Document o f The World Bank FOROFFICIAL USEONLY Report No. 44193-BI INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF BURUNDI FOR THE PERIOD FY09-FY12 July 8,2008 InternationalDevelopment Association EasternAfrica Country Cluster 1,AFCEl Africa Region InternationalFinanceCorporation Sub-SaharanAfrica Department This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. LastInterim Strategy Note: April 11,2005 (Report No. 32018-BI) CURRENCY EQUIVALENTS(as of June 5,2008) Currency Unit = BurundiFranc (FBu) US$l.OO = 1,174.4 FBu ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AfDB African DevelopmentBank ASARECA Association for StrengtheningAgricultural Research inEasternand CentralAfrica BCB Banque de Credit de Bujumbura BINUB UnitedNations IntegratedOffice inBurundi CAP ConsolidatedAppeal Process (UN) CAS Country Assistance Strategy CEM Country Economic Memorandum CNCA Comit6 National de Coordination des Aides CNDD-FDD NationalCouncil ofthe Defense of Democracy-Forcesfor the Defense ofDemocracy COMESA Common Market for Easternand SouthernAfrica CPIA Country Policy andInstitutional Assessment CPPR Country Portfolio PerformanceReview DFID Departmentfor InternationalDevelopment(United Kingdom) DRR Demobilization, Reinsertion, andReintegration EAC East Africa Community EPA Economic PartnershipAgreement (with the EuropeanUnion) ERSG Economic Reform Support Grant ESW Economic and Sector Work EU EuropeanUnion FBu BurundiFranc FNL-PALIPEHUTU NationalLiberation Front -Party for the Liberation ofthe HutuPeople FY Fiscal Year GAC Governanceand Anti-Comption GAVI Global Alliance for VaccinesandImmunizations GDP Gross Domestic Product GNI Gross National Income GTZ GermanAgency for Technical Cooperation HIPC Heavily IndebtedPoor Countries (Initiative) HIV/AIDS HumanImmunodeficiency Virus/Acquired ImmuneDeficiency Syndrome ICR ImplementationCompletion Report ICT Informationand CommunicationsTechnology IDA InternationalDevelopmentAssociation IDF Institutional DevelopmentFund IEG IndependentEvaluation Group IFAD InternationalFund for Agricultural Development IFC InternationalFinance Corporation IMF InternationalMonetary Fund ISN Interim StrategyNote LICUS Low Income CountriesUnder Stress MDGs MillenniumDevelopmentGoals MDRI Multilateral Debt ReliefInitiative MDRP Multicountry Demobilization and ReintegrationProgram for the Great Lakes MOU Memorandum ofUnderstanding MIGA Multilateral InvestmentGuaranteeAgency MOU Memorandum of Understanding FOROFFICIAL USEONLY ABBREVIATIONS AND ACRONYMS, continued NGO Non-GovernmentalOrganization NPV Net PresentValue ODA Official DevelopmentAssistance PBA PerformanceBasedAllocation PBC PeaceBuildingCommission PCG Partners' CoordinationGroup PCPI Post-ConflictPerformanceIndicator PEMFAR Public ExpenditureManagement andFinancialAccountability Review PER PublicExpenditureReview PHRD PolicyandHumanResources Development(Japantrust fund) PIU ProjectImplementationUnit PRGF PovertyReductionandGrowthFacility PSD Private Sector Development QUIBB Questionnairedes Indicateursde Base du Bien-Etre RRI RapidResultsInitiative SDR SpecialDrawingRight SME Small andmediumenterprise SOE State-OwnedEnterprise SWAP Sector-WideApproach TA TechnicalAssistance TFGIA Trade FinanceGuaranteeInsuranceAgreement (IFC) UN UnitedNations UNDP UnitedNations DevelopmentProgram UNFPA UnitedNations PopulationFund UNICEF UnitedNationsChildren's' Fund us UnitedStates USAID UnitedStatesAgency for InternationalDevelopment WBI WorldBankInstitute WHO WorldHealthOrganization IDA IFC Vice President: ObiageliKatrynEzekwesili ExecutiveVice President: Lars Thunell Country Director: John Murray McIntire Vice President: Thierry Tanoh Country Manager: Alassane Sow RegionalManager: Jean PhilippeProsper Task Team Leaders: Alassane Sow / Kathryn Funk CountryEconomist: James Emery CountryStrategy Head: FrankArmandD.Douamba This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. COUNTRY ASSISTANCESTRATEGY FORTHE REPUBLIC OF BURUNDI Table of Contents Executive Summary ................................................................................................................... i IIntroduction........................................................................................................................... 1 I1 Country Context .. ................................................................................................................... 1 A.Political and Social Context............................................................................................. 1 B Poverty Profile and Progress toward the MillenniumDevelopment Goals ..................... . 3 C.Economic Developments and Prospects .......................................................................... 5 Recent Economic Developments ...................................................................................... 5 Public Finance Structure................................................................................................... 7 External Trade................................................................................................................... 8 Medium-TermProspects................................................................................................... 9 Debt Sustainability.......................................................................................................... 11 I11 Government Program........................................................................................................ . 12 A.Burundi'sPoverty Reduction Strategy .......................................................................... 12 Axis 1: Improve Security and Governance ..................................................................... 12 Axis 2: Achieving Equitable and Sustainable Growth ................................................... 13 B.Axis 3 and 4: Developing Human Capital and FightingHIV/AIDS .............................. 13 Development Partner Support ........................................................................................ 14 IV.Implementation of the InterimStrategy and Lessons Learned......................................... 15 IDA and Analytical and Advisory Activities.................................................................. 15 The International Finance Corporation ........................................................................... 16 Multilateral InvestmentGuarantee Agency .................................................................... 16 Lessons Learned ............................................................................................................. 16 V.The WorldBank Group Assistance Strategy ..................................................................... 18 A.The Framework for World BankEngagementinBurundi............................................. 18 B.IDA Resources and the ProposedProgram of Support.................................................. ................................................................................................................ 20 CAS Outcomes 21 CAS Instruments............................................................................................................. 21 Objective One: Promote Sustainable and Broad-Based Economic Growth...................23 Objective Two: Improve Access to Social Services and Consolidate Social Stability...26 Cross-Cutting Objective: Governance............................................................................ 29 C. Strengthening Donor Harmonization ............................................................................. 30 D.Implementing and Monitoringthe Country Assistance Strategy................................... 31 VI Risksand Mitigation......................................................................................................... . 33 Box 1: Burundi'sProspects for Achieving the Millennium Development Goals by 2015.......4 Boxes: Box 2: Food and Fuel Price Increases: Impactand Policy Options.......................................... 9 Box 3: Coffee-Past Source o f Conflict. Potential Source o f Future Growth ....................... 10 Box 4: The Land Problem ....................................................................................................... 13 Box 5: Client Survey ............................................................................................................... 17 Box 6: CAS Consultations ...................................................................................................... 19 Box 7:Youth inBurundi-A Force for Positive Change? ..................................................... 26 Box 8: Diagnostic Study on Governance and Corruption....................................................... 29 Table of Contents.continued Tables: Table 1: Burundi. Macroeconomic Indicators. 2004-2011............................................. Key 6 Table 2: Sectoral Allocation o f Public Spending as Percentage o f GDP, 2001-2006 ............. 8 Table 3: ProposedAnalytical and Advisory Activities, FY09-FYI2 ..................................... 22 Table 4: Proposed IDA Financing, FY09-FY12..................................................................... 22 Figure 1: Real Output Growth. 2001-06 (inpercent) ................................................ 5 Figure 2: CAS Strategic Objectives and Outcomes ................................................. 21 Annexes: Annex 1: Burundiat a Glance................................................................................................. 35 Annex 2: Key Economic Indicators ........................................................................................ 38 Annex 3: Key Exposure Indicators ......................................................................................... 40 Annex 4: Status o f HIPC Completion Point Triggers............................................................. 41 Annex 5: Status o f Performance Indicators ofthe InterimStrategy Note dated April 2005 ..43 Annex 6: Selected Indicators o f Bank PortfolioPerformance and Management ...................44 Annex 7: Selected Indicators ofBank PortfolioPerformance and Management ...................45 Annex 8: Country Portfolio Performance Review-Main Recommendations....................... 46 Annex 9: International Finance Corporation .......................................................................... 47 Annex 10: Donor Complementarity inBurundi ..................................................................... 48 Annex 11: Summary o f Non-Lending Services...................................................................... 50 Annex 12: IDA Summary Program ........................................................................................ 51 Annex 13: Results Framework for the BurundiCAS ............................................................. 52 Map of Burundi:IBRDNo. 33380 EXECUTIVE SUMMARY 1. Political Developments. In August 2000, upon the signing o f the Arusha Peace Agreement, Burundi began emerging from seven years o f brutal civil war. From 2000 to 2005, the country made a successful transition to a multi-party system o f government. Parliamentary elections, based on a new constitution, took place inAugust 2005. The CNDD- FDD, formerly the largest Huturebel group, won over 58 percent o f the vote, and parliament elected CNDD-FDD leader Pierre Nkurunziza as president. Since 2005, political and security progress has been mixed. There i s an opportunity for Burundi to strengthendemocracy and exit the conflict trap, butthe challenges are formidable. .. 11. Poverty Profile and Progress toward the Millennium Development Goals. Burundiis one o fthe poorest countries inthe world-about 67 percent o f the population lives below the poverty line. Poverty is mainly rural, and there are large regional disparities. About 63 percent o f the population suffers from food insecurity, and the country has the second highestchild malnutrition rate in Africa, a situation that could worsen due to rising food and fuelprices. Burundiis not likely to reach many o fthe MillenniumDevelopment Goals. iii. Economic Developments.Per capita income fell by almost 40 percent duringthe war. Since 2000, economic performance has improved, with real GDP averaging 2.7 percent from 2001 to 2006. Growth depends on the volatile agricultural sector, which accounts for about half o f GDP. Coffee production, which contributes less than 5 percent to GDP but which accounts for more than 70 percent o f export revenues, has been particularly volatile. The economy is dominated by public enterprises; Burundi's private sector is small and constrained by an unfavorable investment climate. Burundi joined the East Africa Community in July 2007. iv. Economic Prospects. Economic growth is expected to accelerate from 3.6 percent in 2007 to 4.5 percent in 2008 and to 5 percent from 2009 to 2011. The main driving force behind growth remains agriculture, especially food crops, which constitute 80 percent of agricultural GDP. Growth depends on strong agricultural reforms, better rural infrastructure, and improvement in farm productivity. Secondary sector growth depends on increased mining; petroleum sector reforms; and higher value-added from agro-processing, especially coffee. Trade, transport, and telecommunications are also expected to contribute to growth. v. Government Strategy. The 2006 Poverty Reduction Strategy Paper (PRSP), based on extensive public consultations, lays the foundation for national reconciliation, economic recovery, and an end to the cycle o f violence. It presents four strategic priorities: (i)improve governance and security; (ii)promote sustainable and equitable economic growth; (iii) develop human capital; and (iv) prevent and control HIV/AIDS. The PRSP also highlights the need to refocus the role o f the government and to give room to the private sector. The PRSP calls for addressing gender inequalities, enhancing regional integration, building a new partnership with donors, and strengthening institutional capacity at local and central levels; vi. Progress under the World Bank's Interim Strategy Note (ISN). Executive Directors discussed the ISN in May 2005, shortly before the elected government took office. The ISN, based on Burundi's Interim PRSP, focused on two objectives: (i)responding to immediate social demands by expanding access to basic social services and income- generating activities; and (ii)developing the foundation for sustainable growth and poverty 1 alleviation. Overall implementation o f the I S N has been satisfactory. The International Development Association (IDA) has delivered all operations envisioned in the ISN. Analytical and Advisory Activities (AAA), under the ISN, helped rebuild knowledge and underpinreforms. vii. CAS Objectivesand Results. The World Bank Group's Country Assistance Strategy (CAS), based on Burundi's PRSP, will help reinforcea medium-term vision of sustainable development, assisting Burundi's transition from a post-conflict economy to a developing economy. Itprovides a framework for World Bank Group support for four years, from fiscal year (FY) 2009 through FY 2012. The CAS focuses on two strategic objectives: (i)promotesustainableandbroad-basedeconomicgrowth; and(ii)improveaccesstosocial services and consolidate social stability. Governance is a cross-cutting CAS objective. Core principles for engagement are: selectivity, international partnership, focus on results, governance, regional integration, and sensitivity to political economy dynamics. viii. Proposed CAS Program. AAA: Bank AAA will include: the HIPC Completion Point document, petroleum sector study, financial sector assessment program (jointly with the International Monetary Fund), country economic memorandum, public expenditure review updates, a poverty assessment, and analytical work and technical assistance to support EAC accession. AAA will emphasize government ownership and donor partnership to ensure that findings are translated into actions and results. IDA-Financed Operations: The World Bank will finance an estimated eight new projects-four investment operations and four development policy operations. The Bank will provide additional financing to scale up successful interventions. In addition, the Bank will finance two to three regional operations involving Burundi. Burundi's total IDA allocation is estimated at about $84 million per year, about 25 to 30 percent o f which i s expected to be provided as budget support. International Finance Corporation (IFC): The CAS presents the first fully articulated World Bank-IFC strategy for Burundi. The IFC i s increasing its involvement in Burundi, providing advisory services to government and businesses, and seeking investment opportunities. The World Bank Institute will also continue to be involved in Burundi in the areas o f governance and leadership. ix. Partnership. The government and development partners are taking steps to improve donor harmonization. The World Bank and the African Development Bank carried out joint stakeholder consultations in Burundito prepare their respective country strategies. The Bank and the International Fund for Agricultural Development are collaborating to ensure full complementarity o f respective work programs in agriculture. Under the CAS, the Bank will seek to improve aid effectiveness by building the capacity o f Burundi's aid coordination unit and by helping the government move toward sector-wide approaches and monitor progress towards the partnership commitments o f the Paris Declaration. x. Risks. There are high risks to working in Burundi. Despite considerable progress since 2000, the political and security situation remains fragile. The main risks include deterioration in the security situation, especially in the run up to the 2010 elections; political instability; weak governance and high fiduciary risks; limited institutional capacity; and exogenous risks, such as weather, international prices, and security in neighboring countries. To mitigate risks, the CAS addresses reintegrationo f ex-combatants, employment generation, agricultural development, regional integration, and more transparent and accountable public financial management. 11 COUNTRY ASSISTANCESTRATEGY FOR THE REPUBLIC OF BURUNDI I.INTRODUCTION 1. Burundibegan emerging from a brutal civil war about nine years ago, upon the signingofthe Arusha Peace Agreement in August 2000. Since then, the Bank has implemented three interim strategies to support post-conflict Burundi. 2. The first interim strategy was presented to Executive Directors in July 1999 to help stabilize the economy immediately before and after the Arusha Peace Agreement, which established a framework for national reconciliation and the transition to democracy. 3. In March 2002, Bank Executive Directors discussed a second Transitional Support Strategy, to support economic and political stabilization during Burundi's three-year political transition to electoral democracy. 4. A third Interim Strategy Note (ISN) was presented to Executive Directors in May 2005, a few months before Burundi's democratically-elected government took office. The ISN addressed social needs while beginning to lay the foundation for sustainable economic development. In September 2006, following an extensive consultation process, the Government o f Burundi approved its first full Poverty Reduction Strategy Paper (PRSP). 5. This Country Assistance Strategy, based on Burundi's PRSP, will help reinforce a medium-term vision of sustainable development, assisting Burundi's transition from a post- conflicteconomyto a developingeconomy. Itprovides a framework for World Bank Group support to Burundi for four years, from fiscal year (FY) 2009 to FY 2012. Core principles for engagement are: selectivity, international partnership, focus on results, governance, regional integration, and sensitivity to political economy dynamics. 