Document of The World Bank FOR OFFICIAL USE ONLY Report No. 76078-RW INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED DEVELOPMENT POLICY GRANT IN THE AMOUNT OF SDR 33.4 MILLION (US$50 MILLION EQUIVALENT) TO REPUBLIC OF RWANDA FOR A QUALITY OF DECENTRALIZED SERVICE DELIVERY SUPPORT DEVELOPMENT POLICY OPERATION April 19, 2013 Poverty Reduction and Economic Management 2 Eastern Africa Country Cluster 2 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. REPUBLIC OF RWANDA - GOVERNMENT FISCAL YEAR July 1 – June 30 CURRENCY EQUIVALENTS (Exchange Rate Effective as of March 31, 2013) Currency Unit = Rwandan Franc US$1.00 = RwF 635.75 1 US$1.00 = SDR 0.66702242 Weights and Measures Metric System ABBREVIATION AND ACRONYMS AfDB African Development Bank FARG Genocide Survivors Assistance Fund BNR Banque Nationale du Rwanda FSC Financial Stability Committee (National Bank of Rwanda) CAS Country Assistance Strategy FDI Foreign Direct Investment CET Common External Tariff FY Fiscal Year CFSVA Comprehensive Food Security and GDP Gross Domestic Product Vulnerability Analysis CG Central Government GNP Gross National Product ClimDev Climate for Development in Africa HIPC Heavily Indebted Poor Countries Program CLSG/C Community Living Standards IBRD International Bank for Reconstruction Grant/Credit and Development CPAF Common Performance Assessment ICGLR International Conference on the Great Framework Lakes Region CPI Consumer Price Index ICT Information and Communication Technology DCDP Decentralization and Community IDA International Development Development Program Association DFID Department for International IFC International Finance Corporation Development (UK) DHS Demographic and Health Survey IFMIS Integrated Financial Management Information System DoL Division of Labor ILO International Labour Organization DPAF Donor Performance Assessment IMF International Monetary Fund Framework DPO Development Policy Operation JBSR Joint Budget Support Review DRC Democratic Republic of Congo JSR Joint Sector Review DSA Debt Sustainability Analysis LDP Letter of Development Policy EAC East African Community LGCB Local Government Capacity Implementation Plan EC European Commission LIC Low-income Country EDPRS Economic Development and Poverty LWH Land Husbandry, Water Harvesting, Reduction Strategy and Hillside Irrigation EIA Environmental Impact Assessment M&E Monitoring and Evaluation EICV Integrated Household Living MDGs Millennium Development Goals Conditions Survey EWS Early Warning System MIDIMAR Ministry of Disaster Management and Refugee Affairs FAO Food and Agriculture Organization MININFRA Ministry of Infrastructure MINAGRI Ministry of Agriculture and Animal MINALOC Ministry of Local Government Resources 1 Exchange rate as of March 28, 2013 Source: National Bank of Rwanda: http://www.bnr.rw/index.php?id=204 i MINISANTE Ministry of Health MINECOFIN Ministry of Finance and Economic Planning MIS Management Information System REU Rwanda Economic Update MOU Memorandum of Understanding RLDSF Rwanda Local Development Support Fund MSC Metrological Services Center REMA Rwanda Environment Management Authority MTEF Medium-term Expenditure SN Sub-National Framework NGO Non-governmental Organization SP Social Protection NIC National Identification Card SPS Social Protection System NISR National Institute of Statistics of SSA Sub-Saharan Africa Rwanda NSPS National Social Protection Strategy SSPS-2 Second Support to the Social Protection System NSPS-IP National Social Protection Strategy SWAp Sector Wide Approach Implementation Plan ODA Official Development Assistance SSPS Support to Social Protection System PBE Post-Basic Education PDO Program Development Objective SWG Sector Working Group PEFA Public Expenditure Framework SPWG Social Protection Working Group Assessment PER Public Expenditure Review TFESSD Trust Fund for Environmentally & Socially Sustainable Development PFM Public Financial Management UN United Nations PFMRS Public Financial Management Reform UNCDF United Nations Capital Development Strategy Fund PIP Public Investment Program UNDP United Nations Development Program PRSF Poverty Reduction Support Financing UNECA United Nations Economic Commission for Africa PRSG Poverty Reduction Support Grant UNEP United Nations Environment Program PRSP Poverty Reduction Strategy Paper UNESCO United Nations Educational, Scientific and Cultural Organization PSCDS Public Sector Capacity and UNFPA United Nations Population Fund Decentralized Service PSI Policy Support Instrument UNHCR United Nations High Commissioner for Refugees RCIP Regional Communication UNICEF United Nations Children's Fund Infrastructure Project RDB Rwanda Development Board VUP Vision 2020 Umurenge Program RDRC Rwanda Demobilization and WDI World Development Indicator Reintegration Commission SCBI Strategic Capacity Building Initiative WFP World Food Program WHO World Health Organization Vice President: Makthar Diop Country Director: Johannes Zutt Country Manager: Carolyn Turk Sector Director: Marcelo Giugale Sector Manager: Pablo Fajnzylber Task Team Leader: Yoichiro Ishihara Co-Task Team Leader: Tessa MacArthur Co-Task Team Leader: Alex Kamurase ii REPUBLIC OF RWANDA QUALITY OF DECENTRALIZED SERVICE DELIVERY SUPPORT DEVELOPMENT POLICY OPERATION TABLE OF CONTENTS I. INTRODUCTION .............................................................................................................................. 1 II. COUNTRY CONTEXT ..................................................................................................................... 3 A. RECENT POLITICAL DEVELOPMENTS IN RWANDA ........................................... 3 B. GOVERNANCE ............................................................................................................. 4 C. RECENT ECONOMIC DEVELOPMENTS IN RWANDA........................................... 4 D. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY .......................... 8 E. POVERTY PROFILE AND MDG ACHIEVEMENTS .................................................. 11 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSESES .......................... 