Draft updated on March 16, 2004

MEMORANDUM OF UNDERSTANDING

BETWEEN

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

AND

COOPERATING PARTNERS

CONCERNING

POOLED FUND SUPPORT FOR THE PUBLIC SECTOR CAPACITY BUILDING PROGRAM

(2004-2009)

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The Federal Democratic Republic of Ethiopia, represented by the Ministry of Finance and Economic Development, and the Cooperating Partners, desiring to collaborate and pool their financial contributions in order to support the implementation of the Public Sector Capacity Building Program 2004-2009, have reached the following understandings: 1. DEFINITIONS For purposes of this Memorandum of Understanding, the following terms have the following meanings: (a) “Annual Implementation Plan” means, collectively, the specific sets of federal and regional Subprogram and Program support activities to be carried out in one fiscal year, prepared by the federal and regional Executing Agencies and consolidated in an annual implementation plan approved by the Signatories through a Side Agreement, in accordance with the provisions of paragraph 6 of this Memorandum of Understanding and paragraph II (3) of Annex 2;

(b) “Cooperating Partners” means the undersigned Canadian International Development Agency, United Kingdom Department for International Development, International Development Association (“IDA”), Republic of Ireland, and Swedish International Development Cooperation Agency and any other country, institution or other entity which may join this Memorandum of Understanding in accordance with paragraph 12, which will pool their financial contributions to the Program in accordance with paragraph 6; (c) “Executing Agencies” means the federal and regional entities specified in Annex 2, responsible for the implementation of Subprograms at the federal and regional levels;

(d) “Government” means the undersigned government of the Federal Democratic Republic of Ethiopia;

(e) “Program” means all federal and regional Subprogram and Program support activities outlined in Annex 1 and the Attachment to Annex 1, and specified each year in the Annual Implementation Plan, designed to support the implementation of the Government’s Public Sector Capacity Building Program set out in its Letter of Sector Policy, dated March 25, 2004, and its National Program dated April 2003;

(f) “Signatories” means, collectively, the Government and the Cooperating Partners; and (g) “Subprogram” means a set of eligible capacity building activities in the areas set out in Annex 1. 2. GENERAL PROVISIONS 2.1 The purpose of this Memorandum of Understanding is to support the implementation of the Government’s Public Sector Capacity Building Program 2004-2009, which is aimed at improving the scale, efficiency and responsiveness of public service delivery at the federal, regional and local levels, empowering citizens to participate more effectively in shaping their own development, and promoting good governance and accountability of the public sector.

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2.2 The Memorandum of Understanding sets out the understanding of the Signatories on the common disbursement, financial management, procurement, and monitoring and reporting arrangements governing their contributions to the Program. 2.3 The Memorandum of Understanding is adopted to facilitate the implementation of bilateral financing agreements or arrangements entered into between the Government and each of the Cooperating Partners in support of the Program. It does not constitute an international treaty. Any matter not expressly provided for in the Memorandum of Understanding will be governed by the bilateral agreements or arrangements. In the event of any conflict between the provisions of the Memorandum of Understanding and the bilateral agreements or arrangements, the provisions of the bilateral agreements or arrangements will prevail. 2.4 The procedures and arrangements set out in the Memorandum of Understanding are complemented by: • Annex 1: Description of the Public Sector Capacity Building Program • Annex 2: Institutional and Implementation Arrangements • Annex 3: Indicative Contributions of the Signatories • Annex 4: Annual Planning, Reporting and Reviews Calendar • Annex 5: Planning and Disbursement Arrangements • Annex 6: Procurement Arrangements • Annex 7: Performance Monitoring Indicators 3. GENERAL COMMITMENT OF THE COOPERATING PARTNERS The Cooperating Partners commit themselves to the principles of the Rome Declaration on Donor Harmonization of February 2003, and will strive to reach the highest degree of alignment with the budgetary and accountability system and legislation of the Federal Democratic Republic of Ethiopia, so as to reduce the administrative burden on the Government and to enhance the effective implementation of the Program. 4. GENERAL COMMITMENTS OF THE GOVERNMENT 4.1 The Government declares its commitment to the objectives of the Program and, to this end, will carry out the Program with due diligence and efficiency and will provide, promptly as needed, the funds, facilities, services and other resources required to facilitate the successful implementation of the Program. 4.2 In particular, the Government will: • Ensure that all resources allocated to the Program are reflected in the macroeconomic

fiscal framework, medium-term expenditure framework, annual budgets and accounts of the Government;

• Grant all necessary permits, including work permits for consultants, import licenses and

foreign exchange permissions that may be required in connection with the implementation of the Program;

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• Promptly inform the Cooperating Partners of any condition (including theft or misuse of funds) which interferes or threatens to interfere with the successful implementation of the Program; and

• Ensure that any person misusing funds under this Program is subject to the full rigors of

the laws of the Federal Democratic Republic of Ethiopia. 5. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 5.1 The Government designates the Ministry of Capacity Building as the institution responsible for coordinating the overall Program and facilitating the implementation of Subprograms by the Executing Agencies, and commits to carry out the Program at the federal and regional levels in accordance with the institutional and implementation arrangements set out in Annex 2 and specified in more detail in the Program Implementation Plan. 5.2 The Signatories will appraise, approve and monitor Program activities and approve initial release of funds through a joint working group of the Government and all donors supporting the Program (the Joint Working Group). To this end all subsequent replenishments will be carried out in accordance with the provisions of the PIP. The Joint Working Group is designed to improve the information sharing, coordination and ongoing dialogue among its members, who include representatives of the Ministry of Capacity Building, the Federal Technical Team referred to in paragraph I(2)(a) of Annex 2, the Cooperating Partners, and donor agencies that support the Program by means other than pooling their contributions under this Memorandum of Understanding. The Signatories will seek to actively involve all members of the Joint Working Group, particularly the non-pooling donors with substantive knowledge of specific Subprograms, in the appraisal, approval, and monitoring processes noted above. The Joint Working Group will meet on a regular basis as specified in paragraph 9.4 and Annex 4 and will operate in accordance with terms of reference specified in the Program Implementation Plan. 6. PLANNING AND DISBURSEMENT

