Document of The World Bank FOR OFFICIAL USE ONLY Report No.27063-MAG MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVEDIRECTORS ONA COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF MADAGASCAR October 20,2003 Country Department 8 Africa Region This documenthas a restricted distribution andmay be usedby recipients only inthe performance o ftheir official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. MADAGASCAR COUNTRY ASSISTANCE STRATEGY CURRENCY EQUIVALENTS Currency Unit = Malagasy Franc US$1= 5,900 MGF (October 21,2003) WEIGHTS AND MEASURES Metric System FISCAL YEAR July 1- June 30 ACRONYMS AND ABBREVIATIONS AAA Analytical andAdvisoryActivities IF IntegratedFramework AfDB African DevelopmentBank IFAD IntemationalFundfor Agricultural Development AGETIPA ImplementingAgency for the UrbanInfrastructure IFC IntemationalFinanceCorporation project AGOA The African Growthand Opportunity Act IMF IntemationalMonetaryFund APL AdaptableProgrammaticLoan IMR Infant MortalityRate BADEA BanqueArabepour le Developpementen Afrique JIRAMA Jiro sy RanoMalagasy (Malagasy water and electricity utility) CAS Country Assistance Strategy JSA Joint StaffAssessment CFAA Country FinancialAccountability Assessment LAC LatinAmerica andthe Caribbean CPAR Country ProcurementAssessment Review MFA Multifiber Arrangement CPI CorruptionPerceptionIndex MDG MillenniumDevelopmentGoals CRESED Creditde Renforcementde 1'Enseignement MIGA Multilateral InvestmentGuaranteeAgency Secondaire et de I'Educationde Base (Education Project) DHS DemographicandHealthSurvey MNA MiddleEast andNorthAfrica DPR DevelopmentPolicy Review MSME Micro, Small andMedium Enterprise EAP East Asia and the Pacific NEAP NationalEnvironmentAction Plan EFA EducationFor All NGO NonGovernmentalOrganization EPM EnquCte aupres des Menages NPV Net PresentValue EPZ Exportprocessingzones ODA Official DevelopmentalAssistance EP3 Third Environment Project OECD OrganizationofEconomic Cooperationand Development ESW Economic and SectoralWork PER PublicExpenditureReview FY Fiscal Year PPP PurchasingPower Parity EU EuropeanUnion PRGF PovertyReductionGrow-thFacility GDP GrossDomestic Product PRSC PovertyReductionSupport Credit GEF GlobalEnvironmentFacility PRSP PovertyReductionStrategyPaper GNFS Goods andNonFactor Services QAG QualityAssurance Group GOM Governmentof Madagascar SA SouthAsia GTZ DeutscheGesellschaftfur Tecbnische SACU SouthernAfrican CustomsUnion Zusammenarbeit(GermanTechnical Cooperation) HASYMA Hasy Malagasy (CottonMadagascar) SIRAMA SiramamyMalagasy(MalagasySugar Company) HIPC Heavily IndebtedPoor Countries SSA Sub-SaharanAfrica HIVIAIDS HumanImmunodeficiency Virus/ AcquiredImmune TA Technical Assistance Deficiency Syndrome IBRD InternationalBank for Reconstructionand UNDP UnitedNations DevelopmentProgram Development I-CAS InterimCountry Assistance Strategy us United States ICT InformationandCommunication Technology VAT Value Added Tax IDA IntemationalDevelopmentAssociation WTO World Trade Organization RegionalVice President: Mr.CallistoMadavo Country Director: Mr.HafezGhanem Task Team Leaders: Mr.Willemvan Eeghen Ms.Janet Dooley FOROFFICIAL USE ONLY MADAGASCAR COUNTRY ASSISTANCE STRATEGY Table o f Contents EXECUTIVE SUMMARY Introduction .,..,.................................................................................................. 1 I. COUNTRYCONTEXTANDOUTLOOK....................................................... 1 A. Macroeconomic, Structural andPoliticalDevelopments sincethe last full CAS (1997) .. 1 Poverty and Social Developments since 1997 .... ,............,,,.,............,.................... . 3 The Year 2002: Political Crisis and New Foundations .......... , .................................. 4 B. 7 Macroeconomic Framework ..................,, Sourcesof Growth and Economic Outlook ............................................. ........ 9 HIPC Initiative and Debt Sustainability ........ ....,, .... ..........,..............,,,,.,,.,.............. ,,.,,.,.....................................,.......... , 10 11. GOVERNMENTPROGRAMAND STAFFASSESSMENT ................................. 10 A. PovertyReductionStrategy Paper , 11 B. Joint World Bank/ IMFStaff Assessment(JSA) ....... .............................,,................................... ...,,................................... 11 C. The PovertyReductionStrategy Paper and the Millennium Development Goals ......... 12 111. THE WORLD BANK GROUP'S COUNTRYASSISTANCE STRATEGY .............. 12 A. Lessons Learned: ProgressUnder Last CAS andthe InterimCAS ........... . ... . . .. .. . . . . 12 Evaluation o f the 1997 Country Assistance Strategy and Interim CAS .......................... 12 B. The New CAS: Objectives and GuidingPrinciples ........ .............. .. 14 Objectives ..,,...........,....................,.,.,.....,........,.......,.,................... . ........ ............. .......... 14 Guiding Principles .........................................,,. .,,........................................ ................................ 15 16 New Lending ................................................. Existing Portfolio as an Instrument to Achieve CAS Objectives . ............................................ 18 Analytical and Non-Lending Services .... .., 19 Role o f IFC, MIGA, WBI and IMF .............. . .,.,...,,.,.,.................,.,,......................... ,, , ,, Role o f Other Partners ................................,.,... ................,................................... 20 ..,,........................................ 21 IV. 22 PRSP and CAS Policy Matrix .,........,,.,...................,....,...,.............................. PROGRAMIMPLEMENTATIONAND ALTERNATIVE SCENARIOS ............... 22 Monitoring Indicators , ............................ ...................... 22 22 Triggers .....,..............,.,,. ..,.....,,.,...,..................... Lending Scenarios .............................., ., .......,........,.....,,.....,,....,,,,,,...................,..,,...., .......... , .. ......., . ................ 23 Grants .,................ ........,,.,.. . ..,,,,.,,.,.,,................,....,,,,,.................................. ........ 24 V. MANAGINGRISKS ................................................................................. 24 Tables Table 1. Poverty and Service Delivery Indicators, 1997-2002 .,, .,..........., ., ., 3 Table 2. Recent Governance Reforms (since September 2002) ..,..................,,,,.,,.,. .,,..., . ..,....,.,,........ 6 Table 2b. Indicative Sectoral Growth Rates . ................ . .. . 7 Table 3. Macroeconomic Framework (Base Case) in% o f GDP ....... .,, . ............................................. ,,, , ,. .................. 9 Table 4. Madagascar Key Debt Sustainability Ratios ,,, .....,..,..........,.....,,,,..,............... 10 This document has a restricted distribution and may beusedby recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Table 5. Evaluationo f 1997 CAS ......................................................................... 12 Table 6. ExistingLendingPortfolio andthe PRSP ..................................................... 17 Table 7. Proposed Lending Instruments Under the Base Case FY04-FY06 (USSm) .............. 18 Table 8. Madagascar: AAA work. FY04-FY06 ......................................................... 20 Table 9. Madagascar: Proposed L o w Case, Base Case, and HighCase Lending Scenario (US$m) 23 Table 10 . Triggers and Key Assumptions .................................................................. 24 Charts Chart 1 Madagascar: Selected macroeconomic indicators. 1997-2003 ............................... 2 Chart 2.. Average Annual Change inIncidence o f Poverty ............................................. 3 Chart 3. Madagascar: Agricultural Productivity and Remoteness ..................................... 8 Chart 4. Share o f IDA financed investments going to the districts with the poorest 40% o fpopulation 14 Boxes Box 1. EducationAchievements .......................................................................... 13 Box 2. IDA'SGender Portfolio Review .................................................................. 16 Box 3. Containing H N / A I D S inMadagascar ........................................................... 17 Figure 1. Cereal Production. Area Plantedand Yields (1961-2001) .................................... 8 Appendices Appendix 1 Community Ranlung o f Desirability o f Rural and Urban Basic Infrastructure Investments . .27 Appendix2. Madagascar's Progress and Outlook for reaching the MillenniumDevelopment Goals (MDGs) .................................................................................... 28 Appendix3. Evaluation of 1997: Projected and Actual Outcomes ....................................... 29 Appendix 4 . Evaluation of the InterimCAS, Projected and Actual Outcomes .......................... 32 Appendix 5. Matrix o f Donor Support for Government PRSP Program ................................. 33 Appendix 6. Country Consultations: A FullParticipatory Process ....................................... ....................................... 35 Appendix 7. Policy Actions RequiredBefore Approving a PRSC 36 Appendix 8. PRSP and CAS Policy Matrix ................................................................. 37 Appendix 9. Monitoring Indicators ........................................................................... 38 Appendix 10. Key Requirements for Moving to Higher Growth Rates, IncreasedPoverty reduction and higher aid inflows ............................................................... 39 Annexes Annex A 2 . Madagascar At-A-Glance ....................................................................... 41 Annex B 2. IDAProgramSummary ........................................................................ Selected Indicatorso f Bank Portfolio Performance and Management ................... 43 Annex B3 . 44 Annex B3. IFC & MIGA Program .......................................................................... 45 Annex B 4. Summary o fNon-Lending Services .......................................................... 46 Annex B5 47 Key Economic Indicators ....................................................................... Social Indicators ................................................................................. Annex B 6 .. 49 Annex B7. KeyExposure Indicators ........................................................................ 51 Annex B8. Operations Portfolio ............................................................................ 52 Annex B8 . Statement o f IFC's Held and Disbursed Portfolio .......................................... 53 This document has a restricted distribution and may be usedby recipients only inthe performance o ftheir official duties. Its contents may not otherwise be disclosedwithout World Bank authorization . EXECUTIVESUMMARY i. Madagascarisundergoinganexcitingnewbeginning. Anewandveryproactivegovernmentwas elected on an anticorruption platform with strong support from civil society, particularly the churches. The government has already undertaken far reaching reforms to improve governance, increase liberalization, develop the environment for private sector development and improve the quality o f social services. Policy measures that have been taken include import tariff simplification and customs reform, concessioning o f major public enterprises and key infrastructure. Further, an anti-conuption commission has been established and a thorough and much needed reorganization o f the public sector i s taking place, including the reduction inthe number of ministries and the new requirement for government officials to declare their assets. The Government has also recently completed its Poverty Reduction Strategy Paper (PRSP), the objective o f which i s to reduce poverty by halfinten years. To cany out this objective, it lays out three key priorities: (i) improving governance; (ii) promotingbroadbased growth; and (iii) providing human security. ii. ThisCASisdesignedtosupporttheimplementationofMadagascar's PRSP. Thechallengeforthe country and the donor community i s daunting. Madagascar i s one o f the poorest countries in the world with a high vulnerability to external shocks, and 69 percent o f its population living under the poverty line. A period of high economic growth averaging 4.6 percent between 1997-2001 increased average living standards nationwide but had a disappointingly low impact on improving conditions for the rural poor. Even during the period of high growth, social service delivery to the rural poor worsened. InDecember 2001, contested presidential elections led a to six month political crisis. The impact on economic and social conditions was significant: GDP fell by about 15 percent, foreign investors left the country, bridges were destroyed and exports came to a virtual standstill. ... 111. The country is, however, well placed to achieve economic recovery and growth. But poverty reduction will only be successful if the rural poor can benefit from growth. Inadequate access to transport i s the main obstacle to higher agricultural productivity, the provision o f basic services and a greater impact o f growth on the rural poverty. This key finding i s reflected inthe PRSP and the Bank's lendingprogram. iv. This CAS refocuses the existing portfolio to better align itself to the PRSP objectives and to address the key constraints to broad based growth. It also proposes new projects for transport, environment and governance inFY04, an Integrated Growth Poles project for FY05 that will address infrastructure and private sector development; and a watershed management project in FY06. The CAS also reflects a gradual transition from investment to programmatic lending: a first Poverty Reduction Strategy Credit (PRSC) i s foreseen for FY05 addressing education, nutrition and health. A second PRSC would follow in FY06 and include water and household energy. Recently completed analytical work such as a Rural Sector Review, a Poverty Assessment and financial management and public procurement reviews provide the foundation for programmatic lending. Ongoing analytical work such as Public Expenditure Review (PER) and a Development Policy Review, both inFY05, will also provide the analytical basis for policy dialogue. v. The base case scenario o f this CAS proposes a total FY04-06 lending program o f US$505 million. The base case assumes that reforms will continue and that the Government is successful inimplementing its PRSP. If the pace o f reform accelerates, especially in the areas o f governance and service delivery to the poor, a high case scenario o f US$650 million for FY04-06 would kick in with a significant upscaling o f programmatic and infrastructure support, but no additional operations are proposed. If governance reforms do not materialize and the PRSP i s not implemented, programmatic lendingwould not be provided and a low case lendingprogram o f US$370 million would focus on individual investments inkey social sectors such as education, health and nutrition. vi, To help guide implementation and measure success, this CAS provides a policy matrix, a donor matrix, a set o f key monitoring indicators, a lending scenario and triggers all set against the objectives and three strategic axes o f the PRSP. The monitoring indicators will allow the Government, the Bank and the donor community to determine to what extent the PRSP policy actions and programs lead to the desired outcomes. The proposed alignment with the PRSP objectives i s intended to increase the overall nationwide development impact o f Bank support, inaddition to measuringperformance on a project by projectbasis. vii. The strategy faces two types o f risks: (i)external or natural risks which the government has no control; and (ii) risks which the government may influence. In the first category, Madagascar i s vulnerable to various external shocks including cyclones, locust invasion, and international events affecting travel and tourism. Inthe second category, there are five main risks: (i) political risk and deterioration o fpopularity for the President and his reforms; (ii)unsatisfactory implementation o f budgetary and governance reforms; (iii) erosion o f trade preferences and slow pace o f reforms allowing other developing countries to become more competitive; (iv) low confidence o f private sector investors inthe Malagasy economy; and (v) difficulties in PRSP implementation, due to weak institutional capacity, underfinancing or lack o f a coherent donor effort. viii. The CAS lays out several measures to mitigate these risks. A review to be undertaken inFY06 will assess risk mitigation strategies for the external shocks Madagascar faces and which regularly undermine growth and poverty reduction. Under this CAS, the Bank will try to achieve quick successes through accelerated disbursements on existing projects and by advancing new lending activities to the beginningo f the new CAS period. This i s intended to help the government maintain the broad support o f the population, outweighing potential opposition by certain business groups that benefited from monopoly positions and corrupt practices. Heavy emphasis i s placed on supporting reforms in public finance, budget programming, procurement, institutionaldevelopment and capacity building. Further measures to attract private investment are being planned by the Government to reduce the risk o f other countries overtaking Madagascar's comparative advantages. And efforts are being made to improve complementarity o f investments by the donor community through intensified efforts to coordinate assistance, harmonize disbursements and procurement procedures and develop commonprogrammatic approaches centered around the PRSP. ix. The following issues are suggested for Board discussion: 0 Does the Board agree with the proposed strategic focus o f the CAS and its alignment with the Government's PRSP? 0 Does the Board agree with the shift to programmatic support? MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ONA COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE REPUBLIC OF MADAGASCAR Introduction 1. Madagascar i s currently undergoing an exciting new beginning. Having emerged from a deep political and economic crisis in 2002 which propelled extreme poverty to levels observed a decade ago, the newly elected Government o f President Ravalomanana i s embarking on many courageous reforms which are unique for Madagascar since independence in 1960. Much- and unprecedented-- attention has been given to gaining confidence o f private investors by embarking on import tariff simplification and customs reform. The Government has moved swiftly ahead with establishing public-private partnerships, including the concessioning o f major public enterprises and key infrastructure. Further, an anti-corruption commission has been established and a thorough and muchneededreorganization o f the public sector has taken place, sharply reducingthe number o f ministries by one third. I. COUNTRYCONTEXTANDOUTLOOK 2. The new government faces a daunting challenge. Madagascar i s among the very poorest countries in the world. National per capita income i s around US$240 and approximately 69l percent o f the population i s poor. Seventy percent o f the rural population cannot afford to buy a basic food basket even if they spent all their income on food items. Forty-eight percent o f children under five are stunted. About one third o f children complete primary school, and just over half the population can read and write. Only 35 percent o f the population has access to safe drinking water. Over half o f mothers give birth unassisted. Electricity connectivity i s very low at only 15 percent. 