Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 41746 - ML

INTERNATIONAL DEVELOPMENT ASSOCIATION

AND Public Disclosure Authorized INTERNATIONAL FINANCE CORPORATION

COUNTRY ASSISTANCE STRATEGY

FOR

THE REPUBLIC OF MALI Public Disclosure Authorized FOR THE PERIOD FYOS-FY11

December 12,2007

Country Department for Mali AFCF2 Africa Region Public Disclosure Authorized

~ 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. ~~ ~ ~~ ~ ~~~ ~ ~ - The last Country Assistance Strategy for Mali was approved on July 3 1,2003.

CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) $1 = 45 1 CFAF (December 10,2007)

WEIGHTS AND MEASURES Metric System

GOVERNMENT FISCAL YEAR January 1 - December 3 1

ACRONYMS AND ABBREVIATIONS

AAA Analytical and Advisory Activities CDD Community-Driven Development CDI CBte d’Ivoire (Republic of Ivory ACP African, Caribbean and Pacific Coast) countries CDMAP Capacity Development in Africa: ADP Accelerated Data Program Management Action Plan ACDP Agriculture Competitiveness and CEA Country Environmental Assessment Diversification Project CENA Capacity Enhancement Needs ADP Accelerated Data Program Assessments AFD Agence Frangaise de Dkveloppement CEM Country Economic Memorandum (French Agency for Development) CERCAP Centre d’e‘tudes et de renforcement ADD African Development Bank des capacitks AFR Africa Region (World Bank) CFAF CFA Franc AFTRL Africa Region Results and Learning CIDA Canadian International Development Unit Agency AMADER Agence Malienne pour le CMDT Compagnie Malienne pour le de‘veloppement de I’knergie (Malian Dkveloppement des Textiles (Malian Agency for Energy Development) Ginning Company) API- Mali Agence de Promotion des CMU Country Management Unit Investissements (Malian Investment CNCS Comitk National de Coordination et Promotion Agency) de Suivi (National Committee for APL Adaptable Program Loan Coordination and Monitoring) ARV Antiretroviral co Country Office ASACO Association de Santk Communautaire CPAR Country Procurement Assessment (Community Health Association) Report BDS Business Development Services CPI Corruption Perception Index BHM Banque de 1 ’Habitat du Mali (Malian CPIA Country Policy and Institutional Housing Bank) Assessment BIM Banque d’lnvestissement du Mali CPPR Country Portfolio Performance (Malian Investment Bank) Review BNPP Bank Netherlands Partnership CPS Cellule de PlaniJication et Statistique Program (Planning and Statistics Unit) CAE Country Assistance Evaluation CRM Caisse des Retraites du Mali (Malian CAS Country Assistance Strategy Pension Fund) CASCR Country Assistance Strategy cs Client Survey Completion Report CSCOM Centre de Sante Communautaires CD Capacity Development (Community Health Center) CDC Caisse des Dbp6ts et Consignation CSIF Country Strategic Investment (Deposit and Consignment Office) Framework FOR OFFICIAL USE ONLY

DECPG Development Prospects Group IsDB Islamic Development Bank DfID Department for International ITC Improvement of Transport Corridor Development (Great Britain) Project DHS Demography and Health Survey Kg Kilogram DNSI National Directorate for Statistics and M&E Monitoring and evaluation Information Technology MCC Millennium Challenge Corporation DPL Development Policy Loan MDG Millennium Development Goal DSA Debt Sustainability Analysis MDRI Multilateral Debt Relief Initiative DTIS Diagnostic Trade Integration Study MIGA Multilateral Investment Guarantee EBP Enterprise Benchmarking Program Agency ECOWAS Economic Community of West MOU Memorandum of Understanding African States MSME Micro, Small and Medium Enterprises EDM Electricite' du Mali (Electricity of MTEF Mid-Term Expenditure Framework Mali) NGO Non-Governmental Organization EC European Commission NPV Net Present Value EITI Extractive Industries Transparency NRM Natural Resource Management Initiative OHADA Organisation pour 1'Harmonisation ELIM Enqugte Le'gPre Inte'gre'e des Me'nages du Droit des Affaires en Afrique (Integrated Light Househould Survey) (Organization for the Harmonization EMEP Enqugte Malienne pour I'Evaluation of Business Law in Africa) de la Pauvrete' (Malian Poverty OMATHO Ofice Malien du Tourisme et de Assessment Survey) I'H6tellerie (Malian Tourism and EPA Economic Partnership Agreement Hotel Business Office) ES W Economic and Sector Work ON Office du Niger EU European Union PACR Projet d'appui aux communautb FAFPA Fonds d'Appui ir la Formation rurales (Rural Community Professionnelle (Vocational Training Development Project) and Apprenticeship Support Fund) PAGAMGFP Plan d 'Action Gouvernementalpour la FIAS Foreign Investment Advisory Service Modernisation et le Renforcement de la FIL Financial Intermediary Loan Gestion des Finances Publiques (Program to modernize and Strengthen FSAP Financial Sector Assessment Program Public Financial Management) FY Fiscal Year PASAOP Projet d'appui aux services agricoles et GAC Governance and Anti-Corruption aux organisations paysannes Gross Domestic Product GDP (Agriculture and Producers Global Environment Fund GEF Organization Project) Government of Mali GoM PCDA Projet de compktitivitk et de GPRSF Growth and Poverty Reduction diversification agricole (Agricultural Framework Competitiveness and Diversification GSP Growth Support Project Project) ha Hectare PEFA Public Expenditure and Financial H&A Harmonization and Alignment Accountability HIPC Heavily Indebted Poor Countries PEM Public Expenditure Management Initiative PEMFAR Public Expenditure Management and HIViAIDS Human Immunodeficiency Financial Accountability Review VirusiAcquired Immunodeficiency PEP Private Enterprise Program Syndrome PER Public Expenditure Review ICA Investment Climate Assessment PDI Programme de De'veloppement ICT Information and Communication Institutionel (Institutional Technologies Development Program) IDA International Development Agency PFM Public Financial Management ICR Implementation Completion Report PHRD Japan Policy and Human Resources IDF Institutional Development Fund Development Fund IEG Independent Evaluation Group PIC Presidential Investors Council IFC International Finance Corporation PNIR Rural Infrastructure Project IFMS Integrated Financial Management PIU Project Implementation Unit System PRGF Poverty Reduction and Growth IMF International Monetary Fund Facility

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. PRSC Poverty Reduction Support Credit SSA Sub-Saharan Africa PRSF Poverty Reduction Strategy SSN SystBme Statistique National (National Framework Statistics System) PRSP Poverty Reduction Strategy Paper STEP Support and Training for PSD Private sector development Entrepreneurship Program QAG Quality Assurance Group S WAp Sector-Wide Approach REP Regional Economic Program Tha Ton per hectare SAC Structural Adjustment Credit TA Technical assistance SDR Special Drawing Rights TI Transparency International SFD SystBmes Financiers De'centralise's TF-SCB Trust Fund for Statistical Capacity (Decentralized Financial Systems) Building SGI Socie'te' de Gestion et d'lnterme'diation UN United Nations (Management and Mediation UNDP United Nations Development Program Company) UNICEF United Nations Children's Fund SLM Sustainable Land Management USAID United States Agency for SME Small and Medium Enterprise International Development SNCF Socie'te' Nationale des Chemins de Fer WAEMU West African Economic and (National Railways Company) Monetary Union SNDS Strate'gieNationale de De'veloppement WAPP West Africa Power Pool des Statistiques (National Strategy for WBG World Bank Group the Development of Statistics) WBI World Bank Institute SOE State-Owned Enterprise WDI World Development Indicators SOTELMA Socie'te' des Te'le'communicationsdu Mali (Malian Telecommunication company)

IDA IFC Vice President: Obiageli K. Ezekwesili (AFRVP) Vice President: Jyrki I.Koskelo (CFFVP) Country Director: James P. Bond (AFCF2) Director: Thieny Tanoh (CAFDR) Task Team Alassane Diawara (AFMML) Country Manager: Aida der Hovanessian (CAFW3) Leaders: Sybille Crystal (AFCF2) Senior Strategy Officer: Frank Douamba (CAFSC)

The following World Bank Staff contributed to the preparation ofthe CAS: Alassane Diawara (co-TTL), Sybille Crystal (co-TTL), Sabine Hader, Christina Wood, Quentin Wodon, Abdoulaye Konate, Antonella Bassani, Thomas Jeffrey Ramin, Franqois Nankobogo, Tony Verheijen, Guenter Heidenhof, Koffi Ekouevi, Olivier Durand, Abdoulaye Tour& Yeyande Sangho, Agadiou Dama, Remi Kini, Siele Silue, William Experton, Tonia Marek, John May, Atou Seck, Andre Ryba, Djibrilla Issa, Mahine Diop, Craig Andrews, Boubacar Bocoum, Maimouna Mbow Fam, Taoufiq Bennouna, Franqois Nankobogo, Youssouf Thiam, Amadou Dem, Aida der Hovanessian, Frank Douamba, Augustin Apetey, Franke Toornstra, Maiko Miyake, Guy Darlan, Fily Bouare Sissoko Mamadou Tangara, Cheick TraorB, Deo Ndikumana, Fabrice Houdart, Sonia Plaza, Thomas Vis, Marc Lixi, Ghislaine Delaine, Kathy Li Tow Ngow, Denise Sangara, Hawa Maiga, Safiatou Dicko Ba, Alema Siddlky, and Luis Alvaro Sanchez. TABLE OF CONTENTS

Page Executive summary ...... i I. COUNTRY CONTEXT ...... 1 A . Historical Context ...... 1 B. Recent Economic, Social and Poverty Developments...... 2 I1. THE GOVERNMENT PROGRAM ...... 8 A . Assessment of First Poverty Reduction Strategy Implementation ...... 8 B. Mali’s Growth and Strategy Framework for 2007-1 1 ...... 9 I11. ECONOMIC PROSPECTS AND CHALLENGES ...... 10 A . Medium-Term Outlook and Debt Sustainability ...... 10 B. Challenges to Mali’s Broad and Sustainable Growth and Poverty Reduction ...... 11 (a) Accelerate access to local, regional and international markets...... 12 (b) Increase provision and lower the cost of basic business services and factors of production ...... 13 (c) Build on un- or under-tapped assets as new growth sources ...... 13 (d) Consolidate and deepen the gains in governance ...... 15 (e) Address key challenges for service delivery in social sectors ...... 16 C . Prospects for Transformational Growth ...... 17 IV . DONOR SUPPORT TO MALI ...... 19 A . Donor Coordination and harmonization on the Ground ...... 19 B. Bank Positioning in Development Assistance to Mali ...... 20 V . WORLD BANK COUNTRY ASSISTANCE STRATEGY ...... 21 A . World Bank Track Record ...... 21 B. CAS Strategic Objectives and Key Principles ...... 24 C . World Bank Group Program to Support the Strategic Outcomes ...... 25 D. governance and capacity development ...... 29 VI. DELIVERING THE BANK GROUP STRATEGY ...... 31 A . Leveraging the Existing Portfolio ...... 31 B. New Lending Program ...... 32 C . Knowledge program ...... 34 D. Monitoring CAS and GPRSF Results ...... 35 VI1. MANAGING RISKS ...... 36

List of Boxes Box 1: Cotton reform in Mali-The issue at hand 4 Box 2: Mining in Mali 10 Box 3 : Commercial agriculture-An important source of potential growth 14

List of Tables Table 1: Selected economic indicators and medium-term economic outlook. 2007-10 3 Table 2 Headcount index of poverty 6 Table 3 : Mali recent social indicators 7 Table 4: Mali: Attaining the Millennium Development Goals 8 Table 5 : Policy-based debt burden indicators 11 Table 6: Selected Cost of Doing Business indicators for Mali 15 Table 7: Selected indicators of Bank’s portfolio performance 21 Table 8: Sectoral repartition of active IDA portfolio 31 Table 9: Indicative IDA program for FY08-11 33 Table 10: Indicative knowledge program for FY08-11 34

List of Figures Figure 1: Donor intervention for each GPRSP pillars in 2007 20 Figure 2: CAS selectivity based on the Client Survey 24

List of Appendixes Country Specific appendixes Appendix -1 : Mali CAS Results Matrix 38 Appendix 2: Mali CAS Completion Report 47 Appendix 3 : Mali Country At-A-Glance 74 Appendix 4: Trends in Poverty 77 Appendix 5 : Mali’s Reform Agenda and Growth-Oriented Sectors 79 Appendix 6: Mali and Aid Harmonization 81 Appendix 7: Donors’ Program in Mali 84 Appendix 8: CAS Consultation Process and Communication Strategy 85 Appendix 9: Regional Integration 89 Appendix 10: WBG Assistance for Private Sector Development 92 Appendix 11: Bank Approach to Capacity Development 98 Appendix 12: Country Financing Parameters 101

Standard CAS Annexes CAS Annex B2: Selected Indicators of Bank Portfolio Performance and Management 102 CAS Annex B3: IDA Program Summary 103 CAS Annex B3: IFCMIGA program 104 CAS Annex B4: Summary of Non Lending Services 105 CAS Annex B6: Key Economic Indicators 106 CAS Annex B7: Key Exposure Indicators and Mali Social Indicators 108 CAS Annex B8: Statements of IFC’s Held and Disbursed Portfolio 110 CAS Annex B8: Operations Portfolio (IDA and Grants) 111

Map No. IBRD 33443 EXECUTIVE SUMMARY

i. Mali is a vast, semi-arid, landlocked country of low population density and few natural resources. But it does have some un- or under-tapped assets: these include the Niger River with very considerable potential for intensive irrigated commercial agriculture; some gold; and remarkable cultural and geographical sites with potential for high-end tourism. In addition, it has an extensive Diaspora of 4 million people abroad, or one in four Malians, who remit extensive financial flows of between $150m and $200m per year, and who bring contact with the outside world and the availability of scarce skills.

ii. Mali has opportunities to generate incomes, and a new window of opportunity is opening up. The country has done reasonably well over the period of the last CAS: it has a stable democracy; its economic growth has been decent, sound macro-economic management has resulted in economic and budgetary stability; and it has continued to make gains in governance. But sectoral and structural reforms have lagged and the good performance has not translated into significantly improved human development outcomes, in part due to a population growth rate that is amongst the highest in the world. Poverty has declined between 4 and 9 percentage points but remains high. iii. Mali’s second PRSP, the Growth and Poverty Reduction Strategy Framework (GPRSF) has two objectives: promotion of rapid and broad-based growth, and strengthening public sector management. Its programs are grouped under three pillars: infrastructure development; structural reform agenda and investment climate; and improved delivery of social services. It also includes a governance action plan. It is optimistic, projecting a growth rate of 7 percent. Achievement of this rate of growth would require a radically new way to manage the economy, but the specific actions necessary have not been fully spelled out in the GPRSF. iv. If Mali wishes to have a rapid increase in incomes, it will need to achieve higher per capita growth, which means both higher overall GDP growth and lower population pressure. Under current policies and macro management, the Bank and the Fund would project an average GDP growth of 5.5% per year. With current population growth at 3 percent per year, per capita income levels would double in about 30 years, so Mali would pass from $380 per capita in 2007 to $760 in 2035. This relatively modest improvement will not substantially reduce poverty and improve the standard of living ofthe population.

V. How might Mali achieve transformational growth? The country needs to address a number of key constraints if it wishes to generate fast, broad and sustainable increase in incomes. First, it would need to accelerate access to the region and the rest of the world. Second, it would need to develop basic productive services and factors of production. Third, it would need to develop new sources of growth. This would mean leveraging its assets better, notably dramatically improve the irrigation potential for intensive commercial agriculture for export to the region and the rest of the world; build on its outstanding culture and natural beauty to develop high-end tourism; and achieve better investment outcomes of the remittances and skills coming from its Diaspora. Currently, obtaining better returns from its natural assets is hampered by a number of constraints, most notably an unfriendly business and investment climate, and weak skills and capacity, which find their roots in a suboptimal governance structure. vi. Donor coordination and harmonization will be key to support the government achieve its GPRSF key objectives. To reduce its transaction costs, the government has created a Coordination mechanism to ensure harmonization of various interventions. Given the limited resources for Mali and increasing presence of other partners, during the CAS period the Bank’s interventions will transition from a global leader to a leading partner in areas of comparative advantage and supporting partner in

-1- areas where other donors are well positioned to support the GRPSF. Where relevant and in coordination with other donors, the Bank will foster programmatic approaches and budget support. Key donors will also develop a collaborative assistance strategy which will become the foundations for our next CAS.

vii. The CAS overarching objective is to selectively assist the government in achieving its key GPRSF objectives. The CAS focuses on the following strategic objectives: (a) promotion of rapid and broad-based growth; and (b) strengthening public sector management. 0 The first strategic objective will focus on linking Mali to the rest of the world; improving availability offactors of production; and supporting an indigenous private sector. 0 The second strategic objective will ensure that public financial management results in better service delivery by improving the link between the budget and sector strategies. viii. In assisting the government, the Bank will promote (a) selectivity, (b) aid effectiveness and donor coordination, (c) regional integration, (d) WBG coordination with an increased IFC role in the country; and (e) a stronger ESW program, in collaboration with other donors, to strengthen the Bank’s advocacy role. The AAA program will focus on activities that will help tackle the constraints to growth and feed the dialogue for reform.

ix. Given the importance of improved governance and capacity development, the Bank is selectively supporting key areas that will help address the challenges to growth and development. Activities to support good governance will focus on the consolidation and further deepening of the overall governance reform program of the government and a sector-based approach aimed at improving public sector governance in selected sectors. With WBI’s support, the Bank has begun a series of capacity development needs assessments and selectively concentrated its intervention to five key areas. x. The International Development Association’s indicative annual allocation during IDA 15 is about SDR92 million. In light of the limited indicative IDA resources, the Bank will use selectively self-standing investment operations in the energy, agriculture and urban sectors and yearly development policy operations. IDA also will rely on the successful deployment of the ongoing IDA portfolio to achieve the CAS strategic objectives. Mali is a good candidate for increased IDA funding when available. xi. The CAS program has specijk risks going forward: vested interests may prevent doing things differently and the country remains vulnerable to external shocks, particularly adverse political developments in the sub region.

- 11 - I. COUNTRY CONTEXT

A. HISTORICALCONTEXT

1. Mali is a vast landlocked country with a relatively limited natural resource and human capital base, and a highly dispersedpopulation. It is located in the heart of the Sahel, a region threatened by drought and desertification. The vast majority of the people are directly dependent on their environments for their livelihoods (herding, farming or fishing). It is the largest among ECOWAS countries by land area, with a population of approximately 13.5 million, and therefore a very low population density (1 1 persons per square kilometer).’ Its population is growing at a high annual rate of3 percent.

2. Mali is heir to a long historical tradition. Mali is located around the in-land Niger River Delta, cradle of several ancient civilizations- the Wagadou, Mali and Songhai empires. The rich oral tradition has kept alive this wealth of culture. This history finds expression today in a wide variety of cultures, languages and traditions as well as multiple historical and cultural sites.

3. Mali’s political structure promotes stable, democratic institutions. There is a strong tradition of consensus in Malian politics and the country is considered one of the most politically and socially stable countries in Africa. The country initiated a political transition to electoral democracy in 1992. Since then, it has completed four presidential elections, the latest in April 2007. Mr. Amadou Toumani Toure was re-elected President in the first round of the elections, and the coalition that supported him won the legislative elections in July 2007. Civil society has an important place in the national dialogue, although the country has a history of relatively low turnouts in poll.

4. Mali’s adherence to market-oriented reforms and the devaluation of the CFA franc in 1994 have pushed up economic growth to a sturdy 5.7percent annual average during 1994-2006. In the early 1980s, Mali embarked on a successful market-oriented reform program with reforms aimed at reducing the state’s monopoly of economic activities. From 1987 the reforms intensified and focused on the liberalization of external and internal commerce, notably the liberalization of prices and marketing of cereal crops. Following the devaluation of the CFA franc (CFAF) in 1994, all product prices were liberalized. Emphasis was placed on achieving macroeconomic stability and progressively deepening the reforms in key sectors ofthe economy, including in the social sectors.

5. Today, macroeconomic stability has been broadly achieved. Overall government deficits declined from over 9 percent of gross domestic product (GDP) prior to 1996 to under 8 percent on average subsequently. Domestic financing declined during the same period. From moderate inflation that averaged 10 percent during the early-to-mid 1980s, Mali experienced low average inflation of 3 percent during 1996-2004. This lowered inflation was facilitated by prudent national fiscal policy, and the prudent monetary policy of the Central Bank of the West African Monetary and Economic Union (WAEMU), which Malijoined in 1984.

6. However, Mali’s social indicators remain among the lowest in the world. The positive economic indicators have not translated into improved human development outcomes. The country ranks 175 out of 177 countries in the UNDP’s 2006 Human Development Index. Mali’s population growth has remained very high entailing a slower gross national income per capita (Atlas method) increase (at 4 percent a year during 1994-06) than average real GDP, and in pressure on frail natural

’ Mali is the world‘s 24th-largest country. With 1.24 million km’, it is comparable in size to South Africa, and is nearly twice the size of the state of Texas. The next largest ECOWAS country by land area, Nigeria, covers 0.9 million square km. With a population of 129 million people, Nigeria’s population density is 142 persons per km’.

-1- resources. In addition, the country’s geographical characteristics result in high transportation costs for agricultural inputs and other goods, high cost of public service delivery, and difficulty in accessing nomadic communities and some segments of the rural population. Mali also has faced challenges due to economic and political conditions in neighboring countries.

7. Yet, Mali has opportunities to generate incomes and improve the welfare of its population. The potential to boost agricultural production around the Senegal and Niger River deltas remains under-exploited- only 20 percent of the Niger irrigation scheme’s potential is developed. Mali can supply national, regional and world markets with fruits and vegetables, and there is potential for import substitution especially in agro-industry. Tourism around cities that rank among the wonders of humankind provides ample opportunities. Remittances and skills of Malians abroad also represent an opportunity for productive investment. Finally, strong gold production and a further rise in international gold prices will continue to boost revenues.

8. A new window of opportunity is opening up. A newly elected government is taking over with the intent to move to a high and more equitable growth path and to improve delivery of basic services. This vision is spelled out in Mali’s second Poverty Reduction Strategy Paper (PRSP), the Growth and Poverty Reduction Strategy Framework (GPRSF), adopted in 2006. The World Bank Group (WBG) seeks to contribute to this effort with this country assistance strategy (CAS).

B. RECENT ECONOMIC,SOCIAL AND POVERTY DEVELOPMENTS

1. Recent Economic Developments

9. Despite annual variability due to repeated shocks, Mali’s recent economic growth has been broadly favorable. Between 2003-06, Mali’s economic growth averaged 5.3 percent per year. It was driven primarily by gold mining and trans ort and telecommunication services, as well as favorable cereal harvests.2 Following adverse shocksP during 2004 and economic rebound in 2005, Mali had a good economic performance in 2006 when real GDP grew by an estimated 5.3 percent (compared to 2.2 and 6.1 percent in 2004 and 2005, respectively). Mali’s economy has performed less well so far in 2007 but is expected to do better in 2008. Real GDP growth is projected to reach 4.1 percent in 2007 due to shortfalls in cotton and gold output4, and 4.8 percent in 2008.

10. Other macroeconomic indicators (inflation, external balance and terms of trade) also improved. Inflation fell from 6.4 percent in 2005 to 1.5 percent in 2006 due to adequate cereal supplies, and is expected to remain low in both 2007 and 2008 at approximately 2 percent (table 1). Higher gold exports and improved terms of trade (owing to rising gold prices that more than offset increased fuel prices) strengthened external balances. The trade balance improved by 5.2 percentage points of GDP in 2006, while the current account improved more modestly due to repatriated gold profits. Gross international reserves remain comfortable, covering six months of imports. After the Multilateral Debt Relief Initiative (MDRI) in July 2006, Mali’s external debt fell from 48 percent of GDP in 2005 to 20 percent in 2006.

Gold mining represents approximately 12% of GDP, transport and telecommunication 5%, and cereals (including rice) 14.2% Adverse shocks included: natural disasters in the form of drought and locust invasion; commodity price shocks, notably a decline in international cotton prices and an increase in international oil prices; currency appreciation against the dollar, which lowered the local currency value of cotton exports since the latter are denominated in dollars; and the persistent crisis in CBte d’Ivoire which resulted in higher transport costs due to the need to access farther ports and in significantly lower remittances from Malians formerly working in CBte d’Ivoire. Cotton output fell short of expectations due to late rains, while lower gold output stemmed from technical difficulties at a few mining sites where rock formations and lower ore content were encountered.

-L- 1 1. Recent fiscal performance also was favorable and implementation of the 2007 budget suggests continued fiscal prudence. Bolstered by improved revenue collection, revenue windfalls and precautionary spending restraint, the authorities met all the IMF-supported Poverty Reduction and Growth Facility (PRGF) fiscal targets for 2006. The overall fiscal deficit’ in 2006 was 7.7 percent of GDP. Buoyant customs duty revenues6 and higher payments from the mining sector resulted in higher overall fiscal revenues than targeted. In 2007, total revenues are projected to remain at approximately 17 percent of GDP. Overall current expenditures were kept within the program levels, and the authorities met all quantitative performance criteria and targets for the end of March 2007. Provided the authorities resist any requests for transfers to state-owned enterprises (cotton, energy),’ the overall fiscal deficit for 2007 is projected to be 9.1 percent of GDP (equivalent to $689 million) and to be financed from committed external sources.

12. Despite Mali’s recent favorable performance, its recent average economic growth was slightly lower than the average experienced over the last decade, although underpinned by similar factors. Mali’s economic growth averaged 5.7 percent a year over the period 2003-06. Growth was driven by gold production (for export), transport and communications services, rice (for domestic consumption), and cotton (for export). Mining code revisions in the early 1990s underpinned the gold sector’s boom through foreign investment; and agriculture reforms including cereal market liberalization, enabled substantial increases in productivity of irrigated rice. In contrast to rice, cotton yields stagnated, and the agriculture sector grew less than overall GDP, reflecting the continued subsistence nature of most of Mali’s agricultural production. Progressive, although sometimes slow, implementation of reforms has so far helped sustain Mali’s above-5 percent average growth over a 13 year period since the devaluation.

Table 1. Selected economic indicators and medium-term economic outlook, 2007-10

1999-03 2004 2005 2006 2007 2008 2009 2010 Est. Prel. Projections (Annual % changes, unless otherwise indicated)

National income and prices Real GDP 4.7 2.1 6.1 5.3 4.1 4.8 4.8 5.4 Consumer price index (annual 1.4 -3.1 6.4 1.5 2.0 2.5 2.5 2.5 average) Terms of trade -1.3 1.5 -10.7 15.7 1.1 6.7 -0.5 6.9 (in YOof GDP, unless otherwise indicated) Investment and saving Gross domestic investment 20.8 21.1 22.3 22.4 22.9 23.3 22.9 22.5 Government 1.3 1.4 1.6 8.4 8.6 8.3 8.2 8.1 Non government 13.8 14.3 14.7 14.0 14.2 15.0 14.8 14.4 Gross national saving 13.3 13.4 14.1 17.7 16.5 11.5 17.8 18.3 Gross domestic saving 13.5 13.5 13.7 19.4 16.6 18.1 19.2 19.5 Government 0.4 1.1 0.5 0.4 1.0 0.1 1.4 1.3 Non government 13.1 12.4 13.2 19.0 15.6 18.0 17.8 18.2

Central governmentfinance Total revenue and grants 19.3 21.4 22.0 51.4 22.4 22.1 21.7 21.2 Total expenditure and net lending *’ 22.1 24.0 25.2 25.4 26.0 26.4 25.5 25.1 Current expenditure 11.9 13.4 13.3 13.1 13.5 13.5 13.3 13.2 Capital expenditure 9.1 9.3 9.5 10.9 12.6 11.1 10.9 10.8 Overall balance (payment order -7.1 -6.6 -1.3 -1.7 -8.9 -8.6 -7.4 -1.4

(payment order basis, excluding grants) (including unexpected compensation from WAEMU for lost customs revenues from previous years) ’ In 2001, the combined losses of the cotton ginning company CMDT and EDM could exceed 1% of GDP. The 2 companies have identified substantial investments needs.

-3- 1999-03 2004 2005 2006 2007 2008 2009 2010 Est. Prel. Projections (Annual % changes, unless otherwise indicated) basis, excluding grants)

External sector Current external balance, including -7.5 -8.3 -8.2 -4.7 -6.4 -5.8 -5.1 -4.2 official transfers Current external balance, excluding -9.4 -10.3 -10.4 -6.7 -8.1 -7.0 -5.6 -4.7 official transfers Debt service to export ratio after 8.5 6.4 7.4 3.7 3.4 3.4 3.6 3.5 debt relief Gross international reserves ($ mil) 455 861 942 1,182 1,267 1,351 1,424 1,482 (in months of next year's imports) 4.9 6.4 6.1 6.1 6.3 6.6 6.8 7.1 External public debt 86.2 48.8 47.9 20.0 22.6 24.4 26.5 27.9 Sources: Malian authorities; and IMF staff estimates and projections. Note: 200610 data is after adjustment for MDRI (IDA, AfDB and IMF)

2. Recent Social and Poverty Developments

13. Despite advances in establishing a democratic system, limited progress in creating effective accountability systems continues to constrain economic and social development. In the medium term, opportunities for growth are dependent on improved government performance, in particular (a) deepening expenditure management reforms including public procurement, (b) improving the delivery and the quality of public services, and (c) addressing corruption and conflict-of-interest issues. In the long term, economic competitiveness will strongly depend on improved performance in the education and health sectors. Analyses in the Independent Evaluation Group (IEG) of the previous CAS and in the CAS completion report (CASCR) highlight lack of government effectiveness, weak accountability systems, and conflicts of interest among the key factors affecting progress in implementing reforms in these key sectors.

14. In agriculture, cotton sector reforms continue to be negatively affected by vested interests. In addition, Mali has not realized the potential for intensive commercial agriculture by harnessing the Niger River., The establishment of and compliance with an internal pricing mechanism of cotton (based on the tracking of international prices) has reduced the financial exposure of the Compagnie Malienne pour le De'veloppement des Textiles (CMDT), the State-owned cotton monopsony. Nevertheless, in 2007 the government still needs to recapitalize CMDT by 1.4 percent of GDP. A strategy, agreed amongst stakeholders, to split CMDT into four regional cotton companies and then privatize them should be completed by 2008 (box 1).

Box 1. Cotton reform in Mali - The issue at hand In 2001 the government undertook a comprehensive reform to enhance the sectors competitiveness and performance. AAer an unsuccessful attempt in 2003 to privatize part of the parastatal, CMDT, the government in November 2005 adopted a revised plan to restructure the cotton sector by 2008. Given the tough cotton market conditions ensuing from stagnant world cotton dollar prices and unfavorable exchange rate movements, advancing on these reforms is all the more urgent. In addition, the cotton sector remains a crucial source of income for a large share of the rural population and therefore plays a key role in poverty reduction. A price mechanism was adopted in January 2005. The mechanism formula links the producer price to international market and covers three years. It has been implemented successfully so far including an end- season additional payment to farmers in the 2005-06 and 2006-07 campaigns.

-4- Despite some delays, other reform components and implementation benchmarks are broadly on track. In March 2006, the Council of Ministers decided that CMDT’s operations will be divided into four balanced zones and privatized. The capital of the privatized companies will be shared by private owners (61%), producers (20%), the State (17%) and ex-CMDT workers (2%). The drafting of bidding documents and their adoption by the government and Parliament should be finalized before the end of 2007. The launching of the bidding process is expected in January 2008 and the start up of the privatized companies activities during the second semester of 2008. During the 2008 transitional year, two sector issues will need special attention: (a) implementing an interim price setting mechanism to replace the current mechanism in place; and (b) reviewing the credit system to ensure access to commercial bank financing of inputs and cotton commercialization. Expected outcomes of the reforms are: (a) greater efficiency throughout the value chain; (b) substantial reduction ofperiodic financing of sector deficits from the government’s budget; and (c) increase in producers’ revenues.

A fundamental building block of the sector reform is the more direct involvement of organized cotton farmers in decisions afecting the sector. In May 2007, an organizational fiamework was established comprising the creation of cotton producer cooperatives, from the village level to a national federation, as legal entities with statutory roles in key sector decision-making bodies, including the boards of directors of the new ginning companies. Building the capacity of these cooperatives will be critical to the success of the overall reform. Because cotton prices are quoted in dollars, cotton producers in the CFA fvanc zone increasingly are confronted with export prices that are significantly lower in Euro/CFA franc than the price in dollars. This disparity depresses farm gate prices and will add to the potential fiscal cost of any scheme to stabilize farm prices or provide financial assistance to poor farmers. However, the disparity also reflects the declining relative cotton prices driven by new technologies (Bt cotton) employed by new competitors such as Brazil, China and India, but also by China, EU and US subsidies to their own production. Development partners, including IDA, are active in supporting capacity enhancement of producers’ organizations. AfDB, AFD, USAID, the Dutch, the EU, and the Bank also are supporting a program to boost cotton production technology generation and transfer that covers varieties, pest resistance, soil fertility, cotton quality, and diversification of cropping systems.

15. Other state-owned enterprises (SOEs) continue to pose risks to public finances and, in a larger sense, to growth perspectives. In the electricity sector, following the failed attempt to manage the State-owned electricity company, Electricite‘ du Mali (EDM), through a concession arrangement with the private sector, the firm is expected to run losses in 2007 with no visible improvement in the coverage of electricity. Following the decision to manage rail transport through a concession arrangement, performance issues continue to affect the Soci6te Nationale des Chemins de Fer (SNCF). The restructuring/privatization of Banque d ’investissement du Mali (BIM) has registered some delays. The civil service pension fund (CRM) continues to accumulate unfunded liabilities that will require a transfer of up to 2 percent of GDP a year by 20 15.