6.1 Signatories will provide indicative amounts of their contributions to the Program not later than September 30th of each year for incorporation into the Government’s multi-year planning cycle through the macroeconomic fiscal framework and the public investment program. Based on the public investment program, proposed annual commitments from the Signatories will be communicated not later than January 15th of each year for incorporation into the Government’s annual fiscal plan. The annual fiscal plan will form the basis for preparation of the draft Annual Implementation Plan, which will be presented by the Government not later than April 1st of each year. Upon review of the draft Annual Implementation Plan, the Signatories will endorse the said plan and formally confirm their annual financial contributions during the Joint Working Group’s fourth quarterly review meeting in each year. Based on the endorsed Annual Implementation Plan, the Signatories will conclude a Side Agreement specifying the annual proportion of expenditures to be financed by each Signatory; provided, however, that the proportion of each Signatory’s contribution under such Side Agreement will be not less than such Signatory Annual Disbursement Estimate adjusted to each Ethiopian fiscal year. The Government will then enter the Signatories’ formal commitments into the annual budget to be submitted to Parliament by June 8th of each year. The specific arrangements and procedures for the preparation of the Annual Implementation Plan are outlined in Annex 5 and detailed in the Program Implementation Plan.

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For the purpose of this paragraph 6.1, the term “Annual Disbursement Estimate” means a Signatory’s yearly projected disbursements during the Program implementation period, as such estimates will be recorded in said Signatory’s Program Documents. 6.2 The Annual Implementation Plan will constitute the approved, consolidated annualized plan of eligible federal and regional Subprogram and Program support activities for the following fiscal year. Changes to the Annual Implementation Plan may be agreed during the meetings of the Joint Working Group, or by written agreement of the Signatories at other times. 6.3 Upon conclusion of the Side Agreement referred to in paragraph 6.1, the Cooperating Partners will disburse their agreed share of Program funding into their respective foreign currency special accounts maintained in the National Bank of Ethiopia. The Government will draw down funds from the special accounts and deposit the Government’s agreed contribution to the local currency Pooled Account in the National Bank of Ethiopia. The specific arrangements and procedures for the disbursement of Signatories’ contributions into the special accounts and the Pooled Account, and for the flow of funds to the Executing Agencies, are outlined in Annex 5 and detailed in the Program Implementation Plan. 6.4 (a) Funds provided by the Signatories will be used exclusively to finance eligible expenditures specified in the Annual Implementation Plan. Eligible expenditures may include goods, consultants’ services, training and workshop expenses, and incremental operating costs required for the carrying out of Subprogram and Program support activities in the areas set out in Annex 1. (b) No funds will be drawn from the special account holding IDA's contributions deposited into the Pooled Account from such IDA's special account, to finance any capacity building activities described in the Attachment to Annex 1, or other support to police, prosecution and prison departments. To this end: (i) for the purpose of IDA's contributions the said expenditures are not eligible expenditures, and (ii) all such capacity building activities will only be financed out of the contributions provided by the Signatories other than IDA.

(c) Cooperating Partners’ contributions will not be used to pay the cost of any import duties, customs duties or domestic taxes imposed directly or indirectly by the Government, nor any salaries of civil servants of the Government.

6.5 The final date for incurring Program expenditures on account of Cooperating Partners’ contributions is July 7, 2009, or such later date as the Cooperating Partners may establish by notice to the Government (the Closing Date). The final date for disbursement of Cooperating Partners’ contributions for expenditures incurred prior to the Closing Date is 4 months (or such other date specified by the Cooperating Partners) after the Closing Date. 7. FINANCIAL MANAGEMENT 7.1 The Government will maintain, and ensure that the Executing Agencies maintain, a financial management system, including records and accounts, and prepare financial statements covering all Signatories’ funds utilized for the Program in accordance with consistently applied accounting standards specified in the Program Implementation Plan, adequate to reflect the operations, resources and expenditures related to the Program.

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7.2 The Government will have the financial statements referred to in paragraph 7.1, including the financial monitoring reports referred to in paragraph 7.3, for each fiscal year audited, in accordance with standards and terms of reference specified in the Program Implementation Plan, by independent auditors acceptable to the Cooperating Partners. The Government will furnish to the Cooperating Partners certified copies of the financial statements together with the audit report not later than 9 months after the end of each fiscal year (or by such other date agreed to by the Cooperating Partners). 7.3 In addition to the progress reports referred to in paragraph 9, the Government will prepare and furnish to the Cooperating Partners bi-annual financial monitoring reports (FMRs), in the form and substance specified in the Program Implementation Plan, containing information on: (i) actual versus planned output and outcome achievements of federal and regional Subprograms indicated in the Performance and Participation Agreements referred to in paragraph II(2) of Annex 2; (ii) financial activity; and (iii) procurement actions. Each FMR will be submitted within 45 days after the six-month period covered by such report. 8. PROCUREMENT 8.1 Goods and services will be procured according to the procedures, arrangements and implementation responsibilities outlined in Annexes 2 and 6 and detailed in the Program Implementation Plan. In the event of a conflict between the procurement provisions in the Program Implementation Plan and the procedures of the Government, the provisions of the Program Implementation Plan will be applied. The procurement provisions of the Program Implementation Plan may be updated from time to time with the written agreement of the Signatories. 8.2 By May 30th of each year, the Government will submit to the Cooperating Partners for review and agreement, an annual procurement plan describing the methods for procurement of goods and services required to implement the Annual Implementation Plan for the following 18 months and setting out the full procurement cycle for all Program activities. The Co-operating Partners will endorse the annual procurement plan by no later than June 15th of each year. Any revisions to the approved annual procurement plan will require the agreement of the Signatories. 9. PROGRESS REPORTS AND REVIEWS 9.1 The Government will, and ensure that the federal and regional Executing Agencies will, maintain policies and procedures adequate to enable the Government and the Executing Agencies to monitor, evaluate and report on an ongoing basis on the implementation of the Program and the achievement of its objectives, in accordance with (i) the performance indicators set forth in Annex 7 and detailed in the Program Implementation Plan; and (ii) the monitoring, evaluation and reporting arrangements set forth in paragraph III of Annex 2 and detailed in the Program Implementation Plan; and (iii) the specific targets set forth in individual Participation and Performance Agreements. 9.2 The Government will regularly disclose the findings of the monitoring and evaluation activities, including surveys and annual reports, and will solicit feedback from representatives of stakeholders and civil society in the course of Program implementation including, when feasible, their participation in the joint review missions referred to in paragraph III of Annex 2.

