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Implementation Completion Report (ICR) Review - Mz-financial Sector Ta Projectfinancial Sector Technical Assistance

1. Project Data:   
ICR Review Date Posted:
Project Name:
Mz-financial Sector Ta Projectfinancial Sector Technical Assistance
Project Costs(US $M)
 28.5  Unknown
L/C Number:
Loan/Credit (US $M)
 10.5  9.7
Sector Board:
Cofinancing (US $M)
 18.0  Unknown
Board Approval Date
Closing Date
06/30/2011 06/30/2012
Central government administration (48%), Banking (36%), Non-compulsory pensions and insurance (12%), Tertiary education (4%)
International financial standards and systems (29% - P) Debt management and fiscal sustainability (29% - P) Other financial and private sector development (14% - S) Regulation and competition policy (14% - S) Administrative and civil service reform (14% - S)
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Nestor Ntungwanayo
Fareed M. A. Hassan Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:

    The project development objectives were to: (i) improve the soundness of the Mozambican banking sector and (ii) improve public debt management. This was to be supported by: (a) strengthening the banking sector and enhancing the capacity of the Bank of Mozambique (BoM) in terms of banking supervision, management of the banking system, and financial infrastructure, including a real time gross settlement system (RTGS); (b) improving financial accountability and transparency by introduction of the International Financial Reporting System (IFRS) to commercial banks (first phase) and corporate entities (second phase); (c) strengthening public debt management capacity at the Public Debt Department of the Ministry of Finance (MoF) and other implicated agencies; and (d) improving money and Government bond market efficiency and depth, including the introduction of a Central Securities Depository (CSD) and related assistance, (Project Appraisal Document-PAD, p. 6). The statement of objectives in the Loan Agreement (p. 19-21) is similar but more detailed.

b. Were the project objectives/key associated outcome targets revised during implementation?

c. Components:

    The project had five original components (with actual IDA disbursements against appraisal estimates in parentheses) to support the four intermediate objectives and the project implementation:
      • Component 1: Strengthening the Banking Sector, including improving the Institutional Capacity of Bank of Mozambique (actual $3.54 million against $4.8 million at appraisal). Key activities were (i) to build institutional capacity in the Central bank, (ii) finance an advisor for the Government to assist divesting from the banking sector; and (iii) strengthen training capacity in the financial sector.
      • Component 2: Improving Financial Accountability and Transparency (actual $2.12 million against $1.50 million at appraisal): The component aimed to support: (i) the transition of the banking sector to IFRS (phase 1); and (ii) the transition of the Mozambican corporate sector to IFRS (phase 2).
      • Component 3: Strengthening Public Debt Management (actual $1.28 million against $1.05 million at appraisal): Under this component, the project intended to support (a) restructuring of the Public Debt Department of the MoF and the strengthening of procedures and controls; (b) consolidation and reconciliation of the debt database for all public debt; (c) capacity building for staff of the Public Debt Department; (d) strengthening information analysis and reporting, and (e) improving the GoM’s cash management policies and procedures.
      • Component 4: Improving money and Government bond market efficiency and depth (actual $0.33 million against $1.65 million at appraisal): The project aimed at (i) improving the efficiency of the primary Government debt market through regular auctions; (ii) increasing the depth of the secondary market by providing a range of instruments; (iii) developing the repurchase (repo) and reverse repurchase (resale) markets; (iv) improving the financial market infrastructure with the introduction of a Central Security Depository (CSD); and (v) enhancing registration procedures and tracking of private external-corporate debt.
      • Component 5: Project Implementation (actual $2.38 million against $1 million at appraisal): This component was to provide financial support to a professional PIU established to assist in project implementation.

    In addition, US$0.5 million of the IDA funds were unallocated at appraisal.

