Document of The World Bank FOR OFFICIAL USE ONLY Report No: 74159-MW INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF MALAWI FOR THE PERIOD FY13 – FY16 December 17, 2012 Malawi Country Management Unit Africa Region The International Finance Corporation Africa Region The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Authorization. Malawi Country Assistance Strategy FY13–16 CURRENCY EQUIVALENTS The date of the last Country Assistance Strategy was February 15, 2007. CURRENCY EQUIVALENTS (Exchange Rate as of November 29, 2012) Currency Unit = Malawi Kwacha (MWK) US$ 1 = MWK 326.00 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AAP Africa Action Plan ACB Anti-Corruption Bureau AF Additional Financing AfDB African Development Bank AIDS Acquired Immune Deficiency Syndrome APL Adaptable Program Lending ART Anti-Retroviral Treatment ARPU Average Revenue Per Unit ASWAp Agriculture Sector Wide Approach BESTAP Business Environment Technical Assistance Project CAADP Comprehensive Africa Agriculture Development Programme CABS Common Approach to Budget Support CAS Country Assistance Strategy CASCR Country Assistance Strategy Completion Report CBRLDP Community Based Rural Land Development Project CEAR Central and East African Railways CEM Country Economic Memorandum CIDA Canadian International Development Agency COA Chart of Accounts COMESA Common Market for Eastern and Southern Africa CoST Construction Sector Transparency CPAR Country Procurement Assessment Report CPIA Country Performance and Institutional Assessment CPPR Country Portfolio Performance Review CRW Crisis Response Window CSCs Community Score Cards CSOs Civil Society Organisations DBI Doing Business Indicators DFID Department for International Development DoNutS Donor Nutrition Security ii Malawi Country Assistance Strategy FY13–16 DO Development Objective DPs Development Partners DPC Development Policy Credit DPL Development Policy Loan DPO Development Policy Operation DPP Democratic Progressive Party DRM Disaster Risk Management DTIS Diagnostic Trade Integration Study ECF Extended Credit Facility EDF European Development Fund EITI Extractive Industries Transparency Initiative ERP Emergency Recovery Plan ESF Exogenous Shocks Facility ESSUP Education Sector Support Project ESW Economic and Sector Work EU European Union FAO Food and Agriculture Organization of the United Nations FDI Foreign Direct Investment FIMTAP Financial Management, Transparency and Accountability Project FISP Farm Input Subsidy Program FMB First Merchant Bank FROI Financial Reporting and Oversight Improvement FSTAP Financial Sector Technical Assistance Project FY Fiscal Year GAC Governance and Anti-Corruption GDC German Development Cooperation GDP Gross Domestic Product GFDRR Global Facility for Disaster Risk Reduction GEF Global Economic Facility GFEM Group on Public Financial and Economic Management GFS Government Financial Statistics DHS Demographic and Health Survey GoM Government of Malawi GTFP Global Trade Finance Program GTPA Grain Traders and Processors HIPC Heavily Indebted Poor Countries HSSP Health Sector Support Project IACs Internal Audit Committees ICA Investment Climate Assessment ICR Implementation Completion and Results Report ICT Information Communications and Technology IDA International Development Association IDF Institutional Development Fund IEG Independent Evaluation Group IFC International Finance Corporation IFMIS Integrated Financial Management Information System IHS Integrated Household Surveys ILO International Labour Organisation IMF International Monetary Fund IRLADP Irrigation Rural Livelihoods and Agricultural Development Project ISR Implementation Status and Results Report iii Malawi Country Assistance Strategy FY13–16 JICA Japan International Cooperation Agency JPRs Joint Program Reviews JSAN Joint Staff Advisory Note M&E Monitoring and Evaluation MAP Multi-Sectoral AIDS Project MASAF Malawi Social Action Fund MCC Millennium Challenge Corporation MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative MDTF Multi-Donor Trust Fund MERA Malawi Energy Regulatory Authority MIGA Multilateral Investment Guarantee Agency MEPC Malawi Export Promotion Council MFSDT Malawi Financial Sector Deepening Trust MGDS Malawi Growth and Development Strategy MGDS II Second Malawi Growth and Development Strategy MoH Ministry of Health MPVA Malawi Poverty and Vulnerability Assessment MSR Mining Sector Review MTEF Medium Term Expenditure Framework MWK Malawi Kwacha NAO National Audit Office NES National Export Strategy NGO Non-Government Organization NESP National Education Sector Plan NSO National Statistical Office NSP National Strategic Plan OBA Output-Based Aid ODA Overseas Development Assistance ODPP Office of the Director of Public Procurement P4R Program for Results PAC Public Accounts Committee PADs Project Appraisal Documents PAF Performance Assessment Framework PEFA Public Expenditure and Financial Accountability Framework PER Public Expenditure Review PETS Public Expenditure Tracking Surveys PFEM Public Finance and Economic Management PMTCT Prevention of Mother to Child Transmission PMUs Project Management Units PPA Public Procurement Act PPIAF Public-Private Infrastructure Advisory Facility PPP Public-Private Partnership PRSCs Poverty Reduction Support Credits PRGF Poverty Reduction and Growth Facility PRSG Poverty Reduction Support Grant PSD Private Sector Development PVA Poverty and Vulnerability Assessment PWP Public Works Program QAG Quality Assurance Group RCIP Regional Communications Infrastructure Project iv Malawi Country Assistance Strategy FY13–16 R&D Research and Development ROSC Report on the Observance of Standards and Codes RRDPG Rapid Response Development Policy Grant RRP Rapid Response Program SADC Southern African Development Community SACMEQ Southern African Consortium of Monitoring Education Quality SAPP Southern Africa Power Pool SDR Special Drawing Rights SESA Strategic Environmental and Social Assessment SFFRFM Small-holder Farmers Fertilizer Revolving Fund of Malawi SIDA Swedish International Development Agency SME Small and Medium Enterprise SME-EDI Small and Medium Enterprise Development Initiative SSA Sub-Saharan Africa SUN Scaling Up Nutrition SWAp Sector-Wide Approach TA Technical Assistance TB Tuberculosis TEVET Technical, Entrepreneurship and Vocational Education Training TFs Trust Funds TFR Total Fertility Rate UDF United Democratic Front UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for International Development US$ United States Dollar WBG World Bank Group WDI World Development Indicators WFP World Food Programme IDA IFC MIGA Vice President: Makhtar Diop Bernard Sheahan (Acting) Izumi Kobayashi Director: Kundhavi Kadiresan Cheikh Oumar Seydi Ravi Vish Task Team Leaders: Sandra Bloemenkamp Saleem Karimjee Stephan Dreyhaupt v Malawi Country Assistance Strategy FY13–16 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................ 1 I. INTRODUCTION ....................................................................................................................... 2 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ................................................... 2 Political Context...................................................................................................................... 2 Social Context ......................................................................................................................... 4 Economic Context................................................................................................................... 6 Development Challenges and Opportunities ........................................................................ 10 III. WBG ASSISTANCE STRATEGY FOR MALAWI ............................................................. 20 A. Underpinnings and Principles of the CAS ..................................................................... 20 Second Malawi Growth and Development Strategy (MGDS II) .......................................... 20 Africa’s Future and WBG Support ....................................................................................... 21 Lessons Learned from the Previous CAS ............................................................................. 21 CAS Stakeholder Consultations............................................................................................ 22 The 2010 Country Client Survey .......................................................................................... 22 Response to the 2012 World Development Report: Mainstreaming Gender ....................... 22 Principles of the CAS............................................................................................................ 24 B. Proposed WBG Country Assistance Strategy (CAS)..................................................... 25 Strategic Objectives and Results Areas ................................................................................ 25 Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth ................................. 26 Theme 2: Enhancing Human Capital and Reducing Vulnerabilities.................................... 33 Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness ............... 38 C. Implementing the FY13-FY16 WBG Country Assistance Strategy .............................. 43 IV. MANAGING RISKS .............................................................................................................. 49 List of Tables Table 1: Malawi - Key Macroeconomic Indicators, 2007-2016 ..................................................... 9 Table 2: Mobile Market – Historical Data & Forecast (2007-2012) ........................................... 14 Table 3: Portfolio Trend FY13-FY16 ........................................................................................... 44 vi Malawi Country Assistance Strategy FY13–16 List of Boxes Box 1: Public-Private Partnerships in Malawi ............................................................................. 13 Box 2: Regional Integration ......................................................................................................... 15 Box 3: Applying Knowledge to Improve Development Goals .................................................... 23 Box 4: Engaging Stakeholders with the CAS .............................................................................. 25 Box 5: WBG Support for Mining Sector Governance Reform and Capacity Building............... 41 Box 6: Social Accountability Initiatives in the Current WBG Program ...................................... 42 Box 7: World Bank / IFC Collaboration ...................................................................................... 46 CAS Annexes Annex 1: Malawi CAS FY13-FY16: Results Framework ............................................................ 52 Annex 2: Malawi: CAS (FY07-FY12) Completion Report.......................................................... 65 Annex 3: Poverty Context ............................................................................................................. 93 Annex 4: Progress Toward the MDGS ......................................................................................... 97 Annex 5: Donor Partners In Malawi ............................................................................................. 99 Annex 6: Mainstreaming Gender ................................................................................................ 100 Annex 7: CAS Stakeholder Consultations .................................................................................. 102 Annex 8: Social Accountability in the Malawi Portfolio............................................................ 104 Annex 9: List of Active Trust Funds ......................................................................................... 106 Annex 10: IDA Indicative Financing Program ........................................................................... 107 Annex 11: Indicative Program of Economic and Sector Work .................................................. 108 CAS Standard Annex Tables Annex A 2: Key Social and Economic Indicators ...................................................................... 109 Annex B2: Selected Indicators of Bank Portfolio Performance and Management ................... 112 Annex B5: Social Indicators ...................................................................................................... 113 Annex B6: Key Economic Indicators ......................................................................................... 114 Annex B7: Key Exposure Indicators .......................................................................................... 116 Annex B8: Operations Portfolio (IDA and Grants) .................................................................... 117 Annex B8: Statement of IFC’s Held and Disbursed Portfolio.................................................... 118 vii Malawi Country Assistance Strategy FY13–16 This Country Assistance Strategy was prepared under the guidance of Kundhavi Kadiresan, Country Director for Malawi, Zambia and Zimbabwe, by a team led by Sandra Bloemenkamp, Country Manager for Malawi. The CAS core team included: Appolenia Mbowe, Muna Meky, Kathrin Plangemann, Chrissie Kamwendo, Zeria Banda, Temwa Gondwe, Vijay Pillai, Yisgedu Amde, Abubakar Momodu (IFC), Saleem Karimjee (IFC) Conor Healy (MIGA) and Stephan Dreyhaupt (MIGA). Support to this team was provided by Esther Lozo, Grace Soko and Zafar Ahmed (Consultant). The following members of the Malawi Country Team made important contributions to this strategy: Olivier Durand, Pieter Waalewijn, Michael Webster, Brian Mtonya, Bryan Land, Remi Pelon, Doyle Gallegos, James Markland, Benson Nkhoma, Rob Mills, Dalitso Kafuwa, Francis Nkoka, Pazhayannur Subramanian, Steve Mhone, Trust Chimaliro, John Paul Clark, Menno Mulder-Sibanda, Ida Manjolo, Maniza Naqvi, Ivan Velev, Marjorie Mpundu, Bhadra Durgabakshi, Praveen Kumar, David Sislen and Patricio Marquez. viii Malawi Country Assistance Strategy FY13–16 EXECUTIVE SUMMARY This World Bank Group Country Assistance Strategy (CAS) for Malawi for the period FY13-FY16 is fully aligned with the Second Malawi Growth and Development Strategy (MGDS II) adopted in April 2012 and the subsequent Economic Recovery Plan launched in October 2012. Malawi is a small country with one of the lowest per capita incomes in the world. Its history has been characterized by alternating periods of good policy and then policy reversal. The economy is only starting to be stabilized after the reforms in 2012. But the authorities are fully committed to reform and a new IMF program offers an opportunity to institutionalize and better sequence reforms. Structural transformation of Malawi’s economy will be critical over the coming years. The CAS responds to recent developments in the economic and governance context in Malawi, and prioritizes WBG support around three themes: (1) Promoting Sustainable, Diversified and Inclusive Growth; (2) Enhancing Human Capital and Reducing Vulnerabilities; and (3) Mainstreaming Governance for Enhanced Development Effectiveness. Within these themes, WBG support will be demand-driven and exercise strategic selectivity. The WBG will continue to: embrace the harmonization agenda, build-up country systems, and engage with all key stakeholders. The three priority themes of the CAS have been structured around six results areas: Result Area 1: Structural and macroeconomic policies to restore internal and external balance. Result Area 2: A business environment that promotes competitiveness and enhances productivity. Result Area 3: Improved delivery of public services. Result Area 4: Lowering vulnerability and enhancing resilience. Result Area 5: Improving public sector management systems. Result Area 6: Strengthening social accountability for service provision. The national elections slated for 2014 will be an important test for the stability of macroeconomic and other reform policies, which are critical for reducing poverty and increasing shared prosperity. Other important issues which could affect the success of the CAS results include Malawi’s vulnerability to external trade shocks and the strong dependence of the country on donor financing. During 2006-2010, Malawi averaged 7 percent annual GDP growth, but the growth has not translated into higher living standards for most people. The CAS has been positioned to provide a combination of lending and knowledge work to help the country address these complex set of challenges and improve its competitiveness. The CAS will also help take forward the regional integration agenda. The WBG portfolio continues to grow – e.g. the Bank commitment to Malawi currently is at $970 million and it is a relatively young portfolio, of which about one-third has been disbursed. The CAS places emphasis on effective implementation of projects so as to enhance the overall development impact of WBG support. Going forward, Malawi has the opportunity to continue on a high growth path but also to ensure that the growth remains inclusive, and by implementing this CAS the WBG will remain a transformative player in the country. 1 Malawi Country Assistance Strategy FY13–16 I. INTRODUCTION 1. Malawi is a small, peaceful, and democratic country, with one of the lowest per capita incomes in the world. In 2011 Gross National Income per capita (Atlas Method) was US$340. With a population of 14.9 million (WDI 2010), it is also one of the world’s most densely populated countries. Malawi is land-locked, has unexploited natural resources, and is highly vulnerable to shocks. It regularly suffers from droughts and floods. Its production and export structure is not diversified. Despite improvements in its food security, the country still experiences frequent food shortages, especially in the south. The economy faces numerous structural, institutional, and infrastructure constraints and is not well integrated into regional and global markets. Despite growth averaging 7 percent for 2006–10, absolute poverty has barely budged: from 52.4 percent in 2004/05 to 50.7 percent in 2010/11. Despite a recent very difficult economic and political period, since April 2012 Malawi has initiated major economic and political governance reforms. 2. This four-year Country Assistance Strategy (CAS) for Malawi covers FY13-FY16. It is aligned with the Second Malawi Growth and Development Strategy (MGDS II, 2011–2016) adopted in April 2012. A Joint Staff Advisory Note on the MGDS II was presented to the IMF Board in July and the Bank Group Board in August 2012. Recognizing the magnitude of the reforms Malawi has undertaken this year after a change in administration, the World Bank Group (WBG) agreed with the Government of Malawi to slightly postpone finalization of the CAS. This allowed for additional consultations with the authorities and other stakeholders and takes account of the new government’s drive to re-prioritize Malawi’s medium-term strategic objectives (within the MGDS II) so as to deal with emerging macroeconomic realities. A government-initiated National Dialogue on the Economy in July 2012 resulted in the preparation of the Economic Recovery Plan, launched in October 2012, identifying commercial agriculture, mining, tourism, transport infrastructure, and energy as the five priorities to fuel the economic rebound, together with improving the investment climate and regional integration. The CAS responds to the revised priorities. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA Political Context 3. Malawi went through a very turbulent period in 2010 and 2011. President Bingu wa Mutharika ruled the country from 2004 until his death in April 2012. Originally elected president as a member of the United Democratic Front (UDF), he soon split from the UDF to form a new party, the Democratic Progressive Party (DPP). Through 2009 his administration made substantial progress despite lacking a parliamentary majority: Malawi saw a remarkable economic turnaround, sustained economic growth, progress on service delivery and the Millennium Development Goals (MDGs), and—most remarkable—improved food security. As a result, President Mutharika’s DPP was re- elected for a second term in office (2009–2014) with a 60 percent majority in the 193-seat Parliament 2 Malawi Country Assistance Strategy FY13–16 and also secured considerable support from independent parliamentarians 1. The administration was thus able to pass with ease laws in support of the President’s political and development agenda. 4. In 2010 Malawi’s record on governance began to deteriorate significantly. Especially the application of checks and balances in the political process affected the environment for growth, the investment climate, and service delivery. In 2010 and 2011 Parliament passed a number of laws perceived as weakening democratic institutions and human rights. Local elections, required since 2005 and planned for 2010, were again delayed. President Mutharika and Vice President Joyce Banda had a falling-out over succession strategies and in early 2011 Mrs. Banda, though still Vice President, began taking her own political course. 5. Social conflicts over a host of governance issues soured relations between the government and most other stakeholders. Relations with neighboring countries became strained. The downturn in the economy fueled protests and strikes that peaked with demonstrations in July 2011; the main demands were for resolution of economic and democratic governance challenges. Development Partners, still providing considerable assistance to Malawi, increasingly expressed concerns and gradually adjusted the size and content of their programs, rerouting planned budget support programs to long-term investment or capacity-building programs. Later on, DPs even funded directly essential imports such as fertilizer, fuel, and emergency drugs to keep essential poverty- oriented programs on track. Major long-term investments, such as the US$350 million energy compact of the Millennium Challenge Corporation, were put on hold. 6. The deterioration threatened to reverse Malawi’s major achievements in macroeconomic stabilization, economic growth, food security, and progress on a number of the MDGs. In 2011 there began a negative cycle of loss of confidence, investment, and international support. An IMF Extended Credit Facility (ECF), approved in February 2010, was suspended in June 2011 and DPs halted all remaining budget support. The sudden drop in budget support, which traditionally underwrote 8–13 percent of the budget, worsened Malawi’s fiscal and external imbalances and further tilted an already severely imbalanced economy. In response, the government adopted a zero-deficit budget that attempted to fund all recurrent government expenditures from local tax revenues. This meant significant tax increases on an already overstressed private sector. Reserves, nevertheless, dwindled dramatically and domestic borrowing soared. With the exchange rate fixed, a severe foreign exchange deficit contributed to painful fuel shortages, idle industrial capacity, growing unemployment, and rising poverty. By early 2012 Malawi’s progress was nearly at a halt. 7. When Bingu wa Mutharika died in April 2012, Joyce Mtila Banda became President of Malawi and began immediately to address reforms. Her new Cabinet 2 succeeded in getting Parliament to repeal some of the laws perceived as abrogating human rights and freedoms, such as the Civil Procedure Amendment Act and Section 46 of the Penal Code. The administration also 1 The 2009 polls saw the number of women members of Parliament rise from 14 to 22.3 per cent. For the first time since independence in 1964, Malawi also had the first female Vice President, Mrs Joyce Banda. 2 Out of a 36 Member Cabinet, in the Peoples Party led-Government, a third are women. 3 Malawi Country Assistance Strategy FY13–16 instituted inquiries into such prominent human rights abuses as deaths in police custody and has begun to cut wasteful spending. It has also undertaken to reinforce management of public procurement and controls and initiated leadership change in key accountability institutions and the long-awaited Electoral Commission has been appointed. The President also reached out to civil society, the churches, traditional authorities, private sector, DPs, and neighboring countries to mend relationships. 8. Simultaneous presidential, parliamentary, and local government elections are planned for 2014. This timetable puts significant pressure on the government to demonstrate successful reforms in the next year. Social Context 9. Malawi is ranked 171st out of 187 countries surveyed in the United Nations Human Development Index of 2011. According to the recent report of Malawi’s Third Integrated Household Survey (IHS3 2010/11), absolute poverty has declined by less than 2 percent since 2004/05, to 50.7 percent. Although poverty in urban areas reduced from 25.4 percent in 2005 to 17.3 percent in 2011, this gain was counterbalanced by a worsening in rural poverty from 55.9 percent to 56.6 percent. 3 It appears from the stagnant rural poverty rate that despite an increase in per capita income, inequality in Malawi is rising. Poverty rates among female headed households are significantly higher than male headed households, with their limited access to larger land holdings and failure to engage in cash crop production contributing to the higher household poverty 4. 10. Income is unevenly distributed. The Gini coefficient for Malawi deteriorated from 0.39 in 2004/05 to 0.45 in 2010/11. Within rural areas, the index rose from 0.34 to 0.38, while in urban areas it was fairly constant at about 0.49. The reasons for rising inequality need further investigation. 11. Stagnant poverty levels raise questions on the effectiveness of the Malawi’s Farm Input Subsidy Program (FISP) in alleviating poverty and food insecurity in a sustainable fashion. Preliminary investigations show that FISP may have a differential impact on different categories of farmers and could be an important factor behind increasing inequality. This is yet another area that warrants further investigation before credible policy recommendations could be drawn. However, the preliminary empirical evidence, based on the nationally-representative IHS3 data, shows that a large share of better-off farmers are benefiting from FISP inputs, most probably through redistribution and/or reselling from FISP beneficiaries. This may obviously limit the impact of FISP benefits on poor households and on poverty alleviation at large. 12. With the majority of the poor living in rural areas, rural growth through agricultural transformation is clearly critical as Malawi strives to reduce the number of its people who live in absolute poverty. International experience shows that rapid and sustained poverty reduction 3 The difference between IHS2 and the IHS3 national absolute poverty rates is not statistically significant. The IHS3 rural poverty rate is also statistically indistinguishable from that of IHS2. 4 Poverty headcount for female headed households stood at 57.1 percent in 2011 compared with 49.0 percent for male headed households. 4 Malawi Country Assistance Strategy FY13–16 requires expanding the sources of growth and in the process increasing the share of the labor force effectively. This is not yet the case in Malawi. Currently, a large number of Malawians depend for their livelihood on rain-fed subsistence agriculture. The impact from climate change and high population growth is likely to make them even more vulnerable unless the agricultural sector is transformed. 13. High population growth (over 3 percent), high population density, and high HIV/AIDS prevalence exacerbate poverty. With almost 46 percent of the current population younger than 14 years (WDI), if unabated the fertility rate of 6 births per woman will increase the pressures and costs of providing social services, worsen pressure on land and cause further environmental degradation, and increase pressure for employment. The MGDS I (2006 –2011) did not reach its goals of reducing annual population growth to 1.5 percent and the total fertility rate (TFR) to 4.9 by 2011, but the MGDS II has set an even more ambitious TFR target: 3.5 by 2016. Job creation, especially for the youth, is a major priority. The country has a large informal sector, mainly based on smallholder agriculture and employing a large proportion of women; only about 10–12 percent of the workforce is engaged in formal employment. Most working women are active in the informal sector. Low wages and low labor productivity characterize Malawi’s labor market. The official estimate of unemployment is 4–5 percent,5 but anecdotal evidence points to a growing problem of youth unemployment and underemployment, especially in farming communities. Nationally, youth employment is 84 percent (IHS3): the labor force participation rate of those aged 15–24 is 77 percent, with 54 percent of these employed by private individuals, 31 percent in the private sector, about 8 percent in the public sector and the remainder is employed by NGOs and others. 14. Despite mixed human development indicators, Malawi is likely to meet four of the eight MDGs – which is a noteworthy achievement in the Sub-Saharan Africa context. Health is being improved by reductions in chronic malnutrition, measles immunization for children less than a year old and life expectancy has surged, from 38 in 2005 to 53 in 2012. Unfortunately, the HIV prevalence rate in Malawi is still one of the highest in the world: 10.6% for adults aged 15–49 in 2010 (12.9 percent for women and 8.1 percent for men), slightly down from 11.8 percent in 2004. AIDS is the leading cause of adult deaths in Malawi. As for the education MDGs, though Malawi has made progress, the quality of education is still low by regional standards. In general, though, Malawi is doing better on achieving the MDGs than many other sub-Saharan countries. It is likely to meet the goals related to reducing child mortality; combating HIV/AIDS, malaria, and other diseases; ensuring environmental sustainability and developing a global partnership for development (see Annex 4). Trends in under-5 and infant mortality have been improving steadily for two decades. While the country was believed to be on track to achieve the MDG goal on poverty eradication based on the 2009 Welfare Monitory Survey, however, the results from IHS3 reflect a different picture. 5 Based on the last Labour Force Survey of 1993. The employment data are based on household surveys aimed at capturing welfare, which give little indication of the true incident of underemployment (ILO 2011). 5 Malawi Country Assistance Strategy FY13–16 Economic Context Structure of the Economy 15. Malawi, a landlocked agrarian economy, is poorly integrated into the region in terms of both trade and physical infrastructure. The concentration of its economy in a few primary commodities makes it vulnerable to weather and terms of trade shocks. The country is also highly aid-dependent. Poor management of the public finances and frequent macroeconomic policy reversals make these economic vulnerabilities worse. In recent years, agriculture has been contributing about 28 percent to total GDP, services 33 percent, and a barely developed manufacturing sector 10 percent. Minerals began to make a contribution only in April 2009 with the start of uranium mining at Keyelekera, though interest in Malawi’s mineral potential has since intensified. However, unlike neighboring South Africa, Tanzania, Zambia, and Mozambique, where the recent commodity boom has re-emphasized mining as strategic for the entire economy, it is still only nascent in Malawi. When and how much it will contribute to the economy is very uncertain. 16. Agriculture is the backbone of Malawi’s economy, accounting for about 85 percent of employment and about 80 percent of foreign exchange, about 60 percent of which comes from tobacco alone. The structural transformation in agriculture that took place in the mid-1990s saw particularly rapid growth in smallholder tobacco farms. Smallholders are responsible for more than 80 percent of Malawi's agricultural production, but theirs is predominantly subsistence farming, and reliance on rain leaves them vulnerable to bad weather. Investment in productivity enhancements is minimal. To sustain growth in the sector, crop diversification and agro-processing will be critical. 17. Since Malawi is landlocked with a narrow resource base and only a small domestic market, Foreign Direct Investment (FDI) is minimal. As Malawi depends heavily on transport through neighboring countries, the costs of importing raw material and intermediate inputs and of accessing export markets are high to begin with and they are exacerbated by extensive delays at ports, too many border procedures, and complex transit arrangements. FDI has mainly gone into mining, manufacturing, agriculture, tourism, and services. Recent Economic Developments 18. From 2006 to 2010, Malawi averaged a solid 7 percent growth in GDP annually, supported by a stable macroeconomic environment and large aid inflows. But this growth has not translated into higher living standards for most Malawians. The growth was largely driven by exports (mainly tobacco); relatively large FDI in a mining project in 2009; and fiscal expansion. Debt relief from the Heavily Indebted Poor Countries (HIPC) initiative helped to create the fiscal space Malawi needed to generate momentum for growth, but macroeconomic imbalances started to build up after the 2008 global crisis and the 2009 presidential elections. Then in 2011 came multiple shocks: adverse terms of trade, significant reductions in tobacco proceeds, and a drop in donor inflows (especially budget support); these were compounded by inappropriate policy responses. Together the shocks triggered a severe foreign exchange shortage. For the business community, delays in making payments abroad led first to loss of credit lines and then to scaling down operations 6 Malawi Country Assistance Strategy FY13–16 and laying off workers. These events culminated in fiscal and external imbalances that required adjustment to contain domestic demand. But there were no adjustments with the 2011/12 budget, and as budget support grants disappeared, the authorities resorted to Central Bank financing. 19. By December 2011, severe foreign exchange shortages were beginning to choke the economy. Excess demand for foreign exchange led to increasing shortages of critical goods, especially fuel, and of other production inputs and essential drugs. With international reserves plunging, in August 2011 the authorities devalued the Malawi Kwacha (MWK) by 10 percent—but at the same time tightened restrictions on foreign exchange transactions. As the stricter controls drove economic activity to the parallel market, the gap between the official and parallel exchange rates shot up from 20 percent in August 2011 to about 80 percent in March 2012. Meanwhile, the downward slide of the economy speeded up because firms could not access foreign exchange to buy inputs for production. Fuel supply shortages also intensified. 20. Employment downsizing, the resultant loss of income for food and other living expenses, and the price changes induced by the kwacha depreciation hit the poor hard. In urban areas, the poorest households suffered most from loss of income in terms of both aggregate and food consumption. In rural areas consumption fell for all income groups, but as a result of the depreciation-induced price changes, the poorest groups lost most. 21. President Banda and her new government acted swiftly to arrest the economic crisis. In early May 2012, the government made a one-step 50 percent adjustment of the official exchange rate, moved to a floating exchange rate, liberalized current account transactions, reinstated the automatic fuel price adjustment mechanism, and adjusted electricity tariffs toward cost-recovery levels—all of which improved Malawi’s economic outlook. Tighter monetary policy brought an upward adjustment in the Reserve Bank’s rate in 2012 from 13 percent to 16 percent in May to 21 percent in June, and to 25 percent in December. The authorities have also adopted a tight fiscal stance and a realistic 2012/13 budget anchored on zero net domestic financing (on an annual basis). A sizable fiscal adjustment is planned in the 2012/13 budget to support the recent policy reforms, entrench macroeconomic stability, and expand social safety nets. 6 This will largely be supported by introduction of expenditure controls and prioritization as well as by revenue-enhancing measures. 22. While the economic recovery remains fragile, policy reforms are starting to bear fruit, as evidenced by improvements in the availability of fuel and foreign exchange and the return of some credit lines. The floating exchange rate has crowded out the parallel market; the premium sank from 80 percent down to 5–10 percent. The supply of petroleum products has also loosened, excess liquidity tied to outstanding import bills has been mopped up, and smallholder tobacco farmers are being paid at market-determined exchange rates. However, the economic rebound has been buffeted by a surge in inflationary pressures since January 2012 (headline inflation in October 2012 was 30.6 percent compared to 10.3 percent in January) as the kwacha continues to depreciate because of the pent-up demand for foreign exchange associated not only with market demands but also the backlog in private sector external arrears. The rise in the cost of living has intensified demands for wage 6 Including expansion of a country-wide labour-intensive public works, the FISP, and several social safety net programs. 7 Malawi Country Assistance Strategy FY13–16 increases in both public and private enterprises, and some labor strikes have slowed economic activity. The Medium-Term Economic Outlook 23. The macroeconomic and structural reforms have brightened the medium-term economic outlook but there are still risks, mainly associated with the global environment. 7 While the recent reforms have made the country more competitive, the supply side response from the export side is still constrained. To transform Malawi into an export-led economy, the structure of the economy needs to be changed by diversifying; improving the business environment; reducing the infrastructure deficit, especially energy and water; improving trade facilitation and regional integration; making credit more available and affordable, especially to smallholders; and addressing the skills gap. Deteriorated governance and accountability performance also needs to be addressed. 24. Real GDP growth is expected to rebound to more than 6 percent by 2014, anchored mainly by the sectors hardest hit by foreign exchange shortages: tourism, manufacturing, transportation services, construction, and trade (Table 1). 8 Growth in services is expected to be healthy in the medium term, propelled by financial services and telecommunications. Other sectors will also benefit from the gradual move toward agricultural commercialization. Mining and construction are expected to see solid growth, but if growth is to be inclusive, it needs to be broad-based. 25. Rising inflationary pressures, projected at 20.8 percent in 2012, are expected to taper off to 18.0 percent in 2013 and ease to pre-2010 levels of less than 7 percent by 2016, despite the recent bouts of high inflation. Fiscal policy is expected to be contractionary, anchored on zero net domestic financing and geared to creating fiscal space for pro-poor and growth-enhancing spending. The overall balance is projected to narrow from a deficit of 8.5 percent of GDP in 2011/12 to an average deficit of 0.5 percent for 2013–2016, assuming that the authorities resist pre-election spending pressures. The current account deficit is also projected to narrow, from 5.9 percent of GDP in 2011 to an average of not more than 1.7 percent for 2013–2016. 26. As production diversifies, agriculture is expected to rebound to 5 percent growth within the next 24 months and continue on up over the medium term, supported by planned reforms, such as commercialization and modernization of farming systems. In addition, some rebalancing of public spending in agriculture is expected to support promotion of crop diversification, small livestock production, commodity risk management, and other productivity-enhancing investments. Meanwhile, manufacturing is expected to rebound by the second half of 2013 as firms begin to use up idle capacity when supply chains normalize based on returning lines of credit and foreign exchange supply. However, inadequate energy and water supplies are expected to remain a constraint for a number of years. 7 Other threats include the risk of policy reversal as the 2014 elections approach, exogenous and terms of trade shocks, and shortfalls in donor support. 8 Assuming that the authorities sustain the recent reforms. 8 Malawi Country Assistance Strategy FY13–16 Table 1: Malawi - Key Macroeconomic Indicators, 2007-2016 Table 1. Malawi: Selected Economic Indicators, 2007–16 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Prel. Rev. Prg. Nov. Prog. Nov. Proj. Proj. Proj. National accounts and prices (percent change, unless otherwise indicated) GDP at constant market prices 9.5 8.3 9.0 6.5 4.3 1.9 5.5 6.1 6.5 6.7 Nominal GDP (billions of kwacha) 510.5 601.0 710.2 812.4 879.8 1,062.1 1,298.6 1,473.8 1,659.2 1,857.6 Nominal GDP per capita (US$) 252.5 288.1 329.6 343.5 346.8 254.7 219.2 231.9 245.5 258.9 Consumer prices (end of period) 7.5 9.9 7.6 6.3 9.8 31.7 10.1 5.8 5.4 5.0 Consumer prices (annual average) 8.0 8.7 8.4 7.4 7.6 20.8 18.0 7.2 5.7 4.9 Central government (percent of GDP on a fiscal year basis) Revenue 30.7 29.4 32.1 33.8 32.1 26.5 35.3 36.9 35.8 35.3 Tax and nontax revenue 18.0 18.9 20.5 23.5 24.5 22.1 22.6 24.1 24.5 24.9 Grants 12.7 10.5 11.6 10.3 7.6 4.4 12.7 12.8 11.3 10.4 Expenditure and net lending 31.9 30.0 37.8 33.8 35.0 35.0 35.8 38.9 37.5 37.1 Overall balance (excluding grants) -13.9 -11.2 -17.3 -10.3 -10.5 -13.0 -13.2 -14.7 -12.9 -12.2 Overall balance -1.2 -0.6 -5.7 0.1 -2.9 -8.5 -0.5 -1.9 -1.6 -1.9 Primary balance 2.3 1.6 -3.0 2.9 -0.2 -6.1 1.9 0.8 0.7 -0.1 Foreign financing 1.0 2.5 2.0 0.9 1.3 1.6 1.0 1.9 1.6 1.4 Domestic financing -0.3 0.5 3.7 -0.9 1.7 6.6 -0.5 0.0 0.0 0.5 External sector (US$ millions, unless otherwise indicated) Exports (goods and services) 893.2 1,043.2 1,050.2 1,360.4 1,408.7 1,357.5 1,603.6 1,725.5 1,861.3 2,008.1 Imports (goods and services) 1,468.3 2,091.7 1,961.1 2,425.4 2,236.2 2,259.6 2,329.6 2,516.7 2,689.2 2,892.6 Usable gross official reserves 216.5 239.0 140.5 279.6 190.2 214.7 403.3 547.1 677.7 781.4 (months of imports) 1.2 1.5 0.7 1.5 1.0 1.1 1.9 2.4 2.8 3.0 Current account (percent of GDP) 1.0 -9.7 -4.8 -1.3 -5.9 -3.6 -1.6 -1.9 -2.3 -3.0 Current account, excl. official transfers (percent of GDP) -12.8 -20.8 -14.2 -17.0 -12.3 -18.3 -16.0 -16.2 -15.5 -15.2 Real effective exchange rate (percent change) -3.0 20.4 9.5 -6.0 -3.3 ... ... ... ... ... Overall balance (percent of GDP) 2.0 -1.6 -2.0 2.2 -1.8 -0.1 3.7 3.3 3.2 2.8 Terms of trade (percent change) -0.2 21.5 7.7 3.0 -17.2 -3.3 1.5 3.3 2.2 2.0 Debt stock and service (percent of GDP, unless otherwise indicated) External debt (public sector) 15.8 15.8 16.6 15.9 16.2 22.7 26.6 24.9 23.1 21.7 NPV of debt (percent of exports) 0.0 … 57.1 44.6 48.1 53.3 46.1 42.1 38.0 34.1 Sources: Malawian authorities, IMF and World Bank staff estimates. 