+ All Categories
Transcript
Page 1: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

The World Bank

FOR OFFICIAL USE ONLY

Report No. 33798-RW

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR A PROPOSED GRANT

IN THE AMOUNT OF SDR 37.6 MILLION

(US$55 MILLION EQUIVALENT)

TO

THE REPUBLIC OF RWANDA

FOR A

SECOND POVERTY REDUCTION SUPPORT GRANT

OCTOBER 13,2005

Human Development 111 Country Department 9 Africa Regional Office

This document has a restricted distribution and may be used by recipients on ly in the performance o f their o f f ic ia l duties. I t s contents may not otherwise be disclosed without W o r l d Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Page 2: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

RWANDA - GOVERNMENT FISCAL YEAR January 1-December 31

AfDB APR APRM CAS CDF C E M C F A A CIDA COMESA CPIP CWIQ DEA DFID D H S D R C EICV E M I S EPZ ESSP ESSP EU FARAP FSAP GDP GoR HIDA HIPC H I V i A I D S HLSS I C A I C T IDA IMF IWRM JSAN LDP MAP MDG M I N A L O C

CURRENCY EQUIVALENTS (Exchange Rate Effective as o f October 2005)

Currency Unit Rwanda Franc US$1 .oo 551.3

WEIGHTS AND MEASURES Metr ic System

ABBREVIATION AND ACRONYMS

Afr ican Development Bank PRSP Annual Progress Report Afr ica Peer Review Mechanism Country Assistance Strategy Common Development Fund Country Economic Memorandum Country Financial Accountability Assessment Canadian Intemational Development Agency Common Market o f Eastem and Southern Afr ica Country Procurement Issues Paper Core Welfare Indicators Questionnaire Directorate o f Water and Sanitation Department for International Development (UK) Demographic Health Survey Democratic Republic o f the Congo Enquete Inttgrale des Conditions de Vie Education Management Information System Export Processing Zone Education Sector Strategic Plan Education Strategic Sector European Un ion Financial Accountability Review and Act ion Plan Financial Sector Assessment Program Gross Domestic Product Govemment o f Rwanda Human Resources Institutional Development Agency Heavi ly Indebted Poor Countries (Initiative) Human Immunodeficiency VirusiAcquired Immune Deficiency Syndrome Household Living Standards Survey Investment Climate Assessment Information Communications Technology International Development Association Intemational Monetary Fund Integrated Water Resources Management Joint Staff Advisory Note Letter o f Development Policy Multisectoral A I D S Program Millennium Development Goal Ministry o f Local Govemment

Page 3: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

FOR OFFICIAL USE ONLY

MJNECOFIN hlNEDTC MINIsFR4 IVI lNIS ANTE MJNITERE hiTEF hG3R N C H E NDF WAD NGO N P V NTB P A F PER PETS P F M P H R D PRGF PRSG PRSP PSIA PSTA P T A REMA RIEPA RRA RSSP RTFP RLK4 ROSC RwF SDR SFAR SIBET SIDA SIP SPPMU SSA SWAP T D P M UN UNDP USAID VAT WHO

Ministry o f Finance and Economic Planning Ministry o f Education, Science, Technology, and Scientific Research Ministry o f Infrastructure Ministry o f Health Ministry o f Water Medium-Term Expenditure Framework National Bank o f Rwanda National Council for Higher Education Nordic Development Fund New Partnership for Africa’s Development Nongovernmental Organization Net Present Value National Tender Board Performance Assessment Framework Public Expenditure Review Public Expenditures Tracking Survey Public Financial Management Japan Policy and Human Resources Development Trust Fund Poverty Reduction and Growth Facil ity

I Poverty Reduction Strategy Grant Poverty Reduction Strategy Paper Poverty and Social Impact Assessment Strategic Plan for Agricultural Transformation Parent Teacher Association Rwanda Environment Management Authoiity Rwanda Investment and Export Promotion Agency Rwanda Revenue Authority Rural Sector Support Project Regional Trade Facil itation Project Rwanda Util i t ies Regulatory Agency Report on the Observance o f Standards and Codes Rwandan Franc Special Drawing Rights Student Finance Agency o f Rwanda Public Budget Information System (Systeme d’hformation du Budget et de 1’Etat) Swedish Aid Strategic Issues Paper Strategic Planning and Poverty Monitoring Unit Sub-Saharan Afr ica S ectonvide Approach Teacher Development and Management Pol icy Uni ted Nations Uni ted Nations Development Programme United States Agency for International Development Value Added Tax W o r l d Health Organization

Vice President: Gobind T. Nankani Country Director: Pedro Alba

Sector Manager: Laura Frigenti Task Team Leader: Agnes L. B. Soucat

This document has a rest r ic ted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

Page 4: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 5: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

REPUBLIC OF R W A N D A POVERTY REDUCTION SUPPORT GRANT

Contents

Operation and Program Summary I. Introduction 11. Recent Economic Developments and Macroeconomic Outlook

A. Country Context B. Recent Economic Developments C. Macroeconomic Outlook and Debt Sustainability

111. Rwanda’s Poverty Reduction Strategy A. Poverty Situation and MDGs B. PRSP and Implementation Progress Bank Support to Rwanda’s Poverty Reduction Strategy A. Link to CAS and Other Bank Operations B. Analytic Work Program C. Donor Coordination, Harmonization, and Alignment Proposed Second Poverty Reduction Support Operation A. Overview B. PRSG I1 Reform Program

IV.

V.

i. Private Sector-led Growth and Agriculture Transformation for Poverty Reduction i i . Improving Service Delivery for the Poor: Education, Health, Water, Energy, and

Transport iii. Public Sector Underpinnings for Improved Service Delivery: Public Expenditure

Management, Transparency and Accountabilit), and Monitoring V. Implementation

A. Environmental and Social Aspects B. Administration o f Operation C. Monitoring and Evaluation D. Risks and Risk Mitigation

Annexes Annex 1 : Letter o f Development Policy Annex 2: PRSG Policy Matrix Annex 3: Fund Relations Note Annex 4: Country at a Glance Annex 5: Rwanda’s Likelihood o f Reaching the MDGs Annex 6: Rwanda’s Partnership Calendar Annex 7: Rwanda’s PRSP Monitoring Indicators Annex 8: Rwanda Harmonization and Alignment

Tables Boxes and Figures Table 1 : Rwanda: Selected Indicators of Economic Performance Table 2: Rwanda: External Financing Requirement and Sources Table 3: Priority Expenditures Box 2. Sources o f Growth Table 4. Analytic Underpinnings for PRSG I1 Table 5. Outcome Indicators for Rwanda’s PRSC/G Series Table 6. Strategic Areas o f Rwanda’s PRSGs Series Table 7. PRSG I1 Prior Actions Table 8. Indicative Triggers for PRSG I11

Box 1. Summary o f Key Achievements under PRSC I

Figure 1. Bank Support to Rwanda’s PRSP

1 2 3 3 3 5 9 9 10 14 14 15 15 17 17 21 22 26 26 34

38 38 39 40 40

42 46 60 63 65 66 67 69

~~ ~ ~

The PRSC team includes: Agnes Soucat (Team Leader); Kene Ezemenari, Guido Rurangwa, Brendan Horton, Raju Kalidindi (AFTP3); Mohamed Toure, Kampeta Sayinzoga, Toni Kayonga (AFCO9); Sidi Jammeh, L iz Drake (AFTS3), Susan Opper, Miriam Schneidman, Mamy Rakotomalala, Menahem Prywes,Therese Tshimanga, Nathalie Lopez-Diouf (AFTH3); Jee-Peng Tan, Alain Mingat (AFTHD); Malcolm Cosgrove-Davies, Nikhii Desai (AFTEG); Deo-Marcel Niyungeko, Christophe Prevost, Richard Verspyck, Johannes G. Grijsen (AFTUS); Prosper Nindorera, Pierre Morin, Chantal Kajangwe (AFTPC), Joseph Kizito Mubiru (AFTFM); Michael Fowler, Agnes Albert- Loth (LOAG2), Negda Jahanshahi (OPCPD); Allison Berg (OPCCE); K a i Kaiser (PRMPS); Pablo Gottret, Samantha Naidoo (HDNHE); Arleen Cannata Seed (ISGIF); Sameena Dost (LEGAF). Peer Reviewers: Shanta Devarajan (Chief Economist, SARVP), Chukwuma F. Obidegwu (Lead Economist, AFTPS), Shekhar Shah (SARVP), Dana Weist (Lead Public Sector Specialist, PRMPS).

Page 6: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

OPERATION AND PROGRAM SUMMARY REPUBLIC OF RWANDA

POVERTY REDUCTION SUPPORT GRANT - Tranching. Description

Benefits

Republic o f Rwanda Ministry o f Finance and Economic Planning SDR 37.6 mi l l i on (US$55 m i l l i on equivalent) Grant SDR 37.6 mi l l i on (US$% mi l l i on equivalent) Single-tranche to b e disbursed upon effectiveness. The operation i s designed to assist the Government o f Rwanda (GoR) in implementing key pol icy actions outl ined in its July 2002 Poverty Reduction Strategy Paper (PRSP), which focuses on (a) creating a favorable private sector investment climate that would promote macroeconomic stability and sustained economic growth; (b) improving quality, coverage, and equity o f basic service delivery through improved expenditure efficiency; and (c) supporting overall improvement o f public expenditure management and governance, with an emphasis o n transparency and accountability to citizens’ voice and participation. In l ine with this agenda, the proposed PRSG I1 continues and deepens support t o the G o R as it implements the next steps in i t s re form program supported by PRSC I. This includes (a) maintaining a stable macroeconomic framework, creating a strong basis for private sector-led economic growth, driven by agricultural transformation, promotion o f exports, and deepening o f the financial sector; (b) strengthening the results orientation o f i t s Medium-Term Expenditure Framework (MTEF) and associated sectoral MTEFs, particularly in education, health, water, and energy, strengthening the linkages between MTEF priorit ies and the budget, and expanding performance-based contracting o f services; and (c) continued strengthening o f governance and transparency, particularly through further improvements to the fiduciary framework and empowerment o f local -communities. At the GoR’s request, given the important linkages to the growth agenda including agricultural transformation and export promotion, po l icy dialogue in the transport sector has been added under PRSG 11, though this sector will also continue to benefit f r o m investment support. This programmatic operation would continue support for the implementation o f a PRSP that was prepared in a participatory manner, with strong country ownership. Benefits wou ld accrue to the population overall, with a particular focus o n poor people in bo th rural and urban areas. By supporting G o R efforts to promote a favorable private sector investment climate to foster growth, and efforts to improve the fiduciary framework and transparency and accountability, the proposed PRSG would continue to strengthen the abi l i ty o f central and local government to improve delivery and increase equitable access to basic services (health, education, water, energy), with a v iew to improving human development and achieving M i l l enn ium Development Goals. Successes in human development sectors under PRSC I that PRSG I1 builds o n include the transfer o f capitation grants in education and the performance-based contracting o f high- impact health services v ia local health centers. The PRSG preparation process has served to strengthen donor coordination, with the GoR n o w taking the lead in coordinating donors around budget support programs. Though international and regional efforts to mitigate instabil ity are in place, the risk o f flare ups between Rwanda and the Democratic Republic of Congo i s n o t negligible. The Bank supports these efforts aimed at fostering peace and security among Rwanda and i t s neighbors. Internally: Rwanda’s security and pol i t ical situation remains stable. Donors recognize the risk posed by the unpredictabil ity o f donor financing, particularly timing o f disbursements, and are working together with the GoR to mitigate it. Risks associated with weaknesses in the country’s fiduciary framework are being addressed through concerted w o r k by the GoR, with support from donor partners, based on extensive analysis and recommendations o n the way forward. Risks associated with Rwanda’s weak institutional and human capacity are being addressed througk the GoR’s comprehensive c i v i l service reform program, w h i c h includes the recently establishec Human Resources Institutional Development Agency t o coordinate capacity bu i ld ing needs including f r o m the Bank’s Public Sector Capacity Building Project, wh ich was developed t c accompany the PRSCs, and the Bank’s Decentralization and Community Development Project which addresses capacity at the local level PO92944

Page 7: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

IDA PROGRAM DOCUMENT FOR A PROPOSED SECOND POVERTY REDUCTION SUPPORT GRANT TO THE REPUBLIC OF RWANDA

I. Introduction

1. The second Rwanda Poverty Reduction Support Operation (PRSG 11) i s designed to build o n progress under PRSC I, continuing assistance to the Government o f Rwanda (GoR) to achieve the goals outlined in its July 2002 Poverty Reduction Strategy Paper (PRSP) and to progress toward achievement o f Millennium Development Goals (MDGs) related to PRSP objectives.’ Fol lowing on and consistent with the PRSP, the December 2002 Country Assistance Strategy (CAS) for Rwanda highlighted the need to move progressively f rom project-based approaches to sector-wide approaches (SWAPS) and budget support, envisaging a series o f PRSCs in the base case lending scenario. PRSC I (USSSO mi l l ion grant and US$15 mi l l ion credit), the f i rs t in this series, was approved by the Bank’s Executive Directors o n October 21, 2004. This program document lays out the context, case, and areas o f policy emphasis for PRSG 11, in the amount o f a US$55 mi l l ion grant.

2. The PRSG series focuses on assisting the GoR to reduce poverty by strengthening the macroeconomic situation to foster sustainable delivery o f basic services. The framework for the PRSC series addresses growth and human development through a holistic, cross-sectoral approach, in l ine with the GoR’s PRSP. Each PRSC/G in the series aims to support implementation o f key pol icy measures and expenditure programs aimed at (a) creating a favorable private sector investment climate that would promote macroeconomic stability and sustained economic growth; (b) improving the quality, coverage, and equity o f basic human development services delivery, and increasing expenditure efficiency; and (c) enhancing overall public expenditure management and governance, with an emphasis o n expanding the voice and participation o f citizens.

3. Ensuring that Rwanda remains on a path o f economic and social progress i s key to sustaining achievements since the 1994 genocide and increasing the stability o f the Great Lakes region. Rwanda’s transition f rom conflict to peace and development and i t s abil ity t o implement i t s PRSP require substantial development assistance. The PRSC series builds on significant achievements in good governance-including public expenditure management reform, fiduciary transparency, service delivery performance, and reconciliation and unity-made by Rwanda since 1994. Grant financing i s essential for Rwanda to sustain i t s economic and social recovery and develop i t s economy, including expanding exports to address debt sustainability and reduce dependence o n foreign aid.

4. K e y achievements under PRSC I are summarized in B o x 1, highlighting the GoR’s already significant progress in implementing i ts reform program. PRSG I1 would continue to assist the GoR as it implements the next steps in this program, which focuses o n (a) creating a strong basis for private sector- led economic growth, driven by agricultural transformation, promotion o f exports, and deepening o f the financial sector; (b) strengthening the results orientation o f i ts Medium-Term Expenditure Framework (MTEF) and associated sectoral MTEFs, particularly in education, health, water, and energy, strengthening the linkages between MTEF priorities and the budget, and expanding performance-based contracting o f services; and (c) continued strengthening o f governance and transparency, particularly through further improvements to the fiduciary framework and empowerment o f local communities. At the GoR’s request, given the important linkages to the growth agenda including agncultural transformation and export promotion, pol icy dialogue in the transport sector has been added to the program under PRSG 11, to complement ongoing and planned investment activities.

’ Rwanda’s PRSP and its implementation i s fully owned and driven by the GoR. Following publication o f i t s PRSP in 2002, the GoR worked to develop a more action-oriented PRSP policy matrix during 2003 and 2004, with further refinement in 2005 as part of the PRSP annual progress report exercise. This was done in close collaboration with development partners, including those providing budget support (the United Kingdom’s Department for International Development (DFID), the European Union (EU), the African Development Bank (AfDB), Sweden (SIDA), and the World Bank), and partners providing support through sector investmentiprogram approaches and projects (Belgium, Germany, USAID, UNICEF, WHO, UNFPA).

Page 8: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Box 1. Summary of Key Achievements under PRSC I

delivery of basic services, particularly in education, health, water, and energy; and public expenditure management, transparency, and accountabihty. Achievements in these areas with PRSC I support are highlighted below

Private Sector Development. Maintained adequate macroeconomic framework; brought Phnda Tea Factory CNPE Kabuye to point of sale to qualified buyers, launched rural sector strategy; put Agriculture Guarantee Fund in place managed by National Bank of Rwanda (NBR), developed export promotion strategy; conducted study on micro-enterprises; strengthened internal audit at NBR; submtted revised investment code to Parliament; submitted land law to Parliament; adopted information communications technology strategy; recapitalized Came Hypothecaire du Rwanda (social protection agency); established Rwanda Environmental Management Authority; increased coffee exports by more than 100 percent in U.S. dollar value from 2003 to 2004, implemented substantial reforms in contract enforcement and trade and rated among the top 10 reformers in this area in 2004, according to the Doing Business Report, judicial procedures simplified: average time to resolve disputes has been reduced by 22%, rated second among top 10 reformers in terms o f trade reform according to the 2006 Doing Business Report

Education. Established new legal framework with passage of Organic Education Law; developed Education Sector Strategc Plan (ESSP) and sector MTEF; conducted regular stocktaking of ESSP implementation by Ministry of Education, provincial and district authorities, and donors, increased spending on education to 4.4% o f GDP as compared 3% on average in SSA; created parent-teacher associations (PTAs) to help manage primary schools; abolished school fees for pnmary education; transferred capitation grants (RwF300 per pupil in 2003-04, increased to RwF1,OOO in 2004-05) to pnmary school PTAs from central government to cover loss in fee income; created District Education Funds to intensify public support to particularly needy students; passed Higher Education Law to define the operating environment for all higher education institutions, to reduce progressively the overall share of budget going to higher education; reached 93% net enrollment and 47% completion in primary

Health Developed health sector strategy and MTEF; developed decentralization framework for health with Ministry o f Local Administration; piloted, with donor funds, contractual approach to high-impact services via health centers in two provinces and comnutted govemment financing to cover the costs to extend the scheme to additional provinces, with transfer o f responsibilities from NGOs to government; launched process for designing conditional transfer scheme to cover premum payments for expanded access to mutuelles (local health insurance scheme) and purchase o f community health services, introduced salary supplements for staff assigned to remote areas, published l i s t o f essential drug prices supplied by CAMERWA (drug purchasing agency); elaborated policy and prices for anti-retroviral therapy; scaled-up mutuelles, with enrollment increasing from 7 to 27 percent o f population; surpassed goal of establishing 40 Voluntary Counseling and Testing sites for HIVIAIDS; increased immunization coverage to 96 percent in 2004

Water. Launched studies on sectoral legal, instituhonal, and regulatory framework for a new water policy, camed out sectoral capacity building at central and local levels; conceptualized water information system and associated institutional framework; developed investment program for sustainable water resources management and environmental protection; strengthened district capacity for implementation o f water supply activities through the GoR’s Common Development Fund; trained distnct and community level water extension workers in new, decentralized, sector-wde approach; piloted pnvate sector involvement in water resources management in two distncts o f Byumba province; launched coordinated approach to donor interventions

Energy. Addressed electricity shortages in the near term with procurement of additional power generation capacity; announced fuel cost financing plan, including strategy for fuel cost pass-through; adopted energy sector policy paper, including rural

Public Sector Underpinnings: Public Expenditure Management, Transparency and Accountability, Monitoring. Mainstreamed MTEF approach to budgeting in ministries; appointed Accountant General; appointed Auditor General vested with sole accounting authonty to report directly to Parliament, and Auditor General audited 41 public entities (including nine ministries) and presented budget execution report to Parliament; drafted new Organic Budget Law and accompanying financial instructions and submitted them to Parliament, drafted new Public Procurement Law and submtted it to Parliament; launched treasury reform,

toward unified treasury account; submitted new tax and customs legislation to Parliament along with revised ngthened tax administration through creation o f large taxpayers’ unit in the Rwanda Revenue Authority; o f accounts for government operations; introduced improved computerized accounting system to improve

ing; implemented action plan for financial accountability; drafted questionnaires and piloted citizen report card

and elected local mediators at sub-district level .

2

Page 9: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

11. Recent Economic Developments and Macroeconomic Outlook

A. Country Context

5. Rwanda i s a small, landlocked country with a population o f approximately 8.2 mi l l ion and per capita GDP o f approximately US$230. I t s population density, at about 340 inhabitants per square kilometer, i s one o f the highest in the world, with approximately 85 percent o f the population living in rural areas. The economy i s based on agriculture, which i s estimated to account for about 41 percent o f GDP, while services account for about 38 percent and consist mainly o f wholesale and resale trade in various products, transportation, and public administration. Industry accounts for 2 1 percent o f GDP, of which manufacturing accounts for 8 percent and construction 11 percent.

6. Though Rwanda has made a remarkable transition f rom reconstruction to development in the eleven years since the genocide-in which close to one mi l l ion people were lulled, two mi l l ion people were driven into exile, over one hundred thousand people were put in prison, and thousands o f people were handicapped physically and mentally-the legacy remains and the country i s l ike ly to depend on significant levels o f external assistance for years to come, even in light o f recent agreements on debt forgiveness. Domestically, Rwanda continues to make good progress o n reconciliation, carrying out demobilization, reintegration, and professionalization o f the army and police force. The disamament, demobilization, and reintegration o f former combatants has created space for re-balancing security and social concerns, with military expenditures decreasing f rom 3.4 percent o f GDP in 2000 to 2.3 percent in 2004, and social expenditures increasing f rom 3.8 to 4.8 percent over the same period. Over 2004- 2005 Rwanda also accelerated the holding o f community-based hearings (i.e,, Gacaca’) o f the genocide accused.