    A level 2 project restructuring in 2011 led to a limited reshuffle in the allocation of resources to original components. The restructuring aimed to increase the consultant category allocation to reflect the fact that some of technical assistance and capacity building requirements were greater than originally anticipated, and to reduce goods allocation.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates

Project cost and financing: Total cost at appraisal amounted to $28.5 million. Project costs to be supported by IDA were estimated at $10.5 million, against $18.0 million from parallel financing, from the African Development Bank ($10.2), KFW ($1.2 million), GTZ ($2.4 million), SIDA ($1.0 million), and DFID ($2.0 million). The Borrower contribution was estimated at $1.2 million.

Dates: The IDA loan was approved on December 1, 2005 and made effective on March 14, 2006, with a closing date set for June 30, 2011. The loan was extended once on June 22, 2011, and finally closed on June 30, 2012.

3. Relevance of Objectives & Design:

a. Relevance of Objectives:

The relevance of project objectives was high. The Government of Mozambique adopted a 2001-05 Poverty Reduction Strategy (PRS), which underscored the need for institutional reform to improve the environment for the private sector. During this period, the Government worked with its development partners and prepared a comprehensive program of financial sector reforms to address policy, institutional and legal constraints to encourage more efficient operations of the sector. Furthermore, the Government adopted in 2005 a Letter of Sector Development Policy (Annex 15 of PAD) that provided an in-depth description of how the Government intended to address the key problems in the financial sector.
In parallel, the Bank adopted a CAS in October 2003, which had a pillar aimed at improving the investment climate. A Financial Sector Assessment Program (FSAP) report highlighted priorities to be taken care of with a view to strengthening the country's financial sector. The objectives of the Financial Sector Technical Assistance Project (FSTAP) were well in harmony with the priorities set in the country's PRS and sector policy letter, and the Bank's CAS, and drew from the recommendations of the latest FSAP, and built on the achievements of an earlier Financial Sector Capcity Building Project as well as PRSC-2 where the Bank is the co-chair of the Financial Sector Working Group (PAD p.3). During the project life, Mozambique has made progress in reforming its financial sector, but the partnership led by the Bank in supporting the sector remained valid until the project closure. Because of the close consistency between the project objective and the goals of both the PRS the CAS, the relevance of the project objectives is rated high.

b. Relevance of Design:

The relevance of project design was substantial. The results matrix was of good quality (Annex 3 of PAD), with (i) specific outcomes for both the overarching objective and sub-objectives, and (ii) outcome indicators, and the source of outcome indicators information. Arrangements for results monitoring were also adequate (pages 32&33 of PAD). The results monitoring framework comprised outcome indicators for the overarching objective and the sub-objectives, baseline data, target values for each outcome indicator, and data collection and reporting instruments and responsibilities. However, there was a mismatch between the PDO indicator identified in the PAD for the second objective as presented in the results matrix, and in the table for arrangements for results monitoring. In particular, there was a lack of realism in the design and the results indicators of part of the second PDO. A deeper analysis of the prevailing lack of coordination of fiscal and monetary policies between the Ministry of finance and the Central Bank, as well as the money market level of development in the country would have suggested less ambitious targets in the development of the primary and secondary market of government securities. Given the realism of the majority of outcome indicators, the detailed account of the results matrix and the adequacy of the results monitoring arrangements, the relevance of design is rated substantial.

