to an average tobacco farmer from MWK160,483 to about MWK252,393 after exchange rate liberalization.  An increase in ratio of total Labor Intensive Public Works (LIPW) related expenditure to total recurrent expenditure from 1.5 percent in 2011/12, to 6.5 percent by June 2013, and expanded coverage of the beneficiaries from 311,807 households, to 700,000 households by June 2013.  An increase in ratio of total fertilizer and seeds subsidy related expenditure to total recurrent expenditure from 7.5 percent in 2011/12, to over 12 percent by June 2013, and expanded coverage of the beneficiaries from 1.4 million farming households in 2011/12, to 1.5 million farming households by June 2013.  Fertilizer Inputs Subsidy Programme (FISP) procurement audit report submitted to Parliament by June 2013. 1.3. Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification The PDOs and indicators were not revised during program implementation. 1.4. Original Policy Areas Supported by the Program (as approved) Policy Area I: Achieving and maintaining macroeconomic stability and restoring the functioning of a market-based economy to ensure a quick growth rebound. 8. Restore macroeconomic stability and fiscal sustainability. The RRDPG sought to support the GoM’s effort to address the severe economic crisis and restore macroeconomic stability and thereby setting conditions for quick rebound of economic activities while cushioning the most vulnerable. The reform supported by the RRDPG aimed at ensuring that the 2012/13 national budget, which was anchored on zero net domestic borrowing, was consistent with these objectives. The plan was to bring about a large fiscal adjustment through a combination of corrective revenue and spending control measures intended to reduce aggregate demand pressures and to achieve fiscal sustainability over the medium term, while prioritizing social expenditures. 9. Improve the functioning of the petroleum market. The policy goal was to re- establish a pricing policy that results in retail petroleum prices that are fully reflective of import parity prices, through the reinstatement of the Automatic Pricing Mechanism (APM). The petroleum market was virtually collapsing and the administered prices were not adequate to ensure that all costs in the supply chain were covered. In this regard, the intended outcome was the normalization of supply of petroleum goods in an economy that was facing serious fuel supply problems, with dried up lines of external credit, and eliminate fiscal risks inherent in state’s role in fuel pricing. The RRDPG supported APM allowed for the adjustment of fuel prices at the pump on a regular basis in response to movements in the world petroleum prices and exchange rate. 10. Improve incentives to exporters. In a bid to incentivize exports, the RRDPG supported reform measures aimed at liberalizing the exchange rate and removing the requirement for foreign exchange earnings to be surrendered to RBM. Prior to the 3 reforms, Malawi’s official exchange rate was overvalued causing persistent imbalances in the foreign exchange market, with transactions increasingly taking place in the informal market. The overvalued exchange rate and tight administrative regulations also acted as a disincentive to exporters who were subject to mandatory repatriation and surrender requirements. The fixed exchange rate regime effectively implied a tax on exporters, which according to a 2011 IMF TA report, was estimated to have cost exporters about 4 percent and 6 percent of GDP in 2010 and 2011, respectively. The CEM 2010 recognized the exchange rate reform as the foremost constraint to competitiveness in the economy. Policy Area II: Protecting the vulnerable groups while improving transparency of systems 11. Scaling up of social protection interventions. The objective of this action was to cushion the most vulnerable groups from the negative impact of devaluation and other policies, and those affected by the dry spells in the southern region. The plan was to expand the FISP by an additional 100,000 beneficiaries in 2012/13 from 1.4 million farming families covered in 2011/12. This was to be complemented with a country-wide expansion of the labor intensive public works program through MASAF and IRLADP with coverage of about 700,000 households. The expanded FISP included more legumes which would also enhance nutritional status of households and increase incomes for households. The RRDPG therefore ensured that sufficient resources were allocated in the budget to support the scaling up of the program country-wide; ensuring timely delivery of fertilizer to small holders and in turn contributing towards increased food production. 12. Improve Economic Management of FISP. The RRDPG provided support to the GoM’s efforts to improve efficiency and value for money in public procurement by institutionalizing annual procurement audits for FISP in the GoM’s systems. The objective was to improve economic management of FISP and enhance efficiency of the FISP, especially in use of budgetary resources and transparency in the contract awarding process.2 This reform was intended to operationalize the GoM’s commitment to mainstream the FISP procurement review process into annual procurement audits, which were going to be conducted by the National Audit Office (NAO) so as to strengthen ownership and transparency in FISP procurement. 1.5. Revised Policy Areas (if applicable) 13. The policy areas were not revised. 1.6. Other significant changes 14. There were no significant changes in design, scope and scale, implementation arrangements, or funding. 2 Since 2006, the FISP has been the major program in the agricultural sector covering over 60 percent of the total agriculture budget. Fertilizer under FISP is highly subsidized (over 95 percent subsidy as farmers pay MKW500 per 50kg bag of fertilizer) and remains a huge fiscal risk. 4 2. Key Factors Affecting Implementation and Outcomes 2.1. Program Performance 15. The overall performance of the program was satisfactory. Several key policy actions, identified as prior actions in the program (Table 1), were taken upfront by the GoM. The GoM maintained a solid commitment to macroeconomic policy reforms and fiscal management stayed on track. Two successful reviews of IMF’s ECF program were carried out. The program’s impact on macroeconomic outcomes was mostly along the desired and expected lines thereby vindicating the soundness of underlying analysis. At completion three out of six results indicators exceeded the set targets and of the remaining three, two were significantly met. These indicators were directly related to the successful implementation of the Government’s program of economic recovery, with a special emphasis on prudent fiscal management, restoring the functioning of the market economy, and scaling up social support systems. The program had included submission of the FISP audit report to the Parliament as a results indicator; this was not met. Table 1: Prior Actions for the RRDPG List of prior actions from Legal Agreement/Program Document Status Policy Area I: Achieving and maintaining macroeconomic stability and restoring the functioning of a market-based economy to ensure a quick growth rebound Prior Action 1: Adoption by Cabinet of the 2012/2013 national budget that is Met consistent with fiscal sustainability and prioritization of social expenditure. Prior Action 2: Adoption by Cabinet of a fuel pricing policy that fully reflects Met fuel import parity prices. Prior Action 3: Approval by Cabinet of an automatic price adjustment of Met petroleum import prices. Prior Action 4: Directive from Reserve Bank of Malawi mandating exporters, Met including tobacco farmers, to transfer earnings in US dollars obtained at the tobacco auction floors to commercial banks at prevailing market determined exchange rate. Policy Area II: Protecting the vulnerable groups while improving transparency of delivery systems Prior Action 5: Inclusion, through MoF, of a scaled up labor intensive public Met works (LIPW) program, designed to enhance the Recipient’s safety net programs, in the 2012/13 national budget adopted by Cabinet. Prior Action 6: Inclusion, through MoF, of a scaled up Farm Input Subsidy Met Program (FISP) in the 2012/13 national budget adopted by Cabinet. Prior Action 7: Institutionalization of the policy to undertake procurement audits Met of FISP as recommended in the Joint Government/World Bank Fertilizer Procurement Review Report on the 2010/11 FISP. 5 2.2. Major Factors Affecting Implementation: Adequacy of Government’s Commitment 16. Strong GoM commitment to the economic reform agenda was key to the success of the program. This commitment was expressed at the highest level by the President of the Republic during her State of the Nation address to the Parliament in May 2012, which outlined the comprehensive plan for the recovery of Malawi’s economy and this was also the focus of the President’s State of Nations address in February 2013 (Unity of Purpose towards Economic Recovery). However the strongest indication of the extent of this commitment is the fact that at the time of the ICR, the government had stayed the course on the core elements of the reforms (exchange rate policy, and Kwacha cost-reflective pricing of petroleum products) despite of public pressures. Soundness of Background Analysis 17. The operation was based on sound analytical work. The DPO was designed on the basis of the analytical work undertaken prior to the preparation of the operation which provided the basis for the identification of priority program areas and the rationale for the selection of policy actions. The implementation of the reforms was significantly