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Presentation by H.E. Luisa Diogo

The Role of IDA:

Responding to Evolving Country

Needs

The Case of Mozambique

IDA-15 Replenishment Meeting, MaputoJune 29, 2007

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IDA in MozambiqueResponding to Evolving Country Needs

1984-1992: War, Economic Crisis, Reforms

Begin

1993-1997: Post-conflict Reconstruction and

Reform

1998-2007: Sustained Growth

Progress since the War

IDA in Perspective

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IDA in Mozambique A Story that can become a Success

Mozambique’s track record of good results over the past 25 years is due to a variety of factors, but especially:

Strong leadership and vision by Government

Clear and effective Poverty Reduction Program

Fulfillment of the commitment Donor coordination and long-term

international partnership specially with IDA, which has provided continuity and consistency to the process of development

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I. 1984-1992: War, Economic Crisis, Reforms BeginContext

1984 Country at war since 1976 Centrally-planned economy (started in 1977) Deep crisis Mozambique joins IBRD/IDA and IMF (1984)1987 Economic reforms begin: opening of forex market, liberalization of

imports, elimination of price controls, reduction of fiscal imbalances Transformation of Eastern Europe Peace a priority UN leads humanitarian assistance, supported by bi-laterals and

NGOs1992 Peace agreement signed

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1984-1992: War, Economic Crisis, Reforms BeginRole of IDA

Main IDA roles -- convener (CGs), early mover, strong

financier

Analytic work and financial support help government

undertake reform and plan transformation to market

economy

Investment operations restore basic services even during

war – urban rehabilitation, health services, schools

Confidence building and close partnership built between

government, IDA and international community

Leadership by IDA on economic policy dialogue; other

donors focus on humanitarian issues

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1984-1992: War, Economic Crisis, Reforms BeginIDA Support

37%

11%

10% 6%

36%

Agriculture, Rural, Nat'l Resource

Economic Reform

Health / Education

Infrastructure

PSD / Finance

Focus of Lending:

Economic reform

Infrastructure rebuilding

Reinforcing basic services

Average annual lending:

$106 m ($851 m IDA total)

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1984-1992: War, Economic Crisis, Reforms BeginChoices Facing Government

How to manage reforms in a context of war:

- Tight dialogue with the Bank (field office)- Confidence building- Commit only on what is possible

Define the leading technical team (Finance, Central Bank, Minister for Economy)

Keep on track

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1984-1992: War, Economic Crisis, Reforms BeginLessons Learned

Spend the necessary time for preparation and negotiations

Define what comes first, what comes later

Keep fiscal discipline (despite the war)

Do not use the principle of one size fits all (positive lesson of SNAAD)

Prepare for the transition to peace

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II. 1993-1997: Post-conflict Reconstruction & ReformChallenges and Transitions

Serious challenges Resettlement of 6 m internal and external refugees and

reintegration of 100,000 combatants from both sides Reconstruction of infrastructure and basic services High level of extreme poverty; very limited agricultural

activity, including food production

Complex transitions War to peace Single party system to multi-party democracy Centrally-planned to market economy Humanitarian assistance to reconstruction support

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1993-1997: Post-conflict Reconstruction & ReformRole of IDA

Convening power Chairs Consultative Group meetings (from 1989), which mobilize

donor resources and coordinate donor and government policies Provides framework to shift assistance to post-war reconstruction Encourages investor confidence (e.g., Maputo Corridor, Mozal)

Financing power Large projects for reconstruction of highways, ports and railways Rehabilitation of health and education infrastructure Training programs to improve human capital

Knowledge base and policy advice Multi-sectoral expertise (e.g., needs assessment for reconstruction) Sector-wide approach introduced (e.g., in roads) Policy advice instrumental for difficult reforms (e.g., privatization,

banking)

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1993-1997: Post-conflict Reconstruction & ReformIDA Support

48%

16%

28%

2%5%1%

Agriculture, Rural, Nat'l Resource

Economic Reform

Health / Education

Infrastructure

PSD / Finance

Public Sector Reform

Focus of lending:

Half for economic reform

Increasing share for health and education

Infrastructure support still large

Average annual lending:

$187 m ($936 m total IDA)

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1993-1997: Post-conflict Reconstruction & ReformChoices Facing Government

Define priorities:• Rural/urban • Recurrent and investment• Defence, education and health, police• Areas for de-mining

Move from emergency and humanitarian aid to post-war reconstruction

In-depth reforms

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1993-1997: Post-conflict Reconstruction & ReformLessons Learned

Importance of the Household SurveyPursue the broader based growthRole of civil society for inclusivenessDecentralizationAvoid dogmas in partnershipKeep fiscal and budgetary disciplinePrioritize investmentCashew-nut case (spend the necessary

time to prepare the reform)

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III. 1998-2007: Sustained GrowthSignificant Achievements

Strong macroeconomic performance GDP growth rate averages 8% Agriculture grows on average at 6% Inflation is moderate at around 9% Devastating floods (2000-01) only temporary set-back

New sources of growth Maputo-Witbank corridor financed through a public-private

partnership Minerals (aluminum smelter, titanium, coal); natural gas;

energy; tourism; trade (ports) Re-opening of Zambezi valley with roads and Sena railway

Emphasis on inclusive growth Poverty reduced from 69% (1997) to 54% (2003) Improved education and health indicators

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1998-2007: Sustained GrowthRole of IDA

Supports government’s poverty reduction strategy and continued rehabilitation of infrastructure, social services