4. Achievement of Objectives (Efficacy) :

    • First objective (PDO I): Improved soundness of the Mozambican banking sector (High):
    • As a contribution to improved banking soundness, the respective PDO indicator and intermediate outcome indicators were achieved as follows: (i) 17 out of 18 banks were in compliance with improved prudential regulations, (ii) the BoM exceeded the target in succeeding compliance with 21 of 25 Basel Core Principles, (iii) all but one bank were compliant with IFRS, (iv) 97% of large enterprises were reporting in IFRS, exceeding the 75% target, (v) 100% of medium enterprises were reporting in IFRS, exceeding the 20% target, and finally (vi) the Real Time Gross Settlement (RTGS) allowed for real time transfer of funds.
    • Second objective (PDO II): Improved public debt management (Modest):
    • Trading in treasury securities on the secondary market was minimal. The PDO indicator to increase secondary market trading was a poor choice since it was significantly impacted by factors outside the control of the project. The secondary market for treasury securities was weak due to a shallow primary market, taxation differentials, and separate financial architecture for treasury securities.
    • However, the quality of public debt management improved significantly, in terms of governance, capacity and management of internal operations, and debt and risk management strategy. During an ICR mission interview, the IMF affirmed that there had been significant strengthening of the debt management department. There was strengthened governance in the government’s debt management. The MoF was able to prepare better reports, debt forecasting, and debt sustainability analysis. The project provided support for increased MoF capacity to publish annual reports and quarterly bulletins, and the above ministry is now able to provide timely and regular debt information to stakeholders.
    • Improving money and Government bond market efficiency and depth was central to the second PDO, and in this area, there was very limited progress due mainly to the fragmented nature of monetary and fiscal policy.

5. Efficiency:

Substantial.This was a technical assistance project and the PAD didn't include an economic analysis, and the ICR didn't include one either. Project efficiency is assessed through prudent use of resources in implementing activities that resulted into outputs that influenced the achievement of project objectives.
    • The project used project resources to tap expertise from numerous consultancies, train hundreds of public servants and people outside government, and to purchase modern software and hardware equipment. The result was a strengthened banking sector that was able to head off the risks of very costly financial crises caused by weak banks.
    • An enhanced financial infrastructure such as the introduction of the Real Time Gross Settlement system and the national switch project have led to lower financial intermediation costs. The increased capacity to manage public debt means that the Government can achieve the desired level of risk at an acceptable cost.
    • The project effectively leveraged Bank and development partner resources, bringing in (i) the IMF to support the stress testing model and advise on the debt management strategy, (ii) the AfDB to fund a MoF resident advisor when the project ended, reinforcing sustainability, and (iii) additional Bank resources to support anti-money laundering and from the Financial Sector Reform and Strengthening Initiative trust fund (FIRST). These additional resources freed project resources that were used more effectively to pursue project objectives.
    • The project team managed efficiently emerging needs or changing circumstances by dropping activities financed by others or that would not be completed in time, while others were added. Similarly, value-for-money was maintained when BoM staff canceled consultant contracts when performance was not warranted.
    • The one area of under-performance was the level of final costs of project management, which were double of appraisal estimates (see Section 2 .c, Component 5).

      a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:

Rate Available?
Point Value
ICR estimate:

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

Moderately satisfactory
    • The relevance of project objective was high, because of congruence among the project objective and the goals of both the country's poverty reduction strategy and the Bank's CAS. The relevance of project design was substantial, because of an adequate results framework, despite a lack of realism and some ambiguity in the design of the second project objective.
    • Improved soundness of the Mozambican banking sector: Due in part to this project, the banking sector’s soundness improved significantly between 2003 and 2011: (i) Non-performing loans for the system as a whole declined dramatically from about 13.8 to 2.6 percent, (ii) Capital adequacy ratios have been stable or have recently increased well above the 8 percent minimum ratio, (iii) The improved condition of the banks has reduced the need for capital cushions against further asset quality deterioration, and as a consequence, the banking sector remains highly liquid.
    • Improved public debt management: The fragmented nature of monetary and fiscal policy impeded increased efficiency and depth in the primary Government debt market. The target to increase trading in treasury securities on the secondary market was not met. The development of money and debt markets is complex and requires intensive structural monetary and fiscal reforms, as well as an increased financial integration. However, the quality of public debt management improved significantly, in terms of governance, capacity and management of internal operations, and debt and risk management strategy. During an ICR mission interview, the IMF affirmed that there had been significant strengthening of the debt management department.
    • In all, the project relevance was substantial to high, efficacy was high in the area of improvements in the Banking sector but modest in terms of improved public debt management, and efficiency was substantial.

