Document o f The World Bank

Report No: 27567 - BU FOR OFFICIAL USE ONLY

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 18.1 MILLION (US$26.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF BURUNDI

FOR AN

ECONOMIC MANAGEMENT SUPPORT PROJECT

December 30,2003

Poverty Reduction and Economic Management Country Department 09 Africa Regional Office

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 03,2004)

Currency Unit = Burundian Franc (FBU) FBu 1 = US$O.O009

US$ = FBu 1060.5

BRB CAS CFAA CPAR DFID DGD DGI DGMP E.U EERC EMSP FDI FM FMR FMS GDP GPN GTS HIPC IDA IDF IMF I S I S 0 ISTEEBU LJR LJSA M O F MTEF N G O P A PAD PCU PER

FISCAL YEAR January 1 -- December 31

ABBREVIATIONS AND ACRONYMS

Banque de la Republique du Burundi Country Assistance Strategy Country Financial Analysis Assessment Country Procurement Assessment Report Department for International Development Direction GCnerale des Douanes Direction GenCrale des Imp& Direction GCnerale des MarchCs Publics European Union Emergency Economic Rehabilitation Credit Economic Management Support Project Foreign Direct Investment Financial Management Financial Monitoring Report Financial Management Specialist Gross Domestic Product General Procurement Notice Government Transitional Strategy Highly Indebted Poor Countries International Development Association Institutional Development Fund International Monetary Fund Interim Strategy International Standards Organization Institut de Statistiques et d’Etudes Economiques du Burundi Legal and Judicial Reform Legal and Judicial Sector Assessment Ministry o f Finance Medium Term Expenditures Framework Non Government Organizations Project Account Project Appraisal Document Project Coordination Uni t Public Expenditures Review

POM PRSP PSC REGIDESO SCEP SDR SPN TC TGOB TSS UNDP

FOR OFFICIAL USE ONLY

Project Operational Manual Poverty Reduction Strategy Paper Project Steering Committee Regie de Distribution d’Eau et d’ElectricitC Service Charge des Entreprises Publiques Special Drawing Rights Specific Procurement Notice Technical Committee Transitional Government o f Burundi Transitional Support Strategy United Nations Development Program

Vice President: Callisto E. Madavo Country Director: Emmanuel Mbi Sector Manager: Cadman A. Mills

Task Team Leader: Mathurin Gbetibouo

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents m a y not b e otherwise disclosed without W o r l d Bank authorization.

BURUNDI ECONOMIC MANAGEMENT SUPPORT PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. M a i n sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key pol icy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project altematives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5 . Environmental 6. Social 7. Safeguard Policies

Page

2 2

3 3 4

11 11 12 12 12

12 13 14 14 15 16 17

F. Sustainability and Risks

1. Sustainability 2. Crit ical risks 3, Possible controversial aspects

G. M a i n Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance w i th Bank Policies

17 17 19

20 20

20

20

Annexes

Annex 1: Annex 2: Annex 3: Annex 4: Annex 5: Annex 6:

Annex 7: Annex 8: Annex 9:

Project Design Summary Detailed Project Description Estimated Project Costs Qualitative Assessment o f Financial and Economic Returns Summary Financial Summary (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Project Processing Schedule Documents in the Project Fi le Statement o f Loans and Credits

Annex 10: Country at a Glance Annex 11: Policy Matr ix Annex 12: Project Organizational f low chart

21 25 35 36 37 38 53 55 56 58 60 64

BORROWER 1.53 I 0.00 I 1.53

I I - - ~ -. - _ _

Borrower: REPUBLIC OF BURUNDI Ministry o f Finance Responsible agency: MINISTRY OF FINANCE, REPUBLIC OF BURUNDI Ministry o f Finance Address: Ministry o f Finance, Bujumbura, Burundi Contact Person: Mr. Skleus Nezerwe, Project Coordinator Tel: 257 22 2775; or 257 92 2740 Fax: 257 22 3827 Email: nezenves@yahoo.com

[DA

Estimated Disbursements ( Bank FY/US$m): FY 1 2004 I 2005 I 2006 I 2007 I 2008 I 2009 I Annuall 0.50 I 5.50 I 7.00 I 6.00 I 5.00 I 2.00 I

1.90 I 24.10 I 26.00

19.00 1 24.00 I 26.00 I Expected closing date: 0713012009

Project implementation period: 03/2004 to 0712009 Expected effectiveness date: 03/30/2004

Total: 3.43 I 24.10 1 27.53

A. Project Development Objective

1. Project development objective: (see Annex 1)

The development objective o f the proposed Economic Management Support Project (EMSP) i s to increase the efficiency of Burundi’s macroeconomic, financial, and administrative management by strengthening accountability and transparency through improved procedures and controls. This in turn w i l l raise the effectiveness o f public expenditure for growth and poverty reduction, and help reduce transaction costs for private economic activity.

The recurrent politico-ethnic conflict suffered by the country since independence in 1962 and the more recent outbreak o f c iv i l war in 1993, subsequent to the assassination o f the democratically elected Hutu president, Melchior Ndadaye, imposed a huge tol l on Burundi. Hundreds o f thousands o f people lost their lives, were displaced, or out-migrated, including several employees o f the public administration. Economic management has been especially weakened in a Government where, in addition to the brain drain o f key personnel, focus on emergency concerns has given capacity building in good governance low priority. There i s a consensus among donors, including the Bank and the IMF, and with the Government o n the severe inefficiencies and disruption o f the economic management apparatus. This diagnosis was more recently confirmed by the Public Expenditure Review (PER), undertaken in the context o f the Emergency Economic Rehabilitation Credit (EERC), i t se l f a key operation under the Bank’s Interim Strategy for assistance to Burundi during the period 1999 -2001. One o f the fundamental conclusions o f the PER was the need to address the dire state o f the budget process, with a focus o n repairing the basics o f budget coverage, budget execution, and financial controls.

As a f i rst step, an Institutional Development Facility (IDF) granted to the Government o f Burundi i s attempting to strengthen the capacity o f central ministries for policy formulation and implementation. This initial step now needs to be complemented, deepened and extended to other central government departments critical in enhancing overall management o f public affairs, through the proposed Economic Management Support Project. In addition to supporting procedural improvements in public financial management, the Project wil l address key human resource concerns, including training as wel l as personnel management, as described later in this document.

2. Key performance indicators: (see Annex 1)

The Economic Management Support Project w i l l be implemented over a five-year period, beginning in March 2004. Triggers and indicators have been developed and agreed upon with the Government o f Burundi to determine progress in implementation, and performance benchmarks in macro-economic, financial and human resources management have been defined in terms o f both outcomes and process.

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Component 1. Strengthening Macroeconomic Data Collection and Analysis for Informed Policy Formulation.

2. Increasing Transparency and Improving Governance for the Public Financial and Administrative Management

3. Reforming Public Procurement System and Modernizing Private Sector Legal and Regulatory Framework.

4. Defining Legal and Judicial Reform Strategy and Strengthening Oversight Structures Capacity

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 23635-BU Date of latest CAS discussion: March 07, 2002 (Board date)

Because the conditions in Burundi have not been conducive to the elaboration o f a Country Assistance Strategy (CAS), Bank interventions between 1999-2001 and 2001 -2003 have taken place within the context o f an Interim Strategy (IS) and a Transitional Support Strategy (TSS) respectively. The proposed operation was included in the March 2002 TSS as the Multi-Sector Capacity-Building Project and was planned for delivery in FY2003. However, preparation o f the project was postponed in order to allow for an adequate involvement o f the new Government structures which have emerged from recent political developments --and the project i s hence being submitted for approval in FY2004. The delay also allowed the preparation team to take full account of, then pending, conclusions o f the PER and the participatory diagnostic assessment o f the public procurement system. Both pieces o f sector work helped elaborate the two key major components o f the project. Pending the elaboration o f a full CAS, the fluid political and economic context in Burundi calls for a Bank strategy characterized by three elements: (i) a focus on the urgent basic problems, (ii) pragmatic adaptability to a changing situation, and (iii) close Bank-led coordination on especially donor assistance in economic management. The current operation, by its content and through its preparation and prospective implementation mechanism, f i t s within this strategic context.

Key Performance Indicators Improved tools for macroeconomic analysis and

Improved analysis o f impact o f public finance

Improved public finance forecasting capacity in the

economic statistics

instruments on macroeconomic aggregates

ministries o f planning and finance Expanded budget coverage Better link between resource allocation and social

sector goals in accordance with poverty reduction strategy Improved fiscal performance Better procurement administration, with updated

Strengthened finances o f restructured public public procurement code

enterprises

Strengthened oversight structures Defined legal and judicial reform strategy

2. Main sector issues and Government strategy:

Long standing major issues in the area o f economic governance in Burundi have to do w i th the consequences o f recurrent conflicts, themselves a consequence o f an inadequate power sharing across ethnic groups and regions. N o t only have the conflicts depleted the stock o f human capital, but also they have contributed to create a culture o f avoidance and impunity in public administration, in turn, breeding further resentment and degrading services. Thus the administration which preceded the current coalition Government o f transition presented the Government Transitional Strategy (GTS) for 2001-2003 at the Paris Conference, in December 2000, with the fol lowing strategic objectives: (i) consolidating peace and

- 3 -

national reconciliation; (ii) promoting good governance; (iii) rehabilitating, reinstalling and reinserting refugees and victims of conflicts; (iv) reducing poverty through public financing o f infrastructures reconstruction; and (v) promoting growth through economic reforms. These goals are consistent with, and supported by, the TSS. Strategies seeking to promote good governance focus on establishing systems o f transparency and accountability across the public sector and ensuring popular participation in decision-making processes. Proper management o f economic, financial and human resources i s essential if these strategies are to contribute to growth and address poverty reduction objectives.

3. Sector issues to be addressed by the project and strategic choices:

The state of public finance and main challenges for recovery. Both the external current account and the fiscal deficit in 2002 were smaller than had been expected, wi th the overall fiscal deficit (after grants) at just 1.4% o f GDP compared to 5.2% o f GDP in 2001, and a corresponding sharp decline in inflation, f rom 9% in 2001 to virtual price stability in 2002 (see Table 1). In Burundi’s situation, however, this did not reflect positive developments, but largely a compression in expenditures --including a drastic decline in capital spending financed from domestic resources, which was only in part offset by an increase in aid-financed expenditures. Overall, public investment declined from 6.4% o f GDP in 2001 to 5.2% in 2002.

Table 1: Burundi -- Selected macroeconomic and fiscal aggregates, 2000-2003 (in percent) -- 2000 2001 2002 2003 (est.)

Annual change in: GDP growth -0.9 2.1 4.6 1.0 Inflation (yearly average) 24.3 9.3 -1.4 9.0 Export volume 5.5 4.9 -20.7 50.0 Import volume 1.7 4.3 -1.2 5.0 I n percent of GDP: External deficit 10.0 6.8 5.7 8.0 Fiscal deficit (including grants) 1.8 5.2 1.4 7.3 Domestic revenue 19.2 20.0 20.4 19.4 Current expenditure 18.8 21.6 20.6 21.2

(of which, civilian salaries) 3.5 3.9 4.1 4.9 Capital expenditure 6.1 6.4 5.2 8.7

(of which, domestically funded) 1.7 3.4 1.1 3.6 ~~ ~~

Sources: Compiled f rom various recent IMF and Wor ld Bank data.

Accordingly, for 2003 and beyond, macroeconomic and fiscal policy should provide greater breathing space for developmental expenditure, by means of: (i) a less tight fiscal stance overall; (ii) an increase in aid - especially untied budget support; and (iii) restraint in current expenditure. The SDR 19 mi l l ion IMF program for 2003, targets a recovery o f public investments to 8.7% o f GDP, which among other things entails accepting a temporary increase in inflation (although st i l l in single digits). This, however, depends crucially in the first instance on an increase in available financing, f rom both budgetary and external resources. I t is very difficult to see how such an increase in domestic and external financing can materialize without a sharpening o f the instruments o f budgetary and financial control that have been degraded by ten years o f insecurity and economic decline, as explained later. In Burundi, therefore, expenditure control appears as the urgent priority not to contain inf lat ion or restore fiscal sustainability -

- 4 -

as in the usual situation - but as the necessary means to create fiscal space for higher developmental expenditure for post-conflict recovery, growth, and ultimately poverty reduction,

Raising investment efficiency. As noted, the medium-term economic program for Burundi should provide room for some recovery o f investment from the currently severely depressed levels. However, the disrepair o f the structures for project appraisal and investment programming, calls for an urgent effort to raise both the allocative and use efficiency o f capital spending. Such an effort would underpin the higher developmental expenditure permitted b y the macroeconomic framework, and thus justify the additional aid to finance it. Next only to restoring expenditure control, a reinforcement o f investment project selection and design and o f the process o f public investment programming i s the other key challenge o f public expenditure and financial management in the country in the coming years. In close coordination w i th the Bank, DFID i s preparing a targeted capacity-building planning and public investment technical assistance intervention, which will complement the EMSP activities to strengthen budget coverage and expenditure monitoring and control. In due course, the improvement in public investment programming should also constitute a major building block for a medium-term expenditure framework for Burundi, currently precluded by the uncertain circumstances and need to address the immediate urgent problems.

Key challenges of EMSP. Against this background, the project addresses some o f the key weaknesses in Burundi’s financial and administrative management. Since the 1990s, donors (including the Bank and the Fund) and Government documents have underlined the compromised state o f economic, financial and administrative management in Burundi, and the growing concern with corruption. There i s in Burundi an unusual degree o f consensus between govemment and donors, and among donors, on the diagnosis o f the many public financial and administrative management problems: (i) tools for macro-economic management are outdated; (ii) medium-term expenditure programming i s non-existent; (iii) budget preparation process i s weak and purely mechanical; (iv) extrabudgetary funds and accounts have proliferated; (v) in budget execution, the observance o f physical and financial monitoring procedures i s haphazard; (vi) internal and external audit have virtually ceased to operate; (vii) human resources in the Ministry o f Finance, the Ministry o f Planning and the budget offices o f the line ministries have become fewer, older and unmotivated, with basic skill gaps now evident, training and retraining are non-existent, and competency levels are low; (viii) public procurement code i s outdated and a procurement reform action plan has only been prepared recently and i t s adoption pending; (ix) public financial oversight structures are extremely weak; and, (x) the financial situation o f public enterprises i s precarious. Yet, there are assets on which to build. The public financial management apparatus s t i l l retains a degree o f discipline and service ethics. The organizational architecture o f the core economic management ministries - Finance and Planning - i s acceptable and does not call for major alterations (although accountability i s hampered by some functional duplication with competing ministries - mainly, the anomalous location o f the Inspectorate o f Finance in the Ministry o f Good Governance and Privatization). At working levels, senior staff are at their posts, basic documents are found, some reliable statistics exist, requests for information are met. Most importantly, the new govemment leadership in the area o f economic management i s clearly committed to a process o f institutional improvement w i th neither illusion nor defeatism. Thus, the public financial and administrative management situation in Burundi engenders grave concerns but not cynicism.

