Document of The World Bank FOR OFFICIAL USE ONLY Report No: 74242-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 32.6 MILLION (US$50 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR A FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION December 27, 2012 Environmental and Natural Resources Management Unit, AFTN1 Sustainable Development Department Country Department, AFCS2 Africa Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective as of October 10, 2012) Currency Unit = Meticais (MZN) MZN 28.6 = US$ 1.00 FISCAL YEAR January 1 – December 31 ABBREVIATION AND ACRONYMS ACCRA Africa Climate Change Resilience Alliance AfDB African Development Bank ANE National Roads Administration (Administração Nacional de Estradas) APL Adaptable Program Lending CCGC Coordinating Council for Disaster Management (Conselho Coordenador de Gestão de Calamidades) CCTAP Climate Change Technical Assistance Project CDKN Climate Development Knowledge Network CIF Climate Investment Funds CGE Computable General Equilibrium CONDES National Sustainable Development Council (Conselho Nacional de Desenvolvimento Sustentável) COP Conference of the Parties CPS Country Partnership Strategy CTGC Technical Council for Disaster Management (Conselho Técnico de Gestão de Calamidades DANIDA Danish International Development Agency DFID Department for International Development (UK Aid) DNA National Directorate of Water (Direcção Nacional de �guas) DPO Development Policy Operation DPL Development Policy Lending DRM Disaster Risk Management EACC Economics of Adaptation to Climate Change EDAP Energy Development and Access Project EdM Public Electricity Utility (Electricidade de Moçambique) EITI Extractive Industry Transparency Initiative ENGRH National Water Resources Management Strategy (Estratégia Nacional de Gestão de Recursos Hídricos) ENSSB National Basic Social Protection Strategy (Estratégia Nacional de Segurança Social Basica) FDI Foreign Direct Investment FIT Feed-in-Tariff FUNAE National Energy Fund (Fundo Nacional para o Acçesso da Energia) FY Fiscal Year GCM Global Circulation Model GDP Gross Domestic Product GoM Government of Mozambique HDI Human Development Index ICR Implementation Completion Report IDA International Development Association IFC International Finance Corporation IPP Independent Power Producer IMF International Monetary Fund INAM National Meteorological Institute (Instituto Nacional de Meteorologia) INGC National Institute of Disaster Management (Instituto Nacional de Gestão de Calamidades) IPCC International Panel for Climate Change M&E Monitoring and Evaluation MAE Ministry of State Administration (Ministério da Administração Estatal) MDG Millenium Development Goal ME Ministry of Energy (Ministério da Energia) MICOA Ministry for Coordination of Environmental Affairs (Ministério para a Coordenação da Acção Ambiental) MMAS Ministry of Women and Social Action (Ministério da Mulher e Acção Social) MINAG Ministry of Agriculture (Minstério da Agricultura) MISAU Ministry of Health (Minstério da Saude) MPD Ministry of Planning and Development (Ministério de Planificação e Desenvolvimento) MOPH Ministry of Public Works and Housing (Ministério de Obras Publicas e Habitação) NAPA National Adaptation Programme of Action NCCS National Climate Change Strategy PAF Performance Assessment Framework PARP(A) Plano de Acção para a Redução da Pobreza (Absoluta); Mozambican PRSP PDO Project Development Objective PEDSA Strategic Development Plan of the Agricultural Sector (Plano Estrategico de Desenvolvimento do Sector Agrario) PESS Health Sector Strategy (Plano Estratégico do Sector de Saúde) PFM Public Finance Management PPCR Pilot Program for Climate Resilience PRSP Poverty Reduction Strategy Paper PRSC Poverty Reduction Strategy Credit PSI Policy Support Instrument PSIA Poverty and Social Impact Analysis PPAs Power Purchase Agreements PV (Solar) Photovoltaic RETs Renewable Energy Technologies REFIT Renewable Energy Feed in Tariff SDR Special Drawing Rights SEA Strategic Environmental Assessment SPCR Strategic Program for Climate Resilience TA Technical Assistance UCMC Climate Change Coordination Unit (Unidade de Coordenação das Mudanças Climáticas) UNDP United Nations Development Program UNFCC United Nations Framework Convention on Climate Change WB World Bank Vice President: Makhtar Diop Country Director: Laurence C. Clarke Sector Manager: Magda Lovei Task Team Leaders: Giovanni Ruta and Frauke Jungbluth ii MOZAMBIQUE FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION TABLE OF CONTENTS CREDIT AND PROGRAM SUMMARY ..................................................................................................... iv  I.  INTRODUCTION ............................................................................................................................ 1  II.  COUNTRY CONTEXT ................................................................................................................... 4  OVERVIEW .......................................................................................................................................... 4  RECENT ECONOMIC DEVELOPMENTS .................................................................................................. 9  THE ECONOMIC OUTLOOK FOR 2013-2015 ......................................................................................... 13  POTENTIAL ECONOMIC IMPACT OF CLIMATE CHANGE IN MOZAMBIQUE .............................................. 15  III.  THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ....................... 18  MACROECONOMIC PROGRAM.............................................................................................................. 18  CLIMATE CHANGE PROGRAM .............................................................................................................. 18  IV.  BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ..................................................... 21  LINK TO CAS ...................................................................................................................................... 21  COLLABORATION WITH THE IMF AND OTHER DONORS ...................................................................... 22  RELATIONSHIP TO OTHER BANK OPERATIONS .................................................................................... 24  LESSONS LEARNED ............................................................................................................................. 24  ANALYTICAL UNDERPINNINGS ............................................................................................................ 25  V.  THE PROPOSED FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION .................................................................................................................................... 28  OPERATION DESCRIPTION ................................................................................................................... 28  POLICY AREAS .................................................................................................................................... 31  VI.  OPERATION IMPLEMENTATION ............................................................................................. 42  POVERTY AND SOCIAL IMPACTS.......................................................................................................... 42  ENVIRONMENTAL ASPECTS ................................................................................................................. 44  IMPLEMENTATION, MONITORING AND EVALUATION ........................................................................... 45  FIDUCIARY ASPECTS ........................................................................................................................... 46  RISK AND MITIGATION ........................................................................................................................ 47  ANNEX 1: LETTER OF DEVELOPMENT POLICY................................................................................ 49  ANNEX 2: CLIMATE CHANGE DPO POLICY MATRIX AND RESULTS FRAMEWORK ............. 55  ANNEX 3: SECTOR POLICY AREAS BACKGROUND NOTES ........................................................... 58  ANNEX 4: FUND RELATIONS NOTE ....................................................................................................... 70  ANNEX 5: COUNTRY AT A GLANCE ...................................................................................................... 72  The Climate Change Development Policy Operations Credit was prepared by a team consisting of Giovanni Ruta (Senior Environmental Economist, AFTN1, TTL), Frauke Jungbluth (Senior Rural Development Economist, AFTN1, Co-TTL), Ross Hughes (Senior Climate Change Specialist, AFTN1), Luz Meza-Bartrina (Senior Counsel, LEGAM), Muthukumara Mani (Senior Environmental Economist, SASDC), Vanessa Lopes Janik (Operations Analyst, ESMAP), Maika Watanuki (Junior Professional Officer, AFCS2), Celia Faias (Program Assistant, AFCS2), Jayne Kwengwere (Program Assistant, AFTN1), Elvis Langa (Financial Management Specialist, AFTFM), Amos Malate (Procurement Specialist, AFTPC), Mohamed Khatouri (Lead Monitoring and Evaluation Specialist, AFTDE), Stephen Ling (Natural Resources Management Specialist, AFTN3), Julio Revilla (Lead Economist and Sector Leader, PREM), Enrique Blanco Armas (Senior Economist, AFTP1), Patrick Verissimo (Senior Sector Economist, AFTA2), Pedro Arlindo (Agricultural Economist), Louise Croneborg (Water Resource Management Specialist, AFTN2), Marcus J. Wishart (Senior Water Resources Specialist, AFTN2), Jose Domingos Chembeze (Transport Specialist, AFTTR), Saul Walker (Senior Health Specialist, AFTHE), Eric Zapatero Larrio (Consultant, AFTSE), Cecilia Valentina Costella (Consultant, HDNSP), Rob Mills (Senior Economist, AFTG1), and Farnosh Simon Dalili (Energy Specialist, AFTG1). iii CREDIT AND PROGRAM SUMMARY MOZAMBIQUE FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION Borrower Republic of Mozambique Implementing Ministry of Planning and Development Agency Financing Data SDR 32.6 million (US$50 million equivalent) IDA terms: 40-year maturity with a 10-year grace period Operation Type Single-tranche programmatic development policy operation. First of a series of three operations Main Policy Areas Pillar 1 – National policy and institutional framework for climate action Pillar 2 – Climate resilience in sectors Key Outcome  Number of districts that budget the climate change actions Indicators identified in the national socio-economic plan (PES) in annual district budgets (PESOD).  Number of districts reporting on climate change information through the M&E framework.  Number of municipalities that adopt specific actions identified in the disaster risk management Master Plan.  Number of households engaged in conservation agriculture in all ten provinces.  Average yields of maize (tons per hectare) from farms engaged in conservation agriculture.  Number of households in climate vulnerable districts (identified by new INE indicator) that are targeted by the National Productive Social Action Program.  Number of high-risk districts and municipalities that have (i) identified focal points for disaster response, including climate related events; (ii) a local disaster response plan that includes climate related events; and (iii) identified mechanisms to mobilize funds for disaster response, including climate related events.  Percentage of district roads that are constructed or upgraded from 2014 onwards that is in compliance with revised design standards.  Number of proposals for renewable energy investments following approval of new renewable Feed in Tariff mechanism.  Improved lead times for flood warning compared with 2007 baseline. iv Program The Program Development Objective is to build effective Development institutional and policy frameworks for climate resilient Objective(s) and development. Contribution to CAS Climate change is a central theme of Pillar 2 on ‘Vulnerability and Resilience’ of the CPS (FY12-15) for Mozambique. Risks and Risk Institutional issues pose the most significant risk to this operation Mitigation given its key role to achieve improved cross-sectoral coordination and implementation. To mitigate this risk, the Government has recently put in place a National Climate Change Strategy that includes disaster risk management priorities. The Government has also broadened ministerial participation in the inter-institutional coordination body – the Council for Sustainable Development (CONDES), by including participation of institutions responsible for both climate change and disaster risk management. Potential delays in implementing reforms included in the DPO series also presents a risk. This could result from (i) insufficient institutional capacities and (ii) delays in implementing the investment pilots under the Pilot Program for Climate Resilience (PPCR). To mitigate the former risk, the proposed DPO reforms will be supported through technical assistance to be delivered through the Climate Change Technical Assistance Project. The risk of delays in the investment pilots applies only to the roads trigger included for DPO 3. This risk will be re-assessed during the preparation of DPO 2. There is risk of macro-economic shocks on policy reforms. To mitigate this risk the government has developed a model to dampen the impact of such shocks. This includes building a high level of reserves, maintaining a flexible exchange rate regime and keeping external debt vulnerability low. Mozambique also has a stable relationship with the IMF, anchored on a Policy Support Instrument, which contributes to solid macroeconomic management. Institutional risks have receded with recent consensus over the national climate change strategy which has clarified institutional roles, and with emergence of a strong role from MPD in coordinating and driving the reform series and in supporting MICOA’s management of the SPCR. Nonetheless, a political economy analysis will be undertaken as part of the Poverty and Social Impact Analysis to shape the design of DPO 2 and DPO 3 operations. Operation ID P128434 v IDA PROGRAM DOCUMENT FOR A PROPOSED MOZAMBIQUE FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION CREDIT I. INTRODUCTION 1. Climate change poses a major challenge to Mozambique’s development. Mozambique is exposed to risks from multiple weather-related hazards, suffering from periodic floods, cyclones and droughts. In the past 30 years, 14 percent of the population has been affected by a drought or a flood/ storm. This is second only to Swaziland (18 percent). Floods, epidemics and cyclones are the most frequent disasters, although droughts affect by far the largest number of people. Coastal erosion, storm surges and rising sea levels threaten Mozambique's coastal zone and cities - the largest cities in Mozambique are mostly located near the coast. 2. This Development Policy Operation (DPO) is the first in Sub-Saharan Africa to focus on policy and institutional reforms that address climate change risks. It culminates from a deepening dialogue on climate change between the Government of Mozambique (GoM), the World Bank and international development partners. That dialogue has its roots in a technical assistance dialogue that identified addressing the risks from climate variability and change as one of the three main environmental priorities in the country and in a key study, led by the National Disaster Management Institute that assessed the potential impacts of climate change for Mozambique in detail. In 2010, the flagship study of the Economics of Adaptation to Climate Change (EACC) drew the attention of policy makers and development partners to the cost of inaction - estimated at US$450 million per year or one third of annual ODA to Mozambique. In 2011, Mozambique had been selected as one of the pilot countries for the Pilot Program for Climate Resilience (PPCR) and the GoM prepared a US$100 million Strategic Program for Climate Resilience (SPCR) with the assistance of the World Bank, the African Development Bank (AfDB) and the International Finance Cooperation (IFC). Support totaling US$86 million was endorsed by the Climate Investment Funds (CIF) in June 2011. The SPCR aims to introduce climate resilience into development planning through a combination of pilot investments in different sectors (hydro-meteorology, rural roads, agriculture, private sector and urban), support for knowledge management, and policy and institutional reforms. The preparation of the SPCR, led by the Ministry of Planning and Development (MPD) and the Ministry for the Coordination of Environmental Affairs (MICOA), marked a significant shift towards strong ownership from the GoM on the climate change agenda (Figure 1). 3. The three pillars of the SPCR are: (i) Institutional and policy reforms; (ii) ‘Transformational’ investment pilots; (iii) Management, monitoring and knowledge management. The Climate Change Development Policy Operation (CC DPO) supports the implementation of the first pillar. Policy reform and dialogue will also be supported by the experience gained through the investment pilots (second pillar of SPCR) and by knowledge creation and management work (third pillar). A companion Climate Change Technical Assistance Project (CCTAP) has been approved already to support knowledge management work and to ensure lessons learned from the investment pilots are captured in the government’s policy design process (Figure 2). 1 Figure 1. The evolving WB/GoM dialogue on Climate Change Figure 2. The relationship between the DPO, the SPCR and technical assistance Strategic Program for Climate Resilience Pillar 1: Pillar 2: Pillar 3: Institutional and Investment Management monitoring policy reform pilots and knowledge management Climate Change Technical Assistance Project (CCTAP) Climate Change Development Policy Operation (DPO) 4. Policy reform on climate change represents an ambitious goal for Mozambique. The program will include a series of three operations. The third operation will bridge across to the next Country Assistance Strategy (CAS) and the next election cycle and will thus help to ensure continuous support across policy cycles. The lessons from other development policy operations show that programmatic DPOs deliver better impacts by providing the time needed to deepen reforms and that technical assistance is critical for supporting the implementation of longer-term reforms. 2 5. The climate change DPO is one of three budget support operations that are being prepared for Fiscal Year 2013. The Country Partnership Strategy (CPS) also foresees support for a new Poverty Reduction Strategy Credit (PRSC9 - US$ 110 million) and an agricultural DPO (US$ 50 million). The PRSC is supporting the broader poverty reduction and development agenda that the Government has laid out in the Poverty Reduction Strategy Paper (PARP - Plano de Acção para a Redução da Pobreza). The sectoral DPOs are building on that framework and are fully consistent with the PARP, but aim to deepen reform efforts in each sector. The Government has asked the Bank to focus resources and attention on selected reforms at the sectoral level, beyond what can be done within the framework of the PRSC which is designed as an umbrella operation to have broad outreach and more emphasis on economic policies. The PRSC is recognized as a strong instrument in Mozambique, and covers several sectors and issues (including public financial management, private sector development, and social protection). Whilst its elements have to be largely conducive to the G19 donor support, it does not provide a suitable vehicle for a multi-sectoral thematic area such as climate change. In this area the Bank is engaged in an in-depth and substantive policy dialogue which provides strong justification for a thematic DPO support on climate change. The sectoral DPOs have been prepared in cooperation with development partners and they align with the policy dialogue of other partners with the Government. 6. The sector areas included in this DPO series have been identified as priority reform areas by the GoM. The Government has embarked on an ambitious program to build climate resilience of the country and is prioritizing the proposed DPO actions to support the reforms needed to deliver on this agenda. It is also recognized that the engagements in the areas of agriculture and climate change are mature and important enough to dedicate resources to further reforms in these sectors with sectoral DPOs. 7. The DPO series was designed in close cooperation with the Ministry of Planning and Development (MPD). This ministry is taking the leadership, in cooperation with MICOA, to identify priorities and communicate and coordinate the inputs and reviews of the relevant sectoral ministries. Building on the coordination mechanisms that have been established under the SPCR, the elaboration of the proposed policy actions and triggers was based on a series of inter-sectoral and sectoral meetings within the Government and with other key stakeholders including non-governmental organizations. The DPO series is therefore based on a common understanding of the roles and responsibilities of the respective institutions included in the proposed actions. 8. The DPO is designed as a programmatic series of three operations to support climate change policy reforms. The proposed program has two pillars: (i) National policy and institutional framework for climate action; and (ii) Climate resilience in sectors. The first pillar supports cross-cutting reforms that will institutionalize and implement climate change actions at the national, sector and provincial levels. The second pillar supports the integration of climate resilient planning and development at the sector level and will focus support on agriculture, human development (health and social protection) and infrastructure (energy, roads and hydro- meteorology). 9. Targeted technical assistance is supporting the implementation of the DPO series. The Climate Change Technical Assistance Project (CCTAP) will build capacity for the 3 implementation of all three pillars of the SPCR and is also supporting preparation of the DPO series. The project was approved by the Board on June 26, 2012. II. COUNTRY CONTEXT OVERVIEW 10. Mozambique’s economic performance has been very strong since the end of the Civil War in 1992. The country’s growth record over the past two decades has been impressive, with annual growth averaging more than 7.4 percent from 1993 to 2011, making Mozambique the fastest-growing non-oil economy in Sub-Saharan Africa (SSA)1. Its performance during this period was made possible by sound macroeconomic management, a number of large-scale foreign-investment projects (“megaprojects�), and strong, consistent donor support. These factors contributed to robust growth across most sectors of the economy, especially mining, electricity, and services, though the relative growth rates of different sectors were highly uneven. Figure 3: GDP and Per-Capita GDP Growth Rates, 1996-2011 800 18 15 600 12 400 9 6 200 3 0 0 1996 1999 2002 2005 2008 2011 GDP growth (RHS) GDP per capita, USD (LHS) Source: World Bank World Development Indicators and INE 11. However, over the past decade rapid economic growth has increasingly failed to translate into significant poverty reduction. As noted above, strong economic growth was accompanied by significant decreases in poverty rates until the early 2000s. Household survey data indicate that the national poverty headcount fell substantially between 1997 and 2003, dropping from 68 percent to 56 percent. However, while poverty reduction continued between 2003 and 2009 it did so at much slower rate. Recent estimates by the World Bank show the 1 Due to the expected impact of the extractive industries sector, Mozambique may soon cease to be considered a “non-oil economy�. However, the rapid growth observed during the past decade occurred before the extractive industries became a major element of the economy. It should be noted that aluminum production is not part of a domestic extractive industry, as it relies on imported bauxite, and the current natural gas sector adds much of its value through the refining of gas products rather than solely through extraction; coal exports were a minor part of the trade balance until 2011. 4 national poverty headcount falling to 52 percent by 2009, a decline of four percentage points over the period2. 12. The geographical distribution of poverty remains largely unchanged, with both moderate and extreme poverty concentrated most heavily in rural areas and in the country’s Central and Northern regions. Indeed, there is evidence that regional differences have become more extreme over time, as the moderate reduction in overall poverty observed in the mid- and late-2000s appears to have been driven by declining poverty rates in the already more affluent Southern region and in urban centers, especially the Maputo area. Nationwide, rural poverty continues to be severe, pervasive and largely intractable. What rural poverty reduction has occurred has been concentrated in the Southern provinces, likely reflecting spillover effects from the rapid growth of urban centers in the region. Elsewhere in the country rural poverty rates remain unchanged, and in Central Mozambique the poverty headcount actually increased between 2003 and 20093. 13. Nevertheless, social indicators have shown significant and sustained improvements since the mid-1990s. Strong and consistent progress has been observed in public health and education, and these trends continued through the 2000s even as the pace of monetary poverty reduction slowed. Achievements in the social sectors have not been entirely even, however. Rising school enrollment and declining infant and maternal mortality rates have far outpaced increases in access to improved water and sanitation and in the number of physicians per capita, while immunization rates have marginally declined since 2000. Table 1: Mozambique Selected Social Indicators, 2000-2010 Latest Single Year 2000-03 2004-08 2009-11 Primary School Enrollment (net %) 58 80 91 Primary School Enrollment (gross %) 80 105 113 Ratio of Girls to Boys in Primary and Secondary Education (%) 76 85 89 Adult Literacy Rate, Total (%) 48 NA 55 Adult Literacy Rate, Female (%) 33 NA 41 Under-5 Mortality Rate (per 1,000 live births) 162 133 108 Infant Mortality Rate (per 1,000 live births) 110 90 75 Life Expectancy at Birth (years) 48 49 50 Physicians per 1,000 People 0.024 0.028 0.026 Immunization, DPT (% of children 12-23 months) 74 78 75 Immunization, Measles (% of children 12-23 months) 75 74 69 Access to Improved Water Sources (% of population) 43 45 47 Access to Sanitation Facilities (% of population) 15 16 18 Source: World Bank World Development Indicators 2 The government’s official poverty statistics place the poverty rate in both 2003 and 2009 at about 54 percent; however, recent analytical work suggests that in 2003 the poverty rate was in fact marginally higher than the official figures indicate, at 56 percent, and that it subsequently fell to 52 percent in 2009. See “Poverty in Mozambique: New Evidence from Recent Household Surveys� (World Bank 2012). 3 These figures are also based on the Bank’s revised estimates and differ from the official statistics. 5 14. Mozambique has made substantial progress towards the Millennium Development Goals (MDGs), though achievements in this area have also been uneven. Based on the results of the most recent household survey, Mozambique will need to significantly accelerate poverty reduction in order to halve the population living in absolute poverty by 2015. Reducing hunger and child malnutrition also remains a major challenge, particularly given the relative severity and intractability of rural poverty. The MDG for access to improved water sources is within reach, given recent improvements in the quality and extension of urban water supply, although increasing access to improved water sources in rural areas remains a serious challenge. The greatest progress has been made on the MDG targets related to universal primary education, gender equality and women’s empowerment, reducing child mortality, and improving maternal health, but this progress will need to be sustained, and in some cases accelerated, if the targets are to be met. Combating the spread of HIV/AIDS, as well as the incidence and mortality rates for malaria and other diseases is among Mozambique’s most pressing social-policy concerns, and progress on MDGs in these areas remains limited. 