Madagascar: Second governance and institutional development project (World Bank - 2008)

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Document o f

The World Bank

FOR OFFICIAL USE ONLY

Report No: 41885-MG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 24.3 MILLION

(US$40 MILL ION EQUIVALENT)

TO THE

REPUBLIC OF MADAGASCAR

FOR A

SECOND GOVERNANCE AND INSTITUTIONAL DEVELOPMENT PROJECT

April 22,2008

Public Sector Reform & Capacity Building Unit (AFTPR)

Country Department 1 (AFCS1)

This document has a restricted distribution and may be used by recipients only in the

performance o f their of f ic ia l duties. I t s contents may not otherwise be disclosed without

World Bank authorization.



CURRENCY EQUIVALENTS

(Exchange Rate Effective April 3,2008)

AfDB

A N S A

ARMP

BADEA

BdG

B I A N C O

C A S

CDE

CDMAP

CFAA

CG

CNFA

cos

C P A R

CQC S I

CSLCC

Currency Unit = Malagasy Ariary (Ar)

U S $ 1 = SDR0.6075

FISCAL YEAR

Ar1790 = US$1

January 1 - December 31

ABBREVIATIONSAND ACRONYMS

Afr ica n Development Ban k

Af r i can Network o f Soc ia l

Accountabi l i ty

Auto ritd de Rdgulation des Marchds

Publics (Procurement Oversight

Author ip)

Banque Arabe pou r l e Ddveloppement

Economique en Afrique (Arab Bank for

Economic Developmen t in Afr ica)

Bureau de Gestion

Bureau Inddpendant Anti-Co rruption

(Independent A ntic orru ptio n Agency)

Cou ntr y Assistance Strategy

ContrG le des Ddpenses Engagdes

(Commitment Control)

Capacity D evelopment ManagementAc t i on P lan

Country Financial Accountab i l i ty

Assessment

Coordonnateur Gdndral

Centre Nationale de Form ation

Administrative (National Center for

Administrat ive Training)

Conseil d 'Orien tation et de Suivi

(Oversight Committee)

Cou ntry P rocurement Assessment

Rev iew

Consul tant Q ual i f icat ionComite'pour la Sauvegarde de

1 Intdg ritd

Conseil Supdrieur de Lutte con tre laCorruption

IGE

IGF

IMF

I N S T A T

I S R

LOLF

MAPM C A

M C C

MDGs

M E C I

MIGA

M o f

N G O

N C B

NLIM

PAP

P C U

PEFA

P ERP G D I

P IC

Inspection Gdndrale de 1 Etat (General

Gove rnmen t Inspectorate)

Inspection Gdndrale des Finances

(General Interna l Control)

Internat ional Mone tary Fund

Ins titu t Natio nal des Statistiques (National

Statistics Inst i tu te)

Implementat ion Status Rep ort

Lo i Organique portant Lo i des Finances

(Organic Finance Law)

Madagascar Ac t io n Plan

Mi l le nni um Chal lenge Account

Mi l l en ium Chal lenge Corporat ion

Mi l le nni um Development Goals

Min ists re de l'Econom ie, du Commerce et

de 1 Indu strie (Ministry o f Economy,Trade and Industry)

Mul ti late ral Investment Guarantee

Agency

Ministry o f Finance

N o n Governmental Organization

National Competi t ive Bidding

Nationa l Leadership I ns t i t u te o f

Madagascar

Pr i o r it y Ac t i o n P lan

Project Coordinat ion Unit

Publ ic Exp endi ture and Financial

Accountabi l i ty

Publ ic Expendi ture Rev iewProgram me de G ouvernance et

Ddveloppement Institutionne l (Governance

and Inst i tut ional Developmen t Program)

P61e IntCgrt de Croissance (Integrated

Gr ow th Poles)



FOR OFFICIAL USE ONLY

ENAM

ENMG

EUFA0FDL

FID

FM

FMRs

GDLN

GDP

I CICB

I D A S A

IFAD

IFR

Ecole Nationa le d 'Administration deMadagascar (National School o f

Administration)

Ecole N ationale de la Magistrature

et des Greffes (National School for

Magistrates and Clerks o f he Court)

European Un ion

Foo d and Agriculture OrganizationFonds de Ddveloppement Local (Local

DevelopmentFund)

Fonds d 'Intervention pour le

Ddveloppement (Local Development

Fund)

Financia l Management

Financial Monito r ing Reports

Global Development LearningNe two r k

Gross Domestic Product

International Consultant

International Competitiv e Bidding

Insti tute for Dem ocracy in SouthA f r i ca

International Fund for Agr icul turalDevelopment

Inter im Financial Report

PREA

PRSC

PRSP

QCBS

R C U

ROSC

S B DS M E

SIGFP

sssTI

UNDPUNICEF

WFP

WHO

Pro gra mm e des Rdformes pour 1 EfJicacitd

de I Administration (Reform Program for

the Eff iciency o f he Administration)

Poverty Re duction Support Credit

Pov erty Re duct ion Strategy Paper

Qua lity and Cost Based Selection

Refo rm CoordinationUnit at the Ministry

o f FinanceIMF Report on the Observance o f

Standards and codesStandard BiddingDocument

Smal l and MediumEnterprises

Systdme Intdg rd de G estion des Finances

Publiques (Integrated Financia l

Management In form ation System)Single Source Selection

Transparency International

Un ite d Nations Development Program

Un ite d Nations Chi ldren's Fund

Wo r ld Food Prog ram

Wo rld Health Organization

Vic e President: Obia gel i K. Ezekwesi l iAc t in g Count ry D i rec tor: Dirk Reinennann

Country Manager Robert Blake

Sec tor Manager: h a n d Ra jaram

Task Team Leader: Guenter Heid enh of

This document has a rest ric ted dis t r ibut ion a nd ma y be used by rec ipients only in the performance o f

their o f f i c i a l duties. I t s contents ma y no t be otherwise disc losed wi tho ut W or ld Ba nk author izat ion.





MADAGASCAR

Governance and Institutional Development Project I 1

TABLE OF CONTENTS

Page

I STRATEGIC CONTEXT AND RATIONALE ................................................................. 1

A

B

C .

I1

A

BC .

D

E

I11

A .

B

C .

D

E

I V

A

B

C .

D

E

F

G

H

Coun try and sector issues ................................................................................................... 1

Rationale for Ban k involvem ent ......................................................................................... 7

Higher leve l objectives to wh ich the pro ject contributes .................................................... 8

PROJECT DESCRIPTION............................................................................................. 8

Lending instrument ............................................................................................................. 8

Projec t development ob jective and key indicators., ............................................................ 8Project components ............................................................................................................. 9

Lessons learne d and ref lected in he project desi .......................................................... 12

Altern atives considered and reasons for reje ction ............................................................ 13

Institu tiona l and imp leme ntation arrangements ................................................................ 13

Mo ni tor ing and evaluat ion o f outcomeshesults ................................................................ 14

Sustainabi l i ty .................................................................................................................... 14

Cri t ical risks andpossible controversial aspects., ............................................................. 15

Cred it cond itions and covenants ....................................................................................... 17

APPRAISAL SUMMARY ............................................................................................. 17

IMPLEMENTATION .................................................................................................... 13

* . .

Econ omic and f inancial analyses ...................................................................................... 17

Technical ........................................................................................................................... 18

Institutional: ...................................................................................................................... 18

Fiduc iary ........................................................................................................................... 19

Social ................................................................................................................................ 19

Environment...................................................................................................................... 20

Safeguard policie s ............................................................................................................. 2 1

Po lic y Exceptions and Readiness.,.................................................................................... 2 1



Annex 1: Coun t ry and Sec to r o r P ro gram Background ......................................................... 22

Annex 2: M a jo r Related Pro jec ts F inanced by t h e B a nk a nd/or o ther Agencies ................. 0

Ann ex 3: Resul ts F r a m e w o r k a n d M o n i t o r in g ........................................................................ 32

Annex 4: D eta i led Pro jec t Descr ip t ion...................................................................................... 40

Annex 5: Pro gra m Descr ip t ion .................................................................................................. 57

Annex 6: Implem entat ion Ar rangements ................................................................................. 77

Annex 7: F ina nc ia l Manag ement and DisbursementArrangements ..................................... 79

Annex 8: Procurement Ar rangem ents ...................................................................................... 9 1

Annex 9: Economic and F ina nc ia l Analys is ............................................................................. 97

Ann ex 10: Safeguard Pol icy I ssues.......................................................................................... 10 2

Annex 11: Projec t Prep arat ion and Superv is ion ................................................................... 10 3

Ann ex 12: Documents in h e Pro jec t F i l e ............................................................................... 10 5

Ann ex 13: Statement of Loan s and Credi ts............................................................................ 107

Annex 14: Cou nt ry a t a G lance ............................................................................................... 109

Annex 15 : M a p .......................................................................................................................... 111

M a p IBRD 33439



M A D A G A S C A R

S E C ON D G O V E R N A N C E AND INSTITUTIONAL D E V E L O P M E N T P R O JE C T

P RO JE C T A P P R A I S A L D O C U M E N T

A F R I C A

A F T P R

Date: April 22, 2008

Act ing Country Director : Dirk Reinermann

Sector Manager: Ana nd Rajaram

Team Leader: Guenter Heid enho f

Sectors: General pu bli c adminis tratio n sector

(90%); L a w and ustice (10%)

Themes: Pu blic expenditure, fina nci al

management and procurement

(P);Macroeconomic management (S);Tax

po l i cy and administration (S);Managing fordevelopment results (S);Access to la w and

justice (S )

Env ironm ental screening category: N o t

Required

Project ID: P103950

Lending Instrument: Technical Assistance

Credit

[ ] L o a n [X I Credit [ ]Grant [ 3 Guarantee [ ] Other:

Fo r Loans/Credits/Others:

Total B ank f inancing (US$m.): 40.00 m i l l i o n

Proposed terms: Standard IDA terms with a 40 year ma turit y inclu din g a 10 year grace perio d

International Develop ment Associa tion 20.00 20.00 40.00

Total: 22.00 22.00 44.00(IDA)

Borrower:

Government o f Madagascar

Responsible Agency:

Programme de Rkforme s pou r 1'Efficacitk de 1'Administration (PREA), Bureau de GestionL o t I1LA, Rue Andriamahajonoro

AnkadivatoMadagascar

Tel: 26 1-20-22209 1 1

pdgi@moo v mg

www-prea-mg.org



I

Project implem entatio n period: Start September 1,200 8 En d: August 3 1 2012

Expected effectiveness date: September 1 2008

Expected clo sing date: August 31, 2012

Does th e projec t depart fro m th e C A S in content or other sign ificant respects?

Re$ PAD I.C.

Does the project require any exceptions fr om Ba nk pol ic ies?

Re$ PAD IKG .

[s approval for any pol icy excep tion sought fro m the Board?

Does theproject include any cri t ical r isks rate d “substantial” or “high”?

Re$ PADIII.

E.Does the project m ee t the Region al criteria for readiness fo r im plementat ion?

Re$ PAD IKG .

Project development obje ctive Re$ PAD II.C., Technical Annex 3The development objective o f he project i s to improve the eff ic iency and transparency o f

governmen t a nd selected pu bl ic services in Madagascar in i n e with the Madagascar Act io n P lan

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

Have these been approved by Bank management? [ ]Yes [ IN0

(MAP).

Project description [one-sentence summary o each component] Re$ PAD II.D., Technical

Annex 4The project wil l enhance an d firther deepen previous reforms ini t iated under the f i r s t

Governance and Inst i tut iona l Developme nt Project (PG DI I)hich is scheduled to close in

September 2009. The project (US$40.0 m i l l io n IDA) w o u l d be implementedover a per iod o f

four years and consists o f he fo l low ing six components:

(a) Improveme nt o f Publ ic Expenditure Management (US$lS.O m il l io n IDA: Fundingunderthis component wil l be prov ided for the further improvement o f he budget preparat ion and

execu tion processes, inclu din g the fur ther rol l -out o f he integrated financ ial management system

(Systbme I n t C g r C de G estion des Finances Publiques, SIGFP) to the region al capitals and the

strengthening o f he operational eff ic iency o f he relevant con trol mechanisms. The project wil l

continue to support the procurement reform s ini t iated in 2004 through comprehensive tra ining

and capacity building activities. I t wil l pr ovi de assistance to the Government to implement the

comprehensive reforms o f he revenue agencies (customs a nd tax directorates).

(b)

object ive of this component i s to support the change management and inst i tut ional developmentprocesses in he context o f he implementat ion o f he Government’s development strategy, th e

Madagascar Act io n Plan (MAP).

(c)focus o n imp rovin g the operat ional eff ic iency o f he judiciary, on support ing ant i-corrupt ion and

conflict-of-interest activities, and o n strengthening oversight by the Aud itor General and by

Parliament over State affairs.

Strengthening he Ef fi c iency o f Government Operations (US$9.0 m il l i o n IDA: The

Rule o f L a w a nd Fight Against Corrupt ion (US$3.0 m i l l io n IDA: Pro ject assistance wil l



(d)o f he National Statistics Office and the Wor ld Bank contribution to a new population census.

(e)fostering increased implication o f civi l society in State affa irs and at imp rovin g “social

accountability” which are key objectives o f he MAP.

(0 Program Coordination (US$3.0 mi l l io n IDA): The object ive o f his component i s tosupport the management and implementa tion o f he P G D I 11. This wi ll nclude assistance to the

Ministry o f Finance to se t up and manage a basket fund for publ ic expendituremanagement

reforms. Ad dit ion al assistance wil l focus on the Bureau de Gestion (BdG) o f he Reform

Program for the Ef f ic iency o f he Admin istration (Programme de Refo rmes pou r 1’Efficacite de

l’Administration, PREA ) which was se t up by th e Government in 2005 to coordinate a l l

governance related activities.(g) Unallocated (US$2.0 million IDA): This amount has been se t aside to cover price

contingencies and to respond fle xib ly to additional demands emerging during th e implementationo f he project.

W hi ch safeguard poli cies are triggered, i f any? Re$ PAD I K F., Technical Annex 10No safeguard po licie s are triggered

Significant, non-standard conditions, if any, for:

Re$ PAD III.F.

Bo ard presentation:(i) tandard conditions.(ii)roject knding wil l include the financing o f a limitednumber o f government s t a f f salariesuntil December 3 1 2009, mainly to recru i t trainers for local training institutions and technical

specialists int o the President’s Office, the Prime Minis ter ’s Office, the Economic Crimes Unit

and for the Na tio na l Statistics Institute. These expenditures are in ine with the requirements o frecurrent cost fina ncin g parameters as specified in BP 6.00 o f April 2004 and the relevant

Guidelines o f April 16,2004. W or ld Ban k support wo uld allo w the Government to graduallyintegrate these recurrent expenditures in to subsequent budget years.

(iii)he project wil l include the retroactive financing o f specific activi t ies (refinement anddeployment o f he integrated financia l managementsystem, strengthening o f he internal andexternal controls o f he public finance system, implementation o f he reforms in the customs and

tax directorates incl udi ng related training and capacity building activities, and coordination o f

the reforms in the Ministry o f Finance and Budget). These expenditures, w hi ch do n ot exceed

US$l.O m i l l ion and wil l be subject to the applicat ion o f elevant Wo rld Bank procurement

guidelines, are in i n e with the requirementso f he eligibility criteria for Ban k f inancing asspecified in OP 6.00 o f April 2004.

Monitor ing & evaluation (US$S.O m il li o n IDA): The project wil l support the restructuring

Transparency and Social Accounta bility (US$4.0 million IDA): The component aims at

Lo ad cre dit effectiveness:The following credit effect iveness conditions have been agreed with th e borrower:

(a)satisfactory to the Association.

(b)4.09 (b) o f the General Conditions.

(c)

The Governmenthas adopted the Project Implementation Manual, in fo rm and substance

The Government has employed the independent external auditors referred t o in Section

The Government has established a R efor m Co ordination Unit with f o rm and functions



satisfactory to the Assoc iation and caused the Reform Coord ina t ionUnit to emp loy the fo l l ow ing

s ta f f with qual i f ications and experience satisfactory to the Asso ciation: a refo rm coordinator and

at least tw o dedicated techn ical office rs.

The f ol lo win g disbursement condit ions have been agreed up on with the Government:

(i)i sbursement o f he Socia l Accountabi l i ty Grants wil l be subject to th e recru i tment o f a non-state S ocial Accou ntabi l i ty Grant Administrator acceptable to IDA;

(ii)ayments ma de o n or after January 1 2008 fo r the refinement and deployment o f heintegrated financ ial management system inclu ding related training and capacity building

activities, for th e strengtheningo f the internal and external controls o f he publ ic f inance system

inclu ding related training and capacity building activities, for the implementat ion o f he reforms

in the customs and tax directorates inclu din g related train ing an d capacity buildingactivities, and

fo r the coordination o f he reforms in he Ministry o f Finance and Budget, are eligible fo r

funding under th e Project, pro vided the tota l amount does not exceed U S $ l . O mi l l i on .

Covenants applicable to projec t implemen tation:

Standard fina nc ial covenants as stated in he Finan cing Agreement Schedule 2, Section I1 B) onFinan cial Management, Finan cial Reports and Audits and Section 4.09 o f he General

Condit ions.



I. STRATEGIC CONTEXT AND RATIONALE

A. Country andsector issues

1. In the 1960s Madagascar was among the better-off African countries; i t had an

educated elite, strong institutions, goo d infrastructure, and an income per capita above thedeveloping country average. But i t lost this position after several decades o f economicmismanagement. From the 1970s until the second h a l f o f the 1990s annual growth o f Gross

Domestic Product (GDP) averaged only 0.5 percent compared with populat ion growth o fabout 2.8 percent. Per capita income declined from US$473 in 1970 to US$280 in 2006,

pla cing Madagascar among the world ’s poorest countries.

2. Since the government o f President Ma rc Ravalomanana took charge in 2002, i t has

embarked on an ambitious transformation path that has brought improvements in social,economic and governance indicators. The economy grew at an average o f 5 percent per year

and poverty has declined to 69 percent fr om i t s peak 80 percent in 2002. M or e children are in

school toda y than ever before, with net pri ma ry enrolment rates above 90 percent, up f r om 70percent in 2002.’ The coun try increased its literac y rate to 70 percent in 2005, above the 61

percent average for Sub-Saharan Afri ca. Ch il d morta lity rates declined significantly, from

159 deaths per 1,000 live births in 1997 to 9 4 in 2004, and today more wome n give birth in

he alth centers than ever before.* Imm uniz atio n rates improved from 46 percent in 1997 to 6 1percent in 2004. Rural access to safe drinking water also impro ved fr om 12 percent in 2003to 16 percent in 2005. These posit ive developments offer h o p e h l signs that Madagascar has

stepped firmly onto a path to sustained development, bre akin g with th e his tory o f economic

mismanagement and periodic crises that impoverished th e people. In December 2006

President Ravalomanana was reelected for a second t e rm in office by a large major i ty o f he

votes.

3. In ate 2006 Madagascar launched a new poverty reduction strategy, th e MadagascarAct ion Plan (MAP). The new development strategy outlines priorities and actions aimed at

achieving the national vision and the Millennium Development Goals (MDGs). The M A P s

based on a set o f practical actions i den tifie d as “challenges” and clustered around eight

“commitments” that constitute the overall development framework. The “commitments” are

based on defined goals and translated into specific projects and activi t ies to ensure that the

plan i s operational. These activities are linked to clearly identified results and benchmarks.The MAP also assigns specific im ple me nta tion respo nsibili ty for each activ ity whichfacilitates mon itori ng and evaluation.

4. The M A P sets out an ambitious agenda. The overall goal o f the MAP i s to reduce the

l eve l o f poverty to 50 percent between 2007 and 2012 based on economic growth rates

accelerating from 7 percent in 2008 to 10 percent in 2011 with the objective o f achievingannual per capita GDP o f USD 476 by 2012. The MAP aims at the same time to

signif icantly improve the prov is ion o f basic public services to the population. In primary

T h e Malagasy social data are not fully reliable. Diffe ren t sources give different numbers.However, a l l sources confi rm the

positiv e trends.

* T h e rate o f prenatal consultation was 80 percent in 2004, ranging from 78 percent in rural areas to 91 percent in largeurba n centers.

1



education, the complet ion rate i s projected to be 85 percent (compared to 57 percent in 2006)

through an improvement in the pupi l / teacher rat io f rom 52: l to 40: l and other qual i ty

measures. In publ ic health, th e new development strategy aims to reduce infant mortal i ty

from 94 today to 47 in 2012 (per 1,000 births) through im prov ed vaccination coverage (100

percent instead o f the current 80 percent). Safe wate r service coverage wi l l be increased

fr om the current 31 percent to 65 percent by 2012. F inal ly , 64 percent o f munic ipal it ies

(compared to the current 35 percent) wil l be accessible for the ent i re year by road by 2012.

5 . The achievement o f the M A P ob jec ti ves wil l require signi f icant ly higher levels o f

investment financed by higher levels o f external assistance and domestic revenue

mobil ization, and private sector participation. The recent investment decision by

Dynatec/Sherritt to invest over US$2.5-3 b i l l io n over the next three years in n i cke l mining i s

already transforming the economic and social context. Sign ificant investments are also

expected in the tourism sector. As a result, the IMF grow th rates fo r the medium t e rm have

been revised upward to 7 4 % for 2007-2009 and 9-10% for 2010-2011. Investment rate

estimates have also been re vised up sharp ly to 30-35% o f GD P fo r 2007-09 versus 22-23%

previously. O ver the longer t e r m (2010-1l),he investmentrate is projected to be around 25-27%. Whi le this new development wil l boost g rowth and investment in the economy, th e

extent to whi ch this grow th translates int o broader and more inclu sive benef i ts for th e people

o f Madagascar wil l depend cri t ical ly on the l e ve l o f government revenues generated fo r the

Treasury, and the transparent, effective and equitable use o f pub l ic resources f or impro ved

service delivery.

6. In 2007, the Gove rnme nt sensitized further k e y actors as regards the M A P object ives .

MAP meetings were held in each o f the 22 regions o f the country, where the regions and

various stakeholders then launched preparation o f their o w n regional M A P based on their

loca l priorit ies. All stakeholders were invited to identify key constraints to attainment o f he

M A P commitments th rough the Presidential Dialogues held in late-2007 involving the

participation o f he k e y ministries, privat e sector, c iv i l society and donors.

7. The insti tutional structure for managing the overa l l implementat ion o f the MAP i s

curre ntly be ing strengthened. This involves developing act ion plans fo r key sectors that linkthe activi t ies to the MAP goals, strengthening capacity to imp lement these plans and

identi fying intermediate indicators to monitor progress toward these goals. Fou r technical

workin g groups were created to m entor each M A P commitment and develop the result matr i x

framew ork and sector pol ic y notes with the key ministr ies. However the qual i ty o f these

notes varies amongst sectors. The government i s current ly f ina l iz ing the costing o f thevarious strategic commitments in l ine with sector pol icies. The m ai n weakness o f the

exercise i s a consistent macroeconomic and budgeting f ramework wh ic h takes into account

the associated resource requirements. T w o key new insti tutions have also beenput in place to

support M A P imp lementat ion - the Economic Development Boa rd o f Madagascar to

facilitate and promote dom estic and foreign investment and the Na tiona l Leadership Institute

o f Madagascar to build capacity in Government and other sectors o f society. Final ly, a new

monitoring and evaluation insti tutional system (National Integrated System o f m o n it o ri ng

and Eva luation or (SNISE) has been developed to ensure a timely assessment o f progress in

impleme ntation. The insti tutional structure o f this new system however s t i l l needs hrther

refinement to cla ri fy roles and competencies o f Government entities.

2



8. The ref orm process launched by the Governm ent o f President Ravalomanana has

opened up space for pol i t ical and economic changes. However, there ar e substantial

challenges ahead. A vibrant c iv i l society that a ctively l in ks associational l i f e to the pol i t ica l

sphere i s c r i t i ca l to the deepening o f democracy, normal izat ion o f po l i t ica l competi tion,

expansion o f popular vo ice and part ic ipat ion in reforms, and broadening o f economic

benefits; in Madagascar civi l society can be described as nascent at best. Mechanisms for

accountabil i ty, especially o f th e Executive, are s t i l l weak. Government inst itu t ions remain

subservient to their leaders instead o f g row ing regularized processes and the r u l e o f a w . T he

major i ty o f the Ma lagasy popu la tion i s not satisfied with incremental change that bringselections without broader governmental effectiveness efficiency and personal freedoms.

Rather, i t supports insti tution al reforms that ensure government a ccountabi l i ty and that

extend pol i t ic al and civ ic space for personal freedoms.

Key challenges for successfulMAP implementation

9. Improving good governance. While recent progress on governance has been

encouraging the agenda ahead i s s t i l l huge. Over the years, Madagascar’s governance ra nk inghas impro ved according t o several sources. The W o rl d Ba nk Insti tute’s governance

indicators, w hi ch are used by the Government to measure progress o f governance reforms,

place Madagascar ahead o f most low -incom e countr ies, especial ly o n control l ing corruption.

Madagascar’s good standing i s also confirmed by i t s 2007 Cou ntry Pol icy and Inst i tu t ional

Assessment scores: i t s overal l score i s 3.7, with the q ual i ty o f publ ic administrat ion,

accountabil i ty and transparency in the pub l ic sector rated 3.5. Acc ording to the 2007

Transparency International Corruption Perception Index, which the Government uses to

assess the effectiveness o f anti -corruption efforts, Madagascar’s ratin g is 3.2, ra nkin g i t 94th

o f 179 countries. This i s an improvement over the 2005 ra t ing o f 2.8.

10. These governance improvements are the resu lt o f the government’s effor ts to fight

corru ption and im prove transparency since 2002. The coun try passed anticorruption and anti-money laundering legislation, adopted clear ru les for public sector recruitment, and requires

elected and publ ic off icials to declare their assets. I t also created an independent Anti-

co rru ptio n Com miss ion and an anticorruption agency, Bu reau Indkpendant Anti-C orrup tion

(BIANC O), wh ich has invest igated a llegat ions o f cmrupt ion by publ ic of f ic ia ls and

spearheaded audits o f arge investment programs such as education and transport.

11. How eve r, governance gains rem ain fragile, and the challenges ahead are formidable,

especially in natural and minera l resources, where ref orm efforts are sometimes undermined

by po we rfu l vested interests. Also, despite recent progress, pockets o f corruptio n remain in

customs, natu ral resources management and some other areas. Transparency o f government

operations remains inadequate, and the accountabil i ty relationships between service

providers, local off icials and citizens remains weak. C ultura lly, h ierarch ical relationships

rem ain predominant, particu larly at the commune/local level, and thus the shift required fo r

civi l servants and elected off icials to render account downwards and to disclose key

info rma tion such as budgets i s significant. Perceptions about pote ntial con fl icts o f nterest,

in particular a mong elected off icials, reflect neg atively o n Madagascar.

3



12. Improving public expenditure management. The modernizat ion o f th e publ ic

expenditure m anagement system has been a cornerstone o f he Government’s overa l l reform

program. Under this program the Government introduced a mo de m budget framewo rk with

the annual budget for the year 2005. Whi le this new framework s t i l l requires further

consolidation, the revised Organic Finance Law (LOLF) emphasizes for the f i r s t time the

concept o f program budgeting that i s meant to improve th e link between pol icies and the

budget as well as improv e performance mon itoring. In addition, simplified expenditure

management procedures have reduced red tape and discretionary dec ision ma king. A m o d e m

integrated financial management system, deployed in m a in treasuries, captures about 80percent o f government expenditures. As a consequence o f the i n t roduct ion o f the new system

budget execution rates have gone up substantively to over 90 percent in 2006. In 2004,

Madagascar also put in place a new procurement code that follows international standards.

Audits o f four sector ministr ies that was conducted in 2006 and 2008 6revealed, however,

that the new regulations are not yet sufficiently appl ied. A main reason i s that the

procurement units in the sector ministries and the procurement oversight authori ty do not

have the requiredcapacity.

13 . The 2006 and 2008 Publ ic Expendi ture and F inancia l Accountabi l i ty (PEFA)

assessments conf irm improvem ents in the capacity o f he Ministry o f Finance and advances

in setting the needed legal framework, but i t also points to a broad agenda ahead. This

includes the improve ment o f treasury management based on improvement o f t reasury

management not ab ly at the sub-national level, and proper interna l and external controls.

14. Madagascar has one o f th e l owest l evels o f f i scal

revenues in sub-Saharan Afr ica . With a tax /GDP ra t io o f ess than 11 percent (compared t o

18 percent for sub-Saharan Africa ), Madagascar has enormous scope fo r im pr ov in g i t s f iscal

inflow s. Eff orts to improve fiscal revenue face two m ai n challenges: establ ishing an

incentive-driven fiscal framework to promote investments and reducing tari ffs to adhere to

region al integration agreements. The M A P sets i t s e l f a tax/GDP rat io benchmark o f 15percent to finance i t s M A P “commitments”. The achievement o f this goal requires

fundamental reforms o f evenue pol icies and administration. To date, customs has developed

a consistent reform strategy, which has been implemented for the last two years. Thisstrategy i s focusing main ly on moderniz ing the customs ad ministration and combating fraud

and corruption. The tax administration i s in he process o f refining i ts r efo rm strategy; i t has

started to address efficie ncy an d corr up tion issues by replacing part o f t s staf f and enforc ing

tight intern al controls.

Increasing State revenues.

15. A l though the Malagasy c iv i l serv ice i s

re lat ive ly smal l by African standards (it employs only about 0.8 percent o f the country’s

population or 146,000 agents in 2004), i t s composition, centralization and management

severely compromise i t s performance. There i s l i t t l e focus on performance, and jo b

descriptions and performance indicators are lacking or outdated. Separate personnel and

pa yr ol l databases exist but no systematic recon ci l iation i s carried out. The last pa yro l l audit

was completed in 1999. Wo rk ethics continue to be l o w due to lo w remunerat ion and lacking

career prospects. Government has made significant efforts to strengthen administrative

efficiency: i t has improved coordination, streamlined procedures, delegated more

responsibi l i t ies to sub-national leve ls and replaced inefficient public sector managers. In

Mobilizing the public administration.

4



2006/7 i t subjected a ll Permanent Secretaries and Dire cto r Generals in the ci v i l service to a

comp eti t ive recrui tment process whic h resulted in the rep lacement o f over 50 percent o f the

management personnel. To date, the government has put a p r io r i ty on buttressing the

technica l capacity o f the Ministry o f F inance and priori ty sector minis t r ies , such as

transportation, education, and health. Sign ificant efforts are under way to improve the

government’s p olic ym ak ing capacity. Concerns remain, however, that concentrating po we r

in the presidential administration has led to w eak mandates in l ine ministries. Rebalancing

power between the Off ic e o f the President and the minis tr ies wo ul d strengthen the capacity

o f ministries, enabl ing them to support the development and imp lementa tion o f national and

lo ca l agendas.

16. Laws and proceedings are generally

transparent and accessible to the publ ic, but there i s sometimes inconsistency and

unpredictabi l i ty in po l icy implementat ion and appl icat ion o f he l aw, wh ich undermines the

investment climate. Access to justice i s diff icu l t and costly, especial ly fo r the poor.

Corruption continues to negatively impact the ef f ic iency o f the jud ic ia ry . The impact o f

recent government reforms in he judic iary has been mixe d: o n the posit ive side, the backlogo f cases at the lower courts was reduced in Antananarivo and in some other jurisdictions.

However, l i t t l e overall progress has been made with the enforcement o f service standards.

Also, efforts at dealing with corrupt ion in the jud ic iary through th e discip l inary comm ission

in the Ministry o f Justice have been no t very effective. A key problem remains the resistance

to change within the judiciary, as well as the l ac k o f a consistent and credible re for m strategy

wh i ch i s supported by al l relev ant stakeholders.

Strengthening legal and judicial reforms.

17. To improve the state’s capacity to

deliver services, there i s a need to allocate a greater role and resources to the local

governments, and increase the voice and demand for accountabil i ty on the p ar t o f l o c al

communities. Despite the early 1990s decentral ization reform effort to empower

communes3, Madagascar remains a highly central ized country, b ot h administratively andfiscally . Com mu ne competencies are limited to the basic functio n o f administrative services

and waste management and some co-financing o f social services throug h con dit ional grants.

Lo ca l governments manage directly on ly 3 percent o f otal publ ic resources. Their authori ty

to raise taxes i s limited. Since 2002, the Government has begun to systematically strengthen

the sub-national levels o f government, in particular the 22 regions, which were created in

2004. The 2007 budget increased the share o f certain taxes in favor o f communes; in

addition, the budget law 2008 has al located for the f i r s t time investment resources to the

regions. At the same time the Government is working on the refinement o f the legal and

insti tutiona l framew ork for decentral ization. This will inc lude the c lar i f icat ion o f core

competencies at the different levels o f government and the assignment o f revenue and

expenditure responsibilities.

Improving (decentralized) service delivery.

18 . Improving social accountability. Increasing the transparency o f government

operations and th e delivery o f pub l ic services needs to go han d in hand with efforts to

strengthen both, abi l i ty and capacity o f c iv i l society to ho ld government accountable.

Exte rnal (cit izens, c iv i l society) mechanisms o f accountab i l i ty can complement or even

Territorial administration n Madagascar comprises four m ain evels: regions, districts, communes and villages.

5



compensate for shortcomings o f (internal) government ac countabi l i ty mechanisms, and both

should be mutual ly re inforc ing. Civ i l engagement provides important inputs fo r th e

improvement o f loc al government services and for resource allocations, which are more

responsive t o loc al preferences. The Madagascar Ac t io n Plan highlights responsible (local)

governance as a central com mitm ent - as w e ll as th e impor tan t ro le o f nvo lv ing c i v i l society

as “strong players in a participatory bottom-up process” to support Government in t s “supply

side” (fiscal, administrative, legal) re fo rm effort s. The World Bank, other development

partners and NGOs have supported the pi lo t in g o f selected tools and methods aime d to foster

social accountabi l i ty (e.g. community score cards and participatory budgeting at the

commune level). While the resul ts are encouraging, downwards accountabil i ty in

Madagascar remains we ak b ot h because o f cul tural tradi t ions (deference towards authori ty, a

tendency to a void the state), and a lack o f nfor ma tion about ci tizens’ rights, fea r o f l ega l

retr ibutio n for demanding services or inform ation, p aucity o f systems wh ic h create space for

publ ic feedback and infor ma tion disclosure (for example budgetary procedures), and a

relatively nascent civi l society sector. Building a cul ture o f socia l accountabil i ty through

systematic civi l society engagement ( including more transparency and inclusive decision

making) i s a gradua l process that requires a concerted ef for t o f a ll relevant stakeholders (c iv i lsociety actors, citizens associations, NGO s, m edia, Governme nt, and development partners).

19. Scaling-up capacity building. The implementat ion o f the governance reforms will

require ma jor investments in hum an resources development and professional train ing - he

institutions that are at the center o f the reform process wil l need continuing assistance to

manage and imp lement the com plex change processes triggered by th e various reforms. The

focus o f the Government i s therefore t o strengthen the abi l i ty o f key institutions that are

tasked to effectively manage institutional change and governance reforms, in particular the

President’s Office, the Pr ime Minister’s Office, the M i n i s t r i es o f Finance, Justice and

Econo mic Planning. In addition, ma ny sector ministr ies la ck systematic training in the areas

o f development planning, pu bl ic f inance as we l l as mon itorin g & evaluation. Similar

problems exist at the sub-national leve ls o f Government. Ideal ly , the bulk o f the t ra in ingshould be del ivered local ly f or reasons o f eff iciency. L oc al training insti tutions, however,

cont inue to be weak and requ ire signific ant upgrading. T o reduce Madagascar’s dependency

o n cost ly overseas training the Government has begun to upgrade some o f he ke y inst itu t ions

and to enhance their capacity. These activities supported primarily th e National School for

Magistrates and Clerks o f the Court (Ecole Nationale de la Magistrature et des Greffes,

ENMG) the Nation al School o f Administrat ion (Ecole Nat ionale d’Administrat ion de

Madagascar, ENAM), wh ich focuses on tra in ing o f higher leve l s ta f f fo r the pub l ic sector,

an d the National Center for Administrat ive Tra in ing (Centre Nat iona l de Formation

Administrat ive, CNFA), which i s responsible for the t ra i ni ng o f m i dd l e l e ve l staf f for th e

pub l ic sector. T o complement the w o rk o f these training insti tutions the Government has

also established a Na tiona l Leadership Insti tute o f Madagascar (NLIM) that focusespri ma ri ly on beh avioral changes and management support.