16. Overall progress on governance reforms is mixed. The government is implementing a far- reaching public finance reform program with regard to the preparation of sectoral medium term expenditure frameworks (MTEFs), the modernization of the expenditure management system, the strengthening of internal and external controls, and the reform of the public procurement system. In addition, the ongoing institutional reform program (PDI) is in the process of rationalizing the administrative machinery of the central government. However, corruption and conflict-of interest issues remain a key concern. Mali’s ratings under the Transparency International (TI) Anti-corruption Perception Index declined between 2003 and 2007 to a Corruption Perception Index (CPI) score of 2.7. There is little coordination of governance reforms at the policy level which could contribute to a more dynamic reform process.

-5- 17. Given the level of per capita income growth, poverty has fallen roughly in line with expectations. The two sets of poverty estimates' in table 2 for the years 2001 and 2006 are provided on the basis ofhousehold surveys carried out in these two years. Both sets ofestimates show a decline in poverty. Overall, the drop in poverty of between 4 and 9 percentage points is roughly consistent with the annual average rate ofeconomic growth of 5.3 percent during the same period (appendix 4).

Table 2. Headcount index of poverty (% of population in poverty)

2006~ YO Method 1 Method2 population (PRSP (cost of population (PRSP (cost of method) basic method) basic r- needs) needs) National 100 100 64.4 47.5 Areas: Urban 26.2 31.7 31.8 25.5 Rural 73.8 68.3 79.5 57.6 Regions: Kayes-Koulikoro 30.2 29.4 61.5 44.7 Sikasso 18.4 18.0 81.7 80.8 Mopti-SCgou 31.9 33.9 75.2 48.7 Tombouctou-Gao-Kidal 8.8 8.5 57.9 29.0 Bamako 10.7 10.2 11.0 7.9

18. While progress toward poverty reduction was acceptable, it is uneven, and spatial differences in poverty are widening. Nationally, inequality levels remained stable between 200 1 and 2006, so that growth does not appear to have favored either the poor or the better off. Depending on where the poverty line is set, the decrease in poverty appears to be either primarily urban (under a high poverty line) or rural (under a lower poverty line). However, there have been important differences in poverty dynamics according to geographic areas. The share of the population in poverty fell substantially in Bamako from an already low base, while it remained very high (and substantially higher than elsewhere in the country) in the Sikasso area. The drop in cotton producer prices is the primary explanation why poverty levels for cotton farmers remain unchanged since 200 1.

19. Despite progress in the use of public services, spending is not pro-poor. For services such as public primary schools, primary health care, and vaccination campaigns, the level of usage by the poor is similar to that of the population as a whole. However, for a range of other services, such as secondary and tertiary schooling, and hospital care, the poor tend to benefit much less than the population as a whole from public spending. In some areas in which public subsidies are implicit, as is the case for electricity and water tariffs that do not enable proper cost recovery, the poor benefit 10 times less than the general population from the existing subsidies. In addition, as in other countries, evidence from public expenditure tracking surveys shows that only a minority of funds allocated to certain services in education and health reach the poor. In sum, weak targeting and leakages of funds undermine the impact ofpublic spending on poverty and social indicators.

20. The economic growth has not translated into much improved social indicators. Current achievements will not be sustainable unless the growth in per capita income accelerates. Mali lags behind the region in social indicators with mixed progress in improving social indicators during the last CAS (table 3). Since 2001, the incidence of AIDS has been reduced from 1.7 per 1,000 in 2001 to

The poverty line is higher in method 1 (national definition used by DNSI) than in the Cost of Basic Needs Method (method 2) which implies higher poverty rates than method 1.

-6- 1.2 per 1,000 in 2006. However, improvements in other health outcomes have been less notable. Child mortality has declined, but nutrition indicators remain stagnant, and the fertility rate is one of the highest in the world. Primary education enrollment increased from approximately 6 1 percent in 2003 to 75 percent in 2006. Mali ranks below the Sub-Saharan Africa (SSA) average of 92 percent for primary enrollment rate. The enrollment rate for girls at slightly above 50 percent ranks below the SSA average. In addition, the quality of education remains a concern and the literacy in the country (24 percent) is one ofthe lowest in the world.

2 1. High levels of population growth also make it difficult to rapidly improve social indicators and have a number of other consequences. Mali’s high population growth rate is due to persistently high rates of fertility: 6.6 children per woman. This rate is combined with a young population, close to half of which is under the age of 15 today, leading to less than favorable dependency ratios. The UN estimates that by 2050 Mali’s population would triple. Population growth, particularly the increase in the working age population, has helped stimulate economic growth in the past, a characteristic of Mali’s high growth experience since the 90’s. However high population growth translates into a lower per capita DGP growth relative to GDP growth- Mali’s per capita GDP growth has stayed below 3 percent per year. High population growth entails more costly human development policies (e.g., education and health services). Furthermore, Mali’s malnutrition indicators are today among the worst in SSA, with no substantial improvement over the last decade.

Table 3. Mali recent social indicators

SSA2005 Indicators 2003 2004 2005 2006 average

Health: Child mortality rate (per 1000 under 5 229 229 Nia 191 163 years) Infant mortality (per 1000 live births) 113 96 96 Maternal mortality (per 100,000) 582 582 582 582 DPT3 vaccination coverage for children 79 85 90 68 under 1 year of age (%) Childbirth assisted by trainedpersonnel 42 46 51 49 44 YOpopulation living within a radius of 5 46 47 50 51 km of an operating health center Fertility rate (%) 6.7 6.6 5 HIV prevalence rate (“41) 1.7 1.2 6 Education: Gross primary enrollment rate 61 72 74.5 75 95 Gross female primary enrollment rate 46 52 65.1 89 Studenuteacher ratio 53 54 53 Source: Mali data provided by the Country team. SSA data extracted from the 2007 WDI

22. Even though the current economic growth rate is quite good, Mali is not likely to meet all the MDGs if the current pattern of economic growth and State effectiveness r,emains unchanged (table 4). It is probable that the country will meet the drinking water and HIV/AIDS targets if it maintains recent momentum on these two fronts. Mali also could meet the targets for extreme poverty, primary school enrollment, and donor coordination-but only if the country and its partners increase their efforts in these areas. A key problem is access to remote rural areas, in which the indicators are remarkably low. Last, Mali is not likely to meet the MDGs on health: child and maternal mortality and nutrition. Mali has just adopted a national action plan for reaching the MDGs.~A donors’ roundtable

The 200615 national action plan aims at (a) identifying key actions to put in place by the country as well as the required adjustments to the existing sectoral strategies to meet the MDGs, and (b) evaluating the available financing needs and the supplemental envelop to ensure the implementation ofactions.

-7- will be organized early 2008 to mobilize more resources for achieving the MDGs. Total financial needs over the 2006-15 period to meet the MDGs challenges have been estimated at CFAF884.866 billion, equivalent to an average of $130 per habitant per year until 20 15.

MDG Indicator Achievement Goal 1: Eradicate Extreme Poverty Ilr Goal 2: Achieve Universal Primary Education a Goal 3: Promote Gender Equality and Empower Women 0 Goal 4: Reduce Child Mortality 0 Goal 5: Improve Maternal Health 0 Goal 6: Combat HIV/AIDS, Malaria and Other Disease e Goal 7: Ensure Environmental Sustainability Proportion ofpopulation having access to safe drinking water e Other: a Donor Coordination I

11. THE GOVERNMENT PROGRAM

A. ASSESSMENTOF FIRSTPOVERTY REDUCTION STRATEGY IMPLEMENTATION

23. Implementation of Mali’s first Poverty Reduction Strategy (PRSF 2002-06) was mixed. Growth and poverty reduction fell short of the authorities’ objectives during the PRSP period. Growth averaged 4.9 percent annually compared to a target of 6.7 percent. Poverty fell from 68.3 percent in 2001 to 64.4 percent in 20061° compared to a target of 47.5 percent over the 2001-06 period. At the sector level, if current trends continue, Mali is likely to meet the targets on extreme poverty and primary school enrollment. However, it will not meet the MDG targets in the areas of health (particularly child and maternal mortality and nutrition), gender equality, and empowerment of women.

24. Nevertheless, thanks to prudent fiscal policies and positive external developments, macroeconomic stability and fiscal sustainability strengthened under the PRSF. The objectives of the 2002-06 medium term expenditure framework were met in terms of allocation of resources to priority sectors. The composition of spending improved, with poverty-reducing spending reaching 60 percent in 2006.

25. Lessons learned during PRSF implementation have shaped the design of the new PRSP. Key obstacles to satisfactory implementation of the PRSF included no link between the PRSF and the State budget; an inadequate monitoring and evaluation (M&E) mechanism; low institutional capacity in terms of the methods, instruments, and indicators; and weak statistics. These obstacles prompted the shift of focus for the new PRSP from direct measures to improve social indicators to more emphasis on accelerating economic growth for poverty reduction. The new PRSP also recognizes the necessity

loThe poverty line used for these estimates is based on the food energy intake methodology adopted by the government for the first PRSP. Use of a lower poverty line based on the basic needs methodology preferred by Bank staff, results in a larger poverty decline, from 55.6 to 47.5%.

-8- to fine-tune the poverty analysis and monitoring system to better anchor the strategy’s objectives, particularly regarding the level ofaccess to basic social services.

B. MALI’SGROWTH AND STRATEGY FRAMEWORKFOR 2007-1 1

26. Mali’s second poverty strategy, the GPRSF, provides the foundation for the government’s development and poverty reduction strategy for the period 2007-11. The GPRSF was prepared through intensive consultations with all stakeholders, and submitted to the National Assembly in December 2006 as an input for the discussion ofthe draft 2007 budget. The GPRSF is designed as the first phase of the 10-year action plan to achieve the MDGs, and is embedded in the government’s long term vision “Mali 2025”.

27. The GPRSF has two overarching objectives: (a) promote strong growth of 7 percent through wealth generation and employment creation; and (b) strengthen public sector performance through deepening of ongoing reforms covering the decentralization and de-concentration ofthe public sector, governance, economic and social sectors.

28. To attain its objectives of rapid growth and stronger public sector performance to better support productive sectors, the GPRSF is articulated around three strategic pillars. It also focuses on cross-cutting issues that require multi-sector collaboration. These include gender, territorial development, population, and peace and security.

Pillar 1: Developing infrastructure and strengthening productive sectors: The objective is to improve productivity of factors of production and economic growth. This pillar will concentrate on the four priority areas: (a) food security and rural development; (b) development of small and medium enterprise; (c) sustainable management of the environment and natural resources; and (d) infrastructure development.

Pillar 2: Consolidating the public sector structural reform agenda: This pillar aims at strengthening existing structural reforms and the functioning of government institutions. Key focus areas are (a) consolidating public administration reform, (b) reforming the business environment, (c) strengthening the viability, reach and performance of the financial sector, (d) promoting governance and public freedoms, (e) building the capacity of the civil society, and (0 strengthening regional and sub-regional integration.

Pillar 3: Strengthening the social sector: This pillar focuses on (a) creating and promoting long- term jobs, (b) developing access to basic social services, and (c) controlling HIV/AIDS.

29. While the GPRSF presents a reasonable framework for the reform program, significant challenges must be addressed to meet its objectives. The GPRSF has set an annual growth objective of 7 percent. Its main focus is rapid and more distributive economic growth for poverty reduction. Such transformational growth would lead to sustained and rapid reduction in poverty and improvement in social and human development indicators. The GPRSF makes private sector growth the cornerstone ofits accelerated growth strategy and is a clear improvement on the previous strategy with its increased emphasis on growth, the productive sectors, and public service delivery. It also incorporated lessons learning during the implementation ofthe previous strategy. However, it does not specify in detail all the reform measures that will be needed to achieve the growth target of 7 percent nor provides details on how to foster private sector productivity growth, greater public sector efficiency and better delivery of public goods. Government’s challenge will be to draw up an action plan detailing prioritized and time-bound reform and other actions to accelerate economic growth.

-9- 111. ECONOMIC PROSPECTS AND CHALLENGES

A. MEDIUM-TERMOUTLOOK AND DEBTSUSTAINABILITY

30. Mali’s medium-term macroeconomic outlook appears favorable, but there are risks of lower rainfall, unfavorable terms of trade, and slow implementation of structural reforms. Based on the latest Bank and Fund assessments, Mali could average 5.1 percent annual growth in the medium term. This growth assumes broadly unchanged terms of trade, no major extended supply shocks, and continued prudent macroeconomic policy reform performance (table 1). All key sectors-agriculture, mining, and services-are expected to contribute to medium-term growth to varying degrees. High international gold prices resulting in favorable performance of gold mining (box 2) and granting debt relief have recently strengthened the medium-term outlook. On the policy front, this scenario assumes a continuation of the recent pace of gradual structural reforms, notably (a) in the performance of infrastructure utilities (electricity, water, and telecommunications), (b) improved productivity in agriculture, and (c) improvements in the investment climate, including financial deepening, that would support a diversification of economic activities. High gold prices bode well for Mali’s export earnings and fiscal revenues, but because of its enclave nature, the gold sector alone is unlikely to contribute significantly to poverty reduction.

Box 2. Mining in Mali In the past I5 years Mali has witnessed a signijkant development of its industrial mining sector. The liberalization of the economy in the late 1980s resulted in the introduction of a new mining law in 1991 (supported by the WBG). Improvements in the enabling environment, with initial exploration programs funded by the United Nations and other donors, led to a substantial influx of private mining companies, which developed large scale industrial gold mines. It is important to take measures to sustain exploration activities, such as updating the legislation to provide for incentives for exploitation companies to reinvest. In addition, the sector’s contribution to the overall economic development can be enhanced by improving government’s capacity for revenue collection and management and by addressing some of the negative social and environmental impacts at the community level. Mali has a very large artisanal mining sector for which the government needs to improve health, safety, and environmental and social conditions. Finally, of critical importance for the sector is improved governance. In February 2007, Mali joined the Extractive Industries Transparency Initiative (EITI). Since then, the country has made good progress in implementing it. Mali has met 3 of the 4 criteria used to assess progress and is diligently working to achieve the fourth (publication of a work program). EITI is an important, but not the only, element of good governance. The government also needs to improve mining title issuance and surveillance, disclosure and management of geosciences information, and its oversight capabilities. The restructured mining component of the Growth SUDDO~~Proiect will address these critical issues.

3 1. While the balance of risks is currently favorable, Mali faces competitiveness pressure and potential downside risks of exogenous shocks. While Mali has experienced the lowest appreciation within WAEMU since the 1994 devaluation, the current tendency of the Euro, to which the CFA franc is pegged at a fixed rate, to appreciate relative to the US dollar is putting pressure on the country’s competitiveness, particularly in the cotton sector. In this context, preserving competitiveness will require both a prudent fiscal policy to safeguard macroeconomic stability and reforms to address long- standing structural obstacles, such as inadequate infrastructure, constraints to doing business and low productivity. In addition, vulnerability vis-a-vis rainfall, desertification, and terms of trade shocks (notably fluctuations in the price of cotton, gold and oil), are perennial challenges to Mali’s economy. In view of the importance of animal resources in Mali’s economy and the current national capacity on surveillance, early detection and rapid responses of major animal diseases constitute an important

- 10- threat for livestock, trade and public health. The budget does not contain provisions for the fiscal impact ofexogenous shocks.

32. Mali’s debt service indicators have improved markedly since the MDRI was implemented in 2006. A joint IMF-IDA debt sustainability analysis (DSA) indicates that, in the baseline scenario, Mali’s external indicators would remain below the indicative thresholds throughout the period of projections (2006-26). Given that domestic debt is currently minimal and not expected to increase in the foreseeable future, total public debt indicators also would remain moderate. Mali borrowed Euros 65 million on terms that are not fully concessional from the Islamic Development Bank (IsDB) to fund emergency power generating capacity, for which it received a waiver from IMF and the Bank. The Bank exception for the IsDB loan was granted within the framework of the Non-Concessional Borrowing Policy (NCBP) aimed at strengthening incentives for appropriately concessional borrowing in light of access to IDA grants and MDRI. ’’ This has had no material impact on its favorable debt ratios. Overall, the assessment is that, following MDRI and other favorable economic developments, Mali has improved from a moderate to a low risk of debt distress (table 5). Nevertheless, in light of large future borrowing requirements, productive public investments financed by highly-concessional assistance would remain critical to maintain Mali’s debt sustainability over the long run.

Table 5. Policy-based debt burden indicators

Thresholds” Mali Baseline Scenario Ratios 2006 2007-112/ 2012-26” (in percent) NPV of external debt-to-exports 150 40.0 51.3 88.7 NPV of external debt-to-GDP 40 11.8 14.3 22.9 External debt service-to-exports 20 3.7 3.5 3.8 NPV ofdebt-to revenue 250 67.5 80.7 122.9 Debt service-to revenue 30 6.1 5.6 5.4 Notes: ”Policy indicative thresholds for a medium policy performer. ” Simple averages.

3’ Excluding grants.

B. CHALLENGES TO MALI’S BROADAND SUSTAINABLE GROWTHAND POVERTY REDUCTION

33. Mali’s slightly lower average growth in the recent past relative to the longer 13-year period underscores its challenges in sustaining growth and in raising growth to the government’s GPRSF target level of 7percent. Over the past decade, Mali benefited not only from progressive reforms but also from improved rainfall and the 1994 devaluation. The recent growth slowdown indicates that the impact of past reforms, rainfall and devaluation are beginning to taper off as profitable investments become more difficult to find. The key problem is that total factor productivity has been nearly stagnant, and most of Mali’s growth has come from investment. The 2006 Country Economic Memorandum (CEM) analysis showed that, to sustain Mali’s growth, the reform process must be deepened and accelerated, and emphasized addressing the most binding constraints to private sector growth.

34. To generate faster, broader and sustainable increases in incomes, Mali needs to address a number of key constraints. Consistent with the GPRSF objectives, our assessment of Mali’s

” The factors taken into account in granting an exception to IsDB loan under the Bank’s NCBP include the urgent need for electricity generation capacity and potential high rate of return on the proposed project, lack of domestic and alternative concessional financing sources, the size of the loan and its limited impact relative to a manageable macro economic framework and debt sustainability.

- 11 - situation12 have shed light on the nature and the dimension of five challenges. The Bank’s recommendation is that Mali will need to: a. Accelerate access to all markets: local, regional and international b. Increase provision and lower the cost ofbasic business services and factors of production c. Build on un- or under-tapped assets as new growth sources d. Consolidate and deepen gains in governance e. Address key challenges for service delivery in social sectors

(a) Accelerate access to local, regional and international markets

3 5. While Mali has recently made significant gains in the transport sector, road and air transport are still limited and expensive. Despite recent significant gains,I3 as a large land-locked country Mali’s transport challenges continue to be enormous. Mali is not only landlocked; it also is vast and distant from the ocean. The capital is at or over 1,000 km from regional ports, resulting in significant transport and transit costs for imports and exports. Airfares in the sub region are estimated to be 50 percent higher than the world average due to a de facto monopoly for carrier service. The state of Mali’s airports is poor by regional and international standards and not conducive to a large expansion oftourism and air logistics industries.

36. Continued progress is required in Information and Communications Technology (IClJ to increase service penetration, particularly in rural areas. Following a gradual liberalization policy, in recent years, the ICT sector experienced important progress. Mobile density in Mali is close to 15 percent up from 2 percent in 2003. The fixed density remains very low compared with regional standard^'^ but is expected to improve following the sale ofthe telecommunications parastatal, Socie‘te‘ des Tde‘communications du Mali (SOTELMA). The sector’s primary constraints are: (a) a marked disparity of access to telecommunications services between rural and urban areas; and (b) very low internet penetration and excessive prices for broadband services. Progress remains to be achieved toward modernizing the legal and regulatory telecommunications framework.

37. Mali needs to take further advantage of economic integration to increase its share of regional markets and reduce costs of exporting to the rest of the world. Mali’s prosperity depends on higher economic integration within West Africa and internationally. Important regional organizations already in place regarding monetary, financial, and business regulations have benefited Mali by providing a concrete framework for Mali’s continued reform agenda. Mali also could benefit from trade agreements, such as the European Union’s Economic Partnership Agreement (EPA)” negotiated with its regional organization ECOWAS/WAEMU. One of Mali’s main challenges is to ensure that the trade negotiations contribute to its development.I6 But Mali has to benefit more from the region too through the potential market for Mali’s products, increased competition and access to lower cost electricity, banking and transport and facilitation services.

l2Analytical work undertaken during the last CAS period such as the CEM, the IEG’s review of Bank assistance over the period 1996-2005 and the last CASCR. l3Mali dealt skillfully with the consequences of the crisis in CBte d’Ivoire, its traditional and more direct route to coastal ports. Mali now has good access to the sea through three alternative routes-Senegal, Mauritania and Ghana. To access Senegal, Mali has sought to strengthen rail transportation, mainly by a concession with a private operator. In addition, the government created a self-financing Road Fund that initiated work on road maintenance and repair. 14 In 2003, fixed/mobile access was, 78% in Senegal and 91% in Cote d’Ivoire. In Mali, the price of international calls remains high and there is still an acute need to improve services. The EU’s EPA, being negotiated with regional groupings of ACP countries, seeks to establish a free trade zone between the EU and ACP countries for a period of 12 years starting January 2008, ECOWAS negotiates on behalf of its 15 member countries (inclusive of the 8 WAEMU countries) plus Mauritania. l6The reciprocity condition under negotiation indicates that prior to 2020 ECOWAS countries must open their economies to imports from the EU countries. Some countries have expressed concerns regarding trade diversion, trade creation, loss of trade revenues and de-industrialization.

- 12- (b) Increase provision and lower the cost of basic business services and factors ofproduction

3 8. High energy costs hinder new investment and constrain diversijication. West Africa is structurally short of generating capacity, and Mali is no exception. Only 16 percent of the general population has access to electricity; in rural areas, less than 5 percent. Moreover, electricity has weak reliability and very high cost.” Improving delivery of electricity requires significant attention to institutional reform. Past efforts to improve coverage and quality relied on the privatization of EDM, the electricity and water company, in 2000, but the process failed in 2005 and the government now is a majority shareholder.

3 9. Despite sound macroeconomic policies and a strong regional regulatory environment, Mali’s financial sector remains small, and access to credit remains limited and costly. While financial depth (M2) increased from 21 percent of GDP in 1996 to 31.5 percent in 2004, it remains below the SSA average (39 percent in 2004). More importantly, high intermediation margins (approximately 10 percent) lead to high lending rates. A high percentage of nonperforming loans (comprising 29 percent of bank portfolios) partly explains the high intermediation margins. The lack of guarantees, the weak judicial system to enforce contracts, and the low number and quality of bankable loan requests explain the limited access to credit. The continued State involvement in two major banks (BIM and Malian Housing Bank-BHM) further contributes to the present situation. Reform of these two major state banks has been slow.

40. Urban areas w2ll require special attention to meet prospective growth needs. Mali is less urbanized than other countries in the region (3 1 percent in Mali compared with the SSA average of 36 percent in 2006). However, the urban areas are growing rapidly and the urban population is expected to double by 2024. The urban population already produces more than 50 percent ofthe country’s GDP. However, the lack of roads, drainage and basic services (water, sanitation and electricity) lies at the heart of Mali’s urban development problems and constrains enterprise development and labor productivity. While cities play an increasing role in creating wealth, public investment in urban infrastructure represented only 6 percent ofpublic investment in recent years.

41, Low labor productivity resultingfrom low education and skill levels also is a major constraint to Mali’s development. As the economy grows, scarcity of skills is emerging at the higher end (secondary and post-secondary education levels), constraining diversification of the economy and limiting opportunities in areas such as tourism, light industry and agro-industry. The low literacy and skill levels further isolate the country, as they limit the extent of business collaboration with foreign firms potentially interested in investing in Mali.

(c) Build on un- or under-tapped assets as new growth sources

42. Untappedpotential for commercial agriculture based on small and large scale irrigation and new market opportunitiesfor domestic and export markets. Only 12 percent of irrigated lands are actually exploited. Through the OfJice du Niger (ON) large scale irrigation scheme”, many other smaller irrigation schemes, Mali holds great potential for private commercial agriculture (both import- substituting and export-oriented (box 3). In addition to the traditional rainfed staple food sector, the horticulture, agro-forestry, and livestock sectors offer under-exploited opportunities for agriculture diversification and market-oriented production for smallholders, and potential sources of economic

Recent value chain analysis of Mali’s textile industry shows the extent to which high-cost public electricity handicaps Malian industry. For example, for cotton yarn, energy costs for Malian firms represent 30% of production costs compared to 15% in Kenya, which has similar yarn production cost as Mali; and 4% in Bangladesh, whose yarn production costs are 80% lower than Mali. The ON irrigation scheme was created in 1932 to harness the Niger River for intensive irrigated agriculture, with a planned development of 1 million hectares over 50 years.

- 13 - growth. Foreign firms and investors are showing an interest (including from South Africa, Saudi Arabia, and the US).

Box 3. Commercial agriculture - An important source of potential growth

Commercial irrigatedfarming is one of the major potential sources of growth in Mali. Meanwhile, subsistence farming still represents 80percent of thefarming systems. Mali’s agriculture sector has substantial potential to accelerate economic growth by linking its production not only to domestic markets but, more importantly, to neighboring, sub-regional and international markets. The promotion of commercial farming targeting sub regional and international markets is therefore one of the most promising sources of agricultural growth.

The CEM underlined that the factors of success of Mali’s agricultural sector fall into four broad areas: (a) control over water; (b) access to reliable markets; (c) access to quality information on improved technology, agricultural production systems, and regulatory environment; and (d) improved institutional and incentive fiamework. It would include flexibility to take advantage of cropping opportunities, stronger land tenure and property rights, access to credit, and organized input supply and input credit mechanisms. The promotion of large scale commercial farmers and agro-processors to be promoted through public-private partnerships arrangements is the major challenge to overcome these constraints.

The irrigation sector offers a unique opportunity to develop commercial farming because of the extended availability of land and water. Only 19% of the 2.2 million ha of irrigation potential are actually irrigated. The ON, the large-scale irrigation scheme in the Niger central delta, still presents potential for development with 87,000 ha currently irrigated out of 200,000 ha planned to be irrigated before 2015. Over the go’s, ON went through an important reform process leading to more than double rice yields (fiom 2,5 T/ha to 6 T/ha in 2006). Less expensive to create and more profitable for smallholders under rice cultivation, many other small-scale irrigation schemes deserve particular attention for further infrastructure investments: only 13% of lowland areas and less than 3% ofrainfed small scale irrigation schemes have been developed for irrigation. The Bank is supporting the government in piloting a public-private partnership financing mechanism to develop irrigation infiastructure and help small and large-scale commercial farmers settle on 800 ha in ON. Access to quality and reliable agricultural input is another key constraint. The distribution network for fertilizers is characterized by weak professionalism, both fiom providers and producer organizations, in procurement. For seeds, numerous varieties have been developed by local and regional research for different crops, such as the NERICA rice variety and drought and disease resistant cowpea varieties that double local yields. Distribution networks still need to be organized and linkages between research, extension and producers strengthened.

To facilitate the emergence of commercial farmers, advisory services still need to be strengthened to provide eflcient assistance to: (a) producers to help them meet market demands and sanitary and phyto-sanitary requirements; (b) producer organizations to become more professional in creating and managing a wide range of marketing and technical services; and (c) private service providers to better answer producer and farmer associations’ needs in terms of technology information and market intelligence services. Beyond rice and cotton production, horticulture and livestock are very promising sub-sectors for the development of commercial agriculture, with great opportunities for producers in terms of diversification and growth.

43, Underdeveloped potential for high-end tourism services and handicraft. Mali has significant potential to establish Mali as a diversified tourism destination by promoting existing and potential cultural and historical sites, desert and Niger River attractions and wildlife reserves, and its handicraft industry. However, the development is hindered by a limited number and quality of accommodations and restaurants (and absence of rating system); shortage of trained qualified tourist guides; low availability, reliability and high cost of transportation and weak professionalism and business skills of crafts persons.

44. Under-leveraged Malian Diaspora. Mali’s Diaspora are strong supporters oftheir communities back home, with remittances estimated at $150 -$200 million per year. However, their support flows

- 14- mainly through informal channels. As a result, transactions costs are high and investments often of low return. Furthermore, the country does not benefit adequately from the skills and market access that these foreign resident nationals possess. Through sending economic missions to European and other capitals, the Mali government has started to promote the return to Mali ofmembers of the Diaspora to invest in irrigated commercial agriculture in the ON irrigation scheme. There has been some initial success, with Malians returning from France (financed by France’s Co-Development Fund) and from Southern Afiica to launch agribusiness schemes.

(d) Consolidate and deepen the gains in governance

45. Despite recent reforms,19 Mali’s business and investment environment does not favor the creation of formal businesses. The quality of the Mali’s business environment ranks low in comparison with other countries in Africa and worldwide. Table 6 shows Mali’s rank in the Doing Business Indicators for 4 key processes in 2006.20Understandably, trading across borders ranks the lowest, the result of being a land-locked country. Starting a business also ranks low, with an overall cost higher than the region. The cost of obtaining licenses likewise exceeds the cost in the region. Only with respect to the registering ofa business does Mali rank better than the region. In addition, the weakness of the judicial sector represents a major constraint to contract enforcement, which affects the financial sector in particular.

Table 6. Selected Cost of Doing Business indicators for Mali

Indicators Mali 2006 Mali Region rank (out of 175) Starting a business 163 Procedures (Number) 13 11.1 Time(days) 42 61.8 Cost (% of income per capita) 201.9 162.8 Dealing with licenses 122 Procedures (number) 15 17.7 Time (days) 209 230 Cost (% of income per capita) 1,813 1,024 Registering property 93 Procedures (number) 5 7

0 Time (days) 33 109.9 Trading across borders 167 Documents for export (number) 10 8.2 Time for export (days) 66 40

0 Cost to export ($ per container) 1,752 1,561 Cost to import ($ per container) 2,680 1,947

46. Mali has not progressed sufficiently in building an effective and accountable governance system Mali’s gains in building a democratic political system have not translated into effective. delivery of basic social services, business environment or control of corruption. Although significant

19 In 2006, the government initiated reforms of the business environment. Parliament enacted a law eliminating four procedures for starting a business by creating a single identifier. The new tax code eliminated the fee collected by the tax administration on the first year operation of new businesses. The 2006 tax code reduced the property tax on property transfers from 15% to 7% of the asset value. The number of days to register a property was reduced. 2o The CEM, trade diagnostic study and investment climate survey expand on the regulatory burden that companies face in Mali.

-15- progress has been made in establishing a democratic system of governance, the quality of governance practices remains a challenge to Malian authorities. 21 The July 2007 WBI governance indicators highlight a decline in both indicators, as well as in the rule of law. On TI rankings, Mali is lagging behind on its objective to achieve a significant improvement of the TI ranking.22 Weaknesses in the governance system contribute to low levels of administrative effectiveness and regulatory quality, flawed accountability, and continued instances of conflicts of interest, particularly in state-owned enterprises. These weaknesses reflect (a) the sub-optimal state performance in the health and education sectors, (b) unsuccessful management of concessions in the railway and electricity sectors, (c) high cost of business regulation, (d) progress on road transport sector reform, (e) limited progress on cotton sector reform and diversification of agricultural production, and (f) cases of re-nationalization of privatized assets, particularly in the electricity and banking sectors.

47. Intertwining interests between politics and public enterprise management provide opportunitiesfor corruption and constrains private sector investment. Critical reforms, particularly in the cotton, electricity, transport and financial sectors have been difficult. Privatization agendas have been delayed, and progress has been slow. The suboptimal concession arrangements of EDM and rail privatization, slow pace of restructuring and reform in the cotton sector, and cases of renationalization in the banking sector pose major risks to Mali's short-term macroeconomic stability, and to medium- term development and growth prospects. A strategy of further disengagement must be accompanied by strengthening the government's capacity to negotiate management contracts and concessions, and to steer privatization processes. The resulting arrangements must be credible to avoid reversals that weaken the government's capacity to commit.

48. Weak public sector management hampers Mali's long-term economic competitiveness. Long- term economic competitiveness will require upgrading the quality of the country's human capital by improving service delivery in the education and health sectors. Better delivery in these sectors will require closer linkage among public financial management (PFM), sector strategies and decentralization. Despite recent improvements in PFM, further progress is required, as noted by the Public Expenditure and Financial Accountability program (PEFA).23 The revisions of the sector strategies should enhance the MTEF as an instrument to turn the budget into an effective development instrument. In addition, greater cooperation between the Ministry of Finance (MoF) and sector ministries is needed during budget preparation and execution.

(e) Address key challengesfor service delivery in social sectors

49. Inadequate and underperforming education system. In the primary education sector, the recruitment and training of qualified teachers are not adequate; the construction of classrooms and the provision of textbooks can hardly meet the growing demand; and there are no tools to monitor performance and allocation of resources according to school mapping. Equity in access to education constitutes a major concern. Approximately 18 percent of primary students go to community schools where all costs are borne by households, with the exception of a State subsidy for the teacher's salary that represents one quarter of the salary paid to contractual workers in public schools. These primary students often are from the poorest families, usually living in rural areas. Overall, both the boy/girl enrollment ratios (65 percent for girls and 85 percent for boys in 2006 compared to 45.6 percent and 68.9 percent respectively in 2000) and completion rates at the primary education level (43 percent for

2' Various sources rank Mali high on indicators measuring democracy and democratic governance. Mali also rates well on country performance and institutional assessment (CPIA), which, at 3.7, is among the highest in SSA. Significant progress also has been made on reforming the PFM system, including the creation of the office of the Ve'rificateur Gkne'ral. 22 The GPRSF foresees an improvement of the TI rating from 2.9 in 2005 to 4.6 in 201 1. In 2007, the rating declined to 2.7. 23 The PEFA assessment indicated that key remaining weaknesses are procurement, internal controls, timely audits of budget execution, tracking grant-financed activities and extra budgetary funds.