Broad thrust of EMSP. The project will therefore promote the rehabilitation and rebuilding o f the public financial and administrative management by helping the government: (i) update macro-economic modeling and improve data collection and analysis for informed policy formulation through the establishment o f a computerized database and operational economic model; (ii) increase transparency and improve governance in public and administrative management by reforming and computerizing procedures,

- 5 -

producing operating manuals, creating databases and networked computers, overhauling codes, and training personnel; (iii) strengthen public procurement b y updating the public procurement code, defining an action plan for the reform o f the public procurement administration, and establishing a framework for monitoring the implementation o f public procurement processes, with a view to achieving the objectives o f transparency, competition, economy and efficiency, faimess and accountability; (iv) support the modernization o f the legal and regulatory framework o f the private sector; and (v) define a legal and judiciary reform strategy and strengthen o f public financial oversight structures.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

The project has been formulated in close collaboration wi th major concerned donors, particularly the UK Department for Intemational Development, and f i ts into a broader program o f assistance for capacity-building and institutional reform in Burundi. The project structure, described below, should therefore be seen in the context o f an overall aid effort characterized by both an unusual partnership wi th other donors and a need to respond to fluid developments in a pragmatic and realistic manner. Continuing coordination and complementarity wil l be assured, under Bank leadership, among other things through a small subgroup o f donor representatives in Bujumbura interacting regularly on public expenditure management issues. The Bank wil l therefore remain closely involved in al l aspects o f the inter-related public financial management cycle, whether or not it provides specific assistance through the proposed EMSP or in other ways.

Table 2 summarizes in tabular form the interventions by the major donors. Whi le the largest single intervention i s through the proposed IDA project, other substantial assistance i s being provided or prepared by DFID, the EU, UNDP, France and Belgium. Many o f the interventions shown in Table 2 are f irst steps or intermediate steps, which w i l l call for further sustained effort over several years in order to produce durable institutional improvement. I t i s also important to underline the lesson o f international experience that effective assistance to improve public financial management cannot be focused on the Ministry o f Finance in isolation f rom the other entities o f government, and must include attention to the also important functions o f planning and extemal audit, as wel l as to the budgeting capacity o f the line ministries.

- 6 -

Table 2: BURUNDI: Primary focus of major donor assistance to strengthen public financial management.

Area

Macro Framework Legal and Governance issues

Macro modeling and statistics Budget financingmebt management

Tax pol icy Revenue

Tax administration Customs

Budget Preparation Budget coverage and classification Public investment policy and programming Payroll and personnel management

Budget Execution

World Bank DFID V

V

V

V

V

v V

V

Treasury and accounting Procurement Internal audit External audit Legislative oversight

Informatics and Training Revenue computerization Treasury/payroll computerization General training in basic budgeting Training in specific areas/issues

V

V

7 V

EU V

V

UNDP /France Belgium i V

V

The project includes four technical components:

Component 1. Formulation:

Strengthening Macroeconomic Data Collection and Analysis for Informed Policy

Sub-component 1 : Improving statistics production capacity and reliability Sub-component 2: Strengthening national capacity for poverty assessment and monitoring Sub-component 3 : Expanding technical capacity in economic modeling Sub-component 4: Dissemination o f economic and statistical information

Component 2. Management:

Increasing Transparency and Governance in Public Financial and Administrative

Sub-component 1 : Unified Budget Sub-component 2: Treasury and Accounting Sub-component 3: Revenue Network (Internal Revenue and Customs) Sub-component 4: Financial Computerized Network Sub-component 5: C iv i l Service Management and Payroll Sub-component 6: Human Resources Development and Training

- 7 -

Component 3. Regulatory Framework:

Reforming Public Procurement System and Modemizing Private Sector Legal and

Sub-component 1 : Strengthening the public procurement administration; Sub-component 2: Support to the modemization o f the regulatory framework for the private sector.

15.80

3.15

1.63

3.00

Component 4. Defining Legal and Judicial Reform Strategy and Strengthening Oversight Structures Capacity:

Sub-component 1 : Support to the preparation o f the strategy for the reform o f the legal and judicial sector, and Strengthen the Tribunal de Commerce and Establish a Centre PrivC d’Arbitrage (Private Arbitration Center). Sub-component 2: Strengthening o f oversight mechanisms: Commission Finances et Budget de 1’Assemblde Nationale (Parliament National Committee on Finance and Budget), Cows des Comptes (Court o f Accounts), Inspection Gdndrale d’Etat (General State Inspectorate), Inspection Gdndrale des Finances (General Inspectorate o f Finance), and Media.

60.8

12.1

6.3

11.5

Component

Component 1 : Strenghtening macroeconomic data collection and analysis for informed policy formulation. Component 2: Increasing transparency and govemance in public financial and administrative management. Component 3: Reforming public procurement system and modernizing private sector legal and regulatory framework. Component 4: Defining legal and judicial reform strategy and strengthening oversight structures capacity. Component 5: Project coordination, management, monitoring & evaluation.

Total Project Costs Total Financing Reauired

Indicative costs

(US$M) 2.56

16.73

3.35

1.72

3.17

27.53 27.53

Yo of Total

9.3

60.8

12.2

6.2

11.5

100.0 100.0

Bank- Yo of

I

26.00 1 100.0 26.00 I 100.0

2. Key policy and institutional reforms supported by the project:

Good govemance through transparency and accountability, a prerequisite for the resumption o f extemal assistance and for the post-transition Government to regain the confidence o f the people, i s the key objective o f the project. The project therefore f i ts also into the Good Governance Program established by the Government in partnership w i th UNDP, seeking to promote good govemance, peace and security. The mid-term strategy o f the Transitional Government o f Burundi (TGOB) recognizes the importance o f transparency, and accountability for the growth, stability and security process. Whi le the Arusha Accord emphasizes govemance and accountability in public resources management and promotes inclusion, the interim PRSP stresses the importance o f establishing poverty-reducing programs and strengthening the links between resource allocation and priority programs. The proposed EMSP will, among other things, support the Government o f Transition in i t s efforts to strengthen the l i n k s between the priori ty programs identified in the PRSP and budgetary allocations in coming years. More specifically, the project wil l support institutional reforms in the areas o f budgeting, procurement, and govemment personnel management - in the context o f the broader donors’ program for assistance to institutional reform in administrative, fiscal, and expenditure management.

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3. Benefits and target population:

There are three main observations in terms o f benefits and target population under EMSP. First, the principal benefit expected from the project i s to help strengthen the Government capacity to manage the economy. In particular, the project i s expected to raise the allocative and use efficiency o f current and investment expenditure, including expenditures financed by development assistance and, to that extent, enable the provision o f a higher level o f aid. The project wi l l also help restore the Government's ability to design and implement policy, through i t s assistance to the Ministry o f Development Planning and Reconstruction, Statistical Institute (ISTEEBU), Ministry o f Finance, and Ministry o f Good Governance, and to reinforce financial oversight structures (the Parliamentary National Committee on Finance and Budget, the General Inspectorate o f Finance, the General State Inspectorate and the Court o f Accounts as supreme audit institution.

Second, a major component o f more efficient public resource use consists o f the strengthening o f the public procurement function, through improvement o f procurement administration and update the Procurement Code as well as strengthening the capacity o f the Tribunal o f Commerce and the creation o f a Private Arbitration Center, the good functioning o f which i s important to improve the investment climate, and hence support the private sector.

Finally, as an outgrowth o f the institutional and capacity improvements supported by EMSP, the Government o f Transition w i l l be better able to link i ts budgetary allocations in the future years to the pro-poor priority programs identified in the PRSP.

4. Institutional and implementation arrangements:

Institutional development and capacity building being at the core o f the proposed operation, it i s necessary that the implementation o f the reforms supported by E M S P be an integral part o f daily responsibilities of, thus be vested to, the concerned ministries and administrative structures. Thus in addition to having the responsibility o f the overall implementation o f EMSP, the Ministry o f Finance will be in charge o f the technical implementation o f the public financial and administrative management and public procurement administration sub-components o f the project. The Ministry o f Economic Planning and Reconstruction wi l l perform similar responsibility for the f irst component o f the project dealing with the tools o f macroeconomic management; the Ministry o f State for Good Governance and Privatization wil l be responsible for technical implementation o f the support to privatization sub-component; and the Ministry o f Justice, the legal and judic ia l re form strategy sub-component

The institutional and implementation arrangements designed are based o n the results o f the assessments conducted in the course o f the PER, in 2001 and 2002, the IDF grant for technical assistance on macroeconomic management, and three preparatory missions in December 2002, February/March and June 2003, and o f a Quality Enhancement Review held in M a y 2003. All these assessments have indicated that although the level o f human resources i s currently low, it would be more sustainable to build o n existing human resources and structures than provide substitution technical assistance. Hence the decision to establish a Program Steering Committee to oversee project activities, a Technical Committee and a Project Coordination Unit (PCU) located in the Ministry o f Finance, the latter being also responsible for managing the economic

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reforms under the IDA financed Economic Rehabil i tat ion Credit.

Project administrat ive structures:

The main implementing agency for the project will be the Ministry o f Finance. Other implementing ministries include the:

0

0

Ministry o f Development Planning and Privatization, Ministry o f Good Governance and Privatization,

0 Ministry o f Justice, and 0 Ministry o f C iv i l Service.

The overall project coordination i s entrusted to a Program Steering Committee (PSC), chaired by the Minister o f Finance and composed o f

0 Minister o f Finance, 0

0

Minister o f Development Planning and Reconstruction, Minister o f Good Governance and Privatization,

0 Minister o f Justice, 0 Minister o f C iv i l Service,

0 Project Coordinaor as secretary. 0 Secretary o f the National Secretariat for Social and Economic Reforms, and

A Technical Committee (TC) w i l l be created to be the link between the PSC and the PCU (see below), It w i l l be staffed with representatives o f the implementing ministries who w i l l coordinate project technical activities in their respective ministries, in which they w i l l play a key role o f focal points. The Project Coordinator w i l l be the secretary o f the TC.

A Project Coordination Un i t (PCU) w i l l be responsible for the overall management o f financial resources, accounting, procurement and reporting o f the project in accordance with the provision o f the Credit Agreement and Project Operational Manual (POM). I t w i l l be a light structure led by a Project Coordinator who w i l l report to the Min is ter o f Finance and w i l l be assisted by an Administrative and Financial Officer, and a Procurement Officer.

Financial Management, Accounting, and External Audits

The principal objective o f the Project’s financial management system (FMS) wil l be to support management in the distribution o f limited resources with the purpose o f ensuring economy, efficiency and effectiveness in the delivery o f outputs required to achieve project objectives. Specifically, the F M S must be capable o f producing timely, understandable, relevant and reliable financial information that w i l l enable management to plan, implement, monitor and appraise the Project’s overall progress towards the achievement o f i ts objectives.

Relevantly qualified, experienced and independent auditors wil l be appointed o n approved terms o f reference. The external audit wil l cover al l IDA and counterpart funds at al l levels o f Project execution.

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Disbursement Arrangements and Flow of Funds

Sector Issue

Funds o f IDA financed-projects in Burundi are generally channelled through Special Accounts (SA) and Project Accounts (PA). Counterparts funds o f Borrower's contribution are usually received through the Project Accounts. These accounts are managed by the Project Coordinating Unit.

Project

The Special Account o f EMSP w i l l be maintained at the Banque de la Ripublique du Burundi (BRB) --the central bank, whereas i t s Project Account in a commercial bank acceptable to IDA.

The chart in Annex 6B illustrates the proposed banking and funds f low arrangements.

A Project Operational Manual w i l l provide a detailled administrative, financial management, accounting, and procurement procedures for the project.

Detailed institutional and implementation arrangements o f the project are provided in Annex 2, Section on component 5: Project Coordination and Management .

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

program, including an MTEF and bottom-up sectoral programming, would be premature. On the other hand, piecemeal interventions would be unlikely to succeed in the current situation o f institutional disrepair in several related areas o f public sector management, The EMSP therefore relies both o n substantial coordination wi th other donors and, insofar as i t s own expenditure and accounting activities are concerned, o n a model developed with some success elsewhere in Africa, as discussed in Section 3.

Given the uncertainties in Burundi, the alternative o f an ambitious and large-scale budget reform

2. M a j o r related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

Ban k-f inanced Poverty alleviation Private Sector Development

(Cr. 2359-Bu) (closed) Economic Rehabilitation Credit

Economic and Democratic Governance (ongoing)

European Union Good Governance (ongoing) '/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), P

Latest Supervision (PSR) Ratings

(Ban k-fjn a n cei Implementation

Progress (IP)

S

S

(Highly Unsatis

projects only) Development

Objective (DO)

S

S

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3. Lessons learned and reflected in the project design:

In general, as noted earlier, experience shows that effective assistance to improve public financial management cannot be focused on a Ministry o f Finance in isolation from the other entities o f government, and must include attention to the important functions o f planning and external audit, as wel l as to the budgeting capacity o f the l ine ministries. Specifically, the proposed project has drawn lessons from an IDA project in Burkina Faso, which facilitated the development o f a computerized expenditure circuit and public accounting system functioning in real time and l inking 1,000 computers throughout the country. Under local Burkinabe management, th is successhl system was later expanded to include payroll, revenue and civ i l service management.

Although this expansion was envisaged in the initial scheme, it was carried out under a separate U N D P project. Whi le the general approach appeared to fit the specific requirements o f Burundi, a review o f the Burkina experience suggested that it would have been more efficient to integrate these different aspects into a single project, as i s being proposed under the EMSP. Also, the design o f the capacity-building components o f the project has drawn from the lessons o f experience in other post-conflict cases, and mainly to: (i) focus o n the urgent problems, (ii) keep the training level as basic as the existing skill gaps, and (iii) target the training to government staff already in place.

4. Indications o f bor rower commitment and ownership:

The political context which has prevailed in Burundi since the onset o f the c iv i l conflict has led the first crisis government to shift from fiscal reforms to emergency measures. Recognizing the difficulty o f carrying our reforms and fiscal adjustments in a post-conflict and emergency context, the donor community has expressed earlier concems about the commitment o f Burundian authorities to implement the reforms made in previous public expenditure reviews. However, both through the dialogue leading to the proposed EMSP, and from the realization o f the need to improve budgeting and procurement in order to justify a recovery o f aid (which f e l l f rom about US$ 300 mi l l ion a year before 1992 to a 1992 - 2000 average o f under U S $ 100 million), the Government understands the necessity to improve economic management and i s fully prepared to lead and cooperate actively in the implementation o f EMSP. The commitment o f the Minister o f Finance, as the main interlocutor for the project, i s especially relevant in this context.