3. Yet Madagascar has not always been as poor as it i s today. In 1980 Madagascar had a per capita income o f about US$450. During the 1980s Madagascar implemented a number o f inward looking policy actions which led the country on a downward path: central planning was introduced, productive enterprises were nationalized and protectionism (so called "Malagasysation") ensued, effectively closing doors to foreign investors. Structural reforms that took place in the 1990s resultedin economic growth from 1997- 2001, that was then set back due to the 2002 political crisis. However, the country has great underexploited potential for economic growth and development (including a rich natural resource base, and several growth sectors, such as tourism), as reflected inthe growth experienced inthe late 1990s. A. Macroeconomic,Structuraland PoliticalDevelopments since the last full CAS (1997) What DroveMadagascar'sGrowthinthe late 1990s? Structural Reforms broughtMadagascar's economy to a turningpoint in 1997 4. Structural reforms commenced slowly in the late 1980s with a number o f policy reversals, and gained momentum in the 1990s: Market reforms were introduced, parastatals were privatized, foreign investors were welcomed and the country started to open up by lifting trade restrictions and simplifyingthe Poverty rate i s latest available year (2001). According to simulations, however, the poverty rate is estimated to have increased to 73 percent as a result o f the 2002 crisis. 1 tariff structure in line with regional trade arrangements. Export taxes on all products were abolished and import prohibitions were lifted; export processing zones in which exporting firms are exempt o f taxes were also created. In 1994, the Central Bank became independent, the exchange rate was floated and current account transactions were liberalized as Madagascar accepted the obligations under IMF Article VIII. Domestic price controls were significantly reduced in key markets. Structural reforms in the fishing (introduction o f a transparent license system), mining (cadastre update and miningpermit legislation), and tourism (waiver o f visa requirements) sectors significantly contributed to economic growth. Finally, inroads into the privatization o f many public enterprises were made, albeit slower than had been expected. Legal state monopolies in the power, petroleum, telecommunications, and air transport sectors were abolished in 1996 and competition laws were passed for each sector. Privatizationo f banks and o f the petroleumcompany i s completed, and privatization o f telecommunications i s under way. 5. As of 1997, the fruits of the reforms started to show. Between 1997 and 2001, the Chart 1 growth o f the economy outpaced population Madagascar: Selected macroeconomic indicators, 1997-2003 growth and for the first time in decades per capita I 201-I income grew. As shown in Chart 1, growth 1 1 5 - 1 ,a L averaged 4.6 percent in this period and the budget and current account deficits remained stable. , Resulting in High Performing Industry, Services, Foreign Direct Investment and Exports -10 6. These reforms, on top of favorable trade I -15 arrangements from the EU and US, such as the 1997 1998 1999 2000 2001 2002 2003 African Growth and Opportunity Act, led to +GDP growth, % p.a. growth o f several high performing industrial and +CPI inflation, % p,a. service sectors, while aaicultural activity was -Budget deficit before arrears, % of GDP almost stagnant. Urban construction groGh reached high levels o f expansion during the 1990s. In the services sector, the boom in mobile phones spurred telecommunication growth (average 10.4 percent) and both tourism and banking performed well (around 7.5 percent growth each). Although relatively small inits contribution to GDP (2 percent in2001), the export processing zone (EPZ) boomed inthe four years leading up to the crisis, growing on average almost 20 percent annually. A good part o f the tenfold increase of foreign direct investment into the economy, reaching US$112 million in 2001, consisted o f investments in firms operating within the EPZ. Exports drove up, particularly in textiles and clothing, agriculture and processed food, seafood and tourism, and contributed to the acceleration o f GDP growth. Duringthe 1990s, the export to GDP ratio almost doubled from 13 percent to 23 percent, and the share o f Madagascar inworld exports increasedfrom 0.011percent to 0.015 percent, while Africa's share declined. Although Governance remained Weak 7. While structural reforms in many areas were advanced, governance remainedweak. Closely linked, perceived corruption in Madagascar i s extremely high. In the latest report by Transparency International (2002), prior to the new Government taking office, Madagascar ranks 9gtho f 102 countries inthe Corruption Perception Index. Budget and financial management was a serious problem, and reforms in procurement, and budget formulation and execution were being delayed. Although tariff rates for goods are moderate, erratic application o f exemptions as well as long and cumbersome custom clearance procedures had led to important downward swings in domestic prices o f basic products such as rice, undermining production decisions and income o f domestic smallholder farmers. The judicial sector was widely seen as ineffective and corrupt. It was not able to ensure the enforcement o f property rights (or to punish their violation). Several resource extracting sectors, most notably mining, continued to operate largely outside o f the formal economy with large amounts o f resources leaving the country unaccounted for. Similarly, illegal logging (or 2 the provision o f non-regular licenses) in the forestry sector was o f major concern as it complements the poverty pressure on the remaining forest areas. Poverty and Social Developments since 1997 Growth has had Little Impactfor Most of the Poor 8. Duringthe strong growth period from 1997 to 2001, only a small percentage o f the total population Chart 2: Average Annual Change in IncidenceofPoverty was able to move out o f poverty. Even starker, the percentage o f the population in extreme poverty (those Aueraae annualchange In ineldanceof poverty that cannot afford to buy a basic food basket even if Wmnt 5 they spent everything they owned on food items) remained basically constant in spite o f high rates o f 0 ' MangoIrae $Mlippines e----- economic growth. Also alarmingly, poverty did not - * decrease in rural areas, where three fourths o f the 5 Lao PDR * Vletnan? e Chlna population live. However, the urbanpoor didbenefit. 1I Malaysia -10 I I Indonesia@ 9. Chart 2 shows that the type o f growth Madagascar experienced had a comparatively low overall impact o f growth on poverty; much lower than successful countries inSouth-East Asia. Thailand I -25-5 0 5 10 10. Table 1 also shows that inthe times o f growth, Amrage ennualgrowthIn ~ R capita GRP P not only was extreme poverty unchanging but also Percent service delivery did not improve. Net primary school enrolment rates were stable (although public school enrolment increased somewhat) but indicators measuring quality o f education remained the same or worsened. Similar trends can be observed for the immunizationrate and pre-natal consultations. Electricity connections increased somewhat, although the rate o f electrification o f the country remains very low. Lastly, while water connections increased somewhat between 1997 and 1999, they actually decreased in the boom years o f 1999 to 2001. Table 1. Poverty and Service Delivery Indicators, 1997-2002 Poverty Indicators 1997 1999 2001 (before crisis) 2002 (simulated, after crisis) Poverty (% o f population) National 73 71 69 73 Urban 63 52 43 50 Rural 76 77 77 80 ExtremePoverty (%pop) National 63 62 59 62 Urban 54 43 32 38 Rural 66 67 67 70 Service Delivery Indicators Net primary school enrolments' 63.1 64.3 64.9 64.5 Repetition rate in rural primary school, N/a 27.9 36.6 Nla 11" grade Prenatal consultation, % N/a 68.8 62.8 N/a Immunization rate' 36.2 38.1 36.3 N/a I Electricitv connections 11.9 13.7 14.8 N/a Water connections3 19.3 22.5 21.1 N/a exist. The 2002 poverty rates were simulatedon the basis of the 2001 householdsurvey, assuming householdwelfare changes in line with aggregate sector growth rates (for agriculture, industry, construction& services). ' Netprimary school enrolmentrates include public andprivate schools Complete vaccinationcycle; 1997:DHS survey; 1999and 2001: EPM Access to privateor public pipe (individual or common) 3 Rural Poverty, access to markets and to social services 11. Of the total road network o f about 31,000 km only about 5,900 km are currently in passable condition - due to lack o f maintenance the country has lost an average o f about 1000 km o f roads per year. Today the usable road network i s smaller than at independence even though population and traffic levels are higher. About 80 percent o f the rural population has no reliable transport services due to poor road conditions, and o f these one third has no road access at all. Studies suggest that lack o f access to roads and markets, low agricultural productivity and rural poverty are closely associated. In participatory investigations as well as quantitative analysis o f household surveys, rural families stress poor roads and the need to improve agriculturalproductivity among their major concems (see Appendix 1). This i s mirrored, for example, in the relationship between yields and remoteness. Rural households better connected to markets have a significantly higher productivity than those living in more isolation and the same relationship holds for the use o f modern inputs such as fertilizer. Isolation also implies lacking access to financial institutions and credit, forcing poor farmers to sell at times o f low, post-harvest prices. 12. Rural well-being i s also linked to access to social infrastructure. Access to safe drinking water (35 percent o f rural population) and electricity connectivity (4 percent) remain feeble. Similarly, educational performance inrural areas remains extremely low with an average o f only 4.8 years o f education for the head of the household and retums to education-mirroring its quality-low as well. Lastly, rural poverty i s very closely related to the incidence o f disease, especially malaria, plague, and schistosomiasis. Rural Poverty and Environment 13. High rates o f rural poverty is putting pressure on the environment, and at the same time environmental degradation, and associated top soil erosion, i s reducing agricultural productivity and increasing rural poverty. It i s estimated that Madagascar lost about 12 million ha o f forest between 1960 and 2000, effectively reducing forest cover by 50 percent injust 40 years. The most severe losses took place in the 1970s and early 1980s during the height o f the socialist revolution when the practice o f slash-and-bum, locally known as tavy, was actively encouraged in order to produce more rice to feed the growing urban population without need for investment inthe declining irrigation infrastructure. Followingthe launch o f the National Environment Action Plan in the late 1980s, deforestation rates have since declined from over 400,000 ha/year in 1975-1985 to around 100,000 -200,000 haiyear during the 1990s. The national average rate o f deforestation i s currently estimated to be around 1.2 percent generalized across all forest types. Poverty and Gender 14. Poverty differences are minor with respect to the gender o f the household head; and access to schooling i s likewise equal across gender. Illiteracy rates, however, were significantly higher for women (42 percent) than for men (28 percent). 53 percent o f births are unassisted and maternal mortality rate i s 580 out o f 100,000 live births. Women also suffer from traditional forms o f discrimination bias against obtaining credit or owning land. While laws are in general gender-responsive, their implementation and enforcement remains piecemeal. The Year 2002: PoliticalCrisisandNew Foundations 15. The 2002 political crisis was triggered by contested first round presidential elections in December 2001 which led to a stand-off between the candidates with severe economic and social consequences. The standoff pitted the then-mayor o f Antananarivo, Marc Ravalomanana, a self-made businessman from outside the political elite o f the country, against the incumbent president Didier Ratsiraka. Mediation attempts between Mr.Ravalomanana and Mr.Ratsiraka, ledby the African Union, failed and the stand-off grew more and more fierce with large parts o f the highlands isolated from the coastal areas through the destruction o f 4 bridges androadblockades, Two parallel Governments with two Central Banks were established, leading to a freezing o f Madagascar's assets abroad, a suspension o f foreign exchange trading and a closure o f the treasury bond market for several months. Violent conflicts, however, remained rare. 16. International recognition o f the new Government o f President Marc Ravalomanana in July 2002 ended the political crisis. Roads which had been closed during the crisis re-opened, international flights resumed, the central bank was re-unified and the foreign exchange market re-opened. The new Government presented a reconstruction program to the donor community shortly thereafter and with the assistance o f the donor community key public services were rapidly restored. The President's power was significantly consolidatedby Parliamentary elections inDecember 2002. 17. The economic and social impact o f the crisis was stark. Direct revenue losses for households reached US$0.5 billion in 2002. Activity in several sectors, including tourism, transport and export processing industry, came to almost a complete halt. About 150,000 workers lost their jobs in the formal sector alone. Farm producer prices, especially in isolated areas o f the country, were cut in half during the height o f the crisis, causing an unprecedenteddrop inrural incomes and puttingfuture production at risk. At the end o f the year, GDP had shrunk by almost 13 percent and inflation had increased to 13.5 percent. Revenue losses o f the public sector were immense (around 4 percent o f GDP), largely due to the collapse o f international trade. But public expenditures execution was similarly impacted so that the budget deficit (including grants) worsened only slightly. Impact of the 2002 Crisis on Poverty 18. The economic collapse and discontinuation o f many public social services in 2002 caused widespread social suffering. According to simulations based on the actual welfare changes in the different sectors, the poverty rate i s estimated to have increased to 73 percent and the extreme poverty rate to 62 percent as a consequence o f the crisis as shown inTable 1. About 150,000 men and women lost their jobs in the urban formal sector duringthe crisis, reducing family income for about one million people inthe cities. School drop-out rates in the first half o f 2002 rose to 14 percent, health service utilization declined to 36 percent inrural areas and 14 percent in urban areas. Especially worrisome was the decline in assisted births (minus 16 percent) and prenatal care for pregnant women (minus 9 percent). Bothurban and rural families reportedthat they decreased food consumption, especially reducingthe intake o f meat (up to two third for the extremely poor). New GovernmentPolicies Have Improved Social Service Delivery 19. The new Government moved quickly to deal with the effects o f the crisis on the poor, and contributed to a striking improvement o f the situation. A recent budget tracking survey has shown a dramatic increase in primary school enrollment (+14 percent inscriptions at the beginning at the start o f school year 2002-03) due to a fee waiver for both public and private schools, which allowed parents to send their children back to school despite reduced family income. The largest increases took place in more remote schools. Similarly, crisis monitoring surveys have shown that utilization o f health centers has increased to pre-crisis levels again, similarly due the temporary suspension o f cost recovery in health. Direct transfers to rural communities have allowed these to maintain a minimumo f administrative services. 