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9.3 Not later than 6 months (or other date agreed to by the Cooperating Partners) after the Closing Date referred to in paragraph 6.5, the Government will submit and discuss with the Cooperating Partners a Program completion report, together with a plan designed to ensure the continued achievement of the Program’s objectives, under terms of reference and format specified in the Program Implementation Plan. 9.4 The Joint Working Group will meet on a quarterly and annual basis and, as needed, on ad hoc basis, to review the Program financial monitoring and progress reports and determine the measures required to remove any implementation constraints and ensure the achievement of the Program’s objectives. 10. REMEDIES 10.1 In the event that any payment out of the Signatories’ contributions was used for any expenditure that is not eligible pursuant to paragraph 6.4, or in the event that the Government failed to perform any obligation under this Memorandum of Understanding, the Cooperating Partners may suspend disbursements for all or part of the Program. The Cooperating Partners will inform the Government in a timely manner that suspension may occur and will specify remedial actions which must be taken by a certain date in order to avoid such suspension. Prior to suspension of disbursements, Signatories will meet to seek a resolution of the issues at hand. 10.2 Deviation from the procurement arrangements and procedures detailed in the Program Implementation Plan may result in misprocurement, in which event each Cooperating Partner may cancel from its respective contribution an amount equivalent to the contract amount, multiplied by its percentage participation in the Pooled Account in the case of contracts financed out of the Pooled Account. 10.3 Each Cooperating Partner may also, if applicable, exercise its legal remedies pursuant to its bilateral agreement with the Government. 11. INFORMATION AND CONSULTATION

The Signatories will furnish to each other all such information relating to the Program as will reasonably be requested. Any differences that may arise in the application of the provisions of this Memorandum of Understanding will be addressed through consultations among the Signatories and within the framework of the Joint Working Group. In addition, in the event of failure to implement or to report on the Program in a manner consistent with the terms of the Memorandum of Understanding, a high-level meeting will be organized promptly to assess the situation and agree on a way forward. 12. ADMISSION OF NEW COOPERATING PARTNERS Any country, institution or other entity not currently a party to this Memorandum of Understanding may, with the agreement of the Signatories, become an additional Cooperating Partner upon its signature of, or written agreement to comply with the provisions of, the Memorandum of Understanding. 13. ENTRY INTO EFFECT AND DURATION

This Memorandum of Understanding together with the Annexes thereto will come into effect on the date of signature below by the Federal Democratic Republic of Ethiopia and at least one

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Cooperating Partner. Unless otherwise agreed in writing by the Signatories, the Memorandum of Understanding will remain in effect until 6 months after the Closing Date referred to in paragraph 6.5. 14. AMENDMENT This Memorandum of Understanding may be amended at any time upon the written agreement of all Signatories. 15. WITHDRAWAL FROM THE MEMORANDUM OF UNDERSTANDING

Any Cooperating Partner, following consultation with the other Signatories, may withdraw from this Memorandum of Understanding by a 6-month written notice to the other Signatories. 16. NOTICES 16.1 Any notices or documents given, made or sent by the Signatories pursuant to this Memorandum of Understanding will be in writing and will be deemed to have been duly given, made or sent to the organization or person to which it is addressed at the time of its delivery by hand, mail, facsimile or courier at its respective address, as listed in paragraph 16.4 below. 16.2 Any Signatory hereto may, by written notice to the other Signatories, change the address to which any notice or request for the Signatory so giving such notice will be addressed. 16. 3 All communications and documents submitted to any Signatory will be in the English language. 16.4 The following addresses are specified for purposes of paragraph 16.1 above: FOR FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA:

The Minister of Finance and Economic Development Ministry of Finance and Economic Development PO Box 1905 Addis Ababa Democratic Republic of Ethiopia

Facsimile: 251-1-551355

FOR THE GOVERNMENT OF CANADA:

Canadian International Development Agency (CIDA) Director for Ethiopia and Head of Development Cooperation for Horn of Africa Embassy of Canada—Addis Ababa, Ethiopia Facsimile: (251) 1-713033

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FOR INTERNATIONAL DEVELOPMENT ASSOCIATION:

The Country Director for Ethiopia Africa Region International Development Association 1818 H Street NW Washington, D.C. 20433 United States of America Facsimile: (202) 477-6391 FOR REPUBLIC OF IRELAND:

Head of Office Development Cooperation Ireland Ireland Embassy, Addis Ababa, Ethiopia Facsimile: (251) 1 665020 FOR KINGDOM OF SWEDEN:

Swedish International Development Agency Head of Development Box 1142, Addis Ababa, Ethiopia Facsimile (251) 1-515833] [Facsimile] FOR UNITED KINGDOM:

Department for International Development (DFID)] Head of Office, DFID-Ethiopia British Embassy, PO Box 858 Facsimile: (251) 1-622432 17. SIGNATORIES TO THE MEMORANDUM OF UNDERSTANDING In witness hereof the undersigned Signatories, acting through their duly authorized representatives, have signed this Memorandum of Understanding in their names: ON BEHALF OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA: H. E. Ato Sufian Ahmed Minister of Finance and Economic Development March 24, 2005

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ON BEHALF OF THE GOVERNMENT OF CANADA: Mr. Marc-Andre Fredette Director for Ethiopia and Head of Development Cooperation for the Horn of Africa Canadian International Development Agency March 24, 2005

ON BEHALF OF INTERNATIONAL DEVELOPMENT ASSOCIATION: Mr. Ishac Diwan Country Director for Ethiopia Africa Region, March 24, 2005

ON BEHALF OF REPUBLIC OF IRELAND: Mr. Don Sexton Charge d’Affaires Government of Ireland March 24, 2005 ON BEHALF OF KINGDOM OF SWEDEN: Mrs. Ingrid Lofstrom Head of Development March 24, 2005

ON BEHALF OF UNITED KINGDOM: Mr. Paul Ackroyd Head of Office, UK Department for International Development ((DFID) Ethiopia) March 24, 2005

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ANNEX 1

DESCRIPTION OF THE PUBLIC SECTOR CAPACITY BUILDING PROGRAM

The objective of the Government’s Public Sector Capacity Building Program is to

improve the scale, efficiency and responsiveness of public service delivery at the federal, regional and local levels, empower citizens to participate more effectively in shaping their own development, and promote good governance and accountability in the public sector.