27. If several critical problems are addressed, the mining sector could bring in significantly more export earnings and revenues in the medium term, particularly if the second phase of the Keyelekera uranium mine is confirmed. Depending on external factors like international commodity prices and internal factors like power supplies and the legal and institutional framework, several other mining projects could reach the stage of investment decision before 2020. 28. At the moment the risk of debt distress is moderate; Malawi’s debt burden indicators are expected to remain well below prudential thresholds. Over the long term, the stock of external public and publicly guaranteed debt is expected to ease downward from about 31 percent of GDP in 2012 to about 16 percent in 2032. The present value of the debt-to-exports ratio falls gradually and stays under 80 percent, well below the 150 percent distress threshold. However, stress tests show that an export shock could breach the threshold-hence the need to diversify exports to minimize Malawi’s 9 Malawi Country Assistance Strategy FY13–16 vulnerability to shocks. The policy slippages in 2010–2011 contributed to the build-up of domestic debt in 2011 to about 25 percent of GDP (from 20 percent as of 2008). Stress tests indicate a need for fiscal consolidation and reform of parastatal institutions to slow growth in the domestic debt stock. Development Challenges and Opportunities Economic Management, the Business Environment, and Regional Integration 29. Sustaining the policy reforms may be a problem. The country’s history has been characterized by alternating periods of good policy implementation and policy reversals, usually associated with different political cycles. Macroeconomic stability following the actions taken by the new administration is still tentative and overall benefits depend critically on sustaining the reform momentum. However, the commitment of the authorities and the new IMF/ECF program offer an opportunity to further institutionalize and better sequence reforms to ensure the chances of sustainability before and after the elections. Structural transformation of the economy will also be critical. 30. Public spending is inefficient and poorly targeted. There needs to be sound public financial management (PFM) and spending that is growth-enhancing and poverty-reducing, which depends on a more credible budget. It is essential that Malawi reduces variations in the recurrent budget while containing its growth, ensuring better linkage with policy priorities by budgeting within a medium-term expenditure framework (MTEF), more focused and more carefully appraised public investment, and managing domestic debt so as to ensure that it is not only sustainable but also adheres to the guiding principles stipulated in the debt management strategy. With support from DPs, the government has initiated several programs to reinforce financial management processes, and in 2011 approved the Public Finance and Economic Management Reform Program (PFEM). The Multi- Donor Trust Fund (MDTF) for the PFEM, managed by the Bank, is a comprehensive and well- coordinated approach to helping Malawi build capacity to better manage public resources. 31. Agriculture, the main source of growth and exports in Malawi, is central to reducing poverty. Expanding and diversifying agricultural exports and expanding commercial agriculture is high priority. The country’s dependence on a single agricultural export, tobacco, is now threatened by the enforcement of the Framework Convention on Tobacco, which would restrict, and possibly ban, the use of flavorants, which are essential ingredients for burley-filled tobacco products. Burley tobacco still accounts for about 80 percent of Malawi’s agricultural exports and 60 percent of national export value. The new government is considering a thorough revision of the Tobacco Act after consultation with all stakeholders. A major shift from an auction-based system toward contract farming is underway. Sugar and tea are important alternatives, particularly for larger agricultural estates (and their smallholder subcontractors), and a broader range of commercial opportunities is needed for smallholders. With support from DPs, the government is promoting production of legumes and has introduced a pilot program to promote cotton production. Other potential commercial agricultural products are pepper, coffee, and horticultural crops as well as dairy and poultry production. However, the success of agricultural diversification will inter alia depend on adequate road access (highlighted in the 2010 CEM) and marketing infrastructure. 10 Malawi Country Assistance Strategy FY13–16 32. Irrigation is critical for enhancing productivity, water use efficiency, commercialization, diversification, and for resilience to climate change. Small and medium scale irrigation has expanded in recent years, building the base for a diversified rural economy and incomes in the dry season. On a larger scale, if implemented successfully through a public-private partnership (PPP) arrangement and with due attention to economic, social, and environmental sustainability, the Shire Valley Irrigation Project (which could cover as much as 42,000 ha, about 50 times larger than the largest publicly financed scheme in Malawi) could transform the regional economy and help increase the much needed export base. The World Bank, the AfDB, and the IFC are involved in preparatory activities. The water resource base could provide opportunities for agriculture, consumption, hydropower, fisheries, industry, and tourism, and can be harnessed efficiently for times of scarcity. 33. Mining is in its initial stages, but could become more important in the medium term. In addition to the Kayerekera project, the niobium mining project at Kanyika, for which an agreement is currently being negotiated, is a good example. The growing interest that has been shown in potential oil resources, underlines the need to put in place capacity to manage the extractive industries, beginning with effective and transparent measures to allocate exploration rights. This potential for oil resources also provides an opportunity to plan mechanisms for the equitable distribution of revenues to benefit all Malawians and to define appropriate social and environmental safeguards. 34. The authorities are currently drafting a National Export Strategy (NES) as a road map for how Malawi can drive export growth to generate the foreign exchange it needs. Efforts are underway to establish an export guarantee financing facility for potential exporters. Careful research and market analysis will be critical to ensure its success: the value chain analysis undertaken by the World Bank and other DPs can be useful in this process. 35. Private investment is deterred by the investment climate. The deterioration of the business environment in Malawi in recent years has slowed FDI and reduced competitiveness. The 2009 Enterprise Survey for Malawi listed the top five obstacles: access to finance, transportation, informal practices, electricity, and tax rates. While the new government has made commendable efforts on stabilizing the economy, improving the business environment will depend on policy certainty and predictability. 36. Access to finance is a major problem. The financial system suffers from a lack of critical mass, low productivity, high spreads because of high costs, and limited outreach and product variety. 9 According to the 2009 Finscope Survey, only about 19 percent of Malawi’s population have formal bank accounts, and only 3 percent use insurance or pension products. However, recent reforms in the laws governing the financial sector have potential to deepen and broaden the availability of financial services. 9 Malawi Financial Sector Assessment Program, 2008, carried out jointly by the Bank and the IMF. 11 Malawi Country Assistance Strategy FY13–16 37. Delays at ports and border posts, unduly complex customs, and regulatory and non- tariff barriers along major routes all contribute to higher-than-necessary transport costs, making it harder for Malawi to integrate into the regional and global economy. The government, with support from the EU and other DPs, has made major investments in roads. Although data on road conditions are encouraging, 10 significant investments are still needed to prevent future deterioration; a joint sector approach has therefore been formulated in collaboration with DPs. Road safety is a major problem in Malawi, requiring solutions that address institutions and attitudes as well as infrastructure. Rail transport is underutilized as a lower-cost alternative to road freight due to the poor condition of rails and rail-beds and shortages of rolling stock. Only through consolidation of traffic from neighboring countries, with Malawi acting as a regional hub, can improvements to the rail infrastructure be justified. Malawi’s location as a potential transit route for the increasing volume of minerals being produced regionally (particularly in Mozambique’s Tete Province and in Zambia), offers opportunities to attract significant infrastructure investment. Close collaboration with neighboring countries offers the most effective, in some cases the only, way to reduce these infrastructure gaps. In this regard, a dramatic improvement in the rail sector in Malawi is expected from a new PPP agreement between the governments of Malawi and Mozambique and Brazilian mining giant Vale to construct a new line through Malawi, part of a US$ 2 billion investment in a railway line from the northwestern province of Tete in Mozambique, through Malawi, to a new coal terminal at Nacala-a-Velha port in Mozambique, scheduled to open in 2015. 38. Malawi’s energy sector needs both public and private investments to eliminate energy shortages, by upgrading transmission and distribution systems to reduce energy losses and improving both energy efficiency and transmission interconnections to the Southern African Power Pool (SAPP) to diversify supply sources. One hydropower facility is being extended, and the feasibility of several new hydro-generation sites is being studied as part of the World Bank- supported energy project. A US$350 million Millennium Challenge Corporation (MCC) project will, besides upgrading generation and transmission systems, provide support for improvements at the state-owned utility and for amending regulations to facilitate private participation. These efforts are aligned with the Bank’s engagement with the government on sector policy and regulation, and IFC is involved in discussions on options for introduction of management contracts and possible PPPs in the sector. Moreover, the new government is giving priority to reviving a project to connect Malawi to the SAPP to enable import and export of power. There is renewed optimism on the medium-term energy outlook that is increasing private interest in investment. Energy could provide good opportunity for PPPs but needs careful preparation. Box 1 provides further details on the PPP environment in Malawi. 10 Roads Authority statistics for 2010 shows that 93% of the paved road network is in good or fair condition. 12 Malawi Country Assistance Strategy FY13–16 Box 1: Public-Private Partnerships in Malawi Some years ago the government began a long process of improving the environment for PPPs in order to lower investors’ perceptions of risk and increase government capacity to enter into and monitor PPP projects. This has now culminated in the adoption of a PPP policy, the passing of the PPP Act in 2011, and transformation of the Privatization Commission into the PPP Commission. Effective regulation, which is vital to the success of PPPs, has been partially addressed with the establishment of regulators for energy, water, and telecommunications. Other sectors are regulated by line ministries. The existence of a pipeline of viable PPP projects is important for attracting investors to participate. The WBG, through a PPIAF grant, is providing support to the PPP Commission to screen potential projects and identify candidates for further development. The WBG has supported government in formulating the institutional framework for PPP management and in building capacity of the commission itself, both through PPIAF and as a part of projects such as BESTAP. It is currently advising the government on renegotiation of the CEAR rail concession to take full advantage of new investments in the line. IFC’s PPP advisory department recently undertook scoping mission to Malawi to assess the opportunities and possible areas of private sector engagement in the provision of long-term sustainable water services and identified potentially interesting opportunities. 39. Water resources management and infrastructure are not sufficient for growth in critical sectors. While Malawi has enough water resources, they are unevenly distributed, erratic, and not well-harnessed. Apart from the natural storage in Lake Malawi, there is very little storage elsewhere and Malawi has no good database or modelling tools to support decision making. Key economic sectors (irrigation, hydropower, water supply for industrial and human use, and navigation) are significantly raising demand for water. As new needs arise, decisions on development of water resources have been ad hoc and uncoordinated. There is, at present, no institutional mechanism to coordinate investment planning and systems, and water conflicts are becoming apparent, especially in the Shire Basin, where 96 percent of the country’s energy is generated. Blantyre, the country’s commercial centre, draws its water supply from there, and current and planned irrigation in the basin will significantly increase demand. Given the periodic low flows, water resources are unlikely to be sufficient to meet all needs, thus making negotiated joint planning imperative. 40. Information communications and technology (ICT) can be leveraged for economic growth. Since the mobile phone was introduced in Malawi in 1996, ownership has increased (see Table 2) and device costs have plunged. Recent installation by Malawi Telecommunications Limited and Electricity Supply Corporation of Malawi of a fiber optic network and launch of the World Bank-funded Regional Communications Infrastructure Project (RCIP), which will connect Malawi to undersea fiber optic cables from the coast of Mozambique and Tanzania (through a PPP arrangement), will inevitably lead to faster, more reliable, and cheaper connections. While Malawi has yet to realize the full potential of mobile phones as a low-cost payment system and for increasing access to finance, especially in rural areas, the recent piloting of a mobile money product by the major mobile operators and the increasing use of mobile phone value- added services by financing institutions suggest that quick progress is possible. With joint IDA, DfID, and USAID financing, a Financial Sector Deepening Trust Fund is being established to encourage access to finance and 13 Malawi Country Assistance Strategy FY13–16 leverage ICT, especially for lower income households and smaller scale enterprises in both rural and urban areas 11. Table 2: Mobile Market – Historical Data & Forecast (2007-2012) 2007 2008 2009 2010 2011 2012f Mobile 988 1,898 2,400 3,038 3,860 4,684 Subscribers (000) Mobile 7.1 12.7 16.6 20.4 25.1 29.5 Subscribers/ 100 Inhabitants Monthly ARPU N/A N/A 974.1 752.1 626.9 568.8 (MWK) Source: Business Monitor International 41. Regional integration can help create jobs by broadening Malawi’s export base. Because it is small and land-locked, regional integration is necessary for Malawi to benefit from the growth of the larger economies in neighboring countries (Box 2). Opportunities missed in the past include the Bank’s Malawi-Mozambique energy interconnector project and an initiative to improve environmental management of Lake Malawi. Since the new government has taken power, it has moved to repair strained relations with neighboring countries, and prospects seem better for a more constructive environment for regional cooperation. Malawi has signaled that reinstating the Malawi- Mozambique energy interconnector has high priority to overcome the crippling power shortages. Major new mining projects in Tete province in neighboring Mozambique and the buoyant economy in Zambia could benefit Malawi both through investments in improved transport corridors and by generating opportunities for Malawian businesses to provide goods and services. 42. Lack of skilled labor is a barrier to private sector-led growth. Malawi’s tertiary gross enrollment rate is 0.4 percent—one of the very lowest in Africa. Although recent gains in enrollment due to the introduction of private institutions have eased some constraints to access, they still enroll only about 12% of the students. University entry, based on merit, is highly competitive. However, Malawi’s tertiary education system is regressive in that student loans are not needs-based and are almost never recovered, which further exacerbates inequities. Expansion of enrollments is not based on labor market needs, and there is little evidence that the private sector is consulted on program development or curricula. In addition, with the shift from the Board of Governors to the University of Malawi 12, technician programs in core skills areas were neglected or entirely abolished. Access, quality, and funding indicators for Technical, Entrepreneurship and Vocational Education Training (TEVET) in Malawi are among the lowest in the region. Although the private sector is well represented on the TEVET board, both universities and TEVET suffer from low private participation. 11 The Trust will operate as a legally independent Trust under the supervision of professional trustees, with policy guidance from a program investment committee comprised of representatives of donors and GOM. 12 Until 2002 a Board of Governors was responsible for degree level technicians program in Malawi, a parallel structure in the University of Malawi, housed at the Polytechnic. They continued to be responsible for all aspects of the technician programme until they were dissolved. 14 Malawi Country Assistance Strategy FY13–16 Consequentially, analysis has found that severe skills gaps remain, including in such vital growth areas as mining, agriculture, tourism, and the construction industry. Box 2: Regional Integration Especially for Malawi, integration into the dynamic and open Southern African region is central to building prosperity and improving livelihoods. Although there has been solid political consensus from regional leaders in support of integration, some countries continue at various levels to protect national producers. South Africa exports twice as much to countries in the region as it imports from them, but economies of scale make it difficult to redress the imbalance. In southern Africa there are many cases where national boundaries artificially separate areas of production from nearby markets. Recent progress in regional cooperation, including the gradual dismantling of barriers within the COMESA and SADC free trade areas and renewed bilateral cooperation with Mozambique, will help expand market access and the inflow of investment to support diversified exports and economic growth in Malawi, though significant work is still necessary to turn intentions into reality. Malawi also depends on regional collaboration to upgrade infrastructure to regional and international markets; harmonize standards and sanitary measures; protect against plant and animal diseases; and generate new technology. However, if it is to be regionally competitive, the country needs to address the problems of low productivity, high cost of inputs, and high costs along the value chain through available regional and national initiatives. Malawi is already simplifying its trade regime and establishing one-stop border posts with Mozambique, Tanzania, and Zambia; the launch of the MGDS II and the ERP present opportunities to push forward regional integration. Initiatives are already underway to improve rail and telecommunication infrastructure, such as private investment in the railway line from Tete in northwestern Mozambique via Malawi to a new port at Nacala-a-Velha and the SADC fiber-based telecommunications network. In addition, the government has resumed negotiations on a regional electricity interconnector with Mozambique and is facilitating market access for Malawian products, in particular targeting the economic boom in Tete Sources: 2010 Country Economic Memorandum, 2011 Strategy for a Core Strategic Transport Network for E. and S. Africa, 2012 De-fragmenting Africa: Deepening Regional Trade Integration. Human Development Indicators and Vulnerabilities 43. Building up the human capital base is a priority for Malawi. Although primary education is free, only 55 percent of boys and 45 percent of girls finish primary school. Secondary education has lower gross enrolment rate of only 17 percent, with fewer girls than boys. Malawi’s scores on student learning tests are among the worst in the countries of the Southern African Consortium of Monitoring Education Quality (SACMEQ). Malawi is expected to make progress towards achieving quality education for all as the Government has committed itself to a comprehensive reform agenda largely based on the findings of a rigorous sector analysis. Malawi’s national education sector plan addresses key reform areas including (i) increasing accountability through providing grants to schools; (ii) reducing the rural urban disparity in pupil teacher ratios; and (iii) promotion of double-shifting. In response, DPs have committed to support the implementation of the national education sector through a Sector Wide Approach. As a result of these efforts the total financial envelope has been growing and beginning to constitute a more proportionate response to the scale of issues faced in Malawi. In line with the recommendation of the 2013 WDR on Jobs, the Government of Malawi understands that a holistic approach to address 15 Malawi Country Assistance Strategy FY13–16 constraints faced in the education sector is needed in order to improve the quality and effectiveness of the education system to provide the generic skills needed to learn and adapt to different tasks that young people will need in a rapidly changing world. 44. Stunting, a primary manifestation of malnutrition in early childhood linked to maternal size, nutrition during pregnancy, and fetal growth, has barely shown any improvement since 1992, and at 48 percent in 2010 is among the worst in sub-Saharan Africa. Since malnutrition is the cause of one-third to half of all child deaths and impairs cognitive development by 20 or more IQ points, the challenge is to finance a coherent and integrated approach to nutrition. 13 Although good progress has been made on HIV/AIDS, with more people on antiretroviral drug treatment (ART) and increased availability of counseling and testing, a major effort is needed to prevent new HIV infections. Unless incidence is reduced significantly, due to Malawi’s financial and health system limitations ART is not sustainable in the long term at current population growth rates. 45. Addressing Malawi’s population projections is necessary to ensure sustainable economic growth. Malawi is one of southern Africa’s most densely populated countries; its young and growing population is expected to reach 24.2 million by 2025. A sustained multi-sector approach will be necessary to address the causes and consequences of population growth. The goal of the MGDS II is to manage population growth for sustainable socioeconomic development. Its expected outcomes are a reduced fertility rate and well-managed migration. A number of initiatives for reducing the fertility rate are underway. The government and DPs (IDA, DfID, UNICEF, USAID) are supporting proven interventions to delay early marriage and reduce early pregnancy by (i) expanding access to modern family planning methods; (ii) improved access to health commodities; (iii) improved sanitation facilities in secondary schools; and (iv) school bursaries and cash transfers that are conditional on girls’ attendance. 46. Although investments in women’s empowerment have brought notable progress, women in Malawi are still disadvantaged in numerous ways. The Malawi Poverty and Vulnerability Assessment (2007) found that women head 23 percent of all households. Though the maternal mortality rate has been moving downward, from 984 per 100,000 live births in 2004 to 675 in 2010, it is still high. The schooling conditional cash transfer program is helping to close gender gaps in primary education, but only 66 percent of women are literate compared to 80 percent of men. Furthermore, in rural Malawi the households headed by females tend to be poorer than male-headed households. 47. The government has been providing social protection through various interventions to help vulnerable groups manage the risks they face. An estimated 50 percent of the population is classified as vulnerable (IHS3 2010–2011). Government spending on social protection was 5 percent of total spending in FY12/13 (excluding FISP) but is mainly sourced from DPs. It includes cash transfer pilot schemes, labor-intensive public works, school feeding programs, and investments in 13 A recent study highlighted the widespread growth retardation during the first two years of life that underlies the prevalence of stunting. The growth retardation is in large part due to inadequate child care and feeding practices, which can easily be overcome by counselling mothers and caregivers. However, this requires a program shift that gives more attention to preventing growth retardation rather than treating acute malnutrition. 16 Malawi Country Assistance Strategy FY13–16 improving resilience to climate shocks through better management of natural resources, flood risk, and irrigation. Currently, many of the social support interventions in Malawi are not coordinated. Most, except for public works, are not implemented nationwide, are not amenable to scaling up in times of crisis, and have different targeting mechanisms, making it possible to double-target a single needy household. In line with the Social Support Policy adopted in June 2012, the government has therefore begun to roll out large programs to reach more vulnerable people and to cushion the impact of the stabilization effort on the most vulnerable groups. 48. Adequate water supply and sanitation services for Malawi’s citizens and businesses are needed to reduce poverty. The Ministry of Water Development and Irrigation and the five regional water boards have made significant progress, and water access rates have increased from 40 percent in 1990 to 83 percent in 2010. 14 Access to adequate sanitation has increased more slowly, from 42 percent to 51 percent during the period, with 8 percent open defecation. 49. Significant human pressure is degrading Malawi’s land and forests. A growing population increases the pressure on land for cultivation and exploits forests and woodlands for firewood and charcoal production. Land degradation, deforestation, inappropriate farming methods, and limited incentives to promote land and water conservation have increased erosion, run-off, and flash floods, carrying high loads of sediment that are deposited in reservoirs and flood plains. Together, these factors reduce agricultural productivity, fisheries potential, and hydropower generation; damage infrastructure, and adversely affect critical ecosystems and human health. 50. Malawi is prone to natural disasters primarily related to climate variability and change. Its location within the East African Rift system makes it susceptible to disastrous earthquakes; the December 20, 2009, earthquake in Karonga, which had an intensity of 6.2 on the Richter scale, caused US$13.6 million in damages and affected over 145,000 people. Climate-related disasters such as floods and droughts are more frequent due to degradation of upper catchment areas, encroachment of river banks, and the increasing incidence of extreme weather affecting larger areas of the country and exacerbating Malawi’s already high levels of poverty. On average, 1.7 percent of GDP is lost each year to droughts and floods and about 265,000 more people fall into poverty. Resilience to disaster and climate risks is particularly important for the rural households who depend on the fragile natural resource base for their livelihoods. Forest cover is reportedly decreasing at an alarming rate, and the energy balance has not moved away from biomass at all. Rural roads and the rail network are particularly vulnerable to the increased run-off rates that accompany climate change. Climate shocks have direct effects on agricultural productivity and rural vulnerability and erode the productive assets of the poor. Further linking climate risk management and investments with productive social protection investments is necessary to prevent erosion of human capital and build the productive capacity of the poor. 14 As measured by the WHO/UNICEF Joint Monitoring Program, 2012. 17 Malawi Country Assistance Strategy FY13–16 Public Sector Governance 51. Democratic governance saw some serious setbacks in the last two years, but the approach of the new administration is encouraging. Laws that were perceived as oppressive have been repealed and engagement with civil society has been reopened. The administration has also begun to move on overdue procurement and anti-corruption reforms and has appointed new commissions, such as the Electoral Commission. These positive steps bode well for Malawi’s renewed commitment to democratic governance. 52. Over the last decade, Malawi has made progress in reinforcing public sector management systems but their application is still a challenge. The quality of public governance depends on such underlying issues as checks and balances and improving the operations that must support the CAS to promote a results orientation, enhance social accountability, and build trust in government. This calls for a balanced approach, incorporating both supply-side mechanisms in public sector management and demand-side mechanisms by working to strengthen citizen groups and social accountability. While some progress has been made in PFM, human resource management, and procurement, monitoring and evaluation (M&E) and decentralization now need attention. 53. Malawi has made some progress in PFM, procurement, and human resource management, but there is still room for further improvement. Public Expenditure and Financial Accountability (PEFA) assessments were conducted in Malawi in 2005, 2006, 2008, and 2011. The latest, which analyzed performance for 2007–11, revealed that PFM capacity is emerging, as evidenced by a more orderly annual budget process and more timely and better quality public accounting and reporting through roll-out of the Integrated Financial Management Information System (IFMIS). But budget credibility has been undermined by overspending and there are serious deficiencies in management and operation of IFMIS controls that have caused significant financial losses. The capacity to carry out more timely audits, both external and internal audits, has improved, although the quality and the follow-up on internal and external audits are still uncertain; regulation and operational guidelines for internal auditing are not yet well embedded; and systems-based coverage is low. There is now a solid legal foundation for public procurement and dedicated procurement units have been established in major spending ministries, though many are not yet fully staffed. Since 2008 the government has also been carrying out independent procurement audits and is moving to institute a procurement cadre within the Ministry of Finance Purchasing and Supply Directorate. The Public Procurement Act is currently being reviewed to give the directorate more powers to investigate fraud and corruption in the public sector, which was previously within the purview of the Anti-Corruption Bureau (ACB). In human resource management, the government is now able to monitor the wage bill month by month and reports are sent to heads of ministries. Next planned steps are a payroll audit and further elimination of all ghost workers. 54. The government now has a basis for M&E, and the next step would be a government- wide and results-oriented M&E system and a push for performance management. Malawi has also been improving its statistics. The National Statistical Office (NSO) has experience in administering the National Household Survey and other mandated basic surveys, but there are data 18 Malawi Country Assistance Strategy FY13–16 quality questions and there need to be closer links between the NSO and both suppliers and users of data, outside as well as inside government. Management of various public sectors is also being reinforced, especially for mining, where the reform agenda includes adoption of a sector development policy in 2012, revision of the mining law, better engagement with stakeholders on such issues as revenue transparency, upstream and downstream management of mineral resources, and careful monitoring of environmental, social, and institutional impacts. These efforts to mitigate the risks associated with mining development during the CAS period are timely; several options currently being explored could lead to significant mining activity within 10 years. 55. Decentralization has been progressing slowly. While a policy has been elaborated, as yet there is no solid fiscal and institutional decentralization plan. There is need to prepare a solid revenue and expenditure allocation system and a transfer system for local governments; build up intergovernmental accountability; and emphasize social accountability. Until there are elections, which were postponed by the previous government until 2014, it will be difficult to make substantial progress on decentralization 56. Malawi has set up formal accountability institutions, but their ability to exercise effective oversight is at times limited. Parliament’s role in providing checks and balances over the presidency has been minimal, especially when the ruling party dominated the Chamber, but its oversight over government ministries, departments, and public institutions has been better because that is done through committees. While there has been oversight from a relatively effective judiciary, there is a need to complement formal oversight mechanisms with more informal social accountability mechanisms. In this context, it is noteworthy that Malawi recently joined the Global Partnership for Social Accountability (GPSA) and even agreed to serve as one of the three governments to serve on the first steering committee. 57. Civil society in Malawi, which is active and diverse, has been instrumental in shaping public policy. Examples of demand-side governance instruments are community score cards and report cards, user committees, and participation by nongovernmental organizations (NGOs) in certain sectors (e.g., water, irrigation)—all of which have helped to lay the foundation for more social accountability. Since last year’s social unrest, civil society has grown and matured. The new administration has reached out effectively to civil society organizations (CSOs), and the dialogue is expected to result in further collaboration. Malawi also enjoys independent and outspoken media. By various accounts, threats to journalists and their institutions during 2011 did little to dampen their resolve to exercise freedom of the press. 58. Malawi has made progress in building up its anticorruption mechanisms but needs to do more to improve transparency and accountability. Recent anti-governance trends have widened the transparency and accountability gap. This is demonstrated, for example, by the 2011 Transparency International Corruption Perception Index in which Malawi scored 3 out of 10, down from 3.4 in 2010. Malawi’s Country Performance and Institutional Assessment (CPIA) also slid from 3.5 in 2007 to 3.3 in 2012. Malawi’s ACB does not believe it has adequate capacity, both human and 19 Malawi Country Assistance Strategy FY13–16 financial, to handle the growing corruption. Malawi is a party to anticorruption treaties, like the UN Convention against Corruption and the African Union Convention on Prevention and Combating Corruption, but while approval of these conventions is clearly a positive step, much remains to be done to fulfill the associated obligations. III. WBG ASSISTANCE STRATEGY FOR MALAWI A. Underpinnings and Principles of the CAS 59. The new WBG strategy has been informed and enriched by a variety of documents, views from stakeholders, and numerous lessons from experience. A primary document was the government’s poverty reduction strategy, the MGDS II. The relevance and appropriateness of the proposal for the Bank Group’s program were verified by a range of stakeholders through group consultations and surveys of about 600 representative clients. The CAS strategy also hinges on the Bank’s Africa Region Strategy, lessons from the previous CAS, knowledge and advice from the World Development Reports on gender and on jobs. Above all, the strategy embodies the WBG’s commitment to achieving results both in investments and in knowledge and analytical work; the ultimate goal is to improve the lives of Malawians. Second Malawi Growth and Development Strategy (MGDS II) 60. The MGDS II (2011–2016) is the country’s second plan to reduce poverty by creating wealth through sustainable economic growth and infrastructure development over the medium term. MGDS II identifies six thematic areas: sustainable economic growth; social development; social support and disaster risk management (DRM); infrastructure development; improved governance; and cross-cutting issues (gender, capacity development, population, decent employment, productive activities, and economic and democratic governance). The MGDS II emphasizes an export-led growth strategy with major investments in agriculture, manufacturing, mining, and tourism. It commits to heightened accountability and transparency in the public sector, recognizes the importance of reforming PFM and public administration, and highlights the achievement of social objectives. MGDS II was drafted over the course of two years through an inclusive process of consultation with a range of stakeholders. It also drew from what was learned in implementing MGDS I. The cabinet approved the strategy in April 2012 and a few months later gave priority to the Economic Recovery Plan (ERP), which identified a number of areas for accelerating a rebound from the economic crisis in 2011 and early 2012. 61. The Joint IDA-IMF Staff Advisory Note (JSAN) concluded that the MGDS II presented a clear analysis of the challenges but given limited resources needed to be further prioritized, sequenced, and costed. The plans need to be more clearly linked to the budget, the MTEF, and the three-year rolling Public Sector Investment Program (PSIP). The poverty analysis also needs to be updated with the findings from the recent IHS III. The JSAN noted that the macroeconomic framework for MGDS II also needed to be updated because it did not adequately reflect either developments in the past year or recent policy changes. While the MGDS II highlights 20 Malawi Country Assistance Strategy FY13–16 risks to growth and poverty reduction from Malawi’s vulnerability to external shocks, further elaboration is needed on such endogenous risks as inadequate policy response, inadequate implementation capacity, lack of capacity to steer reforms, and the political risks related to the 2014 elections. Staff recommended that the first Annual Progress Report address these issues, emphasizing M&E issues. Africa’s Future and WBG Support 62. The CAS is aligned with the Bank’s Africa Regional Strategy which has two pillars— competitiveness and employment, and vulnerability and resilience—and is built on a foundation of governance and public sector capacity. Regional solutions are one of the special themes, which the Malawi CAS mirrors. The first theme in the CAS addresses competitiveness and employment by improving Malawi’s business environment, easing infrastructure constraints, and increasing the competitiveness of skilled labor and a diversified economy. The second theme of both the CAS and the regional strategy deals with enhancing capacity, lowering vulnerability—notably for women—and enhancing resilience. Finally, the third theme of the CAS, public sector governance, corresponds directly, via its dual focus on the supply and demand sides and its concern for formal and informal accountability mechanisms, to the approach of the Regional Strategy to addressing the foundational challenge of strengthening governance and public sector capacity. The CAS responds to corporate priorities, such as including the governance and anticorruption (GAC) agenda. Regional approaches are integrated in the CAS in both analytical and financing activities. Lessons Learned from the Previous CAS 63. This CAS draws on lessons from its predecessor (FY07-FY12) as detailed in the CAS Completion Report (see Annex 2). The completion report concluded that the CAS was well-aligned with and relevant to the MGDS goals, priorities, and themes, which reinforced government commitment. This enhanced the effectiveness of the Bank Group’s contributions to Malawi’s development goals, the importance of which was evident in the evaluation of the previous CAS; when commitment to reform and good governance deteriorated in 2010 and 2011, achievements for both the MGDS I and the CAS went down. The new CAS (FY13-16) is therefore also aligned with the government program embodied in the MGDS II. In putting together the CAS, it was clear that consultations with civil society and other stakeholders, such as the media and the private sector, should not only be continued but expanded because they offer an alternative voice. Because weaknesses in government capacity had slowed project implementation, financial management, procurement, project management, and M&E should be addressed in the new CAS. Experiences from the Education and HIV Pools also informed the WBG of the significant need for comprehensive fiduciary support, especially in sector-wide approaches, which are central to the government policy on integration of project implementation units. An important lesson was that programmatic approaches can help to leverage resources; the emphasis on programmatic approaches helped to ensure consistency in sector reforms and to leverage resources from other DPs in a harmonized way that can increase the impact of sector and budget funds while reducing transaction costs significantly. 