20. Coordination of reforms, monitoring & evaluation. Reform s are m ain ly coordinated

by the Presidency which has assumed a signif icant role in “supervising” the ministries,

departments and agencies. The Government i s work i ng on building an effect ive mo ni tor ing

& evaluation system for th e implementat ion o f he MAP. This includes the development o f a

coherent strategy under wh i ch po l i cy planning, service delivery and management o f publ ic

6



resources are matched with adequate p ol ic y analysis, evaluation, data collection, rep orti ng

and dissemination. A key element o f his strategy i s the new N atio nal Strategy for Statistical

Development which has been prepared by the Government. This strategy includes the

development o f a revised regulatory and procedural framework for government statistics,

integrating and coordinating al l relevant government activit ies. Mo nito ring & evaluation

needs, however, rema in substantial . M a n y government insti tutions lack knowledg e and

capacity to adequately monitor and evaluate the implementat ion o f the ir po l ic ies and

programs. Governme nt also intends to systematically update i t s key economic and social

data based on a ne w pop ulation census. The last popula tion census was completed in 1993;

the economic, social , and adm inistrative structure o f Madagascar has pro foun dly changed

since then. A s a consequence, ma ny o f he ex istin g baseline data i s outdated.

B. Rationale for Bank involvement

21. The W or ld Ban k has provided support to th e governance and insti tutional

development reform s in the context o f he Government’s development strategy - i n i t i a l l y th e

PRSP (2003-06) and n ow the Madagascar Ac tio n Pla n (MAP) - through various instruments,in particular the PRSCs and the f i r s t Governance and Inst i tu t ional D evelopment Pro ject

(PGDI). The projec t was approved by the Bo ard on October 22,2003, and declared effective

on M arc h 3 ,2004. I t s scheduled to close o n June 30,2009. The reform s are also supported

by other development partners including th e European Commission, Afr ican Development

Bank, France, Norway, Germany, M C A and U N D P . The IDA contr ibut ion i s a SDR 25.3

m i l l io n credi t ( inc luding the addit ional f inancing approved in F Y 07 ) o f w hi ch SDR 21.3

mi l l i on (85% o f the original credit) has been disbursed by April 2008. The remain ing funds

are h l l y committed. Addi t iona l F inancing o f $5 m i l l i on was provided in F Y 07 to a l low fo r

greater support to the M&E agenda.

22. The f i rst PGDI has been a key instrument to assist Government with the

implementat ion o f he governance and inst itutio nal development agenda. Since i t s inception,the PGDI has consistently been rated “satisfactory” b o th with regard to implementat ion

progress and to achieving the development objectives. I t has also met al l re levant W or ld

Bank disbursement, procurement and fiduciary obligations. The 2007 QEA review o f theaddit ional f inancing for the project emphasized that strong po l i t ic al bac king and government

ownersh ip o f the reform process, combined with Bank responsiveness, was the strongest

contextual aspect o f he addit ional f inancing and th e project i tsel f. This was reflected, among

other things, in the high consistency o f he projec t objectives with the co unt ry strategy.

23 . They include: the

deployment o f an integrated financial management system to improve transparency and

accountabi l i ty o f government operations, the strengthening o f th e system o f in ternal and

external contro l o f the government machinery, th e design o f a new procedural andinsti tutional framework for publ ic procurement, change management support for the key

decision-makers within government and comprehensive training and capacity building

activi t ies in the areas o f development planning, p ubl ic f inancial management and

procurement. Moreover, the project supported the development o f a regulatory and

insti tutiona l framew ork to imp rove governance and to fight corruption.

The achievements o f the P G D I are summarized in Annex 1.

7



24. Given th e successful implementation experience with the P G D I to date , the

Government has requested the Bank’s support for a second governance and institutional

development project during this cr i t ic al stage o f the imp lementa tion o f he MAP. The new

PGDI should enhance and further deepen the f i r s t generation o f reforms under th e f i rs t

project; i t should also assist the Go vernment to address some ad ditiona l cross-cutting issues

which are considered cri t ical for the MAP implementation, in particular the proposed

complementary support fo r decentralization, for the development o f a pub l ic sector pay and

incentive system and for the popu lation census.

C. Higher level objectives to which the project contributes

25 . The proposed project i s in i n e with th e FY 07- 11 Co unt ry Assistance Strategy (CAS)

for Madagascar which emphasizes the importance o f responsible governance and

accountabil i ty as key systemic elements to create an enabl ing environment for growth andinvestment, as well as to improv e services to the people. The CA S, w hi ch was presented to

the Boa rd in April 2007, also emphasizes the need to im pro ve the moni to r ing & evaluation

system o f he Government because o f he results-based nature o f bo th the C AS and the M A Pand because o f the cr i t ica l ro le o f mon i to r ing & evaluation in ensuring successful

implementat ion o f he MAP.

26. The substantial capacity building efforts under the projec t that include bot h “supply”

and “demand” side, are also in i n e with the Capacity Developm ent Management Ac tion P lan

( C D M A P ) o f he Afr i ca Act ion P lan.

27. W or ld Ba nk assistance to Madagascar in the area o f governance and insti tution al

development i s al igned with that o f o ther donors to provide a jo in t package o f coord inated

support around th e government’s MAP. The project prepara tion was closely coordinated

with other partners to faci l i tate harmon ization and synergy with other donors, in particular

th e European Commission, the Afr ic an Developm ent Bank, France, Germany, N orw ay andthe U S .

11. PROJECT DESCRIPTION

A. Lending instrument

28. The project has been designed as a Technical Assistance Credit to reflect the key

ob jec t ive o f the project w hic h centers around insti tutiona l development, capacity building

and pol icy development and impleme ntation. The Credit complements ong oing assistance

under the current PRSC series which supports the implementat ion o f the M A P and has a

hea vy emphasis o n governance reforms (expenditure management, revenue generation, anti-

corrupt ion and decentralization).

B. Project development objective and key indicators

29. The development objective o f the project i s to improve th e efficiency and

transparency o f government and selected publ ic services in Madagascar in l i n e with the

8



Madagascar Act ion Plan (MAP).prov ided in annex 4; the Results Framework i s attached in annex 3.

A detailed descript ion o f the p roject components i s

C. Project components

30. The project will enhance and further deepen previous reforms ini t iated under the f i r s tGovernance and Inst i tut ional Development Project (PG DI I),h i c h i s scheduled to close inJune 2009. I t builds o n signif icant analyt ical work, in particular the PEFA reports o f 2005,

2006 and 2008, as well as the Publ ic Expendi ture reviews in 2005 and 2007 which prov ide

recommendations on th e pu blic expenditure r ef or m agenda and specific recommendations for

the transport, education, environment, health, nu tri tio n and water a nd sanitation sectors.

Add it iona l analysis wh ic h contributed to the development o f the project include the

Investment Cl imate Assessment, and th e land tenure revie w -both completed in FY06-, as

well as the Loca l Development Fund (FDL) feasibi l i ty study, ledby the Government.

31 .

per iod o f our years and consists o f he fo l low ing five components:

The project SDR 24.3 mi l l io n (IDA US$40.0 mi l l i on) wo uld be implemented over a

(a) Component 1: Improvement o f Public Expenditure Management -SDR 8.51 million (IDA US$14.0 million)

The objective o f his component i s to continue to support in a ho l ist ic manner

the ref orm o f he publ ic expenditure management system in Madagascar. The

reference point for the reform i s the Pr ior i ty Act ion Plan (PAP) which i s

developed by th e Ministry o f Finance since 2004 o n an annual basis and

supported by the development partners including the W or ld Bank. The PAPconsol idates al l reform act iv i t ies under the oversight o f the Ministry o f

Finance. The implementat ion progress o f this p l a n i s evaluated regularly and

j o i n t l y by the donors and the Ministry o f Finance.

Funding under this component wil l focus o n the further improvement o f he

budget preparation and execution processes, including the further ro l l -out o f

th e integrated financial management system (Systbme LntCgre de Gestion des

Finances Publiques, SIGFP) to the reg iona l capitals and the strengthening o f

the operational eff ic iency o f the relevant control mechanisms. Funding wil l

also be provided to rat ional ize the public investment process, which

constitutes an impo rtant element o f the publ ic f inance reform agenda. Theproject wil l continue to support the procurement reforms ini t iated in 2004

through comprehensive training and capacity building activities. I t wil l

provide assistance to the Government to implement the intended

comprehensive reforms o f the revenue agencies (customs and tax

directorates).

Project funding will be provided for goods and equipment, consult ing

services, rehabilitation and maintenance o f offices, some operating costs as

w e ll as for training and capacity building activities.

9



(b) Component 2: Strengthening the Efficiency of Government Operations -SDR 4.86 million (IDA US$S.O million)

The objective o f this component i s to support the change management and

institutional development processes in th e context o f the implementat ion o f

the Government’s development strategy, th e Madagascar Ac t io n Plan (MAP).I t builds on act iv it ies p i lo ted under the f i r s t PGDI and wil l inclu de leadership

training and development for senior government off icials to manage and

impleme nt far-reaching reforms. Support wil l also include an upgrading of

local training insti tutions (Ecole Nationale de 1’Administration Malgache,

ENAM, Centre National de Formation Administrat ive, CN FA, Ecole

Nat ionale de la M agistrature et des Greffes, ENMG), as well as the support

fo r the operat ion o f a Globa l Development Learn ing Center (GDLN) and of

the Nat iona l Leadership Inst i tu te o f Madagascar (NLIM). In addition, this

component wil l provid e l im ite d complementary support for some cross-

cutt ing reforms and act iv it ies which are considered important for the M A P

implementation. Such reforms include the support for th e deve lopment o f aconsistent insti tutional framew ork for decentral ization, and the refo rm o f thepub l ic sector pay and incentive system.

Project funding w i l l be provided for goods and equipment, consult ing

services, rehab i l i tation and maintenance o f off ices and trainin g insti tutions,

some ope rating costs as well as for training and capacity building activities.

(c) Component 3: Rule of L a w and Fight Against Corruption - SDR1.52

million (IDA US$2.50million)

The ob jec t ive o f the component i s to assist Government in promot ing

transparency, accountabil i ty and good governance; and in particular, in

reducing corruption. Project assistance w i l l build o n the activi t ies ini t iated

under the f i rs t PGDI and ma in ly focus on mprov ing the operational eff icienc y

o f the judiciary, on supporting anti-corruption and confl ict-of- interest

activities, and o n strengthening oversight by the Audi tor General and by

Parliament over State affairs. This wil l also include support for a

l ibera l izat ion o f pub l ic disclosure regulations, a pre-c ondit ion for some o f hesocial accountabil i ty initiatives, and assistance to establish an Economic

Cr imes Unit4,w h i c h i s considered important to complement activi t ies o f the

Anti -Corrupt ion Bureau.

Project funding wil l be provided for goods and equipment, consult ingservices, reh abil it atio n and maintenance o f offices, some operating costs as

w e l l as for tra ining and capacity building activities.

T h e main function o f the Economic Crimes Unit (Service de Renseignement Financier), which does not have the right to

prosecute or to investigate, i s to collect information and advising other government services and the judiciary on moneylaundering ssues. I t s independent from the Government and reports to the Anti-Corruption Commission.

4

10



(d) Component 4: Transparency and Social Accountability -

SDR 2.43 million (IDA US$4.0 million)

The component aims at fostering increased imp l icatio n o f c i v i l society in State

affairs and at impr ov ing “social accountabi li ty” w hi ch are key objectives of

the MAP. The support wil l focus o n activi t ies that are destined to strengthen

ci v i l society’s capacity to p lay a m eaningfu l ro le in moni to r ing and prov id ing

feedback o n government activities. Th is wil l inc lude act iv it ies to improve

bo th d istr ibut ion o f and access to in forma t ion about key act iv it ies o f the

Government. The projec t will support activitie s that are aime d at foste ring an

enabl ing envi ronment for the i nvo lvement o f c i v i l soc ie ty by developing

processes that cou ld eventual ly be rep l icated for mo re systemic use, primarily

through p i lo ts and discussions. A grant funding mechanism wil l be se t up that

would f inance innovative governance activi t ies by non-state actors that are

related to the objectives o f the project. These Social Accountabi l i ty Grants

will pi lot, develop and scale up approaches that are focused on supporting

c iv i l society to mo nitor and provid e oversight, in particular in key areas suchas natural resource management, local service delivery, and publ ic f inancia l

management.

Project funding wil l be prov ided for tec hnica l assistance, workshops, train ing

and for the S ocial Acco untab i l i ty Grants. I t also in clud e some operating costs

fo r the inst i tutio n that manages the grant mechanism .

(e) Component 5: Monitoring & evaluation - SDR 4.25 million (IDA

US$7.0 million)

The component will support Government’s efforts to strengthen the

moni to r ing & evaluation system that underpins the MAP. This support willfocus on the improvement o f the operational eff icienc y o f the Nat iona l

Statistics Office (INSTAT), in particular insti tutional restructuring and

capacity building. Additional support will be provided fo r the modernizat ion

o f the procedura l and inst i tu t ional framework for mon i tor ing & evaluation in

Madagascar, in particular the strengtheningo f relevant activ ities at the leve l o f

the sector ministries and in the Prim e Ministe r’s O ffice. T o establish baseline

data and reference points for the improvement o f publ ic services the project

wil l support a new popu lation census wh ich a ims at consol idating and furtherdeepening existing statistical data which i s v i ta l f o r bo th pub l i c and pr ivate

sector needs. The last census was conducted in 1993. The total costs for the

census are presently estimated at well above US$20.0 mi l l i on (o rapproximately US$l.OO per inhabitant) and wil l be funded by contr ibutions

fro m Government and development partners. In case the Government i s no t

able to raise suff icient funding for a comprehensive census from th e donor

communi ty i t s envisaged to use the W o r l d B a n k funding to conduct a partial

census that wo ul d cover rough ly 10 percent o f he country.

11



Project funding wil l be provided for goods an d equipment, consult ing

services, reh abil itatio n o f offices, operating costs as well as for training and

capacity buildingactivities.

( f ) Component 6: Program Coordination - SDR 1.52 million (IDA

US$2.5 million)

The ob jec t ive o f this component i s to support the management and

implementat ion o f he P G D I 11. This wil l nclu de assistance to the Ministry of

Finance to effectively manage donor and government funds committed to

f inancing publ ic expenditure management reforms. Ad dit ion al assistance wil l

focus on th e Bureau de Gestion (BdG) o f the Re fo rm Program fo r the

Eff icien cy o f the Adm inistration (Programme de Reformes pour 1’Efficacitk

de l’ Admin i st ra t ion , P E A ) wh i ch was set up by the Government in 2005 to

coordinate a ll governance related activities.

Project funding wil l be provided for goods and equipment, consultingservices, re ha bil ita tion and maintenance o f offices, operating costs as well as

for t ra in ing and capacity buildingactivities.

(g) Unallocated- SDR 1.22 million (IDA US$2.0 million)

The unallocated amount wil l be used to cover price contingencies and to

respond flexibly to addit ional demands emerging during the implementation

o f he proje ct activities.

D. Lessons learned and reflected in the project design

32.P G D I w hic h has been executed satisfactorily. These lessons include:

The pro ject design incorporates the lessons learnt under the implementat ion of first

0 Signif icant capacity building and insti tutiona l development support i s necessary to

ensure that k e y reforms, in particular in the area o f publ ic f inance and publ ic

procurement are not only adequately designed but also fully insti tutional ized within

the Malagas y pub l ic adm inistration. As a consequence, comprehensive training and

capacity buildingactivitie s are an integral part o f he various projec t components.

0 In view o f he exist ing capacity constra ints harmonizat ion o f he refo rm agenda with

other development partners i s cri t ical t o ensure imp leme ntation progress. The project

i s therefore closely coordinated with other development partners. In he area o f publ icexpenditure management th e project support i s l i nked the Pr io r i ty Ac t ion P lan (PAP)

o f the Government which i s the key instrument fo r the coord ination o f the reforms

and for the relate d donor support to the Ministryo f Finance.

Government ownership i s critical to ensure that reforms, in particular in sensit ive

areas, are adequately designed an d implemented. As a consequence the project

foresees s ignifica nt investments in analytical work to complement ongoing reforms,

12



e.g. with regard to pay pol icy reforms and anti-corruption activi t ies. Given past

experience under the f i r s t PGDI the new pro ject will strengthen dialogue with a l l

relevant (internal and external) stakeholders to improve broad-based buy-in for the

intendedreforms.

0 In Madagascar, th e combinat ion between the exist ing P G D I and th e budget supportoperations has created a lot o f synergies; i t has enabled the Gove rnment to respond to

pol ic y/re form changes and upco ming demands in a flexib le and constructive m anner.

The proposed lending instrument (Tec hnica l Assistance Credit) shou ld therefore

continue to support the implementat ion o f he po l icy agenda out l ined by the PRSCs.

E. Alternatives considered and reasons for rejection

33. An addit ional f inancing or scal ing up o f the f i r s t PGDI was considered. I t was felt,

however, that a new pro jec t wo u ld be better suited to ref lect the significant changes with

regard to the imple me ntatio n arrangements (see annex 6 for details) and to th e scope o f he

project. A new project i s also better suited to provid e mea ningfu l support to the Governmentin refining and successfully imple men ting t s amb itious refor m agenda.

111. IMPLEMENTATION

A. Institutional and implementation arrangements

34. Pol icy guidance and overal l project oversight wil l be the

respo nsibi l i ty o f the Oversight Comm ittee (Conseil d’o rientation et de Su i v i - COS)

consist ing o f a l l Permanent Secretar ies o f he Government and o f representatives fr om ci v i l

society, from the private sector, from the regions and communes, and from the donor

comm uni ty. The Oversight C ommittee whic h i s led by the Secretary o f Plann ing meets once

a year a nd approves the annual wo rk p lan for the project. Key po l ic y decisions ar e submi t tedby th e Oversight Committee to the Co unci l o f Min is te rs .

Project oversight:

35 . Project coordination and implementation: The pro ject wou ld have three executing

agencies: i)he Ministry o f F inance (MoF) through i t s Refo rm Coordinat ion Unit (RCU), in

charge o f th e implementat ion o f th e component 1; ii) he National Statistics Office

(INSTAT), responsible for the implementat ion o f the populat ion census w hic h i s supported

by component 5 o f he p ro ject ; iii)he O f fi ce o f he President, through PREA/BdG (current

PG DI), responsible fo r the impleme ntation o f al l other components except for component 4

whose administration wil l be entrusted to an Administrator (see paragraph 37 below).

However, due to weak experience o f the R C U and I N S T A T in managing donor funds, th e

financ ial management and procurement aspects o f the entire project wil l be entrusted to

PREA/BdG until R C U and IN S T A T have satisfactory f inancial management andprocurement capacity. For this purpose PRENBdG wi ll be responsible for: i) onsol idation

o f the work p rograms and budgets; ii)maintenance o f records and accounts for al l

transactions to be financed under the credit; iii) reparation o f the project annual f inanc ial

statements and quar terly IFRs (Interim Finan cial Reports), in compliance with international

accounting standards and IDA requirements; iv) management o f disbursements and

13



replenishment applications for the Account; and v) moni to r ing and eva lua t ion o f he various

activities related to components und er i t s responsibi l i ty.

36. R C U and INSTAT responsibilities wil l inc lude: implementat ion o f

activities/components under their respective respo nsibil i ties (components 1 and 5),

moni tor ing/evaluation o f these activi ties/components, and produ ction o f al l infor ma tion(basic, technical, financ ial) o n compo nents 1 and 5 as requiredby PR EA . To strengthen the

f inancial management capacity o f th e R C U a nd INSTAT in managing/monitoring donor

funds, one or tw o accountants from these ent i t ies wil l be integrated into the PREA/BdG

structure for one/two years and wo rk c lose ly with P G D I accounting s ta f f to get themselves

acquainted with donor requirements in accounting, reporting and disbursements procedures.

37 . The transfer o f he fina ncia l management and procurement aspects o f he components

1 and 5 t o R C U and I N S T A T s envisaged until December 31, 2009; i t w i l l b e subject to an

IDA assessment o f the f inancial management and procurement cap acity o f the relevant

insti tution. Until hat time, f ina ncia l management and procurement activities wil l be handled

by PREA/BdG.

38. For the civ i l society fund under component 4, adminis tra tion o f the find wil l be

contracted through a comp eti t ive process to an independent administrator (NGO or other),

wh i ch will report to a special committee se t up for this component composed of

representatives fr om c iv il society and government. A consultative process wil l be carried out

with civi l society groups to identi fy appropriate candidates for this committee, including

representatives o f bo t h na t ional and l oca l l e ve l associations, NGOs and the media.

B. Mon itoring a nd evaluation o f outcomes/results

39. The resul ts f ramework for the pro ject i s summarized in Ann ex 3. Expected outcomes

include: (i) n increase in the number o f ind icators under th e Pub l i c Expenditure andFinanc ial Acc ounta bi l i ty Assessment (PEFA) wh ich are rated ‘Byand above; (ii)n increase

in the percentage o f populat ion report ing an improvement in service delivery for selected

pu blic services, (iii)n increase in he number o f socia l accountabi l i ty in i t ia t ives successf i l ly

implemented with th e participa tion o f c iv i l society organizations, and (iv) the comple t ion o f

thepopu lation census.

C. Sustainability

40. The Government i s com mitted to sustain the reforms also after the funding provided

by th e project i s coming to an end. A signif icant part o f he government budget has been se t

aside to ma intain and further expand the new integrated financial management system, which

the Government considers cri t ical to impro ve accou ntabi l i ty and transparency. Simi larly, thet ra in ing and capacity building activitie s that are developed and funded by the project wil l be

used to update the curr icu la o f local t ra in ing inst i tu t ions and will, thus systematically be

integrated into future training activit ies. The Government i s a lso work ing on a fund ra is ing

strategy for the loc al training insti tutions, wh ich w ou ld ensure the continuation o f k e y

training activi t ies after the closure o f he project.

14



41. The goals and objectives supported by the pro ject are based on a comprehensive

national dialogue in the context o f he development of the MAP. This dialogue integrated all

levels o f society and a broad range o f di fferent stakeholders. The social accountabi l i ty

activities support by the project (component 4) were ide nti f ie d and discussed in workshops

and focus group discussions, inter alia in th e context o f a nat ion-wide social accountabi l ity

workshop in February 2008.

Risks

D. Critical risks an d possible contr oversial aspects

Risk Mitigatio n Measures ResidualRiskRating

42. Some o f the key bene f it s o f the project include: (i)ncreased transparency and

accounta bi l i ty o f government operations based on comprehensive pub l ic f inancial

management and procurement reforms; (ii)ransformat ion o f the annual budget i n to a

management instrument that supports timely and accurate tracking o f implementat ion o f

government policies; (iii)ncreased capacity at the l eve l o f c i v i l society g roups and

organizations to provide meaningful input and feedback to government activities, and (iv)

significantly enhanced government capacity in the areas o f development planning, pub l ic

finan cial management, procurement, and m on ito rin g & evaluation. The projec t alsocontributes to simplifying complex administrative proceedings and to rat ional iz ing theinst i tu t ional f ramework within wh i ch th e publ ic administration operates. I t encourages

inn ova tive methodologies (e.g. leadership development, ra pid results) to im prov e operational

e f f ic iency o f he administration.

Pol i t ica l commitment to implement the

MAP and the under ly ing re form

program i s not main ta ined

43. The project builds on the reforms ini t iated under the f i r s t PGDI wh ich has benefited

fro m a strong sense o f government ownership and a close aff i l ia tion with the Government’s

core agenda. This has mitigated the risk o f pursuing such a comprehensive and challenging

se t o f governance reforms. The f i rs t project has had very satisfactory pro ject impleme ntation

with strong ownership built across the Government. Cont inued ownership o f and

commitment to the project i s expected because o f t s importance and i t s wide-ranging impact.

Howe ver, there i s s t i l l a risk o f pot en tial resistance to change within the adm inistration. As aconsequence, the p roje ct carries m oderate risk: i t s imp lem ent atio n poses some challenges for

the Government because o f he complex ity o f he changes su pported by the project activi t ies

and the substantive capacity building needs to ensure success and sustainability of the

reforms. To mitiga te existing r isks a comprehensive projec t mo nitor ing and evaluation

framework (see annex 3) has been developed that will serve as a reference point for th e

implementat ion o f the reform program. In addition, independent quality assurance

mechanisms have been put in place to evaluate re for m imp lementation o n a regular basis and

to provide regular feedback about imp lem enta tion bottlenecks. Fina lly, the project sets out

results indicato rs that are specific, measurable, achievable, relevant, and time-bo und to

ensure t im ely assessment o f effectiveness.

Continued dialogue with N

Government to reconf i rm

commitment

I I I I

15



Risks

To comp onent results

Stakeholders and public sector agencies

are not responsive to changes; they donot s ufficiently collaborate

Risk Mitigatio n Measures Residual RiskRating

Delays endanger the implementation o fthe reforms; compliance with changes t o

institutional and procedural framework

i s o w

Build internal and external support

for change process through

comprehensive training and capacity

building; scale-up change

management support i f needed

Integrate significant sensitization

and change management support

into the re fo rm process; revie wcompliance on a regular basisthr ou gh independent assessments

Build into the reform program

comprehensive training, capacitybuilding, coaching and technical

assistance; provide incentives for

staff and managers who can act asmultipliers, strengthen quality andcapacity o f ocal training insti tut ions

mobilization and awareness creation

activities t o ensure broad support for

increased implica tion o f non-state

actors

Build into the reforms significant

Capacity (managerial, organizational,

institutional, technical) to implementcomplex reforms i s no t adequate

N

M

M

M

Modest

Resistance with regard to the

implementation o f social accountability

activities

Overal l risk rating

44. T h e l i fe t i m e o f he p ro jec t wil l go be yon d the cu r ren t manda te o f he Government . I t

i s, however , un l ik e ly that a change in g o ve r n me n t would t r igger substant ive change to the

in tend ed governance and inst i t u t ion a l re f orm s as the re levant agenda was deve loped based on

a bro ad pa r t i c i pa to ry d ia logue in he con tex t o f h e MAP.

45. The p rog ress i ve imp l i ca t i on o f c i v i l s o ci et y in State affairs, which i s an important

element o f he pro ject , might encounter some resistance from p u b l i c o r e le c te d o f f i c i a l s that

consider such an approach a threat to the i r (vested) interest . S ign i f ican t mo bi l iz a t io n and

awareness creat ion has therefore bee n built into the p ro jec t to ensure b ro ad support f ro m a l l

re levant s takeholders to the pro ject act iv i t ies. In addition, the admin i s t ra t i on o f he fund to

suppor t civil socie ty dema nd s ide governance in i t ia t iv es wil l b e de legated outs ide o f PREA.

46. D u e to we a k ca p ac i ty o f h e a cco u n t in g p r o fe ss io n in Madagascar and o f he Auditor

Genera l ’s Off ice , f inancia ls aud i t may n o t b e co n d u c te d p r o p e r l y in comp l iance with

in ternat iona l aud i t ing standards. To mi t i g a te this r is k , t h e a u d it o f th e p r o j e c t f i n a n c i a l

statements wil l b e ca rr i ed o u t by an i n te rna t iona l accoun t ing firm, acceptable to IDA in

accordance with In ternat iona l Standards o f Auditing. Th e re in fo rcemen t o f t h e accounting

profession wil l be addressed through r e fo r ms r e co mme n d e d in th e ROSC repo r t to b e

16



submitted o the Government at the end o f the FY 08. The capaci ty problems o f the Supreme

Audit Insti tution are being addressed throug h the ongoing publ ic f inance re form program

wh i ch i s supported by th e W o r l d Bank and other developme nt partners.

E. Credit conditions and covenants

47. The fol l ow ing credit effectiveness condit ions have been agreed with the Government

(a) The Government has adopted the Project Imple me ntation Manual, in fo rm and

substance satisfactory to the Association.

(b) The Government has employed th e independent external auditors refe rred to

in Section 4.09 (b) o f he General Conditions.

(c) The Government has established a Re for m Coo rdination Unit in the Ministry

o f F inance with for m a nd fimctions satisfactory to th e Ass ociatio n and caused the

Reform Coordinat ion Unit to emp loy the fo l l ow ing s ta f f with qual i f ications and

experience satisfactory to the Association: a re fo rm coordinator an d at least tw odedicated technic al office rs.

48 . The disbursement o f the Social Accountabi l i ty Grants wil l be subject to therecrui tment o f a non-state S ocial Acc ounta bi l i ty G rant Administrator, acceptable t o IDA;

49. Fin an cia l covenants are the standard ones as stated in the Financing Agreement

Schedule 2, Section I1 (B) on Financial Management, Financial Reports and Audits an d

Section 4.09 o f he General Condit ions.

IV. APPRAISAL SUMMARY

50. The project is expected to signi f icantly improve economic management inMadagascar by (i)urther deploying an integrated financial management system, which

a l lows fo r compi lat ion o f imely and re liab le in form at ion o n budget al location, commitment

and actual expenditures; (ii) onsol idating publ ic procurement reforms, (iii)einforc ing

external (citizens/civil society) oversight over government operations, in particular with

regard to more inclusive decision mak ing and adequate use o f publ ic resources; (iv)

strengthening coordination, monitoring and evaluation capacity to enable the consistent

impleme ntation o f Government pol icies; and (v) building capacity o f key insti tutions to

effectiv ely manage and imp leme nt com plex change processes.

51. The project i s expected to have a posit ive f iscal im pact. The i n t roduct ion o f he new

integrated financial management system wil l strengthen publ ic f inancial management and

control ; these interventions would ul t imately resul t in better use o f publ ic resources. Th e

r e fo r m o f the publ ic procurement system focuses in ter al ia on generating mo re value fo r

(public) money. Increased external oversight would ensure better publ ic scrut iny o f

government activities. These activitie s wo ul d enable the Government to ma ke mo re resources

avai lable for the prov ision o f ke y social services in l ine with the strategic goals and

17



objectives o f the M A P . In addition, th e project would increase transparency and

accountab i l i ty o f government operations and thus, ul t imately contr ibute to more effective

contro l o f government activi t ies.

B. Technical

52. The proposed project design, in particular th e design o f publ ic f inance reforms

corresponds to financial management, ICT- and public sector standards developed in similar

projects al l over the wor ld . The project also builds on s igni f icant analyt ica l work, inparticular the Pub l ic Expenditure Reviews 2005 and 2007 as w e l l as the PEFA assessments

in 2006 and 2008.

C. Institutional:

53. Project oversight: Pol icy guidance and overal l project oversight wil l be the

responsib il i ty o f th e Oversight Committee (Consei l d ’or ientat ion et de Suivi - COS)

consisting o f al l Permanent Secretaries o f the Government and o f representatives fr om ci v i l

society, from the private sector, from the regions and communes, and from the donor

communi ty. The Oversight Committee whic h i s led by the Secretary General o f Planning in

the President’s Office meets once a year and approves the annual work plan fo r th e project.

Key po l ic y decisions are subm itted by the Oversight Co mm ittee to the Counc i l o f Ministers.

54. Project coordination and implementation: The pro jec t wou ld have three

implementation units: i)he Reform Coordinat ion Unit (RCU) in the Ministry o f Finance wil l

be in charge o f th e implementat ion o f the component 1; ii) he National Statistics Office

(INSTAT) wil l be responsible for the implementat ion o f the population census which i s

supported by component 5 ; iii)he Project Bu reau (Bureau de Gestion, BdG) o f the Re fo rm

Program for th e Eff ic ienc y o f he Administrat ion (Programme de Rkformes pour 1 ’Efficacite

de l ’Administration, PREA) in the Of f i ce o f the President wil l be responsible for theimpleme ntation o f al l other components except for component 4 wh i ch wi ll be entrusted to

an independent Administrator. PREA i s headed by a Na tiona l Coordinator.

(a) PREA/BdG will be responsible fo r: i) onsol idat ion o f the wo rk programs and

budgets; ii)maintenance o f records and accounts fo r transactions related to a ll

components; iii) reparation and produ ction o f consolidated annual f inancial

statements and quarterly IFRs, in compliance with international accounting

standards and ID A requirements; iv ) management o f disbursements fo r a l l

components and replenishment applications for the designated account; and v)

moni to r ing and evaluation o f he various activities under i t s responsibi l i ty.

(b) The R C U and I N S T A T wil l assure the implem entation o factivities/components under their respective responsibil i ties (components 1 and

9, moni tor ing/evaluation o f a l l act iv it ies under their responsibil i ties, and

produ ction o f al l inform atio n (basic, technical, f inancial) o n components 1 and 5

as requiredby PRE A. The transfer o f he f inanc ial management and procurement

aspects o f the components 1 an d 5 to th e R C U a nd INSTAT i s envisaged until

December 31, 2009; i t will be subject to an IDA assessment o f the f inancia l

18



management capacity o f he relevant insti tution . Until that time, the PRENBdG

wil l ensure f inancial management and procurement for the project.

5 5 . The administrat ion o f the Social Accountabi l i ty Grants under component 4 wil l be

entrusted to an independent Grant Administrator (NGO or other) to b e recrui ted through a

com petitiv e selection process.

D. Fiduciary

56. PREA/BdG s at present responsible fo r the im plem entat ion o f he f i r s t PGDIan d wil l

continue to handle the f inanc ial management aspects o f the new pro ject (P GD I 2). In

accordance with Bank pol icy and procedures, the fina ncia l management arrangements o f

PRENBdG have been rev iew ed to determ ine whether t hey are acceptable to th e Bank. The

main conc lusion o f this review i s that PREA/BdG continues to maintain an adequate

financial management system. The fina ncial management risk i s assessed as being moderate.

However, th e P R E A chart o f accounts needs to be reviewed to ref lect th e

components/activities to be financed under PGDI I1 and satisfy repo rting requirements. T heprocedures manual o f the P G D I wi ll be consequently updated to in clude the new chart o f

accounts and model s o f FRs.The content and formats o f inancial statements and IFRs were

determined during the appraisal mis sion and agreed at negotiations. The rev iew o f he Chart

o f accounts as well as the update o f the account ing manual o f procedures are current ly

underway and wil l be completed p rior to credit effectiveness .

57 . To mi t iga te r i sks raised by the l im i ted capac ity o f the Auditor General (Cour des

Comptes) the audit o f he PGDI I1 inanc ial statements for the f i rs t three years will be carried

out by an international audit ing firm acceptable to IDA. This audit wil l be conducted in

accordance with International Standards o f Auditing. The auditors should be recrui ted prior

to credit effectiveness. To strengthen their capacity, the auditors from the “Cour des

Comptes” can partic ipate in this audit assignment. The audit report wil l be submitted to IDAno later than six months after the end o f each f iscal year. With regard to the audit o f the

closing period, the project may us e the service o f the Audi tor General i f i t s capacity i s

deemed adequate fol low ing IDA assessment. Reg ardin g Madagascar, n o sign ificant pro blem s

have been encountered so far in te rms o f audit covenants: a l l audit reports related to B an k

financed proje cts have been received in due time.

58 . All procurement activities under the project will be in i t ia l ly carr ied out by

PR EA PG DI . T he capacit y o f the P R E M G D I a nd the q ua lity o f the procurement staff i s

deemed sufficient t o implement th e new project. The overal l project r i s k for procurement i s

moderate.

E. Social

59. The project has several potential social benefits. Greater focus o n transparency and

social accountab i l i ty should impro ve the f lo w o f resources to the l oca l leve l in areas whe re

specific pilots are being implemented; the comb ination o f support for demand-side

accountabi l i ty mechanism with supply side efforts ( improved budget systems for example)

should lead to improvements in the qual i ty o f specif ic p ubl ic services, as was seen in th e

19



health sector pi lo t com mu nity scorecard processes. Also, building the capac it y o f c i v i l

society groups to engage in extracting accountabi li ty, should impro ve the ab i li t y o f c i v ic

groups to participate in monitoring service delivery and budget execution. Finally, the

successful imp lementation o f social accounta bi l i ty activi t ies ca n go hand-in-hand with

increased leg i t imac y and credib i l i ty o f government actors, prov ided they are responsive to

ci v i l society demands for greater transparency and better deliv ery o f services.

60. Alth oug h considered to be l o w risk, potential social r i sks that the proje ct wil l need to

mitigat e against include: the risk that specific b enefits are captured by on ly a sma l l number

o f c iv i l society groups; the risk o f epercussions i f social accountabi l i ty ini t iatives do n ot go

hand-in-hand with the creat ion o f a protect ive regulatory f ramew ork for NGOs, the media

and other non-state actors; the r i s k that some o f he decentralization reform s adversely affect

the equity o f nvestments o r the degree o f voice that some less visible groups m ay have if

tradi t ional or bureaucratic forms o f loca l governance continue; the risk that citizen’s

expectations are raised to unrealistic levels; the risk that civic education i s no t well targeted,

or not combined with specific interventions; and, finally, the risk that the enabling

environment which encourages civic involvement in monitoring government serviceschanges or becomes m ore hosti le.