In support of the implementation of the Program, the Signatories will finance the following Subprograms and Program support activities at the federal and regional levels, all of which are subject to such modifications as the Signatories may agree upon from time to time to achieve the objectives of the Program:

I. Federal Program

Carrying out of six Subprograms and a Program support activity at the federal level for:

1. Civil Service Reform

Promoting development of an efficient, effective, transparent, accountable and ethical and performance oriented civil service, including: (a) strengthening of the Government’s Civil Service Reform Program coordinating structures; (b) improving expenditure management and control, through drafting of financial regulations and directives, roll-out of budgeting and accounts reforms, development of medium-term planning systems, strengthening of internal and external audit, modernization of cash management, roll-out of financial management information systems and implementing procurement reform; (c) improving the governance of human resource management, including developing prototype policies on human resource development, time management, remuneration, implementing result-oriented appraisal system, developing payroll and human resource information systems, and support for subsidiary regulations; (d) improving performance and public sector delivery through the roll-out of performance and service delivery improvement program in ministries, agencies and bureaus; (e) improving accountability and transparency, through, inter alia, developing innovative techniques for monitoring fiscal and output performance, including expenditure tracking surveys, cost efficiency studies, and service delivery report cards; (f) strengthening the top management systems through provision of training to senior managers and officials in strategic planning, performance measurement, top management development, and value for money management; and (g) building the policy and institutional capacity of the emerging regions through the development of basic civil service structures and systems.

2. District-level Decentralization

Deepening devolution to Woredas to enhance local participation, promote good governance and improve decentralized service delivery, including: (a) carrying out technical assistance for Woreda staffing and training including, developing human resource policies, procedures, plans and providing appropriate training in areas critical to local government; (b)

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provision of technical assistance and training for grassroots participation including, developing guidelines, monitoring mechanisms and strengthening civil society involvement at local level; (c) carrying out Woreda level institutional and organization development, including assessment of functional assignments and enabling legislation, supporting establishment of structures and restructuring existing arrangements, including local level accountability structures; (d) building capacity for policy and program development, including Woreda decentralization strategy and policy development, benchmarking and review of plans; (e) developing a Woreda level fiscal transfer mechanism and revenue mobilization capacity; (f) strengthening the planning and financial management system at the Woreda level; and (g) developing minimum service standards in priority sectors.

3. Justice System Reform

Promoting the rule of law, efficient and effective functioning of the justice system, including: (a) strengthening the Government’s Justice System Reform Office and its equivalent at the regional level; (b) strengthening the courts through provision of in-service training for judges and court clerks, court administration reform, development of records and case load management systems, and identification of measures to enhance access to justice; (c) supporting law reform initiative, including the development of systems and procedures for declaring income and property, identification of new areas of law development, compiling and preparing laws and regulations, and drafting of stock exchange and other laws; and (d) strengthening legislative process, including providing training on legislative drafting and analysis to the relevant staff of the Government, providing training to members of federal and regional standing committees on legislative process and management, principles of federal grant and inter-governmental fiscal framework, monitoring and impact assessment, HIV/AIDS prevention and gender issues, public reporting, accountability and participation, all through provision of technical advisory services and acquisition of goods and equipment.

4. Urban Management Capacity Building

Strengthening the capacity of municipalities in service delivery, and enhancing the role or urban centers in social and economic development, including: (a) provision of technical assistance for development of federal and prototype regional policies related to urban development, housing, urban land, municipal structures, and formation of municipal associations; (b) provision of technical assistance for strengthening municipal decentralization through preparation of manuals governing resource management, revision and organization of training and human resource needs, and developing prototype fiscal transfer and revenue mobilization mechanisms; and (c) restructuring and strengthening the capacity of local governments, including, inter alia, restructuring of water and sanitation, urban land, developing and implementing financial, human resource, organizational and related reviews, and provision of training for municipal officials and staff.

5. Tax Systems Reform

Encouraging capital investment and development, increasing tax revenues and ensuring equity and fairness in the tax system through comprehensive reform of tax legislation and administration system, including: (a) developing tax policy and reviewing legislation to reflect the current business and investment environment, implementing presumptive and value-added

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taxes, strengthening tax mechanisms, and sensitizing taxpayers; (b) supporting the roll-out of the tax payers identification number system; (c) carrying out customs reform and modernization, including, inter alia, reviewing the legal framework, reviewing and implementing customs procedures, and provision of management and core staff training in key areas.

6. Information and Communication Technologies

Applying Information and Communication Technologies (ICT) solutions for improving good governance and service delivery, including: (a) supporting human resource development, including developing an ICT human resource strategy; ICT curricula for schools, vocational training centers, and universities, training of trainers, establishing distance learning centers and research on use of ICT; (b) use of ICT for public service and good governance by developing government information system strategies and applications roadmaps, carrying out system design studies, developing local and wide area networks, and acquisition of necessary hardware and software; (c) use of ICT for sector development including installation of applications in social and infrastructure sectors; and (d) community-based ICT systems and services through the development of strategies, applications and local content for community information centers to facilitate specific developmental activities.

7. Program Support

Developing the mandatory basic capacity of the Planning and Programming Directorate, Budget and Finance Directorate in the Ministry of Capacity Building, related Subprogram offices and the Ministry of Finance and Economic Development, for implementing Subprograms A.1 through A.6, including: (a) support for Program coordination, planning and training management; (b) monitoring and evaluation; and (c) information, education and communication activities, all through the acquisition of goods and equipment, and provision of technical advisory services and training.

II. Regional Program

Carrying out of six Subprograms and a Program support activity at the regional level for:

1. Civil Service Reform

Promoting development of an efficient, effective, transparent, accountable and ethical and performance oriented civil service, including: (a) strengthening of the Government’s Civil Service Reform Program coordinating structures; (b) improving expenditure management and control, through drafting of financial regulations and directives, roll-out of budgeting and accounts reforms, development of medium-term planning systems, strengthening of internal and external audit, modernization of cash management, roll-out of financial management information systems, and implementing procurement reform; (c) improving the governance of human resource management, including developing prototype policies on human resource development, time management, remuneration,, implementing result-oriented appraisal system, developing payroll and human resource information systems, and support for subsidiary regulations; (d) improving performance and public sector delivery through the roll-out of performance and service delivery improvement program in ministries, agencies and bureaus; (e) improving accountability and

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transparency, through, inter alia, developing innovative techniques for monitoring fiscal and output performance, including expenditure tracking surveys, cost efficiency studies, and service delivery report cards; (f) strengthening the top management systems through provision of training to senior managers and officials in strategic planning, performance measurement, top managements development, and value for money management; and (g) building the policy and institutional capacity of emerging regions through the development of basic civil service structures and systems.

