Documentof The World Bank FOROFFICIAL USE ONLY Report No: 43121-MW PROJECTPAPER ONA PROPOSEDADDITIONAL FINANCINGGRANT INTHEAMOUNT OF SDR 19.4MILLION (US$30MILLIONEQUIVALENT) TO REPUBLICOF MALAWI FORA MULTI-SECTORALHIV/AIDSPROJECT July 30,2009 Health, Nutritionand PopulationUnit SouthernAfrica Country DepartmentI1 Africa Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents mav not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange RateEffective: May 31,2009) Currency Unit = MalawiKwacha US$l.OO = MWK 172 US$l.OO = SDR 0.64597 FISCAL YEAR July 1-June 30 ABBREVIATIONS AND ACRONYMS Vice President: Obiageli KatrynEzekwesili (Acting) CountryDirector/CountryManager: Peter Nicholas/Timothy Gilbo Sector DirectorManager: Yaw AnsuEva Jarawan Task Team Leader: Sheila Dutta FOROFFICIAL USE ONLY REPUBLIC OF MALAWI MULTI-SECTORAL HIV/AIDS PROJECT ADDITIONAL FINANCING CONTENTS I. Introduction................................................................................................................... 1 I1. 2 I11. ProposedChanges ....................................................................................................... Background and Rationale for Additional Financing.................................................... . 12 V. Appraisal of Scaled-upProject.................................................................................... I V Consistency with the Country Assistance Strategy..................................................... 14 14 17 VI1. Benefits and Risks ....................................................................................................... V I. ExpectedOutcomes..................................................................................................... VIII.Financia1 Terms And Conditions for the Additional Financing .................................. 17 18 Appendices Appendix B: Monitoring Indicators and Action Plan......................................................... Appendix A: Preparationand Timetable of Key ProcessingSteps .................................... 19 Appendix C: Procurement Improvement Action Plan........................................................ 20 Appendix D: Financial ManagementImprovement Action Plan ........................................ 26 28 Appendix E: Project and Sector Fiduciary Challenges....................................................... 31 Map (IBRDNo.33440) ....................................................................................................... 34 Appendix F: Project Costing............................................................................................... 33 Figures: Figure 2: Fundsflow diagram.............................................................................................. Figure 1:Estimatednumber ofpeopleliving with HIV/AIDS (1990-2007)......................... 2 30 Tables: Table 1: Original andRevisedPDO and Key PerformanceIndicators ............................... 13 Table 2: Financial Allocations by Project Component........................................................ Table 3: M&EImprovement Action Plan............................................................................ 14 21 Table 4: NationalHIV/AIDSAdditional Financing Results Framework ............................ 22 Table 5: Procurement Improvement Action Plan ................................................................ 26 Table 6: Financial ManagementImprovement Action Plan................................................ Table 7: Project Costing....................................................................................................... 28 33 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 3 REPUBLICOF MALAWI MULTI-SECTORAL HIV/AIDSPROJECT ADDITIONAL FINANCING PROJECTPAPERDATASHEET Date: July 30,2009 Team Leader: Sheila Dutta Country: Republic ofMalawi Sector DirectorManager:Yaw Ansd ProjectName: Multi-Sectoral HIV/AIDS EvaJarawan Project (Acting) Country Directormanager: ProjectID: P107545 PeterNicholas/Timothy Gilbo EnvironmentalCategory: B (Partial Environmental Assessment) Recipient: Republic of Malawi; ResponsibleAgency: NationalAIDS Commission Revisedestimateddisbursements(Bank FY/US$m) FY 2010 2011 2012 2013 Annual 10.0 10.0 9.0 1.o Cumulative 10.0 20.0 30.0 30.0 Does the restructured or scaled-upproject require any exceptionsfrom Bankpolicies? oYes xNo Is approvalfor anypolicy exception soughtfrom the Board? oYes x N o Source Local Foreign Total Borrower 6.0 0.0 6.0 IDA 20.0 10.0 30.0 Global Fundto Fight AIDS, TB, Malaria 126.3 65.0 191.3 UKDept.for International Development 9.0 3.O 12.0 Kingdom ofNorway/Govt. of Sweden 3.4 1.6 5.0 Total: 164.7 79.6 244.3 I. INTRODUCTION 1. This Project Paperseeks the approvalofthe Executive Directors for the following proposals: (i) additional financing ofthe Multi-Sectoral AIDS Project (Grant No. H0620-MW) inthe amount of SDR 19.4 million (US$30 million equivalent) IDA grant for scale-up o factivities under the original financing; (ii)a modification inthe wording ofthe original Project Development Objective, in accordancewith new Regional requirements for HIV/AIDS operations, as delineated inparagraphs21-22; and (iii)athree-year extensionofthe project closing date from September 30,2009 to September30,2012. No change inproject componentsis planned. The only proposed changeto the project's implementation modalities involves the funds flow, with respect to holding the DesignatedAccount at the ReserveBank of Malawi, insteadofa commercial bank. Implementation of activities under the original financing hasbeen satisfactory, as per the requirement ofBP 13.20 (Additional Financing). It is notedthat the project has beenlargely incompliance with grant covenants and that earlier fiduciary challengeshave beensatisfactorily addressed. 2. The proposedadditional financing would continue to support and strengthen the national responseto the HIV/AIDSepidemic inMalawi inlinewith the Government's National HIV and AIDS Action Framework (NAF). Likethe original grant, this additional financing would contribute towards the implementation ofthe joint program ofwork agreedto inthe context ofthe HIV/AIDS Sector Wide Approach (SWAP) inMalawi. This common funding mechanism for the HIV Response(Le., the HIV/AIDS "Pooled Funding") has been operational since 2004. The Malawi HIV/AIDS PooledFinancing isjointly supportedby the Government and multiplekeydevelopment partners, including the World Bank. The Implementation Status and ResultsReport (ISR) ratings for the Project Development Objectives (PDO) and overall Implementation Progressfor the project have beenconsistently classified as "Satisfactory" since effectiveness in2004, andthe original Project Development Objectives are likely to be met by the scheduled end ofthe project. 3. Implementation of activities under the original financing, including substantial compliance with grant covenants, has been satisfactory. See, however, Appendix Eto this Project Paper, inrelation to certain fiduciary issues that arose under the original financing and under another Bank financing inthe Malawian health sector. The Additional Financing is economically justified (as per the requirementsOP13.20- Additional Financing for Investment Lending, paragraph2), andthe planned activities are consistent with the proposedrevisedPDO and with the current Malawi Country Assistance Strategy (CAS). The proposedAdditional Financing operation will be carried out inaccordancewith the World Bank's 2006 Anti-Corruption Guidelines. Inaddition, the "Guidelines: ProcurementunderIBRDLoans andIDA Credits" published bythe Bank inMay 2004, and revised inOctober 2006, andthe "Guidelines: Selection andEmployment of Consultantsby World Bank Borrowers," datedMay 2004, and revised October 2006, will be the versions governing this project and the accompanying standardbidding documents for any new procurement. These operational requirements have beenreflected inthe FinancingAgreement. 1 11. BACKGROUND AND RATIONALEFOR ADDITIONAL FINANCING 4. Country Context: Malawi is one ofthe poorest countries inthe world, with an average income per capita o f around US$171. The population i s currently estimated at 13.6 millionpeople and has been growing at a rate o f 2 percent per annum. Malawi has a relatively highinequality in income distribution, with a Gini coefficient o f 0.38. The poverty headcount was measured at 54 percent in2004/05 household survey, and has remained largely unchanged since the previous household survey was undertaken in 1997/98. HIV/AIDS coupled with poverty and food insecurity constitute the major long-term human development challenges inMalawi. Human development indicators remain very weak. The 2007/2008 Human Development Index ranks Malawi as 164thout o f 177 countries. The maternal mortality rate is currently 984 per 100,000 live birthsand remains one o f the highest inthe world. Adult literacy for males is 75 percent while that o ffemales is only 54 percent. A third o fthe population still only has access to unsafe water. 5. EpidemiologicalContext: Malawi is among the countries in Southern Africa at the epicenter o fthe HIV/AIDS pandemic. Estimates indicate that 12 percent o f adults (15-49 years) inthe country are currently livingwith HIV infection. The general epidemiologic trend over the past few years has beenthat o f stabilization o f the antenatal HIV seroprevalence, although mainly insemi-urban areas. Significantly, there have been recent increases inprevalence in some urban and rural areas, particularly inthe rural northern, central, and southern parts o f Malawi. Given the limited impact o f rural prevention programs thus far and that over 85 percent o f Malawi's population lives inrural areas, the 2009 Joint Annual HIV/AIDS Review concluded that an upwardtrajectory innational prevalence is likely inthe coming years. 