20. Service delivery can be further improved by strengthening the coherence and efficiency o f the service delivery system down to its deconcentrated facilities (e.g. health posts, schools) and decentralized institutions (primarily communes). The new Government has made a commitment to strengthen the 1,492 communes which currently represent the only operational level o f decentralized governance in Madagascar. Communes can be strengthened in the short term through the transfer o f competences which have already been assigned to these local governments, particularly with respect to local tax collection. Despite having 5 embarked on several waves o f decentralization since the early 199Os, Madagascarremains a very centralized country, both administratively and fiscally. And Have Established New Foundationsfor Economic Growth 21. The new government was elected on an anticorruption platform, and over the past year has moved aggressively to make high-priority changes ingovernance that would streamline the functioning o f the public sector and set the foundations for a more enabling environment for the private sector. Immediately after the crisis, the government assisted the private sector to restart production through immediate tax relief, repayment o f public sector arrears to the private sector, and suspension o f value added tax collection on investment products, cement and fertilizer. It also prepared a reconstruction and development program after the crisis, which donors supported through pledges totaling $2.3 billion over a period o f four years. The Government also restored public services (rehabilitation o f destroyed bridges and roads, support for strategic public enterprises). In parallel, prudent macro-policies created an environment supporting economic recovery. 22. More recently, the new Government has taken a number o f remarkable decisions, some of which are summarized in Table 2. They include the establishment o f an anti-corruption commission and a thorough and much needed reorganization o f the public structure, sharply reducing the number o f ministries by one third and merging, importantly, the budget, finance and planning ministries which finally makes the joint planning o f public investments and current expenditures possible. The Government i s also tackling illegal licenses inthe fishing, mining, and forestry sectors and has taken steps to clean up the judiciary through the removal o f corrupt judges. The banking system has been privatized; policies enacted to remove illegal licenses for fishing and mining; and steps taken to improve thejudiciary. Similarly, significant reforms have Table 2: Recent GovernanceReforms (since September2002) Actions Creation of an anti-corruption commission, now functional Administration Reduction inthe number of ministriesfrom 33 to 22, including the merger of the ministriesof finance andbudgetas well as water and forests andenvironment; Signingofwork programagreements betweenthe presidencyand each lineministry; mission statementof Vice Prime Minister'soffice focusing on `transparency, efficacy, and accountability'; Increase inministerialand civil service salaries to reduceincentives for corruption Signingof anew contract with aprivate companyto strengthen customs Reform Import tariffs set to zero on investment and consumption goods. Application to join SouthemAfrican Customs Union (SACU) already made Passing of milestone legislationto allow foreignersto own land inMadagascar Investment One-stop-shop for investorsmade operational (Ministry of Industrytogether with six other ministries) Signingof contractfor sale of 34% of telecommunications company Signingof management contract for Air Madagascar Signingof management contract for Northern Railway Starting of strategy designto transfer Tamatave port to privatemgmt (with IFC) Starting of strategy design to transfer Ivato airport to privatemgmt (with IFC) Road MaintenanceFundmade independentand signing of contractfor rehabilitationof 1,OOOkm o f roads (comparedto average 200km in last years) Completionof miningsector legalframework sectors Fishing: cancellation of illegal fishing licenses grantedduring the political crisis Completionof pre-privatizationaudit ofJIRAMA (electricity parastatal) 6 taken place in the transport sector, including the signing o f management contracts for Air Madagascar and the Northern Railway, the announcement that the most important port inthe country (Tamatave) will also be managedby a private company, and the reorganization o f the RoadMaintenance Fund. Sources of Growth and Economic Outlook 23. The actions and reforms on governance taken by Madagascar's new government in the relatively short time since the 2002 crisis are intended to support and stimulate the private sector and to signal to foreign investors that Madagascar i s open for business. Madagascar'sgrowthprospects are bright 24. There i s enormous growth potential in most o f Madagascar's economic sectors. Following the 2002 crisis, there i s now large spare unused capacity in textile and inthe firms operating in the EPZ zone. Inthe textile sector shlled labor is in abundance and wages are low. Activities inMadagascar's richminingsector having been growing over the last years but the bulk o f these activities are taking place in the informal sector; precious stones are smuggled in large quantities to East Asia at little benefit to the Malagasy economy. Agricultural productivity and rice yields are among the lowest inthe world as a result o f low use o f fertilizers and distance to markets. The country's natural beauty and unique bio-diversity present a large potential to tourism. In spite o f the costs to the economy o f the political crisis that are still felt today, economic growth in 2003 picked up significantly and i s expected to grow at least 6 percent. Table 2b shows the breakdown by sector o f GDP growth in Madagascar. It illustrates that growth was widespread across economic sectors and that with large unused capacity still in place, and that ability to withstand shocks in - one or two sectors - a quick increase ingrowth i s very likely. Table 2b. Indicative Sectoral Growth Rates 2001 2002 2003p 2004f Primary sector 4.0 -1.3 0.2 4.5 o/w Agriculture 5.5 0.8 2.6 3.5 olw Forestry 2.1 -20.0 -25.0 4.5 Secondary Sector 7.6 -21.0 12.5 8.3 Non-EPZ 4.8 -18.8 10.7 7.4 oiw Mining 0.3 -34.0 10.0 9.0 EPZ 40.0 -40.0 33.0 17.0 Tertiary Sector 6.1 -15.1 10.1 7.7 oiw Construction 13.5 -15.1 25.0 20.0 oiw Telecomm. 5.5 -5.7 15.0 12.0 olw Transport 5.7 -24.0 12.9 8.2 GDP 5.4 -12.7 6.0 6.0 Notes: p: preliminary; f: forecast Source: Instat 25. Manufacturing. According to industry experts, Madagascar has low wages and relatively high quality labor in the textile sector compared to other African countries. This will make it possible for Madagascar to compete in textiles with Asian countries on international markets in the short term and even after the Agreement on Textiles and Clothing i s phased out. Madagascar has a tradition o f producing high quality textiles; before the crisis, multinational firms invested heavily in the EPZ and employment in the EPZ tripled in some four years reaching 150,000 in 2002. Private operators estimate that the size o f the textile industry could reach three times its pre-crisis level in two years. Necessary inputs in the short term 7 will be transportation, a more reliable supply o f power, enforcement o f simplified administrative procedures for the registration o fcompanies, and efficient processingat customs. 26. Agriculture/Rural Development. Although Madagascar has great potential to increase rice yields, the most important crop for the rural population, agricultural growth inMadagascar has inthe past been low and primarily based on expansion rather than on increases in productivity (see figure 1). Today average rice are low: under '" tons per hectare. Area expansion based Figure1:CerealProduction, Area PlantedandYields 1961-2001 on population growth has a limited I .- C !"i/i,~,i,i,~,o positiveimpact onimpactspoverty reduction,are offsetpotentially by the resulting degradation o f the country's 1 resource base, and vulnerability 3 0 8 - ++" ~ r h o increases as more people are exposed f \Po to rainfall variability and climatic G$ 5" &" d 3 0 shocks. The main reasons for the low +",e?= growth levels are the isolation o f ~E' farmers, their lack o f access to markets Oannual % change in area under cereal production and the limited incentives to apply annual % change in yield modern technology (see Chart 3). Source:World DevelopmentIndicators 2003 Completion o f the ongoing rural and national road program coupled with improved water management, will go a long way in lifting these constraints. However, property rights will need to be enforced to ensure that greater profitability o f the sector does not provide perverse incentives for expansion o f the agricultural frontier into environmentally sensitive areas. Following increased productivity o f food crops, land and labor assets that used to be Least 2 3 4 Most employed almost exclusively to meet Remote Remote subsistence needs could be diversified into Source: Stifel, David and Bart Minten (2002) other revenue generating opportunities. 27. Madagascar i s the largest producer o f natural vanilla inthe world and there i s scope for increases in production and exports provided that adequate transport and security facilities are in place. Growth prospects for coffee, cloves, sugar, sisal and ground nuts are also good. Madagascar also has about 7.5 million heads o f cattle (zebu) and supports an extensive fish and shrimp sector. The shrimp sector i s the second largest source of foreign exchange earnings and provides about 62,000 direct jobs and 218,000 indirect jobs for the country. Most agricultural sub-sectors are operating below potential due to lack o f access to markets, lack o f security inthe rural areas, poor water management, the use o f outdated technology, lack of rural credit and insufficient extension services. In parallel to increased productivity o f agricultural production systems, Madagascar's unique biodiversity resources offer interesting revenue generating potential, which, ifrealized, could contribute to the reduction o f poverty as well as the conservation o f these resources. To unleashpotential inthis arena, there i s a need to set access to biodiversity resources on a more rational and transparent footing as well as to develop revenue generation from non-extractive forest products and environmental services, o f which eco-tourism, hydrological services, carbon storage and non-timber forest products are the most promising. 28. Mining. Today Madagascar has a small artisanal and informal miningsector with significant growth potential. Gems and precious stones from Madagascar currently have little value added for the Malagasy 8 economy. The Government has started to standardize small mining ventures inrecent years by designing an integrated management plan for non-industrial small mines, and has created the legal framework by drafting legal and regulatory texts (mining policy, mining code, law on large mining investments, statutes and organization o f the National MiningCouncil). The Govemment's objective i s to increase the value of yearly exports o f gold and precious stones from US$21 million in 2002 to US$40 million in 2006. In addition to small mining, Rio Tinto, one of the largest miningcompanies inthe world i s planning to invest inthe mining o f illiminite which i s expected to increase by ten-fold the value added o f the sector in the medium and long run. 29. Tourism. Madagascar has a large potential for developing eco-tourism. The wealth o f the Malagasy fauna and flora, the biological diversity characterizedby the thousands o f endemic species make Madagascar an attractive destination for tourists. Until 2001, tourism was expanding, but the 2002 crisis dealt an enormous blow to the sector. Since the end o f the crisis, tourism has picked up and hotel chains are investing to expand capacity at levels above those o f 2001, increasing the number o fbeds by about 1,000 by 2006. Macroeconomic framework 30. The macro-economic framework that Madagascar has adopted in the context o f the EMF supported Poverty Reduction and Growth Facility (PRGF) and that i s reflected inthe base case o f this CAS i s prudent: it foresees an average GDP growth of 6 percent for the 2004-2006 period with initial growth being largely driven by increases in manufacturing and services. Initially, agricultural growth i s expected to remain well below the average growth o f the economy. In subsequent years, as productivity and access to markets increase, agricultural growth i s also expected to be strong. The base case scenario assumes that investment to GDP ratios will increase by about 1 percentage point a year reaching 21 percent in 2006. It foresees modest increases in the inflows o f foreign aid. Total foreign financing i s expected to amount to about $300 million a year (See Annex B6). Imports are expected to increase by on average o f 23 percent per year, while exports would reach an average growth o f 20 percent driven primarily by a further expansion o f activities in the EPZ zone. Reserves are expectedto average about the equivalent o f four months o fimports o f goods and non-factor services. On the fiscal size a substantial tax effort i s foreseen to increase the domestic revenue to GDP ratio from 10.7 percent in2003 to 12.5 percent in2006. Capital expenditures are projected to increase from 7.3 percent o f GDP in 2003 to some 9.2 percent in 2006. The scenario projects a gradual reduction in the budget deficits from 5.5 percent o f GDP in2002 to 3.3 percent o f GDP in2006. Table 3. Macroeconomic Framework (Base Case) in YOof GDP 2002 2000-01 avg prelim 2003 2004 2005 2006 1 GDP growth, % p,a. 5.4 -12.7 6.0 6.0 6.0 6 .O in % o f GDP: Investment 16.8 14.3 17.5 19.0 20.4 21.5 Private 9.8 9.4 10.2 10.9 11.7 12.2 Public 7.0 4.8 7.3 8.0 8.7 9.2 Gross Domestic Savings 11.5 7.7 10.2 11.4 13.2 14.1 Resource balance -5.3 -6.6 -7.3 -7.5 -7.2 -7.4 External current account balance -3.5 -6.1 -4.6 -5.7 -5.4 -5.3 Government revenues & grants 14.7 10.2 14.7 13.4 14.9 15.4 oiw domestic revenues 10.9 8.0 10.7 10.8 12.0 12.5 oiw foreign grants 3.7 2.2 4.0 2.6 3.0 2.9 Recurrent expenditures 9.7 10.3 10.4 10.0 9.8 9.5 oiw interest 2.2 2.2 1.7 1.3 1.2 1.1 N e t lending 1.5 0.5 0.4 -0.1 0.0 0.0 Overall fiscal balance' -3.6 -5.5 -3.4 -4.5 -3.6 -3.4 'Balance before changes in arrears 9 HIPC Initiativeand Debt Sustainability 31. Madagascar reached the decision point o f the HIPC initiative in December 2000. Since the beginning o f the initiative, IDA has monitored the HIPC programjointly with all multi-lateral development partners present inMadagascar. Interim HIPC relief i s being providedby creditors accounting for 82 percent of the total debt (i.e. the Paris Club creditors, IDA, Organization o f Petroleum Exporting Countries (OPEC), the IMF, and the AfDB). Inaddition, modalities for the provision o f interimrelief are being negotiated with the European Union and Kuwait, while IFAD and BADEA have committed to providing their share o f net present value (NPV) relief at the completionpoint. Despite the severe political and economic crisis o f 2002, the relief committed at decision point should be sufficient to reduce Madagascar's debt burden to a potentially sustainable level, and is projected to produce an NPV debt-to-export ratio o f 163 as o f end-2003 (the year most likely to be used as the base date for the completion point document), which would fall to 135 after the provision o f the additional bilateral assistance, significantly below the 150 percent used to assess HIPC relief (see Table 3.). The NPV debt-to-revenue ratio i s projected to stand at 323 percent as o f end- 2003, but could fall to 258 percent by the endo f the next year, and 226 percent the year after. 32. Under the base and high case scenarios, predicated on fiscal consolidation and continued export growth, the debt service ratios also remain manageable, with the debt service-to-export ratio remaining below 10 percent from 2004 onwards. In the context o f the PRSP framework, the country i s continuing to follow a prudent debt policy for the foreseeable future, ensuring that foreign financing i s obtained on grant or highly concessional terms. Table 4. Madagascar Key Debt SustainabilityRatios (Uncond. HIPC relief and additional bilat. Assistance) I I I I I I N P V o f debt / Exports (3-yr average GNFS) I 162.9 I NA INA INA INA INA (Uncond. HIPC reliefbut NO additional bilat. Assistance) NPVdebthevenues Unconditional II323.0% NA I INA INA 1NA INA Source: World Bank, HIPC unit 11. GOVERNMENT PROGRAMAND STAFF ASSESSMENT 33. Madagascar's Poverty Reduction Strategy Paper outlines a framework for the Govemment to redouble its efforts to implement a new generation o f economic and social reforms - to improve governance, create a business friendly environment for investment and accelerate private sector led growth and improve social service delivery to the benefit of its citizens. The strategy was developed over three years, starting under the previous administration and continued by the new government. Progress on developing the strategy stalled duringthe crisis. Throughout the preparation o f the strategy, the Government consulted with all stakeholders through a comprehensive participatoryprocess. 