- 16- girls and 53 percent for boys in 2006 compared to 23.7 percent and 39.4 percent respectively in 2000) have improved but the issue remains, particularly at higher levels.

50. Existing capacities for technical and vocational education are insufficiently developed to facilitate entry into the labor market. At the post-primary level, the education system faces very high- cost curricula that offer too many subjects, leading to low student teacher ratios, high level of repetition, and numerous non teaching staff. University enrollment is spiraling out of control with a high cost per graduate and an increasing mismatch between the growth in some disciplines and the labor market needs. Private higher education is quickly expanding without the regulatory framework and incentives to ensure its quality and development,

51. Low Health outcomes. Despite increased access to health services, their use remains low. Promotion of community health risk sharing mechanisms such as health mutuals, cover only 1.5 percent of the population. The funding of the health sector is low and resource allocation within the sector to allow better reach to the poor is not efficient enough. Finally, despite a growing number of private health providers that are used largely by the poorest segments of the population, the Ministry of Health does not have an overview of the whole system and does not include the private sector in its plans and activities.

52. Mali needs to develop policies aimed at benefiting from the ‘demographic dividend’. The high fertility rate contributes to the high maternal and child mortality rates. In addition, such rapid population growth boosts the social demand for schools and health, and therefore the costs of providing for those services. The impact on this dimension on the environment and on agriculture remains to be studied.

53. Mali needs to adopt clear measures to expand access to potable water. Meeting the government’s potable water target, that is providing 82 percent of the population with safe drinking water by 2015, represents a major challenge. Rural water supply sector investments in Mali have declined steadily over the past years, resulting in stagnation in the level of access to potable water. Only 68 percent of the rural population has access to potable water. Currently about 1800 villages have no potable water point and approximately 3 1 percent of the 25,000 water points are broken as a result of insufficient cost-recovery, poor operation and maintenance (O&M), and an overall lack of sound management practices. Financial resources to support the rural water supply sector development are available, but the disbursement rate needs to be increased. c. PROSPECTS FOR TRANSFORMATIONALGROWTH

54. To implement the GPRSF, Mali will need a more ambitious productivity-enhancing structural reform agenda. Raising economic growth will entail accelerating ongoing reforms and deepening the reform program, so as to enable substantial increases in both investment and productivity. Reforms will need to (a) include actions to accelerate linkages to internal, regional and global markets, (b) improve the delivery and reduce costs of business services and factors ofproduction, and (c) focus on the development of economic activities with high potential for growth and poverty reduction. This should go hand-in-hand with a deepening of the governance reforms to remove administrative bottlenecks for the delivery of public services and to address corruption in the public sector. Based on the challenges described above, the Bank proposes to focus its intervention in Mali to assist the government: Prepare a growth strategy action plan to accompany the GPRSF, detailing prioritized and time-bound reform actions. Mali’s growth strategy needs to provide more detail on how to foster (a) private sector productivity growth, (b) better access to credit, (c) greater public sector efficiency, and (d) better delivery of public goods.

- 17- Improve the investment climate. To improve the Doing Business indicators, the Bank recommends tackling key issues that pertain to business start-up, property registration, licensing, labor market flexibility, and contract enforcement. Mali also could leverage existing public- private sector consultative mechanisms, including converting the implementation capacity of the Presidential Investors’ Council (PIC) to the new investment promotion agency and its one-stop- shop unit. To foster formalization and competitiveness of private sector activities, Mali needs to upgrade sector-specific legal and regulatory framework and the tax regime. Strengthen public sector operations, by boosting public spending efficiency, improving spending composition, and increasing the eflectiveness of service delivery. It is important to accelerate the public sector reforms focusing on (a) decentralization and de-concentration of administrative services, particularly in the social sectors, (b) judiciary reform to reinforce the rule of law, (c) anti-corruption measures, and (d) improvement and modernization of PFM based on the 2005 action plan. To complement the PFM action plan and to ensure better impact on social sector outcomes, Mali should identify sector-specific policy measures to improve expenditure efficiency, particularly in the social sectors.

55. Transformational growth will also require that the government (a) address challenges in the energy sector while pursuing the medium-term investment program, (b) move towards market-oriented commercial agriculture, (c) boost investment in urban infrastructure and services, and (d) reduce road transport costs. In the energy sector, EDM needs to be restructured to become financially viable and operationally efficient. To reduce production costs and increase reliability, existing infrastructure needs to be refurbished and to enable purchase of lower cost electricity, significant progress is required to interconnect Mali’s power grid with Cate d’Ivoire, Burkina Faso and Ghana, while benefiting from additional hydroelectricity from the Felou dam (on Senegal river) under construction. In agriculture, Mali must move towards market-oriented commercial agriculture. To accelerate the development of its irrigation potential, Mali must (a) proactively attract successful foreign agribusiness enterprises, (b) adopt public-private partnership approaches for development of competitive agro-industrial and agro-pastoral product lines, and (c) strengthen the supply chains of existing products so as to better link those products to markets. In view of rapid urban growth, strong government commitment to the urban sector is needed, particularly in urban roads, transportation services, water and sanitation, land management, and property rights. Rapid urbanization should be built on creating a strong fabric of SMEs and a radical overhaul ofthe land titling system to increase availability of land. In transport, Mali needs an integrated transport and transit facilitation reform program. This can be done through (a) measures to strengthen management, efficiency and service quality of existing infrastructure, preferably through public-private partnerships, and (b) fiscal measures to foster formalization and competitiveness of road transport operators. The construction of a third bridge across the Niger River for vehicle, and possibly rail traffic would facilitate traffic flows between the freight depots and the main internal and international transit corridors in Bamako.

56. It is also important to implement the updated financial sector strategy24 through (a) consolidation of bank restructuring, treatment of the large nonperforming portfolio, and increased role of the private sector in the banks, (b) strengthening of microfinance supervision, (c) reform of the social security system, and (d) measures to improve access to financial services, including medium

24 Mali is one of six pilot countries in Africa under the Lispky-Daboub initiative whereby governments elaborate a financial sector development strategy with the joint assistance of the IMF and the Bank. Both institutions are expected to assist with the implementation of the strategy, which is expected to be presented to the Council of Ministers before year end.

-18- and long-term resources. In addition, increased financial sector development, complemented with improvements in the regulatory environment directed toward promoting secure and low-cost remittance services, would facilitate the inflow of remittances through formal channels. The privatization of BIM should be completed and banks with significant nonperforming loans such as BHM should be provided with greater authority to recover such loans.

57. To increase ICT penetration and affordability, Mali could encourage further competition in the sector, in addition to completing the ongoing sale of SOTELMA. The ICT regulatory framework will need updating to reflect new options and developments, and efforts should be deployed to increase access in rural areas, particularly for virtually isolated areas. A major increase in internet penetration also is desirable, through connection to the West African submarine fiber-optic cable rather than through the relatively more expensive satellite-based connectivity.

58. Mali needs to address the skills gap facing the modern private sector. Rapid results on education and skills can be achieved in the short-term by calling on the Malian Diaspora. Drawing on the Diaspora could be achieved by organizing informal networks through Mali’s embassies abroad to obtain better access to markets and economic intelligence, and to maintain a roster of skills. In the longer term, to accelerate skills enhancement, Mali will need to expand literacy programs, increase education quality, and promote private delivery of vocational training. Mali also could foster training programs to address market failures that limit the ability of SMEs to obtain the necessary skills and business services for productivity enhancement and competitiveness.

59. Mali needs to play a key role in strengthening regional organizations to which it belongs.25It is important for Mali to accelerate transit facilitation reforms in coordination with its neighbors and in line with the regional integration framework. Mali also shares important river watersheds with its neighbors which are already exploited for regional electricity production at the Manantali hydroelectric plant, but could be further developed. Mali also would benefit from a greater specialization in production patterns within the region.

60. Mali needs to study the impact of its high fertility rate, assessing what policies should be enacted to use this demographic dividend as a stimulus for growth instead of a deterrent. The impact of high fertility rate on economic development and on the social sectors should be assessed and policy options provided.

IV. DONOR SUPPORT TO MALI

A. DONORCOORDINATION AND HARMONIZATIONON THE GROUND

6 1, As a recipient of large aid inflows, Mali needs to focus on increased donor coordination and harmonization. Mali has attracted many donors, with disbursements of $675.4 million in 2006. The nine key donors26were responsible for 80 percent ofthis disbursed amount. Aid to Mali is likely to be scaled up from a growing number of sources. Some traditional bilateral partners (Belgium, Canada, Denmark, the Netherlands and Sweden) have selected Mali as a focus country for their external aid in the coming years, and non traditional partners (the Millennium Challenge Corporation, China and India) are increasingly present in the country. Thus, Mali is faced with the challenge to unite donors around a joint donors’ strategy and to use aid more effectively through stronger donor coordination and harmonization and a better rationalization of aid.

*’Transporters and exporters suffer many annoyances from informal roadblocks and arbitrary administrative diktats which add to their costs. 26 African Development Bank (AfBD), Canada, European Commission (EC), France, Millenium Challenge Corporation (MCC), The Netherlands, Sweden, United States Agency for International Development (USAID), and the Bank.

- 19- 62. The government, in collaboration with its partners, has decided on a sector-specific coordination approach in key sectors. Conditions for coordinated donor interventions are in place through sector strategies and MTEFs, and a joint Memorandum of Understanding (MOU) for budget upp port.^' Donors also are moving to sector wide approaches (SWAP). To implement the ambitious harmonization and alignment (H&A) agenda and strengthen donor collaboration during the CAS period, donors are working on (a) establishing a clearer division of labor2*, (b) continuing support for sectoral MTEFs, (c) jointly preparing projects, Analytical and Advisory services (AAA) products, and supervision and (d) developing a collaborative assistance strategy which will become the foundations for our next CAS.

63, The government recently established an H&A Secretariat and adopted an H&A action plan. All donors agreed on a roadmap to support this action plan. A quarterly government-donor meeting is organized and co-chaired by the MoF and the chair of the donor coordinating group to discuss progress on key policy issues supporting the government’s reform program. In addition, the donors created a technical pole to assist the chair to prepare the dialogue with the government, and to assist in monitoring the H&A action plan. The technical pole is partially staffed by the Bank and based in the Bank Country Office (CO). The CAS will support the reinforcement of the technical pool capacity. Sectoral coordination is organized around five sector groups,2gwhich are aligned with the GPRSF.

64. This CAS has been prepared in very close coordination with other donors and the next CAS will be prepared jointly with key donors. The CAS process was launched in October 2006 with a government- World Bank workshop in which the other partners participated. This close consultation process will continue during the CAS consultations and implementation and culminate with the preparation ofa collaborative assistance strategy to support the country’s next GPRSF.

B. BANKPOSITIONING IN DEVELOPMENTASSISTANCE TO MALI

Figure 1. Donor Intervention for Each GPRSP Pillars in 2007

Netherlands Germany Denmark Canada France USAID MCC EC WB AfDB

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % Pillar 1 Pillar 2 Pillar 3

” In March 2006, six donors including AfDB, EC, France, The Netherlands, Sweden and the World Bank signed a MOU to coordinate their efforts in providing budget support to Mali. ’’ A donors’ retreat was held in September 2007 to further discuss complementarity and division of labor issues. Subsequently, a matrix of assistance to support the GPRSF is being prepared. 29 Macroeconomic and financial framework issues; governance and institutional development; infrastructure development and productive sectors; sustainable human development and population issue; and GPRSF M&E.

- 20 - 65. During the CAS period, the nine key donors should increasingly channel their aid through budget support and sectoral approaches. In 2006, the share of budget support to total disbursements stood at 33 percent. Parallel and cofinancing so far is limited and concentrated on support to the education, health, agriculture, and rural infrastructure and environment sectors.

66. Given lower IDA amounts for Malifollowing the MDRI and the increasing presence of other partners, the Bank is no longer the principal partner in financial terms. Over the coming period, WBG assistance will evolve to work more selectively with other partners and the private sector so it can bring its expertise to bear as its share ofoverall financing declines.

67. The Bank will continue to play a catalytic role to promote aid effectiveness and to implement the Paris Declaration. The CAS will progressively bring the Bank’s portfolio in line with the guiding H&A principles. The CAS will call for greater selectivity and movement toward programmatic approaches through policy lending and harmonized sector approaches. During the CAS, the operations in education, transport, energy, agriculture will rely on joint sector reviews and pave the way for increased harmonization where it is less advanced. The Bank also will push for common sets of procedures and a harmonized M&E framework and system for budget support, SWAP-type operations and joint reviews. In sectors whose MOUs have not been signed yet (such as the transport sector), the Bank will play an active role to define clear principles for donor intervention and finalize MOUs.

V. WORLD BANK COUNTRY ASSISTANCE STRATEGY

A. WORLDBANK TRACK RECORD

1. Portfolio Performance under the Last CAS

68. Overall portfolio performance improved over the last CAS period. Portfolio quality is good, with only one project rated unsatisfactory. During the last CAS period, portfolio riskiness decreased, with a sharp drop in projects at risk both in terms of number and amount (table 7). In addition, the portfolio is disbursing well with ratios consistently above the Bank-wide and regional ratios during FY04-07. The good level of disbursements is attributed primarily to infrastructure, agriculture, financial sector, and education projects. The country financing parameters were approved in February 2005 (appendix 12). Since then, they have been consistently applied for new operations.

Table 7: Selected indicators of Bank’s portfolio performance

Indicator 2004 2005 2006 2007 Number of projects under implementation 11 11 13 14 Average implementation period (years) 3.5 3.0 3.6 3.3 Percent of projects at risk by number 27.3 36.4 23.1 7.1 Percent of projects at risk by amount 31.3 25.4 8.8 0.8 Disbursement ratio (%) 26.5 28.9 31.2 27.6 Proactivity ratio 100 50 67 100 Realism ratio 67 75 100 100

69. Concerted and proactive management of the portfolio by the government and the Country Office contributed to the improved trend in portfolio quality andperformance. The CO instituted an internal monitoring system to tackle systemic issues, and convened regular meetings of the government, project implementation units (PIUS), and relevant operational and sectoral staff to discuss

-21 - and address implementation issues. In addition, results-based country portfolio reviews (CPPR) were held more frequently with increased leadership of the government and stakeholder participation. The Mali team is increasingly decentralizing fiduciary and sectoral specialists to the field to carry out fiduciary responsibilities and day-to-day coordination and supervision.

70. Since FY04, IEG has rated 7 projects. Mali rated above the region’s average on most indicators. Institutional changes in the configuration of ministries (merger of ministries) during the projects’ lifetime have weakened the institutional development impact of some of the projects in the rural development sector and private sector development (PSD). The Bank’s quality assurance group (QAG) carried out one quality at entry assessment since FY04. The overall rating for the fourth structural adjustment credit (SAC IV) was satisfactory. The assessment highlighted the importance of country economic work, especially to identify a growth strategy, and was consistent with the QAG AAA assessment, which recommended relying less on cross-country comparisons and more on developing a Mali specific growth strategy.

2. Longer Term Track Record - Findings of the Country Assistance Evaluation

7 1. The Bank played a major role in Mali’s development eflorts over the past decade, but the institution’s performance was uneven. During FY95-05, the period covered by IEG’s Country Assistance Evaluation (CAE), IDA’S financing averaged $80 million per year. The Bank’s strategy focused on poverty reduction through (a) broad-based growth, (b) human resource development, and (c) public finance management and governance. The Bank contributed to at least four important achievements: macroeconomic stability, strengthened public finance management, higher primary school enrollment rates, and more transparent and efficient institutional framework in the road sector leading to the creation of a road maintenance fund. However, there were shortcomings in the Bank’s strategy regarding the financial sector, electric power and cotton sector reforms, education quality, and efforts to reduce the high rate of population growth.

72. Given the increased emphasis on social sector development, Mali’s progress towards human resource development was disappointing. The CAE assessed that the Bank had insufficiently focused on the importance of quality in education and of the importance of affordability in health care, as opposed to physical access. Some policy proposals in education (double-shift teaching) adversely affected quality, and the overall literacy rate is still exceedingly low. In health, financial barriers to access remain severe, and the rate of utilization of health services low. Therefore, the population’s gains in health status have been modest. In addition, while the Bank did help increase awareness of family planning issues, the total fertility rate remains very high.

73. The CAE noted that the economic and sector work (ESWJ program has been limited and had hampered the Bank’s capacity to provide timely, targeted advice. While ESW efforts intensified during the FY99-05 period, there was no comprehensive review ofeducation or health until the end of the period. In addition, no CEM was prepared during the 1990’s, weakening the basis for a clear growth strategy. In addition, despite the significant gender disparities in Mali, the Bank’s strategy did not benefit from a sound analysis ofgender issues. Finally, the CAE noted that the Bank’s governance program seemed insufficient, and the reforms supported have yielded limited results.

74. Goingforward, the CAE recommends tackling six specific issues. They are the quality of the education system, affordability of health services, policies to reduce the rapid growth of population, rural development including conclusive cotton sector reform and agricultural diversification, provision of cost effective electric power, and financial sector reform. The CAE also indicates that a key challenge for IFC will be to promote growth in the non mining sector and to provide technical assistance (TA) for reforming the business climate to support the private sector.

- 22 - 15. The CAE draws two major lessons: First, given the country’s capacity constraints, the Bank’s strategy may have been attempting too much at once. A more focused strategy is likely to be more effective to lay the basis for long-term sustainable growth. Second, major shortcomings occurred when the proposed strategy did not get full government support (financial, energy and cotton sector reforms) or when the strategy was only a partial solution to a problem (education and health sectors).

3. Findings of the CAS Completion Report

76. The CASCR concluded thatperformance under the last CAS was uneven. Mali made gains in public expenditure management, transport, telecommunications, water and sanitation, rice productivity, and selected social indicators (AIDS incidence and child mortality declined, and primary education enrollment increased). In addition, the Bank contributed to the establishment of key institutions in agriculture to be in charge of research and extension services, and to much improved access from Bamako to the sea. However, progress has been slow in (a) advancing the cotton reform- the sector still poses a fiscal risk, and productivity is stagnant, (b) strengthening microfinance, (c) developing financial markets, and (d) facilitating private sector access to financial services. Coverage and quality of electricity, and high electricity costs also remain a challenge. In addition, overall social indicators lag behind the region. The very high rates of fertility and maternal mortality and the low quality ofeducation and low literacy level remain major concerns.

71. The CASCR concurs with the CAE on areas of focus for future WBG assistance and underscores six necessities for the new Bank strategy to address. These are to: (a) adopt a realistic and results-oriented approach; (b) improve understanding and underpinnings of shared growth, especially in the rural sector; (c) create better synergies among Bank programs to leverage WBG efforts; (d) better sequence analytical work to inform design of lending operations and policy advice; (v) align Bank’s and government’s performance monitoring systems; and (g) further develop coordination with partners and work toward alignment of operations with sector strategies and MTEFs by harmonizing procedures and reducing parallel PIUs.

4. Mali FY07 Client Survey

18. The results of the Client Survey (CS) highlight an overwhelming support for Bank’s involvement in Mali. Stakeholders in Mali recognized a significant role for the Bank in areas that they consider high priority (figure 2). They felt that the Bank’s greatest value was lending where others would not and its financial resources and policy and economic advice. They felt that the Bank’s greatest weaknesses were imposing technocratic solutions without regard to the political realities and being too bureaucratic in its operational policies and procedures.

79. Many CSfindings resonate well with the proposed Bank strategy. Stakeholders agree that the top development priorities are growth, governance, financial sector, agriculture, education and infrastructure. They value the Bank’s advice and guidance and assessed both as highly relevant and aligned with key priority development challenges. They felt that the Bank’s knowledge would be most valuable if focused on education, agribusiness, enhanced business environment, and governance.

-23 - Figure 2. CAS selectivity based on the Client Survey

perceived to be a priority Agricultural Developmenl*

*Financial System

Public Sector*

*Foundation of Modern Society *Social Protection Sector 33 -

Bank not so good, but issue not perceived to be a priority Bank not so good on priority issues

80. The Bank is refining its communication strategy to strengthen its outreach through increased use of local outlets. The CS indicated that less than 50 percent of respondents were familiar with the WBG and that the Bank’s website and its public information center received little attention. The Mali communications team is developing a new initiative to increase the Bank’s familiarity among stakeholders, assist the government to make informed policy decisions, and support a more strongly engaged civil society (appendix 8). The communications strategy also will emphasize key stakeholders (Parliament, academia, youth, and local organizations) through the small grants program. In addition, to the extent possible, the Bank will ensure that AAA work is prepared jointly with other development partners and is widely disseminated among all stakeholders.

B. CAS STRATEGIC OBJECTIVES AND KEY PRINCIPLES

1. CAS Strategic Objectives

8 1. The overarching CAS objective is to selectively support key GPRSF objectives. The proposed CAS strategic objectives are to (a) promote rapid and broad-based growth, and (b) strengthen public sector performance for service delivery. The first CAS strategic objective is aligned with the GRF’SF’s first and second pillars and the second CAS strategic objective with the third GRPSF pillar. Within the two CAS pillars, the Bank will focus on (a) private-sector-led growth by addressing key constraints such as energy and finance and by linking the country to the rest of the world, (b) governance, and (c) capacity development.

- 24 - 2. CAS Principles

The CAS will be guided by the following set of principles:

82. Selectivity. This CAS will aim to be more selective than in the past. The WBG intervention will target a few selected GPRSF themes in which it has a comparative advantage and can add value. It will meet this principle gradually as the government and donors are putting in place the basis for their coordinated effort to support the GPRSF. First, it will combine fragmented operations under their common sector umbrella (notably agriculture sector) and confine new lending interventions to a limited number of sectors. To that effect, the country’s portfolio will gradually decrease in terms of number and more concentrated in terms of sectoral intervention. Second, the WBG will position itself in relation to the other donors’ interventions while encouraging more sector program approaches.

83. Promote aid effectiveness and donor collaboration. As aid to Mali is likely to be scaled up from a growing number of sources, Mali is faced with the challenge of uniting donors around a donors’ strategy and to use aid more effectively through stronger coordination and harmonization efforts.

84. Support regional integration. As a small landlocked economy, Mali has a keen interest in regional integration. Addressing some ofthe key challenges will require the country to further develop a regional outlook, especially when development opportunities can be unlocked through regional approaches. The Bank assistance to Mali in its support to regional integration will be fully aligned with the regional PRS and UEMOA regional economic program (REP) prioritie~.~’In addition, the Bank will pay special attention to ensure close alignment between regional and sectoral interventions at the country level. Alignment will best leverage Bank interventions to tackle sectoral constraints to Mali’s economic growth (appendix 9).

85. Strengthen WBG coordination. Based on recent assessments, the Bank will work to leverage all the expertise of the WBG through improved collaboration. The goals are to enhance the efficiency of WBG assistance to additional private-sector-led growth in the country and to improve the Bank’s readiness for rapid response to support the country’s implementation of its GPRSF. Private Enterprise Program (PEP) Africa and Foreign Investment Advisory Service (FIAS) will increase their roles to enable a stronger skills mix to support the country’s development objectives.

86. Develop a knowledgeprogram for advocacy role. The CAE found the effectiveness of the AAA weak. The Bank will work to mobilize other donors to co-finance just-in-time policy notes and core AAA diagnostics and will open its diagnostics to other partners and key stakeholders. Combined with a better sequencing and dissemination of AAA products, the WBG and key stakeholders will be better positioned to advise the government for policy formulation and informed decision-making. c. WORLD BANKGROUP PROGRAM TO SUPPORT THE STRATEGIC OUTCOMES

STRATEGIC OBJECTIVE I:PROMOTE RAPID AND BROAD-BASED GROWTH

87. To assist Mali to diversify its economy. The Bank will focus its assistance to help (a) link Mali to the rest of the world, (b) reduce the deficit of basic services and increase the availability of critical factors ofproduction, and (c) make targeted sector interventions to ensure effectiveness.

30 The regional PRS led to the preparation of the UEMOA REP currently under implementation. ECOWAS is finalizing its medium term action plan to implement the regional PRS.

-25 - (A) Accelerate the integration of Mali with the regional and global markets

88. The WBG will focus its assistance on transport sector, telecommunications and better leveraging of remittances.

89. Increase the efficiency of transport operators in roads, railway, and air. The Bank will aim to reduce by at least 10 percent the cost of accessing the key ports in CGte d’Ivoire, Ghana, and Senegal from Bamako. Building on the two ongoing investment projects and PRSC, the Bank will continue to support linking Mali to the regional road network, simplifying regulatory norms that increase transportation costs, and building the capacity of the Road Fund to collect resources and finance road maintenance. The Second Transport Project will fund connecting rural to urban areas. The EU and IDA will sign a MOU to guide their collaboration in transport. For air transportation, the WBG, through the ongoing Growth Support (GSP) and regional projects, will support improving the efficiency and security of the Bamako airport by providing assistance on its concession to a private sector operation and on its security. MIDA will facilitate the participation of a private operation.

90. Increase connection to the world through ICT and telecommunications. To expand the economic base and diversification, the CAS will support reforms in the telecommunications and ICT sectors to foster access and reduce the cost of connectivity to global ICT infrastructure through the GSP.

91. Remittances. In collaboration with the AfDB, the WBG is undertaking a comprehensive study of migration and remittances across 12 countries, including Mali. The study will determine the impact of migration and remittances on development. Based on the outcomes of the study, IDA will discuss with the government how best to leverage the potential of remittances to foster growth. A Mali- specific ESW on remittances is programmed for FY09.

(B) Reduce the deficit of basic services and increase availability of critical factors of production

92. The WBG will selectively concentrate its support to the energy and financial sectors and improving the business environment.

93. Increase power system reliability. The Bank, through its ongoing and new energy projects, will support (a) the installation of additional thermal capacity, (b) interconnections to the regional network, (c) the restructuring EDM to achieve financial viability and operational efficiency, and (d) complete the decentralized energy access expansion programs in rural and periurban areas. The regional program will provide complementary financing through two West AJi.ica Power Pool (WAPP) Adaptable Program Loans (APL) that help develop the Felou Hydropower Project and the construction of the Laboa-Segou transmission lines to establish a strong interconnection with CBte d’Ivoire.

94. Increase the efficiency of the financial sectors and the share of private sector credit. The ongoing Financial Sector Development Program will continue reforms to restructure and privatize the main public banks, strengthen banks portfolios and the microfinance supervisory unit, and reform the social security institutions. IFC will continue to support the expansion of coverage through the Credit Enhancement Facility to enable firms to raise medium- and long-term funding. IFC is exploring the introduction of a Trade Finance Enhancement Facility, which would provide guarantees through the banks. The WAEMLT Capital Markets Development Financial Intermediary Loan (FIL) and joint Bank-Fund regional Financial Sector Assessment Program (FSAP) will aid capital market integration throughout the region.

- 26 - 95. Improve the quality of business environment and Mali’s capacity to mobilize foreign investment. IFC will respond to government’s request to improve the business environment by developing a Solution Design Program which will coordinate technical assistance (TA) among FIAS, PEP Africa, MIGA, IDA and other donors. The program will focus on taxation, deregulation, and putting in place a regulatory framework for the industrial zone. Going forward, areas of attention will include business start-up, labor market flexibility, and contract enforcement. The assistance also includes strengthening institutions that oversee improvements in the business environment (Agence de promotion des investissements- API-MALI). These efforts should improve Mali’s compliance with the Organisation pour I ’Harmonisation du Droit des Affaires en Afiique (OHADA) business regulatory framework and thus improve its capacity to compete in the region.

96. Increase productivity of targeted micro, small and medium enterprises (MSMEs) and skills enhancement. IFC will support micro-enterprises through the Support and Training for Entrepreneurship Program (STEP). The Skills Development Study will identify areas where skills scarcity is arising or is likely to arise and provide options on how to meet demand. In addition, the lessons learned from the implementation of the FAFPA will be used to assist the government in designing a skills development strategy and program in relation with other donors. An update of the Investment Climate Assessment (ICA) will be the first step to support the preparation of a comprehensive competitiveness strategy.

(C) Undertake targeted sector interventions to accelerate growth

97. To help leverage Mali’s assets, the WBG will support (a) the development of a market-oriented agriculture, (b) broad-based improvements in the cotton sector, (c) the development of the mining, tourism, and light manufacturing sectors, and (d) reversing environmental degradation. To improve donor coordination3’, the Bank will prepare an Agricultural Productivity Project as a S WAp-type operation and will propose to develop an agriculture support fund to channel donor assistance.

98. Increase agricultural productivity, improve competitiveness of selected supply chains, increase irrigation capacities, and improve availability of agricultural credit. Complementing the ongoing support which aims to enforce the competitiveness of both traditional and nontraditional products to improve productivity and efficiency and to build organizational and institutional capacity, the new Agricultural Productivity Project will emphasize the promotion of a more productive and market-oriented agriculture. The new operation also will help the government implement its recently adopted Agricultural Framework Law. Complementary assistance will be provided through the Second Transport Project, which will finance the construction of rural roads with priority on connecting areas ofhigh potential productivity.

99. Accelerate cotton sector reform. The CAS will continue its support to improve productivity, diversify production, and reduce poverty in cotton producing areas. The cotton strategy builds on the lessons from Mali and other cotton economies and supports the government’s program of privatizing the CMDT with transparency and timeliness. The CAS will support the creation of a simple but effective regulatory framework for cotton to oversee the temporary regional private monopolies that will emerge after CMDT. Ongoing analytical work will gather the cotton reform experiences on the continent to inform the process in Mali. Attention will concentrate on the implementation of the strategic framework for the cotton sector which aims at restoring cotton productivity and competitiveness while diversifying cotton farmers’ incomes through the introduction of new crops, technologies and production techniques, and investments in infrastructure.

3’ The Danish, Dutch, and French governments also are actively involved in the sector.

- 27 - 100. Increase factor productivity through sustainable natural resource and environmental management. Assistance on reducing land degradation impacts will be channeled through the agriculture operations, including a fully blended GEF/IDA operation under the GEF Strategic Investment program (GEF-SIP). The Bank also will deliver advisory services3’ on SLM expenditure and institutional review and cost benefit analysis. Under the TerrAfrica partnership, the Bank and other donors will support the preparation of a SLMcountry strategic investmentJi.amework (CSIF) that will stress priority areas for intervention. The Bank will prepare a Country Environmental Assessment (CEA) to evaluate the environmental status of the main cities and provide recommendations to improve the urban environment. The findings will inform future operations.

STRATEGIC OBJECTIVE11: STRENGTHEN PUBLIC SECTOR PERFORMANCE

101. The objective is to ensure that public financial management results in better service delivery by improving the link between the budget and sector strategies and supporting effective decentralization and building local administrative capacity. In addition, IDA will focus its assistance on emerging gender and population and development issues.

(A) Advance the public expenditure reform agenda

102. Improving the weak points of the PFM system and strengthening the MTEF to improve quality of service delivery to the population and governance. The CAS will support improvements,in PFM that will build on priority areas that the recent PEFA report found weak. Priority will be placed on the implementation ofprocurement legislation to reduce costs and opportunities for corruption. The CAS also supports sustained efforts to improve the internal and external budget controls and increase the transparency of budget. With the new GPRSF in place, the CAS supports further strengthening the MTEF as an instrument to guide strategic allocation ofresources.

103. To enhance selectivity, the PRSC will be the preferred instrument to channel resources to the central government for service delivery. Assistance to the social sectors will be transferred through the budget by complementing budgetary allocations within an MTEF framework. Support to education will move to the budget once the present project ends. Only the HIV/AIDS support will remain outside the budget. The approach implies that the government and the donors share the GPRSF results targets and therefore the need to strengthen the capacity to monitor and evaluate results. To sustain efforts to improve the capacity of the public bodies responsible for PFM, the CAS proposes a TA operation to increase capacity to ensure that efforts to link all the components of an effective public expenditure practice prove sustainable.

(B) Support decentralization

104. Increase resources available to local governments and communities. The CAS supports the GPRSF commitment to increase the transfers of resources to local administrations and empower them with greater responsibility in service delivery. The Bank will encourage the development of a pilot budget transfer mechanism to local governments for key specific items in the health, education, and rural water supply sectors within the PRSC framework to further strengthen PFM effectiveness.

105. Build capacity of local administrations and support community development to address rural- urban migration. The CAS supports the institutional development of the urban centers building on previous efforts and analytical work. A proposed Urban Project will provide TA to urban centers to improve their capacity to mobilize resources and implement projects. In addition, it will provide resources to the central government to contract key infrastructure works with local governments. The

32 They will be funded through trust funds, TerrAfrica leveraging fund, and GEF.

-28- Rural Community Development Project seeks to develop local government capacity in targeted regions and to strengthen producer associations and other cooperative mechanisms in rural areas.

(C) Deliver results in key social sector strategies

106. Improve access to education and its quality, and provide more balanced opportunities across genders and economic groups. During the CAS period, the Bank will assist through its PRSCs the government in improving the effectiveness of schools with more decentralized school construction, improved teacher management, improved public financing of community schools, reinforced community development, in-service and pre-service training to help recruit new teachers. Bank assistance will be provided to (a) strengthen institutional capacity in public sector intervention, and (b) promote strategies to address gender gap disparities as well as urban and rural disparities.