6 1. In order to a void those r isks, social accountab i l i ty interventions wil l prom ote greater

government buy-in by pi lo t ing in i t ia t ives in conjunctions with government internal

supporters o f demand side” accountabil i ty. With a view to avo iding repercussions, i t wi ll be

impo rtant to ensure that adequate “safeguards” such as a legal framew ork pro tec ting freedom

o f n forma ti on and o f association are in place, a nd to car efully m on ito r these aspects of th e

pilots. Also, facil i tators wil l be trained to p roactiv ely engage vulnerable and marginal ized

groups to min im ize the risk o f el i te capture. In addition, the design o f social accountabi li ty

ini t iatives wil l emphasize b ot h ci t izen’s rights as well as responsibil i ties, also to help civil

society engage in a dialogue with government to develop a real istic understanding o f th e

existin g constraints. Fina lly, the use o f professional mediators can help mi n i m i ze the risk o fconf l ic t .

F. Environment

62. N o t applicable; the project i s environm ental category C .

20



G. Safe guar d policies

Safeguard Policies Triggere d by the Project Yes No

Environmental Asscssmcnt (OP/BP 4.01) [I [X I

Natural Hab itats (OP/BP 4.04)[I

[ X I

Pest Management (OP 4.09) [I [XI

Physical Cu ltur al Resources (OPIBP 4.1 1) [I [X I

InvoluntaryResettlement (OP/BP 4.12) [I [X I

Indigenous Peoples (OP/BP 4.10) [I [X I

Forests (OP/BP 4.36) [I [X I

Safety o f Da ms (OP/BP 4.37) [I [X I

Projects in DisputedAreas (OP/BP 7.60). [I [ X I

Projects on Intern ation al Waterways (OP/BP 7.50) [I [ X I

63.not require an envir onm enta l assessment.

The project wil l involve some minor rehabi li tation o f ex is t ing buildings, whic h does

H. Policy Exceptions and Readiness

64. Project funding for components 1, 2, 3 and 5 wil l include the f inanc ing o f a limited

number o f government st af f salaries until December 31, 2009, ma in ly to recruit trainers fo r

local training institutions and technical specialists into the President’s Office, the Prime

Min is te r ’s Office, the Econo mic Crimes Unit and for th e Nat iona l Statistics Inst i tute. Theseexpenditures are in l i ne with the requirements o f recurrent cost financ ing parameters as

specified in BP 6.00 o f April 2004 and the relevant Guidelines o f April 16, 2004. World

Bank support would allow the Government to gradually integrate these recurrentexpenditures into subsequent budget years.

65. To facilitate the transition from the existing PGDI I he project will include theretroactive financ ing o f specific activities (refinement and deployment o f the integrated

financial management system, strengthening o f the in ternal and external controls o f thepublic finance system, implementation o f th e reforms in the customs and tax directorates

including related trainin g and capacity buildingactivities, and coordination o f he reforms inthe Ministry o f Finance and Budget). These expenditures, w hi ch must be incurred on or after

January 1, 2008 do not exceed US$l.O million and wil l be subject to the applicat ion o frelevant World Bank procurement guidelines, are in l i n e with the requirements o f theeligibility criteria for Ba nk f inancing as specified in OP/BP 6.00 o f April 2004.

66.be realistic and o f satisfactory quality.

The Project Implementation and Procurement Plans have been appraised and fou nd to

* By supporting theprop osed projec t, the Bank does not intend to prejud ice the i na l determination o the parties ’ claims on

the disputed areas

21



Annex 1: Country and Sector or Program Background

MADAGASCAR: Governance and Institutional Development Project I1

67. Go od governance and insti tution al development are ke y elements o f the

Government’s reform agenda as spelled out in the m ai n development strategy, theMadagascar Action Plan (MAP)an d i t s annual imple me ntation plans (Pol i t ique GCnCrale de

1Etat).

Government of MadagascarThe Eight Commitments of the M A P

The MAP i s a five-year plan that lays out the direction and priorities for Madagascar or the period2007-2012. I t outlines:ight strategic commitments with strategies and actions that will ignite rapid growth, lead to the reductiono f poverty and:nsure that the country develops in response to the challenges of globalization and in accordance with the national vision-MadagascarNatural ly - and the MDGs. Th e eight commitments of the MAP are as follows:

Responsible Governance- he goal i s to create a Government that every citizen and the international community can trustand to build a civi l service that w il l have integrity, be ef f ic ient and act totally professional n all its activities. Th e specific:hallenges of this Commitment are to (i) provide sufficient security to protect people and property;(ii) trengthen the rule oflaw; (ii i) reduce corruption; (iv) establishan efficient and effective Government budgetary process; (v) strengthenthe

provision of public services; (vi) decentralizethe Government administration and (vii) become a learning nation.

Connected Infrastructure- his commitment emphasizes that infrastructure s essential for the country to achieve rapiddevelopment, facilitate business and trade, enable communication and ensure that the standard of iving and the access to

resources and global knowledge improves for all. The challenges are to (i)rioritize infrastructuredevelopment fo r keygrowth areas; (ii) efficiently move goods and people from one place to another; (iii)mprove access to transport servicesnationwide; (iv) ensure accessible and adequate energy supply at affordable and competitive cost; (v) ensure efficient andaffordable communication system; (vi) carry out better weather forecasting and warnings o f potential disasters such as

cyclones; and (substantially mprove access to drinking water and sanitation.

EducationalTransformation- he goal i s to create an education system with world class standards in quality andeffectiveness which provides Madagascar with the necessary human resources o become a competitive nation and asuccessful player in the world economy. T h i s would be achieved through(i)nsuring access o f a l l children to

developmental opportunities before official school entry; (ii)reating a successful primary education system;(iii)reating asuccessful lower secondary education system; (iv) improving upper secondary school and developing vocational training; (v)transforming higher education; (vi) ending illiteracy; and (vii) developing capacities and mindsets o f young people throughsports and civic participation.

Rural Development and a Green Revolution- he MAP recognizes that dynamic rural development through increasedagricultural production s at the core of the Government’s endeavors and that better infrastructureand communicationnetworks are essential to meet this goal. The specific activities are to (i)ecure land tenure; (ii)mprove access to affordablerural financing; ( iii ) launch a sustainablegreen revolution; (iv) promotemarket oriented activities; (v) diversify ru ra l

activities; and (vi) increase the agricultural value-added and promote agri-business.

Health, Family Planning and the Fight Against HIV/AIDS - he challengehere i s to ensure that the Malagache peopleare healthy and can contribute productively o the development of the country. T h i s commitment focuses on(i) rovidingqualityhealthservices to all; (ii) radicating major diseases (malaria, TB, STIs); (iii) fighting HIVIAIDS; (iv) implementinga highly successful family planning strategy; (v) reducing nfant mortality; (vi) reducing maternal and neonatal mortality;

(vii) improving nutrition and food security; and (vii i) providing safe water and widespread use o f hygienic practices.

High Growth Economy- he goal i s to reach growth rates between7-10% by 2012 through ensuring a diversif ied andstrong private sector driven by local and international nvestment and trade. This challenge naturally covers many activitiesfocused on the following: (i) ensure a stable macroeconomic environment; ( ii) increase foreign direct investment; (iii)promote full employment; (iv) reform the banking and financial system; (v) strengthen domestic enterprises, SMEs andhandicraft ndustry; (vi) enhance international rade competitiveness; (vii ) intensively develop the mining sector; (viii )intensively promote and develop the tourism sector; (ix) intensively exploit regional opportunities; and (x) throughdiplomacy, strengthen economic synergies.

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Cherish the Environment- hiscommitment lays out the goal fo r Madagascar o become a world leader in thedevelopment and implementationof environmentalbest practice, to become a green island and to cherish and protect i t s

extraordinary environment. Local communities will be active participants and industries such as eco-tourismand organicagri-business wi ll develop to minimizebiodiversity damage and maximize benefits to the country and people. T h e activitiesfocus on (i) increasing the protected areas fo r the conservationo f and, lake, marine and coastal biodiversity; (ii ) reducingthe natural resource degradation process; (i ii ) developingthe environmental reflex at all levels; and (iv) strengthening the

effectivenesso f orest management.

National Solidarity-the goal s to continue to forge a strong and unified national dentity that promotes participation andpartnership, allows people to be proud and to take full and shared responsibility or guiding the nation into the future. T h e

specific challenges are to (i) celebrate cultural diversity, understanding and respect; (i i) build social trust and promote civicparticipation;(iii)romote solidarity and pride; (iv) improve support for the very poor and vulnerable populations; and (v)promote gender equality and empowerment of women.

Source: Madaga scar Action Plan 2007-2012

68. The new project intends to support the implementat ion o f th e government reform

strategy in a hol istic manner by focusing on key ref orm areas that w ou ld consti tute a sound

system o f good governance in Madagascar. These ref orm areas, wh ic h are derived fro m the

Government’s o w n development strategy (the MAP) are summarized below :

69 . Improving good governance. When the Government took over power in 2002

corrup tion was pervasive: in th e Transparency International (TI) Percep t ion Index o f 2002

Madagascar was rated 98 out o f 102 countr ies. T he T I atings hav e impro ved since that time

but impleme ntation progress i s slower than expected. Governme nt strategy has focused on

three areas (i)he development o f an anti-corruption strategy wh ich i s supported by a broad

coal i t ion o f relevant stakeholders, (ii)he improvement o f the regulatory f ramework to

combat corruption, and (iii)he establishment o f an independent anti-corruption agency

wh i ch wil l coordinate the fight against corruption.

70. Progress has been substantial in a ll areas. The f i r s t phase o f the program (until early

2006) focused on establishing an effective regulatory and inst i tu t ional f ramework to fightcorrupt ion and to improve governance. In this context, an independent Anti-Corruption

commission (Conseil SupCrieur Lutte Contre la Corruption, CSLC C, later renamed ComitC

pour la Sauvegarde de l’IntCgritC, CSI) and an independent An ti-Co rrup tion Bure au (Bureau

IndCpendantAnt i-co rrup tion, B IA NC O) were se t up and made operational. The Commiss ion

subsequently put forward a comprehensive anti-corruption legislation, which includes a

declaration o f assets o f publ ic and elected off icials, and regulations to improve both

investigation and prosec ution o f corrup tion cases. A specialized court (Chaine PCnale Anti-

corruption) was established to deal with corrup tion cases. Ad dit ion al activi t ies focused on

regulating the recru itment in t o the publ ic sector, which (under the previous regime) was a

ke y source for corru ption and conflict-of-interest. In 2005, the Com miss ion also organized

with assistance from WBI an anti-corruption survey to establish baseline data and to raisepu blic awareness about the inc idence o f corruption. This survey confirm ed major governance

problems in key services such as the police, the l and titling administration and the revenue

agencies. With assistance under th e f i r s t P G D I the Government has begun to address these

sectoral governance issues. In parallel, B I A N C O investigated a signi f icant number o f

corru ption cases over the last few years. The Bure au also organized independent reviews in

sensitive areas such as land titling and customs and procurement audits o f investment

activities. Late r refor ms focused o n hrther strengthening the regulatory framework, in

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particular with regard to whis tleblow er protection. Several attempts by th e Comm ission to

address confl ict-of- interest o f pub l ic and elected off icials have been less successful, m ain ly

due t o l a ck o f commitmen t and understanding. Similarly, the i n i t i a l l y high rate of

participation in the declaration o f assets (over 90 percent) has constantly declined and i s

current ly b elow 50 percent. Moreover, the anti-corruption survey has not tr iggered a larger-

scale mob i l izat ion o f he populat ion in he fight against corruption, m ai nl y due to weaknesses

in communicat ing the results and in designing an effective mobi l ization strategy. As a

consequence, the m ain challenge i s to consolidate the credib i l i ty o f he previous reforms by

addressing “grand corruption” as well as confl ict-of-interest issues. I t wil l also be important

to better mob i l ize non-state actors fro m c iv i l society and the private sector in the fight against

corruption.

7 1. Improving public expenditure management. W h e n the Government o f President

Ma rc Ravalomanana came into p ower in 2002, i t inher i ted a largely unfinished and non-

priori t ized reform agenda. While previous reforms had some impact, overal l eff iciency,

transparency and accou ntabi l i ty o f the publ ic f inance system remained low. Key problems

include complex, non-transparent, outdated and time consuming procedural arrangementswith often unclear o r ov erlapping roles and insti tutiona l responsibi li ties, lack o f capacity as

well as weak internal and external control mechanisms. In col laboration with a l l key donors

the Government developed a prior i ty action plans for p ubl ic f inance reform s between 2004

and 2008. These plans pr ior i t ize and sequence reform s that are aime d at strengthening the

treasury system, the internal and external controls, the regulatory and procedural framew ork

as well as the budget prep aratio n process. T w o independent PE FA assessments and two

Publ ic Expendi ture Reviews, whic h were conducted jo in t ly with the Government, provided

the analytical underpinning fo r the reforms.

72. Refo rms are currently well under way. M od ern pub l ic finance regulations have been

put in place and a strong link between the MAP and the annual budge t has been established.

The budget preparation process was revamped to al low for mo re t ime to discuss the budgetand i t s strategic priorities. A Medium-Term Expendi ture Framework was in troduced to

prov ide a fo rward v i s ion o f he budget. A budget framework paper was introduced in 2006

to improve decis ion making at the Cabinet lev el and qual i ty o f budget preparat ion by the

sector ministries. Budget execution was streamlined based on th e i n tr oduc t ion o f a m odem

computerized integrated financial management system. The new system has beendeployed to

al l six m ai n treasuries and a l l key sector ministries; i t presently captures about 80 percent o f

government spending. The Treasury D epartment has been restructured and strengthened. Asa consequence, budget execution rates have impro ved signif icantly. A new internal control

service (Brigade de Ver i f icat ion et d ’hspect ion du Trksor) i s now operat ional in the

Treasury. The operational effectiveness o f other intern al and externa l cont rols such as the

General Inspect ion Direc torat e (Inspection Gknkrale de l ’Etat), the Auditor General ’s Office,

an d th e Finance Com missions o f Parl iament has also been improved. At the same time, th e

effectiveness o f the commitment control system (ContrGle des Dkpenses Engagks, CDE)

remains weak, despite Government efforts to address existing problems. An independent

audit o f he C D E was conducted in 2007 to provide impetus to the re for m process.

73 . In he area o f pub l ic procurement, new procurement regulations have been introduced

which are in i n e with int ern ally recognized standards. The inst i tu t ional f ramework for pu bl ic

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procurement has been modernized and a new procurement oversight authori ty (Autori te de

Rkg ulation des Marches Publ ics, ARMP) has been se t up. Signif icant tra ining and capacity

buildingactivi t ies have been undertaken to ensure that the new system i s adequately used and

insti tutional ized. ARMP i s mon i tor ing the compl iance with th e new regulations regularly

based o n independent audits.

74. The pre l iminary findings o f the recent ly com pleted 2008 PEFA assessment confirm

the posi t ive impact o f he reform act iv i ties: s ince the last assessment in 2006 the number of

PE FA indicato rs wh ich are rated ‘Byand above increased to 13 (from 10 in 2006) and th e

number o f ndicators whic h are rated ‘D’ decreased to 6 (from 13 in 2006). M a in challenges

include (i)he consol idat ion o f publ ic f inance reforms in the area o f budget execution (and

reporting), (ii)he strengthening o f the internal and external con trol institutions, (iii)he

further inst i tu t ional izat ion o f the reforms at the leve l o f the sector minist r ies (both nat ional

and sub-national levels), an d (iii)he overa l l absorptive capacity fo r refo rm in he Ministry o f

Finance and the sector minis tries.

75 . Increasing State revenues. Revenue generation i s among the lowest in Sub-Saharan

Afr ica. With a tax /GDP ra t io o f l ess than 11 percent (compared to 18 percent for sub-

Saharan Africa), Madagascar has enormous scope for improving i t s f isca l in f lows. To

improve revenue generation at the l e ve l o f the customs directorate and to reduce endemic

corruption a comprehensive customs reform action plan i s n o w under implementat ion.

Customs operations in key customs offices (e.g. Tam atave and Antananarivo) have been

fundam ental ly reorganized and mode rnized based o n the deployment o f an automated data

processing system (SYDONIA ++). Pre-shipment inspections by a private company have

been introduced to improve transparency and reduce discretionary authority. The

interna tional ly recognized customs management system TR A D E N E T has recently been

introduced in th e customs office in Antananarivo. Customs regulations have been

modernized and the tari ff structure has been simplified. In addition, the Government

launched in 2007 with assistance from the IMF a tax r efo rm program. This progr am focuseso n simplifying and rational izing the ta x system and on min imiz ing tax exemptions. The

Finance L a w 2008 abol ished a number o f low performing taxes. In parallel, tax

administration reforms are ongoing to improve the operational eff iciency o f the ta x

directorate. The ma jori ty o f senior leve l staff has been replaced to address endemic

corru ption and to demonstrate a new beginning for the tax administration. M a in chal lenge i s

to consol idate the ongoing reforms and to sustain the achievements through further

mo derniza tion and capacity building.

76. Mobilizing the public administration. The publ ic sector i s re lat ive ly smal l but

extreme ly central ized and hierarchical with l i t t le o r no service de l ivery or performance focus.

Procedural arrangements are bureaucratic and ov er ly complex. Separate personnel and

payroll databases exist but no systematic reconci l iation between these databases i s carried

out. The last payroll audit was carried out in 1999. Ethical standards exist but are not

enforced. The publ ic sector composit ion i s based on an outdated “model” that

overemphasizes the ro le o f support staf f (nearly 30 percent o f the c iv i l servants) over

technical staff. Av aila ble data also indica te that the average age structure in the pub l ic sector

is re lat ive ly high. Salaries in the pub l ic sector are relatively lo w al thoug h management in the

pub l ic sector receive signif icant al lowances w hic h (if consolidated) amount to a significant

25



salary. Support sta ff in he pu bl ic sector i s pa id better than the support staff in he ( informal)

private sector. With assistance fr om the W o rl d Bank th e Government has begun to address

some o f hese issues. A baseline study fo r the development o f a comprehensive refor m o f he

pub l ic sector pay and incentive system has been launched and i s expected to be completed in

2009. In addition, some government services are in the process o f modern ization (e.g. land

titling) and the rules and procedures for the del ivery o f government services (e.g. ta x

col lection at the l oca l level) have been systematically strengthened. Inn ova tive techniques

such as the rap id resul ts methodology have been used to accelerate reforms. W or k i s ongoing

to reinforce discipl ine and ethic al standards throughout the administration.

77. M a in challenges include (i)he development o f a credible strategy fo r the r e fo r m o f

the pub l ic sector, includ ing a ref orm o f he publ ic sector wage and incentive system (ii)he

establishment o f a tec hnical cadre (middle lev el specialist) that i s typ ica l ly a backbone o f a

good c i v i l serv ice, (iii)he introdu ction o f service standards and performance orientation in

specific services, and (iv) the enforcement o f ethic al standards.

78. Strengthening legal an d ju di cia l reforms. When the Government came into power

in 2002, the credibi l i ty o f the justice system was seriously underm ined by signif icant

corrupt ion and ineff iciencies. The judiciary was unable to provide adequate and timely

services in areas that are important for the private sector; the ef f ic iency o f th e courts was

hampered by outdated procedures a nd la ck o f adequate resources. To address these issues,

the governme nt strategy has focused on five broad pri ori t y areas: (i)ight against corruption,

(ii)xpedit ion o f egal proceedings, (iii)efor m o f business laws, (iv) rehabi l i ta t ion o f court

and prison infrastructure, and (v) huma nization o f detention faci l i t ies.

79. Progress has been mixed : w hi le the bac klog o f cases at the l e v el o f the low er courts

has been substantial ly reduced (from mo re than 60,000 in 2005 to almost zero in 2008) and

leg al proceedings have been streamlined signi ficant corrupt ion (conf i rmed by an independent

anti-corruption survey) and interference by th e executive continue t o neg atively impact thejudiciary. The Government has also mode rnized comm ercial proceedings and i s in the

process o f establishing a specialized com mercial cou rt in the capital Antananarivo.

Adm inistrat ive and f inancia l t r ibunals were se t up to speedup the treatment o f elevant cases.

New service standards have been introduced at the lower courts and the moni to r ing &

evaluation system to assess the performance o f the jur isdictions has been signi f icant ly

strengthened. How eve r, i t appears that the compliance with the new standards i s l o w . M a i n

challenge i s to address the prevai l ing corruption in the jud ic iary and to improve eth ica l

standards and beh avior throughou t the judic ial system.

80. Improving (decentralized) service delivery. Pub l ic services rem ain central ized with

mo st publ ic resources (both f inanc ial and human) managed by the central government. At the

same time, service delivery at the local levels i s weak and lacks adequate resources. In

health and education services some responsibil i ties have been shifted to administrative

ent i t ies outside the capital - as a resul t a s igni ficant improvement o f services could be

observed. Scope and focus o f pot ent ial de-concentration and decentralization i s

controversial. Sim ilarly, the roles and resp ons ibil i ties at the various levels o f government

(central , region al and comm une level) rem ain unclear. The Government has strengthened he

r o le o f the regions in sub-national development since 2004. I t considers the regions th e

26



pr incip le entry point for sustainable commune development. At the same time i t intends to

shift more resp onsibi l i t ies to th e commune and vi l lage levels. M a in challenges include (i)

the limited capacity o f the newly created regions which are not f i l l y functional, (ii)he

reluctance o f he central government machinery to “let go”, (iii)he capacity constraints at

the commune and vi l lage levels to p lan and to pro vide services, (iv) the l ack o f ava i lab i li ty o f

resources in particular for the communes and th e villages, (v) the absence o f a consistent

regulatory framework for administrative and fiscal decentralization, and (vi) th e diffuse

relationship between ce ntral government, regions, and communes.

8 1. Scaling-up capacity building. The implementat ion o f the governance reforms wil l

requi re m ajor investments in hu ma n resources development and profe ssion al training. Th is

includes traditional areas such as development planning, public financial management,

procurement and monitoring & evaluation. With assistance from the f i r s t P G D I th e

Government has launched comprehensive training programs in these areas, including

activi t ies to strengthen the abi l i ty o f ocal inst i tu t ions to del iver such tra in ing. The support

under the f i r s t PGDI has yielded signif icant results: the operational effectiveness and th e

qual i ty o f exist ing. ocal t ra in ing inst itu t ions have been improved; the targeted institutionsinclude the Nation al School o f Administrat ion (Ecole N at ionale d’Administrat ion de

Madagascar, ENAM), wh ich focuses o n t ra in ing o f higher leve l s ta f f fo r the pub l ic sector,

and the Nat ional Center for Administrat ive Tra in ing (Centre Nat ional de Format ion

Administrat ive, CNFA), which i s responsible for the t ra in ing o f middle l e v e l staf f for the

public sector. These institutions have organized and successfully implemented ambitious

tra in ing programs p r ima r i ly in the areas o f publ ic f inance and procurement to enable th e

sector ministries to adequately institutionalize the far-reaching reforms. Similarly, the

Na tiona l School for Magistrates and Clerks o f he Court (Ecole Nationa le de la Magistrature

et des Greffes, ENMG) trained a signi f icant number o f new magistrates and justice

personnel, wh ich has broadened the base o f a new generation o f ustice personnel. Regular

independent assessment confirmed the overa l l posi t ive im pact o f the capacity building

activities. The m ain challenge i s to further deepen these capacity building activities asministr ies, departments and agencies continue to require assistance with the

insti tutional ization o f governance reforms. With the inten ded progressive de-conc entration

and decentralization o f government activities the training activi t ies wil l also need to focus o n

th e sub-national levels o f government, in particular the regions and communes.

82. Past capa city building in Madagascar also comprised non-traditional activities, inparticular leadership development and managing change. Under the f i rs t PG D I s ignif icant

assistance has beenprovided to some key institutions to strengthen their abi l i ty to ef fect ive ly

manage insti tution al change and governance reforms, in particular to the President’s Office,

the Pr ime Min ister ’s Off ice, the Min is t r ies o f Finance, Justice and Eco nom ic Planning.

These activi t ies have resulted in the establishment o f a core team o f change agents wh o are

th e main d r ivers o f he governance reform process. A key output f rom th e team o f change

agents i s the new development strategy (MAP) that has a clear resul ts focus. A recently

completed independent assessment o f th e leadership program in Madagascar confirmed thehigh impact o f hese training activi t ies on the functioning o f he government machinery. With

assistance from the first PGDI th e Government has also established a National Leadership

Institute o f Madagascar (NLIM) that focuses primarily on behavioral changes and

management support. Th is institute has organized a series o f raining events that are destined

27



to impro ve understanding about the com plexi ty o f he change process in i tia ted by the MAP,and that target specifically the senior levels in the publ ic administration at th e national and

sub-national levels. M a i n challenge i s to scale-up and further deepen these activities

throughout the adm inistrat ion as (change) m anagement cap acity remains weak and uneven.

83. Improving social accountability. Civi l engagement in achieving “responsiblegovernance” i s one o f the core principles firmly anchored in t h e M A P . There i s l i t t le

consol idated information about the to ta l number and the act iv i ti es o f c i v i l society

organization in Madagascar; estimates quote between 4,000 and 6,000 groups and

associations, o r one per 12,700 persons - o w by reg iona l standards as i t compares to one per

3,400 persons in Keny a or one per 6,200 persons in Uganda. Further, there i s a b i fu rca t ion o f

these organizations i nto atomized na rrowly-focused rural-based groups (the c ountry i s 78 %

rural) wh ich have no nation al representation and no ro l e in po l ic y dialogue o r oversight, and

urban based groups which often have no l i n k s to the grassroots and also tend to cater to

donor interests rather then focu sing on spe cific advocacy. Thus, overall, the capacity o f

these organizations and their willingness to h o ld Government accountable i s very weak i f

compared to other countries. There i s no funct ional legal framew ork in place that governs thecreation o f civ i l society organizations. The Government’s development strategy identi f ies

key governance challenges and foresees a number o f re lated act iv i t ies that require active

involvement o f c i v i l society. They include among others (i)he reduct ion o f corrupt ion,

which assigns an important watchdog and whist leb lower ro le to c iv i l society; (ii)he

establishment o f an efficient and effective government budgetary process, which entails the

dissemination o f publ ic f inance in form at ion as well as inc lus ion o f c i v i l soc ie ty in resource

allocation, (iii)he strengthening o f the provis ion o f publ ic services, w hich requires that

service providers wil l have to meet service users’ expectations, and (iv) th e development o f a

“learning nation”, wh ich aims to develop “mechanisms for c i t izen training and participa tion

in he governance o f heir local, reg ional and nation al communities”.

84. While the Gov ernment appears to be com mitted to creating an enabl ing environmentfor the proact ive involvement o f c iv i l society there i s s t i l l limited experience with bot tom up

social accountabi l i ty mechanism in Madagascar. Based on Governm ent request the f i rs t

PGDIprovided some funding to conduct pil o t citizens score card exercises fo r a fe w selected

hea lth centers. These activitie s have led to an improv ed del ivery o f serv ices in the selected

centers, and m or e transparency around issues o f drug pr ic in g and the a l locat ion o f existing

commune subsidies to health centers. The f i r s t PGDI s also providing technical support for

activities that are aimed at improving transparency and accountabil i ty such as the

part ic ipatory budgeting in the communes around Fort Dauphin (a center for mining

activities), which wil l ensure mo re inclusive and transparency al location and use o f pub l ic

resources and l oca l l e ve l t rack ing o f mining revenues. In many ways the results f r o m these

activities are generating a new level o f co l laborat ion between c i v i l society on the one hand

and pub l ic or elected off icials o n the other hand. The ini t ia l pi lots in th e health sector, for

example, have no w earned the Ministry o f Hea lth’s agreement to expand the pi lo ts to provide

bo t tom up feedback that wil l complement the Ministry’s o w n qual i ty enhancement program

(supply side reform). As a consequence, the Government intends to scale-up social

accountabil i ty activities, in particular in areas with high leve l o f investment (such as For t

Dauph in and No sy Be) o r in sectors with signific ant governance proble ms (such as forestry)

to com plement other ongo ing reforms.

28



85. Coordination of reforms, monitoring & evaluation. Governance reforms are

coordinated by th e Presidency which has assumed a signif icant role in “supervising” theminist r ies, departments and agencies. In this context, the relevance o f he Pr ime Min is te r ’s

Off ice, which i s legal ly in charge o f contr ol l ing the adm inistration, i s at question. The

Government wil l need to c lear ly define the relationship between the Presidency (= defining

pol icies and issuing broad directives), the Prime Minister ’s Off ice (= coordinating th e

imp lementa tion o f he policies), and the sector ministries (= implementingpolicies) to avoid

fr ict ions and coordination problems.

86. With support by the f i r s t P G D I the government has launched the development of a

mon i to r ing & evaluat ion framework inc luding a p lan for the pol i t ica l and administrative

coord ination o f governance reforms. A National Strategy for Statistical Development has

recently been approved by the Government, wh ich provides the procedura l and insti tutional

framework for al l statistical activi t ies in the country. Ac tivitie s are also ong oing to

strengthen the operational eff icienc y o f he Na tiona l Statistics Office . With assistance f ro m

the Wor ld Bank and other donors the Government i s presently conducting a cartographic

survey. This survey wo ul d establish key in forma t ion about the populat ion d istr ibut ion inMadagascar. K e y chal lenges include the update and the consol idation o f the statistical data

o n Madagascar as the current data base i s outdated (the last popu latio n census was con ducted

in 1993).

29



Annex 2: Major Related Projects Financedby the Bank and/or other Agencies


87. The proposed project i s a core element o f he Bank’ s CAS and i t s governance agenda

i s one o f the m a i n pillars o f other donors’ programs in Madagascar. The project builds o nconsiderable Bank and donor-supported programs and seeks to integrate these in i t iatives as

wel l as to complement ongoing activi t ies in th e areas o f private sector development and

decentralization.

88. Relevant W o r l d Bank projects include:

The Integrated Growth Poles Project (US$129.8 mi l l i on , FY2005) i s a jo in t IDA, IFC,

Foreig n Investment A dvis ory Service, and Multi lateral Investment Guarantee Agency

effort that aims to stimulate gro wth in three geographical regions with high potential by

addressing the ke y bottlenecks to investment. The three poles are: No sy B e for tour ism-

led growth, Fort Dauph in fo r mining and tourism-led growth, and Antananarivo-

Antsirabe for export- led grow th. The implem entation status o f the project i s rated‘satisfactory’. PGDI I1wil l pro vide co mplementary assistance to strengthen the capacity

o f egional administrations and to improv e social accountabi li ty.

The Mineral Resources Governance Project (US$32.0 mil l ion, FY2004, addit ional

f inancing US$8.0 mi l l i on , FY2007) aims at strengthening the accountabil i ty and

transparency in the mining sector, at promoting key inst i tu t ional reforms for the

decentralized management o f mine ral resources and at fostering private investments. The

implem entation status o f the project i s rated ‘satisfactory’. PGDI I1 wil l provide

complemen tary assistance to strengthen the capacity o f regiona l administrations and to

improve social accountabil i ty.

The Bank has supported through a Communi ty Development Pro ject (Fonds

d’Intewention pour le De‘veloppement - FID, US$llO.O mi l l i on in i t i a l l y , FY2001) in

Madagascar for almost 15 years. The FID has evolved from a pr im ar i ly demand driven

social infrastructure projec t into a project that has adapted a comprehensive v ision o f

participatory development empowering communities. The f i r s t PGDI has provided

complementary capacity building assistance, in particular to the sub-national levels o f

government. The FID project i s expected to close in FY2009.

The Local Development and Decentral ization Support Project (US$15 O mil l ion,

FY2009) aims at improving publ ic service delivery through the f inancing o f basic

infrastructure and the prov is ion o f capac ity building at local level. The project seeks to

enhance the capacity o f oc al authorities to uti l ize participa tory and transparent planning,budgeting, implementation, and mo nitor ing systems and to strengthen th e capacity o f

serv ice providers. P G D I I1 will complement the project by strengthening the regional

administrations in core competence areas (e.g. publ ic f inancial management,

procurement) and by supporting the consol idation and the ref inement o f the regulatory

and insti tution al framew ork for decentral ization.

30



89. In the area o f governance and insti tution al development Madagascar’s principle

development partners are the European Commission, the In ternational Mo netary Fund, the

Afr ican Development Bank, UNDP, France, Germany, N or w ay and th e United States.

Donor coord inat ion has been significantly strengthened over the past years with thein troduct ion o f a Memorandum o f Und ersta nding (Cadre de Partenariat) in 2006. Since then,

the Ministry o f F inance and th e development partners that are providing budget support are

better coordinating their activi t ies and reviewing progress in th e context o f j o in t donor

missions. The recommendations fro m these m issions are used to update the reform act ion

plans o f he Government.

Governance and

Institutional

90 .

insti tutiona l development agenda by other development partners.

The table below provides an overview about the support to the governance and

MULTILATERAL DONORS BILATERAL

DONORS

Budget Support

Governance

Mac ro Management

31

H H H H

H M H H M L L M M

H H L M M H L



Annex 3: Results Framework and Monitoring


91. The Project Results Framework and the Results Mo ni tor in g Ma tr i x are summarizedbelow. The annex i s based on comprehensive discussions with the Government and was

final ized in the context o f a workshop organized in January 2008.

Project Development

Objective

PDO Outcome

Improved pub l i c expend i tu re

management

Revenue agencies’

performance (customs, tax

administration) increased

I m pr oved qua li t y o f pub l i c

service provis io n in selected

publ ic inst itut ions

Improved pub l i c

accountabi l i ty and

transparency

To improv e the ef f ic iency and t ransparency o f government and selected

pu bli c services in Madagascar in ine with the Madagascar Ac t ion P lan

(MAP)

Outcome Indicators

1. Number o f nd ica tors under th e

Publ ic Expendi ture an d F inancial

Accountabi l i ty Assessment (PEFA)rated ‘B’ and above

2. Percentage increase in a d G D P

rat io

3. Percentage o f popu lat ion sat isf ied

with the qua l it y o f services pro vid ed

by selected pr ior i t iz ed publ icinsti tut ions.

4. 4 N u m be r o f corrup tion cases

effectively adjudicated by the

judic iary or through administrat ive

procedures

U s e o f results information

In fo rmat ion will b e used to

guide the implementat ion o f he

Government ’s p ubl ic f inancereforms and to determine

tech nica l assistance and

capacity buildingneeds

I n f o r m a t i on wi l l be used to

moni to r the per formance o f

revenue col lec ting agencies to

ensure that they achieve their

targets

In fo rmat ion will be used to

assess the perform ance o f pub ic

services in order to target non-complia nt services an d to

improv e overal l serv ice

de l i very

Demonstrate the effectiveness

o f measures deploye d to

improv e accountabi l ity and

transparency

32



tComponent 1: Improvement

of public expendituremanagement

Intermediate Results

per Component

Budget preparation and

execut ion improv ed

Results Indicators for Each Component

1.1 Number o f PE FA budget preparat ion

and execution indicators ( indicators

1 hrough 17) rated ‘B’ and above

Internal con trol mechanisms

strengthened

1.2. Numb er o f PE FA indicators

measuring the eff icienc y o f nternal

contro l mechanisms and budget

report ing ( indicators 18 throug h 25)

rated “B” and above

Compliance with pub l i cprocurement regulations

improved

ComDonent 2:

Strengthening the efficiency

of government operations

Change management capacity

and eadership quali ty

improved

Lo ca l t ra in ing inst itut ions

(NLIM,ENAM, CNFA,

ENMG, GDLN) strengthened

1.3. Num ber o f bids awarded under opencompet i t ion

2.4. Percentage o f sector ministr ies that

meet 100% o f heir annual wor k

plans targets under the PG E.