15. Despite decades of robust growth and broad improvements in social indicators, Mozambique continues to face a complex set of development challenges. In 2011 its GDP per capita was US$535, well below the average for developing countries in SSA (US$1,424) and significantly below the average for low-income countries worldwide (US$581). Human-capital constraints are severe. In the 2011 Human Development Index Mozambique ranked 184th out of 187 countries. The adult literacy rate is 55 percent, and average life expectancy at birth is just 50 years. Malnutrition worsened between the mid-1990s and 2003, and after several years of improvement malnutrition rates have only just returned to levels comparable to the mid-1990s. Malaria remains the most common cause of death, responsible for 35 percent of child mortality and 29 percent for the general population. It accounts for over 60 percent of all pediatric hospital admissions and 40 percent of all outpatient consultations. The economic impact of malaria is profound, and it is estimated that in SSA as a whole, malaria reduces GDP growth by an average of 1.3 percent per year. 16. Administrative capacity limitations, regulatory inefficiency in both design and enforcement, and weaknesses in overall governance present major constraints to private- sector development and international competitiveness. Mozambique ranked 146th out of the 185 countries included in the 2013 Doing Business report, down significantly from both 2011 and 2012. Mozambique’s ranking in the Trade Logistics Performance Index also worsened, falling from 110th out of 150 countries in 2007 to 136th out of 155 countries in 20104. 17. However, Mozambique’s ranking in the 2011 Transparency International Corruption Perceptions Index, 120th out of 183 countries, is a significant improvement over its previous rank, 130th out of 180 countries, in the 2009 report. In the 2010 Worldwide Governance Indicators, Mozambique performed better than both the SSA and low-income- country averages on all six dimensions of the index (voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption). Although Mozambique is still highly aid-dependent, the share of aid in the national budget has been 4 Mozambique was one of nine countries excluded from the 2012 Trade Logistics Performance Index due to insufficient data. 6 decreasing, and external grants accounted for approximately 23 percent of total government spending in 2011. 18. Economic growth continues to be strong, but the scope of the economy remains narrow and growth has been heavily concentrated in a limited number of sectors. Rapid economic growth continues to be made possible by overall macroeconomic stability, strong donor support, and investments in a number of so-called “megaprojects�. Discoveries of large quantities of valuable natural resources, including large deposits of coal and natural gas, as well as substantial quantities of heavy mineral sands, have prompted significant investments in exploration, extraction and related infrastructure. The extractive industries are by far the country’s most dynamic sector, growing at a rate of over 50 percent in the second quarter of 2012, and over the next decade natural-resource extraction will profoundly alter the structure of the Mozambican economy. Agriculture, which employs about 78 percent of the economically active population, currently accounts for the largest share of GDP, at over 30 percent in 2012, followed by trade and retail services at 12 percent and transport and communications at 11 percent. Manufacturing continues to decline in relative terms and accounted for just 10 percent of GDP in 2012, compared to 17 percent 10 years ago. The extractive-industries sector currently represents only about 1 percent of GDP, but its economic importance is projected to increase rapidly over the coming years, and if current expectations prove accurate extractive industries will eventually become Mozambique’s dominant economic sector. Box 1: Extractive Industries in Mozambique Mozambique is poised to become a major producer of mineral and hydrocarbon-fuel products—not just in the region, but worldwide. The country is rich in a variety of mineral resources, and since the discovery of large coal deposits in the province of Tete, in the Central-Western region of the country, the mining sector has attracted increasing attention both from international investors and domestic policymakers. Natural gas extraction and processing began in 2004 at the Sasol gas-processing plant in Inhambane, in the South of the country, but the recent discovery of enormous gas fields in the Rovuma Basin, along the border with Tanzania, will radically transform the structure of the Mozambican economy for decades to come. There are over 32 billion tons of confirmed coal deposits in Mozambique; full exploitation of these resources could make the country one of the world’s leading coal exporters. Global demand for coal is projected to continue increasing over the next 15 years, fueled by rising demand among emerging economies such as India and China. Production in Mozambique is expected to increase substantially during the same period, but existing port and railway infrastructure would only support a fraction of potential coal production, and significant investment in new port and railway capacity will be necessary to realize the coal industry’s potential. Confirmed gas reserves in the Rovuma Basin currently amount to 130 trillion cubic feet, and it is likely that further discoveries of substantial commercial value will be made in the near future. These discoveries could allow Mozambique to become a major exporter of natural gas over the medium term. Export-centered investments in the production of liquid natural gas (LNG) will be necessary for the development of off-shore gas fields. In addition, natural gas could be used to develop downstream industries domestically. As with coal, significant infrastructure investments will be necessary both for LNG exports as well as for the domestic use of natural gas, and determining the optimal strategy for providing complementary infrastructure investment. 7 Current predictions by the Economist Intelligence Unit (EIU 2012) indicate FDI inflows of US$90 billion over the next 10 years, or an average of US$9 billion per year. To date Mozambique’s record for annual FDI is US$2 billion, and its GDP was less than US$13 billion in 2011. These figures should provide a sense of the scale of prospective resource investments, and the enormous value of those resources, in relation to the size of the Mozambican economy. It is not yet possible to precisely estimate the potential foreign-exchange earnings represented by Mozambique’s extractable resources, or their prospective impact on government revenues, given inherent uncertainties about production capacity, future prices, or the fiscal regime for the sector. However, early projections suggest annual fiscal revenues of US$2-4 billion per year for coal and US$5-10 billion per year for gas. By comparison, current government revenues are just under US$3 billion per year. Notwithstanding the difficulty of estimating revenues at this early stage, these projections provide an indication of their potential magnitude. Yet despite the enormous benefits offered by extractive industries, managing large natural resource reserves—and the revenues generated by them—presents a complex set of policy challenges. The government is stepping up its efforts to build a strong institutional foundation for the development of the sector, including revisions to the legislative framework, the formulation of comprehensive sectoral development plans, and efforts to improve public financial management and ensure the effective utilization of resource revenues. Key investments in railways and port infrastructure are also underway, and further projects are being evaluated. 19. The export basket remains very limited, reflecting the narrow scope of the economy as a whole, with only thirteen products registering annual exports in excess of US$1 million. Mozambique’s exports have increased significantly (in real terms) over the past two decades, with average growth rates of 12 percent and 18 percent in 1991-1999 and 2000-2010, respectively. Much to this growth was driven by foreign-financed megaprojects in the aluminum, coal and gas industries, particularly during the past decade; while Mozambique continues to run an overall trade deficit, megaprojects have contributed to a gradual narrowing of the trade balance, and this trend is expected to continue. 20. Exports are heavily concentrated in a limited range of products. Aluminum represents almost 50 percent of total exports (see Figure 4 below). The Mozal aluminum smelter is the country’s premier megaproject. It refines bauxite imported from Australia—only a small amount of bauxite is produced in Mozambique—and aluminum production is therefore not classified as part of an extractive industry. Aluminum exports are likely to remain stable as Mozal has reached a level of production consistent with its facility’s maximum capacity. Coal production, which only started in mid-2011, has risen rapidly, and by the first quarter of 2012 coal had already become Mozambique’s second-largest export. Coal production is likely to continue to grow over both the short and long term as coal producers expand capacity and infrastructure constraints are removed. 21. As the current and future importance of the extractive-industries sector has become increasingly evident the government has begun preparing a set of reforms to improve the management of extractable resources. These efforts include strengthening the legal framework regulating the fiscal regimes for the mining and natural gas sectors, and ensuring greater transparency in the financial flows related to extractive industries (see Box1 above). 8 Figure 4: Mozambique Export Composition Major Exports Megaproject-Related Trade (2011) (2005-2011) 1500 2500 2000 1000 US$ millions US$ millions 1500 Exports 500 1000 Imports 0 500 0 2005 2006 2007 2008 2009 2010 2011 Source: INE 22. In October 2012 Mozambique achieved compliance with the standards of the Extractive Industries Transparency Initiative (EITI). After being accepted as an EITI candidate in May 2009, Mozambique made steady progress in improving the oversight of its emerging coal and natural gas sectors. This included the adoption of more comprehensive reporting, publication and external verification requirements for all private payments and public revenues related to the extractive industries, reforms which are at the core of the EITI standard. The candidacy process was highly participatory, involving a multi-stakeholder group comprising representatives from the government, the private sector and civil society in accordance with EITI procedures. 23. Mozambique’s achievement of EITI-compliant status is a strong indication of the government’s commitment to responsible management of the extractive-industry sector. EITI compliance sends an important signal to investors of the government’s political openness and reliability as a partner, while at the same time assuring civil society that natural resources are being managed with transparency and accountability. In order to retain its compliant status, the government must continue to work with multiple stakeholders to ensure that both public agencies and private firms maintain adherence to all EITI requirements. RECENT ECONOMIC DEVELOPMENTS 24. Mozambique’s overall macroeconomic framework remains fiscally, monetary and financially sound. Fiscal policy has been supportive, with the important contribution of donor support and private capital inflows, of a positive macroeconomic environment, including low inflation, prudent monetary policies, and a flexible exchange rate policy. The support of the IMF through a Policy Support Instrument in collaboration with the World Bank also provides an adequate background for World Bank budget support. 25. Mozambique’s economic growth rate has not only been remarkably strong, but growth has proven highly resilient to external shocks. GDP growth averaged almost 7 percent over the past 5 years despite the impact of the global financial and euro-zone crises. The growth rate slipped only modestly during the global financial crisis, as the authorities’ were swift to adopt countercyclical fiscal and monetary policies that helped to mitigate its impact. 9 Real GDP growth fell to 6.3 percent in 2009 - well below the decade average, but still extremely robust by almost any standard—and then progressively accelerated, reaching 7.3 percent in 2011. Growth in 2012 is projected at a slightly higher rate of 7.5 percent, notwithstanding the current turbulence in international markets and slow growth in global demand and prices for some of Mozambique’s main exports. However, current external conditions could adversely affect Mozambique through somewhat different channels than during the crisis in 2008. While weaker export demand, a widening terms-of-trade deficit, and tighter global credit constraints could all potentially recur, the difficulties in the euro zone raise the additional specter of reduced aid disbursements by Mozambique’s development partners. Figure 5: Trends in Nominal Exchange Rates and CPI 40 6 5 30 4 20 3 2 10 1 0 0 Inflation (YoY) MZN/USD MZN/ZAR (RHS) Source: BoM and INE 26. Inflation has slowed significantly due to the adoption of tighter monetary and fiscal policies. Inflation spiked in 2010 as a result of increases in international food and fuel prices and rising domestic aggregate demand, as well as a gradual reduction in fuel subsidies beginning in 2009 and the sharp nominal devaluation of the New Mozambican Metical (MTN), especially against the US Dollar and the South African Rand. Year-on-year inflation jumped from 4.2 percent in 2009 to a high of 16.6 percent in December 2010 and then fell to 2 percent by mid- 2012 as the Central Bank (Banco de Moçambique–BdM) tightened its monetary stance. Table 2: Basic Macroeconomic Indicators, 2009-2015 2009 2010 2011 2012 2013 2014 2015 Act Act. Est. Proj. Proj. Proj. Proj. Real GDP growth rate (%) 6.3 7.1 7.3 7.5 8.4 8.0 8.0 CPI inflation (%, annual average) 3.3 12.7 10.4 2.4 7.0 5.6 5.6 Credit to the economy (% change) 58.6 29.3 6.4 17.1 19.0 16.8 16.5 Policy lending rate (end of period) 11.5 15.5 15.0 9.5* .. Gross domestic savings, excluding grants -2.6 2.1 5.5 6.8 8.5 9.2 7.9 (% of GDP) Gross domestic investment (% of GDP) 16.5 26.4 37.6 37.2 39.0 54.5 51.9 Government 14.6 14.5 15.3 12.9 14.6 15.8 14.3 Other sectors 1.9 11.9 22.4 24.3 24.3 38.6 37.6 10 Terms of trade (% change) -0.7 10.4 3.2 -8.1 -4.5 1.0 0.5 Current-account balance, including grants -12.2 -17.4 -25.8 -26.1 -26.8 -42.2 -41.5 (% of GDP) Real exchange-rate change (% change) .. -6.6 -15.1 19.7 Sources: BdM, IMF and Bank estimates and projections. * November 2012 27. Tighter monetary policies reversed the depreciation of the metical, and rising currency values in the context of a more conservative fiscal stance rapidly curbed inflation, which dropped to below 2 percent since July 2012. Over the preceding 16 months the BdM had been gradually lowering policy rates, but this produced only a marginal increase in the availability of private-sector credit. The growth rate of private-sector credit now appears to be gradually recovering as a delayed effect of the BdM’s monetary-easing policies, but credit growth remains both relatively slow and modest due to persistent uncertainty in global capital markets and ongoing liquidity constraints in the euro zone. 28. Recently revised data of the external current-account deficit, including grants, shows that it exceeds 25 percent of GDP due to a rapid rise in imports related to the mining and megaproject sectors. The large and growing current account deficit does not reflect a fundamental imbalance in the economy as it is the reflection of rapid growth fueled by large FDI flows and investments by the mega projects. The current-account deficit has increased steadily since 2007; it is currently projected to remain stable at between 25 and 27 percent of GDP through 2013 before expanding to over 40 percent in 2014-15. Despite the sustained growth of megaproject exports, especially coal, megaproject-related imports are also rising rapidly, resulting in persistent current-account and trade deficits. These deficits are unsurprising given the size of foreign direct investment (FDI) inflows (approximately US$3 billion) relative to Mozambique’s GDP (US$13 billion); they are also unlikely to be problematic over the long term due to the anticipated rise in megaproject exports. Grants are declining as share of GDP and are projected to continue to do so over the medium term, but this trend has been partially offset by the sharp increase in FDI, which more than doubled between 2010 and 2011. High rates of FDI, primarily related to the extractive industries sector, financed around 90 percent of the current account deficit in 2011 and 2012. 29. Despite the impact of successive external shocks the government has succeeded in managing exchange-rate volatility primarily through fiscal policy actions and domestic interest-rate adjustments, without compromising the integrity of the flexible exchange-rate regime. Exchange-rate stability has been supported by the progressive de-dollarization of the economy, with the share of foreign currency in broad money falling from 50 percent to 35 percent over the past decade. The authorities remain committed to bolstering macroeconomic stability in the context of flexible exchange rate by encouraging the use of domestic currency in financial transactions and by deepening the financial sector. The relative exchange-rate stability of recent years is also reflected in the real effective exchange rate, which is now at roughly the same level as it was 6-7 years ago, despite significant fluctuations in the interim. 30. Fiscal indicators improved in 2011 and 2012 as steady revenue growth outpaced a modest increase in expenditures, narrowing the overall deficit. Tax revenues in 2010 and 2011 reached 18 and 19.6 percent of GDP, respectively, and are expected to rise to 21.1 percent in 2012. This trends has been partially the result of improvements in tax administration and 11 rising import volumes (in 2011), which boosted import-tax revenues and domestic sales taxes. In 2012 windfall revenue from capital gains taxes more than compensated for lower-than-expected customs revenues. Total expenditures and net lending rose by 1.0 percent of GDP in 2011 but are expected to contract by 1.1 percent of GDP in 2012. As a result, the overall fiscal deficit (after grants) is expected to decline in 2012 to 3.6 percent of GDP on the strength of rising tax revenues and a moderate decrease in capital expenditures. Table 3: Balance of Payments, 2010 – 2015 2010 2011 2012 2013 2014 2015 Act. Est. Proj. Proj. Proj Proj. (Millions of US Dollars) Trade balance (goods) -1,729 -3,052 -3,021 -3,129 -5,842 -5,905 Exports, f.o.b. 2,333 3,118 3,644 4,229 4,539 4,811 Of which: megaproject exports 1,668 2,015 2,328 2,794 2,946 3,025 Imports, f.o.b. -4,062 -6,170 -6,665 -7,359 -10,381 -10,716 Of which: megaproject imports -1,450 -2,350 -2,969 -3,037 -5,671 -5,701 Trade balance (services) -506 -794 -1,405 -1,470 -1,514 -1,598 Income balance -85 -190 -108 -94 -290 -801 Of which: dividend payments by 0 -157 -10 -21 -187 -254 megaprojects Current account balance (before grants) -1,663 -3,241 -3,805 -4,227 -7,242 -7,960 External grants 605 785 634 573 545 509 Current account balance (after grants) -1,058 -2,456 -3,171 -3,654 -6,697 -7,451 Financial account balance 1,318 2,634 3,727 4,015 7,192 7,818 Net foreign borrowing (general government) 468 531 600 1,033 1,351 1,184 Net foreign borrowing -348 -590 -173 -384 3,900 4,628 (nonfinancial private sector) Net FDI 1,340 2,892 3,090 3,261 1,840 1,912 Other investments -142 -199 210 105 101 95 Memorandum items: Current account balance (% of GDP) -17.4 -25.8 -26.1 -26.8 -42.2 -41.5 Excluding grants -24.3 -32.1 -31.1 -30.4 -45.3 -44.1 Gross international reserves 2,099 2,428 2,863 3,082 3,460 3,717 In months of projected imports 3.3 3.3 3.5 2.9 3.1 3.2 In months of current imports 4.8 3.8 3.9 3.8 3.2 3.3 Sources: BdM, IMF and World Bank estimates and projections. 31. The public-sector wage bill has risen in recent years, but its growth is expected to slow over the medium term as hiring decelerates. The wage bill rose to 9.8 percent of GDP in 2011 and is projected to increase to 10 percent in 2012, up from 9.2 percent in 2010. Most of this increase was due to additional hiring in PARP priority sectors (especially, education and public health), as well as moderate real-wage increases. However, due to the gradual decompression of the pay scale, limited increases in overall hiring, and the implementation of a new salary policy supported by the rapid expansion of the electronic payment system (e- FOLHA) the wage bill is expected to decline as a percentage of GDP starting in 2013 and is projected to stabilize at around 9 percent of GDP over the medium term. 12 32. The impact of the fuel-subsidy regime has been progressively diminished in recent years despite volatile oil prices, and its impact has diminished substantially as a source of fiscal concern. While cost recovery was effectively achieved in early 2012, subsequent global oil-price increases have sustained the need for fuel subsidies, though at a lower level than previously. The government has recently completed all payments to fuel-product importers that were owed as of 2011. The overall cost of the fuel subsidy fell from 1.5 percent of GDP in 2010 to 1.1 percent in 2011 and is currently estimated at 0.6 percent for 2012. Increases in diesel prices paid by megaprojects and public-works contractors since mid-2011 have reduced the need to compensate fuel importers. Table 4: Fiscal Framework, 2010-2015 2010 2011 2012 2013 2014 2015 Act. Est. Proj. Proj. Proj Proj. (Percentage of GDP) Total revenues 20.5 22.2 23.9 23.1 23.3 23.9 Tax revenue 18.0 19.6 21.1 20.1 20.2 20.9 Nontax revenue 2.5 2.6 2.8 3.0 3.0 3.0 Grants received 9.0 7.8 5.8 5.4 4.7 3.9 Total expenditures and net lending 33.4 34.4 33.3 34.9 36.0 34.5 Current expenditures 18.9 19.6 20.4 20.3 20.2 20.2 Compensation to employees 9.2 9.8 10.0 10.1 9.9 9.6 Interest payments 0.8 1.0 1.1 1.2 1.1 1.3 Domestic primary balance -3.7 -2.2 -1.3 -2.3 -2.1 -1.6 (before grants) Capital expenditures 13.9 13.9 11.3 12.0 12.4 12.0 Externally financed 7.5 8.3 5.5 5.8 6.1 5.5 Domestically financed 6.4 5.6 5.9 6.2 6.3 6.5 Overall balance (before grants) -12.8 -12.4 -9.3 -11.8 -12.7 -10.6 Overall balance (after grants) -3.9 -4.6 -3.6 -6.4 -8.0 -6.7 Total financing External (net) 4.2 3.7 3.6 5.8 7.2 5.9 Domestic (net) -0.4 0.9 0.0 0.6 0.9 0.8 Net privatization 0.0 0.0 0.0 0.0 0.0 0.0 Memorandum items: Total public debt 49.3 45.3 48.1 51.6 55.1 55.8 External 43.5 36.2 39.1 43.2 47.0 47.8 Domestic 5.9 9.1 9.1 8.3 8.2 8.0 Sources: GoM, IMF and World Bank estimates and projections. THE ECONOMIC OUTLOOK FOR 2013-2015 33. Mozambique’s medium-term macroeconomic outlook remains very positive. The authorities expect real GDP to grow by 8.2 percent during 2013-15, driven by the agricultural sector, extractive industries, electricity and water, construction, and transportation and communications. As detailed in the PARP the government proposes a set of reforms designed to support stronger growth in these sectors, though these will take time to implement and their impact will not immediately register. In the short run, megaproject production, particularly the growth of coal exports, megaproject-related FDI, and investments in infrastructure, both public 13 and private, are expected to remain among the most important contributors to economic growth. As described above, inflation has been dramatically reduced and is anticipated to remain between 5 and 7 percent through 2015, consistent with the authorities’ commitment to maintaining macroeconomic stability. 34. Exports are expected to grow over the long term, but fast investment growth related to mega projects and rising imports, are expected to increase the trade and current account deficits over the next few years. Export receipts are expected to increase by over US$1 billion (or about 30 percent) from 2012 to 2015, largely on the strength of expanding megaproject exports, especially coal. Non-megaproject exports are also expected to increase at an even faster rate, rising by 30 percent over the next 3 years. FDI will remain strong at about US$3.1 billion in 2012 and US$ 3.3 billion in 2013, while foreign borrowing—both by government and especially by the private sector—is expected to expand significantly beginning in 2014. 35. Total fiscal expenditures are expected to remain stable through 2015 at between 33.3 and 36 percent of GDP, in line with their projected 6-year average of 34.5 percent. Successful efforts to control the growth of the public-sector wage bill are expected to hold personnel costs essentially constant as a share of GDP, at around 10 percent. The modest growth of current expenditures as a whole should be offset by a roughly equal decline in capital spending. Annual primary deficits are projected to remain low, at between 1.6 and 2.3 percent of GDP through 2015, while the overall deficit will rise to between 6.4 and 8 percent. This decline is due in part to an expected decline in donor grants over the period. Nevertheless, the G-19 remains committed to supporting Mozambique, and ongoing donor support bolstered by improvements in the government’s tax-administration capacity will contribute to a stable fiscal position. This is also reflected in the relatively positive outlook of public-debt dynamics (see Box 2 below). 36. The BdM continues to maintain a mildly expansionary monetary policy stance, as credit growth remains weak, but its position is consistent with holding inflation to single digits. The monetary policy framework of Mozambique is expected to be strengthened as the BdM builds capacity towards developing a inflation targeting regime. The BdM started publishing, in early 2012, a quarterly monetary policy report aimed at anchoring price expectations based on a more transparent and efficient communication of the recent economic developments as well as its monetary policy decisions. Recent easing of monetary policy has had had a moderate, but clearly positive impact on the growth of credit to the private sector as it has begun to grow at double digits, following its deceleration in 2011. Credit growth is expected to continue to accelerate in 2013 and inflation should increase gradually from its current record low to between 5 and 6 percent over the medium term. 37. Despite its positive overall economic outlook the Mozambican economy faces substantial downside risks, particularly in terms of a potential slowdown in international economic growth. Persistent uncertainty in external markets and the potential for adverse impacts on export revenues, FDI, strategic-import prices, tax revenues and overall economic activity present significant risks to Mozambique’s growth projections. The main transmission channels of a significant downturn in the global economy - and especially a renewed recession in Europe - would lower commodity prices and constrained FDI. In addition, adverse exchange- 14 rate effects between the metical and the rand could negatively affect Mozambique’s important trade links to South Africa, including aluminum exports and imports of consumer goods. 38. Overall, Mozambique’s macroeconomic framework provides an adequate basis for the proposed DPO series. The World Bank’s view is based on the country’s strong macroeconomic performance over the past decade and the expectation that robust growth will continue in a stable and supportive policy context. Growth projections assume the maintenance of prudent fiscal and monetary policies, supported by the IMF Policy Support Instrument, and continued donor engagement, including ongoing policy dialogue on the implementation of reforms under the DPO series. Box 2: Debt Sustainability in Mozambique According to a Debt Sustainability Analysis (DSA) update carried out by the World Bank and IMF in May 2012 debt indicators are projected to increase in the coming years as the authorities temporarily step up their borrowing to address priority infrastructure gaps. Stress tests reveal that Mozambique’s external debt is particularly vulnerable to a one-time depreciation of the exchange rate and to negative export shocks. Overall, Mozambique continues to face a low risk of debt distress, and its external and public debt levels are expected to remain well below their indicative thresholds. However, the government’s plans to temporarily finance increased public investment through greater external borrowing on non-concessional terms will increase its debt vulnerability as debt ratios under both stress tests and high investment/low growth scenarios approach their relevant thresholds. This highlights the importance of the continuing pursuit of prudent macroeconomic policies and structural reforms designed to enhance debt management and project-selection capacity, building on progress achieved under the current IMF- and Word Bank- supported programs. The government recently completed an Integrated Investment Plan describing its investment priorities, selection procedures, and current assessment of top-priority projects. This plan will serve as a rolling document and will be updated to reflect further analysis, focusing in particular on projects’ expected economic and social returns and in consideration of potentially lower-cost alternatives. This plan is expected to help maximize value-for-money in future public investments, which will be critical to debt dynamics given the high cost of non-concessional loans. POTENTIAL ECONOMIC IMPACT OF CLIMATE CHANGE IN MOZAMBIQUE 39. Economic models show that the economic impacts of climate change on Mozambique can be very high. The recent World Bank study on “Economics of Climate Change Adaptation,� looked at changes in precipitation and temperature from the four global circulation models (the two global scenarios plus two extreme scenarios for Mozambique) and these were used to estimate (a) the changes in yield each year for both irrigated and rain-fed crops, as well as irrigation demand for six cash crops and eight food crops; (b) hydrological flows into hydropower generation facilities and the consequent changes in generation capacity; and (c) the impact on transport infrastructure and the increased demand and costs of road maintenance. Simulations of sea level rise were constructed independently of the climate scenarios. The findings of the study are summarized below:  Agriculture: In all scenarios, the net average crop yield is lower relative to baseline yield without climate change. The impact of climate change over the next 40 years would lead to a 2–4 percent decrease in yields of the major crops, especially in the central region, 15 This, combined with the effects of more frequent flooding on rural roads would result in agricultural GDP losses of 4.5-9.8 percent.  