7. Corruption i s neither widespread nor entrenched in Rwanda, with the commitment to good governance coming f rom the highest levels o f government. Fol lowing the adoption o f a new Constitution and presidential and legislative elections in 2003, the G o R continues to demonstrate this ~ o m m i t m e n t . ~ The country was one o f the f i rst to volunteer for and submit a national s e l f assessment report to the Afr ica Peer Review Mechanism (APRM) under the N e w Partnership for Africa’s Development (NEPAD), which largely focuses on g~vernance .~ The NEPAD Secretariat has conducted i t s assessment, on which it reported favorably in June 2005. In November 2005, the GoR plans to host the Afr ica Governance Forum, which wil l take up the topic o f the APRM, with discussion o n the case of Rwanda and other countries that have gone or are preparing to go through the process. The GoR also continues to make steady progress o n instituting a sound public financial management system based on an action plan developed in close collaboration between the GoR and donor partners. In 2005, a much lauded measure demonstrating the GoR’s commitment to good governance included the impounding and auctioning o f f o f a l l vehicles with engines over 2,500 cc (i.e., 4x4’s) used by govemment officials in central and local administration and in al l government projects, replacing them with smaller, less costly vehicles. The GoR i s also completing successfully a comprehensive c i v i l service reform program (with support f rom DFID), to streamline and upgrade the functioning o f goxemment administration. This i s being done in conjunction with the development o f a comprehensive and coherent capacity building strategy to be supported by the wider donor community, focusing on human resources, the legal environment, organizational effectiveness, and public-private partnerships. This i s expected to result in fewer but more qualified c i v i l servants.

8. Internationally, tensions in the Great Lakes region increased in November 2004 when President Kagame indicated that he would consider sending troops to disarm paramilitary groups

Literally “Justice on the Grass” In 2004, a minister in charge o f good governance was appointed, the Office o f the Ombudsman was established, and elections o f mediators and national women councilors were successfully completed. The APRM four focus areas are democracy and good political governance; economic govemance and management; corporate governance; and socio-economic development.

3

Page 10: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

based inside the Democratic Republic o f Congo (DRC). Although the deployment o f troops was never confirmed by the United Nations (UN), the statement caused a delay in some programmed donor disbursements and caused the UN Security Council to demand in December 2004 that Rwanda pull out any mi l i tary forces across the border. Tensions eased with the establishment o f a jo in t verification mechanism between Rwanda and the D R C to resolve border disputes. Moreover, the Afr ican Union agreed in principle to send troops to the D R C to disarm paramilitary groups.

B. Recent Economic Developments

9. Despite major electricity shortages, real GDP growth recovered f rom 0.9 percent in 2003 to 4 percent in 2004, driven by strong activity in construction, transport, and communications. Due to poor climatic conditions, agriculture in general saw n o growth; however exports crops saw an increase in 2004, with coffee exports 107 percent higher in U.S. dollar value and 77 percent higher in volume than in 2003 because o f an increase in exports o f fully-washed coffee and the pruning cycle. Rice production increased by 64 percent, while roots, tubers, fruits, and vegetables saw a decline. The manufacturing industry declined by 4 percent, though performance varied within the sector fo l lowing the energy crisis. Construction grew by 7.5 percent. Overall, services grew 9.7 percent, with the finance sub-sector growing by 1 1.5 percent and transport by 17 percent, whi le commerce sub-sector growth was modest at 2.6 percent. The food and beverage sub-sector, l ed by beer and lemonades, grew by 5.6 percent. By contrast, the electricity, gas, and water sub-sector declined by 22 percent. The consumer price index recorded an inflation rate o f 12 percent in 20045, compared to 7.4 percent in 2003. This was driven by inflation in the food and drinks sub-sector (16.4 percent) and the utilities sub-sector (1 8.2 percent) due to energy and fuel cost rises.

10. The country’s balance o f payments improved markedly in 2004 compared to 2003. Fol lowing a doubling o f coffee exports, f rom US$15 mi l l ion in 2003 to US$3 1 m i l l i on in 2004, and volume and price increases for metals such as cassiterite and colton, exports rose f rom US$63 m i l l i on to US$97 mi l l ion in 2004, an increase o f 54 percent. However, Rwanda continues to suffer f rom a narrow export base. Annual exports per capita amount to just US$22 compared to an average o f US$145 in Sub- Saharan Afr ica (SSA). High volatility o f prices for coffee and metals continue to cause major volati l i ty in the external accounts. The terms o f trade index in 2004 was 65 compared to 100 in 1995. With heavy demand for imports o f consumer, energy, and capital goods, the current account deficit as a share o f GDP has been high at about 16-1 9 percent in recent years (1 8 percent in 2004; 19 percent in 2003).

11. Owing to the disbursement o f PRSC I in December 2004, gross off ic ia l reserves rose to 5.7 months o f imports f rom five months in 2003. N e t foreign exchange reserves rose by US$97 m i l l i on to US$3 15 m i l l i on in 2004. Reflecting these developments, and in light o f the U.S. dollar depreciation, the Rwandan Franc (RwF) nominal exchange rate appreciated by 10 percent. The increase in reserves was offset by a sharp decline in net domestic assets, fo l lowing a fa l l in net credit t o the GoR with a large net repayment (after receipt o f budget support funds) o f government banking debt. Credit to the private sector increased by 10.2 percent in nominal terms but, given the inflation rate, there was n o real increase. Broad money and deposits rose by 12 percent and 11.9 percent, respectively, whi le reserve money grew by 13.5 percent to US$99 mi l l ion. Currency in circulation, which represented 64 percent o f reserve money in 2002, rose to 69 percent in 2003, and stood at 68 percent at end-2004. This was due to a strong increase in private sector credit seemingly resultant f rom an unusually early financing o f the coffee harvest; an improvement in the financial position o f banks; and lingering effects o f the loosening o f monetary pol icy earlier in the year. In addition, there i s anecdotal evidence o f an increasing monetization o f the economy and the resultant demand for cash and expansion in activities o f non-bank financial institutions, with a large number o f informal microfinance institutions

End o f year inflation rate.

4

Page 11: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

having reported to the Central Bank that they provide savings and credit6. T o keep reserve money at a level targeted under the Poverty Reduction and Growth Facility (PRGF) program, the National Bank o f Rwanda (Le., the central bank) issued a large amount o f Treasury Bills to the non-bank sector, which kept interest rates high. (Table 1)

Table 1 : Rwanda: Selected Indicators of Economic Performance

(percent change) 1996-98 1999-01 2002 2003 2004 2005 2006 2007 projected/programmed

Real GDP Inflation (CPI, average) exports volume Terms of trade

(percent of GDP) Public finance Government Domestic Revenue Grants Total expenditures Fiscal deficit (excl. grants) Fiscal deficit (Incl. grants)

Balance of Payments Current account balance

Exports, GNFS Imports, GNFS

Offcial reserves (months of imports) External debt

Memo items: Exchange rate (RWFNSD)

11.8 10.7 14.6 3.2

10.1 6.5

20.3 -10.2 -3.7

-17.9 6.5

25.1 4.4

66.8

307

6.8 9.4 0.9 4.0 4.0 4.3 4.5 1.6 2.0 7.4 11.4 7.0 4.0 4.0

23.1 -17.1 -13.2 26.8 -5.6 5.8 6.2 -10.0 -17.7 4.1 13.2 -4.5 1.5 0.7

10.3 12.2 13.5 13.9 14.0 14.1 14.3 7.9 7.2 8.1 12.0 11.8 12.1 11.1

19.7 21.3 23.9 26.1 26.7 27.7 27.3 -9.4 -9.1 -10.4 -12.2 -12.7 -13.6 -13.0 -1.5 -1.9 -2.3 -0.2 -0.9 -1.5 -1.9

-16.3 -16.6 -19.2 -18.1 -21.9 -20.4 -19.4 7.8 7.7 8.3 10.2 9.3 9.5 9.6

24.3 24.5 27.6 28.3 31.4 29.6 29.5 5.9 6.3 5.0 5.8 4.8 4.8 4.8

72.3 80.9 88.4 88.8 73.1 70.3 68.0

391 476 538 573 570 580 585 GDP (USD million) 1740 1815 1735 1684 1850 2054 2215 2380 Source: World Bank, IMF, and Ministry of Finance

12. In 2004, total domestic revenue amounted to US$256 mill ion, representing 14 percent o f GDP, compared to a budgeted amount o f US$233 mi l l ion. The higher than expected performance was due to improved collection o f personal income tax following a more complete audit o f companies’ books, higher collections o f non-tax revenue due to administrative improvements, an increased consumption tax, and better value-added tax (VAT) performance due to a shift imports composition f rom raw materials to finished goods, which are taxed at a higher rate.’ Total expenditures in 2004 amounted to US$478 million, or 26.1 percent o f GDP, US$10.2 mi l l ion over the budgeted amount. The total included US$3 15 m i l l i on o n recurrent expenditure, US$156 m i l l i on on capital expenditure, and US$38 m i l l i on on net lending. There was a US$31.3 mi l l ion difference between actual and budgeted expenditure on net lending, explained by the repayment to the Preferential Trade Area Bank o f a government-guaranteed loan to Prime Holdings in the amount o f US$10 mi l l ion; repayment o f arrears; the purchase o f generators worth US$6 mi l l ion for Electrogaz to address the energy crisis; and the replacement o f strategic stocks o f fuel o f US$2.4 mill ion.

C. Macroeconomic Outlook and Debt Sustainability

13. Given l o w agriculture productivity and the continuing energy shortage, the economy i s expected to perform at less than the desirable growth rate o f 6 percent per annum-a PRSP baseline

T h i s data comes from information collected during the central bank’s exercise to register microfinance institutions, thereby

’ VAT and consumption taxes are calculated on the sum o f the CIF (cost, insurance, freight) value and imports duties. The facilitating monitoring and supervision o f these institutions.

latter are higher for finished goods.

5

Page 12: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

scenario-over the medium term. GDP growth i s expected to be about 5 percent in 2005-2006, with inflation decreasing from 10.2 percent in 2004 to 6 percent by end 2005 and 3-5 percent over the medium term. Revenues are expected to remain at around 14 percent o f GDP, and total expenditures are expected to be around 27 percent of GDP. The deficit (excluding grants) would remain about 12 percent o f GDP if budgetary financing (which would be mostly in the form o f grants) materializes as programmed and the monetary program remains on track.

14. At the same time, to improve the quality o f public spending and provide support to sectoral strategies, priority spending could increase by up to 1.7 percent o f GDP (depending o n the release o f contingent funds). In particular, authorities plan to augment budgetary allocations in support o f agriculture, export promotion, rural roads, and water; social spending in health and education i s projected to increase by 0.3 percent o f GDP. Higher budgetary allocations would go toward the tea, coffee, and tourism sectors to facilitate structural reforms. Additional measures would also include strengthening the role o f the Rwanda Investment and Export Promotion Agency (RIEPA) and improvements in infrastructure, customs administration, and access to financing. The Bank i s conducting a diagnostic trade study under the Integrated Framework, which will be completed in 2005. The study includes recommended actions to increase and diversify exports and remove constraints for trade with regional and international markets-Rwanda i s now a full member o f the Common Market for Eastern and Southern Afr ica (COMESA).

15. There will be a lag before results f rom the above measures begin to take shape. In the meantime, export earnings are expected to decline slightly in 2005 after the exceptionally strong performance in 2004. Imports are projected to increase, reflecting continuing project-related import demand from rehabilitation o f the electricity sector as wel l as increase o f international o i l price. Price increases over the past months have led to an increase in the current account deficit o f 1% o f GDP. Overall increased cost o f energy would widen the external current account balance to 22 percent o f GDP in 2005. As a result, the GoR has planned to increase reserves to roughly six months o f imports, t o protect the planned increase in growth-enhancing priority expenditures. Specifically, the G o R i s concerned about the predictability in disbursements f rom budget support donors in light o f last year’s experience, in which several budget support donors unexpectedly suspended disbursements in the fourth quarter o f Rwanda’s fiscal year, leading to lower than programmed expenditure o n priority programs. The authorities are therefore emphasizing predictability o f financing over the coming period, to accommodate necessary increases in expenditures and import demand. To achieve this and minimize the impacts o f any potential shortfalls in grants, the authorities have determined that a higher level o f reserves would be prudent. The financing gap associated with this scenario, which i s expected to be covered by the PRSG I1 and budget support f rom other donors, i s shown in Table 2.

16. High external debt levels remain a concern. The net present value (NPV) o f external debt to exports i s around 300 percent. Projections indicate that, given current debt levels and the narrow export base, the NPV o f debt-to-exports ratio would remain above the 150 percent threshold over a twenty-year horizon even if full debt rel ief under the enhanced H IPC Init iative and additional bilateral assistance were delivered. However, macro performance i s o n track, with the completion o f the Fifth Review o f the PRGF on August 26, 2005. * All but two performance criteria for the fifth review were met, for which waivers were granted. Rwanda met i t s H IPC Completion Point o n April 12, 2005. Achievement o f the HIPC Completion point along with additional debt forgiveness by the G-8 countries has greatly improved Rwanda’s debt indicators, though exactly h o w this will impact Rwanda, including through IDA’S grant allocation framework, wil l need to be worked out in the coming months, which may entail undertaking another full debt sustainability analysis. However,

* T h e IMF completed i ts fourth review o f the PRGF in February 2005. As a result, Rwanda will be eligible to draw an amount equivalent to SDR 0.57 million (about US$SOO,OOO), bringing the total amount disbursed under the arrangement to SDR 3.43 million (about US$5.1 million). Rwanda’s PRGF arrangement was approved on August 12, 2002, for the amount o f SDR4 million; the second and third reviews were satisfactorily completed in June 2004.

6

Page 13: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Rwanda’s l o w export base implies that grant financing will continue to be necessary for the foreseeable future.

Table 2: Rwanda: External Financing Requirement and Sources (in USD million)

1999 2000 2001 2002 2003 2004 2005 2006 2007

Resource balance -330 -292 -270 -292 -324 -333 -458 -462 -473 Exports goods and nonfactor services 113 150 157 133 139 189 189 205 221 lmpolts goods and nonfactor services 443 441 427 425 464 522 647 667 694

Noninterest current account (excluding official transfers) -313 -283 -258 -276 -313 -319 -436 -436 -442

Scheduled interest -10 -13 -13 -11 -11 -14 -14 -14 -14

Capital and financial account -26 -33 -26 10 10 -28 -30 -16 -9

Increase in net official reserves (excluding IMF -) -1 1 -24 -27 -24 28 -95 52 -15 -9 IMF repurchasesirepayments -8 -11 -11 -7 -2 -5 -10 -16 -19

Changes in arrears (decrease = -)

External financing requirements

-3 7 -38 5 -23 1 -7 0 0

371 356 372 303 310 459 445 497 493 -‘I

Disbursements-Existing 361 350 324 296 274 448 251 266 275 Grants (project and nonproject) 246 277 234 212 234 339 206 215 222

IDA 61 38 53 77 25 93 36 40 40 Purchases from IMF 29 25 12 1 1 0 0 0 0

Exceptional financing (signed) 10 6 39 7 29 11 0 0 0

Principal not yet due rescheduled 9 0 7 0 0 0 0

Loans (project and nonproject) a7 47 78 84 40 i o 9 46 51 54

Disbursements-Expected 0 0 0 0 0 0 76 126 110 Grants 0 0 0 0 0 0 55 110 95 Loans 0 0 0 0 0 0 19 15 15

IDA 0 0 0 0 0 0 0 0 0 Other multilateral banks (excl IMF) 0 0 0 0 0 0 19 15 15

Disbursements from IMF 0 0 0 0 0 0 2 1 0

Exceptional financing (assumed) 0 0 0 0 0 0 22 13 11

Residual financing gap 0 0 0 0 0 0 96 92 97

U

Sources: World Bank, IMF, Ministry of Finance, staff estimes and projections.

17. Wi th support f rom i t s development partners, Rwanda could meet i t s poverty reduction targets by developing stronger and more sustainable growth at rates higher than those expected. I t i s clear that given the existing structure o f production and supply response, the period o f consistently high growth rates (averaging 10 percent annually between 1995 and 2002) associated with post-genocide reconstruction i s over. Going forward, Rwanda’s main challenges are to achieve a sustained growth rate o f minimum 6 percent to achieve i t s poverty reduction and MDG targets. To this end, the G o R recognizes that these targets are achievable only if strong productivity-enhancing strategies, particularly in agriculture and exports are immediately put into place. As a result, GoR recently completed an agriculture strategy, and with support f rom donors has put increased emphasis on implementation. Financing for productive activities in Afr ica i s severely constrained by a perception of high polit ical risk in the region as a whole, and also in individual countries. Ln the medium- t o long-term, the GoR should, with support f rom donors, aggressively pursue improved regional integration through further development o f economic ties with neighboring countries, as w e l l as through reforms that involve private sector-led growth and increased domestic and foreign private investment in key sectors. Such measures should serve to reinforce political and macroeconomic stability. Grants from donors to finance investments will remain key to promoting growth (see Box 2).

7

Page 14: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Box 2. Sources o f Growth

Agriculture. Agnculture i s a key pillar o f the PRSP. I t currently accounts for about 41 percent o f GDP and about 50 percent o f export revenue, employng about 90 percent o f the active labor force, and the majonty o f poor people. Rwanda’s production base i s predominantly smallholder (average land holding i s 0.7ha), rain-fed, and female, with up to 97 percent o f the active female population engaged in the sector. Thus, this IS a key area impacting poverty reduction. Agnculture was expected to grow at 6.6 percent in 2004 (following average growth o f 7.1 percent over 1999-2003), but due to rainfall vanability and, to a lesser extent, the energy cnsis, which affected exports, the sector expenenced virtually no growth. To improve agnculture growth going forward, including diversification into horticultural products, such as fruits and vegetables (which generate greater revenue than staple crops), pyrethrum, hides and sluns, the GoR finalized i t s Strategic Plan for Agricultural Transformation in October 2004. It highlights four program areas and 17 subprograms, from which Cabinet has endorsed 24 prionty actions. In December 2004, Rwanda’s export promotion strategy and action were adopted by Cabinet, and the Rwanda Investment Promotion Agency was transformed into the Rwanda Investment and Export Promotion Agency. The GoR’s plan i s to continue to increase public investments in the agnculture sector dunng the f i rst “pnmary growth phase” from 2002-2006, and to have the pnvate sector play a major role in investment dunng the second “consolidation phase” from 2006-2010.

Coffee and Tea. In 2004, coffee and tea exports accounted for 58 percent o f goods exported. As a result o f policy and institutional reforms o f 2003104, coffee production increased to 30,000 tons in 2004, or 38 percent over 2003 figures. The GoR’s strategy i s to focus on fully washed, premium coffee, the average pnce for which i s about twice that o f traditional beans. Donors such as USAID are playing an active role in providing financing, training, fertilizer, and washing stations. Rwanda’s tea, the leading traditional export commodity, i s considered to be o f the highest quality and prices are three times that for non-premium tea. Pnces have been relatively stable and production i s expected to double by 2010, from the 2003 level o f 14,300 tons. Ongoing pnvatization o f tea factories i s expected to improve production and exports, though financing remains a major constraint to production. A recently completed Financial Sector Assessment Program w i l l feed into the GoR’s action plan to address this.

Services. The service sector w i l l continue to be a strong driver o f growth in the medium term. Activities in this sector consist o f banlung and financial services (8 percent), transport, storage and communication (18 percent), trading (24 percent), rental property (25 percent), and public administration (25 percent). Activihes related to deepening the financial sector, particularly micro-finance, have the greatest potential t o contribute to growth. Measures initiated to increase tourism and information communications technology penetration are expected to stimulate service sector growth.

ruction. Construction activities will remain a key driver o f growth, in turn stimulating investment and trade. The as simultaneously launched initiatives in labor intensive public works to rebuild and generate employment in and rural areas. T h i s work w i l l complement the G o R s plan to improve the road networks (particularly rural , which has been identified as a major constraint to trade and competitiveness by the Integrated Framework

a1 Integration. Increasing trade both within the region and globally i s crucial t o achieving pnvate-sector led in the medium- to long-term, and there is great potential for Rwanda. For example, measures to improve

nda’s ability to respond to the transformation o f food procurement systems around the world, as illustrated b y the d nse o f regional and international supermarkets, could be a potential growth area for Rwandan exports and trade.

1 require the development o f export supply chains to feed into these regional and international structures. In , actions w i l l be needed to improve food safety, quality, branding, packagmg, and labeling. This w i l l require

n g producer capacity and supporting the creation o f commodity-specific federations for key exports (i.e., coffee. orticulture, processed foods). Organized producer groups would facilitate dissemination o f market information.

standards, and access to lower-cost inputs (resulting f rom economies o f scale). Training in market and business management, to promote high value production and trade could also be provided. To

ign investment, the GoR w i l l continue to facilitate intra-African trade and enhance ongoing regonal fforts. Political nsk bamers to trade w i l l be addressed through the IDA-financed Regional Trade

ing and Light Manufacturing. The mining sector i s currently under-developed and there i s great potential tc

8

Page 15: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

11. Rwanda’s Poverty Reduction Strategy

A. Poverty Situation and MDGs

18. Rwanda’s PRSP provides a comprehensive diagnosis o f the causes o f poverty and outlines the key objectives and actions required for reducing it. A calculation o f poverty before the genocide, which used a poverty l ine based on the 1985 household budget survey, estimated that 50 percent o f the rural population was poor in 1 990.9 Poverty dramatically increased fol lowing the genocide, reaching 78 percent o f the population, including 82 percent in rural areas and 28 percent in urban areas. Annex 5 provides a table with indicators o f Rwanda’s l ikelihood o f meeting the MDGs.