2.5 N u m be r o f students successfully

comple ting training courses (at

NLIM,ENAM, CNFA, ENMG,GDLN)

Impr ove d revenue col lect ion

and f iscal management at

decentralized levels

Mon i to r ing & evaluation

f ram ewor k f o r M A P

implementat ion c lar i f ied

2.7. Percentage increase in evenue

generat ion through improvement inf iscal management in he R eg ion o f

A N O S Y

2.6. Percentage o f sector ministries

timely submit t ing reports for

incorporat ion into the M A P progress

report

Use of Results Information

Demonstrate that pu bl ic

insti tut ions adhere to

established f inancia l

management protocols and

systems

Show i f b i d d in g o f goods andservices i s based on he new

biddingpol icy ldocuments

1In fo rmat ion wil l be used to

moni to r the per formance o f

ministr ies

Demonstrate that the training

insti tut ions are graduating

students with the right corecompetencies for pub lic

insti tut ions

I n f o r m a t i onwil l be used to

ref ine the implementat ion o fthe M A P and to assess

e f f ic i ency o f e f o r m

management

Determ ine effective revenue

generation and management at

decentral ized levels

33



Intermediate Results 1 Results Indicators for Each Component

per Component II

Component 3: Rule of L a w

and fight against corruption

Quali ty o f ega l and ud i c i a l

services in selected areasimproved

Regulatory and inst i tut ional

framework and strategy for

f ight ing co rrupt ion further

ref ined and mplemented

Externa l controls strengthened

Component 4: Transparency

and social accountability

Increased nvolvement o f c i v i l

society in he development and

moni tor i ng o f pol icies and

programs

Increased satisfaction o fcitizens with the del ivery o f

public services (health,

education) in pi lo t communes

Component 5: Monitoring&evaluation

Improved qual i ty and

avai labi l ity o f demographic

data for Madagascar

8. Reduction o f he average days

required to process a case at the

level of ower courts

9a. Frequency o f br ibes pai d by users to

obtain l icenses and permits

9b. Proport ion o f average exp enditure

pa i d by households as bribes for

accessing public services

10. N umber o f PE FA indicatorsmeasuring the external control

mechanisms (indicators 26 through

28) rated ‘B’ and above

,11. Number o f social accountabi li ty

activities (e.g. comm unity score

cards, participato ry budgeting)

completed

,12. Percentage o f users that are satisf iedwith selected pu bli c services (health,

education) in he reg ion o f A N O S Y

an d DIANA

-13. Popula tion census 2010 c ompleted

and data published.

Us e of Results Information

Assess turn around t ime o f he

lowe r courts in order to ini t iate

corre ctive measures

Use inform ation to further

imp rov e the strategy for

combating corrupt ion

Demonstrate that p ubl ic

institutions adhere to

established financia l

management protoco ls and

systems

Informat ion will be used to

ref ine the implementat ion o f

the MAP and to ref ine the

developmen t strategy for

Madagascar

U s e informa tion to furtherimprove del ivery o f publ ic

service

Informat ion wil l be used to

refine the deve lopment strategy

for Madagascar, and to improv e

strategic plann ing in he publ icand the private sectors

34



Intermediate Results

per Component

Component 6: Program

Coordination

Results Indicators for Each Component Use of Results Information

Program of e forms t imely and

effect ively implemented

6.14b. Satisfactory rati ng o f annual

implem entation progress by the

Wo r ld Ba nk and the Malagasy

Government

6.14a. Ti me ly submission o f progress

reports

Informat ion wil l be used to

identify progra m delays and

bottlenecks, and to adjustprogram mplementat ion

strategy

35



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Annex 4: Detailed Project Description


92. The implementation status o f the governance reform programo f

the Government i ssummarized in annex 1. The PGDI I1wil l continue to support this refor m program. I t will beclosely linked to the new development strategy o f he Government, the Madagascar Act ion P lan

(MAP). The new project wil l build o n th e existing support under the f i r s t PGDI; theachievements and lessons learnt are summarized below :

Box 1:PGDI I Achievements & lessons learnt

.eforms

Procurement reforms

Revenue agencyreform

Major Outputs

Establishment o f a reform

coordination unit in the Ministryo f

Finance and BudgetDevelopment o f an integratedfinancial management system and

deployment o f he system to al l keytreasuries and sector ministrie s

Organizational restructuring o f heTreasury

Establishment o f an internal controlcadre for the Treasury (Brigade de

VCrif ication et d’hspection du Tresor)

Institutio nal strengthening of other

internal and external controlmechanisms (e.g. Inspection GenCralede I’Etat, Au dito r General, FinanceCommissions o f Parliament)

Comprehensive training and capacitybui ldin g support to institutionalizeD u b k inance reforms at the level o f

the sector minist r ies

Ne w procurement regulations

approved by Parliament

N e w procurement oversight authority

established and operational

Comprehensive training and capacity

building to institutionalize

procurement reforms at the sectorministries’ level

Customs re form action plan developed

and implemented. Plan focuses inter

alia o n mod ernizing customs

operations and on addressingcorruption in the customs service

Impact

Mo re transparent, timely and

accurate reporting and mor e

effective interna l control.

Increased capacity in publ ic

financial management

Madagascar procuremen tregulations are in i ne w i th

international standards

Increased capacity in publ icprocurement

Mo re transparent and efficien t

customs operations meeti ngrevenue targets outline d in the

annual budget

Lessons Learnt

Complementary analytical work

ful ly owned by the government

crit ical to infor m the reformsMore t ime i s needed toconsolidate the reforms

Significant complementary

capacity buildin g andinstitutio nal development supporrequired for the key sectors to

institutionalize the reforms

Harmonizat ion o f he reform

agenda should be impro ved;

ref orm agenda should have aclear medium-term horizon

supported by a l l key

development partners

Improved refor m coordination at

the level o f the Ministryo fFinance critical

Need o consolidate the

application o f procurementregulations in the sectors

Institutional framework should

be further strengthened(oversight institution, ministry

and department level incl udingdeconcentrated services)

Bank role was crit ical to trigger

comprehensive customs reforms

Project was drawn into ongoing

debate about revenue agencyreforms

40



right againstcorruption

Strengthening o flocal traininginstitutions

Gaps

Major Outputs

* Mod em regulatory framework in thefight against corruption developed that

includes anti-corruption frameworklegislation, asset declaration,strengthening o f nvestigativeauthority, establishment of aspecialized nvestigative unit toprepare court proceedings etc.Anti-corruption Commission andAnti-corruption Bureau set up andoperational

Anti-corruption survey(s) conductedand published

Capacity o f ocal training institutions

sign ifican tly enhanced to delivertraining in hig h prio rity areas such asdevelopment planning, public

finan cial management andprocurement

established and ope rational

under construction to integrateMadagascar into the global distancelearning network

National Leadership Institute

Global Development Learning Center

Impact

Entirely new framework for:he fight against corruption

put in place which i s regardedi s an efficient instrument toiddress corruption in hepublic sector

More high quality trainingcan be organized andconducted ocally

Lessons Learnt

Framework needs to be furtherdeveloped, in particular wit h

regard to economic crime andconflict-of-interest issues

Continued benchmarking o fimpact o f anti-corruptionactivities important to info rmreform process

Training and capacity building in

the areas o f developmentplanning, public finan cialmanagement including

procurement and mo nitoring &evaluation i s critical to sustaingovernment reforms

Capacity of ocal traininginstitutions i s s t i l l insufficient tomeet the demand

Project was drawn into socialaccountability activities toimprove efficiency o f Bankoperations, in particular PI C

Project was used to improveoperational e fficiency o f he

President’s and Prim e Minister’s

OfficesProject provided complementarysupport to decentralizationactivities, in particular forregional development

93. The new project wil l enhance and further deepen th e f i r s t generation re fo rms under thePGDI I n the areas o f public finance, the strengthening o f capacity and the improvement o f

public sector service delivery, the reinforcement o f the rule o f law and the fight against

corruption, and the improvemen t o f transparency a nd social accountability. I t can build o nsignificant analytical work, in particular in the area o f pub lic expenditure management (PERs,

PEFAs).

94.components:

With a lending amount o f US$40.0 million IDA PGDI I1 wil l have th e following

41



Project Component 1 - mprovement o f public expenditure management (US$14 million

IDA)

95 . The object ive o f this component i s to continue to support in a hol istic manner the refor m

o f he pu blic expend iture management system in Madagascar. The reference po int for th e re fo rm

i s th e Pr io r i ty Ac t ion Plan (PAP) wh ich i s developed by the Min is t ry o f F inance o n an annual

basis and supported by a number o f deve lopment partners i nc lud ing the Wo r ld Bank. The PAP

consol idates al l reform activi t ies under the oversight o f the Ministry o f F inance. The

implementat ion progress o f th is plan i s jo in t ly evaluated by the donors and the M in i str y of

Finan ce o n a regular basis. Th e support under this component reflects the Governme nt request to

incorporate revenue agency reforms and comprehensive capacity building activi t ies at the sector

min is t ry leve l i n to the ref orm agenda. I t draws upon the W or ld Ban k implem entat ion exper ience

with publ ic f inance reforms since 1998, in particular the need to increase assistance for the

inst i tu t ional izat ion o f pub l ic f inance reforms at the l ev e l o f he Malagas y pub l ic adm inistration.

The intended support under the new pro ject wil l be closely linked to the PAP; th e Ministry o f

F inance will be responsib le for the implem entat ion o f his component.

96. The component com prises the fol l ow ing sub-components:

(a) Improving the budget preparation and execution processes (US$6.0 million

IDA) . Support wil l focus o n fur ther faci l i ta t ing the in troduct ion o f program budgets

and o n simplifying budgetary procedures. I t wil l also strengthen the capacity of

sector ministries to plan, m on ito r and evaluate the annual budget. Furth er assistance

will focus o n th e harmon iza tion o f he existing dual budget system with the ul t imate

goal to fully integrate the budget preparation and execution procedures. The sub-

component will continue to f inance the deployment o f the integrated financial

management system (Systkme Integrk de Gest ion des Finances Publiques, SIGFP)

wh ich was in i tia ted under the f irs t PG DI. The new system provides timely, accurate

and up-to-date information on budget al locations, commitment and actualexpenditures. The system i s currently instal led in al l six main treasuries in the

country; al l key sector ministries are connected to the system. The system captures

about 80 percent o f government expenditures. With the so-called ‘ regional ization o f

the budget’ (the delegation o f budgetary author i ty to th e 22 new regions) the

government intends to build the pub l ic finance capacity o f the regional

administrations and to deploy the SIGFP to the regional capitals and other importan t

centers. This ne w strategy wil l be supported by the P G D I 11. Funding wil l also b e

provided to rat ional ize the publ ic investmentprocess, which constitutes an important

e lement o f he pub l ic f inance refo rm agenda.

Project funding under this sub-component wil l focus on goods and equipment, in

particular soft and hardware costs inclu ding the instal lation o f a wide-area netw ork,

consult ing services including special ized training and project management,

reha bil itation and maintenance o f offices, ope rating costs as well as for

capacity buildingactivities.

(b) Strengthening inte rnal control mechanisms (US$l.0 mil lion IDA) .

ongoing assistance provided under the P G D I I he new project wil l

training and

Building o n

cont inue to

42



support government reforms destined to improve the operat ional e f f ic iency o f the

insti tutions that provide f iduciary oversight and control. These institutions include:

the General Government Inspectorate (Inspection GenCrale de 1’Etat - IGE), the

Commitment Control (ContrGle des Depenses EngagCes - CDE), the internal contr ol

cadre o f the Treasury (Brigade de Ver i f icat ion et d ’hspect ion du Tresor), and the

general inte rna l con trol cadre (Inspection Genkrale des Finances - GF) that i s no t yet

operational. Prev ious reform s helped the Government to establish an internal control

cadre for the Treasury (Brigade Veri f ication et d’hspection du Tresor) and improve d

the operational effectiveness o f b o t h IGE and C D E . At the same time, th e 2006/2008P EF A assessments and relevant ana lytical wo rk revealed substantial weaknesses o f

th e interna l control system, in par ti cula r a t the leve l o f CDE. The new project wil l

therefore continue to pro vide support for the interna l control system, in particular the

modernizat ion o f operat ions and capacity building activities. I t i s also envisaged to

provide support to the Budget Discip l ine Commission (Consei l de Discip l ine

Financibre et BudgCtaire) which i s tasked to enforce fiscal and budgetary discipline

but i s presently non-operational.

Project funding under this sub-component wil l focus on goods and equipment,

consulting services; rehabil itation and maintenance o f offices, as well as for training

and capacity building activi ties. Government contr ibutions w ou ld be primarily

provided in-kind, in part icu lar through the w or k o f c iv i l servants, through the

p rov is i on o f off ice space and other material, as well as through the p rov is i on o f r avel

costs.

(c) Institutiona lizing public procurement reforms (US2.0 million IDA). The first

PGDI supported Government to design new procurement regulations and a new

inst i tu t ional f ramework in l ine with international standards. This comprehensive

refo rm has fundam ental ly changed the wa y pub l ic procurement was managed. A new

procurement oversight institution has been established and sector ministries have

begun t o w o r k with the new regulations. T o further insti tution al ize these reforms i t

wil l be necessary to continue training, change management and capacity building

activi t ies which have already been launched under the f i r s t PGDI. These activities

are main ly de l i ve red by loca l training insti tutions. T o assess impact o f the

procurement reform s i t s envisaged to review the compliance with th e new regulatory

and insti tution al framew ork o n a regular basis. These evaluations wi ll be funded

under the new project. In addition, the project wil l include assistance for the new

procurement oversight institution as well as for procurement entities in the sector

ministries. Project support wil l also focus on improving transparency and

accounta bi l i ty o f publ ic procurement processes, e.g. through th e pub l ica t ion o f

business opportunities and procurement decisions, and through im prov ed monit orin gby c iv i l society, me dia and Parliament.

Pro ject funding under this sub-component wil l be provide d for goods and equipment,

consulting services; rehabil itation and maintenance o f offices, as well as for training

and capacity building activi t ies. Government contr ibutions would be pr imar i l y

provided in-kind, in part icu lar through the wo rk o f c i v i l servants, through the

43



p rov is i on o f office space and other material, as well as through the p rov is i on o f r ave l

costs.

(d) Increasing performance of revenue agencies (US$S.O million IDA). T o

generate more resources fo r the im plem entat ion o f the M A P increased revenue

performance has become a top prior i ty o f the Government. The strategy ini t ial ly

focused pri ma ri ly o n the customs directorate w hi ch received assistance to modernize

i t s operations, to st reaml ine i t s procedures and insti tutional set-up. These reforms

which were supported by a number o f development partners y ielded tangible results

as customs revenues and operational efficiency increased as evidenced for example

by reduced time for customs clearance processes. The new project wil l provide

assistance to consolidate these reform s, in particular provide further assistance fo r themode rnization o f customs offices, the in tegrat ion o f the new customs management

system TRADENET with the SIGFP, as w e ll as train ing and capacity building. This

would complement ongoing assistance by other development partners, in particular

the IMF, France and the W or ld Customs Union. At the same time, the new pro ject

wil l provide support for a fundamental re fo rm o f he tax directorate. With assistancef rom the IMF the Government has launched a comprehensive ref orm o f thisdirectorate which includes pol icy, regulatory and institutional changes as well as

related capacity building activities. To simplify the exist ing tax regulations a number

o f taxes have been abolished and the activities o f the tax directorate have been

refocused o n areas with a high revenue pot ent ial such as the large enterpr ise unit. Inan effor t to improve i t s efficiency, the tax directorate has recently replaced thema j o r it y o f t s senior staff and introduced co ntrol m easures to address corrup tion and

lo w performance. The Government i s in the process o f developing a m edium-term

re fo rm ac t ion plan wh i ch will be integrated int o th e overa l l re fo rm plan (PAP) o f he

Ministry o f F inance . The new project wil l support the implementat ion o f th e ta x

pol icy and tax administrat ion reforms which will inc lude modernizat ion o f

equipment, reha bi l i tation o f buildings as well as training and capacity building

activities. Support under th e project will also include the mob i l izat ion o f (external)

qual i ty assurance w hi ch wil l assist Governm ent in mon i tor ing progress o f the re fo rm

process.

Project funding under this sub-component wi ll be prov ided fo r goods and equipment,

consult ing services; reha bi l i tation and maintenance o f off ices, as well as for training

and capacity building activi ties. Government contr ibutions wo uld be pri ma ri ly

provided in-kind, in particular through the w or k o f c i v i l servants, through the

p rov is i on o f off ice space and other material, as well as through the p rov is i on o f r avel

costs.

Project Component 2 - Strengthening the efficiency o f government operations

(US$S.O million IDA)

97. The ob jec t ive o f this component i s to support the change management and institutional

development processes in th e context o f the implementat ion o f the Government’s development

strategy, the Madagascar Act ion Plan (MAP). This will include leadership training and

44



development for senior government off icials to manage and imple men t far-reaching reforms.

Support wil l also include an upgrading o f oca l training insti tutions as we l l as the support for the

operat ion o f a Glob al Development Learn ing Center (GDLN) and o f the Nat ion al Leadership

Institute o f Madagascar (NLIM). In addition, this component wil l support cross-cutting reforms

and activi t ies which are considered important for the M A P implementat ion. Such reforms

include the support for the development o f a consistent regulatory and inst i tu t ional f ramework

for decentralization, and the r e fo r m o f he pub l ic sector pay and incentive system.

98. The component comprises the f ol lo win g sub-components:

(a) Improving change management capacity and leadership quality (US$3.0million IDA). The project wi l l con tinue to support change management processes in

the context o f he i mp lemen ta t ion o f he MAP, in particular in the President’s Office,

in the Pr ime Min is te r ’s Off ice and in pr io r i ty ministries such as education, health,

transport and publ ic works. This support wil l build on the experiences with th e

leadership and change management support under the f i rs t PGDI which p rov ided

signific ant assistance to building releva nt capacity. The institutions supported by thef i rs t P G D I have established change management teams whic h design and mon i tor theimpleme ntation o f reforms. These teams are typ ical ly attached to the Permanent

Secretary o f he relevant inst i tu t ion and include staf f with competence in k e y areas, in

particular development planning and monitoring & evaluation. These teams have

developed sectoral strategies and imple m ent atio n plans that are moni tored b oth at the

sectoral and cross-sectoral l e ve l (Presidency, Prime Minister ’s Office). The new

P G D I ntends to take these activi t ies a step further and include the management leve ls

be low the Permanent Secretaries within the publ ic administrat ion in to the change

management and leadership development activities. Assistance wi l l inc lude

leadership support (coaching and advising) o f government o fficia ls by the Center for

Publ ic Leadership o f Harvard Univers i ty , Kennedy School o f Government, in the

United States. The program wil l focus on key leadership challenges both at theinst i tu t ional and ind iv idua l levels to ensure consistency and to impro ve eff iciency of

the administration. Support wil l also include funding for innovative change

management methodologies such as the “rapid results” approach6 to accelerate re fo rm

implementation and to assist the Government to overcome existing procedural and

institutional constraints that hamper the effect ive implementat ion o f the re fo rm

program. The ma jo r i ty o f this support wil l be channeled through the Nat iona l

Leadership Insti tute o f Madagascar (NLIM) wh ich was created in 2006 as a training

ins titut ion and center-of-excellence for leadership development. The institute willreceive funding fo r strengthening t s operations, for the development o f a fundra is ing

strategy as well as curricula and training programs, and for the organization o f

Or ig ina l l y developed by the private sector, the ra pid results me thodolo gy has over the last fe w years increasingly

been used in the development context, as a too l for governments to im plemen t their pol icies a nd strategies. Rapid

results init iat ive s are typ ical ly sm all projects designed to - n he short ter m - mirro r m ore comprehensive act iv i ties.

Un de r these init iates cross-sectoral tea m are established to s olve specif ic problems. Th ey set themselves ambit ious,

achievable, concrete goals wh ic h they str ive to achieve in short periods (typical ly 50, 100, 150 days). A detai led

timetable i s used to m oni tor results. Madagascar has been a pi lo t country for rap id results act iv i ties w hic h have

genera ted a lo t o f rac t ion in areas such as pri ma ry health care, lo cal revenue generation and rice production . See fo r

details: A Leadership Approach to Ach ievin g Change in he Pub lic Sector: The case o f Madagascar, WBI 2007.

45



workshops that are aime d at discussing the leadership challenges in he context o f he

MAP implementat ion. Th e institute complements tec hnical training whic h i s provided

by other loc al training insti tutions.

Project funding under this sub-component wi l l be provided for goods and equipment,

cons ulting services; reha bil ita tion and maintenance o f offices, some operating costs

fo r NLIM as well as for training and capacity building activi t ies. Government

contr ibut ions wo uld be primarily prov ided in-kind, in particular through the w o rk o f

c iv i l servants and other government consultants, throug h the prov ision o f off ic e space

and other material, as well as through the provis ion o f ravel costs.

(b) Strengthening management capacity in selected public institutions

(US$I.Omillion IDA). The project wil l provide targeted support to selected public

sector institutions (Min ist r ies o f Planning, Education, Health, Transport, Public

Works, and Agriculture) to adequately manage and decisively implement the reforms

out l ined in the Madagascar Action Plan (MAP). This support builds o n the

experience with the implementat ion o f governance reforms under the f i rs t PGDI,wh ich has show n that sector ministr ies need specialized tec hnica l assistance that i s

tailored to their specific needs. This assistance wil l inc lude se t up and support for

dedicated technical teams in the targeted institutions that are tasked to monitor there for m activities. Ad dit ion al assistance wil l be prov ided in the area o f inst i tu t ional

and proc edu ral development.

Project finding under this sub-component will be provided for goods and equipment,,

rehabi l i tation and maintenance o f offices, c ons ulting services as well as for training

and capacity building activi t ies. Government contr ibutions would be pr imar i l y

provided in-kind, in particular through the work o f c i v i l se rvan ts , th rough the

p rov is i on o f off ice space and other material, as well as through the p rov is i on o f r ave l

costs.

(c) Strengthening of local training institutions (US$2.0 million IDA). Loca l

tra in ing inst i tu t ions p lay a major ro le in the prov is ion o f capaci ty building required

under this project. Under the f i rs t P G D I ocal t ra in ing inst i tut ions have received some

support , m ain ly to m odernize their curricula and training fa ci l i t ies. The new project

will continue t o prov ide support in this direction to enable lo ca l training insti tutions

to deliver high-qual i ty training and capacity building, in particular in the areas o f

pu blic finance management, pub lic procurement, general administration, m on ito rin g

& evaluation, le gal and ju dic ia l reforms. Support wil l be p rov ided to the fo l l ow ing

insti tutions:

Nat ion al School o f Administrat ion (Ecole Nat ionale de 1 ’Administrat ion

Malgache, ENAM) and National Center for Administrative Training (Centre

Nat ion al de Form at ion Administrative, CNFA ). The ENAM i s ma i n l y

responsible for the (basic) tr ain ing o f higher l e ve l staf f for the c iv i l serv ice while

the C N F A focuses o n capacity building activities for middle level staf f . Wor ld

Bank support wil l be provided for th e re finement o f cu r r i cu la and o f t ra in ing

46



material, as well as for the further qual i f icatio n o f trainers. Support wi l l also

inclu de some equipment to increase the capacity o f th e tw o tra in ing inst itu t ions

and to m odernize their training fac i l i ties.

0 National School for Magistrates and Clerks o f the C ourt (Ecole N at ionale de l a

Ma gistra ture et des Greffes, ENMG). The pro ject wil l continue to support ENMGcapacity building activi t ies to complement the legayjudicial reforms ini t iated by

the Government. The support will focus on the p rov is ion o f h igh-qual i ty t ra in ing

o f magistrates and other justice personnel, o n some equipment and minor

rehabi l i ta t ion o f ra in ing facil it ies.

0 Global Development Learning Center (GDLN). The GDLN establishment has

been support by the f i r s t PGDI.The ma i n ob j ec t ive o f he GDLN i s to us e m o d e m

technology to del iver h igh-qual i ty t ra in ing in ke y development areas fo r a l l

relevant stakeholders (Government, NG Os, p riva te sectors). The new projec t wil l

continue t o pro vid e assistance to the ne w center, in particular the development o f

training programs.

Pro ject funding under this sub-component wil l be provided for goods and equipment,

cons ulting services; reha bil itation and maintenance o f offices, some operating costs

for the GDLN as we ll as for tr ainin g and capacity building activities. Operating costs

fo r the GDLN wil l be financed o n a decreasing basis. T he f i r s t year, the project wil l

cover 80% o f he center's opera ting costs. This wil l be reduced by 20 percent for each

o f the fol lowing years. Government contr ibutions would be pr imar i l y p rov ided in-

kind, in particular through the work o f c i v i l se rvan ts , th rough the p rov is ion o f o f fi ce

space and other ma terial, as well as through the prov is ion o f rav el costs.

(d) Supporting cross-cutting reforms. (US$2.0 million IDA). Financing under this

component w ou ld focus o n two m ai n areas: (i) omplementary support fordecentralization, and (ii)he r e fo r m o f he pub l ic sector pa y and incentive system:

0 With regard to decentralization the Governme nt has continu ed to strengthen ther o le o f the regions by progressively int egra ting deconcentrated services o f the

publ ic administrat ion under th e author ity o f he region al Chiefs. The objective i s

to harmonize all sectoral activities in a specific re gio n and to establish integrated

regional development plans. To improve the d el ivery o f publ ic services the

Governm ent has also strengthened the r o le o f the vil lages (fokotany) by fo rma l l y

recognizing their important administrative role. A recent consti tutional

amendment abolished the six autonomous provinces. To improve the avai labi l i ty

o f inanc ial resources at th e leve l o f he loca l l eve ls the Government increased theshare o f certain taxes (impat synthetique, impat foncier) in f a vo r o f the

communes on the basis o f the Finance Law 2007. The Government wil l also

make operational a Lo ca l Developm ent Fund (FDL) that wo ul d integrate f inanc ial

support to the local government levels both by the Government and by the donor

commun i t y under a single mechanism with harmonized procedura l and

insti tutional arrangements. However, the existing regulatory and insti tutional

47



framework for administrative and fiscal decentral ization requires ma j o r

adjustments to ensure that local governments are able to effectively fulfill their

functions. The project w ou ld complement ongo ing activi t ies under th e FDL an d

would provide some limited technical assistance for the review and theadjustment o f this f ramework. I t would also provide support for the regions to

establish an adequate administrative and procedura l f ramework that would

integrate the relevant de-concentrated services o f central government minist r ies

with the regional administration. Ad dit ion al support wil l be provided under

component 4 to build capaci ty o f c iv i l society groups to im prove in teract ion with

the regional and loca l administrations as we l l as to imp l icate c iv i l society

proact ive ly in pol icy design and implem entat ion at the local level .

With regard to the pub lic sector the pay and incentive system the Government

has requested World Bank support to develop a comprehensive strategy to ref or m

the existing pay and incentive system for the public sector. This strategy (a

fo rma l ESW) wil l be prepared in FY 2009. The existing pay and incent ive system

i s insuff icie nt to attract skilled staff, especially at the technical levels. In somesectors, e.g. education service agents are emp loyed on contract outside the c iv il

service salary scale (teachers pa id by parents’ associations). Some crucial services

are understaffed (e.g. tax administration, po l ic y management). The pub l ic sector

wage bill represents o nl y 5.3% o f GDP (2007 after 5.0 percent in 2006) w h i c h i s

very lo w compared to other countr ies in the regio n. Project support wil l inc lude

some limited technical assistance for the development o f refo rm opt ions and for

the evaluation o f he macro-economic impact o f ntendedreforms.

Funding under this sub-component wil l be provided for equipment, consult ing

services, workshops; as well as for training and capacity building activities.

Government contr ibutions would be pr imar i l y p rov ided in-kind, in particular through

the w o rk o f c iv i l servants.

Project Component3 - Rule o f la w and fight against corruption (US$2.5 million IDA)

99. The object ive o f the component i s to assist Government in pro mo ting transparency,

accountabi l i ty and good governance; an d in particular, in reducing corruption. Project assistance

wil l build o n the activi t ies ini t iated under the f i r s t P G D I and main ly focus o n improv ing the

operational eff icienc y o f he judiciary , supporting anti-corruption activi ties, and on strengthening

oversight by the Auditor General and by Par liame nt over State affairs. The activities wil l be

closely coordinated with other development partners, in particular the EU, France and Norway .

100. The component comprises the fol l ow ing sub-components:

(a) Improving the quality of legal and judicial services (US$l.O million IDA).

Project support wil l be provide d to assist the Ministry o f Just ice to further deploy and

enforce service standards within the court system. These standards were introduced

in 2007 and are aimed at improving individual and insti tutional performance

throughout the judiciary. Ad dit ion al support wi l l focus on enhancing the p rogram o f

“model courts” w hic h the Government introduced in 2006. Under this program a

48



smal l number ( four) o f courts were modernized and their procedures streamlined to

facilitate access to the j ud ic ia l system and to impro ve operational eff iciency. This

wil l nclude support for the reduc tion o f he back log o f cases. In addition, the project

wil l assist the Ministry o f Justice to f i r t he r strengthen internal contr ol and oversight.

Complementary support wil l be provided under component 4 to foster c iv i l society

oversight and mon i to ri ng o f hese reforms.

Project funding under this sub-component wi ll be pro vide d for goods and equipment,

consult ing services; reha bi l i tation and maintenance o f offices, as w e ll as for train ing

and capacity building activi ties. Government contr ibutions w ou ld be primarily

provided in-kind, in particular through the wo rk o f c i v i l se rvan ts , th rough the

prov is ion o f off ic e space and other material , as we l l as through the pro visio n o f ravel

costs.

(b) Strengthening the regulatory and institutional framew ork to fig ht corruption

(US$I.O million I D A ) . The pro ject wil l continue to provide assistance to the Anti-

Corrup t ion Bureau (BIAN CO) and the An t i -C om pt i on Comm iss ion wh ich wereestablished in 2002 as key instruments o f the Government to reduce corruption.

Support includes tech nical advis ory services as well as support for surveys and other

instruments that establish and track baseline information about th e incidence o f

corruption. The project wil l finance activities that are destined to improve the

mo bi l izat ion o f non-state actors in the fight against corruption. Addit ional support

wil l be provide d to establish branch off ices o f the Ant i -Cor rup t ion Bureau in the

regions and to introduc e a comprehensive p rocedural and insti tutional framew ork to

address confl ict-of-interest in the public sector and at the l e ve l o f e lected of f ic ia ls.

This wil l also include a comprehensive re view and a l iberal ization o f pub l ic

disclosure p ol ic y and regulations. Finally, the project wil l help Government establish

an Economic Cr imes Unit (Service de Renseignement Financier). The ma in func t ion

o f the unit, wh ich does not have the right to prosecute or to investigate, i s to col lectinformation and advising other government service and the j ud ic ia ry on money

laundering issues. I t i s independent f r o m the Government and reports to the Anti-

Corruption Commission. In addition, funding wil l be provided for the development

o f an adequate legal framework to strengthen monitoring roles and watchdog

functions o f non-state actors.

Project funding under this sub-component will be provided for goods and equipment,

cons ulting services; r eha bil ita tion and maintenance o f offices, some operating costs

fo r th e B I A N C O and the Economic Cr imes Unit, as well as for training and capacity

building activi ties. Government contr ibutions wo uld be pr imar i l y p rov ided in-kind,

in part icu lar through the w or k o f c iv i l servants, through the prov is ion o f o f f i ce spaceand other material, as w e ll as throu gh the provis ion o f ravel costs.

(c) Strengthening external oversight (US$O.S million IDA) . Project support wil l

focus on enhancing the capacity of external oversight mechanisms, in particular of the

Au ditor General and o f Parl iament. Government has made signif icant efforts to

impro ve the operational effectiveness o f the national audit o ff ice (Court des

49



Comptes). These effort s m ai nly focused on the preparation o f timely public accounts

and are starting to show concrete resul ts. The f inal accounts for th e years 1998 to

2005 have been prepared by the Au ditor General. The draft budget execut ion laws

for 2002, 2003 and 2004 have been submitted to Parl iament and the 2005 budget

execution law was val idated by Par l iament in 2007. I t i s expected that the draft

budget execut ion la w for 2006 wil l be for the f i rs t time submitted within th e statutory

timeframe to Parl iament. Project support wil l be provided to assist the Aud i to r

General to address existing weaknesses identified by th e PEFA, in particular with

regard to the methodology and the coverage o f the external controls. In addition, the

finance commissions o f the tw o chambers o f Parl iament (National As semb ly and

Senate) wil l received further support, in particular, to scrutinize the w o rk o f the

Auditor General and to strengthen i t s role as an external oversight in stitu tion (analyze

the reports o f th e Au ditor General and to ini t iate a Parl iame ntary debate about the

findings). Assistance wil l be provided for t ra in ing and capacity building o f thememberso f he Pu blic Finance Committees, some basic equipment to enable research

and preparation o f reports as well as for some funds to commission studies an d

evaluations in he areas o f pub l ic f inance.

Project funding under this sub-component wil l be provid ed for goods and equipment,

consult ing services; rehab i l i tation and maintenance o f offices, as well as for training

and capacity building activi ties. Government contr ibutions wo ul d be pri ma ri ly

provided in-kind, in particular through the w o rk o f c i v i l servants, through the

prov is ion o f o f f i ce space and other material, as well as through the provis ion o f ravel

costs.

Project Component 4 - Transparency and social accountability(US$4.0 million IDA)

101. The m ain object ive o f this component i s to create synergy between government reform s

and c iv i l society by complementing, (mutual ly) reinforc ing and addressing shortcomings o f

“supply side” reforms supported by the P G D I I1aimed to increase transparency, accountability,

improve publ ic services and curb corruption. I t i s also envisaged to pilot test and scale up

successful interventions aimed to address potential inequality by ensuring that civi l society i s

able to express priorities and to demand accountabil i ty. The project wil l provide support to

institutionalize social accountabil i ty interventions in Government activi t ies with a v iew to

increasing support and ownership by both civi l society and Government. This wil l include thecreation o f an enabl ing environment to foster c iv i l society engagement in social accountab i l ity

ini t iatives.

102. The activities under this component have been identi f ied through a comprehensive

pa rticip ato ry process: workshops an d focus group discussions helpe d define and pr ior i t ize th edifferent activities. A nation-wide social acco untabi l i ty worksho p in February 2008 in

Antananarivo contr ibuted to refining the proposed interventions.

103 . PG DI I1wil l complement, enhance and expand the activities supported by other Wor ld

Ban k-su ppo rted operations such as the Integrated Gro w th Poles Project, the M in e ra l Resources

Governance Project, the Co mm unity Developm ent Fund (FID), and the Loc al Development and

Decentralization Support Project. I t wil l p l ay a key role vis-a-vis these other projects in

50



providing technical and capacity building support. In addi t ion to leveraging Wor ld Bank-

supported social ac cou ntab il i ty operations, the pi lo t act iv i ties wi l l further create synergies with

social acco untabi l i ty methods em ployed by other development partners, inc lud ing bilater al and

mu lti lat era l external assistance agencies, Government initiatives , intern ationa l and loca l NG Os,

and regional training insti tutions such as IDASA in South Afr ic a and networks such as A N S A

(Afr i can N etwork o f Soc ia l Accountabi li ty ) .

104. The compone nt comprises th e fol low ing sub-components:

(a) Piloting social accountability interventions: Entry points fo r pi l ot activit ies wil l

be areas, which are considered to have the greatest potential for state-civil society

synergy with regard to impro ving lo cal governance and ma xim iz ing posi t ive socia l

impact. These areas include in particular the zones with high l eve l o f economic

activi t ies or investments such as Fort Dau phin, Mo ram anga and N os y Be:

(i) trengthening the transparency in the allocation and use of local

revenues generated by mining investments in Fort Dauphin and

Moramanga. Accord ing to the MAP, the contr ibut ion o f mining

act iv it ies to G DP i s expected to expand drastical ly f ro m currently about

4% to at least 50% in 2011. Significant investments ar e being made in

For t Dauph in by Ri o T i n to QMM,and Dyn atedS herri t recently decided

to invest about $2.5 to 3 b i l l i on over the next three years in n i cke l

mining in Moramanga. Putting in place an effective social accountab i l i ty

mechanism i s a crucia l step towa rd ensuring that th e economic growth

accru ing from these investments translates into inclusive benef i ts

especial ly for loca l populations directly impac ted by the mining

operations. In light o f the significant social impacts that are already

mani fest ing themselves during the present construction phase in

preparation for the actual mineral exploi tation, civi l society plays acr i t ica l ro le in ensuring the transparent and effective use o f those

revenues for improved and equitable (social) service delivery. This

pertains particularly to mitigating the r i s k o f increasing inequal it ies

between loca l powe rfbl and vulnerable po pulation groups.

In order to ensure that local citizens’ priorities are taken into account inthe al location and use o f revenues fro m mining (and other major local

industry) investments, participatory budgeting ini t iatives have been

launched in 5 communities affected by the mining investments in For t

Dauphin, in close cooperation with th e SAHA in i t iat ive supported by the

Swiss Government, as part o f the f i r s t PGDI and the Integrated Gro wt h

Poles Project. Participatory budgeting i s a social accountabi l i ty me thod

which al lows ci t izens to actively participate in al l phases o f the budget

cycle: budget formulation, decision making, and mo nito ring o f budget

exec utioda ctual resource al location. I t i s envisaged to consolidate and

scale up these activities under the PGDI 11. Part ic ipatory mon i tor ing o f

mine concession agreements will be carr ied out, in order to increase

transparency about and compliance with the content o f these

51



agreements, especially with regard to envi ronmenta l and social issues.