enhanced by the analytical work. The main underpinning analytical work was the Comprehensive Package on Competitiveness, Growth and Poverty Reduction (CPCGPR), which was presented to the economic management team of the Cabinet in March 2012, proposing measures to restore economic stability, kick start growth rebound, and presented a realistic plan to scale-up social protection.The operation also benefited from other studies listed in Box 1 below and from other works undertaken by other DPs and the IMF, in particular the Article IV documents (2012). These knowledge products, in addition to those done by others, provided the analytical background for the design of the operation. Box 1: Analytical Underpinnings Comprehensive Package on Competitiveness, Growth and Poverty Reduction (2012). Presented to the economic management team of the Cabinet in March 2012, proposing measures to restore economic stability, kick start growth rebound, and presented a realistic plan to scale- up social protection. Welfare Impacts and Mitigation of Exchange Rate Unification in Malawi (2012). This study assessed the welfare impact of devaluation induced price changes. The note proposed two compensation scenarios through Labor Intensive Public Works (LIPW) Programs to partially cover the loss of welfare of the poorest 60 percent of the rural and urban population. It also evaluated additional mitigation via tobacco (for growers) if a timely devaluation towards FOREX unification was undertaken, where it indicated that the original losses due to FOREX parity induced price increases, could be ameliorated in as much as 32%, on average, among tobacco farmers, with the largest effects benefiting the poorest growers. Comprehensive Exchange Rate and Foreign Exchange Study for Malawi (2012).Provided the genesis of the foreign exchange imbalances - how the GoM got into this situation, - identified the main causes of external imbalances and effects of the chronic foreign exchange shortages and the associated real exchange rate appreciation in the economy, and proposed possible policy responses, including the unification of the exchange rate and fiscal and monetary 6 restraint. The note also presented a brief analysis of pass-through effect of exchange. Country Economic Memorandum (2010). Identified constraints to growth, including an overvalued exchange rate, inadequate power supply, and lack of trade facilitation among others. It also clearly identifies the public expenditure management as a key reform area for containing the growth of GoM’s spending and maintaining fiscal stability. Assessment of the Operation’s Design 18. The design of the operation was well-aligned with the development objectives and aided satisfactory implementation of the program. An important feature was the front-loading of all key policy actions in the form of prior actions. This design feature reduced the risks of piecemeal approach to policy reforms and allowed rapid disbursement which helped stabilize the country’s external position. Given the emergency nature of the operation, a single tranche operation was well-suited. The operation was well-timed vis-à-vis the Government’s budget cycle and IMF’s ECF program. The operation was also nicely complemented with two investment projects. The decision to package the three operations under the RRP was meant to maximize on the synergies between the RRDPG and the investment lending operations (Additional Financing for MASAF and IRLAD), where the two projects were geared towards cushioning the poor and most vulnerable through productive employment as well as support the supply response through the construction of small irrigation schemes to support irrigation activities during the winter season. Relevance of Risks Identified 19. The risks identified at appraisal stage were relevant and the measures to mitigate the risks were effective. The four risks identified at appraisal (shortfall in donor support, political risks, social tensions and implementation capacity) were relevant and were well mitigated through mitigating measures proposed as follows: (a) The risk of shortfalls in donor support was mitigated by actions by the authorities to repair relations with DPs and continued commitment of the Government, which saw the resumption of budget support (0 percent of GDP in 2011/12 to 6.3 percent in 2012/13) from some CABS DP, including IDA, the Africa Development Bank, and the European Union. Even for those DPs who were not able to resume their normal budget support for various reasons like the United Kingdom and Germany, they were still able to provide emergency budget support and/or balance of payments support. (b) Political risks and social tensions were largely mitigated through social protection support and improved communications strategies. It appears that the mitigating factors against social tension risks have worked to a large extent considering the fact that the momentum of the reforms has been maintained despite significant external pressures. Despite delays, and in some cases insufficient communication by the authorities on the objectives of the reform program, including measures put in place to cushion the poor, the authorities managed to mitigate any serious political fallout, although pressures have continued to mount as the country gears itself for the May 2014 tripartite elections. Social tensions intensified around wage increase disputes and 7 increases in nominal prices; manifesting into industrial actions in both private and public sectors. The GoM was involved in intense negotiations with the labor unions and this mitigated the risk of heightened social tension. (c) Implementation capacity risks. There was a risk that GoM’s capacity to massively scale up social safety net programs would have been overstretched. This would have risked delaying the implementation of the programs supported by this operation and would have led to low utilization of available resources and insufficient coverage of beneficiaries. With large part of the financing coming from development partners, through existing programs with well-established institutional structures, including the Bank’s support through MASAF and IRLAD, this risk was minimized. Despite the delays in launching the FISP procurement process due to cancellation of the first bidding process, the implementation of the FISP was relatively smooth. Other Factors Affecting Implementation (Factors beyond Government Control) 20. Strong donor coordination and support. This factor had a positive impact on implementation. In recent years donor coordination has been strong in Malawi. The Bank’s response through the RRDPG was coordinated with responses from other DPs, including the Common Approach to Budget Support (CABS) DPs framework. The CABS represents a group of development partners3 that use a joint approach in the provision of budgetary support to the GoM. The Bank also worked closely with the IMF on numerous aspects of this operation. Work was coordinated and done jointly in a number of areas including the Debt Sustainability Analysis; monitoring fiscal developments; Joint Staff Advisory Note of the MGDS 2; and Article IV mission. 21. Drought conditions in parts of the country prolonged the inflationary process that was in motion since 2011. The price of maize (the staple food) shot up in the second half of 2012 due to a decline in output arising from drought conditions in parts of the country. It is estimated that about 2 million people (about 12 percent of the total population) faced food deficits in the period before harvest of March/April 2013. 22. Tight liquidity conditions in the banking system left several banks stranded and resorting to the RBM discount window to meet their liquidity needs. Prior to the devaluation of the kwacha in May 2012, banks were awash with the domestic currency due to high government spending and failure to meet foreign obligations because of scarcity of foreign exchange. Banks used this liquidity to extend long term loans to various sectors of the economy and/or to undertake expansion drives in terms of points of representation. Following the devaluation, foreign exchange became available and as clients sought to clear their external payment obligations by withdrawing deposits, banks had difficulty unwinding the long positions they had taken. In order to provide relief to the hardest hit banks which continued to have difficulty meeting liquidity requirements, the RBM introduced a temporary window for providing short-term uncollateralized loans to the banks. The window fed money supply growth, fueling inflationary pressures. The RBM closed the non-collateralized window in November 2012, and has since mopped up 3 Africa Development Bank, European Union, Germany, Norway, UK Department for International Development, World Bank. 8 the excess liquidity, with money supply (year-on- year) slowing down from 38 percent in November 2012 to 26 percent in June 2013. 23. Excess demand for foreign exchange, partly to clear the backlog of external payment arrears, exerted further pressure on the Kwacha. The magnitude of the external payment arrears was much higher than originally thought –more than double amounting to between US$700 million- US$ 1 billion- and the decision by the private sector to clear these arrears immediately after the reforms were instituted meant that the demand on forex far exceeded its supply, which put significant pressure on the Kwacha. The occurrence of these shocks contributed to the delays in the stabilization of the Kwacha rate. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24. Progress against RRDPG targets was monitored by Bank staff during the course of the year through bi-annual reviews within CABS framework and Staff Missions, especially under the social safety net pillar. Following previous successful budget support operations, the review of the program objectives was based on relevant and easy-to-monitor indicators. In addition, the operation also benefitted from the monitoring system of the IMF ECF program i.e. quarterly reviews, notably on the macroeconomic performance, and the monitoring of public finance management indicators under the PFEM Reform Program supported through a Bank managed Multi Donor Trust Fund (MDTF). 25. M& E Design: The M&E for the operation was appropriately designed with a mix set of quantitative and qualitative outcome indicators which were well defined and linked with the policy actions. These indicators were selected in agreement with the Government (involving sector ministries) and to some extent other DPs taking into account the availability of data, their relevance and feasibility. 26. M & E Implementation: The data used for M&E purposes were all official data collected primarily from the sector ministries and departments of the Government, principally Ministry of Finance (MoF), Ministry of Agriculture and Food Security (MoAFS) and, Ministry of Economic Planning and Development (MEPD), Malawi Energy Regulatory Authority (MERA), Tobacco Association of Malawi (TAMA), Tobacco Control Commission (TCC), and Reserve Bank of Malawi (RBM), National Statistics Office (NSO). Data was collected in a timely manner for most of the indicators by the responsible agencies. This greatly facilitated the close monitoring of progress towards outcomes. Overall, the status of the GoM’s program was well monitored during the biannual CABS review meetings in October 2012 and March 2013, where progress towards outcomes was measured and allowed the Bank teams to continue the policy dialogue with the institutions involved in program implementation. The ERP M&E framework provided more information on many of the outcome indicators and facilitated the monitoring of both the GoM plan and to some extent the RRDPG. 9 27. M&E Utilization: The M&E framework for the RRDPG served as a useful tool to assessing progress towards the implementation of the program. During the operation, the Bank and Government teams went through the monitoring indicators in the context of the CABS Reviews and IMF ECF Review missions, to assess progress made and to ascertain whether the results were diverging from expected and targeted outcomes. 2.4 Expected Next Phase/Follow-up Operation 28. A new programmatic DPO series was launched in 2012/13 with the approval of the first of the three single tranche operation (DPO-1) by the Board on May 28, 2013. The proposed DPO series intends to support policy and institutional reforms under the MGDS II and the ERP aimed at: (i) strengthening macroeconomic and public finance management and, (ii) promoting economic development and diversification. The program is geared towards consolidating the macroeconomic and structural reforms supported by the Rapid Response Program, approved by the Board in July 2012 and sets the stage for longer term structural reforms for the post 2014 period. 3. Assessment of Outcomes 3.1. Relevance of Objectives, Design and Implementation Rating for Relevance of Objectives: Substantial Rating for Relevance of Design and Implementation: Substantial 29. Rating for Relevance of Objectives, Design, and Implementation is substantial. It reflects proper diagnosis of development priorities that remain relevant at the time of the ICR. The program was a timely and comprehensive response to client’s needs during a time of crisis, though in hindsight the transparency related goal was ambitious. Relevance of Objectives 30. The RRDPG’s objectives were highly relevant to the GoM’s reform agenda at appraisal and still remain relevant in the current country context where policy emphasis is on accelerating the economic recovery process and entrenching macroeconomic stability. The objectives set in the RRDPG were consistent with the objectives of the FY07-11/FY13-16 CAS, and aligned to MGDS II and in the ERP. The RRDPG supported priorities in areas identified in the CAS and also outlined in the ERP including: i) prudent fiscal policy and sound macroeconomic management to restore internal and external balance; ii) increase productivity and diversification of agriculture; and, improving social safety net systems. The RRDPG was also based on sound analytical work, which helped ensure relevance of its objectives. While good progress has 10 been made towards achieving the program’s objectives (as set out in section 1.2); these reforms will need to be sustained over the medium term to have meaningful impact on poverty reduction. Relevance of design and implementation 31. The program content was underpinned by strong analytical foundation and was directly relevant to the PDOs aimed at achieving and maintaining macroeconomic stability, restoring the functioning of a market-based economy, and protecting the poor and most vulnerable groups. The design of the operation was in line with the need to provide quick relief in a crisis situation. The RRDPG enabled the GoM to consolidate the economic reform measures by institutionalizing them and addressing the gaps in their legal framework. For example, the prior action on the monthly reviews of the petroleum prices empowered MERA to undertake these reviews every second week of each month despite heavy political pressures to reverse the reform. With hindsight, it is the view of this ICR that the emergency DPO (focused on providing rapid relief in an emergency situation) was not the appropriate tool to address deep seated governance reforms aimed at improving transparency in FISP procurement. 3.2. Achievement of Program Development Objectives 32. Achievement of PDOs is rated Substantial. The RRDPG achieved its program development objectives and its outcome indicators related to recovering the economy and expanding a safety net around the most vulnerable people. In pillar 1, the program contributed towards i) achieving macroeconomic stability and, ii) re-establishment of formal market transactions, including restoring a fully functional petroleum market. In pillar 2, the operation contributed towards the strengthening of the resilience of the poor and most vulnerable through expanded social protection interventions. The FISP procurement audit was not undertaken. Objective 1: Achieving and maintaining macroeconomic stability, and restoring the functioning of a market-based economy to ensure a quick growth rebound- High. Achieving and maintaining macroeconomic stability-High Restoring the functioning of a market-based economy-High Overall rating: High (a) Achieving and Maintaining Macro-Economic Stability 33. Policy reforms initiated in May 2012 had their intended effect and economic recovery was well underway by June 2013. The introduction of a flexible exchange rate regime has improved the availability of foreign currency and the restoration of the forex market has facilitated the clearing of private sector external arrears. Improved confidence in the functioning of the market has also led to re-establishment of external 11 credit lines and improved allocation of forex. In parallel, adoption of an automatic adjustment mechanism for the retail prices of petroleum products has normalized the supply to the market. With needed production inputs now available, capacity utilization in the manufacturing sector rose sharply, contributing to a broad-based expansion of real GDP in 2013 after a contraction in 2012. Additionally, the timing of the reforms on exchange rate unification saw the net earnings of smallholder tobacco farmers earnings increase on average by118 percent in 2012/13, compared with 2011/12. 34. The adoption and execution of the 2012/13 national budget observed the fiscal anchor of ‘zero net domestic financing’ resulting in the reduction of fiscal deficit. This policy stance resulted in a reduction in the fiscal deficit from 8.4 percent of GDP in 2011/12, to 0.8 percent of GDP in 2012/13; contributing to the reduction in net domestic debt from 19.5 percent of GDP in 2011/12, to 18.5 percent of GDP in 2012/13.The significant fiscal adjustment was aided by a surge in aid inflows, including budgetary support, improved domestic revenue mobilization and expenditure consolidation. Specifically, domestic revenues increased by 1.9 percent of GDP from 22.1 percent of GDP in 2011/12. Grants registered a surge from 4.4 percent of GDP in 2011/12, to 14.2 percent of GDP in 2012/13 as budget support was resumed. The higher grants provided by development partners (including IDA) allowed for both higher social spending and reduced domestic financing to help stabilize the exchange rate and start building up reserves. (b) Restoring the functioning of a market based economy i. Restoring the functioning of the foreign exchange market 35. The foreign exchange market is now fully functional, and the introduction of a flexible exchange rate has made foreign currency readily available, allowing the clearing of private sector foreign arrears and re-establishment of external credit lines. Adjustment of the grossly overvalued exchange rate and the removal of restrictions on foreign exchange transactions have attracted foreign exchange inflows into the banking system from the black market and facilitated the elimination of an artificial fixed exchange rate regime at which no transactions were taking place. Collectively this helped clear most of the external payments arrears accumulated by the private sector (estimated at between USD 700 million- 1 billion), and facilitated the re-establishment of international credit lines for critical imports to enhance capacity utilization, estimated currently at over 70 percent. 