107. Increase use of health services. Ongoing and future PRSC programs will continue to support the PRODESS and help the government to increase the use of health services. Particular attention is given to the efficiency of public health spending and the intra-sectoral allocation of resources. The WBG also will explore the possibility of a pilot IDA/IFC operation to support the private delivery of health services.

108. Improve quality of HIV/AIDS-related services. The ongoing multisectoral HIV/AIDS Project will be the main assistance instrument to fight HN/AIDS. Special efforts will be deployed to raise awareness of behavior change within the overall population, particularly the high-risk segments, including youth. Improving access to and quality of HIV/AIDS-related services will be supported through strengthening the relevant health sector infrastructure and involving the private sector in providing services. The Bank will assist Mali to expand the network of drug dispensation centers through involving the private pharmacies.

109. To address the high population growth rate, we intend to improve understanding of demographic patterns. A Demography and Economics Study will help better understand the determinants and implications of current demographic patterns. The results will enrich the dialogue with the government around the PRSCs on the economic, social and health consequences of the high fertility rate. The CAS will explore with other donors the feasibility of a comprehensive package of service delivery at the family level to address the malnutrition issue in a systematic manner.

1 10. Advocacy on Gender Equality. Based on the Gender Assessment, the Bank will support gender equality through (a) bringing boys’ and girls’ primary education completion rates closer together; (b) reducing maternal mortality by improving health; (c) providing greater information on a high fertility rate’s consequences on women and children’s health; (d) strengthening the economic role of women through community development; and (e) supporting, the integration of gender-responsive actions into country and Bank strategic documents, programs and projects.

D. GOVERNANCE AND CAPACITY DEVELOPMENT

1. Approach to Governance

111. The Bank proposes to provide cross-cutting and sector-based support in the area of governance and corruption. Cross-cutting activities will focus on the consolidation and further deepening of the overall governance reform program of the government. A complementary sector- based approach will aim to improve public sector governance in selected sectors.33This approach is in

33 Mali is 1 of the 4 global pilots in the enhanced governance initiative (Mali, Mongolia, South Sudan, and Zambia are the pilot countries) funded by the Bank-Netherlands Partnership Program (BNPP). This trust fund assists governments to

- 29 - line with the principles of the Governance and Anti-Corruption (GAC) Strategy, adopted by the Bank’s Board in March 2007 (and with the GAC Implementation Plan, presented during the Annual Meetings in October 2007).

112. At the cross-cutting level, in close collaboration with other development partners, the Bank will continue to build on governance and anticorruption initiatives underway. Bank activities will focus on deepening public expenditure management reforms (building on the results of the recently completed PEFA exercise) and on removing administrative bottlenecks that negatively impact the delivery of public services. For instance, Bank actions will support the improvement of the environment for business creation and operation and will include some targeted assistance for legal and judicial reforms. In addition, Bank activities will seek to assist the government to improve service delivery based on a systematic implication of the users and the beneficiaries of public services. The Service Delivery TA project will be a main vehicle for such support. In addition, the Bank will strengthen the policy dialogue around corruption and conflict-of-interest issues.

113. To support the government’s Action Plan for governance, the Bank will conduct sector- related diagnostic work on governance to inform its policy dialogue and to integrate governance elements in its sector projects. An analysis of the political and economic forces and institutional arrangements that shape sector decisions and behavior will be conducted in early FY08. The identified measures will be integrated in the design of Bank operations to enhance their development impact. Specific attention will be devoted to sectors and areas that pose particular risks of corruption, notably natural resource management.34 Specifically, for gold extraction, the priority will be to support the implementation ofthe national EITI agenda launched in early 2007.

114. The international community has keen interest in advancing governance in Mali. In supporting the government, the WBG will work with the EU and other donors. Harmonization is highly relevant in the area of justice reform, which has received limited support from the donor community. Most of the donors who are or will provide budget support to Mali are involved in economic governance and corruption issues (Canada, EU, France, and the Netherlands), Belgium, Canada, Denmark, Sweden, the Netherlands, UNDP, UNICEF, and USAID also are supporting the government’s strategy on democratic governance through central and local governments and civil society.

2. Approach to Capacity Development

115. The WBG proposes to increase its support to capacity development (CD) to produce measurable results. Mali is a target country for the Capacity Development in Africa: Management Action Plan (CDMAP) actions.35 Recently, three institutional development grants (IDF) have been extended to Mali to strengthen audit institutions, PFM, and PRSP M&E. A new TA operation to improve social service delivery is being considered to support GPRSF objectives. To better target capacity weaknesses, and in line with CDMAP Actions 13 and 15,36WBI is preparing selective needs assessments in support of the government’s PDI (appendix 11). The formulation of follow-up CD

enhance the quality of governance by identifying and introducing specific reform measures in priority sectors. These reforms can be scaled up depending on thematic support provided by other donors. 34 Mali is a pilot country in the ongoing regional Extractive Industries Governance work on institutional vulnerabilities. 35 CDMAP actions for Mali: Al- Public expenditure management and financial accountability, including procurement; A5 - Support to justice sector institutions; A6 - Public service reform, particularly pay reform; and AS - Retention of doctors and nurses. 36 CDMAP Action 13 relates to “helping countries undertake needs assessments and build outcome-driven capacity sensitive strategies” and Action 15 relates to “aligning CASs to PRSPs including explicit focus on capacity development”.

- 30 - actions will be undertaken during the CAS in close coordination with other donors and with the logistical and pedagogical support oflocal training institutions such as the CERCAP.37

116. In addition, program M&E and the National Statistical System (SSW will receive special attention. CD activities will be developed to improve M&E of policies and programs in the sector ministries involved in the PRSP and the CAS through training line ministries’ staff in the Cellules de planijkation et des statistiques. The WBG will coordinate the funding to implement the recently approved National Strategy for the Development of the Statistics (SNDS) with the donor community (Sweden) and will provide TA through the Accelerated Data Program (ADP) and other grant facilities (Belgium, DfD, TF-SCB). The Bank also will assist the government in setting up a PRSP- and MDGs results-based management system.

VI. DELIVERING THE BANK GROUP STRATEGY

A. LEVERAGINGTHE EXISTING PORTFOLIO

1 17. Successful implementation of the IDA portfolio will be key to achieve the CAS outcomes. As of December 2007, the IDA portfolio consists of 14 operations3* totaling $622.4 million in net commitments, of which $353.5 million remains undisbursed. Its implementation is satisfactory. Including the regional operations, the portfolio amounts to $723.8 million (appendix 9). Close to 47 percent ofthe IDA portfolio is concentrated in the rural development sector and more than 22 percent in the transport sector showing an already high degree of degree of selectivity in lending (table 8). Moving forward with this CAS, the portfolio will become more focused.

Table 8. Composition of active IDA country portfolio

Sector YO Net commitments Undisbursed ($ mil) Amount ($ mil) Rural DevelopmentiEnvt. 47 290.5 124.3 Transport 22 138.7 109.9 Energy 6 39.2 8.2 PSD 9 55.0 48.5 Education 9 52.5 49.2 Health (HIV/AIDS project) 4 25.5 8.1 Finance 3 21.0 5.3 Total 100 622.4 353.5

1 18. Strengthened porqolio monitoring will enable addressing remaining challenges. Past efforts have improved portfolio performance and quality, reduced effectiveness delays, and improved financial management. However, challenges remain, especially in procurement and M&E. Procurement issues persist, as evidenced by weak procurement capacity at project level, procurement delays, and deficiencies in projects’ activities planning. The majority of projects have an adequate M&E system in place. Nonetheless, more effort is needed during project preparation and supervision to ensure that all projects have a formal M&E framework and an operational monitoring system. Fiduciary and sectoral skills have been reinforced in the CO to ensure prompt implementation of the portfolio.

37 The MoE’s CERCAP is the Centre d’e‘tudes et de renforcement des cupucitks. It is co-financed by the government and ACBF. 38 This number includes a stand-alone GEF for Gourma Biodiversity Conservation ($5.5 m) and a blended GEF for the Household Energy Project ($3.5 m). Investment operations and additional credits approved in FY06-07 amount to $266.4 m.

-31 - 119. The Bank and other donors are supporting the procurement reform through the PRSC series. The Comite‘ National de Coordination et de Suivi de la rdforme du systime des marchb publics3’ is in charge of implementing the revised 2006 action plan of the Country Procurement Assessment Review (CPAR). The procurement code and key texts are expected to be adopted in early 2008 and the control and regulatory bodies to be operational in late 2008.

120. Efforts are being made to strengthen results-based portfolio monitoring. The Bank will work closely with the authorities to ensure clearly defined baseline indicators, targets, and outcomes; as well as planning and accountability mechanisms to collect data and analyze each project. A training program on M&E will be developed for the government staff. In addition, the CO and the government jointly will conduct regular results-based CPPRs to ensure that portfolio monitoring includes regional projects and AAA products. Project teams also will intensify the focus on results during mid-term reviews and make greater use ofquality enhancement reviews.

12 1. While financial management of the portfolio improved, oversight functions at the country level need to be strengthened to mitigatefiduciary risks. In the last three years, Mali achieved 100 percent fiduciary compliance on audited reports submitted and improved the timeliness of audit reports submission. In Mali, all Bank-financed projects are audited annually by external auditors. Through its IDF grant implemented by the newly appointed Verificateur General’s Office, WB is working closely with all stakeholders involved in country-level audit oversight functions to support the government in implementing its PFM reform action plan.

122. As internal and external oversight institutions are strengthened, the use of country FM systems will increase. Country systems are not much used. Approximately 35 percent of Bank PIUs are integrated within the government’s ministries, departments, and agencies, which are partially using country financial management (FM) systems (mainly accounting staff and internal auditors). The major FM risk ofusing Country FM systems is in relation to the weak internal audit function and weak supreme audit institutions. Implementation ofthe PFM Reform Action Plan relating to audit will help mitigate this risk.

B. NEWLENDING PROGRAM

123. The available FY08 allocation will be $42 million, and the indicative annual IDA15 envelope is projected at $138 million (SDR92 million equivaleni). Table 9 summarizes IDA’Splanned lending program for Mali during the CAS period. Due to the frontloading under IDA14 in FY06-07, the FY08 IDA allocation is limited to $48 million of which $6 million is already committed. In addition, under the MDRI,40Mali will benefit from debt relief in amounts ranging from $41 million to $56 million per year during the CAS period. The initiative has implications for Mali’s IDA envelope since the country’s forgone IDA debt service in any given year will be deducted from its performance-based annual IDA all~cation.~~

124. Actual IDA allocations for Mali will be determined annually and will depend on (a) the country’s performance as assessed annually based on the Country Policy and Institutional Assessment indicators and implementation performance of Mali’s Bank portfolio, (b) Mali’s performance relative to the performance of other IDA countries, (c) overall resources available to IDA during the IDA15

39 The steering committee created to coordinate and monitor the implementation of the procurement reform. 40 MDRI started in July 2006. IDA money freed up during the CAS period is $41.1 million in 2007, $43.8 million in 2008, $46.6 million in 2009, $49.4 million in 2010, and $55.8 million in 201 1. 41 While the MDRI netting out mechanism may lower countries’ new IDA allocations in terms of overall resource transfers, no MDRI recipient is worse off as a result of debt relief The overall assistance package by IDA - comprising new IDA allocation plus the debt relief initiative itself- is unaffected. Further more eligible countries also benefit from some additional resources in the form of their shares (proportional to their relative performance) of compensatory donor resources.

- 32 - replenishment period, (d) changes in the list of active IDA-eligible countries, and (v) lending terms (grants and/or loans) for which Mali qualifies under the IDA15 grant eligibility and allocation framework. With a continued good track record on macroeconomic and fiscal management, governance, portfolio quality, and absorptive capacity relative to other countries, the country should be able to benefit from increased resources if available and from additional resources (such as the Africa Growth Catalytic Fund). Should additional resources become available during the CAS period, any standby operations would be presented to the Bank’s Board of Executive Directors by the end of the previous FY and the Bank would scale up financing for its budget support and proposed sectoral operations.

Table 9. Indicative IDA program for FY08-11

Amount by FY ($ mil) Project name IDA 14 IDA 15 2008 2009 2010 2011 PRSC I1 to V (pillars I & 2) 42 40 50-60 50-60 EnergyElectricity project (pillar I) 75 (9 TA for Service Delivery (pillar 2) 15 Agriculture Productivity I1 Project (pillar I) 70 (S)

Urban -.project (pillars- I & 2) 70 (9 Investment operation (sectodamount to be confirmed) I -_ Total country operations 42 I 130 120-130 120-130 Regional operations 6 8 8-18 8-18 Total 48 138 138 138 GEF Sustainable land mgmt operation 6.3 WA Biosafety Project 25

125. The country’s performance-based allocation under IDA will be adversely affected if policies, especially governance and other structural reform policies, deteriorate during the CAS period. The quality ofthe IDA portfolio, particularly with regard to procurement, also will be a key determinant of the IDA allocation during the CAS period.

126. In light of the indicative IDA resources, the Bank will rely on annual development policy loans (DPL) to support the government in key structural reforms and to carry out key policy dialogue. Gains made in public expenditure management enable Mali to absorb budgetary support. Mali’s budget is credible and comprehensive, and sector allocations follow the GPRSF development priorities. In addition, the rate ofexecution is high and MTEFs in critical sectors are in place enabling the government and donors to coordinate work through Action Plans updated yearly. To ensure selectivity, the policy dialogue under the PRSC series will focus on PFM, social sectors, specific growth policy, and development issues that cannot be handled in sectoral operations, as well as governance issues that hamper service delivery in social sectors. In addition, the PRSC series will be the appropriate vehicle for conducting the growth strategy dialogue, encouraging elaboration of the government’s growth strategy, and facilitating consistency between the sectors strategies and action plans and the overall growth strategy and action plan.

127. Self-tanding investment operations will be used selectively and Mali will continue to benefit from regional programs and one fully blended GEF operation. IDA will focus its self-standing investment operations in the three sectors key to deliver the CAS strategic objectives: energy, agriculture, and urban. Mali’s participation in and share of the proposed regional projects have not yet been defined since the projects are at an early preparation stage (appendix 9). When these proposed

- 33 - regional operations are firmed up, the Mali country team will discuss the relevance of Mali’s participation in them and their complementarity with the country’s operations

128. In addition, IDA will emphasize the use of SWAP-type operations. In the past, IDA has delivered assistance in coordination with other donors around national strategies for health, education, and agriculture. During the next CAS, IDA will push for SWAP-type operations, which will pull donor resources into single-sector support funds. Implementation of this approach will commence with the upcoming operation in support of agricultural productivity and SLM up scaling.

C. KNOWLEDGEPROGRAM

129. The Bank will focus its knowledge program to tackle constraints to growth and service delivery and will pay greater attention to their strategic focus and dissemination. While the latest client survey recognized knowledge and technical expertise as valuable types of Bank assistance, the CAE found no clear evidence of how the AAA program influenced lending activities and supported the country’s formulation of sectoral policies. Therefore, the proposed knowledge program will gear up to enhance the understanding of underlying economic challenges and to strengthen the evidence- based policy dialogues. In addition, special attention will be paid to ensure better sequencing and dissemination ofAAA key findings.

130. The AAA program will shwt from formal reports to briefer, more targeted notes that tackle constraints to growth. The proposed knowledge program will focus on growth, service delivery, and fiduciary-related challenges (table 10). From 2009, growth PER notes will be prepared annually. The focus is only indicative and may change depending on emerging issues related to the achievement of the GPRSF. Other themes could be commercial agriculture, regional development, and State enterprise reform. Finally, to the extent possible, AAA will be carried out jointly with the government and stakeholders, and WBI will have an enhanced role during the CAS period.

Table 10. Indicative knowledge program for FYOS-11

FY08 FY09 FYlO FYll

Growth related ESWITA Rural Finance Study Growth note on mining Growth note on tourism Growth note on light Remittances manufacturing ICAupdate* TBD Country Environmental Assessment* SLM advisory service* Service delivery ESWITA Demography and Skills Development Social Protection* TBD Economics Study Mali Poverty and PRSP Poverty and PRSP Brief follow-up (TA) Brief (TA) Fiduciary related ESW

~ PEMFAR * PEFAupdate Governance follow- Governance CAS Progress Report UP* Diagnostic Study* Annual PRSP II Progress Report (TA) Note: Economic work and TA carried out under Bank-financedprojects are not listed in this table; TBD: To be determined; * For AAA to be trust funded.

- 34 - 13 1. IMF interventions will continue to be complementary to the WBG. The IMF takes the lead on macroeconomic stabilization, including macro fiscal policy, monetary policy, exchange rate policy and financial stability and risk management. The Bank and the IMF collaborate in assessing performance of HIPC resource use and in monitoring progress on budgetary and public expenditure management. The Ih4F focuses on fiscal management, expenditure management, revenue-enhancing measures, and audit capabilities and provides the government with TA and policy advice. The IMF also is supporting the government’s reform program aimed at strengthening actions underpinning macroeconomic management. Its financial assistance under the 4‘h PRGF will be completed end of October 2007, and negotiation ofa new PRGF is planned for early 2008.

D. MONITORINGCAS AND GPRSF RESULTS

132. The CAS results framework developed by the government and the Bank selectively supports the GPRSF objectives. The CAS results matrix (appendix 1) ensures close alignment ofthe CAS with selected country objectives and results. The matrix also summarizes the GPRSF objectives that the CAS seeks to support, results that the WBG expects from its interventions, instruments that the Bank will use to implement its proposed program, and support that other partners will provide. The results framework does not reflect possible acceleration of outcomes to fully achieve the 7 percent growth envisaged in the GPRSF. If additional resources become available, the results framework will be revisited in the CAS progress report.

133. CAS implementation progress will be reviewed regularly with all key stakeholders. A technical group responsible to monitor Mali’s portfolio recently was establishedU4*The group’s two primary functions are to (a) promote results-based management in all Bank-financed projects, and (b) ensure that results data from Bank-supported projects are made available to the PRSP monitoring unit and to the technical ministries. This group also will work on harmonization and alignment issues. The monthly “portfolio group” will update project indicators and ensure data integrity. The quarterly portfolio report will include an appendix on CAS implementation and be discussed during mini- CPPRs. Each year, a results-based CPPR will focus on CAS results and execution. In addition, the CO working group on Harmonization will monitor Paris Declaration objectives on aid effectiveness with support from the Harmonization unit in Washington.

134. Increased civil society participation in the CAS monitoring process. To respond to feedback during the GAC consultations to strengthen civil society involvement, the Bank will actively involve the civil society in monitoring. This approach will require agreement from implementing agencies to (a) produce and disclose inputs, outputs, and results for all Bank-financed projects, (b) contract with NGOs/academic institutions to monitor grassroots inputs and outputs against targets, and (c) disclose and widely disseminate information and progress on projects.

13 5. Various initiatives will strengthen capacity to create demand for data and produce data for results monitoring. Mali’s ongoing weakness and tardiness in producing national statistics makes tracking results difficult, whether for the GPRSF, MDGs, or CAS. The Bank is working with UNDP, UNICEF, DNSI, and the GPRSF monitoring unit to establish a GPRSF monitoring system that uses an existing database known as MaliKunafoni. Bank support is being provided via an IDF grant; the other partners in this initiative also have committed substantial financial and technical resources.

136. The Bank will mobilize partners to fund the government’s National Strategy for Development of the Statistics (SNDS) to improve timely statistical production. Available facilities at the Bank

42 The technical group consists of representatives from the PRSP unit, M&E staff from each Bank project, and representatives from the planning and statistics units (CPS) of the technical ministries.

-35- include the PHRD and Trust Fund Statistical Capacity Building (TF-SCB) grants. These concentrate on producing essential statistics under well-defined quality norms and on ensuring the sharing of statistics through regular publication and wide dissemination. Sustainability of funding will be addressed in collaboration with other donors through possible direct budget assistance and the government’s improved capacity to implement the country household survey program. The Bank also will provide TA through the ADP and other grant facilities (Belgium, DflD, and TF-SCB).

VII. MANAGING RISKS

137. The political environment represents a limited risk to the program. Mali is likely to maintain its stable political arrangements based on democratic rule and extended civil society activity. Local communal organizations provide strong bases from which to disseminate welfare improvements nationwide. The recurrent crisis in the Northern region of Kidal is being addressed through greater empowerment of local communities. The newly re-elected president has committed to continue decentralizing. The WBG jointly with other donors will support this effort.

13 8. Internal vested interests may slow reforms and prevent removing critical constraints to economic growth and service delivery. In the past, delays and setbacks in the structural reform agenda contributed to lower-than-expected economic performance. Mali’s sustained accelerated growth will not be reached if the investment climate is not improved by removing critical constraints. Does the political economy provide the basis for the government to undertake such far-reaching and ultimately disruptive reforms? Moving from a GDP growth rate of 5.1 percent to 7 percent, accompanied by an inflection of the demographic trend line, would transform Mali and accelerate the sustainable reduction of poverty. However, the reforms required would be difficult and politically sensitive. The Bank will assist the government in the timely implementation of its action plan for structural reform being developed under the GPRSF. It is important for the Bank to engage the new government in dialogue on the challenging timely implementation ofthe agenda reform.

139. On the sectoral level, critical reforms in energy, cotton, and service delivery require addressing several institutional constraints that have prevented progress in the past. The government has committed to undertake measures that depart from its previous policy stance. For instance, in energy, the government has initiated interconnectedness with neighboring countries and is bringing in private generators to complement the State enterprise. In service delivery, too, the emphasis on decentralization signals a departure from the past. For cotton, given the multiplicity of players, the path is less uncertain. To assist these processes, the CAS will assist the government through greater emphasis on understanding and dealing with the political economy uncertainties and in engaging in public-private partnerships.

140. Another risk is that donor coordination will not work as well as expected and thus will lead to uncertain and decreasing assistanceflows. At present, donors have a great degree of commitment to harmonize their approach. The CAS will contribute to the basic infrastructure of cooperation. However, the CAS takes a cautious stance regarding increases in external financing flows, including mechanisms to ensure predictability of aid. At the time ofthe progress report, the Bank will take stock of the progress made in donor harmonization and introduce any necessary modifications.

14 1. Regionally, political developments pose additional but limited risks. As a landlocked country, Mali is highly exposed to the political uncertainties of its neighbors. During the conflict in CGte d’lvoire, Mali strengthened alternative trade routes. The experience also strengthened Mali’s preparedness for future such risks. To minimize the risk of future disruptions, the Bank is supporting government to increase the menu ofavailable trade routes.

-36- 142. Finally, Mali remains vulnerable to fluctuations in commodity prices (gold, cotton, and oil). A fall in international gold prices would have a drastic impact on Mali’s economic growth, which over the last decade has been driven largely by this sector. Because cotton is its main export, fluctuations in this commodity price also affect Mali’s economy and the incomes of approximately three million persons in rural areas, where most of the poor live. High oil prices drain international reserves and increase petrochemical, electricity, and transportation costs, thus harming the overall economy. The government is implementing a three-part strategy to address its vulnerability to external shocks. The government is (a) implementing its updated cotton producer price-setting mechanism to ensure adequate pass-through of world prices and better risk sharing between producers and ginning companies, as well as enhancing the productivity and competitiveness of its cotton sector. In addition, the cotton company should use hedging instruments against a drop in the price of cotton and a decline in the dollar, and (b) lowering energy costs through connecting with lower-cost regional producers; and (c) supporting economic diversification through reforms of the investment climate and promotion of promising new product sectors. The government is accompanied in its reform efforts by IDA’S series of PRSCs, IDA’S GSP, the recently approved MF-supported PRGF, plus support from other development partners.

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W d APPENDIX 2: MALI CAS COMPLETION REPORT

Date of CAS: July 30,2003 Period covered by CAS: July 2003 - June 2007 (FY04-07) CAS Completion Report prepared by: Alema Siddiky, (Consultant)

I.INTRODUCTION

1. This CAS Completion Report (CASCR) evaluates the effectiveness of IDA’S FY04-06 Country Assistance Strategy (CAS) for Mali’ in achieving its intended outcomes and draws lessons to guide the design of the new country strategy for FYOS-11. The report reviews the Bank’s strategic objectives, program of support and their relevance to the government’s development goals. The report also assesses to what extent the Bank was successful in meeting these objectives and presents a set of lessons for future Bank assistance.

2. The report is based on reference documents’ and discussions with the country team, government counterparts and various stakeholders. The assessment has benefited from a recent evaluation of the Bank’s performance in Mali over the period 1995-2005 by the Independent Evaluation Group (IEG). IEG consulted the Bank’s team during the preparation oftheir report.

3. The CASCR assesses CAS implementation from the perspective of the Bank’s new results framework. Given that the timeframe dates back to 2003 when the Bank’s focus on managing for results was not articulated, the CAS did not explicitly identify core measurable results. It only stated key development outcomes with no clear baseline and targets (Annex 9). Moreover, the CAS concentrated on inputs and processes rather than on outcomes. Thus, significantly, this CASCR had to retrofit the intended objectives from a broader perspective

4. An important conclusion of the present evaluation is that overall performance under the FY04-06 CAS is rated as moderately satisfactory. Progress toward most of the sectors during the CAS period has been uneven. Even though the country maintained an average growth rate of 5% and poverty declined moderately, both were uneven. As a result, the growth did not translate into overall poverty reduction in rural areas due to poor service delivery. The Bank was moderately successful in assisting the government to strengthen public finance management, create a road maintenance fund, and increase telecommunication services and primary school enrollment. However, some goals were not achieved in the energy, transport, financial, and cotton sectors. Improvement in the productivity area was not fully achieved, particularly in agriculture. Last, investment in human development did not result in sufficient progress, particularly in the poor quality of primary education and low rate of health services use and overall health outcome. 11. MALI’SLONG TERM DEVELOPMENT OBJECTIVES 5. Mali’s development objectives are spelled out in the original Poverty Reduction Strategy Framework (PRSF)3 for the period 2002-2006. In addition to a pre-requisite pillar (accelerated and re- distributive growth), Mali’s PRSF consists ofthree strategic pillars:

0 Strengthening institutions, governance and participation;

0 Developing human resources and improving access to quality basic services; and

0 Developing basic infrastructure and productive sectors.

’ Although the CAS period ended in FY06 due to the delay in new CAS the progress during the FY07 is included. CAS, Project Appraisal Documents; Implementation Status and Results Reports; Supervision reports (Aide mtmoires, back to office reports); ICRs; ESWs and IEG reports. During the CAS retreat in November 2006 in Bamako, main findings of CASCR were discussed with government counterparts. The government has changed the name from PRSP to GPRSF.

- 47 - 6. The three core PRSF pillars target poverty reduction by identifying specific measures needed to integrate the poor and to reduce gender, rural, and urban disparities. While the PRSF acknowledges growth to be a prerequisite of poverty reduction and a specific GDP growth was targeted, the PRSF did not provide a concrete strategy for accelerating growth. The government started the process of translating the ambitious and comprehensive PRSF agenda by the preparation ofthe first health sector medium-term expenditure framework (MTEF) in 2004.4 The PRSF represents the government’s unified framework ofthe medium-term policies and strategies and is the main document for alignment and harmonization with donors. The first progress report, prepared in April 2004, summarized achievements of the first year of implementation (2002-03) and outlined policy objectives for 2004- 06. The second progress report was prepared in August 2005 covering PRSF implementation during 2003-04. Mali’s new poverty strategy, the Growth and Poverty Reduction Strategy Framework (GPRSF) was submitted to the national assembly in December 2006. GPRSF covers 2007-1 1. GPRSF is similar to the previous strategy but places much more emphasis on economic growth. GPRSF focuses on three main pillars: (i)developing infrastructure and strengthening productive sectors, (ii) strengthening the public sector structural reform agenda, and (iii)improving delivery of social sector services. 111. BANK’SSTRATEGIC OBJECTIVES 7. The primary focus of the overall Bank’s strategy was to support PRSF targets. The FY04-06 CAS was organized around three broad themes which supported PRSF pillars and several key development objectives. The Bank’s program supported a majority of these objectives in different sectors.

Figure 1. CAS supported PRSF pillars and key sectors

-Pillar Kev Sectors Supported bv CAS Accelerated and Transport J Energy Private Sector and Promoting Growth Financial Sector PRSF Pillar 3 Agriculture & Rural Development LfDevelop basic infrastructure & Urban productive sectors

PRSF Pillar 2 Key Sectors Supported by CAS Theme 2 -CAS Develop human resources & Health Developing Human access to social services Education HIV/AIDS

PRSF Pillar 1 Kev Sectors Supported by CAS Theme 3 Promote Institutional -CAS Public Finance Management Development, Governance and Public Finance Participation Management Procurement Democratization and \ decentralization

In 2005 an education sector MTEF was prepared.

-48- IV. MALI’SPROGRESS TOWARDS ITS GOALS A. Macroeconomic Stability & Growth 8. Despite the adverse shock during 2004, Mali’s overall macroeconomic performance in the last few years has been respectable. Initially, in 2004, the locust invasion, drought, commodity price shocks, currency appreciation in dollars, and persistent instability in neighboring CBte d’Ivoire slowed the economic growth to 2.2%. However, ftom 2004-07, due to strong agricultural production, improved terms oftrade, and gold export, the economy recovered at an average rate of 5.4%. Rice and cereal production in particular increased due to favorable rainfall. These increases led to lower food prices and a decline in the average annual inflation to 2% in 2007. During the same period, the overall fiscal deficit (excluding grants) increased, slightly, averaging 7.5%. Revenue performance improved, especially in customs duties. On the policy side, in the face of difficult economic circumstances, Mali pursued prudent macroeconomic policies. It adopted and appropriately implemented the new cotton producer price mechanism to minimize the fiscal risk of cotton sector losses.’ While Mali’s growth in recent years has been commendable, it did not noticeably reduce poverty.

9. During the FY04-06 CAS period, both the Bank and the Fund supported the government in structural and macroeconomic reforms under the agreement overseeing division of responsibilities. The Fund took the lead on macroeconomic stabilization. The Bank focused more on institutional aspects underpinning the macroeconomic framework and on social and structural areas that impact growth. The Ih4F’s macroeconomic dialogue and the Bank’s technical support at the policy level and budget support contributed to growth in Mali.

Table 1: Key macroeconomic indicators

Indicators 2002 2003 2004 2005 2006 2007 Real GDP growth (YO) 4.3 7.2 2.1 6.1 5.3 4.1 Inflation (%) 5.0 -1.3 -3.1 6.4 1.5 2.0 Fiscal balance, payment order basis excluding grants -5.7 -6.6 -7.3 -7.7 -8.9 (% of GDP) Current acct balance (YO of GDP) incl official -8.3 -8.3 -8.2 -4.7 -6.4 transfers Gross official reserves (months of imports) 5.2 6.9 6.4 6.1 6.1 6.3 Source: Malian authorities and IMF staff estimates.

10. On the analytical front, the Bank’s Country Economic Memorandum (CEM) identified constraints to growth and put forth recommendations that included (i)maintaining macroeconomic and financial stability; (ii)improving the investment climate; (iii) attracting experienced investors; (iv) facilitating organization and coordination of private sector participants in product value chains, particularly sectors having many small economic actors; and (v) using public-private partnerships where warranted. The CEM built on earlier analytical work, particularly the multi sector Diagnostic Trade Integrated Framework (FYO4), Transport and Growth study (FYO4), Investment Climate Assessment (FyO5), Financial Sector Development Project studies (FYOO), Agricultural Diversification and Competitiveness Project (FYO6), and the Growth Support Project (FY06). These analyses fed into the policy dialogue and sector-specific, growth-oriented strategies. Nonetheless, the CEM was completed in the later part ofthe CAS period. Thus, a fully integrated growth strategy had not been articulated during the CAS period.

See cotton sector reform details under pillars 1 and 3.

- 49 - B. Poverty 11. Mali’s national poverty fell from 55.6% in 2001 to 48.4% in 2006.6 However, the distribution of poverty was quite uneven. Poverty remained stagnant in the key cotton and rice areas, which are mostly rural. Although Mali’s poverty declined in the last five years, the CAS had not articulated a clear strategy to reduce poverty in Mali. It was written more in general terms that all lending operations would contribute to poverty reduction. In addition to the above preliminary estimates, the Bank prepared a poverty assessment (FY04) comparing 2 household data surveys for 1988-89 and 2001 showing that the poverty headcount had decreased from 63.8% in 1989 to 56.5% in 200 1. This work was not sufficient to measure poverty reduction because the comparison years were too outdated to show any significant progress. However, the 2006 Household Survey’s preliminary estimate gives a much better result to identify whether the decline in poverty made any significant changes in Mali’s overall condition.

v. ASSESSMENTOF CAS OUTCOMES 12. The following sections analyze the country’s progress and the Bank’s assistance toward the CAS objectives. Mali’s CAS was organized around the government’s PRSF development objectives instead of outcomes, and highlighted strategiedactions and the partner program. The Bank’s instruments aligned with these objectives. The objectives were clustered around 3 PRSF pillars, which were aligned with the 3 main CAS themes. The CASCR analyzes each pillar in terms of the pillar’s main objective, its supportive assistance instruments, and its achievements or shortcomings related to the CAS goal. However, most of the objectives lack baseline or target data. Appendix 1 provides a more detailed assessment ofprogress against the FY03-06 CAS Program Matrix.

CAS Theme: Promotinp Growth

The above CAS theme is supporting the following two PRSF pillars: . PRSF Prerequisite Pillar: Accelerated and Re-distributive Growth . PRSF Pillar 3: Develop Basic Infrastructure and Productive Sectors‘ 13. The Bank’s strategy focused on helping Mali: (a) develop and diversify sources of growth by improving financial and business environment for increased private sector development and increase agriculture productivity in the rural sector; (b) build and maintain necessary infrastructure sector; and (c) involve decentralized government, deconcentrated services and local populations to build capacity.

