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Implementation Completion Report (ICR) Review - Rwanda - Institutional Reform Credit (IRC)


  
1. Project Data:   
ES Date Posted:
08/26/2005   
PROJ ID:
P066385
Appraisal
Actual
Project Name:
Rwanda - Institutional Reform Credit (IRC)
Project Costs(US $M)
 $85 million  $90.4 million
Country:
Rwanda
Loan/Credit (US $M)
 $85 million  $90.4 million
Sector, Major Sect.:
General public administration sector, General education sector, Other social services, General industry and trade sector,
Law and justice and public administration; Education; Health and other social services; Industry and trade
Cofinancing (US $M)
 None  None
L/C Number:
C3721      
   
Board Approval (FY)
  3
Partners involved
AfDB, EU, Netherlands, Sweden, DFID, IMF 
Closing Date
03/31/2004 12/31/2004
         
Prepared by: Reviewed by: Group Manager: Group:  
Zeynep Taymas
S. Ramachandran Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
The main objectives of the IRC supporting the Government's reform program were to: (i) help focus the development agenda on poverty reduction, (ii) sustain economic growth in the range of 6-7 percent, and (iii) reduce the incidence of poverty from 60 percent in 2002 to about 52 percent in 2004.

The medium term objectives were to: (a) revitalize agriculture and rural economy, (b) strengthen the private sector, (c) build human resources, and (d) improve governance and the effectiveness, efficiency and poverty impact of public sector actions.

b. Components
(a) Public expenditure management to strengthen: (i) governance, effectiveness, efficiency, and poverty impact of public sector actions through public sector financial management reforms, (ii) the budgeting process through reforms and decentralization of the MTEF, (iii) integration of the recurrent and development budgets, (iv) linking the MTEF to sector plans, with a focus on strategies for education and health, and (v) the Financial Accountability Review and Action Plan (FARAP) and Budget Priority Programs (BPPs);
(b) Private sector development: (i) promotion of private sector competitiveness through privatization of public utilities, (ii) improvement in the regulatory framework for public utilities, (iii) improvement of the legal and regulatory process for recovery of bank loans including NPLs, (iv) restructuring and privatization of insolvent banks, and (v) adoption of measures to improve banking practices and prudential banking regulations, the reduction of non-performing loans, and the overall promotion of operational efficiency in the banking system.
(c) Human and social development : (i) allocation of resources to social sectors, (ii) donor coordination through adoption of a sector-wide approach, (iii) access to health services, (iv) incentives for girls to attend upper secondary and tertiary schools, (v) develop capacity for gender budgeting in ministries, and (vi) HIV/AIDS education and a multi-sector plan for HIV/AIDS control.

c. Comments on Project Cost, Financing and Dates
This Credit, which followed the Economic Recovery Credit, was for budget support to be disbursed in three tranches, the first for US$45 million, and the others for US$20 million. It was frontloaded at the Government's request. The disbursed dollar amount rose with changes in SDR/US$ rate.


3. Achievement of Relevant Objectives:

The project helped focus the development agenda on poverty reduction, but the growth and inflation objectives were not achieved; indeed, inflation rose to 12% in 2004 (as compared to 2% in 2002). Consequently, poverty may have worsened because agricultural output also declined. Household survey is not yet available to estimate the impact on poverty.
Public expenditure management: Fiscal deficit widened in 2003. Revenue collection improved (Tax to GDP ratio increased from 11% to 14% during 2002-2004). Recurrent and development budgets were not integrated, and district MTEFs and the National MTEF were not well integrated. Each district has an internal auditor position but these are not always filled; the JMS (Joint Monitoring System to monitor budgeted inputs against expenditures) suffers from capacity constraints, particularly in the area of accounting practices and standards. (Partially achieved).
Private Sector Development: Two tea factories sold, but the privatization of others slow. Law defining the role of OCIR-the and OCIR-cafe passed. Private contractor engaged to manage Electrogaz. Rwandatel privatized. Banque Commerciale de Rwanda privatized. Commercial courts established, two are operational. RURA (multisectoral regulatory agency) has been established, but how effective it will be remains to be seen. Investment Code revised. The One-Stop Window Investment Promotion Agency established. (Achieved).
Human and Social Development : Social sector recurrent spending increased. HIV/AIDS prevalence declined; the coverage of the health insurance scheme increased; and the gross primary enrollment rate was up. (Achieved).

4. Significant Outcomes/Impacts:

All tranche conditions were met, albeit some with delay. This operation sets an ambitious institutional agenda, particularly in the area of public sector management and governance, which will take a long time to implement. Therefore, the Credit has more "outputs" than "outcomes." Some of the institutional changes were taken quickly through decrees, but they moved ahead of the capacity development needed to make them effective. Given the medium-term nature of policy reforms supported by this Credit, it is only after three to four years that it would be possible to assess its impact.

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

Despite the accompanying TA, the project was too ambitious resulting in implementation delays that are likely to continue, particularly when moving to the phase of second generation reforms. For example, a decree to establish the Regulatory Agency for public enterprises (in the Credit) was passed but its effective enforcement is likely to be difficult.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryModerately SatisfactoryOnly one of the three objectives was achieved (see section 3)
Institutional Dev.:
SubstantialSubstantial
Sustainability:
LikelyLikely
Bank Performance:
SatisfactorySatisfactory
Borrower Perf.:
Highly SatisfactorySatisfactoryThe Government implemented the reform program under difficult socio-economic conditions, and deserves credit for this. Its performance is consistent with a satisfactory rating, according which:"the Borrower generally met or exceeded all covenants and commitments with only minor shortcomings."
Quality of ICR:
Satisfactory

7. Lessons of Broad Applicablity:

The objectives in a post-conflict country which now has extremely limited human capacity should be realistically limited to what could be accomplished. There is a need to keep the reform agenda simple, focused on priority areas, and consistent with the country's capacity.

8. Audit Recommended?  Yes

          Why?  This is second in a series of budget support credits, i.e., PRSCs to improve policy/institution needed in the long term. It would be useful to evaluate a cluster of these operations in Rwanda to assess their effectiveness.

9. Comments on Quality of ICR:


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