10 A. PovertyReduction Strategy Paper 34. The overarching goal o f the PRSP i s to cut the poverty rate by half inten years, from 70 percent in 2003 to 35 percent in 2013. To reach this objective the strategy, based on the principle o f public private partnership, has three main axes (i) restoring a rule o f law and a well governed society; (ii) promoting economic growth with a large social base, and (iii) promoting systems for establishing human security and enlarging social protection. Fifteenpolicy areas and corresponding measures, proposed outputs and expected outcomes underpin these strategic axes. 35. The first focus aims to create an institutional framework o f good governance to foster fast and sustainable development, and allow the State to effectively and transparently assume its role as facilitator and driving force o f the economy. The axis of governance encompasses anticorruption, democracy, rule o f law and decentralization. The Strategy builds on the important reforms already undertaken by government including the establishment o f an Anticorruption Commissionand the reorganization o f the public sector, and proposes further measures such as developing an anticorruption strategy and improving the civil service. Medium term measures in public finance and expenditure management include fiscal reform, the strengthening o f budget controls, and the improvement o f planning, execution and monitoring o f the budget, consistent with efforts under the HIPC initiative. Improvements planned in the Justice system will help create an environment that i s more conducive to private sector development and investment. Finally, decentralization seeks to enhance economic and social development o f communes and provide citizens with a better quality o f life by bringing the govemment and communities closer together, thus improving local service delivery inareas such as healthand education. 36. The second area seeks to foster macroeconomic stability and pro-poor growth; revitalizing the private sector and promoting the development o f growth sectors. The main focus i s on improving the roads network, and the Government's investment program includes a US$1 billion road rehabilitation program. The objective i s to fight rural poverty by connecting farmers to the market. The Govemment will also give priority to improving the environment for investmentand developing the private sector through promotion o f national and foreign direct investment, property rights, exports, and ICT systems. 37. The elements of the third axis deal with the definition and the implementation of systems of social welfare: food security, health, education, housing, environment. The highest priority here i s given to education, and the Govemment plans to continue emphasizing the delivery o f universal primary education, improve school completion rates and work on the quality o f teaching. Another key social protection area in the PRSP is health, inparticular the fight against AIDS and malnutrition, safe drinkingwater and sanitation. Immediate priorities in the Ministry o f Health's Five-Year Plan 2002-2006 are to promote mother and child health and to intensifythe fight against malnutrition. B. Joint World Bank/ IMFStaffAssessment (JSA) 38. The PRSP has several major strengths. First, it i s very highly owned. The new administration took on the process fully, making important changes to the draft which existed before the crisis. Second, PRSP preparation included substantial consultation o f all groups o f society. Third, the strategy includes a very comprehensive poverty diagnostic -- albeit focused mainly on the income-dimension o f poverty. Fourth, its overall strategy i s clear and well-argued. Lastly, it develops different macro-economic scenarios, linking poverty reductionto various growth paths o fthe economy. 39. But the PRSP also has several weaknesses, which the administration will need to focus on during implementation. First, while all PRSP programs set specific sector targets for the coming years, only very limited costing has taken place as to how such targets can be achieved. Second, the key sectors o f transport and education strategies outlined inthe PRSP derive from an assessment o f why reforms are neededand why 11 public service delivery has failed in the past. Other sector strategies, notably those in the health, nutrition, energy, water and agricultural sectors, have been assessed in general and forego this step. Third, the list o f measures included in the PRSP add up to a very ambitious program which i s bound to test the implementation capacity o f Madagascar. Government will need to focus on capacity building to ensure successful implementation. Fourth, during the first year o f PRSP implementation, Government will equally have to harmonize the many different targets and indicators included inthe document. While, laudably, a list o f thirty-one priority indicators for monitoring has been established, this list o f indicators and their baseline values are not always consistent with the detailed sectoral indicators found in the body o f the text. Lastly, the PRSP does not include an assessment of possible risks (and mitigation measures) that could negatively affect implementation. (See accompanying Joint Staff Assessment) C. The PovertyReductionStrategyPaper andthe Millennium DevelopmentGoals 40. In the case of Madagascar, one o f the poorest countries in the world, ranked 149 out of 175 on UNDP's Human Development Index, reaching the MillenniumDevelopment Goals (MDGs) i s challenging. Appendix 2 summarizes today's status and the historical progress towards reaching the MDGs as well as the likelihood o f reaching each MDG by the year 2015 and Appendix 10 outlines key requirements for moving to higher growth rates, increased poverty reduction and higher aid inflows. The Government's objectives under the PRSP are consistent with the MillenniumDevelopment Goals (MDGs). The PRSP argues that the required GDP growth rate i s about 8 percent inorder to halfthe poverty rate from 70 percent to 35 percent by 2015 and reach the other MDGs as well. Under the high case scenario o f this CAS, performance would be significantly stronger and policy implementation faster than what i s foreseen under the base case inkey areas such as the fight against corruption, integration o f the rural poor inthe growth process, and improved service delivery to the poor. Such performance would warrant significantly higher levels o f aid and would allow Madagascar to reach a higher growth path and reach the MDGs. Increased levels o f concessional aid will ensure that macro management can remain prudent and that increased levels o f investments and imports do not leadto unsustainable debt problems inthe future. 111. THE WORLD BANKGROUP'S COUNTRY ASSISTANCE STRATEGY A. LessonsLearned:ProgressUnderLastCAS andthe InterimCAS Evaluation of the 1997 Country Assistance Strategy and InterimCAS 41. The most recent CAS periodwhich started in 1997 is characterizedby muchprogress inmany areas, despite the 2002 political crisis. The Bank's 1997 Country Assistance Strategy had four main objectives; (i)encouragingbroad-based growthledbyforeigninvestment; (ii) enhancing human capital development; (iii)strengthening the public sector; and (iv) managing naturalresources. As shown inTable 5, the objectives were met in most areas. The 1997 CAS outlined a substantial and detailed list o f monitoring indicators for each o f the four objectives. These monitoring indicators in Appendix 3 compare objectives and actual outcomes. Compared to the objectives set in 1997, the outcomes seem to have been satisfactory. However, some key outcomes, notably inthe area o frural poverty reductionwere disappointing. Table 5. Evaluation of 1997 CAS (end 2000 data) Private Sector -ledGrowth Human Capital Formation & Poverty Public Sector Reform 12 42. The Bank's Interim Country Assistance Strategy (I-CAS), presented to the Board in November 2002, outlined Bank activities in the post-crisis recovery period with the overall objective o f limiting the impact o f the crisis on the poor by supporting the Government's reconstruction program (support to the most vulnerable, public service delivery, private sector recovery). In parallel to the development o f the interim strategy, the Bank's portfolio was restructured to respond to the country's most urgent needs. Poverty and social development indicators were chosen to evaluate the impact o f the new crisis strategy. As shown in Appendix 4 targets were met for the major y o f indicators that hadbeen selected. 43. What worked well. Macro economic stability was achieved and Box 1.Education Achievements growth accelerated. Major progress During the 2002-03 school year Madagascar`s education reform made took place, especially in the area o f progress, with the help o fthe Bank-financed and restructured competition policy and divestiture from CRESED I1project. More textbooks were delivered to the primary state banks and public enterprises. and secondary schools. Inearly 2003 the President made primary Substantially higher growth ensued education "free-of-charge". Thisboostedprimary enrolment, notably from 1997 to 2001 averaging 4.6 children from the poorest households. All primaryschools receive a percent, reversing the earlier trends small budget to improve the schools' functioning, managedwith of declining per capita incomes. Bank parent-school associations. In-service teacher training programs and assistance supported new structural management o f district education units were improved and new quality performance criteria were introduced. The participation o f policies and was instrumental in communities inthe day-to-day school management was also bringing about this higher growth strengthened through more effective regulations. rate. These included price and trade liberalization measures, privatization At the start o fthe current school year (2003-04), the sector ministries and the opening o f the continued to consolidate the various measures and better integrate telecommunications sector, part o f Bank these into a systematic approach o f providing better services with a structural adjustment programs. Based results-based approach. The district education units were all replaced on good macro-economic performance, (50% were new recruits) with three-year performance-based new IDA commitments between FY97 contracts. The government's approach to school-nutrition will work and FY99 rose to US$525 million, some through the communities by providing the primary schools inthe 15 percent above the amounts originally poorest areas with a small school nutrition fund for the five months proposed inthe CAS. that hunger among primaryschool children i s most prevalent. This also promotes better school-community links. Primary school 44. The 1997 CAS objectives teachers who are currently paid by the (mostly poorest) communities were also largely met in the area (about 4,000 teachers out o f the total o f 50,000) will be integratedinto o f managing natural resources. the government's payroll. Preliminary Implementation Completion Report conclusions o f the Bank supported second phase o f the multi-donor enGironment programindicate that in line with stated objectives: (i> environmentai degradation trends have been reduced; (ii) sustainable use o f natural resources in target areas through conservation agriculture has increased; and (iii)conditions for mainstreaming sustainable environment and natural resources management have been established. 45. Inthe aftermath ofthe 2002 crisis andthroughits InterimCountry Assistance Strategy, the Bank also assisted the Government with an emergency recovery credit and the mobilization o f additional external resources, so as to help: (i) bringabout a resumptionof growth; (ii) the negative impact o f the crisis on limit the poor; and (iii) basic infrastructure destroyed duringthe crisis. Ofparticular importance for these restore successful results was the flexibility that was built into the projects for a timely response from the Bank to the crisis. 46. What worked less well. Three important shortcomings undermined the good progress during the previous CAS period: (i) high rates of GDP growth did not lead to the expected nation wide reduction in poverty; (ii) delivery o f social services and the formation o f human capital was slower than anticipated; the 13 and (iii)governance problems and institutional weaknesses remained key impediments to all development efforts. (a) Too little pro poor growth: Highoverall GDP growth rates did not lead to the desired decreases in rural poverty. There is widespread recognition among the Government and donors that the failure to prevent a further deterioration o f the road and irrigation infrastructure network and the increased isolation o f the rural population contributed significantly to low agricultural productivity and inturn, highlevels o f rural poverty. This occurred in spite o f the existing Bank projects inboth the rural and transport sectors which had too little nation wide impact to make a real dent in rural poverty. Moreover, both the Government's public expenditure program and Bank financed investments could have been better targeted to poor geographical areas. Chart 4 shows that the share o f IDA-financed investments to the poorest districts (comprising 40 percent o f the population) varied significantly since 1997. It first declined but then increased from Chart 4: Share of IDAfinanced investments going 2000 onward due mainly to a to the districts with the poorest 40 percent of the population, 1997-2001 significantly improved distribution o f investment 40 resources from the education and healthprojects. 30 20 (b) Social sector projects could have 10 had a larger nation wide impact: n compared to other countries 1997 1998 1999 2000 2001 Madagascar's progress has been slow in the social sectors: primary school drop out rates decreased; infant mortality rates declined from 94 percent to 84 percent but malnutrition remains prevalent Some progress was made inthe context o f Bankprojects but the rate o f social progress fell well short o f both the CAS objectives and the requirements for achieving the MillenniumDevelopment Goals. (c) Governance problems slowed poverty reduction: With better governance, public funds could have been better used for poverty reduction, and foreign direct investment as well as growth would probably have been higher. There were too few checks and balances on financial operations o f the Government, and rules were applied arbitrarily. Until the new Government took power in2001, very little public sector reform had taken place. 47. With the benefit o f hindsight, therefore, the Bank assistance could have had a greater impact on poverty reduction had it placed more emphasis on tackling rural isolation through a more ambitious road construction and road maintenance program. In turn this would have led to higher rates o f agricultural productivity. Inall likelihood it would also have contributed to better social service delivery inrural areas. A stronger emphasis by the Bank on capacity buildingand the fight against corruptionwould also have had a significant impact on the fight against poverty. B. The New CAS: Objectives and GuidingPrinciples Objectives 48. The main objective o f the Bank's future assistance program i s to help Madagascar accelerate poverty reduction. Together with other development partners, the Bank proposes to support the Government in the implementation o f its PRSP and align its work program to the framework and strategic focus o f the PRSP. Appendix 5 maps PRSP programs to current and planned partner and IDA support. In line with the PRSP 14 objectives, the Bank intends to considerably strengthen its focus on (i)improving governance; (ii) reducing rural poverty and (iii) improving service delivery. The Bank will measure its performance inreaching these objectives by a select number o f contributions to reaching the PRSP targets themselves (see monitoring indicators). Guiding principles 49. There are five guidingprinciples, derived from the lessons and experience o f the previous CAS, that are at the heart o f the proposed strategy: (1) Focusing Bank interventions on having a much larger impact on rural poverty. Madagascar has already taken most o f the first generation macro-economic and structural reforms that are required to spur growth. At this point in time, the Bank interventions will need to assist the Government in removing the impediments that are currently preventing growth to reachthe rural poor. Giventhat agriculture i s the most important activity of the rural poor, increased on-farm productivity through production intensification and diversification, in parallel with improved access to markets and enforcement o f property rights to avoid further soil degradation are considered key elements o f the rural growth agenda. Inline with this, the Government and the Bank see the development and maintenance o f rural infrastructure, through the envisaged Transport and Watershed Management projects, as a crucial condition to reduce rural poverty. It will be important to increase expenditure effectiveness in transport sector as additional lending i s provided. (ii) Tackling governance and capacity building centrally and in all the Bank's operations. The key institutional and governance problems described in the PRSP affect all sectors o f the economy: public financial management, public expenditure management, procurement reform and related capacity building activities. These will be tackled centrally with the assistance o f the Bank under one umbrella