5. Value added o f B a n k support in this project:

The value added o f Bank support stems in part f rom i ts experience in other post-conflict situations in the region (e.g., Democratic Republic o f Congo, Republic o f Congo and Rwanda), as wel l as f rom i ts capacity to lead and coordinate other donor activities into a coherent overall public financial management reform program.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit 0 Cost effectiveness 0 Other (specify)

NPV=US$ million; ERR = % (see Annex 4)

Given i ts nature, an institutional development and capacity building project such as EMSP i s not conducive to a traditional quantitative cost benefit analysis. Qualitative inferences on the economic and

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social gains as a result o f the project can, however, be made. Since EMSP wil l enhance the capacity to formulate and implement economic policies, the overall efficiency o f the economy should improve. More specifically, reforms undertaken in the area o f public finance and public procurement wil l enhance the efficiency o f public resources, and administrative reforms wil l strengthen the Government control over personnel expenditures and begin redressing the deterioration in the Government’s human resource base.

2. Financial (see Annex 4 and Annex 5): NPV=US$ mil l ion; FRR = % (see Annex 4)

Fiscal Impact:

As noted, the proposed project w i l l have a positive impact on the quality o f public sector management. To that extent, i t w i l l permit better control o f aggregate expenditures and thus a more sustainable fiscal posture. Equally important, the institutional improvements expected from the project should lead to higher economic rates o f r e m o f individual investment projects and o f public investment as a whole, thus permitting greater aid inflows for productive expenditures as wel l as much better programming o f counterpart fhds to reduce the typical disbursement difficulties linked to insufficient local budget cover. Accordingly, the EMSP can contribute over time to a lower overall fiscal deficit at the same time as it fosters an improvement in the quality o f public spending; thus the fiscal impact i s likely to be positive on both accounts.

The expected development impact o f each project component are discussed below:

Component I , Strengthening macroeconomic data collection and analysis for informed policy formulation: Through this component, EMSP wil l help Government update macroeconomic modeling, improve data collection and analysis for informed policy formulation with an expected positive impact on Government readiness to implement reforms, including fiscal and administrative decentralization.

Component 2. Increasing transparency and governance in public financial and administrative management: This component w i l l improve public accounting and reporting, including l i nks to debt management and to the monetary accounts o f the central bank (Banque de la Rdpublique du Burundi) cash management, budget coverage and implementation, and The component would also assist to cany out a c iv i l service census, among other things leading to the implementation o f a computerized payroll system, and facilitate putting in place a unified budget and an integrated public expenditures computerized system. A public accounting advisor would be contracted for advice and capacity-building.

the completion o f an updated Chart o f Accounts.

Component 3. Reforming public procurement system and modemizing private sector legal and regulatory framework: This component would help the government strengthen public procurement including the adoption and the implementation o f a new legal, regulatory and institutional framework; and would support the modemization o f the private sector regulatory framework, including the strengthening o f the technical and regulatory capacity o f SCEP.

Component 4. Defining legal and judicial reform strategy and strengthening the capacity o f financial oversight institutions: Through this component, the government would be enabled to elaborate a legal and judicial reform strategy, strengthen the parliament’s finance and budget committee, and the General Inspectorate o f Finance, as wel l as contribute to putting in place the General State Inspectorate, help supporting the creation o f the Court o f Accounts - the supreme audit institution --and a private center o f

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arbitration, and strengthen the Tribunal o f Commerce. The latter two would have the added effect o f improving the business environment and sustaining private sector emergence by providing reliable dispute resolution mechanisms.

3. Technical:

To meet the challenges presented by the lack o f capacity in the country, the project would provide extensive process facilitation, staff education, on-the-job training w i th short-term technical assistance, study tours to other countries, and systematic in-country training.Whenever required and feasible, training o f trainers w i l l be carried out. Strengthening macro-economic data collection and analysis for informed policy formulation w i l l entail focusing on institutional and knowledge building in the Ministry o f Planning and ISTEEBU and facilitating the elaboration o f instruments to collect data and more complete and reliable social and economic data for the preparation o f national accounts and other reports produced by the Government. These would include reports on PRSP implementation, pol icy notes reviewing recent economic developments and providing realistic forecasts o f key economic indicators, and any other report needed to facilitate dialogue w i th donors, especially discussions involving the central bank o f Burundi. The second component on improved transparency and governance in public financial and administrative management has a large training sub-component. In addition, DFID envisaged carrying out intensive workshops on public expenditure programming and budget preparation and execution, which w i l l be coordinated with the EMSP program through the PCU.

4. Institutional:

4.1 Executing agencies:

The Ministry o f Finance i s the executing agency o f the project. I t wil l be assisted by the PCU. The technical responsibility for the implementation o f project sub-components remains wi th the implementing and beneficiary agencies, namely the Ministry o f Finance, the Ministry o f Planning, the Ministry in charge o f Good Governance and Privatization, the Ministry o f C iv i l Service, and the Ministry o f Justice (See Section C4 above for the description o f the implementation arrangements).

4.2 Project management:

Day-to-day project activities would fa l l under the responsibility o f the P C U which would also serve as Secretariat to the Program Steering Committee and provide technical and financial expertise to implementing agencies, especially in the areas o f procurement, disbursement, financial accounting, project monitoring and reporting.

4.3 Procurement issues:

The project wil l be autonomous for i ts own procurement activities. Thus, bids w i l l be advertised, evaluated, and awarded within the Project Coordination Unit. The setting-up o f the PCU was at i ts early stage during project appraisal --the project coordinator and the head o f administrative and financial management department were then recruited. The PCU team wil l comprise a Procurement Specialist whose recruitment wil l be launched early January 2004 so that hehhe might be on board by the end o f February 2004. The formal capacity assessment o f the P C U in accordance w i th Procurement Services Policy Group (OPCPR) Guidelines dated JulylS, 2002 w i l l be carried out before the credit effectiveness. The project i s considered high risk as any project without demonstrated experience in procurement at their launching.

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One o f the sub-components o f the proposed project i s designed to support the implementation o f the procurement reform action plan so that the Burundi procurement system i s in a position to achieve the objectives usually pursued by a well functioning procurement system. In this regard, the project w i l l support an important training program aimed to reinforce the capacity o f a l l the parties involved in the procurement process. Thus, the project w i l l be well equiped to implement the action plan that wil l result f rom the capacity assessment o f the PCU.

4.4 Financial management issues:

An assessment o f the financial management arrangements o f the project included a review o f the systems o f accounting, reporting, auditing, f low o f funds and internal controls. The Project Management arrangements are acceptable if they are considered capable o f recording correctly al l transactions and balances, supporting the preparation o f regular and reliable financial statements, safeguarding assets, and are subject to auditing arrangements acceptable to the Bank.

The Project i s at high risk until the FM and other operational systems are well defined and documented, and personnel are trained. The client has been tasked with producing an FM timeline to effectiveness that i s realistic. The FM team w i l l return for a review once the systems are more developed and the Project Coordination Unit has been fully staffed. For the Project to satisfactorily deliver on i t s objectives, a F M S will be developed in accordance with the Financial Management Assessment Report presented in the Annex 6B.

Overall, the control environment in Burundi i s weak and needs improvement. In order to establish an acceptable control environment and to mitigate financial management risks, the measures outlined in the Action Plan in Annex 6B should be implemented. Moreover, the preparation o f Manual o f Financial and Accounting Procedures, satisfactory to IDA, i s a condition o f EMSP effectiveness.

5. Environmental: 5.1 Summarize thc steps undertaken for environmental assessment and E M P preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

The proposed project i s primarily a technical assistance operation for capacity building. I t s development objective i s to increase the efficiency o f the country's macroeconomic, financial and administrative management. Since the project will only deal with government institutional structures and simply facilitate the re-establishment o f the central administration, no adverse environmental impact i s foreseen. In accordance with the Association's operational environmental assessments (OD 4.0 1, Annex E), the proposed project had been placed in Category C and did not require an environmental assessment. Based on late discussions to construct a building for government entities carrying out especially activities under Component 2 o f this project, however, a site specific Environmental Management Plan has been prepared and i s to be disclosed prior to Board presentation o f the operation.

5.2 What are the main features o f the E M P and are they adequate?

The construction o f the building w i l l be on a state-owned site with no l ien against the property. The site specific E M P i s exclusively contruction related.

5.3 For Category A and B projects, timeline and status o f EA:

The site specific E M P has been discussed with the Borrower and submitted to IDA on January 04,2004. 5.4 H o w have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA

Environmental Category: C (Not Required)

Date o f receipt o f final draft:

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report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

The site i s state owned, A letter f rom the Ministry o f Public Works dated December 29, 2003 (Ref. 720/CAB/99812003) confirms the ownership by the state and releases the site for the purpose o f EMSP to the Ministry o f Finance.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?

An independent environmental watchingdog institution, the Institut National pour la Conservation de 1'Environement et de la Nature, and the Direction Gknkrale de I'Urbanisme et de 1'Habitat o f the Ministry o f Public Works w i l l monitor the E M P implementation.

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social dcvelopment outcomes.

The formulation o f Burundi's I-PRSP showed that the inefficient management o f scarce resources results in suboptimal allocation to the poor and vulnerable groups. In addition, the current weak budgeting capacity precludes a strong linkage between pro-poor Government policies and actual budgetary allocations and expenditures. I t i s difficult to envisage a recovery o f basic public services - particularly in basic health, primary education, water and sanitation, without addressing the inefficiencies in public expenditure management. Finally, institutional improvements in budgeting and procurement should help reduce corruption - which typically harms the poor - and increase effective participation o f key stakeholders in the budgeting process.

Promoting a gender-sensitive public service

The EMSP i s committed to help foster gender equity in the public service. An early activity w i l l be the commissioning o f a baseline survey to assess the status o f women in the public service. Other planned activities include sensitization training for senior managers on gender issues and career development training for women public servants.

6.2 Participatory Approach: H o w are key stakeholders participating in the project?

The EMSP's design i s the result o f a participatory process that included key implementers o f the program, such as: the Ministr ies o f Finance, Development Planning and Reconstruction, Good Governance and Privatization, Justice, C iv i l Service and the Chamber o f Commerce o f Burundi. The EMSP preparation team was also able to benefit f rom consultations w i th c iv i l society, NGOs, and the private sector that took place as part o f the I-PRSP process. In addition, parliamentarians f rom al l parties provided input. Representatives o f the five key financial partners o f public service reform in Burundi, namely DFID, UNDP, the French cooperation through the Service de Cooperation et d'Action culturelle, the E.U. and the Embassy o f Belgium, participated in the preparation o f the project. Dur ing implementation, the Program Steering Committee which i s multi-departmental wil l ensure that the interests o f al l public and private agencies concerned are taken into account, and organizations in the decision and policy making process will be sought .

6.3 H o w does the project involve consultations or collaboration wi th NGOs or other c iv i l society organizations?

See 6.2.

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6.4 What institutional arrangements have been provided to ensure the project achieves i ts social dcvclopment outcomcs?

See 6.2

6.5 How wi l l the project inonitor performance in terms o f social development outcomes?

Although, as noted, EMSP i s expected to have a positive indirect impact o n social outcomes, as assistance to the financial management infrastructure, the project itself does not have specified social development objectives. However, annual reviews w i l l assess progress o f social indicators, and social and beneficiary assessments, as wel l as audits w i l l be conducted on a regular basis.

7. Safeguard Policies:

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

This project complies w i th al l applicable Bank policies.

F. Sustainability and Risks 1. Sustainability:

The Government o f Transition i s committed to the successful completion o f Project activities, which w i l l not only strengthen government institutions, agencies and processes, but also enhance the likelihood o f attaining national reconciliation, lasting peace and good governance. The Transitional Government i s particularly committed because the project w i l l leave behind good practices and results as i ts inheritance to an elected government at the end o f i ts mandate, in December 2004.

2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

The project i s high risk, as any project under Burundi's current circumstances; the political, implementation, and fiduciary risks are al l high. Special attention has therefore been given to strategies to reduce these risks, to the extent possible. The first critical risk i s political, Le., the failure o f the Arusha Accord and consequent return to political instability and violence in the country, especially if the international community fails to support the country's transitional institutions. N o specific strategies can be incorporated in the project i t se l f to reduce this general risk, but strong donor support i s needed for the design and implementation o f a disarmament, demobilization and reintegration (DDR) program, and for economic and social recovery. A national DDR program has been elaborated and i s being appraised from f inding in the context o f the Multi-Country Demobilization and Reintegration Program.

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The second risk l ies in the current weakness o f the institutional and implementation capacity o f the public administration. The risk w i l l be mitigated by the substantial and coordinated program o f technical assistance provided by the Bank and other donors; by especially close Bank and other key partners' assistance in the implementation o f project activities and in the monitoring o f their progress; and by the fact that mid-course corrections are permitted by the project structure and implementation arrangements in order to address emerging difficulties or new opportunities.

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Finally, the fiduciary risk i s addressed through the effectivenes conditions and requirements described earlier and regular visits o f the Financial Management team.

H

H

S

H I, M (Modest Risk),

Risk From Outputs to Objective Political instability

Weak capacity

Fiduciary risk.

An ad hoc steering committee composed o f experienced people should be established. It should work on agreed terms o f reference. A system o f compensation should be established for members o f the committee. Once established the chart o f accounts should be reviewed and tested before implementation.

A Macroeconomist, a specialist in Public finance, a Procurement Specialist w i l l be employed to reinforce the P C U capacity. Projecl administrative and financial management procedures should be strictly adhered to. An Internal Audit fimction wil l be established. Focal points established in the implementing ministries, should be managed by experienced persons.

N(Negligib1e or Low Risk)

The Chart o f Accounts for the Government accounting system may not be properly prepared.

Weak implementation capabilities

Project activities within the implementing ministries may not be properly executed.

Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Ri:

Risk Rating I Risk Mitigation Measure

H

H

H

Control the project l i fe through the use o f short implementation period. Political climate should be reviewed at the end o f each period.

Close coordination w i th donors and Bank implementation assistance.

Project administrative and financial management procedures should be strictly adhered to. Satisfactory condition o f services should be negotiated with staff involved in the project management.

3. Possible Controversial Aspects:

None.

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G. Main Loan Conditions 1. Effectiveness Condition

The Borrower has prepared and furnished to the association the POM, in form and substance satisfactory to the Association; The Borrower has prepared and furnished to the Association the Manual o f Financial and Accounting Procedures, in form and substance satisfactory to the Association; The Borrower has prepared a shortlist, satisfactory to the Association, o f f i r m s to be invited to submit proposals for purposes o f conducting the audit referred to in Section 4.01 (b) (i) o f the Development Credit Agreement o f this project, under terms o f reference satisfactory to the Association; and The Borrower has deposited into the Project Account an in i t ia l amount equivalent to fifty m i l l i on Burundi Francs (BIF 50,000,000).