21 Malawi Country Assistance Strategy FY13–16 CAS Stakeholder Consultations 64. In the two years before this CAS was drafted, two sets of consultations were undertaken with a range of stakeholders. The first set took place during President Mutharika’s administration and the second during the administration of President Banda. Nine government priorities informed the first draft of the Concept Note. Discussions were also held with the private sector, civil society, academia, government institutions, and DPs. Throughout the process, the World Bank Africa Strategy was also discussed. In most consultations, agriculture, the macro-economy, and public sector governance were identified as areas requiring more WBG support. Some stakeholders were concerned about the small resource envelope for Malawi considering the challenges that need to be addressed. Stakeholders also reviewed the proposed program; they recommended rescheduling some analytical work to be done earlier (e.g., work on PFM), undertaking more analysis of land issues, and strengthening synergies with other DPs. The change in administration necessitated another round of consultations with government after the priorities were redrawn. Based on the MGDS II, the Banda administration held a National Debate on the Economy in Mangochi in July 2012 that recommended streamlining the MGDS II priorities to focus more on economic recovery. The five priority areas identified were agriculture commercialization, energy, mining, tourism, and infrastructure further elaborated in the Economic Recovery Plan (ERP) launched in October 2012. In consultations with the Banda administration, it was agreed that the CAS was generally in line with government priorities as re-defined at the National Debate and the ERP. The Bank Group was asked to help meet the more acute challenges by giving priority to such issues as energy and higher education. DPs pointed out that Malawi’s problems had not changed with the regime change, so the CAS was still responsive to Malawi’s needs (see Annex 7 for consultation details). The 2010 Country Client Survey 65. The survey showed noteworthy improvements in perceptions of the impact of the World Bank programs compared to the 2006 survey. The Bank’s strategy of alignment with country priorities was considered appropriate, but the survey results also underscored a need to strengthen outreach to stakeholders, enhance engagement with civil society and NGOs, foster more partnerships with decentralized actors and the private sector, and articulate more forcefully the rationale for its engagements and activities in Malawi. The most critical priorities were identified as government effectiveness, governance, growth, education, and agricultural productivity (coupled with food security). Stakeholders made it clear that they thought that in Malawi it would be most productive for the Bank to focus on education, economic growth, and infrastructure. Response to the 2012 World Development Report: Mainstreaming Gender 66. The WBG will support Malawi in promoting the country’s goal of attaining gender balance in all sectors and programs. A gender portfolio review shows that in FY11 (baseline), 42 percent of all current lending operations and projects had a gender-responsive design (50 percent includes at least one sex-disaggregated indicator). The Malawi program is producing specific gender outcomes in the areas of analytical work (80 percent of the WBG’s analytical and advisory work is 22 Malawi Country Assistance Strategy FY13–16 gender-sensitive); policy dialogue (e.g., land and social safety); equal access to services; income and financial markets, and capacity building. The gender program responds to six of the eight policy areas of the Malawi National Gender Program (NGP): education and training, health, HIV/AIDS, food and nutrition security, natural resources and environmental management, and poverty eradication and economic empowerment. Overall, the CAS will target an empirically-based gender- informed approach to reducing poverty in Malawi with gender explicitly and appropriately incorporated into operations and analytical work. For instance, operations will incorporate rigorous impact evaluations to assess the gender-disaggregated effects of these interventions (see Annex 6 for proposed approaches to mainstreaming gender). Linking Knowledge to Results 67. The CAS is premised on full commitment to achieving results. The results specified are aligned with the government’s own priorities as articulated in the MGDS II and are fully supported by such Bank activities as the continuing portfolio of projects, proposed new lending, current and planned AAA, TFs, IFC instruments, and partnerships with DPs. The WBG considers it important to translate the outcomes of numerous impact evaluations that are monitoring actual results into the continuing program and linking knowledge learned back into operational design to improve the final results (see Box 3). Box 3: Applying Knowledge to Improve Development Goals Impact evaluations (IEs) in Malawi produce information for improving both policy and operations. By empirically testing the effectiveness of policy alternatives and scaling up those that perform best, IEs will improve the effectiveness of WBG programs. The IEs are designed in strategic thematic areas aligned with the CAS, such as improving skills for employability and productivity, barriers to savings and lending, and increasing the productivity of farmers. Malawi currently benefits from over 10 IEs supported by the WBG. As a result of the evidence provided through IEs, for instance, the current CAS has scaled up WBG support for communication strategies to inform smallholder farmers about new technologies, land policies and administration to improve investment in land redistribution, and financial literacy to improve account management and individual earnings for vulnerable communities, especially women. IFC is strengthening Monitoring and Evaluation of its Services engagements, which continuously feeds back experience into the design of new advisory programs. On the investment side, IFC's Development Outcomes Tracking System (DOTS) underpins the IFC Development Goals, which are increasingly driving the investment choices that IFC makes, and influences project structuring. Collaboration with the Development Research Group (DECRG) ensures high-quality research and helps to build local capacity to produce systematic evidence-based information about what actually improves the lives of the poor. The new CAS will support IEs that are operationally-driven and fill knowledge gaps in the portfolio. Sector teams will work closely with researchers in DECRG and local research institutions early in design of programs to draw up appropriate research protocols. Areas of collaboration include evaluations to improve targeting of public works programs, identify cost-effective methods for providing early childhood development programs, and designing mechanisms for conditional cash transfers and bursaries to improve education outcomes. With the results of the nationally representative IHS3 2010/11 data and the planned Integrated Household Panel Survey 2013 to track and re-interview about one-quarter of the IHS3 sample, Malawi is included in three cross-country microeconomic research programs on (i) understanding the extent and drivers of gender differences in agricultural productivity and 23 Malawi Country Assistance Strategy FY13–16 technology adoption in sub-Saharan Africa; (ii) links between different forms of household involvement in agricultural activities and nutrition outcomes; and (iii) facts and myths in sub-Saharan African agriculture. The research is led by the Living Standards Measurement Study (LSMS) team within the DECRG-Poverty and Inequality (DECPI) unit. The LSMS team has already commissioned research studies on the FISP to evaluate its targeting and its effects on crop land allocation decisions, agricultural productivity in general and gender differences in agricultural productivity in particular, and household welfare. The drafts of Malawi-specific case studies from the research programs and FISP-related empirical papers are expected to be ready by the end of FY13. Close collaboration with government counterparts will ensure that research findings translate into policy. The WBG teams will work closely with government counterparts through formal training, networking within and across countries with a large community of practitioners, and learning-by-doing through joint government-WBG evaluations. The collaborative and participatory process ensures that IEs reflect the learning priorities of government and the information feeds back into the policy process. The communities of practice will build upon established impact evaluation teams in the ministries of Education, Health, and Agriculture. Principles of the CAS 68. The basic principles for the new CAS are thus to: i. ensure that the WBG strategy is demand-driven, aligned with the priorities and objectives of the government as articulated in the MGDS II and ERP, and supports interventions that are both technically and politically feasible. ii. build on past experience and draw on lessons from previous and current Bank and IFC-supported programs in Malawi and elsewhere. iii. be selective in choosing proposed engagement areas that build on the WBG’s strengths and comparative advantages, other assistance programs, and the absorptive and implementation capacity of Malawi. 15 iv. fully embrace the harmonization agenda; work with DPs and counterparts guided by the successor to the Development Assistance Strategy (2006–2011); and emphasize strategic sectoral approaches by preparing joint diagnostics, action plans, and (preferably) sector-wide approaches, with harmonized financing modalities to reduce transaction costs. v. work through and build up country systems to the extent possible. vi. engage with civil society, private actors, NGOs, academia, and the media in designing, implementing, monitoring, and validating the WBG’s engagements (see Box 4). 69. The guiding principle is the focus on harmonized structures and funding modalities to help Malawi to push forward country systems and the aid coordination agenda. Budget support will be used selectively to advance reforms in sectors where the WBG has or plans to be involved through its investment operations if there is enough traction and a supportive macroeconomic environment. The CAS is strategic, proposing both short- and long-term measures. It is pragmatic, concentrating on areas where government commitment is clear and there are obvious entry points. 15 Annex 5 lists the division of labor among DPs. There are a number of very important sectors, including health (except HIV/AIDS/nutrition) and transport (other than rural feeder roads and regional transport integration), where the WBG is no longer engaged. 24 Malawi Country Assistance Strategy FY13–16 Box 4: Engaging Stakeholders with the CAS The CAS was developed through a highly consultative process involving a variety of stakeholders from the grassroots to other DPs. Implementation will also require continuing engagement with stakeholders, as guided by CAS Principles 4 and 6 (para 69) that stipulate collaborating with other DPs and reaching out to civil society organizations (CSOs), private actors, NGOs, academia, and the media at all points. Engaging DPs: Lessons from the previous CAS show that collaborating with others in knowledge work enriches the product, broadens ownership of findings and recommendations, and strengthens the platform on which DPs can base their advice to government and inform their own operations. This collaborative approach will therefore continue in such activities as Country Economic Memorandums (CEMs), Country Status Reports (CSRs), and Public Expenditure Reports (PERs). The WBG will also collaborate with others in financing operations through SWAps and other co-financing arrangements, and participate in a common approach to budget support. This will further strengthen joint accountability for results. Engaging all other stakeholders: Informed by the previous CAS Completion Report, which observed that civil society, private sector, and the media offer useful contributions in implementation or influencing the environment, the new CAS will scale up involvement of these stakeholders in Bank and IFC-supported operations where appropriate. The new CAS has operations that require involvement of grassroots beneficiaries themselves, such as those in education, child nutrition, and river basin management. CSOs and the media will be instrumental in raising awareness and ensuring accountability and transparency in projects that involve and benefit large numbers. Accountability issues are mainstreamed through Theme 3 of the CAS, which will engage stakeholders and build their capacity. The private sector as an important stakeholder in the CAS will continue to be engaged, especially in evaluation of the doing business environment in collaboration with the IFC. It will also participate in relevant AAAs, such as FINSCOPE surveys and the CEM; as well as in some investment operations, such as FSTAP-AF and Shire Valley Irrigation. The PADs will detail the specific engagement modalities. B. Proposed WBG Country Assistance Strategy (CAS) 70. To support the Government of Malawi in achieving its MGDS II, the new CAS will contribute to Malawi’s efforts toward more diversified, competitive, shock-resilient socioeconomic growth in three thematic areas: Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth Theme 2: Enhancing Human Capital and Reducing Vulnerabilities Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness Strategic Objectives and Results Areas 71. The CAS results framework is built around three thematic areas with six core results areas and seven CAS outcomes. Efforts to reach the objectives will be supported by Bank financing (lending and grants), AAA (ESW and non-lending TA), Bank-managed trust funds, policy advice, IFC investment and advisory services, MIGA support, and close coordination with other DPs. The framework also identifies indicators and milestones for each results area and outcome (see Annex 1). 25 Malawi Country Assistance Strategy FY13–16 Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth Results Areas and Outcomes Results Area: Conducive structural and macroeconomic policies to restore internal and external balance · Outcome 1.1: Improved macroeconomic management Results Area: Enabling a business environment that promotes competitiveness and enhances productivity · Outcome 1.2: Improved ease of doing business, through better economic infrastructure, regional integration, and access to demand-responsive skills development · Outcome 1.3: Increased productivity and commercialization of agriculture and sustainable management of water resources for multiple uses 72. To accelerate progress in reducing poverty, the WBG will work to help Malawi achieve and maintain macroeconomic stability and ensure that growth is more inclusive and sustainable. The main barriers to achieving this goal relate to the stability of the economy and improving the business environment to promote competitiveness and higher productivity. Building on the current macroeconomic and policy environment, in particular the continuing credible and orderly external sector adjustment underpinned by an IMF program, the Bank and IFC will support efforts to: i. improve macroeconomic management (especially a prudent fiscal stance and sound monetary policies) through more efficient and better targeted public spending, an appropriate exchange rate and foreign exchange system, better monitoring of budget planning and execution, and effective management of domestic debt; ii. enhance the business environment by simplifying business processes; using effective public- private partnerships (PPPs), especially in agriculture, energy, irrigation, transport, and tourism; expanding access to financial services; easing energy and other infrastructure constraints; promoting entrepreneurship and increasing skills; and promoting regional integration by enhancing access to ports through smoother railway and road connectivity and streamlining cross-border customs clearance; and iii. diversify the economy and increase productivity, particularly for crops and exports, and build land and water resource management and institutional capacity. Results Area: Constructive structural and macroeconomic policies to restore internal and external balances Outcome 1.1: Improved Macroeconomic management 73. The World Bank, coordinating with the IMF, will support the government structural and macroeconomic policy reforms needed to restore and sustain internal and external balances. The Bank will continue to support reforms designed to restore macroeconomic stability, accelerate the resumption of growth, and mitigate the impact on vulnerable households of the economic adjustment process. Specifically, the Bank will support budget and treasury management 26 Malawi Country Assistance Strategy FY13–16 reforms to help bring about more efficient and better targeted use of public resources. To improve the credibility of the budget, the Bank will support a prudent and transparent approach to budgeting and deepen the strategic medium-term perspective for planning and managing public resources. This will also help ensure better linkage between policy priorities and the budget by improving multiyear budgeting and the quality of public investments. This is expected to help reduce variations in primary spending while containing its growth. The effect of these efforts should be to enhance fiscal efficiency and effective delivery of services to the poor and the most vulnerable. Among instruments to support this outcome are the Rapid Response Development Policy Grant (RRDPG), the new Development Policy Operation (DPO) series, the Public Expenditure Review, and the PFEM MDTF. Results Area: Enabling a business environment that promotes competitiveness and enhances productivity Outcome 1.2: Improved ease of doing business through better economic infrastructure, regional integration, and access to demand-responsive skills development 74. Improving the business environment in Malawi will require facilitating start-up of both formal and informal businesses and employment creation by simplifying business requirements, facilitating access to credit, improving public-private dialogue, and removing unnecessary barriers to trade, especially nontariff barriers. The Bank and IFC have been working closely with the Government of Malawi to address Malawi’s continuing slide in the Doing Business rankings through targeted technical assistance on Companies Act reform to simplify business operations and on reform of the Insolvency and Secured Transactions/Collateral Registry to address access to finance, especially for small and medium enterprises. Work also continues on addressing Malawi’s worst Doing Business indicator, trading across borders, where the time, number of documents required, and costs are above the regional average. The WBG will continue to support the government’s efforts related to the Doing Business Reform Memorandum drafted jointly by the government and the WBG Doing Business Reform Unit. 75. In the financial sector, the major goal of the CAS will be to increase the number of Malawians who are enrolled in the banking system, especially women (only 17 percent of adult women are formally banked; Finscope Survey, 2009). Working closely with DfID and USAID as well as other partners, the Bank will use the Financial Sector Technical Assistance Project (FSTAP, FY11) and the Malawi Financial Sector Deepening Trust (MFSDT) to achieve this by, e.g., promoting mobile technology and branchless banking to increase rural access, putting in place an interoperable national switch, and launching financial literacy programs. IFC will continue to build its portfolio of funding and technical assistance to the banking sector, aimed primarily at increasing access to finance for Small and Medium Enterprises. The Mining TA Project (FY11) will help to improve governance of the mining sector and its contribution to sustainable, diversified, and inclusive growth; Bank activity in this area is closely coordinated with the EU and France. 76. Improving economic infrastructure is essential to increase competitiveness and attract potential investors. Unreliable power and water supplies and excessive transport costs must be addressed. The WBG strategy is to support both analysis and direct project interventions and to 27 Malawi Country Assistance Strategy FY13–16 encourage private investment through PPPs. The Bank and IFC will continue to work closely with other DPs supporting the energy sector, notably the MCC, whose program has a substantial energy sector governance component, and with the AfDB and other DPs active in the sector. It will also coordinate closely with the government’s own investments to build capacity for power generation, transmission, and distribution through the current Bank Energy Sector Improvement Project (FY11) and through non-lending activities. This project will make the transmission network more efficient, reducing losses, and will undertake feasibility studies to attract financing for new hydropower schemes. A transmission interconnection link to the SAPP would be one of the fastest solutions to Malawi’s serious energy shortages through a Regional Energy Project (FY14/15). The governments of Malawi and Mozambique are currently discussing this project, which would revive a 2007 effort. In FY13 the Bank will support updating of the 2005 Malawi Transport Cost Study to maximize the effectiveness of investments in reducing transport costs. Through the Regional Southern Africa Trade and Transport Facilitation Program, Malawi may benefit from regional IDA resources to help finance rehabilitation of the North-South Corridor, road safety improvements, activities to mitigate the impact of HIV/AIDS on corridor users, and measures to facilitate trade, such as upgrading Malawi’s border posts. The safety of Malawi’s paved road network will be assessed with support from the Global Road Safety Facility. The WBG will support the government in promoting PPPs to leverage resources to address investment deficits in energy, irrigation, transport, water and other sectors through transaction-specific support. A screening process, funded by PPIAF, is underway to identify candidate projects and help prepare a pipeline of opportunities that will attract investors. The WBG and AfDB have established a Joint Infrastructure Unit in recognition of the major investments required and the regional complexities of many infrastructure projects in Malawi. The unit (staffed by WBG and AfDB personnel, with financial support from DfID) is looking first at transport and water projects as well as regional integration. These upstream initiatives will act as a feeder of potential PPP's that IFC's Advisory Services will be able to convert into realized projects. The institutions are thus working closely to ensure adequate feedback loops are in place to improve the chances of success, focusing in the first instance on hard infrastructure such as electricity, water, rail, and subsequently on social services such as education and health. 77. The benefits to Malawi from regional integration and connectivity are twofold: (i) improvement of energy, transport, and telecommunications services, and (ii) commercial opportunities offered by regional trade. They are closely linked: more reliable energy will make manufacturing and mining more competitive, and efficient cross-border transport links will encourage trade, reducing the costs. The WBG will seek to advance regional integration by undertaking analytical work on sub-regional growth poles and supporting initiatives to remove logistical bottlenecks. A concessionaire currently operates Malawi’s rail network; with PPIAF funding and in collaboration with the EU, the WBG is supporting government renegotiation of the agreement in order to attract additional investment and improve the service. The Bank is also working with the government through the Regional Communications Infrastructure Project (RCIP, FY09) to improve international ICT connectivity and sector regulation. Infrastructure improvements are being driven by transport needs in both Malawi and the region. The timing of infrastructure investments will be influenced by the economic and political scenario. Current investments in the Tete coalfields in Mozambique, about 200km from Blantyre, are fuelling unprecedented economic growth in the region, providing potential business opportunities for Malawian manufacturers and 28 Malawi Country Assistance Strategy FY13–16 service suppliers. For example, Blantyre has a significant manufacturing base; the Tete area does not. This and other opportunities will be investigated through a planned regional growth pole TA that will cover a number of countries in addition to Malawi and Mozambique (in addition to a Malawi specific TA). A Diagnostic Trade Integration Study (DTIS) update is also to be carried out in FY 13. In addition, with the recent launch of an Accelerated Program for Economic Integration by the Governments of Seychelles, Malawi, Mauritius, Mozambique, and Zambia, discussions have begun on a possible regional DPO to push forward reforms that will reduce trade barriers. 78. The supply of skilled workers in Malawi is severely inadequate, both quantitatively and qualitatively. Success in expanding primary education has put further pressure on a flimsy post- basic education system. To ensure knowledge-driven economic growth and poverty reduction, the Government of Malawi has committed to supporting equitable expansion of post-basic education and university and TEVET programs that are directly linked to growth sectors suffering skills shortages. The government has asked the WBG to help draw up strategies to ensure more efficient and strategic use of government funds and to introduce a transparent and objective mechanism to allocate public funds to higher education institutions that put in place programs in areas that the private sector will not cover, while also increasing capacity and provision of post-secondary education through private sources. The WBG will support this objective through comprehensive analyses of the 2009 Enterprise Survey and the skills development needs that underpin a new operation, the Higher Education and Skills Development Project (FY14). The proposed project will concentrate on getting the skills development system closer to the labor market by consulting industry groups in key growth areas on designing a more rational and effective model for financing higher education, revising standards and curricula, establishing a forceful quality assurance system, and building both national and institutional management capacities. Close collaboration with DfID, the ILO, AfDB, and other DPs is envisaged. Outcome 1.3: Increased productivity and commercialization of agriculture and sustainable management of water resources for multiple uses 79. Transformation and modernization of smallholder agriculture is at the core of the new Agricultural Sector Wide Approach (ASWAp), which was formulated under CAADP auspices and constitutes the reference investment framework shared by the government and DPs. Following the ASWAp, the Bank and IFC will promote inclusive smallholder-based growth with the objective of modernizing and transforming the smallholder subsistence farming system into commercial and market-oriented agriculture. However, among the barriers to agricultural transformation are low productivity, very small land holdings with insecure tenure, recurrent drought, lack of access to financial services and to market information, and scarce and expensive transport to markets. IFC is already engaging in providing capital and advisory services targeted at medium-sized farmers who have the potential to move quickly from subsistence farming into commercial agriculture and to act as leaders through integrated assistance packages to commercial banks in Malawi. 80. The WBG support for transforming smallholder agriculture will address critical structural challenges by giving priority to the following: 29 Malawi Country Assistance Strategy FY13–16 • The efficiency and balance of public investments in agriculture, through an Agriculture Public Expenditures Review (AgPER) that will evaluate the outcomes of the entire agricultural program and special initiatives such as the Farm Input Subsidy program (FISP). The combination of the this AgPER with a DfID-funded impact evaluation of FISP will provide valuable information about the efficiency and relevance of the fertilizer and seed subsidy and should facilitate well- informed discussion of the objectives and design of the FISP. • Increasing the productivity of maize and rice in particular to improve food security: (i) support scaling up current research and extension activities (under the Agricultural Sector Wide Approach – Support Project Additional Financing (ASWAp-SP AF) and the eventual MDTF) and (ii) expand rehabilitation and construction of new irrigation schemes and also help build capacity for investment planning for irrigation. • Diversifying, by scaling up investments in legume production (groundnuts, soya beans, pigeon peas), which is important for diversifying household diets as well as providing income opportunities, and by opening up new export windows, especially within the region’s markets. Increasing the availability of legume seed is the first priority in building this supply chain. IFC is currently exploring additional support to an existing client in this sector (ETG). • Commercializing agriculture by improving access to market through more efficient and coordinated planning of tertiary, district, and community road improvements and maintenance geared to the volumes of production that must be transported. Improvements to the business environment through a focused IFC Investment Climate advisory engagement should also facilitate expansion of contract farming arrangements between private agribusiness investors and smallholders to control production, facilitate market access, and promote produce quality that meets international standards. Furthermore, IFC will explore opportunities for private provision of bulk storage facilities and warehouse receipts programs to enhance access to market infrastructure and value chain liquidity. • Land policy and land tenure for an efficient agribusiness environment, especially for smallholders; this will certainly require an efficient land market where tenure security is guaranteed, and processing of land transfer transactions is transparent, fair, and efficient, and structural constraints do not limit access to markets. Larger average land holding size will certainly speed transformation of the traditional subsistence farming system into a modernized, diversified, and market-oriented agriculture. 81. The World Bank (with co-financing from the Government of Norway) previously contributed to the elaboration of the ASWAp and is supporting it through the ASWAp-SP (FY08), which is designed to improve the effectiveness of investments in food security and sustainable agricultural growth. In FY12 the WBG approved additional financing to increase the impact of the ASWAp-SP on smallholder productivity by scaling up research and extension activities and improving market access through improvement and sustainable management of feeder roads. The new financing is complemented by funding from other DPs through an MDTF. A regional project (FY13) will also promote agricultural productivity by creating regional centers of excellence in research and development (R&D) in Malawi, Zambia, and Mozambique. 30 Malawi Country Assistance Strategy FY13–16 82. The Irrigation, Rural Livelihoods, and Agricultural Development Project (IRLADP, FY06) has benefitted from additional financing from the Rapid Response Program (FY13) for scaling-up activities such as the input-for-assets program to cushion the effect of the crisis on the rural poor and enhance the developmental impact of irrigation. It will also consolidate the gains achieved so far with water user associations and irrigation services and prepare for future irrigation investments. 83. These operations will be followed by an ASWAp-SP Phase 2 or Agricultural Commercialization and Rural Growth Project (FY15) focusing more on the diversification and commercialization objectives. This follow-up ASWAp-SP will be a consolidated operation linking agricultural commercialization, research and extension, the business environment for private investments, improved agricultural water management, and sustainable rural access. It could be complemented by investments in land issues, especially in improving land administration and facilitating land redistribution to smallholders through targeted actions based on the impact evaluation of the Community-Based Rural Land Development Project. Of course, given different sector orientations, multi-sector operations face many difficulties in areas like implementation arrangements. However, with careful design, a consolidated operation is likely to lead to better and more sustainable outcomes than a large number of small stand-alone operations that are not well- coordinated. Central to success for such projects is clear allocation of responsibilities for activities to appropriate sectors, with a steering committee to oversee progress. A similar approach has been successful elsewhere in the region. 84. Future investments in agricultural commercialization and agribusiness development will be conceived in a growth pole approach supported by irrigation development to enable productivity growth and high-return agriculture. One proposed significant investment would expand irrigation in the Shire Valley (Shire Valley Irrigation Project, FY16), where large scale market-led irrigation has the potential to transform the region. Where the area is currently among the poorest in Malawi, with the appropriate investments and support, the climatic, agro-ecological, transport and market conditions would enable a radical transformation of this area into a high productive growth pole with regional significance. If successfully implemented and drawing in significant investments in the value chains, this would not only provide local farming households the opportunity to improve their livelihoods, but also attract investments and become a source of added value and export earnings. Proceeding with this operation will depend on macroeconomic performance and the business environment because it does require large scale private-sector participation. This investment is currently envisioned as a PPP with involvement of both IFC and MIGA and collaboration with other development banks, including in preparations already with the African Development Bank. IFC's involvement in this operation will enable the WBG to test market appetite and feed reactions back into the project design. 85. Improving sustainable access to water through an integrated water management system, addressing increasingly conflicting economic and social demands on water resources, and enabling collaborative planning for growth are MGDS goals that the CAS will support. Especially in the Shire Basin, critical planned developments will put large demands on the system; at the same time attention is urgently needed to management of climate and resource variability and the 31 Malawi Country Assistance Strategy FY13–16 deterioration of supporting ecosystems that undermines the resources on which growth is founded. To enable sustained economic growth in different water-dependent sectors and protect the resource base, the WBG, the government, and other DPs are working together to harmonize and implement Malawi’s new Water Resources Investment Strategy (2011); build the infrastructure necessary for enabling and sustaining economic growth in water-using sectors; and promote integrated planning and building basin institutions for making decisions on water allocation and investment. Milestones for the water and natural resources planning sector include setting up a collaborative planning framework for management and development of the Shire Basin; better hydro-meteorological systems and real-time decision-making support for basin water allocation and release strategies; upgrading the Kamuzu Barrage, which regulates flow in the Shire River and makes it possible to increase average firm production in the Shire cascade of hydropower plants and other uses; increasing the irrigated area in the basin; and better management of the water supply for Blantyre. The WBG will support detailed design and scoping for financing development of water resources to augment water supply to the major cities and towns, most prominently Blantyre/Limbe and Lilongwe, where urbanization and industrial growth are reaching the limits of current capacity. These investments will be pursued to harness resources most efficiently for multiple benefits, such as energy production, irrigated agriculture, fisheries, industry, transport, and water supply, working through the National Water Development Program (FY07), the Shire River Basin Management Project (Phase I; FY12), and support for regional dialogue. They will also build on strategic planning and design work carried out under the National Water Development Program and Global Facility for Disaster Reduction and Recovery (GFDRR)–funded disaster risk management work. LENDING AND KNOWLEDGE: Promoting Sustainable, Diversified, and Inclusive Growth On-going Financing Planned/Indicative Indicative AAA/Others Financing • Public Finance and Economic Reform • Development Policy • PER (FY13) Program Multi Donor Trust Fund – Bank Operation 1-3 (FY13-15) • ICA (FY14) administered (FY12) • Higher Education and • IFC portfolio to • Infrastructure Services Project (FY06) Skill Development Project improve SME access to • Business Environment Strengthening (FY14) finance Project (FY07) • Agriculture Sector Wide • CEM (FY15) • Agriculture Sector Wide Approach – Approach Project Phase 2 • Diagnostic Trade Support Project GEF (FY08) (FY15) Integration Study • Update (FY13) • Agriculture Sector Wide Approach – Development Policy Support Project (FY08), AF (FY12) Operation (FY15/16) • Transport Costing • Study (FY13) • Regional Communications Infrastructure Shire Valley Irrigation Project (FY09) Project (FY16) • Regional Growth Pole • TA (FY13) • Financial Sector Technical Assistance Regional: Agriculture Project (FSTAP) (FY11) Centers of Excellence • Malawi Growth TA (FY13) • Energy Sector Project (FY11) (FY13) • • PPP Pipeline Screening • Mining Governance and Growth Support Energy Connectivity (FY14/15) and IFC advise (FY13) Project (FY11) • • Skills & Technology • Second National Water Development Southern Africa Trade and Transport Facilitation Development/ Youth Project (FY07), AF (FY11) Unemployment (FY14) 32 Malawi Country Assistance Strategy FY13–16 • Shire River Basin Management Project Program (North-South • IFC Banking TA and (FY12) Corridor) APL2 (FY15) 16 Investment Climate Advisory Service • Irrigation, Rural Livelihoods and • IFC integrated capital and • IFC support for private Agricultural Development Project (FY06), advisory services for storage and warehouse AF (FY13) medium sized farmers receipt programs through commercial banks • Potential IFC investment in agriculture sector Theme 2: Enhancing Human Capital and Reducing Vulnerabilities Results Areas and Outcomes Results Area: Improved delivery of public services · Outcome 2.1: Improved access to quality education, reliable nutrition, HIV/AIDS services, and sustainable water supply and sanitation services Results Area: Lowering vulnerability and enhancing resilience · Outcome 2.2: Improved resilience for poor communities through adequate social safety nets, improved climate resilience, and enhanced capacity to respond to disaster risks 86. The government is committed to accelerating progress toward the MGDS and enhancing Malawi’s human resources. The MGDS II stresses the need to improve delivery of social services in education, health, nutrition, youth development, and water and sanitation. The government is also committed to integrating into the development process climate change mitigation and adaptation and natural resource and environmental management. The WBG will selectively support elements of these efforts. 87. Improving the effectiveness, efficiency, and equity of health care delivery is vital. Main bottlenecks are the management and distribution of human resources, management and accountability for health system finances, the supply chain for pharmaceuticals and medical supplies, and the quality of service. The Bank’s HIV/AIDS and nutrition operations are designed to achieve specific measurable outcomes while helping to address system-wide concerns. HIV/AIDS and nutrition interventions will focus on the capacity to work effectively with other sectors, such as agriculture, education, and social protection, to ensure an integrated approach to improving the health and nutrition of Malawians. Results Area: Improved delivery of public services Outcome 2.1: Improved access to quality education, reliable nutrition and HIV/AIDS services, and sustainable water supply and sanitation services 16 Subject to the availability of regional funding. 33 Malawi Country Assistance Strategy FY13–16 88. Malawi has the lowest learning outcomes in the region. Since most Malawians are likely to be working on family farms or in the informal sector, providing them with fundamental reading and numeracy skills is critical. Rigorous analysis in the World Bank’s education country status report suggests that inadequate school infrastructure, financial constraints, and exorbitant teacher-pupil ratios are factors in the low levels of student learning. The government’s National Education Sector Plan (NESP) is structured in terms of the three areas of access and equity, quality, and governance. The access dimension covers demand-side interventions that address critical equity issues as well as more conventional supply-side interventions in terms of classroom construction and procurement of teaching and learning materials. Both the government and DPs recognize that this piecemeal approach to planning is highly inefficient and that to be effective changes will require a more comprehensive approach. Thus the Ministry of Education, Science, and Technology is working closely with the ministries of Agriculture; Youth, Children and Development; and Local Government and Rural Development to deliver the goals detailed in its plan. Pooled resources from the WBG, the Global Partnership for Education, DfID, the German Development Cooperation (GDC), and UNICEF are supporting the NESP. Close collaboration with all other partners that support the program with parallel financing, such as USAID, WFP, and JICA, will continue through the SWAp. 89. The National Nutrition Policy and Strategic Plan (2007–2012) is being reviewed in light of new developments and increased donor support. CIDA, Irish Aid, USAID, UNICEF, EU, and the FAO, among other DPs, have expressed keen interest in supporting the nutrition policy agenda through consolidated community-based programs in order to prevent and control the most common nutrition disorders, particularly among vulnerable groups. The Bank participates in the Donor Nutrition Security Support Group to leverage and harmonize support. It will address governance failures by strengthening the capacity of the government and its partners to scale up programs to improve access to nutrition information and services to prevent growth faltering in early childhood. An Infant and Child Feeding Study (FY11) provided valuable analytical and policy insights and helped guide project design. 