      a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

The risk to development outcomes is considered negligible. Robust systems were put in place to monitor and ensure stability of the banking system, better institutional set-up and procedures continue to strengthen public debt management, and the corporate sector is now fully on board with IFRS. For these reasons, and because the activities supported by the project were targeted to build capacity of the core functions of MoF and BoM, it is highly likely that the impact will be sustained in the long term. This review rates the risk to development outcome as negligible.

a. Risk to Development Outcome Rating: Negligible to Low

8. Assessment of Bank Performance:

a. Quality at entry:

  • The project design reflected a substantial level of strategic relevance at the time of preparation. In addition, the design included a broad range of activities bringing together many beneficiaries and development partners well-versed on banking and debt issues (IMF, AfDB, DFID, GTZ, and KFW).
  • While the results matrix and the M&E arrangements were overall good, there was a lack of realism in the choice of part of the second PDO and its results indicator. The poor selection of the PDO indicator was also compounded by a disconnect between the results matrix and the PAD write-up regarding the second PDO indicator.
  • The design of the policy reform dealing with the government debt was not sufficiently robust. No measures were incorporated in the project to address the related fiscal and monetary policy constraints and those of the financial infrastructure in gestation. The fragmented nature of monetary and fiscal policy which impeded the development of the Government debt market was not flagged as a major risk.
  • The strong strategic relevance of the project and the appropriate donor coordination, and good design of the first PDO contrasted with the shortcomings in the design of the second PDO reform and its results framework.

Quality-at-Entry Rating: Moderately Satisfactory

b. Quality of supervision:

  • The field-based TTL provided the client real-time support and allowed for greater proactivity for resolving potential problems. Similarly, the local presence and quality of support of the fiduciary staff was highly appreciated by the PIU. The Bank’s disbursement team was singled out by the PIU for exceptional service.
  • The task team led complex joint missions and effectively leveraged its leadership role in the sector and thereby supported the overall financial sector dialogue with various Government agencies.
  • Technical experts on the team played an integral role in ensuring that international good practice was adopted, especially critical for technical assistance projects. On a related point, the team actively pursued close collaboration with the IMF which led to important synergy.
  • All missions, including the mid-term review were on schedule and aide-memoires were thorough and generally candid, and ISRs were generally filed regularly.

  • Quality of Supervision Rating: Satisfactory

    Overall Bank Performance Rating: Moderately Satisfactory

    9. Assessment of Borrower Performance:

    a. Government Performance:

  • Strong ownership of the project and commitment to its objectives were demonstrated by the Ministry of finance which ensured that project activities were leveraged with broader Government financial sector reforms.
  • The Government showed high level of donor coordination in bringing in development partners that provided complement to this project.
  • Also, coordination between monetary and fiscal authorities was not always smooth, and this limited the pace of development of the Government's debt market. This partially explains the difficulties encountered in designing and implementing reforms related to the second project objective.
  • Following a lack of proactivity, both the BoM and the MoF became fully engaged in the project implementation with some delay, and identical delays from both institutions were observed for several procurement-related activities.
  • On balance, the Government was engaged and committed to project objectives and activities, but some implementation shortcomings were observed.

  • Government Performance Rating: Satisfactory

    b. Implementing Agency Performance:

  • The PIU organized regular and inclusive monthly meetings of the technical working group which provided a forum to coordinate and resolve problems.
  • The PIU Coordinator was effective and well connected within the Government's services. In addition, an important advantage for the project was the PIU Coordinator’s direct reporting relationship to the MoF Minister.
  • Experienced and competent fiduciary staff were maintained throughout the project. Their task was more challenging than other IDA-financed projects, given the vast number of stakeholders and related processes involved, including the organization of joint missions.
  • The fact that the actual and projected disbursement curves were almost congruent is an indication of early readiness for project implementation. This strong disbursement pattern is especially noteworthy during the early stage of the project.