Energy: An analysis of the potential impacts of climate change on hydropower generation suggests a potential energy deficit due to climate change relative to the baseline’s generation potential. Under all scenarios except the most pessimistic, the impact of climate change on energy supplies would be only modestly negative (1.4 percent less electricity generated than “without� climate change). This is because the plans for new energy generation plants have largely already taken into account changing patterns of temperature and precipitation. The most significant impact would be from increased evapotranspiration (and hence less water available for electricity) from the reservoirs.  Transport: The economic impact that would result from loss of access caused by damage to roads, culverts, and bridges. The overall losses would be substantial, in part because of the importance of current and required investments in the sector.  Coastal Zone: If there is no adaptation, Mozambique could lose up to 4,850 km2 of land by 2040 from today (or up to 0.6 percent of national land area) and a cumulative total of 916,000 people could be forced to migrate away from the coast (or 2.3 percent of the 2040s population). In the worst case, the total annual damage costs are estimated to reach US$103 million per year in the 2040s, with the forced migration being a large contributor to that cost. These damages and costs will be mainly concentrated in Zambezia, Nampula, Sofala and Maputo provinces, reflecting their low topography and relatively high population. 40. The EACC study concludes that GDP could fall between 4 percent and 14 percent relative to baseline projections by 2050, without adaptation. The estimated impacts on agriculture, transport, hydropower, and coastal infrastructure were fed into a macroeconomic model—a dynamic computable general equilibrium (CGE) model. The CGE model complements the sector models by providing a complete picture of economic impacts across all sectors within a coherent analytical framework and looks at the impact of climate change on aggregate economic performance. These growth effects accumulate into significant declines in national welfare by 2050. 41. The possibility of macro-economic impacts of climate change should not be overlooked. The destruction of physical assets, including capital stock, infrastructure, natural resources, and labor, has both a short- and a long-term impact on economic performance of countries. In the wake of a natural disaster for example, a country's tax base shrinks while its spending needs rise. Because it can be difficult for a low income country to raise taxes to cover the funding gap, unless it receives external grants, it must either increase borrowing or resort to monetization. Along with the deterioration of its fiscal position, an affected country may suffer a weakening of its trade balance. This happens as declining production of export goods and post disaster reconstruction boosts demand for imports and diverts tradeables to the home market. These developments, combined with the flight of panicky foreign investors, put downward pressure on the exchange rate, resulting in inflationary pressures. Disasters have the potential to depress not only the immediate macroeconomic outlook but also the balance sheet positions of 16 key economic sectors. Public sector debt ratios are likely to worsen and domestic saving to decline, forcing both the private and the public sectors to increase their borrowing abroad. 42. The Mozambican economy’s vulnerability to climate-related events is already evident. The 2000 floods in Mozambique, for example, resulted in a sharp fall in GDP from 7.5 percent in 1999 to 1.6 percent in 2000. Inflation reached a high of 12.7 percent in 2000 as compared with 2.9 percent in 1999. World Bank estimated that costs to the public sector at about US$135 million in direct costs and US$14 million in indirect costs. Losses reached almost US$58 million in the agricultural sector and US$8 million in the livestock sector (World Bank, 2000)5. These types of disasters may have long term implications for growth if the destruction is such that the country can find itself in a lower level equilibrium after recovery. 43. The DPO is a tool for supporting policy reforms that can make long-term growth and development plans more resilient to climate change. The DPO is consistent with the government’s effort for sustained growth. Significant adaptation and mitigation costs are related to climate change impacts, which will be partly borne by private and partly by public (through additional fiscal costs). The DPO would support these efforts through policy and institutional reforms. 44. The reforms included in the DPO series are likely to deliver longer-term economic benefits, but in the shorter-term, some policy actions may have budgetary implications. It should be noted that the reforms will help Mozambique build resilience to existing high levels of climate variability as well as adapt to longer-term climate change. As such, the reforms are ‘no regret’ options that contribute to good development practice. In addition, the DPO series has been designed to minimize short-term fiscal implications by harnessing complementary sources of finance to support reforms (e.g. by deploying support from PPCR and other World Bank investment projects) and also by engaging private sector to ensure longer-term sustainability. In roads, road construction may become more expensive by DPO 3 following the introduction of climate resilient design standards during DPO 2, but these higher costs will be offset in the short term by investment support from the PPCR and in the longer-term through lower repair and maintenance costs. For agriculture and health, fiscal implications are likely to be neutral as the reforms are intended to improve targeting of existing resources rather than increasing overall budget spending. For energy, the focus will be on attracting private sector finance for initial investment costs and for hydro-meteorology services, the PPCR pilot investment will promote private sector participation in sustaining longer-term operations. 5 Similar sentiments were expressed in IMF’s 2000 Article IV Consultations Report. According the IMF Review, “...the period was marked by a slowdown of economic growth, a rekindling of inflation, and a weakening of external current account—linked in large part to the serious flooding that afflicted Mozambique in February-March 2000. Real GDP growth was projected at 3.8 percent, compared to the estimate of 7.3 percent and the 12 month rate of inflation, which had rarely exceeded 4 percent during 1998-99, rose to 13 percent in April 2000, in the aftermath of the floods and then further to 18 percent in October 2000. This was also accompanied by a real effective appreciation of exchange rate by 3 percent.� 17 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES MACROECONOMIC PROGRAM 45. Mozambique’s Poverty Reduction Strategy Paper (PARP) outlines the detailed government program for the period 2011-14 and this was discussed by the Board on January 10, 2012. The PARP strives to foster inclusive growth and includes general proposals to boost productivity in labor-intensive sectors and to diversify the economy. The PARP is designed to support the Government’s five-year program (Plano Quinquenal do Governo), its long-term vision (the Agenda 2025) and the achievement of the MDGs and includes measures to ‘prevent and adapt to climate change’. CLIMATE CHANGE PROGRAM 46. The National Adaptation Program of Action (NAPA), developed in 2007, represented the first major step in addressing climate change impacts at a programmatic level. Preparation of the NAPA was led by the Ministry for the Coordination of Environmental Affairs (MICOA - Ministério para a Coordenação da Acção Ambiental). It laid the foundations for a multi-sector adaptation agenda. The NAPA identified four priorities: (i) Strengthening early warning systems; (ii) Strengthening the capacity of farmers to deal with climate change; (iii) Reduction of the impacts of climate change along the coastal zone; and (iv) Water resources management. The four priorities identified by the NAPA are still relevant, but the program missed some important sectors such as the resilience of the roads network and implementation of the identified priorities was hampered by lack of funding. In addition, the NAPA is a document which emphasizes urgency, highlighting actions that must be taken immediately. The DPO will build on this foundation but take a longer term view and perspective. 47. Mozambique is a pilot country for the Pilot Program for Climate Resilience (PPCR) and its Strategic Program on Climate Resilience (SPCR) was endorsed in June 2011 (Box 3). PPCR support has enabled Mozambique to put in place an ambitious program that aims to 'mainstream climate resilience into key and vulnerable economic sectors and regions'. Box 3. Mozambique’s Strategic Program on Climate Resilience The SPCR sets-out a program of policy and institutional reforms, pilot investments, studies and knowledge management initiatives and seeks to generate transformational change in climate resilience. The SPCR was prepared by MICOA and MPD with support from the World Bank, the African Development Bank and the International Finance Corporation. The policy and institutional reform pillar of the SPCR is being supported by the proposed program. Pilot investments include investments for coastal cities, transport, water resources management, agriculture, natural resources and forestry, and these are being financed from PPCR funds. Six investments will be blended with investment projects implemented by the World Bank and the African Development Bank to leverage additional resources and impacts. The seventh will leverage private sector investment and will be co-financed by the IFC. A PPCR-funded technical assistance project, co-financed by the United Kingdom Department for International Development (DFID) was approved in June 2012 and is supporting knowledge and program management and coordination, technical assistance and studies to address evidence gaps. This technical assistance project is also providing support for DPO series design. The Nordic Development Fund (NDF) is also providing co-financing for PPCR pilots, including those on urban climate resilience and strengthening hydro-meteorological services. Development assistance from other donors also complements ongoing and planned PPCR-financed pilots. For example, Germany (through KfW and GIZ) is supporting investments in Beira City and the Beria growth corridor that will build climate 18 resilience and that complement support from PPCR. Denmark’s ongoing support to MICOA in the environment sector, including on climate change, also provides valuable complementary support for PPCR implementation). 48. A National Climate Change Strategy has been prepared under the leadership of MICOA and was approved in November 2012. The strategy is an important milestone in climate policy development and expands on priorities identified in the National Adaptation Program of Action (NAPA) and the Strategic Program for Climate Resilience (SPCR). The strategy integrates disaster risk management actions and consolidates priorities and targets for integrating climate change action into national socio-economic planning. The strategy identifies priorities for climate change actions for all sectors as well as ‘cross-cutting’ issues such as institutional reform, research, capacity building and technology transfer. The strategy is informed by the findings of two phases of climate change related studies coordinated by the National Institute for Disaster Management (INGC - Instituto Nacional de Gestão de Calamidades) and by a range of other analytical studies. 49. Progress in Disaster Risk Planning: Mozambique has made substantial progress in strengthening its planning and response systems for disasters. The NAPA highlighted the need to strengthen early warning systems as the first priority for intervention and since then, INGC has adopted a more integrated climate risk management approach, ranging from preparedness and disaster mitigation to broader adaptive activities, and taking into account the changing pattern of natural hazards in its disaster risk management planning process. To strengthen implementation of disaster risk management (DRM), the government has prepared a DRM bill which was endorsed by the Council of Ministers in December 2012. This will be followed by a master plan which will set-out detailed implementation arrangements for addressing identified disaster risk and climate risk actions. A disaster risk management program (supported by the Global Facility for Disaster Risk Reduction – GFDRR) is further strengthening policies, strategies and institutions for disaster risk preparedness and management. 50. Mainstreaming climate change solutions at sector level: Climate change considerations are already included in a number of sector level strategies. The government has introduced an indicator at national level that will track climate resilience ‘mainstreaming’ into the government’s national economic development planning, and into sector and provincial plans. Examples of the progress made so far:  Agriculture: The Strategic Plan for Agricultural Development (PEDSA) highlights the need to make progress on conservation agriculture, the uptake of climate resilient crops and to extend access to irrigation.  Social protection: The recently approved National Basic Social Action Program that integrates climate resilience and vulnerability comprehensively in program delivery objectives.  Energy: The government's Energy Management Strategy for the Energy Sector (2008- 12) promotes access to new and renewable sources of energy and diversification of the country's energy mix. The government has also launched a National Strategy for New 19 and Renewable Energy Development (EDENR)6 which, inter alia, encourages take-up of technologies that will improve access to modern forms of energy.  Water resources: The National Water Policy (Política de �guas), the National Water Resources Management Strategy (ENGRH - Estratégia Nacional de Gestão de Recursos Hídricos) and the Regulations for Licenses and Concessions (RLCA - Regulamento de Licença e Concessões de �gua) outline a series of strategic priorities for integrated water management and to address the impacts of floods and droughts. 51. Gender: The government approved the Gender, Environment and Climate Change Strategy and Action Plan in 2010 which aims to promote equality in access and control of natural resources, technologies for climate change adaptation and mitigation, and to benefits and opportunities for development. This is based on the principles adopted by GoM’s Gender Policy (approved in 2006) and Environment National Policy (approved in 2005). Potential gender differentiated benefits and impacts of the DPO will also be assessed in the Poverty and Social Impact Analysis (PSIA) for the DPO series. 52. Inter-ministerial coordination: Two higher level councils exist that consider climate change coordination and implementation:  The National Sustainable Development Council (CONDES - Conselho Nacional de Desenvolvimento Sustentável), chaired by the Prime Minister, coordinates policy and planning on sustainable development and climate change. CONDES is supported by a technical coordination committee, chaired by the Deputy Minister of MICOA. Under CONDES oversight, MICOA led the preparation of the national climate change strategy and, together with MPD, has prepared the SPCR.  The Coordinating Council for Disaster Management (CCGC - Conselho Coordenador de Gestão de Calamidades), also chaired by the Prime Minister, ensures multi-sectoral coordination in disaster prevention, assistance to victims and disaster rehabilitation. It receives advice from the Technical Council for Disaster Management (Conselho Técnico de Gestão de Calamidades). Under CCGC oversight, the disaster risk management law was prepared. 53. Institutional mandates: The GoM is undertaking efforts to define and clarify responsibilities and institutional mandates for different line ministries and agencies. MICOA7 is the UNFCC focal point ministry and has responsibility for coordinating work on climate change and territorial planning - but not for implementation responsibility which lies with the line ministries. INGC8 coordinates work on disaster risk planning and management and some implementation tasks. MPD has responsibility for overall budget coordination and expenditure prioritization. The National Meteorological Institute (INAM - Instituto Nacional de 6 MoE (2011). Strategy for New and Renewable Energy Development (EDENR) 2011-2025. Ministry of Energy, Republic of Mozambique. 7 The Ministry for the Coordination of Environmental Affairs (MICOA) coordinates sustainable development, guides the management of natural resources and develops appropriate policies, laws and public environmental awareness. MICOA is a coordination body and does not have implementing functions. 8 INGC is a public institution endowed with administrative autonomy. Its mandate is to direct and coordinate disaster management at the national level, and assist disaster victims. The Institute is under the Ministry of State and Administration (MAE). 20 Meteorologia) is in charge of meteorological services and the National Directorate of Water (DNA - Direcção Nacional de �guas) is in charge of the development and maintenance of the hydro-meteorological networks. Both have the responsibility for collecting and disseminating this information. The Ministry of Agriculture (MINAG - Ministério da Agricultura) has also been assigned with adaptation responsibilities and leads on agriculture, fisheries and forest policy and management. The Ministry of Energy (ME - Ministério da Energia) has responsibility for energy policy and its Department for Renewable Energy leads on policy development for renewables. 54. Stakeholder engagement: Extensive efforts are made by GoM to engage with different stakeholders during preparation of key strategic documents. For example, the preparation process for the NAPA and the national adaptation synthesis study undertaken by INGC were based on extensive consultations. Preparation of the SPCR built upon these processes and the recently completed National Climate Change Strategy (NCCS) has also involved extensive stakeholder consultations at local, provincial and national level, including engagement with civil society and private sector groups9. Given that engagement of various stakeholders can strengthen the sustainability of actions around climate change, the program of reforms will continue to foster this type of dialogue. IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM LINK TO CAS 55. The Mozambique Country Partnership Strategy (CPS10) for FY12-15 takes as its starting point the Government’s PARP, with its theme of inclusive and broad-based growth. The Africa Regional Strategy also provides an overall framework for setting priorities and managing the proposed program. Like the Africa Regional Strategy, the CPS has two pillars (competitiveness and employment; vulnerability and resilience) and a foundation (governance and public sector capacity). Through its second pillar, given the country’s susceptibility to idiosyncratic and exogenous shocks, the Bank aims to help improve health services for the vulnerable; strengthen social protection; encourage climate change adaptation; and reduce vulnerability to natural disasters. The DPO is designed to support both pillars of the CPS. Table 5 provides a summary of the links between CPS objectives and outcomes and the reforms supported by the DPO series. Table 5: DPO support for Country Partnership Strategy Objectives and Outcomes CPS CPS objective CPS outcomes DPO support pillar Pillar I Increase productivity Increased crop yields Support for priorities identified in the National in agriculture and and overall Agriculture Strategy that have been shown to boost other potential productivity yields and improve climate resilience: accelerated growth sectors uptake of conservation agriculture and climate resilient seeds. Improved provision Improved provision Support to improve the resilience of unpaved road 9 This has included stakeholder consultations with nine provinces, three regions, the private sector, the international development partners, and with civil society and the media. 10 World Bank 2012, Country Partnership Strategy FY12-15 for the Republic of Mozambique, Washington DC. 21 and management of and management of infrastructure to weather-related damage – through public goods for road infrastructure better planning, development of improved design growth standards and maintenance approaches Improving the investment environment for private sector participation in both off and on grid renewables Pillar II Effective response to Improved health Support to integrating of climate change considerations idiosyncratic shocks services for the into the next national health strategy through vulnerable improving the evidence base for strategic planning and identifying specific adaptation options. Mitigate the impacts Adaptation to climate Pillars 1 and 2 of the DPO support cross-cutting and of climate change and change and reduced sector reforms to strengthen adaptive responses (in extreme weather risk of natural agriculture, human development, infrastructure and events disasters hydro-meteorological services). Reduce vulnerability Strengthened social Strengthening the contribution of social protection to exogenous and protection systems to lowering risks of vulnerable groups to endogenous shocks climate shocks. COLLABORATION WITH THE IMF AND OTHER DONORS 56. World Bank and International Monetary Fund (IMF) Coordination: Mozambique has a stable relationship with the IMF, anchored on a three year Policy Support Instrument (PSI) approved in 2010. The Bank actively participates in PSI and Article IV missions. The IMF leads the policy dialogue on macroeconomic policy (including fiscal, monetary, and exchange rate policies), the electronic integrated financial management system (e- SISTAFE) and tax and customs reforms. The Bank leads the policy dialogue on public expenditure management, sector structural reforms, reforms of the civil service, and poverty and social impact analysis. Areas of close collaboration include banking supervision, financial sector, trade, the PARP, external debt sustainability, and maximizing the benefits from megaprojects and the use of natural resources. Active Bank participation in IMF missions has had synergistic benefits, and has reduced the burden on government. Since 2009, the IMF is an ex-officio member of the G19, and intends to continue the practice to set the timing of its missions such as to be synchronized with the joint reviews of the G19. 57. Monitoring climate mainstreaming: A Performance Assessment Framework (PAF) is used by GoM and the nineteen donors that provide General Budget Support to GoM (known as the G1911). Currently, general budget support provides a significant proportion of donor commitments to GoM. The PAF comprises a set of 35 indicators, jointly agreed and reviewed on an annual basis. The need for a stronger climate change indicator was recently recognized by government and the G19 donors who agreed to include the following indicator in the PAF matrix: ‘Cumulative number of sectors/institutions and provinces that integrate DRM, climate change adaptation and mitigation aspects in the planning process’ with specific targets set for sectors and provinces for each year remaining in the PAF. 11 A Memorandum of Understanding (MoU)11 was signed in March 2009 between the government and 19 donors (G19) providing general budget support, including the World Bank. 22 58. Donor coordination and support on climate change issues: A donor working group on environment and climate change, currently chaired by the United Nations Development Program, promotes dialogue and sharing of experience on environmental and climate change support12. There are various climate change related initiatives under implementation or preparation and some of these are highlighted here: UNDP support on climate change is delivered through its Africa Adaptation Program which seeks to enhance the adaptive capacity of vulnerable African countries. Other UN agencies also play a role in the delivery of this program. Denmark provides support to MICOA on environmental planning, management and climate change impacts through a second phase of its Environment Support Program. The World Bank has coordinated closely with this initiative during the DPO preparation. The United Kingdom’s Department for International Development (DFID) is supporting the preparation of the DPO series through the Multi Donor Trust Fund for the Africa Climate Change Program (a Bank executed Trust Fund). DFID also supports a number of regional and global projects initiatives that work in Mozambique including the Africa Climate Change Research Partnership (under preparation), the Climate Development Knowledge Network (CDKN), the Adaptation Learning Program for Africa (implemented by CARE in Mozambique) and the Africa Climate Change Resilience Alliance (ACCRA) - implemented by a consortium comprising Oxfam GB, the Overseas Development Institute, Save the Children, CARE International and Word Vision International. Table 6 summarizes support of other donors to the policy actions of the DPO. Table 6. Donor support to the DPO policy areas Policy Area Support for delivery National Climate Change Strategy UK DFID support for DPO preparation Denmark Environment Support Program Disaster Risk Management Law Global Fund for Disaster Reduction and Recovery (GFDRR), Germany and other bilateral donors Climate Change Coordination Unit Establishment World Bank Climate Change TA project Agriculture World Bank Climate Change TA project, African Development Bank Roads - climate resilient design standards PPCR phase 1 and pilot project support, African Development Bank (through a PPCR pilot) Hydro-meteorological services PPCR phase 1 pilot project support, Nordic Development Fund Health UK DFID support for DPO preparation Social Protection Program UK DFID support for DPO preparation World Bank Social Protection Program Support Renewable energy USAID, Norway 12 The DPO was presented for discussion at the EWG by MPD and was broadly endorsed and supported. The meeting was hosted by MICOA and chaired by the Director for International Cooperation, MPD on 14 August 2012 and included representatives from the United Kingdom (DFID), France (AFD), Germany (GIZ), Embassy of Ireland, Japan International Cooperation Agency (JICA), and the United Nations Development Program (UNDP). A second discussion on the DPO took place during the December 2012 meeting of the EWG and this included representatives from African Development Bank (ADB), International Finance Corporation (IFC), United Nations Development Program (UNDP), Denmark (Danida), the United States (USAID) and the World Wide Fund for Nature (WWF). 