90. The WBG proposes to continue supporting the objectives of the National HIV/AIDS Strategic Plan (NSP) (2011-2016) that prioritize reducing new infections as being critical to mitigate the burden of the epidemic. Support through the Multi-sectoral AIDS Project (MAP) is continued under the follow-on operation (Nutrition, HIV, and AIDS Project, FY12) which also contributes to a pool arrangement. The HIV Pool is administered by the National AIDS Commission. The Bank will use the Nutrition, HIV, and AIDS Project to earmark pool funding for the prevention programs that have the greatest impact on new HIV infections, building upon and complementing the effort supported by the US President's Emergency Plan for AIDS Relief (PEPFAR). The project is emphasizing the scaling up of voluntary medical male circumcision and neonatal circumcision; reducing pediatric infections by increasing access to prevention-of-mother-to-child-transmission programs; improving access to male and female condoms; preventing unwanted pregnancies among women living with HIV; promoting early infant diagnosis; and reducing transmission of, and morbidity from, sexually transmitted infections. Participation in the HIV Pool has permitted the Bank to discuss with representatives of the health sector reforms to strengthen the system and Malawi’s capacity to manage and implement the national response across the country through better M&E, supply chain management; and health care waste management. The IDA contribution to the HIV 34 Malawi Country Assistance Strategy FY13–16 Pool complements treatment activities provided outside the pool by the Global Fund to Fights AIDS, Tuberculosis and Malaria. 91. Design of the Nutrition, HIV, and AIDS Project was informed by analytic work on nutrition conducted in Malawi with Bank support, by assessments of experience from similar Bank-funded operations elsewhere in Africa, and by the evidence base for interventions to reduce HIV incidence, such as lessons learned from past projects in Malawi. Rather than depending on Demographic and Health Survey (DHS) indicators collected every five years, the project will use a more selective set of program-based indicators which will allow for closer monitoring. 92. The National Water Development Program has attracted financing from eight DPs in addition to the World Bank (Second National Water Development Project, FY07, with additional financing in FY11), and the government wishes to further ensure coordination through a SWAp arrangement. The program has already brought over 600,000 people improved water and sanitation services and is committed to supplying 2.2 million people before it ends in 2015—it was scaled up with significant additional financing in FY11. A water, urban development, and municipal services AAA is proposed for later in the CAS period to support the national city development and slum upgrading program (being planned with support from Cities Alliance) and the drafting of City Development Strategies in a number of cities. Malawi is expected to continue to urbanize rapidly at an estimated 5.3 percent annually (one of the highest rates in the world, though from a very low base), yet the country is ill-prepared to manage the change. At the current rate, by 2050 Malawi’s urban population would balloon by 48 percent. Results Area: Lowering vulnerability and enhancing resilience Outcome 2.2: Improved resilience for poor communities through adequate social safety nets, improved climate resilience, and enhanced capacity to respond to disaster risks 93. During the CAS period, the WBG will help to reinforce and rationalize Malawi’s social support programs into a coherent productive social safety net system to protect the extreme poor (both urban and rural), especially during natural disasters and other shocks. The WBG advice will be in line with the World Bank Global Social Protection and Labor Strategy and the Africa Social Protection Strategy, helping to design a comprehensive and equitable social protection system that will guide Malawi’s most vulnerable people in becoming more resilient to shocks, including climate changes, and to create better opportunities for the poor. Built on Malawi’s new Social Support Policy, approved in 2012, and on more than 10 years of experience in social support programs through the Malawi Social Action Fund (MASAF), a comprehensive social support and safety net system should provide cost-effective social welfare and care to marginalized groups, such as the disabled and especially vulnerable children, and support active labor market and employment programs. 94. In support of the bold economic stabilization program Malawi initiated in April and May 2012, the Bank in July 2012 approved a US$150 million Rapid Response Program (RRP) comprising a Rapid Response Development Policy Grant (RRDPG) and two additional financing 35 Malawi Country Assistance Strategy FY13–16 operations: the Malawi Social Action Fund 3 (MASAF 3 APL II) and the Rural Livelihood and Agriculture Development Project (IRLADP). Both MASAF and IRLAD are active, expanding their programs and helping to mitigate the impact on vulnerable households of the legacy of inflationary pressures and economy rebalancing. Assistance to both rural and urban vulnerable households (by expanding labor-intensive public works) and poor farming communities (by scaling up support to productive rural livelihoods through irrigation) increases the incomes of a large number of households, enabling them to better manage shocks and to build household assets. The Bank will also, through a proposed AAA, conduct IEs of the MASAF 3 APL II Public Works Program; disseminate the recommendations of the targeting study, which includes establishing a harmonized social safety net system, a unified targeting strategy, including policy to harmonize targeting across programs; and update the 2001 Social Safety Net Review to inform preparation of MASAF 4 (FY15). The Bank will continue to use its programs to leverage resources, as it did for MASAF 3 APL II: AfDB is now supporting the project’s economic program for the poor under the Community Savings and Investment Program. Other DPs working with the Bank are UNICEF, Irish Aid, DfID, the EU, and KfW. 95. While Bank-financed projects are already supporting sustainable land and water management and conservation agriculture (ASWAp-SP, IRLAD, NWDP II, Shire River Basin Management Project), the approach today is to put in place a more integrated sustainable development portfolio of investments that consolidate the ecological, economic, and social dimensions of sustainability. Planned CAS projects will explore new mechanisms to integrate the activities of current projects. This is reflected in the targeting of basin and regional development planning, coupled with recognition of the need to better share knowledge and to monitor and evaluate aggregate impacts in order to link micro, meso, and macro planning areas. Specifically, the WBG is working to improve rural livelihoods and natural resources management nationally and regionally in critical catchments through the Shire River Basin Management Project (FY12) as well as through agriculture investments as part of the ASWAp program. Projects specifically targeting biodiversity and natural habitats are the Global Environment Facility (GEF) Nkhotakota Wildlife Reserve Project and the GEF Nyika Trans-Frontier Conservation Area Project. National management and investment will be considered in regional dialogue on better management of shared resources in the Shire and Lake Basins (linking where appropriate with Zambezi Basin cooperation initiatives). The additional financing approved for the IRLAD Project, will not only expand the social safety net through rural investments in resilience, largely by expanding mini-scale irrigation nationwide through the inputs- for-assets subprogram wide, it will also help prepare the way for similar new investments. 96. Assistance will focus on both being better prepared for and mitigating vulnerabilities to climate change and disaster risks. The Malawi Disaster Risk Management program (outlined in the Country DRM Plan and the multi-donor National Climate Change Program) will address climate and disaster risk challenges through a mix of analytic work, lending, and technical assistance. DRM will focus on support for realization of an Action Plan for Integrated Flood Risk Management in the Shire Valley, enhanced capacity for damage and loss assessments, disaster risk financing, and capacity to deal with seismic risk. The focus for climate change adaptation will be on assessing the potential and requirements for Malawi to access carbon finance, analyzing the contribution that better land and forest management could make to both climate mitigation and adaptation, making climate 36 Malawi Country Assistance Strategy FY13–16 information more widely available, and weather forecasting. Support will increasingly go to mainstreaming the findings of analytical and advisory tasks through the WBG’s lending portfolio. The WBG will also seek opportunities for follow-up climate and DRM financing through Bank- managed trust funds, cooperation with DPs, and regional initiatives. In particular, the Shire River Basin Management Project provides opportunities for improving climate and disaster resilience; it is concerned with both flood and land management issues in the Shire, where certain areas have some of the highest climate-related disaster risks in the country. The project is expected to partly finance the Action Plan for Integrated Flood Risk Management and to apply lessons from assessments of the Climate Change Program and activities related to catchment management and strengthening hydromet systems. LENDING AND KNOWLEDGE Enhancing Human Capital and Reducing Vulnerabilities On-going Financing Planned/Indicative Financing Indicative AAA/Others • Improve Education Quality • Higher Education and Skills • PER (FY13) (FY10) Development (FY13) • Higher Education and Skills • MASAF 3 APL (FY08, AF • Development Policy Development Note (FY13) FY13) Operation 1-3 (FY13-15) • Progress on Selected MDGs • HIV/AIDS /Nutrition Agriculture Center of (FY14) Project (FY12) Excellence (FY13) • Poverty Notes • Multi-sectoral AIDS Project • Development Policy • Malawi Disaster Risk Management (FY04) Operation 1-3 (FY13-15) Program (GFDRR TF) • Second National Water • Malawi Social Action Fund • Malawi National Climate Change Development Project 4 (FY14) Adaptation Program (TF) (FY07), AF (FY11) • Agriculture Sector Wide • Energy Efficiency (FY14) • Agricultural Development Approach Project Phase 2 • Impact Evaluations (ongoing) Program Support Project (FY15) • Social Safety Net Review (FY15) (FY08), AF (FY12) • Irrigation, Rural Livelihoods and Agricultural Development (FY06), AF (FY13) • Nkhotakota Wildlife Reserve Project (GEF, FY12) • Nyika Trans-Frontier Conservation Area Project (GEF) (FY12) • Shire River Basin Management Project (FY12) 37 Malawi Country Assistance Strategy FY13–16 Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness Results Areas and Outcomes: Results Area: Improving public sector management systems · Outcome 3.1: Improved public sector performance because of better PFM, procurement, and M&E systems and enhanced statistics Results Area: Strengthening social accountability for service provision · Outcome 3.2: Enhanced transparency on resource flows and service delivery 97. The governance arrangements that underpin service delivery are central to the ability to effectively design and implement the CAS. The WBG will provide support to strategies for improving governance in order to enhance development effectiveness. This theme comprises a cross- cutting effort to help strengthen both supply-side and demand-side institutions, with an emphasis on mainstreaming enhanced governance across the portfolio. The supply side comprises governance mechanisms through which the government organizes itself to deliver on the strategy. On the demand side, the CAS adopts strategic incrementalism, targeting entry points where there are client demand and alliances for change and piloting smaller local initiatives and scaling them up as demand for them emerges. This takes into account previous results that demonstrate that gains in this area come incrementally and depend on client demand, and the WBG will respond to recent government engagement on these issues. The demand side comprises the macro- and micro- institutional arrangements that assure accountability, especially arrangements that facilitate citizen engagement in design, implementation, and oversight. This will include a context analysis for selecting demand-side governance instruments aligned with the political context and space to ensure that the instruments are tailored to the country’s governance and operating environment. Results Area: Improving public sector management systems Outcome 3.1: Improved public sector performance because of better PFM, procurement, and M&E systems and enhanced statistics systems 98. The WBG is stepping up partnerships with DPs and the government to further refine Malawi’s PFM system. The government has put in place a medium-term Public Finance and Economic Management Reform Program (PFEM RP) covering a broad range: planning and policy analysis, resource mobilization, budgeting, procurement, accounting and financial management, cash and debt management, parastatal financing, reporting, auditing, and PFEM RP administration. A common-basket support mechanism has been designed; the MDTF will be administered by the IDA and executed by the government. During the CAS period, the Bank will work with the government to strengthen its procurement management capacity, transparency, and accountability and monitor large contracts in the eight top-spending ministries and departments (Agriculture, Education, Health, Transport and Public Works, Irrigation and Water Development, ESCOM, the Roads Authority, and the Malawi Housing Corporation). The Bank will further assist the government, especially the Office of the Director of Public Procurement, to reinforce M&E of public procurement, complaint handling systems in all procuring entities, and contract management capabilities; pilot independent contract monitoring by CSOs; carry out on-site training courses for procurement staff; institutionalize 38 Malawi Country Assistance Strategy FY13–16 procurement planning as part of the budget process; and prepare simple bidding documents for local government and community procurement. 99. Through both lending and non-lending TA to support implementation of a government- wide, results-oriented M&E system, the WBG will enhance the linkages between strategic planning and M&E across sectors. It will also promote M&E transparency by expanding access to information. The intent is to build demand for and effective supply and use of M&E information by institutionalizing use of M&E across government. To do so the WBG will support design of a government-wide M&E system that is technically feasible and not overly complex and that will be built incrementally as demand arises, accompanied by the necessary capacity-building. Support for M&E and government transparency and accountability will also entail better statistics, particularly in terms of data quality. The government is preparing a new statistical development strategy and needs support for its application, mainly through donor harmonization (basket financing, e.g., with Norway). The strategy is expected to be translated into a statistical action plan that is timed, budgeted, and actionable and clearly identifies a small number of major objectives: e.g., introduction of the new System of National Accounts 2008 standard (SNA08); upgrading of NSO software and hardware to better manage application of the new standards; and provision of constant online access to major regional and international statistical resources. A variety of issues will then be jointly addressed through a possible Public Sector Performance Project (FY14), which could include support for reinforcing performance of the civil service, M&E, and statistics. 100. WBG engagement will include analytical work on public sector management, both cross-cutting and by sector. Following up on country- and sector-wide political economy analysis undertaken as part of the previous CAS, the 5th CAS proposes both cross-cutting and sectoral political economy work on such topics as decentralization, mining, and the Nacala railway corridor. This will include sector-specific work on governance, based on risk assessments. Regarding decentralization, AAA will work on design and implementation of a solid fiscal and institutional framework, exploring options tailored to the current Malawi context on the basis of international good practices, lessons learned, progress made, and continuing challenges. Depending on government demand, the WBG and other DPs will again support capacity-strengthening activities to enhance both central and local capacity for efficiency, transparency, and accountability and the capacity to put in place social safety nets. Support for decentralization might be provided through lending (e.g., through the public sector performance project) or non-lending TA and analytical work to support decentralization policy. An FY13 policy on decentralization in Malawi recommends seizing the opportunity provided by the Local Development Fund to put in place a well-designed capital transfer plan to improve service delivery, set local management incentives, and institute a demand-driven, well-targeted, and performance-oriented system. 39 Malawi Country Assistance Strategy FY13–16 Results Area: Strengthening social accountability for service provision Outcome 3.2: Enhanced transparency on resource flows and service delivery 101. The CAS will mainstream initiatives to enhance transparency across current and new WBG-financed operations, using demand-side governance tools to the extent feasible. On the basis of work done (see annex 8) and further reflections on lessons learned, mechanisms will be selected at the beginning of the CAS period through a context analysis for demand-side governance that examines the conceptual framework for social accountability. It will examine not only previous social accountability experiences and lessons learned but also the political economy context for demand-side governance. It will also evaluate new social accountability mechanisms, their benefits and risks, and their potential for helping achieve CAS goals; their fiscal, institutional, and social impact; potential for demonstration effects; and potential for being scaled up to enhance the sustainability of program interventions in line with local, national, and international lessons learned. 102. Demand-side governance instruments will be piloted first, mainly at the local and sector levels, and then gradually be scaled up in line with government interest. Preliminary methods to enhance the transparency of resource flows might include mechanisms that produce and make available to citizens and users (on an annual basis) information on (i) the magnitude of budgetary transfers to front-line service units and local governments; (ii) the obligations and commitments of government in terms of services citizens should expect; and (iii) actual performance of front-line service units, in a form that facilitates comparison both across units and relative to announced obligations. This area will include support for budget transparency, independent budget analysis, citizens’ charters, and possibly sectoral Public Expenditure Tracking Surveys (PETS). To pave the way for a positive contribution to Malawian development from the mining sector and mitigate the well-known risks that inadequate natural resource management poses for development generally, the WBG will make a particular effort to support transparency and an enabling environment generally in the mining sector (see Box 5). 103. Demand-side mechanisms have already been incorporated into the WBG portfolio to enhance civil society and user participation, with a view to increasing transparency and accountability. This has been particularly important when governance and growth cycles have been changing quite radically. Box 6 lists social accountability initiatives currently being implemented and Annex 8 sets out plans for the future. Demand-side governance interventions would benefit from better design and more concern for implementation and would in particular benefit from scaling up so that over time they can be truly mainstreamed. Careful M&E of demand-side governance interventions would also help heighten the impact as these interventions are expanded and institutionalized. 40 Malawi Country Assistance Strategy FY13–16 Box 5: WBG Support for Mining Sector Governance Reform and Capacity Building Sustainable growth of the mineral sector from its present relatively low-base is not assured but is possible if geology campaigns and exploration reveal more resources and projects currently in the pipeline qualify for investment decision in the medium term. Indeed, if commodity prices remain high and the recent dynamism in infrastructure development is confirmed, a few mining projects could become viable. International experience shows that the right frameworks and capacities need to be in place so that when the time comes, the sector will realize its potential positive contribution in terms of both fiscal receipts and non-fiscal linkages. Otherwise the sector may have negative economic, environmental, or social impacts, as demonstrated by the well-documented “resource curse.� To support mining sector management, the Bank program comprises a US$31 million TA project co-financed in FY11 by an IDA credit and a European Development Fund (EDF) grant, the objective of which is to improve the efficiency, transparency, and sustainability of mining sector management. The project supports government improvement in (i) management of mineral rights and operations; (ii) generation and management of mineral revenues; and (iii) knowledge and promotion of national mineral resources. In practice, the first phase of the project will include the following: • Installation of a modern computer-based system to address transparency in mineral licensing • Develop a Strategic Environmental and Social Assessment (SESA) that make it possible to closely analyze the environmental and social challenges of mining and how they are addressed by policies and institutions • Finance a countrywide airborne geophysics survey and reinforce the Geological Surveys Department, where such information will be open and accessible to all interested parties. Providing access to geological information will promote transparency in knowledge and use of Malawi’s natural resources. • Offer capacity-building support to key agencies, such as the Ministry of Finance and the Revenue Authority, on royalty and tax collection, revenue forecasting, and management of the resulting fiscal flows. In parallel, the WBG is also encouraging stakeholders to engage more fully in the sector through formalized arrangements for monitoring policy implementation and through support for revenue transparency via the Extractive Industries Transparency Initiative (EITI), with funding from the EITI-MDTF. In addition, South-South learning to link revenue from mining to human development will be encouraged. 104. To enhance transparency wherever feasible the CAS will mainstream across the range of WBG-financed operations and non-lending work mechanisms that (i) create opportunities for users of services to participate in planning, implementation, and oversight of how public resources allocated to service delivery are actually used; and (ii) facilitate sharing of information, especially since there is no Access to Information Law to make such sharing easier. Mechanisms for disseminating information should empower beneficiaries and oversight institutions while building government capacity to make information accessible. Such mechanisms include citizens and community scorecards (already piloted under the MASAF), participatory planning and budgeting exercises, and other social accountability mechanisms. Selected instruments could include the use of ICT to elicit feedback on user satisfaction with service delivery, such as social media platforms for independent complaint and redress mechanisms; Public-Private Dialogue fora, along the lines of those that IFC has successfully sponsored in several other African countries; support to the media by training investigative journalists; and support for transparency, oversight, and feedback mechanisms to bring citizen concerns more forcefully into the public sphere. Complementing this demand-side governance work, the WBG will support, with assistance of WBI and other units, building capacity 41 Malawi Country Assistance Strategy FY13–16 for supporting parliaments and other oversight institutions to complement informal civil society social accountability. Box 6: Social Accountability Initiatives in the Current WBG Program There have been significant gains in incorporating transparency and citizen participation into Malawi’s development programs. For example, important social accountability initiatives within WBG-supported programs include: • The use of Community Score Cards (CSCs) and Citizen Report Cards by the Malawi Social Action Fund. • Within the IRLADP irrigation project, Water Users’ Associations are established and built up to fully engage water users in system management and control of the schemes, including financial management, and are empowered to engage in monitoring construction progress and quality. • Civil society participates in joint annual and semi-annual reviews of the national response to HIV and AIDS where technical, financial management, procurement, and grants facility progress are discussed. • Under the Nutrition & HIV/AIDS Project, NGOs will be active in community mobilization through contractual arrangements between the central Department of Nutrition, HIV and AIDS, and the District Council and NGOs. • The School Management Committees are responsible, with the head teacher, for submitting school improvement plans to district assemblies for inclusion in District Education Plans, as well as for management of school grants. • Civil society and communities have an explicit role in planning within the Shire River Basin Management Program through the Shire River Basin Stakeholder Forum, discussing issues affecting the basin and proposing management solutions. Also, catchment and flood risk management activities are giving NGOs a key role in both implementation with communities and in process and output monitoring. • The Construction Sector Transparency (CoST) Initiative phase I, assisted by the Bank, supports publication of information on procurement and fulfillment of construction contracts, allowing the media and civil society to take a more active role in monitoring them. Malawi will also participate in phase II of this initiative. • Representatives of transport infrastructure users and civil society participate in the Transport Joint Sector Review meetings. • Communities will define priorities for community roads to be improved in the road component of the ASWAp. LENDING AND KNOWLEDGE Mainstreaming Governance for Development Effectiveness On-going Financing Planned/Indicative Indicative AAA/Others Financing • Public Finance and • Development Policy • Decentralization Note (FY13) Economic Reform Program Operation 1-3 (FY13- • PEFA (FY13) Multi Donor Trust Fund – 15) • PER (FY13) Bank administered (FY12) • Public Sector • Impact Evaluations (ongoing) • Third MASAF – APL II Performance Project • Public Sector Strengthening Review Project (FY08), AF (FY13) (FY14), (FY14) • Mining Governance and • Fourth MASAF APL • Water/Urban Development/ Growth Support Project (F14) Municipal Services (FY15) (FY11) • Public/Private Dialogue for a • WBI Social Accountability Support 42 Malawi Country Assistance Strategy FY13–16 C. Implementing the FY13-FY16 WBG Country Assistance Strategy 105. The WBG is proposing an indicative financing envelope of US$695 million 17 over the four years to support engagements under this CAS. Indicative lending and ESW programs are included in Annex 10 and 11 respectively. The amounts shown in outer years are indicative only. Actual allocations will depend on (i) the country's own performance; (ii) its performance relative to other IDA recipients; (iii) the total amount of resources available to IDA; (iv) any changes in the list of IDA-eligible countries; (v) terms of the financial assistance provided (grants or loans); and (vi) the amount of compensatory resources received from MDRI. Despite HIPC debt relief, Malawi is vulnerable to moderate debt distress and external shocks even as it attempts to diversify its export base. Furthermore, the IDA program could be adjusted in case of policy slippages and a slowing pace of reforms, particularly through the sizing and timing of the DPOs in close consultation with the Common Approach to Budget Support (CABS). Support for proposed sectoral SWAps is also contingent on reaching agreement on strategies with DPs and the government. Portfolio Issues 106. The Malawi portfolio has reached record commitment values. The World Bank portfolio in Malawi currently contains 13 investment projects with about US$970 million already committed and US$651 million in undisbursed balances. By the end of FY13 the Bank will have a relatively young portfolio, comprised of 10 active projects (see Table 3 for the portfolio trend). Previous portfolio performance has been relatively strong in Malawi. There have been no problem projects for the past three years, notwithstanding the difficult economic and political environment. Except in FY12 disbursements have been above those for the Africa Region. The first few months of FY13 suggest a return to disbursement levels of above 20 percent. Performance of the portfolio has improved since the last major CPPR in 2010, with 6 of the 13 projects rated as Satisfactory in terms of Development Objectives (DOs) and Implementation Progress (IP), and only 3 projects with both DOs and IPs rated just Moderately Satisfactory. The other four projects have either the DO or the IP rated Satisfactory and the other Moderately Satisfactory. 107. Most of the outcomes of this CAS will be achieved by continuing the current portfolio. The number of active projects is expected to remain constant at 10 from January 2013 on (see table 3). Three projects are closing this year and no new one will be added. The envisaged additional financing for FSTAP will not affect the number of projects in the portfolio. In FY13 new entrants are expected to match the number of exits. 17 SDR exchange rate as of July 26, 2012, some front loading assumptions under IDA 17 43 Malawi Country Assistance Strategy FY13–16 Table 3: Portfolio Trend FY13-FY16 Year Total No. of Entrants Exit Balance Remarks Projects FY 13 13* 0 3 10 *Does not include DPOs FY 14 10 2 2 10 FY 15 10 2 2 10 FY 16 10 1** 1 10 **Pipeline not yet defined 108. The WBG supports the harmonization agenda with, for example, the use of national procurement procedures for over 60 percent of procurement for IDA projects (subject to exceptions related to fraud and corruption clauses) and also supports the mainstreaming of project management units (PMUs) in government structures (e.g., ASWAp, ESWAp, mining, energy and Shire River Basin Management Projects being implemented without PIUs). Between 2010 and May 2012, Bank and IFC-supported projects in Malawi ran into problems related to cost overruns, poor contract administration, procurement delays, lack of readiness for implementation, fuel and foreign exchange shortages, and funding delays for local project components. The WBG will address these issues during the new CAS by moving toward more programmatic operations (which worked well during the last CAS); using country systems where capacity exists or can be strengthened; simplifying project design; using additional financing mechanisms to reduce transaction costs and preparation time; improving readiness for implementation; ensuring more realistic covenants; helping the government to move away from the PIU implementation model, and periodically reviewing the portfolio with the government. The WBG now has better access to local technical support with the establishment of the WBG/AfDB Joint Infrastructure Unit. The WBG will also consider using innovative instruments like the P4R (Program for Results) where appropriate, maybe in higher education and perhaps output-based aid (OBA) in areas such as nutrition, water and sanitation services, and social protection. 109. The fiduciary risk of the portfolio as a whole is high due to (a) inadequate accounting controls; (b) inadequate audit committees in government ministries and failure to follow up on audit issues; and (c) low implementation capacity. The report on the Assessment of Fiduciary Risks in the Use of Country PFM system for Investment Projects (2010) concluded that key elements to move toward substantial use of the country PFM system for investment lending projects are present but need to be refined. This includes integration of WBG-funded investment lending projects into the planning and budget processes, appropriation, expenditure control, funds flow, accounting, and reporting through the IFMIS and internal and external audit arrangements. The PFEMRP, supported through the MDTF, will address some of these deficiencies. The fiduciary framework is adequate for using country PFM systems for development policy operations (DPOs). The fiduciary team will be cautious in increasing use of country FM systems. The team will analyze the risks and institute mitigation measures for each element of the FM systems before using them. The Financial Reporting and Oversight Improvement (FROI) Project funded through the PFEMRP MDTF is expected to go into operation soon, which should address some of the current concerns in the portfolio. The WBG team will also provide support to government financial management staff in projects in the portfolio to build their capacity to maintain reliable records and submit properly reconciled reports for 44 Malawi Country Assistance Strategy FY13–16 monitoring and disbursement purposes. On the procurement side, an Institutional Development Fund (IDF) is enhancing the skills of staff involved in procurement in Malawi’s ministries, departments, and parastatal organizations and the capacity of the Office of the Director of Public Procurement (ODPP) and of third party organizations to monitor procurement activities. 110. The governance mainstreaming approach laid out in Theme 3 of this CAS can only be effective if it is given priority across all operations by the full Malawi country team. The WBG programs that have emphasized governance in the CAS and the resulting mainstreaming of governance throughout operations have found it useful to establish a Governance Advisory Committee within the country team. The Malawi team has such a committee, led by the Country Manager, as a cornerstone of CAS implementation. The Advisory Committee (i) provides guidance on the governance strategy for Malawi; (ii) offers guidance on operational design in terms of understanding and addressing governance constraints, such as by incorporating components to enhance the transparency of sectoral resource flows and service delivery, and enhance civil society participation in and oversight of service provision; (iii) reviews and clears project documents; (iv) facilitates efforts to mainstream governance into operations along the above lines; and (v) monitors progress on the governance strategy to build transparency, participation, and oversight across the portfolio. 111. The CAS will support an AAA program (ESW, non-lending TA, and IEs) to underpin the financing activities, fill in knowledge gaps, update diagnostics, and stimulate innovations and pilots drawing on country and global experience. Following the harmonization principles and drawing on the lessons of the CAS Completion Report and client consultations, research and analysis will be done in close cooperation with country counterparts, development partners, and local academics and researchers to reinforce joint ownership and build capacity. The strategic use of trust funds will enhance the scope and depth of the analytical and advisory work. An IDF grant is supporting the government’s efforts to enhance capacity to mobilize the Malawian diaspora for economic development and build remittances. The WBG will also participate in joint evaluations led by other DPs, as is the case for the DfID-funded impact evaluation of the FISP. The WBG is part of the technical committee in charge of supervising the evaluation that will design and draft a panel survey based on the IHS3 to measure the impact of the FISP on household productivity and incomes, on maize and labor market changes, on fertilizer and seed markets, and more globally on the general economy. The WBG has also been advancing the knowledge-sharing agenda by engaging non- traditional partners through south-south knowledge and peer-to-peer learning programs; for instance, it recently organized a video conference where officials from the Reserve Bank of Malawi financial education unit were able to learn from their Brazilian counterparts about Brazil’s successful program of financial education in schools. 112. The CAS objectives and the results will be achieved with a concerted and integrated WBG approach. Delivering the bulk of the agenda will require synergistic collaboration and coordinated complementary activities of the Bank, IFC, and MIGA (as needed). Close partnership between the Bank and IFC will be particularly important to improving the business climate, diversifying the economic and export base, enabling PPPs to meet investment gaps and deliver better infrastructure services, meeting the financial needs of individuals and enterprises (including Micro, 45 Malawi Country Assistance Strategy FY13–16 Small and Medium Enterprise (MSMEs)), expanding emerging sectors and businesses, and maximizing the potential of greater global and regional integration. The IFC’s Global Trade Finance Program (GTFP) has been active in Malawi, working to expand available financing with longer maturities to reduce the need for collateralized transactions. Its focus has been in the financial, agro- processing, and telecom sectors. MIGA also remains open for business in Malawi, across all of its Political Risk Insurance product lines, including Transfer Restriction, Expropriation, Breach of Contract and War and Civil Disturbance, as well as the Non-Honoring of Sovereign Obligations. These product lines can be used alongside other WBG products, for example, IFC loans or PRG support, or to directly support government public private partnerships or Independent Power Projects, as has been applied elsewhere in the region. MIGA's Small Investment Product (SIP) could also be useful for the country, where more streamlined procedures could allow smaller projects to be supported. WBI will have a critical role in building capacity, disseminating global best practices, and building the knowledge base of counterparts in such areas as budgeting and PFM reforms, public investment planning and management, project analysis and implementation, and poverty and sectoral assessments and strategy development. Box 7: World Bank / IFC Collaboration IDA and IFC have a strong partnership and intend to step up the collaboration in the improved private investment environment. IFC is seeking to increase its engagement in Malawi, focusing on investments and advisory activities that help diversify the economy; develop the micro, small and medium Enterprise (MSME) sector; and improve access to finance. IDA and IFC teams have been exploring joint initiatives and are working closely together in areas such as improving the business environment, access to finance for SMEs, agro-processing and commercial agriculture, telecoms, PPP support, and facilitation of global trade integration. Some highlights of this collaboration: • IFC’s Global Trade Finance Program (GTFP) in Malawi seeks to (expand available financing and reduce the need for cash collateralized transactions; (b) provide longer maturities than currently available; and (c) deliver technical assistance and training to improve operating standards. Its Small and Medium Enterprises Enterprise Development Initiative (SME-EDI) worked with the Malawi Export Promotion Council (MEPC) on a countrywide sector mapping exercise to identify SME export opportunities, and on production of an SME exporter handbook, completed in November 2008. • For the Shire Valley Irrigation Project (FY16), in 2011 a joint identification mission from IFC/IDA/AfDB drafted with the government a roadmap and identified principles of engagement on this large-scale irrigation- based agricultural growth pole project. It encompasses a comprehensive support package directed at both the public and the private sector, with specific support for value chain and agribusiness development. Preparatory studies are being proposed under the CAS looking specifically at the investment climate, regional agribusiness opportunities, linkages of producers to markets, and access to finance; and these are pursued in a direct collaboration between IDA/IFC and the AfDB. Also on irrigation service provision and the large public and private investments required for infrastructure and O&M, options have been explored for PPPs and joint support from IDA, IFC, and also MIGA. • Also in agriculture sector in general, as a complement of World Bank support to the ASWAp-supported reform agenda, IFC through its Investment Climate (IC) Advisory Services may provide technical assistance to improve the functioning of markets serving agribusiness, including addressing legal barriers to competition in and expansion of commercial agriculture all along the value chain: input markets, systems for contract farming and aggregation, management of storage and logistics, cross-border trade, and taxation issues. 46 Malawi Country Assistance Strategy FY13–16 • In both of these initiatives, IFC’s experience in investment promotion and facilitation could help attract reputable investors. This could be done with support for the technology, quality standards, and market access necessary to make the sector more competitive and build the capacity of smallholders to handle out- grower schemes. 