2. District-level Decentralization

Deepening the devolution to Woredas to enhance local participation, promote good governance and improve decentralized service delivery, including: (a) carrying out technical assistance for Woreda staffing and training including, developing human resource policies, procedures, plans and providing appropriate training in areas critical to local government; (b) provision of technical assistance and training for grassroots participation including, developing guidelines, monitoring mechanisms and strengthening civil society involvement at local level; (c) carrying out Woreda level institutional and organization development, including assessment of functional assignments and enabling legislation, supporting establishment of structures and restructuring existing arrangements, including local level accountability structures; (d) building capacity for policy and program development, including Woreda decentralization strategy and policy development, benchmarking and review of plans; (e) developing a Woreda level fiscal transfer mechanism and revenue mobilization capacity; (f) strengthening the planning and financial management system at the Woreda level; and (g) developing minimum service standards in priority sectors.

3. Justice System Reform

Promoting the rule of law, efficient and effective functioning of the justice system, including: (a) strengthening the Government’s Justice System Reform Office and its equivalent at the regional level; (b) strengthening the courts through provision of in-service training for judges and court clerks, court administration reform, development of records and case load management systems, and identification of measures to enhance access to justice; (c) supporting law reform and revision of laws, including the development of systems and procedures for declaring income and property, identification of new areas of law development, compiling and preparing laws and regulations, and drafting of stock exchange and other laws; and (d) strengthening legislative process, including providing training on legislative drafting and analysis to the relevant staff of the Government, providing training to members of federal and regional standing committees on legislative process and management, principles of federal grant and inter-governmental fiscal framework, monitoring and impact assessment, HIV/AIDS prevention and gender issues, public reporting, accountability and participation, all through provision of technical advisory services and acquisition of goods and equipment.

4. Urban Management Capacity Building

Strengthening the capacity of municipalities in service delivery, and enhancing the role or urban centers in social and economic development, including: (a) provision of technical assistance for development of regional policies related to urban development, housing, urban land, municipal structures, and formation of municipal associations; (b) provision of technical

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assistance for strengthening municipal decentralization through preparation of manuals governing resource management, revision and organization of training and human resource needs, and establishing regional planning units, developing fiscal transfer and revenue mobilization mechanisms; (c) restructuring and strengthening the capacity of local governments, including, inter alia, restructuring of water and sanitation, urban land, developing and implementing financial, human resource, land system and organizational and related reviews, and provision of training for municipal officials and staff.

5. Tax Systems Reform

Encouraging capital investment and development, increasing tax revenues and ensuring equity and fairness in the tax system through comprehensive reform of tax legislation and administration system, including: (a) developing tax policy and reviewing legislation to reflect the current business and investment environment, implementing presumptive and turn over taxes, strengthening tax mechanisms, and sensitizing taxpayers; and (b) supporting the roll-out of the tax payers identification number system.

6. Information and Communication Technologies

Applying ICT solutions for improving good governance and service delivery, including: (a) supporting human resource development, including developing an ICT human resource strategy; ICT curricula for schools, vocational training centers, and universities, training of trainers, establishing distance learning centers and research on use of ICT; (b) use of ICT for public service and good governance by developing government information system strategies and applications roadmaps, carrying out system design studies, developing local and wide area networks, and acquisition of necessary hardware and software; (c) use of ICT for sector development including installation of applications in social and infrastructure sectors; and (d) community-based ICT systems and services through the development of strategies, applications and local content for community information centers to facilitate specific developmental activities

7. Program Support

Strengthening the institutional capacity of the regional level equivalent of Planning and Programming Departments and the Bureaus of Finance and Economic Development, for implementing Subprograms B.1 through B.6, including: (a) support for Program coordination, planning and training management; (b) monitoring and evaluation; and (c) information, education and communication activities, all through the acquisition of goods and equipment, and provision of technical advisory services and training.

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ATTACHMENT TO ANNEX 1 ADDITIONAL ACTIVITIES FINANCED BY SIGNATORIES OTHER THAN IDA

The Signatories other than IDA will finance the following additional Subprogram and Program activities at the Federal and Regional levels, all of which are subject to such modifications as the Signatories other than IDA may agree upon from time to time to achieve the objectives of the Program:

Federal and Regional Program Support to Prison, Prosecution and Police Departments

Carrying out of capacity building activities for law enforcement organs, all through the provision of technical assistance and acquisition of information technology systems and other equipment, including:

(a) strengthening the capacity of the department of police through establishment of community policing systems, upgrading of existing national forensic laboratories and developing a national crime preventing strategy;

(b) strengthening the capacity of the public prosecutions department through the development of new policies and procedures, and enhancement of case management capacity; and

(c) developing the prisons system and strengthening its capacity through

development of new policies, procedures, rehabilitative programs, and training curricula for penitentiary staff.

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ANNEX 2

INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS

.I. Institutional Arrangements

Federal Executing Agencies

1. The Government will maintain at the federal level Subprogram offices as set forth in subparagraphs (a) through (f) of this paragraph, at all times during Program implementation:

(a) The Ministry of Capacity Building will be responsible for: (i) overall coordination of Program activities; (i) approval of federal and regional Subprograms; and (iii) overseeing the implementation of Subprograms A.1, A.2 and A.3 except for Subprograms A.1 (b) and A.3 (b), through the offices of the Government’s Civil Service Reform Program, District–Level Decentralization, and Justice System Reform;

(b) The Ministry of Finance and Economic Development will be responsible for: (i) the implementation of Subprogram A.1 (b); and (ii) the overall financial management of the Program;

(c) The Federal Supreme Court will be responsible for the implementation of Subprogram A.3 (b);

(d) The Ministry of Revenue will be responsible for the implementation of Subprogram A.5;

(e) The Ministry of Federal Affairs will be responsible for the implementation of Subprogram A.4; and

(f) The Information and Communication Technology Development Authority will be responsible for the implementation of Subprogram A.6 of the Project.

