Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 44938-RW
THE INTERNATIONAL DEVELOPMENT ASSOCIATION
THE INTERNATIONAL FINANCE CORPORATION
AND Public Disclosure Authorized THE MULTILATERAL INVESTMENT GUARANTEE AGENCY
COUNTRY ASSISTANCE STRATEGY
FOR
THE REPUBLIC OF RWANDA
FOR THE PERIOD FY09-FY12
August 7,2008 Public Disclosure Authorized
Eastern Africa Country Cluster 2 (AFCE2) Africa Region
The International Finance Corporation Sub-Saharan Africa Department
The Multilateral Investment Guarantee Agency Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. LASTINTERIM STRATEGY NOTE: SEPTEMBER 7,2006 (REPORTNo. 35331-RW)
CURRENCYEQUIVALENTS
(Exchange Rate Effective June 11,2008) Currency Unit = Rwanda Francs (Rwf) US$l.OO = 538.050 Rwf
FISCALYEAR
July 1-June 30
ABBREVIATIONSAND ACRONYMS
AAA Analytical and Advisory Activities AfDB African Development Bank AIDS Acquired Immune Deficiency Syndrome BADEA Arab Bank for Economic Development in Africa BCR Banque Commerciale du Rwanda BNR Banque Nationale du Rwanda BRD Banque Rwandaise de Developpement BSHG Budget Support Harmonization Group CAS Country Assistance Strategy CEDP Competitiveness and Enterprise Development Project CEM Country Economic Memorandum CEPEX Central Public Investment and External Finance Bureau COMESA Common Market for Eastern and Southern Africa CPAF Common Performance Assessment Framework cso Civil Society Organization DfID UK Department for International Development DHS Demographic and Health Survey DPCG Development Partners Coordination Group DPL Development Policy Lending DRC Democratic Republic of Congo EAC East African Community EC European Commission EDPRS Economic Development and Poverty Reduction Strategy EFA FTI Education For All Fast Track Initiative ESMID Efficient Securities Markets Institutional Development ESW Economic and Sector Work FDI Foreign Direct Investment FDLR Forces Democratiques de Liberation du Rwanda FY Fiscal Year GAVI Global Alliance for Vaccines and Immunization GDP Gross Domestic Product GFDRR Global Facility for Disaster Reduction and Recovery GFRP Global Food Crisis Response Program GNI Gross National Income GoR Government of Rwanda HIPC Heavily Indebted Poor Countries (Initiative) HIV Human Immunodeficiency Virus HRIG Health Results Innovation Grant ICA Investment Climate Assessment ICR Implementation Completion Report IDA International Development Association FOR OFFICIAL USE ONLY IEG Independent Evaluation Group IFC International Finance Corporation IFDC International Fertilizer Development Centre IMF International Monetary Fund ISN Interim Strategy Note MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative M&E Monitoring and Evaluation MIGA Multilateral Investment Guarantee Agency MINALOC Ministry of Local Government MINECOFIN Ministry of Finance and Economic Planning NBR National Bank of Rwanda NGO Non-Governmental Organization NISR National Institute of Statistics of Rwanda ODA Official Development Assistance PCPI Post-Conflict Performance Indicator PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PRSG Poverty Reduction Strategy Grant PRSP Poverty Reduction Strategy Paper PSCBP Public Sector Capacity Building Project PSI3 Private Sector Development RAP Rwanda Aid Policy RDRP Rwanda Demobilization and Reintegration Program RIEPA Rwanda Investment Promotion Agency ROSC Report on the Observance of Standards and Codes RPPA Rwanda Public Procurement Authority RSSP Rural Sector Support Program RWF Rwanda Francs RURA Rwanda Utilities Regulatory Agency SDR Special Drawing Rights SLM Sustainable Land Management SME Small and Medium Enterprise SWAP Sector-Wide Approach SOE State-Owned Enterprise TA Technical Assistance UN United Nations UNDP United Nations Development Program WP Vision 2020 Umurenge Program
IDA IFC MIGA Vice President Obiageli Katryn Ezekwesili Thieny Tanoh James Bond (Acting) Country Director C. Sanjivi Rajasingham (Acting) Jean Philippe Prosper Frank J. Lysy Task Team Leader Victoria Kwakwa Dan Kasirye Thomas A. Vis
The core team for this CAS included Alema Siddiky, Amadou Dem, Dan Kasiyire, Diego Martin, Dimitrie Mukanyiligira, Erik Fernstrom, Jennifer Asego, Johannes Widmann, Kene Ezemenari, Louis de Merode, Lewis Murara, Loraine Ronchi, Mark Williams, Peter Isabirye, Rema Balasundaram, Stefanie Teggemann, Thomas Vis, Verdon Staines, Victoria Gyllerup and Victoria Kwakwa. Substantive inputs were also received from Diep Nguyen Van Houtte, Edith Kikoni, Frode Davenger, Papa Thiam, Peter Osei, and other country team members. -
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF RWANDA
TABLE OF CONTENTS
EXECUTIVE SUMMARY ...... i I. INTRODUCTION ...... 1 I1. COUNTRY CONTEXT ...... 1 A . Politics and Governance ...... 1 B . The Economy ...... 2 C . Progress toward the Millennium Development Goals ...... 4 I11. RWANDA’S MAIN DEVELOPMENT CHALLENGES AND OPPORTUNITIES...... 6 A . Transforming the Economy to Sustain Rapid and Inclusive Growth ...... 6 B . Developing Human Capital ...... 10 C . Building an Effective State ...... 11 D. Promoting Peace and Social Cohesion ...... 12 IV . RWANDA’S LONG TERM VISION AND MEDIUM TERM PRIORITIES ...... 13 A . Vision 2020 and EDPRS ...... 13 B . Economic Outlook over the CAS Period ...... 14 V . WORLD BANK GROUP ASSISTANCE STRATEGY ...... 17 A . Lessons from Implementing the Last CAS ...... 17 B . The Current World Bank Group Program ...... 17 C . The Program of Support FY09-12 ...... 18 D. Scaling Up Support to Rwanda ...... 30 E . Partnerships...... 30 F. Results Monitoring and Management ...... 31 VI. MANAGING RISKS ...... 32 Table 1: Growth and share of GDP ...... 3 Table 2: Progress toward the MDGs ...... 4 Table 3: Key Macroeconomic Indicators ...... 15 Table 4: Financing Plan 2008-1 1 (US$ million) ...... 16 Table 5: Strategic Themes and Outcomes ...... 19 Table 6: Proposed IDA Financing FY09-12 ...... 21 Table 7: Economic and Sector Work actual (FY08) and proposed (FYO9-12) ...... 22
Annexes:
Annex 1: Results Framework for the Rwanda CAS FY09-FY12 ...... 33 Annex 2: Selectivity of the CAS Program ...... 40 Annex 3 : Rwanda’s Joint Governance Assessment ...... 41 Annex 4: Capacity Building Filter ...... 43 Annex 5: Rwanda-Joint IMF and World Bank Debt Sustainability Analysis (December 2007) ...... 48 Annex 6: Rwanda’s Aid Environment and Donor Coordination...... 53 Annex 7: Mapping of Rwanda’s Development Partners ...... 57 Annex 8: Summary Findings from Independent Evaluations ...... 58 Annex 9: Portfolio Fiduciary Management ...... 59 Annex 10: Main Recommendations from June 2008 Country Portfolio Performance Review (CPPR) .....61 Annex 11 : FY03-08 CAS Completion Report ...... 62 Annex 12: Rwanda Country Statistical Information ...... 88 Annex 13: Rwanda at a glance ...... 89 Annex 14: Key Social Indicators...... 91 Annex 15: Key Economic Indicators ...... 92 Annex 16: Key Exposure Indicators ...... 94 Annex 17: Selected Indicators of Bank Portfolio Performance and Management ...... 95 Annex 18: IDA Program Summary ...... 96 Annex 19: Summary of Nonlending Services ...... 97 Annex 20: IDA Operations Portfolio ...... 98 Annex 2 1: IFC Portfolio ...... 99
Map of Rwanda No. IBRD 33471 EXECUTIVE SUMMARY
1. Rwanda has made remarkable progress since the 1994 genocide and civil war. Peace and political stability have been re-established, reconciliation efforts are continuing, and democratic institutions and processes are being strengthened. Poverty and social indicators have also improved. Given the considerable ground lost during the genocide and civil war Rwanda is still behind comparators in the region on key economic and social indicators. Rwanda’s key challenge going forward is to leverage its recent progress for a much higher development path that will put the country’s long term economic and social aspirations within reach. ii. The spectacular growth effects of Rwanda’s post-conflict reconstruction appears to be fully exhausted and growth has now slowed. Much higher growth rates are needed to significantly reduce poverty and move towards the objective of middle income status. This requires transformation of the economy in the following ways: (i)higher productivity and commercial orientation of agriculture; (ii) broad access to key infrastructure at a much lower cost; (iii)a modem and dynamic private sector able to lead growth; (iv) diversified base of economic activities; and (v) full integration into Eastern and Southern Africa. iii. Significant investment in developing human capital is needed to fully harness Rwanda’s most important asset-its population-for development. The challenges are: (i)a severe deficit of labor market skills due in part to the absence ofan integrated policy for post-basic education-this deficit is evident in the much higher than average wages for skilled personnel in Rwanda than in other parts of the region; (ii)low quality of education following rapid progress in expanding access particularly at the primary level; (iii) child and maternal mortality rates amongst the highest on the continent due to physical, geographic, and financial barriers to accessing high-quality services and to behavioral and cultural factors; and (iv) addressing the needs ofthe different populations ofvulnerable groups. iv. Strengthening public institutions including several that have been created within the last decade is critical for achieving more rapid development progress. Core public sector functions require strengthening, particularly at the decentralized level and support is needed for civil society to emerge as a more effective development actor, able to hold government accountable. v. Rwanda’s long term development vision articulated in the Rwanda Vision 2020 document is to become a lower middle income economy (US$900 per capita) operating as a knowledge-based service hub by 2020. Within this long term vision the Economic Development and Poverty Reduction Strategy (EDPRS) assigns the highest priority to accelerating growth to create employment and generate exports. The strategy is framed around three strategic flagship programs: Flagship one (Growth) targets economy wide improvements in productivity. Its goal is to transform Rwanda’s economy from subsistence agriculture towards increased commercial agriculture, as well as manufacturing and services.
Flagship two (Vision 2020 Umurenge) focuses on ensuring growth is shared by creating economic opportunities for the poorest Rwandans. It has three components: (i)public works; (ii)credit packages; and (iii)direct supports.
Flagship three (Governance) seeks to strengthen political and economic governance, and build institutions and capacity ofthe state. It envisages a wide range of reforms to strengthen public sector institutions and capacity and also includes aspects needed to create an attractive business environment including strengthening commercial justice systems, regulatory and administrative frameworks, and promoting principles ofgood corporate governance. vi. The World Bank Group Country Assistance Strategy (CAS) for Rwanda for FY09-12 has been jointly prepared by IDA, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) in an effort to draw greater synergies from our work and
1 catalyze higher volumes of private resources to support Rwanda’s development. It is closely aligned with the EDPRS and seeks stronger impact through greater selectivity in line with Government of Rwanda’s (GoR) preferences for engagement with the Bank and enhanced harmonization with other donors. No new financing from the International Development Association (IDA) is envisaged for Primary Education, HIV/AIDS, Urban Management, Water and Sanitation, and Civil Service Reform. vii. The CAS is framed around two strategic themes:
0 Promote economic transformation and growth. The primary objective of the CAS is to help Rwanda make progress in activating new drivers of growth that can be sustained over time. The substantial part of the financial envelope over the period will therefore support the EDPRS flagship on growth and focus on four key outcomes: (i)raising agricultural production in a sustainable way; (ii) improving access to and quality of key economic infrastructure services; (iii)improving the environment for private sector development; and (iv) strengthening management of public resources at central and local levels.
Reduce social vulnerability. A secondary objective is to ensure that the most vulnerable Rwandans also benefit from growth and to help Rwanda make further progress in building a more stable society. Building on progress to date in reform and development of delivery of basic services, a smaller program will involve support to the Flagship Vision 2020 Umurenge (village) initiative; reducing vulnerability of Rwandan children and mothers to high rates of mortality; and promoting peace and social cohesion through demobilization and reintegration. It will seek to contribute to mitigating health and social risks-to vulnerable groups and to social cohesion in Rwanda. viii. These themes will be supported through a series of Poverty Reduction Strategy Grants (PRSG) and select investment lending in the indicative total amount of SDR 344 million (about US561 equivalent) during FY09-12. Actual allocations during the CAS period will be determined on an annual basis and will depend on: (i)total IDA resources available; (ii)Rwanda’s performance rating relative to that of other IDA borrowers; (iii)financing terms (credits or grants); and (iv) number of IDA- eligible countries. Analytical and advisory activities (AAA) will be used strategically to complement financial support. ix. Harmonization with other development players will be enhanced under the CAS. This will be done through mechanisms such as the recently agreed Common Performance Assessment Framework which provides an opportunity for the Bank to harmonize its Budget Support Program and dialogue with those of other budget support donors; through the preparation of Sector-Wide Approach (SWAps) particularly in the sectors where the Bank is a lead donor -here we can play an even stronger role in facilitating harmonization and alignment of other donors in the sectors; and through specific initiative such as the enhanced harmonization and collaboration between the World Bank, the AfDB and the EC, particularly in the area of Budget Support, Public Financial Management and Infrastructure. We will also seek greater collaboration with non traditional stakeholders and potential financers as well as various philanthropic organizations that are increasingly active in Rwanda. x. The overall outlook for Rwanda is positive. But there are nonetheless risks that could derail the implementation of the CAS or limit its impact. These include: (i)weak implementation capacity particularly at the decentralized levels; (ii)regional neighborhood risks including the threat of conflict and political instability in the region; the country’s landlocked location which could negatively affect trade, export and private sector growth; and risks from migratory diseases that could impact Rwanda; (iii)exogenous shocks given the limited diversification of the economy; and (iv) potential instability related to parliamentary elections in 2008 and presidential elections in 2010. These risks can be reduced through measures such as mainstreaming support to capacity building; greater emphasis on regional transport; and strong support to Vision 2020 implementation. Food prices in Rwanda have risen steadily over the past two years and could be exacerbated by any declines in agricultural productivity. Support to sustainably raising domestic agricultural productivity remains critical for containing this risk.
11 COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF RWANDA
I. INTRODUCTION
1. Almost a decade and a half after the devastating genocide and civil war, Rwanda has made remarkable progress in rebuilding its politics, economy and society, implementing bold reforms. The World Bank has supported this progress through two assistance strategies and one interim strategy.
2. The first Country Assistance Strategy (CAS) was presented to Executive Directors in March 1998 to support Rwanda’s transition effort from war to peace. In December 2002, Bank Executive Directors discussed a second CAS supporting implementation of Rwanda’s first Poverty Reduction Strategy Paper (PRSP) with a focus on laying the foundations for growth and sustainable human development.
3. An Interim Strategy Note (ISN) discussed by the Board in August 2006 extended the second CAS while the Government completed preparation of its second PRSP-the Economic Development and Poverty Reduction Strategy (EDPRS)-allowing this new CAS to be directly aligned with the EDPRS.
4. This CAS, based on Rwanda’s EDPRS, will build on the foundation laid in previous strategies and support a strong push on Rwanda’s growth agenda. It provides the framework for World Bank Group (IDA, IFC and MIGA) support to Rwanda for the period 2009-2012. Guiding principles for engagement include: alignment with the EDPRS, selectivity for greater impact, government’s preferences for engagement with the Bank, and enhanced harmonization with other donors.
11. COUNTRY CONTEXT
A. Politics and Governance 5. Since the 1994 genocide, politics and governance in Rwanda have been shaped by two key objectives: (i) ending the recurring cycle of ethnic based political violence that has characterized post-independence history; and (ii) reducing the role and control of the central government in decision making and development action. To achieve these objectives, Rwanda has sought to create a more inclusive form of governance based on one national identity and using political arrangements, processes and institutions that are largely homegrown, rooted in Rwandan culture and traditions. The Constitution provides for political power sharing between the main political parties and extra effort is made by the authorities to seek consensus and avoid divisions. The President cannot appoint more than 50 percent of cabinet members from hidher party and the speaker of the parliament has to come from the minority party. The Constitution also provides for strong political participation of women allocating them at least 30 percent of positions in all higher level institutions. Women currently hold 49 percent of parliamentary seats and 36 percent of cabinet positions.
6. In parallel, a bold decentralization program is underway. This aims to provide equitable, efficient, and effective pro-poor service delivery, while promoting local development in an environment of good governance. It seeks to foster citizens’ participation and empowerment as well as transparency and (upward/downward) accountability. In the last two years, resource transfers to districts have risen significantly in line with regulations for fiscal decentralization. Several institutions for democratic governance are also being strengthened or created from scratch and avenues are being provided for greater participation of citizens in governance.
1 7. So far, Rwanda’s approach to promoting inclusive and stable politics and governance appears to be working. The country is at peace and among the most stable on the continent. Parliamentary elections in October 2008 and Presidential elections scheduled for 20 10 provide further opportunity to deepen Rwanda’s process of democratization. Sustained success will depend on willingness to monitor results, draw lessons and political commitment to refine the model on the basis of this evidence.
8. Rwanda’s progress in building internal security and political stability is also vulnerable to continued political instability in Eastern DRC. On November 9, 2007 the Governments of DRC and Rwanda signed a communique in Nairobi pledging to work together more closely to achieve peace and stability in Eastern DRC. In January 2008, the Government of DRC signed a peace accord with over 20 militia groups operating in the country. Both the United Nations (UN) and the Government ofthe DRC now appear ready to address more forcefully the issue of the remaining Rwandan rebel troops of the Forces De‘mocratiques de Liberation du Rwanda (FDLR) operating out of the DRC. UN Security Council resolution 1804, adopted on March 13, 2008, exhorts the FDLR and all Rwandan armed groups to lay down their weapons and peacefully return to Rwanda. Effective implementation of these agreements and statements will greatly enhance prospects for lasting peace in Eastern DRC, thus creating a key condition for lasting political peace and security for Rwanda.
B. The Economy
Macroeconomic Management and Debt Sustainability 9. Rwanda has continued to perform well under its program with the IMF. Inflation was brought down to 6.6 percent by end 2007 from 12 percent at end 2006. Nevertheless core inflation (excluding food and energy) has been rising. Growth in domestic revenue receipts due to overall growth, tax collection efficiency improvements, and recovery of arrears has allowed expansion in government spending (over 30 percent between 2005 and 2007) with limited widening of the fiscal deficit. In fact deficit levels have tended to be lower than program targets.
10. With considerable fiscal expansion and limited instruments for monetary policy, monetary management has become an increasing challenge over the past two years. The National Bank of Rwanda (NBR) carried out large sterilization operations in the face ofrapid fiscal expansion in the second half of 2007. Reserve money targets were met but at the expense of much broader money levels (about 30 percent higher than programmed)’ as well as higher stock of domestic debt. These trends from the second half of 2007 continued in early 2008. Further strengthening of the coordination between fiscal and monetary policy is needed.
11. Higher than expected private transfers and mineral exports have helped keep Rwanda’s external account deficit in check in the face of reduction in agricultural export receipts and growing imports. The current account deficit (excluding grants) in 2007 was 16 percent of GDP, lower than what was projected in the program. International reserves have also exceeded program targets reflecting higher-than-programmed disbursements of external grants and loans. Rwanda has gradually introduced more flexibility in the exchange rate regime using a managed float. The Rwandan franc has remained broadly stable against the U.S. dollar and thus depreciated against other major world currencies in line with the U.S. dollar. The nominal effective exchange rate depreciated by 6 percent year-on-year at end 2007, while the real effective exchange rate depreciated by 4 percent.
’ Sterilization operations kept end-month reserve money within the targets, but average intra-month reserve money exceeded the end-month targets.
2 12. Participation in the HIPC and the Multilateral Debt Relief Initiative (MDRI) has reduced Rwanda’s external debt to a sustainable level (17 percent of GDP) although the external debt burden increased faster than programmed in 2007.2 In line with agreements reached with the MF, the Government is following policies to ensure that the external debt burden continues to be sustainable. External debts are limited to loans with minimum of 50 percent grant element and volumes are being kept consistent with debt sustainability analysis3. A comprehensive debt strategy is expected to be completed by end 2008. Rwanda has also built external reserves equivalent to close to 6 months of imports.
13. As a highly aid dependent economy, a key macroeconomic management issue is avoiding the potential adverse macroeconomic effects of high aid flows. A recent study4 concluded that the rapid aid increase since 2003 has caused a number of macro-economic management problems, including some real exchange rate appreciation and problems in accommodating higher Government expenditure without causing inflation or squeezing private sector credit growth. The report recommended that allowance be made for the possibility of moderate exchange rate appreciation, indicating that this is not likely to cause significant damage to export prospects, especially if it permits investments that address infrastructure and other supply side bottlenecks.
Growth and Real Sector Performance
14. Rwanda’s US$3.3 billion economy grew 5.5 percent in real terms in 2006 and an estimated 6 percent in 2007. On the supply side this good performance has been driven by the services and industry sectors which grew at an average of 7.8 percent and 8.6 percent annually, respectively. In contrast, agriculture has performed poorly, growing only 1.1 percent in 2006 and contracting by almost 2 percent in 2007 driven by a 50 percent fall in coffee production due to effect of poor rains on mature coffee bushes. On the demand side, this rapid growth is explained by expansion in private sector consumption. Investment and trade have also grown rapidly but are much smaller shares of GDP and thus smaller drivers of growth. A recent revision to the national accounts suggests that GDP grew 7.3 percent and 7.9 percent in 2006 and 2007 respectively. The Bank is reviewing the details of this revision.
Table 1: Growth and share of GDP Average Annual Growth Share of GDP 1996-2000 2001-2006 1996-2000 2001-2006 GDP 10.8 6.4 100 100 Agriculture 9.5 4.8 37.7 36.4 Industry 7.5 8.1 15.1 14.2 Services 11.7 7.4 41.9 43.8
15. Rwanda has grown more strongly than the average economy in Africa in the last five years. But there are important reasons for concern about recent growth performance. First, growth has slowed considerably from the 10.8 percent average achieved in the immediate aftermath of the genocide (see Table 1). Second, with population growth of about 2.7 percent annually, Rwanda is facing a growth deficit. The economy needs to grow at least 8 percent annually to make a significant dent on poverty. Finally, the decline in agriculture, which employs 80 percent of Rwandans, also raises concern about the poverty impact of growth.
~ ~~~~ ~______’Disbursements of the external debt (excluding IMF) totaled about US$89 million, about US$26 million higher than projected. In addition, in 2007, Rwanda received only about half of the previously expected HIPC debt relief on debt service from creditors that still provide relief on flow basis. The depreciation of the U.S. dollar against other major currencies contributed to the increase in the stock of external debt at end-2007, and its net present value exceeded the indicative target under the program. ’ Other loans with lower levels of concessionality e.g. recent loan to finance the Nyaborongo Hydro Power Project require a waiver under the program with the IMF. Foster Mick and Peter Heller July 2007: Managing the risks associated with aid increases in Rwanda.
3 C. Progress toward the Millennium Development Goals
Overall Progress 16. Rwanda is on track to achieve MDG 2 on universal primary education; MDG 3 on gender equality; and MDG 6 on HN/AIDS and malaria. Net primary enrollment is currently 95 percent, with 97 percent enrollment of girls (see Table 2). However, low completion rates and poor quality of basic education show that there are still major challenges to meeting MDG 2. The 2005 Demographic and Health Survey (DHS) estimates the HN prevalence rate at about 3 percent with female infection rates (3.6 percent) substantially higher than those of males (2.3 percent). These figures are not strictly comparable to earlier ones, but there is evidence that infection rates have declined, particularly in urban areas. The number of cases treated has increased dramatically and Rwanda is one of the very few countries in Africa likely to reach universal treatment. Recognizing that regional challenges of the epidemic, including migration patterns might hamper this progress, the GoR is complementing national level efforts with participation in regional HIV/AIDS initiative^.^ Rwanda is also on track to achieve the targeted reduction in malaria incidence, the Abuja objective of 60 percent coverage by bed nets and 60 percent prophylactic treatment ofwomen and children.
Table 2: Progress toward the MDGs MDGs MDG Current Status Attainment Targets by 2015 2015 1. Eradicate extreme poverty and hunger Poverty headcount (below national poverty line) 30.2% 56.9% Not likely Prevalence of malnutrition (children under five) 15% 18% Not likely 2. Achieve universal primary education Net primary enrollment 100% 95% Attainable 3. Eliminate gender disparity Women participation in parliament 50% 48.8% Attainable 4. Reduce child mortality Under-5 mortality (per 1,000) 50 103 Attainable6 5. Reduce maternal mortality Maternal mortality (per 100,000) 286 750 Not likely 6. Haltheverse AIDS, malaria and other diseases HIV prevalence 5.1% 3 yo Attainable Use of bednets (children under five) 90% 65% Attainable 7. Ensure environmental sustainability Access to improved water source 82% 71% Attainable Source: Government of Rwanda EDPRS, Mini DHS 2008.
17. In contrast, the EDPRS acknowledges that MDG 1 on poverty and hunger, and MDGs 4 and 5 on child and maternal mortality respectively are unlikely to be achieved without a considerably scaled-up effort. Between 2000/01 and 2005/06, poverty fell from 60.5 percent to 57 percent. A much faster reduction is needed to reach the MDG target of 30 percent. Poverty remains pervasive in Rwanda (see Table 2). Malnutrition rates in children under five have been declining from about 24 percent in 2000 to 18 percent today, but faster progress is needed. Infant mortality dropped from 107 per 1,000 in 2000 to 86 in 2005 and maternal mortality decreased from 1,07 1 per 100,000 to 750 over the same period. Results ofthe 2008 mini DHS suggest that Rwanda is now on track to achieve MDG 4 with a drop in under-five mortality to 103 per 1,000. The percentage ofassisted deliveries increased from
Such as the Great Lakes Initiative on AIDS (GLIA)- a regional AIDS program targeting refugees, IDPs, and mobile populations. Participatingcountries are Rwanda, Burundi, DRC, Kenya, Tanzania, and Uganda. GLIA is headquartered in Kigali. Based on 2008 mini-DHS results.
4 39 to 52 in 2005-08.
Poverty and Inequality 18. According to the 2005/2006 household survey, 56 percent of Rwandans live below the national income poverty line. The average poor Rwandan’s consumption is about RwF 150 a day (about US$0.27), only 2 percent higher than in the 2000/1 household survey. Thirty seven percent of Rwandans live in extreme poverty and cannot afford the minimum food requirements of 2,100 kcal a day. The poverty gap, defined as the aggregate household income shortfall below the poverty line is estimated at 19 percent compared with 21 percent in 2000/01. Inequality is high by international including African standards. The Gini coefficient increased from 0.47 to 0.5 1 between the two household surveys.
19. Poverty is largely a rural-and agricultural-phenomenon with rural poverty at 67 percent. Poverty is extremely high-91 percent-in families whose main source of income is agricultural wage labor. Poverty levels remain higher in families with smaller landholdings and in female-headed households. Poverty also appears to be positively correlated with population density. These factors suggest that reducing population growth, raising agricultural productivity and incomes, and diversifying sources of livelihood away from agriculture are key factors for reducing poverty. More effort is also needed to ensure that women participate fully in growth.
20. There is significant regional disparity in poverty. Between 2000/01 and 2005/06, poverty fell strongest in the Eastern Province from 61.8 percent to 50.4 percent. In the Southern Province, which is now the poorest part of the country, poverty increased from 65.8 percent to 67.3 percent. Only minor progress was achieved in the Northern and Western provinces and the City of Kigali. The reduction in the east can be attributed to greater agricultural growth in that province, due to a combination of factors: (i)larger land holdings; (ii)greater soil fertility; and (iii)greater use of fertilizer.
21. The modest decline in poverty coupled with population growth of about 2.7 percent means the absolute number of poor people increased from 4.8 million to about 5.3 million between 2000/01 and 2005/06. With growth averaging 6.4 percent between the two household surveys, poverty elasticity of growth is low-about -0.4 percent. The relatively small movement in the poverty headcount however masks larger declines in the poverty gap. Further analysis of the poverty data suggests that depending on assumptions about changes in income distribution, per capita growth requirements to halve poverty by 201 5 are in the range of 3.5 to 5 percent annually. If population growth remains at current levels, this would mean overall growth of 6.2 percent to 7.7 percent annually.
22. An estimated 52 percent of households are food insecure or vulnerable? Food insecurity exists all over the country but tends to be concentrated in the Western and Southern provinces. It is also highest amongst female-headed households, agricultural laborers and those with “marginal livelihoods” including those dependent on social transfers. The agricultural sector contributes significantly to national food security, as more than 90 percent of all food consumed is domestically produced. Food grain prices in Rwanda have risen over the last two years, although relative to many countries in sub Saharan Africa, the rise has been somewhat muted due to a high level of domestic production. This predominance of domestic production implies that productivity gains in agriculture have an enormous potential to protect from further increases in food prices. Correspondingly, a fall in productivity poses a serious threat to Rwanda‘s food security. This is particularly true as the food import gap is set to grow-at a time of high global food prices-if there is no increase in agricultural productivity.
