Page 1 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1534 Operation Name First Development Policy Credit (DPC I) Region AFRICA Sector General public administration sector (60%); General finance sector (10%); Irrigation and drainage (10%); Roads and highways (10%); General industry and trade sector (10%). Project ID P083799 Borrower(s) GOVERNMENT OF MALI Implementing Agency The Ministry of Economy and Finance coordinates implementation, which also involves several line ministries and agencies Date PID Prepared August 11, 2005 Estimated Date of Appraisal Authorization September 13, 2005 Estimated Date of Board Approval December 8, 2005 1. Key development issues and rationale for Bank involvement Mali has made good progress overall on its institutional and structural reforms, although a substantial agenda remains. Reforms comprised public expenditure management, market liberalization (both internal and external), transfer of many state-owned enterprises and banks to full or majority private sector ownership (or management, in the case of concession contracts), restoration of democratically- elected government and nationally-representative legislature, and progressive implementation of a decentralization program since the late 1990s. Recent actions include the preparation of a national poverty strategy (initially in 1998 and updated in 2002) through a participatory process, strengthening of the medium term expenditure framework (MTEF) process with the establishment of MTEF simulation/management models in health and education sectors, introduction of MTEF model in the transport sector as well as at the global government level, improvements in information quality and use within the Ministry of Economy and Finance, and increased transparency of financial management information. The enterprise privatization process continues albeit at a very slow pace at times. Of particular concern is the continued majority state ownership of the cotton ginning company CMDT, together with weak management of the company, resulting in high risks of transfer from the state budget for the company’s potential financial losses. The recently adopted mechanism for setting the cotton producer price to reflect international market realities is an important step toward minimizing budgetary risk; nonetheless, introduction of private management of the company (planned in 2008 by the Government) is the only sustainable mechanism for improving performance of Mali’s cotton sector. Mali continues to face significant economic and social challenges despite the achievements over the past decade and half, justifying continued Bank involvement. In response to sustained market-oriented economic and political reforms over the last decade and a half, Mali’s real GDP growth has averaged over 5 percent a year since 1994 (the year the currency was devalued). Gross national income per capita (atlas method) increased from US$240 in 1994 to US$370 in 2004, a 4.0 percent average annual increase. Nonetheless, an estimated 64% of Mali’s population lived below the poverty line in 2001, and Mali’s social indicators remain among the poorest in the world. Mali’s economy remains fragile in view of the economy’s vulnerability to climatic conditions, commodity price fluctuations (primarily of cotton, oil, gold). As a land-locked country, Mali also faces challenges due to weak development of Page 2 infrastructure and transportation services, and to economic and political conditions in neighboring countries. As with other low income countries, administrative capacity is also weak. 2. Proposed objective(s) The DPC I contributes to implementation of the first two and fourth pillars of Mali’s Poverty Reduction Strategy Framework (PRSF), namely: accelerated and re-distributive growth in a context of macroeconomic stability and openness, driven by the private sector; institutional development (including public finance management), governance and participation; and basic infrastructure and productive economic activities. Specifically, the DPC I aims to: (i) promote growth and poverty reduction through (a) strengthening macroeconomic and fiscal management and (b) implementing key actions underpinning Mali’s long-term growth and competitiveness ; (ii) improve efficiency, accountability and transparency in public finance management through strengthening (a) public expenditure management at central and decentralized levels and (b) the public procurement system . Actions supported by the DPC I draw from the government’s own program, specifically the Consolidated Action Plan for the Modernization and Improvement of Public Finance Management 1 . The expected impacts of the DPC I include: the formulation of a coherent growth strategy integrated within the poverty reduction strategy and consistent with a sustainable macroeconomic framework; strengthened fiscal management with minimized transfers for cotton sector losses; strengthened financial sector with increased availability of longer term resources; introduction of private financing to expand production in the Office de Niger irrigation command area; increased private sector productivity and growth, including shared growth through lower costs of handicrafts export; improved quality and sustainability of roads; and strengthened public finance management and public procurement. Prior actions for presentation of the DPC I to the Board are as follows: (i) maintenance of a prudent fiscal policy consistent with the macroeconomic framework; (ii) adoption of a logical framework for operationalisation and appropriation of the medium term expenditure framework (global and sectoral), consistent with the preparation processes for the macroeconomic framework, budget preparation cycle, PRSP monitoring and evaluation cycle, program budget and the 2007-2011 PRSP; (iii) adoption of a terms of reference for preparing the 2007-2011 PRSP integrating activities to articulate the country’s integrated growth strategy, together with work program and timing of the various steps in the process; (iv) continued implementation of the cotton producer price mechanisms with a view to limiting the budgetary risk of the cotton company CMDT; (v) reconstitution of the Board of the Mali Housing Bank (BHM), inclusive of three private sector experts independent of the shareholders, identification of capitalization commitments from potential new shareholders, and inscription of a provision in the 2006 draft budget for the BHM recapitalization; and (vi) establishment of the institutional framework for implementing the consolidated government action plan for modernizing and improving management of public finances, definition of mechanisms for implementing, monitoring and evaluating the action plan, and inscription of an allocation in the 2006 draft budget to cover the costs of the 2006 time-slice