Support under PGDI I1 also includes creating an enabling environment

to ensure that a mean ingful dialogue be tween mining companies, local

governments and ci v i l society can take place.

(ii)trengthening the transparency in the allocation and use of local

revenues generated by tourism investments in Nosy Be. Accord ing to

the MAP, the Government i s “comm itted to aggressively developing and

promot ing tour ism .. with publ ic participation.” While tour ism can

posi t ive ly impact the local economy through increased local tax

revenues, visitor trip spending, durable goods purchases, increased

Government spending, and o b creation, i t also invo lves signif icant r isks

in te rms o f t s potent ia l for com promising the integrity and l i ve l ihoods

o f oca l cu ltures by disrupting lo ca l customs, and for causing increased

pol lution, decl ine in biodiv ersity , w ater shortage, inadequate sewage and

waste disposal system, deforestation, and erosion o f beaches. Pu tting in

place an effective social accountabi l i ty mechanism i s crucia l to ensuringthat the pr ior i t ies o f local populat ions are inc luded in local budget

form ation and execution as we l l as in the management o f ocal natura l

resources. PDGI I1 w o u l d support pi lot ini t iatives in th e area o f

participatory budgeting as well as build on social accountabi l i ty

mechanisms pi lot ed by development partners (such as PACT) aimed to

protect natu ral resources.

(iii)dditional social accountability pilo t activities wil l focus on imp rovin g

loca l oversight in the environment sector, on improving the qua l ity o f

municipal services (e.g. sol id waste and tax col lection) and on

mon i to r ing the introdu ction o f service standards at the l e ve l o f the l ower

courts. I t i s also envisaged to continue to support independentmoni to r ing & evaluation activities for the hea lth and edu cation sectors,

wh ich w ou ld capitalize o n the experience with the community score

cards under the f i r s t P G D I .

Project funding under this sub-component wil l be prov ided for goods and equipment,

consulting services, workshops, as well as for training and capacity building

activities.

(b) Fostering an enabling environme nt for social accountability practices. The

above mentioned pi lo t activit ies wo uld go hand in hand with measures that

create/enhance an enabl ing environment for me aningfu l involvem ent o f c iv i l societyin mo nito ring loca l government performance. C ultural factors and fear o f

repercussions in the event o f the expression o f priori t ies, opinions and concerns

hamper more effective c iv i l society involvement, also due to the absence o f a

protective legal and insti tution al f i-amework for c iv i l society engagement. Cri t ical

e lements o f such a framework inc lude (i)egulations that govern the access to

information, (ii)overnment policies that specify the d is t ri bu tion o f i n fo rmat ion to

the general public in a way that can be com mon ly understood, and (iii)egulations

52



that protect the activi t ies o f ci v i l society groups and associations. The project wil l

also finance a m ap ping exercise that w ou ld establish a comprehensive l i s t o f non-state

actors, and assess strengths and weaknesses, in particular watchdog/advocacy groups

at the nationa l and loca l levels.

Pro ject funding under this sub-component wi l l be provided for consult ing services,

workshops, as well as fo r train ing and capacity building activities.

(c) Building the capacity of civil society and Government actors. In addi t ion to an

enabl ing environment fostering c iv i l society engagement i t wil l be cr i t ica l to ensure

that citizens and c iv i l society groups have the necessary capacity fo r mean ingful ci v i l

engagement. P D G I I1 wil l therefore support capacity building in i t iatives aimed to

fami l iar ize NGOs and civi l society groups with the concept o f social accountabil ity.

Loca l NGOs and other civi l society groups wil l be trained to be trainers and

faci l i tators o f social acco untabi l i ty processes. Particular attention wil l be pa id to

training o f trainers and faci l i tators fo r groups that have less voice (such as women,

youth, poo r people, a nd persons with disabi l i t ies). PGDI I1wil l also inc lude activi t iesto t ra in Government of f ic ia ls to work more ef fect ive ly with c iv il society, i.e. to

enhance communication, faci l i tation and group de cision ma kin g ski l ls. This wil l

complement other “supply side” training ac tivi t ies carried out under di fferent project

components.

Pro ject funding under this sub-component wi ll be provided for consult ing services,

workshops, as well as for tr ain ing and capacity building activities.

(d) Mo nito ring Social Accountability Activities. Because many o f the p i lo ts being

supported under this component are breaking new ground, and carry some risk, i t will

be important to measure impact and monitor changes as they evolve. This sub-

component wil l support complementary activities to measure the impac t o f the

various pi lots including information audits to assess how access to information on

budget resources or mining roya lties changes at the l oca l l e ve l over the p e ri od o f h e

pilot, or targeted demand side governance baseline and follow-up surveys in

geographic areas where multiple p i lo ts may be being carried out.

Project funding under this sub-component wil l be provided for consult ing services,

workshops, as well as for training and capacity building activities.

105. A grant funding mechanism wil l be set up that would f inance innovative governance

activi t ies by non-state actors that are related to th e objectives o f th e project. These Social

Accountability Grants (US$I.65 million IDA) wil l pilot, develop and scale up approaches thatare focused on supporting civi l society to monitor and provide oversight, in particular in key

areas such as natura l resource management, loc al service delivery, and pub lic f ina ncia l

management. During th e f i r s t year o f the imp lementa t ion o f the p ro jec t a transparent set o f

cri ter ia wil l be developed for awarding these grants. This wil l inc lude the ident i f icat ion o f theimplem enting agency for these grants wh ich shou ld be an independentnon-state actor. This non-

state actor wil l be selected on a competi t ive basis in close collaboration with relevant c i v i l

53



society organizations such as the Nation al Council for Civic Partic ipation (Conseil N ational pourl a Participation des Citoyens, CNPC). Project funding wou ld be provided to cover the operatingcosts for the grant administrator.

Project Component5 -Monitoring& evaluation (US$7.0 million IDA)

106. The component wil l support Government’s efforts to strengthen the monitor ing &evaluation system that underpins th e MAP. I t wi l l build on the support provided under the first

PGDI. This support focused o n the development o f the National Strategy fo r StatisticalDevelopment, wh ic h has been approved by th e Government in 2007. Additional assistance was

provid ed fo r some k ey statistical baseline surveys, in particular a cartographic survey that wouldestablish key informatio n about the population distr ibution in Madagascar and i s seen as thebasis fo r a population census. This survey is o ngoin g and is expected to be completed in 2008.The support under the new project will focus on the improvement o f he operational efficien cy o f

the National Statistics Office (INSTAT), in particular institutional restructuring and capacity

building. Additional support will be provided for the modernizat ion o f the procedural and

institutional framework for monitoring & evaluation in Madagascar, in particular th estrengthening o f relevant activ it ies at the leve l o f the sector ministr ies and in the Prime

Min is te r ’s Office.

107. The project wil l also support th e design and implementat ion o f a new population census

whic h aims at consolidating and further deepening existing statistical data which i s vital fo r both

publ ic and priv ate sector needs. The last census was conducted in 1993. The new census wil l be

prepared and implemented by the National Statist ics Office (INSTAT) with assistance from

U N F P A . I t s envisaged to finalize the census in 2009 with the objective o f publishing he results

in 2010. The total costs for the census are presently estimated at w e ll above US$20.0 million (orapproximately US$l.OO per inhabitant) and are expected to be funded by contributions fro mGovernment and development partners. In case the Government i s not able to ra ise sufficient

funding for a comprehensive census f rom th e donor community i t s envisaged to use the Wo rl dBank funding to conduct a par tial census that would cover rough ly 10 percent o f he country.

108. Project funding under this component would pr imar i ly focus on technical assistancerequired during the implementation o f th e above mentioned reforms, the modernization o f therelevant government institutions, and on training and capacity building activities. I t wil l include

some operating costs for INSTAT to facilitate the census preparation and implementation. Thefunding for the census wil l nclu de some goods and equipment. Government contributions wou ldbe pr imar i ly prov ided in-kind, in particular through the work o f ci vi l servants, through th e

provision o f off ice space and other material, as well as through the prov is ion o f ravel costs.

Project Component 6-

Program Coordination (US$2.5 million IDA)

109.P G D I I1

The object ive o f his component i s to support th e managementand implementation o f he

Leadership and overall coordination o f the reforms wil l be ensured by the Reform Program

fo r the Eff ic iency of the Administration (Programme de Rkformes pour 1’Efficacitk del’Administration, PREA) which was se t up by the Government in 2005 to coordinate all

54



governance related activities. The PR E A i s headed by a National Coordinator who reports to

the Secretary o f Planning in the President’s Office. The Nation al Coordination i s supported

b y a Bureau de Gestion (BdG) which i s responsible for th e preparation o f th e annual workplan, f or fin an cial management, procurement and monitor ing & evaluation.

Component 1 wil l be implemented by th e Reform Coordination Unit in the Ministry ofFinance. The unit consists o f a small team and i s headed by a Coordinator who reports to the

Secretary General o f th e Ministry. The project wil l f inance some recurrent costs (salariesand operation costs) o f the Reform Coordination Unit and other technical advisors who are

deemed necessary to ensure adequate project implementation. The unit i s in the process ofestablishing a ‘basket fund’ for public finance reforms which i s linked to the overal l annualreform action plan (PAP) o f he Ministry o f Finance. I t i s envisaged that - over time - hemajority o f th e support by the development partners to the Ministry o f F inance wil l bechanneled through the basket fund.

The grant funding mechanism under component 4 (Social Accountability Grants) wil l be

supervised by a non-state actor which wi ll be identif ied based on a competitive selectionprocess during the first year o f he implementation o f he project. The main role o f his entity

i s to analyze, approve and monitor funding proposals for the Social Accountabil i ty Grant

mechanism.

The popu lation census under component 5 wil l be implemented by th e Nat iona l StatisticsOff ice ( INSTAT) which i s in the process o f establishing a coordination unit to ensure

adequate preparation and implementa tion o f the census. This unit wil l be supported by a

technical advisor whic h wil l be provided by UNFPA.

All other components o f the project wil l be administered and supervised by the Bureau deGestion (BdG) o f PREA. This wil l include the identif ication o f a non-state imp leme nting

agency for the Social Accountability Grants. The project wil l finance some recurrent costs(salaries and operation costs) o f he BdG incl udin g other technical advisors wh o are deemednecessary to ensure adequate project implementation. Funding wil l also include external

auditing and accounting assistance (consultants). Additional short t e rm consultants wil l be

recruited for the assistance t o the BdG during the supervision o f he project, in particular forregular independent audits o f mplemen tation progress and impact assessments. The projectwil l also fund additional equipment and relevant training o f he BdG staff.

110. US$2.0 mi l l i on o f the project proceeds remain unallocated to cover pr i c e contingencies

and to ensure that the project can respond flexibly to additional demands emerging during the

implementat ion o f he refo rm activities.

111. Project funding fo r components 1, 2, 3 and 5 wil l include the f inancing o f a limited

number o f government staffs salaries until December 31, 2009, mainly to recruit trainers for

local training institutions and technical specialists into the President’s Office, the Prime

Min is te r ’s Office, the Economic Crimes Unit and the National Statistics Office. Theseexpendituresare in i n e with the requirementso f recurrent cost financing parameters as specified

in BP 6.00 o f April 2004 and the relevant Guidelines o f April 16, 2004. World Bank support

would al low the Government to gradually integrate these recurrent expenditures into subsequent

55



budget years. Government contribut ions wo uld be pr im ar i ly provided in-kind, in particular

th rough the wo rk o f c i v i l servants, through the prov is ion o f o f f ice space and other material, as

w e l l as through the provis ion o f ravel costs.

112. A summary o f he cost o f he program and the f inancing plan s shown be low:

Table 1 Project Components by Financing Sources

*Estimates/projections

56



Annex 5: Program Description


REPOBLIKAN’I MADAGASIKARA

Tanindrazana- Fahafahana - Fandrosoana

M I N I S T E R E D E S F I N A N C E S

ET DU BUDGET

An t a n a n a r i vo , l e O 7 AVR 2 0 0 8

_ _ - _ _ - _ -L e M i n i s t r e d es F i n a n ce s e t du B u d g e t

A

M o n s i e u r R o b e r t B. ZOELLICKPr e s i d e n t

B a n q u e m o n d i a le

1818 H St r e e t NWWashington DC

Monsieu r l e Pres iden t,

Madagascar a com me nc t l a mise en Oeuvre de sa seconde gt nt r at i on de st rategie de lut teco n tr e l a p a u v r e t t d e p u i s l e debut de l ’ ann te 2007. D t n o m m t e M ad a g as c ar A c t i o n Plan

(MAP), cet te nou vel le st ratdgie capi ta lise sur une aut re echel le les real isat ions du precedent

Docu ment de S t ra t t g ie de Reduc t ion de la Pauvrete (DSRP) d o n t l a m i s e e n e u v r e

commencCe en 2003 s’est t e rm inee en fin 2006.

2. B i e n q u e l e DSRP ait permis, entre autres, l a reduct ion du taux de la pauvre te de 70% en

2003 B 68 % en 200 6 g race B un taux de croissance Cconomique reel mo ye n annue l de 5,3 YO,

l ’ amp leur de l a pauvre te 21 Madagascar requiere un ob jec t i f ne t te rnent p lus a mbi t i eux po urat te indre les objec t i fs du M i l l e n a i r e fixts p a r l a communaute in temat iona le . C o n p dans cette

optique, le MAP pr t v o i t donc d ’esca lader un nive au superieur en f ixan t un t a u x m o ye n d ecroissance entre 8 % et 10% sur l a per iode 2008-2012 tou t en poursu ivan t une po l i t i quemone tai re et budgetai re t rbs st r icte a f in de minimis er le taux d’ in f lat ion B u n e m o ye n n e d e 5%

p a r an. L e but ul t im e est de redui re le taux de pauvrete a 50 % a l a fin de l ’annee 201 1 et degarant i r aux malgaches un revenu moye n de 450 U S $ .

3. L’at te inte de cet objec t i f u l t im e t rks ambi t ieux necessi te une r igue ur st r icte dans l a gestion dupays. Conscient de cet te exigence, le Gouvemement Malgache entend renforcer sa st ratkgiede gouvemance lancee depu is c i nq an s et dont le fondem ent a ete axe s u r l a perfo rmance, l at ransparence , l a l u t t e con t re l a cor rup t ion , e t l a pa r t i c ipa t ion c i toyenne. Out re l ’ engagement

sp e c i f i q u e d t c l i n t d a n s l e MAP, Gouvernance responsable (Engagement Nul), l egouvernement m et t ra en place des out i ls t ransversaux de gou veman ce pou r mieux assurer larealis at ion des sept autres engagements

4. L a presente let t re resume les pr incipes fondamentaux du renforcement envisage dans l agouvemance. E l le dec r i t en premier l ie u les avancees atte intes durant l es c inq demieres

annees dans le doma ine de la gouvemance. L a seconde part ie detai l lera les perspect ivest co n o m i q u e s d e l a p e r io d e d e m i se e n m u v r e d u MAP et les consequences exigees par cetteperspec t ive en rnat ibre de gouvemance. L a ro isikme part ie presentera les elements essent ie lsde la st rategie de renforcement que le go uveme ment met t ra en place dans les cin q ans B ven i r .

57



PARTIE I :LES ACQUIS DE LA GOUVERNA NCE

5 . L a penode de mise en ceuvre du DSRP est marquee par trois faits majeurs : l e renouveau dela gestion des finances publiques, l a lutte effective contre la corrup tion et l e lancement de laparticipation citoyenne. Ces changements constituent des toumants en la matibre dansI’histoire de la gouvemance a Madagascar.

6. Pou r les finances publiques, la mise e n place d’un nouveau cadre budgbtaire oriente vers le

resultat est I’un des changements importants. La no uvelle L o i Organique sur la L o i des

Finances (LOL F) a doptte en ui l le t 2004 a t t t mise tout de suite en application en 2005. So n

application reste cependant partielle car un certain nombre des dispositifs ntcessite une

prtparation prealable. Des actions sont actuellement entrepnses pour permettre l’application

inttgra le de ces dispositifs d’ici 2010. La recherche de rtsultats et la souplesse de gestionintroduites par la LOL F, qui sont la force principale de ce nouveau cadre budg ttaire, cadrent

bien avec l’esprit du M A P qui a f ixe des objectifs ambitieux.

7. L e Gouvernement a aussi mis en place un nouveau code de passation de marches publics ia

meme date que la LOLF. Adoptant le s meilleures pratiques et de standard international, l enouveau code n’a ete non plus applique dans son integralit6 que vers I’annke 2006 A cause dela durte de periode ntcessaire pour installer le s institutions et les textes d’application du

code. L’application du nouveau code depuis un an a introduit beaucoup plus de concurrenceet de transparence dans la proctdure de passation de marches publics et l e Gouvemement

espere que son application totale permettra de faire une Bconomie importante dans le s

finances publiques.

8. Un des efforts d tp lo yt s par le Gouvemement pou r assurer l a transparence et I’efficacitC desfinances publiques a porte sur la mise en place d’un Systeme Integ rt de Gestion des Finances

Publiques (SIGFP). Elabore depuis Avr il20 04, le SIGFP est censt capter plus des 80 % desoperations financikres de l’administration centrale et couvre actuellement six localitts. L a

faiblesse des moye ns de tClbcommunications et certaines imperfection s dans l’architecture du

systeme font que le SIGFP ne donne pas pleinementson plein rendement actuellement

9. I 1 faut mentionner qu’en plus de ces chantiers majeurs, le Gouvemement a entrepris desreformes imp ortantes au sein des deux rtgies financihres (la Direction Gentrale des Douaneset celle des ImpBts). Ces reformes ont permis d’augmenter de manikre substantielle le s

recettes de I’Etat. Cette augmentation a ttt plus notable pour l’annee 2007.

10. L a mise en place des nouvelles institutions, l e Com ite pour la Sauvegarde 1’Integritk (CSI) etl e Bureau Indipendant Anti-corruption (BIANCO ), a marque un toumant decisif dans la lu tte

contre la corruption a Madagascar. Ces deux institutio ns mis en place en 2003 ont entreprisde rtnover l e cadre lt gi sl at if et reglementaire existant pour sevir de maniere concrete lacorruption. Outre le traitement des doleances sur le s cas de corrup tion qui hi sont parvenues,

l e B IA N C O a aussi men6 des audits sur l e s grands dossiers de passation de marches publicset des audits organisationnels des services public s les plus importants. D es resultats de cettereforme commencent A &r e pergus mais il st vra i qu’un long chemin reste 21 faire.

11.Parallelement a cette rtfo rme , l e Gouvemement a engage beaucoup d’actions pour assainir la

Justice qu i constitue toujours un domaine de preoccupation majeure. En plus de I’action deformation dispenske par 1’Ecole Nationale de l a Magistrature et de Greffe (ENMG), un

certain nombre d’experiences pilotes, m i se en place de standard de services et

I’informatisation des juri dic tion s mod tles, ont Ctt menees. Des actions pour lutter contre la

- . .... .̂.

58



corruption au sein de la Justice ont et6 aussi commenckes. I c i aussi, il este encore beaucoup

de chemin it parcourir.

12 . Conscient des limi tes des rkform es au sein de I’administration, le Gouv emem ent s’est engage

depuis les cinq dernieres anntes i obil is er la societe civi le p our developper une synergie

avec cette demitr e en matiere de veil le et de vigi lance contre la corruptio n et l ’amelioration

des services publics . Des actions o nt Ctb ainsi developpees pou r mettre en place des structuresadtquates et de renfoncer les organisations non gouvernementales dans ce sens. Des ac tions

pilotes de partic ipation citoyenne, comm e le citize n score card et des enquZtes d’opinons ont

et8 mentes.

PARTIE II : PERSPECTIVE ECONOMIQUE POUR LES ClNQ PROCHAINESANNEES

13 . Le gouvernement est convaincu que l’atteinte des objectifs ambitieux du MAP sera possible

malgr6 l ’ importance du financement qu’il req uitre et une conjoncture intemationale diff ici le.

Plusieurs facteurs favorables soutiennent cet op timisme. L e premie r facteur est la rta l isation

prochaine des deux projets min iers qui vont jouer un rBle preponderant sur le ryth me de l acroissance Cconomique globale. L a contr ibution de I’activite de ces deux unites permettra en

effet d’envisager un taux de croissance proche de la prev ision du MAP.

14. D’autr e part, l e gouvemement estime que les efforts dk ployk s ces demit res annkes pour

favoriser l a cooperation regionale et l’int6g ration de 1’8conomie malgache dans l’economie

mondiale Clargiront le dkbouche des produits malgaches sur un march6 plu s remunerateur.Ceci entr aher a I ’augmentation de la prod uction et la creation d’emplois. L‘Bconomie

malgache connaitra n on seulement une am6lioratio n de son taux de croissance mais aussi une

perspective de meilleu re distrib ution de revenus.

15 . Enfin, avec les effor ts actuels de redressement du secteur 6nergie et de recherche p6troliere,

Madagascar deviendra exckdentaire en matiere d’tnergie d’ ici cinq ans. L’excedent

tnergt t ique ne proviendra pas seulement des sources hydro-klectrique et Cventuellement

pktrolikres mais aussi du bi o carburant dont le pays pourrait &tre un producteur important.

Cette s ituation ne presage pas seulement l ’amil io ration de l a prod uction manufactunere, qui asouffert ces tro is demikres anntes, mais surtout I’exportation Cventuelle des produitsexckdentaires contnbuant largement A l ’acckltration de la croissance globale du Produi t

Int t r ieur Brut.

16 . Cependant ces perspectives ne changeront pas fondamentalement les caracttristiques de

1’6conomie malgache. En effet, bien qu’une croissance exceptionnelle (taux de croissance de

8 a 10 %) par rapport aux tendances historiques soit escomptke, 1’Cconomie malg ache restera

dependante des capitaux &angers et trbs peu diversifiee. L a dependance vis-a-vis des

capitaux 6trangers affectera le secteur public qui a besoin de resources importantes pour

rkaliser 1es infrastructures, notamment sociales, pour atteindre l e s objecti f s du M A P rent rant

dans le cadre des OM D . Ma is la dependance affectera plus substantiellement le secteur pnvC

pour mettre en place des unites de prod uction capables de generer les activites de p rodu ction

constquentes aux objectifs de croissance Cconomiques. Aprts la concentration de laproduction manufacturibre sur les produits texti les, les produits miniers vont dominer laprod uctio n globale dupays.

17. Deu x points po siti fs sont toutefois escompt6s. L a demande globale engendree pa r l’ample urdes activitks dans les secteurs de production d’extraction et de transformation pourrait

59



. .

stimuler la croissance de la pro duct ion agricole (l e milieu rur al occupe toujours plus de 70 YO

de la Population) et garantira une meil leure rkpar ti t ion du fruit de l a croissance. D’autr e part,l’intensitk des activites Cconomiques intkrieures permettra de gknerer des ressources

publ iques int t r ieures plus importantes pour suppleer l e manque tt g a p e r sur les droits de

douanes et d’ imp ortatio n qui von t diminu er substantiel lement du fait des accords rkgionaux

de commerce. L ’autre source de recettes publiques sera constituee par l ’exploi tat ion miniere.

18. L’insta uration de climat de confiance p our attirer les investissements surtout etrangers et une

amklioration drastique de la gestion des finances publiques sont les deux conskquences

majeures de ces perspectives sur le plan de la gouvemance, a la fois pour mieux gerer lesressources propres limitkes et pour renforcer la confiance des partenaires techniques et

financiers.

PARTIE 111 : STRATEGIE DE GOUVERNANCE POUR 2008-2012

19. L a politiq ue de gouvemance sera renforcke dans quatre domaines (finances pu bliques,

foumiture de services publics et gouvemance de proximite, la lutte contre la corruption, larede vabilite sociale) et autour de tro is themes (efficacite, transparence et participa tion).

L’eff ica citk sera mesuree par les rksultats atteints et le Gouveme ment entend faire de l arecherche de resultats son cheval de batai l le pour la realisation duMAP. L a ransparence et l a

participation sont deux objectifs complementaires : la part icipation favorise la transparence et

la transparence appelle la part icipation. L a mise B la disposi t ion de la populat ion

d’inform ations completes, faciles 9 comprendre sera le moyen B mettre en ceuvre pour

atteindre ces deux obje ctifs

20. Les f inances publiques seront l a priorit k de la strattgie de gouvemance du Gouvemement du

fait qu’elles c onstituent l’instrument pri nc ipa l de mise en ceuvre duMAP. L’amel iorat ion et

le renforcement de l a gestion des finances publique s seront l e cceur m&m e de l a strategie

gouvemementale. L’objectif dans le domaine est d’une part d’augmenter notablement les

recettes pour faire face aux exigences financikres des objectifs ambitieux du MAP et derationaliser la gestion des depenses pour avoir plu s d’effcien ce et d’ impact sur la fourniture

de services a tous les niveaux, notamment au niveau local, et sur la reduction de la pauvrete.

21. A cause d u choix d u gouvemement de prendre avantage des alliances Cconomiques avec les

pays de voisinage immkdiat, et surtout du fait de 1’Cvolution des pratiques commerciales

intemationales, les recettes des douanes provenant des activi tts com merciales internationalesvont de plus e n plus dim inuer dans les annkes a venir. Ma dagascar se prepare des maintenanta ce phbnomene et se tou me vers l’opt imis atio n des ressources prove nant des activites

Cconomiques interieures. Comme la plupart des pays sous developpes, la Taxe sur la ValeurAjout6e constitue principalement l a source potentiel le de recettes pour l e futu r. L a TVA ne

reprbsente pas non seulement une resource importante mais la maitrise de sa collecte

engendrera automatiquement la maitrise de la collecte d’autres impBts com me les imp& surbtnefices des sociCtts et les impbts sur revenus, qui representent a eux trois plus de 80 ‘70derentrte s fiscales intbrieures de Madagascar.

22 . Pour realiser cet objectif, le Gouvemement pou rsuivr a l’effort de renforcement des regies

financieres entrepris depuis trois ans. I 1 s’agit donc en premier l ieu de l ’amtl ioration des

services de l a Dire ctio n GBnerale des Impbts. Apres les actions supplkmentaires visant l a

60



rationalisation de la Dire ctio n de la Fiscali te des Grandes entreprises, l ’effo rt va se concentrer

sur le renforcement des directions regionales des entreprises, qui se focaliseront sur l acollec te des imp 8ts des entreprises ayant un chif fre d’affaires entre 200 mil l ions et 1 mi l l i a rd .

L a priori t6 portera s u r six Directions regionales localistes dans les ex-chefs l ieux de province

et Antsirabe. L e renforcement des autres direc tions regionales dependra du rythme de

developpement des activitts economiques dans les regions concemkes. Outre lareorganisation de l’administration des services des DFLE, I ’effort sera ax6 sur la

modernisation des outi ls informatiques pou r la gestion et suivi des entreprises.

23. L e renforcement des services de l a Direct ion Gknerale des Douanes est egalement apoursuivre no n seulement pour faci l i ter l e commerce international ma is surtout pou r ce m2me

object i f de col lecte de l a TVA. En effet, la rentree de marchandises aux frontieres constitue

l’autre source de constitu tion de valeur ajoutee et le r81e des services des douanes sera

dborm ais foca l ise sur la col lecte de la TVA et des taxes connexes. L e renforcement portera

sur l’inform atisatio n de la chaine de dedouanement pou r assurer sa fluidite et surtout pour

securiser les ressources. L ’ac tion v a porte r sur le deploiement de Gasynet deja operationnel h

Toamasina et Antananarivo sur les Recettes de douanes importante s

24. Madagascar ne collecte actuellement que moin s de 1% du PIB de recettes non fiscales alors

que beaucoup de pays en voie de developpernent amvent A faire jusqu’a 4% du PIB. Ce

domaine sera la seconde piste pour l ’amelioration des recettes provenant des activites

economiques interieures. L e gouvemement entend ainsi moderniser la collecte de recettes

dans ce domaine, d’autant plus que l ’exploitation des deux projets miniers et celle de

nombreuses ressources naturelles vont s’intensifier. L’ens emble des textes rtg iss an t le s taxes

no n f iscales sera ainsi re vu et rem is A jo ur po ur consolider ces efforts et atteindre cet objectif .

Mais la reforme la plus importante portera essent iel lement sur la reorganisat ion de

I’admin istratio n de collectes de ce type de taxe afin d’en ameliorer le rendement.

25 . L a rea li sat ion duMAP n’exig e pas seulernent I’augmentation des ressources financieres ma isntcessite aussi une borne uti l isation de ces ressources pour produire un impact ree l sur la

reduction de la pauvr ett et la foum iture de services A la populat ion. L a rational isat ion des

depenses qui constitue le second axe stratkgique de l a refo rme des f inances publiquespoursuivra un double objec tif : respecter l ’equil ibre budgetaire dans le temps pour n e pas

hypothequer la situation macro-economique du pays et assurer I ’effcacite al locative et

operationnelle des depenses.

26. Le respect de I ’equil ibre budgttaire sera dCveloppC a t ravers m e po l i t i que budgkta ire

prudente. L’effort du gouvemement p our ce faire portera essentiel lement sur le renforcernent

et I ’amb lioratio n de la prevision. Le s experiences passees ont en effet dem ontrt que les

derapages de l ’execution budgetaire proviennent la plupar t du temps des lacunes dans l a

prevision. Cette lacune porte non seulement sur la masse globale au mome nt de l a preparation

du budget mais aussi sur la faiblesse des outi ls de gestion au cours de son I ’exkcution. Lesactions que le gouvemement mett ra en e uv re en priori t6 seront le renforcement du cadrage

macro-Cconomique et corolairement l e cadre budgetaire a moy en terme aussi bien au niveau

globa l que pou r les secteurs les plus importants (education, santt, travaux publics et transport,agriculture et environnement). Ces actions seront completees par l e developpement d’outi ls

de gestion de l a tresorerie, de la plan if icatio n de la passation de marches et celle desengagements.

27 . L e gouvernement est convaincu que la mise en eu vr e intkgrale des disposit ions du nouveau

cadre budgetaire, l e budget programme, constitue le meil leur m oye n pour garantir l ’eff ic acitk

61



de l ’a l locatio n des ressources budgetaires et pour amkliorer les impacts operationnels des

dCpenses publiques. C’est pourquoi le dkploiement effectif de ce cadre, qui est prtvu

s’accomplir au plus tard d’ic i de ux ans, sera la priorit e du gouvemement. Le s actions

relatives i e dkploiement porteront sur l a rkvision de l a nomenclature budgetaire dont une

grande partie du trava il a et6 faite, l a definit ion d’une nouv elle chaine de la depense conforme

aux disposit ions de la LOLF, y compr is la rev is ion du r6le et des institut ions de contr6le

interne, l a definit ion des detai ls d’application des disposit ions du LOLF et eventuellement la

revis ion de certaines de ses dispositions, qui pourraient entraver I’atteinte de resultats.

28 . L a t a li sa ti on du MAP exige aussi que des economies soient rtalistes sur tous les domaines

de depenses ob cela est possible .Pour nation aliser les dkpenses publiqu es, l e Gouvernement a

entrepris le processus de reforme de la gestion des btablissements publics nationaux. Une

ttude est actuellement en cours pour faire l e diagnostic de la gestion de ces ttablissements et

un plan d’ action sera Clabore d’ i c i mi +in 2008 pour redresser la situation .Ce plan devra

prk voir la rtv isi on des statuts de ces ktablissements y compris l a possibi l i tk de 1’ integrationde certains d’ entre eux et la privatis ation des certaines autres .Des tcon omi es sont aussi

escomptCes avec l a restructu ration des deux caisses de retraite des fonctio nnaire s(

C R C M et

C PR ) dont les Btudes ont et6 f inalis tes en 2007 .Unplan d’ action est en cours d’elaboration

pou r cette restructuration ,

29 . L’amb lioratio n de l ’a l locatio n et des impacts opCrationnels sur le terrain sera seulement

thborique si l a preparation et l ’execution du budget ne se rapprochent pas des wagers. A insi,le Gouvernement po ursuivra po ur les cinq annees B venir sa polit i que de ddcentral isation et

de dkconcentration aussi bien sur l e plan administ rat i f que budgetaire. Sur la decentralisation,

le Gouve mement se concentrera sur l a mise en place des rtgi on s dont l e r61e est d’impu lser le

developpement Cconomique. Sur l e plan budgttaire, cette mesure va se traduire par la mise en

place d’un veritable budget de regions et le renforcement de l a capacite de cette ent it i A

formuler, prtpa rer et exCcuter le budget pou r servir de catalyseur au developpement reg ional.

L’objectif dans cette demarche est de se servir des regions comme un courroie de

transmission de I ’action d u gouvernement central pou r integrer l a productio n dans l a logique

du marcht .

30. Dans l a poursuite de cet obje ctif de rationalisation les impacts optrationnels du budget, le

gouvernement mettra un accent part icul ier pour inciter une production mieux integree dans

1’Cconomie de marchb. Pour ce faire, ilmettra bient6t en aeuvre une nouv elle strategie pourrentabiliser les investissements publics. Cette strattgie qui completera l a dtcentral isat ion et la

dtconcentration, portera sur un meil leur ciblage des investissements publics de manitre idtvelo pper les Cconomies regionales. C eci consiste d’abord de susciter une demande localeplus substantiel le, par l a gtnkrati on de revenu B partir des investissements publics, en vue de

relancer l ’offr e au nivea u des producteurs les plu s pauvres. I1 faut ensuite h mettre e n place,

en mZme temps, les infrastructures pou r crte r un vkritable marche au niveau de chaqueregio n en assurant la f luidit6 de circula tion des produits.

3 1. L e renforcement d u r61e de la reg ion dans ce r6 le de cou rroie de transmission sera am plif ie

par une dtconcentration p lus pousske de I ’ext cuti on du Budget. En plus de l ’effort entrepris

depuis les deux de mitr es annees pou r mettre en place des directions regionales des ministeres

fournissant les services les plus deman dts par l a popu lati on (sante, education, eau potable..),

le gouvemement a entamt dts cette annte, la dkconcentration des services f inanciers qui

faciliteront I’e xtc uti on des budgets par les services deconcentrks cites plu s hauts. L a

dkconcentration des services du trts or au niv eau des regions sera achevee cette annee 2008 et

la mis e en place des circonscriptions f inancieres au nive au de chaque regio n sera entam te

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vers la fin de cette annee pour se terminer en 2009. L e Gouve mem ent m ettr a aussi en Oeuvreun plan d’action pour assister le s communes et notamment le s communes rurales de 2e

categoric dans l’exkcution de leurs budgets, et le sui vi de leurs gestions financiires.

32. L’amtlioration des impacts operationnels des depenses publiques ne sera pas aussi possiblequ’avec un systeme de contrble eff icace de l ’u t i l isatio n des fonds publics. Conscient de l a

faiblesse actuelle des institutions et des outils de contrble tant interne qu’exteme, le

Gouvemement v a lancer parallelement avec l e renouvellement du circ uit de la dkpense dans

le cadre de l a mis e en Oeuvre de la LOLF (vo ir paragraphe ci-dessus), un plan d’actions pourredresser cette lacune importante. Ce plan se focalisera sur une redist r ibut ion de

responsabilites le long de la chaine de maniere A al l tger le contrble interne d’une part mais

aussi assurer l’effectivite de ce contrble d’autre part. L’effort dans ce sens porteranotamment s u r la cert i f ication de service fait.

33 . En ce qui conceme l e contrb le exteme, les actions vont p orter essentiellement sur le

renforcement de la Cour de Comptes, l’organe statutaire design6 pour I’ex ecutio n de ce

contrble au niveau de l ’exkcutif. L e detail de ce renforcement sera dbfini apres un audit

organisationnel de la Cour qui en determinera le pland’actions a mettre en ceuvre. L’o bjec tifest de permettre I la Cour d’assurer l ’effectivite du contrde des comptables publics et un

examen ren for ci des lois de reglement.

34. L’efficacite des d6penses publiques ne peut se realiser qu’avec des outils de su ivi adequats et

un reportage Blargi au grand pu blic. L ’obje ctif est I l a fo i s de garantir une transparence totale

dans la gestion de fonds pub lics et de disposer des outils permettant l e redressement rapide

des erreurs, le cas tch tant. Dans le cadre de ce double objectif l e Gouvememen t continuerasa polit iqu e d’amklioration de ses outi ls d’ infon nation sur le s finances publiques. L e SIGFP

sera d’abord deploy6 dans l e reste des vingt deux regions qui n’en sont pas encore pourvues.Ce dtploiement es t programme pour &re ac he d d’ ic i deux ans au plus tard et son rythmesera determine par l a dispon ibi l i t6 de capacit6 technique en matier e de t616communication.