NISR and World Food Program 2006: Comprehensive Food Security and Vulnerability Analysis.
5 Child and Maternal Mortality 23. Despite the tremendous progress Rwanda has made on maternal and child mortality, rates are still amongst the highest in Africa. Infant and under-five mortality are only now at their 1992 levels. Further progress on maternal and child mortality rates depend on reforms across various sectors. High mortality rates in children are linked to several factors including poor access to safe water, high fertility, low birth-spacing, and low nutritional status. Accomplishing MDG 4 will require health education and both cultural and behavioral change, through strengthening of community health programs, and of programs for nutrition, sanitation, and water. Major factors in Rwanda’s high maternal mortality are poor geographical access to health facilities and cultural factors which result in limited use of pre natal services and a low level of assisted deliveries. In the last five years the Government has introduced several new policies in the health sector including increased financing, decentralization of health services delivery; implementation of performance based financing, scaling up of mutuelles health insurance and of malaria control programs and improvements in human resources policies. These measures seem to be yielding fruit in improving health outcomes.
III. RWANDA’S MAIN DEVELOPMENT CHALLENGES AND OPPORTUNITIES 24. The enormity of Rwanda’s development challenge is summarized in the assessment of MDG achievability in Table 2 above. To address this challenge, Rwanda needs to make progress in four critical areas: (i)Economic Transformation; (ii)Human Capital and Skills; (iii)Effectiveness of the State; and (iv) Peace and Social Cohesion.
A. Transforming the Economy to Sustain Rapid and Inclusive Growth 25. Rwanda appears to have fully exhausted the growth effects of its post-conflict reconstruction and growth has slowed. The underlying constraints to the economy’s competitiveness need to be addressed, thus activating new drivers to sustain rapid and inclusive growth, raise incomes and reduce income poverty. This requires transformation of the economy in the following interrelated dimensions: (i)productivity of agriculture; (ii)access to and cost of economic infrastructure; (iii)private sector development including development of skills and competencies of the workforce; (iv) diversification ofeconomic activities; and (v) integration into Eastern and Southern Africa.
Productivity of Agriculture 26. Agriculture accounts for 37 percent of GDP and has powerful backward and forward linkages through related productive activities and through rising rural incomes. But productivity in the sector is low, with yields of several key crops lagging behind other countries, even in sub-Saharan Africa. Key constraining features include a binding land constraint which rules out extensification; poor water management; small average land holdings (0.3 ha); low capacity from the district to the national levels; and limited commercial orientation due to poor access to output and financial markets. All this takes place in the context of a potentially fertile, but challenging, physical environment. Steep terrains and the highest population density in sub-Saharan Africa make good land husbandry a strict necessity and an environmental prerogative.
27. Rwanda’s growth challenges can, to a great degree, be met by improvements in agricultural productivity. Recent analytical work’ indicates that improvements in sector productivity could deliver growth of about 6 percent annually through 2015, which could fuel average annual GDP growth at about the same rate due to the presence of important multiplier effects. Agriculture is an important ‘engine of growth’ for Rwanda, not only because of its large impact on GDP in the short and medium-run, but also
8 World Bank 2007 Promoting Pro-Poor Agricultural Growth in Rwanda: Challenges and Opportunities. Agricultural Policy Note (IBRD: Washington DC).
6 because of its contribution to the transformation ofthe economy in the long-run. With over 80 percent of Rwandans working in agriculture, raising agricultural incomes is critical for overall growth in output and employment. Increased agricultural productivity raises rural incomes, stimulates demand for goods and services in other sectors and allows resources to transfer from agriculture to other sectors. This is critical for Rwanda’s economic transformation process.
Access and Cost of Infrastructure 28. Access to infrastructure is limited and costs are prohibitive. In the energy sector, generation capacity is severely constrained at 55 MW and despite the high density of population, only 4.5 percent of households (90,000 customers) have access to electricity. Rwanda has in recent years (2004-2006), suffered from acute electricity supply shortage and severe load shedding. The Government responded by renting additional diesel generation capacity at high cost by increasing tariffs by over 100 percent to about US$ 0.2UkWh. The current tariff levels, compared to US$ O.lO-O.l2/kWh in the rest ofthe region, and the poor quality of supply severely limit the competitiveness of Rwandan businesses. The supply situation has improved in the last two years due to additional thermal generation and better than average rainfall, but the country remains vulnerable to hydrological risk and supply disruptions as demonstrated during the Kenya post-election violence early in 2008.
29. The pace of power sector reform has increased since 2006 but there is considerable distance to go. New Electricity and Gas Laws, that clearly identify the role of the private sector and the Rwanda Utilities Regulatory Agency (RUM), have been submitted to parliament. The restructuring of Electrogaz, the electricity and water parastatal, and the strengthening of the independent regulator aims to position the sector for growth and increase domestic and foreign direct investment in power generation.
30. Transport costs are as high as US$165/ton/km compared to average of US$95/ton/km in the region and represent about 40 percent of import and export values. Rwanda is highly dependent on road transport and its road network of 14,000 km, spread over barely 27,000 square km of national territory, is among the densest in sub-Saharan Africa. The mountainous terrain coupled with excessive rain fall and severe erosion, is particularly severe on the network, and significantly raises maintenance cost which is twice higher than that of most sub-Saharan countries. Available datag indicate that 23 percent of Rwanda’s asphalted network in 2005 was in good condition, while barely 5 percent and 2 percent of the secondary and communal networks respectively were in good condition. As high as 85 percent ofthe 1,100 km paved network requires heavy rehabilitation or periodic maintenance, and most of the secondary and communal roads have not been maintained for over a decade. Being a landlocked country, Rwanda is also dependent on its neighbors, especially Kenya and Tanzania, for access to seaports and increased trade opportunities. The Government’s plan of making Rwanda a trade and services hub will require development of strong transport links with Rwanda’s regional neighbors.
3 1. ICT services in Rwanda are costly but improving. Teledensity remains low at approximately 7 percent, compared to the average for sub-Saharan Africa of 19 percent” and subscribers are concentrated in the urban areas. The primary reason for this poor sector performance, in addition to limited energy resources, has been lack of network coverage and the high price of calls resulting from the absence of effective competition in the market, Government has recently taken some steps towards rectifying this through: (i)adopting a licensing regime which allows the mobile operator to provide fixed services and the fixed operator to provide mobile services; (ii)issuing a third license; and (iii) commissioning a study to reconsider the sector market structure. These initiatives have led to acceleration in network investment by both operators and a 35 percent reduction in MTN’s call charges.
~ Conducted with the help of the European Commission (EC), the World Bank and the Public-Private Infrastructure Advisory Facility (PPIAF). loSource: ITU Trends and market statistics for Africa 2007.
7 The next major challenge will be to bring down further the cost of ICT services, increase the availability of broadband and ensure that they are available throughout the country. Investment in infrastructure in areas outside of the major urban areas is needed to provide these services. There has also been considerable progress in using technology to improve government efficiency and effectiveness. In addition to providing computing capabilities in district offices, government is embarking on an ambitious campaign for electronic service delivery.
Development of the Private Sector 32. A modern private sector is beginning to slowly emerge in Rwanda but its role in economic activity is still very limited. Private sector investment is only 12 percent of GDP compared to 14.4 percent in the region. FDI flows are on the rise but currently represent only 2 percent of GDP compared to 3.9 percent and 3.4 percent in Uganda and Tanzania respectively. The formal private manufacturing sector remains small, fragmented, dominated by small firms supplying to the local market. Only 14 percent of firms in manufacturing engage in any exporting and of those that do only 20 percent of their output is exported. Furthermore the private sector in Rwanda is still overwhelmingly informal. A recent business operators’ census conducted by the Rwandan Private Sector Federation identified about 73,000 operators. Individual enterprises account for about 96 percent of businesses; formally registered businesses account for less than 1 percent and cooperatives close to 3 percent. Close to 90 percent of operations are micro enterprise employing between 1-4 staff. Less than 0.5 percent ofenterprises employ more than 50 employees. Total employment by these enterprises is about 198,000, only 13 percent of who have secondary or higher level education.
33. In addition to infrastructure, the emergence of a modern private sector in Rwanda is constrained by high regulatory cost burden, weak access to finance, and by a severe labor market skills deficit. Progress has been made recently to improve the business environment and reduce the regulatory cost burden Rwanda is still ranked 150 out of 178 countries in the 2008 Doing Business report. The key areas ofpoor performance include trading across borders (rank 166); protecting investors (rank 165); access to finance (rank 158); registering property (rank 137); and dealing with licenses(rank 124). The ongoing Investment Climate Assessment (ICA) confirms these as the factors that most constrain businesses. In contrast the ICA finds that Rwanda compares very favorably to comparators in the area of governance when examined from the enterprise perspective. Rwanda has the smallest percentage of firms identifying corruption as a major constraint in a sample of countries.” And Rwanda has the second lowest percentage of firms (after South Africa) indicating that they expected to pay informal payments to public officials to get things done or give gifts to secure Government contracts.I2
34. While the performance of the financial sector has improved considerably as a result of ongoing reforms, both the Doing Business Report and the ICA show that access to finance remains a major issue. The sector has been opened up to private including foreign participation and the regulatory framework is being strengthened. Banks are now profitable after years of significant losses. Bank loans are also growing but remain insufficient to finance private investment needs. Credit to private sector was only 11.7 percent ofGDP between 2000 and 2005 which is low even by lower income country or by African standards. Interest rates do not appear to be exorbitant, but firms perceive the cost of finance to be an obstacle to business growth. These are symptomatic ofthe limited depth ofthe financial system, low domestic savings rates, and lack of adequate access to international financial markets. Small and micro businesses face even more severe constraints to access finance, particularly for agricultural activities. This in turn, is due to a combination of factors, including inappropriate loan products, restrictive collateral requirements, perceptions of high risk in lending to the rural clientele, and
11 Sample includes all countries in the EAC, DRC, South Afiica, Vietnam, India, China and Thailand. Rwanda ICA ongoing.
8 insufficient legal, institutional and financial infrastructure in the field of rural and agricultural finance.
35. Rwanda faces a severe labor market skills deficit. In the 2006 manufacturing survey, 40 percent of firms reported the lack of skilled labor to be a major constraint for them. By comparison only 24 percent of firms in Tanzania and 30 percent of firms in Uganda identified skills as a major or severe constraint. The survey also showed that 44 percent of industrial workers did not complete primary education compared to 1 percent in Tanzania and 4 percent in Uganda. The severe shortage of skilled labor is reflected in much higher than average wages for skilled personnel in Rwanda. Average monthly wage of a skilled production worker is estimated at US$236 in Rwanda compared to US$59 in Burundi, US67 in Uganda, US$71 in Tanzania, and US$119.56 in Kenya13 (see below).
Diversificationof the Economy 36. The structure of Rwanda's economy has been changing slowly since the late 1990s. During 2001-2006, services contributed 44 percent to GDP compared to 37 percent for agriculture. Industry contributes about 14 percent. Tourism has grown rapidly since its re-launch in 2002. However, Rwanda continues to rely on traditional subsistence agriculture and mineral commoditie~'~which are subject to fierce international competition and price instability. There has been limited diversification into manufactured goods and traded services, or into adding value to primary products. Tea and coffee accounted for over half of export revenues over the last five years. Rwanda also depends heavily on imports, in particular fuel imports.
37. This structure and limited diversification makes the economy vulnerable to domestic and external shocks including climate change. Continued high dependence on traditional rain-fed agriculture and the country's geography makes it highly vulnerable to climatic changes. In this context, vulnerability to periodic natural disasters, mainly in the form of droughts and floods is a long term concern. It is estimated that during 1974-2007, about 4 million Rwandans were affected by droughts and 2 million by floods. For a largely agrarian economy, the impact of such natural disasters on economic growth is significant. Reducing dependence on rain-fed agriculture and addressing the twin issues of disaster risk management and climate change is a key challenge. The limited diversification of exports and the narrow export base also leave the economy vulnerable to shocks in global prices of primary commodities and to external debt crises. After five years of rapid export growth (averaging 12 percent annually), exports constitute only 10 percent of GDP). Heavy dependence on imports including fuel imports and its location about 2,000 km from the coast make Rwanda hostage to international oil price trends and to instability in coastal countries such as Kenya. The transformation agenda should create a robust base of economic activity that strengthens the resilience ofthe economy.
Regional Integration 38. Faster and more comprehensive regional integration can help Rwanda overcome some of its economic constraints (landlocked location, limited natural resources and small size of its economy). Indeed successful integration is critical for realizing Rwanda's vision of becoming a regional service and trade hub as stated in the EDPRS. To realize this vision, Rwanda needs to speed up efforts to make the business environment more attractive for regional investment and trade; lower domestic costs of production so domestic firms can compete on the regional market; and strengthen its participation in regional infrastructure investment and services initiatives including efforts to strengthen the functioning of cross-border transit systems, power pools and regional skills development programs.
l32009 ICA Survey. 14 Industrial minerals such as wolfram, tin, coltan and cassiterite.
9 39. Fuller integration into Eastern and Southern Africa will facilitate the process of transformation and vice-versa, as acknowledged by Rwanda’s EDPRS. Rwanda’s membership in the Common Market for Eastern and Southern Africa (COMESA) and recent new membership in the Eastern Africa Community (EAC) will help facilitate this process. Rwanda’s support for regional integration is fully in line with the World Bank’s new Africa Regional Integration Assistance Strategy (RIAS).I5 Participating in regional integration programs will also have the added benefit of increasing Rwanda’s access to IDA funds.I6
B. Developing Human Capital
Education and Skills 40. While significant progress has been made in expanding access to primary education” with the introduction of fee-free primary education in 2003, quality has suffered significantly with the access shock. Several proxy indicators for quality at the primary level e.g. teacher-pupil ratio (about 1 to 74), completion and drop out rates and text-book pupil ratios are poor. A more refined understanding of learning achievement is needed to guide future interventions and the focus needs to shift from the number ofteachers deployed to their professional performance.
41. Rwanda does not yet have the skills base required to realize its vision of a knowledge based economy. Less than two-thirds of the population completes some primary education, and only 3.5 percent and 0.4 percent complete secondary or higher education respectively. The GoR’s self evaluation of the PRSPl shows that about 170,000 young people start working life each year without sufficient qualifications and therefore have only a limited chance to integrate successfully into economic activity.
42. The absence of an integrated policy for post-basic education which offers students knowledge and a range of skills to enable their successful participation in the labor market is a key factor in Rwanda’s skills deficit. Currently most post-basic education programs both general and technical appear not to be aligned to labor market needs. A multipronged approach that balances access, quality and relevance of the different parts of the post-basic education system is needed to develop the skills required for strong private sector led growth in Rwanda.
Health, Nutrition and Population 43. Rwanda faces similar health, nutrition and population challenges as other countries in Africa notwithstanding its recent progress in expanding access to health services and controlling malaria. One is to reduce further the high rates of preventable deaths and morbidity associated with conditions like malaria, diarrheal diseases, HIV/AIDS, tuberculosis, parasitic infections, and micronutrient deficiencies. Maternal and child malnutrition remains a significant challenge, with vulnerability to household food insecurity accentuated in the context of rising food prices. Another challenge is to reduce physical, geographic, and financial barriers to accessing high-quality services. In part, this entails: (i)building or renovating health facilities; (ii)raising the overall supply of trained health care providers; (iii)achieving a geographic distribution of providers that is more equitable; (iv) enhancing performance-based financing mechanisms, reinforcing the autonomy of health services, and expanding the coverage of affordable health insurance; (v) ensuring that the poorest households are enabled to participate in these arrangements; (vi) promoting good household health practices; and (vii) improving nutrition.
IsEndorsed by the World Bank Board on April 8,2008. I6 Country programs contribute one-third of the needed IDA funds for regional programs and the regional IDA pot contributes two-thirds. I7 Significant improvements in equity were also achieved at the primary level including access by orphans, a particularly large and disadvantaged group in Rwanda.
10 44. Population growth remains an important threat to poverty reduction. Rwanda has the highest population density in the region, presenting a challenge to economic growth as well as threatening social cohesion. Even under an optimistic scenario, Rwanda’s population is expected to grow from around 9.5 million in 2008 to 13.3 million by 2020, while density per square-km could increase from 350 to at least 500. There has been dramatic progress in the past few years in raising the use of modem contraceptives from 8 percent in 2005-06 to 27 percent in 2008, but further increases are needed to have any significant impact on population growth.
Vulnerable Groups 45. Rwanda’s genocide legacy includes large numbers of vulnerable groups-widows, orphans, disabled persons as well as people with psychological trauma and social strains. A strong system of social protection is needed to cater for these groups and ensure that they participate in growth. Given the country’s pervasive poverty, there are at least three constraints that must be confronted in trying to design social protection mechanisms: (i) fiscal constraint, given the limited scope for redistributive social protection measures; (ii)administrative constraints, as the capacity to implement programs is limited; and (iii)information constraints that hinder differentiation of extremely poor, marginally poor, and non-poor households so that assistance can be targeted accordingly. Moreover, both geographic and inter-personal distributions of risks may be difficult to capture operationally to facilitate appropriate social protection interventions. Because 80 percent of employment and 37 percent of GDP flow from small-scale agriculture, weather-related and crop-price fluctuations dominate agricultural outcomes (incomes) and hence living standards.
C. Building an Effective State 46. Rebuilding the Rwandan state into one that is more capable of delivering public goods and services, providing an enabling environment for growth and development and ensuring peace and security is one key component ofthe country’s post-conflict reconstruction. There are at least three dimensions of this challenge: (i)the capacity of state institutions; (ii)control of corruption; and (iii)the voice and capacity ofcivil society to hold the state accountable.
State Institutions and Capacity 47. Rwanda emerged from the civil war and genocide with a drastically reduced stock of human capital and government institutions were similarly severely undermined or destroyed. While economic growth rebounded quite quickly, the human and institutional damage is taking much longer to repair. Most ministries are still relatively young. As a result, a number of systems, processes and procedures have not been fully put in place and some core functions need to be better defined.
48. In addition, some of Rwanda’s civil service reforms could prove to be counterproductive. The drastic reduction in public sector staffing has limited the number of people available to supervise, analyze and implement as well as to learn. A recent study” also suggests that the adoption of uniform organizational charts for its central ministries coupled with a grade structure that is too flat seems to be “uneconomic and inefficient”. While the Government has put in place a large number of agencies as part of its outsourcing strategy, moving implementation away from central ministries, the relationship between ministries and agencies remains undefined. This has generated overlapping mandates, weak supervision and management ofagencies by their ministries. Similar problems exist with the rapid implementation of decentralization; ministerial staff are often not sufficiently aware of the division of labor between sub- national levels and the center and how to effectively supervise activities at the sub-national level.
Oxford Policy Management, 2007: Functional Reviews and Institutional Audits of Six Public Sector Institutions to Assess the Impact of Ongoing Public Sector Reforms, Final Report.
11 49. Rwanda’s first Public Expenditure and Financial Accountability (PEFA) Assessment was completed in 2007. It shows that while in some areas the public financial management system performs strongly in several other areas considerable strengthening is needed. Rwanda scored better than comparable Southern and Western African countries and better than countries in the East African Community on several aspects. Challenges are nevertheless considerable. The main areas of difficulty include accounting recording and reporting, and external scrutiny and audit. Reporting at decentralized levels, is particularly weak and a key area of risk as increasing resources are decentralized to districts and lower down. A fully functional integrated financial management system is yet to be put in place. Procurement reforms are considerably advanced: a sound legal framework has been put in place and the Rwanda Public Procurement Authority (RPPA) created to regulate and oversee public procurement. A comprehensive procurement training plan has been adopted and is being implemented. But more challenges remain to be addressed including adequately funding and staffing the RPPA to become fully operational, training a critical mass of public sector staff in procurement procedures, preparing procurement manuals for contracting entities and widely disseminating the provisions of the procurement law and regulations to the public. A Code of Ethics for participants and provision for disclosure for those in decision making positions is also being prepared (Annex 9 provides a more detailed discussion of fiduciary management).
Control of Corruption 50. Rwanda is widely recognized for low levels of corruption compared to the region and the rest of sub-Saharan Afri~a.’~Strong political commitment to the fight against corruption is evident in vigorous prosecution of corruption cases and tough measures against proven cases. Within the past five years, several government officials in leadership positions, a significant number of persons in the judiciary and local government employees have been dismissed. The Ombudsman Office effectively coordinates the annual exercise of assets declaration by public officials and other staff involved in the management of public funds. Together with the Ofice of the Auditor General, they expose corrupt behaviors and make recommendations for action by the Prosecutor General. Following the new Constitution in 2003, the judicial sector was reformed to give independence to the Prosecution Office. Consequently, this office with the help of other institutions like the National Police is able to independently and systematically prosecute all cases of misappropriation of public funds. Rwanda’s good standing is also confirmed by its 2007 CPIA scores on dimensions such as Quality of Budgetary and Financial Management (4.0), and Transparency, Accountability and Corruption in the Public Sector (3.5; compared to the IDA Borrowers’ average of 2.9).
Voice and Capacity of Civil Society 5 1. The number of civil society organizations (CSOs) in Rwanda has grown rapidly since 2000. Currently, there are an estimated 37,688 CSOs in the country with close to 90 percent in the form of community based organizations. CSOs are distributed across the country fairly uniformly and form the basis of an emerging civil society. These organizations largely confine themselves to philanthropic work and small income generating activities. Very few engage in any meaningful way in policy discourse or engage in political debate. Progress is needed on two fronts: (i)to strengthen the environment for CSO engagement with the state including access to information on government policies and programs; and (ii) to strengthen the capacity ofCSOs to engage in policy formulation processes.
D. Promoting Peace and Social Cohesion 52. The challenge of building lasting social cohesion is daunting given Rwanda’s history. A fundamental part of Government efforts in this regard is to downplay ethnic differences and create one
2005 Rwanda African Peer Review Mechanism states “globally and domestically, Rwanda is perceived as having a low level of corruption”.
12 Rwandan national identity.” It has also worked hard to complete the process of dispensing justice in genocide cases. Under the system of traditional courts known as the Gacaca, about 1.2 million cases have been tried, with the process expected to be concluded by the end of 2008. Over 18,000 prisoners have been released. While this system does not meet all the requirements of a modem judicial system, it enjoys the broad approval of the population. In addition it would appear a sensiblekhe only option available given the weak state of the formal judicial system, the overcrowding of the prisons and the length of time it would take to bring all cases to trial in the formal justice system.
53. Traditional mechanisms such as the “umuganda”, the “ilorero”, the “ubunzf’21 etc. are being used to help communities rebuild and create social capital. The program to reintegrate ex- combatants is also proceeding well. There are nevertheless concerns about killings ofgenocide survivors by perpetrators who had been released and the persistencehesurgence ofwhat the Government has termed “genocide ideology”. In addition, more needs to be done to address some of the psychological and psychosomatic effects of the genocide. More time is needed to measure the success of current efforts, particularly since important changes in mindset are needed across the society. Political willingness to critically examine the functioning ofthese mechanisms in order to assess remaining challenges is critical. Government and civil society groups will need to partner closely on this.
N. RWANDA’S LONG TERM VISION AND MEDIUM TERM PRIORITIES
A. Vision 2020 and EDPRS 54. Rwanda’s long term development vision is articulated in the Rwanda Vision 2020 document. The vision sees Rwanda as a lower middle income economy (US$900 per capita) operating as a knowledge-based service hub by 2020. It seeks to achieve this in an equitable way and as a strong and united nation. The vision is built around six pillars: (i) good governance and a capable state; (ii) human resource development and a knowledge-based economy; (iii)a private sector-led economy; (iv) infrastructure development; (v) productive and market-oriented agriculture; and (vi) regional and international economic integration. It also emphasizes the importance of progress on four cross-cutting issues: (i)gender equality; (ii)natural resources; (iii)the environment; and (iv) science, technology and ICT. The Vision 2020 objectives are fully in line with the MDGs but more ambitious.
55. The Economic Development and Poverty Reduction Strategy (EDPRS), Rwanda’s second generation PRSP, provides the medium-term framework for achieving the country’s long term development aspirations. It articulates the country’s priorities for 2008-20 12. While the first PRSP focused on managing a transitional period of rehabilitation and reconstruction, the EDPRS focuses strongly on growth. Among its key targets are: (i)growth of about 8 percent annually; and (ii)reduction in poverty to 46 percent. The strategy also makes the case for consolidating and extending the decentralization of public spending accompanied by robust accountability mechanisms at the decentralized levels, and for regional and international economic integration. The EDPRS seeks collaboration with Rwanda’s regional neighbors in the development of economic infrastructure and high- level skills in the services, health and education sectors. The EDPRS priorities are articulated through three flagship programs: Sustainable Growth for Jobs and Exports; Vision 2020 Umurenge; and Governance.
56. Flagship one (growth) supports policy and investment interventions to: (i)develop skills and capacity for productive employment; (ii) improve economic infrastructure especially transport,
2o Unlike in the pre-genocide period, reference is no longer made to ethnic origin in individual identification documents and not used as the basis for access to key social services. 21 Umuganda refers to residents of neighborhoods coming together once a month for communal work to clean and beautify their neighborhoods; ;ubunzi refers to traditional mediators; while the itorero refers to a traditional leadership training school.
13 power and communications; (iii) promote science, technology and innovation; and (iv) strengthen the financial sector. The highest priority is given to improving infrastructure. Another priority is transfer and adaptation oftechnology to local needs, especially in agriculture. This flagship is expected to raise productivity across all sectors of the economy. Its goal is to transform Rwanda’s economy from subsistence agriculture towards an increase in commercial agriculture, as well as manufacturing and services.
57. Flagship two (Vision 2020 Umurenge) focuses on ensuring shared growth and on creation of opportunities for the poorest Rwandans. It has three components (public works, credit packages, and direct supports) that involve four complementary elements: (i)agricultural productivity improvement for households with land; (ii)publicly funded, socially productive, labor-intensive employment for landless Rwandans without job opportunities; (iii)social assistance for landless people incapable of work; and (iv) improved access to credit for input purchases or micro-enterprise development by members ofhouseholds assisted through elements (ixiii).
58. Flagship three (Governance) seeks to strengthen political governance, economic governance, and build institutions and capacity of the state. Emphasis is given to maintaining peace and security, promoting peace and reconciliation amongst Rwandans, reforming the justice system to uphold human rights and the rule of law, and empowering citizens to participate in their own social, political and economic development. It envisages a wide range of reforms to strengthen public sector institutions and capacity including further decentralization, enhancing accountability at all levels of government, strengthening public financial management and increasing the predictability and transparency of policy-making. The other elements of the flagship is improvement in the “ soft infrastructure” needed to create an attractive business environment specific elements of which are strengthening commercial justice systems, business and land registration reforms, regulatory frameworks and business licensing and promoting principles ofgood corporate governance.
59. In addition to these three flagships, the EDPRS also seeks to consolidate gains achieved under the PRSP I in health, water and basic education. In health the objectives are to maximize preventive health measures and build capacity to extend quality basic health services to the majority of Rwandans. In parallel, the EDPRS envisages a significant drop in population growth through increased access to and use of family planning methods. The EDPRS aims to ensure sustainable and integrated water resources management and development for multipurpose use including increased access to safe water and sanitation services. Having achieved significant growth in enrollment, the focus is now turned to improving quality ofnine year basic education and to raising completion rates.
B. Economic Outlook over the CAS Period 60. The external environment has become less favorable, posing increasing challenges for most economies in Africa including Rwanda. The global economy is slowing down, commodity prices have generally risen with oil prices reaching record-high levels, and global financial markets are unsettled. However, if Rwanda is able to strongly implement its proposed reform and investment program articulated in the EDPRS, the adverse effects of the external environment on growth and other macroeconomic balances could be mitigated.
61. Other factors will help mitigate adverse growth effects. From a broader perspective, the gradual broadening of the commodity price boom from oil to metals has helped Rwanda offset the adverse effects of higher oil prices through higher prices on its net commodity exports. In the last few years, minerals, metals and chemicals have become predominant in Rwanda’s export mix. These favorable non-oil commodity related terms of trade have contributed to growth in export revenues. In addition, like most African countries with nascent financial markets, Rwanda has so far shown and is
14 expected to continue showing limited reaction to continuing turbulence in global financial markets. Therefore, the risk of a reversal of portfolio flows, which would reduce external financing and hurt growth in countries that are heavily reliant on financial markets, is insignificant in Rwanda.
62. Rwanda’s economic outlook over the CAS period can therefore be expected to remain favourable if GoR implements successfully the medium-term policy agenda as outlined in the EDPRS. This would counter the apparent downward trend in growth, raising annual growth from the average of 4.8 percent during 2003-07 to about 6 percent over the period 2009-11. This assumes the slow-down in the global economy persists, and is therefore a lower bound estimated projection of growth. Preliminary data for first half of 2008 show that growth across services and industry has remained buoyant. Agriculture is also experiencing a recovery due to recent successful intensification efforts.