11.COUNTRYCONTEXT A. Politicaland Social Context 6. Burundi has a history of conflict since independence in 1962. It has several classic risk factors for conflict: deep poverty, low economic growth, dependence on a single commodity export, and ethnic dominance.' The country is small and landlocked. It has one o f the highest population densities inAfrica, close to 300 people per square kilometer, and one o f the world's lowest per capita incomes-US$lO9 in2006. 7. The most recent full war began in 1993, when the Tutsi-dominated army assassinated the first democratically elected President, a Hutu. The ensuing violence caused over 300,000 deaths and displaced 1.2 million people-16 percent o f the population. In 1996, a military coup took place, leading the international community to impose an economic embargo. Hostilities continued until a peace accord was reached in Arusha, Tanzania, in August 2000. Seventeen political organizations signed the Arusha Agreement; but several rebel groups, including the CNDD-FDD, the largest rebel group at the time, and the FNL-PALIPEHUTU,did not participate inthe talks. 8. From 2000 to 2005, Burundi made a successful transition to a multi-party system of government. A Transitional Government, based on power sharing among the country's two main ' Where one ethnic group is numerically dominant, so that majority rule could lead to the marginalization o f other groups. ethnic groups, took office in January 2002 for a 36 month term. A Tutsi president and Hutu vice president led the Transitional Government for the first eighteen months, with a smooth handover to a Hutu president and Tutsi vice president for the second eighteen months. By the end of 2003, the Transitional Government had signed new peace and cease-fire agreements with all armed political parties and movements, including the CNDD-FDD, with the exception of the FNL-PALIPEHUTU faction. In December 2004 the government launched a demobilization program targeting the army and combatants from former rebel groups. In February 2005, the country approved by referendum a new constitution emphasizing power sharing and protection of minority and women's rights. Parliamentary elections in August 2005 went relatively smoothly. The CNDD-FDD, led by Pierre Nkurunziza, won over 58 percent of the vote. Parliament elected him the following month as the new president. 9. Since 2005, political progress has been mixed. The country has experienced several political power struggles, including alleged coups, imprisonment of political figures, and grenade attacks on the residences of political figures. In 2007, internal divisions within the ruling CNDD- FDD party triggered a political crisis that paralyzed the government and parliament. The main political parties eventually reached an agreement, and in November 2007 a broad coalition cabinet took office that included both major ethnic groups and key political parties in full compliance with the constitution. 10. Security has been mixed. In September 2006, the government and the FNL-PALIPEHUTU, the one remaining active rebel movement, signed a cease-fire agreement, but it was not implemented and sporadic fighting continued in areas near Bujumbura. Despite strong regional support since early 2008 to revive the peace process, renewed fighting broke out between the FNL and the government in April 2008, resulting in more than 100 deaths. In mid-May 2008, key FNL leaders returned to Bujumbura, the first significant move to implement the 2006 cease-fire agreement. On May 26,2008, the government and the FNL signed a joint statement ending hostilities, and resumed negotiations to implement the cease-fire. 11. Corruption is widespread and entrenched after decades of conflict, hindering political and economic development. According to a recent diagnostic study on governance and corruption, households, public officials, private enterprises, and non-governmental organizations (NGOs) perceive a high level of corruption involving police, customs, tax collection, the justice system, public procurement, and access to basic services. There have been two high-level corruption scandals under the current government: in January 2006, a minister was dismissed for his handling of the sale of the presidential plane, and in July 2007 another minister authorized irregular payments of US$17 million to a petroleum trading company (Interpetrol). The government has since taken action to close public financial management loopholes, but has not started judiciary processes against the perpetrators. Various surveys and seminars have identified impunity as a key governance weakness. 12. There is an opportunity to strengthen democracy, increase economic growth, reduce poverty, and exit the conflict trap, but the challenges are formidable. The risk of relapse to conflict is high-research has shown that about half of countries will fall back into conflict within ten years. In the short term, Burundi faces the challenge of maintaining stability before the 2010 elections. The political crises and difficult peace process underscore the fragility of the political and security situation. Institutional capacity is weak, hindered by cronyism and corruption. To consolidate peace and minimize the risk of future conflict, the country needs to diversify its economy and generate pro-poor economic growth; and it also needs to build more effective, accountable, and inclusive state institutions to improve governance, rule of law, and delivery of basic services. B. PovertyProfileand Progresstoward the MillenniumDevelopmentGoals 13. The recent war caused poverty to nearly double. The number o f poor below the poverty threshold increased from 35 percent in 1993 to 68 percent in 2002. According to a 2006 survey, an estimated 67 percent o f the population live below the poverty line and many live inextreme poverty.2 The Gini coefficient i s estimated at 0.38, reflecting that the main problem is widespread poverty rather than inequality. 14. Poverty is deeper and more pervasive in rural areas; and there is substantialregional disparity.Almost 97 percent o f Burundi's poor live inrural areas, which have a poverty incidence of 69 percent, compared to 34 percent inurban areas. The gap betweenthe poverty line and the average daily consumption per person in rural areas i s more than double the gap in urban areas. Urban Bujumbura has the lowest poverty incidence (29 percent), while in provinces it ranges from 57 percent inBururito 82 percent in Kirundo, which was considered the leading supplier o f food staples prior to the civil war. 15. An estimated 63 percentof the populationsuffers from food insecurity,with substantial regionalvariation. An estimated 80 percent of people receive only 56 percent of the country's total daily consumption. The share o f population with a very low caloric intake i s twice as high in rural compared to urban areas; and in the north, almost one-half the population has a very low caloric intake, while inthe south less than one-fifth has a low caloric intake. 16. Poverty is linked statistically to the education, occupation, and gender of the head of household. The heads o f the wealthiest 20 percent of households have proportionally more formal education (41 percent are primary school graduates, 15 percent are secondary school graduates, and 4 percent are college graduates) than the heads o f the poorest 20 percent o f households (26 percent are primary school graduates and 1 percent are secondary school graduates). The heads o f the poorest 20 percent o f households are more likely to be farmers. People living in female-headed households are poorer than those inmale-headed households. 17. Maternal mortality and child malnutrition rates are the second highest on the continent. Maternal mortality stands at 1,000 per 100,000 live births. One out o f six infants does not survive his first birthday, and one out o f five his fifth. Malaria, diarrhea, respiratory infections, and the compounding effects o f malnutrition are the main causes o f mortality and morbidity among children. About 44 percent o f children under five are malnourished. According to international studies, malnutrition reduces IQ lowers primary school completion rates. As inother countries in and the region, the likely key determinants of malnutrition are poor hygiene and feeding practices and certain diseases. In 2006, the government eliminated health service fees for children under five and for women during delivery. Since then, use o f these services had doubled, but shortages in equipment, drugs, and qualified staffcontinue to constrain service delivery. 18. HIV/AIDS is the second most common cause of mortality among adults. The adult prevalence rate was about 3.6% in 2007. Burundi's rate o f 12% HIV infections among pregnant women is high compared with neighboring countries (Rwanda 9.8%, Uganda 8.5%, and Tanzania 7.5%). 19. Only 52 percent of the population is literate. Poor households lag significantly behind more wealthy households. However, since the government introduced the "free primary school" 2Poverty data are based on the 2006 Questionnaire des Indicateurs de Base du Bien-Etre (QUIBB)survey. - 3 - policy in September 2005, primary education coverage has significantly improved from 80 percent in 2003-04 to about 110 percent in 2006-07. Completion rates, however, remain low-only 40 percent of children that started first grade finishedthe primary cycle in 2006. The secondary gross enrollment ratio o f 13 percent i s below the average for sub-Saharan Africa (25 percent). 20. Sabotage during the war and lack of investment damaged the country's water supply facilities. Urban water supply coverage dropped from over 70 percent in 1993 to an estimated 60 percent at present. In rural areas, only 40 percent o f the population have access to safe drinking water. Sanitation services in both urban and rural areas are limited; only 22 percent o f the population have access to functional facilities and 90 percent o f these are traditional pit latrines. 21. Burundi is not likely to reach many of the Millennium Development Goals (MDGs) by 2015. Nearly all social indicators have sharply deteriorated as a result o f the civil war, and are now among the worst in the world. Burundi ranks 167 out o f 177 countries in the 2007/2008 Human Development Index o f the United Nations Development Program (UNDP). Burundi's progress towards the MDGs is shown inBox 1, and further data is provided inAnnex 1. Box 1:Burundi's Prospectsfor Achievingthe MillenniumDevelopmentGoals by 2015 Goal 1:Eradicate extreme poverty and hunger. Unlikely. The poverty headcount increased from 36% in 1990 to 67% in 2006, far from the MDG target of 18 percent. In 2000 Burundi had the highest under-5 malnutrition rate in Africa at 57%. Recent data indicates that malnutrition has decreasedto 44%, althoughthis is still the second highestrate inAfrica (the MDG target is 23%). Goal 2: Achieve universal primary education. Possible. Burundicould potentially meet the target for universal primary enrollment. To this end, the government, with development partner support, has prepared a sector plan that will be submitted to the Education for All Fast Track Initiative for funding in2008. Free universal primary education, introduced in September 2005, has increased gross enrollment to nearly 110%.Completion rates remain low at 40% (2006/2007). Goal 3: Promotegender equality and empowerwomen, Possible.The target on gender equality in primary education will very likely be met with the ratio of girls to boys currently at 80 percent. The target on women's participation in parliament has been met. Women's lack of control over resources, including land, remains a key challenge. Goal 4: Reduce child mortality. Highly unlikely. Child and infant mortality rates remain high at 190/1,000 and 114/1,000 live births, respectively, but show improvementsfrom 2000 peakrates of291/1,000 and 156/1,000 live birth. Goal 5: Improve maternal health. Highly unlikely. Maternal mortality remains very high at 1,000/100,000 live births. Skilledhealth personnelattend only 31% of births, well below the MDG goal of 100%. Cost and lack of trained health specialists are the key constraintsto accessinghealth services. Goal 6: Combat HIV/AIDS, malaria and other diseases. Possible.Burundi could potentially meet the HIV/AIDS target. Overall HIV prevalence is 3.6% in 2007. However, tuberculosis, which is often linkedwith HIV/AIDS, has almost tripled from 125/100,000 in 1990to 334/100,000 in 2005. Goal 7: Ensureenvironmental sustainability. Unlikely. Only 50% of the population have access to improved water resources. Among these, 75% live in urban areas and only 45% inrural areas. - 4 - C. EconomicDevelopmentsand Prospects RecentEconomicDevelopments 22. The recent civil war devastated the economy; and a four-year economic embargo and several episodes of drought took a further toll. International assistance came to a near halt from a pre-crisis level o f about US$300 million per annum. Per capita income fell by almost 40 percent duringthe war, from US$180 in 1993 to US$110 in 2003. To reach by 2012 the GDP per capita it had in 1993, Burundi's GDP per capita would needto grow by about 8 percent a year. 23. Since 2000, economic performance has improved, but real GDP growth still averaged only 2.7 percent from 2001-2006. Real GDP growth reached 4.8 percent in 2004, falling to 0.9 percent in2005 due to a severe drought, and then bounced back to 5.1 percent in2006. The economic growth rate in 2007 i s estimated at 3.6 percent, reflecting a poor agricultural harvest, and growth i s projected to reach 4.5 percent in 2008. (See Table 1: Key Macroeconomic Indicators; Annex 1: Burundiat a Glance; andAnnex 2: Key Economic Indicators.) sector, which accounts for about half of GDP (see Figure 1). Agriculture accounts for 94 percent o f employment. no. Commercial agriculture, mainly coffee, a o . contributes less than 5 percent to GDP, 6 o 4 0 . but generates more than 70 percent of ii. export revenues. Agricultural production . x . 2001 i s dependent on climatic conditions and - ` O . affected by fragmented land ownership, 4 0 . .80. declining soil productivity, and .no- --Real GDP grodh -AgfKuNuralodput gmMh 25. The private sector is small and faces one of the most unfavorablebusiness environments in Africa. The formal private sector consists o f about 3,000 registered enterprises, mainly small and medium enterprises employing some 37,000 workers (2004). Firms surveyed in 2006 as part of a recent Investment Climate Assessment reported low performance due to poor infrastructure, especially electricity; lack o f access to financing; political and economic instability; and high taxation. 26. Developing financial intermediation is important for private sector development.There are seven banks, four o f which are state-owned, and two state-owned non-bank financial institutions. Most o f the banks have internal weaknesses and a highnumber o f non-performing loans. The Central Bank i s taking measures to strengthen the banking sector, including increasing the bank capital requirement (nearly all banks are now in compliance). 27. Burundi has a fledging mining industry. The country may have considerable mining deposits, including platinum, uranium, tin, cobalt, copper, iron-titan-vanadium, and an estimated 6 percent o f the world's nickel deposits. As a first step to developing the sector, the government i s establishing a legal and institutional framework to ensure wide distribution o f miningsector benefits. - 5 - 28. The economy is dominatedby publicenterprises. A 2007 study found that the government had shares in 48 entities40 enterprises and 8 financial institutions-of which 16 were fully publicly owned. A handful o f public enterprises dominate the exports o f the country: coffee, tea, beer, sugar and cigarettes. The 12 most important public and semi-public enterprises employed more than half o f the civil service (23,259 persons) and contributed 7.4 percent o f the state's fiscal revenues; but were heavily indebted (US$138 million, or 18 percent o f GDP in 2005). There is limited data on budget transfers to public enterprises and such transfers are not explicit inthe budget. The high level o f public enterprise indebtedness, part of which has been settled through treasury bonds, presents a potential risk to the government incase o f bankruptcy. 29. Inflation,as measured by the consumer price index,has averaged7.2 percentfrom 2001 to 2006, with large fluctuations. Average inflation topped 13.4 percent in 2005, dropped to 2.8 percent in 2006 due to tighter monetary policy, and rose to 8.3 percent in 2007, attributed to increases in food and petrol prices. GDP deflator inflation also shows a similar pattern (Table 1). In the first four months o f2008, domestic prices of fuel and basic staples rose on average by 23 percent, pushingthe overall inflation rate over the same periodto 11.7 percent. 30. The government's successful implementationof an economic reform program enabled Burundi to reach the Heavily Indebted Poor Country (HIPC) decision point in August 2005. Debt relief to Burundi under the enhanced HIPC Initiative will total about US$826 million in net present value (NPV) terms, equivalent to 91.5 percent o f the NPV o f Burundi'sdebt after traditional debt relief. Table 1:Burundi-Key MacroeconomicIndicators,2004-2011 _ _2004_ _ _ _ Actual _ _ _ _2006_ _ _ _ 2005 _ 2007 2008 2009 2010 2011 Est _ _ _ _ _ _ _ Projected- - - - - - - - - - _ _ _ Population(million) 7.3 7.5 7.6 7.8 8.1 8.3 8.6 8.8 Nominal GDP (inUS$ 0.7 0.8 0.9 1.o 1.1 1.4 1.5 1.6 billion) Real GDP GrowthRate ("h) 4.8 0.9 5.1 3.6 4.5 5.0 5.0 5.0 Per Capita GDP Growth 2.8 -1.1 3.1 0.6 1.5 1.9 1.9 1.9 Rate (%) Nominal GNI Per Capita 90 100 100 110 (Atlas Method) Consumer Price Inflation 8.0 13.4 2.8 8.3 19.1 9.4 8.2 6.8 (annual average) GDP Deflator Inflation 8.3 16.6 4.4 8.2 18.5 10.0 8.7 6.6 (annual average) Exports (fob, US$million) 47.9 57.2 58.6 50.2 70.6 80.6 92.6 103.4 o f which coffee 29.4 40.5 39.7 30 50.3 51.6 52.2 53.2 Imports (fob, US$million) 148.8 189.7 245.0 295.0 374.0 406.0 422.0 437.0 o f which petroleum 26.5 38.3 57.5 58.6 86.0 89.7 88.8 88.8 Source: World Bank andIMF staff estimates. - 6 - 31. The government has advanced regionalintegration,recognizing its importance for export diversification and economic growth. In2005, Burundibecame a member o f the Common Market for Eastern and Southern Africa (COMESA), a regional economic community supporting the development o f a free trade area and common market for Eastern and Southern African states. In June 2007, the National Assembly ratified the Pact on Security, Stability and Development in the Great Lakes Region, making Burundi the first signatory to ratify. Burundi joined the East Africa Community (EAC) on July 1, 2007, and will have to rapidly incorporate into the EAC Customs Union established in 2004. To do so, Burundi will need to eliminate remaining non-tariffbarriers to trade, support development o f transport infrastructure, and adapt to existing EAC policies and processes. As an EAC member, Burundi is now moving toward an Economic Partnership Agreement (EPA) with the European Union, with the signing inNovember 2007 o f a framework for negotiating a full EPA. Burundi i s in the process o f establishing a ministerial committee chaired by the Second Vice President to help develop and implementan EAC strategy. PublicFinanceStructure 32. Governmentexpenditureincreased from 27.2 percent of GDP in 2001 to 38.2 percent in 2006. This is considerably higher than many sub-Saharan African countries. Recurrent expenditure accounts for 60 percent o f total expenditure and has risen only slightly over the last six years. The wage bill has increased to nearly 10 percent o f GDP in 2006, reflectingthe hiringo f new teachers in 2005 and a 15 percent salary increase in 2006, the first since 2001. Capital expenditure has doubled from 6.4 percent o f GDP in2001 to 14.8 percent in2006 due to foreign grants. 33. Government revenue(excluding grants) as a share of GDP has been stable at around 20 percent in 2001-06. Grants now represent nearly half o f total government revenue, bringing total government revenue to 27.7 percent o f GDP in2006. 