19. By 2000, the proportion o f poor people had declined to 64 percent. In 1999, a new definition o f poverty was established and a new poverty l ine created f rom the national rapid poverty assessments and the household living standards survey (HLSS), establishing the headcount index at 60.3 percent below the poverty line, including 65.7 percent in rural areas and 14.3 percent in urban areas. The HLSS showed a significant change in income inequality, with the Gini-coefficient rising to 0.455 from the 0.270 in the 1985 HLSS (a figure that has a very narrow empirical base), and with urban populations much better o f f than rural. In 2000, the Gini index ranged f rom roughly 0.32 in Gitarama and Kibuye (largely rural areas) to 0.43 in Butare, Cyangugu, and K iga l i City (urban areas). Seventy five percent o f households in Kigal i were in the highest expenditure quintile, compared to 9 percent in Kibuye. The increase in urban to rural inequality reflects the relative neglect o f rural areas in the post- conflict reconstruction process as external funding provided development and employment opportunities for urban dwellers, but primarily humanitarian rel ief to rural communities. Currently, K iga l i i s undergoing a visible phase o f construction and modernization. During this process, caution i s warranted to guard against urban development becoming a l iabi l i ty for urban poor people, for example through the uprooting o f small houses and small businesses.

20. The 2004 Poverty Assessment, discussed in a workshop in Rwanda in March 2005, shows that long-term growth was heavily affected by the 1994 genocide. H a d the genocide n o t occurred, GDP i s estimated to be 30 percent higher than today and, a l l other factors equal, poverty would be considerably lower. In addition, Rwanda’s GDP, in per capita terms, i s hampered by rapid demographic growth and geography (i.e., the fact that the country i s landlocked). The Poverty Assessment shows that geographic location, household structure, and occupation significantly determine a household’s poverty status. Rwanda’s south-westem provinces o f Butare, Gikongoro, and Kibuye are poorer compared to other provinces. Female-headed households have a higher incidence o f poverty than male-headed households. Households worlung in agriculture, and especially agncultural wage laborers, are poorer than others.

21. The Poverty Assessment also notes that an additional ch i ld decreases household per capita consumption by 20 percent, and that female-headed households have 20 percent less consumption in urban areas and 8 percent less in rural areas, compared to male-headed households. The head o f household’s level o f education has a strong impact on household members’ consumption level. When the head o f household completed primary education, household consumption levels were 24 percent higher in rural areas and 29 percent higher in urban areas compared to a household without such education. These figures double to 54 percent and 69 percent, respectively, when the head o f household had completed secondary education. This points to large gains in consumption f rom education. Estimates tabulated from the 2001 household data indicate that widows head about 22 percent o f a l l households in Rwanda and these households constitute one o f the poorest groups. The rate o f extreme poverty in these households i s 49 percent, second only to the poverty rate in

T h i s estimate was based on a limited number o f householdsilocations. I t seems low given the then state o f the economy. Bank staff i s currently revising its pre-genocide poverty estimate upward, using recently available household surveys.

9

Page 16: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

households headed by divorced women. Households headed by elderly widows who care for their orphaned grandchildren may constitute one o f the most vulnerable sub-groups. The high level o f poverty among widows suggests that they may have lost their rights to retain control o f their land and economic assets.

22. A simulation analysis in the Poverty Assessment (based on extensive poverty and social impact analysis) also shows that increased use o f fertilizer would significantly decrease poverty. This i s not only because fertilizer increases production, but because the level o f fertilizer use in Rwanda i s currently very low. The use o f fertilizer at an optimal level, according to the simulation, could decrease the incidence o f rural poverty by 12 percent. The GoR i s also carrying out a new poverty survey (with DFID support) as a basis for i t s second PRSP.

B. PRSP and Implementation Progress

23. Rwanda’s PRSP, discussed by the Bank and Fund Boards o n August 12, 2002, sets out the GoR’s vision for achieving the MDGs, including reducing poverty by ha l f by 2015. I t articulates a medium-term program (2002-2007) as a f i rs t step toward the GoR’s “Vision 2020.” The PRSP preparation process integrated traditional problem-solving (such as Gacaca) lo in to the national poverty reduction program, which has broadened the GoR’s legitimacy to take action. The PRSP implementation process i s underpinned by decentralization o f government administration and grants for community-based development schemes channeled through a Common Development Fund (established by the GoR in M a y 2002). Development partners strongly supported Rwanda’s PRSP process and have universally commended the GoR for the consultative manner through which the PRSP was developed.

24. illustrates Bank support to Rwanda’s PRSP.

The PRSP articulates five basic building blocks and six pr ior i ty action areas. Figure 1

I Economic growth and poverty 1 Agricultural transformation and rural development reduction Human development Macroeconomic stability Govemance and partnerships Priori t izing public actions

Human development in education and health and protecting vulnerable groups Economic infrastructure for development Human resources and capacity building Building an enabling environment for private sector development Good governance

25. The GoR’s f i rst PRSP annual progress report (APR) covered implementation through June 2003 and the second through June 2004. The GoR also provided a supplement to the second APR, covering progress o n PRSP policy-related actions through end-2004 and early 2005. APR preparation was strongly participatory, involving not only development partners (as was the case for the 2003 APR), but also local government authorities, parliamentarians, nongovemmental organizations (NGOs), and other c i v i l society stakeholders. The APR incorporated the results o f a participatory survey undertaken to gauge the satisfaction o f grassroots groups with public services and private initiatives targeted at poverty reduction.” For the second APR, l ine ministries, rather than the coordinating group in the Ministry o f Finance and Economic Planning (MINECOFIN), took responsibility for writing their respective APR inputs. Though at the time i t published the second

lo Community tribunals, l i terally “Justice on the Grass” ” In 2002, MINECOFIN established the Strategic Planning and Poverty Reduction Monitoring Department (now the

Strategic Planning and Poverty Monitoring Unit) to coordinate the implementation o f the PRSP’s core programs, including a monitoring and evaluation function.

10

Page 17: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

APR the GoR was planning to update i t s PRSP over 2005 for publication in 2006, it subsequently decided that continued concentration on pol icy implementation over 2005 was warranted, and thus plans to publish i t s second PRSP in mid-2007. As such, the GoR i s in the process o f finalizing i t s third APR.

26. The second APR provides a candid review o f PRSP implementation. I t analyzes key PRSP elements, including the participatory approach; priority public actions; monitoring and evaluation; institutional and governance issues; and donor coordination. The APR discusses the slower than expected progress on agricultural transformation and rural development and o n the development and implementation o f a strategy for export-led growth. I t highlights progress in the area o f public financial management, while outlining remaining challenges, and discusses the significant achievements in human development, particularly in the education and health sectors. It also outlines the vision o f further strengthening sector strategies and the links between them, the sectoral and overall MTEFs, the budget, and the GoR’s poverty reduction strategy. The Joint Staf f Advisory Note (JSAN) commends the GoR for i t s frankness about achievements and shortfalls, and highlights areas for more focus going forward: creation o f an overarching macroeconomic framework, including debt sustainability analysis; costing and priorit izing sector strategies; creating an enabling environment for private sector development and implementing productivity-enhancing strategies, particularly in agriculture and export promotion; and further improving the delivery o f public services through pay reform and better targeting toward the poor.

27. The GoR continues to pursue decentralization, both to deconcentrate central authority and to devolve the decision-making and budget implementation process to authorities who are in closer touch with communities’ needs. A newly adopted “Territorial Reform establishes four “deconcentrated” provinces and 30 district governments -from 106 before the reform-.I2 It i s to these districts that most o f the responsibility for decisions and budget implementation for service delivery are being devolved. However, capacity at the district level i s often insuff icient to effectively deliver services. Thus, whi le the Bank-supported Decentralization and Community Development Project i s helping communities to lead their own development, with PRSG support the districts have been pi lot ing private contracting o f services, most notably in the health and water sectors, with block grants f rom the center playing a role. Based o n successful pilots, support f rom PRSG I1 would help to further this approach. At the same time, the GoR i s reviewing the administrative map o f the country to reduce the number o f districts and i s preparing a series o f laws to provide a clear framework to govern the relationships between central and decentralized authorities.

28. Overall budget management has improved over 2004 and 2005, and the 2005 budget i s closely l inked with PRSP priorities. B o t h recurrent and capital expenditures are rising, representing 28.4 percent o f GDP versus 26 percent in 2004 and 24.4 in 2003. The increase in expenditure levels i s largely driven by (a) the implementation o f fee-free primary education; (b) fuel and energy; (c) salary increases, in line with the GoR’s c i v i l service reform program; (d) increased police recruitment and promotion; (e) increased access to health services for the poorest people; and (0 infrastructure programs, mainly for electricity and agriculture. Exceptional expenditures, which are most ly transitional expenditures, have been declining, representing 13 percent o f the 2005 budget versus 17 percent in 2004.

’* Below the districts are the secteurs and cellules levels o f local administration.

11

Page 18: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 19: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

29. Priority expenditure allocations for 2005 have increased by 27.8 percent compared to 2004. Most priority expenditures are in social sectors such as health and education. The total priority budget for education increased by 12 percent compared to 2004, accounting for 49 percent o f priority expenditures in 2005. The increase i s mainly meant for primary education, to continue implementation o f the GoR’s fee-free education policy. The high share o f tertiary education priority programs, such as domestic and intemational scholarships, has been reduced in the 2005 budget, in line with the GoR’s commitment to cap and gradually decrease public spending on tertiary education. The health sector continues to receive the second highest priority allocation, with 14.4 percent o f the total 2005 budget. The most important program in this category i s for decentralization o f health services. Fol lowing health, other priority areas include the national police force (to improve internal security), local administration (to support Rwanda’s decentralization program), electricity, infrastructure, and agriculture (see Table 3).

Table 3: Priority expenditures (as shares of total priority spending)

Areas 2002 2003 2004 2005 Actual Actual Actual Budget

Internal affairs 8.5 10.6 8.9 9.4 o f which decentralization 1.1 1.1 1.2 1.4 o f which national police 6.0 8.6 7.1 7.4

Agriculture-poverty 3.5 2.8 3.2 5.2 o f which research 1.4 1.2 1.1 1.2

Industry and trade 1.6 1.2 1.7 3.3 Decentralized Minecofin 0.5 0.5 0.7 0.7 Education 57.0 55.3 56.5 49.5

o f which decentralization (primary and secondary) 31.3 29.4 26.4 22.5 of which scholarships outside the country 3.2 3.8 2.6 0.0 o f which priority programs in tertiary institutions 10.8 10.5 16.5 7.7

Culture and sports 1 .o 1 .o 1.0 0.8 Health 11.7 11.7 14.5 14.4

o f which decentralization 2.5 2.5 3.6 3.3 o f which hospitals 2.2 2.0 4.1 3.0 o f which laboratories 0.4 0.2 0.3 0.2 o f which family planning 0.4 0.3 0.3 0.0

Infrastructure 7.7 4.5 5.6 6.2 o f which Road maintenance 0.0 3.1 3.6 0.0

Gender 0.4 0.4 0.3 0.4 Employment 0.8 0.4 0.3 2.4 Lands 0.4 0.5 0.6 0.8 Local administration 6.9 10.7 6.5 6.6

memo: o f which Community Development Fund (CDF) 1.9 4.8 3.8 3.7

Priority Expenditure as a share o f total govt. spending 29.4 28.7 26.8 30.4 Source: Ministry of Finance, and WB estimates

30. The budget execution rate for the 2004 recurrent budget was 82 percent (excluding debt payments). However, the execution rates for priority programs have been consistently higher. In 2004, the recurrent education budget was executed at 102 percent; agnculture at 92.4 percent; and health at 91 percent. Although overall pr ior i ty expenditures were executed at 100 percent in 2004, some pr ior i ty programs under-spent their budget due mainly to unforeseen energy needs, coupled with delays in grant disbursements in 2004. T h i s included programs in agriculture, export promotion, provinces and districts, community services works, and public works.

31. Going forward, the GoR plans to redefine pr ior i ty expenditures (which currently account for over ha l f o f total budget expenditures) in the format o f poverty reduction expenditures, aligning this redefinition with the exercise o f preparing i t s second PRSP. The objective would be to match PRSP

13

Page 20: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

objectives to poverty reduction expenditures, which in turn would be reflected in sectoral MTEFs and ultimately translated into budget programs.

IV. Bank Support to Rwanda’s Poverty Reduction Strategy

A. Link to CAS and Other Bank Operations

32. The last Country Assistance Strategy (CAS) for Rwanda was discussed by the Board in December 2002, following the PRSP. Consistent with PRSP priorities, the CAS articulates a Bank program o f support around four themes (a) revitalization o f the rural economy; (b) private sector development and employment creation; (c) human and social development; and (d) improvement in governance and effectiveness o f public sector actions. The CAS highlights the need to move progressively f rom project-based approaches to SWAPS and budget support, envisaging the PRSC program in the base case lending scenario. The CAS also proposed greater emphasis o n economic and sector work, recognizing Rwanda’s need for a sound analytic base for strategic planning. The new CAS will be prepared in line with the GoR’s second PRSP and would be presented to the Board fo l lowing the Board’s discussion o f Rwanda’s second PRSP.

33. Whi le PRSG support incorporates sector dialogue and pol icy and institutional reform actions, the nine active Bank projects in Rwanda complement pol icy dialogue and reform by providing focused investment assistance. Sectoral projects complementing PRSG actions include a Rural Sector Support Project, a Rural Water Supply and Sanitation Project, an Urgent Electricity Rehabilitation Project, a Competitiveness and Enterprise Development Project, a Regional Trade Facil ity Project, an H IV /A IDS MAP, and a Human Resources Development Project in education (the latter will close in June 2006). Cross-sectoral projects directly reinforcing PRSG aims include the Decentralization and Community Development Project, effective since December 2004, to help empower local communities to develop and implement projects and programs meeting their development needs, and the recently effective Public Sector Capacity Building Project, designed to provide targeted capacity building in PRSC areas. I t will collaborate with the GoR’s recently created Human Resources and Institutional Development Agency (HIDA), which i s responsible for coordinating government requests for capacity building. The Bank i s also supporting a Demobilization and Reintegration Project in the context o f the Multi-country Demobilization and Reintegration Program.

34. The lessons learned from the Bank’s past experience in implementing projects and development policy operations in Rwanda outlined in the PRSC I program document remain valid: previous operations have tended to be characterized by overly complex project design, an uncoordinated approach among the various Bank interventions in different sectors, and insufficient attention to service delivery for the poorest. The Bank has taken these lessons into account in i t s current approach, using the PRSG program as the overall umbrella for Bank support and pol icy dialogue-in l ine with the GoR’s development priorities-with project support aimed to complement PRSG objectives. Lessons from current experience continue to point to the public sector’s acute need for human capacity development, particularly n o w that the country’s reconstruction phase has ended, so that the GoR can implement i t s ambitious reform program in the timeframe envisaged. Whi le the GoR should be commended for the successful way in which it has camed out the f i rs t phase o f i t s comprehensive c iv i l service reform program, including large retrenchments, in the short-term i t has further diminished the already taxed capacity of central and local government ministriedagencies T o support the GoR in the second phase as i t recruits, hires, and trains competitive candidates for newly- defined, open positions, the GoR and i t s donor partners are discussing how best to coordinate capacity building activities in l ine with H IDA ’s mandate.

14

Page 21: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

C. Analytic Work Program

Growth and

35. An extensive set o f analytic and advisory activities i s informing the PRSCiG program. Building o n analysis conducted to underpin PRSC I, major ongoing and completed analysis underpinning PRSG I1 i s summarized in Table 4. I t includes the finalization, in 2005, o f a Country Financial Accountability Assessment (which built on the jo in t GoWdonor Financial Accountability Review and Act ion Plan that informed PRSC I) and a Financial Sector Assessment P r o g r a d e v i e w o f Observance o f Standards and Codes (FSAPROSC). In addition, the GoR plans to fund annual sectoral public expenditure reviews from i ts budget starting in 2006. And, given i t s importance, a Multi-sectoral Rural Development Strategy Study for medium- to long-term development o f the rural economy wil l be undertaken. Donors will continue to jo in t ly carry out and share analytic work.

Financial Accountability Revie; and Aciion Plan (2003) Country Economic Memorandum on Sources o f Growth, including Study on

Financial Sector Assessment ProgradReview o f Observance o f Standards and Codes

Country Procurement Issues PaDer (2004)

Energy

Water

_ _ HIV/AIDS Program (ongoing, baseline conducted in 2005) Market Study of Urban Energy and Water Usage (ongoing) Assessment of Rural High-Priority Electricity/ICT/Water Needs (ongoing) Legal, Institutional and Regulatory Framework Study on Integrated and Sustainable

Private Sector Development

Transport

Education

Transport Sector Policy Assessment (ongoing) Assessment o f Road Fund Performance (ongoing) Diagnostic Trade Integration Study-Transport Component (ongoing) Private Sector Participation Opportunities in Transport Study (2003)

Health

Manufacturing (ongoing) Investment Climate Assessment (ongoing) Integrated Framework Diagnostic Trade Integration Study (ongoing) Agriculture Policy Note (ongoing) Mapping Ways Forward: Planning for 9-Year Basic Education in Rwanda Framework for Aid Coordination: Improving the Provision & Management o f Extemal

Strategy for Vocational and Technical Education Literacy Survey Feasibility Studies informing the Higher Education Law, Teacher Development & Management Policy, and other areas Demographic Health Survey (ongoing) Labor Market Health Survey (ongoing) Impact Evaluation o f Community Based Schemes, Contractual Approach, and

Support to Education (2005)

C. Donor Coordination, Harmonization, and Alignment

36. Rwanda’s donor partners, particularly those partners providing budget support (Le.’ AfDB, DFID, EU, SIDA, the Wor ld Bank and, going forward, the Dutch) have endorsed Rwanda’s PRSP as the framework around which to channel their support. Fo l lowing the Rome Declaration on aid harmonization, the GoR and budget support donors at the time signed, in November 2003, a

15

Page 22: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Partnership Framework for harmonization and alignment. I t aims to improve donor alignment with the GoR’s PRSP and budget cycle, strengthen donor coordination, decrease overlap and duplication, and reduce transaction costs for the GoR in dealing with donors and managing development assistance. It established the Budget Support Harmonization Group, and has served to enhance the level o f collaboration among budget support donors, in particular in dialoguing with the GoR and each other on planned support.

37. PRSC I was the first budget support operation prepared under this Partnership Framework, and preparation o f PRSG I1 built on the experience. This time, the GoR firmly took the lead in coordinating donors. As part o f a reorganization o f MINECOFIN, the External Financing Unit was given the responsibility for handling donor relations, and it implemented the calendar agreed by the GoR and donor partners (see Annex 6), introducing the following processes over the last year, which facilitated preparation o f PRSG 11:

Joint Budget Execution Review. The GoR invited budget support partners to jo in t budget execution reviews in March and July 2005, to discuss sectoral and sub-sectoral budget allocations and expenditures at the national and district levels, in view o f the links to PRSP growth, poverty reduction, and human development outcomes. Review objectives included (a) improving predictability o f expected resource flows; (b) improving information o n actual allocation and expenditure o f resources and adequacy o f spending in light o f intended outcomes; and (c) providing better information on fiscal aggregates and how they are financed, to better i n fo rm macro-level discussions.

Joint Public Financial Management Review. In Februaryhiarch 2005, the GoR invited budget support partners to a jo in t public financial management review. The review carried o n the process o f collaboration among the GoR and donors to document Rwanda’s significant progress in public financial management reforms, identify gaps, and determine a roadmap o f actions going forward. The review fed into the finalization o f the Country Financial Accountability Assessment.

Sector Reviews. Building on and feeding into the jo in t budget execution and public financial management reviews, the GoR invited budget support donors to review pr ior i ty sectors (including education, health, water, and energy) in preparation for jo int budget execution reviews. The sector reviews also fed into the PRSP APR preparation and validation process and the budget preparation process. The assessment o f sector indicators and the update/preparation o f sectoral MTEFs were undertaken as part o f the sector reviews. Sectoral “cluster” groups, f i rs t established in 2002, underpin the process. Each major sector has a cluster around which input f rom relevant government agencies, donors, and other stakeholders i s organized. A lead government agency and lead donor coordinate the cluster’s activities. The GoR and donor partners recognize that, in practice, certain cluster groups have been more active/effective than others. The G o R i s encouraging clusters to clearly define their goals and objectives, and i s cognizant o f the need to ensure that timing o f sector reviews i s fully aligned with PRSP and budget cycles. So that the groups do not proliferate out o f control, the GoR and donor partners have agreed that, going forward, a new cluster must be formally recognized by Cabinet before it can officially be recognized as a cluster.

38. The overarching donor coordination body in Rwanda i s the Development Partners’ Coordination Group, which meets monthly and i s co-chaired by the GoR and UN Resident Coordinator. A sub-group on Harmonization and Alignment in Rwanda for Projects and Programs i s comprised o f the GoR and non-budget support donors (with a secretariat hosted by the United Nations Development Program). In terms o f harmonization, much progress has been achieved over the past few years. SWAps with harmonized features are emerging in several sectors. Bilateral donors are engaged in delegated cooperation agreements at sector level. Joint sector reviews, jo in t or shared analytic work are common practice. Annex 8 offers more details o n recent progress in terms o f harmonization and alignment. However, despite the progress, given the multiple donor coordination

16

Page 23: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

mechanisms and sources o f aid, the GoR (led by MINECOFIN’s External Financing Unit) i s developing an Aid Policy Document, to clearly define what Rwanda wants to achieve with i t s external assistance, what sort o f aid to accept, and how it can be most efficiently managed. The document i s expected to be presented at the November 2005 Rwanda Development Partners Meet ing (Rwanda’s annual donor conference). Having reviewed the experience under the 2003 Partnership Framework, under which both the GoR and budget support donors have successfully implemented some commitments but failed to implement others, signatories agreed to consider the best way forward, whether i t be through an updated Partnership Framework or other means, in the context o f the Aid Policy Document.