6. Current estimates o f epidemic morbidity and mortality, based on projections from antenatal and population-based data, indicate that about 100,000 new HIV infections and 68,000 AIDS-related deaths occur each year inMalawi, and also that about 930,000 Malawians are living with HIV infection. Figure 1 (below) depicts the estimated growth o f Malawi's HIV/AIDS epidemic between 1990-2007. Figure 1: Estimatednumber of peopleliving with HIV/AIDS (1990-2007) I Source: WHOAJNAIDS (2008). Malawi: Epidemiological Country Profile on HIV and AIDS. 2 7. Ina largely hyper-epidemic context, such as Malawi, most sexually active individuals possess an elevated risk o f HIV infection. The drivers and risk factors o f Malawi's predominantly heterosexual epidemic are complex and diverse, but include behaviors such as early sexual debut, highlevels o f longer-term multiple concurrent sexual partnerships (especially for men), intergenerational sex, gaps inconsistent condom use with casual and longer-term partners, low acceptability o f condom use in cohabiting couples, and biological co-factors such as low levels o f male circumcision and the presence o f sexually transmitted infections (especially viral infections). High levels o f HIV-related stigma, gender based violence (including sexual coercion and violence inmarriage), and gender inequality, result in rapid and continuing spread o f HIV inthe general population, leadingto and sustaining (and, at present, increasing) Malawi's very highnational prevalence. Stigma also may lead individuals to avoid riskreduction behaviors (e.g. abstinence, partner limitation, disclosure o f serostatusto sexual partners, condom use) because o f the association o fthese behaviors with being HIV-positive. 8. With respect to the relative risko fthe noted drivers o fMalawi's epidemic, recent analyses indicate that exceptionally rapid and extensive HIV transmission can occur through heterosexual networks when many adults have long term, concurrent (versus sequential) sexual partnerships. InMalawi, a 2007 study found that among adult residents o f LikomaIsland, whose sexual relationships were mapped over a three-year period, an estimated 65percent were connected inthe same sexual network2. This study, thought to be the first to investigateboth the structure o f sexual networks inthe general population and the position o f HIV-positive individuals within these networks, highlightsthe manner inwhich the interaction o f socioeconomic variables, behavioral dynamics, epidemiological factors, and community responses can substantially exacerbate or mitigate the spread o fthe epidemic. 9. Interms o fgender and agevulnerabilities, adolescent women (15-19 years) remain four times more likely to be infectedthan adolescent men inthe same age cohort. Prevalence also remains unacceptably highamong groups at increased risk o f infection, suchas commercial sex workers, cross-border traders, migrantworkers, sexual minorities, and prisoners. Although few generalizable estimates regarding the magnitude o f the HIV epidemic among these highly vulnerable groups exist, geographically focused sero-surveys have noted prevalence rates over 50 percent for sex workers, over 30 percent for men who have sex with men, and over 40 percent among prisoners3. There consequently i s a demonstrated and urgent need for more intensified and more targeted prevention efforts addressing the needs and vulnerabilities o f these populations. A comprehensive approach to HIV prevention in Malawi must address not only risk, but also deep-rooted causes o f vulnerability which reduce the ability o f individuals and communities to protect themselves and others against infection. *Source: Helleringer, S. & Kohler, H. (2007). Sexualnetwork structureand the spread of HIV in Akica: Evidencefrom LikomaIsland, Malawi. AIDS, 21 (2323-2332). Sources: U.S.CensusBureau. (2009). HIV/AIDS SurveillanceDatabase; Baral, S. et al(2009). HIV prevalence,risks for HIV infection, andhumanrights amongmenwho have sex with men inMalawi, Namibia, andBotswana.(Unpublished). 3 10. The developmentconsequences ofthe HIV/AIDSepidemic havebeen profound. Life expectancy at birth inMalawi today is estimatedat 40 years, having declined from 48 years inthe early 1990s, and remains significantly below the projected 54 years that would havebeen attainedinthe absence ofHIV/AIDS. The impact ofHIV/AIDS on GDP inMalawi is estimatedto be yielding anegative impact o f 1-2 percent per year. The social impact ofthe epidemic has been especially profound due to the magnitude of deaths among adult family membersduring what would otherwise be their most productive years, leaving widows, orphans, and elderly parentsdestitute. It is estimatedthat Malawi is home to about one million orphans and vulnerable children, over 50 percentofwhom havebeen orphanedby AIDS. Given this context, the impact mitigation needs inMalawi have increased inparallel with the maturing epidemic. 11. The financial andhumanresourcesofthe alreadyweak public health sector have been further strainedby increasingdemands to provide care, treatment and prevention services for HIVIAIDS. The health sector impact o fthe epidemic has been compoundedby the re-emergence of tuberculosisas an opportunistic infection among HIV-positive individuals. Malawi has a high incidence oftuberculosis (TB) cases (377 per 100,000 population), fuelled by the severity of its HIV/AIDS epidemic. ReportedTB cases increasedby more than 500 percentbetween 1985 and 2004. An estimated70 percent of new TB cases involve co-infection with HIV and 2.4 percent of new TB cases are multi-drug resistant. TB has emerged as the leading cause of death among AIDS patients in Malawi necessitatingthat TB/HIV programmatic inter- linkages be rapidly strengthenedat country-level. 12. GovernmentResponseto HIV/AIDS: Malawi's national responseis based on the National HIV/AIDS Policy and outlined inthe NAF (2005-2009), and now updatedto 2012. The implementation ofthe NAF is supportedby the priority areas of the national responseinMalawi which include strongpolitical support at all levels, partnershipsof a wide range of stakeholders, a coordinatedresponsebasedon the principle ofthe "Three Ones4," considerationfor gender, stigma and involvement of people living with HIV/AIDS,and use of evidence-based interventions. The NAF was developedthrough a consultative and participatory process, informed by an assessment ofprevious national frameworks and strategies. 13. Original Grant: An SDR 25.4 million (US$35.0 million equivalent) IDA grant in support ofthe Malawi Multi-Sectoral HIV/AIDSProject was approvedbythe Board o fExecutive Directors on July 29,2003 and became effective on February 6, 2004. The project is expectedto close on September 30,2009. As of July 21,2009, the project has beendisbursedits entirety, although disbursementspresentlyinclude US$2.1 million equivalent (about 6 percent ofthe original IDA financing) as an advanceto the DesignatedAccount (Le. funds which have not yet beenutilized in support of eligible Grant expenditures). The project components included: (i) prevention and advocacy; (ii) treatment, careand support; (iii)impact mitigation; (iv) sectoral mainstreaming; (v) capacitybuilding and partnerships; (vi) monitoring, evaluation, and research; and (vii) national leadership and coordination. The project has supporteda comprehensive range ofprevention, treatment, and social support The "Three Ones" are a set of principles developedby UNAIDS for the coordination of national HIV/AIDS responses. These principles include one agreed national HIV/AIDS framework, one national AIDS coordinating authority, and one country-level monitoring and evaluation system. 4 services andhas focused on increasingand strengtheningprogrammaticand managementcapacity. This FY04operationwas part ofthe first phaseofthe World Bank'sMulti-CountryHIV/AIDS Program(MAP)for Africa. The MAPfor Africa, which was launchedin2000, enabled flexibleand rapidfundingto African countries` to assist in scaling-upnationalHIV/AIDS efforts. 14. Pooled FinancingArrangement: The WorldBank's currentHIV/AIDS operationinMalawi supportedthe initiation ofthe first HIV/AIDS-specific Sector Wide Approachframework inAfrica. This includesa common fundingmechanism for the HIV Response(Le. the HIV/AIDS "Pooled Funding") that has been operationalsince 2004. Currently, the major fundingpartnersto the HIV/AIDS PooledFundingcomprise: the Government ofMalawi, the InternationalDevelopment Association(IDA), the GlobalFundto FightAIDS, Tuberculosis, and Malaria, the U.K.Departmentfor InternationalDevelopment(DffD), andthe KingdomofNorway Government of Sweden. Inthe OriginalGrant, while the rest ofthe pooledfunding partnerswere providingtheir funding directlythroughthe pooledaccount at the ReserveBankofMalawi, IDA was channelingits fundingthrougha designated account at a commercialbank (StandardBank).The governmenthasproposedthat IDA now channel its fundingto the PooledAccountat the ReserveBankof Malawi. This will bothfully align IDA with other donorswith respectto fundingmechanisms andreducerelatedtransactioncosts. The further rationalefor the proposedchange in financialmanagementarrangements andthe revisedfunds flow diagram are presented inAppendix D. 15. The GlobalFundis currentlycontributingthe largest share (over 70 percent) to the pooledfundingmechanism, followed by IDA. The counterpartfunding from the Government ofMalawi is expected to be an annual US$2million commitment (about 4 percent share of currentHIV/AIDS Poolcommitments). Other key development partnerswho are not able to directlysupport a common financing approach, such as the U.S.Government, contributeto the nationalprogramthrough non-pooledearmarked fundingand fully participateinthe Joint Annual HIV/AIDS Reviews. 