23 RELATIONSHIP TO OTHER BANK OPERATIONS 59. Pilot Program for Climate Resilience support: PPCR financing provides support for investment projects implemented by the African Development Bank (two investment projects focusing on agriculture and sustainable land and water resources management), the International Finance Corporation (up to three forestry projects) and the World Bank. Those in the World Bank portfolio comprise the following: (a) The National Water Resources Development Project was approved by World Bank board in September 2011. PPCR financing will support a complementary project to strengthen the national hydro-meteorological services. (b) The Cities and Climate Change Project was approved by the World Board in April 2012. The PPCR will provide additional financing to strengthen climate resilient urban planning and to restore the functioning of natural drainage and urban green space to reduce storm flooding in the coastal city of Beira. Experience will be integrated into the planning component of the CCCP which covers 20 climate vulnerable cities and towns. (c) The Roads and Bridges Maintenance and Management Program (APL-3) is planned for board submission in 2014. The PPCR will finance the mapping and inventory of climate risks facing the district and unclassified road networks and the development of climate resilient designs and response strategies for rural roads in the Zambezi river valley. (d) The Climate Change Technical Assistance Project was approved by the World Bank board in June 2012 and supports the development and implementation of policy and institutional reforms included in this DPO, management and coordination of PPCR-supported activities (including monitoring, evaluation and fiduciary management) and support for knowledge management work. 60. Linkages to Other World Bank Projects: DPO-supported reforms will complement investment project support of the Energy Development and Access Project (APL-2)13. The DPO supports reforms that would create new incentive measures for private sector investment in securing energy access from renewables and will complement support from the Global Facility for Disaster Reduction and Recovery (GFDRR) for the disaster risk management program. The DPO is also complementary to the agriculture DPO (under preparation) which will include support for reforms on irrigation, but which will not address conservation agriculture specifically. LESSONS LEARNED 61. Early lessons from policy lending in the environment sector: The World Bank reviewed early experience from policy lending in the environment sector, including from case study examples in Mexico, Morocco, India and Indonesia. This found that policy lending provided flexible support that could be aligned to client policies and which also increased the ‘visibility’ of environmental ministries in national policy setting. Policy lending was also seen as being supportive of inter-sectoral coordination. Amongst the lessons from these case studies 13 The Second Adaptable Program Loan for the Energy Development and Access Program. 24 were that better results were delivered by DPLs that included: (i) specific, measurable, achievable, relevant and available in a timely manner (SMART) indicators and ‘fewer and better’ policy actions; (ii) a clear focus on measuring results and impact; (iii) measures to promote inter- institutional coordination; (iv) technical assistance to support the reform program; (v) a medium to long-term approach e.g. through greater use of programmatic DPOs; and (vi) effective supervision and willingness to respond adaptively to addressing new challenges (e.g. fiscal difficulties). 62. A recently-completed review of the World Bank’s experience of supporting climate change adaptation14 identified some key lessons. At national level, these included the importance of focusing on adapting to both climate variability – a more immediate priority, as well as longer-term climate change, the need to build strong in-country coordination capacity to help make best use of increasing amounts of climate financing, and the need for long-term engagement. The review also highlighted the need to support ‘anticipatory adaptation’ to long term climate change, for example through spatial development planning support, support for integrated river basin management approaches and developing ways of assuring reliable financing of responses in relation to disasters. Box 4. Lessons from Other Environmental and Climate Change DPOs The Implementation Completion Report (ICR) of the Indonesia DPO highlighted the benefit of having a reform process with strong governmental ownership. The ongoing DPO program supports a government- led program of reform with strong levels of ownership. The ICR found that at times, this program could have appeared rather more ‘incremental’ than ‘substantive’ but this approach was successful in maintaining reform momentum and providing a platform for moments when more substantive reforms were possible through bureaucratic or political ‘windows-of-opportunity’. Experience in Mexico and Vietnam also provided useful lessons. The Mexico DPO – comprising $500 million of support starting in 2008, highlighted the need for strong analytical underpinnings and technical assistance support. The Vietnam experience highlighted the importance of ensuring complementarity between climate change adaptation and disaster risk management agendas and also the need to work with a strong government partner capable of working with sector ministries to deliver reforms across government. The present program has taken on-board these important lessons. It is supported by a companion technical assistance project that builds knowledge and capacity for coordination and knowledge management, it addresses disaster risk management and climate change adaptation in ways that should help better delineate institutional mandates and it works with the Ministry of Planning and Development as the lead ministry to ensure that reforms can be integrated across the government program. ANALYTICAL UNDERPINNINGS 63. A growing body of research shows how conservation agriculture can sustain agricultural productivity in drought prone areas. Climate change will have consistently negative impacts on key staples such as maize and wheat over the next 40 years15,16. Substantial 14 IEG (2012). Adapting to Climate Change: Assessing the World Bank Group Experience. Phase III. Independent Evaluation Group. World Bank, IFC, MIGA. 15 Lobell, D.B., Burke, M.B., Tebaldi, C. Mastrandrea, M.D., Falcon, W.P. and Naylor, R.L. (2008) Prioritizing climate change adaptation needs for food security in 2030. Science 319:607-610 25 welfare losses are caused by the lack of investments that build resilience and boost productivity of the sector. But the same analysis suggested that building resilience through conservation agriculture, soil/moisture conservation, water harvesting, agroforestry and farm forestry might prove cost-effective for building climate resilience in the medium term. In addition, studies undertaken in semi-arid areas of Mozambique17,18,19 provided important insights on local level implications of climate variability and perceptions of change in Mozambique and have shaped thinking on the selection and design of reforms – in particular the potential contribution that conservation agriculture and social protection interventions could make in highly climate- vulnerable areas. Various studies and evaluations of pilots have reviewed experience of conservation agriculture in Mozambique’s farming systems20,21. 64. Climate change will hit the poorest and most vulnerable the most. This issue is highlighted in the World Bank’s study of the social dimensions of climate change, which showed that those most at risk are subsistence farmers – most of whom are dependent on rain-fed agriculture, and the economically and socially-marginalized - such as the elderly, female-headed households, orphans and widows. The targeting of health and social protection programs is a key aspect of the human development policy area of the operation. A recent Social Safety Net Assessment22 showed that, in the previous five years 19.8 percent households were exposed to drought, the second most common covariate shock after increases in food prices (reported by 36.5 percent of the households). Moreover, data from the 2008/09 Household Budget Survey shows that poorer households are relatively more affected than richer households by agricultural pests, drought, cyclones, floods and low producer prices23. In 2009, the government launched the National Basic Social Protection Strategy (ENSSB - Estratégia Nacional de Segurança Social Basica). The Productive Social Action Program that will be supported by the World Bank is one of the elements of the ENSSB and aims to help poor households exit extreme vulnerability and poverty based on public works and income generation activities. As part of DPO 1 preparation, the World Bank commissioned an assessment of Mozambique’ Social Protection System’s readiness for disaster risk management and climate change adaptation24. The draft assessment has found that thus far, collaboration and integration between social protection, climate change adaptation and disaster risk management strategies has not taken place at a meaningful level– in 16 World Bank (2010). The Economics of Adaptation to Climate Change. 17 Midgley, S, Dejene, A., and Mattick, A. (2012). Adaptation to Climate Change in Semi-Arid Environments. Experience and Lessons from Mozambique. Food and Agriculture Organization Rome. 2012. 18 INGC (2012) Modelando os impactos das mudanças climáticas de meados do século nos rendimentos das culturas em Moçambique: Efeitos do aumento da temperatura, do ozono terrestre e do CO2 atmosférico: uma abordagem por camadas. 19 Understanding adaptive capacity at the local level in Mozambique: Synthesis Report. Africa Climate Change Resilience Alliance (ACCRA) Mozambique. 20 Pomeroy, C., & Aljofre, A. (2012). Conservation agriculture as a strategy to cope with climate change in Sub- Saharan Africa: The case of Nampula, Mozambique. http://www.ifsa2012.dk/downloads/WS3_1/Carlton_Pomeroy.pdf 21 Grabowski, P (2011). Constraints to the adoption of conservation agriculture in the Angonia highlands of Mozambique from smallholder hand-hoe farmers. Thesis. Michigan State University. 22 World Bank (2012) “Social Protection Assessment. Review of Social Assistance Programs and Social Protection Expenditures�, The World Bank, February, 2012, Africa Region, Social Protection Unit. Report No. 68239-MZ. Data on shocks is based on the 2008/9 household budget survey (IOF, 2008/9) 23 Ibid. 24 World Bank, (Forthcoming). Preparing social protection systems for natural disasters and climate change: Mozambique Social Protection System Assessment for Climate-related Shocks. Draft, July 25th 2012. 26 part because of the absence of necessary legal and policy instruments. Strengthened institutional capacity within the Ministry of Women and Social Affairs, a stronger culture of interdisciplinary collaboration and mechanisms to enable targeting at climate vulnerable beneficiaries is also needed. Moreover, the assessment found that the productive social action program provides a key opportunity to improve integration between social protection, disaster risk management and longer-term climate adaption policy at an operational level. 65. Economic analyses25,26 indicate that sealing rural roads offers an attractive option for building longer-term resilience. However, the scale of the challenge means that this will only be an option for a very small proportion of the overall road network. Many of these unpaved roads have low traffic levels but are vital for rural communities particularly during the agricultural marketing cycle. This implies a need to ensure careful targeting of investments to build resilience of the rural roads network and this approach has been adopted in the design of the DPO reform series for rural roads. 66. Renewable energy sources can contribute an effective option to improve energy access in the short to medium term. In the medium term (10-15 years), analyses suggest that growing demand for electricity may outstrip supply: the review of Mozambique’s electricity law published in March 2011 estimated growth rates at around 15 percent and this implies a need to secure access to energy by taking full advantage of available, diverse and quickly deployable sources of energy as a more important priority than reducing emissions per se. Deployment of renewable energy investments – for example, cogeneration from existing agricultural and forestry wastes and from mini-hydropower offers this potential and will also help diversity the country’s supply generation. The Ministry of Energy recognizes that specific incentives will be needed to encourage private sector Independent Power Producers (IPPs) to invest in renewables and extend energy access across the country and its Strategy for New and Renewable Energy Development27 outlines some specific proposals to encourage such investment. The renewable energy Feed in Tariff (REFIT) is one such proposal and this proposal has been supported by a specific review of renewable energy tariff models28 and ongoing analysis of tariff rates for different renewable energy generation technologies. Under a REFIT mechanism, producers of renewable energy injected into the national grid (and, in some cases, for supply to local mini- grids) are paid a set rate for the electricity they produce, usually differentiated according to the technology used (wind, solar, biomass, etc.) and the size of the installation. It achieves this by offering long-term contracts and pricing guarantees to renewable energy producers, typically based on the generation cost of each of the different technologies. FITs have been an effective policy for promoting investment in renewable generation capacity and are now in place in over 100 countries, including in Kenya (launched 2008), South Africa (2009) and Uganda (2010). 67. The reforms in the hydro-meteorology sector are guided by the need to improve forecasting and early warning. Research indicates that as much as 58 percent of the population 25 Channing Arndt, Paul Chinowsky, Kenneth Strzepek, and James Thurlow (2012) Climate Change, Growth and Infrastructure Investment: The Case of Mozambique - Review of Development Economics, 16(3), 463–475, 2012. 26 World Bank (2010). The Economics of Adaptation to Climate Change - Mozambique 27 Ministry of Energy (2011). Strategy for New and Renewable Energy Development (EDENR) 2011-2025. 28 MoE (2011). Renewable Energy Tariff Models. Ministry of Energy, Republic of Mozambique. 27 and more than 37 percent of GDP is at risk from two or more hazards29 (especially floods and droughts). As such, hydro-meteorological predictions are vital for early warning systems. In addition to reducing vulnerability, hydro-meteorology is central for protecting and enhancing economic growth - particularly in sectors such as agriculture, hydropower production, aviation, fisheries, and transport30. Because Mozambique is the downstream riparian in nine of its 13 large river basins and more than 50 percent of the total mean annual runoff is generated outside the country, hydro-meteorological information is equally valuable in trans-boundary cooperation and management of water resources. Financial allocations for data collection and processing of information are not commensurate with the economic impacts and there are only two strategic weather radar installations - both of which are no longer operational as a result of inadequate resources for sustaining basic operations and maintenance31. V. THE PROPOSED FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION OPERATION DESCRIPTION 68. The Program Development Objective is to build effective institutional and policy frameworks for climate resilient development. This will be pursued through policy actions under two pillars: Pillar 1: National policy and institutional framework for climate action; and Pillar 2: Climate resilience in sectors. 69. The DPO is designed as a programmatic series of three operations to support climate change policy reforms in a number of sectors. The first DPO has supported the Government’s preparation of a National Climate Change Strategy through a highly consultative process – that involved forums, workshops and media-based consultations at national, provincial and local levels. Support for this process has been included in the first cycle of the DPO and provides the basis for some of the institutional and policy reforms included in follow-up DPOs in the series. The proposed DPO actions are fully consistent with those identified as priorities in the national climate change strategy. The programmatic approach should enable policy dialogue to continue from strategy to implementation in specific sectors. 70. Climate resilience will be integrated into national, sector and municipal plans by the end of the series. There will be stronger institutional capacity for coordination and policy delivery across government – including to provincial, district and municipal levels. There will also be an improved enabling environment for the private sector investment required to improve access to energy from renewable ‘clean energy’ sources. 29 Regression analysis for the period 1981-2004 showed that GDP growth is cut by 5.6% points on average when water shocks occur (World Bank, Water Resources Assistance Strategy for Mozambique, 2007). 30 The roughly 80% of the population who depend on small-scale farming for livelihoods and food security, are particularly vulnerable to the impacts of variability in water and weather, both long-term and inter-annual (for example, 60 to 80% of the annual precipitation falls between December and March). The potential for both hydropower and equipped irrigation is high, yet levels of development remains among the lowest in the SADC region (4% of the potential 2.7 million ha for irrigation; only 5% of the country has access to electricity despite the 13,000MW potential in hydropower). 31 Only 38 of 154 manned climatological stations are operational today. 28 71. Technical assistance will support the program of policy reform, climate change coordination and knowledge management. The Climate Change Technical Assistance Project (CCTAP), designed as a companion operation to this DPO, was approved by the World Bank in June 2012. The project will strengthen capacity to mainstream climate change resilience into key sectors and will strengthen knowledge management. The CCTAP is financed by the PPCR and is supported by a Bank-executed Trust Fund financed by DFID. Additional technical assistance is delivered at sector level through a range of instruments, including from PPCR pilot projects on hydro-meteorology and roads, by ongoing World Bank support in the energy sector, and future support from World Bank on social protection. 72. The scope of the DPO and the selection of policy areas are based on three criteria: (i) sustaining economic growth, (ii) support for the most vulnerable, and (iii) scaling up pilot investments. Firstly, all actions reflect priorities identified by the government as part of growth and poverty reduction policies. Such sectors include: agriculture, which constitutes 30 percent of GDP and employs 78 percent of the population; rural roads, which has the potential to unlock economic opportunities in the provinces; energy, where renewables offer potential to accelerate the extension of access to clean energy and where additional generation is needed to meet medium term energy needs. A second criterion is the need to support those most vulnerable to climate risks. Agriculture for example, is critical for the livelihoods of the rural poor and is also highly exposed to weather related events. Actions in social protection and health also offer opportunities to build resilience and lower vulnerability but have been traditionally neglected by efforts to mainstream climate change considerations into policies and institutional frameworks. Thirdly, the operation includes sectors where on-going or planned World Bank investment projects can deepen the policy dialogue, including those being supported by the PPCR-supported transformational investment pilots and by on-going engagement from World Bank on social protection and energy. 73. The two pillars of the DPO series are as follows:  Pillar 1: National policy and institutional framework for climate action. The pillar will support cross-cutting reforms at national level that will institutionalize and implement climate change actions at the national, sector and provincial levels. This pillar includes policy actions that will improve legal and strategic planning frameworks for disaster risk management and climate change and that support the introduction of climate resilience measures into the national economic plan and into implementation at locality level.  Pillar 2: Climate resilience in sectors. The pillar will support the integration of climate resilient planning and development at sector level and will focus support on agriculture, human development (health and social protection) and infrastructure (energy, roads and hydro-meteorology). These reforms will build resilience into the implementation of the national agricultural strategy with a strong focus on conservation agriculture, will strengthen resilience of the health sector and improve the contribution of social protection systems to lowering vulnerability. Reforms in the roads sector will put in place climate resilient design standards and maintenance approaches. Those in the energy sector will strengthen the incentives for private sector investment to improve access to energy from renewable resources. Those for hydro-meteorology will improve weather and flood 29 forecasting and service delivery - including ensuring that early warning systems can deliver information to those who need it most. Box 3. Good Practice Principles for Conditionality Principle 1: Reinforce Ownership There is strong Government ownership of the DPO series. The DPO was envisaged as a principal means of support for Pillar 1 of the government’s Strategic Program on Climate Resilience (SPCR). The government has played a strong role throughout the selection and design of policy actions, has undertaken a regular program of consultation meetings across line ministries and has engaged actively in discussions on policy actions. The operation supports the PRSP objectives and is linked to the Performance Assessment Framework for general budget support to the PRSP - through the inclusion of a new climate change indicator to track progress in mainstreaming climate change. Policy reforms selected for inclusion in the DPO series support existing GoM policy intention as defined in government policies, strategies and legal frameworks. The design of the DPO is based on a strong foundation of analytical work. Where GoM has identified gaps in the evidence base (e.g. the implications of climate change for the health sector were identified as a gap by GoM during the preparation of the SPCR), DPO preparation support and technical assistance have been mobilized to address these gaps. Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework The policy matrix included in Annex 2 has been the focus of an extensive policy dialogue, led by the Ministry of Planning and Development, and has been developed incrementally through consultations within government and with donor partners. Different government ministries are accountable for the delivery of different policy reforms and these are indicated in the policy matrix. Donor coordination on environment and climate change has taken place regularly as part of the broader G19 support to the Government. It had weakened over the past year, but the donor coordination group has now been revived under leadership of UNDP and provides a platform for broader discussion on the reform program with development partners and government. A number of donors are providing technical assistance and other support to assist GoM deliver on specific climate change related policy reforms e.g. USAID on renewable energy, the UK Department for International Development on strategy development and evidence- building, Denmark on overall environmental and climate change policy, including monitoring and evaluation, and the Nordic Development Fund on hydro-meteorological reform. The operation gained broad based support at the last meeting of the donor partners and policy actions are also aligned closely with the priorities emerging from the ongoing National Climate Change Strategy process. Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances Policy dialogue on the government side is led by the National Budget Director of the Ministry of Planning and Development and for this reason the DPO cycle is aligned with the government’s budget planning cycle. As stated above, there is close alignment with cross-cutting and sector-by-sector reforms expressed in GoM’s policies, strategies and legal frameworks. The choice and design of reforms is informed by existing studies and analysis and additional analysis is planned for DPO 2 and 3. Principle 4: Choose only actions critical for achieving results as conditions for disbursement Policy actions have been selected to meet objectives at the PDO level and for each of the sub-objectives at the pillar level. The choice of policy actions has been selective and there are 6 prior actions included in the first cycle of the DPO. Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support The World Bank will undertake supervision on an on-going basis and as part of DPO 2 and 3 preparation support. The Climate Change Technical Assistance Project is providing support for the development of a national M&E framework under the auspices of the National Climate Change Strategy and this has been included as a DPO 2 trigger. This will provide progress and performance monitoring capability for the policy and institutional reforms included in the SPCR series. The disbursement schedule for each cycle of the DPO series is designed to ensure that DPO commitments can be integrated into the budget planning cycle. 30 POLICY AREAS Pillar 1: National policy and institutional framework for climate action The challenge 74. Climate change poses challenges to many sectors in Mozambique, but until very recently, government has lacked a clear strategy for addressing them. Consequently, climate resilience and disaster risk management measures have not been introduced into sector and decentralized planning in a structured way. Like in many countries, institutional mandates for coordinating and implementing climate change policy require clarification and realignment of existing structures. This is particularly the case in relation to institutional mandates for longer- term climate change and those for disaster risk management, and also for the ‘mainstreaming’ of climate resilience into national, sector and decentralized planning and implementation. Thus far, prioritization and coordination of policies and actions that are touching on climate change matters has been weak and the lessons and knowledge generated by previous investments to address the impacts of climate change have not been utilized fully to inform the design of new policies, programs and projects. Government action to date 75. Coordination mechanisms are already in place for both disaster risk management and sustainable development. Currently, the Coordinating Council for Disaster Management (CCGC- Conselho Coordenador de Gestão de Calamidades), chaired by the Prime Minister, is tasked with multi-sectoral coordination in disaster prevention, assistance to victims and disaster rehabilitation. It receives advice from the Technical Council for Disaster Management (CTGC - Conselho Técnico de Gestão de Calamidades) and by the Institute for Disaster Management (INGC - Instituto Nacional de Gestão de Calamidades) under the Ministry of State Administration (MAE – Ministério da Administração Estatal) which leads on implementation aspects of disaster response and preparedness. The National Sustainable Development Council (CONDES - Conselho Nacional de Desenvolvimento Sustentável) has a similar structure to the CCGC but is tasked with coordinating policy and planning on sustainable development and climate change and brings together key line ministries and agencies at ministerial level on these issues. The council is chaired by the Prime Minister and is currently adjusting its mandate to clarify institutional responsibilities on climate change policy and planning. CONDES is supported by a technical council (Conselho Técnico do CONDES) that is chaired by the Vice Minister of MICOA. MICOA is the UNFCC focal point ministry and has responsibility for coordinating work on climate change and territorial planning, however, implementation responsibility lies with the line ministries. 76. Government has identified strategic priorities and is making institutional changes to improve its response to address the impacts of climate change. The Council of Ministers tasked MICOA with preparing a National Climate Change Strategy (NCCS) which will serve as ‘an umbrella’ for climate priorities identified at sector, provincial and district level. The strategy confirms that a Climate Change Coordination Unit will be established to strengthen overall coordination of the climate change agenda. The strategy also sets out institutional measures to clarify mandates for climate change and DRM coordination. The government is also adjusting its institutional framework to improve coordination: the Ministry of State Administration and 31 INGC will now participate in CONDES meetings at both ministerial and technical levels and MICOA will now participate in CCGC meetings. 