2. Other [classify according to covenant types used in the Legal Agreements.]

H. Readiness for Implementation ixI 1. a) The engineering design documents for the first year's activities are complete and ready for the start

o f project implementation. 0 1. b) Not applicable.

H 2. The procurement documents for the first year's activities are complete and ready for the start o f

H 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

0 4. The following items are lacking and are discussed under loan conditions (Section G):

project implementation.

quality.

I. Compliance with Bank Policies

KI 1. This project complies with all applicable Bank policies. 0 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Mathurin Gbetibouo Cadman Atta Mills Emmanuel Mbi Team Leader Sector Manager Country Director

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Annex 1: Project Design Summary BURUNDI: Economic Management Support Project I

To implement socio-economic reforms for enhancing economic recovery and laying the foundation for sustained growth and poverty reduction.

Project Development Objective: To increase the efJiciency of Burundi's economic, f inancial and administrative management by strengthening accountability and transparency in order to reduce transaction costs for effective and potent poverty reduction.

Key Performance Indicators

Sector Indicators: 0 Arusha Agreement

implemented

0 Inclusive Peace Accord

e Improved governance completed

and fiscal management

htcome I Impact ndicators: 0 Improved macroeconomic

modeling, forecasting and economic statistics

0 Better allocation of resources, national and external, in favor of social sectors;

0 Improvedfiscal performance;

0 Unij?ed & transparent budget audited;

0 Increased customer satisfaction with M O F operations.

Data Collection Strategy

jectorl country reports: e Annual independent

0 National accounts survey

statistic

'roject reports:

Central Bank report Review of treasury

records Regular reports on taxes i- duties collection from D G I and DGD Client survey operations

0 National accounts Macroeconomic model.

Critical Assumptions from Goal to Bank Mission)

Polit ical stability 0 Government commitment

to economic and social reforms

dialogue 0 Sustained polit ical

from Objective to Goal)

0 Impact of I D A Economic Rehabilitation Credit on public arrears (internal and external)

Peace Accord Agreements;

coffee prices

H I P C negotiations and Paris club negotiations.

0 Positive outcome of

0 Stability of international

0 Positive outcomes of

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Hierarchy of Objectives Iutput from each :omponent: ) Updated macroeconomic rodel, improved data ollection and analysis for rlformed policy formulation.

L) Increased transparency and improved governance of public f inancial and administrative management.

3) Reforming public procurement system and modernizing private sector legal and regulatory framework.

Key Performance Indicators

Iutput Indicators:

Established computerized data base. Operational economic model.

e Economic and statistics reports. Key governmental staff in the Ministry of Development Planning and Reconstruction, and the Ministry of Finance and other agencies including the Central Bank trained.

trained and database created by ISTEEBU in collaboration with the BRB ,

8 ISTEEBU key staff

Audit and studies completed.

8 Procedures reformed. and computerized. Database created. Computerizedfinancial

system network operational.

e Public procurement code updated. Action plan for reform of the Public procurement administration adopted by Cabinet. Framework for monitoring implementation of Public procurement process established.

e Steering Committee established. New decentralized structure set up. Information technology installed.

e New Procurement code

Data Collection Strategy

'roject reports:

e Quarterly progress

Quarterly and annually reports

macro-economic projections Quarterly economic updates

Monthly project implementation report

e Mid-term project implementation review

e Supervision mission and quarterly reports Interviews and simple survey to assess application of knowledge and skills in the j o b

Intermediary reports e Strategy document e Client satisfaction survey e Detailed implementation

evaluation reports and workshops with business community and Government.

Critical Assumptions from Outputs to Objective)

Incentive structure conducive to staff retention

Preparedness of Government structures to implement reforms, including fiscal and administrative decentralization:

8 Polit ical and vested interests do not impact regulatory reform system.

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9 Defining legal and jud ic ia l 'eform strategy and trengthening oversight tructures capacity

Project Components / Sub-components: 'I) Improved national accounts and macroeconomic framework

2) Increased transparency and governance ofpublic financial and administrative management 1. Unified Budget 2. Treasury and accounting 3. Revenue network 4. Financial computerized network 5. Civi l Service management and payrol l 6. Human Resource Development and Training

3) Reformedpublic procurement system and modernized legal and regulatory framework 1. Public Procurement Admin. 2. Private sector legal and regulatory framework: support to privatization.

approved by Cabinet.

a Legal andjudicial reform strategy defined.

a Oversight structures established and strengthened

a Journalists trained. a Parliament and media

trained in budgetary process

a Equipment and space provided.

a Assessment, audit and biding process for REGIDESO completed.

a Tribunal of Commerce and Arbitration Center operational

a Judges trained in Business Law

0 Documentation, equipment and ofice space provided

nputs: (budget for each :omponent) in millions) JS$2.42

JS$15.80

JS$3.15

a Intermediary judicial strategy, including cost-benefit analysis of the Observatoire de la Justice

a By-laws of the Cour des Comptes approved by Parliament and published by the Bulletin oficiel du Burundi and Le Renouveau

'reject reports:

Innual report of national zccount

a Polit ical interests do not obstruct the process

:from Components to 3u t pu t s)

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4) DeJined legal and jud ic ia l reform strategy and strengthened oversight structures capacity I . Reform Strategy: - Support the preparation of the Strategy - Strengthen the Tribunal of Commerce. - Suppor the creation ofa private arbitration center

2. Oversight capacity: - Parliament National

Commission ofFinance and Budget - Cour des Comptes - Inpection Generale des Finances - Inspection Genirale d'Etat -Media 5) Project coordination, management, monitoring and evaluation.

JS$1.63

JS3.00

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Annex 2: Detailed Project Description BURUNDI: Economic Management Support Project

By Component:

Project Component I - US$2.42 million Strengthening Macro-Economic Analysis and Improving Data Collection for Informed Policy Formulation

After years o f conflict, Burundi has recently embarked on a post-conflict assistance program supported by the International Monetary Fund (IMF) while implementing at the same t ime an economic rehabilitation project as part of the World Bank Transitional Support Strategy to help finance i t s rehabilitation program. In implementing both operations, the Government i s committed to deepening institutional and structural reforms for sustained economic recovery and poverty reduction and to establishing a track record for early access to debt relief under the Enhanced Highly Indebted Poor Countries (HIPC) initiative. This w i l l require, among other things, a stronger capacity for macroeconomic analysis, and better and more comprehensive data to guide economic policy decisions and realistic budgets during a difficult time o f economic adjustment. Accordingly, the macroeconomic component o f the EMSP would build on the init ial results achieved under the Technical Assistance o n Macroeconomic Management IDF grant to improve the Government’s capacity to formulate a coherent macroeconomic and fiscal strategy through macroeconomic analysis and modeling, forecasting and economic statistics.

This component would help the Ministry o f Planning and the “Institut National des Statistiques et &Etudes Economiques” (ISTEEBU) to develop instruments and collect more complete and comprehensive social and economic data for national accounts and other economic reports to be produced by the Government. These would include the reports on the implementation o f the PRSP process, policy notes that would review recent economic developments and contain realistic forecasts o f key economic indicators and other reports needed in i ts dialogue with donors in a collaborative effort involving the “Banque de l a RCpublique du Burundi’’ (BRB). This component would also strengthen data management in the economic core agencies which would improve the quality o f economic statistics for decision making. This would include:

0 Extensive staff training in the use o f macroeconomic forecasting models, macroeconomic policy analysis and short-term macroeconomic assessment. This would consist o f courses and seminars for key government personnel in economic ministries and core agencies including the Central Bank, the National Institute o f Statistics and Economic Studies (ISTEEBU) and the Macroeconomic Planning service o f the Ministry o f Development Planning and Reconstruction.

0 Further strengthen the capacity within the Ministry o f Development Planning and Reconstruction and related institutions to collect and process statistical information, leading to timely and reliable availability o f national accounts estimates and projections.

0 Assistance to strengthen the capacity o f the Ministry o f Finances for regularly updating medium-term projections o f government revenue and expenditure outlook. Training and consulting advice to set up and staff an interministerial think tank in the Ministry o f Finance.

0 Expand technical capacity in economic modeling in the Ministry o f Economic Planning and Reconstruction (The Macroeconomics Management Group) whose role would be to harmonize data

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collection and forecasting methods.

0 Training personnel to manage economic statistics, develop forecasting tools and alternative scenarios.

0 Developing regular updates on medium-term projections o f the government’s revenue outlook, including alternative scenarios based on assumptions for growth and other key parameters and harmonize external debt data provided by the Ministries o f Finance and Planning and the Central Bank.

The increase o f the efficiency o f the collection and use o f statistical data w i l l require ISTEEBU to establish a computerized database to complement and complete the ad hoc databases that are being constituted such as the Gender and the Human Indicators database and network that w i l l enable other agencies (including the Education and Health Ministries, etc..) to access and use the data in real time. The methodology o f national accounts being currently elaborated under the IDF grant for technical assistance in Macroeconomic Management would be upgraded. The staff o f ISTEEBU w i l l be trained in the analysis and maintenance o f the data sets. For the system o f national accounts to become firmly established and to accomplish these objectives, it w i l l be necessary to provide a low but steady level o f external assistance during one complete cycle o f national accounts preparation, including the administration and processing o f the related surveys and to the use and dissemination o f the information generated.

Overall, the component would achieve the following objectives:

0

0

Expand the range o f economic information available through the system o f national accounts. Develop a simple modeling capacity to allow simulation o f the impacts o f alternative economic

Improve accuracy and timeliness by revamping the data collection procedures. Strengthen the human resources involved in the preparation o f national accounts, macroeconomic

pol icy scenarios. 0

0

framework and projections to guarantee the long-term sustainability . Sub-component 1 : Strengthening the reliability o f statistics and the Government’s economic forecasting capacity and improving collection and analysis o f data for policy formulation. This wil l require improvements in the collection and analysis o f financial statistical data and information, technical assistance for computer programming and statistical analysis and equipment to improve macroeconomic planning and Statistics.

Sub-component 2: Strengthening national capacity for poverty assessment and monitoring. This sub-component w i l l allow for training o f selected staff o f key ministries in the monitoring o f key macroeconomic variables. I t w i l l make available on a regular and timely basis, economic information needed to assist the private sector in undertaking production and investment decisions.

Sub-component 3: Expand technical capacity in economic modeling to allow the Government maintain economic and financial stability and make better informed macroeconomic decisions and in general manage the economy better.

Sub-component 4 Dissemination o f economic and statistical information. This wil l include the support o f the publication o f quarterly newsletter to keep the authorities and their partners abreast o f the changes in the economic situation (fiscal , monetary and real sectors) and studies and seminars in debt management and fiscal sustainability for selected staff f rom various ministries.

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Project Component 2 - US$15.80 million Increasing Transparency and Governance in Public Financial and Administrative Management:

Since the early 1990s, many documents produced by donors (Bank and IMF among others) and the Government have underlined the sore state o f financial and administrative management, characterized by i t s inefficiency, formalism, opacity and arbitrariness. Five main constraints have been identified: (i) regular procedures have been are abandoned; (ii) legal texts and manuals have disappeared; (iii) control procedures and responsibilities are redundant, overlapping, and inefficient; (iv) information i s neither managed nor utilized; and (v) training and retraining i s inexistent.

In the budgeting system, the problems are: (i) procedural deterioration (systematic use o f exceptions and exemptions); (ii) proliferation o f extra budgetary accounts, special funds and special treasury accounts; (iii) abandonment o f budget annuality; (iv) abandonment o f specialization o f budget accounts; (v) late or inexistent regularization; (vi) incomplete, inaccurate and late accounting for commitments; and (vii) lack of regularization procedures.

In payroll management, the largest item o f expenditure, coherence between the payroll and civ i l service management i s lacking, resulting in: (i) proliferation o f non-salary allowances (indemnitks permanentes); (ii) swelling o f extraneous payments; (iii) inflated pay scales; (iv) exceptional promotions; (v) non-enforcement o f penalties; (vi) lack o f incentives; and (vii) lack o f training.

Finally, the weak budgetary procedures have had a serious negative impact o n treasury operations (cash f low management) and public accounting, leading to: (i) the maintenance o f double books, thereby making it difficult to differentiate payables f rom receivables; (ii) swelling o f temporary imputations and difficult account consolidation; (iii) diff icult account centralization, absence o f year-end and beginning balances; and, (iv) accumulation o f payments without commitments, and absence o f regularization o f ministries’ accounts at the Central Bank, and several other problems. This state o f affairs i s causing concerns in customs and internal revenue, with rampant corruption, inflated and uncontrolled exemptions, delays in tax collection and debt transfer to the public sector. Other donors, France and the European Union notably, support activities linked to this project. For example, France has agreed to finance the revenue aspect o f the project (Internal Revenue and Customs), and provide technical assistance to the Internal Revenue Service while the European Union w i l l finance part o f the necessary c iv i l service reform.

Restoring the efficacy o f the basic budgeting and accounting systems wil l be achieved through the following seven sub-components:

Subcomponent One - Unified Budget: Aims at improving particularly budget legibility, transparency, comprehensiveness, and execution procedures as well as improving data on debt, exemptions, and public enterprise financial operations. The subcomponent involves the acquisition o f a minimum amount o f equipment (computers) to prevent the total collapse o f the existing system and equipment, which i s both obsolete and in bad disrepair. The work on improving the budgeting process w i l l be closely coordinated with the DFID-financed advisory services on planning, project appraisal and public investment programming - to be located in the Ministry o f Planning.

Sub-component Two - Treasury and Accounting: Includes the ongoing audit o f the Treasury, an updating o f the Chart o f Accounts and improvements in the public accounting structure, particularly regarding the l i n k s w i th the BRB, cash management, and the l i n k s between general accounts and budget. Work on this subcomponent w i l l be closely linked with the debt management advisory services to be

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financed by DFID, and the PCU w i l l include some debt management expertise in order to strengthen the sustainability o f the DFID intervention.

Sub-component Three - Revenue Network (Internal Revenue and Customs): Concerns the reorganization and computerization andlor upgrade o f fiscal services and the installation o f an effective integrated fiscal identification system. I t also involves work to prepare for the impact o f COMESA on Burundi’s fiscal and customs systems and a review o f the exemptions system.

Sub-component Four - Financial Computerized Network: Entails the installation o f a computerized management system for the expenditure cycle, expenditure control being at the core o f the system. All other elements (accounting, payroll, c iv i l service management, customs, intemal revenue, debt management, external financing coordination and investment planning, Central Bank) wil l be linked to this system, using the same technical foundation.

Sub-component Five - Civil Service Management and Payroll Payroll reform w i l l require a special operation, i.e. a c iv i l service census, and civ i l service reform wil l be a fairly long-gestating task (pay scales, switch f rom career management to budget management, voluntary leave). The project w i l l facilitate the establishment o f a computerized system to consolidate and regularly update c iv i l service files, and strengthen controls over personnel recruitment.