16. The partnersto the pooledfinancingmechanismsupport the NAF and subscribe to agreedcommonsystems for planning, financial management, financial andprogramreporting,procurement, auditingandmonitoringandevaluationand programreviews. The mechanismof operationofthis pooledfundingmechanismis outlined ina MemorandumofUnderstanding(MOU) signedby all involvedagencies, on June 20,2003, at the inceptionofthe originalIDA investment.The Government andPooledFundingPartnershave signedthe revisedMOU(2009-2012),which coversthe plannedimplementationperiodofthe AdditionalFinancing.Throughthe HIV/AIDS Pool, the partners fund implementationofajoint integratedannualwork planwith agreed outputsandtimeframes. It shouldbenotedthat the Malawi HIV/AIDS PooledFinancingis the first HIV/AIDS-relatedsector-wideapproach implementedinAfrica. As noted, earlier (paragraph3), Bank-financedprojects would be subject to the Bank'sfiduciary framework, includingits financial management, procurement,and anti-corruptionguidelines. 17. The overall coordinationofthe nationalresponseto HIV/AIDS, as well as the HIV/AIDS PooledFundingmechanism, is the responsibilityofthe NationalAIDS 5 Commission (NAC). NAC is a semi-autonomousagency establishedunder the Office ofthe President and Cabinet in2001. The NAC Board provides strategic oversight of the NAC and, consequently, ofthe implementation ofthe NAF. As a result, whereas coordination of the annualwork plan preparationfor the HIV/AIDS PooledFunding is the responsibility o fthe NAC, the actual implementation of activities i s conducted by various stakeholders including public sector institutions and line ministries, Non- Governmental Organizations (NGOs), private sector entities, Faith-Based Organizations, and Community BasedOrganizations (CBOs), including organizations of PeopleLiving with HIV/AIDS. Program funding is made available to implementersthrough an internal Grant ManagementUnit (GMU) managedbythe NAC . 18. The HIV/AIDS national response has an agreedset ofmonitoring indicators which align in a hierarchical matrix to NAFoutputs, health outcomes to be achieved inthe Malawi GrowthandDevelopment Strategy (MGDS) and also the Millennium Development Goals' targets. There are two National HIV/AIDS Program Reviews each fiscal year: a Joint Annual Review (September/Octo'ber)and a smaller mid-year review (MarcWApril). Pooled FinancingDonors have aligned their reporting requirements andreview missionsto the Government reviews. Use ofjoint systems for planning, implementation and financial managementcontribute to the achievement ofharmonization of partnersto country cycles for budgeting, reporting, program review, financial management, and procurement as endorsed inthe ParisDeclaration. 19. Project Performance: The Multi-Sectoral HIV/AIDS Project has been rated satisfactory for implementation progress and achievement of development objectives inall ISRssince project inception. The project's Mid-term Evaluation (late-2006) confirmed that: (i) the project implementation was on track; (ii) original the developmentobjectives were likely to be met; and (iii)the Development Objective rating is "Satisfactory." Results ofthe project Mid-Term Review andthe Six Monthly Joint Implementation Reviews show that the impact so far has beenconsistent with original Project Appraisal Document expectations. Although Development Objective rating ofthe current operation is "Satisfactory", it should be noted that the Financial Management rating remains as "Moderately Satisfactory," the Counterpart Funding rating remains as "Moderately Unsatisfactory," and both the Procurementand Monitoring and Evaluation ratings remain as "Moderately Satisfactory." Key aspects ofthe technical and fiduciary performanceofthe national program are summarized below. Technical Performance 20. Key technical achievementsofthe national HIV/AIDS response, to date, are summarizedbelow (by project component). (a) Component 1 - Prevention and Advocacy: There has beenan increasein the number ofHIV counselingandtesting sites from 211in2003 as comparedto 636 in 2008. This expansionhas paralleled an increase inthe number ofpeople obtainingHIVtesting andcounseling from 283,462 in 2004 to 1,212,376 in2008. Innovative approachessuch as door-to-door campaigns, National HIV Testing weeks, and mobile campaignshavebeen usedto increaseaccess to these services. There has beenan increasein sites providing services supportingthe prevention o fmother-to-child 6 transmission of HIV infection from 36 in2004 to 488 in2008. The number of young people (15-24 years) exposedto life skills-basedAIDS education increasedfrom 133,946 in2004 to 3.5 million in 2008. (b) Component 2 TreatmentCare and Support: There has beenan increase - innumber of sites providing antiretroviral treatment (ART) from 9 in2003 to 221 in2008. This has enabled an increase innumber ofpeople ever startedon ART from 3,000 in2003 to 196,368 (60 percent females and 40 percent males) by December 2008 with 75 percent survival rate. Out of the total number ofpatientsever started on ART, 9 percent were children under the age 13 years. No stockouts o fART drugs have been reported since the inception ofthe ART program in2003. (c) Component 3 Impact Mitigation: There has beenan increase inthe - number oforphans andvulnerable children supportedwith nutritional, psychosocial, financial, educational support from 200,000 in2004 to 2,651,700 in2008. The introduction o f social cashtransfer program in 2006 has benefitted a total of 70,125 individuals from 18,180 households, as of December 2008. There has been an increase innumber of householdsreceiving external assistance inthe past 12 monthsto care for the adultswho havebeenchronically illfor three or more months from 19,706 households in2003 to 744,062 in2008. There also has been an increase inthe number ofcommunity-basedorganizations providing support to orphans and vulnerable children from 300 in2003 to 2,000 in 2008. (d) Component 4 SectoralMainstreaming An estimated 73 percent of - Government ministriesand 57 percent ofprivate companies implementing HIV and AIDS mainstreamingprograms by December2008, comparedto 61 percent o f government ministries and 47 percent of Private Companies in2004 respectively. NAC has developedan "HIV/AIDS Mainstreaming ConceptualFramework" and also "HIV/AIDS Mainstreaming Guidelines" to enable stronger implementation ofthis program component. (e) Component 5 - Partnershipsand Capacity Building: With respectto capacity development, the National HIV/AIDS Program has supportedthe training o fadditional 100medical doctors and 40 pharmacists, and provision of salary top-ups to 6,798 health workers to improve staff retention. District AIDS Coordinator positions have been createdand supportedin all Local Authorities. NAC also has supportedthe strengtheningof local authority systems through the provision of equipment, transport and infrastructure. (f) Component 6 Monitoring, Evaluation, andResearch: NAC has - supportedthe introduction of a bio-marker component into upcoming Demographic and HealthSurveys (DHS) and Behavioral Surveillance Survey (BSS). NAC has developeda national monitoring and evaluation (M&E) framework that has beenalignedto global, regional and national indicators. There has beenan increase in Sentinel Surveillance Survey sites from 19to 54, improving the generalizability o fthis data. 7 (g) Component 7 - National Leadershipand Coordination: The NAC remains under the authority ofthe Office ofthe Presidentand Cabinet. Notably, HIV/AIDSwas included as one ofthe seven priority areas within the MGDS. NAC has supportedthe institutionalization ofthe "Three Ones" principle at central and local levels and has heldJoint Annual Reviews of the National HIV/AIDSresponse. The Malawi PartnershipForum for HIV/AIDShas beenestablished, inaddition to sectoralcoordinating structuressuch as the Departmentof Human ResourceManagementand Development for the public sector; the Malawi Business Coalition Against HIV/AIDSfor the private sector; the Malawi Interfaith AIDS Association for the faith-basedcommunity; the Malawi Network ofPeople Living with HIV/AIDS;andMalawi Network ofAIDS ServiceOrganizations. 21, Key Challenges: Despitethe significant progress made inthe national response, specific areas have been identified as requiring particularly close monitoring and improvement over the course ofthe proposedAdditional Financing. These areas include prevention, impact mitigation, and mainstreaming. (a) Prevention: With respectto prevention, at present, as noted during the February 2009 Joint Annual HIV/AIDSReview, the scale o fprevention efforts remains a challenge inMalawi. Most prevention programsand services remain centralized inurban and peri-urban areas, and lack adequate targeting for core groupsthat are highly vulnerable to the epidemic including sex workers, mobile populations, and menwho have sex with men. Inaddition to the lack of systematictargeting of highly vulnerable populations, the lack of synergy betweentreatment scaleup and prevention scale-up also is of substantial concern. A combined prevention and treatment strategy would entail substantial synergies, and is the only approachthat could yield a sustaineddecline inprevalence, which, inturn, increases the likelihood that the Malawi's national HIV/AIDS response would eventually become financially sustainable. The overdue draft National HIV Prevention Strategy and Action Plan is nearing completion. The Additional Financingwill heavily focus on enabling effective implementation o fthe revamped, targeted, and evidence-based prevention agenda. (b) Mainstreaminq: Interms ofmainstreaming, public sector ministrieshave been involved inthe national response since the inception ofthe Pooled Financing, but have not beenheldaccountablefor their engagementnor results. Where they exist, strategiesto address HIV/AIDS are not well integrated into the departmentalwork-plans and routine functions. The long-term goals ofreversing the spread of infections and providing care and support to those infected and affected by the epidemic will not be achieved without stronger public sector performance.Effective multi- sectoral capacity will needto be enhanced to perform core functions of planning, prioritizing investments and setting policies and standards.The pool fundwill support scaling up ofmulti-sectoral activities which demonstrateimpact on the epidemic. 