77. The framework for disaster risk management is also being strengthened. A new DRM law was endorsed by the Council of Ministers in December 2012and will now be submitted for approval to Parliament. The law sets-out principles for preparedness and prevention and specifies a legal requirement to develop early warning systems and maps that identify areas and populations at risk from disasters. The law is an important element that demonstrates both ownership and a strong desire to make climate change considerations an integral part of development. 78. GoM recognizes the need to make progress on results measurement at national, provincial and local levels. The government has set itself ambitious targets to monitor the progress and impact of such reforms as part of the SPCR. This should also position the country better for attracting international climate change financing as this is becoming increasingly focused on results. The SPCR provides a draft framework for monitoring progress towards climate resilience, but to be used to serve national needs defined in the NCCS, the framework will need to be refined and expanded. M&E also needs to inform reporting at the national economic planning level. Actions supported by the DPO 79. The objective of this Pillar is to strengthen the strategic planning and institutional coordination of Mozambique’s response to climate change. Lead implementation responsibility for delivery of outcomes from this pillar will be MICOA, MPD and MAE. Support starts in DPO 1 with work at the national strategic level. DPO 2 and DPO 3 consolidate these efforts by enabling implementation of the strategy at sector and provincial levels, strengthening coordination and creating a national system for M&E. The policy actions are summarized below. 80. The National Climate Change Strategy32 was approved by the Council of Ministers under DPO 1. Preparation of the strategy was supported by the companion technical assistance project33. The strategy development process was based on consultations at district, provincial and national level and included consultations with civil society and private sector stakeholders. A draft of the strategy was then reviewed by government, civil society and private sector groups at different levels and following this consultation phase, the draft strategy was reviewed by the National Sustainable Development Council (CONDES), chaired by the Prime Minister. The World Bank recognizes that the strategy is part of a longer-term process of change but nonetheless represents an important step forwards in defining strategic direction and priorities. The strategy development process has contributed already to reaching consensus on a set of national and sector level priorities and on an action plan for achieving short and medium-term goals. The strategy also improves the definition of institutional roles and responsibilities in the medium term. 32 Estratégia Nacional de Mudanças Climáticas (ENMC) para o período 2013-2025. Ministério para a Coordenação da Acção Ambiental. República de Moçambique 33 Supported by a Bank-executed Trust Fund financed from DFID. 32 81. To support coordination, GoM proposed the establishment of a Climate Change Coordination Unit under the inter-ministerial Council for Sustainable Development (CONDES) with functions for coordinating implementation of climate change policies across government. Formal establishment of this unit – referred to in the National Climate Change Strategy as the Unidade de Coordenação das Mudanças Climáticas (UCMC), has been included as a DPO 2 trigger34. This unit will become fully-functional during FY13 and will assume lead responsibility for developing and implementing a national monitoring, evaluation and reporting framework for strategy implementation (see below). The World Bank will consider the trigger to have been met by approval of a CONDES decree setting-out the roles and responsibilities of the UCMC - including clarification of responsibilities for disaster risk management, and Ministerial level approval of terms of reference of monitoring, evaluation and fiduciary positions. 82. A national monitoring and evaluation framework for climate change and disaster risk management is established to deliver reporting to the Council of Ministers and the international conventions and this is included as a DPO 2 trigger. GoM has identified this as a priority in the National Climate Change Strategy and this will cover resilience and low carbon aspects of climate change. Detailed design of a national monitoring and evaluation framework will then be required to deliver reporting functions at international level (e.g. to the United Nations Framework Convention on Climate Change, Clean Development Mechanism and Climate Investment Funds) and national level (e.g. for sector reporting). 83. A new disaster risk management law that addresses climate change was endorsed by Council of Ministers under DPO 1. The new law clarifies legal frameworks and policy priorities for disaster risk management. Implementation of the law during DPO 2 and DPO 3 will take place through specific regulations and through a disaster risk management master plan that will be approved by a decree of the Council of Ministers (a DPO 2 trigger). The adoption of key actions in high climate risk, disaster-prone localities that are identified in the disaster risk management master plan is then included as a DPO 3 trigger. End of series outcome 84. Pillar 1 will create the necessary conditions to mainstream climate change in national economic planning, into sectors and into local development planning and implementation at decentralized levels: into provincial, district and municipal development. This will be measured through:  Number of districts that budget the climate change actions identified in the national socio-economic plan (PES) in annual district budgets (PESOD). Baseline (2012): 0 - Target (2015): 10.  Number of districts reporting on climate change information through the M&E framework. Baseline (2012): 0 - Target (2015): 10.  Number of municipalities that adopt specific actions identified in the disaster risk management Master Plan. Baseline (2012): 0 - Target (2015): 6. 34 Fiduciary, monitoring and evaluation functions will be supported for the first three years by the CCTAP. 33 Pillar 2: Climate resilience in sectors The challenge 85. Climate change will have impacts across multiple sectors. Previous analyses have identified agriculture and infrastructure as priority sectors for support and therefore these sectors have been targeted for investment by the PPCR and are also included in this pillar of the DPO. The human development sectors have also been included since these could make an important contribution to building resilience despite not having received sufficient attention in climate mainstreaming discussions so far. Key challenges in the sectors covered by the current program are summarized in the following. 86. Food insecurity in Mozambique is a major development challenge and climate variability is likely to exacerbate this problem. Measures to address food security are also reflected in the national agricultural strategy (PEDSA) which highlights the need to make progress on conservation agriculture and the uptake of climate resilient crops. 87. Climate change could enhance the vulnerability of the population to health impacts and to economic shocks. Globally, it has been estimated that climate change is already causing several hundred thousand premature deaths per year through malnutrition, diarrheal disease, malaria, heat exposure and flooding35. Nationally, 43 percent of children are chronically undernourished, with poor food security a contributing factor36. Diarrheal disease is estimated to account for four percent of mortality37, with seasonal peaks associated with rainfall patterns. These exposure risks are compounded by weak health and lack of transport, water and sanitation infrastructure. The health sector requires the capacity to respond rapidly to and recover from extreme climate events. Planning for longer term climate-related drivers of demand for health services (such as changing disease patterns) is also needed. 88. The development of emerging social protection programs also provides an opportunity to build climate resilience. Currently, the government is trying to make operational a social protection strategy to provide extremely poor and highly vulnerable households the opportunity to take advantage of economic growth as well as available social services. The high proportion of Mozambican households that are highly vulnerable to shocks, including climatic shocks, makes this a particular challenge. It is expected that climate change will exacerbate this problem, undermining efforts towards poverty reduction in the country. Social protection has an important role in protecting the poor and vulnerable, helping build resilience to climate shocks. However, collaboration between the social protection, climate change adaptation and disaster risk management sectors has not taken place at a meaningful scale in Mozambique – in part because of the absence of necessary legal and policy instruments as well as lack of clear operational guidance. Strengthened institutional capacity within the Ministry of Women and Social Affairs (MMAS) and a stronger culture of interdisciplinary collaboration are also needed. 35 McMichael,A.J., Campbell-Lendrum, D. Kovats,S. et al (2004). Comparative Quantification of Health Risks: Global and Regional Burden. 36 Instituto Nacional de Estatística (2012). Moçambique: Inquérito Demográfico e d Saude 2011. Relatório Preliminar. 37 INE, US Census Bureau, MEASURE Evaluation, US Centers for Disease Control and Prevention, (2012.) Mortality in Mozambique. Results from a 2007-2008 Post-Census Mortality Survey. 34 89. Building climate resilience into Mozambique’s infrastructure will be crucial – the importance of which emerged from economic analysis supported by World Bank and more recently by studies undertaken by the INGC. For this reason, the DPO is supporting reforms in three ‘infrastructure’ sectors – roads, energy and hydro-meteorology and the challenges faced in these sectors are outlined below. 90. Rural roads are highly exposed to climate change impacts. Mozambique has a classified road network of approximately 30,000 km, of which 24,000 km are unpaved roads which are particularly susceptible to damage from climate and weather induced problems. In addition to this network, there exists an estimated 50,000 km of priority unclassified roads managed by the District authorities. Most of this unpaved network consists of un-engineered roads characterized by seasonal transitability problems. Heavy rains and floods increasingly cause roads to suffer ruptures leading to disruptions which result in rural populations being cut off from markets and services, with the associated harmful effects on rural livelihoods 91. Mozambique’s fast growing economy means that demand for energy is also growing rapidly. Net power consumption is projected to increase by an annual average of 8–15 percent over the next 10-year period38 - mostly driven by demand from urban centers, especially those in the south of the country. This growth rate, combined with severe bottlenecks in transmission, mean there is a risk that the rate of growth in demand will outstrip supply - leading to either power outages or a slowdown in the rate of grid expansion. The revised Energy Strategy is based on the tenet that new and renewable sources of energy could play an increasing role in the national energy balance especially because these can be deployed relatively quickly. Mozambique has substantial renewable energy resources that are currently being mapped by the Ministry of Energy. These include biomass, wind, solar and hydro resources. So far, about 2,200 MW of hydro generating capacity has been developed - the vast majority of this at the Cahora Bassa Dam – one of the largest hydropower facilities in Africa. With the correct incentives, around 50 additional sites that have been identified as being suitable for hydropower generation and five sugar mills capable of generating significant amounts of power from sugar crop wastes (bagasse) could attract private sector investment and contribute additional power. These sources could be made operational much sooner than the megaprojects that will eventually come on stream in Tete and Moatize and could also boost grid stability and provide improved incentives for extending the grid further. 92. Hydro-meteorological services have a key role to play in lowering risks and exposure to climate hazards. The climate change scenarios of the IPCC predict significant implications for Mozambique. Global Circulation Models indicate that rainfall patterns will vary greatly across the country (between 31 percent reduction to 16 percent increase); shorter rainy seasons and prolonged periods of drought can be expected especially in the central regions of the Zambezi River Valley; temperatures may increase on average one to two degrees Celsius by 2050; and sea levels may consequentially rise. With growing uncertainties, hydro- meteorological information is vital to understand, prepare to and manage the implications of climate change. Mozambique’s hydro-meteorological infrastructure is in a poor state of repair 38 Estimates vary: Business Monitor International May 29 2012 (see http://www.marketresearch.com/Business- Monitor-International-v304/Mozambique-Power-Q3-7011559/) estimated a growth rate of 8.4 percent for the next 10 years. The review of Mozambique’s electricity law published in March 2011 estimated growth rates at around 15 percent. 35 and furthermore, institutional and legal impediments constrain the extent to which hydro- meteorological data is collected and shared between relevant stakeholders. Government action to date 93. The Government’s Strategic Plan for Agricultural Development (PEDSA) seeks to transform the agriculture sector from being predominantly subsistence-oriented to being more competitive. The PEDSA sets-out an ambitious target of delivering agriculture sector growth of seven percent per annum whilst reducing vulnerability and reducing poverty. It recognizes that climate change will work against efforts to grow the sector and identifies a number of climate change threats to the sector. Accelerating the development of conservation agriculture and the introduction of drought tolerant crop varieties are identified as the priorities to address this challenge and experience from piloting of conservation agriculture39 has demonstrated their value in increasing yields of key crops (e.g. maize). The Medium Term Investment Plan for the agriculture sector is currently under preparation and it will be important to ensure that sufficient resourcing for conservation agriculture and for the uptake of climate resilient seeds are allocated in this plan. 94. The government is building knowledge on the climate change impacts on health. The Ministry of Health works closely with INGC in the context of disaster risk management and has extensive experience of preparing for and responding to extreme climatic events, especially severe storms and floods. Work is now underway to improve the evidence base to understand the possible impacts of climate change on health. Technical assistance through the CCTAP is supporting the Ministry of Health to prepare a scoping study that will focus on longer-term implications of climate change on health service delivery and public health so that this issue can be considered properly during preparation of the forthcoming health sector strategy (Plano Estratégico do Sector de Saúde – PESS) for 2013–2017. This will complement an on-going study on health issues associated with disasters40. 95. The government recognizes that climate shocks and increasing climatic variability is likely to impact negatively on the poor. Climate shocks can adversely affect intended outcomes of existing social protection initiatives. The government also recognizes that social protection policy needs to better integrate with climate change adaptation and disaster risk management policy. The Ministry of Women and Social Action (MMAS- Ministério da Mulher e Acção Social) is the institution in charge on the Social Protection policy in the country. In 2009, the government launched the National Strategy for Basic Social Protection (ENSSB - Estratégia Nacional de Segurança Social Basica) which recognizes the impact of natural disasters and climate change and identifies the productive social action program as a mechanism to address, among others, the vulnerabilities derived from climate shocks. The productive social program, one of four programs under the strategy that will be supported by a proposed World Bank project, would be a first chance to link social protection policy implementation with that of disaster risk management and climate change adaptation at a practical level. 39 See Conservation agriculture in Mozambique – experiences with a new technology. CIMMYT. USAID Mozambique. 40 “Climate change health, agriculture and disasters analysis in Mozambique: CDKN Project Reference TAAF- 0029b� 36 96. The Coordinating Council of the Basic Social Security Sub-system comprises the Ministers responsible for the management of the main pillars within the strategy, as well as representatives of public and private entities connected to the area of social action, including the Ministry of State Administration and the National Institute for Disaster Management. The latter is also explicitly considered in the National Strategy for Basic Social Protection as the institution that deals with the prevention and mitigation of emergency situations, thus enabling collaboration between the social protection and disaster risk management sectors. The disaster risk management Law and master plan will include provisions for social protection. Priorities for harnessing social protection programs for building climate resilience are also included in the new National Climate Change Strategy. Progress is also being made on institutional coordination. For example, MMAS is considering the establishment of a new unit that would deal among other issues with environmental and climate change matters and this could play an important role in mainstreaming climate change and disaster risk management measures into policy development and implementation. Further institutional responses are also being considered, for example, the integration of MICOA in the Coordinating Body on Basic Social Protection and of MMAS in the Council on Sustainable Development. 97. Roads have seen substantial increases in transitability over the past years. The introduction of ‘spot improvements’ and an increase in spending on emergency repairs in recent years has delivered a significant rise in transitability of the classified road network between 2007 and 2010 – where over 90 percent are such roads are now transitable41. There has also been a significant step toward improving unclassified roads at district level with the introduction of a road works budget allocation for each of the 130 Districts and the passing of reforms that enable local contracting for road maintenance. The sector is also in the process of initiating a PPCR- supported study which will look at improving climate resilience of the unclassified roads network in the Zambezi River Valley and will include proposals for improved linkages between rural roads and the rehabilitated Sena Railway Line. The outputs from this study should help to guide the sector in the choice of approach to designing and constructing climate resilient road drainage works. 98. The government has also published a National Strategy for New and Renewable Energy Development (EDENR)42 which, inter alia, encourages take-up of technologies that will improve access to modern forms of energy. With support from Norway, USAID and other donors, the National Energy Fund (FUNAE) and the Department for New and Renewable Energy have reviewed a range of different incentive measures to promote business investment in (mostly on-grid) renewables and the Department has recently undertaken an auction approach for wind energy supply from Inhambane province. GoM is also committed to providing access to electricity to the vast areas of the country that lie beyond the existing grid, but faces many financing and technical challenges for doing so. The government is supporting decentralized electrification of rural schools and clinics and to increase access to modern energy services to villages and rural enterprises through solar photo-voltaic systems, mini-hydro schemes, modern biomass energy, and other Renewable Energy Technologies (RETs). The Energy Strategy seeks 41 Road Fund and ANE Annual Reports for PRISE (Sector Wide Programme for the Road Sector) 2007 - 2010 42 MoE (2011). Strategy for New and Renewable Energy Development (EDENR) 2011-2025. Ministry of Energy, Republic of Mozambique. 37 to diversify energy supply by prioritizing local energy sources and safeguarding access to modern forms of energy for the growing population. 99. Alternative options for energy provision are needed to secure a successful implementation of the revised energy strategy. The Ministry of Energy recognizes that specific incentives will be needed to encourage private sector Independent Power Producers (IPPs) to invest in extending energy access through tapping renewable energy resources across the country. The Ministry is currently working on a major mapping exercise of renewable energy resources which outlines some specific proposals to encourage such investment of which the renewable Feed in Tariff (REFIT) is one such mechanism. In parallel with this, the Ministry has launched a tender process for 30MW of installed capacity for wind energy in Inhambane province – and once completed, this will be the first major wind installation in the country. As part of the REFIT design process, MoE is undertaking a review of renewable energy tariff models43 and has commissioned analysis of tariff rates for different renewable energy generation technologies. 100. Hydro-meteorology legal and policy issues are in the mandates of two ministries. Water resources management lies in the domain of the Ministry of Public Works and Housing (MOPH – Ministério das Obras Públicas e Habitação) and meteorology within the Ministry for Transport and Communication (MTC – Ministério dos Transportes e Comunicações). In MOPH, the National Directorate of Water (DNA - Direcção Nacional de �guas) combines policy making, implementation, planning and management, as well as provision of water supply and sanitation services. Implementation is undertaken by five Regional Water Authorities (ARAs) that report to MOPH. Priority actions are defined in the Water Resources Management Strategy of 2007 and the National Adaptation Program for Action of 2007. The National Institute for Meteorology (INAM – Instituto Nacional de Meteorologia) under MTC is mandated to generate and coordinate the national meteorological services in all of Mozambique’s 128 districts. INAM has also prepared a new strategic plan (2012-2016) with support from the World Bank. This will clarify its mandate and identify future strategic priorities. Submission of this plan for approval by the Council of Ministers has been included as a prior action for DPO 1. Actions supported by the DPO 101. The objective of this Pillar is to strengthen the contribution of key productive and social sectors to a climate-resilient economy. The policy actions in this pillar, together with supporting technical assistance, complement the GoM’s efforts to mainstream climate resilience at sector level in agriculture, human development (health and social protection) and in infrastructure (roads, energy and hydro-meteorology)44. Reforms in the agriculture and roads sectors and on hydro-meteorology will be further supported with investments from the PPCR. 102. Agriculture: The DPO series will strengthen climate resilience aspects of the National Agriculture Strategy and will culminate in the scaling-up of conservation agriculture – based on recent and successful pilot experience in a number of provinces. A ‘prior action’ for DPO 1 was the approval by the Council of Ministers of the investment plan for the National Agricultural Development Strategy (PEDSA) that includes a specific program and proposed 43 MoE (2011). Renewable Energy Tariff Models. Ministry of Energy, Republic of Mozambique. 44 Annex 4 provides further background on the sectors. 38 budget allocation for conservation agriculture. This will enable the strengthening of the capacity of extension services to deliver advice to farmers, the development of specific conservation agriculture models suitable for different agro-ecological conditions. This reform will be implemented by the Ministry of Agriculture (MINAG), with the support of INGC. Reforms included in DPO 2 and DPO 3 will extend progress by taking priority actions costed in the PEDSA investment plan into implementation through approval of norms and incentives for scale-up of conservation agriculture and through Ministerial approval of a research and extension program to scale-up farming systems adapted to climate change and to conserve soil and water resources. Both DPO 2 and 3 reforms are key to ensuring that farmers receive the quality advice and support needed to enable uptake of conservation agriculture using appropriate models. These reforms are also needed to ensure adequate reporting from district to provincial and national level. 103. Human development: Policy actions for human development are designed to ensure that the implications of climate change are addressed in health and social protection policy. The prior action for DPO 1 was the approval by the Council of Ministers of the National Productive Social Action Program that incorporates climate change risks and adaptation options, such as the targeting of social protection programs to climate vulnerable people and including activities at local level that build climate resilience (e.g. maintenance of urban storm drains). During DPO 1 preparation, the Ministry of Health, with the support of the companion technical assistance project, prepared a study to identify and categorize the risks to health posed by climate change in Mozambique (a milestone) and to identify a range of options for consideration in the next health strategy. This study built on existing work on climate modeling and disaster risk management preparedness and focuses on ‘longer-term’, climate-related implications for the health sector - complementing an ongoing study of health implications of disasters. Triggers for DPO 2 and DPO 3 will build on the policy and analytical platform to ensure that climate-resilient planning is embedded in the national health strategy and is targeted to high risk areas and districts on the basis of vulnerability. 104. Roads: Policy reforms in the roads sector aim at ensuring that all future public investment in unpaved roads is undertaken to common standards of climate resilience. The government considers that building the climate resilience of the roads network is a key national priority – given that spending on roads comprises over half of annual, national capital expenditure. The policy area will involve, in DPO 2, approval by the Ministry of Public Works and Housing of revised design standards and maintenance approaches to ensure longer-term climate resilience, and Ministerial approval of a vulnerability survey of climate risks to the rural roads network in three provinces. This process will be anchored in DPOs 1 and 2 on a climate vulnerability survey of the Zambezi valley roads network, to be supported by the PPCR and which will inform the revision of design standards45. DPO 3 triggers will comprise ministerial approval of the national inventory and climate risks assessment that determines cost estimates and investment needs for a climate-resilient district road network. 105. Policy reforms for energy access are designed to put in place the policy, legal and regulatory provisions that will improve prospects for private sector investment in both on- 45 This is planned as part of preparation activities for the Roads and Bridges Management and Maintenance project (APL 3). 39 grid and off-grid access to energy. The prior action for DPO 1 was the launch of the process for reaching agreement with an Independent Power Producer for the development of a wind power park with the Ministry of Energy – through the approval of the pre-qualification documents. This process has already generated a wealth of experience for the Ministry of Energy’s efforts to promote on-grid renewable energy supply and will also help the Ministry identify appropriate tariff levels to encourage further private sector investment in wind energy. DPO 2 will support the approval by the Council of Ministers of a Feed in Tariff mechanism to encourage private sector investment to boost medium term energy supply and access from renewables. This is aimed particularly at encouraging generation and connectivity from bagasse (sugar waste) cogeneration, wind and small hydro potential for comparatively quick deployment and grid connection. In DPO 3, the program will be complemented by the submission to Parliament of a revised Electricity Law. This will embed the ReFIT in the legislative framework through submission for Parliamentary approval of the revised Electricity Law. The law will include specific provisions for renewable energy Power Purchase Agreements (PPAs) with the private sector and will include a legal obligation for power transfer by the grid operator to the off-taker from Independent Power Producers under PPAs. The law will also provide for off-grid Power Purchase Agreements – for example, to enable renewable supply to mini-grids. 