63. Assuming an incremental capital output ratio of around 4, based on historical trends, the projected annual GDP growth of 6 percent would be achieved through increased public and private sector investment, including measures to modernize agriculture and address infrastructure bottlenecks. Reflecting the strong emphasis that GoR is placing on public infrastructure investment, overall investment rates are projected to rise fairly steadily from about 20 percent of GDP in 2006, to about 24 percent of GDP by the end of the CAS period (see Table 3). Public investment will increase from 9.8 percent in 2008 to close to 11 percent of GDP by the end of the CAS period With the private sector’s engagement in the social sectors and also in infrastructure expected to be strengthened, private investment would also trend upward gradually beginning 2008, to about 13.4 percent ofGDP per year, in the medium-term. The higher investment levels would also be complemented by other less capital intensive investment to operationalize the recently completed skills, science and technology strategy.
Table 3: Key Macroeconomic Indicators 2006 2007 2008 2009 2010 2011 Real GDP growth (%) 5.5 6.0 6.0 5.6 5.5 5.7 Gross investment (% of GDP) 20.3 22.5 23.0 23.1 23.3 23.5 of which primte 12.8 12.8 13.2 13.2 13.2 13.4 Inflation (CPI, %, period average) 8.8 9.1 10.0 8.0 8.0 8.0 Fiscal balance (% of GDP, after grants) -0.4 -0.4 -1.2 -4.0 -4.3 -4.0 Current account balance (%of GDP, incl. off. transf.) -7.3 -4.8 -9.5 -12.7 -11.8 -11.8 Gross resems (months of imports of goods and services) 5.6 5.6 4.8 4.8 4.7 4.7 External debt (% of GDP) 16.7 16.4 5.6 19.1 22.5 24.8 Source: IMF and Bank staff estimates.
64. Higher rates of GDP growth as projected (in the range of 6 percent):’ would in turn, allow for a strong recovery in private consumption, raising per capita consumption to about US$435 by 2011, up from US320 in 2007. The strong growth performance would also have significant impact on employment prospects. The greatest gains for Rwandans would likely come from the strong growth in construction and the service sector coupled with increased public spending on infrastructure projects, including on rehabilitation and maintenance.
65. In line with the need for increased investment to accelerate and sustain growth, government capital spending would increase strongly over the medium term, causing the overall fiscal balance to remain in deficit. The deficit (including grants) would widen to about 4 percent of GDP by 201 1, up sharply from under 1.5 percent in 2007. Part of this increase would be due to higher investment, but the projections also reflect the possibility of continued high world price level of imports to Rwanda.
22 Growth is expected from agriculture stemming from increased use of inputs, including fertilizer, industry, including construction and service sectors with links to the construction phase of projects, including transportation.
15 66. The external current account deficit would also widen considerably from about 5 percent of GDP (including grants) in 2007, to about 12 percent of GDP (including grants) by 2011. Strong import growth stemming from higher capital imports associated with the expanding public investment program, is expected to outpace moderate expansion in exports, led by receipts from traditional exports (particularly coffee), and tourism, keeping the current account in deficit. Successful implementation of the export promotion strategy, coupled with investments and policy reforms to reduce the cost of doing business should over time promote increased exports, opportunities for economically efficient import substituting activities and foreign direct investment. This will be critical for stemming the widening current account deficit. Foreign exchange reserve accumulation would continue, albeit more slowly than in recent years. External financing requirements would amount to about US$3 billion over 2008-201 1, and expected to be fully financed largely from grants, concessional loans, and private capital inflows, including foreign direct investment.
Table 4: Financing Plan 2008-11 (US$ million)
2006 2007 2008 2009 2010 2011 2008-11 Actual Estimated Projected
Financing requirements (incl. IMF) 546 427 816 813 794 809 3232 Current account deficit (excl. off. transfers) 457 530 798 827 818 845 3289 Long-term amortization (excl. IMF) 22 8 7 8 8 9 32 Change in official reserves (increase -) -34 -113 17 -22 -33 -45 -84 Change in other foreign liabilities (increase +) 24 1 -6 0 0 0 -6 IMF repayments 77 0 0 0 0 0 0 Change in arrears (decrease -) 0 0 0 0 0 0 0 Financing source 546 428 816 689 694 725 2924 Private flows -1096 -1 18 62 73 67 88 290 FDI 31 82 83 96 125 145 449 Other private financing flows (net) -1 127 -20 1 -2 1 -23 -5 8 -56 -159 Public sector 1638 543 752 616 627 637 2632 Official transfers 247 363 448 313 307 318 1386 Official capital grants 173 92 226 54 57 62 399 Debt forgiveness 1150 0 0 0 0 0 0 Long-term disbursements excl. IMF 68 88 78 249 263 257 847 of which IDA 35 59 74 118 133 125 450 IMF purchases 4 3 2 0 0 0 2 Financing gap 0 0 0 124 100 84 308
Source: IMF and Bank staffestimates
67. Consistent with the medium-term policy objective of maintaining macroeconomic stability, the BNR is expected to contain inflationary pressures arising from fiscal expansion and scaled-up external assistance. Inflation is estimated to reach around 10 percent at the end of the year.23 However, with strong implementation ofmonetary policy, this could decline from the current level to about 8 percent per annum during 2009-12.
23 These estimates reflect the recent trends in inflation and are therefore higher than the estimates in the fourth review of the PRGF which was approved by the IMF Executive Directors in June 2008. The upcoming PRGF review mission will re-examine the inflation projections.
16 V. WORLD BANK GROUP ASSISTANCE STRATEGY
A. Lessons from Implementing the Last CAS 68. The recent CAS Completion Report (CASCR) concluded that performance under the last CAS was satisfactory. Rwanda made substantial progress in the area of structural reform particularly in public finance management, the financial sector, business environment, and ICT. The Bank’s support to basic services in health, education, HIV/AIDS, water and sanitation has delivered considerable results on the ground. In addition the Bank’s assistance in the community driven development program to build capacity at the local level has been impressive. However, progress has been slow in: (i)improving agriculture productivity and growth; (ii) restructuring key state enterprise in tea, telecom and energy sectors; and (iii)building institutional capacity in the public sector. Furthermore, improving capacity and services in urban infrastructure has been slower than anticipated. The Bank strategy will incorporate the following key lessons learned from the implementation of the previous CAS and ISN: e The introduction of budget support operations under the PRSG series provided an important forum for policy dialogue and significantly improved donor harmonization and strengthened cross sectoral linkages. The Bank needs to work closely with other donors in fostering harmonization and alignment agenda. Comparative advantage and selectivity need to be key criteria in the future strategy where the Bank can provide leadership during the implementation of EDPRS. e Future programs need to be appropriately designed to reflect local capacity constraints and be more results-focused Support should be provided to design and sequence reforms in line with capacity constraints to achieve the best outcomes. The CAS objectives and outcomes should focus on results that are achievable during the CAS period given the capacity constraint and IDA resource envelope. e Thefuture program should have a strong results framework. The absence of a results-based CAS framework at the project design level limited the reliability of the Monitoring & Evaluation (M&E) system.
B. The Current World Bank Group Program 69. The IDA portfolio in Rwanda consists of 11 active projects and the PRSG (general budget support) operation with a total (gross) commitment of about US$363 million. Approximately US$115 million remains to be disbursed. Annex 20 provides an overview of the current portfolio. In addition to the annual PRSG, there are major investment lending operations in agriculture, capacity building, HIV/AIDS, urban development,, electricity and transport. Rwanda is also participating in three regional projects.24 Since FY04, much of the support has been provided to social sectors and for public administration, accounting for about 40 percent and 35 percent of new commitments (excluding budget support), respectively. In the last few years, the portfolio has performed well and delivered strong results in areas such as general budget support, rural water and HIV/AIDs. There are no problem projects.
70. The International Finance Corporation’s (WC) ongoing operations in Rwanda focus on: (i) improving the investment climate; (ii)building the capacity of SMEs as well as micro enterprises; and (iii) proactively supporting development of projects with high impact in the financial, tourism, agribusiness, and infrastructure sectors. The ongoing investment program includes: (i)expansion of Intraspeed SA Rwanda Ltd (ISARL), a freight and forwarding company operating in the Great Lakes Region of Eastern Africa; (ii)post- privatization financing of two leading hotels privatized by GoR; (iii) processing of a risk-sharing facility with the Banque Rwandaise de De‘veloppement (BRD) to finance
24 The include the HIV/AIDS Great Lakes Initiative; the East Africa Trade and Transport Facilitation; and the Africa Trade Facilitation Project.
17 private schools in Rwanda; (iv) trade finance facility to the Bunque Commerciule du Rwanda (BCR) BCR and exploring providing AMSME to local banks; (v) IFC has commenced work on a housing finance and technical assistance program in collaboration with GoR; (vii) IFC trust funds have supported the pilot plant of Lake Kivu methane gas now close to operational; and (viii) IFC recently approved up to US$4 million to invest in the development of a gas methane power project in Rwanda.
7 1. IFC has been providing advice on privatization and entrepreneurship initiatives including advising GoR on the privatization of Rwanda Air. IFC’s Private Enterprise Partnership for Africa (PEP- Africa) is currently implementing two technical assistance programs, the Rwanda Leasing Program (UP) and the Rwanda Entrepreneurship Development Program (REDP), both designed to support SMEs. REDP will enhance entrepreneurship, support the growth and competitiveness of the SME Sector and improve the business environment. The program design and funding arrangements have been finalized. IFC has just completed a Gender Entrepreneurship Markets study.
72. MIGA is increasingly engaging in Rwanda. Its first guarantee, signed in April 2008, secured an investment in the microfinance sector, further to recent increase in the minimum capital requirements. MIGA is currently underwriting two further investments in the financial sector that are likely to be signed in the second quarter of FY 09. These investments reflect an increased willingness by foreign investors to engage in Rwanda with the support of a World Bank Group guarantee.
C. The Program of Support FYO9-12 73. The CAS seeks primarily to contribute to the EDPRS objective of significantly raising growth and creating jobs. A secondary objective is to consolidate specific elements of Rwanda’s recent social progress by tackling selected aspects of social vulnerability. The strategy seeks to use the World Bank Group (WBG) resources more selectively for greater impact and respects Government preferences for WBG support in strategic growth sectors. The CAS is also about new ways of working that will enhance the effectiveness of WBG assistance.
74. The CAS is framed around two strategic themes and five CAS outcomes (see Table 5):
CAS strategic theme one: Promote economic transformation and growth. The primary objective of the CAS is to help Rwanda make progress on activating new drivers of growth that can be sustained over time. The substantial part of the financial envelope over the period will therefore support the EDPRS Flagship on Growth and focus on four key outcomes: (i)agricultural production; (ii)access and quality of infrastructure services; (iii)private sector development; and (iv) capacity to manage public resources.
CAS strategic theme two: Reduce social vulnerability. A secondary objective is to ensure that the most vulnerable Rwandans also benefit from growth and to help Rwanda make further progress in building a more stable society. A smaller program will support the Flagship Vision 2020 Umurenge initiative; help Rwanda get on track on child and maternal mortality goals; and promote peace and social cohesion through demobilization and reintegration.
75. Given Rwanda’s capacity challenge, the new program will seek to mainstream assistance to capacity across all interventions. This will be done through applying a Capacity Building Filter (see paras 117- 119 and Annex 4).
18 Table 5: Strategic Themes and Outcomes CAS Strategic Theme 1 Promoting Rwanda’s Economic Transformation for Sustained CAS Strategic Theme 2 Growth Decrease Social Vulnerability
CAS Outcome 2.1: Significant health and social risks-to
resources-at centra strengthened
Guiding Principles of Bank Support 76. Alignment with the EDPRS. The CAS supports implementation of Rwanda’s four year medium-term development framework. The results framework is directly aligned with development outcomes derived from the EDPRS. The support program has been discussed with government, donors, private sector, and civil society during CAS consultations in February, April and June 2008.
77. Selectivity for greater impact. The CAS focuses Bank engagement on targeted EDPRS areas, primarily growth and selected social areas. It supports mainly progress on MDGs 1 on poverty and hunger; as well as MDG 4 on child mortality; and MDG 5 on maternal mortality. This selectivity is based on GoR’s preferences for Rwanda’s engagement with the Bank. The GoR exercises a strong lead in donor coordination and has begun to work with donors on a clearer division of labour by identifying areas of individual donor comparative advantage. In this context GoR has requested the Bank to give priority to the areas targeted under the CAS. This focus is also justified since these goals pose the greatest challenge for Rwanda and are areas in which limited WBG resources can add most value.
78. The new program will significantly reduce areas where the WBG provides financial support to Rwanda. Specific areas where no new IDA financing is envisaged include: (i)primary education; (ii) water and sanitation; (iii) HIV/AlDS; (iv) urban management/development; and (v) public service reform. In primary education, the Government intends to make greater use of the Education for all Fast Track Initiative (EFA FTI) as well as additional support from bilateral donors including new entrants into the sector (e.g. Canada). Similarly the support to HIV/AIDS will continue largely through the Global Fund to fight Aids, Tuberculosis and Malaria as well as through the United States President’s Emergency Plan for AIDS Relief (PEPFAR). The AfDB will continue to lead donor support for water and sanitation and the move towards a SWAP could help catalyze additional donor resources. Anticipated support from the Chinese Government for road investments in Kigali and Belgian support to general urban management issues in Kigali will carry forward some elements of the urban development agenda while some of the policy reform elements will be taken on in the PRSG series. As regards public service reforms, the World Bank and the United Kingdom’s Department for International Development (DflD) are working with Government to prioritize the implementation of critical system wide reforms which will create conditions for further public service capacity strengthening through the Capacity Building Filter.
79. Financial support is also more targeted within the areas of intervention. For example support to social protection is targeted to public works and direct assistance and the health program focuses on community health targeting child and maternal health risks. This shift in the strategy will become more evident as several ongoing operations come to an end. Annex 2 explains in more detail the enhanced selectivity in the new program and Annexes 6 and 7 provide more details on Rwanda’s aid
19 environment and a mapping of donor areas of responsibility.
80. Alongside selectivity in our financial assistance, the strategy recognizes the Bank’s considerable comparative advantage in analytical and advisory activities and aims at providing enough flexibility to respond to Government demand for such support even in areas where the Bank may not be providing financial assistance. This primarily includes areas where: (i)the institution as a whole has considerable experience; (ii)no other donors are providing such support; and (iii) our support would lead to clear policy and/or implementation outcomes. A key example is in basic education where although new IDA financing is not envisaged, the Bank will continue to be the administrator of the EFA FTI Catalytic Fund grant and will remain engaged in policy dialogue with government on basic education objectives. In this regard, the Bank will provide key analytical inputs for the continuing evolution of the government’s basic education strategy as well as the evaluation of the impact of different teacher recruitment and incentive polices.
81. Donor Harmonization. The CAS actively seeks synergies with other donors and strives for increased donor harmonization. A mapping of donors’ activities in various sectors is provided (Annex 6).
IDA Resources 82. IDA availability. The CAS covers the period FYOPFY12, which includes the IDA15 replenishment period (FY09-11) and the first year of IDA16. The indicative resource envelope for Rwanda under IDA15 is larger on a per annum basis than resources available for similar performance during IDA14, due mainly to the larger size of the IDA15 envelope.25 The indicative total resource allocation during IDA15 is SDR255.9 million (US$417 million comprising a firm allocation of SDR81.8 million for FY09 and an indicative amount of SDR174 million during FY10- FYI1. The indicative amount for FY12 is SDR88.2 million (US$144 million), but the actual amount will depend on available resources during IDA16. Therefore for the entire CAS period (FY09-FY12) the indicative IDA allocation totals SDR344 million (US$56 1 million equivalent). Actual allocations during the CAS period will be determined on an annual basis and will depend on: (i)total IDA resources available; (ii)Rwanda’s performance rating relative to that of other IDA borrowers; (iii)financing terms (credits or grants); and (iv) number of IDA-eligible countries.
83. The Government has expressed an interest in being reclassified from a red light to a yellow light country to enable access to greater IDA allocations as well to other sources of concessional financing.*’ The most recent Debt Sustainability Analysis (see Annex 5) suggests that Rwanda is still at a high risk of debt distress, which does not support a change in Rwanda’s debt sustainability classification at this time. However, for selected high return investments, borrowing on concessional terms including terms less favorable than in the program with the IMF could still be consistent with external debt sustainability. This has recently been demonstrated for the Nyabarongo Hydropower project which is partly financed through a concessional loan of US$ 97.7 million (40 percent concessionality compared to 50 percent required in the program with the IMF)28.The project should improve Rwanda’s external position, by reducing dependence on thermal energy generated from expensive imported fossil fuel.
” Estimates for IDA15 (and first year of IDA16) are based on Rwanda’s performance in FY08, per capita income, population and the size ofthe IDA15 replenishment. 26 Based on an exchange rate of SDR=US$I .63 on July 3 1,2008. The actual dollar amounts will depend on the exchange rate at the time of commitments. ” Concessional financing from sources such as Japan require Rwanda to be classified as eligible for a mixture of grants and concessional IDA credits. ’*IMF Fourth Review Under the Three-Yesr Arrangement Under the PRGF, May 30,2008.
20 CAS Instruments 84. In line with Rwanda’s aid policy and the country’s good performance, the Bank will further increase the use of development policy lending (DPL). The ongoing annual PRSG (budget support) will remain the main DPL instrument. The Government is strongly committed to the EDPRS reform program that underpins the PRSG and the budget is well aligned with the EDPRS. What is needed to ensure full success is strengthened capacity to design reforms and programs, to implement them effectively, to monitor their impact and feed results into further policy and program refinements. Greater attention will be given to building this capacity. In addition to implementation of the Capacity Building filter, the ongoing Public Sector Capacity Building Project and the Decentralization and Community Development Project will support capacity needs at central and decentralized levels respectively. The program will also continue to use the Japanese funded PHRD facility to finance some of the capacity needed for PRSG implementation. The Bank will continue to use the opportunity provided by the regular Joint Budget Reviews between Government and budget support donors to ensure that the budget remains strongly aligned to the EDPRS objectives. Investment lending will be used less than in the past and primarily for delivering large infrastructure including regional programs in addition to areas where IDA financing will help to leverage additional resources.
Table 6: Pro Fiscal Year
2009 Electricity Access Roll-Out
2010
2011
IDA 15 Total 418 2012 PRSG VI11 70 Additional Financing For Agriculture 30 Energy Supplement 30 Skills Development 10 Total 140 1/ This will levera :an additional $4 million from the Norweeian Health Results Innovation Grant.
2/ Regional projec ~ leverage at least twice us much as the naGonal IDA contribution for Rwanda specific activities in the .-program 3/ Envisages that Health and Social Protection DPL will be merged with PRSG if conditions are right. 4/ Will include some peri-urban roads.
85. Analytical and Advisory Activities (AAA) and Technical Assistance (TA) services will be used more strategically to complement financial operations. In particular these pieces will seek to respond more to demand and provide real time advice and support to Government. The CAS will seek balance between this demand driven approach and the need to also be strategic and selective in the
21 broader AAA and TA services to be effective.
Fiscal Year Analytical and Advisory Activities (non-lending) 2008 Social Protection Study Human Resources for Health TA Rwanda Health Study Youth and Gender in Post-Conflict Study Accounting and Auditing ROSC Multi-year Agriculture Policy TA (FYOS-FY 12) 2009 Public Expenditure Management (Multi-year) (FY09-FY 1 1) Investment Climate Assessment Education Policy Analysis (Multi-year) (FY09-FY 1 1)
Regional Agriculture Research TA 2010 Sustainable Land Management (TerrAfrica) Procurement and Financial Management Assessment 2011 Country Economic Memorandum 2012 TBD
New Ways of Doing Business 86. The CAS incorporates new ways of doing business that should enhance WBG effectiveness and impact. The first is to increase use of country systems. This should strengthen Rwandan ownership of our support as well as help build capacity within Government to manage development programs. Strong emphasis will therefore be placed on working with Government to create the conditions for greater use of country systems through ongoing support to procurement and PFM reforms while also recognizing the importance of early pilots to create initial success and draw lessons to guide scaling up. A key element of the strategy will be to commence the initial assessments of the country systems in procurement as defined and explained in the Board approved paper on the Use of Country Procurement Systems in Bank-Supported Operations: Proposed Piloting Program with a view to implementing the proposed Rwanda pilot on use of national systems for procurement in a selected project. Work is also ongoing to strengthen the capacity of the Auditor General’s Office to gradually take over the external audit function on all Bank financed operations.
87. Given the Government’s preference for budget support, the CAS will accommodate increasing use of our TA and MAservices to help Government design and refine specific Rwandan programs and initiatives that could be funded through the national budget rather than for the preparation of specific stand alone Bank financed operations. This new way of working will mean that AAA and TA services may not necessarily support stand alone Bank funded operation.
88. The CAS will use Trust Fund resources more aggressively to strengthen partnerships and complement IDA resources for impact. In addition to existing Trust Funds, new Funds that will be tapped include the Norwegian Health Results Innovation Facility; Statistics for Results Initiative; the Joint Governance Partnership Facility between the World Bank, DfID, and the Netherlands and the Global Facility for Disaster Reduction and Recovery (GFDRR). These new facilities will contribute to funding of operations as well as to AAA and TA programs.
89. The CAS will reduce proliferation of activities and seek appropriate consolidation of tasks to allow better funding of individual operations both at preparation and supervision stages. This will require continued effort to work effectively across sectoral silos and recognition of individual contributions to team tasks.
22 Strategic Theme One: Promoting Rwanda’s Economic Transformation for Sustained Growth 90. Under the first strategic theme, the CAS will focus on the following four EDPRS outcome areas: (i)raising agricultural production in a sustainable way; (ii)improving access to and quality of key economic infrastructure services; (iii)improving the environment for private sector development; and (iv) strengthening government capacity at central and local level to manage public resources. Synergies within the WBG, with other donors, ongoing and new IDA lending and regional projects will be key to achieving these outcome areas. All of these outcome areas are closely interrelated and mutually reinforcing. The program is designed and will be implemented to take advantage ofthese synergies.
CAS Outcome 1.I: Agricultural production -particularly of food crops-sustainably raised9
9 1. Support for raising agricultural production will target investments in a few focused and complementary areas. Given Rwanda’s context, emphasis will be put on sustainable approaches. The Second Rural Sector Support Project (RSSP 2) which was approved at the end of FY08 is a key instrument for addressing this agenda. This four-year second phase APL will continue directly from the first phase focusing on irrigation and sustainable land management (SLM). It will expand irrigated area in cultivated marshlands and increase the use of SLM practices on associated hillsides to accelerate the pace of agricultural intensification. Further support to the sustainable land management agenda will be provided through the proposed Land Management, Water Harvesting and Hillside Irrigation (LWH) Project which has been designed by GoR. The LWH is a comprehensive land-husbandry, water- harvesting and hillside-irrigation initiative for commercialized and professional agriculture. The Bank is providing technical assistance to help refine certain elements of the project design, helping Government address safeguard issues, and helping to leverage other donor resources through its own financing. The ongoing Integrated Management of Critical Ecosystems project will promote the sustainable use and management of Rwanda’s critical ecosystems, particularly marshlands. The proposed Lake Victoria Basin Environmental Management project (FY 10) will bring a regional dimension to the SLM agenda. The Bank will take advantage ofthe multi-partner platform provided by TerrAfrica to carry out analytical work to support GoR in developing a programmatic investment framework for SLM. Finally, Rwanda will participate in several multi-donor trust funds providing technical assistance to regional initiatives in agriculture research?’
92. For greater impact, the support to agricultural production will be complemented by interventions to promote increasing commercialization of agriculture. The ongoing RSSP2 already focuses on improving the marketing and intensification capacity of producer groups. The planned LWH project (FY 10) emphasizes horticultural development that uses commercial-value fruit species. It will build farmer capacity and establish model organized farming communities who .can function as effective and efficient market actors. Access to agricultural and rural finance will be expanded through the design and implementation of innovative savings and loans products that enable rural actors to avail themselves of productivity-enhancing technologies, and emerging value-chain opportunities, and through reform of the Agriculture Guarantee Fund. This program which will be supported through either the PRSG series or as part of the LWH operation. It will benefit from collaboration with the IFC’s (urban-oriented) leasing program and leverage donor partner diagnostic activities on rural finance particularly that of the country- wide DflD-sponsored FinScope financial access survey. The planned Rural Roads project (FY 10) will promote commercialization of agriculture by increasing access to markets and improving the delivery of
29 Responding to the challenges in agriculture in Rwanda, the interventions in this area will strengthen agricultural productivity. However given the challenges associated with accurately measuring productivity, the outcome and is framed in terms of agricultural production. 30 Includingthe AU-NEPAD Comprehensive African Agriculture Development Program (CAADP), the Forum for Agricultural Research in Africa (FARA) and the Association for Strengthening Agricultural Research in Eastern and Central Mica (ASARECA).
23 extension services. Similarly the Energy Access Roll-Out Program (FY09; see below) will target key agricultural regions that are currently off the national grid and therefore provide opportunities for adding value to agricultural produce. Depending on progress in implementation of these operations, additional resources will be provided for the agriculture sector in FY12. The Bank administered Nile Basin Trust Fund will finance a Regional Agricultural Trade and Productivity Project to provide technical assistance for capacity building in boosting regional agricultural export trade.
93. In the context of the current global food price crisis the Bank will step up its support for the Government’s food price response program. It has accessed financing from the Global Food Crisis Response Program (GFRP) to support the purchase and distribution of improved inputs for food crops, particularly fertilizer, a critical part of the Government’s intensification strategy. The Bank has worked closely with the International Fertilizer Development Centre (IFDC) to provide technical assistance to Government to design a fertilizer distribution system that builds capacity of private sector to participate more actively in this sector. This will contribute to the sustainability ofinput provision beyond the crisis.
94. As lead donor in agriculture and co-chair of the Rural Sector Cluster, the World Bank has an increasingly important role in the area of technical assistance and policy advice. The Bank is currently the Government’s first port of call for technical review and assistance on a much broader range of issues impacting the sector, from rural finance to supporting the development of a SWAP with other donors.31 The decentralization of a sector specialist to the Country Office has reinforced our ability to provide technical assistance, which is being explicitly recognized as a product line over the CAS period.
CAS Outcome 1.2: Improved access to and quality of key economic infrastructure services
95. The CAS will step-up support to improving access to and quality of economic infrastructure. This is one area where the WBG needs to and can indeed explore and harness greater synergies. Stronger collaboration will also help provide a basis for stronger private sector investment in the infrastructure sectors.
96. In energy an important focus will be put on assisting the Government to develop electricity generation based on domestic methane gas from Lake Kivu. This resource offers the potential to replace the existing thermal generation based on imported petroleum products with low cost bulk power supply based on domestic gas. IFC is in discussions with Government on possible participation in two consortia with private sector partners to build Methane Gas Power plants in sizes up to 100 MW. IDA is preparing a partial risk guarantee to hedge the off-taker risk and thus facilitate private sector participation. In addition, IDA is providing technical assistance through the ongoing Urgent Electricity Rehabilitation (UER) project to support the Government in trying to ensure a fair and equitable deal for Rwandan electricity consumers. The proposed Rusumo Falls Hydropower regional project will complement the methane gas-based generation and assist in developing additional regional hydro capacity. In addition, the UER project will be expanded through a GEF grant in early FY09 to remove market barriers to energy efficiency and renewable energy development.
97. IDA will also provide financing for rehabilitating and expanding Rwanda’s national transmission and distribution networks. The Electricity Access Roll-Out project (FY 09) will underpin the national access program and ensure that the increased power generation capacity (total estimated at about 155 MW from 55 MW by 2012) will be efficiently delivered to the consumer. In the EDPRS, the GoR has targeted a tripling ofaccess by 20 12 to about 15 percent ofhouseholds and at least 50 percent of identified public institutions in health, education and local administration. This will also include rural consumers and those consumers who may be off the national grid. IDA’S investments in generation and
’’AfDB, Belgium, EU, IFAD, Japan, Netherlands, UK-DFID, USAID.
24 transmission strengthening will be closely coordinated with the ’ AfDB regional program to expand regional transmission links which could allow Rwanda to export possible surplus power to neighboring countries and integrate in a future East African Power Pool. MIGA would, in principle, be willing to consider offering guarantees to eligible energy generation projects during the CAS period, and in particular projects supported in the private sector by IPPs (independent power producers). Depending on implementation progress and availability of IDA resources, additional financing will be made available for the sector in FY 12.
98. As the lead donor in energy and the co-chair of the energy sector cluster, the Bank will continue to support major reforms through ongoing policy dialogue and technical assistance. IDA will continue to support reform of the energy sector through the policy dialogue under both the PRSG series and investment lending operations. This agenda includes further strengthening of technical and financial efficiency of the power utility, Electrogaz, as well as capacity strengthening ofthe newly created utility regulator, RURA. One focus of the dialogue will be on making progress on an energy sector SWApfocused on access expansion-which is expected to be in place before the end of calendar year 2008. As part of the access program, IDA is facilitating twining between Electrogaz and the Tunisian Utility STEG to enable Rwanda to benefit from the Tunisian experience in planning and executing a national access program.