8 (c) Impact Mitigation: With respect to impact mitigation, there remains a crucial need for applied research to examine priority issues relatedto rural poverty and food insecurity, and what feasibly can be done through NAC to strengthen policy and program assistancefor affected populations. It is clear that an expansion o f food support will be necessary and that orphans and vulnerable children will require targeted health and nutrition programs, as well as ensured access to education. The latter are critical to enabling Malawi's fbture human resource base to benefit from access to educational and other programs relating to skill development, which ultimately enhances productivity and reduces poverty. These increasing needs are reflected inthe increased proportional allocation o fthe proposed Additional Financing resources for impact mitigation in comparison with the original project. Fiduciary Performance 22. Fiduciary aspects o f project performance are summarized inthe sections below. A more detailed summary o fthe project and sector-specific fiduciary challenges appears inAppendix E. 23, Procurement Performance: With respect to procurement performance, procurement audits have been undertaken annually by independent auditors and the results have been acceptable. The project currently possesses a "Moderately Satisfactory" procurement performancerating, as deemed appropriate following review ofthe FY08 Procurement Audit Report. This marks an improvement from the corresponding FY07 rating. A recent assessment o fNAC procurement, conducted by the Bank, yielded results consistent with most o fthe procurement audit findings. The major issues inprocurement performancehave been found at the level o f grant sub- recipient organizations, particularly with respect to delayed reporting and weak accounting practices. In order to address procurement capacity constraints faced by sub-grantees, NAC's revised procurementarrangement have enabledthe introduction o f centralized procurement for commonly procured and highvalue capital goods. NAC has consistently provided responses to audit queries, and resolution always has been achieved. Procurement cycle management (and supply chain management) has improved over the course o fthe current operation. The Procurement Improvement Action Plan (Appendix C) has been developed to fbrther strengthen NAC procurement capacity and has been endorsed by Government. An abbreviated 12- month Procurement Plan was exceptionally agreed at Negotiations, and an updated 18-month Planwas required to be prepared by June 30,2009, which was beendone. The Bank reviewed this updated Procurement Plan and found it satisfactory. 24. The "Guidelines: Procurementunder IBRDLoans and IDA Credits" published by the Bank in May 2004, and revised in October 2006, and the "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers," dated May 2004, and revised in October 2006, will be the versions governing this operation and the accompanying standard biddingdocuments for any new procurement, including the same range o f procurement and consultant employment methods utilized under the original grant. 25, Financial Management Performance: The project currently has a "Moderately Satisfactory" financial management performance rating. The Financial Audit Reports 9 for FY06, FY07, and FY08 have all been receivedbetween2-7 months late. To date, however, all financial audit reportshave had unqualified audit opinions. The auditors did raise issues ineach managementletter andthere has been follow up on the audit recommendationsby bothNAC and the Bank's fiduciary teams. Agreed Financial ManagementAction Plans have generally been implemented and, in instanceswhere the Action Planhas not been fully implemented, NAC has provided a satisfactory explanation tojustify not taking an indicated action. The Financial Management Report (FMR)for the quarter endingMarch 31,2008 and correspondingwithdrawal application has beenreceived. The previously pending withdrawal application for the period ending December 31,2008 also has beenreceived. 26. A challengenoted inthe FY07FinancialAudit, derives from ineligible expendituresby sub-grants recipients. These ineligible expenditures, which primarily involve the National Youth Council, result from their inability to account for resources(due to missing receipts), in addition to some workshop allocations that exceededGovernment ceilings (including for participant allowances). These expendituresconstitute the equivalent ofUS$146,000. Additional ineligible expenditures noted inthe FY07 Financial Audit included NAC staff advances of US$196,935 equivalent. It shouldbe notedthat the full amount o fthe indicated ineligible expenditureswere reimbursedto the HIV/AIDS Pool Fundby Government by April 17,2009. As a result, this issue (previously classified as aNegotiations condition) has been satisfactorily addressed. The 2008 audit did not indicate any further ineligible expenditure. To offset the amount disbursedfrom the original IDA Grant for the ineligible expenditures, and as agreedwith the Loans Department, the forthcoming FMR application for June 2009 will be revised to deduct the ineligible expenditures o fUS$6,043 equivalent. This amount was not offset in March2009 since this FMR application was processed"for documentationonly and no payment." The June 2009 FMRhas not yet been received, but is expectedbyAugust 30,2009. As a result, this Board condition has been substantially, rather than fully, met. 27. The only pending fiduciary challenge is the resolution ofthe current arrearsin counterpartpayments to the HIV/AIDS Pooledfund under the original financing. As of April 1,2009, US$1.3 million equivalent incounterpartfunds hadnot been received from Government. As per the original MOU, Government committed to an annual contribution ofUS$2.0 million, which would be paid into the PooledFund quarterly. Thus, Government is around nine months behindintheir Pooled Fund contributions out ofa five-year implementation period. Government has committed to the payment o fthis balancetoward the beginning oftheir new fiscal year. This payment will therefore constitute an effectiveness condition. The delayed counterpart payments have not materially impactedproject performance. Overall, past project and sector fiduciary challengesare further detailed inAppendix E. 28. The attachedFinancial ManagementImprovement Action Plan (Appendix D) has been developed inresponseto these challengesand has been agreedto with Government, as has beenreflected inthe MinutesofNegotiations. Given the above governanceconcerns, the Bank's Internal Audit Department included the current operation as part of its December2008 Malawi Portfolio Review, and recommendeda downgrade to an "Moderately Unsatisfactory" financial managementrating. However, given the progressto date, a "Moderately Satisfactory" rating has been retained. Apart from agreementon the Financial Management Improvement Action 10 Plan, the retentionof "Moderately Satisfactory" ratingis viewed asjustified by the responsible fiduciaryteam for the following reasons: (a) There havebeenimprovements inNAC's fiduciary oversight systems since the indicatedineligibleexpenditures were discovered in2007. NAC's subsequent2008 auditreports (both externaland internal) do not indicateany further ineligibleexpenditures. Also, as previouslynoted, the relatedBoardconditionhas beensubstantiallymet. (b) The FY07 ineligibleexpenditureswere identifiedas a result ofNAC's own financial managementsystem of InternalAudits (Le. self-detected and self-reported). (c) NAC's last three financial auditreports (FY06, FY07, and FY08)have beenunqualified. (d) The principle ofmaterialityhas beenconsidered and appliedto yieldthe current"Moderately Satisfactory" financial managementrating. The NAC manages an estimatedannual expenditure ofover US$lOO million. The above notedineligibleexpendituresconstituteless than 0.10 percent of NAC's annual expendituresand were captured by their financial oversight controls. 29. Disbursement Performance: With respect to disbursements, the Additional Financingoperation(US$30 million over three years) assumeshigherper annum financingthanthe originaloperation(US$35 millionover five years). However, these more ambitiousdisbursement targets arejustified on the basis ofthe financial gaps in the national program, inadditionto the increase inabsorption capacity at country- leveland demand for HIV/AIDS service delivery over the implementationperiodof the original operation. 30. Interms offundinglevels, within the originalpooledfinancingarrangement, IDA contributedan averageof 12percent ofthe total fundingcommittedduringthis period. Givencurrentdeclareddonor commitments over the three year periodofthe proposedAdditionalFinancing, and anticipatednew commitments, IDA's relative proportiono ffinancingwill likely remainbetween 10-15 percent oftotal commitments over the durationofthe Additional Financing. The detailedestimated program costingand commitmenttable is includedas Appendix Fofthe Project Paper. 31. Rationalefor Requestingthe Additional Financing: Despitethe challengingdevelopment contextofMalawi, substantial progresshas beenmade duringthe last four years ofIDA financing, especiallyintesting, treatment and care of those affectedby HIV/AIDS. The proposedAdditional Financingbuildsonthese achievementsand seeks to ensurethatthe momentumdevelopedto date is continued and intensified,while also focusingonthe identifiedand substantial gaps. The national programis now in a positionto substantiallyincrease its reach and impact, particularlywith respectto strengthening preventionandthe ruraVdecentralized responseto HIV/AIDS. The Government views IDA's continuingfinancial support as criticalto addressing fiduciary and technical needs over the nextthree years, a "bridging period" duringwhichthe nextNAF, supportinga stronger evidence-based approach, will be finalized (thecurrent NAFexpires in2012). The final year ofthe proposedAdditionalFinancingoperationwill support the development ofthe next 11 NAF,thereby continuing and strengtheningthe evidence-based approach ofthe previous period. As a result, the proposed operation is inaccordance with OP13.20 (Additional Financing for Investment Lending) since it will support the scale-up o f activities under the original financing. 