106. The reform series above will be supported by two significant benchmark studies that will improve the overall enabling environment for investments in both off- and on-grid renewables: (i) the publication by MoE of the Renewable Energy Atlas that will provide a comprehensive source of information on the distribution of renewable energy sources, including wind, solar, hydro and geothermal; and (ii) the initiation of an investment climate study for both on- and off-grid renewables - supported by the ongoing World Bank Energy Access and Development Project (EDAP), which will identify investment barriers for both off- and on-grid renewable energy development and will cover access to credit, import tariffs and regulatory frameworks. For off grid systems (e.g. for solar lighting and refrigeration systems and mini grids) it is hoped that the second milestone will provide a foundation for a substantial scale-up in deployment. For on grid systems, the findings of this study should complement the economic incentives for investment to be created by the Feed in Tariff. 107. Policy reforms on hydro-meteorology will strengthen and clarify the mandates of hydro-meteorological agencies for addressing climate change impacts and will also promote data sharing across government agencies. The DPO 1 prior action comprised approval by the Council of Ministers of the strategic plan of the National Institute of Meteorology. This sets-out a clear program of policy and operational priorities for service delivery and complements support from a Pilot Program for Climate Resilience (PPCR) project, currently under preparation, that will strengthen the National Directorate of Water (DNA), regional water authorities and the National Institute for Meteorology (INAM) that comprise Mozambique’s hydro-meteorological services. INAM’s new strategic plan was approved by the Council of Ministers in December 2012. Subsequently reform triggers for DPO 2 and DPO 3 will strengthen the inter-ministerial cooperation and institutional framework required to underpin an effective hydro-meteorological service. Specifically, these will comprise:  A protocol for the management and exchange of data is approved through a joint ministerial diploma of the Ministry of Transport and Communications and the Ministry of Public Works and Housing. 40  Decree approved by the Council of Ministers that updates and clarifies INAM's mandate at national, regional, provincial and district level in relation to data standards, modelling, forecasting and knowledge management of meteorology and climate change.  Ministerial approval of the introduction of new or revised policies or regulations, to be identified during DPO 2 preparation, that operationalize (i) improved last mile connectivity, (ii) strengthened early warning systems, and (iii) sustainable financing of hydro-meteorological service delivery. End of series outcomes 108. The outcomes of Pillar 2 of the DPO series span the different sectors involved. Expected results comprise:  Agriculture: Increased resilience measured by (a) Number of households engaged in conservation agriculture in all ten provinces. Baseline (2012): 15,000 - Target (2015): 32,000; Average yields of maize (tons per hectare) from farms engaged in conservation agriculture. Baseline (2012): 1.5 - Target (2015) 2.5.  Social protection: Number of households in climate vulnerable districts that are identified by the new National Institute of Statistics indicator that are targeted by the National Productive Social Action Program. Baseline (2012): 0 - Target (2015): 40,000.  Health: Number of high-risk districts and municipalities that have (i) identified focal points for disaster response, including climate related events; (ii) a local disaster response plan that includes climate related events; and (iii) identified mechanisms to mobilize funds for disaster response, including climate related events. Baseline (2012): 0 - Target (2015): 10.  Roads: Percentage of district roads that are constructed or upgraded from 2014 onwards that are in compliance with revised design standards. Baseline (2012): 0 - Target (2015): 80%.  Energy: Number of proposals for renewable energy investments following approval of the new renewable Feed in Tariff mechanism. Baseline (2012): 5 - Target (2015): 15.  Hydro-meteorology: Improved lead times (days) for flood warning compared with 2007 baseline. Baseline (2007): 2 - Target (2015): 5. 41 VI. OPERATION IMPLEMENTATION POVERTY AND SOCIAL IMPACTS 109. In Mozambique, the poor are more likely to suffer from climate change impacts. The World Bank’s study of the social dimensions of climate change46 showed that those most at risk are subsistence farmers – most of whom are dependent on rain-fed agriculture, and the economically and socially-marginalized - such as the elderly, female-headed households, orphans and widows. These groups often lack access to support networks either formally – through government programs, or informally through functioning social networks. For vulnerable communities, even small reductions in income can have a dramatic impact and in these circumstances savings are usually inadequate in the event of disasters. In these circumstances, they may be forced to sell real assets such as agricultural land and livestock. Furthermore, the poor often live in areas especially vulnerable to destructive events such as floods, hurricanes, and landslides and are less likely to have access to risk-sharing mechanisms like insurance. Disasters can, thus, substantially increase poverty. 110. Poverty and social issues of particular relevance to the DPO include:  Food insecurity: Increasing climate variability and change is likely to exacerbate this problem. Tackling food insecurity is reflected in the national agricultural strategy – or PEDSA – which highlights the need to improve the resilience of agriculture, for example by promoting conservation agriculture and the uptake of climate resilient crops to address food insecurity.  Rural roads: The road network, and particularly the unpaved roads network, is highly exposed to extremes of weather and to climate change impacts. Heavy rains and floods cause roads to suffer ruptures leading to disruptions which result in rural populations being cut-off from markets and services, with the associated harmful effects on rural livelihoods.  Health: Nationally, 43 percent of children are chronically undernourished, with poor food security a contributing factor. Diarrhoeal disease is estimated to account for four percent of mortality, with seasonal peaks associated with rainfall patterns.  Social protection: The Government faces the challenge of making operational a strategy to provide extremely poor and highly vulnerable households the opportunity to take advantage of economic growth as well as available social services.  Energy access: Only 12 percent of households currently have access to electricity. As the grid and the economy as a whole expand, increased demand may outstrip supply in the medium term. Over this period, lack of access to electricity will constrain economic opportunities for the poor and will leave rural populations over- dependent on declining forest resources for fuel (biomass fuels that contribute over 85 percent of domestic energy needs). The burning of these fuels also has negative impacts on health. 46 World Bank (2010). The Social Dimensions of Adaptation to Climate Change in Mozambique. December 2010. Washington D.C. 42 111. The programmatic DPO series will likely have a number of poverty and social impacts. These will be essentially positive, since the reforms will promote climate resilience in sectors of particular significance to the poor in Mozambique. Such sectors include disaster risk reduction and management, agriculture, rural roads, social protection and rural health service provision. Given that DPO 1 works mostly on strategy, coordination and monitoring and evaluation, there will be no directly-measurable social or poverty impacts. However, DPO 2 and DPO 3 include reforms on climate resilience in the agriculture, social protection, health and energy sectors among others and these may have substantial poverty and social impacts. 112. A Poverty and Social Impact Analysis (PSIA) to inform the design of subsequent operations in the DPO will be undertaken during the program implementation. The PSIA will be supported by the multi donor trust fund for climate change for Africa. The PSIA will:  Assess latest evidence on the poverty and social impacts of climate change in Mozambique – including recent analysis undertaken by Africa Climate Change Resilience Alliance (ACCRA)47 (on livelihoods, vulnerability and resilience), FAO/MICOA48 (on rural livelihoods and poverty), INGC49 and World Bank (on social dimensions of climate change)50.  Assess GoM’s institutional capacity to identify and respond to the distributional impacts of climate change policy reforms on the welfare of different stakeholder groups, with particular focus on the poor and vulnerable.  Identify groups that are most vulnerable to climate change, their transmission channels and distributional impacts on poor and vulnerable groups.  Identify the effects of climate change on poor and vulnerable groups, including an assessment of differential regional effects (based on available downscaled GCM scenarios) and potential distributional impacts on poor and vulnerable groups as well as differentiated benefits and impacts for women and men.  Undertake a political economy analysis of the reform program to improve understanding of how the DPO and reforms proposed will alter power relationships between key institutional actors and to identify reform champions and blockages.  Determine whether the Climate Change DPO series needs refinement, including the pace, process and success of the policy impact on specific groups. 113. The PSIA will inform the design of policy actions in DPO 2 and DPO 3 and would start with scoping of the poverty and social implications of the whole DPO series. Scoping will be followed by detailed assessment of policy reforms where significant risks have been 47 Understanding adaptive capacity at the local level in Mozambique: Synthesis Report. Africa Climate Change Resilience Alliance (ACCRA) Mozambique. 48 Midgley, S, Dejene, A., and Mattick, A. (2012). Adaptation to Climate Change in Semi-Arid Environments. Experience and Lessons from Mozambique. Food and Agriculture Organization Rome. 2012. 49 INGC (2012) Modelando os impactos das mudanças climáticas de meados do século nos rendimentos das culturas em Moçambique: Efeitos do aumento da temperatura, do ozono terrestre e do CO2 atmosférico: uma abordagem por camadas. 50 World Bank (2010). The Social Dimensions of Adaptation to Climate Change in Mozambique. December 2010. Washington D.C. 43 identified. The scope of the PSIA will therefore cover the full range of reforms proposed in the DPO series. Particular attention will be paid to the potential poverty and social impacts associated with reforms in energy as this might have implications for energy costs. In these cases, the reforms could have both positive and negative implications: they could improve poverty and social outcomes by improving access to sustainable energy - but could also pose risks in terms of higher energy costs. ENVIRONMENTAL ASPECTS 114. The DPO will support policies that are expected to be positive in terms of their environmental impacts. Given that climate change effects are forecasted to have substantial impacts on Mozambique, enhanced climate resilience and institutional capacity to address climate change issues will have significant positive environmental impacts. In particular, the operation aims to promote increased use of conservation agriculture techniques, strengthen the climate resilience of roads infrastructure, build climate-resilience into health sector strategies, scale-up renewable energy investments, improve early warning systems and enhance the contribution of social protection programs to building climate resilience. 115. Environmental benefits anticipated: Reforms for conservation agriculture will have considerable direct environmental benefits in terms of the enhancement of carbon stocks, regulation of hydrological functions, reduction of soil and agrochemical run-off, and more sustainable management of biodiversity. Whilst renewable energy sources all involve specific environmental considerations, in addition to mitigating climate change, they generally have much more modest local environmental impacts than alternative non-renewable investments or continued reliance on biofuels, particularly in relation to conversion of natural habitats, and air and water pollution. 116. Other sector reforms will provide opportunities for integration of environmental management and co-benefits. For example infrastructure hardening will take account of the contribution that ecological infrastructure can play (e.g. vegetation to stabilize slopes and absorb run-off). Social protection programs may also include public works aimed at environmental enhancement under cash-for-work schemes. Overall, increased climate resilience offers significant indirect environmental benefits through reducing the risk of economic stress and displacement that could drive people to expand agriculture into unsuitable areas or otherwise fall back on unsustainable use of natural resources. 117. The DPO is unlikely to cause significant negative effects on Mozambique’s environment or natural resources. Some of the policies supported by the DPO may promote increased physical investments, but these will be modest in scale and also largely beneficial in nature. These could include resilient infrastructure designs and maintenance procedures that will reduce the long-term frequency of repairs and replacement civil works, as well as the environmental damage caused by poor environmental engineering and catastrophic failures. Small-scale water retention and management structures which could result from reforms in agriculture and rural roads would improve groundwater recharge. Nevertheless, there is a need to ensure that policies to promote these investments are complemented by appropriate consideration of possible environmental impacts. In the case of small-scale rural infrastructure, this will involve adherence to simple mitigation measures. For renewable energy investments, depending on their nature, more specialized or complex issues could be involved; for instance 44 small-scale hydropower can have significant impacts at local level for both terrestrial and aquatic habitats. 118. Resources have been ear-marked within the complementary technical assistance project (CCTAP) for a strategic environmental assessment (SEA) of the DPO. Mozambique has considerable experience with conducting SEAs, and the national environmental policy framework is generally robust. The SEA will (i) strengthen stakeholder consultation around potential environmental and social impacts during the policy development process; (ii) identify potential threats and environmental opportunities under climate-related policies within each sector, depending on the specific nature of the activities likely to be promoted, and where necessary; and (iii) review the adequacy of existing national systems to manage environmental effects. It will therefore provide inputs to be incorporated into the processes for development of specific policies and strategies under the DPO, including the production of complementary guidelines and tools where required. The Bank task team has deep expertise in environmental issues and will assist the client to ensure that the findings of the SEA are appropriately incorporated into the development of policy instruments. IMPLEMENTATION, MONITORING AND EVALUATION 119. MPD will be responsible for the overall implementation of the operation. MPD is already working in close coordination with MICOA under the SPCR and will continue under the DPO. Both Ministries have been taking the lead in the discussions with other sector ministries in developing and agreeing on the proposed triggers and milestones. The establishment of the climate change coordination unit (UCMC), which will be supported by technical assistance and which has been included as a DPO 2 trigger, will be responsible for designing and operating a national M&E framework for climate change. Since the DPO will be a multi-sectoral operation, the role of the UCMC will be crucial in managing and coordinating DPO related activities across sector ministries. 120. A results framework has been developed for the DPO (Annex 2). The results framework is consistent with the broader SPCR results framework which has been endorsed by the PPCR Sub-committee of the Climate Investment Funds. Support to establish the monitoring and evaluation system for the DPO will be provided through the accompanying technical assistance project. Implementation of the framework will be strengthened by a monitoring and evaluation specialist in its start-up phase. While specific results will be the responsibility of the respective sectoral ministries, the UCMC will have the responsibility to coordinate and consolidate progress reporting. 121. In addition, the World Bank will continue to fulfill its supervisory and monitoring role to review progress, as well as needed adjustments under its sector specific operations and through support to the PPCR process. Support to build-up the SPCR monitoring and evaluation system for Mozambique has been provided through PPCR funding and has resulted in for a country showcase report and presentation during the PPCR Partnership Forum in 2012. Responsibility of the monitoring and evaluation system of the SPCR lies with the same institutions as for the DPO and will also be transitioned to the UCMC once established. 45 FIDUCIARY ASPECTS 122. Mozambique’s public financial management system is considered adequate to support the CC DPO series. While there have been successful PFM reforms in the country, there are still challenges particularly in terms of application of internal controls at decentralized levels, funds-flow to and information gathering from remote districts, lack of adequate PFM staff, delayed releases of budget, and high-levels of off-budget spending. On-going PFM reforms are fully geared up to respond to these challenges; hence, the proposed credit will be disbursed following standard IDA procedures. 123. PFM improvements have been a corner stone of reforms towards good governance and sound macroeconomic management. Public Expenditure and Financial Accountability (PEFA) indicators show the trajectory of improvement from 2006 to 2008 and 2010 as the PFM reforms led to successful improvements. These PFM improvements have been in all dimensions including multi-year planning, annual budgeting, procurement, accounting, internal controls, auditing, and public access to key fiscal information, including parliamentary approved annual budgets as well as reports on use of government funds. SISTAFE legislation (2002), along with new PFM policies and procedures, provided a solid foundation for the PFM structure and a government-wide IFMIS (e-SISTAFE) has been implemented progressively as the information technology platform for implementation of the legislation. PFM reforms especially supported improved macroeconomic management by expanding the use of these systems. While there has been limited success in meeting the goal to use Medium-Term Expenditure Framework as the basis for the sectoral budget allocations supporting programmatic implementation of Poverty Reduction Strategy, considerable progress has been made in rolling out e-SISTAFE as well as expanding the functionality over time. e-SISTAFE covers budget preparation as well as budget execution and reporting of expenditures. A Treasury Single Account was introduced for efficient cash management. The first procurement decree was published in 2005 creating a public procurement regulatory agency and the decree was updated in 2010 in line with international best practice. Public procurement executing units at the various levels of the public entities have also been established. Enhanced capacities of the Supreme Audit Institution and the internal audit bodies have enabled increased coverage of audits done. 124. Going forward, the recently updated PFM Vision 2011-2025 continue to be the guiding tools for PFM improvements in Mozambique. Implementation of the PFM Vision is being supported by development partners and an amount in excess of US$ 157 million is planned for the next 5 years. The Bank is supporting the PFM reforms through various projects such as National Decentralized Planning and Finance Program and Cities and Climate Change Project, which support building PFM capacities at local levels. PRSCs have also supported the government PFM reforms program, including moving from increased audit coverage to more of risk-based audits. Financial management challenges identified in audits will be monitored by the IGF, where it will be responsible for follow up on recommendations provided in the audits carried out by all of the government’s internal control bodies. The Bank is also planning to support Government’s new PFM for Results Program which aims to deepen the PFM reforms in sectors and at decentralized levels. 125. The proposed credit will be disbursed following standard IDA disbursement procedures. The credit will be disbursed as a single tranche after effectiveness and fulfillment 46 of the tranche release conditions and upon submission of acceptable withdrawal applications from MPD. IDA will deposit the funds in a dedicated foreign exchange account of the Bank of Mozambique in Frankfurt. The funds will not be used for Excluded Expenditures in accordance with the Financing Agreement. Within two working days, the Bank of Mozambique will credit the Metical equivalent of the credit funds to the Transit Account of the Ministry of Finance. The Metical equivalent funds will be transferred from the dedicated account to the CUT and will be used as State budget revenue and recorded in the State accounts as such. In line with noted improvements in PFM, particularly in oversight and follow-up mechanisms, an audit report will not be mandatory under the CC DPO, however, IDA will reserve the right to request an audit should it feel there is a need for such. Should an audit be requested, a legally registered, private and independent audit company meeting international standards on auditing and qualifications of the auditors assigned will perform the annual audit, and in accordance with Terms of Reference to be agreed with the GoM and the audit costs will be met by government. RISK AND MITIGATION 126. Institutional issues pose the most significant risk to this operation - given its key role in achieving improved coordination of cross-sectoral mandates and improved implementation efficiency. The reform areas touch on a number of sectoral ministries and inter-institutional arrangements. Increasingly climate change aspects will require cooperation within and among Ministries which often proves challenging. To mitigate this risk, the Government has prepared a national climate change strategy which also integrates disaster risk management aspects. The Government is also seeking to strengthen its inter-institutional coordination body CONDES by ensuring that climate change and disaster management related institutions are present. The strategy further foresees the establishment of a Climate Change Coordination Unit that will be entrusted with the day-to day coordination responsibility. Technical assistance will also be deployed to support the unit to ensure the necessary capacity to build and develop institutional knowledge and effective monitoring. The CCTAP will also support coordination with other donors active in providing climate support, including the Danish Environment Program and the UNDP Africa Adaptation Program. 127. Potential delays in implementing reforms included in the DPO series also present a risk. This could result from (i) insufficient institutional capacities and from (ii) delays in implementing the implementing the investment pilots under PPCR. To mitigate the former risk, the proposed DPO reforms will be supported through technical assistance to be delivered through the CCTAP. In addition, ongoing sectoral projects and dialogue will also be used to support the reform process. The risk of delays in the investment pilots applies only applies to the roads trigger included for DPO 3. This risk will be re-assessed during preparation of DPO 2 by which time the milestones for preparation of the Roads and Bridges Management and Maintenance Project (APL-3) and associated PPCR co-financing will have been clarified. 128. Macro risks were identified for the DPO. These include potential macroeconomic shocks and the impact these could have on the implementation and achievements of the government reform program. The deterioration of the global economy has substantially increased the risks of deteriorating terms of trade, reduction of FDI, potential reductions in donor disbursements, especially through budget support. To mitigate these risks, the government has developed a good and well tested model to dampen the impact of these shocks by building a high 47 level of reserves, maintaining a flexible exchange rate regime, and keeping low external debt vulnerability. Additionally, Mozambique has a stable relationship with the IMF, anchored on a Policy Support Instrument, which contributes to solid macroeconomic management. The elaboration of the new PARP contributed to deepen the communication and to address differences of views that could lead to lower support. Over the long run, the government is keen to continue to build its own revenue base to gradually reduce dependency of foreign aid. All together the DPO considered this risk to be low but increased lately due to the deterioration in the global environment. 129. Capture of the climate change agenda by a single institution has been perceived as a risk in recent years. However this has receded with recent consensus over the national climate change strategy which has clarified institutional roles and with emergence of a strong role from MPD in coordinating and driving the reform series and in supporting MICOA’s management of the SPCR. Nonetheless, a political economy analysis will be undertaken as part of the Poverty and Social Impact Analysis to shape the design of DPO 2 and DPO 3 operations. 