project that i s presented for approval in conjunction with this CAS. They will also be addressed in every individual lending operation and every piece o f analytical work that the Bank proposes to carry out. (iii) Continuing to place the environment at the center of our strategy: Madagascar's natural resource base remains vulnerable as high levels o f poverty are contributing to the use o f farming and mining techniques that cause natural degradation and habitat destruction. Environmental safeguards are given special attention both in the Bank's existing portfolio and in the Bank's new lending program. In line with the Government's overall orientation on "rapid and sustainable development", the CAS proposes to build on the positive linkages between poverty reduction and environmental management through the envisaged Environment Project. This new project is one of the Bank's instruments that will help Madagascar further tap into these significant revenue generating potential o f its unique biodiversity resources. To unleash potential in this arena, emphasis will be placed on: (a) puttingaccess to biodiversity and forest resources on a more rational and transparent footing; and (b) the development o f revenue generating activities from non-extractive uses o f natural resources and environmental services, o f which eco-tourism, carbon storage, hydrological services and non-timber forest products are the most promising. Operations to have more widespread impact; transitioning to programmatic lending. Despite the Bank having been the largest financier o f the Public Investment Program social development and service delivery has not improved as wished for in the past on a nation wide scale. Several individual projects have had too little widespread impact and contributed too little to achieving the MDGs. N o w that a comprehensive PRSP i s inplace, there i s a need for all programs and funds to go through the budget in a systematic way. This entails agreeing 15 with the Government on overall sector strategies in areas such as education, nutrition, health and water, helping to identify and mobilize the resources required to implement the overall sector strategies, as well as making sure that the necessary public sector reforms take place so as to improve the efficiency and equity o f public expenditures. The Bank's base case and high case lending scenarios include a transition to programmatic lending along the lines describedin the Bank's Strategic Framework for IDA's Assistance to Africa (SFIA). (4 Linking loan amounts to performance, and continuing to reduce the number of active lending operationsby FY06. The Bank proposes to further reduce the active lendingportfolio to keep the size o f its portfolio manageable at fourteen projects over the CAS period. Ifoverall performance i s significantly better or worse than foreseen in the base case, the loan amounts and scope o f the projects would be adjusted. Contrary to past practice, the number o f new operations will not be changed so as the keep the overall size o f the portfolio manageable. The gradual reduction o f the number o f projects has proven instrumental in devoting a higher share o f the Bank resources on policy dialogue. The Bank has also consolidated its interventions at the local level. All o f the procurement and implementation o f local infrastructure services has been transferred to the social fund allowing the education and health projects to focus on their respective sector issues. The Bank, like other donors also systematically involves local governments inthe identification and planning o f all local investments and it channels some of i t s investment resources through them (social fund project). The Bank i s planning to consolidate and expand these approaches inthe future. Existing portfolio as an instrument to achieve CAS objectives 50. At the end of FY03 the Bank had 15 active Box 2: IDA's Gender Portfolio Review projects in Madagascar. Duringthe last CAS period, An examination of the gender orientation of the Bank's social sector the Government and the portfolio was carried out in April 2002. The review examined whether the Bank focused on the timely institutional and organizational structure o f each project allowed for an appropriate integration of the gender dimension into implementation closure and restructuring o f activities. It concluded that (i) one project (nutrition) did so appropriately; projects, resulting in the (ii) (socialfund,micro-finance) hadatleastaneutraleffect,notmaking two number of projects under it more difficult for women to gain access andparticipate inproject activities; supervision decreasing from and (iii) two projects (education, health) had certain elements which made it 21 in FY97 to 15 in FY03. more difficult for women to gain such access. The review raised the This trend towards more awareness of both the country team and Government counterparts as to how focused and streamlined the gender dimension needs to be looked at carehlly when designing the operations i s expected to operational and institutional set-up of lending operations. continue in the coming three years. Following the restructuring o f the portfolio in November 2002, project implementation has greatly improved, resulting in accelerated disbursements. 51. The Bank's existing portfolio i s well-placed to support the proposed strategic orientation proposed. Table 6 shows the undisbursedproject funds available in the active projects (excluding those that have very few funds left). Of the US$457.8 million o f undisbursed funds at the beginning o f FY04, about 36 percent are committed to rural development in the Rural Sector Development Project and the Community Development Project (which focuses entirely on rural areas). With 29 percent, economic infrastructure i s the second most important component, comprising two large Adjustable Program Lending Projects in Transport as well as a demand-driven Urban Infrastructure Project. Around 13 percent o f undisbursed funds are dedicated to the continued and important private sector support through the recently effective SecondPrivate Sector Development Project (which will also include ongoing support to establishing a competitive 16 investment climate and restructuring, Box 3: ContainingHlV/AIDS in Madagascar concessioning and privatization o f Madagascar has a window o f opportunity to prevent an explosion o f the public enterprises) and the Mineral epidemic given that prevalence o f HIViAIDS is low; however, HIV more than Resources Governance Project, doubled inthree years, from 0.07% in 1996 to 0.15% in 1999, and data from focusing on establishing and enforcing the recent epidemiological study among pregnant women shows that the rules and regulations in the high- prevalence i s now over 1% and rising rapidly inrural areas. Inaddition, the potential mining sector in Madagascar. country's sexually transmittedinfection (STI) rates - the most important risk factor along with unprotected sex - are extremely high.HIViAIDS prevention Two percent o f undisbursed funds are i s one of the President's key priorities, with the national program spearheaded dedicated to the Micro Finance project. byhimpersonally. He i s also working closelywith churches and NGOs to Finally, with respect to the `human and ensure that HIVIAIDS awareness is created at the community level, and he i s material security' focus o f the PRSP, actively supportingthe promotion o f condoms. To assist the government to the existing lendingportfolio consists of scale up the national response to the HIViAIDS fight, the Bank-financed the Education Sector Development Multisectoral STIIHIVIAIDS PreventionProject (MSPP), o f US$20 million, i s Project (7 percent o f total undisbursed supporting i)development o f sector plans and pilot actions; ii)a fund for STIiHIVIAIDS prevention and non-medical care-taking activities; iii) funds), the HIV/AIDS Prevention monitoring and evaluation activities; and iv) institutional and organizational Project and Second Health Support capacity building. Given the urgency o f the situation, implementation o f the Project (together 9 percent), the Rural project is accelerating and it i s anticipated that the project will be fully Water Pilot Project (2 percent), the disbursed well before schedule. The Bank will continue to support this Nutrition IIIProject (3 percent). important priority through grant financing o f the second phase o f the MSPP. Table 6: Existing LendingPortfolio and the PRSP (includes PRSP Strategic Existing Lending Portfolio (Undisbursed I Focus I Amounts in Brackets, US$ million) -- 14 5) Second Private Sector Development Project (FY02,25.5), Mineral Resources Governance Project 1I I Education Sector Development Project (FY98;31 0) I Mate4 Support Project (FYOO, 24.7); Nutrition 2 (FY98; 52. OED Evaluation. Since the last CAS in 1997, while the percentage o f projects with satisfactory outcomes (average 76 percent) has increased over time, the sustainability and institutional development impact o f the projects has been persistently low. Approximately 40 to 45 percent o f recent projects in Madagascar have been sustainable and only 30 to 35 percent o f the projects have had substantial impact on institutional development. This CAS period will focus on reversing this trend and on closing the growing gap between project outcome ratings and sustainability and institutional development impact. Following the 17 guiding principles o f this CAS, governance and capacity building will be addressed in all existing and planned Bank operations. New Lending 53. The base case lending scenario proposes seven new operations over the next three years: a Governance Support Technical Assistance Project; a ThirdEnvironmental Project, a ThirdAPL Transport Project, FirstPoverty ReductionSupport Credit, an IntegratedGrowth Poles Project, a Second Poverty Reduction Support Credit, and a Watershed Management Project. Table 7 shows how these lending instrumentssupport the strategy presented inthe PRSP. PRSP Strategic FW04 FYo5 FY06 Focus 54. The Governance Support TA (FY04) will assist Government in operationalizing the first strategic focus o f its PRSP. It i s part o f a concerted donor effort involving support from UNDP, EU, France and USAID. The primary focus o f the project will be public finance management, providing assistance neededto implement the conclusions o f the CFAA and CPAR. Other project components include support for the fight against corruption, legal andjudicial reform, as well as monitoring and evaluation activities. This project i s designedto accompany the PRSCs to support governance reforms necessary for their success. 55. The Third Environment Project (FY04) seeks to improve forest management, to protect biodiversity and to put in place sustainable mechanisms for the environment. Considering that Madagascar i s a mega- biodiversity country, this project i s o f crucial importance to attain the sustainable environmental management objectives as specified under the MDGs. Following feedback from QAG, the Second Environment Project (EP2) was restructured to focus on biodiversity conservation areas. In line with this approach and to optimize operational effectiveness, the proposed follow-up Environment Project (EP3) will be limiting its interventions to key biodiversity conservation areas, including national parks, buffer zones and the forestry sub-sector. Besides helping to protect natural resources, investing inthe environment also makes sense from an economic as well as a poverty alleviation perspective. Economic analysis o f the project shows that benefits exceed costs and that poor farmers engaged indownstream agricultural production activities capture an important share o f these benefits. Economic benefits o f the project are related to eco-tourism, hydrological services and international willingness to pay for globally important biodiversity, while economic costs cover both direct conservation costs as well as the opportunity costs o f foregone alternative natural resource use. 56. The third phase o f the Adaptable Programmatic Loan in Transport (FY04) would continue the joint donor-government sector-wide transport program which has focused on sector reform and priority rehabilitation (APL1, FYOO) and rural transport (APL2, FY03) and would include missingfinancing for the rehabilitation o f the national road network and in the port and airport sub-sectors. The APL goes hand in hand with significant sector reforms focusing the Government on sector oversight, coordination and planning, transferring executive and regulatory functions to arms-length agencies, and operations to private sector operators via concessioning arrangements. The Northern Railway has already been concessioned to a private operator, while efforts are underway to concession the Southern Railways, the Tamatave port and the Ivato airport. 18 57. TheFirst Poverty Reduction Support Credit (FY05)will focus on education, nutrition, protecting the most vulnerable against shocks. Through general budgetary support it will help finance the Educationfor All agenda by providing funding for new teachers in rural primary schools, teacher training, building new classrooms, and procurement o f equipment and supplies for schools. The credit will support reforms in governance, and help fund the Government's child nutrition program. It will also assist inputtinginplace a permanent social safety that will provide work at wages below the current market wages for all those who are willing to work for those wages ina time o f crisis. Key indicators that will be used to assess progress under the credit will include: school enrollment rates, completion rates for primary education, class repetitionrates, child malnutrition rates. Under a well designed scheme, the number o f people making use o f the permanent safety net will also serve as a useful indicator to assess changes in poverty and change in market clearing wages over time. 58. The Integrated Growth Poles Project (FY05) will support accelerating growth in selected regions. The project will provide a minimum infrastructure platform to allow the development o f agriculture and agro-processing, mining, tourism and export processing zones inthese regions. It will rely on public-private partnership concepts, whereby public investment will cover most o f off-site infrastructure and private investment will cover most o f on-site infrastructure. It i s expected that the minimuminfrastructure platform will mostly consist o f investments inthe water and sanitation, transports (including road, railway, airport and port), urban, and energy sectors. 59. The Second Poverty Reduction Support Credit (FY06) would support the two areas covered under PRSCl (education and nutrition) as well as health, rural water, and household energy. Government i s currently embarking on a reform o f the health sector, focusing on primary health care and district hospitals. IDA is supporting those activities through the restructured second health sector project, which is due to close inFY06. Similarly, work on rural drinkingwater is now supportedby a pilot rural water project, which will also close by FY06. It i s expected that those two activities will be financed under the general budget and be supportedby PRSC2 which would include health and water connection indicators. 