36. The unification of the exchange rates and adoption of a floating exchange rate regime is also incentivizing exports, and smallholder tobacco farmers have been primary beneficiaries. The new exchange rate regime has removed the implicit tax on exports that prevailed under the fixed exchange rate regime. The real exchange rate depreciation is incentivizing traditional exports and promoting the expansion of non- traditional exports. For example, according to Ministry of Agriculture data, ground nut 12 and pulses production went up by 4 percent and 13 percent, respectively in 2012/13, over 2011/12 production levels. The removal of the surrender requirement for tobacco dollars and the timing of the reforms greatly benefited smallholder tobacco farmers and improved their livelihoods as they were able to receive their payments for the sale of tobacco at prevailing (liberalized) market rate in their respective banks. These reforms in effect boosted the net incomes of an average farmer from MWK160,483 in 2011/12, to about MWK349,308 in 2012/134 beyond the program target of MWK 252,393, and effectively acted as a cushioning measure for about 400,000 tobacco farmers. ii. Restoring the functioning of the petroleum market 37. The APM for prices of petroleum products has facilitated the re- establishment of steady supply of fuel to the market. Petroleum retail prices are now fully reflective of import parity prices, as the Malawi Energy Regulatory Authority (MERA) has maintained the policy of reviewing import parity prices every second week of the month with the view of adjusting domestic retail prices if the thresholds have been breached. Prior to this reform, fuel supplies through the formal markets were contracting and this paved way for a lucrative black market where the fuel price ranged from US$4-6 per litre depending on availability. The formal market mechanism was essentially collapsing with consumers queuing for days just to access the minimal fuel through the official marketing channels. The reforms have not only facilitated the normalization of fuel supply, but the fuel is available at regionally comparable prices of US$1.71/litre in December 2013.5 The reinstatement of the APM has restored the credibility of the market system, with imports increasing from about 160 million liters in 2011/12, to about 293 million liters 2012/13. Table 2: Indicators for pillar 1, and baseline, target and actual values Pillar 1 Monitoring Baseline Target Actual Indicators Value Value Value (June (June 2012) 2013) Achieving and Fiscal deficit 7 2 0.8 maintaining as a percentage macroeconomic of GDP stability, and restoring Fuel imports 160 300 293 the functioning of a volumes market-based economy (million liters) to ensure a quick Average net 160,483 252,393 349,308 growth rebound. tobacco farmer earnings (MwK) 4 Calculations on the basis of data provided by Tobacco Association of Malawi. 5 Comparable fuel prices in other landlocked countries in the region are US$ 1.66 for Zambia and US$1.29 for Zimbabwe. 13 Objective 2: protecting the poor and most vulnerable groups in the short run while improving transparency of delivery systems- Substantial Protecting the most vulnerable groups- High Improving transparency of systems- Negligible 38. The poor and most vulnerable were worse-off from the effects of price changes induced by the significant loss in value of the kwacha in the parallel market before the unification of the exchange rate. As mitigating measures, the analysis considered two compensation scenarios (at 33 percent and 50 percent levels) through labor intensive public works (LIPW) programs to partially cover the loss of welfare of the poorest 60 percent of the rural and urban population. The unification of the exchange rate which was undertaken in time for tobacco farmers to receive adjusted prices ameliorated about 32 percent of the original losses due to devaluation-induced increases in nominal prices. (a) Protecting the poor and most vulnerable groups- Labor Intensive Public Works Program 39. To protect the poor and most vulnerable groups, the 2012/13 national budget increased budgetary allocations to social safety net interventions, including labor- intensive public works. Inclusive in the reform agenda was a social dimension to scale up safety nets expenditures as percentage of the recurrent budget to 6.5 percent, from 1.5 percent in 2011/12, with the bulk of the expansion coming within six months of the fiscal year. Malawi has underdeveloped social safety nets systems which have traditionally averaged around 2 percent of the recurrent budget over the past 5 years. This significant effort was intended to ensure that vulnerable groups affected by the policies of the previous administration as well as any unintended effects of the Government’s reform program were cushioned. Through the national budget, the RRDPG has supported the increase in the allocation towards labor intensive public works (LIPW) to 4.9 percent in 2012/13 which successfully reached about 590,000 poor households nationwide and created job opportunities for a period of 48 days per years. In-line with these objectives, the ratio of total LIPW related expenditure to total recurrent expenditure in the budget increased from 1.5 percent in 2011/12, to about 4.9 percent in 2012/13 against the end of program outcome indicator of 6.5 percent. 14 (b) Protecting the poor and most vulnerable groups- Farm Input Subsidy Program 40. The Farm Input Subsidy Program was also scaled up to enable cash strapped and drought affected households to get access to cheap farm inputs and to engage in productive income generating activities. The budgetary allocation to FISP as a share of total recurrent expenditure increased to 14 percent in 2012/13 from 7.5 percent in 2011/12, superseding the program outcome indicator of 12 percent. Specifically, a total of 1.5 million households, including extra 100,000 households from the south of the country, accessed FISP fertilizer to safeguard their livelihoods. The availability of subsidized fertilizer and seeds to poor farmers acted as a cushion as most farmers would not have been able to afford fertilizer at a market rate of over MWK10,000 per 50kg, whereas they were purchasing the same for MWK 500 per 50kg bag. The support extended to households hard hit by a drought in the south (during the previous farming cycle), allowing them to grow their own maize instead of relying on food aid. (c) Improving transparency of delivery systems (FISP Procurement) 41. Within the operation, the program also sought to address transparency in FISP procurement. FISP Procurement is a long standing governance concern around cost effectiveness and transparency. Within this operation, the objective was to institutionalize procurement audits that were happening in an ad hoc manner. Despite a directive being issued by the Ministry of Finance (at project appraisal) to the Auditor General to incorporate FISP procurement audit in their work program, the audit has not been done to date, and consequently the submission to Parliament of the report has not been met. A number of factors have been identified as behind this outcome, chief of which was the absence of the Auditor General, who was only appointed in June 2013 due to delays in the recruitment process of confirmation in Parliament. Notwithstanding, the GoM, with the assistance of the Bank is currently working on measures to improve efficiency and value for money in the FISP through reforms in the procurement process. This has entailed the revisions to the bid evaluation methodology for 2013/14 FISP, which has helped the GoM make fiscal savings of close to US$20 million. 15 Table 3: Indicators for pillar 2, and baseline, target and actual values Pillar Monitoring Indicators Baseline Target Actual Value Value Value (June 2012) (June 2013) Protecting the Percentage share of 1.5 6.5 4.9 vulnerable groups total recurrent while improving expenditure going to transparency of LIPW related delivery systems. expenditure. Share of total 7.5 12 14 recurrent expenditure going to fertilizer and seeds subsidy expenditures. FISP Procurement No Submission FISP Audit procurement to Procurement audit for FISP Parliament audit report undertaken to of the FISP not date. procurement submitted to audit report Parliament by June 2013. 3.3. Overall Outcome Rating 42. Based on the combined assessment of achievement and relevance, the outcome rating is satisfactory. Table 4 summarizes the ratings arrived at earlier. The ‘satisfactory’ outcome rating reflects the substantial degree to which objectives were achieved and the substantial nature of the relevance of objectives, and design and implementation. Table 4: Outcome rating Achievement of Objectives Substantial Achieving and maintaining macroeconomic stability, and restoring the High functioning of a market-based economy to ensure a quick growth rebound. Protecting the poor and most vulnerable groups in the short run while Substantial improving transparency of delivery systems. Relevance Substantial Objectives Substantial Design and Implementation Substantial Outcome Satisfactory 16 3.4. Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 43. The operation anticipated positive poverty impacts through the distributional effects emanating from better targeting of social assistance. The program supported the scaling up of social protection interventions through the adoption of the 2012/13 National Budget, which gave expenditure prioritization to social protection programs. With the expansion of these programs the poor and the most vulnerable segment of the Malawi’s population (close to 700,000 farming households) was able to access the much needed farm inputs for food production and others were able to earn their income through the public works, which among others, enabled them to purchase farm inputs as well as meet their other basic needs. The timing of the unification of the exchange rate in May 2012 also played an important role in the cushioning of the farming families involved in tobacco faming (over 400,000), including women. (b) Institutional Change/Strengthening 44. The RRDPG helped strengthen the petroleum price automatic adjustment mechanism institutional framework. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) None 3.5. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops There were no beneficiary survey and/or stakeholder workshops 4. Assessment of Risk to Development Outcome 45. The risks that development outcomes or expected outcomes will not be maintained or realized are moderate. This assessment takes into account both the probability and the likely impact of threats to outcomes. It considers how these have been mitigated in the operation’s design or by actions taken during its implementation. The RRDPG program has been strong, with solid government ownership and prior actions reflecting the GoM’s own reform agenda. The following individual criteria of risk has been considered as it may affect realized/planned outcomes: a) Shortfalls in external financing risk is moderate. Successful implementation of the reform agenda assumes a steady flow of external financing to the budget over a medium term horizon (2012-2015). While the GoM benefitted from a surge in aid 17 inflows, including program aid, during the implementation of the Program (2012/13), there is some risk that these levels will not be sustained in 2013/14. The unearthing of massive fraud and corruption in government which has translated into the loss of millions of dollars in September 2013 has resulted in the suspension of aid by some development partners. GoM has developed an action plan of measures intended to close the loop holes that have been identified to have been exploited in this scandal. These measures are intended to mitigate against this risk materializing, and indications at the time of the ICR are that they may be sufficient to facilitate the unfreezing of aid in the second half of FY 14. b) Political risk is substantial. By their very nature, the reforms carried with them an inherent political risk. Given the history of reforms in Malawi, the risk of policy reversals due to political considerations in an election year was always high. So far, the current administration has remained strongly committed to the reforms despite the strong criticism coming from various segments of the Malawi society calling for the reversal of some of the policies (like the APM). With political commentators predicting a tight race in the presidential race in 2014, the reforms remain vulnerable to future policy reversals. Spending pressures are also mounting, including wage demands and other election related spending, posing a risk of further fiscal loosening, which could affect the program outcomes. c) Social tension risks are moderate. While the GoM has managed to avert violent demonstrations, risks still remain, especially as the country remains vulnerable to weather related shocks and seasonality of foreign exchange inflows, which could compromise some of the gains of the reforms. Despite an overall nationwide good harvest, some areas of the country suffered from prolonged dry-spells. A total of 1.4 million people (9.5% of the population) have been assessed as food insecure and the figure could increase to 1.9 million. With support from WFP, the GoM has elaborated a food assistance plan that would cost US$94 million. Development partners have pledged support to the efforts. d) Implementation capacity risk is moderate. The systemic problem of institutional capacity in GoM continues to pose a risk to the reform program. So far, the scaling up of social safety net programs has been smoothly implemented with support from MASAF and IRLAD. Efforts to build capacity in the civil service are on-going. e) Fiduciary risk is substantial. The recent revelations of misappropriation of public resources point to weak managerial accountability and public finance management systems. The extent of this risk was not fully appreciated by the donor community until the recent scandal. The risks are being mitigated through a strengthening of fiduciary systems with the support of development partners; however, without a complete overhaul of the system, nothing short of rolling out an ambitious public service reform agenda and strengthening accountability/oversight institutions, governance risks will remain significant over the near term. 18 5. Assessment of Bank and Borrower Performance 5.1. Bank Performance Rating: Satisfactory (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 46. Bank performance in ensuring quality at entry is satisfactory. The Bank’s timely response to the Government’s request to support its bold reform program, helped redirect the economy towards a stable economic path, away from an imminent deep recession. The identification and design of the RRDPG were consistent with the CAS and benefited from an in-depth analysis on the status of the economy. The Bank and government were able to draw on timely and highly relevant analytical work in developing specific program components. The high quality of Bank’s technical inputs that supported the design of the overall program was appreciated by both the government and the development partners. The fiduciary aspects assessed at the time of appraisal were deemed adequate for the operation. The policy changes in the reform program responded to the medium term challenges that the country faced at the time of the start of the program, as well as short term challenges at the beginning of the operation. However, the program was a bit over ambitious in assuming it could bring about meaningful reforms around FISP procurement in an emergency situation. 47. The design of this operation applied some of the lessons learned from Bank’s previous (extensive) engagement with GoM and other stakeholders in the country. A number of important lessons relevant for the design of the proposed RRDPG have emerged from the CAS Completion Report and PRSC I-III ICR and were taken into account in the development of the operation. In FY08, the Bank approved a PRSC DPO series and this program provided two important lessons which greatly influenced the preparation of the RRDPG. The first lesson concerns ownership. Like the PRSCI-III, the RRDPG supported the Government’s own reform program to ensure commitment for reforms. It recognizes the importance of supporting an agenda which is Government owned at the highest level. Secondly, the design of the operation was mindful of the risk that progress tends to be slower in reform areas where the political economy context is critical, yet not adequately understood. Therefore the design incorporated evidence-based analysis and engagement at a Cabinet level to help pave the way for reforms supported by this operation. 48. Assessments of relevant aspects were correct. The program correctly evaluated institutional, fiduciary and environmental aspects. None of these evaluations was proven wrong during the implementation. The risk assessment was relevant and mitigating factors were largely adequate. Poverty and social development aspects were considered fully as one of the main components of the program was related to inclusion and 19 increased opportunities to empower the vulnerable to participate in economic activities. The M&E framework was sound and assessment of the political economy was correct. (b) Quality of Supervision 49. Quality of supervision is satisfactory. The Bank conducted periodic supervision missions where the focus of supervisions was on the development objectives and outcomes indicators. Specifically, progress on the program was being tracked during the annual CABS Review between the Government and its budget support development partners. The Bank also participated in the IMF Article IV and quarterly ECF Review missions which helped better understanding the debt sustainability situation and macroeconomic conditions. (c) Justification of Rating for Overall Bank Performance 50. Overall Bank performance was satisfactory. The RRDPG was a well-designed and implemented operation; hence Bank performance for quality at entry is rated satisfactory and satisfactory for supervision. 5.2. Borrower Performance (a) Government Performance 51. The Government’s performance is satisfactory. Given the strength of the reforms, and the uncertain and volatile environment in which they were implemented, the performance of the government was satisfactory. The program was very ambitious and bold; and as such could not have succeeded without strong ownership, leadership, and commitment of the Government to the reform agenda. The performance on fiduciary arrangements is considered moderately satisfactory as the Government continued to work closely with partners to strengthen its PFM systems. The development of the monitoring and evaluation framework for the RRDPG was also satisfactory as the list of monitoring indicators was realistic and the information was readily available at the time of this ICR. (b) Implementing Agency Performance 52. In this operation, the Government and implementing agency cannot be distinguished separately. 