113. Trust funds (TF) are an integral part of the Malawi portfolio and contribute to achievement of CAS goals. The current strategy of closely linking TFs with planned financial support will continue, with a program designed to address analytical gaps and provide TA essential to achievement of the CAS outcomes. TFs have also been effectively used to help Malawi pilot initiatives and respond to changing country conditions (as in disaster risk reduction and management). A concrete example of the positive impact of trust-funded activities was when TA under the Financial Sector Reform and Strengthening Initiative (FIRST) was used to draft a Financial Sector Development Strategy for Malawi, which then led to a financial sector technical assistance operation that is helping implement the strategy. Management of TFs will be mainstreamed within the WBG’s CAS implementation strategy in areas such as procurement, financial management; and M&E within an integrated portfolio monitoring and reporting system, which will ensure continuous, follow up of activities. (See Annex 9 for a summary of current TFs.) 114. There are 30 DPs active in Malawi in a variety of sectors (see Annex 5). Actual official development assistance (ODA) disbursements to Malawi between 2007/08 to 2009/10 amounted to US$2.14 billion. In FY2009/10- 2010/2011, of the 30 DPs, the six largest as a percentage of ODA were United States (US$206 million), the EU (US$ 154 million), the World Bank (US$139 million), the United Kingdom - Department for International Development (DfID) (US$$108 million), Norway (US$ 57 million), and the AfDB (US$ 36 million). The top five DPs contributed 70 percent of Malawi ODA. The largest multilateral agency was the EU and the largest bilateral donor the United States. The WBG, in close partnership with the government and other DPs, is committed to the Paris Declaration for Aid Effectiveness and the Accra Agenda for Action. The MGDS framework provides the basis for alignment of donor support to ensure greater ownership, emphasis on results, a sharp poverty focus, harmonization, and mutual accountability. The WBG is moving toward more programmatic lending arrangements with other DPs and already participates in one pooled funding arrangement (the HIV and AIDS Pool) and is building similar arrangements in education, water, and agriculture. Sector wide approaches (SWAp) and SWAp-like arrangements are pursued in nutrition and education through co-financing arrangements such as MDTFs. An MDTF has already been established for PFM reforms. The WBG plans to continue to provide and implement the DPOs within the framework of the CABS, a group of DPs that have a common approach to provision of budgetary support to the government. The Joint Framework signed in 2005 between the government and the CABS DPs (EU, DfID, Norway, SIDA) sets forth agreed terms and procedures for budget support and serves as a coordinating framework for consultation, joint reviews of performance, and reporting. All CABS members have bilateral agreements with the government that guide their individual financial decisions. Revision of the Joint Framework, initiated in 2010, is continuing. 115. The government has created sector working groups to coordinate and manage sector activities and also a high-level forum for policy discussions. Within the harmonization framework, 47 Malawi Country Assistance Strategy FY13–16 the WBG will lead the sector working groups on Economic Governance, Management, Energy, and Private Sector Development. It will play a co-lead role in partnership with others in agriculture and in the sustainable development of irrigation and water resources. The Joint Infrastructure Unit will facilitate collaboration with the government and other DPs in the Water and Transport working groups and coordination of project preparation and implementation. Joint programs should decrease transaction costs for all parties. The WBG is also contributing to a continuing effort to agree on joint donor conclusions on development issues (Joint Country Analysis), spear-headed by the EU and UNDP, which is expected to form a key input for the planned December 2012 planned high-level meeting. 116. Effective collaboration with nontraditional partners in Malawi is still a work in progress and during the first half of this CAS, efforts will be made to learn from the WBG- wide experience in this area. Nevertheless, collaborative efforts between traditional and nontraditional partners will be central to helping government deliver on its economic growth targets. Currently coordination is within the context of the Heads of Mission dialogue platform, which is open to both traditional and nontraditional partners. Although the share of nontraditional support in total foreign support remains small, in recent years the presence in Malawi of nontraditional partners (dominated by China and India) has been growing. Nontraditional partners are largely concentrated in project financing, though PPPs and otherwise, and facilitating private investments on a concessional basis as part of south-south cooperation. Over the past few years China’s support to the Malawi government has included infrastructure investments (international conference facility, National Parliament Building, Sciences and Technology University, Karonga-Chitipa Road, expansion of Kapichira II and more recently launched the building of a national stadium now underway). India has extended two lines of credit worth US$ 80 million for investments in agriculture. 117. The gender focus of the WBG’s program is addressed explicitly in the CAS. In the CAS the WBG has prioritized interventions that support (i) more equal enrollment and retention of boys and girls in school: the CAS will support retention of girls in schools through conditional cash transfers and school bursaries, and by improving education quality through providing clean and safe sanitation for children attending school in specified project areas (e.g., the Project to Improve Education Quality in Malawi, FY10); the Second National Water Development Project (FY07)); (ii) more equal access to financial markets and land: project interventions will increase the number of women with access to land and financial services by helping the government to increase access to stronger financial markets and promote equity in land acquisition (e.g., Financial Sector Project; Community Based Rural Land Development Project); and (iii) more income opportunities for rural women: the CAS will support targets for raising agricultural productivity and improving the livelihoods of poor and vulnerable rural households, including women, for example, by improving access to agricultural inputs (e.g., seeds and fertilizers) and to income-generating activities (e.g., Irrigation, Rural Livelihoods and Agriculture Project; Third Social Action Fund; Shire Valley Irrigation Project). The aim is to raise two of the indicators for mainstreaming gender in the country portfolio. (See Annex 6, which has a separate monitoring framework for this gender mainstreaming target). Moreover, this gender focus in operations is underpinned by a strong analytical work program. 48 Malawi Country Assistance Strategy FY13–16 118. In addition to mainstreaming impact evaluations, the program will be monitored and outcomes evaluated regularly. A CAS Progress Report to be prepared for Board presentation in 2014 will reflect candid assessments of progress and address any major deviations or emerging priorities. Annual Results Days will bring together the country team to take stock of progress and discuss needed adjustments, corrections, and updates; the results framework will be used as a live monitoring tool. The WBG will continue to have annual programming discussions with the Ministry of Finance and Planning to review the CAS program. IV. MANAGING RISKS 119. There are considerable risks to successful attainment of the results targeted in the proposed CAS program. These stem from the political environment for sustained commitment to the reform agenda, external and internal macroeconomic risks, weather-related shocks, risks from the lack of diversity of the economy, and risks arising from inadequate public sector management capacity and fiduciary and governance issues. 120. Political risks could affect macroeconomic stabilization. The current government has embarked on bold reforms to restore macroeconomic stability and is committed to prudent macroeconomic policies. However, risks might arise from tensions between political pressures to expand government programs and the need for a prudent fiscal stance in order to keep inflation pressures at bay and keep debt sustainable. The reform agenda may also be affected by the elections planned for 2014. While there is likely to be continued political commitment to poverty reduction and implementation of the MGDS II, in the past commitment to a credible macro stabilization program has wavered. Some of the risks are mitigated by the deliberate government efforts to build broad public support for policy reforms. In addition, the government’s efforts to enhance social inclusion through education, health, and expanded social protection programs, supported by the Bank’s Rapid Response Program, are expected to help offset potential social tension. 121. Shortfalls in donor support could undermine economic growth and the external balance. A widening external financing gap could force the authorities to borrow domestically; given minimal official reserves and significant import needs, that would put pressure on a difficult fiscal adjustment process, undermine fiscal sustainability, and jeopardize necessary social and capital expenditures. These risks are mitigated by the forceful actions the administration has already undertaken to repair relations with DPs and its intentions to address governance and human rights concerns; its commitments to the fiscal adjustment program and a flexible exchange rate policy, which anchor for external and debt sustainability; and predictable and timely budget support backed by analytical support and policy dialogue through the next DPO series. 122. Social tensions could mount, which would cause fiscal pressures. The consequences of previous economic policies and recent adjustments in the economy could further push up consumer prices and erode consumer purchasing power, which could stimulate wage demands in both the private and the public sector and increase social tensions. Already there have been many labor disputes and some strikes that affected service delivery and raised political concerns about the viability of the reform effort. These 49 Malawi Country Assistance Strategy FY13–16 tensions could be exacerbated if international increases in fuel prices result in second-round effects on the prices of other products and further increase the costs of production, which would again raise prices. Domestic tensions could affect investor and consumer confidence, which would deter private investment, and could also increase fiscal pressures on government financing. There are provisions in the fiscal framework as agreed with the IMF to deal with some of the demands, but it will be necessary for the government to engage all stakeholders to rally support for reforms, understand the consequences, and manage expectations. To mitigate this risk, the government will also need to make a deliberate and comprehensive effort to clearly communicate the reform program, its impact, and the role of various stakeholders, including citizens. 123. Malawi is still vulnerable to internal and external trade shocks. The lack of agricultural diversification and arbitrary government interventions in agricultural markets, as well as weather- related events (droughts, and also floods, are frequent), expose the economy to such shocks. Last year, burley tobacco, the country’s main export crop, demonstrated disappointing performance, and the sector is now threatened by enforcement of agreed components of the Framework Convention on Tobacco, which would restrict, and possibly ban, the use of flavorants. Alternative livelihoods and sources of export revenues are being explored, but effective diversification programs require a supportive macro-environment and investment climate. It will also take time to establish effective market conditions for alternative crops to take the place of tobacco. Non-agricultural diversification, for instance mining, requires significant investments, which in turn will require government to improve the business climate for private energy investors. The WBG, together with other DPs, will continue to work closely with government counterparts to deal with the many structural barriers in this transition process. 124. Climate variability and natural disasters continue to put strains on Malawi’s economy. WBG assessments found that droughts and dry spells cause average annual losses of about 1 percent of GDP and floods losses of about 0.7 percent. Given the country’s vulnerability to natural disasters, coupled with their potentially significant impact on the economy, which could be exacerbated by effects of climate change, the WBG is already scaling up support for climate and disaster risk management and mainstreaming mitigation and adaptation within the portfolio. DPs are also supporting adoption of a comprehensive risk mitigation and contingency plan for reducing Malawi’s vulnerability to natural disasters. 125. Concerns about poor public sector management and governance persist. Implementation of the CAS program and achievement of results could be undermined by inadequate public sector management capacity and arrangements. Furthermore, highly centralized decision making and centralization of powers affect decisions related to projects. Firming up the evidence base for decision-making and collaboration on strategic decision-making through enhanced support for public sector reform could mitigate this risk. Feeble public fiduciary management due to lack of capacity to implement, account for, and report on expenditures at all levels, as well as limited capacity to manage procurement, raise concerns about the governance aspects of projects. Recognizing these weaknesses, the government has pronounced a “national austerity drive� to address some of them. Several interventions, such as the Public Finance and Economic Management MDTF, are expected to help address capacity challenges. The first project of the PFM RP is focusing on the government 50 Malawi Country Assistance Strategy FY13–16 accounting system (IFMIS), internal audits, and external audits. The intent is to improve the timeliness and reliability of financial information; the control environment, by building up the internal audit function to ensure enforcement of policies and procedures and prompt follow-up of audit recommendations; and the external audit function to improve the range (through, e.g., forensic and value-for-money audits) and quality of audits. This should partially mitigate the public fiduciary management problem. Enhanced transparency of resource flows and service delivery, including efforts to improve data quality and availability for results monitoring, coupled with enhanced civil society participation and oversight, is also expected to help mitigate these risks. Extra vigilance in the oversight of project funding allocations will be required. 51 Malawi Country Assistance Strategy FY13–16 Annex 1: Malawi CAS FY13-FY16: Results Framework 18 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth Results Area 1.1: Conducive structural and macroeconomic policies to restore internal and external balance Sustain and accelerate Vulnerability to Outcome 1.1: Improved Budget Policy Framework Indicative Financing: positive economic macroeconomic Macroeconomic Management Paper approved by Cabinet • Development Policy Operation 1-3 (FY13-15) growth within a stable imbalances and Indicator 1.1.1: Variance in and Parliament by 2013/14 macroeconomic shocks primary expenditure between FY Completed AAA/ongoing TF: environment approved and actual outturn • Exchange Rate Policy and Devaluation in Persistent trade Baseline: 9.2% (2012) Malawi (FY12) and external Target: 6 % (2016) • Analysis of the Welfare and Distribution imbalances Impact of Price Shocks (FY12) • Policy Note on Rural Poverty, Gender, and Low efficiency Household Food and Nutrition Security (FY12) and poor targeting • Public Finance and Economic Reform Program of public spending Multi-Donor Trust Fund – Bank-administered (FY12) Indicative AAA/Others: • Public Expenditure Review (FY13) • PEFA Public Expenditure and Financial Accountability (FY14) • Country Economic Memorandum including Assessment of Malawi Growth Models (FY15) Partners: • IMF • CABS development partners 18 The program for the outer years of the CAS will be further defined during the mid-term review and presented in the CAS Progress Report. The FYs in parentheses for the last column indicate FY of approval for projects and trust funds, and the FY of completion for AAA. For caveats about the lending and non-lending program in the last column, please see Standard Annexes B3 and B4. 52 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Results Area 1.2: Improved ease of doing business, through improved economic infrastructure, regional integration, and better access to demand-responsive skills development Current Financing: Develop and promote a Weak investment Outcome 1.2: Improved ease of Reforms on ease of doing • Infrastructure Services Project (FY06) supportive climate doing business, through better business fully implemented • Business Environment Strengthening Project environment that will economic infrastructure, regional (FY07) enhance inclusive Low productivity integration and access to Investment Strategy adopted • Financial Sector Technical Assistance Project private sector growth demand-responsive vocational (2012) (FSTAP) (FY11) and competitiveness. Lack of critical training. • Energy Sector Project (FY11) mass in the • Mining Technical Assistance Project (FY11) banking industry Indicator 1.2.1: Cost to formally • Agriculture Sector Wide Approach–Support (both services and start a business reduced Project Additional Financing—ASWAp-SP customers) (FY08), AF (FY12) Baseline: 83.7% of income per • RCIP (FY09) capita (DB2012) • IFC portfolio to improve SME access to Target: 70% (2016) finance Indicator 1.2.2: Number of days Indicative Financing: taken to formally start a business • FSTAP Additional Financing (FY13) Baseline: 39 days (DB 2012) Target: 25 days (2016) • Higher Education and Skills Development Project (FY14) Indicator 1.2.3: % of the adult • Regional: Energy Connectivity (FY14/15) population that use formal • Regional: Southern Africa Trade and Transport financial institutions. Facilitation Program (North-South Corridor) Baseline: 19% (2011) APL2 (FY15) Target: 25% (2013) • Development Policy Operation (FY15/16) Target: 40% (2016) AAA: Indicator 1.2.4: Proportion of • CEM (FY10) women within the adult • PPIAF TA Facility Rail PPP Transaction population that is formally Advice (FY12) banked. • WBG Doing Business Reform Support Baseline: 17% (2011) • IFC Banking TA Target : 25% (2013) • IFC advisory services on PPPs 40% (2016) 53 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Indicative AAA/Others Indicator 1.2.5: Reduction in • Diagnostic Trade Integration Study Update annual electricity losses year in (FY13) the project areas. • Financial Deepening Trust Critical Baseline:17.4% (2012) Installation of 100 new • Skills & Technology Development/ Youth infrastructure Target: 14.4% (2015) distribution transformers in Unemployment, Labor Markets, Migration investment gaps low-voltage network (FY14) and inadequate Indicator 1.2.6: Power capacity • Transport Policy Note (FY13) supply of deficit (gap between system • FINSCOPE Surveys (FY13) electricity, water capacity and peak-load) reduced • Growth Pole Studies with focus on SVIP and supply, and Baseline: Capacity 283 MW Regional transmission to Opportunities from Tete (FY13) sanitation, and (2012) Southern African Power • Agriculture/Land Issues (FY13) high transport Target: Capacity 347 MW Pool operational • PPP Pipeline Screening and Follow-up Support costs (2016) for Feasibility Studies (FY13) Inadequate Indicator 1.2.7: Increased use of • Energy Efficiency (FY14) regional public-private partnerships connectivity (PPP) in infrastructure • FSAP Follow-up (FY15) Baseline:5 PPP schemes in place Design studies for potential • Water/Urban Development/ Municipal Services (2012) (rail, lake, immigration, PPP-financed infrastructure (FY15) road traffic, cargo handling) projects prepared Target: 9 PPP schemes in place Partners: (2016) • AfDB • USAID Indicator 1.2.8: One-stop border • DfID post (OSBP) at Songwe and • EU other locations: • EIB Baseline: Not implemented Bilateral agreements to • JICA (2012) introduce OSBP signed • France Target: Implemented (2016) between Malawi and Mozambique, Tanzania, and Zambia Develop a Lack of skilled Improved access to demand- Position paper on skilled 54 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles productive and labor force, low responsive training labor force prepared and efficient use of technology, implemented workforce with and high youth Indicator 1: Student intake in necessary unemployment tertiary education supporting Baseline: 117 per 100,000 equipment and inhabitants (2012) infrastructure Target: 130 per 100,000 inhabitants (2016) Results Area 1.3: Strengthening productivity in a diversified economy Increase agricultural Outcome 1.3: Increased Current Financing: productivity and productivity and • Infrastructure Services Project (FY06) diversification commercialization of agriculture • Irrigation, Rural Livelihoods, and and sustainable management of Agricultural Development Project water resources for multiple uses (FY06)/AF (FY10), AF II (FY13) • Second National Water Development Project Indicator 1.3.1: Increase in (FY07), AF (FY11) Ensure sustained Low agricultural average national maize yield Number of smallholder • Agriculture Sector-Wide Approach Support availability of food to productivity (mt/ha) households receiving Project–ASWAp-SP (FY08), AF (FY12) all Malawians at all Baseline: 1.9 mt/ha (2012) technical advice increases • ASWAp-SP GEF (FY08) times at affordable Target: 2.1 mt/ha (2016) by 10% (2015) • Shire River Basin Management Program prices. (Phase I) Project (FY12) Indicator 1.3.2: Increase in • IFC integrated capital and advisory services for Increase agricultural Agricultural average national irrigated rice Irrigation Investment medium-sized farmers through commercial production and production yield (mt/ha) Framework adopted (2014) banks productivity through remains Baseline: 1.5 mt/ha (2012) intensified predominantly Target: 2.0 mt/ha (2016) Indicative Financing: irrigation subsistence and • Development Policy Operation 1-3 (FY13-15) rain-fed, • Regional: Agriculture Centers of Excellence rendering it (FY13) vulnerable to drought and other • Agriculture Sector-Wide Approach Project weather shocks Phase 2 (FY15) • Potential IFC investments in agriculture sector Move up the value Growth base Indicator 1.3.3: Increase in Additional tonnage of high- • Shire Valley Irrigation Project (FY16) chain in key crops, and narrow and legume production as share of quality legume seeds 55 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles increase agro- undiversified with total agricultural production available processed reliance on only a Baseline: 5% (2012) Baseline: 2,800 (2012) Indicative AAA/Others: products for few primary Target: 15% (2016) Target: 3,500 (2015) • Regional Public Expenditure Review – both domestic and exports (e.g., Agriculture (FY13) export markets. tobacco) • Studies on Agriculture Commercialization (FY13) Wastage of 400 km of rural roads • Agriculture/Land Issues (FY13) harvest due to rehabilitated (2015) • Growth Pole Study with focus on SVIP and lack of or high Opportunities from Tete (FY13) cost of road • GFDRR access • IFC investment climate advisory services • IFC support for private storage and warehouse Growing and Indicator 1.3.4: Enhanced National/basin water receipt programs Improve access to increasingly planning and control of water management institution water through an conflicting flows in Shire River Barrage established (2015) integrated water economic enables improvements in Milestone: Kamuzu Barrage Partners: management system demands on the generation and irrigation Phase I construction • EU country’s water capacity, and water supply. completed (2016) • Norway resources, Baseline: no agreed planning especially in the framework or decisión support • DfID Lake/Shire system (2012) • Irish Aid Target: Multisector integrated • USAID Lack of Shire Basin Plan and decisión • AfDB collaborative support system operational • UNDP planning for (2016) • JICA management and • FICA development of • FAO the Shire Basin, • MCC leading to disjointed and incompatible investments and resource demands 56 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Theme 2: Enhancing Human Capital and Reducing Vulnerabilities Results Area 2.1: Improved delivery of public services Improve Low completion Outcome 2.1: improved access Current Financing: access to rates in primary to quality education, reliable • Project to Improve Education Quality in relevant quality education (35%) nutrition, HIV/AIDS services Malawi (FY10) education and sustainable water supply and • MASAF 3 APL (FY08, AF FY13) Low secondary sanitation services GER (17%) Indicative Financing: On education: Improved education • Higher Education and Skills Development Inadequate Indicator 2.1.1: Improve infrastructure through new (FY13) education standard 5 survival rates or rehabilitated classrooms • Development Policy Operation 1-3 (FY13-15) infrastructure and Baseline (boys, 2010): 60% pedagogic aids Target (boys, 2016): 65% Decentralization of Indicative AAA/Others: Baseline (girls, 2010): 57% education resources through • PER (FY13) Target (girls, 2016): 64% grants to primary schools • Higher Education and Skills Development Note (FY13) • Skills & Technology Development/ Youth Unemployment, Labor Markets, Migration (FY13) • Progress on Selected MDGs (FY14) Partners: • FTI CF • GDC • UNICEF • DFID • USAID Level of stunting On improved nutrition security Community-based Current Financing: (48%) among the Indicator 2.1.2: Community communication program • HIV/AIDS /Nutrition Project (FY12) highest in sub- nutrition program coverage of complete with tools and Saharan Africa under-two year old children materials in place Indicative Financing: Baseline: 0% (2010) • Development Policy Operation 1-3 (FY13-15) 57 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Lack of a coherent Target: : 14% (2016) Improved local and central and integrated coordination for nutrition Indicative AAA/Others: approach to • Policy Notes on Rural Poverty, Gender, and nutrition Improved access to Household Food and Nutrition Security (FY12) community nutrition services Partners • USAID • UNICEF • CIDA Prevent High HIV On HIV/AIDS services: Effective HIV/AIDS Ongoing Financing: spread of HIV prevalence rates Indicator 2.1.3: Men and women prevention program rolled • Multi-sectoral AIDS Project (FY04) infection and 15-49 who have had more than out • HIV/AIDS/Nutrition (FY12) mitigate the Maternal one sexual partner in the last 12 health, socio- mortality rates months reporting use of a Indicative Financing: economic, and still high condom in last intercourse (%) Socially marketed and free • Development Policy Operation 1-3 (FY13-15) psychosocial condoms distributed to impact of HIV Baseline: (2010) outlets and end users Indicative AAA/Others: and AIDS Women: 27.3% • Policy Notes on Rural Poverty, Gender, and Men: 23.6% Young people access youth- Household Food and Nutrition Security (FY12) friendly health service Target: (2015) Partners Women: 31% Improved management and • DFID Men: 28% reduced incidence of STIs • Norway other than HIV infection • Global Fund Indicator 2.1.4: % of infants born to HIV+ women enrolled in PMTCT services in target districts who receive a DNA PCR test for HIV within 2 months of birth Baseline: 25% (2010) Target: 40% (2015) Increased access to sustainable water supply and sanitation services 58 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Improve access to and MDG target (71% On sustainable water supply: quality of water supply in 2015) for Indicator 2.1.5: Number of and sanitation services access to adequate people provided with new or sanitation likely to improved water supply and be missed sanitation services through the project Baseline: 0 (3/2012) Target: 1 million (2014) On sanitation services: Indicator 2.1.6: Number of people provided with improved sanitation facilities through the project Baseline: 0 (3/2012) Target: 37,000 (2014) Results Area 2.2: Lowering vulnerability and enhancing resilience Improve Large numbers of Outcome 2.2.: improved Social protection Continuing Financing: resilience and poor and resilience for poor communities investments better • Agricultural Development Program quality of life so vulnerable require through adequate social safety coordinated Support Project (FY08), AF (FY12) the poor can move more social nets, improved climate resilience • Second National Water Development out of poverty protection and enhanced capacity to Project (FY07), AF (FY11) and vulnerability respond to disaster risk • Shire River Basin Management Project (FY12) Improve social On improved social safety net • Third Malawi Social Action Fund – APL II protection systems: Indicator 2.2.1: Social Project (FY08), AFI (2010); AF II (FY13) safety net (SSN) established. • Irrigation, Rural Livelihoods, and Baseline: Public Works Agricultural Development (FY06), AF Programs (2012) (FY13) Target: Consolidated social • Nkhotakota Wildlife Reserve Project safety nets (2015) (GEF, FY12) • Nyika Trans-Frontier Conservation Area Beneficiaries with savings of Project (GEF) (FY12) at least 50% of Public Works wage one year 59 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles after participation Indicative Financing: Baseline: 13,500 (2011) • Agriculture Center of Excellence (FY13) Target: 34,000 (2014) – of • Malawi Social Action Fund 4 (FY14) which 62% female • Agriculture Sector Wide Approach Project Indicator 2.2.2:Beneficiaries Phase 2 (FY15) with savings of at least 50% of • Development Policy Operation 1-3 (FY13-15) Improve resilience and Large number of public works wage one year after quality of life for the poor and participation Indicative AAA/Others: poor to move out of vulnerable require Baseline: 13,500 (2012) • Regional Targeting Study (FY12) poverty and more social Target: 34,000, of which 62% • Agriculture/Land Issues (FY13) vulnerability. protection female (2016) • Malawi Disaster Risk Management Program (GFDRR TF) • Malawi National Climate Change Adaptation Program (TF) • Poverty Note – Synthesis Note on Food On improved climate change Security, Rural Poverty. and Employment Ensure sustainable High population resilience and enhance capacity (FY14) management and density and to respond to disaster risk: utilization of the poverty put • Energy Efficiency (FY14) environment and pressure on the Indicator 2.2.3: Vegetation • Impact Evaluations (FY14-15) natural resources environment and cover change as percentage of National guidelines for • Social Safety Net Review (FY15) degrade natural baseline in selected catchments integrated catchment • CEM: Assessment of Malawi Growth Models resource base and (= approx. 100,000 ha) management (2014) (FY15) critical Baseline 0% (2012) ecosystems Target: 8% (2016) Improved management of natural habitat in selected Partners: Little adoption of protected areas • KfW sustainable land • UNICEF and water • UNDP management • DFID practices; high • GEF rates of • FAO deforestation, • Norway erosion, flash Indicator 2.2.3: People served • Ireland Aid floods, and loss by improved flood management, • TerrAfrica Partnership on soil fertility including mitigation and • MCC and productivity adaptation (early warning) • GFDRR 60 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Baseline: 0 (2012) Target: 200,000 (2016) Reduce the social, Increasing Economic, and incidence of flood environmental impact events with of disasters and increasing human enhance resilience to and material Indicator 2.2.4: Improved climate change risks impacts and mainstreaming of gender-aware Integrated Flood Risk and impacts. limited climate and disaster risk Management Action Plan preparedness for reduction issues with focus on for Shire Basin adopted disasters. vulnerable communities within (2012) sector investment planning Limited practical (especially in Bank and IFC- Improved Shire Basin Flood mainstreaming of supported sectors and programs) Forecasting and Early Climate and Warning system operational Disaster Risk (2015) Reduction in sectors Sector diagnostics on climate and disaster impacts Little completed (2014) mainstreaming of Disaster Risk At least two sectors feature Reduction (DRR) gender, climate, and disaster in sectors and risk considerations in their limited investment programs (2015) preparedness for disaster (floods, droughts, earthquakes) Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness Results Area 3.1: Improving public sector management Current Financing: Improve government Poor public Outcome 3.1: Improved public Increased number of • Third Malawi Social Action Fund – APL II effectiveness and expenditure and sector performance because of national and district Project (FY08), AF (FY13) quality of public human resource better PFM, procurement, and financial transactions using • Public Finance and Economic Reform Program administration and management, with M&E systems, and enhanced IFMIS 61 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles credibility of public little monitoring statistics Multi-Donor Trust Fund—Bank-administered financial management and evaluation (FY12) (PFM), procurement, (M&E) and Indicator 3.1.1: Number of and internal and suboptimal districts covered by the IFMIS Indicative Financing: external oversight statistics rollout to subnational • Public Sector & Statistics Capacity Building processes governments (FY14) Baseline: 22 (2012) • Development Policy Operation 1-3 (FY13-15) Target: 34 (2016) Inadequate Indicative AAA/Others: fiscal and Indicator 3.1.2: Strengthened • Decentralization Note institutional transparency, accountability, and • PER (FY13) foundation for capacity of public procurement, • Public Sector Strengthening Review (FY14) decentralization, focusing on the eight top- • Water/Urban Development/ Municipal Services leading to spending ministries and (FY15) suboptimal parastatals: • Public/private dialogue fora service delivery Baseline: 0 (2012) Target: 10: Agriculture, Health, Indicative Financing: Suboptimal Education, Transport and Public • Public Sector & Statistics Capacity Building transparency and Works, Roads Authority, (FY14) accountability and Irrigation and Water, ESCOM, • Fourth Malawi Social Action Fund APL use of demand- Malawi Housing (2015) (FY14) side governance instruments, Indicative AAA/Others: especially below the national level • PEFA Public Expenditure and Financial Accountability (FY13) • FINSCOPE Surveys (FY13) • Impact Evaluations (FY14-15) • Public Sector Strengthening Review (FY14) • Public Expenditure Review (FY15) Partners: • Norway Statistical Capacity Building Project • EU • UN • DfiD 62 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Outcome 3.2: Improved public M&E system designed and sector performance and M&E, operational in key sectors and enhance the statistical system Indicator 1: Number of ministries covered by the new M&E system, developed under the Public Sector and Statistics Strengthening Project Baseline: 0 (2012) Target: 10 (2015) Results Area 3.2: Strengthening social accountability for service provision Improve Governance Outcome 3.2: enhanced transparency on resource flows and service delivery Poor public sector Indicator 3.2.1: Number of good management governance tools used and System for tracking performance, scaled up to track transparency government performance systems and in the use of resource flows (e.g., in place and functional capacities, independent budget analysis, particularly in PETS, citizens charters) human resource Baseline: 2 (2011) (HR), PFM, and Target: 5 (2015) M&E 63 Malawi Country Assistance Strategy FY13–16 Country Development Goals Issues and CAS Outcomes Milestones WBG Program (MGDS II Goals) Obstacles Indicator 3.2.2: Number of independent complaint and redress mechanisms and investigative journalism mechanisms introduced Baseline: 0 (2011) Target: 5 (2015) Indicator 3.2.3: Enhanced civil society participation organizations (CSOs) providing feedback on service delivery and independent evaluations of services, and strengthening of social accountability mechanisms for parliament. Baseline: 0 (2011) Target: At least 2 CSOs providing feedback annually (2015) Lack of Indicator 3.2.4: Geodata transparency in management center providing natural resource online access management Baseline: No (2012) Target: Yes (2016) Indicator 3.2.5: Modern computerized mining cadaster in use Baseline: No (2012) Target: Yes (2016) 64 Malawi Country Assistance Strategy FY13–16 Annex 2: Malawi: CAS (FY07-FY12) Completion Report Date of CAS: January 4, 2007 (Report No. 38326-MW) Date of Progress Report: December 17, 2009 (Report No. 48336-MW) Period Covered by the CAS Completion Report: February 2007 to June 2012 CAS Completion Report completed by: Chrissie Kamwendo Title: Sr. Operations Officer Date: October 17, 2012 I. INTRODUCTION 1. The Malawi Country Assistance Strategy Completion Report (CASCR) assesses the effectiveness of the Bank’s assistance program to Malawi for the period FY07-FY12. The CAS was originally planned for FY07-10, but was extended due to delays in implementation of the program caused by political economy problems and to allow full alignment of the new CAS with the second Malawi Growth and Development Strategy (MGDS II). The conclusions of this report will inform the new CAS to be delivered in FY13. This report benefited from (i) a review of the link between the strategic objectives of the 2007-2012 CAS and government goals as formulated in the Malawi Growth and Development Strategy 2006/7-2010/11; (ii) a review of portfolio performance and selected Bank documents and assessments carried out to date; (iii) a review of the Bank’s Quality Assurance Group’s (QAG) reports on several projects in the portfolio; (iv) updated outcome tables and inputs from the Country Team members; and (v) an assessment of the extent to which the Bank was successful in meeting CAS objectives. 2. The CASCR rates program implementation as moderately unsatisfactory due to limited improvement in the business environment, especially the energy outcomes, failure to embark on agriculture commercialization, and the deteriorating political economy and poor macroeconomic management that affected project implementation, especially the last 18 months of CAS implementation. It rates Bank performance as moderately satisfactory; the program demonstrated uneven success in contributing to the achievement of all CAS outcomes. However, there is a broadly sound program of ongoing activities in place for the next strategy period. Positive aspects of Bank performance included a results-based and client-responsive CAS design, proactiveness in dealing with implementation issues, and successfully replacing budget support by investment lending at times of inappropriate macro-policies. The Bank’s program remained responsive to the country’s changing environment and demands during the CAS period. II. MALAWI’S LONGER-TERM STRATEGIC GOALS 3. The MGDS sets out the Government’s economic growth and development priorities for five years (2006/07 – 2010/11), in line with the longer term Vision 2020 and the Millennium Development Goals. The MGDS built on the country’s Poverty Reduction Strategy (2002) and Economic Growth Strategy (2003) and integrated several new sector strategies, policies, and emerging issues, such as land reform and public-private partnerships. 4. The July 2010 MGDS review commissioned by the Malawi Government and financed by UNDP indicated that the MGDS has generally been an effective instrument for achieving the country’s development goals. Through this strategy some challenges, such as food insecurity and 65 Malawi Country Assistance Strategy FY13–16 dwindling of income, have been reversed, resulting in positive economic growth. However, performance in areas such as poverty reduction, elimination of extreme hunger, gender parity, universal access to primary education, maternal health, and employment generation is still disappointing. There are also structural challenges, such as weak harmonization between overall strategies and implementation of specific policies at the ministerial level, and weak monitoring and evaluation systems. 5. In 2007, an IMF/World Bank Joint Staff Advisory Note (JSAN) concluded that the MGDS provided a comprehensive framework for growth and poverty reduction in Malawi, but also pointed out that the results framework was weak. Staff noted that the emphasis on growth and government ownership were key strengths of the strategy, while the results framework was not underpinned by a comprehensive list of indicators that allowed for effective monitoring and evaluation. The role of social protection and expenditures protection in supporting growth was also underplayed. 6. The JSAN recommended additional analytical work that was necessary to achieve MGDS objectives. These included growth diagnostics; analytical work to improve the quality of the governance environment (efficiency, accountability, and transparency in the use of public resources); diagnostic work to better understand the underlying constraints to evidence-based policy making in Malawi; more detailed analytical work on barriers and facilitators to infant and child feeding as a main contributor to malnutrition; institutional audit to inform efforts to build a stronger disaster management system; and efforts to further scale up weather insurance policies. III. CAS OBJECTIVES AND OUTCOMES 7. The 2007 CAS identified three key challenges to achievement of the Government’s development goals: • Pervasive risks at the national and household level resulting primarily from food insecurity caused by weather-related shocks to agricultural production and poorly functioning agricultural markets, macroeconomic instability, and illness or death, especially from HIV/AIDS. • Constraints in private sector development because of macroeconomic instability, deficient infrastructure, especially limited and unreliable electricity supply, a shortage of skilled personnel, expensive and restricted access to credit, and the negative impact of crime and corruption. • Weak institutional capacity: Malawi faces severe human resource constraints in key sectors, including health and education, partly due to the inability of the education system to produce sufficient graduates, exacerbated by the impact of the HIV/AIDS. 8. Responding to the key development challenges identified by the World Bank, the 2007 CAS set four pillars with outcomes directly linked to the MGDS goals. The milestones for monitoring progress were centered on key issues that the Bank program sought to address through expected CAS outcomes (see Figure 1). 66 Malawi Country Assistance Strategy FY13–16 9. The CAS was also aligned with the Bank’s African Region strategic priorities. The focus of the CAS on growth, enhanced social protection, and improved governance reflected the four pillars of the Africa Action Plan (AAP, adopted in September 26, 2005): accelerating shared growth; building capable states; strengthening outcome-based national strategies and the Bank’s focus on results; and strengthening the global development partnership for Africa. 10. Implementation of the CAS and progress of reforms were strongly influenced by political, social, and economic developments in Malawi during the period. Program implementation gave more preference to economic growth than has been the case in the past, in line with Malawi’s substantial progress in pursuing sustainable fiscal policies and maintaining macroeconomic stability for a number of years. The country’s macroeconomic performance was affected by various shocks and the level of fiscal discipline, which tended to oscillate between periods of strong (2006–2008 and 2010) and weak policy implementation (2011/12). The year 2006 marked a return to macroeconomic stability and fiscal prudence with 7.7 percent growth in real GDP after an era of weak macroeconomic performance and lackluster economic growth, averaging 2 percent. 