32. The Additional Financing will support the financing o f expanded activities that scale-up the original project's impact and development effectiveness, including the strengthened focus on evidence-based prevention strategies for vulnerable groups. Additional Financing has been assessed by IDA and Government as the appropriate instrument to consolidate and expand gains from the original IDA operation. Addressing HIV/AIDS in a comprehensive and sustained manner requires a long-term commitment and the continued involvement o fthe Bank is consequently viewed as both politically and financially critical. As noted earlier, the proposedAdditional Financing operation would finance a further three year time slice o f a national program. 33. The project remains as originally designed and appraised, with the exception o fthe previously noted change infinancial flows regarding the proposed use o fthe Reserve Bank o f Malawi instead o f a commercial bank. The proposed changes consist primarily o f extending the Bank's financial contribution to the project by US$30 million. The economic, financial, and technicaljustifications remain the same as inthe original project. The project components and implementation modalities also remain unchanged. The waste management plan from the original operation remains relevant given the consistency inprogram design, structure, and activities, as has beenconfirmed by the Africa Regional Safeguards Unit. A new MOUbetween Government and the Pooled.Financing Partners has been signedto extend the current program arrangements to 2012, in line with the current NAF and also the proposed Additional Financing operation. 111. PROPOSED CHANGES 34. Restructuringof the ProjectDevelopmentObjective: The PDO is proposed to be modifiedto reflect changes inthe Regional requirements regarding PDO structure o f new HIV/AIDS operations. At the time at which the original project was approved (FY04), task teams were largely expected to construct PDOs with wording alluding to overall objectives o f "reducing prevalence" and/or "reducing transmission" o f HIV infection. Use o f the phrase "reduction in prevalence/transmission" as a PDO for an HIV/AIDS operation, however, is no longer accepted as an appropriate measure o f efforts to respondto the epidemic inthe short to medium-term. This Regional change was necessitated by the mismatch between the original PDO statement o fmost MAPprojects, and actual project components. It was noted by the Regionthat PDOs for many HIV/AIDS operations were set at too higha level, given the activities financed, and contributed to many projects being rated unsatisfactory by the Bank's IndependentEvaluation Group. The detailed rationale for this change was presented and endorsed inthe "Memorandum and Recommendation o f the President for the Umbrella Restructuringfor Projects under the Multi-Country HIV/AIDS Program for Africa", which was approved by the Board o f Executive Directors on June 29,2007 (Report No. 39906-AFR). 12 35. Preparation ofthe Malawi Additional Financing project provides an opportunity to restructure the PDO and address this challenge. As a result, this Additional Financing operation proposesa restructuring/revision ofthe wording ofthe PDO, incongruence with these new Regional requirements. The indicators for the proposedAdditional Financing are aligned with the Africa Regional HIV/AIDS Regional Scorecard. Malawi's National HIV/AIDS Monitoringand Evaluation framework was already aligned with the agreed United Nations GeneralAssembly Special Sessionon HIV/AIDS indicators, requiring no additional adjustments to meet this standard. The original PDO, its proposedrevision, andthe key performance indicators are presented inTable 1(below). The results framework for the Additional Financing is presentedinAppendix B. OriginalPDO: To reduce the transmissionofHIV, to improve the quality of life of those infectedand affectedby AIDS, and to mitigate the impact of HIV/AIDS in all sectors and all levels ofMalawian society. ProposedRevised PDO: To increase access to prevention,treatment, and mitigation services, with a focus on behavioralchange interventions and addressingthe needs of highly vulnerable populations, including those affected and infected by the epidemic. Key performance Proportion of sexually active males and femaleswho report having had Indicators: sex with a non-regularpartnerwithin the previous 12 months (by age cohort). Proportion of sexually active males and femaleswho report condomuse during last high-risk sexual encounter(sex with anon-cohabitating or non-regularpartner) within the last 12 months(by gender and age cohorts, 15-24years, 25-49 years). Median age at first sex among 15-24year olds (by gender). Proportion ofyoung people (15-24 years) who both correctly identify ways of preventingtransmissionand who reject major misconceptions about HIV transmission(by gender). 36. FinancialManagement: Preparationofthe Additional Financing provides an opportunity to address Government's earlier request for a change inthe financial management arrangementsfor the Grant, as comparedwith the Original Grant. This proposed modification infinancial managementarrangementswould involve use of the ReserveBank ofMalawi for the DesignatedAccount, insteadofthe commercial bank currently being used. As notedearlier inthe Project Paper (Paragraph 14), this change is further detailed inAppendix D. 37. Extensionand Reallocations: A six-month extension ofthe closing date of the original financing (from December31,2008 to June 30,2009) was approvedon November 21,2008. This constitutedthe first closing date extensionofthis operation. A subsequentthree month extensiono fthe original financing (from June 30,2009 to September 30,2009) was approved on May 5,2009. The proposed Additional Financing operation would further extendthe closing date by three years, untilSeptember 30,2012. The closingdate ofthe original grant also has been extendedto September 30,20 102 to coincide with the closing date ofthe Additional Financing. There is no reallocation ofthe Original Grant. 13 Component Original Proposed ProjectFinancing Additional Financing (US$million) (US$million) 1. Prevention& Advocacy 14.55 16.00 2. Treatment, Care and Support 4.00 3.00 3. Impact Mitigation 0.95 2.00 4. SectoralMainstreamine 4.85 3.00 5. CapacityBuilding & Partnerships 3-40 2.00 6. Monitoring, Evaluation and Research 2.90 2.00 7. National Leadershipand Coordination 4.35 2.00 Total: 35.0 30.0 L IV. CONSISTENCY WITH THE COUNTRY ASSISTANCESTRATEGY 39. The proposedAdditional Financing is consistent with the FY07-10 Malawi CAS and also supports the Government's MGDS. The proposed new HIV/AIDS financing was included among the planned FY09 lendingdeliverables noted inthe CAS. The activities o fthe proposed operation remain consistent with results stemming from the CAS (Outcome 3), which seeks to decrease vulnerability at the household level to HIV/AIDS and malnutrition. The proposed Additional Financing will address the CAS objective o ftranslating awarenesso fHIV/AIDS into behavior changes, improvingthe availability o f medical commodities, and increasing access to prevention, treatment, and mitigationservices. V. APPRAISAL OF SCALED-UPPROJECT 40. ProjectImplementationArrangements: The institutional arrangements for the Additional Financing remainunchanged from the original operation. The NAC remainsthe institutional home o fthe national multi-sectoral response inMalawi. The N A C has been a stable agency interms o f both governance and management over the past seven years - a particularly notable achievement within the challenging context o fMalawi. 41. Project Analyses: The fiduciary, economic, technical, social, and environmental analyses andjustifications remain the same as inthe original Project Appraisal Document. (a) Fiduciary Analysis: The project's regular financial reporting is provided through quarterly FMRs submittedto the N A C Board and to the Pooled Donors. The N A C has established acceptable financial management systemsto account for its funding, including an internal GMU. There has been an increase infiduciary capacity to planand manage financial management and procurementprocesseseffectively over the past two years. This fiduciary assessmentwas validated by 14 the 2007 NAC Financial Management and Procurement Assessment, which was conducted by the Pooled Fundingpartners under the leadership o f the World Bank. (b) Economic Analysis: The National HIV/AIDSProgram (2005-2012) has been costed at US$607 million. Based on the current costs o fARV treatment in Malawi, it i s estimated that the cost effectiveness o f prevention activities is at least 10times that o ftreatment. As previously noted, a reduction inHIV prevalence levels i s expected to ` correspondingly reduce the AIDS-related reductions in GDP growth in Malawi. Though not included inmacroeconomic indicators, averted death and disability among other population groups (e.g. informal sector workers or unemployed) also would affect the macro economy, through reducedAIDS-related poverty or income inequalities. (c) Technical Analysis: The technical aspects o fthe NAFhave been aligned with international best practice, particularly given the increasing focus and resource allocation on prevention. Assuming continued strong financial and technical support through the Pooled Fundingapproach(inaddition to support from discrete donors), it is likely that many key prevention, treatment, and mitigationtargets will continue to be met. The next phase o fNAC's work plan will also support the Malawi decentralizationprocess hrther and expand operational partnerships with