35. L a modemisation duCentre d’op tra tio n (Network Operation Center) et du Centre de Base de

Do nnt es sera entreprise dans le mbm e cadre. Parallelement ces actions au nive au Cquipement,

une attention particuliere sera apportee sur I’amelioration du support logiciel d u syst tme af ind’augmenter sa fonction nalite et assurer la centralisation des donn tes en temps rte l.

36. Les impacts opkrationnels des depenses publiques ne seront pas ressentis pa r la pop ula tion si

la foumiture des services sur le terrain n’est pas assurbe. Dans ce sens, le Gouvemement va

deployer des instruments en complement des outils mentionnts plus haut. Afin d’ameliorer l e

service aux usagers, ilmettra e n ceuvre des actions au nivea u centra l et au niveau des regions.

Avec I’appui des partenaires techniques et financiers, il entend renforcer la capacit6

man agh iale des ministeres techniques pour garantir un e alloca tion optimales des ressources ,pou r def inir de normes et de standards de services demand& par la popu lation. Cette action

sera poursuivie surtout par la formation des cadres des ministkres par le bia is du rtseau local

de format ion comme le NLIM, I’ENAM ou I ’ IMATEP. Ce renforcement des ministeres

techniques sera aussi assure par la prestation d’assistants techniques ponctuels.

37. Mai s le facteur prin cipal d ’un service adequat sur le terrain sera les ressources humaines,celles qui effectuent l e travail . Pour mie ux motiv er le personnel de sa fonction pub lique, le

Gouvemement envisage de revoir en profondeur son systtme de rbmuneration, qui est

completement depasse, car il ate pratiquement de la periode coloniale. L e d6tail des actionspour cette revision sera determine par le s resultats d’une etude en cours, qui seront

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disponibles d’ ic i un an. Le plan d’act ions y afferent co uvrira une periode de c inq ans a partir

du mil ieu de I ’annee 2009. En plus de l a remuneration, le p lan determinera le systkme derecrutement, et I’evolu tion des carrikres ainsi que le systbme de recompense et de sanctions

basees su r la performance. A l a fin de la mise en place de ce plan, le Go uvemement espere

disposer d’une fonction publique plus eff icace grhce a une meil leure reparti t ion des

ressources humaines avec une meilleure remuneration qui tient compte des ressources

financikres limitees dupays,

38. L e renforcement des institution s locales, notamment celles qui sont capables de suivreeffectivement la foumiture des services sur le terrain est crit ique. C’est pourquoi le

Gouvememen t consacrera une attention part icul ibre pour le ren forcement des communes. Uneffo rt particulie r sera entrepris po ur augmenter les ressources financikres de ces dernieres. En

effet outre la revis ion des ressources propres dkvolue s aux communes, le Gouvernement

mettra e n place tres prochainement un Fonds de Developpement Local qui canalisera desressources financikres pour permettre aux communes de financer les activites de

dtveloppement prevues par la loi.

39. Le renforcement des communes portera aussi sur leur capacite technique par la for ma tion etla mise en place de structure d’appui permanent A travers les services dkconcentrtstraditionnels ou de structures specif iques. Les regions bkneficieront aussi d’appuis

spkcifiques pour leur permettre de faire face a une responsabil i t t accrue dans le cadre de ladecentralisation et de l a deconcentration. Ces appuis seront esse ntiellement axes a la fois surun programme de renforcement de capacites et des assistances techniques de la part des

services territoriaux decentralises (STD), selon I’axe 2 de l a Pol i t ique de l a Deconcentrat ion

et de Decentralisation.

40. L a lut te contre la c orrupt ion const itue un rempart supplementaire pour rationaliser les

ressources publiques, donc po ur la realisation du MAP. L’ob ject i f du Gouvememe nt dans le

domaine est de poursuivre les actions lanckes depuis 2002 pour minim iser le detournement

des fonds pub lics aussi bie n au niveau des recettes que des depenses ainsi que d’empscher les

prof i ts in jus t i f i ts par l ’occupat ion de posit ion dans la fo nction pub lique ou l ’appareil d’Etat.

L’object i f pour les cinq ans a venir sera d’abord de renforcer le cadre legislati f et

institut ionnel pour mieux lutter les formes de corr uption n on cemees dans I ’actuel cadre. I 1s’agit notamment des dtl i ts f inanciers l i e s au blanchiment d’argent. L a strategie de lutte

contre la corr uption comprendra kgalement I ’el iminatio n de confl i t d’ interbt, qu i permet A un

haut responsable de la fonction publique de profiter de son poste pour realiser des profits

injustif ies ou de fausser l a rkgle de l a concurrence.

41. Les actions prkvues par le Gouvemement pour rdaliser ces objectifs seront d’apporter un

appui technique et matQiel aux institut ions de lutte contre l a corrup tion comme le C S I et le

BIANCO. Ce renforcement consistera a deployer au nivea u des regions des Bureaux de l a

BI AN CO et la f inal isat ion de la mise en place de l ’uni tk SRF, une nouvel le uni te pour lut ter

contre les crimes Cconomiques. L a strategie pre voi t aussi l’appu i aux organes no n etatiques

pour completer les actions de I ’administration dans la lutte contre la cor ruptio n en ouan t l e

r6le de gardien independant dans le domaine. D e plus, un effort part icul ier devrait Etre

entrepris pou r renforc er le r61e de watchdog (observation) de la societe civile, pa r des actions

de renforcement des structures d’tchanges et de la capacite de la societe civile.

42. L e fonctionnement de la Justice doi t aussi contribuer a un succ ts de l a m ise en a w r e du

MAP, par l ’ instauration d’un cl imat rassurant qui incite les investisseurs tant nationaux

qu’etrangers. Cet obje ctif sera poursuivi par l a mise en place d’une ltgis latio n repondant aux

. .

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besoins du developpement rapide. afi n d’ameliorer l ’environn ement juridiqu e des affaires, l a

reforme des textes y afferents sera menee pour les rendre conformes aux instrumentsinternationaux, aux exigences de la mond ialisatio n et du developpement.

43 . L e Gouvernement poursuivra aussi l ’amelioration de l ’eff icacitk de la Justice par la mise B sadisposit ion d‘un budget plus conskquent pour renforcer entre autre l e fonctionnement de ses

services d’inspection et de contrde. Cette efficacite se fera aussi par la simpl i f icat ion del’acces de l a population B la Justice et l e rapprochement de la Justice aux justiciables. Cec is’effectuera par la crt atio n de nouveaux tribunaux, la mise e n place de justice de proximitt

intkgr ant dans l e processus les citoyens et l e s societes civiles et par le developpement des

cliniques juridiques. L’accCICration de l’informatisa tion sera pour suivie pou r comp leter ces

actions.

44. Afin de maintenir la mo tivation permanente de la pop ulation dans l a mise e n Oeuvre duMAP,la Justice doit aussi accroitre l a confiance de cette derniere en renforgant l’int egr itt de son

personnel pour garantir son &quiteet son impartial i t t . Une premiere panoplie d’actions pour

ce faire portera sur la simp lif icatio n des procedures, la re vision du rtg im e des privi leges et

immunitbs des Clus et des acteurs de la ustice, et I’elaboration de projet de lo i sur la HauteCour de Justice. Le Gouvemement veillera aussi a I ’atteinte de cet objectif par le

renforcement et le deploiement de I’applic ation de standards de services, le developpeme nt de

I’aide juridict ionnelle it la population et l’extension progressive sur toutes les juridict io ns des

actions actuellement mente s dans les ur idic tion s pilotes.

45 . Enfin le Gouvernement va d6ployer un effort part icul ier pour developper des institut ions

indtpendantes de veil le et de vigi lance au sein de la societe civi le pour I ’aider 21 suivre,&valuer et baliser les actions de I ’administration et leur imp act sur le terrain. Dans ce cadre, il

entend renforcer la synergie entre les reformes au niveau gouvernemental et celles de la

societe civi le pour mieux assurer l a part ic ipat ion doyenne B I ’ tvaluation des actionspubliques et l’am eliora tion des services publics. I 1 est aussi envisage de pilot er et

perfectionner les interventions ayant connu du S U C C ~ S , qui sont axees sur la reduction des

intgalitks, et ce, en assurant que la societe civi le soit capable d’exprimer les priorites et lademande de redevabilite.

46. Les actions qui seront developpts dans le cadre de ces objectifs porteront d’abord sur l a

creation d’un environnement encourageant l’engagement de la societe civ ile et les initiative s

de responsabilisation sociale, particulierement l’amelio ration de la gouvemance locale et

l’optimis ation de I’impact p os itif social. Ensuite pou r assurer que les citoyens et les

organisations de societe civile aient les capacites nkcessaires pour un engagement civiqu epositif, le gouvemement appuiera les initiatives de renforcement de capacites visant la

famil iarisation des ON G et organisations de la societe civi le avec le concept de redev abil i te

sociale.

47. Le s ON G locales et les autres organisations de la societt civile recevront des appuis fournis

pa r l e Gouvernement pour acqutrir une assistance technique pou r ce faire. Un e attentionparticu liere sera prise en compte pour les groupes vulnkrables qu i ont moins de v oix (tels que

femmes, jeunes, pauvres, les personnes handicapees). L a for mat ion dans ce domain e seraaussi dispensee aux autorites administratives afin que ces demiers puissent travailler plus

efficacement avec la societe civile, a savoir renforcer Ies capacites en communication,faci l i ter l a prise de decision en groupe.

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48 . L e MAP n’est pas un document figk, sa realisation sera ajustee selon l’tvolution de l asituation. D ans ce cadre, l a disponibilitk des informations fiables est incontournable.

Conscient de 1’Ctat obsolbte des informations dkmographiques, le gouvemement a engagedepuis deux an s la preparation d’un recensement general de la popu lation et de l’habitat. I 1

compte entreprendre un recensement integral s i l e financement sera boucle avec l’aide des

partenaires techniques et financiers. Sinon, unrecensementpartiel selon le s fonds disponiblessera effectue. Les travaux de recensement proprement dits comm enceront cette annee. L e

demier recensement remonte en 1993 et les donnees de ce recensement ne sont plus

util isables pour faire de bonnes projections.

49. Par ailleurs, un outil specifique sera aussi dkveloppe pour mesurer l’evolution de la m is e enceuvre du MAP afin de permettre au Gouvernement de prendre A temps les actions correctivesquand c’est necessaire et de mettre h jour les objectifs et le s actions envisagkes. Ce systemedenomme, Systbme Natio nal d’ht egr e de Suivi et d’Evaluation (SNISE) a pour objectifd’instaurer des mecanismes e t un processus de suivi e t d’tvaluat ion du MAP aux niveauxcentral et rkgional. L’tlaboration du SNISE est en cours et comprend tro is &tapes. L a

premiere etape consistera a faire l e diagnostic de la situation existante, e n termes de systbme

d’information devant alimenter le s indicateurs, ainsi que de cadre institutionnel e torganisationnel. L a seconde etape sera la co nception du systeme lui-mbme. L a demiere &apesera I’klaboration du plan d’actions pour sa mise en muvre. On estime qu’il seracomplbtement opdrationne l avant la fin de l’annee.

50 . Enfin, il st rappel6 que l e Gouvemement a entrepris le s demarches necessaires po ur qualifie rMadagascar dans I’Initiative sur la Transparence des Industries Extractives (EITI).L’engagement du Gouvernement d’entreprendre cette initiative est la garantie de son

adhesion a une transparence totale dans la gestion des ressources du pays et en une bonne

gouvernance sur tous les plans.

5 I. e s actions envisagees dans l e cadre de cette strategic seront mises en ceuvre avec l’appui despartenaires techniques et financiers que l e gouvemement sollicitera particulibrement lors de lareunio n prevue se tenir A Antananarivo au mois de Juin prochain.

Le ances et du Budget

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REPUBLIC OF MADAGASCAR

MINISTRY OF FINANCE AND BUDGET

Minister of Finance and Budget

No. 29/08-M F B M Antananarivo, April 2,2008

Mr.Robert B. ZOELLICK

President

World Bank

1818 H Street NW

Washington, D.C

Mr.President,

Madagascar began implem entat ion o f t s second generation Poverty Re ducti on Strategy since early

2007. Known as the Madagascar Act io n Plan (MAP), this ne w strategy builds on the achievements o f

the earlier Poverty Redu ction Strategy Paper (PRSP), the impl eme ntatio n o f wh ich began in 2003 and

ended in 2006, but takes i t to another level.

2. Despite the fact that the PRSP facilitated, among other things, a reduct ion in pover ty f ro m 70 percent

in 2003 to 68 percent in 2006 as a result o f a real average annua l economic gro wth rate o f 5.3 percent,

the scope o f pover ty in Madagascar calls for a far more ambitious objective in order to attain the

Mil len n iu m Goals es tab lishedby the internat ional commu nity . Designed fro m this vantage poi nt, the

MAP therefore makes provis ions to move to a higher level by setting an average g row th rate target o f

8 percent to 10 percent for the period 2008-2012, in the context o f a very str ic t monetary and

budgetary pol ic y in order to keep inf lat ion at a lo w rate o f 5 percent a year, o n average. The ult imat e

objective i s to reduce the pover ty rate to 50 percent by end-2011 and to guarantee the Malagasy

people an average annual income o f US$450.

3. Achievement o f this highly ambitious ult imate objective calls for a strict approach to managing the

country. Cognizant o f this requirement, the Malagasy Government intends to strengthen i t s

governance strategy laun ched five years ago, the foundation o f whic h was built around performance,

transparency, c omb ating corruption, and cit izen participation. In addit ion to the specif ic commitm ent

set forth in he MAP,namely, responsible governance (Co mm itme nt N o . l),he Government wil l putin place cross-cutting governance tools in order to b oost the chances o f achieving the seven other

commitments,

4. This letter summarizes the fundamental pr incip les projected to strengthen governance. The f i rs t par t

outlines the progress made in the past fiv e years in the area o f governance. Th e second part provides

detai led informat ion on the economic out look during the M A P implementat ion p er iod and the

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5.

6.

7.

8.

9.

imp l ica t ions o f this outlo ok for governance. The third pa rt presents the core elements o f he strategy

that the Government wil l establish o ver the nex t f ive years in order t o strengthe n governance.

PART I: ACHIEVEMENTS IN THE AREA OF GOVERNANCE

The PRSP implementat ion per iod was marked by three m ajor events: resumption o f publ ic f inance

management, effective eff orts to combat corruption, and the start o f the process o f cit ize n

particip ation. These changes m ar k turningpoints in he h istory o f governance in Madagascar.

O ne o f the mo st impo rtant changes in the area o f publ i c f inance was the introduct ion o f a n ew results-

based budget f ramework . The new budget f ramework law [L oi O rganique sur la Lo i des Finances

LOLF] was passed in July 2004 and took e ffect shortly thereafter (in 2005). However, i t s application

remains partial, given that a number o f p rov is ions require advance preparation. W o rk i s currently

bein g done so that these provisions can be app lied in heir entirety by 2010. A results-based appro ach

and the management f lex ibi l i ty introduced by th e LOLF, wh ich const i tute the driving force behind

this ne w budget f ramework, are fully consistent with the spirit o f he MAP, which has se t ambitious

objectives.

The Government also implem ented a new p ubl i c procurement code at the same t ime as the LO LF .

The new code, which adopted best practices and international standards, was only fully applied

around 2006, owing to the period required for the establ ishment o f new inst i tutions and the

impleme nt ing regulations to the code. Appl ic at ion o f he ne w code a year ago has led o mu ch greater

com petit i on and transparency in the public procurement process and the Government hopes that i t s

full application will produce signif icant savings in he area o f publ ic f inance.

One o f the measures adopted by the Government to ensure transparency and efficiency in pub l ic

finance i s related to the implementat ion o f an integrated publ ic f inance management system [SystBme

Integrk de Gestion des Finances Publiques SIGFP]. Prepared since April 2004, the SIGFP i s

supposed to handle 80 percent o f he central government's f inan cial transactions and curre ntly coverssix regions. As a result o f the lack o f e lecommunicat ions resources and a number o f f laws in the

design o f he system, the SIGFP i s not current ly operat ing at full capacity.

Me nt io n shou ld be made o f the fact tha t in add i t ion to this major work, the Government has

under taken a number o f mpor tant re forms in tw o State f inance agencies (the General Directorate o f

Customs and the General Directorate o f Taxes). These reform s have led to a sign if ican t increase in

government revenue. This increase was greater in 2007.

10. The establishment o f such ne w institutions as the Comm ittee for Preserving Integ rity [Comi tdpour la

Sauvegurde 1 Intkgritd CSI ] and the Independent An t i - Co mp t io n Of f ice [Bureau Inddpendunt Anti-

corruption BI AN CO ] m arked a decisive turning po in t in efforts to combat corrupt ion in Madagascar.

These tw o institutions, established in 2003, have started to overhaul the current legis lat ive andregu la tory f ramework in order to c lamp down, in a concrete manner, on corruption. In addit ion to

hand ling the corruption-related complaints they receive, B IA N C O has also conducted audits o f major

pu bli c procurement documents as we ll as organizational audits o f he biggest pub lic service entities.

The results o f this refo rm effo rt are beginning to emerge; however, i t s t rue that mu ch remains to be

done.

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11. In paral le l with this reform, the Government has undertaken many activit ies to clean up the justice

system, wh ich remains an area o f ma jor concern. In add i t ion to the t ra in ing prov ided by the Nat io nal

School for Magistrates and Court Clerks [Ecole Nationale de la M agistrature et de Grefe ENMG], a

number o f pi lo t activit ies, the establishment o f service standards, and the compu terization o f

operations in pi lo t jur isdic t ions have taken place. Efforts to root out corrupt ion within the justice

system have also begun. Her e again, m uc h w o rk remains to be done.

12. Cognizant o f limits o f r e fo r ms within the administration, the Government made a commitment

f ive years ago to mobil ize c iv i l soc iety with a v ie w to developing a col laborat ive relat ionship

with i t in the area o f moni tor ing and oversight o f corrupt ion and improvement o f pub lic services.

Activit ies were therefore undertaken to establish appropriate entit ies and strengthen non-

governmental organizations in this regard. Cit izen part ic ipat ion pi lo t act iv it ies such as the c it izen

scorecard and pub lic op inio n surveys were carried out.

PART II: FIVE-YEAR ECONOMIC OUTLOOK

13. The Government i s conf ident that achievement o f the ambit ious object ives o f the MAP will be

possible, despite the sizeable f i nanc ing requi red and the dif f ic ult international econo mic ou tlook .Several favorable factors provide reason for opti mism . First, tw o mining projects will come on

stream in the near future that will have a majo r impact on the pace o f overal l economic grow th.

The contr ibut ion o f he act iv i t ies carr ied out in the context o f hese two projects will in fact make

i t possible to project a g rowth rate that i s close to the MAP projection.

14. Second, i t i s the Government’s view that the efforts made in recent years to foster regional

cooperation and the integrat ion o f he Malagasy economy into the global economy wil l expand

opportunit ies for M alag asy products to penetrate m ore lucra tive markets, thereby increasing

product ion and jo b creat ion. This will not on ly boos t the growth ra te o f the M alagasy economy

but also prospects f or better incom e distribution.

15. Third, the current efforts aimed at the recovery o f the energy sector and o i l explora tion will a l lowMadagascar to have an energy surplus in the next f ive years. The energy surplus wil l be

attributable no t o nly to hydroelectr ic and possibly petroleum sources, but also to biofuels, o f

whi ch the country could become a big producer. T h i s s i tua tion bodes wel l no t on ly fo r higher

manufacturing output, which has been in the doldrums for the past three years, but in particular

for the possible export o f surplus products, thereby mak ing a big contribution to the acceleration

o f o v er a ll GDP growth.

16. However, these prospects will no t fundamentally alter the characteristics o f the Malagasy

economy. In fact, although an exceptionally high growth rate (between 8 an d 10 percent)

compared to historical trends i s expected, the Malagasy economy w i l l remain dependent on

forei gn capital, with a very l o w leve l o f d iversi f ica tion. Dependence on fore ign cap i ta l will

imp act the publi c sector, wh ic h needs signif icant resources to carry o ut infrastructure work,part icular ly in the so cial area, in order to attain the MAP objectives that fall within the scope o f

th e MDGs. However, this dependence will have a greater im pac t on the priv ate sector’s efforts

to establ ish product ion units capable o f generating productive activit ies that are in keep ing with

economic growth objectives. Mining products will be the second most dominant area o f overal l

product ion in he country, after the manufacture o f extiles.

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17. However, tw o posit ive developments are expected. Th e f i r s t i s that ove ral l demand, generated by

the scope o f act ivi t ies in the extractive and processing industries, c oul d stimulate g row th in th e

area o f agricultural product ion (more than 70 percent o f he popula t ion s t i l l l ives in ru ral areas)

and will guarantee a better distribu tion o f he f r u i t s o f growth. The second i s that the intensity o f

domestic economic activit ies will facilitate the generation o f greater domestic pu blic resources to

make up for the short fa l l in imp ort and customs fees, wh ic h will decline signi f ican tly as a resu l t

o f regio nal trade agreements. Th e other source o f public revenue will come f iom mining

activit ies.

18 . The establ ishment o f a c l imate o f confidence aimed at at t racting investment, part icular ly foreign

investment, and a vast improvement in public finance management, are the two majo r effects o f hese

projections fr om the standpoint o f governance, with a v ie w to better management o f the country ’s

lim ite d resources and building he conf idence o f echnical and f inan cial partners.

PART 111: GOVERNANCE STRATEGY FOR 2008-2012

19. The governance po l ic y will be strengthened in four areas (public f inance, pr ovis ion o f pub lic services

and local governance, combating corruption, and social accountability) and around three themes

(effectiveness, transparency, and particip ation.) Effectiv eness will be measured by the results

achieved and the Governm ent intends to make a results-oriented approach the centerpiece o f MAP

execution. Transparency and parti cipat ion are tw o complementary objectives: partici patio n fosters

transparency a nd transparency encourages partici pation . T o attain these two objectives, the public

will have to be prov ided with in format ion hat i s comp lete an d easy to understand.

20. Public f inance will be the prio r i ty o f he Government ’s governance strategy give n that i t i s the main

impleme ntat ion instrument o f the MAP. Imp rovi ng and strengthening publ ic f inance management

will constitute the central thrust o f the Governm ent’s strategy. Th e objec tive in this area i s to boostrevenue s ignif icant ly in order to meet the f inancial requirements o f the ambit ious MAP objectives

and t o streamline the management o f expenditure in order to achieve greater eff icien cy and have an

impac t on the de l ivery o f services at all levels, par ticula rly at the loc al level, and on pover ty

reduction.

21. Given the choice made by the Governme nt to take advantage o f economic alliances with

Madagascar’s imm edia te neighbors, and in particular trends in intern ationa l trade practices, customs

revenue from international trade wil l t rend steadi ly downward in the years ahead. Madag ascar i s

already preparing for this development and i s shifting toward opt imizat ion o f resources f rom

domestic economic activit ies. As in most underd eveloped countries, the value added tax i s the ma in

potent ia l source o f uture revenue. N o t only i s VAT a s ignif icant source o f evenue, overs ight o f t s

col lect ion will automatical ly lead to more ef fect ive w or k in the area o f the col lect ion o f other taxes

such as corporate incom e tax and personal income tax, the three o f whi ch alone account for mo re than

80 percent o f he domestic taxes collected in Madagascar.

22. To achieve this objective, the Government will continue work that was started three years ago to

strengthen State finance agencies. Th e f i r s t task to be tackled will be improv ing the units o f the

General Directorate o f Customs. Fol low ing addit ional wo rk aime d at s treamlin ing the Directorate o f

70



Taxat ion and M ajo r Enterprises [D i rect ion de la Fis cali t6 des Grandes entreprises], efforts will shift

to strengthening regional enterprise directorates, and wil l focus o n the col lect ion o f taxes fro m

enterprises with a business turnover o f 200 m i l l i o n t o 1b i l l ion . Pr io r i ty will be g iven to six reg iona l

directorates located in the former provinc ial chef - l ieu and Ants irabe. Imp rovi ng the operations of

other regional directorates will depend on the pace at whi ch economic activit ies are carried out in the

regio ns concerned. Othe r than the reorgan iza tion o f management o f the D E ’ Sunits, w o r k will

focus on the modernizat ion o f the computer tools used in enterprise mana gemen t and oversight.

23. Efforts to im prove the serv ices o f the General Directorate o f Customs will also continue, n ot onl y to

facilitate international trade but also fo r purposes o f VAT colle ction once again. In fact, the en try of

merchandise at the borders constitutes the other value added source and the rol e o f the customs

service will n o w be focused on the col lect ion o f VAT and related taxes. Improvements in this area

wil l focus on the computerization o f he customs clearance process in order to ensure that i t proceeds

smo othly and, in particular, to m ake resources secure. W o r k will focus on the deployment o f Gasynet,

w h i c h i s already operational in Toamasina and in Antananarivo, where signif icant amounts o f

customs revenue are inv olve d.

24. Currently, less than one percent o f Madagascar’s GDP i s derived fro m non-tax revenue, compared to

man y deve loping countr ies where this f igure i s as high as 4 percent o f GDP. This will be the second

area o f focus for enhancing revenue derived fr om domestic economic activit ies. The Governm ent

intends to modernize revenue collection in this area, especially in view o f the fact that act iv it ies

associated with execut ion o f wo mining projects and numerou s natural resources will be stepped up.

All the legal texts governing non-tax fees will therefore be rev iew ed and updated in order t o enhance

this wo rk and achieve this objective. Howeve r, the biggest re fo rm push will be ma in ly in the area of

reorganization o f he administration that collects such fees in order to bo ost revenue.

25. E x e cu t io n o f h e MAP does no t on ly require increasing these finan cial resources but also prud ent use

o f th em in order to ensure a real impact on po verty reduct ion and the prov is ion o f serv ices to thepopulation. Streamlining expenditure, the second strategic th rus t o f pub l ic f inance re form, wil l seek a

dual objective, namely, to have a balanced budget over t ime so as not to jeopardize the country’s

macroeconomic situation and to ensure allocation and operational eff iciency in the area o f

expenditure.

26. Ensuring a balanced budget will be achieved through a prudent f iscal pol icy . The Government ’s

w o r k in this area will focus largely o n strengthening and imp rov ing forecasting. Past experience has

in fact shown that mos t o f the time, budget e xecution slippage i s attributable to forecasting

inaccuracies. These inaccuracies perta in no t only to the global amount at the t ime o f budget

preparation, but also to deficiencies in the management tools used during execution. The

Government will accord prio rit y to strengthening the macroeconomic fr ame wor k and, consequently,

the mediu m-te rm budget frame wor k at the glob al leve l and for the most impor tant sectors (education,health, public wo rks and transport, agriculture, and the environm ent). These activitie s will be

supplemented by the development o f cash flo w management, procurement planning, and comm itme nt

tools.

27. The Government i s conf ident that comprehens ive implementa t ion o f he prov is ions o f he ne w budget

framework-the programmatic bu dg et- of fer s the best pat h to guarantee the effective al locat ion o f

budget resources and enhance the operational imp act o f publ ic expenditure. Fo r this reason, effectiv e

71



imp lementa t ion o f this f ramework, which i s projected to be completed within tw o years at the latest,

will be the Government’s prio rity . Implementation-related activit ies will focus on the rev iew o f

budget nomenclature where a great deal o f wo rk has been done, out l in ing the n ew expenditure chain

in accordance with the provisions o f he LOLF, i nc lud ing rev iew o f he ro le o f n terna l overs ight and

o f the inst itut ions exerc is ing this overs ight, ou t l in ing the detai ls fo r app l icat ion o f the LOLF and

poss ib ly rev iewing a number o f t s provis ions that coul d impede the achievement o f esults .

28. M A P execution also cal ls for savings in al l possible areas o f expenditure. With a v iew to

natio naliz ing pub lic expenditure, the Governm ent has undertaken a management ref orm process of

nat ional publ ic ent i t ies. A study i s currently being conducted with the aim o f assessing the

management o f hese enti t ies and an act ion pla n will be drafted by mid-June o f 2008 to address the

situation. This pla n should make provis ions for chan ging the status o f hese establishments, in clud ing

the poss ibi l i t y o f merg ing a number o f them and privat izin g others. Savings are also expected to be

derived from the restructuring o f wo c i v i l service pension funds (CRCM and CPR), the studies of

which were completed in 2007. An ac t ion p lan i s currently being prepared with a v iew to this

restructuring.

29. Improving al locat ion and the operat ional impact on the ground will amount to a mere theoretical

exercise i f he budget prepa ration and execu tion process i s not brou ght c loser to users. Over the next

f iv e years, the Government wil l therefore continue i t s decentralization and deconcentration poli cy in

bo th the administrative and budgetary areas. In the area o f decentralization, the Governm ent wil l

focus o n dent i fy i ng the regions to be assigned the role o f s t imulat ing economic development. Fr om a

budgetary standpoint, this approach will be reflected in the establ ishment o f a t rue re gional budget

ent i ty and building the capacity o f his entity to formulate, prepare, and execute the budget in order to

serve as a catalyst for regi onal development. Th e objective o f his procedure i s t o use the region s as a

conduit for t ransmit t ing the actions o f the central Government with a v ie w to integrat ing product ion

int o the ma rket approach.

30. In pursuing this objective o f s treamlin ing the operat ional impact o f he budget, the Government wil lplace special emphasis on encouraging better integration into the market economy. To this end, i t

will soon implement a new strategy aimed at makin g publ ic investments prof i table. This strategy will

supplement decentralization and deconcentration and will focus on better targeting public investment

in such a wa y as to deve lop region al economies. This will f i rs t entail creating greater loc al demand

by generating revenue thr oug h pub lic investments, with a v iew to s t imula ting supply at the leve l o f

the poorest produce rs once again. In parallel, the infrastructure needed to create a real market in each

region, thereby ensuring the unfettered c irculat ion o f products, will have to be put in place.

31. Strengthening the regional role in this transmission chain will be bolstered by a more far-reaching

deconcentration o f budget execution. In addit ion to the work done over the past two years to

implem ent regional minis ter ia l d irectorates provid ing the services most sought after by the people

(health, education, drinking water, etc.), th e Go ver nm ent started the process o f deconcentrat ion o ff inancial services this year, which will facilitate budget execution by the deconcentrated un i t s

mentioned above. Deconcentration o f he treasury units at the regional lev el wil l be completed in

2008 and the establ ishment o f inancial d is tr icts in each regio n will be started towar d the end o f his

year, with a com plet ion date se t fo r 2009. The Government will also implem ent an a ct ion pla n to

assist communes, part icu lar ly ru ra l second-tier communes, with the execut ion o f their budgets an d

the moni tor ing o f he i r f inanc ia l management.

72



32. Improvement o f the operat ional im pact o f publ ic expenditure will be possible onl y with an eff ic ient

system to oversee the use o f publ ic funds. Cognizant o f he current def ic iencies o f nst i tut ions and

both internal and external oversight tools, the Government will launch, in paral le l with th e

in t roduc tion o f the ne w expendi tu re cha in in the context o f LOLF imp leme ntatio n (see paragraph

above), an action p lan to address this majo r def ic iency. This p lan will focus o n a redistr ibut ion o f

responsibilit ies throughout the chain so as to ease internal oversight on the one hand, but also to

ensure the effectiveness o f this overs ight, on the other. W o rk in this area will focus in particular on

cert i f icat ion o f he serv ice provided.

33. In the area o f external oversight, activit ies will focus m ainl y o n strengthening the Audit Off ice, the

statutory body app ointed to carry out this oversight at the executive level. The details o f this process

will be provided fol low ing an organizat ional audit o f the Audit Off ice , wh ich will set for th the action

p lan to be implemented. The objective i s to permi t the Audit Off ic e to oversee ef fect ively the publ ic

accounting system and to conduct a more probin g rev iew o f mplem ent ing regulations.

34. Ef fect ive publi c expenditure can take place only with appropriate mo nitor in g tools and the pro vis ion

o f more inform at ion to the publ ic at large. The object ive i s to guarantee full transparency in the

management o f pub l ic funds and to acquire the tools that perm it errors to be corrected quickly, w here

necessary. Given this dua l objective, the Government will forge ahead with i t s p o l ic y o f m p r o v in g

i t s pub lic f inance computer tools. Th e SIGFP will f i rst be deployed in the remaining 22 regions

where i t has no t yet been introduced. This deployment i s scheduled to b e completed within tw o years

at the latest, and the pace o f deployment will be determined by the avai labi l i ty o f echnical expertise

in the area o f elecommunications.

35. The m odernizat ion o f he Net wo rk Operation Center and the Database Center will take place as part

o f he same exercise. In paral le l with this hardware-related work, special attention wil l be pa id to

improv ing the system’s software support, with a v iew to enhancing i t s funct ioning and ensuring the

central ization o f data in real t ime.

36. The operat ional impact of public expenditure will no t be f e l t by the people without the guaranteed

provis ion o f services on the ground. In this regard, the Government will use instruments to

complement the too ls m ent ioned earl ier. In order to impro ve serv ice to users, the Government wil l

take action at both the central and regional levels. With the assistance o f technical and financial

partners, i t intends to build the manageria l capacity o f the technical minis tr ies in order to guarantee

the opt im al allo catio n o f resources and to ou tline norm s and service standards sought by the

population. T h i s act ion wil l take place large ly by t ra in ing senior s ta f f in ministr ies through the loca l

t ra in ing netw ork such as the NLIM, ENAM, or IMATEP. Capacity building in technical min is tr ies

wil l take place throug h the provi sion o f specif ic technical assistance.

37. H owever, the m ai n factor required for the pro vis ion o f proper serv ices o n the ground wil l be human

resources who, in effect, carry out the work. In order to mot ivate i t s ci vi l service staff, theGovernment plans to conduct an in-depth rev iew o f t s remuneration system, w hic h i s completely o ut

o f date , given that i t dates bac k to the colon ial era. Deta ils related to this review exercise will be

work ed ou t based on the findings o f a study currently in progress, which wil l be available in one year.

The relevant act ion plan will cover a f ive-year period, starting in mid-2009. In addit ion to

remuneration, the pla n wil l determine the system o f ecruitment, career paths, and performance-based

remuneration and sanctions. Once this pla n has been established, the Go vernment hopes that the c iv il

73



service will be more eff ic ient and will have hum an resources who are better distributed and mor e

highly paid, takin g into account the country’s limited esources.

38. Loca l ins t i tu t ion building, part icular ly of those inst i tut ions capable o f ef fect ively monitor ing the

provis i on o f services on the ground, i s o f c r i t ica l impor tance. Fo r this reason, the Government i s

pay ing special attention to the strengthening o f communes. A special effort will be ma de to increasethe finan cial resources o f these communes. In fact, in addit ion to own resources received by the

communes, the Government wil l establish, in the very near future, a Lo cal D evelopment Fund that

will serve as a conduit for financial resources in order to enable communes to f inance those

development act iv i t ies p rovide d for by the l aw .

39. Capacity building in communes will also focus o n their technical capacity acquired throug h train ing

and establishment o f a permanent support structure t hro ug h the established deconcentrated units or

specif ic entit ies. The regions wil l also receive specif ic assistance to pe rmi t them to h andle greater

responsibi l i ty in a decentral izatioddeconcentration context. T h i s assistance wil l essentially revolve

around both a capacity-building and technical assistance program offered by the decentralized

terr i tor ia l units (DTS), in accordance with the second thrust o f the deconcentration and

decentralization pol icy.

40. Comba t ing corrupt ion i s an addition al too l for streamlining pu bli c resources, and thus for execution

o f he MAP. The Government’s objective in this area i s to continue the activities started since 2002

to m in imize the misappropr ia t ion o f pub l ic funds in the areas o f evenue collection and expenditure

and t o prevent persons in the ci vi l service o r State apparatus fro m using their posit ions to secure ill-

gotten gains. Th e objective over the next f iv e years will be f i r s t to strengthen the legislative and

inst i tut ional f ramew ork to better combat forms o f corrupt ion that are not covered under the current

framework. These entail, in part icular, f inancial cr imes l inked to mon ey laundering. The strategy fo r

combat ing corrupt ion will also inc lude the el iminat ion o f conf l ic ts o f interest, whi ch al lo w senior

of f ic ia ls to derive benef i t f rom their public of f ice t o acquire i l l -go tten gains or to bend the rules of

competit ion.

