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Implementation Completion Report (ICR) Review - TA - Adjustment (FRDP III)


  
1. Project Data:   
ES Date Posted:
04/04/2005   
PROJ ID:
P073832
Appraisal
Actual
Project Name:
TA - Adjustment (FRDP III)
Project Costs(US $M)
 3.0  2.19
Country:
Malawi
Loan/Credit (US $M)
 3.0  2.19
Sector, Major Sect.:
General agriculture fishing and forestry sector, Central government administration, Telecommunications, General education sector, Health,
Agriculture fishing and forestry; Law and justice and public administration; Information and communications; Education; Health and other social services
Cofinancing (US $M)
   
L/C Number:
C3451      
   
Board Approval (FY)
  1
Partners involved
 
Closing Date
01/31/2003 06/30/2004
         
Prepared by: Reviewed by: Group Manager: Group:  
Ismail Arslan
Kris Hallberg Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
The Third Fiscal Restructuring and Deregulation Program Technical Assistance Project (FRDP III TA) was designed in conjunction with the FRDP III Adjustment Credit. The FDRP III Adjustment Credit had three broad objectives:(i) the improvements of public sector management with the major focus being on improvements in the allocation, transparency and monitoring of public expenditures; (ii) the promotion of private sector development essentially through the continuation of the privatization of some key parastatals--telecoms, petroleum imports and distribution, and the commercial banks; and (iii) the creation of social safety net through the development of a strategy combined with a targeted program of subsidized agricultural inputs and a strategic food reserve.

While the adjustment credit had quite broad objectives, this Technical Assistance Loan (FRDP III TA) focused primarily on the implementation of public sector reforms (Objective 1). The main objectives of FRDP III TA were to: (i) strengthen the public financial management framework to ensure that public funds are used efficiently; (ii) improve the public procurement to ensure cost effectiveness, and also to prevent fraud and corruption; and (iii) develop an agenda for the next macroeconomic and sectoral policy reforms including improving the budget process and public expenditure allocation.

b. Components
The FDRP III TA had three main components: (i) improving public financial management; (ii) improving public procurement; and (iii) additional activities to improve the allocation and efficiency of public expenditures:
(i) Public Financial Management [US$ 400,000]: Strengthen public financial management by provision of technical assistance to separate the accounting and auditing functions and establish an independent and well- resourced Supreme Audit Institution (SAI). Under the TA program, the Government was to hire consultants to carry out the following:

  • Advise on how best to split the current finance and audit act into proposed Acts.
  • Review existing audit methodologies, prepare audit manuals, develop and test value for money audit guides.
  • Review of the current organizational structure, grades, salaries, conditions of service in the SAI.
  • Review the current planning structure in the SAI and management information system.
  • Assess strategic training needs in the SAI and set up a training department.
(ii) Public Procurement Reform [US$ 2,400,000]: Establish and strengthen the Procurement Authority through the provision of training, technical advisory services and acquisition of new office equipment. Specific activities covered by the TA program were:
  • Prepare a procurement code for approval by cabinet and parliament.
  • Assist with the setting up of the new procurement authority including staff appointments and training.
  • Prepare the details of reform program overseen by the new procurement authority.
  • Assist with implementation of the new procurement process including (1) Reorganizing Government Stores, including definition of remaining agencies' roles; (2) Redefine the role of CTB and its replacement with the Procurement Authority; (3) Arrange documentation and operational manuals; (4) Identify training needs and designing training programs; (5) Design rules and regulations, and policies; (6) Operationalise the system; and (7) Computerize Government stores.
(iii) Other Programs [US$ 200,000]: Improve the allocation and efficiency of public expenditures including improving the operation of the medium term expenditure framework (MTEF).

c. Comments on Project Cost, Financing and Dates
The total estimated project cost was US$3.0 million financed through an IDA credit. On average the implementation of the first component had a lag of one and a half years and several activities were not undertaken. The implementation of the second component, procurement reform, had a lag of more than two years. As a result, the project extended for six months. The actual disbursement from TA was US$2.2 million. Spending on the first component, public financial management, and the third, expenditure rationalization, were much higher than original allocation despite the limited achievement in implementing the reform(s). The public procurement component disbursed just 41% of the envisioned allocation.