District Assemblies. A new prevention strategy i s being developed and will address the noted issues and challenges to the national response. The new prevention strategy will address the fact that risk behaviors and vulnerabilities involve a complex web o f economic, legal, political, cultural and psychosocial determinants that must be analyzed and addressed at the policy and program levels. Itwill focus more heavily on operations research, given that effective preventionprogramming required a thorough understanding o fthe critical relationshipsbetween the epidemiology o f HIV infection, the riskbehaviors that transmit HIV, and the cultural, institutional, and structural factors that aid or impede peoples' abilities to access and use HIV information and services, and subsequently make them more or less vulnerable to HIV infection. (d) Environmental Analysis: There are no unresolved safeguard issues associated with the current operation. All legal covenants have been met and the implementationo fthe waste management plan is proceeding in a satisfactory manner. The proposedAdditional Financing will not change the environmental category o fthe project or trigger any new safeguard policies, and, consequently, does not involve any exception to Bank policies. The Health Care Waste Management Plan for the original project was developed in a participatory manner with Government and key stakeholders and finalized inJune 2003. The implementation o fthis plan was assessed as satisfactory by the Mid- Term Review. The Health Care Waste Management Planremains valid and will continue to be implemented under the Additional Financing. 15 (e) Social Analysis: The 2006 Mid-Term Review noted that progress has beenmade inraising the profileofthe HIV/AIDSchallenge inMalawi, and in improving the voice ofpeople living with HIV/AIDS within the national response. These are encouragingsigns and, especially through continued funding of civil society organizations, the NAC will be able to support further community-basedmobilization andprogram implementation. However, stigma, the low status ofwomen, discrimination against vulnerable groups, and some traditional practices continue to hamper progress in addressingthe socioeconomic context ofthe HIV/AIDS epidemic inMalawi. Such issues provide the substrate for the rising HIV prevalence inrural areas of Malawi, where traditions remain strongest, where stigma is highest, where service access is weakest, andwhere the adoption of behavior change strategieshas beenmost limited. As previously noted, there remains an urgent need for more intensified and more targeted prevention efforts addressingthe needs and vulnerabilities ofpopulations at increasedriskof HIV infection. Prevention strategies in Malawi need to address both risk and deep-rootedcauses of vulnerability. Inview o f existing social challenges, the Additional Financing will strengthen the NAC's capacityto design and implementHIV/AIDS interventions targeting vulnerable groups. Inthe process, the NAC will be supported to develop measurabletargets againstwhich it will assess progressand effectiveness inrespondingto the needs of specific vulnerable populations. The NAC is working with the Ministry of Women and Child Development, among other agencies, to more effectively address these issues. 42. Sustainability: Key issues relatedto the institutional, technical, and financial sustainability ofthe proposedAdditional Financingare summarizedbelow. (a) Institutional Sustainabilitv: The Malawi NAC was established in July 2001 and administratively reportsto the Office o fthe Presidentand Cabinet. The NAC has developedsubstantialexperience inmanagingand coordinating the national response over the last sevenyears. Most ofthe program is being implementedthrough existing institutions inthe country, particularly the Ministry ofHealthand other line ministries. While there are capacity challengesrelatedto the line ministries, as noted above, there are also continuing efforts to address these issues over the longer term. The planned greater focus on decentralizedstructures, including Local Authorities, will also help to assure longer term institutional sustainability. The plannedestablishmentofaTrustto replacethe current Central Medical Stores will help enable greater institutional sustainability inthe pharmaceuticalssector, which is particularly critical given the expanding national ARV treatment program. (b) Technical Sustainabilitv: A significant proportion ofthe national program i s relatedto the bio-medical response (testing and treatment), which is implementedthrough the Ministry ofHealthandthe Christian Health Association of Malawi. They haveput inplace quality assurance systems 16 to improve the technical quality oftheir HIV/AIDS services. Impact mitigation activities are implementedthrough districts, NGOs and CBOs. Funding to these organizationsis on the basis oftheir existing activities in supporting individuals, families and communities. (c) Financial Sustainabilitv: Financial sustainability of the national response continues to bethe major risk ofthis program. The national HIV/AIDS responseis heavily dependenton donor funding, with an estimated 3 percent of resourcesfrom Governmentand 97 percent from external sources. Inaddition to the annual US$2 million counterpartfinancing to . the HIV/AIDS Pool, the Government is providing 2 percentofits other recurrent transactions budget to ministries in support of HIV/AIDS activities. A significant proportion ofthe national health budget is spent on HIV/AIDS-related services (estimatedat up to 60 percent), and if projections for the number ofpeopleto beprovided ARVs are realized, then it is likely that demands for HIV/AIDSfunding could dwarfthe entire national health budget. VI. EXPECTEDOUTCOMES 43. The NAC has developeda comprehensiveresults framework for the national HIV/AIDSprogram, as well as the supportingmonitoring and evaluation systemto collect and analyze data on the epidemic andthe national response. The project indicators are derived from the original Results Framework and are detailed in Appendix B. VII. BENEFITSAM)RISKS 44. The benefits and risksas stated inthe original Project Appraisal Document remain relevant, andtwo additional risks havebeen included for the Additional Financing as noted below. The original operation was assessedas possessinga "Substantial" overall risk level, given both the epidemic and country context. With respect to project benefits, containing and reversing the HIV/AIDS epidemic requires balancing the needto achieve short-term results with efforts towards the longer term goal of creating an environment that reduces HIV risk, promotes innovation, and supports sustainedand universal access to HIV prevention, treatment, and mitigation. Ultimately, the proposedAdditional Financingwould contribute to slowing the spread ofthe epidemic andto alleviating the burden on individuals and households, in addition to supporting enhancinginstitutional capacity among counterparts. 45. The majority ofprogram risksrelate to weaknesses inthe national health system, poor district level coordination, and limited capacity at all levels. An additional risk for the proposedAdditional Financing derives from the magnitude and maturity ofMalawi's HIV/AIDS epidemic, as this may limit the measureable effectiveness o f interventions inthe short-term. A more comprehensive and evidence- basedNAFhas been developedby NAC and its Development Partnersinresponseto this risk. A secondadditional risk for the proposedAdditional Financing isthe high level of external financing to the national HIV/AIDS response (3 percent Government resourcesversus 97 percent external resources), which increases the risk to program sustainability. Inrecognition ofthe above risksand challenges, Development 17 Partners are making substantial investments in strengthening the NAC, the Ministryo f Health, civil society organizations, and the Malawi health/AIDS service delivery systems, more generally. * VIII. FINANCIAL TERMSAND CONDITIONS FOR THE ADDITIONAL FINANCING 46. The additional financing will be provided as an IDA grant through a Financing Agreement signedby the Government o fMalawi and IDA. Effectiveness conditions: 47. Inaddition to standardconditions, the effectiveness conditions will include the following: (a) The Recipient has deposited the equivalent o f US$l.3 million into the Project Account for amounts outstanding pursuant to Section 3.04 (b) o f the Original Financing Agreement and requiredto finance the Recipient's contribution for expenditures under the Original Project. (b) The Recipient has made into the Project Account the first o fthe quarterly deposits into the HN/AIDS Pooled Fund. (c) The Recipient has adopted a national HIV/AIDS prevention plan, in form and substance satisfactory to the Association. Disbursementcondition: 48. The Annual Work Plan and Budget for each Fiscal Year will have has been approved by the Association, inadvance o f disbursement for the given Fiscal Year. Covenants: 49. The dated covenants will include the following: (a) No later than December 31,2009, the Government will have established a Trust, to replacethe current Central Medical Stores, with an institutional framework, functions, and resources satisfactory to the Association, for purposes o f public healthlmedicalprocurement (so that the Trust can assume the procurement role currently filled by UNICEF). (b) No later than two months after the Effective Date, the Governmentwill have adopted audit terms o f reference that are satisfactory to IDA. These Terms o f Reference will specifically include the verification o f all FMRs used as a basis for submission o f grant Withdrawal Applications. (c) Deposit into the Project Account, on a quarterly basis throughout Project implementation, an amount equivalent to $500,000, or such other amount as agreed with the Association, requiredto finance the Recipient's contribution for expenditures under the Project, other than those financed from the proceeds o fthe Grant. 