Leads HIPC (2000), enhanced HIPC (2003) and MDRI (2006) Helps strengthen country systems in public financial

management, procurement and governance Moves to donor harmonization and alignment with government

General budget support MoU for PRSCs (2004), Sector MoUs Supports regional initiatives

Transfrontier parks, transportation links, natural gas pipeline Decentralizes operations to Country Office Advocacy and support to government on use of Natural

Resources

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8%15%

15%48%

10% 4%

Agriculture, Rural, Nat'l Resources

Budget Suport

Health / Education

Infrastructure

PSD / Finance

Public Sector Reform

Focus of lending:

Increasing emphasis on infrastructure

Introduction of budget support

Share for health and education remains stable

Average annual lending:

$164 m ($1.6 b total IDA)

1998-2007: Sustained GrowthIDA Support

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1998-2007: Sustained Growth Choices Facing Government

Define a 65% of budgetary resources for priority areas

Second wave of reforms

Do deeper reforms

Necessary attention to the judiciary

Consolidate the financial sector reform

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1998-2007: Sustained Growth Lessons Learned

Scale-up support for: governance, human capital and economic development

Recognize the regional role of Mozambique

Support regional projects

Promote public-private partnership and use a combination of WB windows (IDA, IFC and MIGA)

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1990 2005

Annual income per capita (US$) 170 310

Extremely poor (% of population) 75 54**

GDP (billion US$) 1.4 7.4 *

GDP growth rate (%) 1 8.5 *

Inflation rate (%) 43.7 9.4 *

Primary school enrollment (%) 45 95

Infant mortality (per 1,000 births) 158 104

Roads impassable (%) 50 5

Teledensity (per 1,000 people) 4 27

IV. Progress since the WarA Story that Can Become a Success: Some Summary Statistics

*2006 data**2003 data

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Progress since the WarGrowth and Poverty Reduction

1990 2005

Annual income per capita (US$) 170 310

Extremely poor (% of population) 75 54

Trade (% of GDP) 44 70

Roads impassable (%) 50 5

Roads in good/fair condition (km) 1,500 10,500

Farmers adopting higher technology (%)

1 13

Teledensity (per 1,000 people) 4 27

Internet users (per 1,000 people) 0 7

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1990 2006

GDP (billion US$) 1.4 7.4

GDP growth rate (%) 1 8.5

Inflation rate (%) 43.7 9.4

Total exports (US$ million) 230 2391

Total imports (US$ million) 948 2878

Net private FDI (US$ million) 9.2 154

Total domestic revenues (US$ million)

320 1038

Total domestic revenues (% of GDP)

22.2 14.0

Progress since the WarEconomic Development

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Progress since the WarHealth and Education

1990 2005

Latrines facilities (% of population) 20 32

Drinking water (% of population) 36 43

Immunization against measles (% of population)

59 77

Infant mortality (per 1,000 births) 158 104

Under-five mortality (per 1,000) 235 152

HIV infection (% of population) 0 16

Primary school enrollment (%) 45 95

Primary school completion (%) 27 40

Ratio of girls to boys in school (%) 72 82

Female members of Parliament (%) 16 36

Life expectancy at birth (years) 43 42

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V. IDA in PerspectiveFinancial Role

Total commitments in 1984-2006: $ 3.4 billion Annual average commitments

1985-1992: $ 106 million 1993-1997: $ 187 million 1998-2006: $ 164 million

IDA is a key player 23% of total ODA in past decade; 18% in 2005. (Total

$1,300 m ODA makes up around 50 % of government budget.)

IDA led HIPC and MDRI: IDA’s part in HIPC and MDRI debt relief was $ 2.2 billion and it facilitated $1.1 billion in non-IDA debt relief

Government and partners rely on IDA analytical and advisory work, e.g., mining fiscal regime, Cahora Bassa financing (2006-07)

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IDA in PerspectiveMore than IDA: The Bank Support to Mozambique, FY04-07

982 m1 m

21 m82 m

1,319 m

39 m

16 m

IDA

IFC

Trust Funds

IDA debt relief - HIPC

Global Environmental Facility

IDA debt relief - MDRI

IBRD Debt Reduction Facility

Total transfers: $2,460 m

IDA commitments: $683 m

MIGA and IBRD guarantees: $311 m and $30 m

Repayment to IDA: $48 m

IMF and ADB MDRI debt relief: $1,091 m

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IDA in PerspectiveChallenges IDA Faces

Listening more and more Addressing better governance issues (skills,

priorities, leverage), and building demand for good governance

More co-financing to leverage resources, more resources, and link to other WBG products

Paris Declaration: Challenge the Bank business model, focus on results and less on processes

Simpler projects/activities to fit implementation capacity

Stronger and more strategic selection of field staff – in accordance with the priorities of the country

More decentralization Accessible policy for SMEs.

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IDA in PerspectiveChallenges for Mozambique

Sustain leadership and ownership Strengthen human capital Move beyond mega – projects, local

development, job creation, SMEs Policy framework for developing untapped

potential – energy, minerals, tourism, agrobusiness, trade

HIV/AIDS Governance – corruption, judiciary, public

institutions Increased regional integration for trade,

transport, energy

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IDA in PerspectiveWhat IDA Could do Better

Listen more Be open to new and simple solutions Aid Debt Trade Be open to other factors of development:- Expansion of financial institution to rural areas- Local entrepreneurs - Local Development Banks Gender

THANK YOU FOR YOUR KIND ATTENTION!