39. As with PRSC I, the PRSG I1 pol icy matrix i s completely aligned with the GoR’s PRSP/medium-term reform program, being a subset o f measures taken directly f rom the PRSP matrix. The PRSP (and thus the PRSC) matrix i s dynamic f rom year to year; the GoR and donor partners, including the Wor ld Bank, review i t s content as part o f the process outlined above, and any updates to the PRSP matrix are reflected in the PRSP APR. During the review process, the Bank, in close collaboration with the GoR, assess whether the measures selected f rom the PRSP matrix as PRSC pr ior actions and triggers (a) continue to reflect the most important dimensions o f the program; and (b) have progressed as expected. Though al l donors are invited to participate in this process, only the Wor ld Bank, AfDB and, going forward, the Dutch use a common Performance Assessment Framework (PAF). In the spirit o f furthering harmonization, discussions between the GoR and a l l budget support donors are ongoing regarding the pros, cons, and feasibility o f moving to a PAF shared by all.

40. L i ke PRSC I, PRSG I1 disbursements would be aligned with the GoR’s budget cycle. As agreed under the current Partnership Framework, a l l budget support donors are attempting to move to frontloading o f disbursements in the f i rs t quarter o f the calendar year (corresponding to the f i r s t quarter o f Rwanda’s fiscal year), to reduce volati l i ty o f aid flows, which affects the GoR’s capacity to plan and budget effectively. Five donors-CIDA, DFID, SIDA, the Swiss, and the Netherlands-have also put in place a basket fund in support of improved aid management and efficiency. In 2004, three major budget support donors unexpectedly suspended disbursements during the fourth quarter; as a result the Bank increased the amount o f budget support planned for 2004 by US$15 mi l l ion to fill the gap and help the GoR avoid defaulting o n major commitments. Similarly, PRSG I1 i s expected to disburse before end-2005 so that funds may be available to the GoR for January 2006, but also to provide flexibil i ty for the GoR to use a portion o f the funds in fiscal 2005 if necessary.

V. Proposed Second Poverty Reduction Support Operation

A. Overview

41. PRSG I1 would continue Bank support to the GoR to implement i t s PRSP. As discussed in the PRSC I program document, the PRSG program focuses on a set o f policies and reforms intended to (a) create a favorable private sector investment climate that would promote macroeconomic stability and sustained economic growth; (b) improve quality, coverage, and equity o f basic service delivery through improved expenditure efficiency; and (c) support overall improvement o f public expenditure management and govemance, with an emphasis o n transparency and accountability t o citizens’ voice and participation. The broad outcomes expected at the end o f the f i rst PRSCiG series (i.e., PRSC/Gs I, 11, and 111) include (Table 5):

Continued macroeconomic stability, maintenance o f l o w number o f days to open a business, and

A monitorable, increased proportion o f children having completed primary school. Measurable reduction o f under-five mortality and impact o f communicable disease.

increased exports to GDP ratio.