18 APPENDIX A: PREPARATIONAND TIMETABLE OFKEY PROCESSING STEPS Project Milestone Date I Technical Discussions / Project Negotiations April 7-8,2009 / June 25-26,2009 RVP Approval July 30,2009 Board Presentation August 25,2009 Date o f Planned Effectiveness September2 1,2009 Grant Closing September 30,2012 IDA staff and consultantsinvolved inthe preparationofthis project included: Name Title Unit Cecile Ramsay Operations Adviser AFTQK Warren Waters Adviser (Environmental & Safeguards) AFTQK ElizabethNinan Public Sector SpecialisW AFTHV 19 APPENDIX B: MONITORINGINDICATORS AND ACTION PLAN 50. The NationalHIV/AIDS Monitoring and Evaluation Plan was completed in July 2003. Four years after the writing o fthisM&E Plan, many elements o fthe central-level structure necessary to the M&E system are now inplace. The N A C Activity Reporting System has been developed and operationalized and N A C is working with institutional partners collecting other data relevant to the National Response. Meanwhile, the National Strategic Framework (2000-2004) has been replacedby the NAF (2005-2009, now updated to 2012). The National HIV/AIDS M&EPlanwas revisedin2007/2008 inresponseto implementationchallenges and to be inline with international standards. Effortsto decentralize the M&Esystem by devolving responsibility to the districts are underway. The aim is to have districts take greater ownership o f the collection, analysis, and use o f data to improve implementation o f programs. 5 1. Districts will be responsiblefor completing the Local Authority HIV/AIDS Reporting Form to capture data on all non-health relatedHIV activities inthe district, and to share this information with N A C on a quarterly basis usingthe Local Assembly Quarterly Service Coverage Report. Health related data i s captured through the Health Management Information System (HMIS).Data i s collected from health facilities on a monthly basis and reportedto Local Assemblies (District Health Officers) on a quarterly basis. A comprehensive review o fthe HMIS is underway. After the review, the HMISwill be upgraded to capture more HIV/AIDS related indicators. N A C will still be responsible for consolidating the data from the districts into National Service Coverage Reports. Population-based surveys are periodically conducted as part o fthe national M&Esystem. In addition, BSS and Multiple Indicator Cluster Surveys are undertakento capture HIV/AIDS prevalence and related behaviors for various sub-populations. The N A C also plansto commission impact evaluation studies inprioritized areas. 52. Data quality has been severely compromised by underreporting, late reporting, and lack o f data quality assurance. These have been critical challenges for many o f the data sources, particularly the N A C Activity Reporting System and the HMIS. Currently, data is not being consistently usedto inform the approaches used inthe National Response. Efforts are underway to improve quality o f data collection, and management within the National M&E system. The Monitoringand Evaluation InformationSystemTechnical Working Group has been appointedby the N A C to advice on the M&E system. It is comprised o f representatives o f line ministries, research institutions, development partners, and NGOs, and other coordinating bodies. Inaddition, standardized data quality protocols have been developed inwhich roles and responsibilities have been clearly allocated. Key M&Epersonnel have been trained on the use o fthe protocol. Data quality audits have been instituted to enhance the quality o f data that is captured. 53. Inrecent planning meetings, NAC has made use o fevidence from existing reports. While in-depth analysis and use o f data i s occurring in isolated instances, it has not yet become national practice. This will be strengthened as part o fthe national capacity buildingeffort for the M&E system. The basic structures are in place to collect data that is vital to the National Response to HIV/AIDS. Improvements inthe coordination and cohesiveness o fthe M&E system, the quality o fthe data produced, 20 andthe use ofthat data to implementHIV/AIDS programs more effectively are possible. Higher-level leadership, fillsynchronizationof efforts, and adequate technical support and finding will help to ensure that the M&E system inMalawi is a reliable and useful systemthat plays a vital role in informingthe planning and implementation processes that comprisethe National Response to HIV/AIDS. 54. The results framework for the proposedAdditional Financing is asubset ofthe overall framework for the NAF and also is congruent with Malawi's Universal Access indicators and targets. The ResultsFramework adheres to the guidelines presentedin the HIV/AIDS Score Card, as required for World Bank-financed projects inAfrica, and derives from the M&E framework ofthe original project. Monitoring andEvaluation Improvement Action Plan 55. Inorder to improve the quality anduse ofdata andenable astrongNational HIV/AIDSM&E system, immediateimprovementsneedto be made. The following Action Plan (Table 3) includes the key recommendationsfrom the 2009 Independent Review of the Malawi National Responseto HIV/AIDS. Table 4 presents the proposedResults Framework for the Additional Financing. Item Observed Actions Required Responsible Completion Deficiencies Entity Date - 1 Missing data Needto provide missing baseline NAC December (target & baseline and performance targets for key 2009 measures) for the indicators included inthe National National M&E M&EFramework to enable Framework stronger program monitoring and use of data for decision-making. 2 Dataquality Needto develop a strategyto NAC December concerns ensure all key performance 2009 indicators are updatedat input and output levels. 3 Central reporting Continuous for national supporting that all agencies HIV/AIDS implementing HIV/AIDS activities activities report to NAC. I I I 21 -r 0 0 8 0 - x 0 0 0 0 0 8 0 3 5a 2e m hl 3 e, 9 c) 2 3 x ~b E z- g m d o m c u v i b c1 vi m a. 22 d N aZ4 e f h * b 2 2 B e . s i? s 0 d 5 E 3 : vl N Z APPENDIX C: PROCUREMENT IMPROVEMENT ACTION PLAN Item Observed Actions Required Responsible Completion Deficiencies Entity Date 1 Overall procurement Prepare a twelve monthly NAC May 15 of plan does not include procurement planto include all prior each year prior review contracts review contracts by Grant Recipient to be executed by Organizations Grant Recipient Organization. Update procurement plan regularly NAC Quarterly Procurement showing actual vs. planned and monitoring is share with IDA procurement inadequate progress report quarterly Introduce centralized procurement NAC July 2008 planning for common capital goods (Done) suchas vehicles and office equipment requiredby many GROs - 2 Modeltemplate for Improve model document for NAC Completed request for quotations Request for Quotation to include has deficiencies. specifications, deadline for Specifications are submission, delivery terms and either not prepared payment terms and included in the Request for Quotation Improve specifications and highlight NAC and Continuous or they are too main functionality requirements GROs detailed for objective - evaluation 3 Bidevaluation is only Undertake evaluation of quotations NAC and Continuous based on price. Post including evaluation of adherence to GROs qualification o f lowest specifications evaluated biddersnot consistently Undertake post qualification o f NAC and Continuous undertaken lowest evaluated bidders to GROs determine their capability to execute contracts - 4 Contract Undertake inspection and NAC and Continuous administration is acceptance of goods and reports GROs inadequate with no submittedby suppliers and acceptance reports for consultants. Reports should be goods and reports available on file - 26 ItemI Observed Actions Required Responsible Completion - deficiencies Entity Date 5 Capacity building Translate grant facility manualto NAC September requiredfor NAC local languages 30,2009 Grant Officersand GROs Holdprocurementworkshop for NAC Oneevery NAC Grant Officerswho are the year maininterfacewith GROs Holdtrainingworkshop for GROs NAC As required soon after grant approvalbut before disbursement of funds TrainkeyNAC managementstaff in NAC/MOH August 30, Bank procurementpoliciesand 2009 procedures TrainCMS andNAC procurement World Bank August 30, staffin procurement ofhealth sector 2009 goods 6 Procurement staff at StrengthenNAC procurement unit NAC Done NAC needs by employingadditionalstaffto strengtheningand ably undertakecentralized CentralMedical procurementandsupervise Grant Stores (CMS) RecipientOrganizations procurementrequires strengthening CMS Trust inplace Ministry of December Finance 31,2009 27 APPENDIX D: FINANCIAL MANAGEMENTIMPROVEMENTACTION PLAN Item ObservedDeficiencies Actions Required Responsible Completion Entity Date Persistently delayedaudit Timeliness of the audit reportto NAC Two months after reports. There is needto be part ofthe terms ofreference effectiveness improve on the timeliness of (TORs). Auditors and agreed audits and audit reports. audit TORs should be inplace two months after effectiveness for the FY 2009 audit. An audit plan has been agreed with the auditors.It is notedthat the current auditors have been contractedfor three years and therefore, there shouldbe no delays due to procurementin the nexttwo years. There is no empirical The externalaudit TORs should NAC Two months evidencethat the external specifically refer to the work after auditors review the FMRs as the auditors are expectedto effectiveness a basisof disbursements. perform on the FMRsthat were' used as a basis for disbursement. Refund of ineligible Governmenthas provided an NAC Substantially expenditures(primarily by equivalentof ineligible met. TheFMR the National Youth Council) expenditures applicationfor of about K20 million June 2009 will be (US$146,000). revisedto deduct the ineligible expendituresof US$6,043 equivalent. 