99. In transport, the focus will be on effective implementation of the ongoing Transport Sector Development Project (TSDP) and ongoing and planned regional projects. The TSDP which is co- funded by an IDA grant, an Africa Catalytic Growth Fund (ACGF) grant and the GoR through its Road Maintenance Fund, contributes to improving the quality of key international and domestic road corridors as part of a wider strategy to improve regional connectivity. Additional resources will be required over the CAS period to fund cost increases on the project from inflationary effects of recent events in Kenya and also from some changes in the road design. The ongoing urban infrastructure and city management aims to increase access to priority urban infrastructure in Kigali and two secondary cities (Ruhengeri and Butare). Ongoing regional projects include the East Africa Trade and Transport Facilitation project. Rwanda will also participate in the East Africa Road Network project (FYlO), which will link road networks in Kenya, Tanzania, Uganda, Rwanda, Burundi, Ethiopia and potentially Southern Sudan. Financing for rural roads will complement support to improved productivity in agriculture and rural development (see above). These investments will be implemented using approaches that create employment, particularly for unemployed youth.
100. The Bank will work with other donors in the sector such as the EU and the AfDB and within the WBG to explore synergies. IDA and IFC will work jointly and closely with the AfDB and other Governments in the region to explore the feasibility of a regional railways project that will link Tanzania, Burundi and Rwanda. Achievement of this railway will facilitate Rwanda’s integration in the region, reduce its transport costs significantly and be an important building block in its efforts to become a regional trade and services hub. MIGA is willing to consider supporting such regional integration projects that would either benefit from a more regional approach (e.g. COMESA) and/or through direct private investments in a specific section ofthe rail link.
101. Support to the ICT sector will focus on strengthening the enabling environment, and improving both domestic and international connectivity to lower the barrier for investment by operators to extend broadband access geographic coverage. This support will be provided primarily through the ongoing E-Rwanda Project for eGovernment applications and services and through Rwanda’s participation in the second phase of the Regional ICT Project (RCIP) planned for early FY09. IDA’S support will complement the US$40 million investment being pledged by the Government for the ICT sector as well as the current efforts led by RURA under the Universal Service Fund initiative.
25 CAS Outcome 1.3: Improved environmentfor private sector development
102. Support to improve the environment for private sector development will target skills including entrepreneurial skills, the business regulatory environment, and the financial sector. IDA, IFC (including FIAS) and MIGA will seek additional opportunities to further strengthen our ongoing joint work in these areas.
103. A highlight of the program will be an initiative to promote entrepreneurial skills while promoting investments through catalytic interventions. The driving premise is that the private sector engages in entrepreneurship when the project development risks are clearer, which leads to the design of more robust risk mitigation, and in turn to enhanced investment in commercial ventures. Correlatively, the set-up of an IDA-funded Project Development Fund (PDF) will help identify credible investment opportunities grounded on prospects of products and market development. The PDF will catalyze entrepreneurship by highlighting direct investment opportunities for the private sector. It will finance the sequence of all activities required to develop bankable business plans for specific investments and operate on a demand-driven basis.
104. The integration of IDA, IFC and MIGA instruments and interventions will be critical to ensure the impact of a PDF. It can be expected that IFC would, first, play a catalytic role as an investor, and that its participation in private enterprises in addition to public-private-partnerships (PPP) would help leverage more private investors as well as local banks. Second, to ensure the sustainability of newly created enterprises, technical assistance under the IFC’s Private Enterprise Partnership (PEP) for Africa could be leveraged to consolidate enterprise development. In the same way, newly created enterprises could also access matching grants to finance costs incurred by recourse to external service providers for products and markets development and/or for other enterprise development activities. In cases where the Government will need to support enterprise development through PPP, the Government’s interventions would be supported by a relevant PPP Framework which will be based on clear government entry and exit scenarios and code of conduct.
105. The program will also focus on the development of a Minimum Integrated Trade Expansion Platform (MITEP) financed through PRSG VI to foster trade in Rwanda. MITEP will support enterprise development through sustainable development of new products and new markets. It will build a permanent “soft” infrastructure to: (i) help investors identify direct resource transformation opportunities. (ii)help enterprises comply with quality requirement and other standards in order to adapt and develop products that will overcome technical barriers to trade (TBT); (iii)support the expansion of the market of specialized business development services which will aim at building and accessing the skills sets required for the private sector to effectively identify and develop trade opportunities; (iv) rationalize and integrate the overall delivery of mezzo level policy advocacy and enterprisekrade support services. To support the economic transformation, MITEP, combined with the PDF, will be designed to target sectors with growth potential (including agriculture). Much of this support will be provided through a TA program to support program design with implementationthrough the GoR budget.
106. Beyond entrepreneurial skills, the Bank will increasingly focus on skills development to meet the needs of the labor market (see above). This will consist of a two-prong approach. First, building on the findings of the recent AAA on STI, the Bank will work with Government to design a small program to build skills and capacity in the private sector to bring Science and Technology innovations to different areas of economic activity. Second, we will promote a broad strategic perspective to address short, medium and long-term skills-formation by adopting a systemic approach to post-basic education, with a comprehensive view of general secondary, TVET and higher education. This will take into account the transversal skills set needed to be able to adapt to the changing demands of sophisticated labor markets and consequently the blurring between the three parts of the post-basic
26 education system. This integrative approach also implies that focusing on solely one part of the system (such as TVET) without the overall strategy being in place could eventually create limitations for further human capital development. Support for preparation of this strategy will be provided through the Education Policy Analysis. The strategy is expected to be completed in FY 2010 and a skills development project is expected to follow in FY 2012. The Bank will also continue to administer the Education For All Fast-Track Initiative Catalytic Fund grant (see below).
107. Investment climate reforms remain a priority in the proposed program. IDA and IFC/FIAS are collaborating through the IDA Competitiveness and Enterprise Development Project (CEDP) and the recently approved IFC Rwanda Investment Climate Reform Advisory Project, particularly on commercial law reform, capacity building activities of Rwanda Investment Promotion Agency (RIEPA), promoting public-private dialogue and supporting the Government’s Doing Business reform action plan. This work is underpinned by strong analytical input including the Doing Business Surveys. An Investment Climate Assessment will be completed in early FY09 and the Bank is working with other donors and the Government on a Joint Governance Assessment which includes a section on the Business Environment and on Corporate Governance (see Annex 3).
108. Strengthening and deepening the financial sector will feature prominently in the support program. On the side of IDA, additional financing to the CEDP approved in April 2008 supports implementation of the key elements of Rwanda’s Financial Sector Development Plan (payment system, microfinance, accounting and auditing standards). A second phase of the ongoing program of technical assistance focusing on the insurance industry and the payment system (through the FIRST initiative) will be implemented. IFC will continue implementationof a joint IDNIFC Leasing Program, which is helping firms overcome financing constraints to acquiring key productive assets. IFC is also currently providing support to the National Bank of Rwanda (BNR) to strengthen its public credit registry’s capacity to fulfill its supervisory functions and prepare the legal framework required to develop credit reporting in Rwanda. IFC will provide advisory services for securities market and institutional capacity building through its Efficient Securities Markets Institutional Development (ESMID) program being implemented as a regional program covering Rwanda, Kenya, Uganda and Tanzania. MIGA is currently underwriting guarantees for two private investments in the financial sector worth approximately $1Smillion. ’
CAS Outcome 1.4: Management of public resources at central and local levels strengthened
109. In Rwanda’s resource constrained environment, effective use of public resources is even more critical for achievement of Rwanda’s growth and indeed the broader development agenda. Particular attention will therefore be paid to strengthening PFM. This will be aligned to the Government’s recently completed PFM Strategy and Action Plan and focus on a range of PFM functions-budgeting, accounting and auditing, procurement, reporting and external oversight. Increasing emphasis will be given to building PFM capacity at decentralized levels to ensure that the growing public resources being channeled to this level are used efficiently. As part of the PER work support will be provided for piloting PEFAs at the district level and a second national level PEFA in 2010. The Bank will continue to support GoR in policy development for Rwanda’s intergovernmental fiscal transfer system and reporting and help further clarify responsibilities for service delivery, human resource and financial management between the different levels of Government.
110. The PFM support will be provided primarily through the ongoing Multi Donor Trust Fund for PFM Reforms, supported by DfID and the EC, through the PFM component of the Public Sector Capacity Building Project and the PRSG series. The ongoing multiyear PER will also be an important vehicle for support. After completion of the activities supported through these instruments, if additional financing needs emerge that require continued financing, resources could be re-allocated from the PRSG envelope.
27 11 1. It is critical that the significant scale up of public investments envisaged in the EDPRS is well justified, prepared and implemented to deliver the desired results. The Bank will provide technical assistance and advisory services to help GoR complete and implement its Public Investment Policy which seeks to strengthen the efficiency and impact of public investments. Key elements of this work include developing criteria for selecting between different public investment options, building capacity for project appraisal (technical, economic and financial) and putting in place institutional arrangements for proper project preparation, selection and monitoring. In addition support will be provided for preparing and implementing a framework to guide PPPs. The multi-year Public Expenditure Review program will be the main instrument for providing this support.
112. The ongoing Public Sector Capacity Building Project (PSCBP) will continue support for further refinements to and implementation of Rwanda’s Civil Service Reform. Particular attention will be paid to core systems32readjusting staffing levels and ministerial structures in line with functional responsibilities, clarifying mandates and governance arrangements between ministries and associated agencies and commissions as well as sub national structures. In addition to support provided by DfID, the Bank will focus on helping the GoR develop a retention and pay policy and conducting a review of the various training institutions currently providing continued professional training for civil servants with a view to consolidating training supply into a single civil service college.
Strategic Theme Two: Reducing Social Vulnerability
113. Under the second strategic theme, the CAS will support selected elements of the Government’s program in the areas of social protection (with a focus child and maternal health), and demobilization and reintegration.
CAS Outcome 2.1: Significant Health and Social Risks-to vulnerable groups and to social cohesion in Rwanda-are mitigated
114. Building on Rwanda’s major health sector reforms in recent years support in this outcome area will focus on: (i)Strengthening the community health, nutrition and family planning agenda; (ii) consolidating and institutionalizing processes of autonomous decision-making and local management in health services delivery via performance-based budgeting and financing; and (iii) strengthening the reform agenda in relation to human resources for health. IDA support will specifically aim at achieving progress on the challenging MDGs 4 and 5 and will leverage funding from the Norwegian Health Results Innovation Grant (HRIG). TA and AAA will support evaluation and further refinement of the GoR’s micro health insurance system. The Bank will also continue to play a role in the harmonization agenda in the health sector including participation in the SWAP and contribute to the discussion of fiscal space for the health sector including analysis of the appropriate funding for the sector.
115. The Bank will support the Government in piloting two VUF’ program elements, the public- works employment program and the “direct supports” program. Support will also include help in refining the design, strengthening implementation, and monitoring and assessing both impact and initial experience during the pilots. The Bank will work with the Ministry of Local Government (MINALOC) to plan how these VUP initiatives could evolve with suitable design modifications as needed fiom evaluation results and the experience gained into effective national core programs of public-works employment and poverty-based social assistance that are structured to be administratively simple, fiscally sustainable, compatible with limited information requirements, and relatively free of adverse impacts such as distortions in labor markets or significant sources of inequity. The Bank will support the policies
32 Including management information, strategic planning, monitoring and evaluation and performance management systems.
28 required for the success of the ongoing health reform and VUP elements initially through a programmatic DPL series, which will be merged with the PRSG series within the CAS period.
1 16. Continued support will be provided to the still critical demobilization and reintegration agenda. The ongoing support to Rwanda’s demobilization and reintegration effort under the Multi-Country Demobilization and Reintegration Program (MDRF’) Trust Fund closes in December 2008. The Government of Rwanda has recently proposed a third, three-year phase of the Rwanda Demobilization and Reintegration Program (RDRP) that would aim to consolidate the past phase’s achievements. IDA will therefore support a follow operation to finance this next phase which has four areas of activity: (i)maintaining capacity to demobilize and provide reintegration assistance to an estimated 5,500 combatants of Rwandese armed groups who may return to Rwanda; (ii)demobilizing and provide reintegration assistance to a further 4,000 soldiers of the Rwanda Defense Force; (iii)providing specialized medical and socio-economic reintegration assistance to disabled ex-combatants, and (iv) mainstreaming provision of a number of follow-up reintegration activities. IDA resources will leverage additional resources from other donors33who provided support during the first phase.
Mainstreaming Support to Capacity Building
117. The Capacity Building Filter (CaB)34will help build public sector capacity and strengthen the participation of civil society in development. It is envisaged that the ongoing PSCBP and support by other donors will help address the key system-wide issues that constrain capacity development and broader public sector effectiveness. Past experience has shown that, while support through a single project plus the PRSG series has been useful, the impact of capacity building measures would be enhanced by mainstreaming such support across the entire program. This will be done through the implementation of a capacity building filter across all our interventions -financial and AAA. For the public sector, projects, budget support and AAA will seek to ensure skills transfer to Rwandans, strengthen the organizations they work with and provide adequate policy frameworks and incentives that sustain and encourage reforms. Capacity constraints will be addressed at individual, organizational and institutional levels to build skills, organizations and institutions.
118. Each Bank operation will seek to strengthen its implementing institutions, to make sure that these institutions are fully equipped to implement projects in a coordinated way that is aligned with its core mandate. This includes the phasing out of Project Implementation Units as well as working towards using country systems for Bank operations, consistent with Paris Declaration principles. On the demand side of reform, the Bank’s engagement will allocate time and resources to allow for adequate information, consultation and participation of civil society and other stakeholders in project design, implementation and evaluation as well as in the production of AAA. Concretely, the implementation of the filter will be achieved through: (i) Reviewing existing projects and strengthening their attention to capacity building. For all new operations, an annex will be included in the Project Appraisal Document on how the filter is to be applied in the specific case; (ii)AAA and technical assistance will focus on areas outlined which will also be checked at review meetings of AAA. Financing will be sought from the Governance Partnership Facility between the World Bank, DflD, and the Netherlands, for implementation of the Capacity Building Filter.
33 Belgium, Canada, Germany, the Netherlands, Sweden, Switzerland and the United Kingdom. 34 The filter draws on existing experience of integrating capacity and governance issues into CASs such as in the Lao CAS 2005 (focus on capacity building); Albania CAS 2006 (applied governance filter focusing on PFM, CSR, decentralization and citizen participation); Mali CAS 2008 (developed a capacity development approach for key sectors).
29 D. Scaling Up Support to Rwanda 119. There are compelling arguments for scaling up support to Rwanda. The first is need. Rwanda is still a long way from achieving several of the MDGs and in the absence of a much scaled up effort, only limited progress is likely to be made. Poverty is pervasive and severe and growth needs to become more robust, inclusive and sustainable over time. Rwanda’s financing needs, particularly in the infrastructure sectors which are critical for growth remain significant. There is also ample evidence that Rwanda can absorb additional resources particularly in these sectors.
120. In the face of this significant need and financing constraint, Rwanda has a leadership that is committed to achieving ambitious development goals and Rwanda is a good performer. The country’s low level of corruption also minimizes risks that IDA resources will be misused. The EDPRS presents a good basis for the Bank group to scale up its assistance. The CAS envisages a scaled up program of support through a richer menu of financing options that should allow the Bank Group to seize the opportunity to contribute to significant development impact in Rwanda.
121. Rwanda’s readiness to become eligible for a mix of IDA credits and grants will be assessed through regular DSAs. The mid term review during FY 10 will provide an opportunity to review the classification if the debt vulnerability indicators improve significantly. This would allow a larger IDA envelope as well as enhance Rwanda’s possibility to borrow from other concessional sources.
122. Beyond an expanded IDA envelope, Rwanda has expressed interest in taking advantage of IBRD products for IDA only countries. In particular as appropriate, Rwanda will apply to be considered for financing of specific enclave projects under IBRD terms. This will be done in careful consideration of debt sustainability. These would ideally be for financing projects with some private sector involvement which meet other conditions for this program.
123. IDA, IFC and MIGA will also work together more collaboratively to help leverage private financing for Rwanda’s development program. MIGA plans to engage more strongly to facilitate private sector investments. IDA resources will also be used more strategically to leverage resources from additional sources including non traditional sources. Finally Rwanda’s participation in regional operations will also leverage additional resources beyond its national/country IDA envelope.
E. Partnerships 124. The CAS will seek greater collaboration with other donors in various areas notably on the private sector development agenda and in the energy sector with the AfDB, on the PFM and Financial Sector Agenda with the IMF under ongoing IMF/World Bank special initiatives, with the EC on Transport and increasingly agriculture, and with UK DfID on Social Protection. In our role as lead donors in three sectors we will help establish stronger frameworks for donor alignment and harmonization. In agriculture and in energy the Bank is leading the preparation of SWAps and is also co- chairing with Government the process of preparation of a Joint Donor/Government Governance Assessment which will inspire a joint Governance framework and work plan. The Bank will also play a stronger role to attract additional financing from other donors including through use of silent partnership arrangements where other donors might support different sectors through the Bank. The Bank will work with EC and the AFDB to achieve greater harmonization of our budget support and PFM assistance. The recently agreed Common Performance Assessment Framework (CPAF) provides an opportunity for the Bank to harmonize our budget support program and conditionalities with the larger group of budget support donors.
125. The CAS also envisages stronger partnerships with non-traditional partners such as China, India and philanthropic organizations such as the Bill and Melinda Gates Foundation. There is
30 growing economic collaboration between China and India. The Bank is exploring possibility of joint support with China to a major agriculture project focused on Land Management, Water Harvesting and Hillside Irrigation. Several philanthropic institutions have increasing interest in Rwanda and the Bank will seek ways to collaborate with them on various initiatives.
126. The WBG will facilitate learning and knowledge sharing between more successful economies in the South and Rwanda. In addition to the twinning arrangement between the Electrogaz and the Tunisian Power Utility that the Bank is facilitating, Rwanda participated in the recent China Africa Experience Sharing Seminar in Beijing, and a study tour of Rwandan officials to learn the lessons from successful efforts on targeted poverty programs is being planned. Other activities will be arranged in response to demand and as opportunities arise.
F. Results Monitoring and Management 127. Given the results focus of the CAS, strong emphasis is placed on the results monitoring and management framework. The results focus will be implemented at three levels: (i)ut the national level through support to the development of an effective EDPRS results management system; (ii)ut the Bank portfolio level through the establishment of a solid CAS results framework and results monitoring system; and (iii)ut the project level through strengthened results management of individual Bank operations.
128. The Bank, and other donors are currently supporting the Government to put in place the appropriate tools and processes to ensure that an effective results management system is in place to track the achievement of the ambitious EDPRS objectives. Results and Policy Matrices linking EDPRS results measurements and policy actions for all key sectors have been developed. An EDPRS Monitoring Unit responsible for producing the annual EDPRS progress reports has been established in MINECOFIN and M&E officers in all Sector Ministries are being recruited to support the collection of relevant EDPRS sectoral progress data. In order to have reliable data the National Institute of Statistics is also being integrated in the EDPRS M&E system. Capacity gaps have been identified in both areas M&E and Statistics and are being addressed through a combination of training and exchange of experiences as part of an M&E Community of Practice that is being created.
129. The upcoming National Statistical Development Strategy (NSDS; 2008-11) is an opportunity to strengthen monitoring capacity in Rwanda. This strategy will align statistical production with EDPRS and sector monitoring requirements, and will support the enhancement of capacity in a country already slightly above the IDA average. Capacity assessments have been completed in all districts and are being undertaken in line ministries. Donor support is generally coordinated through a basket funding arrangement managed by UNDP, with participation from the EC and DfID, with commitments for US$20 million of the estimated US$39 million required to implement the NSDS. To address the shortfall, the country team intends to apply for funds through the new “Statistics for Results” facility, which is currently being set up by the Bank with funding from major bilateral donors. The Bank is currently providing support through a Trust Fund for Statistical Capacity Building in the area of national accounting, survey design and analysis for poverty monitoring, and knowledge exchange.
130. To strengthen the national system and avoid duplication of efforts, the CAS Results Framework is aligned to the EDPRS M&E framework by linking where possible the indicators, the data sources and the M&E systems of the Bank operations to the ones of the Government. The CAS Results Framework presented in Annex 1 is focused on a set of EDPRS objectives that the Bank is expected to be able to demonstrably influence over the CAS period. The CAS outcomes have been formulated bearing in mind that results during this CAS period will come mainly from existing operations, and the quicker-disbursing interventions included in the CAS. Measurable indicators and milestones have been identified and regular results-focused portfolio reviews will be carried out to asses
31 whether progress is being made toward CAS outcomes and whether the Bank is successfully contributing to the achievement of the EDPRS objectives. A detailed CAS M&E Plan will be prepared outlining responsibilities, detailed indicator definitions and data sources.
13 1. All new operations will be designed with a focus on clearly defined outcomes, solid results measurements and effective M&E arrangements. Although new projects will more systematically incorporate results management elements, most projects under implementation require actions to improve monitoring and evaluation. Data collection and reporting on outcomes needs to be improved across the portfolio and an effort to strengthen project level M&E is underway. Project teams will also need to focus on supporting sectoral ministries in developing sustainable M&E systems which would in turn help project data collection and reporting.
VI. MANAGING RISKS 132. Weak implementation capacity is a key risk. Lack of capacity was a major constraint to successful implementation ofthe first PRSP and has also been a challenge on past Bank strategies. Risks are particularly pronounced at decentralized levels. Recognizing the complexity of the issue, the CAS will use different avenues to mitigate this risk: (i)a cross-cutting approach to addressing core capacity issues, such as public sector management, through ongoing support as well as applying a capacity building filter across all our operations; (ii)support to capacity building at decentralized levels through the ongoing Decentralization and Capacity Building project; (iii)ongoing support to PFM reforms including preparation of local level PEFAs which will help assess specific areas of weaknesses at decentralized levels.
133. Regional “neighborhood” risks. Political instability and the threat of conflict are real possibilities in neighboring countries such as Kenya, Eastern Congo, and the Great Lakes Region. The Bank’s continued work on demobilization and reintegration issues in the region, including in Rwanda could contribute to mitigating this risk. The Bank will also closely monitor developments on this front and proactively make changes to the program as needed in consultation with Government. In addition, given Rwanda’s landlocked nature, inadequate prioritization of regional transport links by neighboring countries could negatively affect trade, export and private sector growth. The spread of migratory diseases including HIV/AIDS and TB remains a risk in the region and Rwanda is participating in the Bank supported Great Lakes Initiative on HIV/AIDS. In general, the strong focus on regional projects in the CAS is trying to mitigate these risks and support effective economic integration with an impact on regional stability.
134. Risks from exogenous shocks. Current high fuel costs, inflation and continued rise in food prices could affect CAS implementation. Given that 90 percent of the food consumed is domestically produced, the strong focus on improved agriculture productivity will help enhance food security. The Bank will also work closely with the IMF to help Government design and implement fiscal relief measures that do not jeopardize the macro-economic framework. The Bank will continue to support macroeconomic policy stance including a healthy cushion of external reserves. We will help risks from natural disaster through planned support from the Global Facility for Disaster Reduction and Recovery (GFDRR) to help Government Mainstream Disaster Risk Reduction in national programs.
135. Political and endogenous risks. The presidential and legislative elections of 2010 could pose a risk if accompanied by violence and social unrest. This risk is currently considered low. We believe that the strong macro/fiscal program in place together with the government commitment to reforms will prevent any policy reversals going forward. Our programs are also firmly aligned with Vision 2020 implementation. The ongoing support to the electoral process by other donors should help build the capacity ofthe electoral commission to supervise free and fair elections and further reduce this risk.
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Annex 3: Rwanda’s Joint Governance Assessment.
1. In early 2007, the Government of Rwanda and development partners initiated a joint assessment of Governance in Rwanda. In the past, such assessments were done separately by individual agencies and development partners including the World Bank, the EC, DfID, the Netherlands, the African Development Bank and USAID. The fundamental objectives of this initiative are to: (i)develop a common (government and donors) understanding of governance issues in Rwanda; (ii)reduce transaction costs by consolidating different donor governance assessment activities; and (iii)provide an objective, evidence-based assessment that reflects Rwanda’s specific governance history and its current context and realities. The Assessment will also form the basis for identifying areas in the Government’s Governance program that need greater attention, and for harmonizing governance interventions. It will provide a framework for regular monitoring ofgovernance progress in Rwanda.
2. A Steering Committee (SC) with membership of key ambassadors, heads of development agencies, relevant Government Ministers (Local Government, Finance, Justice, Public Service, Information), the Presidency, the Private Sector Federation and CSO representatives, and jointly chaired by the Ministry of Local Government and the World Bank was set up to lead the process. The SC was supported by a Joint Technical Committee. Among others, the SC sought to ensure that the Assessment would be jointly owned by Government and donors, and conducted with a high degree of professionalism and independence which would lend international credibility to the findings and recommendations. An international firm-The Policy Practice-was recruited through an open competitive process to carry out the Assessment.
3. In carrying out the Assessment, the following research methods were used:
0 Review ofexisting governance literature and indicators on Rwanda; Interviews of around 200 respondents in Government, civil society and the private Sector; Stakeholder workshop for over 100 participants in January 2008 in Kigali;
0 Discussion of draft indicator Framework at the Government and Development Partners’ retreat in March 2008; Consultations with district government in 5 districts;
0 Regular meetings with the Steering Committee and technical Committee to discuss progress, earlier drafts and next steps.
4. The Assessment has recently been completed. It concludes that Rwanda has made impressive progress in governance since the 1994 genocide (especially in areas such as peace and security, national reconciliation, transitional justice, institutions of accountability, public financial management, the fight against corruption and decentralization) and identifies remaining challenges in ‘Ruling Justly’, strengthening ‘Government Effectiveness’, and improving the ‘Investment Climate and Corporate Governance’. There are three broad tasks that are highlighted for greatest attention: Institutions need to be further strengthened and rules-based governance more rigorously enforced; Vertical accountability between government and citizens needs to be strengthened, in particular by enabling constructive state-society engagement around participatory processes such as budgeting, planning and monitoring; and Transparency and access to reliable information are essential to nearly all aspects ofgood governance.
5. Recognizing both the scale of the challenges, and Rwanda’s experience so far that a good deal can in practice be achieved; the Assessment suggests that the approach to strengthening governance needs to be ambitious. It also recognizes there are many linkages between different areas of governance, such
41 that progress in any one area is influenced by progress in others. Given resources limitations, the prioritization and sequencing of interventions will be essential. The report will be disseminated widely by Government and donors following discussion and approval by Cabinet after the summer recess.
6. The SC has agreed that donors will review their governance programs to ensure alignment with the recommendations of the Assessment. Under the newly established EDPRS Results Monitoring Framework, the coordination ofthe implementation and monitoring of the findings of the Assessment will be taken forward by the EDPRS Governance Implementation Working Group (IWG) which is jointly chaired by the Ministry of Local Government and the UNDP. It is expected that the Governance IWG will agree soon a timeline for the next Assessment.
42 Annex 4: Capacity Building Filter
Weak Capacity Unraveled
1. Weak capacity slowed down implementation of Rwanda’s first Poverty Reduction Strategy. Past experience of building capacity revealed that “weak capacity” in the Rwandan context can be disaggregated into a number of component parts. On government effectiveness, weak capacity can be traced back to low skills levels, weak core processes and oversight and organizational structures insufficiently aligned with ministerial functions. In addition, civil society engagement and voice can be strengthened, supporting the government in its existing efforts.
2. Rwanda emerged from the war and genocide with a drastically reduced stock of human capital. Government institutions were similarly severely undermined or destroyed. While economic growth rebounded quite quickly, the human and institutional damage is taking much longer to repair. As part of the institutional rebuilding process, most ministries are still relatively young - as a result, a number of systems, processes and procedures have not been fully put in place and some core functions need to be better defined.
3. In addition, some of Rwanda’s civil service reforms have proven to be counterproductive. The drastic reduction in public sector staffing has limited the number of people available to supervise, analyze, and implement as well as to learn. The adoption of uniform organizational charts for its central ministries coupled with a grade structure that is too flat proves to be “uneconomic and inefficient” (Oxford Policy Management 2007).38 Also, some of the reforms remain unfinished. While the Government has put in place a large number of agencies as part of its outsourcing strategy in an effort to move implementation away from central ministries, the relationship between ministries and agencies remains undefined, leading to overlapping mandates, weak supervision and management of agencies by their parent ministries. Similar problems exist with the rapid implementation of decentralization- ministerial staff are often not sufficiently aware of the division of labor between sub-national levels and the center and how to effectively supervise activities at the sub-national level.
4. Rwanda’s first Public Expenditure and Accountability Assessment was completed in 2007. It shows that while in some areas the public financial management system performs strongly, in several other areas considerable strengthening is needed. The main areas of difficulty include accounting recording and reporting, and external scrutiny and audit. Reporting at decentralized levels, is particularly weak and a key area of risk in Rwanda’s decentralization process as increasing resources are decentralized to districts and lower down. A fully functional integrated financial management system is yet to be put in place. Procurement reforms are underway. A sound legal framework has been put in place and new institutional arrangements for the public procurement function are being created.