17

Page 24: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Measurable increased access to clean water and sanitation facilities. A clear regulatory framework fo r the energy sector, including a transparent regulatory ta r i f f setting mechanism.

~~~ ~

PRSP Area/Ob,j ective

Table 5. Outcome Indicators for Rwanda's PRSC/G Series

*Most recent year 2001-2003.

P R S C P R S G P R S G 1 2 3 P R S P Sub-areadobjectives

42. strategic focus o f the sequence o f PRSC/Gs.

Table 6 lists a l l o f the areas covered by Rwanda's PRSP, highlighting the selected areas of

Agriculture Transformation &

Table 6. Strategic Areas for Rwanda's P R S C Series

Agriculture X X Livestock Environment Land and Settlement

Export Promotion Artisanal Activities Mining. Tourism

X X X I Credit and Savings I I I

Enabling Environment for

Private Sector

"I I

Manufacturing Privatization o f State Enterprises X X X

Social Capital for

Vulnerable Groups Good

Governance

Infrastructure

Human Resources

Orphans, Widows, and People affected by HIViAIDS

Security & Demobilization National Reconciliation Human Rights Criminal Justice & Gacaca

18

Page 25: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Constitutional Reform and Democratization Decentralization at Cellule Level C i v i l Service Reform Accountabi l i ty & Transparency

43. PRSG I1 pr ior actions are set out in Table 7 (they are the bolded items from the PRSG pol icy matrix in Annex 2) along with the PRSP aredobjective to which they relate. Reflecting the GoR’s highly ambitious nature, there are (as with PRSC I) 13 pr ior actions, in some cases with sub-actions embedded therein. Table 7 also explains the evolution o f PRSG I1 pr ior actions as envisaged at the time o f PRSC I. While many PRSG I1 pr ior actions have not changed from what was envisaged at the time o f PRSC I, in a few instances the GoR underestimated the time Parliament would spend reviewing legislation or was over ambitious in what i t projected i t could achieve in the time period, particularly in light o f the c iv i l service reform program carried out over 2004-05, which diminished the GoR’s capacity to implement i t s reform agenda in the short run. Overall, however, Rwanda has made steady progress in implementing i t s policy reform agenda, and the reform program i s judged to be o n track.

X X X

19

Page 26: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

I x

I

-0 d

-

0 N

Page 27: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

44. Based o n the GoR’s strong track record, the PRSC/G series i s expected to continue. Indicative triggers for PRSG I11 are presented in Table 8. These triggers build on the set o f pol icy reform issues supported by PRSC I and PRSG 11. They will be reviewed next year in the context o f APR preparation.

Table 8. Indicative Tr

1 Private Sector-led Growth

Access to Basic Education o f Acceptable Quality Improve Health Services Performance Improve Water Sector Performance Improve Energy

I Sector Performance

Improve Public Finance and Expenditure Management

Improve Transparency and Accountability

Improve Monitoring

MTEF 2007-2009 ceilings and 2007 Budget are consistent with the sector financing strategy, present official govemment draft budget document to all stakeholders in July 2006.

Seek endorsement of recommendations o f comparative review o f performance based schemes for health centers and expand scale up to at least 3 additional provinces with govemment funding.

Privatization o f 10 percent o f the rural water supply systems

Passage of electricity and gas legislation including tariff reform

Maintain adequate macroeconomic framework.

Submit draft 2007 budget law to cabinet, consistent with macro-framework, detailed and output-oriented 2006-2008 medium term expenditure frameworks for education, health, water, and energy, and PRSP priori ties.

2005 budget execution report submitted to Auditor General and presented to Parliament. Finalize, adopt and publish Manual of financial management procedures. All tenders are passed in compliance with new procurement law. The Office o f the Ombudsman reviewed by sampling at least 15 percent of the declaration o f assets for staff handling procurement.

Produce, publish and disseminate the 2005 PRS report. Conduct follow-up survey o f citizens’ report cards.

B. PRSG I1 Reform Program

45. PRSG I1 would continue to focus on and assist the GoR as i t implements the next steps in i t s reform program supported under PRSC I, including (a) creating a strong basis for private sector-led economic growth, driven by agricultural transformation, promotion o f exports, and deepening o f the financial sector; (b) strengthening the results orientation o f i t s MTEF and associated sectoral MTEFs, particularly in education, health, water, and energy, strengthening the linkages between MTEF priorities and the budget, and expanding performance-based contracting o f services; and (c) continued strengthening o f governance and transparency, particularly through further improvements to the fiduciary framework and empowerment o f local communities. At the GoR’s request, given the important linkages to the growth agenda, pol icy dialogue and preparatory w o r k o n a detailed, output- oriented MTEF linked to planning and budgeting in the transport sector has been added to the program under PRSG 11, to complement ongoing and planned investment activities.

21

Page 28: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

i. Private Sector-Led Growth and Agricultural Transformation for Poverty Reduction

46. Current Issues. High growth scenarios as envisaged in the PRSP to meet MDGs and generate income and employment are only possible with private sector development. In addition, a key part o f Rwanda’s growth strategy in the short- to medium-term i s agricultural transformation, since the economy remains largely agrarian. Linked to this, and to the longer term growth strategy, the GoR i s focusing o n diversifying the economy, promoting exports, furthering regional integration and investment, expanding tourism, introducing information communications technology (ICT), and continuing improvements in the bankinglfinancial sector.

47. In the f i r s t instance, improving returns to farming i s fundamental to rural development and poverty reduction since the majority o f the poorest people in Rwanda are subsistence farmers. In addition, the GoR recognizes the link between agnculture growth and social stability. Studies such as the HLSS show that farmers involved in the production o f cash crops have higher income or consumption compared to subsistence farmers, and those involved in non-farm activities have even higher incomes. Thus, the GoR has designed several initiatives to improve a p c u l t u r a l productivity and diversify the economy. Some, such as investment in high-quality coffee production and construction o f coffee washing stations, have yielded encouraging results. Studies analyzing the tea sector conclude that privatization will increase productivity, positively impacting GDP growth and poverty reduction by increasing export revenues and the livelihoods o f the mainly small-holder farmers that work the plantations. At the same time, the economy remains vulnerable to commodity prices for coffee and tea and to climatic conditions for agriculture production. Over-reliance o f agriculture o n rainfall i s r isky, unsustainable, and results in poor productivity. Promoting the use o f fertilizers and optimal water use for agriculture production, extension services, availability o f inputs, and capacity building for small-holders i s needed. Lack o f financial intermediation in the rural sector i s an issue, with only 2.3 percent o f bank credit going to finance activities in the agricultural sector; high nominal interest rates and lack o f formally registered collateral, such as land and property that can be used as security, i s also a major constraint on borrowing. In addition, the overall budgetary allocation to the agriculture sector remains low, and the linkages between the new sector strategy (which i tsel f i s l inked to initiatives in the water, energy, and transport sectors), the MTEF, and the budget need strengthening.

48. Expanding i t s export base and diversification beyond agriculture are priorities, but given i t s l imi ted domestic market and distance to key ports, improvements in the country’s transport and infrastructure sectors will be crucial for Rwanda’s exports to be competitive. Addressing energy needs will also be necessary to foster private investment. The GoR i s moving forward with privatization o f state-owned assets, though in some cases privatization has not moved as quickly as the GoR would l ike because o f difficulties in attracting (domestic and foreign) investors. The GoR i s also committed to deepening the financial sector. Banks continue to focus on short-term financing to established customers and make only limited credit available to finance medium- and long-term investments. Whi le administrative barriers are not an issue, tax burden, customs procedures, and transport costs are seen by the private sector as the major constraints to doing business in Rwanda. N e w legislation to address contracts, bankruptcy, and competition i s needed.

49. Rwanda embraces the principles o f free market economy and i s committed to furthering regional integration. Since 1994, the GoR has embarked on a comprehensive liberalization o f i t s economy, initiated legislative reforms, promoted free trade, and pursued regional integration targets determined through the Cross-Border Initiative and COMESA protocols. In l ine with the regional integration agenda, Rwanda reduced i t s tar i f f rates and eliminated a l l export taxes and other non-tariff barriers and, as a result, Rwanda’s trade regime i s now considered as one o f the most open in SSA. In 2004, the country jo ined the COMESA Free Trade Area, which provides duty- and quota-free access to a market o f nearly 380 mi l l ion consumers with a combined GDP o f approximately US$170 bil l ion.

22

Page 29: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Even with these commitments and efforts, Rwanda remains relatively closed to international trade, both in absolute terms (US$306.8 mi l l ion total revenue from international trade only during the period 1992-2002) and relative terms (17.3 percent o f GDP during the same period). Rwanda’s trade balance since 1994 has averaged a deficit equivalent to 20 percent o f GDP compared with an average o f 6 percent for a l l HIPC countries. Export performance has also been low.

50. Government Strategyhzplementation Progress. Progress in agricultural transformation has been slower than expected. The conflict and genocide devastated the sector, and it was not until 1998 that production reached pre-genocide levels. After launching the strategic planning process in the context o f the Rural Sector Support Project and with assistance under PRSC I, the GoR has prepared, in consultation with districts and provinces, a Strategic Plan for Agncultural Transformation (PSTA), a key milestone for PRSG 11. The PSTA’s ultimate objective i s to contribute to national economic growth, improve food security and the population’s nutntional status, and increase rural households’ revenue. I t s four priority programs are (a) intensification and development o f sustainable production systems; (b) support to professionalization o f farmers; (c) promotion o f commodity chains and development o f agribusiness; and (d) institutional development. The focus in 2005 has been on refining and costing the plan, developing a more focused MTEF, and realigning projects and programs in the sector. This work i s progressing well and i s underpinned by the Agriculture Policy Note that i s focusing on a set o f policy and institutional reforms to be implemented over the next year. Reflecting the strides in sector strategy development, the PRSG matrix (Annex 2) includes much more robust actions in the agnculture/growth area than was the case under PRSC I. Progress on the critical but sensitive issue o f land reform remains slow, but the new Land Law, which guarantees tenurial security and potentially permits the development o f a land market, has been approved by the Lower Chamber o f Parliament and i s awaiting ratification.

5 1. Simultaneously, the GoR-with the Rwanda Investment and Export Promotion Agency taking an active role-began to implement i t s export promotion strategy (developed with PRSG support) over the past year. The strategy identif ied short-term measures for the coffee and tea sectors aimed at improving access o f growers to input factors and building an international marketing presence for Rwandan tea and coffee and, as a result, coffee production increased substantially in 2004. RWANDEX, the major coffee exporter, i s currently undergoing privatization. The export promotion strategy also identi f ies horticulture, including passion fruit, apples, bananas, cut flowers, houseplants, and cape gooseberries, as an area with strong potential for expanding Rwanda’s export base. However, lack o f institutional capacity i s a constraint, and the Rwanda Bureau o f Standards has l i t t le capacity to assist producers in meeting international standards. To further diversify the export base, create employment, and promote self-sustaining growth, the GoR has designated an area close to K iga l i airport as an Export Processing Zone (EPZ). Tax and other incentives to attract foreign investors to the EPZ, which have already begun to express interest, are being offered. The EPZ i s part o f the strategy for expanding regional and international trade.

52. The GoR has made considerable advances in reforming the business environment and putting in place the regulatory framework for private sector investment. Rwanda was rated among the top twenty reformers globally in the 2006 Do ing Business Report. Substantial progress has been made in reducing the time to establishing a business and improving the overall legal framework and contract enforcement. The report also ranks Rwanda among the top performers in trade reforms, and mentions Rwanda as one o f the few developing countries which make available comprehensive consumer credit reports. Further reforms will need to focus o n reducing the costs o f business start up (which currently averages 280% o f per capita income). l4

In general, Rwanda has implemented substantial reforms in contract enforcement and trade and was rated among the top 10 14

reformers in this area in 2004, according to the Doing Business Report. Credit registry was improved and customs streamlined. Government now distributes comprehensive consumer credit reports. Judicial procedures were also simplified, by streamlining appeals and imposing time limits on their filing, speeding up contract enforcement. The resulting time and cost saved have been substantial, allowing more businesses to use the courts. Average time to resolve disputes has been

23

Page 30: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

53. There has also been increased effort to stimulate increased investment. In addition to the adoption in 1998 o f an investment code in line with that o f a liberal market economy, more recently the GoR has enhanced the justice and legal system, establishing functional commercial courts and arbitration centers; created over 1,000 web pages o f hard investor information; modernized investment procedures, established RIEPA as a one-stop-shop to assist potential investors and deliver required approvals, certificates, and work permits for new investments projects. Foreign direct investment inflows, which averaged US$ lO mi l l ion annually during the pre-war period o f 1985-1994 and US$6 mi l l ion per annum between 2000 and 2003, increased from US$60 mi l l ion in 2003 to US$227 mi l l ion in 2004 (registered and approved projects). The Rwanda Util i t ies Regulatory Agency (RURA) was created to oversee the regulatory framework in key areas, such as water, electricity, and telecommunications, related to private investment. The GoR’s privatization program, an integral part o f i t s private sector development strategy, identified 72 state-owned companies for privatization. These companies operate in al l sectors, including agro-business, banks, public utilities, and financial services, mining, hotels, and tourism. Whi le the privatization strategy has been successful in certain sectors (53 companies have so far been privatized), i t i s progressing more slowly than the GoR would l ike. The process o f privatization o f tea factories, for example, has been more diff icult than the GoR envisaged. I t i s n o w reviewing experience with the two factories privatized last year to incorporate lessons leamed as i t goes forward with privatization o f the remaining factories.

54. Information communications technology (ICT) i s expected to play a role in development and poverty reduction, increasing opportunities for marginalized groups, especially women, reducing transaction costs, and increasing productivity. The GoR has already launched implementation o f the ICT strategy, which includes a vision for computers in every classroom, laying o f fiber optic cable, and installation o f wireless capability (all o f which have begun with private participation), and the strategy i s already having an impact. Whi le small, the I C T sector experienced double digit growth in 2004. K e y initiatives going forward include setting up public information kiosks (to serve as public access points for information), community electronic information kiosks, and a land records information system. For the I C T strategy to succeed, significant improvements in Rwanda’s telecommunications infrastructure will be necessary as will increased private sector investment in ICT. The recent privatization o f RWANDATEL, the state-owned telecoms company, should further facilitate implementation o f the ICT strategy.

55. A tourism working group has developed a strategy for the sector that envisions tourist arrivals increasing from 15,000 in 2003 to 70,000 in 2010; the number o f days per visit increasing f rom four to seven; and the amount spent per day increasing to US$200. Such developments would increase tourism revenue four-fold. Tourism development i s expected to have an impact on a broad range o f business opportunities, including hotels, restaurants, retail stores, handicrafts, tour agencies, tour operators, and so on. The main obstacles to robust tourism growth include continuing to transform Rwanda’s image, developing human resource capacity, promoting marketing, and upgrading physical infrastructure (including establishing air links to major centers). With the success o f the film Hotel Rwanda and other publicity related to the 10’ anniversary o f the genocide in 2004, tourist arrivals have increased, standing at 27,000 in 2004, with the expectation that 2005 numbers will be higher.

56. Considerable progress has been made in improving the banking sector, and efforts to modernize the legal and regulatory framework for commercial and financial transactions are also under way. Banking sector regulation and supervision have been strengthened; a regulatory framework for microfinance has been created; a new independent regulator for the insurance industry was

reduced by 22% and this has led to a 15% fall in attomey fees. In addition, Rwanda’s court and legal reform provides for specialized chambers in trial courts for litigation related to business, financial and tax matters. Moreover, 1 professional judge now presides over such cases, assisted by 2 lay judges. Previously, a 3-judge jury was required. In terms o f trade reforms, Rwanda came second in the 2006 Doing Business Report. Pre-shipment inspection i s no longer required. T h e customs declaration can be done electronically, although hardcopies are still inspected when picking the cargo up.

24

Page 31: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

established; an electronic card payments system has been rol led out; a School o f Finance and Banking i s operational; forceful judicial reform has been implemented; the public credit information system has been upgraded; and land tit l ing reform has been undertaken. Five o f six major banks have been privatized, and the GoR i s expected to se l l i t s shares in the remaining Bank o f K iga l i during 2005. Conventional measures such as liquidity ratio and the solvency ratio also attest to the improving health o f the banking sector, with the share o f non-performing loans, while s t i l l high, having declined f rom 40 percent in 2002 to 27 percent in 2004. Entrepreneurs and small businesses s t i l l do not have access to sufficient credit, and nominal interest rates are often high, at 16-18 percent for most businesses. The recently completed FSAPIROSC, undertaken by the Bank and IMF in close collaboration with GoR authorities, outlines actions for the financial sector reform program in the near- and medium-term.

57. Going forward, with support f rom PRSG I1 the focus will be on the following areas:

Continued improvement in the business environment. Even though the Government has made substantial progress in improving the business climate, further work i s needed to reduce the barriers to creating and operating a business such as registration, access to credit, and the need to improve capacity in business s h l l s . Actions needed to provide further impetus to private sector growth include operationalizing the One-Stop-Window, and deepening reforms in the banking and financial sector. The recently finished Financial Sector Act ion Plan (FSAP) and Diagnostic Trade and Integration Study (DTIS), which were prepared in close collaboration with the government, have specific actions for further improvements in the financial sector and trade integration and export promotion. Based on these recommendations, the government has initiated actions to strengthen micro credit intermediation, supervision, and regulation. These actions will contribute significantly toward reducing the cost o f setting up a business and also reduce the transaction costs which have hindered foreign investment.

Export promotion, trade and regional integration. The Government recognizes that this will be a key area for growth and poverty reduction. As a result, increased focus will be on developing an Export Promotion Action Plan with clear time bound and monitorable indicators, based o n the results o f the DTIS. In addition, the Government will focus o n issues o f trade facilitation that have hampered trade, with a focus on support to strengthening infrastructure and transport. Rwanda wil l also focus on strengthening i t s ties to regional trade arrangements and integration. The country has initiated discussions to j o i n the East Afr ican Community to improve regional trade links and to gain international markets.

Improved agricultural productivity. In order to improve incomes for the vast majority o f people who live in rural areas, the focus will be on implementing measures to increase agriculture productivity and facilitate transformation f rom a subsistence economy to one that i s geared to production for the market. The focus wil l be on ensuring increased access to improved inputs while providing increased capacity support to farmers in the use o f these inputs, and strengthening rural infrastructure 4 .e . roads, water, energy. In addition, further analytical work will be undertaken to understand the commodity specific constraints along the supply chain and use this to inform provision o f extension service and training.

Increased diversification of the Economy. As a part o f the diversification o f the economy, the government has viewed ICT, EPZ and tourism as major sectors for growth. The focus wil l be o n development of the necessary infrastructure and provision o f the necessary training to support these sectors. These sectors not only have the potential to generate significant employment opportunities, but also stimulate growth in hotels, restaurants, real estate, retail stores, and other businesses. In addition, there wi l l be increased focus o n research and training related to non- traditional exports in the agnculture sector, such as horticulture and hides and skins.

25

Page 32: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

ii. Improving Service Delivery for the Poor: Education, Health, Water, Energy, and Transport

a. Education Services

58. Current Issues. While high in proportion to GDP (5.5 percent compared with an average o f three to four percent in SSA), public spending on education remains l o w in absolute terms, which constrains the GoR in i t s efforts simultaneously to restore and modernize the education system. Since even in the high-case scenario economic growth will not be rapid enough to yield the necessary resources, substantial extemal assistance in the sector will be needed for several years to come. The GoR focused on ensuring the broadest possible access to education, especially primary education, as part o f reconciliation and unity. As a result, enrollment has increased rapidly while quality has not kept pace. This i s evidenced by high teachedpupil ratios (even with double shifts), short supply o f pedagogical materials, lack o f teacher qualifications, and high repetition rates (now capped at 20 percent, though underlying issues remain). Primary and particularly secondary education curricula are outdated, and although primary enrollment i s n o w almost universal, only 15 percent o f children attend secondary school, largely because o f distance and perceived irrelevance o f content. Vocational education programs are needed to provide a skilled labor force, while disproportionately high spending on higher education needs to be curtailed. The PRSP considers youth and adult literacy, especially for girls and women, a critical development priority, and a draft pol icy will be presented to G o R for approval. However, resources for the implementation of the pol icy are not currently available. In the wake o f c iv i l service reform, institutional and human resource needs should b e re-assessed and the roles and responsibilities o f central, provincial, district, and school body decision-makers (such as PTAs and Boards o f Governors) clearly defined and uti l ized to the maximum effect.

59. In the near- to medium-term, the GoR’s three broad, poverty-related objectives in the education sector are (a) improving the quality o f education services; (b) universalizing nine years o f fee-free basic education; (c) decentralization; and (d) increasing the proportion o f poor students and female students in public secondary schools. Progress toward these objectives requires adherence to a fiscally viable, long-term education sector development plan, transfer o f public resources to schools, and accountability for results in terms o f access and quality o f services.

60. Government Strategy/lmplementation Progress. The GoR and donors continue the sector- wide approach, meeting regularly to review issues and discuss the sector plan with the GoR, with a formal, annual jo int review conducted with a l l stakeholders. With PRSC support, the Ministry o f Education (MINEDUC) has made significant progress in refining i t s Education Sector Strategic Plan (ESSP) and related MTEF. The challenge n o w i s to move to the next level, improving the link between the two and ensuring adherence to a fiscally sustainable sector development strategy that i s consistently reflected in the annual MTEF update and annual budget, along with accountability for outputs in line with planninghhe M T E F .

6 1, Fulfilling the GoR’s commitment to universalize nine years o f fee-free basic education has been a key focus o f the strategy development process. Implementation began with the introduction o f fee-free primary education in 2003-04, and the net primary school enrollment rate n o w stands at 93 percent, with gross enrollment at 13 1 percent (reflecting the enrollment o f over-age pupils). Different financing scenarios and implementation structures were developed with support f rom PRSC I and DFID as a basis for MINEDUC to carry out the nine-year basic education policy. However, the various scenarios imply very diff icult pol icy choices. Financial resources are available if MINEDUC’s eventual proposal sets realistic targets and strategies for investment in improved quality (i.e., teacher development, provision o f leaming materials, monitoring leaming achievement) and capacity and avoids new, high-cost public investments in vocational, technical, and science and technology education, and ICT. Whi le the latter are PRSP priorities, they were elaborated before the GoR’s

26

Page 33: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

commitment on nine year basic education was introduced. Recognizing the scarcity o f resources for the latter, in the process o f developing i t s science, technology, and I C T policy, M I N E D U C i s attempting to attract co-financing from domestic and international business.

62. Universalizing nine-year, fee-free basic education implies the need to set sustainable limits on public financing o f higher education. T o this end, M I N E D U C needs to implement the higher education financing framework i t endorsed in late 2001. Several core elements o f the framework are starting to be addressed, reinforced by Parliament’s approval o f the Higher Education L a w in March 2005. MINEDUC’s a im i s to reduce high unit costs o f tertiary education by introducing formula funding, reducing annual student loans over time, and widening the resource base with encouragement for public higher leaming institutions to seek private funding. With the new law, key planning and implementation institutions, such as the National Council for Higher Education and the Student Financing Agency o f Rwanda, can now be established (each requires a specific law). The GoR, with donor assistance, i s also actively trying to address the lack o f vocational education programs.

63. For the 2003-04 school year, capitation grants in the amount o f RwF300 per capita were successfully transferred from the central government v ia districts to primary schools to cover the loss in fee income f rom the introduction o f fee-free primary education. MINECOFIN’s flash report and spot-checks at the school level attest that the transfer process was transparent, funds were deposited in schools’ bank accounts, and funds were accounted for. The key issue going forward i s to leverage this experience so that schools’ additional needs can be met. For example, facility capacity and the number o f instructors have not kept pace wi th the increased enrollment that resulted f rom the introduction o f fee-free primary education. Access shock was manifest in the 2004 budget flash report, which recorded 473 primary school classrooms operating under trees and 204 in plastic sheeting; many primary schools are also operating double shifts, with student-teacher ratios as high as one to 60-80 in primary. MINEDUC increased capitation grants during the 2005 school year by more than three-fold, to RwF1,OOO per capita, and i s considering gradually increasing the amount further and revising the guidelines so that schools can spend the grants as best meets their needs. PTAs and district inspectors provide the checks and balances, ensuring that grants are spent in l ine with guidelines.

64. Going forward, with support f rom PRSG 11, the focus i s on:

Investments in Improved Quality. The main actions, endorsed at the third annual Joint Education Sector Review in April 2005 are to (a) continue increasing, gradually, the capitation grant for primary schools and link i t to quality assurance and accountability through school-based management; (b) develop a minimum quality standards package for primary school; and (c) professionalize teaching through a new teacher development and management pol icy (TDMP). The latter would restructure training under a new national institute o f education. Taken together, these actions address the efficiency gains that must be made in primary education, in order for enrollments in secondary education to expand. The remaining l o w completion rate in pr imary (47 percent) and small population base (18 percent gross enrollment) for effective transition to the f irst year o f secondary mean that the latter cannot expand unless there i s greater efficiency at the primary level in greater retention o f pupils. The costs o f these actions need to be factored in to the education sector financing strategy, along with the progressive elimination o f double-shift and a reduction in pupil- teacher ratios foreseen by the TDMP.