2. The Government will maintain within the Ministry of Capacity Building, at all times during Program Implementation:

(a) (i) The Federal Technical Team, which will include directors of Subprograms, the director of the Planning and Programming Directorate referred to in sub-paragraph (b) below, a representative each of the Ministry of Finance and Economic Development and of the Ministry of Federal Affairs and other members and external specialists as may be necessary from time to time;

(ii) The Federal Technical Team will be responsible for reviewing, appraising and recommending approval of the annual plans of federal institutions and regions, and

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(b) The Planning and Programming Directorate, which will act as the secretariat for the Federal Technical Team; and

(c) The Budget and Finance Directorate, which will be responsible for: (i) overall procurement monitoring, procurement and financial management responsibilities for Subprograms A.1, A.2 and A.3, except for Subprograms A.1 (b) and A.3 (b); and (ii) procurement through International Competitive Bidding under all federal and regional Subprograms.

Regional Executing Agencies

3. The Government will maintain at the regional level Bureaus of Capacity Building as set forth in subparagraphs (a) through (c) of this paragraph, at all times during Program implementation:

(a) The Planning and Programming Directorates within the regional Bureaus of Capacity Building will be responsible for: (i) endorsing regional Subprograms; (ii) coordinating and overseeing the implementation of regional Subprograms; (iii) undertaking procurement for Subprograms within the regions; and (iv) undertaking monitoring and evaluation of the Program..

(b) The Regional Technical Team in each Region will: (i) be responsible for reviewing, appraising and recommending endorsement of medium-term and annual plans for regional Subprograms, and recommending the plans for submission to the Federal Technical Team; and (ii) comprise a representative from each Subprogram office at the regional level and other members and external specialists as may be necessary from time to time; and

(c) The regional Bureaus of Finance and Economic Development will be responsible for financial management of regional Subprograms, including reporting and processing payments for procurement of goods and services.

II. Implementation Arrangements

Eligibility Criteria and Procedures for Implementation of Subprograms by Federal and Regional Executing Agencies

1. No proposed Subprogram activity under at the federal or regional level will be eligible for financing out of the Signatories’ contributions unless the Federal Technical Team has determined, on the basis of the guidelines and the criteria set forth in the Program Implementation Plan, that the Executing Agency satisfies the eligibility criteria, which include, among others, the following:

(a) the Executing Agency has signed a Participation and Performance Agreement with the Government undertaking to comply with the rules of access allocation and execution of the Program, as specifically set forth in the Program Implementation Plan, and to commit to deliver on agreed capacity building outputs on a semi-annual basis;

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(b) the Executing Agency has established appropriate governance and implementation arrangements and secured adequate technical, financial management and procurement capacity to implement the proposed Subprograms in compliance with the guidelines set forth in the Program Implementation Plan, or has adopted a specific, time-bound plan of actions satisfactory to the Federal Technical Team, to strengthen its capacity;

(c) the Executing Agency has committed to timely submission of endorsed and costed medium-term rolling plans, including technically sound and feasible implementation and procurement plans for the subsequent fiscal year; and

(d) the Executing Agency has made adequate provision for carrying out an evaluation of annual performance for the subsequent year, including evidence of dissemination of such evaluation to the public as part of a consultative planning process.

Terms and Conditions of Participation and Performance Agreements

2. (a) Each Subprogram activity at the federal or regional level will be carried out in pursuant to a Participation and Performance Agreement, to be entered into between the Government and the respective Executing Agency, and which will be reviewed on an annual basis under terms and conditions specified in the Program Implementation Plan and satisfactory to the Cooperating Partners, which will include, among others, the following:

(i) the description of the Program objectives, expected results and Subprogram to be implemented at the federal or regional level, as the case may be, including the expected semi-annual and annual outputs to be achieved;

(ii) the available five-year and revised annual resource envelope to the Executing Agency for financing the Subprograms;

(iii) the obligation of the Executing Agency to: (A) carry out the Subprogram with due diligence and efficiency and in accordance with sound technical, financial, and managerial practices, (B) maintain adequate records to reflect, in accordance with sound accounting practices, the operations, resources and expenditures relating to the Subprogram at the federal and regional levels, and (C) report to the Planning and Program Directorate, or at the regional level, to the Regional Planning and Program Directorate, on a regular basis on the progress of the activity, financial expenditures, and procurement progress, in accordance with formats contained in the Participation and Performance Agreement;

(iv) the requirement that the goods, consultants’ services and training to be financed from the proceeds of the Signatories’ contributions will be procured in accordance with procedures ensuring efficiency and economy and in accordance with the provisions set forth or referred to in this Memorandum of Understanding, and will be used exclusively in the carrying out of Subprogram; and

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(v) the right of the Government to: (A) inspect by itself, or jointly with the Cooperating Partners, if the Cooperating Partners so request, the goods, services and training included in the Subprogram, and any relevant records and documents, and (B) obtain all information as it, or the Cooperating Partners, may reasonably request regarding the administration, operation and financial conditions of the Subprogram.

(b) Except as the Cooperating Partners may otherwise agree, the Government will not assign, amend, abrogate or waive any provision of the Participation and Performance Agreements, which, in the opinion of the Cooperating Partners, may materially and adversely affect the implementation of the Subprograms.

Fiscal Framework, Planning, Budgeting and Execution of Subprograms

3. (a) Without limitation upon the provisions of paragraph 6 of this Annex, and except as the Government and the Cooperating Partners may otherwise agree, the Government will ensure at all times during implementation of the Program, that the Executing Agencies comply with resource allocation and management procedures relating to the establishment of the Government’s fiscal framework, medium term planning and annual budget, execution and reallocation, as specifically set forth in the Program Implementation Plan.

(b) The procedures referred to in sub-paragraph (a) above will include the following:

(i) resource allocation and management procedures and annual review process will be aligned to the Government’s fiscal year and budget classification system, in accordance with the procedures and timetable specified in the Program Implementation Plan;

(ii) during each fiscal year the medium-term projections of resources available under the Program will be incorporated into the macro-economic fiscal framework, and appropriate division of resources between federal and regional Executing Agencies established and annualized on the basis of the previous year’s performance, and in accordance with the procedures and timetable specified in the Program Implementation Plan;

(iii) during each fiscal year, the Executing Agencies will submit: (A) costed medium-term plans of Subprograms within medium-term plans, which will be incorporated into the Government’s public investment program; and (B) to the Planning and Programming Directorate annual implementation plans established in the Government’s overall annual fiscal plan, in accordance with the procedures and timetables specified in the Program Implementation Plan;

(iv) during each fiscal year, the Federal Technical Team will appraise and submit the annual implementation plans to the Ministry of Capacity Building for approval in accordance with the criteria set forth in the Program Implementation Plan, which will include: (A) the relevance of planned activities in relation to the assessed constraints, (B) provision for completion of minimum mandatory capacity

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building, (C) provision for support of Subprograms at the federal or regional level, (D) evidence of participatory planning, including sample planning for local levels, and (E) sector-specific sequencing strategies, all in accordance with procedures and timetable specified in the Program Implementation Plan;

(v) (A) during each fiscal year the Government will incorporate into its budget all approved annual implementation plans for Subprograms at the federal and regional level, and (B) such approved annual implementation plans will be executed on a monthly reimbursement basis through funds flow modalities as set forth in the procedures and timetables specified in the Program Implementation Plan; and

(vi) during each fiscal year, the Federal Technical Team will review and recommend to the Ministry of Capacity Building reallocation of annual budget for Subprograms at the federal and regional level on the basis of yearly utilization and performance, in accordance with the procedures and timetables set forth in the Program Implementation Plan.