67 Malawi Country Assistance Strategy FY13–16 IV. RESULTS ASSESSMENT Program Performance Rating The CAS Completion report rates the achievement of results foreseen in the CAS as moderately unsatisfactory because it did not make acceptable progress toward several of its major expected outcomes. The program was delivered as planned with minor modifications to scheduling but within an expanded implementation period and more resources as compared to the plan. The most important shortcoming was the failure to address issues in the energy sector which is today still a major constraint to investment. The Bank contributed to the development of SWAps in the education and agriculture sectors as a means of addressing Government capacity constraints and pooled funds with other development partners to address the issues of vulnerability as a result of HIV infections and food insecurity. DPLs were provided in the context of the Common Approach to Budget support and were linked to the investment lending, in turn preceded in most cases by AAAs. Some of the notable results achieved are (a) harmonization of agriculture and education sector investments and a close alignment of support toward Government sector programs; (b) setting the analytical basis for Government to make informed evidence-based policy decisions in order to focus on priorities that can enhance the impact on growth and poverty reduction; (c) support Government to implement innovative agricultural risk management models on macro- and micro-weather insurance schemes; The implementing environment characterized by a challenging policy environment and a fragile economy contributed to underperformance. Areas of concern included these areas: limited improvement of the business environment aggravated by the static energy agenda; delayed implementation of reforms; and the deteriorating political economy. 11. The political stalemate between the former president and the opposition hampered the Government’s ability to legislate. This affected progress of implementation of agreed reforms, including meeting several covenants, 19 and ratification of a number of IDA credits. In 2008 and 2009 the policy-making environment remained constrained, compounded by the 2008/09 global food and fertilizer price shocks and significant fiscal loosening that preceded the 2009 elections. Consequently, although the 2007 CAS had planned to deliver three projects (HIV/AIDS, Energy, and PRSG2) valued at $90 million in FY09, only one, the PRSG2, was delivered, with a limited reform agenda and a correspondingly lower amount of budget support. IDA was able to deliver a Regional Communication Infrastructure Project that was not originally planned. Some IDA- Board approved projects were not ratified for a long period (including the Mozambique-Malawi Interconnector and the Agriculture Development Support Project). Hence the Bank adopted a roll-back strategy in 2009, which meant reduced lending and increased AAA. 12. President Mutharika was re-elected in May 2009 and his Democratic Progressive Party (DPP) won an absolute majority in Parliament. This allowed for a smoother budget session than in the previous years. Ratification of Bank credits, including ADP-SP and the additional financing for the Multi HIV/AIDS project, was quicker. New operations, such as the PRSG III and the Improving the Quality of Education Project, were rapidly processed. Additional financing for MASAF III and IRLAD and new operations in the mining, environment, and financial sectors were also approved. While the Regional interconnector project was cancelled 19 For example, establishment of the regulatory framework for the water sector. 68 Malawi Country Assistance Strategy FY13–16 for lack of political support in Malawi, the energy dialogue picked up again, resulting in preparation of a new energy investment project. Other investments in water, nutrition, agriculture, and environment were approved in FY 11 and FY12. Because all of these activities were still part of the original CAS program, the CAS implementation period was extended by another year. This also allowed time to fully align the new CAS (FY13-16) with the Government’s process to review the MGDS I and prepare for MGDS II, which was adopted in May 2012. 13. However, pressures were growing, political as well as economic. Malawi went into a negative cycle of lost confidence, investment, and support. The inappropriate policy response to shocks, including the terms of trade shock in early 2011, resulted in an off-track IMF Extended Credit Facility. As a result, budget support from the Bank and other donors in the Common Approach to Budget Support (CABS) came to a halt. In addition, the $350 million Millennium Challenge Compact and budget support from CABS development partners were also suspended. This resulted in foreign exchange and fuel shortages that slowed down the implementation of many projects, especially in the infrastructure area. All these impacted the entire program, and at least a year of implementation was lost. 14. In April 2012 Mrs. Banda ascended to the presidency following the death of President Mutharika. This opened a new window of opportunity; many pending important governance and economic reforms were implemented within a short period, necessitating the preparation of a Rapid Response program. An IMF-endorsed ECF program has been in place since July 2012. All donors are back at the table. As there are still some concerns about effective parliamentary oversight, civil society and faith-based organizations continue their watchdog and alternative voice role. V. CAS IMPLEMENTATION PRIORITIES, ACHIEVEMENTS AND CHALLENGES AT THE END OF THE CAS PERIOD Pillar 1: Agricultural productivity and integration into agro-processing 15. The priority was to increase productivity and food security. Irrigation and market incentives were expected to contribute to increased yields, specifically for smallholder farmers supported by the Bank program. Through three projects—the Community Based Lands Development Project (CBRLD); the Irrigation, Rural Livelihoods and Agricultural Development Program (IRLADP); and the Agricultural Development Program-Support Project (ADP-SP that later was folded into Agriculture SWAP)—the following had been achieved by June 2012: • Increased productivity by targeted farmers for rain-fed maize from less than 1.0 t/ha to 1.9 t/ha on average at the national level. Under irrigation, national statistics indicate that average maize and rice yield have increased to over 2.8 t/ha (from 1.6) and 1.5 t/ha (from 1.0) respectively by 2012. • More than 3,400 hectares of irrigated land have been developed or rehabilitated, benefitting over 20,000 households. • 15,142 land-poor rural households voluntarily relocated from densely populated districts to other districts with available arable land where they have realized improved food production and incomes. These beneficiaries now cultivate about 2 ha from an original land holding size of less than 0.5 ha. 69 Malawi Country Assistance Strategy FY13–16 • More than 340,000 farming households are benefitting from on-farm trials and demonstrations of improved seed, crop nutrient management, sustainable land and water management techniques, and post-harvest technologies. 16. However, much remains to be done to put agriculture in Malawi on a more diversified and commercial-oriented footing. The Bank is still in the initial stages of work with the Ministry of Agriculture and Food Security to develop a project to promote agricultural diversification and more commercialized farming practices. The ASWAp-SP, has received additional financing for construction of rural roads and to start initial investments on diversification (focusing on legumes production). IRLADP has been extended and received additional finances of $52.7 million to scale up its support to small-scale irrigation schemes and implementation of inputs for asset activities as a social safety net program to cushion the impact of the economic reforms in rural areas. The Community Lands project closed in September 2012 and received a positive evaluation from the IEG assessment . Pillar 2: Improved business environment 17. The program expected to achieve improvements in the efficiency and reliability of electricity supply and in “Doing Business� indicators for increased trade across borders and reductions in the costs to start a business. The major achievements were: • The establishment of a Commercial Court in 2007 significantly reduced the number of days spent in settlement of commercial disputes from an average of 290 days in 2008 to 96 days in 2010. • Improvement of sector management and governance due to the establishment of the Malawi Energy Regulatory Authority (MERA) in 2008 and an increase in tariff levels by an average of 56 percent, which will strengthen the financial position of ESCOM. • The Bank and European Commission have supported the preparation of a multimodal transport study and the Government is preparing a Transport Sector Investment Program. The condition of the road network has improved significantly, and the outlook for financing maintenance through road user charges is encouraging. 18. However, no progress was made in improving the quality of electricity supply. The quality of electricity remains the most serious constraint for businesses, as evidenced by load- shedding, currently estimated to frequently exceed 30 mw, or 10 percent of peak demand. The cancelled Mozambique-Malawi Interconnector Project to connect Malawi to the Southern African Power Pool would have provided an alternative source of power pending development of Malawi’s domestic power resources. A new Energy Sector Project was approved in FY11 and is investing in rehabilitation and expansion of the current distribution and transmission system, as well as in future generation and demand-side measures. The MCC Compact was delayed in preparation, signed in 2011, but subsequently put on hold due to governance challenges until June 2012. This US$350 million program, which complements the scope of the Bank-financed energy project, is now beginning its implementation. 70 Malawi Country Assistance Strategy FY13–16 Pillar 3: HIV/AIDS and nutrition 19. Behavior changes were expected in order to contribute to a slowing HIV infection rate and an increased number of people on Anti-Retroviral (ARV) treatment. Government was expected to develop a coherent program on improving the nutritional status of children of less than 2 years of age. The following was achieved: • Increased number of people living with HIV/AIDS on antiretroviral therapy (ART), from around 57,000 in 2006 to over 198,800 in 2010, exceeding the target of 165,000 set for 2009. Similarly, the number of HIV testing and counseling sites increased from 14 in 2001 to the 410. • The HIV/AIDS infection rate decreased from 14 percent to 10.6 percent in 2012. This has contributed to the improvement in life expectancy from 30 in 2005 to 52 in 2012. 20. Although a nationwide awareness and information campaign was undertaken to promote good feeding practices for under-5 and school-age children, Malawi still lacks a coherent nutrition program. A multi-partner study examining determinants of infant and child feeding practices was completed and provided the basis for a nutrition program. Study results have been widely disseminated and the Bank in collaboration with other partners prepared the Nutrition, HIV and AIDS project, which was approved in FY 12. Pillar 4: Sustain improvements in fiscal discipline 21. Malawi was expected to achieve improvements in expenditure management as measured by the public financial management (PEFA) indicators. Below are some major achievements (details may be found in Attachment 2 of this report : • Comprehensiveness and transparency of the budget: Government progressed in improving the linkage between the MGDS and the budget. Since 2008/09, Government introduced an output-based budget framework where ministries, departments and agencies (MDAs) are now required to make their budgets according to MGDS priorities. Furthermore, the presentation and structure of the budget, together with the associated chart of accounts, have been improved to become compliant with international fiscal reporting standards (Government Financial Statistics (GFS) 2001), both for economic and program classifications. A module dealing with integrating the budget into the overall General Ledger in IFMIS has been introduced. MTEF was reinvigorated in 2011/12 and the budget process now focuses more on outputs and achievements. • External audit and scrutiny: Progress has been made in improving the timeliness and coverage of audits. Government has since cleared the backlog of audits. While the audit of the 2009/10 financial statement was submitted within six months of the end of the fiscal year, the audit for the 2010/11 was submitted to Parliament with some delays. • The key challenge in audit and external scrutiny is to make timely follow-ups of the audit issues raised by the Public Accounts Committee of Parliament. Government is expected to report on this in a Treasury Minute issued by the Ministry of Finance. There is still a backlog of these Treasury Minutes. In addition, beyond linking the budget to the MGDS, there is need to further strengthen institutional arrangements for budget implementation. 71 Malawi Country Assistance Strategy FY13–16 For example, currently no budget planning margins are being provided within the MTEF ceilings to cater for additional expenditure requirements arising from new policy or programs. V. BANK PERFORMANCE Bank Performance Rating The Completion Report rates Bank performance as moderately satisfactory, because the implementation of the program demonstrated uneven success in contributing to the achievement of CAS outcomes. However, there is a broadly sound program of ongoing activities in place for the next strategy period. Positive aspects of bank performance included: (a) program design that was selective, result focused, and responsive to Government requests and priorities, which enhanced Government ownership; (b) proactive and timely streamlining of the portfolio through the cancellation, closure, and restructuring of operations to ensure effective implementation, including in some cases provision of additional financing for cost overruns and scaling–up of successful interventions; (c) leveraging the Bank’s knowledge-generation capacity and convening power to lead the delivery of lending and key knowledge products to help achieve the objectives of both the CAS and the Malawi Growth and Development Strategy; (d) flexibility and proactiveness that led to the adoption of a roll-back strategy that suited the implementation environment in 2009; (e) successful steering Bank support from budget support to investment support at times when macro-policies made budget support rather impossible; and (f) widening and harnessing stakeholder participation, especially the private sector, CSOs, and media, which improved the Bank’s image as per the 2010 client survey. However, the policy dialogue proved difficult beyond the technical level and delayed the ratification of some of the policies. A. Quality of Products and Services 22. During the CAS period, the WBG’s program was selective based on government requests and priorities. The program also targeted more realistic results in line with the key recommendations of 2006 IEG CAE. The program limited the Bank’s engagement in sectors in which other development partners are adequately positioned to take the lead, for instance, the health sector. The portfolio was streamlined through the cancellation, closure, and restructuring of operations to ensure effective implementation. The portfolio was reduced to about 10 projects to allow budget space for critical knowledge work. 23. The Bank has been leveraging its capacity in knowledge-generation and convening power to support interventions by other partners. Factors that determined entry into new areas of engagement or exit from current engagements included: • A link to policy reform. Particular importance was given to ensuring a strong link to policies supporting the establishment of an enabling environment for private sector development, agriculture production, and marketing. • Explicit government ownership. The Bank engaged only in areas where there was explicit request and concrete upfront signals and an agreement with the Government. 72 Malawi Country Assistance Strategy FY13–16 • WBG’s comparative advantage. The Bank provided support only when it had a particular comparative advantage in technical skills, resources, convening power, or ability to mobilize international expertise. Lending 24. Volume, lending instruments, and scenarios: As of June 30, 2012, the Bank portfolio in Malawi had 12 investment projects valued at US$861.1 million and two GEF-financed projects and was managing two catalytic fund projects in the water and education sectors. Of this amount, 71 percent were credits and the rest grants. This support was distributed as follows: 30 percent for human development; 37 percent for infrastructure development; 15 percent for agriculture, rural development and natural resources; 15 percent for environment, and 3 percent for private sector development. The Bank portfolio has two regional projects, in telecommunications and trade insurance. Since 1966, the WBG has committed about US$2.6 billion to Malawi supporting over 120 operations. 25. CAS plans and actual deliveries: The CAS FY07-FY10 planned to deliver $340 million, projected at $80 million a year for the first two years and $90 million for the last two years. During this CAS FY07-FY12, IDA has committed about $890.0 million. The increased budget is a result of successful replenishment of IDA 15, availability of crisis response window funds, and extension of the implementation period by two years. Three of the planned four PRSCs were delivered. Four additional financing operations were prepared, in the HIV/AIDS, agriculture, water, and Social protection sectors. PRSCs were used to implement critical policy and institutional reforms aimed at improving agriculture productivity, business the climate, dealing with vulnerability to shocks and improving economic governance. Table 1: Bank Project Allocations and Approvals, FY04 – FY12 Malawi FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Number of projects approved 3 3 3 3 3 2 5 4 3 IDA allocation, 257.9 235 110 30.7 116 70 102 50 158 US$ million CPIA ratings 3.5 3.5 3.4 3.3 3.2 3.3 Portfolio Quality 26. In FY06, 30 percent of the Bank’s Malawi projects were problematic, partly due to insufficient capacity and lack of familiarity with Bank procurement procedures. Following the Country Portfolio Performance Review in FY06, steps were taken to improve quality at entry and portfolio performance, particularly through project-specific seminars to disseminate best practices on procurement and financial management. Of the three problem projects, FIMTAP was restructured and closed on September 1, 2009. Community Lands improved performance, received US$10 million additional financing, and closed on September 30, 2011. ESSUP closed successfully in December 2010. BESTAP was restructured in FY09 and was upgraded. Two projects were cancelled: the Malaria Booster Program closed due to non-performance and the Malawi–Mozambique Interconnector due to a change in priorities of the Malawi Government. Two of the four additional financing projects that were processed in the period were needed to cover cost-overruns, resulting from price increases, inadequate cost estimation, and delayed 73 Malawi Country Assistance Strategy FY13–16 implementation. The FY10 CPPR indicated that portfolio performance was mixed. The Infrastructure Services Project (ISP) was saved from cancellation by a remarkable turnaround due to revamped collaboration between the Government and the Bank. Overall, the restructured portfolio has improved tremendously in the last years of CAS implementation. At the time of this report, there are no problem projects in the portfolio, partly due to Bank decentralization, which increased skills availability at country level. Mini/quarterly CPPRs were used to track implementation. Table 2: Bank Lending Performance, FY07 – FY12 FY # Net Problem Problem Potential Potential At At Commit Commit Realism Proj Commit (#) (%) (#) (%) Risk Risk At Risk At Risk (%) ($m) (#) (%) ($m) (%) 07 11 371.8 3 3 1 9 0 9 60.0 16.1 08 11 364.9 1 9 0 0 1 9 20.0 5.5 09 9 309.9 3 33 0 0 3 33 40.0 31.3 10 11 479.2 1 18 0 0 1 18 97.0 16.7 11 9 435.67 0 0 1 11 1 12 52.7 11 12 13 973.15 0 0 0 0 1 8 114 12 Table 3: Indicators of Portfolio Management for Fiscal Years 07 – 12 Indicators Performance FY07 FY08 FY09 FY 10 FY 11 Disbursement ratio (%) 22.7 22.2 15.2 38.4 ? Disbursement lag; Orig. (%) 9.4 4.6 7.7 5.0 ? Projects at risk (%) 9 9 33 18 9 Problem projects (%) 0 9 33 18 0 Realism Index Proactively Index Analytical and Advisory Activities 27. The Education Country Status Report (CSR), the Mining Sector Review (MSR), the Country Economic Memorandum (CEM), the 2008 Financial Sector Assessment (FSAP), and the Malawi Social Protection Stock Take have significantly contributed to the planning and policy environment. The CSR brought into focus issues affecting the quality of education in Malawi at various levels. The findings fed into the National Education Sector Plan (NESP), which has assisted the Government to leverage resources from various donors and the Fast Track Initiative (FTI). The MSR in 2009 brought worldwide experience in the management of mining transactions and informed the design of the Mining Policy. The MSR provided the analytical underpinnings of a new Mining Governance and Growth Support Project. The CEM is a rich piece that acknowledges the progress that Malawi has made in improving its macroeconomic environment and proposes options on ensuring continued future growth. The 2008 FSAP was instrumental in bringing financial sector development into the policy debate in Malawi and its 74 Malawi Country Assistance Strategy FY13–16 recommendations have greatly assisted in leading to other AAA, such as the Malawi Financial Sector Development Strategy and Finscope Demand and Supply Side Surveys. A Financial Sector TA operation has also been developed to implement the recommendations of the FSAP. The Social Protection Stock Take informed the design of the social protection policy and has helped Malawi move toward development of the Social Support Policy and Program. 28. A few of the planned analytical work and advisory services were merged with other AAAs or cancelled or put on hold. The planned AAA on the Weak Evidence Base on High Value Crops was delivered as part of the agricultural background analysis which contributed to the CEM to avoid duplication and provide a comprehensive picture for understanding the cost structure and competitiveness of a number of key agricultural commodities as a basis for assessing sources of agricultural growth in Malawi. The Forging Partnership with Agribusiness AAA was put on hold because it was meant to be part of diagnostic studies to inform the design of the Agriculture Commercialization project, which has been deferred to FY15. In a number of cases, the diagnosis and recommendations of the Bank’s work were endorsed by the client, for example, the recommendations of the CEM and the Mining Sector Review resulted in Government demand for projects in mining, energy, and agriculture. B. CAS Implementation 29. CAS implementation monitoring arrangements: Internally, the Malawi CAS was launched during a Country Team retreat held in March 2007. The retreat's objective was to understand and develop a work plan for CAS implementation, based on the CAS Results Matrix. Four CAS pillar teams discussed and presented critical steps necessary for the achievement of the objectives. This translated into matrices that were used to track progress on a quarterly basis. Specific country team and portfolio review meetings were organized in which CAS progress was discussed. In keeping with the spirit of the Paris Declaration on Aid Effectiveness, the Government of Malawi initiated annual Joint Programme Reviews (JPRs) with the Department for International Development (DFID), European Union (EU), World Bank, German Technical Cooperation (GTZ), and Norway. More donors joined later. The process was later converted into MGDS annual review and eventually was augmented by regular CPPRs and mini CPPR meetings with Government counterparts. VI. COUNTRY DIALOGUE AND PARTNERSHIPS 30. The Government has taken significant steps to strengthen donor coordination. Through the Department of Debt and Aid in the Ministry of Finance, the Government is now taking a lead role in the coordination of donor assistance. Its Development Assistance Strategy was published in November 2007 and an Aid Calendar, outlining the expected timeline for disbursement of donor funding, is now produced annually. A system of Sector Working Groups is being institutionalized. The First High Level Forum meeting between the Government and the Development Partners will be held on February 9, 2011. Further, nearly all development assistance provided to the public sector is now included in the budget. 75 Malawi Country Assistance Strategy FY13–16 VII. CONCLUSIONS AND LESSONS 31. At best program progress toward achieving the goals of FY07 CAS has been mixed. Good progress has been made toward two of the four CAS pillars (HIV/AIDS and public expenditure management). Mixed progress has been registered toward CAS Pillar 2, with some encouraging developments on road infrastructure but little improvement in the investment climate and much less in energy. Developments in the agriculture sector have also been mixed (CAS Pillar 1). 32. At completion, the objectives of the CAS remained relevant and aligned to the goals of the MGDS. The priority areas outlined in the CAS remained the appropriate focus of Bank resources and will remain so in the next CAS. A year of implementation was lost due to the then prevailing political environment. This necessitated rescheduling of planned projects and extension of the CAS implementation period. For example, political and administrative constraints resulted in delayed implementation or preparation of certain projects (agriculture and energy), and the availability of additional regional financing resulted in the inclusion of projects consistent with regional policy (e.g., Regional Communications Infrastructure Project). The available CRW funds have been successfully absorbed. Experiences and Lessons 33. Some highlights of lessons from the implementation of the FY07-FY12 CAS include: • Alignment of the CAS with the MGDS enhanced ownership and commitment, and resulted in effective Bank contribution to the country’s development goals. The next CAS should likewise be aligned with the government program and it is worthwhile to postpone production of the new CAS to allow full alignment with MGDS II. • Weak government capacity, especially in areas of financial management, procurement and project management as well as monitoring and evaluation, slowed down project implementation. The new CAS should help build the capacity of the Government in general. In addition, project designs should reflect capacity constraints on the ground. • Covenant implementation affected project implementation. The new CAS should find alternative ways of supporting key reforms, for example, to link sector policy reform to budget support operations or ensure that essential policy reforms are implemented prior to proceeding with investment lending. • Important role for civil society: Civil society, the private sector, and the media are able to offer strong contributions and an alternative voice, which is especially important if the political arena is dominated by one party. It is therefore recommended that the next CAS should scale up the involvement of civil society in Bank-supported projects and the role of the Bank in fostering a useful and productive dialogue between the Government and civil society. 76 Malawi Country Assistance Strategy FY13–16 • Joint analytical pieces with other development partners help in building consensus, expanding ownership, and harmonizing support. • Programmatic versus discrete projects: The portfolio is tilting toward programmatic approaches to financing, which helps leverage resources from other development partners as well as increasing impact on use of (sector) budget funds. • There is a need for comprehensive fiduciary support, especially in sector-wide operations. Experiences in the Health and HIV pool, as well as from detailed procurement reviews, as was done in the fertilizer procurement, indicate that there is still significant need for comprehensive fiduciary support in sector-wide operations due to weak capacities in the Government. These lessons have already informed arrangements for the education pool and the design of the agriculture pool. • Projects can influence policy: The implementation of MASAF contributed to a policy shift in Government and other stakeholders, for example the use of starter packs to conditional cash transfers in addressing food security and vulnerability. 77 Malawi Country Assistance Strategy FY13–16 Attachment 1: Malawi CAS (FY 07-FY 12) Results Summary Table 1. Summary of CAS Program Self-evaluation CAS Outcome/Cluster of Status and Lending Lessons Outcomes and Outcome Evaluation Summary and Non-lending and Suggestions for Indicators (Baselines and Activities that the new CAS Targets) Contributed to the Outcome Improve smallholder agricultural productivity and integration into agro-processing 50% increase in productivity in Partially Achieved. Three of the four Project and The need for solid, the 11 project-supported districts outcomes have been achieved, resulting in Programs real-time analysis of (on average 1.5 tons/ha from 1 achieving the goal of food security. In • Community agricultural policy, ton/ha for rice, on average 2.25 target areas under the agricultural projects Based Rural Land in order to inform tons/ha from 1.5 tons/ha for there has been a substantial increase in (‘04-09) ICR S government policy- hybrid maize ) by January 2012 yields due to good rainfall, improved • Irrigation and making and irrigation service delivery, increased Rural Livelihoods processing and access to inputs [and] land and adoption of (‘06-13) donors new farming technologies. Under • Mt. Mulanje IRLADP, maize yields have increased Project from 1.6 ton/ha to 2.8 ton/ha under • National Water irrigation (75% increase, also partially due Development II to increased cropping intensity). Similarly, (‘07-14) ISR S average rice yield in targeted schemes has Agriculture • improved from about 1.0 ton/ha to 1.5 SWAP (‘08-14) ton/ha (50% increase). The Community ISR S Based Rural Land Development Project Public-Private • (CBRLDP) has enabled 15,142 land-poor Partnership rural households to voluntarily relocate Options Study from densely populated districts to other and Awareness districts with arable land where they have Raising for realized improved food production and Irrigation incomes. These beneficiaries now Investment in cultivate about 2 ha from an original land Malawi holding size of less than 0.5 ha. Maize • Tobacco Sector productivity in the targeted districts has Review increased from about 500kg/ha to over • CEM 09 1,500 kg/ha on average, resulting in increased crop production, food security, and income from cash crops. However, the commercialization agenda has suffered from policy reversals, hence was not fully implemented.  Improve irrigation and Achieved. To date 90,000 ha are under irrigation nationwide, up from 73,480 in 2007. farming practices These country-wide figures are uncertain and highly fluctuating due to the nature of the - Irrigated area increases by informal sector. When the CAS was designed the figure of 28,000 ha of formal and semi- 10% (2,500 ha) through formal irrigation was used as the benchmark, with the drafters being aware of but not sustainable water counting the fluctuating numbers of additional hectares in the informal sector. Against the management in 50 Water target of 2,500 hectares additional irrigation, irrigated area increased to date by 3438 ha User Associations by 2009 with Bank support (37% over target), through rehabilitation of medium-scale schemes covering an area of 1,385 ha, and development of small-scale (10-50 ha) and mini-scale - Increased adoption by (<10 ha) schemes covering a total area of 2,053 ha, benefiting over 20,000 farm farmers of best soil fertility households. At scheme level, the project engaged the services of an NGO to facilitate the and crop technologies; establishment and training of 40 Water User Associations (of the planned 50). The lower increase smallholders using number of WUAs is not an underachievement; it is also a result of consolidation of the 78 Malawi Country Assistance Strategy FY13–16 fertilizer from 15% to 50% fully developed irrigated area managed by water user associations and groups. The task in 11 districts by 2009 will soon be fully achieved since all rehabilitation has been completed. Delayed completion of this task was caused by delayed rehabilitation schemes. These WUAs are gradually taking over management of the schemes. On-farm trials, demonstrations, and farmer try-outs have been implemented and have so far reached more than 300,000 farming households (20 percent of the 1.5 million households benefitting from FISP). Research and extension activities cover the following areas: improved seed development and use, with 14 varieties tested last year; crop nutrient management based on 2,300 research-led trials across the country and 12,000 farmer try- outs; demonstrations on sustainable land and water management techniques reaching more than 30,000 farmers with close to 18,000 ha estimated to be under conservation agriculture; and demonstrations of post-harvest technologies with a focus on silos and large grain borers bio-control.  Improve market incentives Partially Achieved. The Bank supported restructuring of the state marketing board, for surplus production ADMARC, and implemented a series of risk management initiatives. In line with the - ADMARC commercial and restructuring program approved by the Cabinet in 2006, ADMARC streamlined its social functions separated by activities by closing ancillary departments (clinics, tailoring workshops, etc.) and the end of 2007 contracting out these services to the private sector. ADMARC has sold its shares in various subsidiary companies, closed down the ADMARC Investment Holding Company (AIHC), and laid off more than 400 staff. While concrete steps were taken to roll out reforms in ADMARC, including the establishment of MAWTCO and the transfer of six ADMARC warehouses to MAWTCO, the 2008 global food and fertilizer price crisis affected the Government’s resolve to proceed with these liberalization plans. MAWTCO’s establishment aimed at enhancing private sector participation in maize markets. Unfortunately, there have been delays in operationalizing MAWTCO. The smaller ADMARC has been mandated to operate as a commercial company. However, the Government continues periodically to demand that ADMARC purchase and sell maize at mandated prices, purchase cotton at mandated prices, and provide inputs under the Farm Input Subsidy Programme. This has resulted at times in a significant contingent liability and undermined the idea to run ADMARC as a solely commercial company. - Increased awareness of Achieved. A national export strategy has been prepared and discussed with public and value of crop diversification private stakeholders. The Ministry of Agriculture is developing action plans to promote to reduce income variation new crops and to expand the contract farming approach with private investors. The Bank- by 2009 funded IRLADP and ASWAp-SP have been promoting production of legumes (groundnuts, soya beans, and pigeon peas).  Strengthen integration and Partially Achieved. The CAS indicator on reducing travel time by 10% between farms links to input/output markets within a 20km radius of the market center in areas supported by the Infrastructure - Travel time reduced by 10% Services Project (ISP) was not featured in the ISP results framework; therefore, it has not between farms within a been monitored. Unfortunately the Road Administration does not have any data relating to 20km radius of the market this indicator. However, this indicator was related to feeder road improvements that were center in areas supported by done rather than surfacing of critical sections of the corridor roads. The Tsangano work the IIS by 2010 has not been particularly long-lasting but has significantly contributed to reduced travel time. In this regard it could still be possible that travel time has been reduced by 10%, but no data are available to demonstrate this. - Private sector leads fertilizer procurement and The private sector is now contributing to the bulk procurement of the FISP fertilizer distribution, in partnership requirement, with 65% procured by private suppliers in 2011/12 and 80% for this coming with Government ,by 2009 2012/13 cropping season. However, distribution in rural areas remains fully managed by public institutions (ADMARC and SFFRFM). On the seeds side, there is more progress: private sector outlets procure and distribute 100% of the seed package under the FISP. 79 Malawi Country Assistance Strategy FY13–16  Establish storage and Partially achieved. Malawi has been taking the lead in Southern Africa in looking for mitigation measures for food ways that market-based tools and risk management strategies can replace traditional, ex security risks over time post reactions to food shortages caused by drought. Three innovative pilot projects to improve its risk management related to food crops dealt with weather risk and maize price risk: (i) buying insurance against drought, (ii) using SAFEX financial derivatives to manage price risks associated with food crisis, and (iii) development of a warehouse receipt system. Support for on-going strengthening of the Government’s agricultural risk management capabilities is being provided by the Bank under the IDA-financed ASWAp- SP and the Disaster Risk Management Program, complementing work on building community-level resilience. - Grain banks and improved warehouse receipt system in The warehouse receipt system is yet to be fully in place because the establishment of the place by 2010 Malawi Agricultural Warehousing and Trading Company (MAWTCO) has not been fully completed. MAWTCO is expected to lease warehouse space that will be available from ADMARC. However, a limited warehousing receipt facility has been established by the Agricultural Commodity Exchange (ACE) in collaboration with the Grain Traders and Processors Association (GTPA) following the policy discussions that were championed by the Bank and other development partners. CAS Outcome/Cluster of Status and Lending Lessons Outcomes and Outcome Evaluation Summary and Non-lending Activities and Suggestions for the new Indicators (Baselines and that Contributed to the CAS Targets) Outcome Put in place a foundation for longer- term economic growth through improved infrastructure and investment climate. Investment climate: Partially Achieved. Malawi Projects and programs : -The need to precede has implemented a number • Regional trade project implementation with At least the following two doing of business reforms but at facilitation (‘01-11), analytical work business indicators should show relatively slowly, hence its • PURP (2003-2007) improvement: ranking on DBI from 110 in IEG Rating: -The need to link DPO to • Trading across boarders 2007 to 141 in 2011 and Moderately investment lending for easy from current 41 to 25 145 in 2012. There has Satisfactory implementation of policy days (time for export) been no progress in trading • National Water without using covenants. and from 61 to 40 days across borders indicators: • Energy project (11-15) (time for import) by 45 days to export and 54 ISR S 2010 days to import in 2010. • Infrastructure Services • Time to start a business This has remained constant Project (’07-13) reduced from current 35 since. • Mining Sector days to 18 days by 2010 Technical Assistance The average time necessary Project (11-15) to start a business has • Financial Sector T A increased from 37 days in (11-15) 2007 and 2008 to 39 days • MGDS DPC 1 – 4 in 2009, 2010, 2011, and (’07-10) 2012. However, Malawi has implemented some other AAA: DB-related reforms quite • Private sector dialogue successfully: (i) registering TA property (reduced from 88 days in 2007 to 49 days in • Building Resilient 2011 (although this went Communities TA back up to 69 days in 2012)); and (ii) enforcing contracts (reduced from 337 days in 2007 to 96 days in 2012). 80 Malawi Country Assistance Strategy FY13–16  Improve energy generation Not Achieved. Energy continues to be a serious binding constraint on economic growth in and transport: Malawi as it is affecting the operations of the private sector as well as being a constraining factor for potential foreign investors, especially in the mining sector. The Mozambique-Malawi Interconnector project, expected to connect Malawi to the Southern - Energy generation capacity African Power Pool and hence allowing Malawi to import up to 50 MW of power, was increased 25% by 2011 from approved by the Bank Board in 2007. However, the IDA credit offer was withdrawn in 284 MW in 2006 June 2010 after the Government of Malawi at the time indicated that it no longer considered it a priority project. The new Malawi government has re-launched discussion on this priority regional project with the Government of Mozambique, and it is being included in the pipeline for the next CAS. In parallel, IDA financing was proposed for an extension of the Kapichira hydropower plant by an additional 64M, representing a 22% increase in installed system generation capacity. The Government decided to fund this project from its own budget and construction is underway. The Government subsequently requested that IDA fund a US$84 million energy project that was approved in June 2011. Activities include strengthening and expansion of the transmission and distribution systems, studies for new hydropower sites, and energy efficiency activities. The MCC Compact was delayed in preparation, was signed in 2011, but was subsequently put on hold due to governance challenges until June 2012. This US$350 million program, which complements the scope of the Bank-financed energy project, is now beginning its implementation. - Additional resources to fill Partially Achieved: Better progress was achieved in the transport sector. The Bank’s Road the financing gap for Maintenance and Rehabilitation Project (ROMARP), which closed in June 2006, transport identified and established the roads database and the Road Fund and supported significant institutional targeted against priority reforms in financing and planning for the roads sector. Investments in roads have resulted transport objectives by 2008 in a significant improvement of the network: the Ministry of Transport and Public Infrastructure reports that the proportion of classified paved roads in good or fair condition has increased from 84% in 2007 to 93% in 2010, although the condition of unpaved roads has deteriorated from 83% in good or fair condition in 2007 to 65% in 2010. Government has recently approved an increase in road user charges and expects that Road Fund income will cover all maintenance costs within five years. Past poor contract management practices have resulted in substantial unbudgeted expenditure, but Government has now introduced improved controls. The Bank and European Commission have supported preparation of a multimodal transport study and the Government is preparing a Transport Sector Investment Program. The European Commission, African Development Bank, and Japanese International Cooperation Agency are making significant investments in the transport sector, primarily in roads. The Bank- financed Infrastructure Services Project, whose benefits have been delayed by slow implementation, is now starting to contribute to provision of integrated infrastructure (electricity, water, sanitation services, roads, and ICT) at five market centers that are considered growth corridors. To date, electricity supply has been extended to these centers, with the remaining components approaching completion. The current rail network concession is not producing the desired quality of service. The proposal to transport coal from Tete in Mozambique through Malawi and on to the Indian Ocean port of Nacala is coming to fruition, and has attracted nearly US$1 billion in private investment. A concession agreement has been signed to construct a new link to the border with Tete province, and the EU and the Bank with PPIAF funding are advising Government on revision of the agreement for the existing network.  