3. Achievement of Relevant Objectives:

The project contributed to a significant improvement in the legal framework for public financial management and public procurement. In addition, a number of studies on the identification of the next phase of structural and sectoral reforms were carried out (see para (iii) below ).
(i) Public Financial Management -- This component of the TA project assisted improvement in the legal framework for public financial management. The Public Finance Act 2003 and Public Audit Act 2003 substituted for the old Finance and Audit Act as the new legal framework for financial management and audit. Both laws are judged to be of good quality. The new Public Audit Act is fully in line with the International Organization of Supreme Audit Institutions (INTOSAI) and reflects modern public audit principles and international practices. The project also helped to establishment of the National Audit Office.
(ii) Public Procurement Reform- This component supported the development of the Public Procurement Act 2003, which provides a well-built legal framework for a decentralized, transparent and accountable procurement process. In addition, the legislation provides for a professional procurement position. Finally, this legislation establishes an Office of the Director of Public Procurement. However, the staffing of this department was not completed at the closing of the project.
(iii) Other Programs-- This component financed a number of studies on future structural reforms, including a Tax Reform Study, an Energy and Power Policy Study, Costing for Poverty Reduction Strategy Paper, and Food Availability and Accessibility Assessment. These studies provided vital inputs to the government in the design of the subsequent phase of structural reforms.

4. Significant Outcomes/Impacts:

A new Public Finance Management Act, Public Audit Act, and Public Procurement Act (all in 2003) contributed to a significant improvement in the legal framework.

5. Significant Shortcomings (include non-compliance with safeguard features):

Project design was deficient. This TA project did not go through the regular project design and quality assurance cycle. A five-page Annex of the President's Report on FRDP III was the only description of the TA project at the time of Board presentation.
  • The objective of establishing a fully independent Auditor-General Office, with adequate staffing and budget, was not met. A staffing strategy for the National Audit Office was developed, but was not implemented by project closing. The audit coverage of ministries was increased only to 60% by 2002, rather than the envisioned 75%.
  • The staffing of new Public Procurement Office was not completed. Only a limited amount of training was provided. No progress was made to rationalize and modernize the Central Government Stores.
  • None of the targeted activities to improve the allocation and efficiency of public expenditures including improving the medium term expenditure framework (MTEF) was achieved.
  • There was no explicit project monitoring and evaluation framework and hence only limited oversight of the TA project. The project didn't have a central record of all the inputs and outputs by components.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
UnsatisfactoryUnsatisfactory
Institutional Dev.:
ModestModest
Sustainability:
LikelyLikelyThe modest benefits achieved by the project are likely to be sustained.
Bank Performance:
UnsatisfactoryUnsatisfactory
  • Quality at Entry was unsatisfactory. The Bank utilized a "one size fits all" approach on this project that did not take adequate account of the Government's preferences or capacity restraints.
  • The Bank did not adequately assess government readiness to carry out the public sector reform program.
  • Turnover among Bank TMs was high--5 in 3.5 years of project implementation.
Borrower Perf.:
UnsatisfactoryUnsatisfactory
  • The Borrower did not sufficiently convey to the Bank its dissatisfaction with project design.
  • The envisioned Task Force for project implementation was never formed.
Quality of ICR:
Exemplary

7. Lessons of Broad Applicablity:

A rigorous design is required to fully exploit the complementarity between an adjustment credit and a technical assistance operation (which did not occur in this case). The Bank should have properly designed the TA project with the standard quality assurance requirements (see sec 5).
  • A technical assistance project can not facilitate implementation of reform when government commitment to progress and institutional capacity are weak.
  • Better prioritization and coordination of the various Public Financial Modernization initiatives is needed. Currently, there are numerous initiatives (MTEF, IFMIS, procurement reform,auditing reform, and strengthening oversight institutions), but coordination and political oversight is weak.

8. Audit Recommended?  Yes

          Why?  A cluster audit (Project Performance Assessment Report) for the entire fiscal restructuring and deregulation program (three adjustment credits and two TA projects) would be useful to draw lessons from the overall experience.

9. Comments on Quality of ICR:

The ICR is exemplary, describing the poor project performance with great candor and insight. It provides a frank and detailed review of the project's shortcomings and achievements. The ratings are accurate, and ample data and evidence are presented in support of key arguments and outcomes. The lessons learned are thoughtful and perceptive.

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