5. All these weaknesses combined considerably impact the speed of implementation ofreforms and service delivery in virtually all sectors.
Government Response
6. Cognizant of the importance of building capacity, the GoR developed the Multi Sector Capacity Building Program, spanning public, private and civil society sectors, launched in 2004. It also established a government agency charged with operationalizing the MSCBP and coordination ofcapacity building in the country, the Human Resources and Institutional Capacity Development Agency (HIDA). The
’*Oxford Policy Management, 2007. Functional Reviews and Institutional Audits of Six Public Sector Institutions to Assess the Impact ofOngoing Public Sector reforms, Final Report.
43 MSCBP follows a comprehensive approach to capacity building: strengthening individual skills, improving the functioning of organizations and developing or improving the institutional framework conducive to capacity and good governance. The World Bank financed Public Sector Capacity Building Project (PSCBP), effective since March 2005, supports the public sector arm of the MSCBP. It addresses civil service reforms, PFM, strengthens local training institutions and parliament, improves ICT use within ministries, supports the development of a national M&E system and provides custom-made support to priority ministries under the former PRSP, now Economic Development and Poverty Reduction Strategy (EDPRS). In addition, Rwanda is putting in place mechanisms to attract skilled Rwandans living abroad through programs such as “Transfer of Knowledge through Expatriate Nationals (TOKTEN) and Migration for Development in Africa (MIDA).
CAS approach
7. Past experience in building capacity through the MSCBP and PSCBP has shown that complex issues such as capacity building and governance can only be partially taken on by a single-project approach. A comprehensive and cross-cutting approach is needed. The CAS therefore follows a two- pronged approach of addressing core issues such as public sector management (notably PFM and CSR) and developing a policy framework for skills building through concrete interventions (such as the existing PSCBP, a new project on skills development and Economic and Sector Work) and a capacity-building CaB) filter to mainstream such cross-cutting concerns into the Bank’s operations, analytical activities and budget support.
The Capacity Building (CaB) Filter
8. Capacity includes building capable states and engaged societies - both are critical to achieving development results.39 Effective states means that the government is capable of delivering public goods and services, of providing an enabling environment for growth and development and ensuring peace and security. Engaged societies play an important role as they participate in public decision-making, contribute to provision of public goods and services and hold authorities accountable. Both elements are also critical building blocks of the Bank’s Governance and Anticorruption Strategy.
9. The CaB filter4’ will thus include measures to help build public sector capacity and strengthen the participation of civil society in development. The filter is a tool to mainstream these goals into Bank operations and analytical work. It seeks to help sector interventions to address capacity and governance challenges through their operations, analytic and advisory activities (AAA) and budget support and to ensure that all Bank activities contribute to the same goal. It intends to aid the declaration of the Governance and Anticorruption Implementation Plan for the Africa Region that “governance is everybody’s business”. The CB focus will be further developed during CAS implementation and secured in a Worl Bank strategy for capacity building in Rwanda.41
39 This was the main conclusion from the Report of the World Bank Task Force on Capacity Development in AfLica: Building Effective States-Forging Engaged Societies. 40 The filter draws on existing experience of integrating capacity and governance issues into CAS such as in the Lao CAS 2005 (focus on capacity building); Albania CAS 2006 (applied governance filter focusing on PFM, CSR, decentralization and citizen participation); Mali CAS 2008 (developed a capacity development approach for key sectors). 41 The strategy might include a check list for projects that allows task teams to ascertain whether they are paying sufficient attention to capacity and governance issues in their operations.
44 Strengthening Public Sector Capacity
10. Capacity constraints will be addressed at individual, organizational and institutional levels to build skills, organizations and institutions.
Individual capacity through skills building:
Five measures are suggested to encourage skills building through Bank operations:
1. Staffing in line with needs. Current staffing levels leave central ministries with an insufficient number of people in place to carry out day to day work let alone identify, analyze, define, disseminate and implement vitally important reforms. In some areas, ministries are in a low capacity trap where even external technical assistance is underutilized due to a lack of supervision, working with and learning from experts. In addition, the low staffing levels mean that there is little scope for newcomers or young professionals to learn on the job. During the CAS period, a careful review of staffing levels in line with functions will be completed, identifying additional staffing needs after taking into consideration efficiency gains through introduction of more efficient systems and the completion of decentralizationreforms.
2. Addressing incentives for performance. To ensure optimal utilization of existing human capital, improved human resource management is key as well as an overhaul of the pay and retention strategy. Other donors, notably DfID, are engaged in a full roll-out of a performance management system, an important complementary measure.
3. Developing schemes to attract qualified Rwandans onto public sector jobs and train/coach/mentor young talented Rwandans (Rwandan Expertise Scheme). This would include holistic learning through twinning and institutional partnerships.
4. More effective use of technical assistance. Outside experts recruited under World Bank projects should carry a dual function of delivering their reports, analysis and other output but also to transfer knowledge and skills. Including in the TOR of experts the requirement to train counterparts, teach best practice and work closely with them while delivering the product will be important ingredients to ensure that skills transfer is taking place and reliance on foreign experts is reduced over time. Agreeing with Government counterparts that key staff will be made available to work with consultants is another step in ensuring that transfer of knowledge can occur.
5. Support Local Training Institutions in all sectors or engagement. Existing training institutions in Rwanda are under-equipped, -staffed and often poorly managed. Supporting their capacity through training of trainers and/or institutional partnerships with training institutions in the region or beyond will be an important contribution to ensuring that training needs can be catered to sustainably in-country.
Building organizational capacity:
11. Core functions across the public sector are in need of strengthening. These include PFM, HR management, strategic planning, ICT, monitoring and evaluation etc. Each one of these will be supported through a variety of projects such as the PSCBP, eRwanda, RCIP, etc. In addition, the Bank will continue to engage ministries, through MIFOTRA to adapt organizational structures to functional needs, moving away from the rigid four unit structure.
45 Going further, each Bank operation will seek to strengthen its implementing institutions such as the Rwanda Environment Agency and the ministries for agriculture, communications, infrastructure etc., to make sure that these institutions are fully equipped to implement projects in a coordinated way that is aligned with its core mandate. This includes the phasing out of Project Implementation Units as well as working towards using country systems for Bank operations.
12. Finally, support to specific institutions will continue such as parliament, the ministry of finance, the Auditor General’s Office etc.
Strengthening Institutional capacity
13. Each reform requires the establishment of the policy or enabling framework and rules of the game. While each sector will attend to ensuring that the legal framework is sound, for the area of capacity building in particular, the CAS foresees the development of a post-basic education policy framework.
Strengthening civil society engagement and the local private sector
14. Unleashing the potential of civil society and the local private sector are important parts of governance reforms, and capacity building. The Bank will work to strengthen external oversight mechanisms, such as through the media and civil society, as powerful tools to engage society, the ultimate beneficiary of public sector reforms, constructively in the national reform process. There are numerous examples of social accountability tools, such as citizens’ guides to government services, complaint mechanisms, civil society consultations and participation, citizens’ report cards etc. which could be employed.
15. Rwanda’s civil society is still young but plays an increasingly important role in facilitating the development of the country. The World Bank can play an important role in supporting this trend by engaging more actively with Civil Society Organizations (CSOs) through consultation and participation in the production of its AAA as well as throughout project preparation and the use of CSOs in project monitoring and evaluation. Also, local CSOs can and should be used more proactively as researchers and consulting bodies in the preparation of AAA and delivery of services.
16. In addition, the Bank plays an important role in providing access to information on its own operations and AAA to stakeholders and society at large. Sufficient funds should be budgeted to allow for consultations and dissemination of AA products. Each project will ensure that information is provided on objectives and results, also working with government counterparts in ensuring that information reaches vital stakeholders. Similarly, the Bank will continue to strengthen outreach to CSOs by parliament.
17. In addition to support to private sector development, the Bank will use local consultants and firms more proactively such as in AAA as well as in project preparation and supervision. Systematically teaming up international consultants with local experts is an important step to building the capacity of the local consulting industry.
How to integrate and apply the CaB Filter in the Bank’s work
18. The Bank’s Governance and Anti-Corruption (GAC) Strategy as well as the GAC Implementation Plan for the Africa Region highlight that governance is everyone’s business. The same
46 holds true for capacity building. Consequently, governance and CB will become a focal area for all TTLs. Concretely, mainstreaming of the CaB Filter will be achieved through the following means:
In our operations: Review existing projects and strengthen their attention to CB. For all new projects, include an annex in the Project Appraisal Document on how the filter is applied in the project, to be discussed during each review meeting. In our analytic work: AAA and technical assistance will focus on areas outlined in the CaB Filter, also to be checked at each review meeting of AAA. 0 Through budget support: triggers may include key policy decisions and benchmarks that would support capacity building and governance, addressing skills, institutional structures and processes as well as voice, participation and civil society engagement.
19. To this end, project preparation teams will be encouraged to include a governance and capacity building specialist to help identify ways in which the filter can be adopted to the particular project. The Bank will recruit a governance specialist based in the Country Office to support project teams. The same person would develop the CaB Filter in more detail, collate and share experience of projects to build a knowledge base and draw on experience of other countries in mainstreaming governance, and capacity building concerns into the Bank’s portfolio.
47 Annex 5: Rwanda-Joint IMF and World Bank Debt Sustainability Analysis (December 2007) 42
Summary
1. The result of the debt sustainability analysis indicates that Rwanda is at high risk of debt di~tress.4~Despite reduced risk of near-term debt distress, owing to debt relief initiatives in the recent past, exogenous shocks to exports or imprudent borrowing on nonconcessional terms could cause a rapid deterioration in the medium-term outlook. The alternative scenarios and stress tests indicate that debt indicators are highly sensitive to less concessional financing and lower growth, particularly in exports. The DSA suggests that investment and structural reforms should focus on enhancing private-sector led growth and protecting Rwanda against shocks.
2. In the baseline, Rwanda’s projected external debt burden trajectory breaches one critical indicative policy-dependent threshold (the NPV of debt-to-exports ratio), and returns to a downward path thereafter.44Alternative scenarios indicate that shocks to the small export base would substantially worsen Rwanda’s NPV of external debt-to-exports ratio and debt dynamics would deteriorate sharply if external financing were delivered on less favorable terms. These scenarios highlight the importance ofexport promotion and greater reliance on grant financing to set Rwanda on a sustainable debt path. Stress tests based on historical averages of key macroeconomic variables also indicate an increased risk ofdebt distress.
3. The macroeconomic assumptions under the baseline scenario are as follows. On the real economy front, real GDP growth is expected to stabilize at about 6 percent for the projection period (2007-2027) as growth enhancing sectoral strategies -improving agricultural productivity strategy and the export promotion strategy- take effect and investment in human capital starts to pay off. The projected increase in real GDP is also contingent on continuous macroeconomic stability and projected investments in infrastructure (driven by the needs to advance more rapidly toward the MDGs and address Rwanda’s severe infrastructure gap). On the external sector front, exports are assumed to grow at a rate of 12 percent, while imports are projected to increase by 6 percent over the period 2007-27 mostly driven by capital goods imports.
4. With moderate domestic financing and repayment of pre genocide debt, Rwanda’s public debt burden (including domestic debt) is expected to stabilize over the long term. This trend would partly offset the increase in external debt, so that the NPV of total public debt-to-GDP ratio would increase from 15 percent in 2007 and stabilize at about 20 percent in the long term. Both growth-related stress tests and no-reform scenarios, where the revenue GDP ratio remains unchanged imply a substantial worsening in all debt indicators. This underscores the importance of selecting and investing only in infrastructure projects with a high rate of return, undertaking structural reforms to set the stage for robust private sector growth and improving the revenue effort in order to reduce long-term aid dependence and attain debt sustainability.
42 Prepared by the IMF and World Bank staff in collaboration with the Rwandan authorities. 43 A country is considered at high risk of debt distress if the baseline scenario indicates a protracted breach of debt or debt-service thresholds, but the country does currently not face any payment difficulties. 44 The relevant thresholds are (i)40 percent NPV debt to GDP ratio; (ii)150 percent NF’V debt to export ratio; (iii)250 percent NPV debt to revenue; (iv) 30 percent debt service to revenue ratio; and (v) 20 percent debt service to exports.
48 5. Reforms are already underway to reduce the cost of doing business, deepen the financial sector and undertake key infrastructure investments. Rwanda is also developing an energy sector strategy to systematically address its energy constraints in a sustainable manner. In addition, government is elaborating a strategy to develop vocational education and training, and ensure that the education system is producing the types of graduates that are most needed for employment and growth. These efforts, together with measures to promote exports, should not only raise overall growth, but also help improve the business and investment climate, and facilitate a strengthening and diversification of the export base. At the same time, the authorities are committed to reforms to improve expenditure and debt management and raise the revenue-to-GDP ratio for an eventual exit from donor flows.
49 Figure 1. Rwanda: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007-2027
Debt Accumulation NPV of debt-to-GDP ratio 3 45 Threshold
40 I I I I I I I I I I I I 3 35 - Most extreme shock 2 30 - 25 - 2 20 -
1 15 - IO - 1 5- 0 04 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027
NPV of debt-to-exports ratio NPV of debt-to-revenue ratio 300 300 I Threshold 250 250-- I I I I I I I I I I m
200 200 - Most extreme shock Baseline. Threshold 150
100
Historical scenario 50
0 04 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027
Debt-service-to-exportsratio Debt-service-to-revenue ratio 25 35 , Threshold Threshold 301- I - I I - - I I I I I 201- I I I I .. I I - I I I 25 -
20 - l51 Most extreme shock 15 -
lo- Most extreme shock
5-
04 I 01 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027 Source: Staff projections and simulations.
50
Table 2. Rwanda: Sensitivity Analysis for Key Indicators of Public Debt 2007-2027
Projections 2007 2008 2009 2010 2011 2012 2017 2027
NPV olDcbl-to-CDP Ratio Baseline I5 16 16 16 I7 17 21 20
A. Alternative scenarior
AI. Real GDP growth and primary balance are at historical averages I5 I5 12 8 6 4 -6 -17 Az Revenue is unchanged from 2007 15 16 17 17 18 19 30 63 A3 Permanently lower GDP growth I/ I5 17 17 I8 20 22 38 98
B. Bound tests
81 Real GDP growth is at historical average minus one standard deviations in 2008-2009 15 17 18 19 20 21 30 41 82 Primary balance is at historical average minus one standard deviations in 2008-2009 I5 17 16 16 16 17 20 19 B3. Combination ofBI-B2 using one half standard deviation shocks I5 17 14 14 I5 16 20 20 84. One-time 30 percent real depreciation in 2008 I5 18 17 16 16 16 18 17 BS. IO percent ofGDP increase in other debt-creating flows in 2008 15 26 26 27 27 28 33 36
NPV of Debt-to-Revenue Ratio 21
Baseline 60 60 68 72 71 75 95 90
A. Alternative scenarior
AI Real GDP growth and primary balance are at historical averages 60 58 52 38 26 17 -30 -85 A2 Revenue is unchanged from 2007 60 60 71 77 79 87 147 339 A3 Permanently lower GDP growth I/ 60 61 71 79 82 91 163 406
B. Bound testa
BI Real GDP growth is at historical average minus one standard deviations in 2008-2009 60 62 74 82 84 91 132 I80 B2 Primary balance is at historical average minus one standard deviations in 2008-2009 60 65 67 71 70 73 92 85 B3 Combination ofBI-BZ using one half standard deviation shocks 60 62 60 64 64 68 89 88 B4. One-time 30 percent rtai depreciation in 2008 60 68 71 70 66 68 80 76 BS IOpercent of GDP increase in other debt-creating flows in 2008 60 97 111 117 116 122 I50 160
Debt Service-to-Revenue Ratio 21
Baseline 54544335
A. Alternative rcenarior
AI. Real GDP growth and primary balance are at historical averages 5 4 4 2 0 -2 -9 -14 A2 Revenue is unchanged from 2007 5 4 4 4 4 4 8 31 A3 Permanently lower GDP growth I1 5 4 4 4 4 4 9 39
B. Bound tests
BI. Real GDP growth is at historical average minus one standard deviations in 2008-2009 545445715 B2 Primary balance is at historical average minus one standard deviations in 2008-2009 54543334 83 Combination ofBI-B2 using one half standard deviation shocks 54432224 84. One-time 30 percent real depreciation in 2008 54443336 BS. IO percent ofGDP increase in other debwreating flows in 2008 5499991013
Sources Country authorities; and Fund staff estimates and projections. 11 Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of20 (i,e.. the length ofthe projection period). 2/ Revenues are defined inclusive ofgrants.
52 Annex 6: Rwanda’s Aid Environment and Donor Coordination4’
1. Rwanda receives support from about thirty (30) donors, the largest being the USA, World Bank, UK, EC, and the AfDB. Support is delivered through three main aid instruments: (a) general budget support (GBS); (b) sector budget support (SBS); and (c) project-based funding. An increasing level of aid is being channeled through general and sector budget support in line with the Government’s Aid Policy. Rwanda Aid Policy 2. The Rwanda Aid Policy (RAP), adopted by the Cabinet on July 26, 2006 and endorsed in a “Joint Donors’ Statement of Intent” on November 23, 2006 clarifies the Government’s objectives in terms of mobilization and management of Official Development Assistance (ODA). It seeks to improve the management of aid through better coordination and harmonization of ODA as called for by the Paris Declaration on Aid Effectiveness. The RAP identifies the six most urgent problems that limit efficiency and effectiveness of aid and weaken prospects for the scaling-up of aid over the short and medium term as:
0 Weak capacity and inability of the Government to “attract and retain highly qualified and skilled staff.”
0 Excessive and fragmented conditionality which “may result in problems of predictability in terms of the volume, quality, and timing of aid.”
0 High transaction costs because “donors continue to place significant demands on government in terms of time, reporting needs, and use of their other resources through numerous missions and meetings.”
0 Incomplete reporting of ODA, including that provided by NGOs, because of unwillingness or inability of donors to meet the government’s requests for information, but also possibly because of the Government’s tendency “in some areas to place unstructured demands on Development Partners (DPs) for information.”
0 Lack of alignment with government priorities and systems because of weak strategies in some sectors as a result of their low capacity in planning, leading to situations where “too frequently donors continue to promote their own, often political, objectives at the expense of government ownership. Much of assistance remains off plan and off budget;” large vertical funds sometimes create sector distortions; and technical assistance is “in some instances perceived to undermine local capacities rather than improving them.”
0 Low volume of external assistance on concessional terms when there is a need to maintain external debt sustainability, while at the same time undertaking in large investments to meet long- term (Vision 2020) objectives. 3. The RAP aims to address these urgent problems giving paramount importance to country ownership; preference for un-earmarked budget support but recognizes that all donors may not be able to provide their assistance under such modality (short of this, the Government “prefers sector budget support followed by stand alone projects, which in any event should be recorded on-budget and consistent with the national plan”); and a number of other measures. Key challenges to its implementation have included limited commitment by donors and capacity constraints. Trend in Aid Flows 4. Rwanda has had substantial scaling up of aid flows. In 2006, total ODA was US$602.7 million or 26.5 percent of GDP. Like much of Sub Saharan Africa, Rwanda is highly aid dependent. In line with the RAP, Development Partners are increasingly providing funds through budget support mechanisms. In
45 This Annex draws extensively from Baelhadj Merghoub and Jane. Kirby-ZakiApril 2008. Rwanda Country Consultation Report Linking Global Programs and other Aid Modalities to Country Strategies and Systems.
53 2006,26 percent of external grants in the form of budget support with an estimated increase to 30 percent in 2007. Currently, the World Bank and the United Kingdom are the largest budget support donors46 Increases in budget support are set to continue with more Development Partners committing to budget support, eager to meet the 2010 Paris Declaration on Aid Effectiveness targets related to the use of program-based approaches. 5. Rwanda also receives substantial funds for implementation of global programs, such as the Global Alliance for Vaccines and Immunization (GAVI), the Global Fund to fight Aids, Tuberculosis and Malaria, United States President’s Emergency Plan for AIDS Relief (PEPFAR), and the Education for all Fast Track Initiative (EFA-FTI). Smaller initiatives funded by private philanthropic actors like the Clinton Foundation, are also growing. Coordination Mechanisms 6. Key coordination groups, including the Development Partners Coordination Group (DPCG), the Budget Support Harmonization Group (BSHG), and Sector and cross-Sector Clusters have been formed for the Government and Development Partners to interact. These groups have been involved in preparatory consultations and joint monitoring of the two Poverty Reduction Strategies Rwanda has prepared to date. Table 1 below provides a summary of these coordination mechanisms. 7. With the completion of the EDPRS, new institutional arrangements have been put in place for monitoring implementation of the strategy. Eight new Implementation Working Groups (IWGs) reflecting the priority thematic areas of the EDPRS will serve as the forum to coordinate between sectors, and between government and development partners, to discuss policy issues and monitor implementation. Each IWG will comprise stakeholders from related sector groups. SWGs will continue to exist with their role of updating sector strategies in line with their logical frameworks and thereafter conduct annual Joint Sector Reviews. These will feed into the work of the respective IWGs. 8. Through establishing country-led development and enacting policies that promote alignment and harmonization of aid, Rwanda has made progress in ownership, harmonization and alignment of aid to the budget. Ownership has been strengthened through the country planning and developing its development strategy (PRSP and the EDPRS) and the Aid Policy which outlines its own principles for cooperation and planning, managing and monitoring aid. A Development Assistance Database (DAD) was established to serve as interface for data collection, analysis and dissemination of information pertaining to external finance. 9. Harmonization efforts have helped move assistance gradually, to GBS and SBS financing modalities and promoted SWAps in several sectors with Annual Sector Work Programs. It has also helped development of joint capacity building programs supported by special pooled funds. Alignment has been advanced under GBS and SBS financing modalities (42 percent of aid in 2005) through support provided for capacity building in critical areas of fiduciary, government effectiveness, etc. Significant challenges include; (i)diversifying sources and modalities of financing development in terms particularly of Rwanda’s ability to attract more donors to provide support through Program Based Approaches including GBS and SBS (66 percent by 2010), and increase the amount of ODA to be “on plan” and “on budget” (80 percent by 201 0; (ii)increasing the predictability of funding through front-loading disbursements under GBS and SBS; and (iii)avoiding a pluralist approach concerning determination of conditionality under the GBS. 10. Most of the persisting challenges that need to be addressed relate to “managing for results” Le. developing and implementing a streamlined monitoring and evaluation and audit system; and moving to mutual accountability with an independent evaluation system. Yet, even here efforts have been made through the recently concluded Common Performance Assessment Framework (CPAF) and the Donors’ Performance Assessment Framework (DPAF) -to be finalized in September 2008.
46 Budget support donors include: African Development Bank, Belgium, Germany, European Commission, Netherlands, Sweden, United Kingdom, and the World Bank. 54 Table 1: Rwanda’s Donor Coordination Mechanisms
Mechanism Frequency of Members Objectives Meetings Everytwo GOR Secretary Forum for dialogue in the Development Partner months. Generals. coordination of aid to Rwanda. Coordination Group (DPCG) AnnualDPCG Heads of bilateral Harmonization of donor Retreat. and multilateral programs, projects, and budget Co-chaired by the Secretary Annual donor agencies. support. General of MINECOFIN Development Civil society and Monitor and assist authorities in and the UNRCAJNDP Partners private sector the implementation of the Resident Representative Meeting. representatives. EDPRS. Foster alignment of partner’s interventions with Government sector strategic and action plans. Review progress made on Paris Declaration on Aid Effectiveness. Four times per Technical working Commitments under Partnership Budget Support year. group of the Framework for Harmonization and Harmonization Group DPCG. Alignment of Budget support: Macroeconomic stability and the establishment of an economic environment conducive to growth and employment generation. Comprehensive and effective public financial management. Strong policy formulation informed by M&E. Depending on Line ministries Formulation of mandates and Cluster and Sector Group. strategies for each cluster (cross- Working Groups4’ Government agencies cutting) and sector. Chaired by the Secretary MINECOFIN General of a line ministry Donors and co- chaired by a lead Other stakeholders donor invited at discretion of the chair. Aid Effectiveness
11. As noted above, such good practices are moving forward, but progress is uneven depending on planning and management capacities in government at central and at local levels. Donors are also slow in adapting their policies and procedures to the national system. The policies and procedures governing implementation of programs and projects financed under GBS, SBS or project support are not always consistent. Seemingly and paradoxically, financing, procurement and audit arrangements acceptable to some donors under GBS may not be so for their financing under sector or project approaches. This difference of policy treatment between financing modalities is explainable by perceived or real fiduciary risks incurred by dealing with different partner ministries, agencies or others at the national and local levels.
41 The EDPRS mentions 12 Cluster Working Groups with 21 Sub-cluster or Sector Working Groups. 55 Monitoring of the Paris Declaration 12. Rwanda participates in the OECD DAC exercise on Monitoring the Paris Declaration. The OECD DAC in its survey on Monitoring the Paris Declaration stated that the Rwandan government and its donors are ushering the aid effectiveness agenda forward, although there is still some way to go to meeting the Paris Declaration targets for 2010. The implementation of the Rwanda Aid Policy continues to provide a focus for these efforts. Key challenges and priority actions are summarized below.
Table 2: Rwanda Status on Paris Indicators DIMENSION 2007 CHALLENGES PRIORITY ACTIONS Ownership Strong Capacity constraints at local Strengthen links and plans at level local level
Alignment Moderate Limited used of national Step up donor use of public systems, low reporting of aid in financial management systems; budget improve data on aid commitments and disbursement
Harmonization Moderate Reliance on stand-alone project Develop sector-wide approaches aid in most sectors in all sectors
Managing for Moderate Capacity constraints in some line Implement new national Results ministries monitoring and evaluation framework
Mutual Low-Moderate Lack of formal mutual Finalize mutual accountability Accountability accountability mechanism mechanism focused on Rwandan priorities
56 Annex 7: Mapping of Rwanda's Development Partners
Table 1: Multilateral Organizations
Lead Donor Active/Silent Partner
48 Lead Donor/Co-chair rotates bi-annually. 57 Annex 8: Summary Findings from Independent Evaluations
1. Independent Evaluation Group (IEG) conducted a Country Assistance Evaluation (CAE) in 2004. Key recommendations include that future IDA assistance focus on reducing poverty and inequality, using the Millennium Development Goals as an organizing framework. This implies a greater focus on increasing agricultural productivity, diversifying production, and transforming agricultural output into higher value-added products. In addition, improving the quality of education and human capital, reducing population growth, increasing exports as a percentage of GDP, and enhancing the enabling environment for private sector development were recommended as priority areas. Additionally, the CAE recommended that the focus of assistance to the utilities sector be on delivery of the most basic services to the population. Privatization, per se, should not prevail as an objective over reducing poverty and increasing access to fundamental services like water and electricity.
2. Although Rwanda was not explicitly classified as a low income country under stress, many ofthe recommendations for those countries are applicable. Increased analytical and advisory services are critical to help enhance development effectiveness. Drawing lessons from the experiences of other countries which underwent profound social and economic dislocation would be helpful to country teams. The review further recommends that project design be kept simple and adequate IDA resources be allocated to ensure close project supervision. It also stated that IDA should continue to closely coordinate its efforts with other donors, with the objective of becoming more selective in its interventions. IEG evaluations of ICRs carried out during this period indicate that the objectives of programs in a country with limited capacity should be realistically limited to what can be accomplished. Reform agendas needed to be kept simple, focused on priority areas, and consistent with country capacity.
3. The Quality Assurance Group (QAG) assessments of the portfolio recommended that the teams put greater effort into integration of environment in Bank supervision, and enhanced monitoring and evaluation of the impacts of Bank projects and programs. Task teams needed to carry out mid term reviews of projects, taking into account lessons learned, when preparing additional financing operations. Additionally, it recommended that when working in countries with weak implementation capacity, special attention needed to be paid to past portfolio implementation performance when designing new operations, so it could tailor project design to individual country capacity, and ensure implementation capacity of units, and work to advance procurement documentation prior to Board approval.
58 Annex 9: Portfolio Fiduciary Management
1. Fiduciary performance of the portfolio has overall been satisfactory. Post Procurement and Independent Procurement Reviews conducted in FY 07 and FYO8 respectively, rated portfolio procurement processes as being overall satisfactory during the last two years. Procurement processes were judged to be transparent with more information available, quality of procurement documents was found to be good, and a number of procurement staff have been recruited. The assessment noted the significant improvements made since the previous Post Procurement ReviewIIndependent Procurement Review conducted in October 2005.49 Due to this relatively good performance, prior review thresholds were raised (particularly) for new projects. For RSSP 11, thresholds were raised from US$200,000 to US$5 million, and from US$l50,000 to US$500,000 for works and goods respectively, and thresholds were doubled for the ongoing Urban Infrastructure and City Management project, Transport Sector Development project and the East Africa Trade and Transport Facilitation project. Procurement management challenges on the portfolio include managerial and technical issues at different levels, lack of procurement staff in one project, weak staff capacity, and generally result from weaknesses in some elements of the systems and processes rather than from deliberate efforts to misuse public resources
2. Audit reports have been largely received on time. In FY08, 2 audit reports (EFTI and E- Rwanda) were received late partly due to delays in the office of the Auditor General which carried out these audits and in the case of the EFTI, partly due as well to lack of clarity on how the audit would be carried out since the operation had been treated as a Specific Investment Operation rather than as Development Policy Lending Operation. Audits have generally not been qualified. A few audit reports have not met Bank standards and overall there is room to improve quality.