34. Fiscal performance was satisfactory in 2005-06, but mixed in 2007, due to slower than expected demobilization and unbudgeted payments totaling 1.6 percent o f GDP to the largest domestic petroleum distribution firm, Interpetrol. The government took mitigating measures, but the 2007 budget deficit (excluding grants) i s estimated at 20.1 percent o f GDP (compared to 19.3 percent in 2006). The overall deficit on a commitment basis averaged about 4.3 percent of GDP in 2001- 2006. The share o f the deficit funded by external partners increased from 27 percent in 2001 to 90 percent in 2006. Shortfalls in budget support in 2006, reflecting in part donors' governance concerns, were offset by spending cuts in non wage spending and increased domestic borrowing. 35. The government has increased public expenditure allocations to priority sectors over the past six years (see Table 2). As a result o f the availability o f HIPC funds starting in 2005 and increased donor support, the government has increased priority economic and social expenditures from 5.2 percent o f GDP in 2001 to 9.3 percent in 2006 and to an expected 12 percent in 2007, mainly reflecting an increase in education expenditures. Demobilization has reduced defense expenditures, but the increase in the police force has more than offset the savings. A reduction in security sector expenditures is needed to provide fiscal space for further increases in social sector expenditures. - 7 - Table 2: SectoralAllocationof Public Spending as Percentageof Nominal GDP, 2001-2006 2001 2002 2003 2004 2005 2006 2007"' General Public Services 4.3 4.4 4.8 5.0 4.7 6.6 7.6 Security Sector 6.6 7.0 6.6 6.3 7.1 8.0 8.4 Defense 6.2 6.6 6.2 5.8 5.0 5.1 5.1 Interior and Public Security 0.5 0.4 0.4 0.4 2.1 2.9 3.3 Priority sectors 5.2 5.2 5.6 5.9 6.3 9.3 12.0 Education 3.8 3.8 4.3 4.5 5.0 7.1 8.3 Health 0.7 0.7 0.6 0.7 0.6 1.1 1.7 Agriculture 0.3 0.3 0.3 0.3 0.3 0.3 0.6 Infrastructure 0.4 0.4 0.3 0.5 0.4 0.8 1.4 Other expenditure 0.4 0.4 0.4 0.5 0.4 0.5 0.6 Source: BurundiPEMFAR (Report No. 42160 BI) basedon data from MEFDC, IMF. *Data for 2007 are basedon the original budget; 2007 budget execution figures are not yet available. 36. The government has taken steps since 2005 to improve public financial management (PFM). The government introduced a double-entry accounting system, a new nomenclature that helps to identify pro-poor expenditures, and an interim computerized financial management information system. Following the Interpetrol incident, the government introduced further changes in the 2008 annual budget law; and in May 2008 it presented a new organic law to parliament, which has not yet taken action. The government i s also consolidating its cash management by closing off- budgetary accounts. A new procurement law was promulgated in February 2008 after considerable delay. Despite progress, there remain major weaknesses affecting PFM quality and transparency. 37. The government and the Bank recently completed a Public Expenditure Management and Financial Accountability Review (PEMFAR) to prioritize future reforms. It identifies four main challenges: (i)improving the allocative efficiency o f public expenditures by reducing security sector expenditures and increasingpublic expenditures to education, health, and infrastructure, in line with the PRSP; (ii) maintaining control o f the wage bill, includingby eliminating ghost workers; (iii) continuing to reform PFM procedures and practices to increase transparency and strengthen fiscal discipline, including by consolidating the budget, streamlining budget execution, reducing the use of exceptional procedures, and improving internal and external audit systems; and (iv) professionalizing the public service to improve performance, including by creating staff appraisal and grading systems and reducingthe number o f political appointees. External Trade 38. Large current account deficits reflectthe country's limited exports,consisting mainly of coffee and tea, and its dependence on imports of fuel and capital goods. During 2001-06, the share o f exports in GDP averaged 6.3 percent, with a low 4.9 percent in 2002 and a high 7.2 percent in 2004, reflecting swings in the coffee trade. The share of imports in GDP steadily increased from 16.4 percent in 2001 to 26.6 percent in 2006 and 30.3 percent in 2007. The current account deficit (including grants) rose from 8.1 percent o f GDP in 2004, to an estimated 16 percent in 2007, reflecting a sharp rise inthe services trade deficit. 39. Burundi is one of the hardest hit countries in Africa by recent food and fuel price increases (see Box 2). It is a net importer o f food and oil products, and its position as a landlocked country raises import costs. The food price increase in Burundimainly reflects higher petroleum and transport costs. Together, food and h e 1 imports represent an estimated 43 percent o f total imports. - 8 - Maize, sugar, and wheat are the largest food imports and crude oil is the primary fuel import, and together they account for about one quarter o f imports. Medium-Term Prospects 40. The medium-term economic framework assumes an acceleration of real GDP growth from 3.6 in 2007 to 4.5 percent in 2008 and to 5 percent until 2011. Growth is likely to fluctuate given the economy's susceptibility to weather conditions. The main driving force behind the real GDP growth rate remains the primary sector (of which food crops constitute about 80 percent), which contributes about 49 percent to GDP. There i s a slow shift to secondary and tertiary sectors. 41. Annual average inflation (measured by the GDP deflator) is projected to decline from a highof 18.5 percent in 2008 to 6.6 percent in 201l.3 assumes improved Central Bank liquidity This management, limited financing o f government activities by the Central Bank, and a modest medium- term decline in food and energy prices, although not to their initial levels. 42. The fiscal deficit is expected to average2.0 percentof GDP, includinggrants. Wages and salaries are projected to peak in2008 at 11.O percent o f GDP, mainly due to delays in demobilization and the need to hire teachers. Assuming continued demobilization and wage restraint, they will then progressively decline by 2011 to the previous level o f around 10 percent o f GDP. Total revenue as a percentage o f GDP i s expected to remain at about 19.0 percent. The fiscal deficit excluding grants, declines from 24 percent o f GDP in 2007 to 19.8 percent in 2011, while the deficit including grants increases slightly, reflecting a shift from external to domestic financing. Box 2: Food and FuelPriceIncreases:Impactand PolicyOptions Burundiis vulnerableto food andfuel price shocks because it is landlockedand a net importer of food. Agricultural land is overexploited and degraded, resulting in declining food production. According to a recent IMF study, Burundiis one offourteen hardest-hitcountries insub-SaharanAfrica bythe recent increases ininternationalprices. Impact: From December 2007 to April 2008, prices of basic staples rose on average by 23 percent, exacerbating malnutrition and poverty, including in coffee growing provinces in the north that have the highest poverty rate. There is also a significantmacroeconomicimpact: preliminary estimates suggest that additional financing of US$15 million (about 1.5 percentofGDP) is neededto offset budgetarycostsrelatedto food and fuelprice increases. Policy Responses: The government has reducedthe tariff on imported diesel, which is mainly consumed by the poor, and has increased the tariff on gasoline imports to preserve overall tax collection levels. In addition, development partners are working with the government to urgently address food insecurity and to increase the domestic agriculturalsupply response. Interventions include: increasingfood aid andbettertargeting food-aidprogramsto vulnerablegroups, scaling up programs that provide farm inputs to producers, such as seeds and fertilizer for the upcoming agriculturalseason; and enhancinglonger-termfood supply through reforms and investments, such as small-scale irrigation, to increase agriculturalproduction andproductivity. The government has requested an increase in IDA budget support. The Bank and the government are discussing possibleadditional financing under the new Global Food Crisis Response ProgramTrust Fund. The IMF increased the amount of the recent PRGF, as requestedby the government, in view of the external shock. Other donors are consideringsimilar assistance. 3GDP deflator inflationis used for the purpose of the RMSM-X modeling exercise of medium-termprospects.As shown inTable 1, bothmeasurementsof inflation(consumer priceandGDP deflator) show a similar pattern. - 9 - Box 3: Coffee-Past Source of Conflict,PotentialSource of Future Growth The coffee sector is central to Burundi's poverty reduction and conflict-prevention agenda. Coffee provides income to about 800,000 households, nearly half the rural population, and it accounts for about 70 percent of export revenues. During the war, production fell sharply, from over 45,000 tons in 1994to 18,000 tons in2001. Production is volatile due to the old age of coffee trees, which cannot carry two consecutive years of high production. Production i s also decliningdue to an institutional structure that provides disincentives to farmers, who receive the lowestprices inthe sub-region. A Factor in PastConflicts.The Belgian colonial authoritiesintroducedcoffee cultivation to provide cash incometo the rural population and generate foreign exchange earnings. Planting coffee trees was made compulsory in areas suitablefor coffee production. Post independence governments continuedthe policy of forced coffee cultivation, and established a monopoly for the processing and export of coffee, paying producers a small fraction of the international price. The country's small urban elite benefited from this price difference. In the 198Os, the government promoted a massive coffee tree planting program, with the objective of increasing production from 30,000 tons to 50,000 tons by the early 1990s. It also invested in about 140 washing stations with World Bank support. The area under coffee more than doubled, but for lack of adequate incentives, the yields declined dramatically. Good Potential for Growth. Burundi produceshighly prized "mild Arabicas" and has the potential to enter high value specialtymarkets. Inthe central highlands, climatic and agronomic conditions are ideal for high quality coffee cultivation. In neighboring Rwanda, close to 1,000 tons of fully washed coffee was sold in2006 at a price close to US$2/lb, comparedto an averageprice for Burundian coffee of about US$.86/lb. Status of Reforms.The Government of Burundi has repeatedly signaled its commitment to coffee sector reform to improve production, yields, and farmer incomes. In 2005 and 2006, the government took steps to liberalize the sector and created a Coffee Reform Steering Committee. However, strong vested interests have slowed sector reforms. The reform agenda experienced a setback in 2007 when the government arranged to market all fully washed coffee through a monopoly broker based inNew York. In2008, the Governmenttook correctiveactions and prepared new regulations to clearly define the rules for all players in the coffee sector. The government is commissioning, with World Bank support, a study to evaluate options for sector restructuring. The study will use a participatory process and engage all stakeholders; and is expectedto leadto the adoption of a reform planby the end ofthe year. 43, The current account deficit, excluding official transfers, narrows from 2008 onwards, but remains substantial, decreasing from 36.3 percent o f GDP in 2006 to 31.9 percent in 2008 and further to 30.3 percent in 2011. Exports, especially coffee and minerals, should increase and reconstruction-related imports should slow. 44. These projections depend on sustained macroeconomic, public finance, and sector policy reforms. Primary sector growth depends on reforms and investments to increase food crop productivity. Secondary sector growth depends on increased mining; petroleum sector reforms; and higher value-added from agro-processing, including a more efficient coffee sector leading to higher coffee output and quality (see Box 3). Service sector growth will accompany primary and secondary sector growth, and will also depend on increased dynamism o f the financial sector and on investment in telecommunications following the expected privatization of the state telecommunications company. Small and medium enterprises are expected to play an important role in future growth. Strong public expenditure in priority economic and social sectors will further stimulate growth. Medium-term growth prospects also depend on increased political stability; improved security; successful integration into the EAC; and continued technical and financial support from the donor community. - 10- Debt Sustainability 45. Since reaching the HIPC decision point in 2005, Burundi has benefited from Interim HIPC debt relief. The country has made good progress toward most of the nine completion point triggers (see Annex 4). Barring unforeseen governance or reform setbacks, Burundicould reach the completion point by early 2009. After reaching the completion point, Burundi will be eligible for a relatively small amount o f additional debt relief under the Multilateral Debt ReliefInitiative (MDRI). 46. Even after full debt relief, Burundiwill remain at high risk of debt distress, mainly due to the country's low export base. A Bank-Fund Debt Sustainability Analysis (FY08) reveals that even after delivery o f full enhanced HIPC and MDRI assistance, the net present value o f debt-to- exports ratio remains above 100 percent, placing Burundi inthe "high risk o f debt distress" category. Less concessional borrowing or lower GDP or export growth would substantially increase the risk of debt distress. This analysis suggests that the government concentrate on: (i) implementing reforms to increase and diversify exports and to promote growth; (ii)maintaining prudent fiscal and monetary policies; (iii)ensuring prudent debt management, including obtaining external grant financing as much as possible and avoiding non-concessional debts; and (iv) strengthening debt management policies and institutions. -11 - 111. GOVERNMENTPROGRAM A. Burundi's PovertyReductionStrategy 47. The Government of Burundi approved its first PRSP in September 2006.4 This was an impressive achievement during the post-conflict period. The PRSP aims to lay the foundation for national reconciliation and economic recovery and end the cycle o f violence. PRSP preparation lastedtwo years and included an extensive participatory process, unprecedentedin Burundi's history. Consultations took place in all seventeen provinces (146 communes), involving 840 people from more than 145 civil society organizations, and fourteen sector and thematic groups. Burundi's Council o f Ministers adopted the PRSP and Parliament approved the PRSP prior to its review by the Boards o f the IMF and World Bank. The PRSP built upon an InterimPRSP completed inNovember 2003. 48. Four strategic prioritiesemerged from the consultation process:(i)improve governance and security; (ii)promote sustainable and equitable economic growth; (iii)develop human capital; and (iv) prevent and control HIV/AIDS. In addition to these four axes, the PRSP highlightsthe need to: refocus the role o f government to give room to the private sector and community-based organizations; build institutional capacity at both central and local levels; address gender inequalities; and build a new partnership with donors. With World Bank support, the government i s elaborating a PRSP results and policy matrix to better monitor PRSP implementation. Axis 1:ImproveSecurityand Governance 49. The PRSP recognizes security as a precondition for economic growth and poverty reduction. Its security objective is to restore free movement of persons and goods throughout the country. To do so, the government intends to implement a comprehensive and permanent ceasefire with the remaining rebel group; continue to demobilize, reintegrate ex-combatants, and maintain the size o f the military and police forces at levels that are sufficient for security and that are fiscally sustainable; implement security sector reform to professionalize the security forces; and prevent the proliferation o f small arms. To sustain peace, the PRSP also highlightsthe need to strengthenthe rule o f law and the judicial system, and to establish mechanisms for settling and preventing land disputes (see Box 4). 50. The PRSP underscores the importance of good governance following decades of malfeasance that contributed to conflict. The government aims to strengthen the culture of democracy, including by promoting decentralization and greater citizen participation. It will strengthen public administration through a civil service reform policy. It will also strengthen transparency and accountability o f public resource management. In August 2006, Burundi established a Special Anti-Corruption Brigade and ratified an anti-corruption law. Axis 2: Achieving Equitableand Sustainable Growth 51. The PRSP's growth strategy focuses on the rural sector. Given the importance of agriculture inthe economy, sustained growth inthe rural sector would reduce income disparities and poverty. Thus, the PRSP emphasizes the need to improve agricultural productivity, although it is not specific about the specific measures to raise efficiency and output. 4 Republic of Burundi, Joint IDA-IMF Staff Advisory Note on the Poverty Reduction Paper, February 2, 2007 (ReportNo. 38478-BI). -12- Box 4: The LandProblem Burundi's population has increasedfourfold over the past fifty years. Together with Rwanda and Comoros, Burundi has the highestpopulation density inAfrica: over 300 inhabitantsper square kilometer. Demographicpressureshave caused land scarcity and fragmentation and environmental degradation, creating a cycle of poverty and contributing to Burundi's cycle of violence. According to the Ministry of Public Security, 60 percentof crimes are linked to land issues. Returning refugees, most of whose land is now occupied, further exacerbate the land problem. About 300,000 refugeeshavereturnedsince 2003; and another 45,000 are expectedto return inthe near future. To address the land problem, Burundineeds to (i) the immediate problem of restoring land to returnees or resolve offering alternative compensation; and (ii)seek a lasting solution through a land reform policy that addresses security oftenure, which i s critical for sustainable agriculture. As a f r s t step towards land reform, the government needs to promote dialogue betweenall parties to define a policy on land issues. A census of agricultural lands, which is underwaywith Bank support, will help establishthe basis for redistribution and titling mechanisms. The government needs to revise the 1987 Land Code and harmonize it with traditional practices. 52. The PRSP calls for making the private sector the engine of growth, through economic liberalization and government divestiture from the productive sector. Reform o f the legal and regulatory framework is a precondition for attracting direct foreign investment. 