41. The projected activit ies o f the Government t o achieve these objectives wil l entai l the provis i on of

technical and mater ial assistance to institutions to combat corruption, such as the CS I or B IA N C O .

This assistance will take the form o f se tt ing up B I A N C O o f fi ce s a t the reg iona l leve l and f ina l iz ing

imp lemen tat ion o f an A CE unit, a new unit entrusted with the mission o f combating f inancial cr imes.

The strategy also provides for assistance from non-State enti t ies to supplement the Government’s

act iv i t ies in combat ing corrupt ion by play ing the rol e o f independent watchdog in this area. In

addition, a special ef fort should be made to strengthen the watchdog role o f c iv i l soc iety, through

activ it ies to strengthen information-sharing entit ies and c iv il society capacity.

42. The funct ioning o f the just ice system should also contribute to the successful imple men tation o f the

MAP, by creating a climate o f confidence that i s attractive to both national and foreign investors.This objective will be pursued through the establishment o f egislation in keeping with the need for

rap id development, in order to im prove the legal business climate. The relevant le gal texts will be

amended to bring them in l i n e with international instruments and globalization and development

requirements.

43. The Government will also continue to enhance the ef f iciency o f the justice system by prov id ing i t

with a more substantial budget in order to strengthen the func t ion ing o f t s inspection and oversight

74



44.

45,

services, among others. This eff ic iency wil l also be achieved by streamlining access by the

populat ion to the just ice system and bringing the justic e system closer to cit izens. This will be done

by creating ne w courts, instituting an accessible justice system that includes cit izens and c iv il society,

and by developing legal clinics. Expediting the computerization process will continue as a

supplement to these activitie s.

In order to maintain the momentum in the populat ion regarding MAP implementation, the justice

system must also increase confidence placed in i t by enhancing the integrity o f t s staf f in order to

guarantee their equity and imp artia lity. T o this end, a n ini t ia l package o f measures will focus on

streamlining procedures, rev iew ing the system o f p r i v il eges and immunities fo r e lected of f ic ia ls and

persons within the just ice system, an d preparing a draf t l aw o n the High Cour t o f Just ice. The

Government wil l also ensure achieveme nt o f this objective by strengthening and applying service

standards, organizing assistance for the people at the juris dictio nal level, an d the gradual extending to

al l ur isdic t ions the actions current ly being carr ied out in pi lo t ur isdict ions.

Lastly, the Government will make a special effort to develop independent watchdog and oversight

institutions within c iv i l soc ie ty to he lp i t monitor, evaluate, and track the actions o f he administration

and their impact on the ground. Against this backdrop, i t intends to enhance synergy between

government and civil society reforms, with a v iew to better ensuring c it izen part ic ipat ion in the

assessment o f publ ic act ivi t ies and the improvement o f pu bl ic services. Plans are also in p lace to p i lo t

and refine those interventions that have been successful and revolve around reducing inequalit ies,

whi le ensuring that c i v i l soc iety i s capable o f articulating i t s prior it ies and seeking accountability.

46. The act ivi t ies to be conducted in the context o f these objectives wil l focus, first and foremost, on

creating an environment cond ucive to c iv il society participa tion and social accountability init iatives,

in part icular the improveme nt o f oca l governance and opt imizat ion o f the posit ive social impact.

This will then be fo l lowed by Government support for capacity-building init iatives so that famil ia r i ty

with NGOs and civil society organizations can be gained, along with the concept o f social

accountability, in order to ensure that cit izens and civil society organizations have the necessarycapacity for po sit ive civ ic engagement.

47. To this end, local NGOs and other civil society organizations will receive support f rom the

Gove rnme nt to obta in the necessary techni cal assistance. Special attention wil l be p a id to vu lnerab le

groups who have less o f a voice in society (women, young people, the poor, and the disabled).

Tra in ing in this area will also be provi ded to the administrative authorities so that they can wo rk mo re

effect ively with ci v i l society by building communications slul ls and fac i l i tat ing group decis ions.

48. The MAP i s no t a static document; i t wi l l be modi f ie d as the situation evolves. In this context, the

ava i lab i li t y o f e l iab le in format ion i s essential. The Government, cognizant o f he obsolete nature o f

demographic information, started a general popula tion and housing survey tw o years ago. I t ntends

to do a comprehensive survey i f funding i s t ied in with assistance from technical and financialpartners. Failing this, a part ia l survey will be done depending o n available funds. Survey wor k in the

strict sense o f he term will beg in this year. Th e most recent survey dates bac k to 1993 and the data

f r o m this survey can no longer be used to make rel iable projections.

49. Furthermore, a specif ic t oo l will also be developed for measuring trends related to MAP

implementation, in order to permit the Government to take timely corrective action when necessary

and to update planned objectives and actions. This system, cal led the Comprehensive Nat ional

75



Moni to r ing and Eva luat ion System [Systhze National d ’Int6grd de Suivi et d ’Evaluation SNISE], i s

aimed at introducing MAP mechanisms and a monitoring and evaluation process at the central and

regional levels. The preparat ion o f he SNISE i s unde rwa y and includes three phases: the f i rs t will

consist of assessing the current situation fro m the standpoint o f he inf orm atio n system to be used for

indicators, as w e ll as the insti tution al and organizational framework; the second will cons is t o f he

actual system design; and the third will entai l the dra f t ing o f he ac t ion p lan for i t s implementation.

This system i s expected to be fully operat ional before the end o f he year.

50. Final ly , i t should be no ted that the Government has taken the necessary steps to make Madagascar

elig ible for the Extra ctive Industries Transparency In it ia tive (EITI). The Government’s commitment

to participate in this initiative guarantees i t s complete commitment to total transparency in the

management o f he country’s resources and to go od governance in every respect.

51. The actions envisioned in the context o f this strategy wil l be implemented with assistance from

technical and financia l partners, w hic h the Governme nt will specif ical ly request during the meet ing

scheduled to take p lace in Antananarivo ne xt June.

Fo r t he M in is te r o f Finance and Budget

/ s i[Ministry Stamp]

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Annex 6: Implementation Arrangements


113 . Leadership and coordination. To strengthen coordinat ion o f governance relatedactivit ies the Government created in November 2005 the Reform Program for the Efficiency of

the Administrat ion (Programme de RCfonnes pour 1’EfficacitC de 1’ Adm inistration , PR EA )

w h i c h i s the key instrument to moni tor and implement the Government’s Good Governance

Program. The P R E A i s headed by a Na tio na l Coo rdinato r (Coordonnateur GCnkral - CG) who

reports to the Secretary General for the MAP (Skcretaire Gknkral A la Plani f icat ion de l a

PrCsidence) in the President’s Office . Po lit ic al guidance and oversight i s prov ided by theOversight Committee (Consei l d’orientat ion et de Suivi - COS) consist ing o f al l Permanent

Secretaries o f he Government and o f representatives f ro m c iv i l society, fr om the private sector,

f rom the regions and communes, and from the donor community. The Oversight Committee

which i s led by th e Secretary General fo r the MAP meets once a year and approves the annual

work p lan for the project. Key p ol ic y decisions are submitted by th e Oversight Comm ittee to the

C ounc il o f Minis ters .

114.

Finance, the Natio na l Statistics O ffice and the O f fi c e o f he President:

Implementing entities. The implementing agencies for the projects are the M i n i st r y o f

(a) The Reform Coordination Unit in the Ministry of Finance wil l be responsible

for the day-to-day supervision o f th e implementat ion o f annual wor k program for

component 1 o f the project ( improvement o f pub l ic expenditure management). The

unit consists o f a small team o f echnical specialists and i s headed by a Coordinator

who reports to the Secretary General o f the Ministry. The Ministry o f F inance

intends to establish a ‘basket fund’ for pu bl ic f inance reforms whic h i s linked to th e

overal l annual reform act ion plan (PAP) o f the Ministry o f F inance. I t i s envisaged

that - over time - the major i ty o f the support by the development partners to theMinistry o f F inance wil l be channeled through the basket fund. The Bank wil l

support th e establishment o f the fund an d th e ident i f icat ion o f adequate f inanc ial

management and procurement arrangements thr ough the P G D I 11.

(b) The National Statistics Office (INSTAT) wil l be responsible fo r the day-to-day

supervision o f the implementat ion o f the annual work program for component 5 o f

the project. INSTAT i s in the process o f establ ishing a coordinat ion unit to ensure

adequate preparat ion and implem entat ion o f the census. This unit wil l be supported

by a technical advisor wh o wil l be prov ided by UNFPA.

(c) The National Coordinator PREA in the Office of the President i s responsible for

th e overal l moni tor ing and coordinat ion o f the reforms f inanced under the project,

including component 1, 4 and 5. The Coordinator wil l also be in charge o f the

implementat ion o f th e rema ining components o f th e project ( inc luding in i t ia l ly the

Social Accou ntabi l i ty Grants). The Nationa l Coordinator i s supported by the Project

Bureau (Bureau de Gestion, BdG) w h i c h will ensure overal l coordinat ion o f project

activities and the day-to-day management o f the project. The BdG has implemented

the f i r s t P G D I in a satisfactory manner; i t has met al l re levant disbursement,

77



procurement and f idu ciary obligations. Th e BdG has a number o f echnical s taf f in

th e areas o f moni tor ing & evaluation, procurement, f inancial management and

communication. This unit i s responsible for: (a) consol idat ion o f annual wo rk

programs and budget, (b) procurement, in clud ing al l contract ing o f works, goods and

services; (b) project monitoring, report ing and evaluation; (c) the contractual

relationship with IDA, and (d) f inancial reco rd keeping, in part icular the designated

Account and disbursements. The BdG operates on the basis o f an annual work plan

which i s val idated by the above mentioned Oversight Committee. A Standing

Comm ittee (Comite Restreint - CR ) i s available to advise the BdGon mplementat ion

issues. This Comm ittee consists o f the Cabinet Secretary, and the PermanentSecretaries o f he M i n i s t r i es o f Finance and Budget, Planning, C i v i l Service, Justice,

Decentralization, Territorial Administration, and Communicat ion. I t i s led by the

Secretary General for the M A P in he President’s O ffi ce and meets at least once every

three months.

115. The transfer o f the f ina ncia l management and procurement aspects o f he components 1

and 5 t o R C U and I N S T A T i s envisaged until December 31, 2009; i t wi l l be subject to an IDAassessment o f the f inan cial management and procurement capacity o f the relevant inst i tut ion.

Until ha t time, f ina ncia l management and procurement a ctivit ies wi ll be handled by PREA/BdG.

116. The implementation arrangements might be reviewed and changed once th e planned

basket funding mechanism for the Ministry o f F inance i s fully operat ional to ensure effect ive

implementat ion o f activit ies under component 1 in l i n e with the support by other development

partners.

117. During the f i r s t year o f the implementation o f the project a non-state actor wil l beidentified as implem enting agency for the Social Accoun tabi l i ty Grants under component 4 of

the project. These Socia l Acc oun tability Grants wi l l pilo t, develop and scale up approaches that

are focused on support ing civi l society to monitor and provide oversight, in part icular in keyareas such as natural resource management, local service delivery, and publ ic f inanc ial

management. The financia l management and procurement activit ies for the Socia l

Accountabi l i ty Grants will be ensured by the Bureau de Gestion o f PREA. Financial

management and procurement authorit ies might be transferred to the Grant Administrator later

on, provide d he has adequate capa city.

118. At the l eve l o f he sector m inistries and institutio ns that receive support fkom the project

the implementat ion o f he reforms i s ensured by dedicated implem entatio n teams. A key ro le o f

the BdG s to support these imple men tation teams and to facil itate their work. The teams operate

on the basis o f he annual wo rk plan. They report to the BdG o n a regular basis.

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Annex 7: Financial Management and Disbursement Arrangements

M AD AG A SC AR : Governance and Inst i tut ional Development Project I1

Introduction

119. In accordance with Bank po l i c y and procedures, the financial management arrangements

o f PR EA (Programme de Rkformes pour 1’Efficacite de l ’Administrat ion), o f the R C U and o f

INSTAT have been reviewe d to determine whether they are acceptable to the Bank. This rev iew

i s an update since the fin anc ial management systems o f PREA (Le. the Of f i c e o f the current

PGDI) have already been assessed in the context o f the ongoing PGDI project (addit ional

financing). The ma in conclus ions o f he rev iew are summarized in section N - D o f the Project

Appraisal Docume nt.

120. With regard to the R CU, th e Reform Coordination Unit within the Ministry o f Finance,

which i s in charge o f the implementat ion o f th e f i r s t component ( Improvement o f publ ic

expenditure management) and with regard to INSTAT (the Natio nal Stat istics Off ice) w hic h wil lsupervise the implementat ion o f component 5 o f this project, no f inancial management

assessments have been ca rrie d out at this stage since i t was agreed that bo th inst i tut ions ini t ia l ly

wil l no t manage funds. The transfer o f he f inancial management aspects o f the components 1

and 5 to R C U and I N S T A T s envisaged until December 31, 2009; i t wil l be subject to an IDA

assessment o f he f inancial management capacity o f he relevant institutions.

121. The administ ration o f the Social Accountabi l i ty Grants under component 4 wil l be

ensured by an independent Grant Administrator (NGO or other) acceptable to IDA and to be

selected through a com peti t ive process. N o w ithdrawa l shal l be made for th e Social

Accountabi l i ty Grant unless the Grant Administrator has been recruited. The T O RS o f this

Adminis t rator are subject to IDA approval to ensure the adequacy o f the required prof i le,

drawin g special attent ion to the capacity o f the Administrator to manage funds o f this nature.

The f inancial management capacity o f he Grant Administrator will be rev iewed in the context o f

the selection process. Socia l Accou nta bility Grant should be made in accordance with the criteria

and on terms and condit ions set for th or referred to in the P I M and the prov isions o f Section 1.D

o f Schedule 2 o f he f inanc ing Agreement.

Summary Project Description

122. The object ive o f this project aims at improving the efficiency and transparency of

government and public services in Madagascar in l i n e with the Madagascar Ac t io n Plan (MAP).The proposed PGDI I1 ncludes the fol lo win g components: i)mprovement o f pub l ic expenditure

management; ii) trengthening the ef fi c iency o f Government operations; iii)u le o f a w an d fightagainst corruption; iv) transparency and social accountability, v) mo nitor ing and evaluat ion; and

vi) progra m coordinat ion. This pro ject o f an amoun t o f U S$40 m i l l i on (IDA) i s expected to be

completed over a per iod o f our years.

79



Country issues

123. The W or l d Bank ’s CF AN CP AR , completed in 2003, and some diagnostic works carried

out over the last three years by the Bank and other donors, id en tif ie d a range o f weaknesses and

issues ham perin g the performance o f Madagascar’s budget and expenditure management system.

To address these issues, the government has developed in 2004, 2005, 2006 and 2007 in

conjunct ion with a l l key development partners, a prio ri ty act ion pla n for p ubl ic f inance reform .

124. W h i l e overal l implemen tat ion progress o f he re form program i s encouraging, significant

ef forts rem ain to be done, including the fo l lowings: i)mprovement o f budget execution rate in

priority sectors; ii) einforcement o f the capacity o f th e l i n e ministries in publ ic f inanc ial

management, especially in the implementat ion o f the new program budget structure; iii)

strengthening o f cash management; iv) produc tion o f the treasury accounts within the legal

timeframe; v) lack o f adequate number o f skilled and experienced auditors at the “Chambre descomptes” commensurate with the complex i ty and increased number o f miss ions to be

undertaken. T o m it igate r i sks in public expenditure management, the World Bank, through th e

Governance and Inst i tut ional Development Program (PGDI), and a number o f donors continue tosupport Government’s pu blic finance reform s reflected in t s annual prior i ty act ion plan.

125. Reg ardin g the accounting profession, some pos itive developments have been noted over

the last three years. How ever, a number o f ocal account ing f i r m s continue to operate be lo w the

interna tional standards. To improv e the capacity and the competi tiveness o f oca l audit ing f i r m s ,

the fo l low ing measures have been taken wh ile aud it ing Bank/IDA f inanced p rojects: i) bl igat ion

for local auditors to enter into partnership with international accounting f i r m s ; ii) ffective

par t ic ipation o f the international accounting firm in audit f ieldwork s and submission o f audit

reports joint ly signed by th e local and internat ional audit f i rms. An accounting and auditing

R OSC i s presently underway to identify c learly bo th issues and actions to be taken to strengthen

the capacity o f he accounting profession in Madagascar.

126. The use o f c ou n tr y systems s t i l l remains risky for Madagascar due to some fiduciary

weaknesses that require muc h more time fo r their solving. To address this issue, and after

exchanges o f views with the borrower i t was agreed to (i)ntrust the FM aspects o f this project

to PREA/BdG wh ich has extensive experience fr om previous IDA project (ii)se part ia l ly the

country system and (iii)stablish transition al f ina ncia l management system arrangements while

th e sectorhat ional f iduc iary systems are be ing strengthened.

Strengths, Weaknesses and Action Plan

127. The P R E NB d G f inanc ia l management i s strengthened by the foll ow in g salient features:

0 existence o f qual i f ied and skilled accounting staff very knowledgeable with Bank

procedures;

adequate interna l contr ol system in clu din g suitable a uthor ization procedures, appropriate

segregation o f duties and responsibil it ies, reliable budgeting system, and adequate

measures fo r safeguarding assets;

80



use o f an accounting system in compliance with generally accou nting standards and IDArequirements, and prov idin g rel iable and timely information;

appropriate documentation o f he policies and procedures app lied by the project, covering

management o f f inances, accounting, procuremen t and finan cial reportin g;

use o f an integrated computerized system faci l i tat ing the management o f project

operations and capable o f producing in a timely manner al l re levant informat ion requi red

for managing and mo nito rin g pro ject activities, and appraising projec t’s over all progress

towards the achievement o f t s objectives.

128. The main def ic iencies noted in PREABdG f inancial management systems are

summarized in the fo llo wi ng table w hi ch also provide s relevant measures to address them:

Significant weaknesses

1- C hart o f accounts no t

updated yet to ref lect

componen ts/activi t ies to be

f inanced under PG DI 2.

Absence o f acceptable

arrangement in audit ing.

Action

Reviewlupdate o f the exist ing Chart o f

accounts, accounting manu al o f procedures

to reflect compone ntslactivi t ies and satisfy

report ing requirements.

Recru itment o f an audi t ing firm acceptable

to IDA to carry out the annual audi t o f

project accounts.

Datedue by

Pr io r to

credit

effectiveness

date

Pr io r to

credi t

effectiveness

date

Responsible

RAF (PGDI)

The Oversight

Commit tee in

col laborat ion

with the Project

Coordinator

Institutional and Implementation arrangements (see paragraphs34 - 38)

Budgeting

129. Budgeting arrangements fo r P R E A B d G are clearly documented. Each executing agency

wil l prepare i t s o w n budget an d submit i t t o P R E N B d G fo r discussioddecision-making and

consolidation, with a defined calendar. The accounting software actually in place within

PREABdG can adequately cater for the budgeting arrangements o f he project.

Accounting

130. The PREA/BdG accounting system i s appropriate and follows generally accepted

accounting standards. I t uses standard book accounts (journals, ledgers and trial balances) to

enter and summa rize transactions and operates o n a doub le entry accrual principles . The book s o f

accounts will be maintained on a computerized system. To ensure proper moni tor ing o f

81



budgetary execution, PR EA/ BdG wil l provide the Budget Di rectorate o f he Ministry o f Finance

with mon thly statement o f commitment and payment drawn under the project credit l ines.

PREABdG wil l be in charge o f t ime ly p roduct ion o f the project quarterly FMRs and annual

finan cial statements.

131. To ensure better understanding and proper appl ication o f policies and procedures by theproject staff, the current accounting manual o f procedures used by PGDI wil l be updated to

reflect the new chart o f accounts as well as the mod el o f IFRs to be produced. This procedures

manual describes inter alia the out li ne o f he project accounting system, the accounting policies

to be fol lowed, the formats o f books and records, the Chart o f accounts, the financial reporting,

and relevant information to faci l i tate record keeping and maintenance o f proper contro l over

assets. The update o f his manual o f procedures should be comp leted prior to effectiveness date.

To ensure timely product ion o f f inancia l in forma t ion requi red for managing and mon i tor ing

project activi t ies, PGDI will use th e computerized system acquired within th e context o f P G D II.

Internal Control

132. The PREA’s accounting staff i s qual i f ied and has relevant experience to be completely

successhl in carry ing out his functions. To ensure efficient use o f credit funds fo r the purposes

intended and consistent application o f procedures on procurement, fina ncia l management and

disbursement, the IGF/IGEwil l play the ro le o f n ternal audi tors. They wil l report directly to theO f f ice o f the President and the Minister o f F inance . All issues identi f ied during internal audit

should be addressed qu ick ly to impro ve the projec t performance.

133. As indicated earlier, PREA/BdG has an adequate accounting procedures manual

describing clearly the l i nes o f responsibil it ies and authori ty that exist as well as control

procedures t o be appl ied to ensure adequate inte rnal controls. How ever this manu al needs to be

updated to include the new Chart o f accounts and models o f FRs.

82



Funds Flow and Disbursement arrangements

Grant Administrator:

(Bank account)

134. The flo w o f funds f rom IDA s presented as follo ws:

World BanMDAI (Credit)cREA/BdG

(Designated account)

Disbursement mechanisms

135. While disbursingproceeds fr om credi t accounts, IDA may: i)eimburse th e borrower forexpenditures paid from the borrower’s resources; ii) dvance credit proceeds into a Designateaccount opened in a commercial bank acceptable to IDA. The accounting manual o f procedures

describes in details th e application steps and requirements for requesting a reimbursement, a

direct payme nt for third party, and applying for a special commitme nt.

Disbursement from IDA credit

136.commercial banks under conditions satisfactory to IDA:

F or the implementation o f P GD I 11, the fo l lowing bank accounts wil l be opened in local

A Designated Account to be managed by PREABdG. Disbursements from the IDA

credit will be deposited on this account to: i) inance goods he rv i c es eligible under th e

credit as indicated in th e Financing Agreement and; ii) eplenish the bank account

managed by the Grant Administrator to finance activities under sub component “Social

Accountabil i ty Grants” (part o f Component 4). T he Designated Accou nt w ou ld bereplenished on the basis o f quar ter ly IFRs (Interim Financial Reports) provided to IDA

by PREABdG, justifying the payments o f expenditures that are eligible fo r financing

under the credit (see below Method o f disbursement).All supporting documents wil l be

retained by P R E A B d G and made available for review by periodic Bank supervisionmissions and intemal/extemal auditors.

83



A Grant bank account t o be managed by the Grant Administrator . Denominated inlocal currency, disbursements from th e designated account wil l be deposited on this

account opened in a local com mercia l bank to ensure prompt paym ent o f activi ties

el igible under the sub component “Social Acc ounta bi l i ty Grants”.

Method o f Disbursement

Disbursement from the Designated Account

137. The Project wil l use report-based disbursement arrangements.Under this disbursement

method, a forecast o f program expenditures wil l be agreed between PREA /BdG/M oF and IDA,

cover ing a per iod o f six months. Thereafter, the borrow er m ay request an advance for an amount

not exceeding this cash forecast. S upp orting documentation f or this disbursement (quarterly IFR)

wil l be submitted to IDA an d reviewedby i ts staf f to conf i rm eligible expenditures during the

per iod covered by the IFRs. The cash request at the reportin g date wil l be the amount required

fo r the forecast perio d as sh ow n in he approved IFRs less the balance in he Designated Accou nt

at the end o f he quarter. Subsequent disbursements wil l therefore be made in respect o f his cashrequest. De taile d disbursement procedures wil l be described in the project accounting m anua l of

procedures.

Disbursement from gra nt bank account

138. The amount to be advanced in this account wil l be determined o n the basis o f an annual

work p rogram and funding requirement for a period not exceeding six months. Subsequent

payments wil l be based o n submission o f acceptable documentation for previous releases. The

Grant A dministrator wil l submit quarterly the fo l low ing documents: i) bank account Act iv i ty

Statement, a summ ary o f expenditures in respect o f contracts subject to prio r review, a summary

o f he use o f hnds by activity/category. All documents supporting expenditures wil l be retained

by the Grant Adm inistrato r and made avai lable for rev iew by the PGDI staff, Bank supervisionmissions and the independent auditors as necessary. De ta iled disbursement procedu res as well as

the access criteria for the S ocial Accoun tabi l i ty Grants wil l be described in details in the project

implementat ion m anual (PIM).

Withdrawal conditions

139. With regard o disbursement condit ions, no withdra wal shal l be made:

(a) for payments made prior to th e date o f the Finan cing Agreement; except that

withdrawals up to an aggregate amount not to exceed US $ l .O m i l l i on may be made

for payments made prior to this date but on or after January 1, 2008, for e l ig ib le

expenditures under category 1 and 3 o f Section IV A o f Schedu le 2 o f he Financing

Agreement;

(b) f rom the Socia l Accountabi l ity Grant under component 4 o f he pro ject un less (i)

th e Social Accountabi l i ty Grant Administrator has been recrui ted and (ii)he Social

Acc ounta bi l i ty Grant has been made in accordance with the cr i ter ia and o n terms and

84



condit ions se t fo r th or refer red to in the P I M and the prov is ions o f Sect ion 1.C o f

Schedule 2 to th e Financ ing Agreement.

Financial reporting

140.

compliance with interna tional accounting standards:To moni tor project implementat ion, PRENBdG wil l produce the fo l low ing reports in

(a) The project financial statements:i) ummary o f Sources and Uses o f Funds (by

component/activities/credit category and showing a l l sources o f funds); ii) heAccount ing Pol ic ies Adopted and Explanatory Notes; iii) Managem ent Assertion;

(b) IFRs: The IFRs to be prepared by PREA/BdG, o n a quarterly basis, will inc lude

financial reports, physical progress reports and procurement reports for all

components. The project IFRs should be submitted to IDA within 45 days o f he end

o f he report ing per iod.

141. The for m and content o f IFRs and annual fin anc ial statements have been determined as

part o f proje ct appraisal and agreed at negotiations. Mod els o f hese reports wil l b e presented inthe project accounting manuals o f procedures.

Information Systems

142. To ensure timely product ion o f financ ial inform at ion requi red for managing and

mo nitorin g project act iv i ties, PREA/BdGwill us e the computerized system acquired within th e

context o f the ongoing governance project, which in part icular faci li tates annual progra mm ing o f

activities and project resources, record-keeping (general accounting and cost accounting),

f inancial and budgetary management and preparation o f project f inancial statements includin g

quarterly IFRs.

Auditing

143. The proje ct f ina ncia l statements related to th e f i r s t three years o f project implementat ion

wil l be audited by an interna tional private accounting firm acceptable to IDA, in accordance with

Internat ional Standards o f Auditing. The auditors wil l be required to: i) xpress an opinion o n he

project f inancial statements; ii) carry out a comprehensive r eview o f the internal control

procedures and provide a management report out l ining any recommendations for their

improveme nt. The audit report as well as the management let ter and management responses wil l

be submitted to IDA no t later than six months after the end o f each f iscal year. The auditors

should be recruited prior to credit effectiveness, in conformi ty with the Bank procedures. The

terms o f reference o f the audit will be reviewed by the f ina ncia l management specialist o f theBank/IDA to ensure the adequacy o f he audit scope, draw ing special attentio n to par ticular r i s k

areas identified during project preparat ion. The P roject could use the service o f the Audi tor

General for the audit o f th e c los ing per iod i f i ts capacity i s deemed adequate fol lowing IDAassessment.

85



Audit Report

1- Project f inancial statements

Supervision Plan

Due Date

Within six months after the end o f each

financial year.

144. A supervision mission wil l be conducted at least once every year based on th e risk

assessment o f the project. The mission’s objectives wil l inc lude that o f ensuring that strong

finan cial management systems are maintaine d for th e project throughout i t s l i fe . A review wi l l becarried out reg ular ly to ensure that expenditures incu rred by the project remain eligible fo r IDA

funding. The Implem entat ion Status Report (ISR) wi l l include a f inan cial management rat in g for

the component.

Expenditure Category

Goods, Works, Consultants’

Services and Training

Social Accounta bi l i ty Grants

Operat ing Costs incl. c i v i l

Allocation o f Credit Proceeds

Allocation o f IDA Credit Proceeds

U S $ million Financing

Percentage

33.63 100%

1.65 100%2.72 85%

145.

percentages:

Table 2 provides an overview about th e disbursement categories and the f inanc ing

servant salariesUnallocated

Table 2: Allocation o f IDA Credit Proceeds

(US$ million equivalent)

2.00

146. The proposed 100 percent f inancing o f selected credit proceeds i s in l i ne with ID A

pol ic ies under wh ich Madagascar qual i f ies for such an adjustment (see the Country Financing

Parameters, M a y 16, 2005, and updated in attachment 7 o f he 2007 CAS). Any taxes and duties

that would be incurre d as part o f he project are judged to be reasonable. The project f inancing

parameters, which are specified in the table above, would respond to dif f icult ies across the

Madagascar portfol io in mobil iz ing suff ic ient counterpart funding in a timely manner w h i c h

regularly causes project implementation delays. As the project i s f inancing activit ies that are

considered cri t ical fo r the implementat ion o f the overal l government program (e.g. the publ i c

finance and the leadership activities) the proposed f inan cing parameters wo ul d faci l i tate bo th a

rapid and smooth implementation o f intended activities. I t would also reduce th e transaction

costs for the government team and al ign th e project with the other projects in the Madagascar

port fo l io which benef i t f rom 100 percent financing. As a signal o f i t s commitment the

government proposes to maintain a counterpart funding element fo r the operat ing costs o f the

project.

86



Financial Management Risk Assessment and Mitigation

147.

provides the measures to be taken to mit igate these risks:

The fo l low ing table identi f ies the key r i s ks that the project management may face, and

87



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Annex 8: Procurement Arrangements

MADAGASCAR: Governance and Institutional Development Project I 1

A. General

148. Procurement fo r the proposed project wou ld be carried out in accordance with the W o r l d

Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004, revised

in October 2006; and "Guidelines: Selection and Employment o f Consultants by W o r l d B a n k

Borrowers" dated M a y 2004, revised in October 2006, and the provis ions stipulated in the Lega l

Agreement. The various items under different expenditure categories are described in general

below . Fo r each contract to be f inanced by the Loadcred i t , the different procurement methods

or consultant selection methods, th e need for pre-qualif ication, estimated costs, prior review

requirements,and time f rame are agreed between the Bo rrow er and th e Bank in he Procurement

Plan. The Procurement Pla n wil l be updated at least annua lly or as required to ref lect the actual

project implem entat ion needs and improvements in nstitu tion al capacity.

149. Procurement of Works: Works procured under this project wo uld inc lude rehabi li tat iono f o ff ic es and other rehabilitation activit ies under the public finance, the capacity building an d

the moni tor ing & evalua tion components. The procurement wil l be done using Ban k Standard

Bidding Documents (SBD) f o r a l l I C B and N C B an dor agreed Nat iona l SBD as outlined in the

Program Procurement Ma nu al and wh ich are consistent with IDA guidelines.

150. Procure me nt of Goods: Goods procured under this pro jec t w ould inc lude in format ion

technology systems and related goods, vehicles, furniture and office equipment. The

procurement wil l be done using the Bank's SBD fo r a l l I C B and Nat iona l SB D agreed with or

satisfactory to the Bank. Goods o f similar nature, to the extent possible, shou ld be grouped in

m uc h larger packages to enable wider competit ion. All Procurement f or goods and services will

fo l low IDA Procurement Guidelines. Dire ct contract ing (DC) m ay be employed with pr ior

approval o f the Bank for purchase o f speci fic I T equipment and will be in accordance with

paragraphs 3.6 o f he Procurement Guidelines.

15 1. Procurement ofnon-consulting services: Procurement o f non -cons ulting services wil l be

procured using acceptable SBD consistent with IDA guidelines. And wil l include various

services rela ted to th e deployment o f nforma t ion technology systems

152. Selection of Consultants: Consultancy services required for the project would cover

consultancies to: (i) upport the impleme ntat ion o f pub l ic f inance reforms, (ii) upport the

ongoing implementat ion o f he procurement reform; (iii)upport the in i t iat ion o f evenue agency

reform; (iv) continue to support the leadership development and capacity building programs; (v)

strengthen local training inst i tut ions including the Natio nal Leadership Inst i tute o f Madagascar;

(vi) support the implementat ion o f ega l and jud icia l reforms as we l l as the strengthening o f he

Rule o f L a w; (vii) support the implementat ion act iv i ties fo r k ey statistical surveys; (viii) design,

draft bidding documents and supervision o f c iv i l works under the project; ( ix ) prov idecomplementary qua lity assurance to th e various refo rm activities, and (x) establish a mo nito rin g

and evaluation system for the project and for the Madagascar Act ion Plan. All consult ing

services contracts costing more than US$lOO,OOO equivalent for f i r m s wil l be awarded throug h

Qu ality and Cost Based Selection (QCBS) method. Contract fo r specialized assignments to cost

91



less than US$lOO,OOO equivalent may be contracted through Consultant’s Qualifications (CQ)method. Least Cost selection may be employed for select ing consultants for assignments o f a

standard or rou tine n ature (audits, engineeringdesign o f noncomp lex works, and so forth) where

well-established practices and standards exist. Single Source Selection (SSS) m a y be employed

with pr ior approval o f the bank and wi l l be in accordance with paragraphs 3.9 to 3.12 o f

consultant Guidelines. All services o f individual consultants wil l be procured under individual

contracts in accordance with the provisions o f paragraphs 5.1 to 5.4 o f Consultant Guidelines.

Short l i s t s o f consultants fo r services estimated to cost less than $100,000 equivalent per contract

may be composed entirely o f natio nal consultants in accordance with the provisions o f paragraph2.7 o f he Consultant Guidelines.

Shopping

Direct Contracting

153. Operating Costs: The operating costs for this project include the increm enta l expensesincurred by BdG, RCU, INSTAT, GDLN, the Economic Crimes Unit, the Anti-Corrupt ion

Bureau and the Grant Administrator on account o f project implementation, management and

mon itoring , inc lud ing offi ce supplies, vehicles operatio n and maintenance, com mun icatio n costs,rental expenses, utilities expenses, consumables, transport, t ravel and accommodation, per diem,

supervision costs and salaries o f oc all y contracted staff, inc luding - until December3

1, 2009 -salaries o f he c i v i l servants o f he Recipient.

None

Al l

154. The procurement procedures and SBDs to be used for each procurement method, as well

as mo del contracts for w orks and goods procured, are presented in the Project Implem enta tionManual.

Table 2: Thresholds for Procurement Methods and Prior Review

Expenditure Category

1. WorksrI 2. Goods

2. Services

Firms

Individual Cons.

Contract Value

Threshold

(US$)

>500,000

<500,000<50.000

>200,00050,000-200,000

<50,000

>100,000

~100,000

>50,000

<50,000

Contracts Subject to Prior Review

(US$)Procurement Method

Al l Above US$200,000None

NCB None

QCBS

QCBS and CQ

LCS

IC

IC

sss

All Above US$ lOO,OOO

First contract

Al l Above US$lOO,OOO

Al l

None

Al l

92



B. Assessment of the agency’s capacity to implement procurement

155. Procurement activit ies will be carried out by PREAPGDI. The agency i s staffed by

Proje ct Coordinator, Accountant, M&E specialists and supp ort staff; the procurement fun ct ion i s

staffed by two full time procurement officers and one full t ime procurement assistant. The

procurement officers are fully dedicated to th e management o f procurement act iv i ties funded bythe credit and possess a vast experience in handl ing Bank f inanced as well as Donor funded

projects. Overall, th e capacity o f the P R E A P G D I and th e qual it y o f he procurement staff i s

deemed suff ic ient to continue to im plem ent the new project.

156. Since the implem enting Agen cy re main unchanged, an assessment o f he capacity o f the

Implem enting Agency to imp lement procurement act ions for the projec t has no t been carried out.

The organizational structure for implementing the project and the interact ion be tween th e

project’s sta ff responsible for procurement Of fice r and the Ministry’s relevant central unit fo r

adm inistration and finance were foun d adequate for objectives o f he project.

157.

been ident i f ie d and found m ino r and do no t need corrective measures.

The key issues and r i sks concerning procurement for implementat ion o f he project have

158. The overal l project risk for procurement is Moderate.

C. Procurement Plan

159. The Borrowe r, at appraisal, developed a procurement plan for project implementat ion

whic h provides the basis for the procurement methods. This p la n has been agreed between theBorrower and the Project Team o n Ma rc h 18, 2008 and i s avai lable at PRENPGDI. I t wil l also

be available in ’th e project’s database and in the Bank’s external website. Th e Procurement P lan

wil l be updated in agreement with the Project Team annual ly or as required to ref lect the actual

project implementat ion needs and improvem ents in nstitu tiona l capacity.