A. Transport 14. The Bank’s assistance focused on transport infrastructure and services in the areas of urban and rural roads and railway through two main projects: Transport Corridor and Investment Project (FY04) and Rural Infrastructure Project (FYOO). These projects concentrated on publidprivate investment and viability in transport infrastructure, maintenance of transport infrastructure assets and rehabilitation of rural roads. Bank further supported regulatory environment in the transport sector through Economic Policy and Public Finance Management Credit (FY06) and the PRSC-1 (FY07).

15. Progress in the transport sector was uneven. Institutional reforms were undertaken to make the road sector more effective and transparent. However, the high cost of transport put pressure on poor management and maintenance in the transport infrastructure. The transport sector is considered the main vehicle for other sectors. However, it was noticed that most of the infrastructure projects (for example, Urban Development and Decentralization, Rural Infrastructure) operated separately without taking into consideration the transport dimension of any projects in other sectors. For example, the

Based on 2006 Household Survey using the cost of basic needs method.

- 50 - rural infrastructure project had a rural development (ARD) component. However, limited collaboration occurred with the ARD team during project preparation and supervision ofARD projects.

16. In the road sector, road maintenance improved and the new implementation agency set up in 2005 is operational. The budget allocation for road maintenance was increased and the collection for road user charges on petroleum products imports was formalized in December 2006 through an explicit line for the petroleum structure in the budget. The government’s contribution increased from FCFA 994 million to FCFA 7.522 billion. A rural roads strategy was prepared, and implementation has been initiated on a pilot basis. Since then, only 25% of the rural road maintenance work has been completed in 2006 out of a 2007 target off 40%. More urban roads (122.6 km) were reconstructed, rather than rehabilitated, under the Bank-supported Urban Development and Decentralization Project (FY97) because existing roads were in an advanced stage of degradation.

17. The Bank also helped strengthen public and private sector capacity to implement a new demand-driven delivery strategy for irrigation and drinking water infrastructure. The strategy enhanced the participation of beneficiaries in the design, management, and maintenance of the infrastructure. The two main rural roads (272 km, with a target of473 km by 2007) were rehabilitated, facilitating the connection ofrice production to urban markets and rice exports to Mauritania.

18. Progress in the railway concession was disappointing. The railway investment plan was not executed, and the arrears payments by rail users in Senegal did not make any progress. From the Bank’s perspective, executing some ofthe policy reforms had complications, including difficulties in financial resources of Transrail. The cumulative length of the slowdown increased due to the delayed execution of the investment plan to rehabilitate track and to increase the availability of engines of wagons. These factors significantly increased derailments.

19. The Bank also provided assistance in improving the regulatory environment of the transport sector. Institutional measures operationalized the customs information systems and extended them to the customs office at the Bamako rail station. Under PRSC-1 (FY07), key policy measures were taken that included lowering the transport operating costs, faster customs clearance of shipments, which released trucks, and elimination of extra-legal fees collected at road blocks, thus increasing the profitability of trucking. The Bank’s CEM (FY07) and Transport Support to Sustainable Growth (FYO4) reports provided recommendations on transport and trade facilitation to strengthen existing reforms and the future reform program. Overall, Mali’s transport strategy needs to ensure adequate financial and human resources to maintain infrastructure and to increase efficiency by implementing sound fiscal policies and supporting cross-sectoral initiatives in competitiveness, road safety, rural poverty, HIV/AIDS prevention, and health service accessibility. Most of these recommendations will be implemented in the next transport project, which will be aligned with the next CAS.

20. Remedial measures need to be taken in future Bank operations to achieve results, notably the restructuring ofthe railway component in the ongoing transport project. The Bank teams need to work together to achieve results on the ground. Regarding working on a multi-sector team, the future transport strategy needs to involve sectors that have an interest in the selection transport investments. For example, to take into account its sector’s needs, the agriculture team needs to be engaged in the selection of a rural road network. There is a real necessity for better communication, harmonization of operations, and linkage among sectors.

B. Energy 2 1. The energy sector in Mali operates below its potential. Only 12% ofthe population has access to electricity. Urban and rural access is 30% and 2%, respectively. Underinvestment in the sector has

-51 - led to continuing shortages and interruptions of electricity service, causing low productivity in industries.

22. The Household Energy and Universal Project (FY04) concentrated on the policy, institutional, and financing frameworks to increase access to energy services in rural and periurban areas. The project included empowering community development with the participation ofprivate entrepreneurs. Progress was made on energy service delivery. Approximately 14 private operators were committed to electrify approximately 25 communities, and approximately 132 wood energy markets were under rehabilitation. Additionally, 2566 small solar home systems and 30 institutional systems were installed. The Bank’s CEM recommended the improvement of the energy sector, It called on the government to be more proactive in addressing short- and medium-term electricity supply requirements and to aggressively pursue all feasible supply options to reduce the cost of energy.

23. While progress was made on energy service delivery, achievements in institutional and energy sector reform were disappointing. The power and utility company, Energie du Mali (EDM), experienced difficulties with its strategic partner, SAUR International. They disagreed on tariff formula, tariff-setting mechanisms, and the level of implementation ofthe agreed investment plan. The Bank and other donors helped the government and SAUR organize contract renegotiations in November 2004 and July 2005. However, in October 2005, the parties decided to separate. In March 2006, the government adopted a restructuring plan for EDM SA to improve its financial and technical performance. Under PRSC-1 (FY07), the Bank continued to support the financial and operational efficiency of EDM to minimize the negative impacts ofpower shortages. In the long term, more work is needed to strengthen the regulatory environment to foster a competitive environment that will attract private investors and operators. In addition, the interconnection with neighboring countries is needed to increase Mali’s electricity supply.

C. Urban Development and Decentralization 24. The Bank through its Urban Development and Decentralization (FY97) Project, the Bank responded in a timely manner to Mali’s urban issues. They are characterized by rapid growth of the urban population, limited access to basic infrastructure, deteriorating infrastructure due to lack of maintenance, and insufficient municipal financial resources. Progress was made in providing urban services, preserving historic monuments, and the functioning of the urban land market. Access to potable water services benefited 179,000 additional people in Bamako and Mopti vs. the 165,000 anticipated, and electricity services were improved, benefiting 55,000 inhabitants in the 7 poorest neighborhoods of Bamako. The impact of sanitation services also improved in Mopti, where cholera cases were reduced from 675 per year before the project (FY97) to 326 during the project. Twenty-five km of water distribution networks including 77 stand-pipes were built in the poorest neighborhoods of Bamako. The Bank’s intervention also created short-term employment of 123,000 person-months compared to 100,000 person-months targeted.

25. However, implementation ofwater supply in Bamako and Mopti areas was not successful due to the water tariff’. The government decided to reduce the tariff by 10% in 2003. This threatened the financial sustainability of Energie du Mali (EDM). Municipalities have not been able to generate sufficient local government revenue. Overall, the financial sustainability of the municipalities did not improve; most continue to operate in fiscal deficit. However, the achievements made may not be sustainable due to lack of human and financial resources, weak programming and financial management capacities, and poor economic infrastructure at the local level.

’ Water tariff increase was lower than expected in 2001 and 2002 and in 2003 government decided to reduce the tariff by 10%.

- 52 - 26. The analysis, Development of the Cities of Mali: Challenges and Priorities (FY06), confirmed that the lack of local resources and capacity hindered the Bank's intervention in decentralization. The report recommended that continued efforts were needed by the individual cities through targeted activities managed by municipalities and at the macro level through cross-cutting measures.

D. Agriculture and Rural Development 27. Progress in agricultural and rural development (ARD) was mixed. Some progress was made in reforming institutions, improving agricultural research and extension, and empowering producer organizations. However, the cotton sector policy dialogue was difficult. Reform in the Rural Development Ministry and the government's weak institutional capacity delayed the cotton sector reform. Although the Bank's rural agenda was aligned with government's strategy, the former was too ambitious and hampered agricultural productivity and growth.

28. The Bank supported the implementation of the government's rural development strategy within the framework of its overall poverty reduction strategy through four projects*. During the CAS period, the key guiding principles were: Reforming public institutions, Promoting more demand driven services (research and extension), Empowering producer organizations: Supporting rivate sector development and focus on agricultural supply chain organization,' and Integrating grassroots communities and community-based organization" through decentralization.

29. The Bank-supported Agriculture and Producer Organization Project (PASAOP) (FYOI) helped establish an institutional framework to efficiently deliver agricultural services to producers. The split of the former Ministry of Rural Development into four entities delayed the institutional transformations. Nevertheless, progress was made in refocusing public services on four key functions: (i)the agricultural/rural development policy was elaborated and the agricultural law strengthened; (ii)research institutions are more responsive to producers and international collaboration. Agronomic researchers are conducting 92 research programs (compared with 37 in 2002) and have developed almost 40 new varieties of rice, groundnuts, sorghum, and cowpeas; (iii)extension services were provided through performance contracts with civil servants and private providers to producers (1 0,178 performance contracts with 720 civil servant extension agents and 275 contracts with private agents in the 5 pilot areas); and (iv) the legitimacy and credibility of producer organizations have improved, and they have been empowered to effectively participate in policy dialogue and strategy formulation. They also have set up a financing mechanism for small-scale projects undertaken by grassroots organizations.'2 An additional financing was approved by the Board in May 2007 to continue key institutional reforms.

30. In addition, PASAOP indirectly supported policy dialogue on cotton sector reforms through analytic work on (i)sector organization and management, (ii)price-setting mechanisms, (iii)advisory services for cotton producers, and (iv) communication strategies. The project also helped develop a training program for cotton producer leaders and provided the national cotton producer association with two high-level advisers to support them in their dialogue with the government, donors, and

Agriculture and Producer Organization (PASAOP), Rural Infrastructure Project (PNIR), Rural Community Development Project (PACR) and Agriculture Competitiveness and Diversification Project (ACDP). Agricultural Services and Producer Organization project (PASAOP). loAgriculture Competitiveness and Diversification Project (ACDP). I' Rural Community Development Project (RCDP). 1600 projects financed for $2.8 million; 40% of women groups as beneficiaries.

- 53 - ginning companies. However, the recommendations from these studies did not have the expected impact in facilitating and speeding up the privatizabion of the cotton company. Capacity building programs for producers were slow to start and did not reach as many farmers as expected and required to significantly impact policy dialogue by increasing producers’ weight in the decision-making.

3 1. In the irrigation sector, the Rural Infrastructure Project (PNIR) (FYOO) strengthened capacity both in the public and private sectors to design and implement irrigation and drinking water infrastructure strategies. The project trained 500 drinking water maintenance teams and 1,500 irrigation user associations. Approximately 8,900 ha in the Office du Niger (ON) and 930 ha of new land have been developed to increase irrigation production. In the main season in 2007, farmers were able to produce some 532,000 tons of rice on the newly developed irrigated land. The provision of 525 additional safe drinking water supplies under the project provided access to potable water to approximately 3.1 million people.

32. An irrigation financing mechanism study was completed, and the decree on the installation of private operators was signed. In addition, under PRSC-1, a comprehensive organizational audit of ON was undertaken. The audit enhanced producer capacities and built a balanced relationship in water management between the ON and producers. A new strategy for small-scale irrigation development was elaborated and is under implementation. Seventy percent ofthe investment program was achieved (720 ha of 1000 targeted). With the participation of the main stakeholders, the government prepared a comprehensive master plan that outlines the vision and strategy to develop the ONzone, including the integration of decentralization aspects.

33. In addition, the Bank’s Economic Policy and Public Finance Management Credit (FY06) supported the signing and implementation of the irrigation sector contract agreements (2005-07) among ON, producers, and external aid partners. The Bank’s Agricultural and Competitiveness and Diversijication Project (FY06) includes investment in communication and marketing infrastructure for commercial agro supply chains of a range of agricultural and livestock products for which Mali has strong comparative advantage. However, as this project became fully operational only recently (June 2007), initial results are yet to be achieved. In commercial agriculture, the mango task force has been established and is active in managing the fruit export facility in Bamako.

E. Rural Community Development 34. The Bank was successful in working in small communities for service delivery in health, water and sanitation, and gender promotion through its Grassroots Hunger and Poverty (FY98) and Rural Community Development (FY05) Projects. These instruments directly increased production and income and improved health, water and sanitation, and access to education. Achievements in service delivery include small-scale health centers, which were established in 19 villages for all community members and benefit more than 100,000 people. Access to drinking water and sanitation was provided to 98 villages. Access to drinking water especially benefited children and women: access to education and increase in school attendance, especially for girls, was impr~ved.’~The availability of water for irrigation increased both in quantity and duration. The Bank’s assistance also helped create community organizations and capacity building supports (185 village development committees, 80 parent associations for education, 19 community health associations, and 188 infrastructure management committees). These activities empowered villagers by giving them full responsibility to implement the project. Gender promotion is another major impact of the project. Women gradually increased their participation in community meetings and on village management committees. Their working conditions improved significantly because some household tasks now require less time and are less exhausting.

~ l36,000 pupils attended classes. With time to get water and other chores reduced, girls now are approximately 40% of pupils.

- 54 - 35. The Bank and other development partners met regularly to coordinate these efforts and to agree on a charte de collaboration des PTF (technical and financial partners), which was reached between the main donors supporting the ON.

3 6. While agriculture and rural development operations were aligned, they had an ambitious agenda which made it difficult to achieve results. The Bank’s future ARD support needs to identify critical issues such as research and extension linkages and commercial agriculture products (supply chain coordination and producer competitiveness). Agricultural productivity and growth should be the main focus ofthe next CAS.

F. Cotton Sector 37. The cotton sector reform proposed under the Bank’s program14 was not achieved with regard to adhering to the timetable for privatization of the cotton company and limiting the fiscal risk to the budget. In the first phase ofreforms, the Bank supported the government in adopting a reform strategy comprising improved financial management and partial privatization of Compagnie Malienne des Textiles (CMDT).” Implementation of the reform stalled in 2004, and the government officially postponed the privatization. Instead, the government set up a new price-setting mechanism for which a protocol was signed between the GoM, producers, and CMDT in January 2005.

38. In November 2005, the government adopted a revised plan to finalize reforms by 2008. A privatization scheme was adopted by the Council of Ministers in March 2006. However, farmers are still poorly organized and lack bargaining capacities to participate in a fair dialogue with other stakeholders’ in the future privatized subsector. GoM is implementing a comprehensive capacity- building and communications program to support the establishment of viable producer economic organizations. Almost all village associations have been transformed into cooperatives and federated at the commune level. Under PRSC-I (FY07), the Bank continued the dialogue on cotton sector reform. The government took a few selected measures and implemented the cotton producer price mechanism, outlined the CMDT zones to be privatized, adopted the final privatization operational plan, and bid to recruit a privatization advisor.

39. Overall, the Bank’s accomplishment in the cotton sector was mixed due to an overly ambitious program and slow implementation of reforms. GoM also had weak capacity. However, the Bank was able to maintain a solid policy dialogue despite difficulties experienced in the implementation of the reform. Experience shows that institutional reforms require time and strong government commitment. Supporting measures such as training and communication are also necessary to accompany institutional reforms and facilitate their implementation.

G. Private and Financial sector 40. The Bank’s progress in private sector development (PSD) has been modest and slow. The government articulated PSD policies rooted into the GPRSF and undertook a number of reforms to improve the investment climate and foster competition and transparency.

4 1. The Bank-supported Growth Support Project (FY06) and Economic Policy and Financial Management Credit (FY06) focused on increasing the productivity and supply ofmining, tourism and crafts, telecommunications, and investment climate, In the telecommunications sector, telephone services were expanded. Teledensity jumped to 12% by the end of 2006, much higher than the West

l4WB supported SAC 111 and IV. The strategy, negotiated with all stakeholders over 3 years was endorsed by the Council of Ministers in November 2003, following completion ofthe first phase ofthe cotton sector reform.

- 55 - Africa regional average of 7%, and tariffs for domestic and international calls were reduced by more than 10%.

42. The government undertook reform of the business environment, with Bank support mainly in business start-ups, licenses; property registration, and handicrafts export taxation. The costs and number of procedures (from 13 to 9) to start a business were reduced; the tax on property transfer was cut by half; and the number of days to secure a construction license was reduced. Reducing the handicrafts tax is expected to enhance the export performance of the craft sector. Since 2005, an estimated 2,200 new jobs in the private sector have been created in the project areas. However, improvement of the Bamako airport and development of the industrial zone have been slow due to mixed messages from the government regarding the role of IDA and the Millennium Challenge Corporation (MCC). In the mining sector, Mali declared its adherence to the Extractive Industries Initiative, thus confirming its commitment to transparency and improved governance. In addition, the joint IDA-IFC Micro, Small and Medium Enterprises (MSME) initiative improved access to finance, mainly through the partial credit guarantee.

43. Several analytical studies were prepared: a supply chain analysis, investment climate assessment, and integrated trade diagnostic study that highlighted concrete micro-level constraints to Mali’s growth, including regulatory and non price barriers that increase the time and monetary costs of doing business. Additional cross-cutting constraints stemmed from the transport, transit facilitation, and finance sectors. These studies underpinned discussions at the President’s Investors Council, and consultations have laid the foundation for strengthened government commitment to improve the investment climate and remove other unnecessary impediments to private sector growth.

44. PSD was further supported by improving the soundness, performance, and competitiveness of the financial sector. The Financial Sector Development Program (FYOO), Economic Policy and Financial Management Credit (FY06) and PRSC-I (FY07) improved Mali’s financial sector. In the commercial banking sector, an audit of nonperforming loans was completed. It has helped the government to develop a clean-up strategy to strengthen the financial institutions. In the insurance sector, implementation of the recommendations of the diagnostic study on domiciliation of insurance policy in Mali’6 increased business activity, particularly in the mining sector. For the pension system, the government launched a study of its debt to the private sector social security institutions. It also launched actuarial studies of the private and public sector institutions to modify the main parameters and reduce imbalances. The supervision and promotion of microfinance activity were separated in two separate entities. The promotion activities are expected to encourage new entrants, particularly in the geographical areas with a minimal presence of microfinance institutions. The units have been adequately staffed. In 2005 the housing bank (BHM) was recapitalized and the new management team appointed to respond to the emerging financial crisis. However, BHM still faces a high level of nonperforming loans. In addition, the privatization of the investment bank (BIM) was launched with the hiring of the privatization adviser. To date, 40% of nonperforming loans has been collected, and the information system has been changed. Therefore, reforms supported by the financial sector remain incomplete.

45. Overall Pillar Assessment: The above two pillars have been rated as moderately satisfactory. Mali was able to maintain prudent macroeconomic stability in the last few years despite exogenous shocks. While the growth rate averaged 5% and poverty also declined in line with growth, income distribution remains largely uneven. The government’s budget was aligned with PRSF’s priority needs in key poverty-reducing sectors to achieve growth and poverty reduction objectives. Moderate progress was made in providing basic infrastructure. In the transport sector, road maintenance has

l6 Domiciliation of insurance policies indicates that insurance has been purchased. In Mali, there is a legal obligation to insure policies in sectors like mining, automobile and import.

- 56 - improved, but railway services have not. Access to rural electrification and telecommunications has improved, but progress in institutional reform in the power sector was disappointing. Progress in the private sector policy dialogue including investment climate reforms has been extremely slow, and financial sector reforms were not completed. Some improvement was noted in the agriculture price- setting mechanism, irrigation scheme, and empowerment of producer organizations, but agricultural productivity was low. Insufficient progress was made in the cotton sector reform.

CAS Theme: Develouinp Human Resources

The above CAS theme is supporting the following PRSF pillar: . PRSF Pillar 2: Develop Human Resources and Access to Basic Social Services. 46. The Bank’s strategy in this pillar focused on (a) intensifying the necessary framework for sustainable human development; (b) improving access to quality of services; (c) working with donors to strengthen capacity ofthe education and health sectors; and (d) working with NGOs, civil society, and the private sector to reduce the risk ofthe HIV/AIDS epidemic.

47. Mali will not reach most of the Millennium Development Goals (MDGs), particularly in maternal and child mortality and nutrition. In the education sector, Mali made progress in primary gross enrollment ratio, but this improvement is still below the GPRSF target of 83%. However, Mali has the potential to achieve primary school enrollment. For health indicators, progress is also very limited for infant, child, and maternal mortality. The HIV/AIDS prevalence rate has improved significantly and most likely will be achieved (table 2).

Table 2: Mali Progress in Health and Education Indicators

Indicators 2003 2004 2005 2006 2006 MDG Actual GPRSP Target target (2 015) Health: Child mortality rate (per 1000 under age 5) 229 229 nla 191 210 83 Infant mortality (per 1000 live births) 113 96 100 Maternal mortality (per 100,000) 582 582 582 582 450 145 DPT3 vaccinarion coverage for children 79 85 90 68 under 1 year of age PA) Childbirth assisted by trainedpersonnel (%) 42 46 51 49 50 Percent ofpopulation living within a radius of 46 47 50 5 !an of an operating health center (“h) Fertility rate 6.7 6.6 HIV prevalence rate (%) 1.7 1.3 <1 1

Education: Gross primary enrollment rate (YO) 72 74.5 83 100 Gross female primary enrollment rate 46 52 Studentkeacher ratio 53 54

A. Health 48. Moderate improvements in health outcomes were evidenced in geographical access to a health center, vaccination coverage, and prenatal care services. Health sector budget was aligned with Medium-Term Expenditure Framework (MTEF), which is consistent with Mali’s 10-year program in health (PRODESS). However, slow progress was made in reducing infant, child, and maternal mortality. Human resources availability, which is essential for optimal provision of healthcare services, remains low. The government did not take the initiative to include the non state sector in its activities to increase health coverage and to improve quality of health care in the country.

- 57 - Furthermore, the share of health expenditure in GoM’s recurrent budget increased slightly from 7.25% in 1998 to 7.90% in 2006. It was insufficient to improve health service delivery.

49. The Bank supported Mali’s health program through the Health Sector Development Programme (PRODESS) (FY98). Access to health care services within a 5 km radius improved from 34% (1998) to 50% (target 45%), and within a 15 km radius from 40% (1998) to 75% (target 65%) in 2006. Health coverage reached 753 community health centers, which are operational. Prenatal care and immunization coverage have reached respectively 75% and 91% of the population. Medically assisted childbirth increased somewhat from 40% in 1998 to 53% in 2006. Although the Bank achieved the above health outcome, the overall project outcome was not achieved. Little progress was made in lowering fertility or maternal and child mortality. The quality of services remains poor and use ofhealth services very low.

50. The Bank had an overly ambitious health target that was not consistent with the GPRSF target. The Bank’s target for infant mortality rate was to decline from 123 to 90 per 1000 live births, whereas the PRSF target was 100 by 2006. Although the CAS supported the PRSF target, the project did not later retrofit its objective to be consistent with CAS. Therefore, the CAS document had inconsistencies between supporting the overall PRSF targetI7 and supporting the key intermediate indicator of PRSF. These indicators are milestones not outcomes, hence there were inconsistencies in target indicators between the CAS document and the Bank-supported project.

51. The Bank’s Multi-Sector HIV/AIDS Program (UP) (FY04) ’* made a major contribution in designing and putting in place adequate institutional framework for the implementation of the MAP. Mali’s HIV/AIDS prevalence declined from 1.7% in 2001 to 1.3% in 2006. The project helped increase the number of distribution facilities and access to free antiretrovirals (ARVs). In the public sector, 1 1 ministries completed action plans, and implementation agreements were signed with the Executive Secretariat. Training and integration of HIV/AIDS issues in school curricula, condom distribution, and blood safety are being continued. However, progress in monitoring and evaluation of indicators has been slow due to lack of specialized skills and resource^.'^ In the private sector, business coalition membership expanded from 24 firms in 2006 to 33 in June 2007. As a result, HIV/AIDS-related campaigns also increased. Overall, preventive and counseling services are in place, and a nationwide Information, Education and Communication (IEC) campaign is underway. Coordination with other development partners including the Global Fund, UNAIDS, the African Development Bank, and other bilateral donors was satisfactorily initiated during the CAS period.

52. The Bank prepared an ESW Health Service Utilization Study, which examined the causes of the low utilization rates of primary health care services in Mali, specifically for reproductive health services. The research showed that if a person belongs to a mutuelle (a local insurance scheme), s/he will utilize services more, mainly because the mutuelle can bargain for better services with the health center with which it contracts. Data also showed that poor Malians also seek care in the non-State sector, which is not well regulated. The study provided recommendations to increase use ofhealth that were incorporated in the PRSC-I operation (FY07), in which in 2007 the government planned to increase the coverage ofhealth mutuelles in the poor zones.

17 2003 CAS document (Report No. 25663): p. 42, attachment 1, and Annex B9. WB facilitated a broad-based communication campaign leveraging the local knowledge of private communications firms. Various segments of the Malian population have acquired the basic knowledge of HIV/AIDS that is likely to trigger behavioral changes. l9 Demographic and Health Survey (DHS) carried out in 2006.

- 58 - B. Education 53. Mali has been working toward its 10-year Education Sector Program. The Bank supported this program through an adaptable program loan (APL) of 3 phases, Education Sector Expenditure Program (ESEP).20 Progress was achieved in access and enrollment. Gross primary enrollment rate increased from 56.6% in 1999-2000 to 75% in 2005-06. Girls’ gross enrollment increased to 52% during the same period. 57% ofthe educational budget (including salaries for contractual teachers) and 28% of non salary budget were decentralized. Moderate progress was made in supplying and distributing textbooks and improving classroom teaching. Education as a share of GDP improved from 3% in 2002 to 5% in 2006. This rise is comparable to other low income SSA countries but still below the 3.8% of the best performing ones.21The MTEF for education was implemented under the Bank’s Structural Adjustment Program (SAC I11 and IV), which was consistent with the education sector po 1icy.

54. Progress on education quality has been slow. Achievement scores in reading and mathematics are among the lowest offrancophone African countries. The 2005 Learning Achievement Assessment showed that only 5 1.5% of grade 2 students achieved the average score in languagetreading and 48.5% achieved the same in mathematics. As a consequence, the literacy rate remained very low. Key reasons are the severe lack of qualified teachers, leading to a very high student-teacher ratio (84 to 1 in urban areas and 53 to 1 in rural areas), insufficient provision of textbooks (1.4 books per student), and an ineffective performance monitoring system for the sector. The low completion rate in primary education (43.1%) and persistent regional and urban disparities have further hindered the overall education program. The Bank-supported expansion of building schools had been below expectation with 3,000 new classrooms built, although 6,000 new classrooms were programmed. Furthermore, 620 teachers were trained every year while 2,500 were required. Considerable efforts are needed to strengthen the institutional capacity of local administrations and municipalities to handle the unmet demand for education and to ensure an efficient delivery of education services. To improve the quality of primary education and efficient use of resources, the Bank is supporting the second phase of the Education Expenditure Project (PISE 11 - FY06).22The government has started implementing some of the activities, but it is too early to assess the overall implementation and outcome ofthe project.

55. The government and the Bank jointly prepared an Education Country Status Report (FY07), which focused on access, efficiency, and equity, with emphasis on local service delivery mechanisms. The report identified the main obstacles toward full expansion and improvement of the sector. The recommendations are to be implemented in future CAS and other Bank-supported lending interventions.

56. For future operations, the Bank’s objectives should focus on quality and equity in primary education. At the post-primary level, more emphasis should be given to (a) the efficiency and relevance of education to better respond to skills needs and (b) promoting complementarities between education and training, formal and informal learning, and public and private provision.

57. Overall Pillar Assessment: The above pillar has been rated as moderately unsatisfactory. Mali’s progress toward the implementation of basic services (education, health) has been disappointing in the last few years, Progress was made in free antiretroviral treatment, geographical access to health services, school enrollment, and women’s participation at the community level. However, the quality of services, low literacy rate, low utilization of health services, and capacity constraints remain key challenges in both the health and education sectors.

’O ESEP, ESEP 1, and ESEP2. Mali dedicates 35% of its education budget to primary, 43.7% to secondary, and 16.3% to higher education. The primary education amount is still lower than the average francophone African country spends (49.3%). ” An additional $15 million was approved in May 2007.

- 59 - CAS Theme: Public Finance Manapement and Governance

This CAS theme supports PRSF pillar one: . PRSF Pillar 1: Promote Institutional Development, Governance, and Participation. 5 8. The Bank’s assistance focused on the public sector financial accountability mechanism covering public expenditure management to improve the efficiency and transparency of budget management, procurement and the financial management system.

A. Public Finance Management 59. The Bank supported structural reforms to strengthen the macroeconomic framework and public finance management through the Structural Adjustment Credits (SAC III and Iy) and Economic Policy Public Finance Management Credit (FY06).

60. Public expenditure management reforms have achieved their objectives. Budget preparation was improved moving toward a system that links public resource allocation to the poverty reduction objectives in the country’s development program. Starting with the 2003 budget, the government introduced a 3-year budget allocation for all sectors, compatible with the macroeconomic framework. The budgets for 2004-07 were successfully executed and were consistent with the PRSF objectives. Sectoral MTEFs for health, education, transport, and rural water and sanitation were prepared and implemented to better align sector policies with budget. A new budget classification system was implemented that enables budget consolidation across all governmental levels, providing a better monitoring system.23

61. The government adopted a medium-term action plan to strengthen and modernize Mali’s public finance management (PFM). The institutional framework for the 2007 phase was implemented. This will help increase aid flows through budget support for GPRSF implementation. The Public Expenditure and Fiduciary Accountability (PEFA) exercise was completed in early 2007. PEFA established a baseline of Mali’s PFM performance and identified policy measures to strengthen the action plan. The foundation laid by PEFA will facilitate monitoring the impact of the government’s PFM action plan.

62. The efficiency and effectiveness of budget execution has improved significantly in the last few years. Interconnected information systems and databases for key departments (budget, treasury, and financial control) of MEF were established in 2004. Interconnection at the sub-national levels was initiated in 2006. It has strengthened the management and internal control system ofthe budget.

63, Budget transparency and accountability were improved by the strengthening the capabilities of the General Accounts Office of the Supreme Court. MEF made significant progress toward reporting and disseminating economic and financial information. In addition, MEF has produced a quarterly note on budget execution data for priority sectors for the last few years.

B. Procurement 64. The Bank supported the improvement of the procurement system under the structural adjustment program and recent DPL. The government prepared the terms of reference to design and implement a database on the different phases of procurement. In December 2005, a tripartite national committee was established to coordinate and monitor the implementation of procurement reform (Comite‘ National de Coordination et de Suivi, or CNCS). Strengthening the national procurement

23 This budget classification system uses budget nomenclature for the local level that is compatible with the national nomenclature.

- 60 - committee enabled the government to focus adequately on procurement reform issues. This focus gave rise to the PFM action plan (2006-08), which included procurement, an essential element in the government’s dialogue with donors. Moreover, this reform will lay the groundwork to move toward increased budget support as well as harmonized donor support for the future reform program.

65. Under the PRSC-1 (FY07) key measures included adoption of sound regulatory measures operations in line with WAEMU guidelines, creation of the control and regulatory body, and strengthening the capacity ofcontracting authorities.

66. On the analytical front, the government, the Bank, and other development partners worked to assess the effectiveness of public spending and public finance management through the preparation of the CFAA, Country Procurement Assessment Report (CPAR), WB-IMF, Assessment and Implementation of Action Plans to Strengthen Capacity of HIPC (HIPC AAP) reports, and IMF Report on the Observance of Standards and Codes (ROSC). These studies helped the government’s two key action plans: (a) modernizing and strengthening public financial management and (b) developing the institutions to support the implementation of a decentralization policy.

C. Democratization and Decentralization Process of Government and Public Administration 67. The Bank’s decentralization effort was supported through various operations in selected areas such PFM reform, health, education, and agriculture and rural development. The other development partners were heavily involved in institutional capacity building of local governments.

68. The Bank supported the government’s action plan to consolidate de~entralization.~~The plan had two complementary objectives: to align government services with local preferences and build local capacity to manage public resources. The water, health, and education sectors were identified as priorities for decentralization. An institutional framework for decentralization was put in place in sectors including education, health, water supply, and PFM. However, the government faced multiple constraints including slow progress in transfer of resources to the local administrations, weak mobilization of local resources, poor coordination between local governments and sector ministries, and incomplete and inadequate legislation. Capacity is particularly weak in M&E and quality control (QC) systems. Weak capacity contributed to serious weaknesses in service delivery efficiency. As a result, in October 2004, to validate the diagnostic study, the government organized a national workshop at which a transfer of resources and responsibilities was adopted and implemented in the 2007 budget. The resource transfer was supported by the interconnection of the de-concentrated units of MEFs treasury, budget, and financial control departments.

69. Overall Pillar Assessment: The above pillar has been rated as moderately satisfactory. Public finance management in Mali has improved during the last four years and, despite Mali’s weak institutional capacity, the planned reforms were fully implemented. In particular, the Bank-supported operations helped Mali improve its budget planning and execution, transparency, and accountability; and strengthened the PFM system. As a result of this support, GoM has been able to carry out its own public expenditure reviews (PERs) and build ownership of the system. However, efforts are needed to improve coordination among central and local governments to improve the decentralization process. Cross Cutting Issues

70. Regional integration. Mali has been an active member of the construction of the regional economic space under the WAEMU and ECOWAS frameworks. During the CAS period, the ECOWAS Secretariat, WAEMU Commission, and member states intensified their efforts to build the physical and financial infrastructure needed for the common market. Significant progress was

24 SAC IV (FY05), Economic Policy and Public Financial Management Credit (FY06).

- 61 - achieved in establishing and installing a well-functioning payment system (WAEMU), and clearing and settlement system in WAEMU to expand trade and investment within and among member countries. In response to the region-wide locust plague in 2003-05, Mali successfully participated in the Africa Emergency Locust Project along with 6 other West African countries. Thus, Mali is prepared for future infestations and is coordinating risk management and environmental issues associated with locust control in a regionally integrated manner.