4 Refund of ineligible Governmenthas providedthe MOF Completed expenditures(staff equivalent of outstanding advances) ofUS$196,935. advances. 5 IDA'Spercentage NAC will provide a calculation NAC On-going contribution to the pool was and explanationwith future not clear withdrawal applications 6 Government of Malawi is in NAC will follow-up discussions MOF Effectiveness arrears ofMK185.2 million with MOF to clear the arrears. condition (US$1.3 million) interms of counterpartfunding 28 Item ObservedDeficiencies Actions Responsible CompletionDate Required Entity 7 UNICEF is acting as Government MOF December31,2009 both ProcurementAgent should build as well as distributor of capacity at CMS drugs for NAC to take up the responsibility. In this regard, the CMS Trust should be in placebefore January 2010. UNICEF account is not The deliveries by NAC On-going being reconciled UNICEF should regularly be reconciledto the liquidation reports. NAC does not have a Develop a NAC December3 1,2009 formally documented Business and approvedBusiness Continuity Plan Continuity Plan for use when systems fail or are disrupted. This is in progress. IDA Fundsflow mechanismthroughthe ReserveBankof MalawiForeignCurrency DenominatedDesignatedAccount 56. The Government of Malawi andthe funding partnersof the NationalAIDS Commission have signed a MOU for the period to 2011. The IDA has signedthe MOU as a PooledFundingpartner. The other Pooledfunding partners includethe Global Fund, the KingdomofNonvay/Government of Sweden, DfID, andthe Government of Malawi. 57. The Pooled funding partnersprovide their funding contribution through ajoint (pooledhasket) account and subscribeto common reporting principles. Currently all the Pooledpartners, except for IDA (which currently uses a commercial bank), have agreed and started to channeltheir disbursementsthrough the Reserve Bank Malawi (RBM) Account inorder to harmonize the funding flow operation. It is therefore desirablethat the IDA funding is also now channeledthrough this account inorder to reduce transactional costs and ensure full alignment with the donors with respectto funding mechanisms. 58. Followingthis proposedmodification, as a Pooled funding partner, the IDA shall deposit their share ofthe projected funding requirementsinto the NAC/Office of the President and Cabinet (OPC) PooledForeign Currency Denominated Designated account heldat the RT3M. The draw downs from the account shall be made into the localoperating 29 account to meet forecasted expenditures inMalawi Kwacha. Draw downs shall also be made to meet foreign currency payments for goods and/or services. 59. The figure below illustratesthe revisedfunds flow mechanism for the Pooled funding partners. 1, Figure2: Fundsflow diagram I DIRECT I PAYMENT POOL FUNDING IIII of Malawi Partners tIII1I I I I CreditC e h gAuthofity )1Local Operating :ount at a Commercial ForeignCurrency I Payments I to integratedannualwork plan tI ItI I 30 APPENDIX E: PROJECTAND SECTORFIDUCIARY CHALLENGES 60. The processing ofthe proposedAdditional Financing was delayed by anumberof project and sector-specific fiduciary challenges. A summary o fthe key challenges and their current status ofresolution is presentedbelow. 61. Project-specific fiduciary challenges under the original project grant includedthe following: (a) Reimbursementof resourcesused for ineligibleexpenditures: A challenge noted inthe FY07 Financial Audit, derives from ineligible expendituresby sub- grants recipients. These expenditures, which primarily involve the National Youth Council, result from the inability to account for resources(due to missing receipts), inaddition to some workshop allocations that exceededGovernment ceilings (including for participant allowances). These expendituresconstitute the equivalent of US$146,000. Additional ineligible expendituresnoted inthe FY07 Financial Audit includedNAC staff advances of US$196,935 equivalent. The full amounts ofthe indicatedineligible expenditures were reimbursedto the HIV/AIDSPoolFund, as required,by April 17,2009. As aresult, this issue (previously classified as aNegotiations condition) has beensatisfactorily addressed. The proportion of ineligible expenditures to be refundedto IDA of US$6,043 equivalent will be effected inthe WithdrawalApplication for June 2009. This amount was not offset inMarch2009 since this FMR application was processed"for documentation only and no payment." The June 2009 FMR has not yet been received, but is expectedby August 30,2009. As previously noted, this Board condition is viewed as having been substantially met. (b) Counterpartfunds underthe originalgrant: The only pending fiduciary challenge, related to the project, is the resolution of the current arrears in counterpart payments to the HIV/AIDS Pooled fund under the original financing. As o f April 1,2009, US$1.3 million incounterpart funds hadnot beenreceived from Government. As per the original MOU, Government committed to an annual contribution ofUS$2.0 million, which would be paid into the Pooled Fundquarterly. Government i s around three quarters (9 months) behindintheir Pooled Fund contributions, out ofa 20 quarter(5 year) implementation period. Government has committed to addressing the repayment of this balanceat the start oftheir new fiscal year. Followingthe Technical Discussions, it was agreedthat this payment would constitute an effectiveness condition. This agreementhas beenreflected inthe Minutesof Negotiations. As previously noted, the delayed counterpart payments havenot materially impacted project performance. 62. Sector-specific fiduciary challenges to the HIV/AIDS Additional Financing preparationwere related to the Health Sector Support Project andthe Avian Influenza Prevention and Control Project, as noted below: 31 (a) HealthSector SupportProject(Grant Nos. H1380 and H2480): The Malawi Health Sector Support Project closed on September 15,2008. At the time o f Technical Discussions (April 8,2009), there remained two pending fiduciary challenges relatedto this US$20 million equivalent IDA grant operation, as detailed below. Botho f these issues have since been fully resolved. (i)Reimbursementoffundsusedtowardsmisprocureditemsunderthe HealthSector Support Project: A Declaration o f Misprocurement in the amount ofUS$33,8 18was issuedbythe Bankon October 17,2008. Following extensive dialogue with Government, the full amount o f the misprocurement was refundedto IDA on April 21,2009. As a result, this previous condition o f Board o fthe HIV/AIDS Additional Financing has been satisfactorily addressed. (ii)Submissionof theoverdueauditreportsundertheHealthSector Support Project: The audit report for the Health Sector Support Project was due on December 31,2008. It was received on April 28,2009. As a result, this previous condition o fNegotiations o f the HIV/AIDS Additional Financing has been satisfactorily addressed. The audit was submitted with an "except for" qualification. However, the issues that ledto the qualified audit opinion have since beenfully addressedand the auditors have issued a letter to Government dated May 4,2009 to this effect. (b) Avian InfluenzaPreventionand ControlProject(GrantNo. TF58316): This US$1.O million trust funded operationwas approved on July 17,2007 but did not initiate expenditures until September 2008. As noted inthe first Interim Unaudited Financial Report (IFR) for this operation, which covered the period July-December 2008, giventhis implementation delay, a waiver o fthe audit for the period ended June 30,2008 was obtained from the Regional Financial Management Unit. The IFRwill be submitted for disbursement by August 31, 2009. This audit waiver was recorded inthe Audit Report Compliance System on March 9,2009. As a result, the receipt o f this Trust Fundaudit was removed as a pre-requisite for the processing o fthe HIV/AIDS Additional Financing operation. Inthe absence o fthis waiver, the Avian Influenza audit would have been required as a condition for Negotiations for the HIV/AIDSAdditional Financing, as per BP 10.02/Annex A. Givenweak performance and reporting over the past two years, it has been agreed with Bank management that this trust fundwill be closed, inadvance of its August 31,2010closing date. 63. The Financial Management Improvement Action Plan (Appendix D) was developed inresponseto the above project andsector challenges andhasbeenagreedwith Government, as has been reflected inthe Minutes o fNegotiations. 32 3 r- '0, 3 m N, M m M d 9 2 d '0, N d 3 d 0 0 9 0 z" 3 x32 m4 r- m MAP SECTION IBRD 33440 32°E 34°E 36°E To To Songwe Mbeya TANZANIA Tunduma Chitipa MALAWI Karonga 10°S Chisenga 10°S KARONGA To CHITIPA Muyombe Nykia (2,606 m) Chilumba Chelinda Mkondowe To Muyombe Livingstonia Katumbe RUMPHI Rumphi Ruarwe MZIMBA Kafukule tns. Mzuzu Euthini M NORTHERN Nkhata Z A M B I A NKHATA BAY Mzimba Chinteche (MALAWI) 12°S Viphya Bay 12°S Luwawa Lake M To Lundazi Nkhunga Kaluluma alawi K A S U N G U Nkhotakota Kasungu NKHOTAKOTA M O Z A M B I Q U E NTCHISI Ntchisi C E N T R A L MCHINJI DOWA Dowa SALIMA Makanjila To Mchinji Bua Chipata Salima 14°S LILONGWE 14°S Namitete Monkey LILONGWE Bay To To DEDZA Cuamba Furancungo Dedza M A N G O C H I Mangochi To Ulongwe NTCHEU S O U T H E R N 0 20 40 60 80 100 Kilometers To M O Z A M B I Q U E Ntcheu BalakaMACHINGA Cuamba 0 20 40 60 Miles Shire Machinga 32°E Lake ZOMBA Chilwa MWANZA Zomba MALAWI To Lirangwe Tete MwanzaBLANTYRE ChiradzuluPHALOMBE Blantyre CHIRADZULU Phalombe MULANJE MULANJE SELECTED CITIES AND TOWNS 16°S Chikwawa Mulanje Sapitwa THYOLO 16°S (3,002 m) DISTRICT CAPITALS Thyolo CHIKWAWA To REGION CAPITALS Liciro NATIONAL CAPITAL N'gabu To RIVERS Morire NSANJE MAIN ROADS Nsanje RAILROADS DISTRICT BOUNDARIES This map was produced by the Map Design Unit of The World Bank. REGION BOUNDARIES The boundaries, colors, denominations and any other information To shown on this map do not imply, on the part of The World Bank Vila de Sena INTERNATIONAL BOUNDARIES Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 36°E NOVEMBER 2004