Sub-component Six - Human Resources Development and Training: One o f the most challenging aspect o f the project wil l be to cover the urgent needs for ski l ls in accounting and financial control . In addition to targeted training in these areas, the project will, through the PCU, assure coordination w i th the DFID-financed intensive workshops on basic public expenditure programming and budget preparation and execution.

Finally, the need to provide suitable premises for al l o f the government entities carrying out the activities under this component especially became evident late during appraisal. Thus, a building would be constructed in accordance w i th environmental guidelines.

Project Component 3 - US$ 3.15 million Reforming Public Procurement System and Modernizing Private Sector Legal and Regulatory Framework.

Sub-component 1. Strengthening the Public Procurement Administration

The current Direction GCnCrale des MarchCs Publics (DGMP) i s under performing and i s under heavy criticism from both public and private sectors. The broad complaints include: (i)cormption; (ii) lack o f technical competence; (iii) deliberate misinterpretation o f existing procurement regulations, especially for the handling o f complaints; (iv) use o f technical specifications limiting bids to one possible supplier; (v) unprofessional attitude vis-a-vis procurement as only price seems to be the determining factor; (vi) communication o f prices to other competitors out o f proposals, received earlier than the bid opening date scheduled; (vii) procedures unnecessarily long; (viii) deliberate late communication o f bid evaluation results in order to avoid timely complaints; (ix) systematic postponement o f bid evaluation committees due to conflicting agendas o f the members; (x) arrangements during the supervision o f works between the supervisor and the contractor; and (xi) systematic delays in commissioning o f works leading to lengthy payment delays.

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To a large extent, the complaints find their origin in the fact that the central procurement system generates conflict of interest situations. DGMP has a role in the description of the goods to be procured and in the operation and control of the procurement cycle; it also handles procurement related complaints.

The dialogue with stakeholders about the procurement reform has been underway since the beginning of 200 1. Finally a procurement reform action plan was adopted during a workshop organized in October 2003. The Government has obtained and IDF grant to support the implementation o f the procurement reform action plan.

This sub-component i s designed to complement and scale up activities to be realized with the support of the grant; i t wil l finance among other, the following activities:

Establishment of a decentralized procurement system and setting of a new institutional framework. The empowerment o f the owners o f the budget to manage their resources i s one o f the major recommendation o f the procurement reform action plan proposed by the Steering Committee. The institutional framework proposed by the action plan i s comprise o f institutions aimed to review and control the application o f the procurement law, an independent control system, and recourse mechanisms that are not controlled by the contracting agencies. The project w i l l provide support to the setting -up and strengthening o f all the institutions that wil l result from the new institutional framework.

e Introduction and dissemination of the new legal framework. The procurement reform action plan recommends the revision and modernization o f the procurement code. The drafting o f the new procurement code wil l be financed by the IDF grant. The project wil l finance activities toward the dissemination o f the new procurement code and action aimed to develop familiarization o f the users with the new legal framework.

Drafting and dissemination of guidelines, manuals, standard bidding documents and model of contracts. The necessity to provide tools that would facilitate implementation and enforcement o f the new procurement code i s considered crucial by the Steering Committee. Appropriate procurement practices would be eased by user friendly guidelines, manuals and standing bidding documents to be developed and disseminated.

0 Introducing of information technology in the public procurement and provisions of access to procurement data to a l l interested partners. Procurement management, supervision o f contracts, provision o f timely and accurate information for al l the partners would become easily available and more efficient through the introduction o f modern equipment and technology in the contracting agencies and in the administration in general, provided these new instruments are well used. I t wil l include among other things the creation o f procurement web site that would provide information about business opportunities, rules, guidelines, data and statistics pertaining to procurement.

e Establishing quality management and strengthening the bureau of standards in respect of public procurement. I t i s essential to ensure that the technical specifications o f the works and goods to be procured are in compliance with recognized international quality standards and that

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the works and goods procured are meet ing the requirements requested. In this respect, emphasis wi l l b e p u t o n the pub l ic health goods such as drugs and reagents, foods products and product causing environmental hazards. The project wi l l support the development and dissemination o f tools and practices a imed t o widespreading the suitable standards and qual i ty management in pub l ic procurement.

e Providing continuous training in public procurement to a l l concerned persons, authorities or companies. There i s a huge need o f procurement t ra in ing since each contracting entities wil l advertise, evaluate and award contracts. T o date mos t o f the inst i tut ions d o n o t have enough qua l i f ied staff. The inst i tut ions that wil l have to ensure that the n e w rules are observed and proper ly enforced need also b e trained so that they can fulfill their responsibi l i ty. A comprehensive assessment of t ra in ing needs and a n action plan to strengthen the capacity o f a l l the parties i nvo l ved in the procurement process wil l be carr ied out through the IDF grant. The project wil l f inance the implementat ion o f the t ra in ing action plan in part icular the development o f in-country t ra in ing facilities.

Sub-component 2. Support to the Modernization o f Private Sector Legal and Regulatory Framework

The disengagement o f the State from the productive sectors o f the country and the mobilization o f new financial resources through Foreign Direct Investment (FDI) are amongst the highest Governmental priorities as defined in the TSS. The privatization process was interrupted by internal difficulties in 1993 but relaunched in September 2002. The Government o f Transition has recently reaffirmed i t s commitment to privatization by creating a Ministry o f Good Governance and Privatization. A recent Cabinet meeting has established a l i s t o f public enterprises to be privatized by 2005. These include: COTEBU (Burundi Textiles Complex), ONATEL (National Telecommunication Office), OTB (Burundi Tea Office) , ONAPHA (National Pharmaceutical Office), INABU (Burundi National Printing Office), REGIDESO (Water and Electricity Distribution Authority), SOSUMO (Mosso Sugar Factory), SOGESTAL: MUMIRWA (Muminva Washing Stations Management Company), BRARUDI (Burundi Breweries and Soft Drink Manufacturers), B C B (Bujumbura Credit Bank), O C I B U (Burundi Coffee Board). For al l these entreprises, the Government has established a timetable for full or partial privatization. The objective o f the Transitional Government i s to gradually reduce government participation, and establish a legal and institutional framework to promote private sector development and enhance competitiveness. The Government targets loss-making companies which could nevertheless respond to market opportunities and monopolies.

The proposed EMSP w i l l help strengthen existing institutional framework to boost the privatization program. In the case of semi-public companies, the government envisages gradually reducing i t s equity participation and fragmenting the shares and plans to revive some state enterprises, while keeping them under i t s supervision. In the case o f REGIDESO, the project wil l help establish its financial situation before putting it under private management by financing f ixed assets re-evaluation and biding process. The project w i l l also support and strengthen the capacity o f the "Service Charge des Entreprises Publiques" (SCEP) as a technical public privatization body facilitating the privatization process. In addition, the proposed project would provide limited funds to ensure continued dialogue with Government on the privatization process of the public enterprises and update recovery and liquidation regulations and prevent the selective and sporadic processing o f rescue packages and delays in decision-making on dissolution and liquidation.

Project Component 4 - US$1.63 million

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Defining Legal and Judicial Reform Strategy and Stregthening Oversight Structures Capacity.

Sub-component 1. Defining Legal and Judicial Reform Strategy. This sub-component proposes to assist the Government in conducting a comprehensive assessment

o f the legal and judicial sector and in elaborating a plan for reform o f the sector in light o f this assessment. The Project w i l l not be involved in the implementation o f the reform itself. Law and justice sector activities must be approached strategically, bringing together al l the elements that promote the ru le o f law through holistic and comprehensive sector reform programs. Such an approach entails the fol lowing steps: 0

0

0

Legal and Judicial Sector Assessment; Development o f a comprehensive plan for legal and judicial reform; Identification o f priorities and sequencing based on available capacity and in coordination w i th

Dialogue w i th the stakeholders throughout process. other active donors; and,

A critical first step in this approach i s to assess and diagnose the Legal and Judicial system by carrying out a thorough Legal and Judicial Sector Assessment (LJSA). This assessment w i l l provide not only baseline knowledge o f Burundi’s laws, legal systems and institutions, but also for a constructive dialogue with stakeholders in Burundi for their input and support. A preliminary overview o f the legal and judicial sector in Burundi reveals the following serious weaknesses that need to be thoroughly documented by the LJSA financed by this project: (i) outdated legal and regulatory framework; (ii) weak management and coordination o f legal sector institutions; (iii) l o w competence and morale o f public sector legal personnel; (iv) inadequate number o f professionally trained legal personnel in the country; (v) constrained independence and low integrity o f the judicial system; (vi) ignorance and poverty o f the majority o f citizens; (vii) excessively limited and poorly maintained work environment for al l public institutions in the legal sector, (iii) and skewed ethnic representation.

The results o f the LJSA w i l l be used by the Government in developing a comprehensive plan for legal and judicial reform (LJR) which takes into account Burundi’s legal, economic, social and political environment as wel l as i ts resource and capacity constraints. I t i s this plan that wil l serve as the basis for the identification and preparation o f legal and judicial reform activities to be carried out by the Government at a future time. This Project Sub-component has as i ts context the Government’s own commitment to reform o f the legal sector, which dates back to M a y 31, 2002, when the Ministry o f Justice adopted a Sector Policy (2002-04). The Sector Policy i s by its very nature broad in scope. Since i ts adoption, the Ministry o f Justice has prepared an Action Plan to be financed by the Government through Donors’ contributions, as stipulated in the Arusha Accord for Peace and Reconciliation (2000), upon which the Sector Policy draws. The Action Plan focuses on legal reform through the provision o f training, equipment and infrastructure. The Government’s intended legal reforms under the Action Plan would come at an opportune moment as the Transition Government has recently embarked on i t s pacification and govemance work program, in M a y 2003. Some o f the diagnostic activities to be financed by the Project in respect o f judicial reform are as follows:

Objective: Judicial independence, integrity and professionalism: (i) review o f legal and institutional framework with a view to identifying the shortcomings o f the existing system and making suitable proposals for reform; and, (ii) review o f obstacles to the existence o f a professional cadre o f magistrates and legal professionals, arising f rom the existing pay and incentive system, as we l l as o f working conditions.

0 Objective: Judicial eflciency: (i) review o f resource mobilization, allocation and management systems

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in the judicial sector with a view to identifying impediments to a more efficient Judiciary and making proposals for the establishment o f a wel l funded and efficiently managed judicial sector; (ii) carrying out o f a needs assessment w i th respect to infrastructure, equipment and training for the judicial sector; (iii) review o f mechanisms for judicial control o f public finances with a special emphasis on strengthening the Cour des Comptes; (iv) review o f operation o f the court system (including role o f legal professionals such as lawyers, clerks-of-the court, etc.) and the Ministry o f Justice with a view to establishing a systematic inventory o f the major operational bottlenecks and making proposals for improvement, including: (a) strengthening o f the Ministry o f Justice and the courts through appropriate organizational reform and capacity building; (b) reforming the resource mobilization, allocation and management systems o f the judicial sector to maximize resources; and (c) development and implementation o f an efficient case management system for the maintenance o f an adequate inventory and effective tracking o f court cases.

Objective: Judicial transparency and accountability: (i) Review o f existing and proposed oversight mechanisms, involving active participation o f civi l society; (ii) designing o f mechanisms to ensure adequate participation o f stakeholders, including the judicial sector, Government, the business community and civ i l society, in the preparation and implementation o f the Project.

Objective: Judicial access, delivery and affordability: (i) review o f access by the poor to judicial services through an action-research aimed at identifying the needs o f poor communities, especially in rural areas, wi th respect to legal and judicial services and making proposals o n how to ensure that the legal needs o f such communities are met; and, (ii) review o f the quality o f judicial services in specific areas, including the availability and dissemination o f legal and judicial information and judicial services available to the business community.

Objective: Monitoring and evaluation of W R Plan: (i) ensure monitoring and evaluation o f the LJR plan; (ii) organize consultation dialogue with stakeholders o n the LJR plan through a workshop organized by the Ministry o f Justice. Participants w i l l include government officials, members o f the Judicial Reform Commission, judges, legal professionals, the private sector and civ i l society. In discussing the results o f the LJR plan, participants w i l l outline priorities for judicial reform. This work w i l l strengthen Government's readiness for implementation o f i t s legal and judicial sector reform plan and prepare the ground for it to take charge o f such long-term sustainable reform necessary for national reconciliation, economic development, growth and poverty reduction in Burundi. On institutional and implementation arrangements, the Ministry o f Justice and the Bar w i l l be represented on the Project Steering Committee. By associating the Bar, the process would build national consensus in the legal community which i s a very important aspect o f any legal and judicial reform program.

In addition to the Legal and Judicial Sector Assessment, the Project wil l strengthen the Tribunal de Commerce, by funding particularly the training o f judges in business law, and by providing equipment and work space. I t w i l l also facilitate the creation o f a private arbitration center (Centre PrivB dyrb i t rage) by providing initial starting expertise and investment, wi th a view to rendering the institution self-sustaining before the end o f the project. All these supported institutions w i l l contribute to improve the investment climate, hence support the emergence o f a robust private sector.

Sub-component 2: Strengthening of oversight mechanisms: Parliament National Commission of Finance and Budget, Cour des Comptes, Inspection GCnCrale des Finances, Inspection GCnCrale d'Etat.

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Increasing transparency and improving governance o f the public financial and administrative management system requires able and functioning oversight structures with a clear mandate. The Project would provide resources to clarify the mandate o f such institutions and to strengthen their capacity to perform their duties. Knowledge and capacity building activities such as training, reorganization and introduction o f computerized information management concepts and systems under this sub-component would focus particularly on the following oversight mechanisms: Parliament National Commission o f Finance and Budget, Cour des Comptes, Inspection GCnCrale des Finances, and Inspection GCnCrale d’Etat.

Project Component 5 - US$3.00 million

Project Coordination and Management:

Overall project coordination, management and administration i s enthrusted to three structures: the Steering Committee, the Technical Committee, and the Project Coordination Unit.

Program Streering Committee (PSC): The overall coordination and oversight o f the project will be carried out under the umbrella o f the Steering Committee, created by an ArrdtC o f the Minister o f Finance. The PSC, chaired by the Minister o f Finance and co-chaired by the Minister o f Planning, has the authority to: (i) approve project annual work programs and budgets; (ii) review progress towards achievement o f project objectives; (iii) issue general guidelines for project implementation and (iv) decide on major corrective actions. The PSC w i l l meet at least once a quarter or as often as necessary upon the invitation o f i t s Chairman. Members o f the PSC include the: (i) Minister o f Planning; Vice-Chair; (ii) Minister o f Good Govemance; (iii) Minister o f Justice; (iv) Minister o f C iv i l Service; and, (v) Secretary o f the Secrktariat National de Suivi des Rkformes Economiques et Sociales.

Project Technical Committee: This committee w i l l serve as the link between the PSC and PCU (see below). It wil l be staffed by representatives o f project executing entities. I ts members w i l l coordinate technical activities in their respective line ministries, in which they w i l l play a key focal point role.