53. The Ministry of Finance was the driver and coordinating body for the reform program and was the Bank’s official counterpart in the implementation of the program. The MoF played an effective role in convening line Ministries, Departments and Agencies (MDAs) to discuss the specifics of each policy actions, including commenting on the draft policy document and to agree on a timeframe for their completion. The authorities partnered with several development partners to secure technical assistance and analytical work to fill the knowledge gaps in some areas in the 20 implementation of the program in order to mitigate against their weak capacity in the implementation of the reform program. Relationship and coordination between the GoM and other partners is effective; in that the GoM also played a critical role in ensuring that the DPs collaborate in their engagement with the Government and complement each other’s work for the benefit of the country. (c) Justification of Rating for Overall Borrower’s Performance 54. Overall government’s performance is rated satisfactory, in line with the ratings for Government performance and Program outcomes. The GoM demonstrated a clear ownership of the program and was very instrumental in keeping the momentum of the reforms to support the economic recovery. 6. Lessons Learned The key lessons learned from this program pertain to: (i) Strong Government leadership, and political will (ownership and commitment), (ii) alignment with Government priorities and incremental approach in dialogue, (iii) strong coordination with DPs, (iv) Complementary between investment projects and DPOs for sustainability of reforms, (v) Inability of DPOs to address deep-seated governance problems. 55. Strong Government leadership and political will drives successful reforms. Difficult structural economic reforms stand a better chance of succeeding where the authorities have ownership and commitment at the highest levels to the reform process. In Malawi, the government’s strong political will, as exemplified by the self-imposition of hard and bold economic reforms despite intrinsic political risks associated with such reforms, was key to the overall success of this operation. 56. Alignment with Government priorities and incremental dialogue are necessary ingredients for rapid policy changes. Alignment with Government priorities and incremental dialogue provides valuable weight to immediate and short term policy exigencies while building consensus for broader and bolder reforms. The incremental dialogue approach essentially helps the Government to identify and articulate country priorities and as such build the ground in terms of substance and sequencing for subsequent operations. Strong knowledge base helps to identify priority areas of reforms as well as specific measures to be implemented. Alignment and incremental dialogue also helps in designing pragmatic time bound prior actions and the setting realistic targets. Agreement on the set of results and continued dialogue motivate agencies, but more importantly, the champions to remain focus on the reform agenda. Going forward, the combination of developing strong knowledge base to prioritize the areas of reforms and incremental dialogue in politically-sensitive areas should be maintained. This combination ensures ownership of reforms, especially at sector level. 57. Strong coordination with DPs avoids duplication and harmonize results framework. There has been a positive impact from the highly harmonized policy dialogue across donors providing budget support. Government’s capability to take 21 leadership in coordinating development assistance from the donor community has been instrumental. The ability of the team to work in close collaboration with DPs resulted in harmonizing results framework through common policy dialogue with the Government. Close coordination has proven to be an effective way to support budget planning and execution. Building on technical support across sectors for capacity building and analytical work by DPs contributed to achievement of the objectives of the program. Dissemination of ESWs helped to strengthen momentum for reforms and build allies. This will help to avoid duplication and build allies to accelerate the reform agenda. 58. Complementarity between Investment Project and DPOs generate mutual leverage for achieving development objectives and for ensuring sustainability of reforms. This has been particularly well illustrated by the reforms related to the scaling up of social safety net program whereby the DPO provided the policy framework and financing incentive to pursue the reforms, while the investment program translated these into life changing income generating activities for the poor. The design of the operation as single tranche DPO proved to be a suitable instrument for the timely response to the client’s needs. It supported effectively to the needs of the country by providing timely response based on clearly established prior actions. 59. Inability of DPOs to address deep-seated governance problems. The choice of instrument to address a deep seated governance issue was not appropriate. The DPO was supporting a process and not the outcomes in an area with vested political interests. A vital lesson learned could be that in order to facilitate such deep reforms, future operations should consider focusing on supporting results rather than finalizing a stage in the process as was the case for the FISP procurement audit. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 60. A summary of Borrower's ICR and comments on draft ICR is presented in Annex (b) Co-financiers 61. Not applicable (c ) Other partners and stakeholders 62. Comments were received from the Africa Development Bank and have been appropriately incorporated. 22 Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Supervision Appolenia Mbowe TTL AFTP1 Praveen Kumar Lead Economist AFTP1 Chrissie Kamwendo Senior Operations Officer AFMZW Trust Chimaliro Finance Officer AFTME Marjorie Mpundu Sr. Counsel LEGES Temwa Gondwe Economist AFTP1 Deliwe Ziyendammanja Program Assistant AFMMW (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) USD Thousands Stage No. of staff weeks (including travel and consultant costs) Lending 3.42 6,126.37 Total: 3.42 6,126.37 Supervision/ICR FY12 FY13 Total: 0.00 23 Annex 2. Summary of Borrower's ICR and/or Comments on Draft ICR Introduction 1. During project appraisal in 2012, Her Excellency Dr. Joyce Banda, who came to office after the sudden death of President Bingu wa Mutharika in April 2012, had just inherited an economy with a difficult macroeconomic and governance environment characterized by severe fiscal and external imbalances and with budget support suspended by the Development Partners (DPs). It is against this background that GoM urgently requested the World Bank to support the on-going macroeconomic stabilisation program as well as measures which will mitigate the impacts of the bold and wide ranging reforms which are currently being implemented. The Bank responded by providing the Rapid Response Development Policy Grant (RRDPG) amounting to SDR 33.20 million (U$ 50 million) to GoM. The development objectives of the RRDPG were to support (i) the achieving and maintaining macroeconomic stability, and restoring the functioning of a market-based economy to ensure a quick growth rebound; and (ii) protecting the poor and most vulnerable groups in the short run while improving the transparency of delivery systems. To this end, a Results Framework was agreed between the Bank and GoM to assess the performance of the Project. Assessment of the outcomes (a) Recent macroeconomic developments 2. GoM took bold measures to restore fiscal stability and enhance social protection from May 2012, including devaluation of the Malawi Kwacha, exchange rate floatation, monetary policy and fiscal tightening and the adoption of an automatic fuel price adjustment mechanism. GoM continues to implement adjustment measures adopted since May 2012 to address the macroeconomic challenges facing the country. The adjustment measures have yielded positive results. The availability of foreign exchange for importation of strategic inputs has improved and fuel supplies have normalized. Credit lines that were frozen during the crisis have been restored. Nonetheless, Malawi’s economic recovery remains fragile. The impact of the devaluation of the kwacha has been steeper than anticipated which coupled with the adoption of the automatic price adjustment mechanism on petroleum products has led to the high spike in inflation. 3. Real GDP in 2012 grew by 1.9 percent compared to 4.3 percent in 2011 mainly on account of slower recovery in the agriculture, fishing and manufacturing sectors than initially anticipated. The agriculture sector performance was affected by the drought that hit the southern parts of the country. The manufacturing sector suffered from high input prices resulting from the devaluation and general inflation as well as fuel and foreign exchange shortages at the start of the year. 4. Meanwhile, inflationary pressures in the economy surged. The March 2013 headline inflation stood at 36.4 percent from 17.3 percent in May 2012, higher than the ECF programme projection of 22.4%. Inflation is being driven by rising food prices (food accounts for 80 % of the CPI basket) and escalating transport and utility prices. The 24 end of period inflation is projected to decline to 14.2% as the food situation normalizes and growth rebounds. The Reserve Bank of Malawi (RBM) maintained the 25 percent policy rate as of May 2013 to ease inflationary pressures. 