60. The WatershedManagement Project (FY06) would be instrumental in generating the conditions to accelerate economic growth inthe rural areas through an integrated effort aimed at raising productivity inthe highpotentialproductionpoles. The comerstone o fthis project would be to unleashthe unrealizedpotential of Madagascar's vast irrigation infrastructure, most o f which i s in decay due to neglect o f the institutional structure for operation and maintenance. Since 80 percent o f all irrigation infrastructure i s concentrated in eight (out o f 20) agro-ecological regions, interventions o f the project would be limited to these: Marovoay, Melaky, Diana, Alaotra, Atsimo-Andrefana, Menabe, Vakinankaratra and Imerina Central. In light o f the fact that past irrigation investments have not generated expected results, the project would adopt a watershed management approach under which investments in irrigation infrastructure, environmental protection measures, local capacity building, and technology transfer would be adequately balanced based on international best practice. Analytical and Non-Lending Services 61. Seven pieces o f AAA are proposed for the period FY04-06, which would complement recently completed work and support the Government's analysis o f the six PRSP sub-programs (Table 8). A comerstone o f the non-lending activities would be the Public Expenditure and Service Delivery Review (FY05). The review would be instrumental in establishing baseline assessments against which progress in pro-poor expenditure distribution and service delivery could be measured. Ideally, informal andjoint donor- Government public expenditure reviews would follow on an annual basis. Formal health sector (FY04) and risk and socialprotection (FY06)reviews have not been done inrecent years and are muchneededto support the Government inimplementing the PRSP. The Riskand Social Protection Review would also undertake an assessment o f risk mitigation strategies needed for the various external shocks Madagascar faces (cyclones, droughts, locust invasion) and which regularly undermine growth and poverty reduction. The planned 19 activities also include a Development Policy Review (FY05) which would focus especially on macro and structural policies to achieve pro-poor growth and a Land Tenure Review (FY05) that analyzes constraints to land security for farmers and ownership issues and looks at ways to overcome them. 62. At the Government's request the Bank is increasingly involved ina dialogue on trade policy issues. The main vehicle for this dialogue has so far been the report on the Integrated Framework (IF) (FYO4), which was completed inclose cooperation with UNDP, WTO and the IMF. Trade reforms are viewed by the Government as one o f the catalysts for attracting private sector investment and higher economic activity. Madagascar's maximum tariff i s currently 30 percent and Government plans to reduce it over time, while also moving to a more uniform tariff structure. The IF shows that reforms in governance and improvements in infrastructure are at least as important for Madagascar's successful integration in the world economy as changes in tariff levels. It is particularly important for Madagascar to reform its customs to reduce corruption and accelerate procedures, rebuildits transport infrastructure to integrate domestic markets as well as to link them with the outside world, and increase competition in the telecom and energy sectors to reduce costs. Together with the other IF donors the Bank will continue to support Madagascar in those areas through dialogue and TA. Other major non-lending services will include continued support and monitoring of the implementation of the PRSP and helping Madagascar reach the completion point o f the HIPC initiative. gascar: AAA work, FY04-I Recently Completed CFAA (FYO3): CPAR (FY03); Public Expenditure & ServiceDelivery Decentralization Review (FY03) Review (FY05); - IntegratedFramework (FY04) Rural Sector Review (FY03); Development Policy Review (FY05); Decentralization ESW (FY03); Integrated Framework (FY04: Land Poverty Assessment (FY02) TenureReview (FY05) EPZ and Tourism SectorReviews Development Policy Review (FY05); (FY03) Integrated Framework (FY04) Education Review (FYOI) Public Expenditure & ServiceDelivery Review (FY05): Risk and Social Protection ESW (FY06) Public Expenditure & ServiceDelivery Review (FYO.5); Health Sector Review (FY04); Risk and Social Protection ESW (FYO6) - Water Sector StrategyNote (FYOI) Public Expenditure, Poverty & Service Delivery Review (FY05) 'Risk and Social Protection ESW (FY06) Role of IFC, MIGA, WBI, and IMP 63. IFC. The Africa Region poverty reduction strategy places economic growth at the heart o f the agenda and emphasizes the role of the private sector, which inthe Malagasy context means Micro, Small and Medium Enterprises (MSMEs). SMEs have been particularly hard hit by the recent crisis. The IFC has recently reinforced its presence in Madagascar with the setting up o f the first ever joint Africa Project 20 Development Facility-African Management Services Company (APDF-AMSCO) regional office, based in Antananarivo. To address the main constraints to small enterprise growth inMadagascar, IFC will contribute with two initiatives. First, a joint IDNIFC program will be implemented within the context o f updated World Bank and IFC strategies for Africa. Madagascar has been selected as part o f the seven pilot countries for new joint IDNIFC M S M E Programs. The Program will be built on three main pillars: (i) access to financial services; (ii)access to business development services, including strengthening inter-firm linkages, and information access; and (iii) improvement in the business environment for MSMEs. The Madagascar component o f the Programshould be effective by FY05. 64. Second, inthe immediate future, IFC will introduce a new platform for providing integrated services (access to finance, capacity building, access to information & business enabling environment) to the SME sector. The concept promotes an integrated approach to fulfilling SME needs. The objective i s to establish physical locations that offer an integrated package o f fit-for-market solutions to drive the continuous development o f African SMEs. The location will be referred to as an SME Solutions Center (SSC). IDA contribution i s expected to fund a portion o f the SME financing vehicle, starting inFY04. 65. MIGA. MIGA is underwriting an oil and gas project in Madagascar with potential coverage of US$30 million inFY04. MIGA's outstanding portfolio inMadagascar consists o f two contracts o f guarantee inthe power sector with a gross exposure ofUSfi1.44 million and anet exposure of US$722,100. The total amount o f foreign direct investment facilitated i s estimatedto be US$l20 million. 66. The World Bank Institute (WBI) i s working closely with the Government o f Madagascar and programs for Madagascar have increased in the last three years. In June 2003, WBI organized a special learning event for the entire cabinet to bring practitioners from around the world to share experiences on effective economic management and achieving reforms in social, economic and political crisis situations. Buildingon this dialogue, andbeginninginFY04, Madagascar will be a WBIfocus country. WBIwill work with other development and learning partners to develop and deliver customized program o f capacity building and knowledge sharing inhighpriority areas identified inthe CAS. The WBI Madagascar Country Program Brief will identify the details o f this program, based an assessment o f needs and available learning infrastructure, including the plannedMadagascar GDLNsite. 67. IMF. IMF and World Bank staff maintain a close working relationship, especially with respect to (i) completion o f the full Poverty Reduction Strategy Paper and the Joint Staff Assessment; (ii) reforms set out at the decision point o f the Highly Indebted Poor Countries Initiatives; (iii) analyses and reforms in public financial management; (iv) other governance reforms, including customs; (v) support o f the privatization program; and (vi) participation in the integrated framework trade project. In June 2003, the Fund completed its third review of Madagascar's PRGF-supported program and approved a disbursement amounting to US$15.9 million. Roleof other partners 68. Partner Coordination. This CAS is developed in very close cooperation with Madagascar's development partners. First, the Bank plans to commence programmatic lending together with the African Development Bank and the European Commission based on the same policy and indicator matrix. Second, the education, health, transport, water, agricultural and environmental sector reforms and investment needs would be approached together with other partners through sector-wide approaches. Third, key reforms in public financial management and against corruption would bring financing from IDA together with technical assistance from GTZ and the French Cooperation which has been secured. Fourth, the Bank i s inthe process o f agreeing with other partners in Madagascar on selective support o f the PRSP which would, for example, assign to the European Commission and USAID the lead in supporting justice reform, or to the French Agency o f Development the support o f strong sectors (like fishing). Lastly, the Bank would continue as in the past to organize donor meetings, and conductjoint supervision and evaluation missions of Madagascar's 21 (i) withallbilateralandmultilateraldonorspresent(andissuanceofjointAideMemoires); and(ii) PRSP HIPC progress together with all multilateral donors. 69. CAS consultations. The Bank Strategy has been discussed and developed with the Government and Madagascar's major development partners as shown in Appendix 6. The Bank engages actively with civil society andjournalists to obtain their feedback on a regular basis. IV. PROGRAM IMPLEMENTATIONAND ALTERNATIVE SCENARIOS PRSP and CAS PolicyMatrix 70. The new CAS i s anchored to the PRSP and supports the policy actions and programs that Government will carry out in the implementation phase o f the PRSP. To guide the implementation o f the PRSP and this CAS, a policy matrix has been developed and i s shown in Appendix 8. The policy matrix lists: (i)the main objectives of the PRSP; (ii) the key policy actions and programs that the Government intendsto carry out to reachthe objectives o fthe PRSP and that are supportedbythe Bank; (iii) timingo f the these programs and policy actions; and (iv) the intendedoutcome o f these policies and programs. MonitoringIndicators 71. This CAS distinguishes itself from the 1997 CAS through its move to programmatic lending and a stronger emphasis on achieving country wide rather than project specific outcomes. Through the PRSP process, the donor community and the Bank have aligned their objectives to those outlined in the PRSP. Given the size and importance o f the donors inthe financing o f the Government's development program, the objectives and success o f the Government closely reflect the objectives and success o f the donors. Therefore, the Government, donor community and the Bank have developed common monitoring indicators to measure the extent to which the PRSP objectives are met. At the strategic level, the Bank has selected a few key monitoring indicators to evaluate the success o f the implementation o f the CAS. At the operational level, the Bank will continue to assess the impact o f the Bank program on PRSP objectives through its lending operations and AAA work. Appendix 9 shows the baseline value o f the indicators and the expected target for the end o f this CAS period. Lendingscenarios 72. Three lending scenarios are envisaged: base case, low case and highcase. (a) Base case: The base case scenario envisages a move towards a Poverty Reduction Strategy Credit (PRSC) starting in FY05. The starting point for the implementation o f the base case i s that the macro-economic framework remains sound. The base case further assumes satisfactory implementation o f reforms that are key to poverty reduction as outlined in the PRSP. Special attention will be given to the implementation o f governance reforms. The specific policy actions that the Bank will assess before approving a PRSC are listed inAppendix 7. High case: A highcase lendingscenario could be envisaged ifMadagascar can demonstrate that the programs and policy actions it i s implementing lead to the intended outcomes in terms o f lower levels o f rural poverty, better service delivery for the poor, and improvements in governance. The Government and the Bank have agreed on selected policy actions and outcomes that will be assessed and will form the basis for decision to move to a high case scenario. These selected outcomes are listed as triggers for the high case in Table 10; they will be monitored using the monitoring indicators shown in Appendix 9. The macroeconomic scenario underlying the high case i s that strong performance o f the govemment in policy and 22 institutionalreform leads to a higher growth rate, inthe range o f 7-9 percent, and higher level o f aid, possibly reaching 23 percent o f GDP by 2006. Such a scenario would yield an average FY04-06 current account deficit o f about 7 percent o f GDP and would require additional levels of aid o f about 150 million a year over and above the foreign financing identifiedunder the base case scenario. Under the base case only about half o f the Millennium Development Goals (MDGs) are expected to be met. Continued good performance as envisaged under the highcase growth scenario, however, combined with policies that benefit the rural poor, will set the stage for Madagascar to reach all o f the MDGs by 2015. Under the high case lending scenario, the Bank intends to increase its total lending envelope to US$650 million. It will do so by increasing the loan amounts for each operation as shown inTable 9. (b) Low case: Governance reforms are central to the PRSP. Hence, the low case lendingscenario is defined as one where those reforms are off-track. Inthis case it would not be possible to proceed with the preparation o f a PRSC. Instead, the first PRSC would be replaced by an education sector credit, and the second PRSC by a health and nutrition credit. Other projects would be maintained but at a lower level o f funding. Overall lending would be kept at about US$370 million for the three year CAS period. Table 9. Madagascar: ProposedLow case, Base case, and High case lending scenario (US%m) FY05 FY06 Low Base High Low Base High 30 30 40 40 150 150 __ 70 125 30 _ _ _ _ 85 125 45 _- 70 115 LJ - - - - 220 220 55 155 250 Triggers 73. Indeciding to move from one lending scenario to another, the Bankwill assess: (i)the extent to which policy actions are taken and PRSP programs are implemented and (ii) the actual outcomes o f the policy actions and programs. To guide this assessment, we are proposing to use the triggers shown inTable 10. 23 Table 10. Triggers and Key Assumptions2 Policy area 1Conditionsto remain in the Base Case I IIHigh Case Triggers Lendingvolume (US$ Grants 74. Madagascar i s eligible for grant financing in FY04 under IDA'SThirteenth Replenishment in the poorest country category. Grant allocation i s part o f performance-based IDA allocation with a cumulative target o f 20 percent grant share o f commitments for FY03-04in the poorest country category. InFY04, the Bank proposes to use the entirety o f Madagascar's IDA13 grant allocation for the proposed Third Environment Project. This reflects the global benefits associated with improved biodiversity conservation that i s expected to be achieved under the project. Grant resources would be used to ensure proper management o f Madagascar's protected areas system as well to bring forest and biodiversity assets outside protected areas under effective conservation regimes. V. MANAGINGRISKS 75. The Bank sees five main risks inthe implementation o f its strategy: (a) First, Madagascar is vulnerable to various external shocks including cyclones and locust invasion, which regularly undermine growth and poverty reduction. The Bankproposes a Risk and Social Protection Review to assess neededrisk mitigation strategies for the external shocks Madagascar faces. See Annex 9 for details concerning the monitoring o f these triggers. Fonds d'Entretien des Rbeaux Hydroagricoles 24 (b) Second, political stability i s key for implementingthe PRSP and the CAS. The political crisis o f 2002 and its economic aftermath illustrated the vulnerability o f Madagascar to political shocks. The new administration i s undertaking significant changes in economic management, which would leadto the elimination o f rents. Currently, the President's popularity i s very high and this allows him and his administration to move swiftly and implement policy actions. However, were his popularity to decrease and margin o f maneuver to narrow, the implementation o f the PRSP and the programs contained in the new CAS would slow down. Inturn, the population would not see the expected results onthe ground further undermining the support for the new Administration. The Bank will focus on transparency and trying to change the culture o f granting ad hoc privileges through the governance project and WBI capacity building support. The Bank also proposes to mitigate this risk by trying to achieve quick successes. This would require accelerating disbursements on existing projects and by advancing new lending activities to the beginning o f the new CAS period. The Bank has started on this track by achieving highdisbursements inFY03, and i s expected to continue due to the eventual transition to adjustment lending. (c) Third, fundamental public finance, budget programming, procurement reforms, institutional development and capacity building are necessary conditions for Madagascar to improve public sector efficiency and investment levels which would be necessary to absorb more external aid inflows. Ifthese reforms were to be delayed and not prioritized, the planned increase inpublic investments for poverty reduction would likely not materialize. To mitigate this risk the Bank i s placing a heavy emphasis and supporting the reforms proposed in the areas o fpublic finance, budget programming, procurement, institutional development and capacity building. The proposed Governance technical assistance i s the key operation in the Bank's strategy that will allow Madagascar to increase its capacity to absorb external aid and use it effectively in the pursuit of its PRSP objectives. In addition, ongoing operations will continue to put a heavy emphasis on institutional strengthening, training and capacity building. (d) Fourth, sustainable poverty reduction will depend on attracting private investment into the labor-intensive manufacturing sector and into agro-businesses with spread effects to rural areas. Currently, confidence o f private sector investors inthe Malagasy economy i s still fragile due to the effect o f the political and economic crisis in2002. IfGovernment does not succeed to reestablish confidence o f private investors, the targeted high growth and poverty reduction path would not materialize and could allow other developing countries to become more competitive. The strategy mitigates this risk by supporting the Government in the implementation o f the Bank's reports and recommendations on the Integrated Framework for Trade and Private sector development, the Export Processing Zones (EPZs), and the tourism sector. Similarly, another risk i s the erosion o f trade preferences by the EU and US; Cotonou agreement will be replaced by reciprocal EPAs and AGOA will phase out in 2008. Without the preferences, Madagascar may not be able to compete with other developing countries such as China and Bangladesh. Risk mitigation would include acceleration of reforms to improve competitiveness as in the Integrated Framework report and active participation in trade negotiations (EU, WTO, regional). Moreover, it i s hoped that the implementation o f ongoing governance reforms laid out in Appendix 8 will have a strong signaling effect and encourage private sector investments. (e) Fifth, as mentioned inthe Joint StaffAssessment (JSA), Madagascar's PRSP is ambitious and its objectives can only be reached if: (i) reforms take place; (ii) key significant institutional strengthening occurs; (iii) if donors align their support to the PRSP; and (iv) if the required financial support form the donor community i s forthcoming. To mitigate this risk, the donor community has already started to intensify its efforts at coordinating assistance programs, harmonizing disbursements and procurement procedures and developing common programmatic approaches centered around the PRSP. The donor community has also started to 25 increase its level o f financial aid to Madagascar, and focus on technical assistance and capacity buildingfor sustainability. Now that the PRSP is finalized coordination will be centered more strongly on implementation and results, usingthe PRSP monitoring framework. James D. Wolfensohn President By Shengman Zhang Washington, DC October 20,2003 26 Appendix 1. CommunityRankingof DevelopmentPriorities(CommunityFocus Groups) (Sep.