Project Coordination Unit: Support to implementing agencies wil l be provided by the Project Coordination Unit (PCU). I t i s a light structure whose primary responsibility i s to provide technical and financial expertise to implementing agencies, especially in the areas o f procurement, disbursement, financial accounting, project monitoring and evaluation. In addition it w i l l assure overall financial management, accounting, procurement and reporting. The technical responsibility for the implementation o f project sub-components would remain w i th the implementing agencies. The Ministry o f Planning w i l l oversee the implementation o f the first component on macroeconomic management capacity building. The Ministry o f Finance w i l l oversee the execution o f the second component on increasing transparency and govemance in public financial and administrative management, and the third component o n increasing transparency and govemance for efficient allocation o f goods and services, in collaboration wi th the Ministry o f Good Governance and Privatization. The Ministry o f Justice would execute component four o n legal and judicial capacity building. The project will be under the responsibility o f the Project Coordinator who reports to the Minister o f Finance. The coordinator wil l be assisted by an Administrative and Financial Management Officer and a Procurement Officer. A Macroeconomist and a specialist in Public Finance w i l l provide advisory services technical aspects o f the project to the PCU.

Financial Management and Accounting, Periodic Reporting and External Audits:

A Special Account w i l l be created for the project. The Project Operational Manual w i l l describe the details and workings o f the disbursement procedures modeled after existing systems used by other IDA

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operations in Burundi and in the Central African Region. The Finance Section o f the P C U w i l l be responsible for the preparation and maintenance o f a l l project financial records in compliance with generally accepted accounting principles. Audits o f the PCU accounts wil l be carried out annually by independent external auditors. The Project Operational Manual w i l l have a detailed section on financial management and accounting procedures.

The project wil l finance the costs to staff, equip and operate the PCU office, contract short-term consultant services to provide technical support in specific areas and establish a computerized integrated project management system.

Detailed descriptions o f the structures, their mandates and operating procedures and the relationships between various agencies and units w i l l be provided in the Financial Procedures Section o f the Project Operational Manual prepared by the financial specialist o f the PCU under the supervision o f IDA'S Financial management Specialist.

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Annex 3: Estimated Project Costs BURUNDI: Economic Management Support Project

1.67

0.46

0.22

0.76

Project Cost By Component Component 1 : Strenghtening macroeconomic data collection and analysis for informed pol icy formulation. Component 2: Increasing transparency and govemance in public financial and administrative management. Component 3: Reforming public procurement system and modemizing private sector legal and regulatory framework. Component 4: Defining legal and judicial reform strategy and strengthening oversight structures capacity. Component 5: Project coordination, management, monitoring & evaluation. Total Baseline Cost

Physical Contingencies Price Continaencies

15.06

2.89

1.50

2.41

Total Project Costs' Total Financing Required

3.43 0.00 0.00

Local Foreign

24.10 0.00 0.00

3.43 24.10

3.43 1 24.10

Project Cost By Category Local Foreign Total

US $million US $million US $million

Total US $million

2.56

16.73

3.35

1.72

3.17

27.53 0.00 0.00

27.53

27.53

1. Goods 2. Works 3. Services and Consultant services

0.50 0.94 0.95

7.05 4.62

10.60

7.55 5.56

11.55

Total Proiect Costs' I 3.43 I 24.10 I 27.53 I Total Financing Required I 3.43 1 24.10 1 27.53 I

I Identifiable taxes and duties are 0 (US$ni) and the total project cost, net o f taxes, i s 27.53 (US$ni). Therefore, the project cost sharing ratio i s 94 44% o f

total project cost net o f taxes.

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Annex 4: Qualitative Assessment of Financial and Economic Returns

BURUNDI: Economic Management Support Project

The proposed project seeks to improve the overall efficiency and effectiveness o f public resources management by strengthening accountability and transparency through improved procedures and controls. This in turn wil l raise the effectiveness o f public expenditures for growth and poverty reduction and help reduce transaction costs for private economic activity.

Given the nature o f the operation, there is l i t t le potential for cost recovery. H igh financial and economic returns and benefits, however, are s t i l l expected from better public resources management, in terms o f improved resource efficiency and indirectly, poverty alleviation. Furthermore, the moderate local contribution and incremental cost after project l i fe will not impose an undue burden on government budget and wil l be much more than offset by the positive impact on public resources management.

Specifically, under Component 1 o f the project, by improving the tools for macroeconomic analysis and economic statistics and by sharpening the analysis o f the impact o f public finance instruments on macroeconomic aggregates, the Government w i l l be in a better position to target public expenditures for a more potent and broader poverty alleviation.

In addition, under Component 2, reforms to be undertaken in public finance to increase transparency and accountability w i l l generate better link between resource allocation and social sector goals in accordance w i th poverty reduction strategy. Furthermore, the reforms w i l l result in an increase in revenue collection, hence a better fiscal stance, which will enhance the prospects o f the country resuming with more external developmental assistance.

Finally, under Components 3 and 4, w i th the reforms to be undertaken on the public procurement administration, the regulatory framework for private sector, and w i th the strengthening o f oversight structures and o f reliable dispute resolution mechanisms, the project w i l l contribute to create an enabling climate for private sector activities and investment. This w i l l in the long run contribute to shifting the supply response o f the overall economy and w i l l result in a more sustained GDP increase, after years o f underperformance.

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Annex 5: Financial Summary BURUNDI: Economic Management Support Project

Years Ending

I Year1 I year2 I Year3 I year4 1 Year5 I Year6 I Year 7 Total Financing Required

Project Costs Investment Costs 2.8 4.0 6.2 6.5 5.1 0.0 0.0

Recurrent Costs 0.5 0.6 0.6 0.6 0.6 0.0 0.0 Total Project Costs 3.3 4.6 6.8 7.1 5.7 0.0 0.0 Total Financing 3.3 4.6 6.8 7.1 5.7 0.0 0.0

Financing IBRDllDA 3.0 4.3 6.5 6.8 5.4 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 3.0 4.3 6.5 6.8 5.4 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement Arrangements BURUNDI: Economic Management Support Project

Procurement

General

Country Procurement Assessment Report (CPAR) and keys issues. The last Burundi procurement Assessment Report was carried out in 1986. Burundi public procurement i s now governed by rules and regulations published in M a y and August 1990, hence the findings and the conclusions o f the last CPAR are no more relevant. A CPAR i s planned during the fiscal year 2004, i ts main mission i s scheduled in March 2004, and the final report i s to be delivered by June 2004.

The methods and mechanisms o f the current procurement code are outdated. Moreover, ten years o f political turmoil and economic recession have considerably weakened the public procurement administration. Thus the transparency and the efficiency o f the procurement process are jeopardized by (i) delays in the procurement process resulting from the lack o f procurement planning and the lack o f qualified staff; (ii) insufficient time given to bidders to prepare their offers despite the existence o f suitable provisions in the current procurement code, resulting in endless claims and complaints; (iii) lack o f confidentiality in the bid evaluation providing opportunities to influence bid evaluation and contract award, leading to complaints b y bidders and corrupt practices; (iv) high propensity to use direct contracting for goods and works and single source selection for services; (v) delays in payment o f suppliers and contractors for contracts financed on national resource leading to lost o f interest and confidence o f the private sector to compete in biddings not finance, this factor has also led to inflated rates as this factor -delays in payment- i s eventually taken into account in the submissions; and (vi) inadequate supervision o f contracts execution as evidenced among others by frequent delays in resolving disputes and conflicts, and by important contract amendments which may conceal corrupt practices.

Procurement reform process. The Government i s wi l l ing to address these weaknesses. A Steering Committee aimed to organize the brainstorming on the procurement reform and to coordinate i ts implementation was established by the ordinance N o 5401649 dated June 16, 2003 o f the Ministry o f Finance. This committee has organized consultations o f stakeholders o n a proposal o f a procurement reform action plan which ended with the workshop on the procurement reform action plan organized by the government o n October 30, 2003. The recommendations o f the workshop w i l l be submitted to the Cabinet meeting for review and adoption in January 2004. The government has solicited and obtained an IDF grant to support the implementation o f the procurement reform.

Contribution of the proposed project to the procurement reform. The IDF grant aimed to support the procurement reform was signed o n December 4, 2003. This grant w i l l finance consultant services to : (i) reform the legal and institutional framework ; (ii) provide institutional support ; and (iii) strengthen the capacity building o f the institutions linked with this sector. The activities supported by the IDF grant need to be complemented, enhanced and scaled-up. In this regard, the proposed operation would support the development o f modem tools to manage the procurement process. The project would be focused on the l i nks between the execution o f the budget and the procurement process in particular the commitment and the payment o f public contracts. The strengthening o f the mechanism aiming to enforce the procurement regulations and the capacity o f a l l the institutions involved in the intemal and external control o f the procurement process are the other areas where the project wil l focus on.

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Use of Bank Guidelines

Procurement o f c iv i l works and goods required for the project and to be financed from the proceeds o f the credit shall be governed by the Guidelines for Procurement under IBRD Loans and IDA Credit, published in January 1995 and revised in January and August 1996, September 1997 and January 1999. National Competitive Bidding w i l l be carried out in accordance with the Project operations manual acceptable to IDA, I t has been agreed w i th the government during the project preparation that the procedures to be contained in the operations manual wil l ensure economy, efficiency, transparency, and fair participation. These procedures w i l l specifically ensure that : (i) bids are advertised in national newspapers with wide circulation; (ii) the bid documents clearly explain criteria for the bid evaluation and award; (iii) bidders are given adequate response time (minimum four weeks) to prepare and submit bids: (iv) bids are awarded to the lowest evaluated bidder and not arbitrarily; (v) eligible bidders, including foreign bidders, are not precluded from participation and ; and (vi) no domestic preference margins are applicable to domestic manufacturers and suppliers.

Aggregate values for N C B or other non-ICB procurement methods for goods and services, as stated in Table A, are limitative and cannot be exceeded without prior IDA’S no-objection, and the project unit i s responsible for maintaining a tracking system to monitor such procurement, alerting the Bank in the case o f non-compliance.

Consultant services contracts financed by IDA w i l l be procured in accordance w i th the Bank’s Guidelines for the Selection o f Consultants by Wor ld Bank Borrowers (January 1997, revised in September 1997, January 1999 and M a y 2002). The Wor ld Bank’s Standard Request For Proposal (SRFP) w i l l be used as needed (lump-sum, time based and/or simplified contract for short te rm assignment and individual consultants) as well as the sample evaluation report for the selection o f consultants.

Advertising

A General Procurement Notice (GPN) w i l l be prepared just after the negotiation and published by January 2004 in the United Nations Development Business. The G P N w i l l be updated o n a yearly basis as long as I C B for goods contract and consultant contracts exceeding US$ 150,000 equivalent w i l l be foreseen in the annual procurement plan. Specific Procurement Notices (SPN) w i l l be required for goods to be procured under I C B and expression o f interest (EOI) for consultant services estimated to cost the equivalent o f US$ 100,000 or more w i l l also be published in national newspapers o f wide circulation and internationally for large contracts.

Procurement Capacity

The setting-up o f the Project Coordination Unit (PCU) was at i t s early stage at the project’s appraisal, since only the project coordinator and the head o f administrative and financial management department were recruited. The P C U team wil l comprise a Procurement Specialist whose recruitment wil l be launched early January 2004 so that he might be o n board by the end o f February 2004. The formal capacity assessment o f the PCU in accordance with Procurement Services Policy Group (OPCPR) Guidelines dated Julyl5, 2002 w i l l be carried out before the credit effectiveness. The project i s considered high risk as any project without demonstrated experience in procurement at their launching.

Procurement Plan

The Project Coordinator has prepared the f irst draft o f the detailed procurement plan (DPP) for the first

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year. The DPP wil l be reviewed and finalized before the credit effectiveness. The procurement plan shall contain all relevant information including the procurement methods, timing o f each milestone in the procurement process and the estimated cost o f the contracts. The procurement plan wil l be updated at least once a year and forwarded to IDA for i ts review and approval. Al l bank financed procurement shall be undertaken in accordance with the approved plan.

Procurement Implementation Arrangements

The P C U w i l l be autonomous for procurement matters which i s in line wi th the recommendations o f the procurement reform action plan presented by the steering committee o n procurement reform and adopted by stakeholder during the workshop on the procurement reform organized in October 30, 2003. So, the PCU w i l l be responsible for carrying out the procurement for a l l the project components. Under the supervision o f the Project Coordinator, the procurement specialist w i l l be responsible for the following task : (i) preparation o f the general procurement notice and i ts annual update; (ii) preparation o f the specific procurement notices ; (iii) preparation and update o f the annual procurement plan; (iv) draft bidding documents and request o f proposals ; (v) review reports o f the evaluation committee; (vi) draft reports o f the contract commission ; (vi) draft contracts and ensure that contracts are managed properly.

During negotiations, it was agreed that a Project Operational Manual (POM) satisfactory to IDA w i l l be one o f the prerequisites o f the credit effectiveness. The P O M w i l l describe with sufficient details, the roles and responsibilities o f the parties involved in the procurement process, the procurement methods to be used and w i l l provide the standard bidding documents and forms to be used for NCB, shopping, request o f quotations, and request o f proposals. The P O M w i l l also indicate the requirements for an adequate procurement f i l ing system.

The procurement process should be in l ine wi th the procurement reform action plan above mentioned. I t recommends that the procurement activities should be in the hands o f the entities which have the budget. Therefore, it i s expected that a procurement evaluation committee would be constituted on an ad hoc basis which should include members o f institutions involved in the implementation o f the project. The proposals o f award made by the evaluation committee would be presented to the Contract Commission to be established within the PCU. The Procurement Specialist as Secretary o f the Contract Commission w i l l have to make sure that the reports and decisions presented are in compliance with the ru les and guidelines described in the credit agreement and spelled out in the POM.

Procurement Methods

Civi l Works. The total cost o f works i s estimated at US$ 7,5 mi l l ion equivalent. I t would include the construction o f a new and functional building for the Ministry o f Finance and rehabilitations o f various building for administrations covered by the project.

Contract o f works estimated to cost US$ 500,000 equivalent or more would be procured through International Competitive Bidding (ICB) procedures, using IDA Standard Bidding Documents. Contract for Works estimated to cost less than US$ 500,000 up to an aggregate amount o f US$ 500,000 equivalent w i l l be procured through National Competitive Bidding (NCB) procedures acceptable to IDA. Small works would be limited to rehabilitation and small extension o f existing offices. Small works estimated to cost less than US$ 50,000 equivalent per contract up to an aggregate amount o f US$ 200,000 may be procured on the basis o f quotations obtained from at least three qualified contractors in response to a written invitation. The written invitation would include a description o f the works, basic technical specifications, completion date and if necessary the plan o f the works. The contract shall be awarded to the contractor who offers the

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lowest quotation provided that the bid i s substantially responsive to the conditions specified in the written invitation.