7 1. In addition, the Bank successfully provided capacity building for regional bodies charged with developing basins-Organisation pour la Mise en Valeur du Fleuve Se‘ne‘gal (OMVS) and Niger Basin Authority (NBA)-for better planning and management of land and water resources across the basins.

72. Monitoring and evaluation. The CAS did not have a clear results-monitoring plan. No comprehensive M&E system linked the contributions of individual projects to the overall CAS and GPRSF outcomes. This made it difficult to align project outcomes with CAS outcomes. M&E capacity issues were not well addressed by the Bank’s team during the project preparation. On the government’s side, M&E capacity issues were either vague or overlooked.

73. Gender. In FY06 the Bank completed a Gender Assessment to promote gender equity to the government and development partners. The assessment recommended a two-pronged strategy: (a) establish an enabling socio-cultural, legal, economic, and institutional environment that would promote gender equity; and (b) mainstream gender issues in national policies and sectoral development programs and projects. The National Gender and Development Program will be financed with local revenues from the National Budget. The comprehensive assessment will need coordination within the Bank’s sector program and with government and other development partners. GoM has prepared a pamphlet to disseminate the assessment results.

VII. ASSESSINGTHE BANK’SPERFORMANCE

A. Quality of Products and Services 74. Lending. By the end of the CAS period, 9 of the 10 operations planned under the CAS base- case scenario and the SAC I11 supplemental were delivered. In addition, 2 GEF operations were approved (total $9 million), as well as 7 regional operations from which Mali benefited. In total, new IDA commitments during the 3-year CAS period approximated $339 million,25 as compared with $390 million foreseen in the CAS base-case lending scenario. This lower level of new IDA commitments is due mainly to the postponement of the second phase of the Transport Sector APL.

75. The Bank has been flexible in its assistance to Mali to respond to the country’s needs in the face of the negative impacts of the C8te d’Ivoire crisis and unfavorable world price of cotton on the Malian economy. The Bank adapted the second tranche conditions of the SAC I11 and provided a supplemental grant of $15 million within an additional one-year implementation period. Given the sharp drop in the world cotton price and the need to support an urgent country financing gap, a SAC IV was quickly prepared. Its design was kept simple because of the difficulties in implementing the cotton sector reforms under SAC 111. SAC IV also was envisaged as a transitional instrument toward the start of programmatic Poverty Reduction Support Credits (PRSCs) and therefore was designed as a one-tranche operation with a limited number of objectives. SAC IV was followed by an Economic Policy and Public Finance Management Credit (DPL), which built on it and focused on a limited structural reform agenda.

25 Of which $94.4 million in grants were provided to Mali. Since FY06, Mali has had a “green light,” which translates into 100% credits for new IDA commitments.

- 62 - 76. The Bank coordinated its structural adjustment operations, macroeconomic dialogue, and preparation of key strategic and policy documents (joint staff assessment of the PRSF and PRSF annual progress reports) closely with the IMF, which approved its second PRGF program in June 2004 (period covered 2004-07). The Bank also worked closely with other development partners in key areas of the structural policy dialogue (ADB, AFD, Canada, EU, France, the Netherlands, Sweden, and USAID) and the implementation ofthe policies in the cotton sector and Office du Niger irrigation reforms. At the sectoral level, the Bank and other development partners have supported program-based approaches in education, health, and rural water and sanitation.

77. The CAS was implemented under the base-case scenario. The key CAS instruments in support of these themes were (i)budget support (through structural adjustment credits and development support credits); (ii)community-driven development (CDD) operations supporting productive sectors and the fight against HIV/AIDS; (iii)traditional investment operations targeting social sectors as well as growth-enhancing activities such as agriculture, infrastructure, and PSD to enhance Mali’s economic competitiveness; and (iv) a wide-ranging AAA program focused on building the knowledge base for the three main themes. The CAS concentrated on capacity building and strengthening the framework for programmatic support to Mali.

78. The choice of instruments during the CAS period was adequate in most sectors. However, the Bank’s overall approach was not consistent. For example, in the rurallagriculture sector, a very traditional project approach was used; and, although the portfolio was aligned, there were still too many operations in the same sectors. The Bank’s future lending needs to be more consistent with its new results framework.

79. Due to the government’s weak institutional capacity and political difficulties in implementing structural reforms in the agreed period, there were considerable delays in implementing reforms in the ongoing and newly approved projects. Furthermore, non harmonized donor programs and multiple donor procurement processes left government staff insufficient time for implementation.

80. Analytical and Advisory Activities (AAA). In addition to the AAA tasks mentioned earlier in the report, the Bank also completed the CFM, Macroeconomic Impact of Climate Assessment, CPAR, Integrated Framework for Trade Diagnostic Study, and Investment Climate Assessment. These analytical underpinnings helped identify the strengths and main shortcomings in Mali’s fiduciary system and helped the government prepare two key action plans on public expenditure management and decentralization policy. The Bank also assisted with the development ofmedium-term expenditure frameworks (MTEFs) for health, education, and transport. MTEF support is envisioned for the agriculture, livestock, and fisheries sectors.

8 1, During the CAS period, several pieces of analytic work (poverty assessment, HNP country status report) had been initiated and discussed to some extent either at a workshop or with government and development partners, but never finalized for further dissemination. For future CASs, the Bank’s AAA program needs to be strengthened, particularly by actual delivery of final products and dissemination.

82. Portfolio management. Both the performance of the active country portfolio and the percentage of project commitments at risk improved. At the beginning of the CAS period, 3 1.1 % of commitments were at risk vis-&vis 0.8% as of end-FY07 (table 3). On the other hand, the disbursement ratio improved significantly-from 17.7% annually prior to the CAS period to 27.6 % per year during the CAS period. The disbursement amount was $107 million during FY04-06, compared with $75 million per year prior to this period. In addition, 5 of 11 operations in the portfolio had satisfactory outcomes as well as satisfactory ratings for the borrower and the World Bank performance as rated by IEG (table 4). This improvement compared to a performance record over the

- 63 - prior five years during which, according to IEG, more than one-third of closed World Bank operations in Mali had had unsatisfactory development outcomes.

83. To better support the country program, the World Bank Country Office has put in place several mechanisms to follow up closely on project implementation. The government and CO meet and conducted portfolio performance review (CPPR) on a regular basis. More Headquarters staff have been relocated to the CO, so a growing number of portfolio functions are managed by country-based staff.

Table 3. Portfolio Trends (FY03-07)

Active Portfolio FY03 FY04 FY05 FY06 FY07

Number of Projects 10 11 11 13 14 Net Commitments ($m)' 518.2 525.5 441.0 547.4 613.2 Number of Problem Projects 1 2 3 3 3 Commitments At Risk 21.0 163.5 112.2 48.0 5 % Commitments at Risk 4.1 31.1 25.4 8.8 0.8 Number of Projects at Risk 1 3 4 3 1 YOat Risk 10.0 27.3 36.4 23.1 7.1 Total Un-disbursed Balance ($m) 284.2 310.2 266.0 289.4 358.7 Proactivity Ratio 100 100 50 67 100 % Realism 100 67 75 100 100 Source: World Bank Business Warehouse. Notes: ' The active portfolio includes GEF, IBRD, IDA, Montreal Protocol, and Special Financing operations.

Table 4. Portfolio Trends (FY03-07)

Bank Project Project Name Exit Outcome Sustainability ID Impact m date date Irrigation 05/30/1997 2003 unsatisfactory unlikely negligible unsatisfactory Promotion Vocational poo1746 Education & 03/14/1996 2003 unsatisfactory unlikely modest unsatisfactory Training Consolidation poo1755 Agro-processing 06/01/1995 2003 likely Modest unsatisfactory TRD Improving PO58770 Learning in 01/21/2000 2003 satisfactory likely substantial Satisfactory Primarv Schools Grassroots Hunger PO35617 Poverty 04/07/1998 2004 ~~~~~~;- modest unsatisfactory HUNE'OVT PO4665 1 Regional Power 06/26/1997 2004 satisfactory likely substantial Satisfactory PO72785 SAC I11 1211 112001 2004 satisfactory likely modest Satisfactory likely substantial Satisfactory PO01730 Transport Sector 05/26/1994 2005 s!~~~~~~~ Urban PO01750 Development and 12/13/1996 2005 unsatisfactoryMarginally unlikely modest Satisfactory Decentralization

Health Sector Marginally unsatisfactory PO40652 Development 12/17/1998 2006 unsatisfactory Program PO83272 SAC IV 3/22/05 2006 Satisfactory likely modest Notes on IEG ratings: Outcome: Two thirds satisfactory or marginally satisfactory (satisfactory represents one third); Sustainability: Likely just over half; ID impact: Substantial one third; and Bank performance: satisfactory just over half.

In sum, half ofthe existing portfolio is satisfactory, and only one-third is really strong projects.

- 64 - 84. As of March 2007, the IFC portfolio stood at $6.7 million with a total of $4.8 million still outstanding. Sadiola Gold project is the single largest IFC investment (equity investment) in Mali, followed by various smaller investments including $1.47 million investment in the hotel industry. The balance of IFC strategy is constituted in the pulp, paper, and plastic sectors.

85. MIGA’s portfolio consisted of 1 project with an outstanding gross exposure of $16.2 million. Guarantees were issued to a Senegalese company-against the risks of expropriation, breach of contract, and war and civil disturbance-in support of its investment for the provision of telecommunications services including fixed lines, wireless, internet, and satellite communication services, and public pay phones. Mali is 1 of 9 African countries that participated in MIGA’s Enterprise Benchmarking Program (EBP). MIGA is implementing a multiyear program to advise the GoM on establishing an investment promotion agency to help the country disseminate information about its investment opportunities and guide its investment efforts.

B. Aid Coordination 86. Mali made goodprogress on its aid effectiveness agenda. Mail has become a pilot country to implement Paris Declaration on Harmonization and Alignment. A thematic working group on harmonization was put in place in 2004 which focused on defining the mechanisms for implementing common budget support framework by Mali’s donors. In addition, the government put in place an active program-based approach in education and health. It also coordinated support to (a) public finance management reform, (b) ongoing Public Expenditure Fiduciary Assessment (PEFA) exercise, and (c) memorandum of Understanding (MOU) framework for budget support operations with discussions on the performance matrices. The government is committed to improve aid effectiveness both at the government level and with the main development partners (Canada, Denmark, EU, France, the Netherlands, Sweden and WB). A key milestone in aid coordination was the signing in March 2006 of a MOU on the budget support framework with AfDB, Canada, EU, France, the Netherlands, Sweden and WB. The Bank has fully participated in all harmonization activities and was the driving force behind the budget-support MOU and joint PEFA exercise. Bank’s support to the health sector has been integrated in the PRSC series.

C. CAS Consultations 87. The CAS was prepared through a consultative process with a wide range of stakeholders across the country. During 2000-03, several workshops and a retreat took place. They centered on: a general CAS retreat, rural development strategy discussion, client survey feedback workshop, country portfolio performance review, gender and decentralization and the deconcentration process. Discussion on the CAS implementation took place during the yearly CPPRs and during the preparation of PRSC-1 which covered key sector reforms underpinning the growth agenda.

D. The Role of IFC 88. The FY04 CAS was not a joint WBG strategy; however, IFC was involved in various aspects ofthe Mali CAS implementation. IFC’s strategy focused on (i)integrating the IFC/IDA micro-, small- and medium-sized enterprise (MSME) program; (ii)improving the enabling environment for SMEs and provision of business development services to SMEs; and (iii)contributing financial support with IDA and other donors to the energy sector.

89. The joint IDNIFC MSME program included the Sources of Growth project, which focused on SME development. Through this project, selected commercial banks will benefit from IDA/IFC’s partial guarantee on a new portfolio of loans to SMEs. The TA provided will help banks undertake operations profitably. Two banks have been selected and are being appraised by IFC, and the TA provider has been pre-selected. The IFC also supported the Training Entrepreneurship Program

- 65 - (STEP) for hands-on capacity building to micro and small enterprises. The program assisted more than 4,000 entrepreneurs in 7 regions (Bamako, Kati, Koulikoro, Sikasso, Segou, Mopti, and Koutiala). The program is integrated with IDA’S Growth Support Project and the Ministry of Investment Promotion, with a plan to expand to Timbuktu and other regions of Mali. IFC was involved in the West African Capital Markets, and it issued a 22 billion CFA franc denominated bond in the WAEMU countries. The IFC issue was distributed in all of the 8 countries and WAEMU, and the bond’s proceeds were invested in 4 projects in the region, including 1 in Mali.

nII. LESSONSLEARNED AND RECOMMENDATIONS

A. Lessons Learned The following lessons have been drawn from the sector assessment

90. Ambitious targets. The CAS supported a program that posed significant challenges. Given the size of the program, most of the targets set were extremely ambitious. Some targets under different objectives were taken directly from the government’s PRSF targets, which are very broad and difficult to influence and to achieve during the CAS period. For example, PRSF’s target date to reduce poverty (2006) was more ambitious than the MDG target date (20 15).

91. Not a results-based CAS. The CAS was not results focused and had no instruments for monitoring and evaluation. Some performance indicators lacked baseline data; therefore, it was very difficult to monitor and measure progress made during the CAS period. PRSF progress reports and Joint Staff Assessments (JSAN) were prepared; however, no progress on CAS benchmarks was monitored or reported.

92. Lack of synergy among operations. Some projects had multi-sector components, but the Bank’s sector staff worked largely independently. There was lack of coordination of joint missions and meetings to achieve set targets. Lack of coordination was due to insufficient incentives and leverage to work in cross-sectoral teams. For example, both the rural development and transport sectors had a rural infrastructure component in their projects.

B. Recommendations 93. The Bank needs to adopt a realistic and results-oriented approach. The CAS did not have a clear agenda for supporting the government’s PRSF, which had broader objectives. The Bank’s future strategy should focus on results that are feasible based on the country’s condition and IDA resources. The Bank‘s program needs to become more effective and more focused through selectivity, consolidated investment operations, pursuit of program-based approaches, better alignment with country policies and institutions, and stronger collaboration with government and other donors on ESW. The CAS outcomes need to be responsive to the client’s capacity and institutional and political contexts.

94. Synergies need to be created among the Bank’s sector programs and within the World Bank Group, Even though many of the Bank’s objectives in the FY04-06 CAS were multi sectoral and cross-cutting, sector staff worked within silos. One exception is the synergies which have developed between the PRSC program and specific TA and some investment lending operations. However, between sector activities, there was very little synergy. Further strengthening is essential. There is a need to create strategic links among the Bank’s instruments, particularly among the sector operations. IDA also needs to work more closely with IFC and MIGA to promote private sector growth, and with WBI to build capacity.

- 66 - 95. To create optimal results, the analytical work needs to sequence better with lending operations (investment and programmatic) and policy dialogue. The new CAS needs to align well with disseminated analytical work and policy dialogue needs to support a well-defined CAS program. Analytic work could be launched jointly with GoM, research institutions in the country, and development partners. Thus, the Bank’s analytical work can be enhanced by continuing to strengthen outreach and dissemination.

96. Create a CAS performance monitoring system and align with Government’s GPRSF monitoring system. The CAS did not have a results framework that could be monitored to take timely corrective actions and ensure results on the ground. The future CAS needs to select a limited number of core medium-term outcomes supporting the government’s GPRSF and the Bank’s proposed lending and AAA work. The Bank must put in place a monitoring system that enables the government and development partners to jointly monitor progress on the program.

97. The Bank needs to continue to work closely with development partners in fostering the harmonization and alignment agenda. The Bank should introduce the norm that analytical work is planned and done jointly with national actors and other development partners in the sector and that the results are shared with the widest possible range of stakeholders. Comparative advantage and selectivity have become key criteria for the Bank’s business model. Thus, the Bank should foster collaborative assistance strategies, both at the country level and in the sectors, which will be important tools for the division oflabor among the development partners.

98. Understanding of the underpinnings of shared growth must be improved, especially in the rural sector. The CAS did not address enough key issues that hamper agricultural growth. A clear strategy in this sector is imperative.

- 67 - 9e, 0

a a a a a aaaaa a a aaa a a I 0 II I

. . *. . 0. .

. . Appendix 2 (a): Planned vs. Delivered Program

Planned IDA Lending Program and Actual Deliveries (FY04-07)

CAS Planned Lending $m Actual Lending $m FY04 HIV/AIDS* 15 HIViAIDS MAP* 25.5 SAC-3 Supplemental* 15 SAC-3 Supplemental* 15 Interim Transport** 38.7 Transport Corridor** 48.7 (15.9 grants) Global Distance Learning * 2.5 Development Learning Center* 2.5 Household Energy 35.8 Household Energy 35.7 SAC-4 55 Postponed to FY05 Total 162 Total 127.4 GEF - Household Energy 3.5 FYOJ Sources of Growth 55 Growth Support** 55 (35.5 grants) Rural CBD 50 Postponed to FY06 Agricultural Diversification & 35 Postponed to FY06 Competitiveness SAC-4 (changed from multi-year operation to 25 single operation and split into two operations, SAC IV and EPPFMC) Total 140 Total 80 GEF Gourma Biodiversity Conservation 5.5 FY06 Transport Sector 2 63 Postponed to FY07 PRSCl 25 Postponed to FY07 Economic Policy & Public Finance 25 Management Rural Community Development 60 Agriculture Competitiveness & 46.4 Diversification Total 88 TotaI 131.4

PRSC 1 45 Education Sector Investment Program 35 Transport Sector 90 No indicative lending for FY07 2 PASAOP Supplemental 20 Education Sector Investment Supplemental 15 Total 205 *: Operations planned to be filly financed by IDA Grants; **: Operations planned to be partially financed by IDA Grants.

- 71 - Appendix 2 (b): Planned AAA Program and Actual Deliveries (FY04-07)

FY CAS Plan Actual FY04 FY04 Economic Sector Work PRSP Progress Report 1 Review Delivered in June 2004 IDF Support to Min. Women Dropped CEM/Sources of Growth with Equity Slipped to FY07 JSDF Support to NGOs Slipped to FY07 UNDP Roundtable Preparation No information found Private Sector Strategy Note - Delivered in March 2004 Transport Support - Delivered in April 2004 HNP Country Status Report - Delivered in April 2004 Trade DTIS IF Study - Delivered in June 2004 CPAR - Delivered in June 2004 Macro Economic Impact of Climate Assessment - Delivered in June 2004 Technical Assistance (including TFs) Support to PER (CNS)/MTEF (TA) Delivered in June 2004 Mopti Area Biodiversity (IFAD) - Delivered in June 2004 Improving Public Finance Management and Preparing the Government’s Action Plan- Delivered in June 2004 FY05 Economic Sector Work HealthEducation Health Service Utilization Study - Delivered in October 2004 Urban Slipped to FY06 PRSP Progress Report 2 Review Delivered in December 2005 Strategic Gender Assessment Slipped to FY06 CPPR Delivered in January 2005 STATCAP No information found Poverty Assessment - Delivered - 12/3 1/04 Inv. Climate Assessment - Delivered - 6/16/05 Niger River Basin Support - Delivered - 6130105 Technical Assistance (including TFs) JSDF Legal Aid NGOs (Delivered in April 2005 Mali-Integration & Comp. Study - Delivered in January 2005 Senegal River Basin - Delivered in June 2005 FY06 Economic Sector Work Poverty Assessment Delivered in December 2004 (FY05) Niger River Basin Support Delivered in June 2005 (FY05) PRSP 2 Review Slipped to FY07 Regional Program Traditional Energy Sector N/A Support to PRIS - Delivered in September 2006 Urban Sector Stocktaking - Delivered in May 2006 Gender Assessment - Delivered in February 2006 Education Country Status Report - Delivered in May 2006 CPPR Delivered October 2005 and May 2006 Technical Assistance (including TFs) Integrated Framework (IF) Follow-up - Delivered in June 2006

Economic Sector Work PER- PEMFAR Moved to FY08 PRSP 2 (JSAN) Slipped to FY08.

- 72 - Appendix 2(c): Mali Regional lending FY04-07

Mali Regional Project Total Committed Amount IDA Amount Disbursed for Mali ($ mil) ($ mil)

.i.'.f i.3.' J " *, , , ~ , ... . . L . NO4 GEF - Senegal River Basin 5.3 0 WAEMU Capital Markets 96.4 The entire amount was lent to Development Project Banque Ouest Africaine de DPvelovement

Africa Emereencv Locust Proiect 10.2 4.0

West and Central Africa Air 5.5 0.537 Transport Safety and Security Senegal River Basin Multi-purpose 30.8 2.6 Water Resource Development Project West Africa Power Pool APL2 75 0

- 73 - APPENDIX 3

Mali at a glance 10116/07

Sub- Key Development Indicators Saharan Low Mall Africa income Age distribution, 2006 (2006) Female Population, mid-year (millions) 13.9 770 2,403 Surface area (thousand sq. km) 1,240 17&74 1 24,265 29,215 60-64 Population growth 3.0 2.3 1.8 (56) 50-54 Urban population (% of total population) 33 36 30 40-44 GNI (Atlas method, US$ billions) 5.5 648 1,562 30-34 GNi percapita (Atlas method, US$) 400 842 650 20-24 GNI per capita (PPP, international $) 1,130 2,032 2,698 10-14 0-4 GDP growth (%) 5.3 5.6 8.0 I 30 20 10 0 10 20 30 GDP per capita growth (%) 2.3 3.2 6.1 oarcent

(most recent esUmate, 200&2008)

Poverty headcount ratio at $1 a day (PPP, %) 72 41 ' Under-5 mortality rate (per Poverty headcount ratio at $2 a day (PPP. %) 72 72 1,000) Life expectancy at birth (years) 41 47 59 Infant mortality (per 1,000 live births) 122 96 75 Child malnutrition (% of children under 5) 33 29 r Adult literacy, male (Oh of ages 15 and older) 33 69 72 Adult literacy, female (Oh of ages 15 and older) 16 50 50 Gross primary enrollment, male (% of age group) 66 98 108 Gross primary enrollment, female (Oh of age group) 50 86 96

Access to an improved water source (Oh of population) 48 56 75 Access to improved sanitation facilities (% of population) 45 37 38 l9sO 1995 20W 2005

OMall OSub-Saharan Afnca

Net Aid Flows 1980 1990 zoo0 2006

(US$ millions) Net ODA and official aid 262 479 359 69 1 Growth of GDP and GDP per capita (Oh) Top 3 donors (in 2005): France 45 129 98 90 15 - Netherlands 13 35 43 66 United States 23 30 56 58

Aid (Oh of GNI) 14.8 19.9 14.9 13.6 Aid per capita (US$) 38 54 31 51

Long-Term Economlc Trends 10 1 90 95 00 05 Consumer prices (annual % change) 0.6 -0.7 1.5 GDP Implicit deflator (annual % change) 16.3 4.9 5.6 4.1 --O-GDP -GDP per capita Exchange rate (annual average, local per US$) 211.3 272.3 705.0 522.9 Terms of trade index (2000 = 100) 102 144 100 114 1980-90 1990-2000 2000-06 (average annual gmwth X) Population, mid-year (millions) 7.0 8.9 11.6 13.9 2.4 2.7 3.0 GDP (US$ millions) 1,787 2,421 2,446 5.866 0.8 4.1 5.7 ("A of GDP) Agriculture 48.3 45.5 41.6 36.9 3.3 2.6 5.0 Industry 13.2 15.9 20.6 24.0 4.3 6.4 4.8 Manufacturing 6.5 8.5 3.8 3.1 6.8 -1.4 5.3 Services 38.5 38.6 37.9 39.1 1.9 3.0 6.3 Household final consumption expenditure 87.4 80.3 79.4 67.4 0.6 3.2 1.1 General gov't final consumption expenditure 11.6 13.8 8.6 9.9 7.9 3.2 21.9 Gross capital formation 15.5 23.0 24.6 22.9 3.6 0.4 6.3

Eqorts of goods and selyices 14.7 17.1 26.8 32.1 4.8 9.9 6.6 Imports of goods and services 29.1 33.7 39.4 40.2 6.6 3.5 4.1 Gross savings 1.2 15.1 15.6 14.1

Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available a. Country poverty estimate is for earlier period. b. Ad data are for 2005.

Development Economics, Development Data Group (DECDG)

- 74 - Mali

Balance of Payments and Trade 2000 2006 Governance indicators, 2000 and 2006 (US$ miliions) Total merchandise exports (fob) 547 1,570 Total merchandiseimports (cif) 595 438 Voice and accountability Net trade in goods and services -324 -142 Political stability Current account balance -227 -245 as a % of GDP -9.3 -4.2 Regulatory quality

Rule of law Workers’ remittances and compensation of employees (receipts) 73 155 Control of corruption

Reserves,including gold 381 977 0 25 50 75 100

02006 Country 5 percentile rank (0-100) Central Government Finance n2ooo higher value^ rmply bsllar rtllingr (% of GDP) Current revenue (including grants) 15.7 51.8 Source Kaufrnann-Kraay-Msstrupi World Bdnk Tax revenue 13.1 15.6 Current expenditure 11.6 13.4 Technology and Infrastructure 2000 2005 Overall surplusldeficit -6.6 29.2 Paved roads (% of total) 12.1 18.0 Highest marginal tax rate (%) Fixed line and mobile phone Individual subscribers (per 1,000 people) 5 Corporate High technology exports (% of manufactured exports) 10.3 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 2.980 1,436 Agricultural land (% of land area) 32 32 Total debt service 94 80 Forest area (% of land area) 10.8 Debt relief (HIPC, MDRI) 667 985 Nationally protected areas (% of land area) .. 3.7

Total debt (“h of GDP) 121 8 24.5 Freshwater resources per capita (cu. meters) .. 4,438 Total debt service (% of exports) 13.0 4 2 Freshwaterwithdrawal (% of internal resources) 10.9

Foreign direct investment (net inflows) 82 0 C02 emissions per capita (mt) 0.05 0.04 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2000 PPP $ per kg of oil equivalent) Zornposition of total external debt, 2005 Short-term 17 Energy use per capita (kg of oil equivalent) private 5

1424

LIMF.109 JSI millions

Private Sector Development 2000 2006

Time required to start a business (days) - 42

Cost to start a business (Oh of GNI per capita) - 201.9 Time required to register property (days) - 33

Ranked as a major constraint to business (Oh of managers surveyed who agreed) Access to/cost of financing .. 63.6 Corruption .. 48.7

Stock market capitalization (% of GDP) Bank capital to asset ratio (Oh)

Note: Figures in italics are for years other than those specified. 2006 data are preliminary 10/16/07 ., indicates data are not available. -indicates observation is not applicable.

Development Economics, Development Data Group (DECDG)

- 75 - Millennium Development Goals Mali

With selected targets fo achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years)

-___-._____Goal 1: halve the rates for $1 a day poverty and malnutrition Poverty headcount ratio at $1 a day (PPP, % of population) Poverty headcount ratio at national poverty line (YOof population) Share of income or consumption to the poorest qunttile (%) Prevalence of malnutrition (% of children under 5)

-Goal _- 2: ensure that children are able to complete primary schooling - Primary school enrollment (net, %) Primary completion rate (% of relevant age group) Secondary school enrollment (gross, %) Youth literacy rate (76 of people ages 15-24)

__--Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) Women employed in the nonagriculturalsector (% of nonagriculturalemployment) Proportion of seats held by women in national parliament (Oh)

Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) Infant mortality rate (per 1,000 live births) Measles immunization (proportion of one-year olds immunized, %)

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total)

Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) Contraceptive prevalence (% of women ages 15-49) Incidence of tuberculosis (per 100,000 people) Tuberculosis cases detected under DOTS (Oh)

Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) Access to improved sanitation facilities (% of population) Forest area (% of total land area) Nationally protected areas (% of total land area) CO2 emissions (metric tons per capita) GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)

Goal 8: develop a global partnership for development - Fixed line and mobile phone subscribers (per 1,000 people) internet users (per 1,000 people) Personal computers (per 1.OOO people) Youth unemployment (% of total labor force ages 15-24)

tducation indicators (%) Jleasles immunization (% of I-year olds) 31indicators (per 1,000 people)

100, 75 1 $2 201

75 iI w i 'I :

OL., , , 1, ~ 20w 2002 2005

1990 1995 2000 2005 20w 2002 2005 -+-Primary net enrollment ratio fl Fixed + mobile subscnbers -4%-Ratio of girls to boys in primary 8 DMali :1 Sub-Saharan Africa nlnternet secondary education users

Note: Figures in italics are for years other than those specified. .. indicates data are not available. 10116/07

Development Economics, Development Data Group (DECDG).

- 76 - APPENDIX 4: TRENDSIN POVERTY

1. This appendix analyzes poverty trends in Mali from 200 1 to 2006. This period was marked by good growth performance, in part linked to large private and public investment flows as well as an increase in exports (gold and cotton). In 2002, the real GDP growth rate reached 4.4 percent. In 2003, thanks to a record crop year, growth soared to 7.7 percent. The year 2004 was marked by an invasion of locusts and low rainfall, causing a fall in growth to 2.8 percent and a large food deficit, as well as inflation in the following year. Recently, the economy has suffered from fluctuations in the price of oil, unstable prices for the main export products and the continuing crisis in CBte d’Ivoire. These factors contributed to a growth estimated at 5.3 percent for 2006 compared to 6.1 percent in 2005. In total, taking into account an estimated population growth rate of about 2.5 percent per year for the period 2001-2006, the Malian economy witnessed an aggregate cumulative GDP growth rate per capita of 12.4 percent between 2001 and 2006. We can therefore expect poverty to have fallen significantly.

2. Two methods were used to calculate the poverty thresholds. The first method was based on previous work by the DNSI using the EMEP with the poverty threshold determined using the caloric energy method. This method gave a poverty threshold of 144,022 CFAF per person per year in 2001/02 and a poverty headcount of 68.3 percent (share of the poor in the total population). In light of the evolution of the cost of living (according to data for the consumer price index), the comparable poverty threshold was 157,920 CFAF per person per year in 2006. Estimations based on the ELIM suggest a fall in the share of the poor population to 64.4 percent according to this first method for measuring poverty.

200 1 2006 Poverty Poverty Poverty Poverty YO incidence, incidence, YO incidence, incidence, population method 1 method 2 population method 1 method 2 National 100 68.3 55.6 100 64.4 47.5 Place of residence Urban 26.2 37.4 24.1 31.7 31.8 25.5 Rural 73.8 79.2 66.8 68.3 79.5 57.6 Grouped regions Kayes-Koulikoro 30.2 76.2 65.1 29.4 61.5 44.7 Sikasso 18.4 81.8 80.1 18.0 81.7 80.8 Mopti-Sdgou 31.9 71.4 51.9 33.9 75.2 48.7 Tombouctou-Gao-Kidal 8.8 51.3 30.8 8.5 57.9 29.0 Bamako 10.7 27.5 17.6 10.2 11.0 7.9

3. However, in light of the poverty estimations carried out in other West African countries, the poverty incidence of 68.3 percent in 2001/02 was relatively high. Indeed, this rate would mean that Mali is the poorest country in the franc zone, a finding which is unrealistic given the fact that some other countries have per capita GDP levels which are significantly lower than in Mali. Using the 2001/02 data, a new poverty threshold was calculated according to the cost of basic needs method. The

~ Poverty estimates are based on two household surveys carried out by the Direction Nationale de la Statistique et de I’Informatique (DNSI): the EMEP 2001/02 (“enqubte malienne pour l’dvaluation de la pauvret6”) and the ELIM 2006 (“enqubte legere intdgrke auprks des mdnages”). These two surveys differ somewhat from one another, but the data are sufficiently comparable to enable us to analyse the poverty trends.

- 77 - resulting poverty threshold was lower than that obtained in previous works (130,458 CFAF per person per year in Bamako) and it varied according to the geographic location of the households. According to this new poverty line, the headcount of poverty fell more significantly between 2001 and 2006. While 55.6 percent of Malians had been living below this alternative poverty threshold in 2001, the headcount fell to 47Spercent by 2006. Still, even with these alternative estimates, the number ofpoor people continued to rise over time due to population growth. Specifically, the number ofpoor people rose from 5,687 million in 2001 to 5,841 million in 2006.

4. Although the national poverty trend would seem to be reasonable and heading in the right direction, we are less conJident with regard to poverty trends among sub-groups of the population, in particular with respect to the place of residence. The results obtained using the two different methods differ in some cases. The first method suggests that poverty has fallen mostly in urban areas, whereas the second method suggests a fall primarily in rural areas. With regard to regions, the fall in poverty of between 15 and 20 percentage points recorded in the Kayes-Koulikoro regions seems to be very high. Generally, a fall of this magnitude is observed when a regional economy experienced fundamental changes and recorded very high growth levels, which is not the case in Mali. The fall in poverty isjust as significant in Bamako, whereas in MoptilSegou, Tombouctou/Gao/Kidal and Sikasso, it is much lower or even negative depending on the type of measurement used. More generally, the fact that certain poverty trends concerning the region or area of residence (urban or rural) depend on the method used indicates that a large part of the population lives close to the poverty threshold. This conclusion suggests that, even if the poverty incidence has fallen, the households that have become non poor probably are still highly vulnerable to economic fluctuations in their sectors of activity or area of residence.