Universalizing Nine-year Basic Education. The program elements for universalizing nine years o f basic education have been integrated into the ESSP, and MIhTEDUC i s updating the financial implications. The main challenges are facility capacity, the number o f instructors needed, and improvement in the training and career structure o f teachers. The situation o f teachers i s covered in the T D M P being prepared for presentation to GoR, but salaries are an issue and also have to be examined in the broader civil service perspective. Cost o f the teacher compensation package and costs o f revising the teacher training system and the curricula for nine-year basic education are

27

Page 34: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

presently unknown, but will need to be added to the recurrent cost projections o f the ESSP. As far as construction i s concerned, the ESSP estimates this at 11,000 new classrooms by 2010.

Decentralization. It i s clear that districts are now the locus o f service delivery, and M I N E D U C i s systematically liaising with these decentralized authorities. As mentioned, the capitation grant i s already being transferred to school level. The amount o f this grant will be increased to FrRw2500 per student in 2006. The TDMP would further shift weight to the school level through schools’ management o f school-based teacher training in partnership with district administration, inspectors, and the national institute o f education. The momentum in this direction may eventually serve as a lever for the local hire o f teachers. However the existing norms for decentralized action remain unclear. N o r i s the devolution o f funding articulated to permit schools to take o n the more significant responsibility o f hiring teachers. A teacher sub-committee has been proposed to look into the Constitutional framework to define responsibilities for the local level.

Increasing Proportion of Poor and Female Students in Post-primary. MINEDUC i s committed to increasing efforts for alternative delivery systems to educate hard-to-reach children, to doing more for orphans and vulnerable children, and to sharpen its girls’ education policy. All are slated to be costed in to the 2007-2009 MTEF. Yet, research i s already showing that achieving universal fee-free secondary education i s beyond the GoR’s affordability. The fiscally viable way forward may be for the GoR to increase provision in rural areas while the private sector concentrates o n provision in urban areas, where more students can afford to pay full fees. Appropriately crafted, this could offset the r i s k that private entrepreneurs would continue to operate schools most ly t o capture the fee income f rom vulnerable segments o f the population who qualify for state-funded scholarships. This phenomenon today results in the larger proportion o f females (60 percent compared to 32 percent o f boys) who study in private secondary schools, which are far less resourced and which do not offer rigorous academic programs, with implications for inequality in girls’ career opportunities.

c. Health Services

65. Current Issues. In l ine with the PRSP, the main objective o f the GoR’s health program i s to reduce under-five mortality and maternal mortality rates and improve other health indicators through increased uti l ization o f evidence-based interventions, increased access to these interventions by poor people, improved health system accountability and efficiency, and fiscal sustainability o f budget support. Fol lowing progress under PRSC I, in which performance-based payment schemes for high impact health services (i.e., immunization and assisted deliveries) were piloted, the main issues that the health sector i s n o w focusing o n include (a) continued support o f the basic health program under implementation (e.g., immunization, payment o f c iv i l servants, and basic supplies in health centers and hospitals) within the Ministry o f Health’s (MINISANTE) budget ceilings; (b) introduction o f conditional contracts for the purchase o f specific health service packages through a new l ine i tem (‘Transfers Conditional Grants/Contracts’) in the M I N I S A N T E budget; and (c) maintenance o f a coordinated and balanced approach to the implementation o f vertical programs directed at major diseases such as HIV/AIDS, tuberculosis, and malaria. Regarding (a), the maintenance of budget ceilings for the basic health program implies that additional hiring o f staff, staff incentives, and other improvements at the health center and referral levels would have to be done directly by these institutions and financed from the resources obtained through performance-based contracts. Regarding (b), four packages o f services-community health center services, community health schemes, mutuelles (local insurance mechanisms), and obstetrical care through district hospitals-are envisaged to be purchased through conditional grants and the contracting mechanism. Regarding (c), the GoR wil l continue to harmonize donors active in such programs to ensure that vertical efforts are in l ine with i t s planned development o f the health system.

66. Government Strategvdmplementation Progress. To meet i t s commitment to improving the health o f i t s population and achieving the MDGs, over the past three years the GoR, with the

28

Page 35: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

assistance o f development partners, has improved the quality o f i t s health centers and the availability o f drugs, and created incentives among health staff to increase the availability o f human resources in the rural areas. T o finance these efforts, the GoR budget allocation to health has increased substantially showing almost a two-fold nominal increase (1 85 percent) between 2002 and 2004. However, the proportion o f total GoR budget (recurrent and development) allocated to health in 2004 was 6.2 percent, which amounts to roughly 1.6 percent o f GDP (equivalent to approximately US$3.1 per capita). The 2005 budget contemplates a large increase in the proportion o f budget allocated to health, to 9 percent, due mostly to an increase in donor financing directed toward the fight against specific diseases (leading to a doubling of the 2005 development budget over 2004 figures). The recurrent budget i s expected to remain at about 5.5 percent o f total GoR recurrent budget in 2005, but contemplates an increase to about 8 percent in 2006, to finance contractual schemes. The overall GoR total health budget i s expected to be about 2.4 percent o f GDP in 2006.

67. Going forward, with PRSG I1 support, M I N I S A N T E i s focusing on implementing four contractual schemes through the transfer o f conditional grants f rom the center to the administrative district or province. The strategy for each scheme i s described below. The GoR and donors are takmg a sector-wide approach, meeting regularly and conducting jo int reviews o f the GoR’s progress and sector plan.

Health Center Services. T h i s program, piloted in two provinces (Butare and Cyangugu) with support f rom PRSC I, transfers conditional grants f rom the central government to provinces for the purchase o f a basic package o f essential services f rom community health centers. The provincial government requires the engagement o f the health center on the basis a performance-based contract. Draf t ing and supervision o f such contracts requires capacity and community participation that, in the case o f the pilots, has been developed with the participation and financing f rom donors and NGOs. The intention i s to scale-up the program to other provinces gradually, to incorporate lessons fi-om the pilots, and to institutionalize achievements o f the pilots by increasing budget allocations to the schemes in these two provinces. A similar mechanism to the capitation grant in the education sector may be used going forward, to transfer the program fully to the GoR’s budget and more directly link service delivery, results, and payment. M I N I S A N T E and M I N E C O F I N agree that funds should be transferred directly to the health center upon request o f the oversight body, which i s the provincial steering committee. Funds transferred could cover the package o f services as wel l as small equipment and motivational incentives for personnel to achieve results, depending on health center needs. Services delivered are based o n GoR policy priorities, starting with a l imi ted number o f indicators to make monitoring and evaluation at the outset simple.

Community Health Schemes. This package transfers resources f rom the central government to the district to engage, v ia performance-based contract, community-based institutions, NGOs, animateurs de sa& (local health care workers), or others as relevant to deliver essential services at the household or community level. Compared to services delivered under the community health center scheme, the services delivered in this approach are simpler and less technical, focusing o n preventative services that can be delivered at home (e.g., distribution o f bed nets, handwashing, use o f safe water systems). T o develop local district actors’ capacity to deliver such services, guidelines, instructions, and booklets with clear examples o f implementation mechanisms and activities are to be developed and shared. The scheme i s being operationalized in several districts over 2005, with the introduction o f additional services over time as opposed to al l at once to permit the development o f appropriate capacity and to take into account budgetary concerns.

Mutuelles (local health insurance schemes). Mutuelles, which have been piloted over the last four to five years, now cover about 27 percent o f the population, with about RwF103 m i l l i on o f the GoR’s budget allocated to the schemes. Mutuelles pool funds from community members to cover a package o f basic health services provided at the health center level and for the transfer o f patients, when needed, to referral hospitals. Some o f the mutuelles have also experimented to include clinical care.

29

Page 36: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

The objective i s to smooth the cost o f health services for members, eliminating the hardship o f making payment for health services out o f pocket. Mutuelles play an important role in intermediating between health centers, district hospitals, and the population. Evaluations show that mutuelles are more effective when they have strong community participation in their governance structures and make payments to the health centers on a capitated basis, essentially transferring a l l risk to health centers. Mutuelles have not traditionally covered the poorest people, because they cannot afford the premium. The intention i s to have the GoR transfer funds to cover premiums for the poorest people in the community. The focus in 2005 i s on building administrative and management support and technical capacity, including training and development o f appropriate tools. No new transfers to mutuelles are being affected in 2005 so that a clear policy, management capacity, and guidelines can be developed and lessons from the pi lot phase fully incorporated. Additional direct transfers to mutuelles would not take place until they have standard accounting and reporting capacity.

e Obstetric Care through Distr ict Hospitals. This program would pi lot the purchasing o f essential obstetrical services f rom district hospitals, with the aim o f making progress o n decreasing maternal and infant mortality. The p i lo t i s important to develop capacity at the hospital level to respond to appropriate incentive and accountability mechanisms. The purchasing would in i t ia l ly be performed through performance-based contracts underwritten between M I N I S A N T E and the hospitals.

d. Water Services

68. Current Issues. Lack o f access to clean drinking water and inadequate hygiene result in diarrhea and other water-borne diseases, which are main causes o f morbidity and mortality in Rwanda. Integrated water resources management (IWFW) i s also a crucial element for development in sectors such as agriculture, water, energy, tourism, education, health, and the environment. Whi le IWRM policies have been drafted, key issues in the sector include inter al ia (a) inadequate framework legislation and regulations governing water resources planning and management; (b) insufficient technical professional staff at national, provincial, and district levels; (c) an incomplete inventory o f water resources and absence o f a water information system; (d) increasing industrial pollution and a lack o f adequate waste water treatment facilities; (e) inadequate watershed management and a high level o f soil erosion; and (0 pollution o f water courses and lakes, especially by water hyacinth. Inadequate management o f available water resources constrains the country’s development and i ts possibilities for reaching the MDGs.

69. Rural access to safe drinking water officially stood at 57 percent in 2004, though effective rural access was only about 40 percent due to inadequate maintenance o f systems and poor cost recovery. Overall, the sector’s development prospects are constrained by insufficient financial resources, poor maintenance o f existing systems, poor budgeting and investment planning, lack o f monitoring and evaluation capacity, and poor donor coordination (GermanyiKFW, the EU, Belgium, Austria, AfDB, and the Wor ld Bank are the main donors in the sector). The GoR supports a shift toward the efficient management o f water supply systems through private operators. The decentralization process transfers responsibilities and ownership o f rural water supply systems to distncts, but the transfer o f financial resources to the districts sti l l needs to be improved. In addition, the technical capacity at the provincial level i s not adequate for assisting the districts in planning, executing, and managing water supply and sanitation systems at the community and district levels. The sector’s weaknesses are being addressed with PRSC support through the establishment o f an operational framework to help districts financially and technically to plan, execute, and manage water supply and sanitation systems, and to implement water resources management activities at the community and district levels.

70. Urban water supply stood at 73 percent o f households in 2004, but 40 percent o f the gross supply was unaccounted for, partially due to o ld distribution networks. Urban water systems remain

30

Page 37: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

with Electrogaz (the water and energy utility), operating under a private management contract with Lahmeyer International. As a short-term solution, additional groundwater wells will be developed near the Nyabarongo River to alleviate Kigali ’s water supply deficit, which exceeds 50 percent. Detailed feasibility studies for long-term solutions, including the use o f Nyabarongo river water and Mutobo springs in Ruhengeri province, are under preparation.

7 1. Government StrategyLmplementation Progress. The water sector strategy in Rwanda i s pro- poor and in full coherence with GoR objectives as outlined in the PRSP and wi th the MDGs. Given i t s importance to human development and in the effort to meet relevant MDGs, the GoR i s focusing o n increasing access, particularly in rural areas where the majority o f the population resides. The ministry in charge o f water and natural resources (MINITERE) and the water directorate (DEA) have initiated a sector-wide approach for scaling-up reform and investment, to increase access to reliable, affordable, and sustainable water services in the rural area, inter alia through:

A strategic thrust toward accelerated decentralization, increased financing, community participation in capital cost and in maintenance cost, and privatization o f the management o f rural water supply services so that by 2010 an additional 1.5 to 2 mi l l ion people in rural areas are provided with safe water supply and sanitation services through increased functionality and coverage rates. Establishing an operational framework with donors and other stakeholders for pol icy dialogue, coordination o f interventions, and jo int annual sector reviews. The preparation o f MTEFs on the basis o f prioritized and costed water and sanitation programs, and linking o f financing options to key results; the 2005-2007 MTEF follows this format and, based o n it, MINECOFIN has allocated a higher budget ceiling for MINITERE in 2006. Providing districts with technical support and financial assistance through the Common Development Fund, to shift to an efficient private management model so that in 2007 the target o f 10 percent o f rural water supply systems are being managed by local private operators.

72. Draf t legislation to govem the water sector has been presented to the GoR and stakeholders before submission to Cabinet, and complementary rules and regulations are also being processed for promulgation, including the l aw on marshlands and sewerage and wastewater regulations. I t i s expected that in 2006 some well-identified water and sanitation projects wi l l be financed f rom the national budget and executed at the decentralized level, as a f i r s t step to test the mechanism o f channeling funds directly f rom the central level t o the districts in the sector, in conformity with the decentralization pol icy and the newly adopted sectoral strategic development framework. MINITEREDEA wil l support the development o f a more efficient management o f existing water supply systems by promoting best management practices in al l districts (based on the experience o f the Bymba province), by involving local operators contracted by district authorities, and by supporting the implementation o f private management contracts. T o accelerate the decentralization o f water and sanitation services, DEA will create a technical support unit for reinforcing the capacity at district level. Substantial efforts have been made to establish an adequate and simple monitoring and evaluation system to measure progress and cost efficiency. A computerized database allows for the extraction o f sectoral achievements (on a semi-annual basis), and information available f rom past budget execution reports informs strategic resource allocation.

73. T o complement support provided under PRSG 11, the GoR, with Bank assistance and cofinancing from the Nordic Development Fund (NDF), i s preparing a National Water Resources Management Project. I t will, in conjunction with the PRSG, focus on promoting economic growth through IWRM and related investments (‘ Waterfor Growth’), including:

Promoting economic growth through the development o f mini-hydropower for rural development; watershed management and erosion control; groundwater development; and investments in conjunction with the upcoming Kagera Basin Multi-Purpose Development and Rusumo Falls Hydro- Electric Power Projects.

31

Page 38: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Assisting with implementation o f a new policy, legal, regulatory and institutional framework. Strengthening o f the country’s environmental and water resources management capacity, through institutional reform, development o f human resources, and building o f a comprehensive water information system.

e. Energy Services

74. Current Issues. Rwanda i s facing three serious energy issues. The f i r s t i s a recurrent shortage o f power, brought on by strong demand growth coupled with rising o i l prices, unexpectedly l o w hydropower reservoir levels, high transmission and distribution losses, and the unreliability o f Electrogaz’s dilapidated network. These supply shortages have raised the cost o f doing business and weakened the prospects o f attracting new investments. Power shortages, and the associated load shedding, also diminishes the prospects for effective rural electrification. The second issue i s a potential wood-fuel shortage, exacerbated by an increasing population. Rwandans almost universally use either wood (in rural areas) or charcoal (in urban areas) for cooking. Given that i t takes nine kilograms o f wood to make one lulogram o f charcoal, the increasing urban population has a marked impact on wood-fuel usage. Already charcoal prices are at record high levels, and the GoR has accorded a very high priority t o resolving this issue before it reaches a crisis point. The third issue i s the high cost o f petroleum fuels. With a small economy, landlocked Rwanda must import fuel on tanker trucks, resulting in significant fuel transport costs. In addition, recent record h igh o i l prices have hit Rwanda hard not only in the direct cost o f h e l , but also in the cost o f electricity, which i s now partly produced with diesel generators.

75. Government Strategy/lmplementation Progress. As an emergency response to the electricity shortage, the GoR provided finance for Electrogaz to purchase 12.5 megawatts o f new diesel generation capacity and Cabinet approved a temporary duty waiver on diesel fuel used by Electrogaz for power generation. T o cover the additional costs associated with the relatively expensive diesel- based generators, a tar i f f revision incorporating the cost o f fuel was announced and implemented as o f January 1,2005. The increase was a stop-gap measure to limit fiscal .costs; the GoR also seeks to adopt a revised tar i f f structure and an automatic tar i f f update mechanism to ensure that cost changes, especially fuel costs, are passed on to consumers. Whi le the tar i f f increase i s large, i t s social and poverty impacts are expected to be l imited since consumers with access to electricity are no t in the poorest segment o f the population. PRSG I1 support would catalyze the GoR to address further tar i f f reform issues. I t wi l l emphasize implementation o f a new tar i f f structure to replace the flat tar i f f in place since 1998, and i t wi l l support the GoR’s adoption o f a baseline for the performance indicators for Lahmeyer International, the private management company for Electrogaz, under the terms o f i t s 2003 contract with the GoR (the baseline was not agreed at contract negotiation because o f poor reliabil i ty o f Electrogaz data at the time). Regarding wood-fuel and potential shortages, the informal nature o f the market poses a different set o f challenges. I t calls for organization and capacity building in a widely disbursed supply network, along with education o f consumers about more efficient coolung stoves and methods. Some ini t ia l preparatory work in this area has commenced, but considerably more effort and funding will be needed. The GoR i s also implementing reforestation programs to address the deforestation issue and, in the longer term, i s seeking alternatives to wood- fuel coolung. Near-term strategies for mitigating the petroleum price shocks focus o n conservation measures and development o f a strategic fuel reserve. In the longer term, the GoR i s seeking to establish an o i l pipeline to reduce transport costs.

76. Additional work completed in the PRSC I period includes a survey o f charcoal producers and sellers; Cabinet adoption o f an Energy Sector Policy Paper, which includes rural electrification; Electrogaz preparation o f a draft near-term investment plan, including a network rehabilitation plan; fuel procurement and temporary storage arrangements for new Electrogaz generators; and preparation

32

Page 39: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

o f pre-feasibility studies o f prospective micro-hydro stations, with detailed technical and business plans to be developed.

77. Over the medium-term, investments in the energy sector are being supported by a team o f donors, including the AfDB, the Arab Bank for Economic Development, Belgium, the Netherlands, the NDF, and the Wor ld Bank. The recently approved Bank/NDF-financed Urgent Electricity Rehabilitation Project will support urgent rehabilitation works o n the transmission and distribution system, installation o f about 12 megawatts o f medium speed diesel generators, and technical assistance and capacity building to key sector actors such as the ministry in charge o f energy (MINNRA), Electrogaz, and RUM. An Environmental and Social Management Framework i s guiding the analysis and mitigation o f environmental and social impacts under the project. The GoR i s also pursuing extraction o f methane gas from Lake Kivu, through a recently signed contract with a foreign consortium. The Bank has agreed to consider a guarantee for this transaction, and IFC has also been requested to j o i n the financing plan. Studies financed under a previous Bank project have established that gas exploitation could be technically feasible, environmentally safe, and economically attractive. An ongoing Strategic Social and Environmental Assessment o f Power Development Options for Rwanda, Burundi and western Tanzania has concluded that power generation from Kivu gas i s competitive with comparable hydroelectric options. The GoR i s committed to expediting Kivu gas development-initially for power generation-with private sector participation.

J: Transport

78. Current Issues. As a landlocked country to which the nearest seaport i s close to 2,000 kilometers away, Rwanda faces h igh transport costs-representing close to 40 percent o f export and import values. The cost o f transporting coffee and tea exports to the port in Mombassa, Kenya, where the trade market for these commodities i s largest, accounts for 51 percent o f their trade value. Furthermore, while i t costs about US$80 per ton for goods to be transported f r o m the Uni ted States to Mombassa, i t costs about US$250 per ton to transport goods f rom Mombassa to Rwanda, and the average price for international goods i s three times more expensive in K iga l i than in Nairobi, Kenya. The PRSP recognizes that the country’s weak international road links impose high costs on intemationally traded goods, and that the rural transport network’s poor state equally inhibits internal trade. The GoR i s workmg with the Bank and other external partners o n investment projects in the sector, but because o f the importance o f transport to the GoR’s growth, agricultural transformation, export promotion strategy, the GoR has requested that the sector-particularly actions related to the overall pol icy and regulatory framework-be included under PRSG 11. This i s reflected in the PRSC matrix (Annex 2), which now includes elements o f the transport portion o f the GoR’s PRSP matrix.

79. With Rwanda’s mountainous terrain and excessive rain fall, erosion o f the road network i s particularly severe, and maintenance costs are twice that o f most SSA countries. The country’s road network o f 14,000 kilometers i s spread over barely 27,000 square kilometers o f national temtory, one o f the densest in SSA, which far exceeds Rwanda’s human and financial capacity for maintenance. Recent sector surveys, conducted with EU assistance, concluded that only 23 percent o f Rwanda’s asphalted network i s in good condition, while barely 5 percent and 2 percent o f the secondary and communal networks are in good condition, respectively. Eighty-five percent o f the 1,100 kilometers o f asphalted network requires heavy rehabilitation or periodic maintenance, and most of the secondary and communal network has not been maintained for over a decade.

80. Government StrategyJmplementation Progress. The PRSP identifies transport infrastructure development as the GoR’s second priority after agricultural development. It spells out a medium-term priority agenda for the sector, including maintenance o f selected roads in bad repair and the upgrade o f some strategic roads. The overall pol icy framework in transport i s under review, though the GoR’s main pol icy objectives with respect to road transportation are to (a) enhance Rwanda’s integration into the regional economy and to make Rwanda a regional trade and transit center; (b) focus transport

33

Page 40: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

sector investment on expanding and improving road safety; (c) institute a pol icy framework for the accelerated development o f the road sub-sector; (d) finance road maintenance works through the road maintenance fund, which i s financed through the budget, a direct l e v y o n fuel, a cross-border charge, and various penalty charges; (e) encourage community participation in road maintenance through the district development committees; ( f ) improve the ability and quality o f local road infrastructure, thereby enabling the rural community to market i t s crops; and (g) create an environment conducive to the encouragement o f private sector participation in rehabilitating, maintaining, and developing road infrastructure.

8 1. The GoR has requested that pol icy dialogue in the transport sector be included in PRSG 11, to lay the ground work for the investment program. This includes assistance to develop a detailed, output-oriented MTEF that i s linked to planning and budgeting in the sector and aspects related to the overall pol icy and regulatory framework, derived f rom a new transport pol icy that i s under development, with a focus on measures related to improving and sustaining the maintenance o f Rwanda’s pr ior i ty road network. The Bank i s working with the GoR and other development partners, most notably the EU and AfDB, on an investment program that would contribute to PRSP objectives, help implement a new sector policy aimed at promoting overall transport efficiency, and contnbute to building a strong and functional link between sector strategies and macroeconomic growth. The ongoing preparation work on the investment program includes social and environmental impact assessments and related mitigation measures. The program would complement other regional interventions, notably the East Africa Community Transport Facilitation Project, whose key objective for Rwanda i s to facilitate the latter’s integration into the East Afr ican Community, and contribute to the efficiency o f the country’s corridor transport to and from the ports o f Mombassa in Kenya and Dar -E s - S a1 aam in Tanzania.

iii. Public Sector Underpinnings for Improved Service Delivery

a. Public Expenditure Managem ent

82. Current Issues. The GoR has made good progress in strengthening i ts management o f public finances, though the challenges it faces going forward are becoming starker. They include (a) strengthening the linkage between national strategic planning, the MTEF, and resource allocation through the annual budget; (b) addressing weaknesses in the financial accounting and auditing systems, including the abil ity to attract and retain technically trained and qualified financial management personnel; (c) increasing capacity o f budget agencies so that they are able to prepare adequate financial information, including cash plans and financial statements, and to meet the constitutional obligation o f preparing a consolidated set o f financial statements for submission to the Office o f the Auditor General; and (d) fulfilling the commitment to integrate the recurrent and development budgets.

83. The GoR’s public financial management reform program i s based on the Financial Accountability Review and Act ion Plan (FARAP), with the review prepared in close collaboration between the GoR, DFID and the Wor ld Bank, and the subsequent Act ion Plan supported by the EU. Pull ing together the information in the FARAF’, work realized by the IMF and EU, and other existing analysis o n Rwanda’s public financial management system, a Country Financial Accountability Assessment (CFAA) was completed in 2005. I t synthesizes the analysis and outlines the action plan for the public financial management reform program going forward.

84. Government Strategyhzplementation Progress. The submission to Parliament o f the Organic L a w o f State Finances and Assets (i.e., the Organic Budget Law) and accompanying Financial Instructions, continuing efforts to adapt the GoR’s institutional arrangements to budget implementation, and the appointment o f an Accountant General are strong indications o f the GoR’s resolve to achieve a modem public financial management system. The Off ice o f the Auditor General

34

Page 41: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

prepared i t s 2003 report and submitted i t to Parliament, and the GoR i s acting to address issues identified in previous reports. The budget preparation process i s much more structured than in the past, with increased levels o f stakeholder participation, particularly by c iv i l society and development partners. The GoR intends to continue the revision o f the regulatory framework and to prepare guidance to facilitate the implementation o f the new legal framework. This will entail the preparation o f manuals containing specific guidance o n implementation o f the provisions o f the new l a w and regulations. These are planned for the budget preparation process, public accounting, and internal audit.