  • Implementing Agency Performance Rating: Satisfactory

    Overall Borrower Performance Rating: Satisfactory

    10. M&E Design, Implementation, & Utilization:

    a. M&E Design:

    • The results monitoring framework comprised outcome indicators for both the intermediate and overarching objectives, baseline data, target values for each outcome indicator, and data collection and reporting instruments and responsibilities, except the debt burden indicators which were not specified and were to be determined later (pages 32&33 of PAD).
    • The intermediate result indicators were appropriate and were specific, measurable, achievable, and relevant. They also had specific end-project targets for all four components and were generally monitored consistently throughout implementation.
    • However, there was some ambiguity in defining the second outcome indicator.

    b. M&E Implementation:

    The PIU conducted monthly meetings with all beneficiaries and donors of the broader program. The technical working group discussed not only the implementation of the IDA-financed part of the project but also the activities of the other projects. This approach was regarded as productive and efficient, demonstrating the benefits of donor collaboration. It also provided an important mechanism to utilize and evaluate emerging issues, and respond accordingly. As emphasized in the Borrower’s own completion report, this forum was critical for sustaining strong project performance

    a. M&E Utilization:

    The ICR author indicated that the ICR mission probed specifically with the PIU Coordinator about the fact that a formal monitoring system had not been established. The Coordinator indicated that since the total number of indicators to be monitored were relatively small (less than a dozen) and straightforward, it did not require a sophisticated monitoring system or a dedicated M&E specialist. The PIU and the technical group took monitoring and evaluation very seriously from the beginning and the M&E arrangements did indeed significantly inform implementation.

    M&E Quality Rating: Substantial

    11. Other Issues:

    a. Safeguards:
    The project was classified as a Category C and no safeguard policies were triggered.

    b. Fiduciary Compliance:

      • The project performed well with regards to financial management, with no significant internal controls issues identified. All audit reports under the operation had clean opinions. Overall, the project had a satisfactory financial management performance. Procurement was overseen in the PIU by experienced staff with relevant knowledge and technical capacity.
      • The PIU took the lead on procurement in terms of ensuring that all processes and timetables were followed. The Bank team did express concerns related to BoM’s lack of ownership and time commitment to technical aspects of the procurement process.
      • Another procurement issue that was probed was the language requirement that may have limited the competition, including cases of withdrawal of proposals or declining to submit. To address this issue, the requirement was changed so that the final outputs could be in English and then translated into Portuguese.

    c. Unintended Impacts (positive or negative):

    d. Other:

    12. Ratings:

    IEG Review
    Reason for Disagreement/Comments
    Moderately Satisfactory
    Moderately Satisfactory
    Risk to Development Outcome:
    Negligible to Low
    Negligible to Low
    Bank Performance:
    Moderately Satisfactory
    Shortcomings in the design and the results chain for the second development objective. 
    Borrower Performance:
    Quality of ICR:
    - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
    - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

    13. Lessons:
    (i) Adequate diagnostics and design are essential for project performance: The performance of this project was mixed: good performance in improving the soundness of the banking sector, and mixed results for the debt management objective. There was realistic diagnostics and good design for the first objective, while the diagnostics and design of the money and government debt market was rather shallow. Results were congruent with the quality and soundness of diagnostics and design.
    (ii) A coalition of financiers is warranted for sector-wide support: In order to make progress in a complex and technical area like the financial and monetary sector of a developing country, getting a coalition of specialized donors around the table is the right approach to take. The Bank was able to have on the same table contributions from the IMF, the AfDB, Germany, Sweden, and the United Kingdom to support the Mozambique financial sector. Given respective experience of the above co-financiers, this undertaking was a winning coalition from the start, but donor coordination is a requirement, as was the case in this case.

    14. Assessment Recommended?


    15. Comments on Quality of ICR:

    The ICR was comprehensive and fairly accounted for the project design, implementation and results. In particular, it was able to unearth the key weakness of the project, which was the lack of a deeper analysis of the prevailing coordination of fiscal and monetary policies between the Ministry of finance and the Central Bank, as well as the requirements to develop the primary and secondary market of government securities.

    A weakness of the ICR was that it did not include a summary of other donor activities and achievements in the financial sector, given the Bank's continued interest and support for the sector.

    a. Quality of ICR Rating: Satisfactory

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