Performance Indicators and Annual Progress Actions

4. The Government will:

(a) not later than the end of the first year of Program implementation: (i) submit the annual procurement plan, including sample development plans for up to 5% of the Woredas and Municipalities; (ii) launch the second Woreda-Municipal benchmarking survey; (iii) complete minimum mandatory requirements in at least four regions; and (iv) publish the Program annual progress report, all in a form and substance satisfactory to the Cooperating Partners.

(b) not later than the end of the second year of Program implementation: (i) submit the annual procurement plan, including sample development plans for up to 15% of Woreda and Municipalities; (ii) launch third Woreda-Municipal benchmarking survey; (iii) complete the prequalification of suppliers for generic training; (iv) review allocation and reallocation procedures and mechanisms, including reviewing alternatives for high performing Executing Agencies who have fully utilized their allocations; (v) complete minimum mandatory requirements in seven regions; and (vi) publish the Program annual progress report, all in a form and substance satisfactory to the Cooperating Partners.

(c) not later than the third year of Program implementation: (i) submit the annual procurement plan, including development plans for up to 25% of Woredas and Municipalities; (ii) launch the fourth Woreda-Municipal benchmarking survey; (iii) review feasibility of capacity building transfers to Woredas and municipalities; (iv) completion of minimum mandatory in all regions; and (v) publish the Program annual progress report, all in a form and substance satisfactory to the Cooperating Partners.

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III. Monitoring, Evaluation and Reporting Arrangements

Annual Progress Reports

1. The Government will:

(a) prepare, under terms of reference satisfactory to the Cooperating Partners, and furnish to the Cooperating Partners, on or about September 30 of each year, an annual report integrating the results of financial and physical reports and other monitoring and evaluation activities performed pursuant to paragraph 9 of this Memorandum of Understanding, on the progress achieved in the carrying out of the Program during the preceding fiscal year and setting out the measures recommended to ensure the efficient carrying out of the Program and the achievement of the objectives thereof during the period following such date;

(b) review with the Cooperating Partners during an annual review mission, which will take place not later than October 1 of each year, or such later date as the Cooperating Partners may request, the report referred to in sub-paragraph (a) and, thereafter, take all measures required to ensure the efficient completion of the Program and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report and the Cooperating Partners’ views on the matter;

(c) prepare, under terms of reference satisfactory to the Cooperating Partners, and furnish to the Cooperating Partners on or about March 7 of each year, a report setting out the composition of the proposed annual implementation plans of Subprograms at the federal and regional level for the following year together with targets to be achieved with regards to the various objectives of the Program; and

(d) review with the Cooperating Partners, by March 15 of each year or such later date as the Cooperating Partners may request, the report referred to in sub-paragraph (c) above, and, thereafter, take all measures required for the achievement of the Program objectives based on the conclusions and recommendations of the said report and the Cooperating Partners’ views on the matter.

Midterm Review

2. The Government will not later than January 31, 2007, or such later date as may be agreed by the Cooperating Partners, prepare, under terms of reference satisfactory to the Cooperating Partners, and furnish to the Cooperating Partners, a midterm review report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph 9 of this Memorandum of Understanding, on the progress achieved in the carrying out of the Program during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Program and the achievement of the objectives thereof during the period following such date.

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ANNEX 3

INDICATIVE CONTRIBUTIONS OF THE SIGNATORIES 1

(2004-2009)

Total

(US$000,000) % Total Amount Pooled % Pooled % Pooled Fund

CIDA 49 12% 40 82% 12%DfID 30 8% 31 103% 9%IDA 100 25% 91 91% 27%Ireland 10 3% 7 70% 2%SIDA 15 4% 13 87% 4%Others 59 15% 0 0% 0%Government 137 34% 137 100% 40%Total 400 100% 343 86% 100%

1 The contributions of the Cooperating Partners presented in the tables in this Annex are indicative of resources available and do not constitute pledges of the Cooperating Partners.

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ANNEX 4

ANNUAL PLANNING, REPORTING AND REVIEWS CALENDAR

DATE

ACTIVITY

July First Quarterly Meeting August September October Second Quarterly Meeting and Annual Review Mission November December January Third Quarterly Meeting; First FMR Submitted February March April Fourth Quarterly Meeting and Semi-Annual Review Mission May June Second FMR submitted