3. Fiduciary management of the portfolio is closely linked with the quality of broader public fiduciary management in Rwanda. Rwanda’s first Public Expenditure and Financial Accountability (PEFA) Assessment which was completed in 2007 gives a sense of where Rwanda stands on fiduciary management. The report shows that while in some areas the public financial management system perform strongly, in several other areas considerable strengthening is still needed. Rwanda scored better than comparable Southern and Western African countries and better than countries in the East African Community on several aspects.
4. The main areas of difficulty include (timely) accounting recording and reporting, and external scrutiny and audit. Reporting at decentralized levels, is particularly weak and a key area of risk as increasing resources are decentralized to district levels and lower down. The process of putting in place a fully functional integrated financial management system is ongoing and has not reached the stage where it can reliably support the achievement of critical PFM objectives. Other areas of remaining PFM weakness include: budget credibility; quality of sectoral planning and resource allocation decisions; comprehensiveness and transparency of budgets; management of emerging fiscal risks; budget execution controls, including payroll, accounting, recording as well as external scrutiny and audit.
5. As regards procurement, the government has adopted a number of measures to address the fiduciary risks to the portfolio and to broader public sector fiduciary management. Rwanda has been implementing PFM reforms since 2003. Key institutions for PFM including the Office of the Accountant General, the Office of the Chief Internal Auditor, have been set up. An Organic Budget Law (OBL) and accompanying financial instructions have been adopted and an MTEF is being implemented.
~
49 Misprocurement was declared in two projects -Human Resource Development Project (US$2,029,261) and Competitiveness and Enterprise Development Project (US$ 120,045) - in 2005. The misprocurements related to slicing of contracts to avoid IDA prior review, failure to issue tenders through ICB, wrong shopping procedures and single source selection criteria. In both circumstances, the Bank cancelled the amounts.
59 The Treasury Management Committee has been created and the first set of consolidated financial statements for the public sector was prepared for the year 2006 while those for the year 2007 are awaiting audit. Significant results have also been achieved in procurement performance: (i) a sound legal and regulatory framework has been put in place; (ii) standard bidding documents have been adopted; (iii) institutions and processes4omplying with international standards-have been adopted; and (iv) the Rwanda Public Procurement Authority (RPPA) to regulate and oversee public procurement has been established. A detailed capacity building plan has been prepared and is being implemented through the School of Finance and Banking in collaboration with external training institutions. But more challenges remain to be addressed including adequately funding and staffing the RPPA to become fully operational, training a critical mass of public sector staff in procurement procedures, preparing procurement manuals for contracting entities and widely disseminating the provisions ofthe procurement law and regulations to the public. A Code of Ethics for participants and provision for disclosure for those in decision making positions is also being prepared.
6. The Government is about to complete a comprehensive PFM reform strategy based on the findings of the PEFA and other studies in close consultation with development partners. The recommendations of the recently completed Report on the Observance of Standards and Codes (ROSC) Accounting and Auditing also suggested that Government focus on a few key areas including developing the Institute of Certified Public Accountants of Rwanda under a twinning arrangement with a developed professional body; support curriculum reform, training of trainers; delivery of training programs on IFRS and ISA; and preparation and dissemination of learning materials on IFRS and JSA. The PFM reform strategy will provide a basis for World Bank support to the core elements of PFM strengthening in the CAS period. Support for implementation of the recommendations of the ROSC are being taken forward in the context of the PSCBP, the Multidonor Trust Fund for PFM reform and the support to the financial sector.
7. Rwanda has been selected as a potential pilot country for the use of the national procurement system. The essence of use of Country system is that instead of using the Bank's guidelines and safeguards, the country's own system would be used when it is judged to be able to deliver the equivalent results to the use of the Bank's system. In Rwanda's case a good part of legislative and regulatory framework is already in place, but more needs to be done to deepen reforms. A World Bank mission reassessed the OECD/DAC benchmark assessment done in 2007, 56% of the foundations of the system are now in place, compared to 41% found earlier in 2007. During the next mission (planned for Sept OS) a series of compliance and performance indicators (17) have been proposed. The assessment will cover the period June 07-March OS.
8. Successful implementation of the Rwanda Country Pilot for use of national procurement systems will be a key objective during the CAS period. The approach will have the following elements: (i)increase support for implementation of ongoing reforms in order to address remaining sources of risk; (ii)support the implementation of the procurement capacity building program; (iii)regularly assess progress; and (iv) seize early opportunities to scale up where appropriate.
60 Annex 10: Main Recommendations from June 2008 Country Portfolio Performance Review (CPPR)
Theme Recommendations Implementation . CEPEX to accept project quarterly and annual reports in the same format as that provided Arrangements to the Bank. . Secretary Generals are the Accounting Officers and responsible for approvals Increasingly streamline PIUs into line ministries. . PIUs should use their budgets to train staff in appropriate areas in addition to recruiting people with the requisite skills on the outset. . Project teams (particularly Coordinators) to ensure that their teams andor beneficiaries are fully aware of all information needed before submission of requests for no objections to avoid delays in disbursements. CEPEX to continue advocating better pay and facilitation to avoid high staff turnover.
Procurement Organize sectors by key actors : Government, Donors , Private sector, civil society; avail sector action plans; consolidate beneficiaries action plan; avail 12 months consolidated procurement plan. 1 Procurement budget should be accompanied by procurement plan Disseminate new Procurement law and standard bidding documents to stakeholders. Coordinate training efforts by PIUs and finance training for some beneficiaries.
. Organize consultations with stakeholders about MIS application/ design. results . Carry out a quick needs assessment of specific capacity building needs to customize the capacity building plan. . Include in depth analysis of M&E issues in the Aide Memoire. . Involve, more actively, the M&E officers of the projects in supervision missions. Make closer follow up of the M&E recommendations ofthe supervision mission Aide Memoires.
Financial . Establishment of ceilings for PIUs over which Line Ministry has to take action. Management . Entry level of projects to ministries for any approvals should be the Secretary General. . To provide technical guidance on managing single treasury accounts (CEPEX). 1 Harmonization of the reporting format with stakeholders, basically donors. Projects to readily share funds flow statements with MINECOFIN to ease monitoring of budget execution for externally financed projects. I. Use government budget templates provided by MINECOFIN for budget reporting
61 Annex 11: FY03-08 CAS Completion Report
Date of CAS: November 21,2002 Date of ISN: August 16,2006 Period Covered by CAS Completion Report: FY03-08 CAS Completion Report Prepared by: Alema Siddiky and Rema N. Balasundaram
I.Introduction
1. This report presents an assessment of the Country Assistance Strategy (CAS) for the Republic of Rwanda for FY03-05 and the Interim Strategy Note (ISN) for FY06-08. Therefore, this CAS Completion Report (CAS CR) and any reference to the “CAS period” cover FY03-08.
2. The purpose of this report is to assess the Bank’s contribution to key development results in Rwanda and to present a set of lessons for future Bank assistance. Specifically, this CASCR: (i) presents Rwanda’s long term development goals and highlights the country’s progress toward those goals; (ii)evaluates the Bank’s contribution to country goals by achieving CAS outcome; (iii)highlights the performance of the Bank’s portfolio during CAS implementation; and (iv) draws lessons for the new CAS. The report is based on various reference document^'^ and discussions with the Country Team. Furthermore, it draws from Independent Evaluation Group (IEG) and Quality Assurance Group (QAG) evaluations of Bank performance.
3. Overall progress during the CAS period (FYO3-08) is rated satisfactory. This overall rating is based on the sub-ratings for each CAS theme (see section IV for detailed explanation for each rating): Revitalization ofthe rural economy (moderately satisfactory). Private sector development and employment creation (satisfactory). Human and social development (satisfactory). 0 Public financial management and governance (moderately satisfactory).
11. Rwanda’s Long Term Development Goals
4. The Government of Rwanda’s (GoR) overall long-term development goals are outlined in its Vision 2020.5’ Vision 2020 is aligned with the Millennium Development Goals (MDGs) and serves as a basis for GoR’s policies, strategies, and actions aimed at fighting poverty. It sets out the country’s long term development strategy and articulates ambitious targets by 2020 for increasing GDP per capita to US$900 (from US$230); reducing the number of poor people to 25 percent of the population (from 60 percent); increasing life expectancy to 65 years (from 49 years) and increasing literacy to 90 percent of the population (from 48 percent). In 2006, the Government prepared the Vision-2020 Umurenge Program (VUP), a pro-poor growth and export strategy which targets poverty reducing interventions at the grassroots levels.
5. Rwanda’s first Poverty Reduction Strategy Paper (PRSP) provided the medium-term (2002-2006) operational framework for poverty reduction and growth. The PRSP was endorsed by the Board of the Bank and the Fund on August 12, 2002. The PRSP identified the private sector as the main engine of growth, with the transformation of agriculture and the rural economy as the leading sources of growth. The PRSP identified six priority action areas: (i)rural development and agriculture transformation; (ii)human development; (iii)economic infrastructure; (iv) good governance; (v) private
Project Appraisal Documents, Implementation Status and Results Reports, Supervision reports (Aide Memoires, Back to Office Reports), ESW, etc. 5’ Vision 2020 was prepared in 2000.
62 sector development, and (vi) institutional capacity building. The Government has recently completed its second PRSP, now called the Economic Development and Poverty Reduction Strategy (EDPRS). The EDPRS refocuses Rwanda’s priority on growth and human development with an emphasis on decentralization and greater role for the private sector.
6. Annual PRSP Progress Reports (APRs) were prepared by the Government in 2003, 2004, 2005, and 2006. The APRs documented progress towards achieving the PRSP objectives particularly in terms of establishing the required institutional and legal frameworks, e.g., trade liberalization, privatization, public financial management and decentralization of government functions. The Joint Staff Advisory Notes (JSANs) by the Bank and the IMF commended the Government on the overall progress in implementing PRSP priorities and rated progress as satisfactory.
7. Rwanda has been able to maintain macroeconomic stability and the growth rate averaged 5.1 percent during 2002-06.52 This growth rate, however, remained below the PRSP target of 6.5 percent. The average per capita growth rate has been low at 3 percent during 2002-2006, due to high population growth, and low and variable growth in the agriculture and manufacturing sector. The agriculture sector grew at an average of 4.6 percent (lower than the targeted 5.3 percent). The average annual inflation rate increased from 2 percent in 2002 to 9.4 percent in 2007, due to high food and energy prices arising from low food availability and energy shortages.
8. There was no substantial reduction in poverty over the last few years. Total income poverty declined only marginally from 60.4 percent to 56.9 percent. Rural poverty declined from 66 to 62 percent, and poverty in Kigali and other urban areas declined by 3 and 5 percent, respectively. Poverty in Kigali now stands at 20 percent. Major causes of poverty and inequality are the low level of agriculture productivity (lack of land, poor soil condition, and unfavorable weather conditions), high population growth and limited progress in production for the market. Lack of proper use of modern agriculture input also slowed down productivity and kept yields significantly below their potential.
111. CAS Strategic Objectives
9. The FY03-06 CAS and the FY06-08 ISN were aligned with the priorities outlined in the Government’s PRSP. The CAS focused on four broad themes: i)revitalization of agriculture and the rural economy; ii) private sector development and employment creation; iii) human and social development; and iv) improvement in the effectiveness of public actions and governance. The strategic elements of the ISN focused on: i) strengthening the drivers of growth; ii) enhancing health, education and social protection; and iii) state building and governance. For the purpose of this CAS CR, it is necessary to consolidate the CAS and ISN into one assessment framework and four CAS thematic areas (see Table 1).
10. Neither the CAS nor the ISN were “results-based”. However, the CAS included 25 CAS monitoring indicators and was aligned with the PRSP Policy Matrix. Based on these CAS indicators, as well as the monitoring frameworks that were established under the series of PRSGs, a set of CAS outcomes have been derived for the purpose of this report. This “retrofitted” CAS results framework is included in Annex 1 and progress made in terms of achieving these CAS outcomes are described below.
52 The growth rates for 2007 & 2008 are estimated at 6 percent.
63 Table 1: CASCR Evaluation Frame ork FY03 CAS Themellndicators FY 06 ISN Themellndicators FY 08 CAS Evaluation Framework Theme 1: Revitalization of Agriculture and Strengthening the Drivers of 1. Revitalization of the rural economy Rural Economy Growth Outcome I,1 : Agriculture productivity and Growth of agriculture value added Growth of agriculture value rural income raised. Adoption of the Land Law added. Privatizationof tea & coffee processing plants Percent of asphalted road network Outcome 1.2: Rural Social and Economic Proportion of rural and urban household with in good condition Services Improved. access to clean water Theme 2:Private Sector Development and Strengthening the Drivers of 2. Private sector development & Employment Creation Growth employment creation Divestiture of the government holding in the Private investment as a share of Outcome 2.1: Efficiency of financial banking sector GDP institutions improved. Ratio of Non-performing loans to total loans in Domestic credit to private sector the banking system. (% of GDP) Outcome 2.2: Environment for the private Privatizationof the telephone system and the Financial deepening (M2/GDP) sector improved and competitiveness private management of the Total trade as a share of GDP enhanced. electricity/water/utility Exports as a share of GDP Privatization of tea factories Outcome 2.3: Key state enterprise reformed. Energy sector strategy developed Outcome 2.4: Efficiency of infrastructure and implemented services improved. Theme 3: Human and Social Development Enhancing Health, Education and 3. Human and social development Rate of HIV/AIDS infection Social Protection Outcome 3.1 : Expand education access and Adoption of a strategy for Education for All and Primary school gross enrollment improve quality use of SWAP Primary school net enrollment Net primary school enrollment Primary completion rate Outcome 3.2: Performance of the health Transition rate to secondary education Ratio of girls to boys in primary care system and services improved. Female enrolled in tertiary education (YO) school. Infant mortality rate (per 1000 births) Pupil-teacher ratio in primary Outcome 3.3: Strengthen prevention and treatment of HIV/AIDs among vulnerable Maternal mortality (per 1000 births) education groups. Contraceptive prevalence rate Transition rate to secondary education Access of the poor to health Outcome 3.4: Ex-combatants demobilized Adopt strategy for Education for and successfully reintegrated into civil all and use SWAP society. DPT3 coverage of children Infant mortality rate (per 1,000 births) Contraceptive prevalence rate Use of bed nets. Use of assisted deliveries Enrollment in mutelles Prevalence of HIV Population with access to improved water source Theme 4: Improvement in the effectiveness of Capable States and Governance 4. Improving public financial the public actions and governance Improve PEFA indicators management and economic governance Adoption of the Organic Budget Law and the Improve capacity to plan and Outcome 4.1: Public Finance and Procurement Code implement policies and programs. Expenditure Management Strengthened. Adoption of and progress in the implementation Procurement, public financial of the Plan to improve financial accountability management and accountability Outcome 4.2: Transparency, Efficiency and Preparations of regular account of government Accountability of Public Sector Improved. financial operations.
IV. CAS Outcomes
CAS Theme 1: Revitalization of the Rural Economy
11. The Bank supported Rwanda’s effort to renew the rural economy with a focus on implementing measures to improve agriculture productivity, and to improve access to infrastructure and basic rural economic and social services. Table 2 summarizes the progress in key indicators.
64 Key CAS Monitoring Indicators FY03-08 Progress Growth of Agriculture Value Added. Agriculture value added (in YOof GDP) declined from 8.3% (2002) to 4.5% (2007). Adoption of the Land Law. Achieved in 2005. Proportion of rural and urban household with Increased from 48% (2003) to 71% (2007). access to clean water. Percent of asphalted road in good condition. Increased from 23% (2002) to 40% 2006.
12. Progress under the first CAS theme is rated as moderately satisfactory. Progress was made in terms of strengthening institutional, technical and legal frameworks for improvement in agriculture productivity and rural income. Achievements in increasing rural water supply and sanitation have been impressive. The Bank’s intervention has been relevant in improving the overall social and economic services in rural areas. Progress towards improving agriculture service delivery was initially slow, due to weak implementation capacity, but the Bank adjusted to this situation through strengthening institutional capacity.
13. Agriculture productivity and growth should continue to be the medium term focus of the future Bank’s strategy. Important measures include increasing the use ofinputs, like water management and harvesting, improving access to fertilizer, seeds and to rural micro finance. Rural farm and non-farm development should continue be a focus of the Bank’s support. Future operations need to focus on improving rural infrastructure.
Outcome 1.1: Agriculture Productivity and Rural Incomes raised
14. This CAS outcome focused on shifting from a subsistence-based to a market-oriented agricultural system by improving productivity, exports, agriculture service delivery and structural reforms to improve rural incomes.
15. Improvements to the institutional arrangements for the agricultural sector. The Bank through a series of Poverty Reduction Support CreditdGrants (PRSC/G I-III),Institutional Reform Credit (IRC) and the Rural Sector Support Project (RSSP I) supported the Government in undertaking key reforms and investments to improve management of the agricultural sector. In 2004, the Government formulated a National Agricultural Policy, which was operationalized in 2005 with the launching of the Strategic Plan for Agricultural Transformation (PSTA). In addition to the PSTA, the Rwanda Agriculture Development Authority and the Rwanda Animal and Resources Development Authority were created. A sector MTEF for agriculture was developed in 2005, and aligned with the sector strategic plan and its outcomes. Since 2006, there have been earmarked transfers to districts for sector priorities such as extension services, erosion control, rural infrastructure, hillside irrigation and food security. On the producer level, the RSSP 1 strengthened institutional arrangements by providing training to over 5,000 farmers associations.
16. Key marshlands and hillsides rehabilitated or developed and extension services provided to farmers. Under the first phase ofthe RsSP~’~ more than 3,018 ha ofmarshlands have been rehabilitated and developed for irrigation and 10,089 ha of surrounding hillsides have been rehabilitated or protected to prevent land degradation and soil erosion. Improved cropping technologies have been provided and beneficiaries trained and encouraged to plant, manage and monitor seedlings. As a result, there’s been an increase in rice yield of over 100 percent (moving from 3MT/ha to 6.1 MT/ha). These investments in
53 The RSSP I APL (Adaptable Program Loan) series is seeking to raise the productivity and expand the employment of resources that the rural poor own or depend on by providing the required technology, infrastructure, support services, and institutional capacity.
65 combination with the institutional support of producer organizations and training of 5,000 lead farmers has laid the ground for productivity-raising interventions in subsequent phases (RSSP2).’’ The program initially lacked adequate implementation capacity in the project unit and procurement capacities and suffered from an overly ambitious, dense and complex project design. However, following a project restructuring in 2005, the project outcome started to improve.
17. The Bank’s Agriculture Policy Note and the Country Economic Memorandum (CEM) contributed to policy reforms by identifying key constraints to agriculture productivity and growth. The CEM highlighted the need for an increase in agriculture productivity as a pre-requisite for meeting the growth target in the EDPRS over the medium-term. Recommendations from both studies have also formed the basis for RSSP2 and shaped the policy dialogue under the PRSC/G series.
18. Adoption of a Land Law guaranteeing tenurial security. The acute scarcity of land is by far the most critical constraint facing rural households in Rwanda. The Bank’s Institutional Reform Credit (IRC) supported a land policy and law guaranteeing tenurial security and potentially permitting the development of a land market. The new land law also enables women’s land inheritance, ownership rights and resulted in an improved use of land.
Outcome 1.2: Rural Social and Economic Services Improved
19. This outcome focused on improving rural infrastructure services particularly in water and sanitation, and access to rural markets and services.
20. Improved water supply and sanitation services in rural areas. Achievements under the RuraZ Water Supply and Sanitation (RWSS) Project have been impressive: i) 408,000 people in 16 rural communities; and ii) about, 65,000 school children in 105 schools gained access to improved water supply and sanitation services. At the national level about 600,000 people gained access to potable water (compared with only 60,000 in 2002) and water consumption increased from 5 liters per day in 2001 to 10.7 liters per day in 2008. The PRSC/G series supported the Government’s overall reform program in the sector, specifically the highly successful public-private partnerships (PPP) of rural water services on the decentralized level. PPP currently manage over 25 percent of the rural water supply and sanitation systems are managed compared to 1 percent 2004. Overall, access to water increased from 44 percent in 2003 to 71 percent in 2007 setting Rwanda on the path to meet the water MDG.
2 1. Improved access to market and social services. RSSP I supported the construction of 22 rural markets, 12 km of feeder roads, 19 small bridges, 52 stores, 9 milk collection centers and 20 grain drying floors. In addition, 3 agriculture research centers and 3 farmers’ service centers have been completed. District schools, health centers, bridges, and local roads were rehabilitated as part of 141 sub projects facilitated through the Decentralization and Community Development Project (DCDP). A total 14 districts benefited from this project, which supported implementation of Government’s “one cow per family” policy. DCDP provided over 440 cows to different provinces (based on poverty levels), constructed shelters and initiated a parallel program of soil erosion control.
CAS Theme 2: Private Sector Development & Employment Creation
22. During the CAS period the Bank supported Rwanda’s policy and institutional reforms in addition to investments in infrastructure to develop an efficient private sector that generates employment and enhanced productivity.
’‘ RSSP 2 is expected to be discussed at the Board on June 24.
66 Key CAS Monitoring Indicators FY03-OS Progress Divestiture of the government holding in the banking sector 3 commercial bank privatized Ratio of Non-performing loans to total loans in the banking Declined from 40% (2002) to 22% (2006) system Privatization ofthe telephone system (Rwandatel) and the Rwandatel privatized in 2005. The private management of electricity/water utility (Electrogaz). Government bought back and sold it again in 2007. Electrogaz was placed under management contract in 2003, which was terminated in 2006. Privatization of tea and coffee processing plants 4 tea factories have been sold. Exports as share of GDP Increased from 8.3% (2002) to 10.3% (2007) Private investment as a share of GDP Increased from 11.8% (2002) to 12.8% (2008) Total trade as a share of GDP Increased from 34.3% (2002) to 37% (2007)
23. Achievements under this theme are rated satisfactory. Rwanda made considerable progress in improving the financial sector and modernizing the legal and regulatory framework for commercial and financial transactions. In addition, the banking sector was privatized and regulation and supervision was strengthened. A regulatory framework for microfinance was also created. Most of the policy measures for financial sector reform outlined in the CAS and PRSP were implemented.
24. The business environment improved and key enterprises were reformed, restructured or privatized. The privatization program is almost complete except for Rwandair, Banque de Kigali and few tea factories, which are expected to be privatized in the near future. In addition, a number of institutional and strategic reforms were developed in some sectors (e.g. coffee, tea etc.) to improve investment and export promotion. The exports in major traditional cash crop (tea, coffee) increased significantly but further export diversification is warranted. Main obstacles to further progress in this area include: lack of strategic focus, poor coordination among the Government sectors and lack of capacity to design and implement trade development program and reforms. The new CAS needs to focus on complementing key policy reforms with adequate investment in future Bank operations.
25. Progress has been made in improving short term electricity shortages, access to water in urban areas and improving information technology services. However, much remains to be done in terms of district and city management capacity and urban upgrading. It is too early in the implementation phase to measure overall impact of urban services through the Bank’s intervention. The Bank’s future strategy needs to focus on long term sustainability of infrastructure services particularly with respect to increased access to electricity.
Outcome 2.1: Efficiency of financial institutions improved
26. The objective of the above outcome is to strengthen the financial institutions in Rwanda and make them more efficient. Key milestones under this outcome included: divestiture of Government’s holdings in the banking sector and ratio of non-performing loans to total loans.
27. Performance of major financial institutions improved. The Bank provided support through the Institution Reform Credit (IRC) and Competitiveness and Enterprise Development Project (CEDP) to the strengthening ofthe banking sector. Progress in improving the financial sector is commendable: (i)the Banque Nationale du Rwanda (BNR) and Banque Commerciale du Rwanda (BCR) successfully implemented measures to reduce costs, recover defaulted loans and enhance efficiency; (ii)the rate of non-performing loans declined from 31 percent in 2003 to 22 percent in 2006; and (iii)BCR and the Banque Continentale Afiicaine au Rwanda (BACAR), were successfully privatized in 2005 and sold to foreign strategic investors, improving the soundness and competitiveness ofthe banking sector.
67 28. The performance of banks and the Union des Banques Populaires du Rwanda (UBPR) has improved. In 2002, BCR, BACAR and UBPR accumulated a combined loss amounting to about US$20 million. In 2006, the three banks became profitable with a combined profit (before tax) of about US$8 million. From 2002 to 2006, total loans from these three banks increased by 30 percent compared to 16 percent for other banks. During the same period, total assets increased by 28 percent compared to 19 percent for the other banks. UBPR, which represents a very significant portion of the microfinance sector, was recapitalized and restructured in 2003 through the Bank’s CEDP. UBPR is now profitable, and with some 500,000 members and assets of approximately US$80 million, the largest financial institution in Rwanda in terms of market penetration, and the third largest in terms of assets. Progress was also made toward the transformation ofUBPR into a commercial bank, which is expected to lead to greater access to financial services for a larger number ofUBPR account holders.
29. Institutional and Regulatory Framework Strengthened. The Bank also supported: i) strengthening of banking sector regulation; ii)creation of a regulatory framework for microfinance; and iii) establishing a new independent regulator for the insurance industry. A joint Bank-Fund Financial Sector Assessment Program (FSAP) was prepared during 2005 identifying a number of areas for reforms.55 and facilitated the preparation of the financial sector strategy to strengthen: i) microfinance intermediation, supervision and regulation; and ii) as well as the microfinance policy and regulatory framework. In addition, the Bank assisted the Government to obtain financing from the FIRST Initiative to develop a detailed Financial Sector Development Plan (FSDP), which was completed in May 2007 and has been endorsed by the Government and other stakeholders. In order to strengthen the capacity of financial institutions, a School of Finance and Banking was established. The implementation of theFSDP is now being supported by the CEDP.
Outcome 2.2: The environment for the private sector improved and competitiveness enhanced
30. This outcome concentrated on streamlining the business environment and improving exports in major cash crops to enhance investment
3 1. Investment Climate Improved. With support from the CEDP, PRSC/G I-111 and a Regional Trade Facilitation project, the Government made considerable progress in improving the business environment. Some major achievements are: (i)14 commercial laws were improved and harmonized; (ii) the Investment Code was revised to align with the Tax Code; (iii)four commercial courts have been created; and (iv) judicial procedures were simplified by streamlining appeals and imposing time limits speeding up contract enforcement. The resulting time and cost saved by businesses have been substantial and it has also led to more businesses using the court system. Progress has also been made in reducing the time required to establish a business and improving the overall legal framework and contract enforcement. Doing Business 2008 reported that it took 16 days to open a business in Rwanda down from 40 in 2003. To further improve this performance, the IFC investment climate reform advisory project recently started to provide technical assistance on business licenses/permits and trade regulations. The Investment Climate Assessment (ICA) in 2006 covered 340 firms and a range of industries. The preliminary findings and recommendations of the ICA regarding the perceived major business constraints (poor infrastructure, access to finance, taxation and business regulations) is being used to guide the new CAS and subsequent operations.
55 The FSAP recommendations included: i)enhancing the Central Bank of Rwanda’s (BNR) autonomy and supervisory powers; ii) upgrading accounting, auditing, credit information and payment systems; iii)strengthening the legal and regulatory framework for the non-bank financial sector; iv) developing more active money and foreign exchange markets; and v) modernizing the judicial framework.
68 32. Exports and investment promotion. The Bank supported strengthening of the Rwanda Investment and Export Promotion Agency (RJEPA) to assist potential investors and deliver required approvals, certificates and work permits for new investment projects. A time-bound and monitor-able Export Promotion Strategy and Action Plan were developed based on the result of the Diagnostic Trade Integration Study (DTIS). As follow-up to the study, an area close to Kigali Airport is currently being designated as an export processing zone. A law was passed in 2003 to define the role of OCIR-tea and OCIR-cafe (former commodity marketing boards for tea and coffee), to improve the capacity of small holders and facilitate their access to inputs. Overall, exports as a share of GDP increased from 8.3 percent to 10 percent between 2002 and 2007. Private investment as a share of GDP increased from 1 1.8 percent to 12.8 percent between 2002 and 2008.