of the action plan. 1 This drew primarily from the CFAA (WB), HIPC AAP (WB/IMF), ROSC (IMF) and EU Audit. Page 3 3. Preliminary description The DPC I comprises the following three components: Component 1: Strengthening Macroeconomic, Budgetary and Fiscal Management The DPC I continues the agenda pursued under Third Structural Adjustment Credit (SAC III) and the SAC IV in support of realistic budget preparation and prudent expenditure management under the PRSF. This comprises continued alignment of the budget, PRSF and macroeconomic frameworks through strengthening the use of sector medium term expenditure frameworks, continued implementation of the new cotton producer price mechanism to minimize the budgetary risk of the parastatal cotton company CMDT ’s performance, and monitoring of CMDT’s financial situation. The DPC-I also supports strengthening of the institutional frameworks for PRSF and macroeconomic coordination, including integration of formulation of the growth strategy. Component 2: Support to Growth This component incorporates key actions in the financial sector, road transport and trade facilitation, Office du Niger irrigation area, and private sector development. In the financial sector , the DPC I will continue the agenda initiated under SAC IV focused on laying the foundations for increased access to longer term financial resources that are vital to continued growth and development of Mali’s rural and private sectors. This comprises the strengthening bank portfolio positions through initiating the process to clean up non-performing loans, easing fiscal constraints to equipment leasing activities, developing domestic insurance activities, and strengthening pension system balances. The DPC I also promotes improved management in the banking sector, including strengthening of the regulatory and supervision framework for microfinance institutions and better (private-sector oriented) management of banks. These measures will contribute to a stronger financial system and regulatory framework, thereby lower risk of bank insolvency and allowing greater access of small-scale Malian farmers and entrepreneurs to long-term resources, which is key to private sector-led growth. As regards road transportation and trade facilitation , the DPC I pursues the establishment of adequate financing mechanisms for road maintenance, actions to reduce transactions costs of road transit and customs processing through actions in line with the West Africa regional transit harmonization program, including preparatory actions toward regulating truck axle loads. These actions will contribute to growth in all sectors by improving transport infrastructure quality, improving productivity and competitiveness of Malian trucking industry, and lowering cost of transportation services and trade. In the Office du Niger irrigation program , the DPC I supports key policy and institutional aspects of the national rural infrastructure project (PNIR), namely implementation of the Contrat Plan that establishes the framework (adhered to by the Government, Office du Niger , farmers, donors) for management and development of irrigation in the Office du Niger , and implementation of private sector financing (along with supporting institutional mechanism) for expanding irrigation in the area. In the private sector , the DPC I supports actions to improve the investment climate (by reducing the cost and number of steps to establish a business), strengthen the incentives for handicraft exports (by clarifying that those exports are not subject to a 10% levy aimed at protecting antiquities), and strengthen land property rights (by making permanent the law permitting the conversion of use rights into land titles). Implementation of these actions will lower costs of doing business, and enhance access to lower cost sources of finance, thereby contributing to boosting growth. Component 3: Public Finance Management Page 4 Actions under this component derive from the G overnment’s Consolidated Action Plan for the Modernization and Improvement of Public Finance Management (PFM) for 2005-2008, which builds on past PFM reforms implemented during the SAC III and SAC IV periods. The DPC I supports the establishment of the institutional framework for implementing the action plan, and of mechanisms to implement, monitor and evaluate the action plan. The DPC I will ensure that the draft 2006 budget provides the resources needed to implement the 2006 time slice of the action plan. Public expenditure management (PEM) would be strengthened through: continuing the automation of information flows between key MEF de-concentrated departments (notably, treasury, budget and financial control departments) to increase information quality and transparency; improving the quality of published material on the public finance and expenditure situation through launching of the Ministry of Economy and Finance’s (MEF) web site inclusive of key MEF documentation on that site; and continued improvements in PEM processes, particularly internal and external budget control mechanisms. Greater coordination among the various ex-ante and ex-post control departments will be pursued, in addition to timely preparation of budget execution reports, and preparatory activities toward eventual transformation of the Accounts Section of the Supreme Court into an Accounts Court (i.e., redrafting of legislative texts to allow for an quadruple the statutory number of magistrates, and redefining the status of magistrates). Recommendations emanating from a public expenditure tracking study in the education sector will be adopted, and preparatory work initiated toward implementing those recommendations. As regards public procurement , the DPC I supports the adoption of a procurement reform action plan based on the Mali Country Procurement Assessment Report (being finalized taking into account feedback from discussions in Mali with the three stakeholders—government, private sector and civil society). The adopted report and action plan would reflect the principles of (i) separation of regulatory from execution functions, and (ii) the need to establish an independent procurement appeals body. To facilitate the process of finalizing the CPAR and overseeing implementation of the reforms, the size of the National Committee for coordination and monitoring of procurement reforms (CNCS) will be reduced, to comprise an equal number of representatives from the three stakeholder groups. 4. Environment Aspects The implementation of the DPC-I reform program is not expected to have significant environmental impact. 5. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 INTERNATIONAL DEVELOPMENT ASSOCIATION 25 Total 25 6. Contact point Contact: Christina A. Wood Title: Sr Economist Tel: (202) 473-5829 Fax: (202) 473-8136 Email: Cwood@worldbank.org