5. On the fiscal side, Government of Malawi has exercised fiscal restraint as the central Government Budget Operations for the 2012/2013 financial year was on track compared to the preceding year. This was mainly due to the resuscitation in the manufacturing sector following the availability of foreign exchange and fuel and increased budget support from development partners following the restoration of donor confidence. Consequently, the overall fiscal deficit reduced to 0.8 percent of GDP in 2012/2013 from 8.4 percent in the previous fiscal year. A combination of high domestic tax revenue and surge in donor grant disbursements resulted in higher than program targets for first half of that fiscal year. The Government of Malawi was and remains committed to implementing austerity measures, including stringent controls of travel and transport. However, fiscal pressures mounted in 2012/13 on account of the Kwacha’s continued depreciation and inflation which increased the cost of goods and services, especially imports. In this respect, during the 2012/2013 Mid-Year review, the budget was revised from MWK 408 billion to MWK 476 billion on account of the problems mentioned herein. 6. The Third Review of the IMF ECF programme was completed by the IMF in June 2013. During this review, Government reached a staff level understanding with the IMF where overall performance on the third review was deemed satisfactory. However, the IMF Board is yet to meet to make the final decision. (b) Social Protection and Human Development 7. The implementation of the Farm Inputs Program (FISP) for the 2012/13 agricultural season progressed well. In total, the programme distributed 154,400 metric tons of Fertilisers comprising 77,200 metric tons of Urea and 77, 200 metric tons of NPK to 1,544,400 farm families across the country at a subsidized price of K500 per bag. By the end of December, 2012, 99.9% of the fertilisers had already been distributed to all the depots across the country for distribution to the intended families. Under the program, Government of Malawi distributed additional 4,400 metric tons of fertilisers to 44,400 additional beneficiaries identified by the ministry of agriculture. Under the same program, a total of 1,570 metric tons of Legume Seed was procured from Seed Traders Association of Malawi (STAM) for distribution to over 100,000 farmers across the country. However, it must be noted that provision for the Farm Inputs Subsidy Programme (FISP) has been revised upwards from the original estimate of K40.6 billion to K55 billion. This is due to increase in the number of beneficiaries and the Kwacha’s continued depreciation. 8. The Government of Malawi is using the Social Support Policy (SSP) and National Social Support Programme (NSSP) to cushion poor people against the effect of devaluation of the Kwacha and subsequent floatation of the same. Under the NSSP, the 25 Social Cash Transfer Programme is reaching only 35% of vulnerable groups in 7 districts out of 28, and full coverage in only 3 of the 7 districts. The Government of Malawi also plans to scale up coverage of the Social Cash Transfer Programme from 7 districts in 2012 to 14 districts in 2013/14. In addition, the Malawi National Support Programme which operationalizes the SSP was approved by the National Steering Committee in March 2013. It is envisaged that this approval will expedite disbursements of pledged donor funding towards the social support programme which were awaiting the approval. (c) Evaluation of the Borrower’s Own Performance 9. The GoM demonstrated a clear ownership of the program and its emphasis to stay the course of the reforms supported the economic recovery and kept the program alive. The GoM successfully managed to reduce the fiscal deficit as a percentage of GDP from 8.4 percent of GDP in the previous year to 0.8 percent of GDP in the 2012/2013 fiscal year. Further, a domestic repayment equivalent to 1.5 percent of GDP was made within the year (an ECF condition). Likewise, GoM increased the ratio of total fertilizer and seeds subsidy related expenditure to total recurrent expenditure from 12% in July 2012 to 14% in June 2013. The latter implies a much bigger and wider safety net to the very poor people who could not afford farm inputs due to the devaluation and subsequent floatation of the Kwacha. However, the devaluation and floatation of the Kwacha was a source of a major fiscal pressure on the budget implementation as strategic expenditures had been budgeted on the previously overvalued local currency. (d) Evaluation of the Performance of the Bank 10. The Bank’s RRDPG was delivered in GoM’s preferred aid modality of budget support and was well aligned with the Malawi Growth and Development Strategy II and the subsequent Economic Recovery Plan. Moreover, the Bank’s decision to design the operation as single tranche DPO proved to be a suitable instrument for the timely response to GoMs needs. (e) Proposed arrangements for future operations 11. Budget Support still remains GoM’s preferred aid modality. Responding to this, the Bank approved a new programmatic Development Policy Operation which was launched in FY2012/13. Going forward, assuming all things constant, the second and third single tranches are expected to be activated in the subsequent years. (f) Comments on the ICR 12. Generally, the ICRR is a fair reflection on GoM performance vis-a-vis implementation of the policy reforms that were instituted in the 2012/2013 fiscal year. 26 Table 5: Malawi: Selected Economic Indicators 2009 2010 2011 2012prel 2013proj 2014proj 2015proj 2016proj National accounts and prices (percent change, unless otherwise indicated) GDP at constant market prices 9.0 6.5 4.3 1.9 5.0 6.1 6.5 6.5 Nominal GDP (billions of kwacha) 710.2 812.4 880.9 1,056.3 1,411.9 1,743.9 1,985.5 2,237.3 GDP deflator 8.4 7.4 3.9 17.7 27.3 16.4 6.9 5.8 Consumer prices (end of period) 7.6 6.3 9.8 34.6 20.1 9.7 5.8 5.1 Consumer prices (annual average) 8.4 7.4 7.6 21.3 27.7 15.1 6.9 5.8 Investment and savings (percent of GDP) National savings 20.7 24.7 9.4 12.5 16.9 18.6 20.3 22.7 Net factor income -1.2 -2.0 -2.1 -3.2 -3.8 -3.3 -3.0 -2.6 Net official transfers 9.4 15.7 6.4 14.1 12.9 12.8 12.8 12.7 Net private transfers 5.1 4.7 4.6 6.2 7.1 6.7 6.8 6.6 Domestic savings 7.5 6.3 0.6 -4.6 0.6 2.4 3.6 6.1 Government -7.1 -0.8 -3.4 -7.5 -6.7 -3.9 -3.5 -4.2 Private 14.6 7.0 3.9 3.3 7.4 6.3 7.1 10.3 National investment 25.6 26.0 15.3 16.9 20.4 21.2 22.4 23.5 Government 6.5 9.6 6.7 8.2 8.1 9.3 10.2 10.2 Private 19.1 16.4 8.6 8.7 12.3 11.9 12.1 13.3 Saving-investment balance -4.8 -1.3 -5.9 -4.4 -3.5 -2.6 -2.1 -0.8 Government -5.0 1.5 -5.4 -4.5 -6.0 -2.9 -3.1 -4.2 Private 0.1 -2.8 -0.5 0.1 2.5 0.2 1.1 3.4 Central government (percent of GDP on a fiscal year basis) Revenue 32.1 33.8 32.1 26.5 38.3 36.7 36.3 36.7 Tax and nontax revenue 20.5 23.5 24.5 22.1 24.0 27.1 26.0 26.0 Grants 11.6 10.3 7.6 4.4 14.2 9.6 10.2 10.8 Expenditure and net lending 37.8 33.8 35.0 34.9 39.1 40.7 39.9 40.1 Overall balance (excluding grants) -17.3 -10.3 -10.5 -12.8 -15.1 -13.6 -13.9 -14.1 Overall balance -5.7 0.1 -2.9 -8.4 -0.8 -4.0 -3.6 -3.4 Foreign financing 2.0 0.9 1.3 1.6 2.6 4.6 4.2 4.0 Domestic financing 3.7 -0.9 1.7 6.7 -0.3 0.4 -0.6 -0.6 Privatization 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Money and credit (change in percent of broad money at the beginning of the period, unless otherwise indicated) Money and quasi money 23.9 33.9 35.7 22.9 25.9 25.6 23.5 13.9 Net foreign assets -15.5 13.3 -7.9 9.2 13.4 17.8 4.3 11.7 Net domestic assets 39.5 20.6 43.6 13.8 7.9 19.2 2.1 1.9 Credit to the government 19.4 -9.2 19.7 0.0 16.3 -7.5 -3.5 1.7 Credit to the rest of the economy (percent change) 36.5 47.6 30.1 22.4 7.8 37.0 12.0 -3.6 External sector (US$ millions, unless otherwise indicated) Exports (goods and services) 1,050.2 1,360.4 1,408.7 1,359.4 1,499.2 1,631.1 1,768.9 1,913.4 Imports (goods and services) 1,961.1 2,425.4 2,236.2 2,259.1 2,260.3 2,460.2 2,659.1 2,840.0 Usable gross official reserves 140.5 279.6 190.2 215.4 403.0 453.1 557.3 746.8 (months of imports) 0.7 1.5 1.0 1.1 2.0 2.0 2.4 3.0 (percent of reserve money) 40.7 73.4 42.5 72.0 124.5 117.8 132.1 155.1 Current account (percent of GDP) -4.8 -1.3 -5.9 -4.4 -3.5 -2.6 -2.1 -0.8 Current account, excl. official transfers (percent of GDP) -14.2 -17.0 -12.2 -18.6 -16.4 -15.4 -14.9 -13.5 Real effective exchange rate (percent change) 9.5 -6.0 -3.3 ... ... ... ... ... ... Overall balance (percent of GDP) -2.0 2.2 -1.9 0.9 2.4 6.4 5.2 6.5 Terms of trade (percent change) 7.7 2.1 -17.5 -2.2 0.3 2.5 2.5 2.5 Debt stock and service (percent of GDP, unless otherwise indicated) External debt (public sector) 15.9 16.0 16.9 37.4 41.5 38.9 37.7 36.4 NPV of debt (percent of exports) 57.1 44.6 48.1 53.3 49.4 44.5 39.9 35.8 External debt service (percent of exports) 1.3 1.3 1.6 2.4 2.7 4.0 4.0 3.8 External debt service (percent of revenue excl. grants) 1.4 1.5 1.7 3.9 5.0 6.1 6.4 5.5 91-day treasury bill rate (end of period) 10.5 6.2 6.8 20.1 ... ... ... ... ... Sources: Malawian authorities and IMF staff estimates. 