Goods. The total cost o f Goods contract i s estimated at US$ 5,5 mil l ion equivalent. I t would include items such as computers, office equipment, vehicles. T o the extent practicable, goods and equipment would be combined in packages estimated to cost US$ 150,000 equivalent or more and would be procured through International Competitive Bidding(ICB) procedures, using IDA Standard Bidding Documents. National Competitive Bidding (NCB) as described in the Project Operations Manual may be used for contract for Goods estimated to cost less than US$ 150,000 equivalent up to an aggregate amount o f US$ 0.9 mil l ion. National Shopping or International Shopping may be used for procurement o f readily available off-the-shelf goods and sundry items that cannot be grouped or standard specification commodities estimated to cost less than US$ 50,000 equivalent up to an aggregate amount o f US$ 0.47 million. The procedures w i l l have to be in conformity with paragraph 3.5 and 3.6 o f the Guidelines and June 8, 2000 Memorandum “Guidance Procurement Note on Handling Procurement under Shopping Method” issued by the Bank.

Consulting Services and training

Contracts estimated to cost the equivalent o f U S $ 100,000 or more, would be procured through Quality-and Cost-Based Selection (QCBS). The contracts for services estimated to cost less than the equivalent o f US$ 100,000 per contract may be procured under contracts based o n Consultants’ Qualzjications in accordance w i th the provisions o f paragraphs 3.1 and 3.7 o f the Consultant Guidelines. Financial and technical audit estimated to cost less than the equivalent o f US$ 100,000 may be procured under Least Cost Selection (LCS) in accordance with the provisions o f 3.1 and 3.6 o f the Consultant Guidelines. Consultant for services that meet the requirements o f section V o f the consultant guidelines, may be selected under the provisions for the Selection of Individual Consultants, i.e. in essence through the comparison of the curriculum vitae o f at least 3 qualified individuals. N o civ i l servant can be hired as consultant.

Single source selection would be used exceptionally in accordance with paragraph 3.8 - 3.11 o f the Consultant Guidelines. To ensure that priority i s given to the identification o f suitable and qualified national consultants, short-lists for contracts estimated under US$ 100,000 equivalent may be comprised entirely o f national consultants (in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines), provided that a sufficient number o f qualified individuals or f i rms (at least three) are available at competitive costs.

Training, workshops, conference attendance and study tours would be carried out o n the basis o f approved annual work programs that would identify the general framework o f training or similar activities for the year, including the nature o f traininglstudy tourslworkshops, number o f participants, and cost estimates.

- 4 1 -

Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

I’ Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies.

2’ Includes c i v i l works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

Consultant Services Expenditure Category

A. Firms

Selection Method

QCBS QBS SFB LCS CQ Other N.B.F. Total cos< 5.39 I 0.00 I 0.00 1 0.92 I 1.84 1 1.23 1 0.00 9.38

B. Individuals (5.30) (0.00) (0.00) (0.90) (1.80) (1.20) (0.00) (9.20) 0.00 0.00 0.00 0.00 0.00 1.87 0.00 1.87

' Including contingencies

Total

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit.

(0.00) (0.00) (0.00) (0.00) (0.00) (1.80) (0.00) (1.80) 5.39 0.00 0.00 0.92 1.84 3.10 0.00 11.25

(5.30) (0.00) (0.00) (0.90) (1.80) (3.00) (0.00) (11.00)

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Prior review thresholds (Table B)

Expenditure Category I. Works

2. Goods

3. Services Consultants firms

Works. Contracts estimated to cost the equivalent o f US$ 200,000 or more would be subject to IDA prior review. In addition, the first three contracts o f works estimated to cost less than the equivalent o f US $ 50,000 would be subject to IDA prior review.

Contract Value Contracts Subject to Threshold Procurement Prior Review

(US$ thousands) Method (US$ millions) >500 ICB All > 50 NCB All contract >200 <50 Three quotations First three contracts only

>150 ICB All >50 NCB First 3 contracts <50 Shopping None (Post Review)

> loo QCBS All <loo QCBS, LCS, CQ Post review

Goods. Contracts estimated to cost the equivalent o f US$ 150,000 or more and the first three contracts below the below the equivalent o f US$ 150,000 would be subject to IDA prior review.

See Section V o f Guidelines

Consultant services. Contracts estimated to cost more than US$ 50,000 equivalent for individuals and more than US$ 100,000 equivalent for f i rms would be subject to IDA prior review procedures.

All (TOR, Contract, CV)

All other goods, civil works and services contracts would be subject to post review by IDA during implementation support missions and by auditors during the technical and financial audits.

Individuals >50

I I <50 I See Section V o f Guidelines I Post review I 14. Miscellaneous I I I I 15. Miscellaneous I I I I 6. Miscellaneous

Total value of contracts subject to prior review:

Frequency of procurement supervision missions proposed:

15,000,000

One every six months (includes special procurement supervision for post-review/audits)

Overall Procurement Risk Assessment: High

Once every six months, implementation support missions wi l l be carried out. During these missions a selective post review o f contracts awarded below the threshold wi l l be conducted. The project activities would be subject to annual technical audits carried out separately from financial audits.

’ Thresholds generally differ by country and project. Consult “Assessment o f Agency’s Capacity to Implement Procurement” and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements BURUNDI: Economic Management Support Project

Financial Management

1. Summary of the Financial Management Assessment

Control Environment

Wor ld Bank and Government documents have underlined the sore state o f economic, financial and administrative management in Burundi and highlighted many managerial inefficiencies, vacuous formalism, opacity and arbitrariness. While established systems decline, corruption becomes a growing and major concern. In the area o f financial and administrative management specifically, the main constraints identified include:

Tools for macro-economic management are outdated; A wel l defined chart o f accounts for the Government accounting system has not been developed; Regular financial management procedures are disregarded; Legal texts and manuals need to be updated; Financial internal and external control and procedures are disarticulated and inefficient; Training and retraining are non-existent, and competency levels are low; Public procurement code i s outdated and an action plan for the reform o f the public procurement

Legal institutions and oversight structures are extremely weak; Budget monitoring within ministries i s weak. The condition o f services within the Civ i l Service i s poor. There i s shortage o f qualified staff for

administration i s under preparation;

financial management purposes in the decentralized units.

Although the control environment in Burundi i s unsatisfactory, the Government has undertaken key reforms to mitigate control weaknesses including :

0 Human Resource Development 0 Public Expenditure Review 0

0 Revenue mobilization Improving governance, transparency and accountability

Furthermore, a commission has been set up to review the Government Accounting Chart o f Accounts. The Country Financial Accountability Assessment (CFAA) has been initiated by the Government o f Burundi and Wor ld Bank. An identification mission took place in November 2003. The main assessment i s planned for January 2004.

Project Management Structure

The overall project coordination i s entrusted to the Project Steering Committee (PSC) and the Project Coordination Unit(PCU). A Technical Committee (TC) w i l l be created and wil l be the link between the PSC and the PCU.

- 45 -

The Technical Committee w i l l be staffed w i th representatives o f participating ministries including the Project Coordinator who w i l l be the secretary.

A qualified professional has been appointed as focal point in each participating ministry. While working closely with the Project Coordination Unit, the focal point w i l l also act as an adviser for the implementing ministry. The focal point w i l l not be involved in the management o f funds.

The P C U i s a new structure and has l i t t le or no experience in the implementation o f World Bank financed projects. A qualified and experienced Project Coordinator has been recruited based on acceptable recruitment processes.

Thus, the daily supervision o f accounting activities w i l l be carried out by the Administrative and Financial Officer who wil l be assisted by a Chief accountant and an assistant accountant.

An internal audit function w i l l be required to ensure strong supervision and quality assurance at various stages o f the project. Where there i s difficulty in recruiting a wel l trained and qualified internal auditor, terms o f reference o f the project external auditors w i l l be reviewed to include extended supervision work through interim reviews.

Planning, Budgeting and Budgetary Cont ro l

The project w i l l ensure the existence o f suitable work plans. Planning w i l l be done within the guidelines issued in the Project Operational Manual to be adopted prior to project effectiveness.

A well defined budgeting and budgetary control system wil l be put in place. Annual budgets w i l l be prepared based on specific guidelines contained in the project operational manual and on annual work plans. The Project Appraisal Document and the Project Operational Manual w i l l include a disbursement schedule. They w i l l be used as the basis for the preparation o f annual budgets. The plan w i l l be updated as part o f project implementation.

The budget format w i l l be based on project components and will be integrated into the project accounting system. The budget w i l l be used as a management tool. Expenditures w i l l be authorized in accordance with agreed budgets.

Accounting System

Financial Management Manual

The accounting system o f the project w i l l be based on wel l documented Manual o f Financial and Accounting Procedures. Proper books o f accounts w i l l be kept on double entry principle using the cash based system.

Written j ob descriptions w i th defined duties, responsibilities, l ines o f supervision and approval l imits wil l be established. Definition o f responsibilities should ensure segregation o f duties for proper accountability.

Staff and Transaction Recording

The project wil l be under the responsibility o f the Project Coordinator who reports to the Minister

- 46 -

o f Finance. He will be assisted by a Macroeconomist, a specialist in Public Finances, a Procurement Specialist and an Administrative and Financial Officer (Directeur des Affaires Administratives et Financibres, DAF) who w i l l fulfill the function o f a chief financial officer (CFO). An accounting unit w i l l be created for project activities under the control o f the CFO.

Thus, the accounting system should allow for the proper recording o f project financial transactions, including the allocation o f expenditures in accordance with the respective components, disbursement categories and sources o f funds. Controls over the preparation and approval o f transactions should be put in place to ensure that al l transactions are correctly made, recorded and reported.

A wel l defined chart o f accounts w i l l be put in place. The chart o f accounts should be developed in a way that allows project costs to be directly related to specific work activities and outputs o f the project.

The accounting system w i l l be managed through an accounting software. This should facilitate the production o f the required project financial reports. Accounting staff w i l l be adequately trained to maintain the system and appropriate controls w i l l be instituted to safeguard the confidentiality, integrity and availability o f the data. The accounting system w i l l be able to generate financial monitoring reports.

Books of Accounts

Although a computerized accounting system w i l l be put in place, Project Management should ensure that proper books o f accounts are kept. This wil l be achieved through a wel l defined f i l ing system that allows authorized users easy access to accounting and supporting documents o n a permanent basis. Registers for Fixed Assets, Contracts, In-coming and out-going Cheques, should be properly maintained.

Reporting Arrangements

Integrated Management Information System

The project wil l put in place an Integrated Management Information System. The system should integrate the Budgeting, Operating and Accounting Systems to facilitate monitoring and reporting. System generated formats for periodic reports w i l l be developed and agreed with project management. An action plan w i l l be reached w i th the borrower before Board Presentation.

Financial Monitoring Reports(FMRs)

Consolidated quarterly FMRs w i l l be produced to include:

e Sources and Uses o f Funds b y Credit Categories and Project Components e Output Monitoring Report e Procurement Monitoring Reports

Financial Statements

In compliance with International Accounting Standards (IAS) and Wor ld Bank requirements, the project w i l l produce annual financial statements. Financial Statements wil l include:

e A Statement o f Cash Receipts and Payments which recognizes al l cash receipts, cash payments and

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cash balances controlled by the project.

0 A Balance Sheet that shows Assets and Liabilities.

0 A Statement o f Sources and Uses o f Funds.

0 Notes in respect o f significant accounting policies and accounting standards adopted by management and underlying the preparation o f financial statements.

0 A Management Assertion that Bank fhds have been expended in accordance w i th the intended purposes as specified in the World Bank legal agreement.

The report w i l l be prepared in accordance with the Guidelines for Borrowers o n Financial Monitoring Reports.

Monitoring Reports

Monthly Activi ty Reports w i l l be prepared by Project management. In addition to this, Internal Audit and External Audit interim reports w i l l be produced.

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In summary, financial Management risks w i l l be reduced through the proper implementation o f the action plan below:

Issue Project Coordination Unit

Financial Management Action Plan

Remedial Action Recommended Due Date Completed A Project Coordination Unit should be established by the Borrower on

terms and conditions acceptable to the Bank including the recruitment o f kev staff.

Project Implementation Plan Government Accounting chart o f accounts

Financial Procedures Manual Reporting Arrangements Accounting system Internal Audit Arrangements

Audit o f project financial statements

A Project Implementation Plan should be prepared, discussed and agreed Before Effectiveness w i th the World Bank.

The Chart o f Accounts for Government Accounting System should be updated, reviewed and agreed with the World Bank.

Within six months o f Credit Effectiveness. Credit Effectiveness The F P M w i l l be prepared to document the financial management

procedures to be used for the project

Formats o f Financial Monitoring Reports (FMR) should be determined Completed and agreed with IDA An Integrated Accounting System for the project should be put in place. Credit Effectiveness

Terms o f reference for the internal audit function within the project w i l l Within six months oi be prepared, and an intemal auditor responsible for carrying out project Credit Effectiveness related functions w i l l be appointed. Terms o f Reference for the audit o f the financial statements o f the Credit Effectiveness project w i l l be updated and agreed with IDA. These w i l l spell out the scope and coverage for the recruitment o f External Auditors.

2. Audit Arrangements

Internal Auditing

As an important part o f the ongoing monitoring o f the system o f intemal controls, the internal audit function w i l l provide an independent assessment o f the adequacy of, and compliance with, the established controls and procedures. The Internal Audit Department wil l report directly to senior management in order to ensure the independence o f the function. I t w i l l be staffed with competent, well-trained individuals who have a clear understanding o f their role and responsibilities. The frequency and extent o f internal audit review and testing o f the internal controls wil l be consistent w i th the nature, complexity, and risk associated with the project’s activities. Internal audit reports wil l address internal control deficiencies, or ineffective policies or procedures. Project management wil l be expected to correct the deficiencies in a timely manner.

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External Auditing

Qualified independent auditors wil l be appointed by Project Management. The selected auditors wil l be acceptable by IDA in terms o f independence, qualifications and experience. The audit w i l l be based on terms o f reference agreed with IDA. The extemal audit work w i l l include al l Wor ld Bank funds, other funds and Government funds (if available) o f the project.

The financial statements o f the project w i l l be audited every six months. The date o f the first audit w i l l be determined in consultation wi th IDA.

In addition to the audit report, the auditor w i l l be required to prepare a Management Letter where internal control weaknesses and recommendations for improvements, are highlighted.

A single audit opinion w i l l be issued on project income and expenditures, special accounts and statement o f expenditure. The audit reports along with Management Letters w i l l be sent to IDA and al l other financing partners not later than four months after the end o f each preceding period.

Supervision

Financial Management Supervision w i l l be done by the project Wor ld Bank Financial Management Specialist over the project l i fe to ensure the implementation o f strong financial management systems. Statement Of Expenditure (SOE) reviews w i l l be undertaken where necessary, in compliance with World Bank requirements. The Project Status Report (PSR) w i l l include a financial management rating.