33. Exports of the key commodities coffee and tea increased. The Bank supported implementation of the Fully Washed Coffee Strategy helped to increase the volume and production of fully washed coffee and the number of coffee washing stations increased from 11 in 2002 to 84 in 2006. As a result, coffee exports increased from US$15 million in 2003 to US$35.7 million in 2007. The average price paid to coffee producers increased from RwF60 per kilogram to RwFl 10 per kilogram during 2003-2005. Tea production increased steadily from 13 million kilograms in 2004 to 16.6 million kilograms in 2006 and receipts from tea exports increased from US$22 million in 2003 to US$32 million in 2007, despite slow progress experienced in the privatization of tea factories due to difficulties in attracting both foreign and domestic investors. The Bank assisted the Government to restructure the remaining tea factories. In addition, the Bank supported capacity building activities for farmers and tea cooperatives to empower them and enhance the quality oftea produced.
Outcome 2.3: Efficiency of infrastructure services (energy, urban, transport, water) improved
34. This outcome sought to improve the quality of energy (electricity, telecom) and water services, improving access to urban services by strengthening urban institutions and rehabilitating and maintaining major roads.
35. Reduced electricity supply shortages. The Bank responded to severe electricity supply shortages in 2004 (due to depleted hydroelectric reservoirs, lack of investment in new generation, a dilapidated network and sharp increase in demand) and supported implementation of Government’s emergency action plan through the Urgent Electricity and Rehabilitation Project (UER). The UER project initially experienced delays in the main generation investments as well as the rehabilitation of the electricity network. In addition, limited capacity created challenges in project implementation for which the Bank soon provided direct technical support. Furthermore, policy dialogue within the PRSG facilitated to provision ofextra funding to increase electricity generation capacity. The Government also responded quickly to initiate progress on Lake Kivu methane gas development. A 35MW power plant from Lake Kivu is being prepared with support from the Bank and IFC. The Bank is supporting the Government in arranging a Sector Wide Approach (SWAP) which will improve the electricity coverage from current 4.5 percent to 15-16 percent by 2012.
36. The performance of the utility companies improved. The PRSG/C dialogue also contributed to the establishment of the Rwanda Utilities Regulatory Agency (RURA) as a multi sectoral regulatory agency to oversee private investments in water, electricity and telecommunications. Although RURA is fully operational its capacity to function effectively and independently remains weak. The structure of telecommunications licenses was reformed in 2006 to increase competition and in September 2005 the state-owned operator Rwandatel was sold to a private investor. However, the Government was not satisfied with the low level of investment and poor performance ofthe company and decided to buy back the company in July 2007. The Government sold again 80 percent of the company to foreign investors
69 for US$lOO million (five times higher than the first privatization) in November 2007. The new investors are expected to bring additional investments ofmore than US$200 million.
37. Improvements in the electricity and water utility. In 2003, Electrogaz (electricity and water) was placed under a five year management contract to restructure the company prior to partial or full privatization. The Bank advised the Government to improve the efficiency of the company and to mitigate the 2004 power shortage. Tensions of dealing with the shortage eventually led to the Government terminating the management contract and transition to a Rwandan management team in 2006. Electrogaz has now embarked on critical reforms to improve its performance and has recently made some strides in its financial performance. The CEDP project helped purchase the equipment and software to improve EZectrogaz quality and services. The number of connections for water and electricity increased from 28,150 and 48,581 in 2001 to 47,276 and 86,537, respectively, in 2007.
38. Improved quality and access to urban services. The Bank’s primary support through the Urban Infiastructure and Development Project facilitated the improvement of infrastructure and urban services in Kigali and two secondary cities. Since the effectiveness of the project in June 2006, all priority city-wide and district level investment programs are under execution and ready to be handed over to the beneficiary local governments in Kigali and Ruhengeri (reaching about 150,000 people). Slum upgrading and low income land development areas pilot projects are being implemented but more slowly due to the novelty of the approach and weak capacity of local governments. The project aims to strengthen local authorities through training programs and to improve municipal and urban management. The PRSC/G series supported the Government’s adoption of a water policy and law, and developed guidelines for district level contracting of private water supply and sanitation operators. In addition, donor coordination and sector expenditures improved over the CAS period resulting in improving the effectiveness of strategy development and financing in this sector. The PRSG helped the Government to move from a project to a sector wide approach and from a centralized to a decentralized one with districts fully in charge. The Government successfully implemented district water supply projects directly financed from the national budget. This contributed to the increase in water access (from 48 percent in 2003 to 7 1 percent in 2007) mentioned above.
39. Progress has been made in Information Communication Technology (ICT). The Bank financed PRSG series, along with the Public Sector Capacity Building Project (PSCBP) and eRwanda project have helped implement Government’s National Information and Communication Infrastructure (NICI) plan. E-ICT has provided training to 994 people in various computer skills. In addition, through “computers in school initiatives” 1,138 laptop and 2000 computers have been deployed to primary and secondary school respectively. About 1,000 teachers have been trained in basic computer literacy and have been deployed to 120 primary schools. Furthermore, a number ofurban and rural schools including 40 schools in Kigali city now have internet access. In addition, the PSCBP provides training to civil servants and parliamentarians.
40. Improved access and reduced transport costs. The recent Transport Sector Development Project supports rehabilitation of key infrastructure, employment generation in rural areas, improving road maintenance, and restoring sector capacity. The project is still in an early phase, but already helped to set transport targets for the new EDPRS and address policy weaknesses that had been identified in Bank assessments. The DTIS notes that infrastructure costs (particularly transport costs) lower returns to farmers and pose a substantial constraint to trade and export. The policy dialogue through the PRSC/G series helped the Government to adopt a transport policy framework. The framework aligns transport objectives and processes with the macroeconomic agenda in addition to monitoring sector performance with regards to reduced transport costs and transit times.
70 CAS Theme 3: Human and Social Development
4 1. The Bank’s strategy focused on improving service delivery in education, health, HIV/AIDS and demobilization and reintegration ofex-combatants.
42. Progress under this theme is rated as satisfactory. In education, there has been significant progress toward the CAS outcome of improved access to education but quality remains a challenge and improvements in this area will require more time. The education system at primary level needs to be better aligned with future labor skills and a long term policy to professionalize teaching needs to be developed. This would include improving teacher qualifications and strengthening capitation grants with a focus on results.
43. Access to health care facilities and health management improved. Roll-out of health insurance schemes (mutuelles) and performance based contracting improved access to health services for the poorest. As a result, infant and under-five mortality rates declined substantially in the last few years, putting Rwanda on a path to potentially reach the MDG target. Despite this progress, challenges remain to reduce physical, geographic and financial barriers to accessing high quality services. The Bank needs to continue to work toward improving reduction in mortality and morbidity rates, and support the Government in sustaining and expanding affordable health care facilities. For the future strategy it would be beneficial to put into place better mechanisms to monitor the impact on the ground.
44. The Bank contributed significantly to improved prevention and treatment of HIV/AIDs. The Bank’s intervention successfully combined information about HIV/AIDS, reproductive health, and life skills with income generating activities. It helped to establish solidarity mechanisms bringing vulnerable people (mostly children and women) together and design their own solutions. The MAP project complements PRSC/G activities to create synergies between different instruments for most effective Bank support. The current HN prevalence rate of about 3 percent is unfortunately difficult to compare with earlier figures, but there is evidence that infections declined.
45. There’s been satisfactory progress in re-integrating and demobilizing ex-combatants. The Bank’s support contributed to consolidate peace in the Great Lakes region and foster reconciliation within Rwanda in the long term.
Outcome 3.1: Expand education access and improve quality
46. This outcome focused on expanding education access and services.
Key CAS Monitoring Indicators FY03-OS Progress Net primary school enrollment. Increased from 73.3% (2002) to 95% (2007). Transition rate to secondary education. Increased from 42% (2002) to 54% (2007). Female enrollment in tertiary education. Increased from 28% (2002) to 39% (2007). Pupil-teacher ratio in primary education. Increased from 58:l (2002) to 71:1% (2007). Primary completion rates. Increased from 29.6% (2002) to 52% (2007).
47. Access to basic education improved but quality remains an issue. Under the Human Resource Development Project (HRDP) and PRSC/G (I-111), the Bank provided technical and financial support for rehabilitation and construction of schools; training teachers and development of capitation grants for primary schools, creation of sector MTEF and provision ofDistrict Education Funds to promote access to the vulnerable segments of the population. Access and completion numbers improved (see Table 5), but the latter in addition to other quality indicators (e.g. transition rates to secondary education) still warrant
71 further efforts. in addition, the number of teachers did not increase in parallel with a rapid expansion in primary education enrollment. However, the proportion of qualified teachers increased from 63 to 87 percent between 2001 and 2006. Limitations the recruitment and training of new teachers is hampered by capacity constraints at national and local levels.
48. Improved education sector policy framework. The Bank supported the adoption of an Organic Education Law (2003) and an Education Sector Strategic Plan (ESSP), which delivered a number of significant policy changes. The introduction of free compulsory primary education has helped widen the access to education. Capitation grants (transfer per student) increased dramatically from RwF300 per student in 2004 to RwF 5,300 (about US$lO) per student in 2007. The provision of capitation grants directly to schools improved their purchasing power, which-combined with the decentralization of the recurrent budget from 41 percent in 2006 to 5 1 percent in 2007-facilitated community involvement and accountability in service delivery. The Government completed a Long Term Strategy and Financing Framework (LTSFF) for the next ten years (2006-2015), which donors endorsed. In 2006, Rwanda qualified for support under the Education for All-Fast Track Initiative (EFA-FTI).
49. The Bank prepared a Country Status Report for Education (CSR) to provide a better understanding of the education system in Rwanda. The report was used as an analytical background for the preparation of PRSG 1. The study also benefited Government and development partners as a useful tool in discussing Rwanda’s vision for the education sector and implementing government policies.
Outcome 3.2: Performance of the healthcare system and services improved
50. Bank support concentrated on enhancing the quality of health facilities (through a contractual approach)56and expansion ofdrug and rnutuelles insurance coverage.
Key CAS Monitoring Indicators FY03-OS Progress Utilization of insecticide treated nets. Increased from 4% (2005) to 70% (2007). Assisted deliveries at birth. Increased from 29% (2000) to 39% in (2005) to 52% (2008). Immunization Coverage. Increased from 83% (2001) to 98% (2007). Under-5 mortality (per 1,000 births). Decreased from 198 (2001) to 103 (2008). Infant mortality (per 1,000 births). Decreased from 107 (2001) to 86 (2005). Maternal mortality (per 100,000). Decreased fiom 810 (2001) to 750 (2005). Contraceptive prevalence rate. Increased from 7.9% (2000) to 27% (2008).
5 1. Health services improved through performance-based contracts. The Bank supported the health sector through its technical support and policy dialogue under the PRSUG series. The Bank also prepared an analytical report called Health and Poverty in Rwanda with recommendations that influenced the key reform measures taken under the PRSUG. The PRSC/G operations played a vital role in strengthening the overall health system in Rwanda through a performance-based contractual approach which was piloted in several districts in 2005 and scaled up nationally in 2006. This community health scheme transferred around US$0.50 per capita directly to municipalities to engage community institutions, NGOs, associations of health promoters, and private operators in the delivery of essential services. In 2006, the Government signed contracts with 30 municipalities and in 2007, the contractual approach was further expanded to all district hospitals. Community health insurance coverage increased from 7 percent ofthe population in 2000 to 75 percent in 2007.
56 Contractual health approaches are community health schemes with a focus on performance of service providers.
72 52. Increased affordability of health services. The PRSGs promoted reforms to strengthen the community health insurance system (mutuelles), which enables access to health services at affordable costs. MutuelIes have been piloted over the last five years and the coverage of their coverage increased from 27 percent of the population in 2004 to 70 percent in 2007. Government transferred funds to cover premiums for the poorest increased from US$l per capita in 2002 to US$8 in 2006. The Government is currently in the process of creating district pooled funds and fund for reinsurance.
Outcome 3.3: Strengthen prevention and treatment of HIV/AIDS among vulnerable groups
53. Bank support focused on strengthening the full range of preventive measures for people living with HIViAIDS and on improving capacities at all levels to manage a national response.
54. HIV/AIDS services and treatment expanded. The Bank supported Rwanda’s HIV/ALDS initiative through the HIV/!IDS Multi-Sector Project (MP), which led to the following results: (i) voluntary counseling and testing provided to about half a million people; (ii)12 million condoms distributed; (iii)5,000 patients placed on life saving anti-retroviral therapy; (iv) financial assistance for school fees provided to about 27,000 orphans and vulnerable children; (v) access to community health insurance schemes subsidized for over 52,000 households; and (vi) 100,000 individuals participated in income generating activities. The capacity to diagnose, treat and follow up on AIDS patients has been established at 12 district hospitals and a health center. The MAP program is currently being decentralized to an additional 18 health centers and additional financing of US$lO million was approved by the Board in February 8,2007.’’
55. The performance based contracting resulted in rapid expansion of HN services and stimulated innovations in service delivery (e.g., outreach activities to expand HN testing, promotion couple testing). The MAP project was reviewed by the Quality Assurance Group (QAG) which found the Bank’s performance fully satisfactory and commended the team for the speedy preparation and the high quality of the work. Strategic relevance, timeliness, policy and institutional aspects and implementation arrangements, and Bank inputs and processes were rated Highly Satisfactory. The QAG review also highlighted the need for more intensive supervision of the environmental aspects and for better documentation ofthe gender and social dimension of the project.
Outcome 3.4: Ex-combatants demobilized and successfully re-integrated into civil society.
56. The overall objective of this outcome is to demobilize ex-combatants and support their transition to civilian life, help them reintegrate socially and economically and facilitate the reallocation of government expenditures from security to social and economic sectors.
57. Ex-combatants demobilized and successfully re-integrated into civil society. Through the Rwanda Emergency Demobilization and Integration (RLIRP) project, the Bank supported reintegration of 20,039 former soldiers from the armed forces and 6,423 former militias (with the goal being 16,000) and support their transition to civilian life. The project beneficiaries have already started reintegrating into community networks, local economies, and social protection mechanisms.
57 The additional financing will fill an unanticipated financing gap and consolidate the gains from the initial investments, focusing on interventions with the most significant impact in HIV/AIDS prevention, treatment and care.
73 CAS Theme 4: Improving the effectiveness of public financial management and economic governance
5 8. The Bank strategy concentrated on improving economic governance and transparency, particularly through institutional and regulatory reforms to strengthen capacity in public financial management and procurement including at decentralized levels.
Key CAS Monitoring Indicators FY03-08 Progress Adoption ofthe Organic Budget Law and the Procurement Code. Submitted in 2005. Adoption of and progress in the implementation ofthe Plan to Procurement code submitted to parliament in improve financial accountability. 2006. Preparations ofregular account of government financial operations. Financial Sector Development Plan (FSDP) comdeted in 2007.
59. The progress under the CAS theme is rated as moderately satisfactory. Public financial and expenditure management in Rwanda improved during the last four years. Despite Rwanda’s weak institutional capacity the planned reforms envisaged under the CAS period have been implemented. In particular, the Bank supported operations helped to improve its budget planning and operations and strengthened the PFM system. Some accomplishments have been made in terms of improving service delivery in local government and bringing in results, capital improvement in rehabilitating schools, new health centers etc. Citizen’s voice and accountability was strengthened through adoption of citizen report cards and community score cards. However, progress in building capacities within public institutions has been slow. In future efforts are needed to improve coordination, building capacity among sectors, central and local governments to improve the overall PFM process.
Outcome 4.1: Public Finance and Expenditure Management Strengthened
60. This outcome focused on improving public finance and expenditure management through more transparent budget formulation, execution and reporting. It sought to strengthen the linkages between strategic planning, the Medium Term Expenditure Framework (MTEF) and the national budget.
61. An improved budget process. The PRSC/G series supported the 2006 Organic Budget law to support more accurate identification of capital investment and recurrent expenditures and better alignment of budget spending with policy priorities. A Joint Monitoring System was introduced in 2003 with a computerized financial software package. The system of zero balance account is operational and now all Government budget agencies are using zero balance sub accounts. All sector ministries and districts adopted MTEFS, which helped to improve budget predictability, budget preparation, implementation and monitoring. Except for the district level, where MTEF’s are not yet aligned with available resources. The 2003 PER highlighted the problem of late expenditure release and pointed to difficulties in budget preparation.
0 62. Public Financial Management Reform Agenda Implemented. The Bank supported implementation of the the public financial management reform agenda through the Institutional Reform Credit (IRC), the PRSC/G series and the Public Sector Capacity Building Project (PSCBP) and important analytical work such as the Public Expenditure Review. This agenda includes a range of interventions including (i)the adoption of the Organic Budget Law (2006); (ii) the appointment of the Government Chief Internal Auditor and Accountant General; (iii)adoption of the SMARTGOV budget system; and (iv) establishment of the Treasury Management Committee. Despite implementing key reforms in the PFM area capacity in public accounting remained a key challenge during the CAS period. Rwanda continues to experience a shortage of qualified professionals to meet the needs in public financial
74 management and procurement. The Bank along with other donors repeatedly highlights the need to strengthen Government’s leadership and coordination in PFM reforms in order to accelerate implementation of PFM reforms. To provide additional support to the reform program, the development partners established a Multi Donor Trust Fund for PFM Reform. A Public Expenditure and Financial Accountability Assessment (PEFA) was carried out and the GoR will use its findings to update the PFM action plan.
63. Procurement reform agenda implemented, albeit with some delays. The PRSG series supported reforms in the procurement system and the Country Procurement Issue Paper identified the weaknesses in the procurement system and prepared an action plan for the Government. A new procurement code was introduced in 2005 and a new National Tender Board (NTB) introduced the principles of good practice in the public procurement system. However, in general implementation of procurement reforms have been slow. This has been attributed to a lack of strong leadership of the procurement reform agenda, the lack of coordination of all ministries in charge of implementation, and the absence of a comprehensive action plan. PSCBP provided local and international experts to work to improve the procurement code, which was gazetted in April 2007.
64. Training provided to professionals in PFM and Procurement. The Government, in close collaboration with the Bank and DfID prepared and adopted an action plan to improve financial accountability based on the Financial Accountability Review and Action Plan (FARAP) in 2003 which identified lack of human resource capacity in accounting and auditing as a major constraint. Through the PSCBP a Multi-Donor Trust Fund was established to provide technical assistance and skills building in line with the PFM action plan. The PSCBP provided training on drugs and health supplies and supported preparation of a long term procurement strategy and action plan.
Outcome 4.2: Transparency, Efficiency and Accountability of the Public Sector Improved
65. This outcome focused on strengthening the capacity of the public sector in a transparent, accountable and efficient way, and enhancement of citizens’ voice to provide good governance and service provision.
66. Improved accountability towards citizens. Government institutions were strengthened after successful adoption of a new constitution in 2003. The judiciary was separated from the executive and legislative and the Office of the Prosecutor General and Office of Ombudsman were created. The PRSC/G series supported citizens report and community score cards (CSCs) for education and health in 2006 aimed at: (i)improving the dialogue between frontline service providers and users; (ii) promoting individuals and communities ownership of evaluation outcomes; and (iii) and broadening citizen understanding of policies, strategies and implementation processes.
67. Public sector reforms implemented. The Public Sector Capacity Building Project (PSCBP) focused on improving the efficiency, transparency and accountability ofthe public sector. Initial progress was slow, but key activities picked up during FY07. The Human Resource and Institutional Capacity Development Agency (HIDA) was established as a coordinating agency in November 2004 and a Multi- Sector Capacity Building Program was launched in October 2005. HIDA has now recruited qualified staff and is fully operational. Implementation of public sector reforms has progressed with a functional review of six core ministries and a comparative pay study. The Bank provided support to sector ministries but progress has been slow due to lack of overall strategic engagement by ministries. The project further facilitated skills audit of public, private and civil societies which will culminate in the development of a national skills development policy. The coordination mechanism of public sector reforms remains weak and the Bank through its policy dialogue encouraged the Government to improve the functioning coordination mechanism across government,
75 68. Service delivery decentralized from central ministries to district and sector level. The Bank supported Decentralization and Community Development Project (DCDP) facilitated the capacity development of local governments. The project tripled its geographic coverage since effectiveness and established a Sector Wide Approach (SWAP) for decentralization. When the Territorial Reform Program in early 2006 consolidated Rwanda’s districts from 106 to 30, it played a key role in financing orientation programs in all 30 district offices. All districts have created five-year development plans and 100 percent of the participating districts have completed training in basic financial management, procurement and M&E. Rwanda’s service delivery has been decentralized and the size of the central administration has been reduced from 2,000 staff to 500 in 2006. The Bank has been successful in strengthening, empowering and improving accountability of local governments to communities through community development initiative and income generating activities for the poor.
V. Bank Performance
69. The CAS was implemented under the base case scenario in the range of US$250-$317 million, including about US$lOO million in IDA grants. During FY03-06, 8 out of 7 operations planned under the base case scenarios were delivered. The second phase of Rural Sector Support Project (RSSP Il) was not delivered as planned instead the Urgent Electricity and Rehabilitation Project (US25 million) was approved. In addition, under the ISN strategy, four more projects were delivered during FY07 with a total amount of US$71 million.
70. The Bank successfully shifted its choice of instruments during the CAS period toward increased budget support. The Bank has responded flexibly in assisting the Government’s development needs and moved increasingly towards budget support. As discussed above, the implementation of the PRSC/G series has been successful with achievements far exceeding expectations. Bank internally it succeeded in creating an effective multi-sector team and externally it built foundations for increased donor harmonization and strengthened cross-sectoral linkages. In addition, investment lending through demand-driven projects like the Rural Sector Support Project (RTSP), and the Rural Water Supply and Sanitation Project (RWSP) played an important role especially with respect to capacity constraints at the local level. The Bank also showed flexibility and the in case of the Urgent Electricity and Power Project facilitated Board approval within only six months to successfully address the emergency power shortage situation.
71. The Bank has delivered more analytical work than planned initially but dissemination has been limited. Annex 2 shows the broad range of AAA undertaken by the Bank. This increase in AAA was consistent with the IEG CAE 2004 recommendations that called for more AAA to enhance development effectiveness. However, the Bank’s work was not always properly aligned with the operations or sequenced properly. For example, the Country Economic Memorandum (CEM) was only delivered towards the end and-as originally planned-at the beginning of the CAS period. The CEM was delayed due to various activities needed to support the move toward budget support. Furthermore, since many analytic products are informal to respond to shifting government needs, it is difficult to get an accurate evaluation of actual number of AAA and their impact. However, as the above assessment tried to show, the Bank’s analytical work is influential in framing policy dialogue in Rwanda. Going forward, analytical work should be utilized more effectively to broaden the development dialogue with government and development partners.
Quality of the Portfolio:
72. The overall implementation of the portfolio during the CAS period has been satisfactory (11 projects) with only one project (Public Sector Capacity Building) rated as moderately satisfactory.
76 Among the regional projects affecting Rwanda two projects have been rated as moderately satisfactory while one project has been rated as satisfactory. However, Rwanda’s portfolio performance58improved from 4 (out of 6) percent problems at risk in 2003 to 2.5 percent at risk in 2004. There was one problem project (Rural Sector Support Project) and one project at risk due to several flags (Emergency Demobilization and Reintegration Project).
73. Rwanda’s portfolio improved significantly. The portfolio quality was evaluated in December 2004 and since then considerable focus was given on implementation and improvement of the quality of the portfolio. Several components of the problem projects were re-designed, which led removal of several risk flags. Each project has a country record flag except e-Rwanda and Urgent Electricity and Rehabilitation (UER) project with currently two flags (effectiveness delay and M&E respectively). On the overall program, Rwanda’s portfolio has been stable during the CAS period in “realism, “pro-acti~ity~~ (both at 100 percent) and disbursement ratio (10.8 percent compared to 5.4 percent Africa average). This reflects accelerated implementation of projects especially at decentralized levels. The progress is due to an improved staffing strategy of PIUs, close monitoring from the government and the Bank team.
’able 7: Rwanda Portfolio Performance FY03-08 a/
# of Projects 9 10 10 11 12 12 Net Commitment Amount ($ mil) 296.8 311.8 276.1 291.8 315 334.6 Disbursement Ratio (%) 13.7 13.1 24.5 13.7 10.8 46.8 IDA Disbursement ($ mil) in FY 71.1 47.8 138 32.6 14.1 133.9 # ofProblem Project 0 2 1 1 0 0 % of Problem Project 0 22 10 9 0 0 % of Project at Risk 0 1 0 1 0 0 Commitment at Risk ($ mil) 0 68 48 35 0 0 % of commitment at risk 0 21.8 17.4 12 0 0 Pro-activity Index % 100 da 50 100 100 da Realism Index % 100 da 100 100 100 da
a/ Some of these ratios may be different from those reported in Annex 15 due to differences in database extrac time.
74. The Quality Assurance Group carried out five QEAs (quality at entry assessments) of projects in Rwanda.59The findings indicate that in the more recent projects between 2005 and 2007, exemplary collaboration between external donors, in the private sector led to good outcomes. Additionally, superior country knowledge of tasks teams and task managers for preparation and implementation of projects, excellent team work ofvarious Bank units, and strong borrower commitment, demand-driven design and donor coordination contributed to good results in the projects. The QAG panels recommended that the teams put more effort into integration of environment into Bank supervision, enhanced monitoring and evaluation of the impacts of Bank projects, taking into consideration of weak implementation capacity when designing new operations, tailor project design to individual country capacity, ensure implementation units have minimum staff, and advance procurement documentation prior to Board approval.
58 Portfolio performance is based on the percent of projects in the portfolio considered “at risk”. 59 QAG carried out an assessment of the Rwanda National Water Resource Management Project, in its Dropped Lending Review 2008). The Rwanda project received a rating of MS in value for money, and an S rating for Quality of Process.
77 Table 8: QEA Reviews under CAS Period Date Assessment Overall Approved Date Rating QEA Rwanda Institutional Reform Credit 12/03/2002 07/01/2003 3 Rwanda Public Sector Capacity Building TAL (FY05) 07/08/2004 03/30/2005 2 3A-Telecommunications APL (FY07) 03/29/2007 08/21/2007 2 RW eRwanda TAL (FY07) 09/07/2006 06/22/2007 2 RW Multisector HIV/AIDS-Additional Fin. (FY07) 02/01/2007 0411 8/2007 2
75. The quality of procurement and capacity remained one of the major challenges for project implementation during the CAS period. This was due to: (i)lack of understanding of the Bank’s procurement process ; (ii)limited capacity of staff in charge of procurement; (iii) absence of general consensus that procurement is a necessary tool for successful project implementation; and (iv) weak commitment to improve the overall quality of procurement practices. A 2006 Country Portfolio Performance Review (CPPR) conducted jointly with the Government recommended that for the long run the Bank needs to continue building capacity at the technical level and also at the decision makers level. In addition to procurement issues, difficult administrative procedures and processes resulted in slow project implementation. This includes delays in appointing key staff, protracted consultant recruitment and weak financial management capacity. To ensure sustainable improvement of the portfolio performance, a multi-dimensional strategy needs to be agreed on and implemented by the government itself as well as government institutions and various entities with the financial and technical assistance from the Bank.
76. The capacity for monitoring and evaluation (M&E) at the project level has been weak. Most of the projects lacked good design of M&E and did not have effective functioning M&E systems in place either. This made tracking of project results and measuring impact difficult. In some cases indicators at the project level did not match CAS indicators which tended to be focused on outputs rather than on outcomes. The future CAS needs to address these during the preparation and implementation of future lending.
77. IEG evaluations of IC&: During the CAS period IEG evaluated two ICRs, The Rwanda Institutional Reform Credit (IRC) and an Agricultural and Rural Market Development (LE). The IRC received a Moderately Satisfactory Rating from IEG on outcome, and the LIL received a Satisfactory rating. For lessons learned IEG stated that the objectives (of the IRC) in a post conflict country with extremely limited human capacity should be realistically limited to what can be accomplished. Reform agendas should be kept simple, focused on priority areas, and consistent with country capacity. In the Agriculture LIL, IEG stated that the project showed that in a country like Rwanda it is possible to develop a viable, privately operated and sustainable input supply system, under the right set ofpolicies, incentives and institutional mechanisms.
Aid Coordination and Harmonization
78. The Bank worked effectively with its development partners. Rwanda is one of the pilot countries for budget support harmonization initiated during the Strategic Partnership of Africa (SPA) meeting in 2002. In 2003, the Government and budget support donors (AfDB, DfID, EU, SIDA and the Bank) signed the Partnership Framework for Harmonization and Alignment of Budget Support and
78 PRSG-I was the first budget support operation prepared under this framework. This framework has improved donor coordination, decreased overlap and reduced transaction costs for the Government.
79. On harmonization, the Bank supported PRSG facilitated the development of a calendar to align future donor reviews and support with the government’s PRSP and Budget Cycle. Donors and the Government worked in partnership with the Government on the development of sector strategies and MTEF which served as a basis towards SWAP. Bi-annual budget execution review and joint public financial management review is institutionalized. A Joint sector review which informs the joint budget review was established in 2002. The education and health sectors have been active, and the agriculture and water sector made tremendous progress over 2005 and 2006. The Bank also supported joint analytical work. The Financial Accountability and Review Action Plan (FARAP) was jointly completed by DfiD and the World Bank. The Bank used its comparative advantage in the areas of procurement reform and prepared the Country Procurement Issue Paper (CPIP) which all the donors endorsed and shared the final results. The World Bank is represented in 12 of the 15 sectors in Rwanda. The World Bank is the largest multilateral donor in Rwanda, and plays an important role in the Development Partner Group. The launch of the EDPRS has forced the Bank to play a more enhanced and significant role in additional sectors. Currently the Bank co chairs the Rural Development Cluster, the Energy Sector Working Group, and the Governance Working Group.
