INDEPENDENT EVALUATION OFFICE INTERNATIONAL MONETARY FUND OPERATIONS EVALUATION DEPARTMENT WORLD BANK Republic of Mozambique Evaluation of the Poverty Reduction Strategy Paper (PRSP) Process and Arrangements Under the Poverty Reduction and Growth Facility (PRGF) July 6, 2004 This case study was prepared jointly by the independent evaluation units of the World Bank and IMF, as background to separate but complementary evaluation reports available at www.worldbank.org/oed/prsp and www.imf.org/ieo. The other country case studies conducted in support of these evaluations are also available on-line at the above addresses. 2 Table of Contents Page Abbreviations and Acronyms ..............................................................................................5 Executive Summary.............................................................................................................7 I. Introduction ...........................................................................................................14 II. Country Background..............................................................................................16 A. Poverty.............................................................................................................16 B. Political Context...............................................................................................17 C. Economic Performance and Policies ...............................................................18 D. National Strategies and Their Formulation......................................................21 III. The PRSP/PARPA, 2001-2005..............................................................................22 A. Relevance.........................................................................................................22 B. Application of the Underlying Principles of the PRSP Approach...................23 C. Preliminary Evidence on Results.....................................................................33 IV. IMF Effectiveness..................................................................................................38 A. The PRSP Process and IMF Inputs..................................................................39 B. Program Formulation Process..........................................................................44 C. Program Content..............................................................................................47 D. Program Implementation .................................................................................52 V. World Bank Effectiveness .....................................................................................54 A. World Bank Support to PARPA Formulation Process ....................................54 B. Bank Support and Alignment During PRSP Implementation..........................56 VI. IMF-World Bank Collaboration ............................................................................66 A. Joint Inputs to the PARPA Process and Joint Staff Assessments....................66 B. Collaboration in Lending Operations and Aggregate Conditionality..............68 VII. Main Findings and Conclusions.............................................................................70 A. General.............................................................................................................70 B. Findings and Lessons for the IMF ...................................................................72 C. Findings and Lessons for the World Bank.......................................................73 Boxes 1. PARPA 2001-2005 at a Glance .............................................................................22 2. Underlying Principles of the PRSP Process...........................................................23 3. PARPA in Inhambane............................................................................................26 3 4. Public Expenditure Management System ..............................................................30 5. Mozambique Country Assistance Review, OED, 12/2/97.....................................58 6. Joint IMF/World Bank Staff Activities Related to Preparation of the PARPA.....66 Figures 1. Real GDP Growth and Inflation ............................................................................19 2. Fiscal Deficit, Excluding Grants............................................................................48 3. Net Foreign Financing of the Budget.....................................................................48 4. Government Revenue.............................................................................................49 5. Government Expenditure.......................................................................................49 6. GDP Growth..........................................................................................................50 7. Fiscal Deficit, Excluding Grants............................................................................50 8. Net Foreign Financing of the Budget.....................................................................50 9. Official Transfers and Concessional Loans ...........................................................50 Tables 1. Average Consumption and Estimates of Poverty and Destitution by Province, 1997..........................................................................16 2. Progress Towards Selected PARPA “Result” and “Intermediate” Targets...........35 3. Public Spending in PARPA Priority Areas............................................................37 4. Key Events Under the PRGF Arrangement and the PARPA Process ...................39 5. FY 2001-03 Lending – Alignment with 2000-2004 PARPA ................................59 6. Analytical and Advisory Assistance (AAA), FY 2001-03 ....................................60 7. FY 2004-07 Lending – Alignment with 2001-2005 PARPA ................................63 8. FY 2004-07 Nonlending – Alignment with 2001-2005 PARPA...........................65 Appendices I. Selected Tables......................................................................................................75 A1. Selected Economic and Financial Indicators, 1996-2002.............................75 A2. Chronology of Events and Processes Related to Poverty Reduction............76 A3. Millennium Development Goals and PARPA Targets .................................77 A4. Size and Composition of Foreign Aid in the Government Budget, 1997-2002...............................................................................................78 A5. Macroeconomic Frameworks in the ESAF/PRGF (1999-2003) Arrangement and the PARPA.................................................................79 A6. Assessment of Adaptation of IMF Internal Policy Formulation Process to PRSP/PRGF Approach..........................................................80 A7. Foreign “Program” Assistance in PRGF Arrangement, 1999-2002 ............82 A8. Indicators of Program Interruption ...............................................................83 A9. Non-lending Services of the World Bank, 2000-2004..................................84 II. Structural Conditionality (Counts)—ESAF (1996-99) vs. PRGF (1999-2003).....................................................................................85 4 III. Survey Results.......................................................................................................86 IV. List of Interviewees................................................................................................91 References ..........................................................................................................................95 5 Abbreviations and Acronyms AAA Analytical and Advisory Assistance CAR Country Assistance Review CAS Country Assistance Strategy CCR CAS Completion Report CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CG Consultative Group CPAR Country Procurement Assessment Report CPPR Country Portfolio Performance Reviews CSO Civil Society Organization DANIDA Danish International Development Agency DFID Department for International Development (United Kingdom) EMPSO Economic Management and Private Sector Operation EMRO Economic Management Reform Operation ERP Economic Rehabilitation Program ESAF Enhanced Structural Adjustment Facility ESRP Economic and Social Rehabilitation Program ESW Economic and Sector Work EU European Union FAO Food and Agriculture Organization FRELIMO Liberation Front of Mozambique G-11 Group of Eleven Donors GDP Gross Domestic Product GDDS General Data Dissemination System GNI Gross National Income GOM Government of Mozambique HIPC Heavily Indebted Poor Country IEO Independent Evaluation Office (IMF) IMF International Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper JSA Joint Staff Assessment MDGs Millennium Development Goals MIGA Multilateral Investment Guarantee Agency MPF Ministry of Planning and Finance MTBF Medium-Term Budget Framework MTEF Medium-Term Expenditure Framework NGOs Nongovernmental Organizations OED Operations Evaluation Department (World Bank) PAF Performance Assessment Framework PARPA Action Plan for the Reduction of Absolute Poverty PEM Public Expenditure Management PEMR Public Expenditure and Management Review PES Economic and Social Plan 6 PFPs Policy Framework Papers PRGF Poverty Reduction and Growth Facility PROAGRI The National Programme for Agricultural Development PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper PSIA Poverty and