48 ANNEX 1: LETTER OF DEVELOPMENT POLICY 49 50 51 52 53 54 ANNEX 2: CLIMATE CHANGE DPO POLICY MATRIX AND RESULTS FRAMEWORK The Program Development Objective is to build effective institutional and policy frameworks for climate resilient development. Objective DPO 1 DPO 2 DPO 3 Results Indicator Implementati Prior action (completion in Trigger (completion in Trigger (completion in on calendar year 2012) calendar year 2013) calendar year 2014) responsibility Pillar 1 – National policy and institutional framework for climate action To The National Climate Establishment of a Climate Key actions of the National Number of districts that budget the climate change Ministry for strengthen Change Strategy is approved Change Coordination Unit Climate Change Strategy actions identified in the national socio-economic the the by the Recipient’s Council of under the inter-ministerial adopted in the national plan (PES) in annual district budgets (PESOD). Coordination strategic Ministers. Council for Sustainable socio-economic plan (PES) of planning Development (CONDES) that is submitted for Baseline (2012): 0 Environmental and with functions for approval to Parliament51. Target (2015): 10 Affairs institutional coordinating implementation (MICOA), coordina- of climate change policies ----- Ministry of tion of across government. Planning and Mozam- Number of districts reporting on climate change Development bique’s information through the M&E framework. (MPD), response to A national M&E framework Ministry of climate for climate change and Baseline (2012): 0 State change disaster risk management is Target (2015): 10 Administration established to deliver (MAE) reporting to the Council of Ministers and the international conventions. A disaster risk management A decree on a disaster risk Key actions that are Number of municipalities that adopt specific Ministry of bill, addressing climate management Master Plan identified in the disaster risk actions identified in the disaster risk management State change, has been endorsed that complements the management Master Plan Master Plan. Administration by the Council of Ministers. National Climate Change are adopted in high climate (MAE), Strategy is approved by the risk disaster-prone localities. Baseline (2012): 0 Municipal Council of Ministers. Target (2015): 6 Councils 51 The PES is the primary governmental tool for national development and includes the state budget 55 Objective DPO 1 DPO 2 DPO 3 Results Indicator Implementati Prior action (completion in Trigger (completion in Trigger (completion in on calendar year 2012) calendar year 2013) calendar year 2014) responsibility Pillar 2 – Climate resilience in sectors To Agriculture strengthen The investment plan of the Ministry of Agriculture Ministry of Agriculture Number of households engaged in conservation Ministry of the National Agricultural diploma approved defining diploma approves a agriculture in all ten provinces52. Agriculture contribu- Development Strategy norms and incentives for research and extension (MINAG) tion of key (PEDSA), including specific scale-up conservation program to scale-up Baseline (2012): 15,000 productive programs and budget agriculture in Mozambique. farming systems adapted to Target (2015): 32,000 and social allocations to expand climate change and sectors to a conservation agriculture and conserve soil and water ----- climate- the uptake of climate resources. resilient resilient crops, is approved Average maize yield (tons per hectare) from farms economy by the Council of Ministers. engaged in conservation agriculture Baseline (2012): 1.5 Target (2015): 2.5 Human development The National Productive The 2013-17 national health Ministerial diploma Number of households in climate vulnerable Ministry of Social Action Program, strategy (PESS) that adopts approved by Ministry of districts that are identified by the new National Health, incorporating climate measures to address severe Women and Social Action Institute of Statistics indicator that are targeted by Ministry of change risks and adaptation and longer-term climate mandating the use of the the National Productive Social Action Program. Women and options, has been approved risks is approved by the National Institute of Social Action by the Council of Ministers. Council of Ministers. Statistics’ climate change Baseline: 0 vulnerability index to Target: 40,000 target social protection investments to areas at risk ----- from climate change. Number of high-risk districts and municipalities Ministerial diploma that have (i) identified focal points for disaster approved by Ministry of response, including climate related events (ii) a Health that targets local disaster response plan that includes climate investments and provides related events* and (iii) identified mechanisms to for strengthened capacity mobilize funds for disaster response, including at district and municipal climate related events. level in high-risk districts for disaster preparedness * This may be part of a broader provincial plan. and response. Baseline (2012): 0 Target (2015): 10 52 As measured through quarterly reporting to MINAG from agriculture extension workers. 56 Infrastructure (Roads, Energy, Hydro-meteorological services) A vulnerability survey of National inventory and Percentage of district roads that are constructed or Ministry of the unpaved rural roads climate risk assessment that upgraded from 2014 onwards are in compliance Public Works network for three provinces determines cost estimates with revised design standards. and Housing is approved by the Ministry and investment needs for a of Public Works and climate-resilient district Baseline (2012): 0 Housing. road network is approved Target (2015): 80%. by diploma of the Ministry Design standards and of Public Works and maintenance approaches Housing. are revised to strengthen climate resilience and approved by the Ministry of Public Works and Housing. The process for the A Feed in Tariff mechanism The revised Electricity Law Number of proposals for renewable energy Ministry of development of a wind to encourage private sector is submitted for approval to investments following approval of new renewable Energy power park by an investment to boost medium Parliament. Feed in Tariff mechanism. independent power producer term energy supply and has been launched by the access from renewables is Baseline (2012): 5 Ministry of Energy through approved by the Council of Target (2015): 15 a call for expression of Ministers. qualifications and information. The strategic plan of the A protocol for the Decree approved by the Improved lead times for flood warning compared National National Institute of management and exchange Council of Ministers that with 2007 baseline. Meteorology Meteorology 2013-2016 has of data is approved through updates and clarifies Institute, been approved by the a joint ministerial diploma of INAM's mandate at Baseline (2007): 2 days National Council of Ministers. the Ministry of Transport national, regional, provincial Target (2015): 5 days Water and Communications and and district level in relation Directorate the Ministry of Public to data standards, modeling, Works and Housing. forecasting, and knowledge management of meteorology and climate change. New or revised policies or regulations, to be identified during DPO 2 preparation, to operationalize (i) improved last mile connectivity, (ii) strengthened early warning systems, and (iii) sustainable financing of hydro-meteorological service delivery. 57 ANNEX 3: SECTOR POLICY AREAS BACKGROUND NOTES Agriculture 130. Agriculture in Mozambique is fundamental to national development. It accounts for 24 percent GDP and 70 percent of employment. Mozambican agriculture is primarily rain-fed and is extremely vulnerable to climate change. Policy actions that would build climate resilience into the agriculture sector have been included in the climate change DPO series because of the importance of this sector to livelihoods and poverty and its vulnerability to climate change. 131. A large proportion of Mozambique’s population is food insecure. Climate variability and the damage inflicted by extreme climatic events are partially responsible for food insecurity and these factors also aggravate the underlying drivers of vulnerability. The natural resource base is also under threat from over-exploitation and unsustainable practices, and from rising population pressures. 132. A recent modeling study53 of climate change effects on Southern African staple crops suggests that climate impacts will have consistently negative impacts on key staples – including maize and wheat and another study published in 2010 concluded that the impact of climate change over the next 40 years would lead to a 2–4 percent decrease in yields of the major crops, especially in the central region of Mozambique54. Modeling by the World Bank of nine subsistence crops in Mozambique as part of the Economics of Adaptation to Climate Change study also predicted negative impacts over the next forty year time horizon. 133. Climate change will impact most strongly on those who are already food-insecure and least able to cope with, or adapt to, the added pressure that climate change might bring. Recent studies have shown that farmers in a number of areas are reporting that the climate is becoming increasingly unpredictable, making it more difficult to decide on the best times for planting and harvesting of crops55,56. 134. Recent experience of conservation agriculture approaches in Sofala, Manica and Tete have demonstrated promising results. Conservation agriculture seeks to minimize soil movement, retain surface crop residues and introduce crop rotations and green manure cover crops. Pilots have demonstrated increased yields of key crops (e.g. maize) in both fertilized and non-fertilized trial and village plots. Pilots have also underscored the importance of linking local level research to extension and knowledge management and of access to credit and improved understanding of markets and value chains. At the macro level, this practical field level experience is supported by economic modeling by the World Bank that suggests that investments in agricultural research, development and extension offer the best potential 53 Lobell, D.B., Burke, M.B., Tebaldi, C. Mastrandrea, M.D., Falcon, W.P. and Naylor, R.L. (2008) Prioritizing climate change adapation needs for food security in 2030. Science 319:607-610. 54 World Bank (2010). The Economics of Adaptation to Climate Change. 55 Understanding adaptive capacity at the local level in Mozambique. Africa Climate Change Resilience (ACCRA) Mozambique Synthesis Report. 2012. 56 FAO (2012). Adaptation to Climate Change in Semi-Arid Environments: Experience and Lessons from Mozambique. Environment and natural Resource Management Series 19. 58 for reducing the scale of damages likely to be caused by climate change. Expansion of irrigation can also make an important contribution. 135. The Government’s Strategic Plan for Agricultural Development 2010-2019 (PEDSA) seeks to transform the agriculture sector from being predominantly subsistence-oriented to being more competitive and sets-out an ambitious target of delivering agriculture sector growth of seven percent per annum whilst reducing vulnerability and reducing poverty. The PEDSA will be operationalized in 5-year and annual plans, the first of which (for the period 2010- 2014) seeks to introduce significant improvements in land, water and forest use. 136. The Government recognizes the challenge that climate change poses to the agriculture sector and the PEDSA recognizes that climate change will work against efforts to grow the sector and identifies a number of climate change threats to the sector, including: (i) the role of climate change in exacerbating the decline of natural soil fertility and increasing salinization in coastal areas; (ii) the impact of extreme flooding on crops and the need to expand water storage capacity to regulate surface water flows; (iii) the role that more sustainable management of natural resources (e.g. forests) could play in mitigating the risks arising from their degradation and from climate change; (iv) the need to develop small-scale irrigation to buffer the effects of prolonged and increasingly variable droughts on crops. 137. Further development of conservation agriculture and the introduction of drought tolerant crop varieties will be delivered in the Limpopo watershed with the support of the Pilot Program on Climate Resilience (PPCR) and the African Development Bank. This pilot project integrates conservation agriculture and the promotion of drought-tolerant seeds with community-based landscape and watershed management approaches and community-based water harvesting. Health care and health services delivery 138. Climate change can impact on health in ways that amplify existing risks to health. In Mozambique - like many countries, the health sector has been slow to recognize the implications of climate change for health and healthcare systems. Globally, it has been estimated that climate change is already causing several hundred thousand premature deaths per year through malnutrition, diarrheal disease, malaria, heat exposure and flooding57. More than 90 percent of these deaths are occurring in low income countries and most are in children under the age of five. Mozambique has high vulnerability to extreme weather events, and high burdens of diseases that are susceptible to climate variation. Malaria accounts for 45 percent and 56 percent of outpatient and inpatient consultations respectively, and 26 percent of inpatient deaths58. A number of vector-borne neglected tropical diseases (NTDs), such as schistosomiasis, lymphatic filariasis and soil-transmitted helminths, are endemic. Nationally, 43 percent of children are chronically undernourished, with poor food security a contributing factor59. Diarrheal disease is estimated to account for 4 percent of mortality60, with seasonal 57 McMichael,A.J., Campbell-Lendrum, D. Kovats,S. et al (2004). Comparative Quantification of Health Risks: Global and Regional Burden. 58 Ministério da Saúde (2012). Plano Estratégico da Malária 2012 - 2016 59 Instituto Nacional de Estatística (2012). Moçambique: Inquérito Demográfico e d Saude 2011. Relatório Preliminar. 59 peaks associated with rainfall patterns. These exposure risks are compounded by weak health, transport, water and sanitation infrastructures. 139. Climate change can affect human health in a number of direct and indirect ways. Immediate/direct risks include extreme weather events, such as storms and heat-waves, which may result in flooding, dislocation of populations and deteriorations in water, sanitation, air- quality conditions or health infrastructure. All of these have health consequences. Indirect risks include changes to seasonal weather patterns that influence agricultural production and the behaviors of disease-bearing vectors, with potential impacts on nutritional status and livelihoods and on communicable disease prevalence. Climate change may pose regional scale risks, for example by influencing population distribution, either as a cause of migration (e.g. mediated through land degradation) or as a risk to mobile populations (e.g. migration to Mozambique’s vulnerable coastal cities). The frequency and intensity of extreme climatic events is expected to increase, with likely fiscal demands on government budgets for emergency response purposes which can then divert funding away from the health sector. The below figure 61 is an example of direct and indirect influence of climate change on human health (mediated via food security). 140. The health sector requires the capacity to respond rapidly to and recover from extreme climate events. Planning for longer term climate-related drivers of demand for health services (such as changing disease patterns) is also needed. In both instances, coordination across government and with external partners will be essential. Many drivers of health outcomes are outside the health system, and impacts on health will be mediated through external sector responses to climate change. For example, economic growth and agricultural policies will impact on livelihoods, nutritional status and population distribution. Similarly, investments in transport or water and sanitation infrastructure will affect supply chain flexibility, access to services, and the prevalence of waterborne diseases. 60 INE, US Census Bureau, MEASURE Evaluation, US Centers for Disease Control and Prevention, (2012.) Mortality in Mozambique. Results from a 2007-2008 Post-Census Mortality Survey. 61 Source: McMichael, A, J. (2012). Briefing paper: Climate Change and Health: Policy Priorities and Perspectives. Chatham House. 60 141. Health services in Mozambique are predominantly delivered through a national public health service, although non-profit and private sector providers are also active. Approximately 7 percent of government expenditures are allocated to health, and the sector receives a high proportion of external donor financing (currently over 50 percent of total budget). Malaria and a number of NTD programs are highly dependent on external financing, and vulnerable to concomitant unpredictability. Although considerable progress has been made in recent years, Mozambique continues to face high health-burdens relating to communicable diseases, and a growing recognition of the burden of non-communicable diseases (some of which are also susceptible to climate change)62. 142. There are also important linkages between health and low carbon development. WHO has calculated that indoor air pollution causes over 1.6 million worldwide deaths annually and is responsible for 2.7 percent of the global disease burden. Over one third of child deaths caused by indoor air pollution occur in Africa63,64. Indoor air pollution is also a major challenge facing Mozambique where rates of access to clean energy are extremely low and where biomass as a source of fuel for cooking accounts for around 85 percent of household energy. Over-dependence on wood can also contributes indirectly to reduced health through over-harvesting – leading to associated land degradation and the labor burden associated with fuel wood collection. This wider issue will need to be considered as part of the health and climate change benchmark study. Efforts to promote access to clean energy, linked to reducing GHG emissions and supported by climate change financing could help address this issue. 143. The Ministry of Health (Ministerio de Saúde - MISAU) has launched a process to develop a new health sector strategy (Plano Estratégico do Sector de Saúde – PESS) for 2013 – 2017. This presents an opportunity to incorporate analysis of potential climate change related impacts on health into sector planning for the next five years (and beyond). Equally, the development of a cross-sectoral policy debate on climate change will help ensure that the health consequences of climate change related decisions are taken into account by other sectors. 144. There have been no comprehensive studies of health implications of climate change in Mozambique. However, the Ministry of Health works closely with INGC in the context of Disaster Risk Management and has extensive experience of preparing for and responding to extreme climatic events, especially severe storms and floods. However, work is now underway to improve the evidence base to understand the possible impacts of climate change on health. The Climate and Development Knowledge Network (CDKN) is funding a study (to be completed in December 2012) to gather data and model possible impacts at sub- national level65. 62 Friel, S et al (2010). Climate Change, Non-Communicable Diseases and Development: The Relationships and Common Policy Opportunities. The Annual Review of Public Health. doi: 10.1146/annurev-publhealth-071910- 140612. 63 WHO (2011). Indoor air pollution, health and the burden of disease. http://www.who.int/indoorair/info/briefing2.pdf 64 WHO has estimated that in high mortality developing countries, indoor pollution is responsible for around 3.7 percent of the overall disease burden. 65 “Climate change health, agriculture and disasters analysis in Mozambique: CDKN Project Reference TAAF- 0029b� 61 Social Protection 145. Social Protection interventions offer an important set of options that can help vulnerable communities to adapt to the extremes of climate variability and change in Mozambique. They can also play a role in disaster response and in building long-term resilience. Effective social protection systems are characterized by multi-sectoral approaches that integrate social protection measures with those of both climate change adaptation and disaster risk management (DRM). This has yet to be achieved in Mozambique and so the policy actions selected for inclusion in this Development Policy Operation series will support the development of a legal, policy and institutional framework that integrates social protection with climate change adaptation and disaster risk management frameworks66. 146. The Government faces the challenge of making operational a strategy to provide extremely poor and highly vulnerable households the opportunity to take advantage of economic growth as well as available social services. The high proportion of Mozambicans households highly vulnerable to shocks –including climatic shocks, makes this a particular challenge. The government recognizes that natural climate shocks and increasing climatic variability is likely to impact negatively on the intended outcomes of existing social protection initiatives and also recognizes that social protection policy needs to better integrate with climate change adaptation and disaster risk management policy. Thus far, the mutual integration between social protection, climate change adaptation and disaster risk management strategies has not taken place – in part because of the absence of necessary legal and policy instruments. Strengthened institutional capacity within the Ministry of Women and Social Affairs (MMAS), a stronger culture of interdisciplinary collaboration and mechanisms to enable targeting at climate vulnerable beneficiaries is also needed. 147. Mozambique has made progress in developing a policy framework for social protection but faces challenges in implementing this framework. For example, recent legislation and policies around social protection have set a clear framework to make operational a social protection strategy and have contributed to the identification of clear institutional responsibilities in the area of social protection in Mozambique both at central level, and between central and local levels. The government has also developed numerous social protection programs, mainly in the area of social assistance, but most of these are small and coverage is low. A recent safety net assessment by World Bank (2012) identified about 40 different social protection-related programs implemented by a wide range of central government agencies. These generally have low coverage relative to the number of individuals at risk and there are major gaps in the groups reached by the interventions. The assessment also reveals that there is fragmentation and duplication of programs and weak institutional capacity to implement and monitor. 148. The legal framework for social protection already includes the social protection law that defines three categories of social protection: Basic, Compulsory and Complementary Social Protection. Compulsory social protection (social insurance mechanisms) is currently very limited in coverage while complementary social protection (for the self-employed) is yet to be developed. In 2009, the government launched the National Basic Social Protection 66 See the details over the World Bank proposed framework on climate-responsive social protection at: World Bank. 2012. Climate-Responsive Social Protection. Discussion paper no. 1210. 62 Strategy (Estratégia Nacional de Segurança Social Basica - ENSSB). The ENSSB has four elements:  Basic Social Action, which includes safety net and social assistance programs, including social transfer;  Educational Social Action, including social protection programs seeking to increase school enrolment and attendance;  Health Social Action, involving nutrition and other programs; and  Productive Social Action, to help the targeted population exit extreme vulnerability and poverty based on income generation activities including public works schemes. 149. The productive social action program provides a key opportunity to improve integration between social protection, disaster risk management and longer-term climate adaption policy. The proposed program supports this effort. This proposal has been translated into the design of the first Program of Public Works due for piloting at the end of 2012. The upcoming public works program within the framework of this program will be a first example of linking social protection policy implementation with that of DRM and climate change at a practical level. 150. Other legal and policy instruments also have relevance to social protection policy. The DRM law includes provisions for social protection. Priorities for harnessing social protection programs for building climate resilience are also be included in the new National Climate Change Strategy under a process coordinated by the Ministry for the Coordination of Environmental Affairs. 151. Progress is also being made on institutional coordination. For example, MMAS is considering the establishment of a new unit that would deal among other issues with environmental and climate change matters and this could play an important role in mainstreaming climate change and DRM measures into policy development and implementation. Further institutional responses are also being considered, for example, the mutual integration of the relevant ministries in the key different inter-sectorial mechanisms: the Coordinating Body on Basic Social Protection and CONDES. Rural Roads 152. Mozambique has a classified road network of approximately 30,000 kilometers, of which 24,000 km are unpaved roads which are particularly susceptible to damage from climate and weather induced problems. In addition to this network, there exists an estimated 50,000 kilometers of priority unclassified roads managed by the District authorities. Most of this unpaved network consists of un-engineered roads characterized by seasonal transitability problems. Many of these unpaved roads have very low traffic levels but are vital for rural communities particularly during the agricultural marketing cycle. Travel times and road condition are of less importance than the guarantee of access. Hence, given the present state of the road network, the construction of robust and flood resistant structures at stream and river crossings should take priority over improvements in ride quality or travel time. 63 153. There has been a significant improvement in transitability of the classified road network between 2007 and 2010 and over 90% are such roads are now transitable67. This has been achieved in part by the introduction of a focus on Spot Improvements on the full network rather than expensive rehabilitation on a smaller network. At the same time, spending on emergency repairs has been significant - reaching a peak of 420 million Meticais in 2010, and this is reflected in the improved figures for transitability. There has also been a significant step toward improving the unclassified (District) roads with the introduction of a road works budget allocation for each of the 130 Districts. These funds have been important in allowing District authorities to gain valuable experience in managing their road networks and also in developing capacity at local levels. While these actions have led to improved performance of road management agencies they have not been part of a specific climate change agenda but have been the result of the acknowledgement of a need to create and improve capacity at provincial and district levels. 154. Heavy rains and floods increasingly cause roads to suffer ruptures leading to disruptions which result in rural populations being cut off from markets and services, with the associated harmful effects on rural livelihoods. The long dry season and periodic droughts also create difficult conditions for rural populations. Economic analysis of climate adaptation options suggests that investments that will improve the climate resilience of Mozambique’s roads will be cost-effective and will help ensure that rural populations do not become further isolated from markets and services (e.g. schools and health centers). 155. The sector is effectively divided into two distinct sub-sectors: (i) the trunk road network which is characterized by large investment projects implemented by international consultants and contractors giving climate resilient results but currently costing of the order of US$500,000/km and (ii) the provincial and district road networks which are earth or gravel roads characterized by an ageing stock of drainage structures whose failures undermine the reliability of access and severely stretch the capacity of the consultants and contractors to replace and maintain them. 156. Efforts to improve the resilience of this unpaved network against extremes of climate are hampered by a number of factors:  The capacity of provincial and district staff, consultants and contractors remains weak. Works undertaken at these levels frequently lack the durability required to provide climate resilience.  Design and construction standards are not high enough to guarantee that durable infrastructure is being provided.  Budgets to provincial and district authorities are insufficient to tackle the task.  Mapping of district roads and a drainage structure inventory for all roads is lacking which leads to difficulties in planning and monitoring.  Priority for the sector has been the construction, repair and upgrading of the trunk road network.  A large proportion of the road drainage structures on the unpaved network lack robustness. Age, poor design and poor construction of such structures combine to mean that failures are relatively frequent. 67 Road Fund and ANE Annual Reports for PRISE (Sector Wide Programme for the Road Sector) 2007 – 2010. 64 157. The study of climate change undertaken by the WB68 suggests that Mozambique would be advised to focus investments on climate-proofing highly targeted areas, such as culverts, to ensure that designs minimize broader erosion risks, and to set aside some funds from the investment budget for additional maintenance so that “basic access� roads can be quickly repaired following heavy rainfall. 158. The Road Sector is in the process of initiating a study which will look closely at the management of unpaved roads with respect to improving climate resilience. This study will cover the Zambezi River Valley from Tete down to the Indian Ocean and will include proposals for improved linkage between rural roads and the rehabilitated Sena Railway Line. The outputs from this study should help to guide the sector in the choice of approach to designing and constructing climate resilient road drainage works. 