-Nov.2001) Government Priority Interventions % of Communes 1.Agriculture 27 2. Transport 26 3. Security 15 4. Health 14 5. Education 10 6. Water 6 7. Environment 2 Total 100 Source: Recensement Communes, Come11University, 2001 27 Appendix 2. Madagascar's progress and outlook for reachingthe Millennium Development Goals (MDGs) I I I Likelihood of Millennium Development Goals achieving goals if 1990 or earliest Latest 1990-2015 Present Status I past policies and Benchmark Estimate M D G hnaice continue I 1.Poverty and Hunger - After having declined to the beginning 1990slevel, - Reduce extremepoverty by almost extreme poverty increasedsharply after the 2002 Low 59%' 65%' 29% .&!E ............................................................................... - Reduce ,~o!itica!,.a.nd..economiccrisis........................................................................................................... ,11993)....................... .......K?!??) ............................ ............ underweight rate by half - Child malnutrition inchildren aged 0-5 decreased Low 41%' 40% 21% only very slightly between 1992 and 1997 (1992) (1997) I 2. Achieve universal primary - 1 I Net enrollment inorimarv school stands at 65 I -education percent (2001) with mnishy estimatesslightly Increasenet enrollment ratio in higher Good 48%' 65%' 100% - primary school to 100% (1993) (2001) Ensure all school entrants to - school completion rates remain extremely low Low 31%' 33%' 100% complete the primary cycle (33 percent of those entering primary school in I (1992) (1998) 1991\ 103 5% 100% (2000) ........................... 0 4632 >0.35 (2000) 1362 56 (2001) 4903 167 (1997) 0.3 ..........1 8 4 ~ "....' ..................... Nla (2000) ortion of individuals (2;)........ 44.5' 72 vith0.ut.access.to..i,m~~oved...water.~o.~ce - Halt ........................................................................................................................................................................................................................(!.??P) ....................... .................................. forest degradation (land area - Forest ........ area has been decreasingbut the rate of 22.22 Stable covered by forests as % oftotal land) decrease slowed inthe 1990s (1990) (2000) forest area by 2015 1 Demographic and Health Survey, 1997 2 ibid 3 World Bank (2001), Madagascar: Education and Training 28 m 5 s- C N 0 m c ! i c - e N - IC 0Y) -> C e L -m I x c 0 2 c Y) Appendix 4. Evaluationofthe Interim CAS, Projectedand Actual Outcomes Indicator Target (I-CAS) Result achieved Rate 95 percent o f children SeptemberiOctober 2002 school enrolled infirst to third enrolment at 111% o f previous school grade inJune 2002 year J continue schooling Drop-out rate during Less than 10percent Change innumber o f student during 2003 school year 2002-2003 (- 1%)- Budget Tracking J Survey Number o f health 75 per week and facility in 116 per week and facility (December consultations informal selected health facilities 2002) d health facilities (pre-crisis level) Number o f health 80percent of health 81percent of health facility sample facilities offering facility sample (pre-crisis (December 2002) d assisted birthand level) number of assistedbirths Availability o f basic 89 percent o f health 74 percent o fhealth facility sample medicines facility sample have entire have list o f basic medicines available list o f basic medicines (pre-crisis level) Formal industrial 60,000 (up from 20,000 70,000 as o f September 2003 employment inexport during crisis) processing zone Income developments o f Qualitative interviews in 73 percent o f 150 communities rural households sample communities show visited state that their income significant increase in situation inNovember 2002 (post rural incomes inpost- crisis) is better or at least the same crisis period compared to than duringthe crisis period (June crisis-period 2002) Rural terms-of-trade Rural terms-of-trade reach While recovering inthe post crisis pre-crisis level period, rural terms-of-trade in NoviDec 2002 where about 20 percent lower than inNoviDec 2001 32 I m m I I d m w I Appendix 6. COUNTRY CONSULTATIONS: A FULLPARTICIPATORY PROCESS Consultations on the Poverty Reduction Strategy Paper, which underpins this CAS and other donor strategies, and the Bank's program, are necessarily intertwined. The comprehensive participatory process o f the Government, and donor support for it, is organized by the Secretariat Technique de Z'Ajustement (STA) which acts as a technical secretariat to a PRSP Technical Committee, composed o f representatives o f all sector ministries, several non-governmental organizations, and academia. Six thematic working groups (rural development, infrastructure, health, education, private sector development and governance) were constituted inthe Fall o f 2000 andmet regularly throughout the process. Ongoing discussions between the Bank and the STA and the involved ministries helped prepare the National Workshop for Consultations on the draft full PRSP held on March 25-26, 2003 with more than 600 participants from a wide spectrum o f opinions, including a former Chief o f State, former and current Prime Ministers and Ministers, opposition parties, and the donor community. Govemance, Institutional Development, justice, corruption, growth, infrastructure, education, health, AIDS, agriculture and environment, water and sanitation were considered priorities. The PRSP was redrafted to include the recommendations o f the National Workshop while financial and procurement reviews have been concluded as joint documents between the Government and Bank under the chairmanship o f the Deputy Prime Minister. President Ravalomanana, with the assistance o f the Bank, organized on June 16-18, 2003 a Colloquium for the Cabinet and ministry officials with leaders in the financial and economic areas from around the world. These targeted dialogues and consultations including the PRSP Workshop, the Cabinet Colloquium have already borne fruit. The President announced important and unprecedented reforms for facilitating foreign and national investments, including restructuring tax and customs and land ownership rights, especially for foreigners. Throughout the consultation period, the Bank held extensive discussions with the Government and other stakeholders including the donor community, the political world, the ecumenical leadership o f the main four churches, the private sector and civil society organizations. While the development o f the PRSP and this CAS were based on a broad, participatory process, the challenge now lies in the implementation o f the Govemment's strategy and a concerted effort for poverty reduction and economic growth in Madagascar. As part o f its ongoing work, the donor community will continue to work closely together on the ground to best target and implement their support in line with comparative advantage. (See donor activity matrix inAppendix 5) Local donor meetings are held regularly and dialogue on a project by project basis also takes place with local communities. U p o nrequest of the Government, a donor coordinationmeeting, following up o n the successful Friends o f Madagascar meeting held inJuly 2002, inParis inOctober 2003 focuses onpriority themes laid out inthe PRSP: Governance and the Macroeconomic situation, Transport and Rural Development, and Educationto share latest information, reform measures and sector approach between the Government and the donor community . 35 Appendix 7. Policy actions required before approvinga PRSC Inparticular, andbeforeapproving aPRSC, the Bankwill assessprogress inthe following areas: the functioning o f the financial reform commission; the implementationo f the recommendations o f the audit o f the treasury; the revision o f laws pertainingto financial management the strengthening o f internal controls the adoption o f a new procurement code the strengthening o fprocurement capacity inkey spendingministries the improvement inthe operations o f commercial courts adequacy o f internal controls inthejustice department the restructuring o f customs so as to reduce corruptionand to accelerate clearing procedures, IftheBankjudges that these areas arenot met, the Bankwillrevert to traditionalprojectlendingandwill thusbe inthe low case (See page 23). 36 Appendix 8. PRSP and CAS Policy Matrix PRSP Strategic PRSP obiective Focus program Govemance Reducecorruption Slake anti corruption functional Ongoing Lower levels of corruption and develop comprehensiw anti- corruption strategy Improvejudiciary Develop comprehensive stratea Ongoing Strengthening of intemal \\hich includes in particular I controls to combat corruption expedition oijudicial proceedings Improvemanagement of public Introduce integrated financial Ongoing Public expenditures more pro- funds management system; strengthen poor intemal external controls; Larger share oipublic funds public procurement reform reach intended destination Reform civil service Impro\,ethe decentralized ' Ongoing Service delivery in areas nith deli\.ery of senices in key areas large public-pnvateinterface inuarticular the social sectors IIhas imuroxd as evidenced by surveys and independent audits Broadbased IncreaseGDP growth Continue to provide special I Ongoing IncreasedGDP growth incentives to investor Increasefiscal revenues Strengthening of tax Ongoing Higher revenue/GDP ratio administration ReduceRural Poverty Increaseaccess to markets for Ongoing Reducedrural povertj farmers Strengthenextension services Ongoing Increasedrice yields Improve access to roads Reform ofroad maintenance Ongoing: new road Improvedinfrastructure fund maintenance Improvedaccess fund set up and Increasedkmof functioning maintainedroads Reduction in Transport costs Increaseagricultural productivity Delegation of implementation Ongoing Increasedagricultural and ensure competitiveness of authority to (i)Roads Authority; productivity locally producedrice (ii)Aviation Authority; (iii) Transport Authority and (iv) I infrastructure(Railways, Ports, Increasedagricultural and maintenance of dams, Stop deforestation conservation technologies and services, infrastructure) to those communities that are able to enforce the existing laws on Improveaccess and quality of education Human and material security Continue literacy campaign I Ongoing I Higher literacy rates Provisionof text books I Ongoing I Higher # o f textbookslstudent 37 - Appendix 9: Monitoringindicators Governance L Budget management benchmarks metas 5 > 10-improvements inparticular inthe defined in the HIPC and CFAA areas o f reporting (Treasury submits benchmarks, inparticular on reporting statement o f financial accounts and requirements o f the Treasury and Auditor final accounts within the relevant General as well as deviation between statutory timeframe, Auditor General annual budget and actual allocation, and submits audited accounts to Parliaments public procurement reform within the statutory timeframe) and procurement (new procurement legislation and revised institutional framework for public procurement implemented) Budget (2004-2006) includes proper Plans underway to improve Increased pro-poor allocation o f public planning and monitoringfor public poverty monitoring in2004 resources in line with strategic objectives o f the PRSP Transparency and service delivery significantly improved as evidenced by independent audits Broad based growth 2003-2006 Average o f 6% 68% o f population 16,900 km 75% o f district capitals are accessible by road L Private management o f SIRAMA / Plans underway for SIRAMA and HASYMA privatized HASYMA HASYMA Increasing rice productivity . Average rice yield = 1.8 Average rice yield = 2,4 tonsiha tonsiha L L Decrease the average annual deforestation Deforestation rate in 2003 Average 2004-2006 deforestationrate rate = 1.2% reduced to 0.6% L Nationallyprotected areas % o f land area 1.9% ~ Human and Material L Increased literacy rate 54% o f population above 56% o f population can read and write security 15 can read and write L Increase in primary school completion 44% 58 % rate L Number o f textbooks per primary school 1book per 3 students 1book per child student L Under 5 mortality rate 141 per 1,0000 120 per 1,000 L Increase in proportion o f people knowing 57% (women) 80% (women) at least three ways to prevent getting 44 % (men) 90% (men) infectedwith HIV. (1997 rates) L DTP3 vaccination rate o f children below 55 % 65% 1year L Reduction in child underweight rate 40% (1997) 35% (MDGindicator) L Chronic malnutrition (stunting) 48 % (1997) 40 % 38 Appendix 10. Key requirements for moving to higher growth rates, increased poverty reductionand higher aid inflows The Bankbelieves that six points are fundamental to reach these higher levels o fpoverty reductionand growth. These points will be monitored closely: Ensure that growth poles beneJit thepoor: Most important for the above scenario to materialize i s that future growth inMadagascar benefits the poor more than inthe past. The most recent growth period (1997-2001) was centered around growth inresource extraction sectors like miningand fishing (withrelatively low spread effects) as well as manufacturing(with significant employment impacts), construction, services, and tourism. For growth to be broader based than inthe past, both public investments (irrigation, roads and general transport infrastructure, education, health) would needto concentrate on poor but high-potential rural areas. Apart from manufacturing investments, private sector funds would increasingly have to also benefit ago-businesses which have, according to a number o f studies, a good profitability potential ifcomplementary public investments in infrastructure were present; Improve environmentfor private investors. The most important current hindrances for private investment are (i) a very concentrated banking sector which limitsavailability o f credit (with banks holding excess liquidity ineither treasury bonds or as simple deposits with the Central Bank); (ii) limited availability o f secure land for property investments; (iii) discretionary and corrupt customs practices including long waiting times to ex- and import goods; (iv) a slow and ineffectivejudicial sector which does not help secure and protect property rights o fprivate investors; and (v) significant public sector arrears towards the private sector. Further, public sector procurement policies are open but irregularities inawarding bids occurs and the recent country procurement review suggested a major overhaul o f govemment procurement regulation. . Achieve More Effective Resource Use of Domestic and Foreign Resources: Only ifresource use becomes more effective and efficient, could increasedforeign and domestic resources contribute to a significantly improved poverty impact o f public spending. Major reforms are needed with respect to budgetplanning, execution and reporting. The recent budgetary process assessmentswithin the HIPC initiative and the CFAA showed that Madagascar only meets five out o f fifteen specified budget management benchmarks with serious weaknesses inexecution and reportingbut also major problems inbudget formulation. The major weaknesses include that (i) budget planning i s still conducted separately for current and investment expenditures leadingto important misalignments for investment implementation(planning o f counterpart fund use) but also for proper planning o f maintenance and staff expenditures; (ii) the linkbetween overall poverty reductionstrategy and public investment distribution i s historically very weak; (iii)the expenditure chain i s long and cumbersome with too many and ineffective controls, leadingto underutilizationo f credit lines, especially for investments insocial sectors; (iv) the monitoring system o f current expenditures i s only able to track expenditure untilthe commitment stage, resultingina budget system that i s largely treasury-determined (as treasury decides which bills to pay and which ones not); and that (v) no functioning reporting and monitoring system for investment expenditures exists (as these are largely donor financed and projects to do regularize expenditures ex post). Similarly, a public sector procurement reformi s needed as a recent Country Procurement Assessment revealed. Currently, public procurement takes very long and not transparent. Procurement reform could significantly increase public investment execution rates as well as provide important higher demand for private sector contractors; Implement Service Delivev, Institutional Development and Fight Against Corruption. Significant reforms would also be necessary to improve service delivery inkey sectors (education, health, agriculture, transport, water). Apart from the general public financial management and budget planningproblems outlined above (which concern all sectors alike), the necessary steps would 39 include (i) significant legal and financial strengthening o f communities (including additionaltax authority to finance maintenance expenditures o f primary facilities); (ii) institutional strengthening and concerted capacity buildingefforts at the level o f the communes aimed at improving the delivery o f services; (iii)improved accountability and control systems within the deconcentrated service delivery ministries. Most likely, increased absorptive capacity within sector ministries can only be achieved inthe short-run through contracting out o f service delivery to NGOs and churches. The new Govemment has also declareda `war on corruption' and a superior council to fight corruption has beenformed. (5) Increase domestic revenues: Currently, with around 10 percent o f GDP (2001), Madagascarhas one o f the lowest tax/GDP ratios for its per capita income with the largest part o f taxes stemming from customs receipts (46 percent) and the value added tax (43 percent). Duringthe crisis year 2002, the tax ratio even dropped to 7.3 percent. While customs reformmightincrease revenue collection, further planned liberalizationwould likely not leave room to increase trade tax income. Rather, income tax collection would needto improve significantly. Such a rise mightnot be advisable inthe very short-run when the economy i s strugglingto recover from an economic crisis butmedium-termfiscal plans should include such a higher tax collection. Customs administration i s key as collectionremains weak. Current customs administration hinders private sector activities and effective revenue collection: a computerized customs data system i s inplace but not effectively used; customs bureaucracy and corruption are high. A new pre-shipment control contract has been signed but deeperreforms (including the contracting out o f customs) would need to be concretized. 