53. I t recognizes weak infrastructure-mainly transport and energy-as constraints to growth, and emphasizes the need for regional integration. Improving transport infrastructure is important to facilitate access to markets and unlock Burundi's economic potential. The challenge is to define an action plan that identifies priority road projects based on economic return and poverty reduction impact. The PRSP also proposes to integrate Burundi into a regional railway network and expand and make the Bujumbura port a transit center. To address Burundi's severe shortfall in electricity, the PRSP calls for the rehabilitation of existing power plants, construction o f new plants, and the development o f a rural electrification program that includes expansion o f the grid and dissemination o f information on alternative energy sources. Axis 3 and 4: DevelopingHuman Capital and FightingHIV/AIDS 54. To develop human capital, the PRSP calls for expanding quality social services in local communities.The PRSP aims to expand access to education and improve its quality. In health, the PRSP aims to reduce child and maternal mortality rates through improved access to basic health services, recognizing that cost i s the key barrier to access. The challenge is to find efficient and sustainable methods to subsidize life-saving services while also training and redeploying staff. The government demonstrated its commitment to increase expenditures on social services by introducing a "free primary school" policy in September 2005, and by eliminating certain health care fees in 2006. 55. The PRSP highlights the government's determinationto stem the spread of HIVIAIDS and reduce its impact on individuals, families, and communities. Under the PRSP, the government will take actions to prevent HIV transmission and increase treatment to people living with HIV, with an emphasis on continued decentralization and creation o f new treatment sites and targeting highrisks groups. B. Development Partner Support 56. Burundi depends on aid and will continue to need high levels of donor assistance. Official Development Assistance accounted for 54.6 percent of gross national income in 2004. During 2006 and 2007, budget support from donors accounted for 30 percent and 20 percent respectively o f the total government budget. 57. Donors have shifted their aid from humanitarian to development assistance. In 2008, recognizing that Burundi no longer faced an acute humanitarian crisis, the UN discontinued the Consolidated Appeal Process (CAP), which has provided a framework for humanitarian aid since 2000. The UN Office for the Coordination o f Humanitarian Affairs in Burundi, which prepares the CAP is considering to close its Burundi office. Donors, such have Switzerland, have shifted their assistance to bilateral development programs. 58. The number of donors has increasedas the peace process has progressed. Untilrecently, few donors were active in Burundi, mainly Belgium, the European Union (EU), Germany, the Netherlands, United Kingdom (UK), United States (US), and the World Bank. The EUand the Bank accounted for almost half the total development outlays. Duringthe first donor Round Table meeting held in Bujumbura in May 2007, participation included sixty representatives from the international community that pledged US$656 million, including US$175 million in budget support, to support the PRSP financing gap. 59. Burundi is one of the first beneficiariesof the UN Peace Building Commission (PBC). The PBC was established in 2005 to help prevent a relapse to conflict by coordinating and monitoring peace-building efforts. The Peace BuildingFundhas allocated US$35 millionto Burundi to finance peace building activities, including strengthening capacities for coexistence and conflict resolution and implementing activities that address threats to the peace process. - 14- Iv.IMPLEMENTATIONOF THE INTERIMSTRATEGY AND LESSONSLEARNED 60. The World Bank formulated the ISN as Burundi completedits successful transitionto a multi-party government. Executive Directors discussed the ISN in May 2005. Parliamentary elections took place a few months later, in August 2005, and a new government took office in September 2005. 61. In this context, the I S N addressed immediate social needs while laying the foundation for sustainable economic growth. It focused on two main objectives: (i)expanding access to basic social services and income-generating activities; and (ii)developing the foundation for sustainable growth and poverty alleviation. The I S N also aimed to help Burundi reach the HIPC decision point and move towards the completion point, and prepare a participatory and inclusive PRSP. The I S N was aligned with Burundi's Interim PRSP and reflected consultations with stakeholders. To accomplish these objectives, the I S N envisioned financial assistance o f about US$I70 million (grants under IDA14), analytical and advisory activities (AAA), and increasingIFC reengagement. 62. Overall implementationof the ISN is satisfactory: Burundi has progressed towards the ISN objectives (see Annex 5). Notably, Burundi reached the HIPC decision point in August 2005; and in September 2006, the government approved a participatory PRSP, which was a key I S N outcome. IDA and Analytical and Advisory Activities 63. The Bank has delivered all operations envisioned in the ISN. From June 2005 to December 2007, the Bank approved five IDA grants amounting to about US$170 million, including an unforeseen regional communications infrastructure project. The Bank's financing included US$60 million in budget support. From January to June 2008, the Bank approved three additional grants amounting to US$SO million. Total IDA financing from June 2005 to June 2008 amounted to US$250 million. 64. The Bank's analytical and advisory activities informed the PRSP and underpinned investmentoperations and sector strategies.AAA included: a study on rural sources o f growth; a debt sustainability analysis (with the IMF); a country status report on education; a health financing study; a qualitative study on youth; a public expenditure management and financial accountability review (the first since 1992); an investment climate assessment (the first inBurundi); and an analysis o f non-tarifftrade barriers inpreparation for implementation o f the EAC Customs Union. Inaddition, the World Bank Institute (WBI), with the support o f trust funds, has provided technical assistanceto strengthen leadership and governance. 65. Burundi has benefitted from generous trust fund financing. In addition to the Multi- Donor Reintegration Program Trust Fund, which provided substantial funding for the Demobilization and Reintegration Program, Burundi has benefitted from the Low Income Countries under Stress (LICUS) trust fund and various Belgian trust funds that supported governance diagnosis, leadership training, and poverty monitoring. Japan PHRD grants have helped the government prepare projects. A small grant from the Global Alliance for Vaccines and Immunizations (GAVI) trust fund is helping to prepare a health project. There i s an ongoing Institutional Development Fund (IDF) grant to improve the institutional environment for mining. 66. Project portfolio performance has been satisfactory but needs close monitoring.There are currently ten active IDA-financed projects, including three regional projects, and there is one GEF-financed project. Inaddition, two recently approved projects are not yet effective. The average - 15- age of projects is 3 years, with two projects that are one-year old and two projects due to close by the end of 2008. All projects are currently rated satisfactory or moderately satisfactory, with the exception o f the Demobilization, Reinsertion, and Reintegration Project and the Road Sector Development Project, which are each rated moderately unsatisfactory. Annex 6 provides selected indicators o fthe Bank portfolio; and Annex 7 provides a summary o f the Operations Portfolio. 67. The Bank and the government carried out a Country Portfolio Performance Review (CPPR) in May 2008 to identify portfolio issues and recommend appropriate actions to improve portfolio performance. A joint Bank-government action plan to implement key CPPR recommendations i s presented inAnnex 8. The InternationalFinanceCorporation 68. IFC support to Burundi has gradually increased over the past few years, mainly involving technical assistance to develop SMEs and improve the investment climate. IFC is building the capacity o f the Association o f Burundi Women Entrepreneurs, including assisting 105 members to prepare business plans. It is now developing a capacity building program for the Chamber o f Commerce. IFC has also supported the financial sector: it invited two Burundi banks, Banque de Credit de Bujumbura (BCB) and Interbank, to participate inthe IFC Global Trade Finance Program. IFC and BCB signed a US$2.0 million Trade Finance Guarantee Insurance Agreement (TFGIA) in November 2007, and IFC and Interbank signed a US$2.0 million TFGIA in June 2008. IFC i s also exploring the possibility o f involving the Burundian banks in the Africa MSME Finance Program. At the government's request, IFC's investment climate team has provided assistance to help Burundi improve its Doing Business indicators and to undertake private sector reforms supported by the two-tranche IDA-financed Economic Reform Support Grant (2006). In 2007, IFC provided advice on the privatization o f the state-owned telecommunications company, although the government has not yet taken action. There are no IFC investments in Burundi at this time (see Annex. Multilateral Investment Guarantee Agency 69. MIGA has issued one guarantee in Burundi in the telecommunications sector. MIGA coverage o f US$1 million was provided to Mauritius Telecom Ltd. for a project to develop, operate, and maintain a nationwide mobile telephone network using the GSM 900 standard. Burundi has a teledensity o f less than 1percent, among the lowest inthe world. LessonsLearned 70. Development policy operations have helped initiate key reforms and jumpstart the economy; but they must be sensitive to the fragile political environment and weak institutional capacity. A post-conflict government with weak capacity and operating in a fragile environment cannot be expected to carry out a broad and complex economic reform program. Economic reforms supported by development policy operations should be focused and realistic; and the speed o f reforms needs to take into consideration the conflicting interests o f stakeholders. Operations should also be sensitive to the need for internal consensus. 71. Public works have been effective in creating employment and consolidatingpeace; but they require close supervision. The Public Works and Employment Creation Project (US$40 million IDA credit in 2001 and additional grant o f US$30.6 million in 2006), was one o f the most successful Bank-financed operations in Burundi in recent years, financing highly labor-intensive works that employed thousands o f poor, built social capital in communities, and promoted Burundian - 16- construction companies and suppliers. However, it was important to supervise contracts closely and immediately address any governance issues to ensure the project's credibility. Employment generating operations will continue to be important, especially for demobilized combatants and for youth (age 15-30) who represent 30 percent o f the population. 72. I t is important to remain flexible and responsive to changing circumstances. In late 2005, the President o f Burundi initiated a policy o f free basic education, leading to a surge indemand for school infrastructure and materials. The Bank adjusted its investment program and accelerated the preparation o f an education project that became effective inFY07.This decision helped pave the way for a multi-donor approach in the education sector, including the formulation o f a basket fund mechanism. 73. A February 2008 client survey suggests that the Bank should work more closely with civil society and be more forceful in promotingtransparency and good governance. Key survey results, and comparisons to 2005 survey results, are summarized inBox 5. 74. IndependentEvaluations Group (IEG) project ratings have differed only slightly from Implementation Completion Report ratings, and have resulted in several important recommendations.The IEG has evaluated three projects implemented during the I S N period-the Second Health and Population Project; the Second Social Action Project, and the Economic Reconstruction Credit-and gave each an outcome rating o f moderately satisfactory. These projects were executed in a difficult environment marked by a political transition; and all three projects encountered implementation difficulties. IEG recommendations include: (i)ensure coherent results frameworks and restructure as needed during project implementation, especially in an uncertain environment; (ii)simplify project design in a conflict situation, in order to deliver urgently needed support quickly; and (iii)focus conditionality on results rather than on the preparation o f action plans, strategies, and draft legislation. IEG lowered the outcome rating o f the Economic Reconstruction Credit to "moderately satisfactory" because institutional reforms were limited. Box 5: Client Survey InFebruary2008, the World Bank contracteda client survey. It followed up a first client survey carried out in2005 during the preparationofthe InterimStrategy Note. Methodology. Interviewers contacted 1,200 individuals in five (of 17) provinces selected to represent the country: the city of Bujumbura, Bujumbura rural, Bururi, Gitega, and Ngozi. 1,196 peoplerespondedto the interview. Survey results: 68% think Bank-fbndedactivities help families; and 77% think they help the nation. Results in2005 were 43% and 57%, respectively. 0 54% of respondentsthink Bank-supported activities should embolden good governance and transparency, up from 45% in2005. Respondents identified three areas as most important for Bank support: (i) agriculture and rural development; (ii) poverty reduction activities, such as employment; and (iii) health. 70% of respondents believe the Bank should work more closely with direct beneficiaries and civil society. Results were aboutthe same in2005. 53% of respondentsattachedhigh importanceto demobilization, disarmament, and reintegration, up from 43% in2005. 5 1%ofrespondents are optimistic about Burundi's future, down from 56% in2005 - 17- V. THEWORLDBANKGROUP ASSISTANCESTRATEGY 75. The CAS aims to support Burundi's transition from a post-conflict economy to a developing economy by selectively assisting the government to implement the PRSP. The CAS provides a framework for World Bank support to Burundi over four years, from FY 2009 to 2012. 76. To do so, the CAS will focus on two strategic objectives and one cross-cutting objective. Strategic objective one is to promote sustainable and broad-based economic growth. It supports the second axis of the PRSP. It focuses on three outcomes: (i)increased productivity o f food crops and high-value exports; (ii)improved business environment; and (iii)improved infrastructural services with enhanced regional integration. Strategic objective two is to improve access to social services and consolidate social stability. It supports the first, third, and fourth axes o f the PRSP. It focuses on three outcomes: (i)improved reintegration o f ex-combatants and vulnerable groups; (ii)more efficient and transparent public financial management; and (ii)improved access to and quality o f basic social services and decreasedvulnerability to HIV/AIDS. Governance is a cross-cutting objective. The CAS will strengthen and expand Bank support to improve governance. It will help the government implement the matrix o f governance actions under the first axis o f the PRSP and to update the matrix based on the PEMFARand recent diagnostic study on governance and corruption. Itwill: (i)minimize fiduciary and governance risks in Bank-funded operations; (ii)improve governance in sectors where the Bank i s involved; (iii)strengthen Burundi's core governance institutions and public financial management; and (iv) increase the demand for good governance. Strengthening governance in Burundi i s a long-term endeavor that will extendbeyondthe CAS period. A. The Framework for World BankEngagement in Burundi 77. Align with national priorities. The CAS supports the implementation o f Burundi's PRSP. The World Bank and the African Development Bank discussed respective CAS priorities duringjoint CAS consultations in March 2008 with the government, parliament, development partners, private sector, and civil society (see Box 6). The CAS will also build on the core principles o f the Africa Action Plan. 78. Strengthen World Bank Group coordination. Recognizing the importance o f maximizing World Bank Group impact on private sector growth and capacity building, this CAS presents the first fully articulated World Bank-IFC strategy for Burundi.The WBI will continue to be involved inthe areas o f governance and leadership. 79. Improve donor harmonization and aid effectiveness and reduce transaction costs for the government. Conditions in Burundi are right for major improvements in donor harmonization; and the government and development partners are taking action (see para. 121-125). Under the CAS, the Bank will support improved aid effectiveness by buildingthe capacity o f Burundi's aid coordination unit and helping the government move toward sector-wide approaches and monitor progress towards the partnership commitments o f the Paris Declaration. 80. Maintain selectivity and focus on results. The CAS is selective in its focus: it supports two strategic objectives and six outcomes. It i s also selective by complementing the financing o f other - 18- donors (see Annex 10 for an overview of donor assistance to Burundi). For example, the Bank will support urban water supply investments, while other partners support rural water supply investments. The Bank will encourage sector-wide approaches to maximize complementarity. 81. Enhance regional integration. As a small, landlocked country with limited natural resources, Burundi's development is linked to that of its neighbors, and the government is thus keen to enhance regional integration. Its membership to the EAC since July 2007 provides a framework for promoting efficient transport services, increased agricultural exports, increased energy supply, and a stronger private sector. Burundi will also need to collaborate with its neighbors to address water resource management and migratory diseases such as HIVIAIDS and tuberculosis. Given Burundi's need to incorporate quickly into the EAC Customs Union, the Bank will help the EAC reduce barriers to trade, including non-tariff barriers, and to undertake informational activities, targeting customs officials in Burundi to inform them on EAC protocol. Box 6: CAS Consultations The World Bank and the African Development Bank carried out joint consultations with stakeholders in Bujumbura in March 2008. Stakeholders emphasized the following challenges: security; reintegration of demobilized soldiers; governance/corruption; quality of leadership; and unemployment. 