5. The evolution of the incidence of poverty according to regions and household occupations can be linked to GDP trends per sector. The case of agriculture is particularly important as the majority of the population still depends on this sector of activity. In 2005, the primary sector recorded a growth in volume of 5.1 percent. Food crop production totalled 3,367,200 tonnes (millet, sorghum, paddy rice and corn), representing an increase of 18.4 percent in 2005-06 versus the previous year. These good results can be explained by favorable climatic conditions, government’s anti-locust measures, implementation of irrigation projects, and distribution of improved varieties of rice and corn. According to the cost of basic needs approach (method 2), these good results seem to have lowered poverty in rural areas. The exception is the poorer performance of the cotton sector, as noted by high rates of poverty in the Sikasso area. Probably due in part to lower prices paid to producers, cotton production fell from 585,014 tonnes in 2004 to 534,000 tonnes and 410,370 tonnes in 2005 and 2006, respectively. These are declines of 8.7 percent and 23.1 percent, respectively. Cotton’s lower producer price helps explain the absence of a fall in poverty in the Sikasso region.

6. Generally, the growth recorded in Mali in recent years has led to a fall in poverty, and has been more or less neutral with regard to inequality trends. The consumption growth rate of the poor population has been similar to that of wealthier people. With regard to future reduction in poverty, the Bank has prepared four scenarios, each based on a hypothetical GDP per capita growth rate. The underlying assumption is that growth in GDP per capita will be more or less reflected directly in changing levels of household consumption but will not change inequality. A growth rate in GDP per capita of 3 percent is slightly above the rate observed in the country over the past 5 years. Under such a growth rate, the poverty headcount would be approximately 37 percent in 2015 (based on a rate of 47.5 percent in 2006) (table 4.1). In contrast, a per capita growth rate of 4 percent would lower the poverty incidence to approximately 30 percent in 2015. Nevertheless, WB must remain prudent in using such simulations. For example, due mainly to low world cotton prices, the cotton sector is experiencing difficulties that may slow poverty reduction. In addition, the country is still dependent on a range of exogenous factors, including unforeseen climatic events, which can cause a fall in growth for certain years, and thereby slow poverty reduction.

- 78 - APPENDIX 5. MALI’S REFORM AGENDAAND GROWTH-ORIENTED SECTORS

1. The GPRSF is supported by a reform program and key traditional growth-oriented sectors as well as new areas for future growth engines. The following reform program will need to be more explicit regarding private sector productivity growth, public sector efficiency, and improvement in service delivery of public goods. New sectors identified with strong potential to increase Mali’s growth if necessary measures are taken are industry, trade, tourism, fruits, vegetables and oil plants, handicraft, culture, and youth and sports.

2. Development of infrastructure and productive sectors. The main sources to accelerate growth are the rural production subsectors,’ mining, trade, tourism, handicraft and culture. In particular, increases in agricultural productivity are expected to play a critical role in achieving poverty reduction targets. The government will work to (a) increase the private sector’s role in public enterprises, (b) promote financial sector development, (c) improve access and reduce the cost of electricity by strengthening the management of EDM and by investing in transmission and generation, and (d) improve the investment environment. With regard to the Financial Sector Development Strategy, Mali envisages consolidating the bank restructuring and privatization, strengthening microfinance supervision and institutions, and reforming the social security system and other measures to increase access to financial services.

3. The public sector reform includes (a) decentralizing and deconcentrating administrative services to bring the administration closer to the people, (b) reforming the judiciary to reinforce the rule of law, (c) adopting anticorruption measures, (d) improving and modernizing PFM based on the comprehensive action plan adopted in 2005, and (e) reforming the financial sector to enhance business efficiency.

4. Social sectors. Key actions in the education sector aim to (a) reduce regional and gender inequality and strengthen education quality, (b) take measures to increase education opportunities, and meet the needs ofthe labor market, and (c) proceed to further decentralize education management. The second five-year Health and Social Development program focuses on (a) improving geographic access to essential health services and availability ofqualified human resources, (b) reducing health expenses for poor, and (c) reforming hospitals and other research health structures.

5. The mining sector will continue to play a key role in the Malian economy. It will focus on researching gold and oil with expectations of increased revenue as a share of GDP, creating employment for youth, increasing incomes of traditional gold exploiters, and developing the gold exploitation area.

6. The transport sector is expected to contribute to internal and external accessibility through efficient and sustainable transport management and facilitation. Proposed transport measures include building capacity among the transport sector stakeholders, modernizing of the public transport vehicle fleet, and implementing transport laws and safety. In air transport, the strategy proposes to improve air freight, heighten security to meet international standards, abolish export duties on meat, fruits and vegetables, and evaluate the airport’s refrigeration facilities.

Growth in the rural sector will be achieved through developing agro ecological and pastoral skills, emphasizing the development of dry cereals, rice, cotton, fruits, vegetables, and beef, Cotton will continue to be an important sector during the CAS period. The National Development Strategy Framework is expected to increase productivity in this sector.

- 79 - 7. In the telecommunications/ICT sector, the proposed strategy concentrates on access to the telecommunications and ICT network in rural and remote areas. The government will formulate a legal and regulatory instrument for a universal access fund. The ICT strategy will be implemented first through a pilot project before extending the ICT universal access program nation-wide.

8. The industrial sector is expected to contribute to Mali’s growth by processing both traditional and nontraditional products such as fruits and vegetables, oilseed crops, cattle and meat, hides and skin, and textile fibers. Measures include creating an investment promotion fund, developing industrial zones, improving road infrastructure, and restructuring and upgrading industrial enterprises.

9. The key objective in the trade sector is to better integrate Mali in the regional and international markets, particularly through market diversification and product compliance with international standards. Mali produces several exotic fruits and vegetables for which there is a great demand in the European market. The strategy proposes to raise the quality of these products to meet international requirements.

10. For tourism, the strategy focuses on strengthening institutional mechanisms, diversifying tourist sites, coordinating investments to improve infrastructure, improving product quality, and strengthening stakeholders’ activities. Additional emphases are to develop cultural sites for tourism, increase revenue from cultural activities, and promote cultural enterprises and creative art.

1 1. Measures in the handicraft sector will include establishing a mechanism for monitoring and evaluation of activities, establishing a legal, regulatory and fiscal framework conducive to investment, and mobilizing local initiatives.

12. For Youth and sports, the strategy will focus on reducing youth unemployment in rural and urban areas and integrating youth in the society. Proposed measures will include educational supervision, socioeconomic integration, capacity and institution building for youth supervision structures, construction ofsports infrastructure, and training.

- 80 - APPENDIX 6: MALI AND AID HARMONIZATION

What is the context?

1. Mali signed the Paris Declaration in 2005. Recently, the government has taken several measures to move the Paris agenda forward. A Harmonization Secretariat has been established in the Ministry of Finance, and a Harmonization and Alignment Action Plan has been developed with the donor partners, which was recently adopted by the government. The secretariat will have a key role in the programming, allocation, and monitoring aid and will coordinate the implementation of the action plan. The secretariat also will steer the capacity building in the concerned ministries needed to use aid more effectively. On the donors’ side, a technical pole has been established to prepare the dialogue with GoM and to support the development ofjoint assistance tools including collaborative assistance strategies, joint financing agreements, joint analytic work, and joint missions Mali is one of the focus countries in which the World Bank intends to move the Paris agenda forward and in which country management has taken up the challenge, making harmonization and alignment a special priority in the CAS. A Harmonization and Alignment unit also has been created in the Bank’s Mali office. Intensifying harmonization efforts also is in line with FY03-06 CASCR recommendations.

How does the CAS intend to respond to the Paris agenda?

2. The Paris agenda is summarized in 5 chapters: ownership, alignment, harmonization, management for results, and mutual accountability. The CAS addresses these chapters in multiple ways. Ownership is stimulated by helping the government through analytic studies and TA to improve the poverty reduction strategy and resource allocation mechanisms, develop sector strategies and medium-term expenditure frameworks, and build monitoring and statistical capacity. The Bank also will support the newly created Harmonization Secretariat, but the exact terms are not yet defined.

3. The CAS is fully aligned with the priorities set in the GPRSF, which is supported by the Bank’s PRSC. Efforts are undertaken to harmonize the conditionality framework with the indicators developed by the government. In the water and sanitation and education sectors, the sector strategies as a whole are supported by program-based mechanisms. The Bank uses the PRSC to contribute to the water and sanitation and health sector strategies. The education sector strategy is still supported by a parallel operation, to be merged into the PRSC from the next phase. For agriculture and SLM, the Bank supports GoM to develop the sector strategy and to establish a public-private sector-wide investment fund. During this CAS period, the Bank’s agriculture operations gradually will move from project funding to sector-wide funding through this new investment fund. At the end of the PASAOP (FY09), support to agricultural reforms will be merged with the PRSC. The transport sector has tried to limit the number of parallel PIUs by establishing one PIU for all operations.

4. The CAS reflects the Bank’s intentions to step up its efforts to harmonize its operations with those of the other development partners and to be more selective by focusing on fewer sectors. These intentions have been prepared in discussions with government and other donors while looking at the Bank’s comparative advantage. An important decision has been made by the development partners to prepare a collaborative CAS, which could be put in place at the end of this CAS period. A staff member of the Mali office, seconded by the Danish government for the Paris agenda, will have a key role. As part of the collaborative CAS process, government’s Harmonization Secretariat will lead exercises to better divide the development partners’ support, spreading it over all relevant GPRSF sectors based on the comparative advantages of each donor.

5. The Bank will lead the efforts of the budget-support donors to put in place a joint budget- support framework, defining common conditionalities and setting the rules for joint reviews and joint disbursement mechanisms. This framework should be in place from PRSC-3.

- 81 - 6. The Bank tries to harmonize its transport program with EC support to this sector with three objectives: to do joint ESW, to execute joint supervision missions, and to develop a common performance assessment framework. In the health and education sectors, donor support is fully harmonized in a SWAp. In the agriculture sector, donors meet quite regularly to coordinate the parallel activities. Although ESW in this sector is not yet jointly done, reports are discussed, and there is generally a buy-in ofthe results.

7. As the Bank’s operations are very much aligned with government’s priorities, mutual accountability is generally a crucial guiding principle for the way the Bank operates. In the sectors with SWAPS, joint operations, and whose operations’ results and conditionality frameworks are very much grounded in the government’s results frameworks, conditions have been created to reach fully mutual accountability.

What are the challenges for this CAS-period?

8. The Bank’s biggest challenge in particular for the agriculture, transport, energy, and financial sectors, is to strengthen the capacity of permanent country institutions and the country’s financial management mechanisms. The objective is to increasingly use these systems while moving away from parallel implementation units and specific procedures. Supporting sector ministries to develop program-based approaches can be very helpful in this respect. Both limiting the number of parallel implementation units and stimulating program-based approaches are key Paris Declaration principles for the WBG.

9. The specific challenge for the agriculture sector is to gradually transfer implementation responsibility to the public and private actors in the sector, and to the newly created investment fund. The transport sector must accomplish harmonization with a not yet fully cooperative EC, prepare the integration of the PIU into the Ministry of Transport, and reflect on how to align ongoing operations with GoM’s sector strategy. The energy sector needs to support GoM in developing a sector strategy and should work on a harmonized approach with the other donors in the sector, particularly with respect to capacity and institution building. The financial sector is demonstrating the implications of the Paris agenda for its operations.

10. Another crucial challenge for all sectors is the alignment of the conditionality (PRSC) and results (sectors) frameworks with government’s results frameworks. Ideally, the Bank’s matrices should be extracted from the government’s matrices. For this reason, it is so important to help GoM formulate its policy outcomes and strategies and develop its monitoring frameworks and databases. Merging the EC approach for general budget support-based on multiple tranches and a results matrix-and the Bank’s approach-based on a single tranche and a policy and action matrix-will not be an easy task, but has been done in other countries including Burkina Faso, Cape Verde, and Mozambique.

1 1. A challenge for the Bank, as much as for the government, is the alignment of the Bank-funded regional operations with national priorities and sector programming. In the financial sector and in the energy sector, the Bank could invest more in donor coordination and harmonization based on agreed clear outcomes.