Address policy issues in the Partially Achieved. The PPP Bill was published in August 2008 and a PPP policy investment climate framework approved. A PPP Unit is in place, located in the Privatization Commission. - Policy and legal framework The Commission has been instrumental in over 60 transactions in the manufacturing, and nit for PPP transactions agricultural, telecommunications, tourism, transport, water, banking, and industry sectors. in infrastructure in place by Examples include establishment of concessions for Malawi’s rail network and lake 2009 shipping services and for baggage handling at Lilongwe and Blantyre airports. The - Number of procedures number of procedures to deal with construction permits has remained constant at 200 necessary to deal with a from 2007 to 2012. Cost has come down from 2,931.6 in 2007 to 1,077.5% in 2012 (as a license reduced from 23 to percent of income per capita). 15 by 2009 81 Malawi Country Assistance Strategy FY13–16 - Malawi Confederation of At the Government’s request, the Bank completed a Financial Sector Assessment Program Commerce and Industries (FSAP) and a Corporate Governance Report on the Observance of Standards and Codes collaborates with the (ROSC). Government responded positively to the key recommendations of the FSAP, Government in defining including the drafting and passing of new financial sector laws in microfinance, pensions, private sector-oriented post- credit references, insurance, and capital markets. Results of the 2006 Investment Climate secondary education Assessment (ICA) have been fed into the drafting process of the new Private Sector Development (PSD) Policy and Strategy and were also used in the design of BESTAP (FY07-FY12). Small and medium enterprises have started accessing matching grants from the Business Growth Scheme (BUGS) under BESTAP, which are facilitating business growth and improving access to financing. BUGS reimburses 50 percent of costs incurred by SMEs in accessing finance (through preparation of business plans, feasibility studies, market research, etc.), up to a maximum of US$50,000. Total reimbursements were at 63 percent, totaling US$1,250,907 as of December 31, 2011(latest figures. IFC is seeking to increase its engagement in Malawi, focusing on investments and advisory activities that help diversify the economy, develop the micro, small, and medium enterprise (MSME) sector and improve access to finance. In June 2008, the IFC committed US$5 million to Bakhresa Malawi, a flour milling company, and US$3 million was committed to NBS Bank in FY08 under the MSME program. The IFC’s Global Trade Finance Program (GTFP) in May 2008, a US$10 million GTFP line, was signed with First Merchant Bank (FMB), supporting FMB’s capacity to deliver trade financing to its clients by providing risk mitigation to its correspondent banks. FMB has also benefited from trade finance training for its staff through IFC GTFP technical assistance programs. IFC’s Small and Medium Enterprises Enterprise Development Initiative (SME-EDI) worked with the Malawi Export Promotion Council (MEPC) on a countrywide sector mapping exercise to identify SME export opportunities and on production of an SME exporter handbook, completed in November 2008. In telecommunications, the IFC has provided US$15 million to Airtel Malawi (as part of a multi-country program) for a risk-sharing facility to increase access to finance for Airtel’s distributors facility using Standard Bank as a partner bank. CAS Outcome/Cluster of Status and Lending Lessons Outcomes and Outcome Evaluation Summary and Non-lending Activities and Suggestions for the Indicators (Baselines and that Contributed to the new CAS Targets) Outcome Decrease vulnerability at the household level to HIV/AIDS and malnutrition.  Decrease vulnerability as Achieved. Most of the Projects and programs : measured by: indicators, especially those • MAP (2003-2012) - 5% of sexually active related to HIV/AIDS, have • Health Sector SWAp women (15-49 years) and been exceeded. The general (2004-2008) which 18% of men (15-49 age) had epidemiologic trend over the incorporates Malaria sex with a non-regular past few years has been Booster Program, partner within the past 12 stabilization of the antenatal • Infrastructure Services months by 2009 (down from HIV seroprevalence, with a (‘06-13) 8.3% and 26.9% decreasing trend from 14% • Nutrition, HIV and respectively in 2000) AIDS Project (2012- to 10.6%. In addition, the percent of sexually active 2017) women (15-49 years) having • MGDS DPC 1 – 4 (’07- sex with more than one (non- 10) regular) partner in the last 12 months decreased from 1.1% AAA in 2004 to 0.7% in 2010. The • Coordination role for same indicator for men fell HIV/AIDs from 11.8% to 9.2%. • WBI regional workshops However, HIV/AIDS in conjunction with 82 Malawi Country Assistance Strategy FY13–16 remains a major risk to UNDP on local level development. capacity Malawi has also introduced a voluntary testing week that has produced interesting results, including having a high proportion of women participating.  Improved HIV/AIDs Achieved. The number of people living with HIV/AIDS receiving antiretroviral treatment awareness and access to (ART) has increased from about 57,000 in 2006 to over 198,846 people in 2010 drugs and treatment exceeding the 165,000 target for 2009. There has been a rapid scale-up of the program - By 2009, 90% of health between 2010 and 2012 with the introduction and scale-up of new treatment guidance. As facilities have drugs for of March 2012 there were 347,938 patients alive and on ART. This represents about 36% opportunistic infections in of the estimated number of persons living with HIV in Malawi. This treatment coverage stock with no stock-outs of rate is one of the highest in high-prevalence IDA countries in Southern Africa. more than one week (by district), up from 35 percent Similar progress was achieved in increasing the number of HIV testing and counseling in 2004. Interim milestone: sites and the number of people being tested. In 2001, there were only 14 sites offering 65 percent in 2007. testing and counseling services. According to the Ministry of Health (MOH), there are currently 810 sites in Malawi and in the first three quarters of FY12, 1,249,425 persons were counseled, tested, and received their results. This was slightly lower than the target - 165,000 people (85%) living and was due primarily to stock-outs of HTC test kits. Over 20 percent of orphans and with HIV/AIDs are on anti- other vulnerable children are receiving free external support (medical, psychosocial, or retroviral therapy (ART) at material) and, given underreporting, the actual figure is likely to be considerably higher. the end of each year beginning in 2009, up from In September 2008, the proportion of health facilities stocking various drugs for 57,000 (31%) in 2006. opportunistic infections ranged above 80 percent without stock-outs. The MOH reports that most districts are improving in terms of stock-outs and that tracer drugs were above 85% available in 2012, although some drugs, such as LA (first line Rx for malaria), Cotrimoxizole, Metronidazole, Ampicillin, and Niverapine were usually out of stock, as were HIV/AIDS reagents. - 60% of facilities are By 2009, 65% of facilities were delivering the Essential Health Package. delivering Essential Health Package (EHP) services, up Nonetheless, the number of new infections is estimated to be between 70,000 and 90,000 from 10% (2003 baseline), per year, significantly increasing the number of people who will eventually require by 2008. treatment, and treatment costs per person are expected to treble as Malawi phases in the new WHO treatment guidelines. - More than 60% of people The Additional Financing to the original HIV/AIDS project supported and strengthened living with HIV/AIDs the national response to HIV/AIDS in line with the Government’s National Action receive nutrition counseling Framework, and is financing another three years of the national program. It is financially and/or nutritional support. contributing toward implementation of the joint program of work within the HIV/AIDS SWAP, which is co-financed by multiple donors and the Government of Malawi. Priority has been given to ensuring that the momentum developed in HIV testing and treatment is continued, and that more effort is placed on supporting evidence-based prevention strategies. Cumulatively 37,571 malnourished ART/TB patients are receiving therapeutic feeding. The annual target is 8,000 new patients.  Child malnutrition Partially Achieved. Scaling up of results-based targeted nutrition information programs - Nationwide awareness and was not fully achieved under this CAS. The detailed joint PATH/USAID/World Bank information campaign study on infant and young child feeding practices was delivered and disseminated in 2010. reaches (target group), The results of this study informed policy dialogue toward a focused communication promoting an adequate diet program which is being scaled up to national level: USAID has started to support and feeding practices for communication programs in 11 districts since early 2012, and the Government with donor 83 Malawi Country Assistance Strategy FY13–16 under-5 and school-age support will be scaling up to the remaining 27 districts. Notwithstanding the delay in the children roll-out of nutrition programs, a nationwide awareness and information campaign was undertaken. There has also been an increase in the number of orphans and vulnerable - Donor support aligned with children supported with nutritional, psychosocial, financial, and educational support from Government program on 200,000 in 2004 to 2,651,700 in 2008. The introduction of a social cash transfer program nutrition that prioritizes in 2006 has benefitted a total of 70,125 individuals, up from 18,180 households, as of preventing malnutrition December 2008. There has been an increase in the number of households receiving external assistance in the past 12 months to care for adults who have been chronically ill for three or more months, from 19,706 households in 2003 to 744,062 in 2008. There also has been an increase in the number of community-based organizations providing support to orphans and vulnerable children from 300 in 2003 to 2,000 in 2008. Donor coordination is pursued through various forums. Since 2010, nutrition donors meet monthly in the Donor Nutrition Security Group (DoNutS). The Government has reached out to donors through the Scaling Up Nutrition (SUN) movement, which provides a common platform for nutrition programming led by Government institutions. Government and stakeholders regularly meet under the SUN Task Force. In addition, there is the Government and Development Partners Nutrition Committee, which discusses broader nutrition policy issues. An $80 million Nutrition and HIV/AIDS project was approved by the Bank in FY12. Other donors, for example Ireland and CIDA, are contributing to the Nutrition element of the project.  Social Protection Program Achieved. With funding from the Building Resilient Communities Trust Fund, the Bank - Implementation of a more supported the development of a Social Support Policy to promote an integrated approach coherent National Social to social protection investments. Malawi’s Social Support Policy was approved —with a Protection Policy, in delay of over two years—by the Cabinet in June 2012 and will form the basis for a new collaboration with donors, Social Protection Program envisaged under the next CAS. Under the Malawi Social which targets the most Action Fund (MASAF) 3 APL II (FY 08), US$35 million has been provided in 2012 as vulnerable. Additional Financing to support a public works cash transfer program through local government and the Local Development Fund, in order to assist about 600,000 of the - Local capacity for social poorest households (self-targeting) to purchase agricultural inputs, grains, and other basic protection and risks is necessities in the event of food security-related shocks. Through the use of Community included in CAS Outcome 4. Score Cards, under MASAF community accountability has increased as a result of the Goal is to improve Information, Education and Communication campaigns that were undertaken. An management at central and assessment of the targeting process under the MASAF 3 PWP intervention indicated that local government levels in the program targeted 93% of the intended beneficiaries, with a 7% inclusion error. This support of governance has led to refinement of the targeting method—effectively engaging more of the reforms supportive of community in a participatory way to identify food-insecure beneficiaries. poverty reduction. After the late December 2009 earthquakes in the Karonga area, the World Bank responded quickly with immediate assistance from GFDRR (Track III funds and staff) and in early January the Bank was among the first institutions to respond to the earthquake with a light Damage and Loss Assessment, which brought more clarity on the extent of the damage, which was concentrated in housing and schools. The first Additional Financing for MASAF, approved in 2010, was partially focused to help rebuild these buildings, with better earthquake-resistant standards. Both Additional Financing Credits have supported the districts In the South that have continuously been hit by drought. CAS Outcome/Cluster of Status and Lending Lessons Outcomes and Outcome Evaluation Summary and Non-lending and Suggestions for the Indicators (Baselines and Activities that new CAS Targets) Contributed to the Outcome 84 Malawi Country Assistance Strategy FY13–16 Sustain improvements in expenditure management, transparency and accountability Partially Achieved. Public GOM’s 2012 Public  Sustain improvements in Projects and programs: Expenditure and Financial Finance and Economic expenditure management, Accountability (PEFA) • FIMTAP (2003- Management Reform transparency and 2009) Assessments were carried out Program (PFEM RP), accountability, as measured (with EC financial support) in • PURP (2000-2008) supported by a large and by: 2008 and 2011. On some • ESSUP, growing MDTF - 23 of 28 Public Expenditure indicators good progress was • HSSP administered by the Bank, and Financial Accountability • Public Sector made but weaknesses persist in has been designed taking (PEFA) indicators are met SWAp/MASAF others. On average about 10 A into account weaknesses by 2011 (baseline: 9) • MGDS DPC 1 – 4 and B indicators are met. Areas identified in the PEFA where improvements have been (’07-10) 2011 report in order to made include cash management AAA: ensure overall process, orderliness of the strengthening of the • Building resilient annual budget process, debt PFEM. communities TA management and payroll system, • WBI support to debt and guarantees, anticorruption effectiveness of internal audit, bureau and quality and timeliness of annual governance financial statements, and legislative scrutiny of the annual • Update CPAR / budget law. The assessment CFAA reported that regardless of • Dialogue on Paris progress made, weaknesses Declaration remain on the credibility of • PER (07) budget (in terms of its ability to • Fiscal space, provide a reliable indication of scaling up the GoM resource envelope);  Country Economic internal control; Memorandum (10) comprehensiveness and  Comprehensive transparency-(Treasury Funds Foreign Exchange are not reported in the Estimates and Exchange Rate and only appear in the Annual Study (12) Appropriation Accounts as net • Welfare Impact figures) and public access to key and Mitigation of fiscal information; timeliness of Exchange Rate follow-up on audit Unification in recommendations and backlog in Malawi (12) bank reconciliations.  Institutional system for Partially Achieved. All six reviews of the IMF-funded PRGF program between 2005 and accountability and 2008 were successfully concluded. However, progress was more problematic between transparency 2009 and early 2012. In 2009, Malawi implemented the Exogenous Shocks Facility (ESF), a one-year program designed to assist Malawi to overcome external shocks - Annual agreements on associated with the 2008 global fuel and food crises. This program expired on December macroeconomic framework 2, 2009, without formal completion of the review, because of slippages in the first half of achieved each year 2009, especially in public spending, leading to much higher domestic borrowing than expected and lower reserves. In early 2010, Malawi concluded a new, ECF–supported program with the IMF. After a successful review in late 2010, it went off-track in mid- 2011. Only after a new Government initiated major reforms in May 2012 was a new program agreed upon and the IMF Board approved a new three-year arrangement for Malawi under the Extended Credit Facility (ECF). The first quarterly ECF review is scheduled for late October 2012. Partially achieved: Implementation of the recommendations from internal and external audit below the targeted 100%. While Audit Committees are in place in a number of ministries and departments, only a few are functioning and/or meeting regularly. This 85 Malawi Country Assistance Strategy FY13–16 continues to hamper effective follow-up of audit reports and implementation of audit recommendations. As part of the PFEMRP, Government has reiterated its commitment to revive the internal audit functions and the first project to be funded out of the PFEMRP Multi Donor Trust Fund (MDTF) will support strengthening of internal audit. - 100% of internal and NAO Achieved: 85% of staff from Government ministries and departments were certified at audit recommendations different levels by CIPS by December 2008, and are still serving Government, so the implemented within 12 target has been met. However, of 6 officers from the Office of Director of Public months by 2010, from ad Procurement (ODPP) that were trained up to master’s degree level in procurement and hoc implementation supply chain management through the closed FMTAP, 5 officers have left the Directorate and a completely new team is in place. Partially achieved: External auditing and parliamentary scrutiny of financial accounts has - 75% of professional officers registered considerable improvements, however, challenges in the quality of audit and in Office of the Director of follow-up on audit queries remain. The focus of Bank support under the PRSC I-III was Public Procurement fully on increasing the percentage of central government entities audited, reducing audit certified by the Chartered backlog, and follow-up actions to issues raised by the Public Accounts Committee (PAC). Institute of Purchasing and As a result, audit coverage has now reached 58 percent (target: 50 percent). On audit Supply (CIPS) by December follow up, all the audit reports submitted to Parliament for years ended June 2006, 2007, 2008 2008, 2009, and 2010 have been scrutinized and discussed by the PAC. This implies that the PAC is current in terms of scrutinizing all the reports that were submitted including a - External auditing and Treasury Minute for the year ended June 2004. However, Government is aware of the parliamentary scrutiny backlog of Treasury Minutes due to irregular PAC meetings resulting from funding improved, but challenges in challenges. With increased funding to Parliament, PAC is able to meet more regularly to quality of audit and follow- scrutinize audit reports. The Government has currently submitted a Treasury Minute for up remain. 2005 to 2007 financial years to Parliament. The Government is stepping up its efforts to work on more recent Treasury Minutes and make necessary follow-ups with controlling officers who have been identified to have issues. Efforts are also reported to be underway to fill in the position of the Auditor General who resigned recently. Achieved: Personnel records and payroll data are now generated and managed within HRMIS and these processes are being carried out by both the line ministry and the Department of Public Service Management (DPSM). Concurrently, an audit of the entire civil service database was carried out in 2008. The personnel audit verified genuine employees but also found around 700 ghost workers, who were eventually removed from the payroll. The introduction of payments through the banking system for all government transactions in January 2011 has also helped to address the issue of ghost workers. In FY2010/11 alone, 4,878 ghost workers were deleted from the system. - Payroll and establishment Malawi has taken steps to strengthen its public procurement system, moving from a system clean and payrolls centralized procurement system without procurement law to a decentralized one with a fully audited by June 2010 procurement legal framework. A Public Procurement Act (PPA) was enacted in 2003 and an Office of the Director of Public Procurement (ODPP) created in 2004. It is quite evident that the country has made significant efforts to improve the quality and standard of its procurement system, but a lot is yet to be accomplished. Progress has been largely hampered by inadequate human capacity and financial resources, data availability problems, noncompliance with procurement rules and procedures as well as insufficient procurement information. The PPA is generally recognized to be in line with international standards, though it does not adequately address some issues, such as decentralized procurement arrangements and asset management and disposal; currently, the Act is being further revised. - FY 2009 GoM budget is Government Finance Achieved: The FY 2009 GoM budget is Government Finance Statistics (GFS) compliant. Statistics (GFS) compliant The new budget structure now comprises 19 standardized programs and sub-programs in and System of National line with the 2001 GFS classifications, from 52 program classifications in previous Accounts (SNA) compliant budgets. The new COA was fully implemented in the FY12 national budget. The 2011 86 Malawi Country Assistance Strategy FY13–16 at 1st order level PEFA assessment showed improved scores in the areas of classification of the budget and comprehensiveness of information included in the budget documentation, from a rating of B in 2008 to a rating of A in the 2011 PEFA.  Intergovernmental fiscal and Partially Achieved. While all ministries have internal audit units and internal audit expenditure management committees (IACs), only 16 of the largest MDAs out of 22 had functional IACs that - Intergovernmental fiscal actively met in 2008. This ensured coverage of about 75% of public expenditures. As of architecture fully operational December 2010, only one IAC out of the six key spending ministries was reported to have at budget level by FY2009 an active Internal Audit. Non-functioning IACs continues to hamper effective follow-up budget of audit reports and implementation of audit recommendations. Efforts are now being geared toward injecting a new lease on life into the IAC with the recent approval of the Internal Audit Charter, which clearly specifies the Terms of Reference for the IACs and their roles and responsibilities. As the result, the IACs in the six key spending ministries started meeting regularly as of June 2011. - Sectoral Public Expenditure Tracking Surveys (PETS) Partially achieved: The Government has catalogued recommendations presented in the used to inform expenditure 2008 PETS and 2006 PERS reports. The document was then circulated to all concerned allocations and address sectors with a letter requesting them to provide updates on what has been done to weaknesses in flows of implement the recommendations and address the issues that were raised in the reports in funds to local level by 2011 April 2011. - Parallel systems (MASAF) subsumed to local level by Achieved: Previously MASAF used to have regional offices and sub-regional offices that 2010 were seen as parallel systems to local council operations. These were abolished and therefore the MASAF 3 APL II Project, which became effective in 2009 only, has the Technical Support Team at the national level. The entire project funding to the local councils passes through the National Local Government Finance Committee, as is the case with the transfers from the central government. All implementation is handled by the councils. 87 Malawi Country Assistance Strategy FY13–16 PEFA 2011 Summary Assessment (with comparison to 2008 and 2006) Scoring Dimension Ratings Rating PFM Performance Indicator Method i.       ii.       iii.   iv.   2011 2008 2006 A. PFM-OUT-TURNS: Credibility of the budget expenditure out- turn compared to original approved PI-1 budget M1 B B A A expenditure out- turn compared to original approved PI-2 budget M1 C A C+ D D revenue out- turn compared to original approved PI-3 budget M1 D D[1] A A monitoring of expenditure payment PI-4 arrears M1 NS D NS NS D+ B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency Classification PI-5 of the budget M1 A A B B Comprehensive ness of information included in budget PI-6 documentation M1 A A B B Extent of unreported government PI-7 operations M1 B NS NS NS B Transparency of inter- governmental PI-8 fiscal relations M2 A C B B B+ C Oversight of aggregate fiscal risk from other public PI-9 sector entities M1 B B B C+ D+ Public access to key fiscal PI-10 information M1 C C C B C. BUDGET CYCLE C(i) Policy-Based Budgeting and participation in the annual PI-11 budget process M2 C A C B C+ B Multi-year perspective in fiscal planning, expenditure policy and PI-12 budgeting M2 C A C D C+ B D+ C(ii) Predictability and Control in Budget Execution Transparency of taxpayer obligations and PI-13 liabilities M2 C B B B B C 88 Malawi Country Assistance Strategy FY13–16 Attachment 2: Planned Lending Program and Actual Deliveries MALAWI: CAS Completion Report: Planned Lending Program and Actual Deliveries Project US$M US$M US$M Comments Planned Actual CRW IDA IDA FY07 Program 80.0 70.0 Malaria Booster Program Grant (Health SWAp) 5 5 Delivered National Water Development Program II (SWAp) 25 50 Delivered with an increased value Private Sector Development 15 15 Delivered South African Power Market (MZ-MW Approved in 2008 and cancelled in 2011 because of ratification problems Interconnector) * 15 0 MGDS Development Policy Credit 1* 20 0 Delivered in FY08 FY08 Program 80.0 102.0 Agricultural Development Program Support 30 32 Delivered Project MASAF III-II 25 50 Delivered with an increased value MGDS Development Policy Credit 2* 25 0 Delivered in FY09 MGDS Development Policy Credit 1 0 20 Delivered FY09 Program 90.0 Infrastructure Investment (Energy/Transport 45 0 Dropped pooled/co-financing) HIV/AIDS (pooled fund) 15 30 Delivered with an increased value MGDS Development Policy Credit 3* 30 0 Delivered in FY10 with an increased value from crisis response window Regional Communications Infrastructure 0 20 Delivered Project** MGDS Development Policy Credit 2** 0 30 Delivered FY10 Program 90.0 100.0 Education (SWAp) 30 50 Delivered with an increased value Food Security/Rural Development 25 0 Delivered in FY12 MGDS Development Policy Credit 4* 35 0 Deferred CBRLDP Additional Financing** 0 10 Delivered but not planned MASAF Additional Financing** 0 0 14 Delivered but not planned. Funds from Crisis response window MGDS Development Policy Credit 3** 0 40 14 Delivered 89 Malawi Country Assistance Strategy FY13–16 South African Power Market (MZ-MW Approved and then cancelled Interconnector) ** FY11 Program 257.2 Infrastructure Investment (Energy)** 0 84 Delivered Financial Sector Technical Assistance Project 0 28.2 Delivered Mining Sector Technical Assistance project 0 25 Delivered MGDS (Stand-alone) 0 0 Dropped NWDPII Additional Financing 0 120 Delivered Regional Nacala 0 0 Deferred FY12 Program 0 235.0 Nutrition, HIV and AIDS Project 0 80 Delivered Agriculture Development Support Project 0 30 Delivered Shire River Basin Management Project 0 125 Delivered *Planned in particular FY but not delivered ** Not planned in FY, but delivered in particular FY 90 Malawi Country Assistance Strategy FY13–16 Attachment 3: Planned Non-Lending Service and Actual Deliveries MALAWI PDR: CAS Completion Report: Planned Non-lending Services and Actual Deliveries CAS PLANS (February 7, 2007) PROGRESS REPORT (December 19, 2009) Project Status FY07 Program Public Expenditure review Complete FY07 Tobacco Sector Review Completed FY08 Building Resilient Communities Policy Note Completed in FY07 FSAP & follow up Completed in FY07 Multi-Sector PSD Dialogue Completed in FY07 Local Government & Empowerment Completed in FY08 Malawi accounting and Auditing ROSC Completed in FY07 FY08 Program Transport Sector Assessment Completed FY08 IF Follow up Completed FY 08 ICT Policy Dialogue Completed FY 08 Mining Sector Review Completed FY 08 Operationalizing PRSC Completed FY 08 FY09 Program CEM Completed FY 09 as CEM - Sources of Growth Education Sector Study Completed FY 09 GFDRR mainstreaming Disaster Completed FY 10 FIRST: Malawi Financial Sector Development Plan Completed in FY11 FIRST: Malawi NBFI Capacity Building Completed in FY10 Strengthening Malawi's AML Completed FY09 IF Follow up Completed FY09 PSD/FSAP follow up Completed FY09 FY10 Program Infrastructure Dialogue (P118351) In progressing Household Energy Note Deferred FIRST: Contingency Planning for Distressed Banks Completed in FY11 91 Malawi Country Assistance Strategy FY13–16 Tourism Study Completed FY11 Infant and Child Feeding Study Completed FY10 Earthquake Post Disaster Support Completed FY11 FY 11 Program Finscope MSME Survey Completed in FY12 as MSME Survey Social Protection Stock Take Multi-modal study AML/CFT Assessment Completed FY11 Strengthening Malawi’s AML/CFT Framework In Progress Malawi Consumer Protection/Financial Literacy Diagnostic Completed FY12 FY 12 Program Comprehensive Foreign Exchange and Exchange Rate Study Completed FY12 Welfare Impact and Mitigation of Exchange Rate Unification in Malawi Completed FY12 Decentralisation Note In Progress Higher Education Policy Note In Progress Targeting Study Completed FY12 92 Annex 3: Poverty Context Poverty in Malawi remains widespread and concentrated in rural areas According to the recent report of the Third Integrated Household Survey (IHS3 2010/11); the absolute poverty rate has declined only slightly, from 52.4 percent (IHS2 2004/05) to 50.7 percent. While the poverty levels for urban areas declined from 25.4 percent in 2005 to 17.3 percent in 2011, they worsened slightly in rural areas, from 55.9 percent to 56.6 percent, during the same period. 20 Acute poverty affected 25 percent of the national population (compared with 22 percent in 2004/05), 4 percent of the urban population, and 28 percent of the rural population. National consumption inequality, measured through the Gini coefficient, has risen sharply from 0.39 to 0.45, mostly driven by the dynamics in rural areas, where the Gini coefficient rose from 0.34 to 0.38 while staying roughly constant in urban areas at about 0.49. A rise in rural inequality could explain how average incomes rose in Malawi while living standards for the rural poor stagnated. Malawi’s inequality is still below that of neighboring Zambia (one of the highest Ginis in SSA at 0.50), but higher than Tanzania (0.34). Thus, while the increase in inequality is troubling and needs further investigation, if Malawi is able to contain the increase in the next decade, the forecast for poverty reduction is brighter. Table A3.1 Malawi: Poor and Acutely Poor: Main Indicators, 2005 to 2011 2005 2011 Poverty status IHS-2 IHS-3 Proportion poor Malawi 52 50 Urban 25 17 Rural .. 56 Rural Northern region 56 59 Rural Central region 47 48 Rural Southern region 64 63 Proportion ultra-poor Malawi 22 24 Urban 8 4.3 Rural .. 28 Rural Northern region 26 29 Rural Central region 16 21 Rural Southern region 32 34 According to the IHS 3, the proportions of poor and acutely poor people were found to be highest in rural areas in the south (63% poor and 34% acutely poor) and in the north (59% poor and 29% acutely poor). Poverty has been driven by limited access to education and production assets, shocks affecting agricultural productivity, and lack of diversification and access to markets. Poverty is also exacerbated by a high population growth rate (about 3 percent), high population density, and HIV/AIDS prevalence. Nationally, the heads of the poorest households have less schooling, are older, and are more likely to be female than the heads of better-off 20 The difference between the IHS2 and the IHS3 national absolute poverty rates is not statistically significant. The IHS3 rural poverty rate is also statistically indistinguishable from its IHS2 counterpart. 93 Malawi Country Assistance Strategy FY13–16 households. The poverty gap and the severity of poverty measures confirm that the worst poverty is concentrated in rural areas in the most densely populated south and north, while the central region is better off. Urban areas have much lower percentages of people below the poverty line (17 percent), and they also have the lowest share of the acutely poor (4 percent). Therefore, any strategy to reduce poverty in Malawi and make growth more inclusive must include a leading role for rural growth and development, with a substantial focus on smallholder agriculture, tourism development, infrastructure, and other non-farm employment creation. Preliminary Analysis Growth incidence analysis shows that real incomes of the rural poor are falling and only the better-off households experience some growth in real expenditures. In order to understand what is behind this trend, there is a need to analyze the crop portfolio, market participation, overall household activity, and portfolio and income structure changes over time. This result also raises concerns about the impact on poor rural households of the Farm Input Subsidy Program (FISP) introduced in 2005/06 on poor rural households and specifically the beneficiary targeting methodology. What is clear is that despite large state outlays to input subsidy programs, rural poverty has not declined. Distribution of fertilizer and seed under the FISP is intended to benefit poor households selected by communities with support from district councils and agricultural district officials, as well as traditional authorities. While improvements in FISP targeting are noted in the past two planting seasons and there was increased transparency (open meetings and clearer selection criteria), evidence still points to significant redistribution, sharing, and reselling of fertilizer and seeds. The other dimension of poverty in rural areas that may explain this result is the structural deficiencies of the local farming system, characterized by the small size of land holdings (less than 1 hectare for almost 60% of the farms), no equipment, and limited or no livestock (imposing a limitation on both sources of income and soil fertility management). In that context, emphasis on FISP benefits may not be expected realistically to make a sustainable difference, and fertilizer might be of better use for many poor households if re-sold (in addition to social pressure to share). Preliminary comparative analysis (IHS2 and IHS3) indicates that there has been some specialization in crop production toward maize at the expense of other crops. In such a situation, if returns of that specialization less than compensate for the loss of crops households choose not to grow, overall incomes will fall. Preliminary evidence also shows that proceeds from maize are also stagnating in terms of value, and sales continue to be very concentrated in relatively better- off households. This would be consistent with the low levels of consumption expenditure among the poor. The initial results seem to suggest that as a result of the expanded FISP, households tended to specialize in maize and in doing so reduced other streams of income so that the net gains of that dynamic are negative. 94 Malawi Country Assistance Strategy FY13–16 The IHS3 is a very rich data set and will provide the basis for thorough analysis of the determinants of household well-being in all areas and all groups in Malawi. The value of the HIS data will be elevated with the planned Integrated Household Panel Survey (IHPS) 2013, which will track and re-interview about 25 percent of the IHS3 sample. The two datasets will be instrumental in depicting movements in and out of poverty, and the correlates of chronic vs. transient poverty status in Malawi, Other questions that could be tackled with the data include: What were the sources of growth in consumption at the household level, and what were the sources of the growth in inequality? Analysis should help identify the winners and the losers, and more importantly the factors underlying these processes. Did Government policies help some but not others? Did the increase in food and other commodity prices hurt some while others benefited? Did some farmers suffer more from shocks than others? What characterizes those households in the groups that appear to have gained from growth? Planned Poverty Analysis Work and Technical Assistance In the coming months, the Bank, through a series of policy notes, will analyze these data in search of answers to these questions and others, starting with analysis of the behavior, livelihoods, and welfare of rural households, as well as establish the link between farming household assets, farm size, and poverty level. The rural and agricultural population should not be treated as one homogenous group; a farm typology based on IHS3 data may show that the situation of less poor agricultural households has improved while the situation of the poorest farmers has deteriorated, leading to a slight increase of the aggregate poverty level in rural areas. In addition, the introduction of a stricter yield measurement methodology combining traditional field surveys and remote sensing tools (satellite imagery) could better assess real productivity gains of FISP beneficiaries. These analyses may result in questioning the impact of the FISP and have major implications for FISP design and its underlying objective in terms of deciding whether it is meant to be a social safety net program or a program to increase agricultural productivity. The Bank will also make use of available research on Malawi and will explore opportunities to collaborate with researchers from DECRG (as outlined in Box 3 in the text) and from academia in areas of interest. On technical assistance, the Bank Living Standards Measurement Study Team within DECPI has been collaborating with the National Statistical Office (NSO) on a multi-year program with the objective of designing and implementing the IHS3 in 2010/11 and IHPS in 2013. As part of this work program, the NSO has been and will continue to be supported by a strong LSMS field presence through a resident advisor, and frequent missions from Bank headquarters. Bank support to the IHS3 and the IHPS is within the cross-country nationally-representative panel household survey program in sub-Saharan Africa known as the LSMS-Integrated Surveys on Agriculture (LSMS-ISA) initiative. The IHS3 was also supported by Norway, DFID, Irish Aid, and MCC, and it is likely that multiple donors will contribute to the implementation of the IHPS as well. The World Bank also provided technical assistance to the NSO on finalization of the analysis of the results from the IHS3, including the CPI Technical Assistance to support the exercise of coming up with new poverty numbers. As part of the Bank’s Open Data Access initiative and the LSMS-ISA mandate, the IHS3 data was made publicly available on the LSMS website within 12 months of field work completion. Under the new CAS, the Bank plans to 95 Malawi Country Assistance Strategy FY13–16 support strengthening of the country’s statistics through a Public Sector & Statistics Capacity Building project (FY14). 