'The private sector emphasized the difficult business environment, and discussed the need to strengthen the agricultural sector and diversify exports; develop the mining sector; reform and strengthen the financial sector; support micro, small, and medium enterprises; improve governance through more transparent procurement; and institutionalize dialogue between the government and private sector, which is currently nearly nonexistent. Civil society representatives noted the need to address corruption and improve governance and human rights; ensure that international assistance (including budget support) benefits provinces equitably; and educate the public about procurement procedures. Participants also recommended that donors involve civil society in the design of development projects, and urged the Bank to meet frequently with civil society to share information on project preparation and implementation. Governance-related institutions (State Inspector General, Court of Accounts, Anti-Corruption Court, and Anti- corruption Brigade) emphasized the need for capacity building and better public information. The four former presidents and the three main political parties emphasized security, good governance, and a well functioning judiciary as prerequisites for private investment needed for economic growth and poverty reduction. They recommended more funding for basic infrastructure, especially roads to facilitate domestic and external trade. They urged special attention to reinsertion and reintegration of demobilized soldiers. Government officials and members of parliament emphasized: the need to fight corruption and impunity; modernize the civil service and build its capacity; strengthen agriculture; increase employment; support vulnerable groups, and help Burundi integrate to the EAC. Cabinet members provided overviews of their portfolios. Members of parliament discussed the need to address high population growth, promote women's rights including access to land, and improve social services. International partners discussed the increased risks in delivering external assistance in the run up to the 2010 presidential elections; and they noted the need for international assistance to build electoral capacity and help civil society monitor the electoral process. Donors noted the importance of: continued budget support, assisting regional integration, and strengthening agriculture, including the need to diversify and access niche markets and to cany out the agricultural census. Donors emphasized the need for closer donor coordination, including more joint missions, joint analytical work, and more sector-wide approaches. As further input to CAS preparation, the World Bank engaged a local political scientist and an international political scientist to identify political economy issues relevant to CAS outcomes. Their political economy analysis informs the CAS, particularly the description of development challenges, the design of the Bank's work program, and the identification and mitigation of risks. The Bank also organized a security and governance workshop in Bujumbura to seek input from civil society, academia, and government representatives on sources of conflict and links between conflict and governance. 82. Address capacity at all levels. The Bank will work with development partners to ensure coordinated and comprehensive support for Burundi's capacity development. A Bank mission in FY09 will carry out a capacity buildingneeds assessment. 83. Mainstream gender within all six CAS outcomes. The Bank will address gender issues throughout its work program to increase growth and reduce poverty. This includes: agricultural development that provides opportunities to women; encouraging women's entrepreneurship; improving infrastructure (such as water supply) to reduce the burden on women; gender-sensitive reintegration support for female ex-combatants; gender-sensitive budgeting; and increasing access of girls andwomen to social services. IDA Resources 84. IDA resources under the CAS are estimated at US%309equivalent. As a post-conflict country, Burundi i s currently receiving a special IDA allocation based on its Post-Conflict Performance Indicator (PCPI). In FY08, Burundi received a total special IDA allocation of special drawing rights (SDR) 53.1 million. During IDA15 (FY09-FY11) it is estimated that Burundi will receive a total post-conflict IDA allocation o f about SDR157 million (about US$253 million), with an average annual allocation o f about SDR 52 million (US$84 million). However, since Burundi is currently in the phase-out period o f the post-conflict allocation, the annual amounts would be higher in the early years and lower in the later years. In FY12, Burundi will receive the last year of its special post-conflict allocation, estimated at around SDR 35 million (US$56.3 million), before it will graduate to the normal Performance-Based Allocation (PBA) amount, which depends on annual Country Policy and Institutional Assessment (CPIA) scores and IDA project portfolio quality. The amounts for outer years are indicative only. The actual annual allocations duringthe CAS period will depend on: (i)total IDA resources available and the number o f post-conflict and IDA-eligible countries; (ii)Burundi's own performance, as measured by its PCPI; and (iii)Burundi's performance relative to other IDA-eligible and post-conflict countries. The US dollar equivalent o f any year's SDR allocation depends on the prevailingexchange rate. 85. To increase IDA availability, the government needs to improve its performance, as measured by PCPI and CPIA scores, and the performance of IDA-financed projects. Without such an improvement, Burundi's IDA allocation will drop once the post-conflict IDA allocation phases out completely in FY12. The CPIA assesses quality o f policies and institutions in three categories: economic management, policies for social inclusion and equity, and public sector management and institutions. The Bank will help the government improve PCPI and CPIA scores through AAA, including the recent PEMFAR and technical assistance to strengthen governance, and through selected operations, such as the proposed development policy operations and the proposed Public Enterprise and Financial Sector Reform Project. The Bank will also carry out annual CPPRs jointly with the government to identify project bottlenecks and improve project portfolio quality. 86. Regionalprojectswill allow Burundi to leverageits country IDA allocation. Under IDA rules, regional projects are funded one-third by the country's IDA allocation, and two-thirds by an IDA regional integration allocation. In addition, for a small country like Burundi, the percentage contributed to regional projects i s capped at 20 percent o f the country annual IDA allocation. -20- B. CAS Outcomes andthe ProposedProgramof Support 87. The CAS will focus on six outcomes. The relationship between CAS strategic objectives and outcomes i s shown in Figure 2. CASInstruments 88. Analytical and advisory activities. (See Table 3 and Annex 11). The Bank will undertake, in partnership with the government and donors, core AAA diagnostics; AAA related to CAS objectives; and just-in-time policy notes as needed. In undertaking AAA, the Bank will emphasize government ownership and donor partnership to ensure that findings are internalized and translated into actions and results. 89. IDA-financedoperations.(See Table 4 and Annex 12). Under the four-year CAS, the World Bank will finance about eight projects-four investment operations and four development policy operations (see para. 90). The Bank will provide additional financing to scale up successful interventions. In addition, the Bank will finance two to three regional investment operations that involve Burundi. Figure2: CAS StrategicObjectivesand Outcomes CAS Strategic Objective 1: CAS Strategic Objective 2. ImproveAccess to Promote Sustainable Social Services and and Broad-BasedGrowth ConsolidateSocialStability CAS Outwme 1.1: Increasedproductivityof Improved reintegrationof food crops and excombatants and high-value export crops vulnerable groups CAS Outcome 1.2: CAS Outwme 2.2: More Improvedbusiness efficient and transparent environment Public Financial Management Improvedinfrastructural Improvedaccessto and services with enhanced quality of basicsocial regional integration services and decreased - 2 1- 90. Budget support. Development policy operations are expected to account for about 25-30 percent of annual IDA financing, supporting macroeconomic stability and PRSP implementation. The Second Economic Reform Support Grant (ERSG II), which will be presented to the Bank's Executive Directors together with this CAS, builds on the experience of the ERSG (FY06) and focuses on three areas: (i) PFM reforms to improve transparency and accountability of public spending; (ii) business and legal environmentreformsto foster private sector development; and (iii) coffee subsector reforms to increase exports and farmer incomes. The ERSG I1 i s the first in a programmatic series of two grants. Based on ERSG I1 and I11 experience, the Bank and the government will design a second series for FY11 and FY12. The Bankwill continueto work closely with other development partners involved in the "Partnership Framework" to improve the predictabilityofbudget support and lowertransactioncosts that tax Burundi's limitedcapacity. Table 3: ProposedAnalytical and Advisory Activities,FY09-FY12 PERUpdate/ Policy Note 2012 PERUpdate/ Policy Note Poverty Assessment Table 4: Proposed IDA Financing,FY09-FY12 Fiscal Year Amount* Proposed Operation (US$ million) Economic Reform Support Grant I1(US$30 million) 2009 110 Health (US$25 million) SecondPublic Works (US$45 million) Additional Financing: Demobilization and Reintegration (US10 million) Economic Reform Support Grant I11(US25 million) 2010 89 Agriculture (US$43 million) Public Enterpriseand Financial Sector TA (US16 million) Regional: Lake Victoria Environmental Management(US5 million) DevelopmentPolicy Operation(US$25 million) 2011 70 Additional Financing: Roads (US$20 million) Regional Transport (US15 million) 1 Regional Hydropower (US$lO million) 2012 40 IDevelopmentPolicy Operation(US25 million) Additional Financing: SecondPublic Works (US$15 million) Total 309 - 2 2 - Strategic ObjectiveOne: PromoteSustainableand Broad-Based Economic Growth 91. Expected results: To promote sustainable and broad-based economic growth, the World Bank Group will focus on three CAS outcomes: 1.1:Increased productivity o f food and high-value export crops; 1.2:Improved business environment; 1.3 Improved infrastructural services with enhanced regional integration. CAS Outcome 1.1:Increased productivity of food and high-value export crops 92. Analytical and advisory activities. The Bank has supported extensive studies on the rural sector over the past few years, culminating in: Breaking the Cycle-A Strategy for Conflict-Sensitive Rural Growth in Burundi (FY08). This study underpinsthe Bank's work on agriculture. A Country Economic Memorandum, planned for FY10, will deepen the analyses on the sources, opportunities, and constraints to growth and provide policy recommendations, and it will update the Bank's analytical work on agriculture. 93. IDA-financed operations. The ongoing Agriculture Rehabilitation and Sustainable Land Management Project (FY05) focuses on the domestic agricultural sector, seeking to increase crop and livestock production and productivity, diversify farm income, support farmers' organizations, and promote sustainable land use. The project i s well performing and disbursing ahead o f schedule; and the Bank approved additional financing o f US$15 million in FY08 to scale up activities and to react to the impact o f soaring food prices. A follow-up agriculture project is planned for FY10 to continue to increase domestic agricultural productivity and to promote high-value exports, especially coffee. The ongoing Economic Management Support Project (FY04) continues to finance technical assistance for agricultural reforms, especially to increase coffee production and farmer income. The ERSGI1(FY09, together with this CAS) and ERSGI11(FY10) support key coffee and tea subsector reforms. Transport projects (see paras. 104-105) will help reduce transport costs for marketing both domestic and export agricultural products. To mitigate climate-related risks, the Bank will explore support to Burundifrom the Global Facility for Disaster Reduction and Recovery. 94. International Finance Corporation. IFC, working with IDA and other partners, will explore how to assist the coffee industry, such as by facilitating farmer ownership o f washing stations, providing training and other support to coffee producer organizations, establishing market linkages, and facilitating financingthrough a risk-sharing facility to a local bank. 95. Regionaloperations.Burundi is expected to participate in phase two of the regional Lake Victoria Environmental Management Project (FYlo), which will address land degradation in the Kagara river catchment through community-driven investments that improve land management. Burundi is a member of the Association for Strengthening Agricultural Research in Eastern and Central Africa (ASARECA). The Bank and ASARECA are developing a regional operation to support shared agricultural research that would increase agricultural productivity. Burundi could participate inthe regional operation, likely inthe late CAS period or under the next CAS. 96. Development Partners. Given the importance o f agriculture to Burundi's economy, there are many sources o f support, including AfDB, Belgium, EU, IFAD, and UN agencies such as the Food and Agriculture Organization, and USAID. During CAS consultations, development partners voiced interest in moving toward a sector-wide approach in agriculture (see Box 6). In addition, development partners intend to establish a "coffee working group" to better support government efforts to reform and strengthenthe coffee sector. - 23 - CASOutcome1.2:Improved businessenvironment 97. Analytical and advisoryactivities.The Bank and the government completed an Investment Climate Assessment in late FY08 and will follow up with an action plan for improving the business climate. The Bank also produced in FY08 a technical note on Public Enterprises and Commercial Banks. The CAS anticipates a joint Bank-Fund Financial Sector Assessment Program (FSAP) in FY09 to identify financial system strengths and weaknesses and to enable the government to develop and implement a strategy to increase the system's contribution to private sector development and economic growth. Under the CAS, the Bank will also provide analysis and technical assistance to support harmonization o f trade policies and frameworks at the regional level, including support for the COMESA Infrastructure Fund to facilitate the development of bankable regional infrastructure projects. 98. InternationalFinanceCorporation.IFC is increasing its involvement in Burundi, and will undertake a key role in supporting Outcome 1.2, through investments and through advisory services to government and businesses. There i s potential for IFC participation in various investments, including in agro-processing, real estate, and tourism. There is a potentially significant role for IFC in privatization, particularly in telecommunications and infrastructure. In the financial sector, IFC will continue to support Burundianbanksthrough the Global Trade Finance Program, a trade finance guaranty facility. Through PEP-Africa, IFC will continue to provide managerial and funding support to small and medium enterprises, including the Association o f Burundi Women Entrepreneurs. The IFC Investment Climate Team, working closely with IDA-financed consultants, will help the government undertake a range o f Doing Business reforms, including: finalize the investment code; draft and implement a public private dialogue law; improve the Commerce Code and Companies Law; and improve the performance o f the Commercial Court. 99. MIGA. Although involvement inBurundihas so far been limited, MIGA's strategy is to give priority to conflict-affected countries. Under the CAS, MIGA intends to work closely with the Bank and IFC to identify new private and public-private investment projects as they arise, especially in the infrastructure sector. MIGA will also seek opportunities in the agribusiness, manufacturing, and services sectors; and opportunities could emerge from the government's privatization agenda. MIGA's newly established Small Investment Program could be appropriate for Burundi, because it offers a standardized package attractive to small and medium-sized investors; a quick underwriting process; a single application form; and no application fee. It provides a guarantee up to US$10 million for new investmentsassociated with the expansion, modernization, or financial restructuring o f existingprojects. 100. IDA-financed operations. The private sector development component of the ERSG series (FY09, FYlo), in close collaboration with IFC PEP-Africa, supports government efforts to reform the business legal and institutional environment to foster private-sector-led growth. The ongoing Economic Management Support Project (FY04) continues to finance technical assistance and studies to underpin private sector development reforms. The CAS foresees a follow up technical assistance project that focuses on public enterprise and financial sector reform (FYIO). An ongoing IDF grant i s helpingthe government modernize its mining code and strengthen its ability to negotiate investment agreements that ensure fair distribution o f miningbenefits. 101. Regional operations. A regional Trade Facilitation Project (FYOl), which established the African Trade Insurance Agency, has providing insurance for employment-creating investments in trade and in the beer and telecom sectors. Burundi could join a potential second phase of the operation. - 2 4 - 102. Development partners. The World Bank Group is an important player supporting the government to improve the business environment, along with other donors such as the Netherlands and USAID. Belgium, the UK Department for International Development (DfID), and the UN are supporting justice sector reforms. USAID, which provides substantial support to agribusiness, has played a role in coordinating the private sector development donors' group. The IMF is providing technical assistance to helpthe government strengthen banking supervision. CAS Outcome1.3:Improved infrastructural services with enhancedregional integration 103. Analytical and advisory activities. The Bank and the EAC secretariat recently completed (FY08) a study o f non-tariff barriers to intraregional trade. Underthe CAS, Bank AAA will continue to facilitate economic integration by addressing issues pertaining to Burundi's new membership to the EAC and its path o f accession, such as revenue impact, trade, transport, adoption of customs union protocol, as well as the long-term impact o f the EPA signed between the EU and the EAC in December 2007. The government has asked the Bank to evaluate the performance o f the petroleum sector, which plays a key role in the economy, and to recommend actions to improve policy and pricing mechanisms and to ensure security o f supply, The Bank will start the evaluation soon for completion in FY09. In the power sector, the Bank i s undertaking an energy sector study to be completed in FY09. The planned CEM (FY10) on sources o f growth i s expected to include an in- depth analysis o f regional integration. 104. IDA-financed operations. The ongoing Road Sector Development Project (FY04) is restoring part o f the priority road network, generating employment for the rural poor, and improving road sector institutional capacity. Under the CAS, additional financing in FY11 would broaden the experience o f the ongoing project and consolidate its impact on rural access and regional trade. In FY08, Executive Directors approved the Multisectoral Water and Electricity Infrastructure Project, which will exte,nd water services into selected peri-urban areas o f Bujumbura and rehabilitate the primary electricity distribution network. The project also aims to improve governance in the water and electricity sector by improving the financial management o f REGIDESO, the public utility for electricity and water, and publicly disseminating information on its performance. 