3. Disbursement Arrangements

Banking Arrangements

Wor ld Bank Financed-Projects activities in Burundi are generally controlled through Special Accounts (SA) and Project Account (PA). Counterpart funds are usually received through the Project Account. These accounts are managed by the Project Management.

The following bank accounts w i l l be maintained by the P C U for project funds:

0 Special Account: Denominated in U S dollars, this w i l l serve as the main project account into which

Project Account: This w i l l be denominated in local currency and counterpart funds from the

w i l l be deposited project implementation funds from IDA. I t will be maintained in the central bank, the Banque de la Rdpublique du Burundi.

Government o f Burundi may be deposited on this account in accordance with project objectives. The account w i l l be maintained in a commercial bank acceptable to IDA.

0

The Special Account and the Project Account w i l l be managed on an imprest basis, wi th the Special Account receiving an initial advance and then replenishment o n presentation o f adequate justifications o f eligible expenditures.

Disbursement of IDA Funds to Project Management

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IDA funds wil l be disbursed to the Project Management for activities based on Financial Monitoring Reports (FMRs) that include financial reporting, procurement and contract management wi th physical implementation progress.

Project Account

An initial deposit advance w i l l be made into the Special Account. The advance w i l l be meant to cover project expenditures for six months as indicated in the init ial six-month cash f low forecast.

Special Account

Flow of Funds

Amount in US$million 5.17

The diagram below illustrates the Funds Flow arrangements:

Financing Percentage 100% o f foreign expenditures and 95%

FUNDS FLOW ARRANGEMENTS

o f Burundi ID

Allocation of credit proceeds (Table C)

Table C: Allocation of Credit Proceeds

Expenditure Category 1. Goods

(including audits) and training

4. Refinancing o f Project Preparation Advance

5 . Incremental operating costs

Total Project Costs with Bank Financing

Total

I o f local exDenditures I 7.08 I 100% I 10.82 100% o f foreign expenditures and

95% o f local expenditures for consultant services (including audits), and 100% for

training 0.45 Amount due pursuant to Section 2.02 (b)

o f the project Development Credit Arrreement

2.48 ~ 100% o f foreign expenditures and 95% o f local exnenditures

26.00

26.00

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Annex 7: Project Processing Schedule BURUNDI: Economic Management Support Project

Time taken to prepare the project (months)

First Bank mission (identification)

I Proiect Schedule I Planned I Actual I 12 12.5 1111 112002 1111 112002

IAppraisal mission departure I 0811 812003 I 0811 812003 I I Negotiations I 1210812003 I 1211 812003 I IPlanned Date of Effectiveness I 0313 012004 I I Prepared by : Ministry o f Finance and Ministry o f Development Planning and Reconstruction

Preparation assistance:

Bank staff who worked on the project included: Name

Mathurin Gbetibouo Wil len Zijp Eric R. Nelson Pamphile Kantabaze Jean Ndenzako Siaka Bakayoko Emmanuel Tchoukou Rudy R. Chizungu Abdousalam Drabo Elizabeth 0. Adu Isabella Mica l i Drossos Chukwuma Obidegwu Sameena Dost Erinna D i a Prosper Nindorera Joseph Kiz i to Achille S. Toto Liton Nimbona Rosalie Minani Kigeme Paula J.White Nad&ge Nouviale Aurore Simbananiye Felicia Anwonton Jean Van Eename Romaine Ndorimana Gerard Boulch Pascal Dooh-Bil l Evariste Niyonkuru

Speciality Country Manager, TTL Operations Adviser Senior Economist Senior Operations Officer Economist Senior Financial Management Specialist Financial Management Specialist Consultant, Institutional Development Capacity Building Consultant, Social Sector Chief Counsel Senior Counsel Lead Economist Counsel Consultant, Project Costing Procurement Specialist Financial Management Specialist Research Analyst, Public Finance Consultant, Macroeconomics and Statistics Acting Senior Program Assistant Language Program Assistant Language Program Assistant Program Assistant Editor Consultant, Public Procurement Consultant, Gender Consultant, Public Finance Consultant, Legal Consultant,Legal

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IDeo-Marcel Niyungeko I Municipal Engineer I

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Annex 8: Documents in the Project File* BURUNDI: Economic Management Support Project

A. Project Implementation Plan

A project implementation plan for the f i rst year o f activities has been reviewed and submitted to IDA.

B. Bank Staff Assessments

Public Expenditures review, 2001 -2003,

C. Other

Training in Macroeconomic Modelling techniques

Politique Sectorielle du Ministbre de la Justice (2202-2004)

Politique Sectorielle du Ministbre de l a Fonction Publique (2002-2204)

Cadre StratCgique IntCrimaire de Croissance Economique et de Lutte contre la PauvretC (Juillet 2002)

Evaluation de la Situation du Systime Statistique du Burundi en vue de 1'Claboration d'un programme d'appui au renforcement des capacitCs statitisques (Observatoire Economique et Statistiques Sub-Saharienne, AFRISTAT --Avri l2003)

Un Plan Global de Formation pour 1'Administration Publique; Rapport de Mission P N U D --Project BDI/97/007

Accord de Cessez-le-feu entre le Gouvemement de Transition du Burundi et l e Mouvement Conseil National pour la DCfense de l a DCmocratie-Force pour l a Dtfence de la DCmocratie (CNDD-FDD)

Projet de RCforme des MarchCs Publics au Burundi, Plan &Action de l a RCfonne (Minist ire des Finances, Novembre 2003)

*Including electronic files

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Annex 9: Statement of Loans and Credits BURUNDI: Economic Management Support Project

24-NOV-2003 Difference between expected

and actual disbursements' Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Frm Rev'd PO74602 2002 BURUNDI-ERC 0.00 54.00 0.00 14.92 -1.00 0.00

1.79 0.00 PO71371 2002 BURUNDCHlViAlDS and Orphans 0.00 36.00 0.00 36.48 PO65789 2001 Regional Trade Fac. Project-Burundi 0.00 7.50 0.00 3.90 0.17 0.00 PO64961 2001 Public Works and Employment Creation 0.00 40.00 0.00 29.20 -13.61 0.00 PO64510 2000 Supplemental (Grant)-Social Action Project 0.00 12.00 0.00 16.64 1.96 0.00

PO0216 1995 Supplemental HealthiPopuiatlon II 0.00 21.30 , 0.00 10.01 2.23 2.26

Total: 0.00 170.80 0.00 111.14 -8.66 2.26

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BURUNDI STATEMENT OF IFC's

Held and Disbursed Portfolio

In Millions US Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 200 1 AEF Florex 0.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 AEF V&F Export 0.57 0.00 0.00 0.00 0.57 0.00 0.00 0.00

Total Portfolio: 0.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

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Annex I O : Country at a Glance BURUNDI: Economic Management Support Project

POVERTY and SOCIAL Burundi

2002 Population, mid-year (millions) GNi per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population (%) Labor force (%)

Most recent estimate (latest year available, 1996-02) Poverty (% ofpopulation below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982

GDP (US$ billions) 1 .o

Exports of goods and services/GDP Gross domestic savings/GDP -2.2 Gross national savingsiGDP

Current account balance/GDP

Totai debWGDP 22.4

Present value of debt/GDP Present value of debtlexports

Gross domestic InvestmentlGDP 14.5 10.2

Interest payments/GDP 0.2

Total debt service/exports 7.5

1982-92 1992-02 (average annual growth)

GDP oer caoita 1.4 -3.6 GDP 4.3 -1.6

7.1 90

0.64

2.0 2.4

10 42

110 45 78 50 65 73 58

1992

1.1 15.0 8.7

-5.1

-5.5 1.3

94.4 36.4

2001

3.2

Sub- Saharan

Africa

688 450 306

2.4 2.5

33 46

105

58 37 86 92 80

2001

0.69 6.9 6.5

-4.8 22.0

-3.5 0.7

155.2 41.6 94.1

1172.3

2002

3.6

LOW. income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 07

2002

0.72 7.9 6.6

-4.5 6.6

0.6 167.5 36.3

2002-06

1.3 1.7

Development dlamond'

Life expectancy

GNI Gross per primary capita nroliment

1

Access to imDroved water source

I -Burundi Low-income group

Economic ratios.

Trade

T

Indebtedness

I Burundi Low-income WOUD

I

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1982 1992

56.9 52.5 15.4 20.8 8.9 15.0

27.7 26.7

91.6 95.0 10.7 10.1 26.9 28.8

1982-92 1992-02

3.3 -0.3 4.3 -1.5 5.4 -9.0 4.9 -0.9

3.3 -4.0 4.9 -1.7 3.3 1.1 0.1 5.5

2001

50.0 18.7

31.3

91.3 13.5 18.2

2001

3.8 16.1

3.5

-12.0 14.7 2.8

-5.7

2002

49.3 19.4

31.3

91.7 12.8 18.9

2002

3.9 25.3

3.5

12.5 0.9 6.9

22.5

Growth of exports and imports (%)

150 T I 100

50

0

.so

*The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond wili be incomplete.

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Burundi PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deflcit

TRADE

(US$ millions) Total exports (fob)

Coffee Tea Manufactures

Total imports (cifl Food Fuel and energy Capital goods

Export price index (1995=100) import price index (1995=100) Terms of trade (1995=1001

BALANCE of PAYMENTS

(US$ millions) Exports of goods and sewices Imports of goods and sewices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, /ocal/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows interest payments Net transfers

1982

5.9 5.7

15.2 0.4 4.4

1982

89 78 3 3

214 25 30 51

90 94 96

1982

103 273

-169

-8

31

90.0

1982

227 0

66

8 0 0

33 51

1 1 0

21 18 0

18 0

18

1992

1.8 5.7

19.7 4.9

-8.5

1992

77 49

9 11

214 11 26 78

54 95 57

1992

95 312

-218

-1 4

-60

73 -13

208.3

1992

1,022 0

473

40 0 5

151 88 -2 1 0

50 49

2 48

3 44

2001

14.0 13.4

21.4 3.8

-3.0

2001

48 52 14 1

157 12 21 66

59 92 64

2001

51 142 -90

-1 2 196

-24

31 -7

830.4

2001

1,070 0

582

23 0

14

126 0 2 0 0

48 12 10 2 4

-2

2002

3.8 12.9

19.4 2.2

-1.1

2002

57 54 15

1 183 12 22 66

60 93 65

2002

61 150 -69

-1 0 87

-10

930.7

2002

1,204 0

648

24 0

16

28 -2

90 36 11 25

4 21

Inflation (Oh)

40 T

0

30

20

10

97 98 99 00 01 I -GDPdefIator *CPI

Export and import levels (US$ mill.)

200 7 I 100

0 96 97 98 99 00 01

tEi Exports Imports

I 1 Current account balance to GDP ( O h )

Composition of 2002 debt (US$ mill.)

G 96

C: 13

A ~ IBRD B - IDA D ~ Other multilateral F - Private C - IMF

E - Bilateral

G - Short-tern

Note I nls taDle was produced rrom tne uevelopment tconomics central database.

- 59 -

Additional Annex I 1 Policy Matrix BURUNDI: Economic Management Support Project

Component 1 : Strengthening Macroeconomic Data Collection and Analysis for Informed Policy Formulatic

d data

mned Lon.

Outcome Indicators

0 Computerized database operational

0 Capacity strengthened

0 Economic model operational

0 Economic and Statistics reports available and disseminated.

Outcome Benchmarks by December 2004 I2005

Key governmental Personnel in Ministry o f Development Planning and Reconstruction and Finance and other core agencies, including Central Bank, trained

Capacity within Ministry o f Development Planning and Reconstruction strengthened

ISTEEBU’s key staff trained and database created by ISTEEBU in collaboration w i th the BRB

Quarterly progress reports

Quarterly and annual macro- economic projections

. Quarterly economic updates

Outcome Benchmarks by December 2006

Quarterly publicatio n o f economic data and Statistics

Monitorable outputs

0 Operational Data bas

0 Reports effectively a

0 All targeted staffs eff

- 60 -

+ Objective

2) Increased transparency and governance in public financial and administrative management

Component 2: Increasing Transparency and Governance in Public Financial ai

Outcome Indicators

* Audits and studies completed

* Procedures reformed and computerized

* Database created

* Computerized financial network system strengthened or put in place

,dministrat&e Management Outcome Benchmarks by December 2004 / 2005

* Financial management accounting structure improved, especially that o f BRB, cash management and l inks between budget and General accounts

* N e w budget nomenclature effectively operational

* Plan Comptable renovated

* Computerized payrol l system established o n basis o f C iv i l Service Census

Outcome Benchma by December 20(

* Computerized financial manageme system installed

* Training facilities created

* Customs’ computerized syster upgraded and fiscal identification systen effectively integrate

* Process o f Budget formulation and execution improved implementing PER validation mission findings

- 6 1 -

+ Objective

3) R e f o r m i n g Pub l ic Procurement System and Modern i z ing Pr ivate Sector L e g a l and Regu la to ry Framework .

Component 3. Increased Transparency and Governance for Efficient Allocation

Outcome Indicators

* Public Procurement Code updated

* Act ion plan Public Procurement administration reform adopted b y Cabinet

* Framework for monitoring implementation o f Public Procurement established

* Privatization process resumed and intensified

Services: Outcome Benchmarks by December 2004 / 2005

* Steering Committee established

* Strategy document issued

* N e w decentralized structure set up

* Information technology installed

* N e w Procurement Code approved by Cabinet

* SCEP’s capacity as technical privatization body strengthened to support the privatization process

Outcome Benchma bv December 200

* Detailed implementation evaluation reports prepared and workshops for busir community and Government conduc

* Client satisfaction survey completed

* Equipment and o f space acquired

* REGIDESO asses and audited

* B id ing process of REGIDESO comple

* Continuous suppo to speed up privatization proces, provided

Outcome

- 62 -

Component 4. Defining Legal and Judicial Sector Strategy and Strengthening Oversight Struct

Objective

and strengthening oversight structures

Outcome Indicators

* Legal and judicial sector strategy defined

* Oversight structures established and strengthened

* Tribunal of Commerce operational and strengthened

*Benchmarks by December 2004 I2005

*Intermediary Judicial Strategy defined and cost-benefit analysis for creation of Obsewatoire de la Justice completed

* By Laws o f the Cour des Comptes approved by Parliament and published by the Bulletin Officiel and Renouveau

* Parliament and media traine' in budgetary process

* Judges and prosecuting attorneys trained

* Judges o f Tribunal of Commerce trained in Business Law

* Documentation and office space provided for the Tribunal of Commerce

* Sector Strategy finalized

Outcome Benchma by December 200

* Inspection GenerL des Finances strenghtened

* Inspection Genen d'Etat created

* Al l oversight structures including Cours des Comptes, Inspection Generalt Etat and Inspection Generale des Finan trained

* Equipment and sp acquired

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I I 0 0 I