The Role of IFC
80. The role of IFC during the CAS period was limited, but has been increasingly growing over the last few months. IFC provided technical assistance in collaboration with the Bank’s Competitiveness and Enterprise Development Project (CEDP) through the Rwanda Investment Climate Reform advisory project particularly on commercial law reform, capacity building activities of REIPA, promoting public- private dialogue and supporting the government’s Doing Business (DB) reform action plan. In addition IFC also provided technical assistance in collaboration with the CEDP project in the area’of privatization, small and medium enterprises (SMEs) and the financial and industrial sectors. LFC jointly with the PSD department of the Bank and the Development Marketplace has supported the design and implementation of a business plan competition in Rwanda, through a collaborative effort with the private sector federation and the Rwanda Development Bank. IFC is working closely with IDA in exploring the possibility of participation and investment in: (i) Lake Kivu Methane Gas Project; (ii)an expansion of Intraspeed SA Rwanda Ltd (ISARL), a freight and forwarding company operating in the Great Lakes Region of Eastern Africa (US$5 million); (iii)financing to potential investors that may be interested in buying hotels; and (v) the privatization of Rwanda Air. However, IFC’s role in the private sector over the last few months has increased substantially. IFC has provided a portion of its earning to IDA and this is being provided to Rwanda for policy-based support to private sector-led economic growth, driven by agriculture, promotion of exports, financial sector deepening, and expanded delivery of public services by the private sector.
The Role of MIGA
81. MIGA’s effort in Rwanda has complemented the Bank Group’s strategy of accelerating private sector-led growth in the country. During the CAS period, MIGA undertook an assessment to assist Rwanda in creating a national investment and trade promotion capability in consultation with the Bank’s department and recommendations were made in Rwanda Investment Authority. This led to establishment of Rwanda Investment and Export Promotion Agency (RIEPA).
VI. Lessons Learned
82. Rwanda has continued to develop rapidly. Despite many development challenges remain that can be addressed in the new CAS. As the Bank considers how it can help the country in the next four years it
79 should consider following key lessons going forward:
83. The Bank needs to adopt a realistic and results oriented approach. While the Bank’s strategy was aligned with the PRSP, some of the targets were overly ambitious and not realistic. The future strategy should focus on results and monitoring of outcomes that are feasible based on country condition and availability of IDA resources. The Bank’s program needs to become more effective and more focused through selectivity, better alignment with country policies and institutions and stronger collaboration with government and other donors on analytical work. The PRSG instrument seems to be well-suited to achieve these objectives.
84. Project Design needs to be better aligned on the ground. Capacity building efforts need to be coupled with efforts that address broader institutional reforms and better coordination among sectors to underpin successful implementation of capacity building programs on the ground. Institutional assessments should pay greater attention to identifying the means to increase the capacity of central and local government. Future Bank operations need to explore various means ofworking in partnership with Project Implementation Units (PIU) to strengthen capacity on the ground. The Bank needs to work in a multi-sector environment to build capacity in order to improve the performance of the public sector more efficiently.
85. Implementation and pace of reform need to be sequenced or aligned. The experience during the CAS period shows that Government’s commitment to reform contributed positively to CAS outcomes, demonstrating that progress can be made under low capacity. However, implementation of reforms in some sectors was either too quick or slower than expected. This had a mixed impact on effectiveness ofthe overall program. Therefore, the next CAS should focus on reforms that are realistic which the Bank can influence and the Government can deliver. The urgency with which the reforms should take place needs to reflect more closely the reality on the ground.
86. The Bank needs to continue to work closely with development partners in fostering the harmonization and alignment agenda. During the CAS period, the Bank made significant progress in donor harmonization through budget support operations, joint budget and sector reviews and joint analytical work. Thus, the Bank should foster collaborative assistance, both at the country level and in the sectors and improve the division of labor among development partners. Comparative advantage and selectivity need to be a key criterion in the future strategy. The Bank will need to provide leadership in key areas with the implementation ofthe EDPRS and in coordination and alignment as a whole.
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e I* CAS CR Annex 2: Planned Lending and Actual Deliveries (FYO3-08)
86 Agriculture Sector Expenditure Review Actual (FY07) Agriculture Policy Note Transport Sector Expenditure Review Actual (FY04) Transport Country Framework
I Rural Energy Dropped
87 Annex 12: Rwanda Country Statistical Information
' I ...... - ~ ...--..-_..I___.._ .. I Indicator i Rwanda O\erall I 71 i 66 Statistical I'ractice j 70 I 59 I ('ollcction 60 i 60 i Data ------I > Indicator A\ailahility I 82 79 i I,egnl/Strrtrgic k'ramea ork ~ Statistical 1.a~ i Loi organique no 01/2005 du 14/02/2005 portant organisation des activitks statistiques du Rwanda; Loi no 09/2005 du 14/07/2005 portant crkation de I'lnstitut National de la j Statistique du Rwanda SSDS/Statistiral Alastrr t'laii 1 Rwanda National lnstitute of Statistics Strategic Plan (2007-201 1) !.._-I_ -.-__.-_-_-___I __-____ ...... StHtIlS T-. ,Is being formulated and will be finalized in October 2008 /SSI)S ...... ----_1______Statistical Practice 1 National arcoiints nietliodology FA='-- _-I______l_l__-_.___..l__.__..---...- - .. [.\.atiooal accouiits basc ycar to be changed to 2006 soon) ~ ~ ~~~~ Balrncr of paymriits manual in use jBPM5 .... i l I SDDS/GDDS sithsrription ~ GDDS 1)at;i C'ollection Populiitioii wisus(es) (since 1095) 2002 - Recensement gknkral de la Population et de I'Habitat 1 __ i _- .. i lncomplete ______-I__.__--_--__ ~ _____I.------. . -' '2007 -NAS (National Agricultural Survey): 1" phase is completed and 2"d phase will be 1 since IWS) !completed by July ! Iiouseliold siirvcy(s) 2005 - Demographic and Health Survey (sinrc 1095) '2005 - Enqutte Intkgrale sur les Conditions de Vie des Menages 12003 - Enqutte sur les Indicateurs de Base du Bien-ttre i 2001 - Core Welfare lndicators Questionnaire ,2001 - DHS MCH SPA 2001 - Production Agricole, Elevage Superficies et Utilisation des terres 2000 - Enquete A lndicateurs Multiples 2000 - Enqutte Dtmographique et de Santt 2000 - Enquete Integrale sur les conditions de vie des au Rwanda 11999 - Household Living Conditions Survey 1 1998 - Enqutte intkgrale sur les conditions de vie des menages 1996 Enquete Socio Demographique I I - ___l___l____.______-._------..----. - - \\'orId ~iiiikstatisticm-'E\T ____.______.______...... ' ts 7 I'rojec Toverty Reduction Support Grant (PRSG) ~~~D/IDA(son sf:t'l(:A.tt') ____.____.--I.--.- l~ll:s~l~ -=atistical Institute Capacity Building Project Stati.*tical npenciesi Direction de la Statistique, BP 46, Kigali, Rwanda pu1)lirations Phone (250) 78 937 Fax (250) 78 488 Web http://www.statistics.gov.rw/ /\IDG report (I \DY) I2003 __II______^_.^______--___I___.I______.- - - All countries include low- and middle-income IDANBRD countries with a population of over I nxllion 88 Annex 13: Rwanda at a glance Rwanda at a dance 8/7/08 Sub- POVERTY and SOCIAL Saharan Low- Development diamond' Rwanda Africa income 2007 Population, mid-year (millions) 9.7 782 2,420 Life expectancy GNI per capita (Atlas method, US$) 320 829 649 GNI (Atlas method, US$ billions) 3.1 648 1,571 - Average annual growth, 200006 Population (%I 2.9 2.5 1.8 GNI Gross Labor force (%) 3.0 2.6 2.3 per primar) Most recent estimate (latest Year available, 200046) capita enrollmeni Poverty (% of population below national poverty line) Urban population (W of total population) 20 36 30 Life expectancy at birth (years) 46 50 60 1 Infant mortality (per 1,000 live births) 98 94 74 Child malnutrition (% of children under5) 18 27 35 Access to improved water source Access to an improved water source (% of population) 74 56 75 Literacy (% of population age 15+) 65 59 61 Gross primary enrollment (% of school-age population) 140 93 102 -Rwanda Male 137 99 106 Low-income gruup Female 142 87 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1986 1996 2006 2007 Economic ratios. GDP (US$ billions) 1.9 1.4 2.50 3.34 Gross capital formation/GDP 15.9 14.4 21.4 21.2 Trade Exports of goods and services/GDP 12.6 6.0 11.7 10.0 Gross domestic savings/GDP 8.3 -5.8 1.6 Gross national savingslGDP 14.1 9.3 13.8 Current account balance/GDP -3.1 -5.1 -7.7 -4.8 Domestic Capital Interest paymentslGDP 0.3 0.5 savings formation Total debVGDP 23.2 75.6 26.0 Total debt servicelexports 8.3 19.7 3.0 Present value of debtlGDP 1 Present value of debtlexports Indebtedness 1986-96 199806 2006 2007 2007-1 I (average annual growth) GDP -5.1 6.4 5.3 6.0 -Rwanda GDP per capita -2.9 1.5 2.9 3.0 __ Low-income aruuo Exports of goods and services -13.2 15.8 30.7 STRUCTURE of the ECONOMY 1986 1996 2006 2007 Growth of capltal and GDP (%I (% of GDP) Agriculture 37.5 47.2 41.0 39.8 30 T I Industry 23.1 18.1 21.2 14.2 ,.- Manufaduring 15.9 11.5 8.5 6.1 -7 Services 39.4 34.7 37.8 46.0 I Householdfinal consumption expenditure 79.7 94.3 84.9 86.3 -30 1 General gov't final consumption expenditure 11.9 11.5 13.5 10.9 -GCF +GDP Imports of goods and services 20.2 26.2 31.5 28.3 I 1986-98 199646 2006 2007 I Growth of exports and Imports (%) (average annual growth) h Agriculture -2.5 6.2 0.1 -1.2 80 Industry -10.4 6.7 12.5 12.5 Manufacturing -11.1 2.3 13.5 7.9 Services -4.8 6.5 8.1 9.2 Household final consumption expenditure -0.7 4.4 3.6 General gov't final consumption expenditure -1.8 7.8 6.5 -20!ib Gross capital formation -11.9 5.3 7.5 Imports of goods and services 5.4 3.0 15.6 Note: 2007 data are preliminary estimates. This table was produced from the Development Economics LDB database, The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 89 Rwanda PRICES and GOVERNMENT FINANCE 1986 1996 2006 2007 Inflation (%) Domestic prices (% change) Consumer prices -1.1 7.4 8.9 9.1 Implicit GDP deflator -7.0 10.9 9.1 8.9 Government finance (% of GDP, includes cunent grants) 1 01 02 03 04 05 Current revenue 13.8 16.7 27.3 23.9 Current budget balance 2.3 3.5 8.9 I -GDP deflator -CPI OBII Overall surDlus/deficit -5.8 -0.5 -1.5 TRADE 1986 1996 2006 2007 Export and import levels (US$ mlll.) (US$ millions) Total exports (fob) 186 62 142 177 Coffee 143 43 54 36 Tea 20 9 32 32 100 Manufactures 10 5 30 71 IO0 Total imports (cif) 323 257 438 581 100 Food 38 51 70 Fuel and energy 55 27 58 100 Capital goods 85 54 73 0 00 01 02 03 04 05 Export price index (2000=100) 116 96 129 Import price index (2000=100) 72 103 176 0 Exports Imports Terms of trade (2000=100) 161 93 73 BALANCE of PAYMENTS 1986 1996 2007 2006 Current account balance to GDP (%) (US%millions) I Exports of QOOdS and services 230 84 269 Imports of goods and services 403 363 763 Resource balance -173 -279 -494 Net income -1 1 -14 -19 Net current transfers 124 223 322 Current account balance -60 -7 0 -191 -168 Financing items (net) -8 79 273 Changes in net reserves 68 -8 -83 Memo: Reserves including gold (US$ millions) 336 552 Conversion rate (DEC, local/US$) 87.6 306.8 552 545 EXTERNAL DEBT and RESOURCE FLOWS I986 1996 2006 2007 Composition of 2005 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 451 1,045 579 IBRD 0 0 0 0 E: 58 G: 22 IDA 195 536 169 Total debt service 20 18 15 IBRD 0 0 0 0 IDA 2 8 13 Composition of net resource flows Official grants 78 333 Official creditors 71 53 Private creditors -5 0 Foreign direct investment (net inflows) 18 2 Portfolio equity (net inflows) 0 0 World Bank program Commitments 81 0 9 A - IBRD E -Bilateral Disbursements 37 43 12 8 - IDA D -Other multilateral F - Privata Principal repayments 0 4 8 C - IMF G - Short-tam Net flows 36 38 4 Interest payments 2 4 5 Net transfers 35 35 -1 Note: This table was produced from the Development Economics LDB database. 8/7/08 90 Annex 14: Key Social Indicators Rwanda Social Indicators Latest sinale vear Same reaionlincome arom Sub- Saharan Low- 1980-85 1990-95 2000-06 Africa income POPULATION Total population, nid-year (millions) 6.1 5.6 9.5 781.8 2,419.7 Growth rate (% annual average for period) 3.3 -5.1 2.4 2.5 1.9 Urban population (% of population) 5.1 8.3 20.2 35.8 30.4 Total fertility rate (births per w omn) 8.4 6.4 5.9 5.2 3.5 POVWTY (% ofpopulation) National headcount index 51.2 60.3 Urban headcount index 14.3 Rural headcount index 65.7 INCOME GNI per capita (US$) 260 220 250 829 649 Consumr price index (2000=100) 24 77 150 140 145 Food price index (2000=100) 26 65 119 INCOMBCONSUMPTION DISTRIBUTION Gini index 28.9 46.8 Low est quintiie (% of income or consunption) 9.7 5.3 Highest quintile (% of income or consunption) 38.9 53.0 SOCIAL INDICATORS Public expenditure Health (% of GDP) 4.1 2.6 1.2 Mucation (% of GDP) 3.8 4.2 3.1 Net primary school enrollment rate (% of age group) Total 67 91 68 78 Male 69 89 71 81 Femle 65 94 65 75 Access to an improved water source Is', of population) Total 64 74 56 75 Urban 89 92 80 88 Rural 62 69 42 69 Im m unization rate (% of children ages 12-23 months) kasles 52 84 95 71 69 DPT 50 83 99 72 68 Child malnutrition (% under 5 years) 24 18 27 35 Life expectancy at birth (years) Total 45 31 46 50 60 Male 43 29 44 49 59 Ferrale 47 33 47 52 62 Mortality Infant (per 1,000 live births) 108 122 98 94 74 Under 5 (per 1,000) 180 205 160 157 112 Adult (15-59) Male (per 1,000 population) 503 493 47 1 42 1 285 Ferrale (per 1,000 population) 409 409 422 391 223 Maternal (deled, per 100,000 live births) 1,300 900 650 Births attended by skilled health staff (%) 26 39 45 43 Note: 0 or 0.0 mans zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from IsCEO76 to IsCED37. Innunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any tim before the survey. World Development Indicators database, World Bank - 11 April 2008. 91 Annex 15: Key Economic Indicators Rwanda - Key Economic Indicators Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 38 39 39 41 40 41 41 41 41 Industry 13 14 14 13 14 14 14 14 14 Services 49 47 47 45 46 45 45 45 45 Total Consumption 100 96 95 97 97 99 98 96 96 Gross domestic fixed investment 19 20 22 20 21 23 24 24 25 Government investment 5 8 9 8 8 10 11 10 11 Private investment 13 12 13 13 13 13 13 14 14 ~xp01-t~(GNFS)~ 8 10 10 10 10 9 10 10 10 Imports (GNFS) 26 26 27 27 28 32 31 30 30 Gross domestic savings 0 4 5 3 3 1 2 4 4 Gross national savings' 11 19 21 13 16 15 12 13 13 Memorandum items Gross domestic product 1777 1971 2379 2869 3339 3882 4302 4626 4983 (US$ million at current prices) GNI per capita (US$, Atlas method) 200 210 250 280 320 Real annual growth rates (YO,calculated from 2001 prices) Gross domestic product at market prices 0.3 5.3 7.1 5.5 6.0 6.0 6.1 5.9 6.0 Real annual per capita growth rates (%, calculated from 2001 prices) Gross domestic product at market prices -1.4 3.6 5 .O 2.9 3 .O 3.1 3.1 2.9 3.1 Total consumption -1.7 1.9 4.9 4.5 3.6 3.5 I.6 1.1 2.0 Private consumption -3.3 3.9 4.8 4.9 4.5 3.7 0.8 1.6 2.1 Balance ofPayments (US%millions) Exports (GNFS)b 140 189 246 275 332 367 417 464 508 Merchandise FOB 63 97 126 147 117 214 23 5 266 288 Imports (GNFS)~ 464 524 640 780 944 1252 1340 1396 1478 Merchandise FOB 244 276 354 446 581 764 809 839 895 Resource balance -324 -335 -394 -506 -612 -885 -923 -93 1 -970 Net current transfers 224 313 395 324 461 558 432 437 460 Current account balance -131 -56 -27 -210 -168 -350 -515 -512 -527 Net private foreign direct investment 5 4 11 31 82 83 96 125 145 Long-term loans (net) 8 12 46 46 80 71 24 1 255 248 Other capital (net, incl. errors & ommissions) 92 82 82 216 114 184 200 165 180 Change in reservesd 27 -101 -111 -83 -108 12 -22 -33 -45 Memorandum items Resource balance (%of GDP) -18.3 -17.0 -16.6 -17.6 -18.3 -22.8 -21.5 -20.1 -19.5 Real annual growth rates ( YROl prices) Merchandise exports (FOB) -12.5 26.8 14.3 12.8 6.2 19.1 16.0 11.1 12.0 Merchandise imports (CIF) 0.5 6.8 26.0 27.0 31.0 19.4 5.6 2.9 5.6 92 Rwanda - Key Economic Indicators (Continued) Actual Estimate Projected lndicator 2003 2004 2005 2006 2007 2008 2009 - 2010 2011 Public finance (as YOof GDP at market prices)' Current revenues 20.5 24.0 26.3 23.8 23.9 28.4 24.3 23.5 23.4 Current expenditures 16.8 14.8 16.2 16.1 17.1 17.7 17.6 16.9 17.0 Current account surplus (f) or deficit (-) 3.6 9.2 10.1 7.7 6.8 10.6 6.7 6.6 6.5 Capital expenditure 5.8 9.4 9.5 8.1 8.3 11.5 11.5 11.7 11.2 Foreign financing 2.0 4.2 2.0 1.6 2.4 1.8 5.6 5.5 5.0 Monetary indicators M2IGDP 17.5 16.5 16.6 18.3 20.7 20.3 Growth ofM2 (%) 15.2 12.1 17.2 31.5 30.8 11.8 Price indices( YROl =loo) Merchandise export price index 85.6 104.7 117.9 122.2 138.1 140.3 133.2 135.4 131.1 Merchandise import price index 109.1 115.6 117.6 116.9 116.1 127.8 128.2 129.1 130.4 Merchandise terms of trade index 78.4 90.6 100.3 104.6 118.9 109.8 103.9 104.9 100.5 Consumer price index (%change) 7.4 12.0 9.0 8.9 9.1 8.7 5.0 5.0 5.0 GDP deflator (% change) 21.9 13.2 8.9 13.1 8.9 7.5 4.9 5.1 5 .O a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. lncludes net unrequited transfers excluding official capital grants d. Includes use of 1MF resources. e. Consolidated central government. 93 Annex 16: Key Exposure Indicators Actual Estimated Indicator 2004 2005 2006 2007 2008 Total debt outstanding and 1661 1518 419 579 660 disbursed (TDO) (US$m)a Net disbursements (US$m)n 84 69 51 105 53 Total debt service (TDS) 24 24 31 15 13 (US$m)a Debt and debt service indicators (%I TDO/XGS~ 852.6 637.8 144.8 62.0 70.1 TDO/GDP 84.3 63.8 14.6 17.4 17.0 TDS/XGS 12.5 10.0 10.6 4.1 3.5 Concessional/TDO 92.9 93.5 93 .O IBRD exposure indicators (YO) IBRD DS/public DS 0.0 0.0 0.0 0.0 0.0 Preferred creditor DS/public 54.7 77.5 86.1 DS (%)' IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$mld 0 0 0 0 0 Of which present value of guarantees (US$m) 0 0 0 0 0 Share of IBRD portfolio (%) 0 0 0 0 0 IDA TDO (US$mld 1020 980 169 204 290 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 94 Annex 17: Selected Indicators of Bank Portfolio Performance and Management As Of Date August 7,2008 Indicator 2006 2007 2008 2009 Portfolio Assessment Number of Projects Under Implementation a 11 11 11 11 Average Implementation Period (years) * 3.9 4.4 4.2 4.3 Percent of Problem Projects by Number a) 9.1 0.0 0.0 9.1 Percent of Problem Projects by Amount a* 11.4 0.0 0.0 3.8 Percent of Projects at Risk by Number a* 18.2 0.0 0.0 9.1 Percent of Projects at Risk by Amount 13.9 0.0 0.0 3.8 Disbursement Ratio (YO)e 24.9 34.3 47.4 2.6 Portfolio Management CPPR during the year (yesha) Yes no Yes no Supervision Resources (total US$) 1,451.8 1,563.0 1,680.1 n/a Average Supervision (US$/project) 121.0 130.3 129.2 nla Memorandum Item Since FY 80 Last Five FYs Proj Eva1 by OED by Number 43 1 Proj Eva1 by OED by Amt (US$ millions) 841.5 90.4 YO of OED Projects Rated U or HU by Number 46.5 0.0 YO of OED Projects Rated U or HU by Amt 31.9 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) andlor implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 95 Annex 18: IDA Program Summary As Of Date August 7,2008 Proposed IBRDllDA Base-Case Lending Program a "s~(M, Strategic Rewards lrnplernentation Fiscal year Proj ID b b (H/M/L) Risks (H/M/L) 2008 RW-Rural Sector Support II APL (FYO9) 35.0 H M RW-Transport Sector Development Project 11.0 H M Result 46.0 2009 RW - PRSG V DPL 70.0 H M RW- Electricity Access Scale-up Project 40.0 H M RW-Social Protection Developt SIL (FYO9) 6.0 H M Lake Kivu Methange Guarantee 5.0 H M Demobilization and Integration Program 6.0 H M Regional: Communications Infrastwcture 8.0 H M Result 135.0 2010 PRSG VI 86.0 H M Land Harvesting Water Management and Hillside irrigation 35.0 H M Transport Sector Development Project (Additional Financing) 25.0 H M Rural Roads 25.0 H M Regional: East Africa Road Network 8.0 H M Regional: Lake Victoria Environmental Management Program 7.0 H M Result 186.0 201 1 PRSG VI1 81.0 H M Regional: Rusumo Falls Hydro 10.0 H M Regional: East Africa Power Market 6.0 H M Result 97.0 2012 PRSG Vlll 70.0 H M Additional Financing Agriculture 30.0 H M Energy Supplement 30.0 H M Skills Development 10.0 H M Result 140.0 96 Annex 19: Summary of Nonlending Services As Of Date August 7,2008 Product Completion FY Cost (US$OOO) Audience a Objective Recent completions Social Protection Study 2008 150 G,D,B K,G Rwanda Health Study 2008 75 G,D,B K,G Youth and Gender in Post-Conflict Study 2008 75 G,D,B K,G Accounting and Auditing ROSC 2008 nla G,D.B K,G Multi-year Agriculture Policy TA (FYO8-FY12) 2008 100 G,D,B K,G Human Resources for Health TA 2008 75 G,D,B K,G PlannedlUnderway Education Policy Analysis (Multi-Year) 2009-201 1 Public Expenditure Management (Multi-Year) 2009-201 1 Investment Climate Assessment 2009 Regional Agriculture Research TA 2009 Sustainable Land Management 2010 Procurement and Financial Management Assessment 2010 Country Economic Memorandum 201 1 a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving 97 Annex 21: IFC Portfolio Rwanda Committed and Disbursed Outstanding Investment Portfolio As of 5/31/2008 (In USD Millions) Committed Disbursed Outstanding "Puasi -Partici "Puasi Partici FY Approval Company -Loan EJI& 'GTIRM pant -Loan EpUitV Eauitv 'GTIRM pant 7/7/2007/07/07/07 intraspeed 0 0 45 0 0 0 0 24 0 0 7/712007/07/07/07 Milie coliines 15 0 0 0 0 0 0 0 0 0 8/8/2008/08/08/08 Tps (r) 24 12 0 0 0 0 4 0 0 0 * Denotes Guarantee and Risk Management Products. ..Quasi Equity includes both loan and equity types. Rwanda: IFC Investment Operations Program 2005 2006 2007 2008* Commitments (US$m) Gross 10.00 10.79 Net** 10.00 10.79 Net Commitments bv Sector I%) EQUITY 18.54 GUARANTEE 44.39 LOAN 25 37.07 QUASI LOAN 75 Total 0 0 100 100 Net Commitments bv Investment Instrument 1%) Equity 18.54 Guarantee 44.39 Loan 25 37.07 Quasi loan 75 Total 0 0 100 100 As of March 31,2008 ** IFC's Own Account only 99 Map section 29°30'E 30°00'E 30°30'E 31°00'E 1°00'S RWANDA To Kafunzo Kagitumba SELECTED CITIES AND TOWNS To AKARERE (DISTRICT) CAPITALS UGANDA Kikagati INTARA (PROVINCE) CAPITALS K a g e NATIONAL CAPITAL r a 0 10 20 30 40 Kilometers RIVERS To Kisoro Nyagatare MAIN ROADS a b 0 10 20 30 Miles m u AKARERE (DISTRICT) BOUNDARIES To Muvumba t i Kidaho Butaro Kabale g a NYAGATARE INTARA (PROVINCE) BOUNDARIES K Burera Lac Lac Volcan Burera Rwanyakizinga INTERNATIONAL BOUNDARIES Karisimbi MUSANZA BURERA Mulindi Gatunda (4519 m) Muhoza Lac Kirambo 1°30'S Ruhondo 1°30'S Cyeru Lac Busogo GICUMBI Gabiro Kinihira Mikindi 29°00'E Byumba GATSIBO To NORTH Gatsibo Mukamira Rutshuru RUBAVU Gakenke V NYABIHU Nemba EAST To i Kagali Lac Rubavu r Kabarore Sake u Karago PROVINCE Kinyami Hago n Tare PROVINCE Gisenyi Nyondo g Muramba Kiziguru Lac a GAKENKE Kivumba RULINDO Muhura M To Kabaya Ngaru Lac Bugene DEM. REP. t N Rukara s y Mbogo Lac . a Ihema b Muhazi Ngororero a OF RUTSIRO ro Shyorongi n KAYONZA NGORORERO go GASABO CONGO Lac Kivu Murunda TANZANIA WEST KIGALI CITY Mukarange Ndera Gihingo Gikoro PROVINCE Rugenge KIGALI Rwamagana Rutsiro Bulinga Rukoma Kicuro Bicumbi Kigabiro Lac 2°00'S MUHANGA Nasho 2°00'S Mabanza NYARUGENGE KICUKIRO RWAMAGANA Kibuye Nyamabuye Rubengera KAMONYI Lac Gitarama Lac Kigarama Lac Mpanga Mugesera Cywambwe KARONGI Nyamata Gishyita Bugesera Kibungo Rilima Bwakira RUHANGO NGOMA KIREHE Ngoma Gashora Masango Sake Ruhango Kirehe BUGESERA NYANZA Gatagara Kagano Busasamana Lac SOUTH Ka Nyanza Cyohoha ge ra Rwesero NYAMAGABE Sud Lac Rweru To Kamembe NYAMASHEKE PROVINCE Rusatira Lusahanga Karaba Cyangugu Gasaka HUYE To 2°30'S To Kitabi Gikongoro Karama Walangu Rwumba Kirundo GISAGARA RUSIZI To Ngoma Nyya-Ghezi Ruramba Butare Ndora Kibeho RWANDA u This map was produced by r a the Map Design Unit of The NYARUGURU Kanzi y n a World Bank. The boundaries, Bugarama Munini Kigembe k colors, denominations and To A Cibitoke any other information shown BURUNDI IBRD 33471R2 on this map do not imply, on To the part of The World Bank Cibitoke Group, any judgment on the JUNE 2008 To legal status of any territory, To Kayanza Ngozi o r a n y e n d o r s e m e n t o r a c c e p t a n c e o f s u c h boundaries. 29°00'E 29°30'E 30°00'E 30°30'E