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ANNEX 5

PLANNING AND DISBURSEMENT ARRANGEMENTS

A. Replenishment of the Special Accounts and the Pooled Account Following the Signatories’ agreement each year on the Annual Implementation Plan, the relative share of each Signatory’s contribution to the Program will be reflected in a Side Agreement and applied to each replenishment. The Cooperating Partners will deposit their share of Program funding requirements in their respective foreign currency account (Special Account) opened and maintained by the Ministry of Finance and Economic Development in the National Bank of Ethiopia. The Ministry will also open and maintain a Birr financing account in the National Bank of Ethiopia (the Pooled Account), which will hold the regular drawdowns from the Special Accounts and the Government’s contribution. The Cooperating Partners will replenish their respective Special Account in accordance with their budgetary and disbursement mechanisms and the progress of the Annual Implementation Plan. The initial advance to the Special Accounts will be based on the Annual Implementation Plan and budget for FY2004/2005. To the extent permitted, the Cooperating Partners will provide an initial advance of their share of the estimated requirement for the first six months of Program activities. Subsequent replenishments of the Special Accounts based on the Annual Implementation Plan will be made against statements of expenditure (SOEs) for expenditures under contracts for: (a) goods costing less than $150,000 equivalent per contract; (b) services of individual consultants costing less than $50,000 equivalent per contract; and (c) services of consulting firms under contracts costing less than $100,000 equivalent per contract. The Special Accounts will be replenished by an amount equal to the total of SOEs multiplied by the percentage share of each Cooperating Partner in the total funds allocated to the Program. The Government will contribute its agreed share of Program funding on a quarterly basis to the Pooled Account to finance at least the equivalent of the Program institutional running costs, any domestic taxes applied to contracts financed through the Program, and other expenditures, in accordance with the Annual Implementation Plan and with agreements reached during quarterly reviews. Drawdowns from the Special Accounts into the Pooled Account will be made as required, generally monthly, to meet forecasted expenditures in local Birr. Drawdowns may also be made to meet hard currency payments by Executing Agencies for internationally procured goods or services. Contracts procured under International Competitive Bidding procedures will be financed by IDA. Any gains or losses on foreign exchange will be applied to the Program. Provided that IDA funds shall not be used for procurement of contracts under International Competitive Bidding procedures to finance activities referred to in paragraph 6.4 (b) and the Attachment to Annex 1 to this Memorandum of Understanding. At the end of each fiscal year, non-utilized funds will be attributed to the Signatories in proportion to their respective contributions for that fiscal year, and may, with the prior approval of the Cooperating Partners, be carried over into the following fiscal year. The Cooperating Partners will report their disbursements and balances for all contributions relating to the Annual Implementation Plan, including payments to the Special Accounts, payments made directly to suppliers, and other contributions to the Annual Implementation Plan.

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B. Flow of funds to the Executing Agencies Based on the approved Subprogram annual implementation plans and budgets and the Participation and Performance Agreements with Executing Agencies, initial release of funds to the Executing Agencies will be made in accordance with their assigned drawing rights for one quarter of anticipated expenditures. Subsequent releases will be made as required, generally monthly against SOEs. In the event that any Executing Agencies fail to meet the performance-based disbursement conditions, their unutilized rights may be reallocated to better performing Executing Agencies in accordance with the arrangements specified in the Program Implementation Plan.

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ANNEX 6

PROCUREMENT ARRANGEMENTS A. General Goods and consultants’ services required for the Program will be procured according to, respectively, the World Bank’s “Guidelines for Procurement under IBRD Loans and IDA Credits” and the World Bank’s “Guidelines: Selection and Employment of Consultants.” The Program Implementation Plan defines thresholds for using different methods of procurement and for prior review by the Cooperating Partners of individual contract packages funded under the Program (see the table below). The Executing Agencies will not split packages into smaller packages merely to allow the use of less competitive procurement methods or to avoid prior review by the Cooperating Partners. All contracts which are not subject to prior review will be subject to procurement post-review by the Cooperating Partners. The Cooperating Partners may designate one Cooperating Partner that will review and provide clearances on procurement on behalf of the Cooperating Partners. The thresholds for prior review will be examined within 12 months after effectiveness of this Memorandum of Understanding with a view to increasing threshold levels, consistent with demonstrated improvements in the procurement capacity of Executing Agencies. All contracts procured under International Competitive Bidding procedures will be financed by the International Development Association. Provided that IDA funds shall not be used for procurement of contracts under International Competitive Bidding procedures to finance activities referred to in paragraph 6.4 (b) and the Attachment to Annex 1 to this Memorandum of Understanding. To this end, all contracts procured under International Competitive Bidding for said activities shall be financed by Signatories other than IDA.

Thresholds for Procurement Methods and Prior Review

Expenditure Category Contract Value

Threshold (US$)

Procurement Method

Contracts Subject to

Prior Review

>=150,000 ICB All contracts

<150,000 NCB First contract for each Executing Agency

<100,000 UN None

<50,000 Shopping None

1. GOODS

Direct Contracting All contracts

>= 100,000 QCBS

All contracts

< 100,000 LCS/ SBCQ

None

Individual Contracts >=50,000

2. CONSULTANTS’ SERVICES

Single Source Selection All contracts

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ICB International Competitive Bidding QCBS Qualifications/Cost Based Selection NCB National Competitive Bidding SBCQ Selection based on Consultant LCS Least Cost Selection UN Procurement by a UN Agency C. Additional Procurement Requirements

B. Additional Procurement Requirements

In-house and Generic Training

(a) The Government will carry out all in-house training activities under the federal and regional Subprograms on the basis of annual procurement plans, which have been approved by the Cooperating Partners, and which will, inter alia, identify: (i) the training envisaged; (ii) the institutions which will conduct the training; (iii) the duration of the proposed training; and (iv) an estimate of the unit cost.

(b) The Government will carry out all generic training activities under the federal and regional Subprograms upon pre-qualification of identified suppliers, including autonomous public institutions and private sector agencies, universities and non-profit making organizations, and in accordance with the provisions for selection of consultants set forth or referred to in this Memorandum of Understanding.

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ANNEX 7

PERFORMANCE MONITORING INDICATORS

Unless otherwise agreed to by the Cooperating Partners, the main performance indicators for the implementation of the Program in accordance with this Memorandum of Understanding are as follows:

1. Increased predictability and adequacy of financial resources flows (in-year and across years)

(a) Reduced budget variance.

(b) Reduced federal-regional and regional-local fiscal gap by region.

2. Greater inclusiveness and transparency of planning and prioritization processes

(a) Established practice of participatory budgeting and public reporting on budgets and performance at all levels.

(b) Regular involvement of civil society in planning and policymaking, budgeting, and review processes.

3. Enhanced revenue performance and fiscal autonomy

(a) Increased own revenues and unconditional transfers as a share of total expenditures at sub-national levels.

(b) Increased tax effort at all levels.

4. Enhanced incentive environment for public servants (at the federal, regional, woreda and municipal levels and gender disaggregated)

(a) Average civil service salary as percentage of living wage.

(b) Private-public sectors wage comparison.

(c) Wage decompression ratios.

5. Improved quality and efficiency of operations

(a) Improved service levels in terms of access, responsiveness and cost efficiency in priority sectors.

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(b) Reduced unit costs and processing time for essential rural, urban, social, and legal services in priority sectors.

6. Improved transparency and accountability

(a) Reduced incidence of corruption and arbitrariness in rule enforcement (as judged by economic agents).

(b) Increased access to justice, recourse and redress.

(c) Enhanced independence of the judiciary.

(d) Improved access to government information.

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