85. The introduction o f the MTEF represents an important improvement to Rwandan public financial management. However, although the many central and l ine ministries have n o w developed MTEFs, the absence or inadequacies that exist in certain sectors in regard to the preparation o f sector plans hinders the realization o f the benefits o f the MTEF and mitigates the enormous strides made in budget preparation. Strategic Issues Papers (SIPS), which are used to in form the budget process, should be underpinned by sectoral MTEFs, but this i s not yet the case in al l sectors. As such, the link between planning/MTEFs and budgeting remains weak. T o address these shortcomings, the GoR wil l continue i t s efforts to improve and simplify budget formats through a revised economic and functional classification, and a revision o f program and sub-program structures for a l l ministries and agencies to bring them more in l ine with planning. Efforts to reinforce strategic planning and budgeting will be boosted through the recruitment o f a budget adviser and the piloting, in selected ministries, o f the proposed simplification and harmonization o f budget classifications and integration with the MTEF process. T h i s p i lo t would also address the GoR’s intention to deepen outcome-oriented characteristics in i t s budget preparation process. Fol lowing MINECOFIN’s reorganization, the Budget Department includes a monitoring and reporting division that will work closely with MINECOFIN’s poverty reduction strategy monitoring and evaluation team. This i s intended to improve the monitoring and reporting o f budget expenditures so as to establish a system o f performance monitoring and integration o f budget execution data into planning, budget preparation, and pol icy making.

86. Responsibilities o f the newly created and appointed Office o f the Accountant General include oversight o f the current and future functions o f the Treasury, Public Accounts, and Internal Audit Units. The Accountant General i s also expected to provide leadership in the coordination o f reforms intended to strengthen public accounting. T o this end, the GoR has adopted Intemational Public Sector Accounting Standards for financial reporting. The efforts to reinforce the public accounting technical s lu l l s available to government, and the preparation o f a Public Accounting Manual, are expected to assist the GoR in i t s efforts to move toward fully consolidated financial statements, as required by i t s law. In the short term, to progress toward this goal, the GoR will p i lot the consolidation o f government accounts in selected ministries. Additional l ine ministries, local government entities, and semi- autonomous institutions will be incorporated based o n lessons learned in the p i lo t phase.

87. The GoR has also continued i t s efforts to clarify the roles o f audit institutions. The Organic Budget L a w defines the principles underlying the role and responsibilities o f the internal audit function within government. An Audit Unit within M I N E C O F I N will ensure the coordination and guidance o f this cadre. The Office o f the Accountant General i s continuing to implement i t s strategy for reinforcement, with reasonable strides being made in the recruitment and training o f personnel. The GoR appointed a fully qualified professional accountant as the Auditor General, and will soon present an Audit Bill, which aims to grant the Off ice o f the Auditor General more institutional independence in compliance with the principles la id down in the Constitution.

88. The above measures, and the deconcentration o f accounting and internal audit tasks within central and local governments and clarification o f the role o f institutions o f state control, have generated a need for skilled accountants and auditors. Though recruitment o f such positions for each o f the government budget agencies has commenced, there i s a scarcity o f suitably qualif ied professionals. In addition, current c iv i l service pay levels are a fraction o f those in the private sector,

35

Page 42: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

thus the GoR i s generally not able to compete favorably for the best talent. The GoR i s addressing salary issues through i t s c iv i l service reform program and, with the aid o f an EU-funded international consultancy, i s conducting a needs assessment that i s expected to result in the definition o f a training curriculum and recruitment plan for accountants and intemal auditors, and a strategy to promote institutions that can deliver appropriate training to public sector accountants. I t i s l ikely that with the adoption o f the results o f the needs assessment, the GoR wil l establish a support team o f accounting professionals and graduate interns to assist central and local government accounting and internal audit functions. This team wil l be supervised by the Advisor on Public Accounts, working under the aegis o f the Accountant General.

89. The GoR has also established a Treasury Management Committee with responsibility for determining liquidity management pol icy and reviewing and agreeing the consolidated income and expenditure Treasury plans. I t has established a Cash Management Unit to focus on collecting, validating, and analyzing periodic cash f low projections and to facilitate the work o f the Treasury Management Committee. This will contribute to the production o f realistic annual work plans. The GoR i s moving toward the creation o f zero balanced drawing accounts for budget users, and eventually to a Single Treasury Account. T o this end, i t has closed al l redundant bank accounts and reinforced i t s rules on the opening and maintenance o f new ones.

90. Finally, the Organic Budget L a w provides for the integration o f the recurrent and development budgets. Expected benefits include more accurate identification o f the capital investment and recurrent proportion o f government expenditures and better alignment o f budget spending with pol icy priorities between and within sectors. The responsibility for the preparation o f the development budget has been transferred to the Budget Department to remove administrative impediments to aligning budgets and strategies. The GoR has decided to proceed with budget integration in a phased manner, starting in 2006, with full integration expected by 2008. As a f i r s t step, the GoR i s p i lot ing upgraded, integrated fiscal management system software (SIBET II), which wil l create a database linlung the recurrent and development budgets, local government entities, and semi-autonomous agencies. I t wil l also enable linkages to the revenue, public debt, payroll management, and treasury functions. The phased implementation o f the components o f this system will facilitate the preparation and consolidation o f governments accounts.

b. Transparency and Accountability

91. Current Issues. According to the PRSP, key challenges to good governance in Rwanda include national reconciliation; polit ical legitimacy with popular polit ical participation; justice and human rights; and transparency and accountability in public actions. The PRSP states that without an end to the mentality o f exclusion and impunity, and an acceptance by a l l social groups that development i s possible only if al l work together toward common goals, good governance would be out o f the question. Thus, whi le corruption i s not considered a major problem in Rwanda, transparency o f and accountability for action i s a strategic priority.

92. Government Strategylmpplementation Progress. Government institutions were strengthened after the adoption o f the new Constitution and the successful presidential and legislative elections in 2003. Rwanda further strengthened government institutions by formally separating the judiciary f rom the executive and legislative branches, and creating the Supreme Court and Office o f the Ombudsman. The GoR drafted a strategic plan to combat corruption and further liberalized the media. Decentralization, a key pr ior i ty t o reform governance and improve public service delivery, also continued to progress, with about 95 percent o f local governments having put together a five-year development plan, the National Decentralization Steering Committee and the National Decentralization Implementation Secretariat established, and decentralization support units established in all ministr ies and provinces, with clear definition o f roles and responsibilities at the national, provincial, local, and grass-roots government levels.

36

Page 43: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

93. Successful implementation o f the GoR’s public sector agenda depends on sound public financial management, as described above. This will be complemented by a modern Public Procurement Law, which has also been submitted to Parliament. T o complete the procurement code, a draft law outlining the legal, regulatory, and institutional framework for public procurement, including review, sanction, and complaint mechanisms, will accompany the Public Procurement Law. The latter would reinforce the role o f the National Tender Board, establishing it as a regulatory body rather than a procurement execution agency, which wil l be the responsibility o f local procurement officials. T o ensure that local officials have the necessary capacity, the GoR will formulate a national capacity building action plan and, subsequently, a training program. Tools such as standard bidding documents and guidelines will also be developed and issued once the procurement laws are adopted.

94. Regarding voice and accountability, the Gacaca l5 (community tribunals) process for those that committed acts during the genocide was fully underway over 2004-05. The GoR, with assistance from the National University o f Rwanda, also drafted and piloted the use o f citizen report cards. The pi lot surveyed citizens on the use o f identity cards and drivers’ licenses. During 2005, the GoR carried out citizen report cards in the education and health sectors.

c. Monitoring

95. Current Issues. The GoR’s chapeau report on monitoring and evaluation (M&E) o f i t s poverty reduction programs i s the PRSP APR. T o produce this and other assessments o f progress, the GoR realizes the importance o f an M&E system that i s able to serve the needs o f govemment, donors, and other stakeholders alike, and MINECOFIN i s taking the lead in designing such a system. This includes a holistic approach to improving linkages between the PRSP, strategic plans, and the MTEF, which forms the basis for M&E. The GoR’s monitoring instruments include strategic plans, SIPs, budget prioritization, and formula for local govemment disbursements. A key pr ior i ty for the GoR i s to strengthen these instruments to create a logical f l ow f rom PRSP goals to strategic plan objectives, f rom strategic plan objectives to MTEFs and budget requests in SIPs, and from MTEFs and SIPs to budget prioritization, taking into account lessons learned f rom studies and evaluations.

96. The five core pillars o f the GoR’s PRSP M&E framework are (a) monitoring o f pr ior i ty programs’ performance; (b) monitoring o f poverty/household living conditions (outcomes and impacts o f the PRSP); (c) promotion o f participatory M&E at a l l levels; (d) the APR; and (e) aid harmonization. The information generated from these pil lars feeds into policy review and revisions. For this to work well, MJNECOFIN recognizes the need, in the f i r s t instance, for key performance indicators for all sectors that are linked to performance assessment and can be monitored at the central and decentralized levels, with clear feedback mechanisms to policies and budget allocation. Special emphasis i s placed on the review o f current sector objectives and indicators; capacity building in districts for planning, budgeting and M&E; indicators as basis for performance assessment; and linking performance assessment to budget prioritization through incentives. The need for capacity building in planning, budgeting, and M&E at decentralized levels i s recognized, and capacity building i s required in line-ministries and districts to support and develop sound management information systems, and to develop the capacity o f the Rwanda National Institute o f Statistics for macro level analysis. Given that routine data collection through a management information system i s in an embryonic stage, surveys (e.g., PETS, citizen report cards, household living standards surveys) have been used to fill the gap, but the GoR would l ike to move to a system where surveys supplement regular reporting, rather than substitute for it.

97. Government Strategydmplementation Progress. M I N E C O F I N was reorganized as part o f the service reform program and the restructured and redefined departments’ roles and responsibilities

“Justice on the grass” 15

37

Page 44: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

better reflect the various stages o f the public expenditure cycle (i.e., strategic planning, budget preparation, budget execution, accounting and monitoring, reporting and audit, and policy review). Whi le recognizing the gaps in this cycle, M I N E C O F I N i s now better organized to address them, and to incorporate M&E so that i t eventually results in better policies for growth and poverty reduction, which i s the GoR’s ultimate goal. The team that i s largely responsible for monitoring PRSP implementation i s the poverty reduction strategy M&E team in MINECOFIN, which replaces the Poverty Obsewatoire and i s located within the Strategic Planning and Poverty Monitoring Unit (SPPMU). The SPPMU’s work i s complemented by the new Budget Monitor ing and Reporting Team located in the Budget Department, who are working to clarify and strengthen budget monitoring so that i t better feeds into the PRSP and sector planningkhe MTEF process.

98. Building on the experience with the 2005 APR, line ministries at the national level are working to select and refine key perfonnance indicators. Monitoring indicators are also being developed at the decentralized level, and the two will need to be reconciled to ensure that local priorities are being addressed. M I N E C O F I N i s also implementing a monitoring reporting system (SmartGov). The plan i s to develop a system capable o f producing reports that provide financial data o n inputs and outputs, with data feeding into a simple spreadsheet that will also be populated with the relevant objectives, indicators, and targets. Data collection at the decentralized level wil l feed into spreadsheets at the district level, and national and district level spreadsheets wil l be linked making i t possible to aggregate upward or downward. Drawing o n Rwanda’s strong reporting culture, the Ubedehe system o f data collection, which utilizes community leaders to collect data, i s being considered as an effective method to enhance data collection at the local level. Reporting requirements among different ministries and government agencies will need to be harmonized.

99. With Bank support, the M&E team in M I N E C O F I N has articulated a framework for a comprehensive M&E system that will satisfy GoR and donor reporting requirements; assist in the finalization o f key performance indicators, ensuring consistency between the central and decentralized levels; design the SmatrtGov reports; and set up the decentralized database. The framework stresses the importance o f embedding the system in the PRSP process, and notes that significant technical assistance f rom donors will be needed to implement it. Discussions are ongoing between the GoR and donor partners on this, and PRSG I1 support will be used to help the GoR reach its objectives.

VI. Implementation

A. Environmental and Social Aspects

100. Environmental and Social Analysis. This operation i s governed by Operational Policy (OP) 8.60, Development Policy Lending, and therefore i s not subject to OP 4.01, Environmental Assessment. However, PRSC I was governed by Operational Directive 8.60, Adjustment Lending Policy, deemed a sector adjustment operation, subject to OP 4.01, and classified category B for purposes o f environmental assessment. As such, extensive Environmental Assessment and Social Analysis was undertaken during the preparation o f PRSC I to identify possible positive and negative linkages between PRSC support and environmental and social impacts, including examining the Bank’s safeguards definition o f social impacts in regard to involuntary resettlement, indigenous peoples, and cultural property.I6 I t also took into account the widespread environmental and social

l6 Note that in context of Rwanda’s history, particularly in the aftermath o f the 1994 genocide, the term ‘indigenous peoples’ i s extremely ambiguous as it implies that some ethnic groups were established in Rwanda before others. The basis o f this assumption was widely used to justify the genocide i s therefore extremely sensitive. The GoR’s current policy, as part o f the national unity and reconciliation process, i s based on equal rights for all without distinguishing between ethnic or regional affiliations in the country. The new Constitution states that all persons are equal before the law and shall enjoy, without any discrimination, equal protection o f the law. In that context, the GoR has made it clear to donors that it w i l l not accept funding that wi l l directly or indirectly encourage Rwandans to identify themselves along ethnic lines.

38

Page 45: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

analysis undertaken for other Bank operations. While PRSC support i s not expected to have any direct negative environmental or social impacts, the analysis focused on the environmental and social issues facing Rwanda and the capacity of national and local public sector agencies’ roles and responsibilities to manage them.

101. PRSG I1 continues to draw on the Environmental Assessment and Social Analysis undertaken for PRSC I to help the GoR establish the regulatory, administrative, and technical capacity to identify, mitigate, and monitor environmental and social issues in a sustainable manner. PRSG I1 would continue to support the GoR’s capacity building o f i t s Rwanda Environment Management Authority (REMA), which was newly established under PRSC I, to implement the new Environment L a w and complete guidelines on environmental impact assessments. Budget has been allocated for REMA’s management in 2005 and 2006. Any potential environmental and social impacts associated with sector specific investment operations in complement to PRSG I1 support (e.g., in water, energy, and transport) will be addressed in the context of ongoing and planned environmental and social analysis undertaken as part o f preparation for those operations. Poverty and Social Impact Analysis has been undertaken in the tea sector and on the use of fertilizer, both o f which are relevant to reducing poverty in rural areas. Also, in 2004, the President fulfilled his promise to appoint a representative o f the Batwa to the Senate.

102. Gender. Traditionally, women in Rwanda focused on agricultural activities at home, while men dominated the public sphere. However, the genocide affected a shift in attitudes toward gender roles since women constituted approximately 70 percent o f the population after the genocide. They were seen as critical to reconciliation, unity, and the governing o f the country, since women perpetrators o f the genocide were limited. The 2003 Constitution establishes that 30 percent o f posts in decision-making organizations be fi l led by women and that 30 percent o f the seats in each house o f Parliament be occupied by women. Fol lowing the 2003 election, women account for 49 percent o f the seats in Parliament, the highest level o f female parliamentary representation in the world. The National Women’s Council, also enshrined in the Constitution and working under the leadership o f the Ministry of Gender and Family Promotion, was originally created in 1996 to engender change in girls’ education, reproductive health, poverty reduction, and civic and legal issues. Women identify policy and budget priorities at the local level and voice them up through the channels o f government. The planning officer responsible for gender i s mandated to ensure that a l l budget development at the central level integrates certain “cross-cutting’’ issues, including gender. Fo r example, the Women’s Council lobbied for the elimination o f primary school fees and the establishment o f particular fiscal priorities within the central government budget. This has led to a narrowing o f the disparity in primary school enrollment across gender, locality, and income. As described in the PRSC I program document, the GoR also launched a Gender Budget Initiative, adopted a National Gender Plan o f Act ion (2000- 2005), and has a Comprehensive Legal Act ion Plan for the elimination o f gender disparities.

B. Administration o f Operation

103. An assessment intended to provide reasonable assurance that the Banque Nationale du Rwanda’s (BNR) control, accounting, reporting and auditing systems are adequate to ensure the integrity o f operations was carried out in early 2003. It noted encouraging efforts o f the BNR to rebuild and strengthen i t s safeguards and controls. I t identified some weaknesses relating to the external audit mechanism and the then newly established internal audit department. Since then, many o f these weaknesses have been addressed in a plan o f actions most o f which were to be implemented in 2003, with additional staff hired for the internal audit department, and extemal audits being carried out on an annual basis by an international firm o f auditors appointed by the Board o f Directors.

104. A single-tranche grant o f SDR37.6 m i l l i on (US$55 m i l l i on equivalent) would be made available upon effectiveness, which i s expected in November 2005. The proposed grant will fo l low the

39

Page 46: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Bank’s disbursement procedures for development policy operations. Grant proceeds will be disbursed against satisfactory implementation o f the development policy program and not t ied to any specific purchases or be subject to procurement requirements. Once the grant i s approved by the Board and becomes effective, the proceeds o f the grant wi l l be disbursed in compliance with the stipulated single tranche release conditions. Once the Bank‘s Board approves the grant and at the request o f the Recipient, IDA will disburse the proceeds o f the grant into an account designated by the Recipient that forms a part o f the country foreign exchange reserves account at the Banque Nationale du Rwanda. The Recipient shall ensure that upon the deposit o f the grant into said account, an equivalent amount i s credited in the Recipient’s budget management system, in a manner acceptable to IDA. The Recipient will report t o IDA on the amounts deposited in the foreign currency account and credited in local currency to the budget management system. If the proceeds o f grant are used for ineligible purposes (i.e. to finance goods or services on the standard negative list), as defined in the Development Grant Agreement, IDA will require the Recipient to promptly upon notice f rom IDA, refund an amount equal to the amount o f said payment to IDA. Amounts refunded to IDA upon such request shall be cancelled. The administration o f this grant will be the responsibility o f the Ministry o f Finance and Economic Planning.

C. Monitoring and Evaluation

105. MINECOFIN i s responsible for implementing the proposed PRSG and for coordinating the completion o f actions. As discussed above, MINEC0FI”s poverty reduction M&E team i s responsible for overall monitoring o f the GoR’s poverty reduction programs and the Bank wil l continue to work closely with it on the implementation o f i t s M&E system. Along with this team, MINEC0FI”s would rely o n i t s poverty reduction strategy M&E team, workmg closely with the Budget Monitor ing and Reporting Team i s responsible for ensuring that component sector spending plans developed with PRSG support are incorporated into the national MTEF and subsequent budget and, as such, will p lay a major role in helping the Bank to track progress on PRSPPRSG implementation. Annex 7 contains a l i s t o f monitoring indicators for Rwanda’s PRSP, which will also be the basis for monitoring and evaluating progress on implementation o f the PRSG.

D. R i s k s and Risk Mitigation

106. The Bank recognizes that r i sks in Rwanda remain high. However, the GoR continues to demonstrate i t s dedication and strong commitment to pursing the goals outlined in i t s PRSP. The Bank i s equally committed to working with the GoR to support i t s development efforts. Rwanda’s stability, through successful development, i s critical to the stability o f the Great Lakes region. The main r isks to achievement o f PRSP goals and the PRSC program are outlined below.

107. Country/Regional Risk. Rwanda’s history and location in the unstable central African region pose a potential threat to the GoR in achieving i t s development objectives. However, Rwanda’s internal security and polit ical situation have been stable in follow-up to the 2003 elections. Though tensions in the Great Lakes region increased in November 2004 when President Kagame indicated that he would consider sending troops to disarm paramilitary groups based inside the Democratic Republic o f Congo (DRC), the deployment o f troops was never confirmed and tensions have eased with a jo in t verification mechanism between Rwanda and the DRC to resolve border disputes. Moreover, the Afr ican Un ion has agreed in principle to send troops to the DRC to disarm paramilitary groups. In addition, fo l lowing a March 2005 agreement between the GoR and the last rebel group (operating out o f the DRC), up to 15,000 former rebels are expected to return to Rwanda with their dependents (possibly up to 25,000 people). The GoR has moved with strong determination to put in place the financing needed to support the reinsertion and reintegration process, however the eventual success o f reintegration will depend on accelerating economic growth, equipping former combatants with ski l ls, and creating j o b opportunities across the country. In general, and through the country-specific operation under the Multi-country Demobilization and Reintegration Program, the Bank supports

40

Page 47: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

international and regional efforts aimed at fostering peace within and between Rwanda and i t s neighbors.

108. Program Risk. Risks to the Bank’s program in Rwanda continue to revolve around predictability o f donor funding, the GoR’s ability t o mobilize grant financing, and debt sustainability (under IDA 14, the GoR i s eligible for grant financing). The exiting Partnership Framework between the GoR and donor partners, particularly donor partners providing budget support, specifically aims to address the issue o f predictability, and donors are fully cognizant o f past failures in this area, aiming to redesign their programs to disburse during the f i rs t quarter o f Rwanda’s fiscal year. This frontloading should go a long way to increasing the predictability o f funding and, as such, the GoR’s ability t o plan and implement i t s budget in a more sustainable manner. Over the long-term, the GoR’s goal o f reducing dependency on foreign aid will depend on i t s success in implementing i ts growth strategy.

109. Operation Risk. The main risks to successful implementation o f the proposed operation include weak capacity and the need to continue strengthening aspects o f the fiduciary framework. The GoR i s committed to addressing these issues, as evidenced by the implementation o f i t s ambitious public financial management reform program. The comprehensive analysis and roadmap provide a clear path for areas to be strengthened going forward, and the laws regarding publ ic procurement wil l establish a modem procurement code. Regarding capacity building, the Bank and other donors are cognizant o f the need for a harmonized approach and are working closely together with the G o R to move from ad-hoc provision o f technical assistance to a more sustainable, integrated approach, coordinated with HIDA, that will better meet the GoR’s needs.

41

Page 48: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 49: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Annex 1: Letter o f Development Policy

REPUBLIC OF RWANDA

MLMSTRY OF FINANCE AND ECONOMIC PLANNING P.O. Box 158 K i g a Tek -250-577994 Fax t250-577581 &mail : mfinG2anVandal.com.

Mr. Paul D. W&o* President The World Bank 1818 H Smeet, N.W. Washington, D.C. 20433 U.S.A.

h Mr. wolfowitz,

1. A s you know &om your vi^& The Government of Rwanda (GoR) has M u o n e d from rhe reconswcrion phase following the devastating 1994 genocide, and i s now focusing on implementing an ambitious reform program for growth and poverty reduction. This i s in h e wid our Vision 2020, which identifies the key objectives M Rwanda needs TO affain to become a middle-income counny by 2020, and our 2002 Poveny R d a i o n Snategy Paper (PRSP). In line wid PRSP goals and objectives, the PRSG program focuses on our efforts in (a) mainmining a stable macroeconomic h e w o r & creating a strong basis for pn"e secror-Ied economic growrh, driven by agriculrural transformation, promotion of expo- and deepamg of the &mxiaI sector, (b) improving service d & v q by skengrhening rhe resulrs Orientation o f our Medim-Tm Expendinue Framework @4TEF) and associared seaoral m s , particularly in education, health, water, and energy, saenghening rhe l inkages between MTEF prioriries and the budget, and -ding performance-based conrracting o f d c e s ; and (c) continued strengthening of governance and mansparency, particularly through further improvements to the fiduciary hmework a n d empowemenr of local communiues. At our requesr, given i I s irnporcam linkages u3 pow&., policy dialogue on the maspnrr wcmr ~ R C M w added

2. Two PRSP progress reports reviewing our achievements toward &e abve goals have been presented to the World Bank Board, and a third will be presented in due c o m e . So rhar we may continue KO make progress in these aeq which also are aimed a1 our anainment of ihe MDGs, we request tha~ the World Bank continue i t s support to OUT efforts by approving the Second Poverty Reduction Suppor~ GTanr (PPRSG E)- T h i s 1- ourlines OW recent achievements and further actions that we are commined to implement with P U G supporr.

42

Page 50: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

3. OvemIl, Rwar~da's m a c r m m m i c performance continues IO be on nack D q i E major elecuicity shortages, real GDP growth recovered fiom 0.9 percent in 2003 to 4 percent in 2004. In &e area of privme seaor Zed growfh, we are steadBm in our cammirmmt to ptivarizntion, having brought to the point o f s ~ l e tn qualified buyas RWANDATEL (he stare telecoms company), Rwandex (coffee e x p m ) , and Nshili-Kim tea plantation; we have also hieated rhe privatization process for = v e d rice factories, including B u g " , Gikonko, and Rwamagana. In complement to this, we have begun to implement om export promorion snategy, which m s developed with suppon from PRSC L Short-term measures identified in the m t e g y for the coffee and tea secKors helped to result h subsrantially increased revenue fiam coffee prodmion m 2004. part of the straw for expmdfng regional and international uade, the GoR has also designad an area close to Kigali airpon as a n Exprl Processing Zone, with rax and other incentives to attract foreign investors. The mmfh" Rwanda Znvesment and Expofl Promotion Agency has taken an active role in amacting foreign direcr invesnnent, which hxased from US$60 d i o n in 2003 to USS227 million in 2004 (registered and approved projects). The Rwanda Utilides Regulatq A,mcy (RURA) was creared 10 oversee the regularory M e w o r k in key areas-mch as wafer, elecuicity, and telecommunicanons-relad to private investmenr Regwding agricultural transformatiOK after launching d e s u a ~ g i c planning process with PRSC I assisrance, the GoR has prepared a Snategic Plan fa Agricularral T d o m U o T i , with the ultimate objective o f contributing to economic growth, iInpToVing food securiv and d e popda~on's nutrirional mtus, and increasing rural households' rwmue. The fmus in 2005 has been on re- and costing rhe plan, developing a more focused MTEF, and realigning sectaral projem and programs, and implemenrarion of the plan would be supported by PRSG II. We are dlso progressing with implemmation of our XCT mategy, have a murism workmg group 10 help develop this sub- sector, and are con&uing fo implement refoms in the financiavbsmlan . g seaor, now guided by a recently complnzd FSAPROSC by &e Bank and Fund.