40 Madagascar at a glance 9/3/03 Sub- POVERTYand SOCIAL Saharan Low- Madagascar Africa income Developmentdiamond* 2002 Population,mid-year(millions) 16.4 674 2,511 Life expectancy GNI per capita (Atlas method, US$) 240 470 430 GNI (Atlas method, US$ billions) 4.0 317 1,069 T Average annual growth, 199642 Population(%) 3.0 2.5 1.9 Laborforce I%) 3.2 2.6 2.3 GNI Gross per primary Most recent estimate (latest year available, 199842) capita enrollment Poverty(% ofpopulationbelownationalpoverty line) 69 Urban population(% of totalpopulation) 31 32 31 Lifeexpectancy at birth (years) 55 47 59 I Infant mortality(per 1,000live births) 84 91 76 Child malnutrition(% of childrenunder 5) 33 Access to imDrovedwater source Access to an improvedwater source (% ofpopulation) 25 55 76 illiteracy(% ofpopulation age 15+) 32 37 37 Gross primary enrollment (% ofschool-age population) 102 78 96 - Madagascar Male 104 85 103 Low-incomegroup Female 100 72 88 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 4.5 4.6 Gross domestic investmenffGDP 18.5 14.3 Exportsof goods and services/GDP 29.1 16.0 Trade Gross domestic savings/GDP 15.3 7.7 - Gross nationalsavingsiGDP 17.2 8.3 Current accountbaianceiGDP -1.3 -5.9 interest payments/GDP Total debffGDP 91.9 94.2 Total debt service/exports 28.4 15.8 11.6 21.9 Presentvalue of debtiGDP 48.4 49.9 Presentvalue of debffexports 163.5 301.1 Indebtedness 1982-92 199242 2001 2002 200248 (averageannualgrowth) GDP 1.5 2.5 6.0 -12.7 8.3 -Madagascar GDP per capita -1.2 -0.5 3.0 -15.2 5.6 Low-incomegroup Exportsof goods and services 2.8 2.1 6.0 -43.7 15.7 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP ("h) (% of GDP) Agriculture 34.2 112.4 28.6 32.1 40T Industry 13.4 48.3 14.7 13.3 Manufacturing 40.3 12.6 11.3 Services 52.4 225.5 56.7 54.7 Private consumption 76.4 84.2 General government consumption 8.3 8.2 importsof goods and services 32.3 22.6 1982-92 199242 2001 2002 IGrowth (averaoeannualgrowth) of exports and Imports (Oh) I Agriculture 2.5 1.9 4.0 -1.6 40 industry 2.7 2.5 7.6 -20.8 20 Manufacturing 0.8 2.9 10.7 -18.3 0 Services 1.o 3.0 6.1 -15.4 -20 Privateconsumption 0.1 2.9 3.7 8.8 -40 Generalgovernmentconsumption 0.1 1.4 15.7 -13.5 5 0 Gross domestic investment 5.2 5.6 22.6 -31.4 imports of goods and services -2.4 5.4 11.8 -31.O Note:2002 data are preliminaryestimates. Group data are through 2001, * The diamonds show four key indicatorsin the country(in bold) comparedwith its income-groupaverage.If data are missing,the diamondwill be incomplete. Develooment Economics 9/3/03 41 Madagascar PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation(YO) (% change) T Consumer prices 15.3 7.4 15.8 i o ' implicit GDP deflator 7.3 15.4 Government finance (% of GDP, includes current grants) Current revenue 11.6 8.8 9, 98 99 00 0:l hl Current budget balance 0.5 -1.5 Overall surplus/deficit -6.4 -6.7 -GDP deflator +CPi TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 284 324 965 499 ,200 T Coffee 94 32 3 3 Vanilia 3 51 164 120 Manufactures 158 572 313 Total imports (cif) 552 547 1,118 729 Food 128 58 84 61 Fuel and energy 134 72 168 217 I Capital goods 117 129 164 92 Export price index (1995=100) 104 91 131 135 96 97 98 99 00 01 Import price index (1995=100) 92 94 95 Exports Imports O2 Terms of trade (1995=100) 98 140 142 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balanceto GDP (%) I Exports of goods and services 377 496 1,317 730 imports of goods and services 656 733 1,462 1,029 Resource balance -280 -237 -146 -299 Net income N/A -134 -59 -70 Net current transfers 7 163 146 99 Current account balance N/A -209 -59 -271 Financing items (net) 226 157 218 Changes in net reserves N/A -17 -98 53 Memo: Reserves including gold (US$ millions) N/A 85 398 363 Conversion rate (DEC, local/US$) 349.7 1,864.0 6,591.5 6,592.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 ~ ~ ~~ (US$ millions) :omposition of 2001 debt (US$ miii.) Total debt outstanding and disbursed 1,933 3,911 4,159 4,296 IBRD 31 20 0 0 IDA 187 887 1,409 1,652 F.77 G: 239 Total debt service 110 96 156 166 IBRD 3 4 0 0 IDA 2 10 30 32 Composition of net resourceflows Official grants 88 126 89 66 Official creditors 199 85 Private creditors 48 -8 Foreign direct investment 58 4 Portfolio equity World Bank program Commitments 32 24 243 130 \ - IBRD E Bilateral Disbursements 34 37 97 163 I IDA - D Other multilateral - F Private Principal repayments 1 7 19 21 >. IMF G Short-term --- Net flows 33 31 78 143 Interest payments 3 8 11 11 Nettransfers 29 23 67 132 Development Economics 9/3/03 42 CAS Annex B2 -Madagascar Selected Indicators* of Bank Portfolio Performance and Management As Of Date 08/25/2003 Indicator 2001 2002 2003 2004 Portfolio Assessment Number of Projects Under Implementation a 17 18 15 15 Average Implementation Period (years) 3.0 3.7 3.3 3.5 Percent of Problem Projects by Number 5.9 77.8 0.0 0.0 Percent of Problem Projects by Amount a, 8.3 87.4 0.0 0.0 Percent of Projects at Risk by Number a,d 5.9 77.8 0.0 0.0 Percent of Projects at Risk by Amount a , d 8.3 87.4 0.0 0.0 Disbursement Ratio (%) e 16.2 16.0 35.6 3.6 Portfolio Management CPPR during the year (yesho) Yes Yes Yes Yes Supervision Resources (total US$) 1,945,000 2,085,000 1,750,000 1,660,000 Average Supervision (US$/project) 100,000 100,000 90,000 90,000 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 59 7 Proj Eva1by OED by Amt (US$ millions) 2,595.8 368.2 % of OED Projects Rated U or HU by Number 39.0 14.3 Yo of OED Projects Rated U or HU by Amt 36.8 12.8 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 43 CAS Annex B3 IBRD/IDA Program Summary -Madagascar - As Of Date 08/05/2003 Proposed IBRDllDA Base-Case Lending Program a Fiscal year Pro] ID us$(M) Rewards Strategic Implementation b Risks (H/M/L) (H/M/L) 2004 EnvironmentProgram 111 40.0 H M Governance and InstitutionalDevelopment 30.0 H L Transport 111 150.0 H M Sub-Total 220.0 2005 PRSC 70.0 H M IntegratedGrowth Poles 85.0 H M Sub-Total 155.0 2006 PRSC II 70.0 H M Watershed Managementproject 60.0 H M Sub-Total 130.0 Total 505.0 44 CASAnnex B3 (IFC & MIGA) for Madagascar Madagascar - IFCand MIGA Program, FY 2001-2004 2001 2002 2003 2004 IFCapprovals(US%m) 25.59 Sector (YO) AGRICULTURE & FORESTRY 60 TEXTILES, APPAREL & LE 40 Total 100 0 0 0 Investmentinstrument(YO) Loans 100 Equity Quasi-Equity Other 0 Total 100 0 0 MIGA guarantees (USrSm) 2.1 1.4 1.4 45 CAS Annex B4 Summary of NonlendingServices Madagascar - - As Of Date 9/11/03 Product Completion FY Cost (US$OOO) Audiencea Objectiveb Recent completions CFAA FY03 129,000 GovVBank Problem-solving CPAR FY03 116,000 GovVBank Problem-solving Decentralization Study FY03 188,000 Government Knowledge Interim CAS FY03 83,500 Bank Knowledge Tourism Study FY03 23,300 Government Knowledge RuraVEnvironmental Sector Study FY03 146,000 Government Knowledge EPZ Supply Chain Management FY04 30,800 Government Underway Integrated Framework FY04 Government Knowledge Health Sector Study FY04 90,000 Government Problem-solving PER FY05 225,000 GovVBank Knowledge CEM/Development Policy Review FY05 200,000 GovVBank Problem-solving Planned Land Review FY05 150,000 Government Knowledge Risk and Social Protection FY06 170,000 Government Problem-solving Transport Sector Review FY06 200,000 GovVBank Knowledge Environment Policy Dialogue FY06 140,000 GovVBank Problem-solving 46 Annex B5 Page 1 of 2 CAS Annex B5 Madagascar Social Indicators - Latest single year Same regionlincome group Sub- Saharan Low- 1970-75 1980-85 1995-2001 Africa income POPULATION Total population,mid-year (millions) 7.8 10.1 16.0 673.9 2,505.9 Growth rate (Yoannual averagefor period) 2.6 2.6 3.1 2.5 1.9 Urban population(% of population) 16.3 20.9 30.1 32.3 30.8 Total fertility rate (births per woman) 6.6 6.6 5.3 5.1 3.5 POVERTY (`77ofpopulation) Nationalheadcountindex 71.3 Urban headcountindex 52.1 Rural headcountindex 76.7 INCOME GNI per capita (US$) 300 290 260 460 430 Consumerprice index (1995=100) 4 17 175 Food price index (1995=100) 18 168 INCOMEKONSUMPTION DISTRIBUTION Share of incomeor consumption Gini index 46.0 Lowestquintile (Yoof incomeor consumption) 6.4 Highestquintile (Yoof income or consumption) 44.8 SOCIAL INDICATORS Public expenditure Health (% of GDP) 2.5 2.5 1.1 Education(Yoof GDP) 2.5 2.8 3.2 3.4 2.8 Socialsecurity and welfare (YOof GDP) 1.7 0.3 Net primary school enrollment rate (`77of age group) Total 68 Male 67 Female 68 52 Access to an improved water source (`77ofpopulation) Total 47 58 76 Urban 85 83 90 Rural 31 46 70 47 Annex B5 Page 2 o f2 Latest single year Same regionlincome group Immunization rate (% under 12months) Measles 6 55 58 60 DPT 23 55 53 61 Child malnutrition (% under 5 years) 33 40 Life expectancy at birth (years) Total 48 52 55 46 59 Male 47 51 54 45 58 Female 50 54 57 47 60 Mortality Infant (per 1,000 live births) 108 105 84 105 80 Under 5 (per 1,000 live births) 178 172 136 171 121 Adult (15-59) Male (per 1,000 population) 351 353 385 520 312 Female (per 1,000 population) 250 278 322 461 256 Maternal (modeled,per 100,000 live births) 580 Births attended by skilled health staff (%) 62 46 Note: 0 or 0.0 meanszero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998due to change from ISCED76 to ISCED97; ratios exceeding 100 indicate discrepanciesbetween the estimatesof school-age population and reported enrollmentdata. 2003 World DevelopmentIndicatorsCD-ROM, World Bank 48 Page 1 of 2 CAS Annex B6 Madagascar Key Economic Indicators - Actual Estimate Projected Indicator 1998 1999 2000 2001 2002 2003 2004 2005 2006 National accounts (as YOof GDP) Gross domestic product" 100 100 100 100 100 100 100 100 100 Agriculture 31 30 29 29 32 32 32 31 31 Industry 14 14 14 15 13 13 14 14 14 Services 56 56 56 57 55 54 55 55 55 Total Consumption 93 93 92 85 92 90 89 87 86 Gross domestic fixed investment 15 15 15 18 14 18 19 20 21 Govemment investment 8 7 7 7 5 7 8 9 9 Private investment 7 8 8 11 9 10 11 12 12 E X P O ~ ~(GNFS)~ S 22 24 31 29 16 22 24 26 28 Imports (GNFS) 29 32 38 32 23 29 32 33 3s Gross domestic savings 7 7 8 15 8 10 11 13 14 Gross national savings' 7 10 9 17 8 13 13 15 16 Memorandum items Gross domestic product 3739 3717 3866 4527 4560 5240 5441 5842 6278 (USSmillion at current prices) GNP per capita (US$,Atlas method) 260 250 260 270 250 280 310 330 340 Real annual growth rates (%, calculated from 1984 prices) Gross domestic product at market prices 3.9 4.7 4.8 6.0 -12.7 6.0 6.0 6.0 6.0 Gross Domestic Income 5.6 3.7 6.5 9.3 -13.6 7.8 7.1 6.6 6.5 Real annual per capita growth rates (%, calculated from 1984 prices) Gross domestic product at market prices 0.8 1.5 1.6 3.O -15.2 3.O 3.0 3.0 3.0 Total consumption 0.7 0.5 1.7 1.9 -10.1 2.4 3.O 2.0 2.6 Private consumption 1.3 1.2 1.7 0.9 -9.5 1.6 2.9 1.9 2.8 Balanceof Payments (US$millions) E X ~ O ~(GNFS)~ ~ S 805 910 1186 1317 730 1147 1306 1513 1746 Merchandise FOB 522 584 829 965 499 806 936 1109 1306 Imports (GNFS)~ 1095 1198 1470 1462 1029 1531 1716 1936 2210 Merchandise FOB 672 742 933 950 620 933 1056 1213 1414 Resource balance -290 -288 -283 -146 -299 -384 -410 -423 -464 Net current transfers 85 129 135 146 99 22s 172 185 199 Current account balance -278 -201 -218 -59 -277 -242 -312 -317 -333 Net private foreign direct investment 16 58 70 93 9 18 72 84 97 Long-term loans (net) -19 31 43 53 68 126 159 140 159 Official 54 76 94 82 114 168 196 174 201 Private -74 -44 -51 -29 -46 -42 -36 -34 -42 Other capital (net, incl. grants, debt relief, etc.) 177 158 68 11 146 157 152 184 194 Change in reservesd 104 -46 37 -98 53 -59 -72 -90 -118 Memorandum items Resource balance (% o f GDP) -7.8 -7.8 -7.3 -3.2 -6.6 -7.3 -7.5 -7.2 -7.4 Real annual growth rates ( YR84 prices) Merchandise exports (FOB) 1.5 17.4 34.3 -2.1 -37.2 34.5 13.1 16.8 15.8 Primary -2.5 28.3 8.3 0.1 -23.9 16.9 7.7 8.1 8.6 Manufactures 6.7 12.2 55.9 -4.6 -79.4 38.7 25.0 30.8 25.5 Merchandise imports (CIF) 13.0 2.4 12.0 14.4 -38.9 42.3 17.9 15.3 16.2 49 Madagascar Key Economic Indicators - (Continued) Actual Estimate Projected Indicator 1998 1999 2000 2001 2002 2003 2004 2005 2006 Public finance (as % of GDP at market prices)' Current revenues 10.9 12.2 12.4 11.6 8.8 13.0 11.6 12.7 13.2 Current expenditures 10.5 9.3 9.2 10.3 10.3 10.4 10.0 9.8 9.5 Current account surplus (+) or deficit (-) 0.4 2.8 3.2 1.3 -1.5 2.6 1.6 2.9 3.7 Capital expenditure 9.4 8.5 9.0 8.1 5.3 7.7 7.9 8.7 9.2 Foreign financing 5.1 4.1 5.6 4.6 5.0 5.5 6.1 5.7 5.5 Monetary indicators M2/GDP 20.4 2 1.2 22.5 24.7 26.4 26.5 27.4 27.8 28.6 Growth o fM 2 (%) 8.1 19.2 19.3 24.4 7.8 11.7 16.8 12.8 14.4 Private sector credit growth / 1.4 48.8 60.7 19.1 15.4 123.3 82.9 87.0 87.0 total credit growth (%) Price indices( YR84 =loo) Merchandise export price index 94.8 90.2 95.4 13.4 93.4 112.1 115.1 116.9 118.8 Merchandise import price index 101.0 109.0 122.2 108.8 116.2 123.0 118.1 117.6 118.0 Merchandise terms o f trade index 93.8 82.7 78.1 104.1 80.3 91.1 97.5 99.4 100.6 Real exchange rate (US$/LCU)f 48.9 47.6 52.4 57.8 62.5 65.1 64.0 63.9 64.3 Real interest rates Consumer price index (% change) 6.2 9.9 11.9 7.4 15.8 3.5 5.0 4.3 4.4 GDP deflator (% change) 8.4 9.7 7.2 7.3 15.4 5.0 6.5 4.9 4.9 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequitedtransfers excluding official capital grants. d. Includes use o f I M F resources. e. Consolidated central govemment. f. "LCU" denotes "local currency units." An increaseinUS$/LCUdenotesappreciation. 50 CAS Annex B7 Madagascar Key ExposureIndicators - Actual Estimate Projected Indicator 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total debt outstandingand 4394 4754 4702 4159 4329 4595 3444 3599 3147 disbursed(TDO) (US%m)a Net disbursements (US$m)a 40 16 133 103 116 184 184 158 144 Total debt service (TDS) 117 115 103 17 99 111 76 75 94 Debtand debt service indicators (%) TDO~XGS~ 530.3 510.8 389.2 310.3 572.4 391.6 258.3 233.4 210.9 TDOiGDP 117.5 127.9 121.6 91.9 94.9 81.7 63.3 61.6 59.7 TDSiXGS 14.2 12.3 8.5 5.7 13.1 9.5 5.7 4.9 5.3 ConcessionaliTDO 66.3 61.4 IBRD exposureindicators (%) IBRD DS/public DS 1.5 0.9 2.3 0.0 0.0 0.0 0.0 0.0 0.0 Preferredcreditor DSipublic 45.6 45.0 49.6 60.8 51.3 52.2 57.2 64.8 66.6 DS (%)' IBRD DS/XGS 0.2 0.1 0.2 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (us$mld 1 0 0 0 0 0 0 0 0 Of whichpresentvalue of guarantees (US$m) Share of IBRD portfolio (%) IDA TDO (US$mld 1317 1361 1378 1409 1652 1828 2000 2147 2283 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includespublic and publiclyguaranteed debt, privatenonguaranteed,use of IMF credits andnet short- termcapital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferredcreditors are defined as IBRD, IDA, the regionalmultilateral developmentbanks, the IMF, and the Bank for International Settlements. d. Includespresentvalue of guarantees. e. Includesequity and quasi-equity types of both loan and equity instruments. 51 n c, v) C CAS Annex BS Madagascar - Madagascar Statementof IFC's Held and DisbursedPortfolio As of 8/3 1/2003 (InUSDollarsMillions) Held Disbursed FYApproval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990191 AEF FIARO 0 0.47 0 0 0 0.47 0 0 1997 AEF GHM 0.74 0 0 0 0.74 0 0 0 1995 AEF Karibotel 0.22 0 0 0 0.22 0 0 0 1992193195 AQUALMA 0.43 0.61 0 0 0.43 0.61 0 0 1991 BNI 0 2.61 0 0 0 2.61 0 0 2000 BOA-M 0 0.82 0.62 0 0 0.82 0.62 0 1983189 Nossi-Be 0 0.24 0 0 0 0.24 0 0 Total Portfolio: 1.39 4.75 0.62 0 1.39 4.75 0.62 0 Amrovals Pending.Commitment - ~ IFC IFC Part Loan Total Total 2001 Besalampy 15.23 15.23 0 2001 COTONA I11 7.76 7.76 0 2004 Cottonline 5.00 5.00 0 Total PendingCommitment: 27.99 27.99 0 53 The Task Team leader for this CAS prior to the Upstream Reviewwas Jesko Hentschel. The Core Task Team comprised Willem van Eeghen, Christos Kostopoulos, Janet Dooley, Leonid Koryukin, AurelienKruse, Anna van der Wouden, andHarifera Raobelison, but many others contributed. 54 MAP SECTION