105. Regional operations. The ongoing Regional Communications Infrastructure Project (FY07) aims to expand telecommunications access and reduce the cost o f connectivity to global information and communications technology infrastructure. Under the CAS, the Bank will increasingly focus on regional approaches to improving infrastructure services. A regional transport operation (FY11) would help consolidate Burundi's integration to the EAC by developing an alternative transport link that would build on the ,current and projected road improvements along the Central Corridor from Dar es Salaam and the ongoing reform o f the Tanzanian railway. Burundi i s also expected to participate inregional power operations relatedto the East Africa Power Pool. 106. Developmentpartners. Other main donors inthe transport sector are the EUand the African Development Bank (AfDB). The World Bank shares its mission findings with other partners; and plans to undertake joint supervision missions with the AfDB. The water component o f the recently approved Multisectoral Water and Electricity Infrastructure Project (MWEIP) will extend water services to selected periurban areas o f Bujumbura, while other donors led by Germany and the AfDB focus on rural areas and secondary urban centers. Germany plays a central role inoverall water sector coordination. The MWEIP's electricity component was designed to complement an AfDB-financed project that rehabilitates existing hydropower generation plants. The Bank will focus on rehabilitation o f the highvoltage distribution network and substations, and finances feasibility studies for small run-of-the-river hydropower plants, some o f which may be financed by the Government of the Netherlands.Also, the Government of China will support a new hydropower generationplant. - 25 - Strategic Objective Two: Improve Access to Social Services and Consolidate Social Stability 107. Expected results. The World Bank Group will focus on three CAS outcomes: 2.1:Improved reintegration of ex-combatants and vulnerable groups; 2.2:More efficient and transparent public financial management; 2.3 Improved access to and quality of basic social services and decreased vulnerability to HIVIAIDS. Box 7: Youth in Burundi-A Force for Positive Change? According to international research, a large youth population, especially excluded young men, increases the risk of conflict. In Burundi, youth (ages 15-30 according to the government's official definition) constitute the largest segment of the population-30 percent. The World Bank recently completed a qualitative study to explore how youth are faring in post-conflict Burundi. The study collected data through 376 in-depth interviews. Findings: Employment emerged as a key priority and a main constraint. All economic categories of youth are facing barriers to securing a sustainable livelihood. Despite many hardships, young people remain a positive force in Burundi. They display remarkable levels of optimism, motivation, and perseverance. They also exlzibit a strong sense of citizenship. They voiced concern and often anger over issues of governance, accountability, and corruption; and they held strong views on combating corruption and cronyism. Tlre social reintegration of ex-combatants and child soldiers appears to have been positive overall. In both towns and villages, ex-combatants within the youth age category had strong positive social ties. These findings suggest that in Burundi, unlike many other countries, there may be a window of opportunity to harness the positive values of youth to facilitate reconstruction, reconciliation, and good governance. Recommendations: Improve the quality and relevance of education. Help youtlt jind a livelihood: (i) improve the formal and informal business environment; (ii) open pathways for jobs through public works; (iii) improve traditional apprenticeships; and (iv) provide microfinance and entrepreneurship training. Helpyoung people form families: (i) increase access to sexual and reproductive health; and (ii) support youth training in parenting and life skills. Empower youtlr to exercise citizenship through social accountability interventions. Next steps: In July and August 2008, the World Bank and Government of Burundi will disseminate by radio the findings of the youth study, together with the findings of the diagnostic study on governance and corruption. The Bank will also organize workshops to discuss study findings with development partners and national and international NGOs working on youth issues in Burundi, and with the UN Peace Building Fund, which has allocated US$4.1 million to a Youth Enterprise Development Project. The World Bank will seek to support youth employment under relevant IDA-financed operations, such as the Second Public Works Project (FY09) and the Agriculture Project (FY10). Source: Voices of Youth in Post-Conflict Burundi: Perspectives on Exclusion, Gender, and Conflict, June 2008 CAS Outcome2.1: Improved reintegrationof ex-combatants and vulnerablegroups 108. IDA-financed operations. An Emergency Demobilization, Reinsertion and Reintegration (DRR) Program financed by IDA and the Multicountry Demobilization and Reintegration Program (MDRP) Trust Fund has supported implementation of the Arusha Peace Agreement, and the government's letter o f Demobilization Policy that sets out to limit the national defense force to 25,000 soldiers. The government launched DRR implementation in early 2004, demobilizing over 26,000 ex-combatants. 'Although reintegration o f excombattants has outperformed DRR Program targets, it is important to further improve reintegration in order to sustain peace and stability. It i s also important to complete demobilization activities as set forth in the Letter o f Demobilization policy, including combatants from the FNL-PALIPEHUTU. The CAS anticipates additional financing (around US$10 million, although the amount will depend on needs) in FY09 for the DRR Program along with a two-year extension that would support a restructured and more focused program, particularly for the reintegration component. In order to maximize reintegration and employment opportunities for returning ex-combatants and refugees, the Bank will promote an integrated approach, building synergies among Bank-financed operations including in agriculture, community development, and transport. The Bank will also finance a Second Public Works Project (FY09) that will generate substantial local employment through labor-intensive infrastructure rehabilitation, building on the successful experience o f the first Public Works and Employment Creation Project. 109. Development partners. The MDRP Trust Fund, which closes at the end of 2008, is supported by thirteen donors: Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Sweden, the United Kingdom, and the European Commission. This partnership has enabled coordinated technical support and funding for the complex and sensitive DRR Program. Discussions are underway between the government, the Bank, and other partners to agree on modalities for further supporting the DRR Program and its link to security sector reform to be supported by the UNand bilateral partners. The proposed additional IDA financing is expected to be complemented by a multi-donor single-country trust fund. CAS Outcome2.2: More efficient and transparentpublicfinancial management 110. Analytical and advisory activities. The Bank and the government completed a Public Expenditure Management and Financial Accountability Review (PEMFAR) in FY08. Under the CAS, the Bank, in close collaboration with the government and interested development partners, will undertakeannual Public ExpenditureReviews (FY10, FY11,FY12). 111. IDA-financed operations. Building on the PEMFAR, the PFM component o f the ERSG series (FY09 and FY10) will help consolidate PFM reforms to improve fiscal transparency and accountability, with the ultimate goal o f improving service delivery. ERSG I1will focus on reforms related to preparation, execution, and reporting o f the budget and internal audits. ERSG I11 will follow up on these reforms and also focus on issues related to budgetary allocative efficiency. The ERSG is complemented by the ongoing Economic Management Support Project (FY04), a technical assistance operation that includes a PFM component. The Bank i s supervising an IDF grant to improve the institutional environment for miningand ensure equitable distribution o f benefits. 112. Developmentpartners. In 2005, Burundi and donors established a Partnership Framework to coordinate budget support. The Partnership Framework, which currently includes AfDB, Belgium, EU, France, IMF, Netherlands, Norway, and the UNDP, also functions as a mechanism to coordinate financial management reforms. The government will update its Financial Management Action Plan based on the recent PEMFAR. -27- CAS Outcome 2.3: Improved access to and quality of basic social services and decreased vulnerability to HIV/AIDS 113. Analytical and advisory activities. The Bank, working closely with government and other donors, completed a study on education in FY06. The study underpinnedproject preparation and provided the basis for an "education for all" program to be supported by several donors through a basket fund mechanism. The Bank and the Ministry of Health completed in FY06 an overall assessment ofthe healthsector to identify major needs. Recently inFY08,the Bankandthe Ministry o f Healthcompleted a HealthFinancingStudy that assesses the challenges of financing the sector, includingfree services to women during delivery and childrenunder five, and provides the basis to move towarda sector-wideapproach. 114. IDA-financed operations. The ongoing Community and Social Development Project, approved in FY07, helps establisha transparent and participatorymechanism to finance community subprojects on a demand-driven basis. In the education sector, the ongoing Education Sector ReconstructionProject(FY07) aims to helpthe government implementits free primaryschool policy by building the capacity of schools to educate an increasing number of students. The Bank's Executive Directors approved a Second Multisectoral HIV/AIDS Project in May 2008. IDA financing for HIV/AIDS in Burundi is relatively modest yet helps fill an immediate financing gap and is one of the only sources of financing for certain prevention and multisectoralactivities. The recently approved project builds on the successful experience of the first MultisectoralHIV/AIDs Controland Orphans Project, implementedfrom FY02to FY09. Under the CAS, the Bankand other partners will move towarda sector-wideapproach (SWAp) for the healthsector. The Bankintendsto finance a HealthProject (FY09) to support the SWAPand helpthe government implementits policy o f eliminatinghealthuser fees for pregnant women andwomen under five. 115. Regionaloperation. The ongoingHIV/AIDS Great Lakes Initiative Project(FY05) finances regional prevention activities targeting mobile and vulnerable groups, including refugees and transportsector workers, to stem cross-border transmission. 116. Development partners. In the education sector, development partners, includingBelgium, France, DBD, and UN agencies, have worked together closely, including through joint field missions, to establisha SWAPto support the government's NationalSector Plan, providinga model of effective aid delivery for other sectors. Inthe healthsector, maindonors are Belgium, EU, DfID, GAVI, Global Fund, Switzerland, USAID, and UN Agencies, particularly, UNICEF, WHO, and UNFPA.The World Bank is working closely with all partners to move towards a SWAp, which will comprise an agreement on financing the government's healthprogram, a single results matrix, and joint missions.The first partners'joint missioninthe sector took place in October 2007. -28 - Box 8: Diagnostic Study on Governance and Corruption At the request of the President of Burundi, the World Bank Institute (WBI), with financial support from the Government of Belgium, assisted the government to undertake a diagnostic survey on public experience and perceptionof governance and anti-corruption (GAC) inBurundi. Under the leadershipof the Ministry of Good Governance, the government established a GAC SteeringCommittee representingboth government and civil society to oversee the survey. An independent polling fm initiated field work in November 2007, submitting questionnaires to over 3,000 people, including households, government officials, NGOs, andprivate enterprise employees. Main perceptionsof survey participants: Corruption is a main concern and has increased in recent years. Corruption i s one of the top five concerns of all categories surveyed, along with unemployment, poverty, access to land, and access to water and electricity. More than one half those surveyed from NGOs, private enterprises, and public administration and more than one quarter from households believe that corruption has increased since the Arusha Peace Agreement. Access to basic services is limited, and bribes for access are common. More than half the households surveyedreportedunavailability or poor quality of basic services. Less than 50% reported having access to safe drinking water, and indicated that bribes were neededto obtain access. Police, customs, tax collection, public procurement, and the justice system are particularly prone to corruption.The police were identifiedby all categories as the most frequent recipient of bribes. Public officials are hired based on politicalparty affiliation or personal connections rather than technical competence. Also, bribes are paid for some positions. Over 90% of public employees surveyed believe that recruitmentintheir sector is basedon political criteria. Next steps: The GAC Steering Committee submitted the survey results to the Council of Ministers in June 2008 for approval. Following government approval, survey results will be publicly disseminatedthrough national workshops and local radio, together with the results ofthe recent qualitative study onyouth. Onthe basis ofthe results ofthe GAC survey and the PEMFAR, the government, in consultation with civil society, will formulate a GAC strategy, including a short-termactionplan with measurableresults. Inresponseto surveyresults, the GAC SteeringCommitteeproposedto apply the RapidResultsInitiative (see para. 120) to education, justice, andthe electricity and water utility as an instrument to motivate and engage civil servants to implementspecific action plans that will show improvements inthe short term. Cross-Cutting Objective: Governance 117. Given the cross-cutting nature of governance, the Bank will address governance at three levels: (i)At theproject level,the Bankwillensureprocedures andsystemsto minimizefiduciary and governance risks inherent in operations. In addition, the Bank will improve the governance o f projects themselves, including ensuring competitive staff recruitment, clear and transparent procedures, and public communication on project budgets and objectives. Annual CPPRs will focus on results and governance. (ii)At thesector level,theBankwillhelpimprovegovernance insectorswheretheBankis involved. For example, the recently approved Multisectoral Water and Electricity Infrastructure Project aims to strengthen financial management and accountability o f REGIDESO, the public utility for water and electricity. The Bank will encourage sector- - 2 9 - wide approaches that aim to strengthen institutions, systems, procedures, and transparency. Sector-wide approaches will also improve donor coordination, avoiding overlaps or inconsistenciesthat can weaken institutions. (iii)At the macro level, the Bank will emphasize more effective and transparent public financial management (CAS Outcome 2.2) and will help strengthen core governance institutions. Also, the Bank will assist the government develop in early FY09 an updated governance and anti-corruption strategy and prioritized action plan, using both the recently completed PEMFAR and the diagnostic study on governance and corruption (see Box 8). The Bank will also engage at the political level through high-level discussions to support better governance by minimizing interference ineconomic decisions. 118. The Bank will strengthen its partnershipswith civil society, academia, think tanks, and the media to help increase the demand for good governance. The Bank will also encourage the design of projects that work directly with and strengthen representative citizens' institutions, such as village councils. Youth, who have a strong sense o f citizenship and views against corruption, could contribute to bringingabout better governance (see Box 8). 119. Under the CAS, IDA operations will identify contributions to improve governance and will consider governance-related indicators. For example, the ongoing Community and Social Development Project will help strengthen governance at the commune level, and will track the transparency o f microproject procurement, the use o f community scorecards and other mechanism for citizen feedback, and independent media coverage and scrutiny o f project-financed investments. 120. The WBI will continueto support leadershipand better governance.The WBI, supported by a LICUS Trust Fund, introduced the Rapid Results Initiatives (RRI) methodology in late 2006 to help the public administration learn how to tackle specific problems and show results within 100 days. The RRImethodology is being used to improve governance in selected service delivery sectors: water, electricity, education, andjustice. RRIwill be expanded to additional sectors and will support implementation o f the GAC strategy. C. StrengtheningDonor Harmonization 121. Acknowledgingthe need to improve aid effectiveness, the government and donors have recently launched a new donor coordinationstructure. In late 2005, the government established a National Committee on Aid Coordination (ComitB National de Coordination des Aides, CNCA), chaired by the Second Vice President and comprising several key ministers. However, limited capacity hindered its ability to coordinate and monitor donor assistance. To strengthen CNCA capacity, the government established a technical-level CNCA Permanent Secretariat in February 2006. In March 2007, several donors held a retreat in Bujumbura to agree on approaches to improve coordination. Donors and the government reviewed Rwanda's experience with its Development Partner Coordination Group. At the Round Table meeting in May 2007, the government announced the creation of a Partners' Coordination Group (PCG) to ensure donor alignment to the PRSP, and to build capacity o f local institutions to monitor and evaluate progress towards the Paris Declaration. The CNCA was appointed as the Secretariat o f the PCG and is responsible for its overall administration. 122. The PCG, which will be operational by the end of 2008, will be structured in layers. Ministers will chair monthly meetings that involve one or more representatives of the donor community. Quarterly meetings, chaired by the vice-presidents and attended by development partners, will discuss PRSP implementation. Strengthening CNCA capacity i s key for the functioning - 30 - o f the PCG. The CNCA presented an action plan to donors in December 2007. Development partners are establishing a basket fund to be managed by the UNDP to finance the implementation o f the CNCA action plan, includingtechnical assistance. 123. PCG effectiveness will depend on the availability of coherent sector strategies. Sector strategies for education, health, and public finance management have enabled good donor coordination. Joint Memorandum o f Understandings (MOUs) have been signed between the government and relevant donors for health and budget support. The MOU lays out the sector objectives, expected results, monitoring and evaluation arrangements, and donors' commitments for funding and technical support. In order to improve donor coordination in other sectors, such as agriculture, transport, and private sector development, the government and donors have agreed to speed up the formulation o f strategies. 124. The government is implementinga web-based aid management platform, inpartnership with Development Gateway and funded by the Swiss Development Cooperation and GTZ. The aid management platform, operated by the CNCA, will help the country produce aggregate reports on external aid and monitor aid alignment with the PRSP and Strategic Framework for Peacebuilding. 