27 Annex 3. List of Supporting Documents World Bank (2012), Rapid Response Development Policy Grant PAD (Report No. 68956) World Bank, Economic Monitoring Updates, (various) IMF Staff Report, (2013) Malawi: Second Review Under the Extended Credit Facility Arrangement, and Request for Modification of Performance Criteria—Staff Report IMF Staff Report, (2013), Malawi: First Review Under the Extended Credit Facility Arrangement, Request for Waiver of Performance Criterion, and Modification of Performance Criteria—Staff Report. IMF Staff Report, (2012),Malawi: 2012 Article IV Consultation and Request for a New Arrangement Under the Extended Credit Facility - Staff Report. Government of Malawi, Annual Economic Reports, 2011,2012,2013 Dorward et. Al, Evaluation of the 2012/13 Farm Input Subsidy Programme, Malawi, funded by DfID. 28 Annex 4: Malawi at a glance Sub- Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w M alawi A frica inco me Age distribution, 2012 ( 2 0 12 ) Male (..) Female (..) P o pulatio n, mid-year (millio ns) 15.9 91 0 846 75- 79 Surface area (tho usand sq. km) 118 24,262 16,198 60- 64 P o pulatio n gro wth (%) 2.9 2.7 2.3 Urban po pulatio n (% o f to tal po pulatio n) 16 37 28 45- 49 30- 34 GNI (A tlas metho d, US$ billio ns) 5.0 1,225 494 15- 19 GNI per capita (A tlas metho d, US$ ) 320 1,345 584 GNI per capita (P P P , internatio nal $ ) 880 2,247 1,387 0-4 10 5 0 5 10 GDP gro wth (%) 1.9 4.2 5.9 percent of total population GDP per capita gro wth (%) -1.0 1.5 3.6 ( m o s t re c e nt e s t im a t e , 2 0 0 5 – 2 0 12 ) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) 62 48 48.3 Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 82 70 74.3 Life expectancy at birth (years) 54 56 61 300 Infant mo rtality (per 1,000 live births) 46 64 56 Child malnutritio n (% o f children under 5) 14 21 22 250 200 A dult literacy, male (% o f ages 15 and o lder) 81 69 69 150 A dult literacy, female (% o f ages 15 and o lder) 68 51 54 Gro ss primary enro llment, male (% o f age gro up) 139 104 111 100 Gro ss primary enro llment, female (% o f age gro up) 144 96 106 50 0 A ccess to an impro ved water so urce (% o f po pulatio n) 84 63 67 1990 1995 2000 2011 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 53 30 37 Malawi Sub-Sah aran Afr ica a N e t A id F lo ws 19 8 0 19 9 0 2000 2 0 12 (US$ millio ns) Net ODA and o fficial aid 141 500 446 1,023 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2010): Euro pean Unio n Institutio ns 21 45 49 208 20 United Kingdo m 25 51 97 148 15 United States 3 21 59 126 10 5 A id (% o f GNI) 12.4 27.2 26.1 19.4 0 A id per capita (US$ ) 23 53 39 68 -5 -10 Lo ng- T e rm E c o no m ic T re nds -15 95 05 Co nsumer prices (annual % change) 11.8 11.8 -93.9 18.4 GDP implicit deflato r (annual % change) 15.8 10.7 30.5 18.5 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) 0.8 2.7 59.5 249.1 Terms o f trade index (2000 = 100) .. 145 100 111 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 12 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 6.2 9.4 11.3 15.9 4.2 1.8 2.8 GDP (US$ millio ns) 1,238 1,881 1,744 4,264 2.5 3.7 4.5 (% o f GDP ) A griculture 43.7 45.0 39.5 30.2 2.0 8.6 2.3 Industry 22.5 28.9 17.9 19.3 2.9 2.0 6.7 M anufacturing 13.7 19.5 12.9 11.9 3.6 0.5 3.9 Services 33.7 26.1 42.5 50.5 3.3 1.6 3.5 Ho useho ld final co nsumptio n expenditure 69.9 71 .5 81.6 74.5 .. .. 2.8 General go v't final co nsumptio n expenditure 19.3 15.1 14.6 19.9 .. .. 16.8 Gro ss capital fo rmatio n 24.7 23.0 13.6 15.5 .. .. 23.6 Expo rts o f go o ds and services 24.8 23.8 25.6 29.6 .. .. 12.4 Impo rts o f go o ds and services 38.8 33.4 35.3 39.5 .. .. 14.5 Gro ss savings .. .. .. .. No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. a. A id data are fo r 2010. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 29 B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 12 Governance indicators, 2000 and 2012 (US$ millio ns) To tal merchandise expo rts (fo b) 392 1255.5 Voice and accountability To tal merchandise impo rts (cif) 460 -1911.4 Net trade in go o ds and services -243 -655.9 Political stability Current acco unt balance (including grants) -165 -184.3 Regulatory quality as a % o f GDP -9.5 -4.4 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 1 17 Control of corruption Reserves, including go ld .. .. 0.0 25.0 50.0 75.0 100.0 2012 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 17.1 26.5 Tax revenue 15.7 19.4 Current expenditure 19.9 25.4 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 11 Overall surplus/deficit -13.9 -8.4 P aved ro ads (% o f to tal) 45.0 .. Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 38 .. subscribers (per 1 00 peo ple) 1 27 Co rpo rate 38 .. High techno lo gy expo rts (% o f manufactured expo rts) 2.0 3.2 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 2,719 1,314 A gricultural land (% o f land area) 50 59 To tal debt service 64 28 Fo rest area (% o f land area) 37.8 34.0 Debt relief (HIP C, M DRI) 1,352 1,013 Terrestrial pro tected areas (% o f land area) 15.0 15.0 To tal debt (% o f GDP ) 156.0 30.8 Freshwater reso urces per capita (cu. meters) 1,353 1,044 To tal debt service (% o f expo rts) 13.2 2.0 Freshwater withdrawal (billio n cubic meters) .. .. Fo reign direct investment (net inflo ws) 26 .. CO2 emissio ns per capita (mt) 0.08 0.08 P o rtfo lio equity (net inflo ws) 0 .. GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) .. .. Composition of total external debt, 2011 Energy use per capita (kg o f o il equivalent) .. .. Private, 5 Short-term, IBRD, 0 30 IDA, 274 Bilateral, 289 Wo rld B a nk G ro up po rt f o lio 2000 2 0 11 (US$ millio ns) IB RD IMF, 247 To tal debt o utstanding and disbursed 9 0 Disbursements 0 0 Other multi- lateral, 358 P rincipal repayments 8 0 Interest payments 1 0 US$ millions IDA To tal debt o utstanding and disbursed 1,592 274 Disbursements 97 35 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 12 To tal debt service 27 2 Time required to start a business (days) – 39 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 83.7 To tal disbursed and o utstanding po rtfo lio 3 20 Time required to register pro perty (days) – 69 o f which IFC o wn acco unt 3 14 Disbursements fo r IFC o wn acco unt 2 0 Ranked as a majo r co nstraint to business 2000 2 0 12 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 0 5 n.a. .. 27.6 n.a. .. 19.2 M IGA Gro ss expo sure – – Sto ck market capitalizatio n (% o f GDP ) 3.6 17.7 New guarantees – – B ank capital to asset ratio (%) .. .. No te: Figures in italics are fo r years o ther than tho se specified. 11/21/13 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 30 Millennium Development Goals Malawi With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) M a la wi G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 11 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) .. .. 83.1 61 .6 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. .. 65.3 50.7 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. .. 4.8 5.6 P revalence o f malnutritio n (% o f children under 5) 24.4 26.5 21 .5 13.8 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. .. 99 97 P rimary co mpletio n rate (% o f relevant age gro up) 28 56 65 71 Seco ndary scho o l enro llment (gro ss, %) 16 24 32 34 Yo uth literacy rate (% o f peo ple ages 1 5-24) .. .. 76 87 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 81 89 93 102 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) 1 1 11 .. .. P ro po rtio n o f seats held by wo men in natio nal parliament (%) 10 6 9 22 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 244 213 174 77 Infant mo rtality rate (per 1,000 live births) 143 124 103 49 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 81 90 73 96 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 1,100 1,000 840 460 B irths attended by skilled health staff (% o f to tal) 55 .. 56 71 Co ntraceptive prevalence (% o f wo men ages 1 5-49) 13 22 31 46 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) 7.8 11.8 13.8 10.0 Incidence o f tuberculo sis (per 100,000 peo ple) 326 462 467 191 Tuberculo sis case detectio n rate (%, all fo rms) .. .. .. .. G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 42 52 63 84 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 39 42 46 53 Fo rest area (% o f land area) 41.3 39.6 37.8 34.0 Terrestrial pro tected areas (% o f land area) 15.0 15.0 15.0 15.0 CO2 emissio ns (metric to ns per capita) 0.1 0.1 0.1 0.1 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) .. .. .. .. G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 0.3 0.3 0.4 1.1 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 0.4 25.7 Internet users (per 1 00 peo ple) 0.0 0.0 0.1 3.3 Ho useho lds with a co mputer (%) .. .. 20.0 3.1 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 30 100 75 75 20 50 50 25 10 25 0 2000 2005 2010 0 0 1990 1995 2000 2011 2000 2005 2010 Primary net enrollm ent ratio Fixed + mob ile subscribers Ratio of girls to boys in prima ry & secondary Malawi Sub-Sah aran Africa education Internet users No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 11/21/13 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 31 IBRD 33440R1 32°E 34°E 36°E To To Song we Mbeya TANZA TA NZA NI NIAA Tunduma Chitipa MALAWI Karonga 10°S Chisenga 10°S To Muyombe Nykia Chilumba (2,606 m) Chelinda Mkondowe To Muyombe Livingstonia Katumbe Rumphi Ruarwe s. Kafukule Mzuzu Mtn Euthini Nkhata NORT HERN NORTHERN Bay ZAMBIA a Viphy Mzimba Chinteche (MALAWI) Lake Mala 12°S 12°S Luwawa To Lundazi Nkhunga wi Kaluluma Nkhotakota Kasungu MOZAMBIQUE Ntchisi C E N T R A L Dowa Makanjila Bua To Mchinji Chipata Salima 14°S LILONGWE 14°S Namitete Monkey Bay To To Cuamba Furancungo Dedza Mangochi To Ulongwe SOUTHERN To Cuamba Ntcheu Balaka MOZAMBIQUE 32°E Machinga ire Sh Lake Neno Chilwa MALAW I To Lirangwe Zomba Tete Mwanza Chiradzulu CITIES AND TOWNS Blantyre Phalombe DISTRICT CAPITALS* 16°S Chikwawa Mulanje Sapitwa 16°S (3,002 m) REGION CAPITALS Thyolo To NATIONAL CAPITAL Liciro N’gabu RIVERS To Morire MAIN ROADS RAILROADS Nsanje 0 20 40 60 80 100 Kilometers DISTRICT BOUNDARIES REGION BOUNDARIES This map was produced by the Map Design Unit of The World Bank. 0 20 40 60 Miles The boundaries, colors, denominations and any other information To INTERNATIONAL BOUNDARIES shown on this map do not imply, on the part of The World Bank Vila de Sena *District names are identical to the District Capitals. Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 36°E MAY 2012