12. Last, but not least, joint AAA (ESW and TA) is a key Bank principle, and the sectors need to invest more in it. Joint AAA includes studies and TA jointly executed or financed by different donors; and studies and TA financed a single donor, but jointly designed upfront by government, development partners, and other actors in the sector. It is important that the results are accepted by the engaged stakeholders to thus drive their actions. It could be very stimulating for the government and donors to sit down together in the beginning of the fiscal year, assess the AAA done, and design the work needed in the coming year. Common visions and partnerships can be created in this way, leading to more harmonization and alignment down the road.'

~~~ ' AFD, CIDA and USAID participate in the rural finance study led by the Bank.

- 83 -

APPENDIX 8: CAS CONSULTATION PROCESS AND COMMUNICATION STRATEGY

A. CAS Consultations

1. CAS preparation retreat

1. In October 2006, the Bank initiated the CAS preparation with a 2-day brainstorming session with the government and key stakeholders (private sector, civil society and donors) to discuss what should be the areas of Bank’s intervention based on its comparative advantage and positioning vis-a- vis ofother donors.

2. The ten ministers in attendance’ and the PTFs shared their views on the Government strategy (GPRSF) in the next four years, areas of focus and what would be Bank’s role in support of the government’s GPRSP and in relation with other donor engagement. Three working groups also were organized based on the pillars of the GPRSF: (a) development of productive sectors; (b) pursuit and consolidation ofthe public sector reforms; and (c) strengthening of social sectors.

3. The participants concluded that the Bank should (a) stay engaged in growth-oriented sectors and continue to accompany the government’s structural reforms for accelerated and shared growth and improved social indicators, (b) continue to support key structuring investments in infrastructure and agriculture, and (c) continue to play a critical role in PTF coordination.

4. The retreat was also the opportunity for to strengthen team work within the Bank team and to decide on the composition of the core CAS team and of the sectors of focus during the CAS preparation.

2. Consultations on the proposed CAS

5. Following the appointment of the new government, in mid-November 2007 the Bank carried out regional and national consultations to discuss the proposed new CAS, its principles, approach and program and to receive feedback from all the Malian stakeholders on the relevance ofthe strategy vis- a-vis of the growth and poverty reduction challenges spelled out in the GPRSF. Participants to the consultations included representatives from the local and national level of the civil society, private sector, experts and members ofthe government, and donors. Discussions have mainly centered on four themes: growth issue, the role ofthe private sector, governance and capacity development.

6. Participants broadly agreed on the strategic orientations of the proposed CAS and found the proposed Bank program appropriate to support the government in its objective of 7% annual growth during 2007-1 1. The participants also expressed interest that the Bank look at the informal sector, be involved in the justice area, and assist to develop capacity of the government, private sector and civil society.

7. The regional consultation took place in Segou with representatives from the government, private sector and civil society coming from the Kayes, Koulikoro, Mopti, Sikasso, Segou and Tombuctu regions. The discussions focused on the new CAS and the proposed capacity development approach. Participants express satisfaction that the Bank consulted actors at the regional level and shared their views on the following themes: energy, urban sanitation, agriculture and environment, IFC role in Mali, sustainability of Bank supported activities, the role of civil society in governance issues, country human resource deficit, and the need for capacity development.

’ Ministers of Economy and Finance, Planning and Land Management, Transport and Equipment, Works and City Planning, Health, National Education, Communication and New Technologies, Energy, Hydraulics and Mines, and Agriculture.

- 85 - 8. Discussions during the national consultation with the private sector centered on the constraints faced by the private sector to play a key role in economic growth. Constraints mentioned related to: (a) an administrative framework not conductive to PSD - i.e. inadequate tax structure poor public administration performance; (b) lack of transparency/information on public management; (c) high cost of factor of production; (c) poor business environment and weak judicial system; (d) limited access to financing for SMEs; (e) weak M&E, control and audit functions; (f) poorly qualified labor force entailing low productivity; and (g) high corruption and weak governance.

9. Participants expressed the need to tackle these issues in order to improve the business environment, create the opportunity for the informal sector to become formal and to contribute to an accelerated and shared growth. Given the weak M&E capacity ofthe government, participants insisted on the need that the Bank assists the government in the monitoring of the GPRSF and suggested to put in place a clear set of progress and results indicators. They discussed the poor quality of the human resources and the need to reassess higher education programs to better align them to the evolving requirements ofthe job market. They also emphasized the need to accompany the privatization process and accelerate it. Tourism and agriculture were cited as key growth sectors for which the government should heavily invest in. The place of commercial and subsistence agriculture was discussed. For tourism, it was noted that the sector was lacking a coherent strategy. Finally, participants agreed that capacity building programs for SMEs should be further developed (Le. for microfinance, long term financing) and welcomed a tripartite dialogue among the government, private sector and civil society. The role that IFC could play in Mali also was discussed.

10. The discussions during the consultation with civil society organizations (SCO) focused on the need for SCOs to get better organized and develop capacity to be a key player in strategic discussions with the government on reform programs and be watchful of government’s action vis-a-vis of governance matters. Participants raised the importance of better access to information and the role the Bank can play in that effect. Following the governance presentation by the Bank, the participants raised the importance to tackle security, corruption and transparency issues as well as the judicial system. During the discussion on capacity development, participants stressed the need to take into account the regional differences to best tailor any Bank’s support to capacity development. They agreed with the key themes that the Bank proposes to work on and with the relevance of this cross- sectoral theme in the CAS to support the accelerated growth agenda ofthe government.

11. A consultation with experts of the government was organized in preparation of the national consultation with the government and donors. The consultation centered on four themes: proposed CAS and transformational growth, PSD, governance and capacity development. Following the introductory remarks by the Minister of Economy, Commerce and Industry which put emphasis on the three broad objectives of the government (annual growth of 7%, tax burden of 17% starting in 2008 and strong poverty reduction to reach the MDGs) and the need to tackle capacity development, weak statistical capacity, and to strengthen partnership among PTFs, AFD discussed Mali’s economic situation and key challenges for an accelerated growth.

12. Key comments on the proposed CAS were: 0 Bank intervention: the proposed Bank’s interventions were assessed as relevant. Participants requested the Bank to pay special attention to: (a) education: need for strong support to the education system to raise quality of education and create better adequacy between higher education and the job market; (b) private sector: need to tackle the informal sector issues for PSD to become a key vehicle for accelerated growth; (c) rural development: tackle productivity issue and support agriculture, fisheries and livestock; and (d) justice sector. The participants indicated that population, environmental and regional integration issues were of key importance. The country manager indicated that the selectivity in the Bank program will be reflected through the lending pipeline which proposes a PRSC to accompany reforms in key sectors and one sectoral investment operation per fiscal year. 0 Governance, capacity development and donor coordination for increased aid effectiveness are considered key challenges 0 Monitoring and Evaluation: participants asked for Bank support to help develop national capacity to monitor programs and results and that the support to statistical capacity be highlighted. 0 Paris Declaration agenda: it was noted that the PTFs were in a transition phase with the start of the process toward a joint country strategy which need a joint adaptation on how to better work and complement all the interventions in the country. 0 Areas where Bank intervention should be better spelled out in the CAS or proposed to be considered for Bank intervention: (a) gender promotion - activities/programs at the project level; (b) culture: importance of capacity development in the sector - Bank involved in arts and crafts, tourism. AFD, EU, and the Netherlands involved in the culture sector; (c) regional economic programs ofWAEMU and BCEAO.

13. Comments on PSD centered on: 0 Informal sector and value chain: need to put in place the appropriate legal and regulatory framework to encourage informal sector to become formal. Participants highlighted the importance ofthe informal sector in the economy and the role of women in this sector. 0 Value chain and intra industry cooperation: need to improve value chain for efficient gain of the chain and better (valorization) of local products (i.e., artisanal mining). 0 Decentralized financial systems: need to develop new instruments to increase access and to strengthen microfinance institutions. 0 ICTs: need to accelerate ICTs in all sectors to contribute to increased service supply and economic activity 0 Human resource capacity: weak HR capacity contributing to low productivity and constraint to PSD. Need to develop a 10-year employment and vocational training program. 0 New growth-oriented sectors: look at new growth-oriented sectors like solar energy and bio fuel. 0 Areas where Bank intervention should be better spelled out in the CAS or proposed to be considered for Bank intervention: (a) Doing business: operationalize reforms to improve investment climate; (b) look at possibilities for IFC financing and for guarantees from MIGA; (c) support to legal and judicial framework, in particular property rights; (c) boost dialogue between public and private sector.

14. After a brief presentation on governance by the Bank, the MoF clarified key governance actions taken by the Authorities in different areas like the financing of political parties, Parliamentary control, “verificateur general”, EITI adherence. Emphasis was put on the importance to develop a strong working relationship between the government and donors to support implementation of the reforms taken (analysis of constraints and priority areas, capacity development actions) to get tangible results in public financial management and quality of public services. On top of economic governance, the government expressed its interest that the Bank be involved in the justice area, public administration restructuring (deconcentration and decentralization), capacity development in M&E for the administration, e-governance (technology infrastructure development).

15. Following WBI presentation on capacity development, participants expressed the importance to link initiatives from donors on capacity development initiatives with the government’s framework (PDI, CDI) and for the government to fully internalize (appropriation) capacity development activities from donors. It was noted that the Malian Diaspora could play a key role by better mobilizing its competencies. The proposed areas of focus for Bank intervention were deemed appropriate. The government also would like the Bank to pay special attention to capacity development for statistics,

- 87 - the monitoring ofthe GPRSF and Paris Declaration, secondary and higher education and private sector and civil society. It was also suggested to include capacity development components in Bank projects and programs.

16. The Bank team provided responses on how the proposed strategy would address critical issues that all stakeholders agree the Bank is competent for. Participating donors shared their views for complementary actions in sustaining the government's GPRSF.

B. Communications strategy

17. In addition to the consultation and dissemination efforts directly tied to the CAS, the Bank proposes to undertake a pilot program in Mali that will use radio to build public understanding of some of the critical issues underlying the CAS. The activities will be designed to advance a culture of evidence-based debate on development issues. The program will be piloted through partnerships with broadcasters that will air a series of interactive discussions of development issues. The Bank would support the efforts with provision of a basic framework, the preparation of fact-sheets on key issues, identification of subject experts in and outside the Bank, and capacity-building for the participating broadcasters. The Bank also will support monitoring and evaluation efforts that will assist a process of capturing the benefits and impact ofthe programs, as well as ways they might fall short of their goals.

18. The goal of the program is to advance a more informed debate on development issues. Client surveys indicate that certain gaps and misunderstandings often cloud the debate around certain policy choices. Thus, we will be supplementing the basic communication on Bank-financed projects and strategies, with a broader effort to build awareness of the underlying development realities in Mali, and the tradeoffs and policy choices that face decision makers. The challenge for the Bank and the Government is that of developing the capabilities to learn from these debates.

19. The approach will address the findings of the 2007 Mali Client survey which indicated that (a) there is an imbalance in familiarity with the Bank's work between local/regional level of public administration, trade unions and academia and the central level of administration as well as between residents in rural areas and Bamako; and (b) there is need to promote a shared vision of the country development priorities beyond government circles as NGO, labor unions and academia do not consider the priorities of the CAS to be the right ones. The approach relies on knowledge sharing where the Bank will partake its knowledge on the various aspects of development and learn from the various constituents ofsociety as well as be informed from operations and practices undertaken by the various development actors, from the local community all the way to central government departments.

20. The communication strategy will promote the emergence of a self-sustaining culture of lively and facts based debates on issues of concern to citizens. Sustainability entails relying on organizations / individuals that have an incentive to organize debates on an ongoing basis. Those incentives might be economic in nature: increased audience for media entities that run talk shows, recognition by peers in the case of individuals, institutional prestige or the fulfillment of institutional goals in the case of associations, think-thanks, research groups, etc. Providing a space for citizens to participate in the discussion of issues that affect their life, capturing and sharing this knowledge will advance the cause of development.

2 1. The program will be carried out through existing media organizations whose capabilities to schedule and run, on an ongoing basis, debates on a variety of topics that are well researched and documented will be strengthened. As the program takes root and the media profession comes to appreciate the benefits inherent in the new approach, we will see the emergence ofa specialized press that covers sector specific, facts based reporting/programs.

- 88 - APPENDIX 9: REGIONALINTEGRATION

A. Current Assistance

1. As a small and landlocked economy, Mali has a keen interest in regional integration. Most of the ongoing Bank-supported regional initiatives in which Mali participates relate to the accelerated and shared growth agenda. They aim at improving the country’s competitiveness and at diversifying its production base. These programs complement and strengthen national actions.

2. Programs from which Mali benefits include connection to the West Africa (WA) Power Pool, harmonization of country policies and regulatory frameworks (telecommunications, agriculture, and financial services), water resource development of the Niger and Senegal Rivers, strengthening road transport corridors, and strengthening the regional payments system.

3. Most of these initiatives are in their early implementation stages. Some of these regional programs are part of the WA Economic and Monetary Union (WAEMU) REP and are implemented under the coordination of either WAEMU or the Banque Ouest Africaine de Developpement (BOAD). Other fall under the Organisation de Mise en Valeur du fleuve Senegal (OMVS) and Niger Basin Authority (NBA) programs and are coordinated by these institutions. Programs whose implementation of a Mali-specific component is coordinated by national authorities include the locust project, the aviation safety and security program, and the WA agricultural productivity program.

4. The Mali Regional portfolio is composed of 10 projects, 6 of which are adaptable program loans (APLs). Total commitments are $626 million; of these, $101 million correspond to direct Mali components. Overall implementation of the regional portfolio is satisfactory. The WAEMU capital markets project, implemented by the BOAD, is unsatisfactory and being restructured. The portfolio is relatively young (averaging less than 2 years) and, due to long effectiveness delays, disbursements amount to only $40 million.

4. Six key results are expected for Mali: (a) safe and secure environment for air transport in Mali by improving the country’s compliance with international safety and security standards; (b) significant increase in access to secure, quality, and low-cost electricity through the rehabilitation and development of Kainji and Jebba (capacity of 900 MW by 2013) and Felou (102 Gwh) hydropower plants; (c) development of road infrastructure; (d) improvement of productivity in rice and cereals through access to improved technologies; (e) improvement of the living conditions in the Niger and Senegal River basins through better planning of the water resource for multipurpose use and better watershed management; and (f) improved access to financial markets.

Current Regional Portfolio

IO 28 2003 07 31 2008 - ss 05202004 08312009 - ss WAEMU Capital Markets De\t FILJ 02262004 09302009 964 12 - LU Afnca Emergent) Locust Project 12 162001 06302009 59 5 263 10 I 51 s s 2006 HeSf &Central Afnca Air Transpon (TAL) 09 08 2005 II 30 2009 336 45 38 I6 MS \.IS Sew@ k\er Basin hliulafement Water Res hpt (APLj 04 27 2006 12 31 2009 IIO 0 15 2 30 I 30 s s West AhaPow Pool 2 (OUVS Felou HEP) 06 08 2006 09 08 201 I 750 04 250 00 S S 2007 West Afnca Apc Prod Prgm (APL) 06 29 2006 06 30 2010 450 00 150 00 - . Afnca Stockpiles I-.Mali, Morocco,Tanzarua (GEF) 03292007 06302012 135 04 26 03 - - 2008 Uiger Basin Water Resources 07 03 2007 01 31 2013 1860 00 180 00 s s

- 89 - B. Regional Pipeline

5. Mali will participate in more regional projects that focus on infrastructure and agricultural productivity. The planned regional activities and projects are part of the UEMOA and ECOWAS regional programs. They are: (a) promotion of economic competition through connectivity to quality, infrastructure services at a competitive cost for the energy/electricity, transport, transit facilitation, and telecommunications sectors; (b) promotion of agricultural productivity through regional cooperation in agricultural research to generate improved technologies and to build biosafety capacity; (c) promotion of rural development through effective multipurpose water resource planning and management and development of the Niger and Senegal Rivers; (d) promotion of a friendly business environment through the improvement and harmonization of OHADA’s legal environment for business; (v) increased access to financial services through the promotion of financial integration in the sub region; (f) improvement of public procurement through conformity of Mali’s procurement regulations with WAEMU regional directives; and (g) macroeconomic convergence.

6. Special attention will be needed to ensure close alignment between regional and sectoral interventions at the country level to best leverage the Bank’s interventions to tackle the sectoral constraints to Mali’s economic growth.

Indicative Regional Pipeline (FYOS-11)

Participating Overall Project Name Project Description Countries Amount ($ mil) FY08 WA Regional Biosafety Establish and implement a Regional Biosafety WAEMU countries 25 Program Regulatory Framework. FY09 WA Transport and Facilitate trade and transit facilitation Ghana, Burkina Faso, 135 Trade Facilitation development along the corridor by reducing and Mali physical and nonphysical barriers and improve road corridor. WA Power Pool Improve access to stable and reliable Burkina Faso, Cote 120 (WAPP APL3) electricity supply through a cooperative d’Ivoire, Ghana, and power- pooling mechanism for integrating Mali national power system into unified regional electricity market Construction of the Laboa- Frkessedougou-Sikasso-Segutransmissions line to establish a robust interconnection between Cote d’Ivoire and Mali. WA Multi-Disease Strengthen capacity of beneficiary countries ECOWAS countries 60 Surveillance to implement their Integrated Disease plus Mauritania Surveillance and Response Strategies.

FYlO Senegal River Basin Promote physical integration of transport Guinea, Mali, 130 Multi-Modal Project through connectivity of modal links among Mauritania, Senegal OMVS countries. This will enhance transport on Senegal River and ensure links with road and rail transport. Senegal River Basin Enhance regional cooperation among Senegal Guinea, Mali, 200 Multi-Purpose Water River riparian countries through OMVS for Mauritania, Senegal Resource Development multipurpose water development to foster Project-APL2 growth, including improved community livelihoods. Participating Overall Project Name Project Description Countries Amount ($ mil) WA Regional Improve efficiency and reduce cost of ECOWAS countries 80 Communication and connectivity in ECOWAS region. Information Program Improve cross-border terrestrial connectivity, particularly between region’s fragile States, where gaps are most significant. Promote efficient regional trade through lower cost communications. FYll Niger Basin Water This second phase of program would focus on Niger River Basin 200 Resources Development rehabilitation, optimization, and development Authority Member and Sustainable of regional infrastructure as well as Countries Ecosystems sustainable management of selected degraded Management Program- areas. APL2

C. AAA program

7. Mali stands to benefit from planned regional analytical work in a number of areas. In Fiscal Year 2008, the Bank will carry out a study on “assessing the impact of introducing biotechnologies in the WA cotton belt,” which will directly affect Mali, WA’s leading cotton producer. A Pan-African study on climate change also will take place in FY08. In FY09, a WA Minerals Sector Strategic Assessment (WAMSSA) and a Mobilizing the African Diaspora for Development study are planned. The objective of WAMSSA is to identify key environmental and social issues associated with mining growth in the WA countries including Mali. The results will be used to formulate specific policy, institutional, and governance recommendations and interventions to be included in a potential WA Regional Mining Sector Project (WARMSP). The latter is intended to ensure the environmental and social sustainability of mining growth. The Bank also is looking to the potential of members of the Diaspora to contribute to Mali’s development. A strategy for regional cooperation will be to develop networks of researchers, professionals, scientists, and technology experts from within the Diaspora. Other aspects that will be included in the study are the universityhndustry linkages to develop skills in specific areas; mitigating brain drain (or enhancing brain circulation); and learning lessons from other countries, perhaps through South-South networks. Also in FY09, the Bank plans to develop jointly with ECOWAS a study on removing behind-the-border barriers of individual countries including Mali.

D. Regional Strategies

8. The UEMOA Commission, BCEAO and BOAD have prepared a program which is broadly aligned with the RIAS and the regional PRSP. The regional PRS builds on four pillars: (a) improve governance, including conflict prevention and management; (b) deepen market integration through harmonization of macroeconomic policies, trade liberalization and integration of factor markets; (c) develop and interconnect infrastructures; and (d) develop human resources. The reform agenda included in the REP emphasizes the same themes as the regional PRS.

9. A large investment program (mainly oriented towards the establishment of economic infrastructure with 78.1% of its total financing, more than 90% of which is meant for road and rail transport) is proposed in the REP. In November 2006, The Bank attended the UEMOA Economic Regional Program (ERP) Sponsor‘s Roundtable in Dakar and indicated its strong support of UEMOA’s initiative and its current and planned programs in support of Regional Integration in the sub-region. The Bank also started discussions on the identification of a direct engagement with UEMOA to support the implementation ofthe ERP.

-91 - APPENDIX 10: IFC AND MIGA: ASSISTANCEFOR PRIVATE SECTOR DEVELOPMENT

1. Mali’s GPRSF underscores a private-sector-led growth strategy. While this strategic stance is very appropriate, the key challenge is the private sector’s ability to meet this expectation. The Malian private sector is still dominated by the informal sector and accounts for most ofthe country’s GDP and employment. It is estimated that, of a labor force of 1.5 million, the public sector accounted only for 48,267 jobs in 2005, compared to the total of 1.18 million jobs. The private sector contributed to approximately 64 percent oftotal investment in 2004.

2. Following the 1994 devaluation, there was an expansion in foreign direct investment (FDI), which rose from -0.3 percent in 1986-93 to 12.5 percent of Gross Fixed Capital Formation (GFCF) in 1994-2001. Since then, the mining and gold ores sectors have attracted the most significant amount of FDI.’ The private sector, particularly the manufacturing subsector, remains vulnerable and insufficiently diversified. The service industry is gradually developing, particularly in telecommunications, in which competition has generated significant dynamism, and in tourism.

3. Mali needs to develop diversified and nontraditional sources of growth. Cotton and gold are unlikely to sustain the country’s past growth rate. For the future, it is essentially the ability of the private sector to generate growth that will change the country’s outlook and reduce poverty. For instance, improved output and competitiveness of Mali’s industrial sector will be critical to reduce dependency on traditional exports. The industrial sector is an important source ofrevenues, a provider of modern sector employment, and a major player in easing the constraints linked to high-cost imported intermediate or final goods. However, the share of manufacturing in Mali’s GDP and exports has been limited so reforms are needed to stimulate improvement.

4. The World Bank Group, through IFC and MIGA in addition to IDA, is working closely with the GoM to address the main challenges hindering private sector development and to integrate the country in the global economy.

Key Private Sector Development Challewes

5. Mali’s private sector has numerous challenges. The ones most urgent to achieve the PRSP objective of making the private sector the engine of growth are (a) inadequate investment climate, (b) limited access to finance, (c) weak private sector institutions, and (d) narrow private sector base and untapped potential in various sectors. To address these challenges, Mali intends to articulate a new integrated sector vision and strategy, under the aegis of the Presidential Investors’ Council (PIC). * Moreover, the private sector is expected to expand its role in service delivery, leveraging public- private partnerships as needed, including in the health and education sectors.

- An investment climate needing major improvements. Based on the WBG’s 2005 Investment Climate Assessment and the annual Doing Business reports, Mali has an important agenda to take on to improve its business environment. With the push from PIC, Mali has already made substantive reforms in business start-up procedures, property registration, and licensing. More needs to be done to increase investment and productivity levels.

’ Between I987 and 2001, the largest mergers and acquisition deals involved the following companies: Randgold Resources Ltd. and Baroya Project, in the gold ores sector, and BHP-Syama Gold Mine and Consolidated Mining Corp in the mining sector. ‘ The Presidential Investors’ Council, composed of 10 international and 5 domestic investors, started in October 2004. It has been instrumental in making investment climate reforms.

- 92 - - Limited access to termfinance. Most bank financing is short term, and small enterprises have almost no access to financing. New capacity needs to be built and new financial instruments need to be introduced to provide term financing to the private sector.

- Weak skills and weakprivate sector institutions. Mali has limited availability of skilled workers who can operate modern equipment and technology, reach high productivity levels, and link up with external markets. To mitigate the limitations related to poor formal education, on-the job training schemes are necessary. Adherence to voluntary mechanisms to set and agree standards for private sector conduct is an important role that private sector institutions can play. Mali has a range of private sector organization^.^ Strengthening these organizations will not only help them improve their advocacy effectiveness but also improve the overall governance agenda.

- Narrow private sector base and untapped potential in various sectors. In spite of meaningful progress over the last decade, Mali’s formal private sector remains small, particularly in the manufacturing sector, in which competitiveness requires strengthening. Informality still represents almost half ofthe economy, and commercial activities remain the most common form of private sector initiative. Income generation and jobs creation hinge on the ability to expand the private sector and to strengthen its competitiveness in global markets.

Key Instruments of Intervention

6. For IDA, the main instrument to assist Mali will be the GSP which will help tap into the potential of key sectoral entry points in which the private sector can foster economic diversification and reduce vulnerability to external shocks. These sources of growth include mining, telecommunications, tourism, and handicraft.

7. IFC’s intervention will focus on (a) proactively seeking investment opportunities in various sectors including finance, agribusiness, manufacturing, tourism, and mining; (b) developing Private Enterprise Partnerships (PEP Africa) programs to foster a business-enabling environment, and tourism; (c) supporting SME development in the context of the joint IDA/IFC MSME Initiative, particularly through improved access to finance; and (d) extending advisory services for privatization transactions as needed.

8. As of September 30, 2007, IFC’s investment portfolio in Mali amounted to $6.64 million. With a total of $4.8 million still outstanding, the Sadiola Gold Project is the single largest IFC investment (equity investment) in Mali. It is followed by smaller investments, including a $1.45 million investment (senior debt) in the hotel industry (Grand Hotel, through the “Socie‘te‘ Malienne de Promotion HbteliBre, ” and Rabelais Hotel). The balance of IFC’s committed and outstanding portfolio in Mali comprises small investments in pulp and paper (Graphique Industries), plastic bag, and bottle production (Socie‘te‘ Industrielle d’Emballage et de Conditionnement or SIECO).

9. During the CAS period, MIGA will assist overall private sector development through providing political risk guarantees in all sectors as requested and considered appropriate. Regarding its TA program, MIGA’s work with investment promotion agencies recently was merged with FIAS. It thus is expected that MIGA will actively participate through FIAS’s interventions. Additionally, MIGA’s Small Investor Program will issue guarantees of less than $5 million to respond to the needs of smaller investors.

The most prominent being the Chamber of Commerce, the Employers’ association, and the national chapter of the West Africa Enterprise Network.

- 93 - Stratepic WBG Interventions

A. Improving investment climate

10. The Bank will help strengthen PIC’S implementation capacity through the support to the new investment promotion agency and its one-stop-shop unit. IFC, through FIAS and PEP Africa, will be actively engaged, along with the Bank, in providing support to improve the investment climate. In the short term (FY08), the program will focus on (a) corporate taxation by conducting a marginal effective tax rate study, (b) licensing, and (c) regulatory framework for industrial zones. A regional investment climate team (FIASIPEP Africa) is being recruited in Dakar to ensure support to the day-to-day implementation ofprograms, including in Mali (Phase 2, FY09 and beyond).

B. Fostering private sector access to finance.

11. Within the GSP, the Bank and FCare implementing the IDMIFC MSME program that aims at boosting finance for the development of this underserved market segment. The assistance consists of a risk sharing facility, including a partial guaranty on a new portfolio of loans to SMEs by 2 selected banks and a SME banking TA program to support their activity in a secure and profitable manner. In addition, IFC is offering to banks its Global Trade Finance Program to boost Mali’s international trade activity. The trade finance facility is intended to increase the confirmation lines available to local Malian banks by providing guarantees to confirming banks, thereby eliminating cash collateral required. With products similar to the IDA/IFC MSME program, LFC will seek to encourage lending in underserved sectors, including agribusiness, health and education, and women entrepreneurs.

15. Housingjnance has attracted much attention in West Africa lately, with both private and public sector players seeking appropriate approaches to develop the sector. IFC has been working closely with the World Bank in this regard with a view to introducing guaranty and liquidity institutions to work on a regional basis within the West African Monetary and Economic Union. In addition, IFC will develop a technical assistance program to support selected commercial banks interested in increasing their housing finance activities.

17. IFC also has started to develop West African capital markets through a CFA Franc- denominated bond issue within WAEMU countries. The December 2006 bond issue of CFA Franc 22 billion included 3 Malian banks participating in the syndicate. The proceeds were invested in 4 projects in the region, 1 of which is in Mali. With this issue, IFC introduced international standards and market practices, and provided institutional investors with the opportunity to invest in AadAAA- rated securities. As a result of the success ofthis issue, the Conseil Rkgional will allow IFC to bring to market selected client issuers with only partial guaranty by IFC with the aim of further market liberalization.

C. Enhancing skills and sector institutions

18. IFC and IDA are, through the GSP, providing support to address market failures that limit SMEs’ ability to obtain the necessary skills and business services to raise their productivity and competitiveness. Business development services (BDS) for firm-level consultancies are provided through a matching grant to enhance the capacity of MSMEs, with a focus on the growth sectors. Training is provided for access to market, quality enhancement, management, marketing, and access to loans. Focusing on micro enterprises, the Support and Training Entrepreneurship Program (STEP) has

- 94 - been integrated in the GSP. It is being implemented in six regions and an expansion to more areas is planned.

19. Moreover, IFC-GBI (Grassroots Business Initiative) is involved in an innovative technical assistance project: The Business Angel Club in Mali - N Club des Investisseurs Maliens pour I’ Entreprenariat (CIME) Officially formed in December 2006, the club started meeting in January 2006. GBI has been assisting them having a consultant organizing the club’s meetings, help develop the project pipeline for the Club and perform any necessary follow-up work on projects or new Angel members. The objective of the Angel Club is to support the growth and development of youth and social entrepreneurs in Mali.

20. In addition to the support provided by IFC, the Bank is developing the capacity of private sector institutions such as the Chamber ofCommerce, the WA Enterprise Network, and other business associations. It is in this context that the Mediation and Arbitration Center, a scheme for alternative dispute settlement under the regional legal framework, OJ!IADA,~ housed in the Chamber of Commerce, is being supported. The Bank also will support Mali through the private sector liaison officers’ network (PSLOs), a mechanism that should improve local businesses’ access to opportunities offered by Bank-financed activities.

D. Expanding private sector base and unleashing key sectors ’potential

21. Private investments are likely to be triggered by a better investment climate and access to finance. Additional expansion ofthe private sector base could stem from specific interventions in key sectors in which the growth potential could be unleashed. These include particularly agribusiness, mining, telecommunications, tourism and crafts, and infrastructure.

22. Agribusiness. Agroprocessing and food is one of the main areas in which the private sector could grow in Mali and add value to the large variety of crops that are grown. The IDA-financed Agriculture Competitiveness and Export Diversijkation Project (FY06) is supporting improved competitiveness of both traditional and nontraditional agricultural products, increasing the prospects of further development of agroprocessing activities. IFC is exploring with the Agriculture Development Bank (Banque nationale de dkveloppement agricole, or BNDA) how to better meet agribusiness financing needs. IFC is considering investing in a one of Mali’s leading agribusiness companies, involved in the flour and rice milling as well as in the animal feed sector. These investments would be linked with the provision of TA services.

23. Manufacturing. With respect to heavy industry, IFC has expressed to GoM and potential investors its willingness to consider financing a cement project, which would be important for the development of the housing and infrastructure sectors. In 2004, the government granted an exploration permit to West African Cement S.A. (Wacem), an IFC client in Togo, to explore the feasibility of a cement project in Mali. Upon completion of the study, Wacem applied for an exploitation permit, which was awarded by the government in September 2005. However, final agreement on the convention is still pending government approval. This would be a $100 million project for which IFC could arrange financing. There are also companies interested in setting up a grinding or full cement production facility in Mali; and IFC has also expressed its willingness to consider financing the investment plan of any suitable sponsor selected by the government provided project feasibility and sufficient market demand.

4 OHADA is a 16-member organization. The Democratic Republic ofCongo is expected to join OHADA soon.

- 95 - 24. Mining. In the extractive sector, gold mining contributed to spurring Mali's growth over the last decade. IFC has an equity investment in the Sadiola gold mine, and additional investments may arise on stream over the coming years. However, the sector's contribution to growth needs to be sustained and possibly increased by undertaking a series of activities that the Bank is supporting. These are the (a) improvement of the sector incentive framework through revising the existing mining code, in particular to address the needs of small-scale mining; (b) formulation of a policy on mining revenue management; (c) strengthening sector management capacity; (d) design and implementation of mining investment promotion activities; and (v) implementation ofthe EITI.

25. Telecommunications. In telecommunications, activities supported by the Bank include (a) reviewing the existing legal and regulatory frameworks to ensure greater visibility for the investors; (b) proposing new amendments, legislation, or secondary legislation as deemed appropriate to account for new developments in ICT and the convergence of technology and services. The GSP also is supporting the privatization of the telecommunications incumbent, SOTELMA, along with Malitel, its cellular subsidiary. IFC has expressed willingness to provide financing and technical assistance to the privatized company.

26. In September 2002, MIGA issued a guarantee coverage to Socie'te' Nationale de Te'le'communications du Se'ne'gal (Sonatel) for its $18 million equity investment in Ikatel SA of Mali. The 15-year coverage provided protection against the risks ofexpropriation, war and civil disturbance, and breach of contract. MIGA also provided coverage for an 8-month bridge loan of $26 million, for a total initial coverage of $44 million. The project is still under guarantee but with an exposure of $16 million. The project has helped provide various telecommunications services, including fixed lines, wireless, internet, and satellite communication services, as well as public pay phones. Owing to the positive impact of competition in the sector, the teledensity (fixed and mobile phones) increased by 1 1% in on three years.

27. Tourism and crafts. Through PEP Africa, IFC will include Malian small hotels in a regional program ofelectronic booking, including related training that directly links these institutions with their clients. The project is an e-market place that will aim at developing sustainable tourism, benefiting local entrepreneurs and communities. In this project, IFC wishes to ensure local Small and Medium Enterprise (SME) owners and operators of accommodation facilities and other tourism services in the region are provided with an opportunity to access the growing independent traveler market using the Internet to plan and book travel. IFC has already financed hotel projects in Mali and is developing a regional expansion of one ofits clients.

29. Inpastructure. With respect to inpastructure for private sector development, FIAS will participate in developing a regulatory framework for industrial parks. The Bank also intends to support the improvement ofthe passenger and cargo terminals at the Bamako airport to facilitate the flows of goods and passengers and to enhance the supply chain. In concessionning the airport, IFC advisory services may be consulted by the government to seek the most suitable operator. IFC could also finance the investment program ofany suitable private sector concessionaire.

Partnerships in Private Sector Development

30. Donor interest in private sector development in Mali has gradually increased. WBG and USAID have been the long-standing providers of assistance for PSD. Other donors including EU, France, Sweden, and Switzerland have made limited interventions. With the signing of its compact in November 2006, the Millennium Challenge Corporation (MCC) has become the most important private sector donor in dollar terms. It is focused on the Bamako airport and industrial park. A private sector donor coordination mechanism was recently set up in Mali to harmonize and optimize the donors' interventions.

- 96 - Summary Table

Areas of Activities IDA IFC Intervention Investment climate Public-Private Sector Presidential Investors’ Council: PEP-AfricdFIAS Dialogue, ICA Update; Technical program to improve Investment Climate Assistance for improvement of “Doing Business Assessment, and Ease of “Doing Business Indicators” Indicators” Doing Business Index Access to finance Introduction of new Partial Credit Guarantee and Partial Credit Guarantee instruments for term associated TA in commercial Trade Finance finance banks (2 participating banks) Housing Finance Manufacturing, Productivity and quality Capacity building for Potential investment in agribusiness, and improvement; productivity enhancement cement, rice milling and SMEs diversification of private through a matching grant floor production; GBI sector activities facility; Quality management traning services for MSMEs (STEP) Tourism Strategy and advisory Sector strategy preparation, FIAS TA in tourism, services; sector institutional strengthening and including e-marketplace; investment capacity building through IFC investment in hotels training, sector promotion, rehabilitation of monuments, airport facilities and transit procedures Mining Sector regulatory Mining code improved and Potential additional framework, regulatory framework for small- investment in SEMOS transparency and scale mining, EITI governance, and implementation support, support diversification. to the National Geology Directorate and its laboratory Telecommunications Sector liberalization; Privatization of the incumbent IFC investment regulation; and (Sotelma and Malitel); Capacity increased access building for the regulator; Expanding access through rural telecommunications Airport Infrastructure Rehabilitation of the passenger IFC Advisory Services improvement and terminal as well as the cargo may be asked to assist the private sector operation terminal; concession contract Government with a private operator Industrial zones Access to industrial land Development of a 50 ha Legal framework for and services to investors industrial zone; Set-up of an industrial zones (FIAS) investment promotion agency with one-stop-shop center for investors

- 97 - APPENDIX11: BANKAPPROACH TO CAPACITY DEVELOPMENT

1. The implementation of Mali’s development program is affected by capacity weaknesses that generally relate to: (a) poor utilization of the institutional and organizational arrangements that have been adopted to facilitate and carry out development action; (b) weak implementation culture exacerbated by the discrepancy between the informal behavior of government actors and formal rules; (c) lack of incentives to trigger the necessary behavior change; (iv) lack of clarity of the mandates and roles of key development actors, particularly public agencies in transition and civil society; and (v) acute shortage oftrained and experienced personnel. In the past few years, the government of Mali has taken a series of measures to address capacity weaknesses in the administration. A policy document (PDI, Program for Institutional Development) has been adopted, and a high-level government body, the Commissariat for Institutional Development (CDI) and a National Committee for Capacity Building have been established to coordinate PDI implementation. However, the government’s program is having little impact so far.

Concentrating on implementation

2. The government realizes that it must now concentrate its efforts on the implementation of existing policy and regulatory frameworks and refrain from establishing new ones. The absence of policy and regulatory frameworks is not the problem in Mali. In fact, there is clear evidence that the country’s ability to generate formal institutions without concomitant commitment to implementation is contributing to further paralysis while creating the illusion of action. To further complicate matters, the adoption of new policy and regulatory frameworks often leads to the proliferation of new organizations or the rearrangements of old ones, without a clear breakaway from old to new. This tends to generate further inertia and confusion regarding the responsibilities of overlapping agencies and adds strain on the limited resources. The decentralization program is making the problem more acute.

3. Several situations illustrate the problem and will need to be addressed. First, the PRSP is frequently mentioned by government officials as the sole frame of reference for all of Mali’s development strategies and programs. But in reality it has not yet acquired the characteristics of an institution meant to guide collective development action. Second, the national statistical system continues to be in disarray even though diagnostic studies have been carried out and a sound remedial master plan exists. The master plan has been endorsed but is not being implemented. Third, with regard to decentralization, even though the official policy and organizational framework has been approved and promulgated since 2002 with regard to education, health, and water, very little has happened. In particular, the government has yet to effectively implement the framework, which would have translated into real transfer of responsibility and resources, both financial and human, to municipalities and other decentralized entities. And fourth, the National Committee for Capacity Building produced a capacity building policy that has not been disseminated outside the ministry in charge ofplanning even though it was endorsed by the government in September 2005.

4. The government agrees that putting an end to this situation can be done by: building stability and credibility in the institutional framework; adopting a rigorous process for transitioning from policy and master plan formulation to implementation; learning to carry out organizational reform and skills upgrading with a view to adapting to changes in the regulatory framework; and providing incentives for behavioral change when necessary.

Building credibility in the policy and regulatory frameworks

5. Although sound policy frameworks are usually available, they have yet to fully play the role of “rules of the game” by which actors must play and that are critical for capacity to develop. One of

-98- the reasons for that is their instability due to the radically different policy options that have been tried in rapid succession over the last 40 years while Mali was in a state of constant reforms. This is particularly visible in the health and education sectors. It makes it difficult for government implementers to understand and learn their roles, and develop their skills. In these conditions, there is no opportunity for adjustments and for learning from lessons. Worse, stakeholders do not fully trust the government’s ability to stay the course in the face of the many challenges that consensual policy making, though laudable, inevitably create. Having been used to frequent changes in policy directions in the past, be it as a result of internal factors or external pressures, stakeholders come to expect still further changes. This behavior promotes inertia. Hence, bringing stability to the current policy and regulatory framework is essential.

Providing incentives for behavioral change

6. Once the policy framework is stabilized and is truly considered as the reference, the remaining problem will be to find the right incentives for behavioral change of government implementers and other stakeholders. With regard to civil servants, the government’s intention to reduce the number of staff and simultaneously increase wages is a step in the right direction but will take time to implement. In the meantime, other incentives can be used to motivate civil servants, including adopting career plans, providing opportunity for advancement through merit, linking training and promotion, using more modern methods and equipment in the administration, identifying and eliminating reverse incentives, fighting corruption aggressively, and depoliticizing the civil service.

Designing training as a step in the capacity development process

7. As the institutional framework is made to work better, focus must also be placed on knowledge and skills. Given that all development actions are collective actions, this means ensuring that individual actors acquire a better understanding oftheir roles on the team. In Mali, the number of trained and experienced staff in the public sector is low, even when compared to other SSA countries. Many positions in key agencies are not filled because of the lack of qualified candidates and positions of responsibility must often be filled with candidates fresh out of school. The needs created by decentralization policy are accentuating the problem. Also, the country faces a shortage of training facilities. However, training is not a panacea and must not be considered as an end in itself as it currently often is. The relatively recent focus on “capacity building” has led to the multiplication of workshops, seminars, and knowledge exchange forums with little tangible results, to the point that Malian authorities and donors are now openly critical ofthe “workshop culture” that has resulted. The first step toward addressing this situation is to make a clearer distinction between training and capacity development. The second step is to make sure that knowledge and skills enhancement activities are designed as an intermediate step toward stronger performance and undertaken primarily with a view to giving life to the regulatory framework and organizational arrangements that have been set up with the intention of guiding and carrying out development action. Only then could technical skills fully have the desired impact.

Implications for the Bank

8. Results and impact drive the Bank’s assistance strategy. This requires changes in the way the Bank approaches capacity development in Mali. First, the Bank must articulate its CD assistance strategy. This CAS represents the first attempt at a concerted effort to formulate a CD strategy as an integral part of the Bank’s overall assistance strategy in Mali. Second, the Bank must actively support the country’s CD agenda, which means encouraging the client to develop, carry out, and monitor that agenda so as to make it a visible and critical part of the overall poverty reduction strategy. Third, the Bank must do its share to mobilize donor support for CD in line with the donor community’s alignment and harmonization commitments. And fourth, the Bank must strengthen its own capacity to

- 99 - support the client’s CD agenda; this will not only require staff sensitization and training but also making use oftools capable of providing effective support to the government as it carries out the CD agenda. With WBI’s support, the Bank will carry out its assistance in the designated areas through a series of CD needs assessments and follow up activities using the CENA Approach. The logistical and pedagogical support needed to sustain this effort will be provided by local training organizations such as CERCAP-a training and research institute under the oversight ofthe Ministry of Economy and co- financed by the African Capacity Building Foundation (ACBF) and the government.

9. The Bank will be selective with regard to the areas where it will concentrate its CENA-driven support, namely: PRSP Monitoring and Evaluation (including strengthening of the national statistical system), Public Procurement, Regulation in the energy sector, Public revenue administration, and Access to health services. These areas reflect the Bank’s current involvement and comparative advantage. This list was vetted during the CAS Consultations by the government and donors, but it was agreed that other areas may be added to it in the course ofthe CAS period.

10. Government commitment to the proposed approach and its support through CERCAP or other local training organizations are essential. The approach requires putting in place a coordination mechanism involving the government (the Commissioner for Institutional Development), CERCAP, the Bank, and the other donors concerned. This team will provide support through the series of CENA workouts organized by CERCAP and WBI. The Bank’s sectoral specialists involved will make the necessary adjustments in relevant Bank-funded operations as it has already been done in the case of the IDF that provides support for PRSP Monitoring and Evaluation. The CDI will ensure that the lessons learned in the selected areas will be applied in other areas where government needs to strengthen its capacity as a matter of priority.

11. The five Capacity Development Action Forms under finalization provide an outline of the capacity issues and possible remedial action plan in each selected area. Validating these assumptions, and developing detailed remedial action plans and monitoring their implementation will be done through the series of CENA exercises.

- 100 - APPENDIX 12: COUNTRYFINANCING PARAMETERS

Date: February 17,2005

The country financing parameters for Mali set out below have been approved by the Regional Vice President, Africa Region, and are being posted on the Bank’s internal website.

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Item Parameter Remarks / Explanation Cost sharing. Limit on 100% The Bank may finance, on a selective basis, up to 100% of project costs. the proportion of The Bank’s financing proportion in individual projects will be individual project costs determined taking into account: (a) the overall IDA envelope for Mali; that the Bank may (b) the importance of the project to the PRSP and its poverty focus; and finance (c) the prioritization of the project in the CAS. The Mali program is increasingly focused on SWAPSwhich include financing from several other donors. In these cases, Bank financing will likely be a relatively small share of project cost. It is expected that cost sharing will apply to projects with contributions from other non-government sources such as donors and beneficiaries (particularly for CDD-projects). Cost sharing also will likely be the rule for projects with revenue generating entities. Recurrent cost No Given Mali’s fragile financial situation, the Bank will continue to financing. Any limits country- monitor the aggregate fiscal and debt situation and its implications for that would apply to the level limit recurrent cost financing. In all cases, recurrent cost financing will be overall amount of applied after consideration of the sector and project sustainability issues recurrent expenditures including: (a) institutional arrangements to allow for greater emphasis that the Bank may on sustainability through result-based M&E systems and strengthening finance of capacity at national and local level; and (b) implied future budget outlays. Local costfinancing. Yes The two requirements are met. The Bank expects to finance local costs Are the requirements for in the proportions needed for individual projects, up to 100%. Bank financing of local expenditures met, namely that: (a) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (b) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects Taxes and duties. Are None The Bank may finance the costs of taxes and duties associated with there any taxes and project expenditures, since these have been judged to be reasonable and duties that the Bank non-discriminatory. At the project-level, the Bank would consider would not finance? whether taxes and duties constitute an excessively high share of project costs. Local tax regimes will be monitored as decentralization becomes more advanced and will be assessed on a case-by-case basis.

- 101 - CAS Appendix B2 -Mali Selected Indicators* of Bank Portfolio Performance and Management As Of Date 11/26/2007

Indicator 2005 2006 2007 2008 Porffolio Assessment Number of Projects Under Implementation a 11 13 14 13 Average Implementation Period (years) 3.0 3.6 3.3 4.0

Percent of Problem Projects by Number arc 27.3 23.1 7.1 0.0 Percent of Problem Projects by Amount a, 24.9 8.8 0.8 0.0 Percent of Projects at Risk by Number a,d 36.4 23.1 7.1 0.0 Percent of Projects at Risk by Amount a, 25.4 8.8 0.8 0.0 Disbursement Ratio (%) e 28.9 31.2 27.6 8.7 Porffolio Management CPPR during the year (yesho) Yes Yes Yes Yes Supervision Resources (total $) 1,225 1,468 1,550 1,306 Average Supervision ($/project) 94 113 103 100

Memorandum Item Since FY80 Last Five FYs Proj Eva1 by OED by Number 57 8 Proj Eva1 by OED by Amt ($millions) 1376.4 355.3 % of OED Projects Rated U or HU by Number 40.4 25.0 % of OED Projects Rated U or HU by Amt 32.0 30.0 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) and/or implementation progress (W. 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.

- 102 - CAS Annex B3 - IBRDADA Program Summary Mali As of Date 11/26/2007 Proposed IDA Lending Program a

Proj ID $(M) Strategic Rewards Implementation (H/ML) Risks (H/WL)

2008 PRSC 2 42 H M Result 42 Regional Operations 6

2009 Energy Sector Support (S) 75 H M PRSC 3 40 H M TA for Service Delivery 15 H M Result 130 Regional Operations 8

2010 Agriculture Productivity 2 (S) 70 H M PRSC 4 5 0160 H L Result 120/130 Regional Operations 8/18

201 1 Urban Sector (S) 70 H M PRSC 5 50 H L Investment Operation -- - - Result 120/130 Regional Operations 8/18

Overall Result 4121432 Regional Operations 30/50 a. This table presents the proposed program for the next three fiscal years pending CAS discussions. b. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L).

- 103 - CAS Appendix B3 (IFC & MIGA) for Mali Mali - IFC and MIGA Program, FY 2004-2007 2004 2005 2006 2007

IFC approvals ($m) 0 2.31 0 0

Sector (%) Pulp & Paper - 100 Total 0 100 0 0

Investment instrument(%) Loans - 100 Equity Quasi-Equity Other Total 0 100 0 0

MIGA guarantees ($m) 25.22 0 0 0

- 104- CAS Appendix B4 Summary of Non-lending Services As of Date 11/26/2007

Product Completion FY Audiencea Objectiveb $ '000 Recent completions CEM/Sources of Growth 07 525 G,B,D

Underway PER-PEMFAR 08 Rural Finance Study 08 Demography & Econ. 08 Governance Diagnostic 08 Debt Sustainability Analysis 08

P1 ann e d Growth notes 08-1 1 Rural Finance 08 Poverty and PRSP Brief (TA) 08 PRSP I1FY07 Progress Report 08 Country Environmental Assessment 09 Skills Development Study 09 Remittances 09 ICA Update 09 SLM Advisory Services (TA) 09 PRSP I1FY08 Progress Report 09 PEFA Update 10 Social Protection 10 CAS Progress Report 10 Poverty and PRSP Brief (TA) 10 PRSP I1FY09 Progress Report 10 PRSP I1FY 10 Progress Report 11

a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving.

- 105 - CAS Appendix B6

Mali - Key Economic Indicators

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Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010 National accounts (as YOof GDP) Gross domestic producta 100 100 100 100 100 100 100 100 Agriculture 39 36 37 37 37 37 36 36 Industry 24 24 24 24 24 24 24 24 Services 38 40 39 39 39 39 40 40 Total Consumption 87 91 89 77 83 75 69 70 Gross domestic fixed investment 24 22 22 22 23 23 23 23 Government investment 7 7 8 8 9 8 8 8 Private investment 17 14 15 14 14 15 15 14

Exports (GNFS)b 26 25 26 32 28 27 21 23 Imports (GNFS) 37 38 37 40 38 29 25 26 Gross domestic savings 13 14 14 19 17 18 19 20 Gross national savingsc 14 13 15 18 17 18 18 18

Memorandum items GNI per capita (US$, Atlas method) 280 350 380 400 650 1350

Real annual growth rates (“h,calculated from 87 prices) Gross domestic product at market prices 7.4 2.2 6.1 5.3 4.1 4.8 4.8 5.4 Gross Domestic Income 14.9 0.4 5.2 7.1 1.8 12.9 1.9 0.8 Real annual per capita growth rates (%, calculated from 87 prices) Gross domestic product at market prices 4.3 -0.8 3.0 2.3 1.1 1.8 Total consumption 7.4 5.2 -1.0 -2.1 4.7 3.1 Private consumption -5.9 3.1 1.1 -9.9 -0.5 2.1

Balance ofPayments (US%millions) Exports (GNFS)b 1153 1237 1359 1916 1751 1870 1620 1731 Merchandise FOB 928 977 1100 1570 1414 1508 1620 1731 Imports (GNFS)~ 1470 1646 1773 2058 2132 2315 1637 1702 Merchandise FOB 988 1094 1246 1414 1489 1567 1637 1702 Resource balance -317 -409 -413 -142 -381 -445 -18 29 Net current transfers 208 193 228 239 240 224 182 194 Current account balance -270 -411 -392 -245 -389 -490 -137 -9 I

Net private foreign direct investment 131 58 61 39 55 60 0 0 Long-term loans (net) Official 160 103 86 36 -8 -39 -65 -86 Private Other capital (net, incl. mors & ommissions) Change in reservesd 146 -180 -462 95 148 47 -1164 0

- 106- CAS Appendix B6

Mali - Key Economic Indicators (Continued)

Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010

Public finance (as % of GDP at market prices)e Current revenues 17.2 17.3 17.9 51.8 17.8 17.4 16.6 18.2 Current expenditures 12.5 13.6 13.5 13.4 14.4 14.0 13.2 14.2 Current account surplus (+) or deficit (-) 4.7 3.7 4.5 38.4 3.5 3.4 3.4 4.0 Capital expenditure 8.5 9.1 10.4 9.2 10.2 10.6 11.4 12.3 Foreign financing 6.7 5.6 6.6 -26.6 6.9 5.9 6.8 7.5

Monetary indicators M2IGDP 31.0 29.8 30.0 30.4 31.0 30.4 Growth ofM2 (%) 25.5 -2.4 9.5 10.9 8.0 8.4 Private sector credit growth I 330.1 106.0 -48.7 -1691.4 171.1 44.8 total credit growth (%)

Real interest rates Consumer price index (% change) -1.3 -3.1 6.4 1.5 2.0 2.5 2.5 2.5 GDP deflator (YOchange) 1.3 -0.6 2.4 4.1 1.7 5.4 4.6 0.0

a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use ofIMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.

- 107 - CAS Appendix B7

Mali - Key Exposure Indicators

Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010

Total debt outstanding and 3114 3320 3025 1436 1525 disbursed (TDO) (US$m)" Net disbursements (US$m)a Total debt service (TDS) (US$m)a 18 Debt and debt service indicators % TDO/XGS~ 270.2 268.4 222.5 75.0 87.1 Concessional/TDO 92.4 93.4 94.9 96.2 95.9

IDA TDO (us$rnld 1322 1441 1424 282 322 IFC (US$m) Loans 1.47 2.31 .. Equity and quasi-equity /c

MIGA MIGA guarantees (US$m) 25.22

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.

- 108 - Mali Social Indicators

Latest single year Same regionlincome group Sub- Saharan Low- 1980-85 1990-95 1999-05 Africa income POPULATION Total population, mid-year (millions) 7.9 10.1 13.5 741.4 2,353.0 Growth rate (% annual average for period) 2.4 2.6 3.0 2.3 1.9 Urban population (% of population) 21 .o 26.9 33.0 35.2 30.0 Total fertility rate (births per woman) 7. I 6.7 6.4 5.5 3.7 POVERTY (% of population) National headcount index Urban headcount index Rural headcount index INCOME GNI per capita (US$) 150 230 380 745 580 Consumer price index (2000=100) 67 93 112 127 128 Food price index (2000=100) INCOMElCONSUMPTlON DISTRIBUTION Gini index 50.5 Lowest quintile (% of income or consumption) 4.6 Highest quintile (% of income or consumption) 56.2 SOCIAL INDICATORS Public expenditure Health (% of GDP) 2.3 Education (% of GNl) 3.4 3.1 Net primary school enrollment rate (% of age group) Total 20 44 80 Male 25 50 83 Female 15 39 77 Access to an improved water source (% of population) Total 34 48 56 75 Urban 50 76 80 88 Rural 29 35 43 70 Immunization rate (% of children ages 12-23 months) Measles 19 52 68 64 63 DPT 8 49 69 64 67 Child malnutrition (% under 5 years) 33 29 39 Life expectancy at birth (years) Total 43 44 41 47 58 Male 43 43 40 47 58 Female 44 45 42 48 59 Mortality Infant (per I,000 live births) 176 131 122 100 80 Under 5 (per 1,000) 300 233 220 168 122 Adult (15-59) Male (per 1.000 population) 454 434 518 489 298 Female (per 1,000 population) 362 35 1 446 467 244 Maternal (per 100,000 live births) 1,200 921 684 Births attended by skilled health staff (%) 41 42 41

CAS Annex 85. This table was produced from the CMU LDB system. 10/16/07 Note: 0 or 0.0 means zero or less than half the unit shown, Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey.

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NOVEMBER 2004