D. Frequency o f Procurement Supervision

160. In addi t ion to the pr ior review supervision to be carried out from Bank off ices, the

capacity assessment o f the Im plem enting Agen cy has recommended bi-a nnua l supervision

missions to visit the field to carry out post review o f procurement actions.

93



E. Details o f the Procurement Arrangements Involving International Competition

1 2

Ref. Contract

N o. (Description)

A. 11 Rehabilationdu BBtimentde 1'ARMP

A.12 MatCriels IT

SIGFP

A. 13 MatCriels IT

SIGFPA.21 GroupesClectrogknes(81 GE)

D.21 Materiels I TSYDONIA++

D.31 Materiels IT

Centresfiscaux

D.41 Materiels IT

1. Goods, Works, and Non Consulting Services

3 4 5 6 7 8

Estimated Procurement P-Q Domestic Review Expected

Cost Method Preference by Bank Bid-

x $1,000 (yedno) (Prior / Post) Opening

Date

450 ICB No N o Pr ior May 2009

825 ICB No No Prior Jan.2009

225 DC N o N o Prior Nov.2009

950 ICB No No Prior Jan.2009

500 IC B N o No Prior Ma y 2009

1,000 IC B N o N o Prior July 2008

700 ICB N o N o Pr ior Feb 2009

(a) L i s t o f contract packages to be procured fo l low ing IC B and direct contracting:

1

Ref

No.

2 3 4 5 6 7 8 !

Contract

Proposal Signature

Prior Submission Financial

and andstimated

Amount !§ Method Post Opening Opening Date'000

Description*

Review Date(T) Date

(b) IC B contracts estimated to cost above $500,000 for works and $250,000 for goods per

contract and direct contracting w i l l be subject to prio r review by the Bank.

2. Consulting Services

(a) List of Consulting Assignments w ith short-list of internationalfirms.

2.1 Firms

App ui au Bianco(renforcement de capacitts, 1 125 1 QCBS 1 Prior 1 15/12/2008 1 15/1/2009 1 2/2//2009 1 1

94



2.2. Individual Consultants Contract

I l l 2 3 4 1 5 1 6 7 8

DC

DC-.2

200 sss Prio r 2/3/2009 18/3/2009ouanes: Inttgration du

TRADENET au SIGFP

150 sss Pr io r 20/412009 4/5//2009ouanes: Deploieme ntSYDONIA++

1 60 1 SSS 1 Prior 1ulgarisation des outils de

leadership (RFU, IGL)AC.212 1AC,211 1 71512009 1 181512009 1 1sss Prior 1O i lOl2008 27110/2008

uivi de la m i s e e n Oeuvre du

M A P (Prtsidence AT) 500

Appui au NLIM:Renforcement de capacitts(curricula, programmes,

750C.231

I I Appui a l a r t f o rm e des I I I I

SSSIIC Pr ior 15/1/2009 2/2/2009

M L i s t e r es prioritaires dans le

cadre de la mis e en Oeuvre duBC.211 1

50

300

Elaboration de la nouvellepolitique salariale

Recensement Gen tral de laPopulation et de 1'Habitat

DC 231

DC 24 1

I 15/2/2009 I 2/3/2009 I Isss Pr io r 12110/2008 2711012008

I C Prio r 201612009 6/7/2009

95



(b) Prior review: (a) each contract estimated to cost m or e than US$lOO,OOO per

contract for Firms and US$50,000 per contract for individuals consultants; (b) a l l single

source selection; (c) a ll training; and (d) al l amendments o f contracts raising the i n i t i a l

contract value by more than 15 percent o f orig inal amount or above the prio r review

thresholds wil l be subject to IDA pr io r review mandatory in paragraphs 2 and 3 o f

Annex 1o f he Bank’s Consultants selection Guidelines.

(c) Short lists composed entirely of nation al consultants: Short l i s ts o f consul tants for

services estimated to cost less than US$ lOO ,OOO equivalent per contract may becomposed entirely o f nat ion al consultants in accordance with the provis ions o f paragraph

2.7 o f he Consultant Guidelines.

(d) Post review: For each contracts for services not submitted to th e pr ior review, the

procurement documents wil l be submi t ted to IDA post review in accordance with th e

provisions o f paragraph 4 o f Annex 1 o f he Bank’s Consultant selection Guidelines. The

post review will be based on a rat io o f at least 1 to 5 contracts.

96



Annex 9 : Economic and Financial Analysis


161. The cost benefi t analysis o f the second Governance and Institutional Development

Project aims to assess th e ef f ic iency o f the project compared to the status quo. The benefits aredefined as savings made fr o m mitig ati ng inadequate use o r misuse o f pub l ic resources and

lowering the cost paid by households and the private sector due to corruption. The estimated

costs for implementing the projec t consist o f he initial investment and increasing recurrent cost

o f he targeted departments and agencies whic h benefit f rom the project.

162. The monet i z ing o f he benef i ts constitutes a challenge as mos t effects o f the projects are

diff icu l t to measure in f inanc ial terms (fo r example, the reforms in he judiciary , the building o f a

mon i tor ing and evaluat ion (M&E) f ramework for th e imp lementa tion o f the MAP etc.). Some

lim ited data o n the misuse/misappropriation o f pub l ic resources i s available at the l ev e l o f he

control insti tutions. However, in order to capture the benef i ts accruing fro m other activit ies o f

th e project, hypotheses were made o f other misuses o f pub l ic resources. Based on the total

identified amount o f misused/misappropriated pu blic resources, i t was assumed that theintervent ion o f the project leads to an annual reduct ion o f 10 percent in a

misuse/misappropriation o f Governmen t’s resources. The reduct ion in misuse represents the

benefits o f he project.

163. The estimation o f the project costs, notab ly the incremental costs accruing to the

government f ro m mainta ining the activi t ies after the projec t closes, resents some diffic ultie s. Th e

bulk o f he cost assessment i s based o n the projec t investment cost.

164. To al lo w a comprehensive presentation o f al l cost and benef i ts accru ing from the pro ject

activities, the fol lowing analysis i s divided into tw o sections: (i)n assessment o f the benefits

and cost that can be q uanti f ied and (ii) presentation o f the benefi ts and cost that cou ld not be

quantified.

I.Quantitative assessment o f the benefits and costs

165. The economic analysis comes to the conclusion that the benef i ts tr iggered by the project

interventions outweigh the costs. Al though i t i s not possib le to quant i fy a l l benefi ts o f th e

proposed operation (see section II),he analysis o f quanti f iable factors c onfirm s that planned

investments and other add itional costs generated by implementation o f he pro ject wi ll be largely

compensated over a period o f en years by the expected benef i ts o f he project.

166. The quanti f iable benefi ts accrued over te n years represent a n e t present value o f U S $ 4 4 6

mill ion. These benefits are by-and-large indirect; the beneficiaries are households, private

enterprises and the administration. The overal l ne t present va lue o f the cos ts o f ac t iv i ti es

amounts in ota l to U S $ 21 m i l l ion .

1.1. Identification/quantification o f benefits

167. The activ ities under the project that provide f or the most important quant i fiab le benefits

comprise o f (i)he continuous deployment o f th e integrated financial management, (ii)he

97



consol idat ion o f publ ic procurement reforms, (iii)he re inforcement o f in ternal and external

contro l funct ions o f the pub l ic f inance system, and (iv) th e strengthening o f the performance o fthe tax and custom administration.

2003 2004 2005 2006

M i s u s e r e p o r te d by th e IGE 4 356 171 260 54 15014

et d ’ Inspect ion du T r t s o r 142 1 305 1329 6303

M i s u s e in he bud get process ’ 7467 8744 755 4 11 475

M i s u s e r e p o r te d by t h e B r i g a d e V t r i f i c a t i o n

M i sus e t h roug h pub l i c p rocu remen t 2 26399 49243 54373 64531

Total 3 9 6 4 2 5 8 4 6 3 8 9 3 1 0 97323

Tota l (in millionUS$) 32,O 31,3 44,5 44,6

168. The estimates o f the benefits are based on the average annual amount o f the

misuse/inadequate use o f publ ic resources w hi ch are estimated to be to approximate ly US$39m i l l i o n per year (see tab le l a below). This f igure i s based on data reported by the Brigade

d ’hspect ion e t de Ver i f icat ion du TrCsor and by the Insp ection GCnerale de 1’Etat (IGE) and i s

complemented by estimates o f other m isuses o f public resources. Further estimates are based on

revenue in forma t ion provided by the ta x and cust om adm inistrat ion (see table l b below).

Average

11 399

2 339

8 810

48636

71 185

39,O

Table lb:

Strengtheningo f revenue collection (in million US$)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

I nc rem en t a l revenue ’ 50.7 39.0 50.0 53.2 47.3 48.9 54.2 59.7 65.9 73.6 81.1

MBmo

I nc rem en t a l revenue 202,8 155,8 199,9 212,7 189,2 195,6 216,6 238,8 263,4 294,5 324,5

Ta x revenues 999.4 1,155.2 1,355.1 1,567.8 1,757.0 1,952.6 2,169.2 2,408.0 2,671.4 2,965.9 3,290.4

Source: IMF

around 25 percent to the annual increase in revenue.

Th is amount constitutes 25 percent o f the annual supplemental revenue. I t s assumed that the project activities contribute

169. The total benefi ts were calcu lated based o n an annual reduction o f 10 percent o f the

misuse/m isappropriation o f pub l ic resources (table 1b) and the supplemental tax revenues are inaccordance with th e IMF program (table 2). I t was also assumed that the r educ t ion o f t he

misuse/misappropriation o f publ ic resources wil l peak as o f year 5; the same assumption was

appl ied regarding the projects contr ibution to the increase in revenues. Table 2 below

summarizes th e evo lu tion o f benef i ts until 2018.

98



and efficiency o f the

Years

20082009

2010

201 1

2012

2013

2014

2015

2016

2017

2018

Total

170. The tota l benefits generated by these activities will reach a net present va lue o f about

U S $ 446 m i l l i on over 10 years. A large share o f the benefi ts wil l be der ived f ro m con t inu ing to

ref orm the customs and tax administration (around US$ 340 mil l ion). I t s also expected that th e

further ro l l out o f the integrated f inancia l management system and improvement o f the

internal/external control mechanism wil l have an important impact o n the use o f p u bl ic

resources. Th ou gh mo st treasuries are n o w in compl iance with the la w and regulations, th e no t

yet f i l l compu terization o f he treasuries s t i l l gives roo m fo r fa l s i f ica t ion o f payment documents,

false entries, and other misuse o f he budget. I t s expected that the modern iza t ion o f he system

and improv ed contro ls wil l signi f icant ly further decrease misappropr ia t ion or misuse o f publ ic

resources. Procurement is another m ajor source o f misuse o f pub l ic resources. The incomplete

implementat ion o f the new code has made corruption s t i l l present in the procurement process.

The inst i tu t ional izat ion o f he procurement refo rm will continue to strengthen the procurement

oversight a uthori ty and the functioning o f he system.

public finance system (in U S $ million)

Nominal N et Present

Benefit Value')

54,6 50,646,8 40,l

61,7 49,O

6 8 3 50,6

66,8 455

66,8 42,l

66,8 39,O

66,8 36,l

66,8 33,4

663 30,9

6 6 3 28,6

699,4 4 4 5 8

171.

transparency and acc ount abil i ty (see s ection 2).

These pos it ive impacts wil l be re inforced by qualitative benefits; in part icu lar improve d

1.2. Cost o f activities

172. The net present va le o f he activitie s to enhance transparency and eff ic iency o f he publ ic

finance systemwil l be about US$21 m i l l i o n (see table 3 below). These costs wil l nclude notably

the investment required to hrther rol l out the integrated financial management system to theregional capitals as well as the increased recurrent costs fo r the operat ion o f such a system,

procurement reforms and the investment necessary to strengthen internal/external control

me chan ism (in itia l investment and supplementary operating cost, increased sta ffing etc.).

Another important share o f he cost constitutes the project investmentcost related to the customs

and tax ad ministration reforms.

99



Years

20082009

2010

201 1

2012

2013

2014

2015

2016

2017

2018

T o t a l

A deprecation o f 8 percent per year was used forthe calculat ion of he NP V

Nomin al Ne t Present

cos t V a lue

226 294

690 5 2

596 4 s

530 397

237 199

190 036

190 096

190 095

039 095

0,9 034

039 0,427.6 20.5

11. Qual itative assessment of the project’s benefits and costs

173. As mentioned above, the benefits o f several o f the pro ject act iv i t ies are d i f f icu l t to

quantify. These focus on the fight against corruption, capacity building and rendering

Government more accountable, in part icu lar through a m eaningf id c i v i l engagement and social

inclusion.

174. M or e specifically, these activi t ies include anti-corruption measures and confl ict o f

interest activi ties, improv emen t o f the operat ional e f f ic iency o f the jud ic ia l system, capacity

building and insti tutional development for the Ministry o f Justice, the support to the Schoo l o fMagistrates (Ecole Na tiona l de la Magistrature et des Greffes (ENMG)), the re inforcement o f he

regulatory and insti tutional framework to fight corrup tion as we l l strengthening external

oversight. I t i s anticipated that these activities will have a substantial impact on th e misuse o f

public resources, and thus result into savings and increases in investment. Important indirect

benefits wil l be rendering th e Government more accountable and improv ing the qua l i ty o f

Gove rnme nt’s services. These bene fits are further reinforced by a range o f activitie s that support

the building o f a moni tor ing and evaluation (M&E) f ramework for the imp lementa tion o f the

MAP, the scaling up o f capac it y buildingo f key publ ic insti tutions and sector minist r ies and the

development o f an insti tution al frame work for decentralizations.

175. In addi t ion to the aboveme ntioned activities, the project supports to a larger degree the

reinforcement o f external (citizen s/civil society) oversight over governm ent operations, inparticular with regard to m ore inclusive decis ion mak ing and adequate use o f pub l ic resources.

Giv en that the component seeks to support a range o f activit ies wh ic h are to some extent s t i l l at a

pilot stage, the quant i f icat ion o f benef i ts at this stage i s diff ic ul t. Gene ral ly speaking, i t i s

expected that the various activities wil l (i)ncrease the qual i ty in the de li very o f l o ca l

government services and (ii) l low a more eff icient and equitable use o f resources at th e l o ca l

level.

100



176. The direct ben efits depend on the speci fic nature o f he different activities. Fo r example,

in the case o f mainstreaming comm uni ty score cards, fo l low ing improv ed delivery o f services,

an increase in the ut i li za t ion o f the selected health facil i ties i s expected as this occurred in the

f i r s t stage o f pi lots. These pi lots also resulted in the percep t ion o f mprovements in the p r ice o f

drugs, most l ik el y because o f more transparency around what drug prices should b e (and thus

reduction in irreg ular payments), increases in infrastructure, and a mo re eff icient al location o f

existing commune resources devoted to health (as communities were made aware o f the

earmarking o f comm une subsidies for health care, and this therefore created an incent ive fo r th e

mayor to us e these resources accordingly). I t i s also expected that supporting participatory

budgeting wil l lead to t ransparency o f commune budgets an d th e ut i l iza t ion o f mine royalt ies

and, in turn, wil l resu l t in ess leakage o f hese resources and better management o f oca l funds.

177. One o f he areas identified in the Governance and Anti-C orru ptio n Survey as being most

commonly subject to bribes for service del ivery - wil l b e addressed through the p i l o ti ng o f

citiz en report cards for m un icip al services (such as land titling services, or s olid waste services)-

an area in need o f mu ch improvement. I t s expected that d isseminat ion o f n form at ion on what

fees should be combined with a published evaluat ion o f the serv ice and supply side reforms(through the Growth Poles Project for example) wil l improve performance and reduce these

types o f extra payments.

178. Furthermore, these interventions wil l also generate social benefits such as income

distr ibutio n effects at the l oca l level. In particular participato ry budg eting aims to achieve a more

equitable and inclusive al location and ut i l izat ion o f ocal revenues. I f a fa i r share o f he pro ject

benefi ts accrued to poor and other disadvantaged groups (in the fo rm o f improved access to

existing basic social, health and municipal services as well as education and economic

opportunit ies) this would contr ibute toward achieving the poverty reduct ion object ive o f the

MAP. Other b enef its generated by impro ved governance and service prov ision cou ld include a

greater sense o f popu lari ty and publ ic support for the government o n the part o f citizens who are

better in form ed an d have more fa i th that pub l ic servants serve their interests. With the populat ionseeing tangib le evidence that their tax Aviary are beingput to good use, i t s also very l i ke ly tha t

the benef ic iary are m ore willing to p ay taxes.

179. Though a l l the aforesaid benefi ts are di f f icu l t to quantify, i t i s expected that they wil l

largely exceed the costs w hic h compr ise m ain ly o f a smal l in i t ia l pro ject cost (around US $16

m il l ion ) and some incrementa l cost once the project i s closed.

101



Annex 10: Safegua rd Policy Issues

MADAGASCAR: Governance a nd Institution al Development Project I1

180. N o safeguards policies are triggered; the environmental category i s ‘ C y .The project

provides the opportunity for p ublic access to environmental information and effective publicconsultations, in particular under the transparency and social accountability component. I t does

not in volv e any exception to Bank policies.

102



Annex 11: Project Preparation and Supervision


Karen Cecilie Sjetnan

Lanto Ramanankasina

Thomas Je ffrev Ramin

Planned ActualP C N review November 22,2007 November 2 1,2007Initial P ID to PIC November 9,2007 November 9,2007I n i t i a l I S D S to PIC November 9,2007 November 9,2007Appraisa1 M a r c h 19, 2008 March26,2008Negotiations April 2/3, 2008 April 2/3,2008Board/RVP approval May 29,2008Planned date o f effectiveness September 1,2008Planned date o f mid-tern review September 2010Planned closing date August 31,2012

262330 Program Officer WB IGP

259529 Program Assistant AFMMG

254337 Sr OPerations Off. AFTR L

181. Key institutions responsible for preparation of the project. The technica l team o f the

Government i s led by the National Coordinator o f he Programme de RCformes pour 1’EfficacitC

de 1’Administration (PREA) who i s supportedby the Bureaude Gestion. The bureaucoordinates

the technical input from the sectors supported by the project. The work o f the technical team i s

supervised by an Oversight Committee (Conseil d’orientation et de Suiv i - COS) consisting ofa l l Permanent Secretaries o f the Government and or representatives from civil society, the

private sector, and from regions and communes

Laza Razafiarison

182. Bank s ta f f and consultants who worked on th e project included:

Specialist

25 1095 Research Assistant AFTP 1

I Andrew Osei Asibey I 270286 I Sr Monitoring & Evaluation Spec. I AFTR L I



I r ina Luca

Sarah Keener

83564 Lea d Procurement Specialist AF TP C

22949 Senior Social Development AFT CS

I Sahr Ktmndeh I

Phi l ippe Auf f ret

Jacques Morisse t

Dieudon ne Randriamanampisoa

Suzanne Morr is

Wolfgang M. T. Chadab

~

Elisabeth Huybens

BhuvanBhatnagar

Specialist

21290 Sr Social Protection Specialist AF TH 3

21859 Lead Economist AFTP 1

19048 Senior Econo mist AF TP R

1532 1 Senior Finance Off icer LO A FC

10486. Senior Finance Off icer LO A FC

AFTPR I47957

20635

21464

Jesko Hentsch el I 76414

Francesca Rec anat ini I 84567

Senior Public Sector Specialist

Peer reviewer

Peer reviewer

Peer reviewer E C S H D

Peer reviewer PRMPS

183. Bank hnds expended to date on project preparation:

Ba nk resources: US$94,000

Trust funds: n/a

Total: US$94,000

184. Estimated Ap pro val and Supervision costs:

0

0

Re ma ini ng costs to approval: US$lO,OOO

Est imat ed annual supervision cost: US$70,000

104



Annex 12: Documents in the Project Fi le


1. W or ld Ba nk Group Supported Transformational Leadership Program in Madagascar, Final

Evaluation, January 2008, Kabell Konsulting A P S Denmark

2. Troisi bme Recensement General de la population et de l’habitat, Madagascar 2007-2011,

Ministbre de l’Economie, des Finances et du Budget, Juillet 2006

3. 3 ans et demi de PGDI, 2004-2007, Presidence de l a Republique,Octobre 2007

4. Strategie Natio nale de Dkveloppement de l a Statistique, V olum es I,1 PGDI, Mission

d’Appui a 1’Elaboration de l a SNDS, Septembre et Decembre 2007

5. Madagascar Ac ti on Plan 2007-2012, Presidence.de l a Republique

6. A Leadership Approach to Achievin g Change inthe

Public Sector : The Case o f Madagascar,

W o r l d Bank Inst itute 2007

7. CS C effectues dans les regions de Boeny et de la Haute Matsiatra, Rapport fi na l des suivis,

Core Team CSC, Ju in 2007

8. Third Poverty Reduction Support Operation, Program Document, International DevelopmentAssociation, June 14,2006

9. Madagascar-Revue de DCpenses Publiques -Rkalisation duMadagascar Actio n Plan :

Analyse pour des resultats, c i nq volumes, Banque Mondiale, 28 juin 2007

10. Mesure de la performance de l a gestion des finances publiques en Republiquede Madagascar

selon la methodolog ie PEFA, Rapport, M a i 2006

11. Mesure de la performance de l a gestion des finances publiques e n Republique de Madagascarselon l a methodologie PEFA, R apport prelimha ire, M a r s 2008

12. Madagascar -Restructuringand Addit ional Financing o f he Governance and Ins titutiona l

DevelopmentProject, Project Paper, International Development Association, M a y 22,2007

13 . Madagascar - Governance and Institu tional D evelopmen t Project (PGDI), MidtermReview,

July 28,2006

14. Governance and Inst itut ion al Deve lopm ent Project, P roject Appr aisal Document,International De velopment Association, October 22,2003

15. Madagascar Structural Politica l Analysis as an Input for a Country Social Analysis andCou ntry Assistance Strategy, Fin al Report, Pro f. Richard R. Marcus and Prof. SolofoRandrianja, June 30,2006

105



16. Eig ht Qua lity at Entry Assessment (QEA8), Fiscal Year 2006-2007, o f he Additional

Financing for the Madagascar Governance and Institutiona l DevelopmentProject, December10,2007

17. Madagascar Country Financial Acco untab ility Assessment (CFAA), Wo rld Bank, European

Union, A frican Development Bank, June 30,2003

18. W or ld Bank’s Country ProcurementAssessment Report (CPAR), Madagascar, December30,2002, revised in M a y and June 2003

19. Madagascar: Coun try Assistance Strategy (CAS), W or ld Bank, M ar ch 7,2007

20. Madagascar Investment Climate Assessment, W or ld Bank, June 2005

21. Etude de faisabilitk de Dkveloppement Local, J. Habas, L. Andrianasolo, C. Majerowicz, L.Ramamonjisoa, A. Randrianasolo Razanakoto, M a y 2005

106



Annex 13: Statement o f Loans and Credits


Difference betweenexpected and actual

disbursementsr ig inal Amount in US$Mil l ions

P103606

PO95240

PO74086

PO90615

PO83351

PO82806

PO74448

PO74236

PO74235

PO73689

PO76245

PO72987

PO72160

PO55 166

PO51922

PO51741

PO52 186

PO01568

2007

2007

2007

2006

2006

2004

2004

2004

2004

2003

2003

2002

2002

2001

2001

2000

1999

1998

MG-Sust. Health System Dev. (FY07)

MG -Pwr/Wtr Sect. Recovery and Restruct.

MG-Ir r igat ion& Watershed Project (FY07)

MG-Mult iSec STI IHIVIAIDS Prev I1(FY06)

MG-Integ Growth Poles

MG-Transp Inf rastr Invest P i FY04)

MG-Gov & I ns t Dev T A L (FY04)

MG-GEF Env Prgm 3 (FY04)

MG-Env P rgm 3 (FY04)

MG-Ru ral Transp AP L 2 (FY03)

MG-Mineral Res Gov SI L (FY03)

MG-Mult iSec STVHIViAIDS Prev I(FY02)

MG-P riv Sec Dev 2 (FY02)

MG-C om Dev Fund SIL (FYO1)

MG-Rura l Dev Supt SIL (FYO1)

MG- Hea lth Sector Support I1 FYOO)

MG-Microfinance (FY99)

MG-Community Nutr i t ion I1 (FY98)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

10.00

10.00

30.00

30.00

129.80

150.00

30.00

0.00

0.00

80.00

32.00

20.00

23.80

110.00

89.05

40.00

16.40

27.60

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 9.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

1.23

0.00

0.00

0.00

9.88

8.70

29.50

27.75

80.83

63.96

8.68

3.40

19.19

33.65

11.99

1.23

6.19

11.18

14.12

0.51

5.56

10.51

-0.65

4.09

2.01

13.23

10.77

33.42

-0.40

6.33

7.45

10.64

-4.25

-1.77

1.60

-7 1.04

2.14

-18.59

-0.34

-1 1.04

Project ID F Y Purpose IBRD I D A SF GEF Cancel. Undisb. Orig. Frm. Rev’d

0.00

0.00

0.00

0.00

0.00

30.88

0.00

0.00

0.00

2.36

0.00

0.00

1.18

-2 1.04

2.14

-1.81

0.82

0.14

Total: 0.00 828.65 0.00 9.00 1.23 346.83 - 16.40 14.67

M A D A G A S C A RS T A T E M E N T OF IFC’s

He ld and Disbursed Portfol ioInM i l li o n s o f U S Dol lars

Committed Disbursed

IFC IFC

F Y Approva l Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1997 AEF G HM 0.46 0.00 0.00 0.00 0.46 0.00 0.00 0.00

1995 AEF Karibotel 0.19 0.00 0.00 0.00 0.19 0.00 0.00 0.00

BFV-SocGen 6.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1991 BNI 0.00 2.09 0.00 0.00 0.00 2.09 0.00 0.00

200s BNI 6.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2000 BOA-M 0.00 0.82 0.72 0.00 0.00 0.82 0.72 0.00

2004 BP Madagascar 0.00 3.51 0.00 0.00 0.00 0.00 0.00 0.00

CREDIT LYO NN AIS l 6 .37 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total portf olio : 19.76 6.42 0.72 0.00 0.65 2.91 0.72 0.00

107



Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2001 Besalampy 0.02 0.00 0.00 0.002006 IDA-IFC PCG 0.01 0.00 0.00 0.00

Total pe nding commitment: 0.03 0.00 0.00 0.00

108



Annex 14: Country at a Glance


P O V E R T Y a n d S O C I A L

2006

GNIpercapita(Atiasmethod, US$) 26 0

5.3

M a d a g a s c a r

Population, mid-par (mii lions) 8.1

GNI (Atlas method, US$ billions)

Population (%j 2.7

A v e r a g e a n n u a l g r o w t h , 2000.06

Laborforce (4 3.2

M o s t r e c e n t e s t l m a t e ( l a t e s t y e ar a v a i l ab l e , 2 0 0 0 - 0 6 )

Poverty (% of population below nationalpa verty ine)

Urban population (%of otal population) 27

Life expectancyat birth (pars) 58

Infant mortaiity(per lOOOlivebirThs) 74

Childmalnutrition (%ofchiidrenundar5) 42

Access to an improvedwatersource (%ofpopulation) 46Literacy (%ofpopulation age rStJ 71

Gross primaryenrol lment (%o f schooi-agepopuiation) 06

Male ldl

Female 06

K E Y E C O N O M I C R A T I O S a n d L O NG - T E RM T R E N D S

1986 1986

GD P (US$ biiiions) 3.3 4.0

Gross capital formation1GDP 9.0 116

Exports of goods and servicesIGDP Q.1 20.5

Gross domestic savings1GDP 5.6 6.1

Gross national savings1GDP 6.1 6 2

Current account balance1GDP -2.5 -5.0

Interest paynentslGD P 15 0 5

Total debt1GDP 919 03.3

Total debt servicelexports 47. 6 0 3

Present valueof debtIGDP

Present value of debtlexports

1 8 8 6 -9 6 1 9 9 6 -0 6 2005

GD P 0.9 2.9 4.6

GDP percapita -2.0 0.0 16Exports of goods and services 4.6 0.6 4 . 4

(averageannualgroMh)

S u b -

S a h a r a n L o w -A f r i c a I n c o m e

77 064 2

64 6

2 4

2 6

36

47

96

30

5659

92

96

66

2005

50

22 5

26 9

6 4

117

-0

0 6

66 6

5 6

35 6

DO 6

2,403650

1562

19

2.3

30

59

75

75

61

0 2

0 6

96

2006

5.5

24.629.7

D. 6

8.0

-8.6

2 0 0 6 2006-10

4.9 7.1

2.2 5.1

23.6 4.6

D e v e l o p m e n t diamond.

1 Life expectancy

i TGN Gross

capita enrollmentper primary

1

Access to improvedwatersource

-Madagascar

Lo wincome group

E c o n o m i c r a t l o s '

Trade

Domestic ' Capital

savings formation-t

Indebtedness

-Madagascar

L o m n c o m egroup

S T R U C TU R E o f t h e E C O N O M Y

(%of GDP)

Agnculture

Industry

Services

Manufactunng

1986 1896

36.6 27.2

Q.9 114

0 . 6 9 . 7

50.4 614

Household inal consumption expenditure 65.5 64.1

Genera gov 't final consumptio n expenditure 6.6 9.6

Imports of goods and services 15.5 26.0

(average annual gm Mh)

Agriculture

Industry

Services

Manufacturing

1886.86 1886-06

2 0 2 0

0 7 2 6

0 2 2 5

10 2 9

Household final consum ption expenditure 0.6 2.6

Gross capital formation 0 5 0 .5

General gov't final co nsum ption expenditure -17 4.5

Imports of good s and services 2 1 7.4

2 0 0 5

26 2

155

140

56 3

63 2

6 4

410

2005

3 0

2 5

2 5

5 6

2 65 7

Q 6

0 0

2 0 0 6

27 5

5 3

0 4

57 2

77 6

6 6

40 9

2 0 0 6

2 2

2 7

2 7

7 0

-2 6

20 5

15 1

3 9

G r o w t h of c a p i t a l a n d G D P (Oh)

100 T

50

0

-5 0

I -GCF -GOP

G r o w t h o f e x p o r t s a n d i m p o r t s ('A)

50

25

0

-2 5

-5 0

-7 5

Note 2006 data are preliminaryestimates

This table was producedfrom the Development Economics LDB database

'Thediamonds showfourkeyindicators inthecountv/ ( inbo1d)comparedwth ts income-groupaverage fda ta aremissing,thediamondwIIbe incomplete

109



Madagascar

P R I C E S a nd G O V E R N M E N T F I N A N C E

D o m e s t i c p r i c e s

(%change)

Consumer pncesImplicit GDP deflator

G o v e r n m e n t f i n a nc e

(%of GDP, ncludes currenf grants)

Current revenue

Current budget balanceOverall surpiusldeficit

T R A D E

(US$ millions)

Totaiexpolts ( fob)

Cof feeVanilla

Manufactures

Total impo rts (cif)

F o o d

Fuel and energy

Capital goods

Erport price ndex(2000=WO)Import price ndex(2000=WO)

Terms of trade (2000-WO)

B A L A N C E o f P A Y M E N T S

(US$ millions)

Erpor ts of goods and serv ices

imports of goods and services

Resource balance

Net income

Net current transfers

Current account balance

Financing items (net)

Changes in net reserves

M e m o :

Reserves including gold (US%millions)

Conversion rate (DEC, local/US$)

1986

14.514.2

Q.4

6.9

14

1986

32 1

25

46

51

356

52

56

94

a 376

Q5

1986

396

490

-9 5

-739

152

-81

147

-66

41

'35.3

E X T E R N A L D E B T a n d R E S O U R C E F L O W S

(US%millions)

Total debt outstanding and disbursed

1986

2,994

IB RD 31

IDA 422

Tota l debt service 211

IBRD 3

IDA 5

C o m p o s i t i o n o fnet resource f lows

Official grants 68

Off icial creditors E4

Pnvate creditors -47

Foreign direct investment (net inf lows) 14

Portfolio equity(net inf lows) 0

Commitments a 3

Disbursements 95

Pnncipal repayments 2

Net f lows 92

Interest payments 6

Net transfers 67

World Bank program

1996

19.6V.6

a.14 . 4

-114

1996

512

63

20

3 8

75 8

60

TI6

8 4

89111

80

1996

796

998

-202

-156

159

-201

33 5

.a 4

24 0

8P.3

1996

4,P7

7

1.147

83

5

n

20 2

98

-5

a0

60

78

Q

659

55

2005

8. 58 .4

117

0.7

-9.6

2 0 0 5

857

32

48

696

1652

Q l

287

36 7

a 4141

74

2 0 0 5

1,356

2,067

-711

-76

242

-546

54 9

1

49 8

2,003.0

2 0 0 5

3,465

0

2,298

78

0

29

760

2 P

-1

29

0

25 0

22 i

li

209l?192

2006

x )6113

P O

0 6

-9 4

2 0 0 6

97 5

41

57

72 8

1684

91

37 7

22 5

17

8 1

73

2 0 0 6

1639

2.256

-6ff

-60

214

-464

5 6

-32

532

2.142 3

2 0 0 6

0

63 6

0

28

15

Q9

6

P 3

P

111

-GDPdefiator -CPi

E x p o r t a n d I m p o r t l e v e l s ( U S $ mill.)

jOrOl1,500

1,000

5W

0

W 01 02 03 04 05 08

BExports ~ ~ l m p o r t s

C u r r e n t a c c o u n t b a l a n c e t o G D P ( %)

I C o m p o s i t l o n o f 2 0 0 5 d e b t ( U S $ mll l . )

A - IBRD E. BiiaterdB - IDA D . O t h s mlt iiat ad F. PrivateC - I M F G - Short-1st

Note:T his tabiewas produ cedfrom the Developm ent Economics LDB database. 9/26/07

110



M A P SECTION





Ankar a

ta

Massi f ass i fTsaratanana saratanana

C

lif

f o

f

A

n

gavo

Cl iff o

f Bo n

go

l a v a

Maromokotro aromokotro(2,876 m) 2,876 m)

Tsiafajovona siafajovona(2,642 m) 2,642 m)

Mahava

vy

Bets

iboka

Bem

arivo

Sofia

Lake ake Alaotra laotra

Mangoro

Mania Tsiribihina

M A H A J A N G AA H A J A N G A

ANTANANARIVO NTANANARIVOTO

AM

ASI N

A

ANTSIRANANANTSIRANANA

Moramangaoramanga

Antanifotsyntanifotsy

Ambositrambositra

Ambatofinan-mbatofinan-drahanarahana

Antsirabentsirabe

Miandrivazoiandrivazo

Malaimbandyalaimbandy

Vohidialaohidiala

Andilamenandilamena

Andriamenandriamena

Maevatananaaevatanana

Kandrehoandreho

Ankazobenkazobe

Soavinandrianaoavinandriana

Ambaravaranalambaravaranala

Ambilobembilobe

Andapandapa

MandritsaraandritsaraMampikonyampikony

Befandrianaefandriana

Bealananaealanana

ANTANANARIVONTANANARIVO

M A H A J A N G A

ANTANANARIVO T

OAM

ASI N

A

ANTSIRANANA

Vatomandry

Mahanoro

Varika

Antalaha

Maroantsetra

Mananara

Fenoarivo-Atsinanana

Moramanga

Antanifotsy

Ambositra

Ambatofinan-drahana

Antsirabe

Miandrivazo

Malaimbandy

Belo Tsiribihina

Morondava

Vohidiala

Andilamena Soanierana-Ivongo

Andriamena

Maevatanana

Soalala

Besalampy

Maintirano

Antsalova

Kandreho

Ankazobe

Soavinandriana

Ambaravaranala

Sambava

Vohimarina Ambilobe

Andapa

MandritsaraMampikony

Befandriana

Bealanana Antsohihy

Ambanja

Toamasina

Antsiranana

Mahajanga

ANTANANARIVO

Mayotte (France)

M a

h a v a v y

B e t s

i b o k a

B e m

a r i v o

S o f i a

Lake Alaotra

M a n g o r o M a n i a

T s i r i b i hi na

M a n a m b

a h o

M a h a j a

m b a

I N D I A N

O C E A N

M o z a

m b i q

u e

C h

a n n e l

A

n k

a r a t a

Massi f Tsaratanana

C

l i f f

o

f

A

n g

a

v

o

Cl i

f f

o f

B o n g

o l a

v a

Maromokotro (2,876 m)

Tsiafajovona (2,642 m)

45°E 50°E

20°S

15°S

20°S

15°S

MADAGASCAR

IBRD 33439