125. The Bankwill support effortsto strengthendonor harmonization,in accordance with the Paris Declaration on Aid Effectiveness and with the Principles for Good International Engagement in Fragile States (2005). A Bank mission will take place in FY09 to analyze current aid effectiveness and help the government monitor progress in relation to the five partnership commitments o f the Paris Declaration. The Bank, with the support o f a Belgiantrust fund, i s helpingthe PRSP secretariat improve the PRSP results framework to better monitor PRSP progress and link aid to national priorities. The Bank is also seeking an IDF grant to strengthen Burundi's institutional capacity to lead donor harmonization. D.Implementingand Monitoringthe CountryAssistance Strategy 126. The Bank will continue to move away from stand-alone project implementation units (PIUs). Several ongoing projects are implemented through government structures, notably the Road Sector Development Project and the newly approved Multisectoral Electricity and Water Project. 127. The Bank will continue to strengthen its BurundiCountry Office. It currently comprises twenty staff and consultants, including specialists inDDR, economics, health, infrastructure, poverty monitoring, poverty monitoring, and procurement. In FY09, the Bank intends to add specialists in agriculture and financial management. As capacity increases, the Bank will continue to devolve portfolio management to country office-based staff. Given Burundi's challenging implementation environment, it will also be important to ensure adequate budget for project preparation and supervision. Joint supervision missions with other development partners will increase aid effectiveness and reduce transaction costs for the government, and could also be cost effective. 128. The CAS Results Framework presents the results chain for the Bank's program of support (see Annex 13). The CAS outcomes will be monitored jointly by the Bank and the government over the CAS period. The framework uses Burundi's PRSP as its starting point, and narrows down the range o f outcomes to those that the Bank can demonstrably influence over the CAS period. Since most o f the new operations foreseen in this CAS will likely not finish implementation until after 2012, results during this CAS period will come mainly from existing operations and the quicker-disbursing interventions included inthe CAS. -31 - 129. The Bankwill carry out annual results-based CPPRs, buildingon the matrix of actions from the recent CPPR. CPPRs will be conducted with development partners when possible. Quarterly portfolio reviews will take place with government counterparts to assess implementation of the CPPR action plan. 130. The Bankwill preparea CAS ProgressReport in2010 to evaluateprogresstoward CAS outcomes and adjust strategy and program. The Progress Report will be completed after Burundi's national elections in 2010 to allow consideration of new government policy. Adjustments to projects under implementation will be reflected in revised project results frameworks. A CAS Completion Report will be preparedat the end o f the CAS period. VI. RISKSAND MITIGATION 131. There are high risks in the strategy o f moving from post-conflict rehabilitation to economic and social development. There are even higher risks in not moving forcefully on that path. An unstable Burundicould have ripple effects ina fragile international neighborhood. 132. Continued insecurity or renewed conflict is a principal risk. Burundi has an opportunity to exit the conflict trap, but faces formidable challenges. Continued insecurity in rural areas impedes development and deters a reduction in security sector expenditures to create the fiscal space for pro- poor spending, as needed for lasting peace. Recent steps by the government and the FNL- PALIPEHUTU, the last rebel group, to implement the 2006 cease fire agreement are a cause for cautious optimism. Support from the international community is crucial, including continued resources for demobilization and reintegration o f ex-combatants. The window o f opportunity may close rapidly, however, as elections in 2010 may stir up tensions among communities and political groups. It will also be important to carefully manage the return o f 120,000 refugees, mainly from Tanzania, over the next 24-30 months. 133. Political instability, especially in the run up to elections in 2010, could hamper investment and structural reform. Although Burundi has made political progress since 2000, international experience indicates that electoral democracyper se does not reduce the risk of conflict; and elections can sometimes increase conflict risk. Intraparty divisions contribute to political instability and lead to frequent changes in key technical positions in the government. The Bank's recent CPPR identified government staff turnover as an impediment to project implementation. The current political landscape underscores the importance o f ensuing broad ownership o f reforms and investments. The Bank will also work with the government to minimize changes in project technical staff. 134. A weak governance environment constitutesanother major risk for economic recovery and CAS implementation.Itundermines stability, service delivery, and private sector development. Further high-level governance incidents could disrupt budget support, as happened in 2007. The government has taken steps to close PFM loopholes, but much remains to be done. Inthis context, it i s challenging to ensure that projects adhere to core fiduciary and safeguard requirements. The Bank will mitigate fiduciary and safeguard risks through close supervision and portfolio monitoring and by designing projects to minimize fiduciary weaknesses. 135. The country's medium-term economic outlook has significant downside risks. These include possible delays in key structural reforms that underpin the growth objective. Mishandled integration into the E A C could undermine domestic tax collection. The country is at risk of unsustainable debt dynamics. Burundi's dependency on aid makes it vulnerable to delays or declines indonor assistance, such as the case in2007, when a corruption scandal caused a delay incompleting the sixth and last review o f the IMF PRGF arrangement, delaying aid disbursements and complicating budget execution. 136. As a landlockedfood-deficit country, Burundi is particularlyvulnerable to rising food and fuel prices. Soaring prices could further jeopardize food insecurity and exacerbate malnutrition. They could also increase social tensions and intensify wage demands. The Bank is in the process o f submitting a proposal for Burundi to the new Global Food Crisis Response Program Trust Fund. Underthe CAS, the Bank will help boost agricultural supplyby supporting investmentsthat improve agricultural production, productivity, and diversification. Development partners are assisting with targeted nutritionprograms. - 33 - 137. Capacity risks. Limitations in the technical capabilities o f the cabinet and civil service to design and implement the reform program are a source o f risk. The Bank will provide hands-on support to authorities, including from a strengthened World Bank country office in Bujumbura with international and local staff covering agriculture, demobilization and reintegration, health, portfolio management, poverty monitoring, procurement, and macroeconomics. The Bank will also undertake a needs assessment to provide the basis for a strategic and coordinated capacity development program. 138. Exogenous risks include weather, international prices, and security in neighboring countries. Weather conditions have a strong influence on the output o f the agricultural sector, as demonstrated in 2003 and 2005. The proposed program in the agriculture sector seeks to reduce the impact o f poor rainfall on agriculture by increasing irrigation and disseminating drought resistant plants, but this will take time. Sharp price changes in world coffee markets are difficult to manage and absorb in a poorly diversified economy. As a landlocked country, Burundi i s affected by the security situation in neighboring countries. Recent events in Kenya following the controversial election had a negative impact on the flow o f goods between Mombasa and Burundi. The donor community should be ready to provide timely additional support to prevent exogenous factors from derailing the reform program. - 34- Annex 1:Burundiat a Glance Burundi at a glance 6/24/08 Sub- Key Development Indicators Saharan LOW Burundi Africa income Age distribution, 2006 (2006) Male Female Population, mid-year (millions) 7.8 770 2,403 70-74 Surfacearea (thousandsq. km) 28 24,265 29,215 60-64 Populationgrowth (%) 3.7 2.3 1.8 Urban population(% of total population) 50-54 10 36 30 40-44 GNI (Atlas method,US$billions) 0.8 648 1,562 30-34 GNI per capita (Atlas method, US$) 100 842 650 20-24 GNI per capita (PPP, international$) 710 2,032 2,698 10-14 0-4 Real GDP growth (%) 5.1 5.6 8.0 30 20 10 0 10 20 Real GDP per capita growth (%) 3.1 3.2 6.1 percent (most recent estimate, 20052006) Povertyheadcountratio at $1 a day (PPP, YO) 55 a 41 Povertyheadcountratio at $2 a day (PPP, %) 88 Jnder-5 mortality rate (per 1,000) a 72 Life expectancy at birth (years) 49 47 59 Infantmortality(per 1,000 live births) 114 96 75 200 Child malnutrition(% of children under 5) 45 29 150 Adult literacy,male (% of ages 15 and older) 67 69 72 Adult literacy,female (?4 of ages 15 and older) 52 50 50 100 Gross primaryenrollment,male (% of age group) 91 98 108 Gross primary enrollment,female (% of age group) 78 86 96 50 Access to an improvedwater source (% of population) 79 56 75 0 Access to improvedsanitation facilities (% of population) 36 37 38 1990 1005 2000 2005 OBurundt 3Sub-Saharan Africa Net Aid Flows 1980 1990 2000 2006 (US$millions) Net ODA and officialaid 116 263 93 365 Growth of GDP and GDP per capita ("A) Top 3 donors (in 2005): United States 4 18 1 55 Netherlands 1 1 4 23 Belgium 28 40 6 21 Aid (%of GNI) 12.6 23.5 12.8 47.0 Aid per capita (US$) 28 46 14 48 Long-Term Economic Trends I Consumer prices (annualaverage % change) 9.5 7.0 24.3 2.8 90 00 GDP implicitdeflator(annual % change) 95 16.4 6.0 13.2 4.4 Exchange rate (annualaverage, local per US$) 90.0 171.3 720.7 1,028.4 --Q-GDP -GDPper capita O5 Terms of trade index (2000 = 100) 225 148 100 102 1980-90 1990-2000 2000-06 (average annual growth %) Population, mid-year(millions) 4.1 5.7 6.5 7.8 3.2 1.3 3.1 GDP (US$ millions) 920 1,132 709 918 4.4 -2.9 2.5 (% of GDP) Agriculture 62.2 55.9 40.4 34.8 3.1 -1.9 -1.5 Industry 12.6 19.0 18.8 20.0 4.5 -4.3 -6.2 Manufacturing 7.4 12.9 8.7 8.8 5.7 -8.7 Services 25.1 25.2 40.8 45.1 5.6 -2.8 10.4 Householdfinal consumptionexpenditure 91.4 94.5 88.5 90.9 3.4 -4.8 Generalgov't final consumptionexpenditure 9.2 10.8 17.5 29.3 3.2 -2.6 Grosscapitalformation 13.9 14.5 6.1 16.7 6.9 -0.5 Exportsof goods and services 8.8 7.9 7.8 6.4 3.4 -1.2 Importsof goods and services 23.3 27.8 19.9 26.6 1.5 -1.6 Gross savings -5.4 0.5 1.7 Note: Figuresin italics are for years other than those specified. 2006 data are actual. ..indicates data are not available. a. Country povertyestimate is for 1998. b. Aid data are for 2005. DevelopmentEconomics,Development Data Group (DECDG). - 35 - Burundi _____ Balanceof PaymentsandTrade 2000 2006 (US$mill/ons) Governance indicators, 2000 and2006 Total merchandiseexports (fob) 49 59 I Total merchandiseimports (cif) 127 224 Voice and accwntability Net trade in goods and services -96 -245 I Polibcal stability Workers'remittances and I ,, compensationof employees (receipts) Regulatory quality I Current account balance -50 -134 Rule of lw , as a %of GDP -7.0 -14.5 I I Controlof corruphon Reserves,including gold 38 131 0 25 50 75 100 CentralGovernment Finance 02W6 Ccunby's percenble rank (0-100) 132WO highw ~ I u e r r m p ytener mtnqs (%of GDP) Current revenue(indudinggrants) 19.2 36.8 Source Kaufmann-KraayMastrLezcWwld Bank Tax revenue 18.3 17.8 Currentexpenditure 18.8 27.1 Technology and Infrastructure 2000 2005 Overallsurplus/deficit -1.8 -10.4 Paved roads(% oftotal) 7.1 10.4 Highestmarginaltaxrate (%) Fixed lineand mobilephone Individual subscribers (per 1,000people) 6 18 Corpwate Hightechnologyeworts (% of manufacturedexports) 0.0 5.9 External Debt and Resource Flows Environment (US$millions) Total debt outstandingand disbursed 1,108 1516 Agricultural land (Ohof land area) 88 91 Total debt service 22 50 Forestarea (% of land area) 7.7 5.9 Debt relief (HIPC, MDRI) 826 NaSonallyprotected areas (% of landarea) .. 5.7 Total debt (% of GDP) 156.3 165.1 Freshwaterresources percapita (cu. meters) .. 1,338 Total debt service(% of exports) 39.0 56.8 Freshwater withdrawal (%of internalresources) 2.9 Foreigndired inveshnent(net inflows) 12 1 CO2 emissionsper capita (mt) 0.04 0.03 Portfolioequity (net inflows) 0 0 GDP per unit of energy use (2000 PPP$ per kgof oilequivalent) Composition of total external debt, 2005 Energyuse percapita (kg of oil equivalent) Short-trm 35 IBRD IDA 751 Total debtoutstandingand disbursed 0 0 Disbursements 0 0 Principalrepayments 0 0 Interestpayments 0 0 IW,58 U S millions IDA Totaldebt outstandingand disbursed 600 797 Disbursements 36 29 Private Sector Development 2000 2006 Total debt service 13 22 Time requiredto starta business (days) - 43 IFC (fiscalyear) Cost to start a business(% of GNIpercapita) - 222.4 Total disbursed and outstanding pwtfolio 0 0 Time requiredto reaister~ r o ~ e r(daw) h / - 94 ofwhich IFC own account 0 0 Disbursementsfor IFCown account 0 0 Ranked asa majormnstraintto business Pottfoliosales prepaymentsand (% of managerssurveyedwho agreed) repaymentsfor IFC ~ w accwntn 0 0 Electricity .. 40.7 Access tdcost of financing .. 16.0 MlGA Gross exposure 0 1 Stock market capitalization (Ohof GDP) Newguarantees 0 0 Bank capital to asset ratio ("h) Note: Figuresin italicsare for years other than those specified. 2006 data are actual 6/24/08 .. indicatesdata are not available. -indicates observation isnot applicable. DevelopmentEconomics,Development DataGroup (DECDG). - 36 - Millennium DeveloDment Goals Burundi With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Goal 1:halvethe rates for $1 a day poverty and malnutrition Poverty headcount ratioat $1 a day (PPP,% of population) 54 6 Poverty headcount ratio at nationalpovertyline (% of population) 36 0 Share of income or consumptionto the poorestqunitile (%) 7 9 5 1 Prevalence of malnutrition(% of children under 5) 57 0 45 Goal 2: ensure that children are able to complete primary schooling Primary completion rate (% of relevantage group) 41 53 25 37 Secondary school enrollment(gross, %) 5 13 Youth literacy rate (% of peopleages 15-24) 54 73 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondaryeducation(%) 82 80 Women employed in the nonagriculturalsector (% of nonagriculturalemployment) 13 Proportion of seats held by women in nationalparliament(%) 6 31 Goal 4: reduce under-5 mortality by=-thirds Under-5mortality rate (per 1,000) I90 190 291 190 Infant mortality rate (per 1,000 live births) 114 114 156 114 Measles immunization (proportionof one-year olds immunized,%) 74 80 75 75 Goal 5: reduce maternal mortality by three-fourths Maternalmortality ratio (modeledestimate, per 100,000 live births) 1,000 1,000 Births attended by skilled healthstaff (% of total) 25 Goal 6: halt and beginto reverse the spread of HlVlAlDS and other major diseases Prevalenceof HIV (% of populationages 15-49) 3 3 Contraceptive prevalence (% of women ages 15-49) $6 Incidenceof tuberculosis (per 100,000 people) 125 218 298 334 Tuberculosis cases detected under DOTS (%) 19 34 30 Goal 7: halve the proportion of peoplewithout sustainable access to basic needs Access to an improved water source (% of population) 69 73 77 79 Access to improved sanitationfacilities (% of population) 44 40 38 36 Forest area (% of total landarea) 11 3 7 7 5 9 Nationally protected areas (% of total land area) 5 7 CO2 emissions (metrictons per capita) 0 0 0 0 0 0 00 GDP per unit of energy use (constant2000 PPP $ per kg of oii equivalent) Goal 8: develop a global partnershipfor development Fixed line and mobilephone subscribers (per 1,000 people) 1 3 6 18 Internet users (per 1,000 people) 0 0 1 5 Personalcomouters (Der 1,000 oeoole) 1 5 Youth unemployment'(% of totai labor iorce ages 15-24) ducation indicators (%) deasles immunization (% of I-year olds) :T indicators (per 1,000people) 2000 2002 2005 1990 1995 2000 2005 2000 2002 2005 +Primary net enrollmentratio UFixed + mobilesubscribers -%-Ratio of girlsto boys in primary8 OBurundi =Sub-Saharan Africa SeCOndaNeducation 0Internetusers Note: Figures in italicsare for years other than those specified. ..indicatesdata are not available. 6/26/08 DevelopmentEconomics, DevelopmentData Group (DECDG). - 37 - Annex 2: Key EconomicIndicators Actual Estimate Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 ~ a t i o n aaccounts in real terms i (Billions of FBU, at 2000 constant prices) Gross Domestic Product 564.1 569.2 598.4 619.8 647.8 679.9 713.6 749.1 790.1 Primary sector 274.8 257.4 270.2 270.5 282.0 294.3 307.2 321.3 337.5 Agriculture 266.9 249.1 261.5 261.5 272.5 284.3 296.7 3 10.2 325.8 Secondary sector 8 1.3 87.4 91.4 97.1 102.2 107.9 114.3 121.0 128.1 Manufacturing 34.3 36.2 37.6 39.5 41.5 43.6 46.0 48.5 51.2 Tertiary Sector 207.9 224.4 236.7 252.2 263.6 277.7 292.1 306.7 324.5 Total Consumption(Percent of GDP) 111.0 117.4 122.2 115.8 107.9 106.7 105.3 104.3 Gross domestic fixed investment(Percent of GDP) 13.3 10.7 16.3 22.7 28.8 27.2 26.1 25.3 Governmentinvestment 10.3 6.5 12.4 14.8 20.1 17.5 15.8 14.7 10.1 Private investment 3.O 4.2 3.9 7.8 8.8 9.8 10.2 10.6 10.5 Exports(GNFS)bPercentofGDP 7.2 7.1 6.4 5.2 6.2 5.9 6.1 6.4 6.9 Imports(GNFS) Percent of GDP 22.4 23.7 26.6 27.5 27.5 25.3 23.8 23.21 23.1 Gross domestic savings -11.0 -17.4 -22.2 -15.8 -7.9 -6.7 -5.3 -4.3 -9.4 Gross nationalsavings' 5.2 1.2 1.7 9.6 13.7 10.7 11.4 10.4 10 Memorandum items Gross domesticproduct 664.5 800.6 918.0 973.7 1139.2 1356.1 1510.2 1615.7 1744.3 (US$millionat currentprices) GNI per capita (US$, Atlas method) 90 90 100 110 "Realannualgrowthrates (%) Gross domestic product at market prices 4.8 0.9 5.1 3.6 4.5 5.0 5.0 5.O 5.5 Gross DomesticIncome Realper capita GDP growth (%) 2.8 -1.1 3.1 0.6 1.5 1.9 1.9 1.9 1.9 Gross domestic product at market prices 1.1 -2.9 1.1 -0.3 Total consumption Private consumption Balance of Payments (US$ millions) Exports(GNFS)b 47.9 57.2 58.6 50.2 69.6 68.3 75.3 78.1 72.8 MerchandiseFOB 48 56 Imports(GNFS~ -148.9 -190.0 -244.6 -256.4 -349.4 -401.4 -407.8 -371.6 -401.2 MerchandiseFOB 143 20 1 Resource balance 197 247 303 307 419 470 483 450 474 Net currenttransfers 125.9 240.9 228.9 240.1 231.9 233.2 256.8 245.4 253.9 Current account -55.7 -9.7 -133.5 -117.5 -201.2 -293.2 -264.1 -252.0 -269.4 Net privateforeign directinvestment 0 2 Long-termloans(net) 11 38 Official 8 20 23 -5 -2 -11 -16 -24 -3 1 Private 3 18 Other capital (net, incl. errors & ommissic 29 -10 Changein reservesd 15 -20 Memorandum items Resourcebalance(% of GDP) 29.6 30.9 33.0 31.5 36.8 34.6 32.0 27.8 27.2 RealGDP growthrate 4.8 0.9 5.1 3.6 4.5 5.0 5.0 5.O 5.5 Merchandiseexports (FOB) -10.9 -2.0 Primary Manufactures 6.3 0.0 Merchandiseimports(CIF) -0.7 28.1 - 3 8 - Annex 2: Key Economic Indicators, continued Actual Estimate Proiected Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 Public finance (as YOof GDP at market prich) Total revenue (excl. grants) 20.1 20.0 18.9 18.6 19.1 19.0 19.0 19.1 Total expenditure 39.8 36.8 38.2 42.6 48.9 44.0 42.3 38.9 Capital expenditure 13.6 14.8 17.8 21.4 18.3 17.4 14.6 Foreign financing (Grants and borrowing) .... 