4. Regarding improving s h e delivev, with PRSG support we have been focusing on the key sectors of education, health, wafer, and energy. In eiiucartotc, wirh mong supporr fiom seaor donors, and wirb PRSG support, we have developed a strong MTEF, with MTEF 2006-2008 ceilings and the 2006 Budget Framework Paper consistent with ihe Education Sector Snategy document; we have also presen~ed the ducadon sector MTEF M our development parma in July 2005, so &at donor parmers can veri?+ d e cansisency of &e MTET wirh the m r strategy and planned budget allocations. We continue to face difEcult choices in this sector, but me perservering with our commitment TO universalize fee-* nine year basic educanon, in a gradual ne^. In 200343, we btr&ced fet-free prknary &cation, and the net primary school enrollment rate now stands at 93 percenr. During the 2003-04 school year we also introduced capitation gram in the amount of RwF300 per student, which were successfully transfe-ed from The centrilI government via districts to primary schools to cover the loss in fee income. Given the success o f this -fer, wirh PFGG support, we increased the capitation grant to RwF 1,000 per mdent during the 2005 school year. Our aash report and spot-checks at the school level attest that rhe n a n s f a process i s transparent, h d s are deposited in schools' bank accounts, and funds are accounted for. Wirh continued PRSG support, we are considering gradually increasing the ~ O W T of The capitation garrr furrher to RwF2500 per srudmr for the 2006 school year and revising the guidelines so that schools can spend the g r a n ~ as best meets their needs. Going forward, our main arms of focus include improving the quality of e d - ~ ~ a t i ~ ~ sefvicej (partly fo reqmnd to access shock after the baroduction of fee-& primary); c m ~ u i n g 10 universalize nine years off-&e basic educauon; fimheriug decentrbhn; and increasing

43

Page 51: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

&e prqsmon o f poor sudents and female students in public secondary schools. We are also :ommined to reaUchg the high Unit costs of tertiary education. To begin to address this issue, Parliamenr approved the Higher Education Law in March 2005.

5. In b e kedrh m r , we are committed to hprovhg &e health of our population we have achieved a high bmuaization rate of 96 percent. With s w r t under PRSG

I, we piloted the use of performance-basd payment schemes for high impact heal& services (immunization and assisred deliveries) in TWO provkes. In follow-up, we have carried out a compararive review of the wo pilor schemes and the 2006 Budge1 Framework Paper allows for the w s f e r of at least 75 percent of their w m t costs to the 2006 g0V"T budget. wid^ continued PRSG support, we plan to scdwrp the p r o p TO other provinces gradually, and tramfa the program filly X, ow budget Services delivered are based on GoR policy priariues, stating with a limited number of indicators to make moniroring and evaluation simple. W e are also focuSing on Health Schemes, to deliver essential services at h e household or c o m d t y level via perfonnance-based cmmq munrelles (local hdth insurance schemes), which pool funds fkom c6"utl i ty members to cover a packge of basic health services provided at the health @.mer level and referral to hospitals when ne&&-our intention i s to transfer funds to cover premiums for the poorest people in the community; and pilodng rhe purchasbg of essential obstetrical services k m district hospitals, with rhe aim of making progress on decreasing maternal and bfb~ modity. Continued PRSG support: would benefic such schemes.

6. Integrated warm resources management i s key m our dwelcrpment strategy, affkcting a range of sectors bcluding agriculm, ma#, I D ~ ~ F J I ~ ~ , educanon, health, and the ~ W ~ ~ O D ~ R T . Wirh PRSG support, MlNTEW? (the minimy in charge of water) has &eloped guidelines to assisr distr ica in connacting private opr~~mrs for " g h g new or rehabilitated systems, and management c0n-c~ have been signed in at least m e district m each ofthe four pilot provinces (Butare, Cyangup, Gi- and Byumba). Draft legislarim for .the water sector has been presented to the GoR and stakeholders Wm submission u)

Cabbet, and complemenqy rules and regulations are also being processed for promulgauon. Ir i s expected ihar in 2006 some well-identified waxer and Sanitaton projects wi l l be financed h r n the national budget and executed at the decentralized level, to test & mechanism of channeling funds directly from the central level to &e disrrim.

7. In energy, we are facing three serious issues: a ream" shorcage of power, high transmission and dism%uum losses, and the mliabi l i ty of a dilapidated nrwork. AS an emergency response To rhe elecmciry shortage, &e GoR provided finance for Electrogaz (the water and energy uaity private management company) to purchase 12-5 megawatts o f new diesel generation capaciry, and Cabinet approved a temporary duty waiver on diesel fuel used by Electrogaz €or power genemuon. In addidon, with PRSG supporq RURA (the Rwanda U~Iiues Regularory Agency) approved revised Elecaogaz tariffs and the performance indicarors set out in Elecnogaz's managemem conFact have been revised. PRSG rmppon will continue KO be channeled TO such reguIatoq issues, while project ~pparr will b e used for invffhnents in the sector.

8. Regarding X~unsporr, the GoR has requested that policy dialogue be included under the PRSG program, IO lay the ground work for a planned invesrment program This includes assistance to develop a detailed, output-oriented MTEF tbat is Linked to planning and budgeting in che sector and aspects related to the overall policy a n d regularory fkamevork,

44

Page 52: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

derived &om a new uansporr policy &it i s under developmenq wirh a focus on measures related to improving and s u h n g the mammance of Rwanda's priariry road newark

9. In &e area o f goventrvrce and rrcmsparency, with respect to public erp@n&ure managsnenr, with PRSG suppoa we are focusing on sfrmgtknhg public expenditure "gemat, implementing an action plan developed in close collabmion Wiih donor parmers and based on extensive analysis of our budgetary and fiduciary s;rjtem, To tb is end, we have submined the draft 2006 budget law to cabbet, consistent ~ 3 % the macrroec-Amomic framework the 2006-2008 MTEF, including detailed, outputdented h!lTEFs for educarion, health, wafer, and energy, and our PRSP priorities. We have aLS0 submined the 2004 budget execution qurt to rhe Auditor General who presented i t with her opinion, to ParLiammr. The Office o f the A s o m General has been established, and a study has been commissioned to determine ways of supponkg its Operariodzaucm. Finally, we have commissioned a Cqaciry Ne& A S S ~ S S ~ ~ ~ T for public accommrs and internal audimrs. Going forward, Wirh PRSG suppart, we are focwing on finher mmgd~ening the linzEage h e e n planning and budgeting, hcludmg piloting measure to simplify the budget classification system.

10. In regad 10 frrmsparency and accounzabiliq, The Orgmic Budge Law has been adopted by the Lower Chamber of Parh". We plan to produce the accompanying -cia1 imctims. We have submitred to Parliament a revised draft public p r m m e n t law thar establishes a new, independent regalarory body with responsibiliry for (a) provisim of advice to contracting en~ries; (b) preparation o f amend ma^ to the legislauve and regulatory fiamework and impZmenting regulations for public procurem- and (c) provision of bplementation tools and documents to sppport uainhg and capscity buildmg of implementation m, all consisrent with international best practice, particularly the O E D Development Assistance C o d t r e e and COMESA public procurmat guidelines. This law UriIl provide Rwanda wirb a modern public procurement code on the basis o f whch we can move forward-with conti~ued PRSG supp0rt-i.n establishing an impsoved proanerr" system. In addition, we have published the Office of a e Ombudmnan's action plan.

11. Finally, TO improve monuurimg and odu", and in response to voice and accountabihy, we have produced our third hnual PRSP Pro- Report (APR) on PRSf implementadon during 2004-2005, and it will be presented to the Boards of the Bank and Fund in due course. We have also published &e results of a baseline pilor N I V ~ of tirizen repon cards relating m the quahy o f ducation and health Senices.

12. While we continue to face many challenges, the GoR remains comrniM to implemenring its growth and poverty reducdon agenda in line wid PRSP objectives. We thank &e WorId Bank fox the support i t has provided to our e f f m m tbis regard, and look forward to continued srrppon from the World Bank with the approval of PRSG LL

Pro€ Nshuti P. Manasseh Minimw o f Finance and Economic P1

. :, .

45

Page 53: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

7

L

d

6 .- 5

W" 0 0 N

h

Page 54: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

2 h

If u a u 3 3 s 0

I r I

x .- * I "

c

0 0 E e Y

I

6 a 3

Page 55: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

I C

I 9 3

Le

v, C

3 3 W

c

L m 5 I I - I

Page 56: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 57: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

0 s4 x s4 4 I

2 P

d

Page 58: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 59: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

I I I

1 I C c

I I

Page 60: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

(3

Page 61: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

I

I

,

1 '2 I

;I

Page 62: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

3 7

0 L

i

B

Page 63: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 64: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

I i c 0 C

! I i i 1

C .- I

2 x - M

13 4

2 .- C

+I e: E m

Lr 0 e,

C

c

2

B Y

17 E

I

I c .- I

VI Y .- L O o s

Page 65: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

x I . - :: n

c _. i n o u

s z I m y I

Page 66: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

-.

u1 I / I

x D

Page 67: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Annex 3: Fund Relations Note

BUFF/05/67 April 12,2005

The Acting Chair’s Summing Up Rwanda-Fourth Review Under the Three-Year Arrangement Under the Poverty

Reduction and Growth Facility and Waiver of Nonobservance of Performance Criteria and Extension of Arrangement; Poverty Reduction Strategy Paper Annual Progress Report and Joint Staff Advisory Note; and Completion Point Under the

Enhanced Initiative for Heavily Indebted Poor Countries Executive Board Meeting 05/34

April 11,2005

Executive Directors commended the Rwandese authorities for strengthening the implementation of policies in 2004 and keeping their economic program broadly on track, despite exogenous shocks such as an electricity crisis and rising fue l prices. They welcomed, in particular, the authorities’ use o f expenditure restraint in response to a temporary aid shortfall in 2004. As a result, macroeconomic stability has largely been achieved.

Directors emphasized that the key medium-term challenge wil l be to strengthen growth while preserving macroeconomic stability and debt sustainability, in order to reduce poverty and advance toward the Mil lennium Development Goals. They recognized that meeting this challenge wil l be complicated by Rwanda’s l o w savings rate and very high extemal debt burden. I t wil l require a steadfast commitment to reform, with emphasis o n productivity-enhancing strategies, especially in agriculture and exports; managing large donor inf lows so as to preserve export competitiveness; and strengthening the economy’s capacity to cope wi th shocks, including through the mobilization o f domestic revenue and maintenance o f adequate international reserves.

Directors welcomed the reallocation o f resources to priori ty needs in l ine with the PRSP, as envisaged in the 2005 budget. They agreed that additional spending o f about 2 percent o f GDP could be allowed, provided that i t i s financed by extemal budgetary support and that the monetary program i s kept on track. They considered that the contingent nature o f this spending wil l help ensure that fiscal policies are consistent with the authorities’ inf lat ion objective. Looking beyond 2006, Directors encouraged the authorities to further reduce nonessential spending, and to avoid directed lending.

Directors commended the recent progress in reforming the fiscal framework, including the passage o f the organic budget law, the overhaul o f the tax system, and the improvements to tax administration. They encouraged further progress in these and in other areas. In particular, they noted that continued capacity building in l ine ministries and local governments, especially in public expenditure management and accountability, wil l be crucial for successful implementation o f the organic budget law and the poverty reduction strategy. Directors stressed the importance o f intensifying efforts to mobilize domestic revenue, and urged the authorities to develop new revenue measures for the 2006 budget, including by limiting tax exemptions.

60

Page 68: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Directors welcomed the authorities’ commitment to lower inflation while allowing an expansion o f credit to the private sector. They underscored that some nominal appreciation o f the exchange rate may become necessary in managing the domestic impact o f large aid inflows. In this regard, they urged the authorities to step up sales o f foreign exchange as needed to keep reserve money growth on track, rather than relying entirely on the issuance o f costly treasury bills, while ensuring that a prudent level o f international reserves i s maintained. Directors observed that interest rates should not be lowered before a clear downward trend in inflation i s established.

Directors welcomed the authorities’ commitment to limit external borrowing and accelerate their export promotion efforts in order to maintain debt sustainability. They urged the authorities to move forcefully to implement the export promotion strategy, stimulate agricultural production, address structural bottlenecks to trade and growth, and strengthen the environment for private investment by improving governance and the rule o f law. This would enhance the competitiveness o f the export sector even if the real exchange rate were to appreciate. Directors supported the authorities’ intention to seek extemal financing mostly or entirely in the form o f grants.

Directors welcomed the authorities’ efforts to strengthen the financial sector. They urged continued timely implementation o f the recommendations o f the ongoing Financial Sector Assessment Program, with particular emphasis on enhancing financial sector supervision.

Directors welcomed the completion o f the second annual progress report o f the Poverty Reduction Strategy Paper through a broad-based consultative process. They commended the considerable advances made in the health and education sectors. However, they recommended development of an overarching macroeconomic framework-with greater emphasis on private sector-led development, particularly in agriculture and exports-and increased orientation o f public service delivery toward poverty reduction.

Directors agreed that Rwanda has met the conditions for reaching the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. They concurred that sufficient assurances have been given by Rwanda’s other creditors to justify Fund commitment o f enhanced HIPC h i t ia t ive resources to Rwanda. A t the same time, Directors encouraged the authorities to push ahead with efforts to secure the participation o f non-Paris Club creditors in the HIPC Initiative for Rwanda.

Directors expressed concern that based on the updated debt sustainability analysis (DSA), Rwanda’s debt wi l l remain above the H IPC threshold for debt sustainability for a prolonged period, even after HIPC debt rel ief and additional bilateral assistance. Most Directors agreed that the deterioration in debt sustainability since the decision point i s attributable primarily to exogenous factors-namely, changes in export prices, cross-currency exchange rates, lower-than-expected concessionality o f new financing, and the decline in discount rates-that have fundamentally changed Rwanda’s economic circumstances. A few Directors questioned whether the decline in the discount rate contributed to a fundamental change in Rwanda’s economic circumstances. Moreover, most Directors noted that the increase in import prices compared with the decision point projections i s expected to have a lasting negative impact on Rwanda’s terms-of trade and, consequently, on i ts capacity to

61

Page 69: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

repay i t s debt. On the basis, Directors agreed that additional HIPC Initiatives assistance should be granted to Rwanda, over and above that committed at the decision point, in order to bring the ratio o f the net present value o f the debt to exports down to the HIPC Initiative threshold o f 150 percent.

Directors noted that Rwanda's Poverty Reduction Strategy Paper (PRSP) and expenditure tracking system provide assurances that enhanced HIPC Initiative and other resources wil l be used toward poverty reduction. Directors also observed that, even with topping-up assistance, Rwanda's debt burden wil l remain heavy. They therefore urged the authorities to give priority to the improvement o f debt management and to pursue a cautious borrowing policy, and called on the donor community to provide support mostly in the form o f grants.

O n August 26, 2005, the Executive Board o f the International Monetary Fund (IMF) completed the fifth review o f Rwanda's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement, on a lapse o f time basis. Rwanda's PRGF arrangement was approved on August 12, 2002 (see Press Release No . 02/36), for SDR 4 mi l l ion (about US$5.9 million).

IMF EXTERNAL RELATIONS DEPARTMENT Public Affairs: 202-623-7300 - Fax: 202-623-6278

Media Relations: 202-623-7 100 - Fax: 202-623-6772

62

Page 70: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Annex 4: Country at a Glance

Rwanda at a glance 8/25/05

POVERTY and SOCIAL Rwanda

2004 Population. mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1998-04

Population (%) Labor force (%)

Most recent estlmate (latest year available, 1998-04)

Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (Der f.000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% ofpopulation) Literacy (% of population age f 5+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984

GDP (US$ billions) Gross capital formationiGDP Exports of goods and services/GDP Gross domestic savingslGDP Gross national savings/GDP

Current account balance/GDP Interest payments/GDP Total debtiGDP Total debt servicelexports Present value of debtlGDP Present value of debtiexwrts

1.6 15.8 12.6 8.8

15.2

-2.1 0.2

18.3 7.4

1964-94 1994-04 (average annual gmwNI) GDP -2.7 9.1 GDP per capita 3 . 7 4.0 Exports of goods and services -7.9 14.8

8.4 220 1.9

2.4 3.0

60 20 40

118 24 73 64

122 122 122

1994

0.75 10.0 6.3

-48.5 2.9

-7.0 0.2

126.6 7.7

2003

1 .o -1.8 -2.6

Sub- Saharan

Africa

719 600 432

2.2 1 .o

37 46

101

58 65 95

102 88

2003

1.7 18.4 8.3

-0.8 10.6

-7.8 0.4

91.5 14.6 57.7

667.2

2004

3.7 3.5 4.6

Low- income

2,338 510

1,184

1.8 2.1

31 58 79 44 75 61 94

101 88

2004

1.6 20.8

9.6 3.0

17.4

-3.5

200408

4.2 2.9 5.4

Life expectancy

Gross V primary

enrollment

T GNI

capita per i ~\~

Access to improved water source

Rwanda *xxluIxIIII1lI1

~ Low-income group I

iconomlc ratlos'

Trade

7

Domestic Capital savings formation

Indebtedness

--Rwanda Low-income group

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation Imports of goods and services

Manufacturing

1984 1994 2003

40.8 49.8 41.3 23.2 21.2 21.3 14.0 17.2 10 9 35.9 29.1 37.4

81.0 137.3 85.7 10.2 11.2 15 1 19.7 64.8 27.5

1984-94

-2 1 -7 2 -6 3 -0 8

1 5 3 5

-10 9 7 0

1994-04

9.3 10.1 5.8 8.4

5.7 10.9 11.0 0 3

2003

-3 1 4 4 5 2 4.9

-1 8 29.0 2.8 6.0

2004

40.5 21.5 10.0 38.1

83.7 13.3 27.4

2004

6 . 5 4.3 5.8 8.6

3.6 -9.0 14.0 0.2

Growth of capital and GDP ( O h )

T I

I GCF I I I O - G D P 1 Growth of exports and imports (YO)

6o T I

1 - 1 "~ Expons -Imports I Note: 2004 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the COuntW (in boid) compared with its income-group average. If data are missing, the diamond will

be incomplete.

63

Page 71: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Annex4:Countryat a Glance Rwanda

'300

200

100

0

P R I C E S and G O V E R N M E N T F I N A N C E

D o m e s t i c p r i c e s (%change) Consumer prices Implicit GDP deflator

G o v e r n m e n t f i n a n c e (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusideficit

T R A D E

(US$ millionsj Total exports (fob)

Coffee Tea Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (2000=x)O) Import price index (2000=x)O) Terms o f trade (200O=x)O)

B A L A N C E of P A Y M E N T S

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

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millions) Conversion rate (DEC, local/US$j

1984

5.4 8 . 9

1984

f29 88 27

4 238 27 49 50

1984

8 1 296 - u 5

1 1)l

-33

-7 40

00.2

E X T E R N A L D E B T a n d RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1984

290 IBRD 0 IDA 118

Total debt service 0 IBRD 0 IDA 1

Composition o f net resource flows Official grants 72 Official creditors 38 Private creditors 6 Foreign direct investment (net inflows) 15 Portfolio equity(net inflows) 0

World Bank program Commitments 23 Disbursements 25 Principal repayments 0 Net flows 24 Interest payments 1 Net transfers 23

1994

64.0 17.2

4.6

-11.5 -8.9

1994

32 77 6 2

459 218 24 36

a4 95 89

1994

48 488 -441

-4 392

-53

57 -4

220.0

1994

954 0

474

4 0 1

597 20

0 0 0

0 t2 1

11 1 n

2003

7 4 a 7

216 3 6

-2 5

2003

63 29 25 29

353 60 70 60

72 99 72

2003

140 464

-324

-31 224

-131

m2 29

537 7

2003

1540 0

909

21 0 4

201 20

0 5 0

0 24

0 24 3

20

2004

118 t30

26 6

0 9 x)a

2004

92 38 26 30

362 85 69 68

87 1)8 81

2004

777 506

-329

-31 296

-64

8 6 -62

574 6

2004

I n f l a t i o n (%) I

Expor t and i m p o r t l eve l s (US$ mill.)

400 T

98 99 00 01 02 03 04

Exports Imports

/ C u r r e n t a c c o u n t ba lance t o G D P (%)

: o m p o s i t i o n of 2003 d e b t (US$ mill.)

F 2 G 3 0

4 - IBRD 3 - IDA D - Other multilateral F ~ Private > - I M F

E ~ Bilateral

G-Short-ter

Note:Thls tabiewas producedfrom the Development Economics LDB database. 8/25/05

64

Page 72: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 73: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda
Page 74: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

l b

. . . . . . .

r- W

Page 75: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

. .

....

I I If W

Page 76: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

Annex 8: Rwanda Harmonization and Alignment

Rwanda does not have a long history of receiving long-term development assistance. Most assistance until 1997 was humanitarian aid. The country’s major donors during the ‘90s were Germany, UK, US, The Netherlands, Belgium, EU, The Wor ld Bank, The IMF, and The AfDB.

The donor response to the crisis was hardly coordinated and aid delivery was delayed. Despite the lack o f coordinated political, military, or humanitarian strategy or framework, the donor community allocated substantial resources for rehabilitation. Nevertheless, even during the period immediately following the ’94 crisis considerable delays in the delivery o f donor assistance were observed. In the aftermath o f the Genocide Rwanda’s development partners were neither equipped nor coordinated enough to properly respond to the country’s post-crisis needs. The usual commitment-disbursement gap remained.

The country’s aid coordination weaknesses on both government’s and donors’ side are the main challenge to harmonization. The Government s t i l l lacks the required capacity to effectively manage development assistance and lead the donor coordination process. Before the Genocide and during the post-genocide emergency period The Wor ld Bank and UNDP coordinated assistance through a Donor Round Table mechanism, co-chaired by the Government o f Rwanda and UNDP. In the aftermath o f the genocide due to the lack o f a fully staffed Wor ld Bank country office, as well as factors such as UNDP’s lesser comparative advantage in the area o f macroeconomic management, a defacto division o f labor emerged between the two agencies, with the Wor ld Bank coordinating donors for macroeconomic and deb t-related matters.

MINECOFIN and the UN Resident Coordinator eo-chair monthly Development Partners Coordination Group (DPCG) meetings. I t i s the largest donor coordination body. I t has been effective primarily on information sharing and general contacts with Government, and increasingly on issues related to NEPAD and global issues relevant to Rwanda.

Government officials within MINECOFIN as well as in l ine ministries have repeatedly voiced their dissatisfaction in dealing with donors’ procedures and requirements and identified a range o f difficulties that only exhaust their already limited capacity to manage development assistance.

Rwanda is one of three early budget support harmonization pilots initiated by the SPA in 2002. Rwanda’s harmonization process was launched, shortly after the country completed its PRSP. The initiative resulted in a Partnership Framework on Harmonization and Alignment between the Government and i t s budget support donors formalized through an M o U in November 2003. Broadly stated the framework declares that donors agree to harmonize and align their practices in regard to: (a) process and timing with the Government’s annual Poverty Reduction Strategy cycle; (b) criteria for evaluating macroeconomic performance; and (c) requirements for public financial management and governmental fiduciary arrangements.

The budget support harmonization process led to the government’s requests to expand harmonization efforts beyond budget support, as approximately 50 percent o f assistance i s being provided though projects, using parallel deliver mechanisms and donor procedures, and representing high aid management transaction costs for the government.

The request was expressed in October 2003, shortly before the identification o f the Bank’s f i rs t PRSC, in the hope that the multi-sector feature and required underpinnings o f the PRSC would serve as vehicle for promoting harmonization at sector and project levels. As a result the PRSC

69

Page 77: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

preparation process, was not only prepared in compliance with the budget support partnership agreement, but mobilized resources to create the momentum for broader harmonization agenda.

The Bank’s PRSCl was the first budget support operation prepared after the signing o f the budget support harmonization and alignment MOU. The programmatic multi-sector feature o f the PRSC preparation process and i t s required underpinnings provided a unique opportunity for Government and donors to jump-start the broader harmonization process.

To allow closer engagement o f non-budget support donors in the PRSC preparation process, particularly in the development o f sector strategies, but also other analytic underpinnings o f PRSP implementation, the Government and the World Bank invited al l donors to participate in the preparation o f the operation. Donors and government worked in partnership on the development o f sector strategies and MTEFs, which are expected to lead to SWAps with harmonized features.

The PRSC generated momentum led to a government-proposed menu o f actions to initiate donor dialogue on a more comprehensive harmonization framework, and to a calendar for aligning future donor reviews and support with the Government’s PRSP and Budget cycles.

These products provided further impetus to the harmonization process translating into dialogue and peer pressure, and new harmonization initiatives such as:

The creation of a government-donor non-budget support harmonization body -The Harmonization and Alignment in Rwanda for Projects and Programs (HARPP), and i t s secretariat hosted by UNDP.

DFID and the World Bank have initiated dialogue on working towards a joint/ coordinated country assistance strategy. There remains a proliferation o f donors’ assistance strategies each o f which requires design, negotiation, implementation, and evaluation missions which tax administrative capacity o f the Government.

Donors are increasingly aware of the benefits of joint analytic work The Financial Accountability Review and Action Plan (FARAP) carried out joint ly by the Government, DFID and EU was initiated as part o f the Public Expenditure Management Review (PEMR) process supported by DFID, EU, Wor ld Bank, and other donors. Wli i le a full CFAA i s one o f the required underpinnings o f the Wor ld Bank PRSCs, the Wor ld Bank decided to rely on the FARAP and i t s action plan supplemented by other available diagnostic work.

Shared Analytic Work. While recognizing the benefits o f joint analytic and diagnostic work, donors also recognize that relying on one donor i s sometimes a more efficient for al l interested parties, provided there i s sufficient donor consultation throughout the process. This i s the case for the 2004 CPAR, where donors instead o f mobil izing resources to carry out a joint CPAR, preferred to rely on the Wor ld Bank’s comparative advantage in this area, on donor consultations during the assessment process, and on sharing o f f inal results.

Delegated cooperation between DFID and SIDA in the education sector, with S IDA as silent partner, served as good practice example, and new delegated cooperation initiatives are being considered among bilateral donors, e.g. The Netherlands and DFID, with The Netherlands as silent partner.

Joint reviews are now common practice in the education and health sectors, where donor coordination is strong. Joint reviews have been facilitated by the Harmonization and Alignment Calendar finalized and adhered to during PRSC 1 preparation.

Government and donors are making progress in harmonizing capacity building initiatives. The Government developed the Multi-Sector Capacity Building Program (MSCBP), a national program on capacity building in public, private and c iv i l society

70

Page 78: The World · The World Bank FOR OFFICIAL USE ... Rwanda Utilities Regulatory Agency Report on the Observance of Standards and Codes ... Student Finance Agency of Rwanda

sectors. The program outlines a common framework and identifies capacity building needs with the a im o f pool ing donor resources. T o further facilitate harmonization o f capacity building assistance, the Government has decided to establish an autonomous body, the Human Resource and Institutional Development Agency (HIDA) to coordinate, harmonize, monitor and evaluate a l l capacity building efforts in the country under the MSCBP. Separately, DFID i s leading a review o f donor-supported capacity building activities with MINECOFIN to propose a harmonized approach at Ministry level. The Education Sector Donors Group i s considering pooled funding o f capacity building activities as the next step towards an education SWAP with harmonized features. . Donors are looking into ways of reducing transaction costs associated with their procurement practices. For example, the Wor ld Bank financed Multi-sector H I V / A I D S project (MAP) and the Global A ids Fund are using the same project implementation unit and MAP n o w has harmonized i t s anti-retroviral procurement procedures with those o f the National Tender Board and the Global Fund unit.

SWAPS with harmonized features are emerging in the education, health and agriculture sectors. Rwanda’s education sector SWAP is the most advanced and its donor group is Zed by DflD. The Government has voiced i t s preference for donors to move towards a common a id delivery approaches at sector level, re ly ing to the extent possible o n Govemment processes and systems, i.e., gradually shifting away f rom fragmented project approach through the use o f common systems for negotiating, planning, implementing, and monitoring, arguing that this transition would reduce aid transaction costs for bo th Govemment and donors, and facilitate the transition towards budget support.

71


Top Related