96 Malawi Country Assistance Strategy FY13–16 Annex 4: Progress Toward the MDGS STATUS AT A GLANCE MALAWI'S PROGRESS TOWARD ACHIEVING THE MILLENNIUM DEVELOPMENT GOALS Feasibility Current 2015 of GOAL/TARGET Indicator Status Status Target achieving the Goal Proportion of population living below US$1.00 On 52 % 27% per person per day track Off Poverty gap ratio 17.8 0% Eradicate Extreme Poverty track and Hunger Off Unlikely Poorest quintile share in national consumption 10.1 % 20% track to be met On Prevalence of underweight children 16 % 14% track Proportion of population below minimum level On 15% 11.8% of dietary energy consumption track Off Potentially Net enrolment in primary school 79 % 100% track feasible Achieve Universal Primary Proportion of pupils starting grade1 who reach Off 75.7 % 100% Education Grade 5 track On Literacy Rate (15-24yrs) 82 % 100% track On Ratio of girls to boys in primary education 0.99 1 track Off Ratio of girls to boys in secondary education 0.77 1 track Promote Gender Equity and On Unlikely Empower Women Ratio of literate women to men 15–24 Years Old 0.94 1 track to be met Share of women in wage employment in non- Off 15 % 50% agriculture sector track Off Proportion of seats held by women in Parliament 22 % 50% track 122 per 78 per On Under-5 mortality rate 1,000 1,000 track 44.7 Reduce Child Mortality 69 per On Likely to Infant mortality rate per 1,000 track be met 1,000 Proportion of 1- year-old children immunized On 84 % 100 % against measles track 807 per 155 per Off Maternal mortality ratio Improve Maternal Health 100,000 100,000 track Unlikely Proportion of births attended to by skilled health Off to be met 67 % 100% personnel track HIV prevalence among 15–24-year-old pregnant On 12% 0% women track Combat HIV and AIDS, Off Ratio of orphans to non-orphans in school 0.14 - Malaria, and Other Diseases track Likely to Prevalence and deaths rates associated with Off be met 4% 0% Malaria track On Access to malaria treatment 21% - track 97 Malawi Country Assistance Strategy FY13–16 Off Proportion of households with at least one ITN 37.8% - track On Death rates associated with tuberculosis 9% - track On Proportion of TB cases under DOTS 83% 100% track Off Proportion of land covered by forest 36.2% 50% track Proportion of area protected to maintain On 0.16% 0.18% biological diversity track Ensure Environmental Off Proportion of population using solid fuel 98.7% 0% Likely to Sustainability track be met Proportion of population with sustainable access On 80% 74% to an improved water source track Proportion of population with access to improved On 94% 86.2% sanitation track Slum population as percentage of urban On 64.4% - population track Net ODA as a percentage of real gross domestic On 21% - product track Off Unemployment of 15–24 year old (urban) 9.4% - Track Develop Global Partnership On Likely to for Development Telephone lines subscribers per 100 population 0.82% - track be met On Cellular subscribers per 100 population 11.17% - track On Internet users per 1,000 population 0.70 - track 98 Malawi Country Assistance Strategy FY13–16 Annex 5: Donor Partners In Malawi Division of Labour Matrix - Engagement in Aid Modalities vis- a - vis MGDS Themes Theme 3: Social Theme 4: Theme 5: Them MGDS themes Theme 1: Sustainable EconomicThemDev. Infrastructure Governance e 6 Key priority areas: 11. Roads, Public Works & Transport 6. Trade, Industry & Pvt Sector. Dev. 3. Environment, Lands & Nat. Res. Total Sectors delegating ( future) 7. Vulnerab., Disaster & Risk Mgt. Total Sectors -Aid Atlas FY 10/11 Total Sectors per DP (current) Total Sectors exiting ( future) 4. Tourism, Wildlife & Culture 15. Democratic Governance 10. Gender, Youth & Sports 5. Water, Sanit. & Irrigation 14. Economic Governance 16. Public Administration General budget support 2. Inegrated Rural Dev. Sector budget support 13. Energy & Mining Project support Pooled funding 1. Agriculture 12. ICT & RD 9. Education 8. Health Development partner (DP) CABS donors x x x x AfDB x x x x x x x x x x x x x x 9 7 X DFID x x x x Year x x x x x x x x x x 11 10 0 2 EU Delegation x x x x x x x x x x x x x 10 9 1 1 GDC x x x x x x x x x x 4 5 0 1 Norway x x x x x x x x x x x x 8 8 0 0 World Bank x x x x x x x x x x x x x x x x 12 11 0 0 Discrete donors x x x x x X CIDA x x Year x Year Year 4 1 2 FICA x x x x x x x 5 2 3 0 Global Fund x x x x x 3 1 0 0 x ICEIDA x Year x x x 4 3 0 2 IMF x x 1 1 0 x x Ireland x x x x x x x Year Year x 8 8 0 1 JICA x x x x x x x x x x x x x x x 14 8 2 0 USAID x x x x x x x x x x 8 9 0 0 UN x x x FAO x x x x x x x x 7 3 0 0 IFAD x x x x 3 2 0 0 UNAIDS x x x 2 2 0 0 UNDP x x x x x x x x x x x x x x x 12 11 0 0 UNESCO x x x x x x x x 7 2 0 0 UNFPA x x x x x x x x 6 3 0 0 UNHCR x x x 3 2 UNIDO x x x x x 4 2 0 2 UNICEF x x x x x x x 5 6 0 0 x WFP x x x Year x x x x x 8 2 1 0 WHO x x 1 1 0 Current Total DPs/sector,modality 15 8 9 3 16 10 10 20 16 10 5 4 6 12 8 4 Total DPs (Aid Atlas FY10/11 12 9 6 3 10 7 7 21 12 8 8 1 4 11 10 2 Total DPs/sector existing 2 0 0 0 2 0 0 1 1 1 0 0 0 2 0 0 Total DPs delegating 0 1 0 0 0 2 2 5 4 2 1 0 2 0 1 0 Total DPs foraseeing a lead 5 0 1 0 2 1 3 4 6 2 1 0 1 6 2 0 Key: Future Lead Future Active Engagement Exting Future Delegation x Present engagement in sector New engagement * If Agricultural policy evolves Assigned Co-Chair 99 Malawi Country Assistance Strategy FY13–16 Annex 6: Mainstreaming Gender Gender Results Monitoring Framework Strengthen Mainstreaming of Gender throughout the Portfolio During the CAS period the county team will further increase the integration of gender issues into proposed and on-going activities as appropriate. In preparation for the CAS, a gender assessment and a portfolio review were carried out in close consultation with the Country Team. Gender issues in the country identified by the assessment are reflected in the CAS report and priority gender-responsive actions have been identified to respond to these issues based on review of the current and pipeline portfolios. The Bank’s gender program during the CAS period will focus on the following three national gender equality areas: • equal access to education, • equal access to financial markets and land, and • income opportunities for rural women. Interventions in these areas are supported by analytical work. The following sub-sectors contribute to the key response areas: education, water, financial, environment, agriculture, and social. Moreover, under the FY13 - 16 CAS, the goal will be to further expand an empirically-based gender-informed approach to reducing poverty in Malawi, utilizing a portfolio of operations and analytical work where gender is explicitly and appropriately incorporated and features prominently in supervision and implementation support. Key measures to monitor progress toward this goal are assessment of whether a project has “a gender-responsive design� and “gender in the Project Results Framework.� Table A6.1 supports the goal of a more gender- informed portfolio 21. 21 The following principles have been used to establish baseline data: For a project to be rated “yes� as having a “gender responsive design,� the PAD would demonstrate that (a) there has been a gender analysis as part of the social assessment during project preparation or relevant diagnosis and recommendations from a Country Gender Assessment (by the Bank or partners) has been adopted; and (b) the results of that analysis have informed project design, as indicated by at least one of the following: (i) specific project policy or activity that seeks to promote gender equality through either gender targeted or universal policy/project intervention; or (ii) at least one gender- specific target or indicator in the Results Framework. The Project Results Framework will be used as reference because it is the binding agreement between the Bank and the government and thus would be the basis for accountability and performance rating. 100 Malawi Country Assistance Strategy FY13–16 Table A6.1 Results Matrix for Strengthening Gender Mainstreaming in the Malawi Country Portfolio Goal: A strengthened empirically-based gender-informed approach to reducing poverty in Malawi utilizing a portfolio of operations and analytical work where gender is explicitly and appropriately incorporated and features prominently in supervision and implementation support. Outcome The design and implementation of lending projects will be informed by gender assessments or other gender Indicator diagnostic work and the projects will show measurable impact on gender equality. Baseline FY11 42% of all current lending and SPN projects have a gender-responsive design. 50% of all current lending and SPN projects have at least one sex-disaggregated indicator in their results framework (RF). Target FY13 60% of all current lending and SPN projects have a gender-responsive design. 65% of all current lending and SPN projects have at least one sex-disaggregated indicator in their RF. Target FY15 70% of all current lending and SPN projects have a gender-responsive design. 70% of all current lending and SPN projects have at least one sex-disaggregated indicator in their RF 101 Malawi Country Assistance Strategy FY13–16 Annex 7: CAS Stakeholder Consultations 1. Between December 2010 and July 2012, the WBG held consultations with government officials, civil society, the private sector, academia, media, and development partners to draw up a new strategy to support Malawi’s Second Growth and Development Strategy (MDGS II, 2011- 2016). The consultations, which were face-to-face, were held in all three geographic regions of the country, in Blantyre, Lilongwe, and Mzuzu, which are the hub cities for stakeholders. More than 150 institutions were represented in these consultations. 2. Two sets of consultations were held during the administrations of two different Malawi presidents. The first set ran from December 2010 to April 2012, when the late President Mutharika was in power, during which substantive work was done on the CAS. The Government program that informed the CAS was the draft MDGS II. After his death in April 2012, President Banda and her Cabinet quickly approved the MDGS II in April but in early July the president held a national symposium to further rationalize priorities to revive the economy. The symposium identified five areas: agriculture, energy, mining, tourism, and infrastructure. This necessitated a second round of consultations with Government to validate the draft CAS in view of the change in political leadership and identification of new priorities. A second round of consultations was also held with development partners through the Heads of Cooperation. 3. The first round of consultations was guided by a Concept Note that identified three themes: (i) Promoting sustainable, diversified, and inclusive growth; (ii) enhancing human capital and reducing vulnerabilities; and (iii) mainstreaming governance for enhanced development effectiveness. The consultations sought stakeholder views of these themes and obtained feedback about specifics to be covered under each theme. 4. Stakeholders generally endorsed the three thematic areas. With regard to Theme 1, they recommended that the CAS (i) promote commercialization, agro-processing, and value addition as a basis for growth of the agricultural sector; (ii) trade promotion and empowerment of micro-, small, and medium enterprises; (iii) development of energy supply (one stakeholder said, “Power shortages severely constrain private sector growth and access to ICT services, thereby inhibiting poverty reduction efforts. Access to power should therefore be one of the key priorities for Malawi as well as for the World Bank�) and (iv) infrastructure, with suggestions to have it stand alone as a pillar and “not hidden in the other pillars, since so many other developments are dependent on infrastructure.� 5. For Theme 2, stakeholders gave priority to issues of jobs, health, climate and environmental degradation: (i) development of entrepreneurial skills to enable educated people to become employers (there was concern that the CAS was silent on unemployment issues); (ii) primary school health should be an important element; (iii) nutrition is a weak sector requiring both funds and institutional strengthening; (iv) the WBG’s silence on health is not good for Malawi; (v) climate change should be a priority area because it will affect agriculture and energy if not considered critically; and (vi) environmental degradation especially in relation to the Shire. 6. For Theme 3, stakeholders observed that governance should not be about systems and capacity only, but there should also be an emphasis on checks and balances. They also asked that 102 Malawi Country Assistance Strategy FY13–16 the WBG be more specific about how it is going to engage with civil society and the media and make corruption a salient governance issue. 7. While commending the WBG’s selectivity, stakeholders also bemoaned the size of the IDA envelope for Malawi. Suggestions were made to have a larger envelope for fewer sectors to have more impact than is currently the case. 8. Government and development partners had their own issues in addition to some of those raised above. The government view was that the CAS Concept Note was generally well aligned with the MGDS II. “The first theme is particularly in the same direction as the MGDS II. So too are the issues on diversification, productivity, public management, and skills,� said the Principal Secretary for Development Planning. On the scheduling of proposed operations and analytical work, the government urged for timing that enables a better tie-in between its program and proposed WBG-supported operations. The government welcomed the idea of reduced covenants because covenants delay implementation. While agreeing with the proposed analytical work program, government representatives requested more AAA on issues of land and urban development. Government stakeholders also keenly followed the presentations on the new Africa Strategy. Observing that Malawi is reflected in the AFR strategy, they wondered why the CAS CN does not articulate gender and CSO issues as clearly as the AFR strategy does. 9. Development partners raised questions about collaboration, systems, and some project- specific matters. They observed that the WBG’s collaboration with other partners in such sectors as education is quite strong but the CAS does not truly reflect coordination issues. They also called for more collaboration where there are high degrees of synergy and overlap with other donors. They wanted to know if the proposed program has a built-in efficiency system to ensure value for money. On specific operations, they wanted to know if some projects, such as BESTAP, would have follow-ups; involvement of other development partners in EITI; more information on regional initiatives, such as regional rail; and how the WBG sees partnerships evolving in new sectors, such as nutrition. Commenting on the AFR strategy, they were pleased with the decentralization of knowledge hubs and the opportunity to access WBG expertise closer to Malawi. 10. In the second round of consultations with Government, it was agreed that the CAS was generally in line with Government priorities, but there were specific requests about, e.g., prioritizing power generation, which is a serious problem for Malawi; the supply chain for agricultural produce; supporting industry; transport infrastructure, especially for cross-border trade; and doing more in higher education. 11. The development partners in their second round also noted that Malawi’s problems had not changed with the regime change, so the CAS was still in sync with Malawi’s needs. There was commendation on the inclusion of vocational training and suggestions about stepping up civil service capacity, including that of ministers; incorporating corruption to keep pressure on governance; better coordination with the more numerous donors interested in commercial agriculture; and recognizing urbanization as a risk, since Malawi is one of the fastest urbanizing countries yet is not prepared for it. Some partners indicated interest in keeping in touch with the Bank on regional integration issues. 103 Malawi Country Assistance Strategy FY13–16 Annex 8: Social Accountability in the Malawi Portfolio Social accountability refers to the broad range of actions and mechanisms beyond voting that citizens can use to hold the state to account, as well as actions on the part of government, civil society, media, and other societal actors that promote or facilitate these efforts. Pillar 3 of this new CAS covers social accountability. This table outlines social accountability tools that various projects in the entire portfolio, continuing and new, could use to promote citizen participation in engaging authorities in achieving results and staying accountable. Individual projects will therefore be expected to make budgetary provision for social accountability activities. Social Description of Tools Examples of Projects Where Accountability under Method Tool Is Applicable Remarks Method (National  Local) Policies/Plans Participatory policy Mining: Mineral revenue Government actors should be making and planning: management and transparency provided the necessary support Consensus conferences, issues to be proactive in seeking local issue forums, and citizen input on policy and citizen juries will be used Shire River Basin Management: planning issues. CSOs have in components that Development of catchment already been vocal on both require stakeholder input management guideline. mining revenue and in developing policies environmental issues, so and guidelines. detailed planning/ implementation of social accountability methods will take into consideration such issues. Budgets Citizen involvement in Education and Local CSOs and the media already preparing and analyzing Development Fund: These analyze national budget public budgets: Civil projects provide funds at local allocations for various sectors. society analysis of the levels where communities are Relevant projects should impact and implications engaged in a number of therefore further support them of budget allocations; activities. Communities should in analyzing budgeting and raising awareness of be empowered to appreciate and impact at project level and also decentralized budgets, review budget allocations train local communities in and training communities against delivery. budget literacy. The on monitoring local government has already activity budgets DPOs: Accommodation of established a system of public views consulting the public when developing budgets. However, concerns remain on how far government accommodates public views. Should it be more consultation or collaboration in budget development? Expenditures Public expenditure Agriculture: Substantive Information is disseminated tracking surveys: The resources go to this sector as the through the use of media, surveys themselves, backbone of the economy, and publications, and public social audits, and specific more than 75 percent of meetings. Dissemination budget websites to Malawians depend on it. activities should be properly promote transparency. Tracking expenditures is budgeted for and undertaken therefore of national interest. not just to inform but also to empower citizens with Education: Participatory information and facts to engage tracking of primary education the government positively for 104 Malawi Country Assistance Strategy FY13–16 Social Description of Tools Examples of Projects Where Accountability under Method Tool Is Applicable Remarks Method (National  Local) expenditures and capacitating improvements. sector Parliamentary Committees to engage Ministry on timely and appropriate spending to expedite progress in education results Services/goods M&E of public services A number of projects in the Most of the tools for services and goods: This portfolio would benefit from the and goods require thorough establishes the relevance, use of these tools, especially logistics and good skills to quality, and accessibility ICT-based ones which use capture and synthesize salient of goods and services mobile phones to monitor and issues arising from various that the project was evaluate goods and services. project sites. When properly designed to provide. These projects include FSTAP, developed and utilized, these Since it is the citizens Education, Mining, MASAF, tools help improve operational themselves who are on Shire River Basin Management, results and process outcomes the receiving end of Nutrition, Energy, and ASWAp. (e.g., institutional changes). goods and services, tools here require citizen The proposed Social participation in drawing Accountability Committee up indicators. Tools should consider liaising with include citizen report the Open Development cards, community Technology Alliance (the scorecards, public World Bank ICT Knowledge hearings, public opinion Platform) - http://opendta.org/ polls, and citizens’ charters. Public oversight Public oversight over the Entire WBG program in Initial steps to help such WBG program: WBG Malawi: Empower CSOs, constituencies as CSOs, accountability and parliamentarians, and media to Parliamentarians, and the transparency to the participate in implementation. media to understand the Bank public should also Also, present results of CAS project cycle have been taken. improve. Currently, this reviews to the general public, The new CAS should take is done in the context of and project reviews and further steps by more actively reviewing the MDGs, completion reports for lessons engaging some of these which includes CSOs, learned to relevant stakeholders. stakeholders in the and less proactively with implementation so that they are the public. better empowered to provide oversight. Also, there is need to publicize results of the MDG reviews with specific notes on WBG performance. The CAS budget should provide for WBG accountability to the public. 105 Malawi Country Assistance Strategy FY13–16 Annex 9: List of Active Trust Funds LIST OF ACTIVE FUNDS IN MALAWI TRUST NET GRANTS AVAILABLE FUND # TRUST FUND NAME AMOUNT FUNDS Disb.to Date BALANCE Malawi: Transaction Advice on concession negotiation TF010275 on Railways 166.16 60 16.16 TF010409 Malawi National water development 70 67.66 2.34 The impacts of Switching from cash to electronic TF011733 payments; evidence from the field 202.25 0 52.95 TF012309 Malawi PFEMRP MDTF Administration 854.62 69.55 762.71 TF012522 PPIAF MALAWI: Project pipeline 50 0 50 TF012632 Support for Nutrition Activities 520 0 520 TF012633 Support for Nutrition Activities 118.88 0 118.88 TF012998 Malawi National water development 35 0 26 TF013079 KCPII The Role of Public Works 220 0 0 TF024914 HIPC-IDA-MALAWI EHIPC 588,497.38 108,010.65 0 TF027816 HIPC-AFDB MALAWI 144,887.43 144,887.43 98.82 TF050984 HIPC-NDF-MALAWI-DEBT SERVI 3,459.56 4,395.39 2,522.04 TF058001 AMSME NBS- MALAWI 872.14 866.93 5.21 TF091521 MALAWI NATIONAL WATER DEVELOP 24,721.84 24,721.84 0 TF091620 Business Environment Strengthening 3,453.46 2,310.77 1,368.00 TF092100 GEF FSP-REPUBLIC OF MALAWI 5,800.00 4,074.62 1,725.38 TF092513 AMSME FMB-MALAWI 1,032.33 931.14 99.19 TF095384 AFRICA RURAL INFRASTRUCTURE PR 59.50 59.44 0.06 TF096288 LSMS-ISA MALAWI NATIONAL PANEL 1,215.00 831.09 83.91 TF096297 IDF: Malawi strengthening 499 94.00 405 TF096596 Protecting Early Childhood Development 192.00 170.15 19.38 TF097559 Project to Improve Education Quality 50,000.00 38,208.00 11,792.00 TF098514 Protecting Early Childhood Development 500.00 460.27 16.07 TF098515 Protecting Early Childhood Development 1,500.00 1,500.00 0 TF098618 Malawi-EFA FTI Catalytic Fund 214.39 132.97 76.49 TF099040 Malawi-National climate Change 1,000.00 157.35 559.31 Malawi Development of an Integrated Approach to Soil TF099067 & Water Mgmt in Shire Basin. 230.00 162.6 55.9 BNPP-Education Migration, Youth Employment and TF099358 Productivity in southern Africa, 430.00 30.07 165.18 ROUND 31 MALAWI Promoting Inclusion of Children TF099386 with disabilities into Basic Education for all 1,832.88 0 1,832.88 TOTAL 872,633.82 332,253.92 22,373.86 106 Malawi Country Assistance Strategy FY13–16 Annex 10: IDA Indicative Financing Program Total CAS Thematic Focus Project Title US$M Theme 1 Theme 2 Theme 3 FY13 2 210 RRP Policy Grant 50 x x x RRP Irrigation, Rural Livelihoods Agriculture Development Project Additional Financing 50 x x RRP Third Malawi Social Action Fund Additional Financing 50 x x x Development Policy Operation (DPO) 1 50 x x Regional: Agriculture Productivity for Southern Africa 10 x x x FY14 140 Development Policy Operation (DPO) 2 50 x x Malawi Social Action Fund 4 50 x Higher Education and Skills Development 40 x x x Regional: Energy Connectivity interconnector to SAPP 3 x x FY15 175 Development Policy Operation (DPO) 3 50 x x Public Sector Strenghening /Statistics Project 25 x ASWAp Phase 2 (Agricultural Commercialization and Rural Growth) 100 x x x Regional: North-South Corridor x FY16 4 100 Growth Pole/Shire Valley Irrigation Project 100 x x TOTAL FY13 - FY16 625 Notes: Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth Theme 2: Enhancing Human Capital and Reducing Vulnerabilities Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness 1. The amounts shown in outer years are indicative only. Actual allocations will depend on (i) the country's own performance; (ii) its performance relative to other IDA recipients; (iii) the total amount of resources available to IDA; (iv) any changes in the list of IDA- eligible countries; (v) terms of the financial assistance provided (grants or loans); and (vi) the amount of compensatory resources received from MDRI. 2. Program to be supported by IDFs on Diaspora &Public Procurement; MDTF on PFM, ASWAP & MFDT; GEFs on Shire, ASWAp, Nyika &Nkhotakota; and GFDRR TF 3. Funds from Regional IDA 16 to be confirmed 4. Others to be planned following CAS Progress Report 107 Malawi Country Assistance Strategy FY13–16 Annex 11: Indicative Program of Economic and Sector Work CAS Thematic Focus Title Theme 1 Theme 2 Theme 3 FY13 Policy Note on Rural Poverty, Gender and Household Food and Nutrition Security x x Growth Pole Study focus on SVIP & opportunities from Tete x PER, including Regional Agriculture Public Expenditure Review (TF) x x PEFA x Skills and Technology Development* (TF)/Youth Unemployment, Labor Markets, Migration * x x x Policy note on commercialization x x x Intergrated Trade Study x PPP Pipeline screening x x Transport Note x x Policy analysis IHS3 x FINSCOPE Surveys x Agriculture/Land Issues x x FY14 Progress on Selected MDGs x Poverty Note-Synthesis Note on Food Security, Rural Poverty and Employment x x Energy Efficiency x x x Study Agriculture Commercialization x Public Sector Strengthening Review x x FY15 Tentative to be finalized after MTR Impact Evaluations*** x x Social Safety Net Review x x Water/Urban Development/Municipal Services x x *CEM including Assesment of Malawi Growth Models x x x FSAP Follow up x x Notes: Theme 1: Promoting Sustainable, Diversified, and Inclusive Growth Theme 2: Enhancing Human Capital and Reducing Vulnerabilities Theme 3: Mainstreaming Governance for Enhanced Development Effectiveness * CEM to input into New CAS ** FY16 to be completed after Mid-Term progress report *** Impact Evaluations -Ongoing in several projects 108 Malawi Country Assistance Strategy FY13–16 Annex A 2: Key Social and Economic Indicators Malawi at a glance 10/19/12 Sub- Key Development Indicators Saharan Low Malawi Africa income Age distribution, 2010 (2011) Male Female Population, mid-year (millions) 15.4 853 796 75- 79 Surface area (thousand sq. km) 118 24,243 15,551 60- 64 Population growth (%) 3.2 2.5 2.1 Urban population (% of total population) 20 37 28 45- 49 30- 34 GNI (Atlas method, US$ billions) 5.2 1,004 421 15- 19 GNI per capita (Atlas method, US$) 340 1,176 528 GNI per capita (PPP, international $) 860 2,148 1,307 0-4 15 10 5 0 5 10 GDP growth (%) 4.5 4.8 5.9 percent of total population GDP per capita growth (%) 1.2 2.3 3.7 (most recent estimate, 2005–2011) Poverty headcount ratio at $1.25 a day (PPP, %) 74 48 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 90 69 .. Life expectancy at birth (years) 53 54 59 250 Infant mortality (per 1,000 live births) 58 76 70 Child malnutrition (% of children under 5) 14 22 23 200 Adult literacy, male (% of ages 15 and older) 81 71 69 150 Adult literacy, female (% of ages 15 and older) 67 54 54 100 Gross primary enrollment, male (% of age group) 133 104 108 Gross primary enrollment, female (% of age group) 138 95 101 50 0 Access to an improved water source (% of population) 83 61 65 1990 1995 2000 2010 Access to improved sanitation facilities (% of population) 51 31 37 Malawi Sub-Saharan Af ric a a Net Aid Flows 1980 1990 2000 2011 (US$ millions) Net ODA and official aid 141 500 446 1,027 Growth of GDP and GDP per capita (%) Top 3 donors (in 2010): European Union Institutions 21 45 49 208 20 United Kingdom 25 51 97 148 15 United States 3 21 59 126 10 5 Aid (% of GNI) 12.4 27.2 26.1 20.8 0 Aid per capita (US$) 23 53 40 69 -5 -10 Long-Term Economic Trends -15 95 05 Consumer prices (annual % change) 11.8 11.8 35.4 7.2 GDP implicit deflator (annual % change) 15.8 10.7 30.5 11.7 GDP GDP per c apita Exchange rate (annual average, local per US$) 0.8 2.7 59.5 155.8 Terms of trade index (2000 = 100) .. 145 100 111 1980–90 1990–2000 2000–11 (average annual growth %) Population, mid-year (millions) 6.2 9.4 11.2 15.4 4.1 1.8 2.9 GDP (US$ millions) 1,238 1,881 1,744 5,700 2.5 3.7 5.4 (% of GDP) Agriculture 43.7 45.0 39.5 28 2.0 8.6 3.3 Industry 22.5 28.9 17.9 17 2.9 2.0 6.7 Manufacturing 13.7 19.5 12.9 10.1 3.6 0.5 6.1 Services 33.7 26.1 42.5 34 3.3 1.6 6.7 Household final consumption expenditure 69.9 71.5 81.6 71.0 .. .. .. General gov't final consumption expenditure 19.3 15.1 14.6 15.7 .. .. .. Gross capital formation 24.7 23.0 13.6 23.9 .. .. .. Exports of goods and services 24.8 23.8 25.6 25.1 .. .. .. Imports of goods and services 38.8 33.4 35.3 39.5 .. .. .. Gross savings .. .. 2.2 10 Note: Figures in italics are for years other than those specified. 2011 data are preliminary. .. indicates data are not available. a. Aid data are for 2010. Development Economics, Development Data Group (DECDG). 109 Malawi Country Assistance Strategy FY13–16 Malawi Balance of Payments and Trade 2000 2011 Governance indicators, 2000 and 2010 (US$ millions) Total merchandise exports (fob) 392 1,262.7 Voice and accountability Total merchandise imports (cif) 460 -1,411 Net trade in goods and services -88 -866 Polit ical stability and absence of violence Current account balance -117 -332.9 Regulat ory quality as a % of GDP -6.7 -5.9 Rule of law Workers' remittances and compensation of employees (receipts) 1 .. Control of corruption Reserves, including gold .. .. 0 25 50 75 100 Country's percentile rank (0-100) Central Government Finance 2010 2000 higher values imply better ratings (% of GDP) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 17.1 32.1 Tax revenue 15.7 20.8 Current expenditure 19.9 27.2 Technology and Infrastructure 2000 2010 Overall surplus/deficit -13.9 -2.9 Paved roads (% of total) 45.0 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual 38.0 30.0 subscribers (per 100 people) 1 21 Corporate 38.0 35.0 High technology exports (% of manufactured exports) 2.0 1.3 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 2,705 994 Agricultural land (% of land area) 50 59 Total debt service 63 28 Forest area (% of land area) 37.8 34.3 Debt relief (HIPC, MDRI) 1,375 914 Terrestrial protected areas (% of land area) 15.0 15.0 Total debt (% of GDP) 155.1 17.4 Freshwater resources per capita (cu. meters) 1,364 1,118 Total debt service (% of exports) 13.1 1.7 Freshwater withdrawal (billion cubic meters) .. .. Foreign direct investment (net inflows) 26 .. CO2 emissions per capita (mt) 0.08 0.09 Portfolio equity (net inflows) 0 .. GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) .. .. Composition of total external debt, 2010 Energy use per capita (kg of oil equivalent) .. .. Short-term, Private, 0 61 IBRD, 0 IDA, 243 Bilateral, 139 World Bank Group portfolio 2000 2010 (US$ millions) IBRD IMF, 146 Total debt outstanding and disbursed 9 0 Disbursements 0 0 Other multi- lateral, 333 Principal repayments 8 0 Interest payments 1 0 US$ millions IDA Total debt outstanding and disbursed 1,592 243 Disbursements 97 34 Private Sector Development 2000 2011 Total debt service 27 1 Time required to start a business (days) – 39 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 108.4 Total disbursed and outstanding portfolio 3 35 Time required to register property (days) – 49 of which IFC own account 3 28 Disbursements for IFC own account 2 0 Ranked as a major constraint to business 2000 2010 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 5 Access to/cost of financing .. 27.6 Electricity .. 19.2 MIGA Gross exposure – – Stock market capitalization (% of GDP) 3.6 27.0 New guarantees – – Bank capital to asset ratio (%) .. .. Note: Figures in italics are for years other than those specified. 2011 data are preliminary. 10/19/12 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 110 Malawi Country Assistance Strategy FY13–16 Millennium Development Goals Malaw With selected targets to achieve b etween 1990 and 2015 (estimate closest to date shown, +/- 2 years) Malawi Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2010 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. 83.1 .. Poverty headcount ratio at national poverty line (% of population) .. .. 65.3 .. Share of income or consumption to the poorest qunitile (%) .. .. 4.8 .. Prevalence of malnutrition (% of children under 5) 24.4 26.5 21.5 13.8 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) .. .. 99 97 Primary completion rate (% of relevant age group) 28 52 65 67 Secondary school enrollment (gross, %) 17 22 32 32 Youth literacy rate (% of people ages 15-24) .. .. 76 86 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 81 88 93 101 Women employed in the nonagricultural sector (% of nonagricultural employment) 11 11 .. .. Proportion of seats held by women in national parliament (%) 10 6 8 21 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 222 205 167 92 Infant mortality rate (per 1,000 live births) 131 121 99 58 Measles immunization (proportion of one-year olds immunized, %) 81 90 73 93 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,100 1,000 840 460 Births attended by skilled health staff (% of total) 55 .. 56 54 Contraceptive prevalence (% of women ages 15-49) 13 22 31 41 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 7.2 13.9 14.2 11.0 Incidence of tuberculosis (per 100,000 people) 326 462 467 219 Tuberculosis case detection rate (%, all forms) 41 42 45 65 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 41 52 62 83 Access to improved sanitation facilities (% of population) 39 42 46 51 Forest area (% of land area) 41.3 .. 37.8 34.3 Terrestrial protected areas (% of land area) 15.0 15.0 15.0 15.0 CO2 emissions (metric tons per capita) 0.1 0.1 0.1 0.1 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) .. .. .. .. Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.3 0.3 0.4 1.1 Mobile phone subscribers (per 100 people) 0.0 0.0 0.4 20.4 Internet users (per 100 people) 0.0 0.0 0.1 2.3 Computer users (per 100 people) .. .. .. .. Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 30 100 75 75 20 50 50 25 10 25 0 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Prim ary net enrollment ratio Malawi Sub-Saharan Af ric a Fix ed + m obi le s ubs cribers Int ernet users Ratio of girls to boy s in primary & sec ondary educ ation Note: Figures in italics are for years other than those specified. .. indicates data are not available. 10/19/12 Development Economics, Development Data Group (DECDG). 111 Malawi Country Assistance Strategy FY13–16 Annex B2: Selected Indicators of Bank Portfolio Performance and Management CAS Annex B2 - Malawi Selected Indicators* of Bank Portfolio Performance and Management As Of Date 10/25/2012 Indicator 2010 2011 2012 2013 Portfolio Assessment Number of Projects Under Implementation a 11 12 13 12 b Average Implementation Period (years) 3.6 3.7 3.8 3.8 a, c Percent of Problem Projects by Number 9.1 0.0 0.0 0.0 a, c Percent of Problem Projects by Amount 8.2 0.0 0.0 0.0 a, d Percent of Projects at Risk by Number 18.2 8.3 0.0 0.0 a, d Percent of Projects at Risk by Amount 16.5 9.6 0.0 0.0 e Disbursement Ratio (%) 38.5 27.2 20.5 6.0 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 78 3 Proj Eval by OED by Amt (US$ millions) 2,275.5 75.8 % of OED Projects Rated U or HU by Number 39.5 66.7 % of OED Projects Rated U or HU by Amt 39.0 64.9 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the 112 Malawi Country Assistance Strategy FY13–16 Annex B5: Social Indicators Annex B5 Malawi Social Indicators Latest single year Same region/income group Sub- Saharan Low - 1980-85 1990-95 2003-09 Africa incom e POPULATION Total population, mid-year (millions) 7.3 10.1 15.3 839.6 846.1 Grow th rate (% annual average for period) 3.1 1.4 2.8 2.5 2.2 Urban population (% of population) 10.2 13.3 19.3 36.9 28.7 Total fertility rate (births per w oman) 7.3 6.6 5.5 5.0 4.2 POVERTY (% of population) National headcount index .. .. 52.4 .. .. Urban headcount index .. .. 25.4 .. .. Rural headcount index .. .. 55.9 .. .. INCOME GNI per capita (US$) 160 160 290 1,125 509 Consumer price index (2000=100) 1 14 145 135 141 Food price index (2000=100) 2 29 146 .. .. INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. 39.0 .. .. Low est quintile (% of income or consumption) .. .. 7.0 .. .. Highest quintile (% of income or consumption) .. .. 46.4 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 1.9 3.6 2.9 2.2 Education (% of GDP) 2.5 .. 4.2 3.8 3.5 Net prim ary school enrollm ent rate (% of age group) Total .. .. 91 75 80 Male .. .. 88 77 82 Female .. .. 93 73 78 Access to an im proved w ater source (% of population) Total .. 51 80 60 64 Urban .. 92 95 82 85 Rural .. 45 77 47 56 Im m unization rate (% of children ages 12-23 months) Measles 49 90 92 68 78 DPT 55 89 93 70 80 Child malnutrition (% under 5 years) 21 27 16 25 28 Life expectancy at birth (years) Total 47 52 54 53 57 Male 46 50 53 51 56 Female 48 54 55 54 59 Mortality Infant (per 1,000 live births) 140 116 69 81 76 Under 5 (per 1,000) 236 195 110 130 118 Adult (15-59) Male (per 1,000 population) 429 479 434 390 312 Female (per 1,000 population) 349 436 395 358 275 Maternal (modeled, per 100,000 live births) .. 830 510 650 580 Births attended by skilled health staff (%) .. 55 54 44 41 Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 15 April 2011. 113 Malawi Country Assistance Strategy FY13–16 Annex B6: Key Economic Indicators Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 National accounts (as % of GDP) Gross domestic product a 100 100 100 100 100 100 100 100 100 Agriculture 30 28 29 28 28 28 28 28 28 Industry 16 17 17 18 17 17 17 17 17 Services 32 33 33 33 34 33 33 33 33 Total Consumption 85 95 89 90 94 98 90 88 87 Gross domestic fixed investment -1 -1 -1 -2 -3 -5 -3 22 22 Government investment 14 9 6 10 7 8 8 9 8 Private investment 13 15 19 16 9 9 13 14 14 Exports (GNFS)b 28 28 25 29 30 34 38 38 39 Imports (GNFS) 40 49 39 45 39 48 49 48 47 Gross domestic savings 11 1 8 6 1 -4 2 3 4 Gross national savings c 27 16 21 25 10 12 19 19 20 Memorandum items Gross domestic product 3647 4277 5034 5397 5607 4734 4838 5202 5555 (US$ million at current prices) GNI per capita (US$, Atlas method) 250 280 310 330 340 .. .. .. .. Real annual growth rates (%, calculated from 94 prices) Gross domestic product at market prices 5.8 8.6 7.6 7.1 6.8 6.9 7 .. .. Gross Domestic Income .. .. .. .. .. .. .. .. .. Real annual per capita growth rates (%, calculated from 94 prices) Gross domestic product at market prices .. .. .. .. .. .. .. .. .. Total consumption .. .. .. .. .. .. .. .. .. Private consumption .. .. .. .. .. .. .. .. .. Balance of Payments (US$ millions) Exports (GNFS)b 1503 1468 2092 1993 2386 2303 2426 2398 2364 Merchandise FOB 821 960 937 1238 1263 1291 1530 1702 1859 Imports (GNFS)b 1239 1183 1739 1605 1942 1819 1913 1856 1818 Merchandise FOB 544 821 960 937 1202 1291 1333 1316 1324 Resource balance 265 285 353 388 444 484 513 542 545 Net current transfers 632 656 726 1104 588 810 818 836 850 Current account balance 36 -415 -244 -70 -333 -201 -81 -92 -91 Net private foreign direct investment 92 215 56 158 61 83 108 135 164 Long-term loans (net) 69 138 151 90 105 91 122 101 97 Official 80 145 73 104 119 108 145 130 130 Private -11 -7 78 -14 -14 -18 -23 -29 -33 Other capital (net, incl. errors & ommissions) -91.9 -16.6 -91.8 -90.3 68.9 0.0 0.0 0.0 0.0 Change in reserves d 216.5 239.0 140.5 279.6 190.2 204.5 405.7 564.9 728.6 Memorandum items Resource balance (% of GDP) 7.3 6.7 7.0 7.2 7.9 10.2 10.6 10.4 9.8 Real annual growth rates ( YR94 prices) Merchandise exports (FOB) 2.0 5.7 2.5 20.3 .. .. .. .. .. Primary 58.5 31.4 12.1 12.1 .. .. .. .. .. Manufactures 3.5 -0.2 -0.4 7.8 .. .. .. .. .. Merchandise imports (CIF) 2.9 3.0 3.1 3.1 3.2 3.2 .. .. .. (Continued) 114 Malawi Country Assistance Strategy FY13–16 Malawi - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Indicator Public finance (as % of GDP at market prices)e Current revenues 31 29 32 34 32 27 35 37 36 Current expenditures 32 30 38 34 35 35 28 26 25 Current account surplus (+) or deficit (-) -1 -1 -6 0 -3 -8 7 11 11 Capital expenditure 11 11 7 8 8 8 6 8 8 Foreign financing (net) 1 3 2 1 1 2 1 1 1 Monetary indicators M2/GDP 20 20 24 34 36 18 25 17 21 Growth of M2 (%) 8 52 17 -3 29 -22 8 1 2 Private sector credit growth / 37 32 37 48 30 18 17 13 13 total credit growth (%) 57 42 56 38 50 29 20 12 13 Price indices( YR94 =100) Merchandise export price index 991.5 -1005.5 -1187.5 -973.1 .. .. .. .. .. Merchandise import price index 4345.8 4177.5 4214.6 5333.0 .. .. .. .. .. Merchandise terms of trade index 22.8 -24.1 -28.2 -18.2 .. .. .. .. .. Real exchange rate (US$/LCU)f 97.4 101.9 111.2 105.8 105.8 105.8 105.8 105.8 105.8 Real interest rates Consumer price index (% change) 14.9 2.9 0.4 0.5 6.6 3.5 5.2 5.1 4.6 GDP deflator (% change) 7.9 9.2 6.9 7.0 11.7 2.4 5.1 .. .. a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 115 Malawi Country Assistance Strategy FY13–16 Annex B7: Key Exposure Indicators Malawi CAS: Key Exposure Indicators Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total debt outstanding and 3,183 848 790 894 1,033 922 994 1,064 1,103 1,101 disbursed (TDO) (US$m)a Net disbursements (US$m)a .. .. 0 0 0 0 0 0 0 0 Total debt service (TDS) .. .. 13 15 16 8 9 10 11 11 (US$m)a Debt and debt service indicators (%) TDO/XGSb 417.1 107.7 76.5 72.2 82.0 62.1 62.1 64.0 66.3 65.4 TDO/GDP 115.5 27.2 22.9 21.9 21.9 18.3 17.9 17.9 17.4 16.2 TDS/XGS .. .. 1.3 1.2 1.2 0.5 0.6 0.6 0.6 0.6 Concessional/TDO 93.0 80.7 91.1 82.6 78.5 75.5 76.9 78.8 80.3 82.7 IBRD exposure indicators (%) IBRD DS/public DS 0.3 0.0 .. .. .. .. .. .. .. .. Preferred creditor DS/public 87.0 87.7 38.0 34.2 .. .. .. .. .. .. DS (%)c IBRD DS/XGS 0.0 0.0 .. .. .. .. .. .. .. .. IBRD TDO (US$m)d 0 0 0 .. .. .. .. .. .. .. Of which present value of guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 .. .. .. .. .. .. .. IDA TDO (US$m)d 1,940 157 178 188 213 243 268 299 321 336 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 116 Annex B8: Operations Portfolio (IDA and Grants) CAS Annex B8 - Malawi Operations Portfolio (IBRD/IDA and Grants) As Of Date 10/25/2012 Closed Projects 97 IBRD/IDA * Total Disbursed (Active) 242.40 of which has been repaid 0.00 Total Disbursed (Closed) 656.19 of which has been repaid 139.60 Total Disbursed (Active + 898.59 Closed) of which has been repaid 139.60 Total Undisbursed (Active) 636.13 Total Undisbursed (Closed) 0.06 Total Undisbursed (Active + 636.19 Closed) Difference Active Projects Between Expected and Last PSR Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Fiscal Frm Project ID Project Name IBRD IDA GRANT Cancel. Undisb. Orig. Objectives Progress Year Rev'd P122616 Financial Sector Technical Assistance S S 2011 28.2 26.3 1.7 P105256 MW - Agric Dev Prog Support Project S S 2008 62.0 36.4 3.2 P110446 MW-3rd Social Action Fund APL II (FY08) MS MS 2008 114.0 47.2 -24.5 P106671 MW-Agriculture Development GEF (SIP) S S 2008 5.8 1.7 P103773 MW-Bus. Env. Strengthening SIL (FY07) S S 2007 15.0 0.0 -1.2 P099626 MW-Energy Sector Project S S 2011 84.7 73.5 -6.2 P057761 MW-Infrastr Srvcs SIM MS MS 2006 40.0 7.7 5.2 2.9 P084148 MW-Irrig, Rural Lvlihds & Agr SIL (FY06) S S 2006 102.7 60.3 -6.9 P125237 MW-Nutrition & HIV/AIDS Project (FY12) S S 2012 80.0 77.8 P114847 MW-Proj to Improve Education Quality in MS MS 2010 50.0 38.0 7.1 P096336 MW-Sec Natl Water Dev Project SIL (FY07) S MS 2007 170.0 0.8 121.9 4.6 -5.5 P120825 MW: Mining Technical Assistance Project S MS 2011 25.0 23.8 -1.1 P127866 MW: Shire River Basin Mgmt Program-GEF # # 2012 1.5 1.5 P117617 Shire River Basin Management Program # # 2012 125.0 123.3 Overall Result 896.6 7.3 0.8 639.4 -23.7 -3.7 117 Malawi Country Assistance Strategy FY13–16 Annex B8: Statement of IFC’s Held and Disbursed Portfolio B8 (IFC) for Malawi Malawi Committed and Disbursed Outstanding Investment Portfolio As of 9/30/2012 (In USD Millions) Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 0 Bakhresa malawi 3.08 0 0 0 0 3.08 0 0 0 0 2007 Celtel malawi 3.3 0 0 0 2.11 3.3 0 0 0 2.11 2011 Gateway mall 6.31 0 1.71 0 0 0 0 0 0 0 2000 Nhl 0 0.52 0 0 0 0 0.52 0 0 0 Total Portfolio: 12.69 0.52 1.71 0 2.11 6.38 0.52 0 0 2.11 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 118 119