159. Whilst the challenges are considerable, there are also important opportunities. Mozambique has one of the lowest density road networks in the world and a significant portion of this infrastructure remains to be built. The existing network will also require replacement or extensive renovation. This could be undertaken to standards that are more climate resilient69. Providing road infrastructure with greater durability over the coming decades is likely to mean that the negative impact of climate change on rural populations can be mitigated by the maintenance of adequate road access. To achieve this objective is not an easy task; it will require that a series of components in the process of road infrastructure provision are strengthened in a coordinated manner. Promoting private investments in electricity generation from renewable sources 160. Mozambique’s fast growing economy means that demand for electricity is growing rapidly. Net power consumption is projected to increase by an annual average of 8 – 15 percent over the next 10-year period70 - mostly driven by demand from urban centers, especially those in the south of the country. This growth rate, combined with severe bottlenecks in transmission, mean there is a risk that the rate of growth in demand will outstrip supply leading to either power outages or a slowdown in the rate of grid expansion. In rural areas, access to electricity remains a particular challenge. It is estimated that nationally, 33 percent of households have access to electricity – two thirds of whom remain off-grid. This leaves two thirds of the population without any form of access to electricity. New incentives for private sector investment are therefore required to secure energy access, both for those with existing grid connections and for the large majority of the population without any access to electricity. 68 World Bank (2010). The Economics of Adaptation to Climate Change - Mozambique. 69 Channing Arndt, Paul Chinowsky, Kenneth Strzepek, and James Thurlow (2012) Climate Change, Growth and Infrastructure Investment: The Case of Mozambique - Review of Development Economics, 16(3), 463–475, 2012 70 Estimates vary: Business Monitor International May 29 2012 (see http://www.marketresearch.com/Business- Monitor-International-v304/Mozambique-Power-Q3-7011559/) estimated a growth rate of 8.4 percent for the next 10 years. The review of Mozambique’s electricity law published in March 2011 estimated growth rates at around 15 percent. 65 161. Substantial energy generation development is underway that will tap the country’s extensive coal and gas reserves in Tete, Moatize, Niassa and the Rovuma basin. However, this will mostly be exported to regional markets in part because of limited transmission capacity to Mozambique’s load centers in the south of the country. Only 12 percent of households currently have access to electricity which leaves around 20 million Mozambicans without access to electricity. Currently, around 80 percent of energy consumed by households comes from forests as wood fuel and charcoal. Lack of access to electricity constrains economic opportunities for the poor, reduces the quality of services available to them (since modern health and education services normally rely on access to electricity) and leaves rural populations over-dependent on declining forest resources for fuel. The burning of these fuels also has negative impacts on health. 162. Lack of investment and the huge cost of installing an energy grid are key factors that underlie the low grid connection rates in Mozambique. Partly because of this, the Energy Strategy believes that new and renewable sources of energy must play an increasing role in the national energy balance. Mozambique has substantial renewable energy resources which are currently being mapped by the Ministry of Energy. These include wind, solar, hydro and biomass resources. So far, about 2,200 MW of hydro generating capacity has been developed - the vast majority of this at the Cahora Bassa Dam, one of the largest hydropower facilities in Africa. Much of the remaining potential for hydropower lies in smaller and more disbursed sites which will require private sector investment if this potential is to be realized. If tapped, these resources could contribute to improving access to energy by strengthening the economic justification for grid extension, including mini-grids, and by improving overall grid stability. 163. According to the Energy Strategy (see below), the government is looking to simplify procedures for developing hydropower stations of less than 15MW and it is hoped these would be eligible for support from the Clean Development Mechanism (CDM). Over 60 micro and mini hydro sites have been identified by the Directorate of New and Renewable Energy totaling around 1000MW. The strategy on wind power aims to develop detailed knowledge on wind power resources. Wind resources are thought to be enormous with up to 60MW of installed capacity currently being planned or installed at three sites – Tofinho (Inhambane province), Praia da Rocha and Chicumbane. For biomass, the strategy focusses on sustainability and efficiency and the government is promoting more efficient production and use of biomass. There are also options for cogeneration of an additional 50MW using bagasse at five sugar mills (Maragra, Xinavane,Buzi, Mafambisse, Marromeu) and these comprise the most likely first target for the proposed new Feed in Tariff incentive mechanism. Cogeneration-based renewable energy generation can also add value to agricultural value chains by generating revenues from wastes. For solar, MoE (through FUNAE) has been supporting take-up of photovoltaic technologies, particularly in isolated localities and for schools and clinics. An estimated 1 MW of off-grid PV systems has been installed and FUNAE is currently studying PV potential (considered to be enormous). One study also estimates an additional 25MW of potential geothermal energy in Tete, Manica and Niassa provinces71. The generation Master Plan for Mozambique (2009)72 estimates generation costs from renewables ranging from the most expensive - solar (37.6USc/kWh), Wind 71 Hankins (2009) Energy Security in Mozambique 2010. 72 Generation Master Plan for the Mozambican Power Sector, July 2009, Norconsult Project as commissioned by the Ministry of Energy, Mozambique. 66 (19.1USc/kWh) to biomass at 12.9USc/kWh). However, these estimates are indicative and in the case of solar and wind, will also likely to decline as technology becomes cheaper and the scale of installation increases. 164. The Ministry of Energy recognizes that specific incentives will be needed to encourage private sector Independent Power Producers (IPPs) to invest in renewables and extend energy access across the country and its Strategy for New and Renewable Energy Development73 outlines some specific proposals to encourage such investment of which the renewable Feed in Tariff (FIT) is one such proposal. FIT development has included a specific review of renewable energy tariff models74 and ongoing analysis of tariff rates for different renewable energy generation technologies. 165. There are a number of major challenges related to such a reform. For example, there is uncertainty around energy pricing and tariff levels. Currently, tariffs are not yet at a sustainable level and the Electricity Law expressly allows the Government to impose prices below costs to its companies with the aim of pursuing social objectives75. This may work against investment in renewables which typically require higher tariff levels as compared with existing (and fully-depreciated) investments such as power from Cahora Bassa. Related to this, higher tariff levels could feed through into high utility bills at household level which could have implications for poverty. This issue will prove difficult to de-link from existing subsidies that current distort power pricing for both generators and consumers but will require further assessment as part of the Poverty and Social Impact Analysis (PSIA). 166. Traditional donor financing is a major source of financing for the Government’s efforts to accelerate the household access rate. For example, the World Bank-supported Energy Development and Access Project (EDAP) is financing both on-grid and off-grid connectivity, installing photovoltaic panels and battery sets for 500 off-grid schools and clinics. 167. The revised Energy Strategy (2009-2013) seeks to prepare Mozambique for a transition to a sustainable energy future, to expand the energy supply matrix, prioritize local energy sources and to safeguard access to modern forms of energy for the growing population. In pursuit of this, the government has launched a National Strategy for New and Renewable Energy Development (EDENR)76 which, inter alia, encourages take-up of technologies that will improve access to modern forms of energy. This includes plans to introduce a Feed-in-Tariff (FIT) and other incentives to encourage investment in renewable energy generation for grid supply. 168. The National Strategy for New and Renewable Energy aims to create opportunities for accelerating national expansion in power capacity and connectivity through attracting private sector investment. Specifically, it includes proposals to develop and introduce a Feed in Tariff (FIT) to promote private investment in generation capacity. Under a FIT policy, producers of renewable energy that is injected into the national grid (and, in some cases, for 73 Ministry of Energy (2011). Strategy for New and Renewable Energy Development (EDENR) 2011-2025. 74 MoE (2011). Renewable Energy Tariff Models. Ministry of Energy, Republic of Mozambique. 75 Ministry of Energy/ERAP Mozambique (2011) Review of Mozambique Electricity Law – Final Report. March 21, 2011 76 MoE (2011). Strategy for New and Renewable Energy Development (EDENR) 2011-2025. Ministry of Energy, Republic of Mozambique. 67 supply to local mini-grids) are paid a set rate for the electricity they produce, usually differentiated according to the technology used (wind, solar, biomass, etc.) and the size of the installation. It achieves this by offering long-term contracts and pricing guarantees to renewable energy producers, typically based on the generation cost of each of the different technologies. This provides a high level of investor confidence. Globally, FITs have been an effective policy for promoting investment in renewable generation capacity and are now in place in over 100 countries, including in Kenya (launched 2008), South Africa (2009) and Uganda (2010). Hydro-Meteorology 169. The climate change scenarios of the IPCC predict significant implications for Mozambique. Global Circulation Models indicate that rainfall patterns will vary greatly across the country (between 31 percent reduction to 16 percent increase); shorter rainy seasons and prolonged periods of drought can be expected especially in the central regions of the Zambezi River Valley; temperatures may increase on average one to two degrees Celsius by 2050; and sea levels may consequentially rise. With growing uncertainties, hydro- meteorological information is vital to understand, prepare and manage the implications of climate change. 170. In Mozambique, the legal and policy mandates for hydro-meteorology is split between two ministries. Water resources management lies in the domain of the Ministry of Public Works and Housing (MOPH – Ministério das Obras Públicas e Habitação) and meteorology within the Ministry for Transport and Communication (MTC – Ministério dos Transportes e Comunicações). In MOPH, the National Directorate of Water (DNA - Direcção Nacional de �guas) combines policy making, implementation, planning and management, as well as provision of water supply and sanitation services. The strategic activities undertaken by DNA are operationalised by the five Regional Water Authorities (ARAs) who also report to MOPH and who are tasked with monitoring of water resources among others. Within MTC, the National Institute for Meteorology (INAM – Instituto Nacional de Meteorologia) is mandated to generate and coordinate the national meteorological services in all of Mozambique’s 128 districts. 171. Currently, institutional and legal impediments constrain the extent to which hydro- meteorological data is collected and shared between relevant stakeholders. For this reason, a benchmark study is included in DPO 1 that will review: (i) options for improving data collection arrangements at local level; (ii) current standards for data collection and management and options for their improvement; (iii) legal frameworks to enable local level collection and financing of data recorders in the context of national decentralization arrangements; and (iv) options for improving standards and data sharing arrangements. 172. Greater access to accurate and timely information on water and weather (hydro- meteorology) is important for adaptation to climate change in Mozambique. Research indicates that as much as 58 percent of the population and more than 37 percent of GDP is at 68 risk from two or more hazards77 (especially floods and droughts). As such, hydro- meteorological predictions are vital for early warning systems. In addition to reducing vulnerability, hydro-meteorology is central for protecting and enhancing economic growth - particularly in sectors such as agriculture, hydropower production, aviation, fisheries, and transport78. Because Mozambique is the downstream riparian in nine of its 13 large river basins and more than 50 percent of the total mean annual runoff is generated outside the country, hydro-meteorological information is equally valuable in transboundary cooperation and management of water resources. 173. Despite challenges in estimating the socio-economic value of hydro-meteorological services, the benefits of effective hydro-meteorological systems are likely to far surpass the costs of maintaining them. However, the public institutions responsible for the services are unable to secure sufficient and sustainable financial and human resources. Delivering national hydro-meteorological services is further compounded by a lack of institutional robustness in the responsible agencies. At the policy level, there is an evident and expressed need to clarify and enforce institutional mandates, as well as identify and implement mechanisms for inter-agency coordination and sharing of data and other information. 174. The mandate and objectives of hydro-meteorology is articulated in laws, decrees, and policies79. To implement the goals of these regulatory instruments, the Government has taken steps in defining priority actions in key documents such as the Water Resources Management Strategy of 2007 and the National Adaptation Program for Action of 2007. With respect to meteorology, a program of modernization was also reflected in an Action Plan for INAM for 2006-2010. To invigorate INAM’s services, a Strategic Plan for 2013-2016 has been developed with the support of technical assistance from the Bank. INAM’s Strategic Plan has been approved by the Council of Ministers in December 2012. Despite these initiatives, there will remain a need to improve the policy environment that underpins the services, in particular to strengthen service delivery to vulnerable communities and for early warning systems and to improve the financial sustainability of services delivery – for example through introduction of bulk water tariffs for hydrological services and payments for commercial users of meteorological services. 77 Regression analysis for the period 1981-2004 showed that GDP growth is cut by 5.6% points on average when water shocks occur (World Bank, Water Resources Assistance Strategy for Mozambique, 2007). 78 The roughly 80% of the population who depend on small-scale farming for livelihoods and food security, are particularly vulnerable to the impacts of variability in water and weather, both long-term and inter-annual (for example, 60 to 80% of the annual precipitation falls between December and March). The potential for both hydropower and equipped irrigation is high, yet levels of development remains among the lowest in the SADC region (4% of the potential 2.7 million ha for irrigation; only 5 percent of the country has access to electricity despite the 13,000MW potential in hydropower). 79 For example: the Water Policy of 2007, the Water Law of 1991 (Law No. 26/91), and the diploma outlining responsibilities of ARAs (Ministerial Diploma 134/93, November 17). 69 ANNEX 4: FUND RELATIONS NOTE IMF Completes Fifth Review Under the Policy Support Instrument for Mozambique Press Release No. 12/506 December 21, 2012 The Executive Board of the International Monetary Fund (IMF) has completed the fifth review under the three-year Policy Support Instrument (PSI) for the Republic of Mozambique.80 The Board's decision was taken on a lapse of time basis.81 Despite the difficult global environment, Mozambique’s economic performance in 2012 has been remarkable, building on a track record of strong economic policies that effectively supported growth while bringing down inflation and strengthening international reserves. Real GDP growth for 2012 is set to reach 7.5 percent, benefiting from a robust performance in the services sector and a stronger-than-expected contribution from the nascent coal industry, and inflation has remained low. While global risks are sizeable, the increase in coal extraction will continue to lead Mozambique’s economic growth, and Mozambique’s economic stability and prudent policy mix over the past few years should help the economy weather the global slowdown. The gradual easing of monetary policy in 2012 has supported private sector credit growth while preserving a low inflation environment. The prudent execution of the 2012 budget has contributed to a judicious policy mix that has fostered economic stability despite global uncertainty. All assessment criteria for end-June 2012 were met, except for a temporary breach of the ceiling on net credit to the government. There was broadly satisfactory progress in structural reforms, despite some delays. The authorities’ economic program under the PSI will continue to emphasize preserving economic stability and debt sustainability while promoting economic and social development. Monetary policy will be geared toward private sector credit expansion, while remaining committed to the medium-term inflation target. Efforts to strengthen supervision and the crisis management framework will safeguard the financial sector from cross-border spillovers. Fiscal policy, through a prudent 2013 budget, will aim to utilize the available fiscal space to close the infrastructure gap and support an expansion of social safety nets to foster inclusive growth, consistent with the authorities’ four-year poverty reduction strategy (2011–2014). The prudent use of nonconcessional external borrowing will help to bridge the gap between the country’s vast infrastructure needs and a trend decline in donor support, while further institutional enhancements and capacity building will strengthen Mozambique’s ability to manage its natural resource wealth. The program’s structural reforms focus on improving public financial management including debt management, tax administration and policy, and the monetary policy framework. 80 The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. A country’s performance under a PSI is reviewed bi-annually. 81 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions. 70 The Executive Board approved Mozambique’s second three-year PSI on June 14, 2010 (see Press Release No. 10/242). 71 ANNEX 5: COUNTRY AT A GLANCE Mozambique at a glance 4/5/12 Sub- Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w M o zambique A frica inco me Age distribution, 2010 ( 2 0 10 ) Male Female P o pulatio n, mid-year (millio ns) 23.4 853 796 75-79 Surface area (tho usand sq. km) 799 24,243 15,551 60-64 P o pulatio n gro wth (%) 2.3 2.5 2.1 Urban po pulatio n (% o f to tal po pulatio n) 38 37 28 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 10.3 1,004 421 15-19 GNI per capita (A tlas metho d, US$ ) 440 1 ,176 528 GNI per capita (P P P , internatio nal $ ) 930 2,1 48 1,307 0-4 10 5 0 5 10 GDP gro wth (%) 7.2 4.8 5.9 percent of total population GDP per capita gro wth (%) 4.8 2.3 3.7 ( m o s t re c e nt e s t im a t e , 2 0 0 4 – 2 0 10 ) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) 60 48 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 82 69 .. Life expectancy at birth (years) 50 54 59 250 Infant mo rtality (per 1,000 live births) 92 76 70 Child malnutritio n (% o f children under 5) 18 22 23 200 A dult literacy, male (% o f ages 15 and o lder) 70 71 69 150 A dult literacy, female (% o f ages 15 and o lder) 41 54 54 100 Gro ss primary enro llment, male (% o f age gro up) 121 104 108 Gro ss primary enro llment, female (% o f age gro up) 109 95 1 01 50 0 A ccess to an impro ved water so urce (% o f po pulatio n) 47 61 65 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 18 31 37 1990 1995 2000 2010 Mozambique Sub-Saharan Africa N e t A id F lo ws 19 8 0 19 9 0 2000 2 0 10 (US$ millio ns) Net ODA and o fficial aid 167 998 906 1,959 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2010): United States 9 62 116 278 15 Euro pean Unio n Institutio ns 7 81 79 192 10 P o rtugal .. 43 33 113 5 A id (% o f GNI) 4.7 43.0 22.6 20.8 0 A id per capita (US$ ) 14 74 50 84 -5 Lo ng- T e rm E c o no m ic T re nds -10 95 05 Co nsumer prices (annual % change) 4.2 43.7 12.7 5.6 GDP implicit deflato r (annual % change) 4.1 34.1 12.0 12.7 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) 0.0 0.9 15.4 34.0 Terms o f trade index (2000 = 100) 87 112 100 112 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 10 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 12.1 13.5 18.2 23.4 1.1 3.0 2.5 GDP (US$ millio ns) 3,526 2,463 4,249 9,586 -0.1 6.1 7.8 (% o f GDP ) A griculture 37.1 37.1 24.0 31 .9 6.6 5.2 8.3 Industry 34.4 18.4 24.5 23.4 -4.5 12.3 8.5 M anufacturing .. 10.2 12.2 13.1 .. 10.2 7.1 Services 28.5 44.5 51.5 44.8 6.5 5.0 6.9 Ho useho ld final co nsumptio n expenditure 96.7 92.3 80.6 82.1 -1.1 5.8 5.8 General go v't final co nsumptio n expenditure 12.2 13.5 9.0 12.2 -6.7 3.2 -2.9 Gro ss capital fo rmatio n 7.6 22.1 31.0 23.7 4.1 8.6 8.1 Expo rts o f go o ds and services 10.9 8.2 16.5 25.3 -6.8 13.1 14.3 Impo rts o f go o ds and services 27.4 36.1 37.0 43.2 -3.8 7.6 6.2 Gro ss savings .. .. 12.4 12.3 No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 72 Mozambique B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 10 Governance indicators, 2000 and 2010 (US$ millio ns) To tal merchandise expo rts (fo b) 364 2,089 To tal merchandise impo rts (cif) 1,163 3,948 Voice and accountability Net trade in go o ds and services -81 9 -1,951 Political stability and absence of violence Current acco unt balance -697 -1,391 as a % o f GDP -16.4 -14.5 Regulatory quality Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 37 132 Control of corruption Reserves, including go ld 745 1,729 0 25 50 75 100 2010 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Worldwide Governance Indicators (www.govindicators.org) Current revenue (including grants) 15,235.1 20,620.3 Tax revenue 10,456.1 15,332.6 Current expenditure 11,708.7 16,234.6 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 10 Overall surplus/deficit -8,403.7 -9,443.6 P aved ro ads (% o f to tal) 18.7 20.8 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 20 32 subscribers (per 1 00 peo ple) 1 31 Co rpo rate 35 32 High techno lo gy expo rts (% o f manufactured expo rts) 9.0 1.3 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 7,205 4,124 A gricultural land (% o f land area) 61 63 To tal debt service 96 90 Fo rest area (% o f land area) 52.4 49.6 Debt relief (HIP C, M DRI) 3,140 1,318 Terrestrial pro tected areas (% o f land area) 14.8 15.8 To tal debt (% o f GDP ) 169.6 43.0 Freshwater reso urces per capita (cu. meters) 5,224 4,388 To tal debt service (% o f expo rts) 12.5 2.6 Freshwater withdrawal (% o f internal reso urces) 0.7 0.3 Fo reign direct investment (net inflo ws) 139 789 CO2 emissio ns per capita (mt) 0.07 0.10 P o rtfo lio equity (net inflo ws) 0 0 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 1.3 1.9 Composition of total external debt, 2010 Energy use per capita (kg o f o il equivalent) 394 427 IBRD, 0 Short-term, 975 IDA, 1,491 Wo rld B a nk G ro up po rt f o lio 2000 2 0 10 (US$ millio ns) Private, 98 IB RD To tal debt o utstanding and disbursed 0 0 Bilateral, 657 Disbursements 0 0 IMF, 190 P rincipal repayments 0 0 Interest payments 0 0 Other multi- lateral, 713 US$ millions IDA To tal debt o utstanding and disbursed 760 1,491 Disbursements 97 163 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 11 To tal debt service 6 15 Time required to start a business (days) – 13 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 11.7 To tal disbursed and o utstanding po rtfo lio 99 68 Time required to register pro perty (days) – 42 o f which IFC o wn acco unt 99 68 Disbursements fo r IFC o wn acco unt 49 0 Ranked as a majo r co nstraint to business 2000 2 0 10 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 3 20 n.a. .. .. n.a. .. .. M IGA Gro ss expo sure 114 162 Sto ck market capitalizatio n (% o f GDP ) .. .. New guarantees 74 2 B ank capital to asset ratio (%) 8.2 8.0 No te: Figures in italics are fo r years o ther than tho se specified. 4/5/12 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 73 Millennium Development Goals Mozambique With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) M o za m bique G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 10 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) .. 80.6 .. 59.6 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. 69.4 .. 54.7 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. 5.6 .. 5.2 P revalence o f malnutritio n (% o f children under 5) .. 23.9 .. 18.3 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) 44 44 56 92 P rimary co mpletio n rate (% o f relevant age gro up) 26 26 16 61 Seco ndary scho o l enro llment (gro ss, %) 7 7 6 25 Yo uth literacy rate (% o f peo ple ages 15-24) .. 47 .. 71 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 73 69 75 89 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) 11 .. .. .. P ro po rtio n o f seats held by wo men in natio nal parliament (%) 16 25 30 39 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 219 195 177 135 Infant mo rtality rate (per 1,000 live births) 146 131 119 92 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 59 71 71 70 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 1,000 890 780 550 B irths attended by skilled health staff (% o f to tal) .. 44 .. 55 Co ntraceptive prevalence (% o f wo men ages 1 5-49) .. 6 .. 16 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) 1.2 4.1 8.6 11.5 Incidence o f tuberculo sis (per 100,000 peo ple) 401 478 513 544 Tuberculo sis case detectio n rate (%, all fo rms) 29 23 23 34 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 36 38 42 47 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 11 1 2 1 4 18 Fo rest area (% o f to tal land area) 55.2 .. 52.4 49.6 Terrestrial pro tected areas (% o f land area) 14.8 14.8 14.8 15.8 CO2 emissio ns (metric to ns per capita) 0.1 0.1 0.1 0.1 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 0.9 1 .0 1 .3 1.9 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 0.4 0.4 0.5 0.4 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 0.3 30.9 Internet users (per 1 00 peo ple) 0.0 0.0 0.1 4.2 Co mputer users (per 1 00 peo ple) .. .. .. .. Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 40 75 75 30 50 50 20 25 25 10 0 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Mozambique Sub-Saharan Africa education Internet users No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 4/5/12 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 74 IBRD 33451R1 30° E 35° E 40° E 10° S 10° S Lake La ke TA N Z A N I A To Mtwara Malawi Mocimboa MOZAMBIQUE Mueda da Praia a end Lug Metangula CABO ssa lo DELGADO Pemba NIASSA Me Lichinga Lichinga ue Montepuez MA LAWI ALAWI Marrupa q Catur bi u io To m a Lúr Chipata To a e ZAMBIA Lilongwe oz t Mualadzi To M Pla Nacala To Petauke Mangoche Cuamba NAMPULA Furancungo Ribáu Ribáuè 15° S To 15° S To Zomba Lusaka Fíngo Fíngoè Montes Namule Nampula Moçambique Lago de TETE Zam (2,419 m) Cahora Bassa be Gurué Guru Zumbo Songo ze To Alto Molócue Blantyre Ligo Moatize Milange n ha Tete Angoche un ZAMBÉZIA Lic go Changara Mocuba To Mutoko Namacurra Pebane Sena Za mb Quelimane ZIMBABWE Catandica ez e Gorogosa Inhaminga To Harare SOFALA Chimoio INDIA N O CE AN in To Masvingo MANICA a Pl Monte Binga (2,436 (2,438 m) Beira 20° S 20° S u e i To Bu z Masvingo i q Espungabera m b Nova Mambone e z a Sav Inhassôro To Rutenga M o Vilanculos Chicualacuala 0 50 100 150 200 Kilometers Machaíla To Messina INHAMBANE 0 50 100 150 Miles Chigubo Mapai GAZA Ch a Lim po M O Z A M B I QUE ngane SOUTH po Massingir Inhambane AFRICA Panda SELECTED CITIES AND TOWNS Guija Inharrime Chibito PROVINCE CAPITALS 25° S MAPUTO NATIONAL CAPITAL 25S To Xai-Xai Nelspruit This map was produced by RIVERS Manhica the Map Design Unit of The World Bank. The boundaries, MAIN ROADS Moamba colors, denominations and Matela MAPUTO any other information shown RAILROADS on this map do not imply, on To the part of The World Bank Mbabane Group, any judgment on the PROVINCE BOUNDARIES legal status of any territory, SWAZILAND Zitundo or any endorsement or acceptance of such INTERNATIONAL BOUNDARIES boundaries. 30° E 35° E JANUARY 2007 The original had problem with text extraction. pdftotext Unable to extract text.