11.7 20.2 21.6 24.8 97.7 19.9 18.8 Monetary indicators Velocity (GDPh42; period average) 3.9 3.7 3.4 3.4 3.6 3.6 3.5 3.4 3.4 Growth o fM 2 (%) 7.8 25.7 23.4 13.7 19.5 Private sector credit growth / total credit growth (%) Price indices(YRSO =loo) Merchandise export price index 67.9 80.8 Merchandise import price index 99.8 109.8 Merchandise terms o f trade index 68.0 73.6 Exchange rate (annual % change) 1.7 -2.3 -4.3 5.6 5.9 -3 2.5 4.6 Interest rate (percent) 13.2 14.0 14.2 ... ... ... ... ... ... Consumer price index (annual average %change) 8.0 13.4 2.8 8.3 19.1 9.4 8.2 6.8 5.8 GDP deflator (annual % change) ' 8.3 16.6 4.4 8.2 18.5 10 8.7 6.6 6.1 a. GDP at factor cost b. "GNFS" denotes "goods andnonfactor services." c. Includes net unrequitedtransfers excluding official capital grants. d. Includes use of IMFresources. e. Consolidated central government. f. "LCU" denotes"local currency units."Anincrease inUS$/LCU denotesappreciation. - 39 - Annex 3: Key Exposure Indicators Actual Estimated Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total medium-and long-termdebt outstanding 1546.2 1465.2 1516.1 1498.5 1464.9 430.0 458.1 482.5 512.2 (US$ millions)' Net disbursements(US$millions) 14.4 36.2 56.2 Total debt service onexistingdebt (TDS) 70.9 43.0 50.3 62.3 46.6 1070.0 1.6 1.6 1.6 (US$millions) Debt and debt service indicators (%) TDOKGS~ 3230.7 2562.5 2585.4 2982.5 2105.0 630.0 608.0 617.5 703.7 TDO/GDP 232.7 183.0 165.1 153.9 128.6 31.7 30.3 29.9 29.4 TDSKGS 148.1 75.2 85.8 124.1 67.01567.7 2.1 2.1 2.2 ConcessionallTDO 83.5 82.4 83.7 IBRDexposureindicators(%) IBRDDS/public DS 0.0 0.0 0.0 Preferredcreditor DS/public 93.5 87.1 88.4 DS(%)' IBRD DSKGS 0.0 0.0 IBRD TDO (US$m)d 0 0 0 Of which presentvalueof guarantees(US$m) 1465.2 1516.1 1537.5 Shareof IBRD portfolio (%) 0 0 0 IDA TDO (US$m)d 793 751 797 IFC (US$m) Loans 0.0 0.0 0.0 0.0 Equity andquasi-equity /c 0.0 0.0 0.0 0.0 MIGA MIGA guarantees (US$m) 0.0 0.0 0.0 0.0 a. Newand existing debt. b. "XGS" denotes exportsof goods and services, includingworkers'remittances. c. Preferredcreditorsare defined as IBRD, IDA, the regionalmultilateral developmentbanks, the IMF, and the Bankfor InternationalSettlements. d. Includespresentvalue of guarantees. e. Includesequity and quasi-equity types of bothloanand equity instruments - 40 - Annex 4: Status of HIPC Completion PointTriggers Trigger Progress 1. PRSP: Preparation of a full PRSP through a participatory process The government useda participatoryprocessto prepare a full PRSP, and its satisfactory implementation for one year, as evidenced by an which was published in September 2006 and discussedby the IMF Annual ProgressReport that has been the subject of analysis in a Joint and World BankBoards inMarch 2007. The PRSP permanent StaffAdvisory Note. secretariat is preparing an annualprogress report, and afirst draft will be available in mid-2008. 2. Macroeconomic stability: Maintenance of macroeconomic stability Macroeconomic developments over the past two years have been in as evidenced by satisfactory performance under the PRGF-supported line with the PRGF-supportedprogram, which has remained on track program. except briefly in mid-2007. The IMFconcludedthe sixth and last review of the PRGF on January 22,2008. 3. Use of budget savings resulting from HIPC-related debt-service Budgetary allocations for priority spending targeting pro-poor relief during the interim period: Use of budgetary savings from debt activities and projects have increased markedly. Since 2006, the relief in accordance with the priorities identified at the decision point governmenthas allocatedmore than 70 percent of HIPC budget and in the PRSP duly documented and discussed by a national savings to social sectors (education, health). The government IndependentOversight Committee on a semiannual basis. reactivatedthe HIPC IndependentOversight Committee in mid-2007 and it now meets regularly. InFebruary-March 2008, the government sharedwith developmentpartnersa draft report of an audit of HIPC spending, and circulated a revised version inMay 2008. The report will be finalized in July 2008. 4. Public expenditure management: Establishment of an integrated An integratedcomputerized expenditure management system public expenditure computerized system that provides a budget (SIGEFI) was put in place in January 2006 using the new budget monitoring and control system, in particular for poverty-related nomenclature.Quarterly budget execution reportshave beenproduced spending, and the production of at least two quarterly budget since mid-2006. The government i s working to improve the SIGEFI execution reportsbasedon the new unified budget nomenclature. system and the coverage and reliability of the reports. 5. Governance measures and the delivery of services in key sectors: The surveys were completed by year-end and the preliminary analyses Completion for the education, health, and justice sectors of (i)a by end-February 2008. An action plan is being prepared and will be budget tracking exercise (budget monitoring) of public spending on available in July 2008. the delivery of pro-poor services; (ii) evaluation by users of the an quality of services provided; (iii)an evaluation by providers of constraints to effective delivery of pro-poor services; and (iv) preparationof an action planto address problems identified. 6. Demobilization: Execution of the National DDR Program in line The demobilization program made progress in 2004-05 but has with the pace and final objectives set forth in the Letter of experienced delays since then. By November 2007, 24,105 persons DemobilizationPolicy to the World Bank, dated 19 February, 2004. had been demobilized. The objective, after integrating all forces, is to reduce the army to 25,000 men. However, about 17,300 persons were absorbed into a new national police force instead of being demobilized. Plans are being finalized for a new round of demobilization in 2008 (FNL excluded), covering about 3,500 from the army (FDN) and 4,500 from the national police. This would reduce the FDN to about 25,000 and the police to about 15,000. Following the May mission by the Bank DDR team, the Bank is evaluating the request of the authorities to modify the completion criteria of this trigger in light of the slow implementation of the DDR program, exacerbatedby the April 2008 security situation. -41 - Annex 4, continued 7. Structural measures: Tendering for sale the state holdings in a [nNovember 2006 the government approved adetailedactionplanfor majority of coffee washing stations. *eform of the coffee sector, elaborated with the support of the World Bank. The action plan included: (i)a study of the competitiveness of :he sector (done in 2007); (ii)identification and implementation of a strategy for the sale of main assets; and (iii)drafting of a liberalized legal, regulatory, and institutional framework for the sector. Actions (ii) and (iii) were delayed but are being reprogrammed. The authorities have recently requested that this trigger be redefined. The Bank and the Fund agreed. The Bank is finalizing a proposal to redefine this trigger in coordinationwith the authorities andthe Fund. 8. Social sectors Education: Increase in the gross national enrollment rate in primary The elimination of primary school fees in September 2005 resultedin schools from 74 percent in 2003/04 to 77 percent in 2006; and from alarge increase in first grade enrollment, Primary school enrollment 16percent in 2003/04 to 18 percent in 2006 in secondary schools, rose from an estimated80 percent in2003-04 to 85 percent in 2004- subject to the provision that the average increase in provinces with 05, about 101percent in 2005-06, and 118 percent in200H7. The lower than average enrollment rates in 2004 must be higher than the enrollment in secondary school has reached 19 percent in200H7. increase inthe national rate over the same time period. Preliminary analysis of regional enrollment rates (administrative) data providedby the government indicates an improvement. Health: Increase in the national immunization rate for children of less InJune 2006 the BurundianMinistry ofHealthorganized anational than one year of age from 75 percent in 2004 to 85 percent in 2006, campaignfor vaccination against measleswith the support of UNICEF subject to the provision that the average increase in provinces with and WHO. At end-October 2007 preliminary data suggest BCG lower-than-average immunization rates in 2004 must be higher than coverageat 71 percent; polio 3 at 74 percent; DPT3 equivalent at 69 the increase inthe national rate over the same time period. percent; andmeasles at 30 percent. Datafor 2006 are poor and not yet available for regionalrates. According to the government, preliminary analysis of regional immunization rates (administrative) data indicates an improvement. 9. Debt management: Production of monthly external debt reports, All the reports through February 2008 were provided. Reports still including projections for the upcoming three months, for at least six have reliability and coverage problems. monthsbeforethe completion point. - 4 2 - Annex 5: Status of PerformanceIndicatorsof the Interim Strategy Note dated April 2005 Strategic Performance Indicator Status (as of July 2008) element Security, Satisfactory progress inimplementing programs in Achieved. social public finance and procurementas well as the stability, effective functioning of the `cours des comptes'. and service Satisfactoryimplementation of reconciliation- Partially achieved. After lengthy discussions, the Government of delivery relatedresolutions, evidenced through assessment Burundi (GOB)and UNagreedto undertake national consultations on by UnitedNations and key bilaterals. the NationalTruth and ReconciliationCommissionand on Transitional Justice. Outstanding issues remain over the autonomy of the Special Tribunal to prosecute war criminals. Continuedadequate security throughout the country Achieved. The security situation has beenmixed althoughadequate for for sustained economic activity, evidenced through sustained economic activity. There is recent progress inimplementinga country-wide economic growth. cease fire agreement with the FNL, the last rebelmovement. Satisfactoryprogress inimplementing, anational Partially achieved. The GOBhas demobilized over 26,000 ex- demobilization and reintegration combatants since December 2005. Further demobilization has slowed program. due to ongoing hostilities with the FNL and concerns about reintegrating demobilized soldiers. Integration of non-demobilized combatants into the Achieved. Members of armedpolitical parties and movements who new defense force or the national police. were not demobilized in2005 were integratedinto the nationaldefense forces or the national police. A census planned for 2008 will assess the composition of the security forces. Satisfactory progress in implementing expenditures Achieved. inthe social sectors, following HIPC Decision Point. Satisfactory progress in implementing the Achieved. Governmentupdated the 2002-2006 HIVIAIDS strategy and Government's HIV/AIDS strategy, evidenced by approved a new strategy for 2007-2011. Implementationof the Bank's timely implementation of plannedactivities. HIV-AIDS project has been satisfactory. Debt relief, Satisfactory implementation of Bank-financed Achieved. Overall, Bank-financed projectsare being implemented economic projects, evidenced by progress towards their satisfactorily. Two out of seven ongoing projects are ratedmoderately growth, individual development objectives. unsatisfactory. and Satisfactory progress in implementing the Partially achieved. The Bank assistedthe GOBto undertakea diversifica- Government's anti-corruption strategy, evidenced governance diagnostic. The GOBintends to publicly disseminate survey tion through timely implementation of planned results and formulate anational governance strategy by end 2008. activities. Satisfactory implementation of the economic Achieved. The IMF concludedthe sixth PRGF review in January 2008, programsupported by the PRGF. given the authorities' commitment to sound macroeconomic policies and strengthened PFM. Satisfactory progress towards conditions for Achieved. An integratedcomputerizedexpenditure management reachingHIPC Decision Point relatedto Public system was put inplace in January 2006. Quarterly budget execution ExpenditureManagement. reports have beenproducedsince mid-2006, but need improvement. Satisfactory progress towards settling the internal Achieved. A 2006 externalaudit confirmed progress on settling debt issues (including completion of audits and domestic arrears. reconciliation, and agreement on payment schedule). Continued progress towards reformingstate-owned Partially achieved. The GOBhas formulated actionplans for respective enterprises, including privatization. enterprises. Implementation of supporting measures related to Not achieved. The GOBapproved a detailed action inNovember 2006. the liberalization of the coffee sector. However, implementation of key components is delayed. The GOBis commissioning a study on state disengagement in order to adopt a disengagement strategy by end 2008. Satisfactoryimplementation of Bank-financed Achieved. Bank-financed rehabilitation projects inagriculture, rehabilitation projects evidenced by progress education, community development, public works and roadsshowed towards their individual developmentobjectives. satisfactory progress. Satisfactoryprogress towards conditions for Achieved. Burundi reachedthe HIPC decisionpoint in August 2005. reachingHIPC DecisionPoint relatedto governance. Adoption of an export-led growth strategy. Partially achieved. The Bank and GOBcompleted a study on sources of rural growth in2007. The government is currently formulating an agricultural development strategy. - 43 - Annex 6: Selected Indicators of BankPortfolio Performance and Management As Of Date 06/23/2008 Indicator 2005 2006 2007 2008 Portfolio Assessment Number of Projects Under Implementation a 10 7 8 9 Average Implementation Period (years) 3.6 3.6 3.5 3.3 Percent of Problem Projects by Number a,c 10.0 0.0 25.0 11.1 Percent of Problem Projects by Amount 9.4 0.0 26.6 10.6 Percent of Projects at Risk by Number a , d 20.0 14.3 25.0 22.2 Percent of Projects at Risk by Amount a, 19.6 12.1 26.6 27.1 Disbursement Ratio (%) e 28.7 25.6 40.3 26.8 Portfolio Management CPPR during the year (yes/no) No No No Yes Supervision Resources (total US$) 795 850 778 976 Average Supervision (US$/project) 70 74 94 91 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 45 3 Proj Eva1by OED by Amt (US$ millions) 732.4 112.0 % of OED Projects Rated U or HU by Number 31.I 0.0 % of OED Projects Rated U or HU by Amt 35.3 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Banks country portfolio. c. Percent of projects rated U or HU on development objectives (DO) andlor implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio,with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. - 44 - x x Y E U J UJ 0 U m *0* * U J U J r - r - m m 0 0 0 0 0 0 0 0 r m r - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N - * I m .-m En v ) ' m c c0 a m U CI, .-5 g a .I In 9 C U I 4 s -m 5 c) v) v) .-cE .- m -0 Annex 8: Country Portfolio Performance Review-Main Recommendations May 2008 Theme Recommendations ProjectRrogram Harmonization o f donor interventions at the sector level so as to ensure that activities are cost Implementation effective and complement each other, especially at the decentralized level. Identifybestpractices at the project level (Procurement, FinancialManagement etc..) and disseminate them among PCUs inorder to improve implementation and achieve effective and timely results. Disseminate the Rapid ResultsInitiative so as to attain tangible and successful results within 150 days. Extend this methodwithin projects or to new operations. Present a concise Aide MCmoire to Sector Ministries at the end o f appraisallsupervision missions. Attach a dynamic Action Plan focused on concrete and measurableresults. Governance 0 Review project staff remunerations and compensation and align them with other donors, in order to eliminate significant gaps, especially with project staff integrated inGovernment structures. 0 Conduct SOE and Procurement ex-post reviews, at least once a year. 0 Critical evaluations o f Procurement Plan Implementation and explanation on gaps. Introduce performance indicators inResultsFrameworks regarding contract awards, approvals and payments to beneficiaries. Fiduciary Disseminate standardmodel procurement documents among clients (TORS, evaluation reports etc...)to facilitate procurement process. Hold semi-annual meetings o f fiduciary staff at the Country Office to reinforce knowledge and generalize best practices. 0 Strengthen quality o f IFRs (InterimUnaudited Financial Reports) to provide option for quarterlyor semi-annual disbursement. 0 Implementaction planto follow-up on audit recommendations incollaboration with Ministry o f Governance. M&E and Organize specific and practical fiduciary trainings to strengthenproficiency on technical Training subjects. Conduct M&Etraining following results-based management principles. Adjust results framework, accordingly. 0 Establish sector M&E svstems with other donors and inteerate Droiect M&E svstems. - 4 6 - Annex 9: InternationalFinanceCorporation Burundi IFC Committed and DisbursedOutstandingInvestment Portfolio (asof June 23,2008) Committed Disbursed Outstanding - FY **Quasi **Quasi Approval Company *GT/RM Participant - Loan Egt& *GT/RM Participant 0 0 0 0 0 0 0 0 0 0 0 0 Burundi: IFC InvestmentOperations Program (As of June 23, 2008) 2005 2006 2007 2008* Commitments (US$m) Gross 0 0 0 0 Net** 0 0 0 0 Net Commitments bv Sector fYd 0 0 0 0 Net Commitments by Investment Instrument (%) 0 0 0 0 * As of June 23, 2008 ** IFC's Own Account only -47- 5 5 5 5 - - 5 5 I 5 5 aIvsn 5 5 5 5 5 5 I 5 5 5 5 5 5 a E 0 6 P W E ed W 0 0 N $ c, s E 6a E ed 3 3 I iri 0 .I M CI W iz2 I 3 c 3 I 58 0 4- E 0 .I 2mE 4- I .I 20 .e * 8 I! CI 3 E 0 L 67E E E G ed Annex 11: Summary of Non-Lending Services As of Date 06-23-08 Product Completion FY Cost Audience' Objective $000 Recent completions Education Country Status Report 06 283 K,p Poverty Report 06 53 K,p Health Sector Review 06 91 K,P Trade 06 10 K,P Accounting and Auditing ROSC 07 111 K,P Monitoring and Evaluation CD Activities 07 38 K,p Central Bank Strengthening 08 171 K,p Sources of Growth 08 570 K,D,P PEMFAR 08 415 KP Health Financing Study 08 131 KP Investment Climate Assessment 08 630 KP Governance Diagnostic TA (WBI) 08 100 KP Non-Tariff Barriers to EAC Trade 08 83 KP Youth in Post-Conflict Burundi 08 27 KP Underway Energy Sector Study 09 KP Planned HIPC Completion Point 09 KP Domestic Petroleum Sector Study 09 KP FSAP 09 KP PER Update 10 KP CEM 10 KP PER Update 11 KP PER Update 12 KP PovertyAssessment 12 KP 1Government (G); Donor (D); Bank (B); Public dissemination (P); 2Knowledge generation (K); Public debate (D); Problem-solving (P) - 50 - Annex 12: IDA Summary Program Fiscal year Proj ID US$(M) Strategic Rewards lmplementation (HAUL) Risks (HAM) 2009 EconomicSupport ReformGrant II 30.0 H M HealthSector Support 25.0 M M Second PublicWorks 45.0 H M Additional Financing:Demobilization& Reint. 10.0 H H 2010 EconomicReformSupport Grant 111 25.0 H M Agriculture 43.0 H M Public Enterpriseand FinancialSector 16.0 H M Regional: LakeVictoria EnvironmentManagement 5.0 M M 2011 DevelopmentPolicy Operation 25.0 H M Additional Financing:Roads 20.0 M M Regional Transport 15.0 M M Regional Hydropower 10.0 M M 2012 DevelopmentPolicy Operation 25.0 H M Additional Financing:Second PublicWorks 15.0 M M - 5 1 - I m vi I I d- w I I 1 I I I N. I I , I I I I I I I ' I J 5a IBRD 33380 BURUNDI SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS PROVINCE BOUNDARIES NATIONAL CAPITAL INTERNATIONAL BOUNDARIES RIVERS 29°E 30°E 31°E Lake To Kivu This map was produced by the Map Design Unit of The World Bank. Kigali The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any To endorsement or acceptance of such boundaries. Gitarama Lake Kagera Lake Rweru Cohoha RWANDA To K I R U N D O Cyangugu Kirundo To Butare To Kanyaru Rulenge Ruvuvu C I B I T O K E M U Y I N G A N G O Z I Muyinga To Cibitoke Nyakanura Ngozi Kayanza Rusiba 3°S Musada Ruvuvu Buhiga 3°S Bubanza K AYA N Z A To Karuzi Mwerusi Kakonko Rusizi B U B A N Z A K A R U Z I C A N K U Z O Cankuzo To Uvira M U R A M V YA Muramvya Ruvuvu BUJUMBURA Gitega DEM. REP. M WA R O Mwaro Luvironza Ruyiga OF CONGO B U R A R U Y I G I B U J U MMt. G I T E G A To Kibondo Heha (2,670 m) Bukirasazi Rumpungu TANZANIA Matana B U R U R I Mutangaro R U TA N A Bururi Most distant Rutana Rumonge headwater of the Nile River 4°S 4°S Makamba M A K A M B A BURUNDI Mabanda Lake Muragarazi Tanganyika Nyanza-Lac To Kasulu 0 10 20 30 40 Kilometers 0 10 20 30 Miles 29°E 30°E 31°E SEPTEMBER 2004