12 IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM .......................................................... 15 A. LINK TO CAS ................................................................................................................ 15 B. COLLABORATION WITH THE IMF AND OTHER DONORS .................................. 16 C. RELATIONSHIP TO OTHER BANK OPERATIONS .................................................. 17 D. LESSONS LEARNED .................................................................................................... 18 E. ANALYTICAL UNDERPINNINGS .............................................................................. 18 V. THE PROPOSED OPERATION ....................................................................................................... 19 A. OPERATION DESCRIPTION ....................................................................................... 19 B. POLICY AREAS ............................................................................................................ 20 VI. OPERATION IMPLEMENTATION ................................................................................................. 31 A. POVERTY AND SOCIAL IMPACTS ........................................................................... 31 B. ENVIRONMENTAL ASPECTS .................................................................................... 32 C. IMPLEMENTATION, MONITORING AND EVALUATION ..................................... 32 D. FIDUCIARY ASPECTS ................................................................................................. 33 E. DISBURSEMENT AND AUDITING ............................................................................ 34 F. RISKS AND RISK MITIGATION ................................................................................. 35 ANNEXES ANNEX 1: POLICY MATRIX .................................................................................................................... 37 ANNEX 2: POVERTY AND SOCIAL IMPACT MATRIX.............................................................................. 38 ANNEX 3: POVERTY HEADCOUNT TRENDS BETWEEN 2001 AND 2011 ................................................. 40 ANNEX 4: POVERTY AND ACCESS TO SERVICES BY DISTRICTS .............................................................. 41 ANNEX 5: PROGRESS TOWARDS THE MILLENNIUM DEVELOPMENT GOALS ........................................ 42 ANNEX 6: INTERGOVERNMENTAL FISCAL RELATIONS.......................................................................... 43 ANNEX 7: ANALYTICAL UNDERPINNINGS ............................................................................................. 46 ANNEX 8: SELECTED POLICY AREAS AND PRIOR ACTIONS OF PREVIOUS DPLs................................... 47 ANNEX 9: RELATIONSHIP TO EDPRS, CAS AND WORLD BANK OPERATION ...................................... 52 ANNEX 10: RWANDA’S 2007 AND 2010 PEFA ..................................................................................... 53 ANNEX 11: 2010 PEFA ASSESSMENT AT THE DISTRICT LEVEL........................................................... 56 ANNEX 12: FUND RELATIONS NOTE ..................................................................................................... 57 ANNEX 13: LETTER OF DEVELOPMENT POLICY .................................................................................... 58 ANNEX 14: COUNTRY AT A GLANCE (INCLUDES COUNTRY MAP) ....................................................... 64 LIST OF BOXES Box 1: Rwanda’s system of Performance Contracts (the Imihigo process) ......................................... 14 iii LIST OF FIGURES Figure 1: GDP growth and contribution by sector (%) ........................................................................... 5 Figure 2: Interest Rates Trends .............................................................................................................. 7 Figure 3: The Rwandan Franc depreciated in H2 2012 before it stabilized in 2013 .............................. 7 Figure 4: Inflation Trends (Year-on-Year) ............................................................................................. 8 LIST OF TABLES Table 1: 2012/13 Budget (% of GDP) ..................................................................................................... 6 Table 2: Macroeconomic Framework ................................................................................................... 10 Table 3: Access to Services by Poor Household in Rural Areas (%) .................................................... 12 Table 4: Households’ Access to Services (%) ....................................................................................... 12 Table 5: Poverty headcount and access to services in 2011 .................................................................. 12 Table 6: Financial Transfers to Districts (Rwf Millions) ...................................................................... 14 Table 7: Policy Areas, Prior Actions and Status as of April 2013 ........................................................ 20 Table 8: Roles and Responsibilities under Decentralization Policy ...................................................... 22 This operation was prepared by a World Bank team led by Yoichiro Ishihara (TTL, Senior Economist, AFTP2), Tessa MacArthur (co-TTL, Senior Governance Specialist, AFTP2) and Alex Kamurase (co-TTL, Senior Social Protection Specialist, AFTSE); and included Wolfgang Fengler (AFTP2, Lead Economist); Peace Niyibizi (Economist, AFTP2); Geoff Handley (Consultant, AFTP2); Winston Percy Onipede Cole (Senior Financial Management Specialist, AFTME); Toru Nishiuchi (Consultant, AFTP2); Achim Fock (Country Program Coordinator, AFCKE); Nightingale Rukuba-Ngaiza (Senior Counsel, LEGAM); Hassine Hedda (Financial Officer, CTRLA); Tom Bundervoet (ET Consultant, AFTP2); Marco Hernandez (Economist, AFTP1); Paolo Zacchia (Lead Economist, AFTP2). Administrative and logistics support were provided by Arlette Sourou (Program Assistant, AFTP2), Martin Buchara (Team Assistant, AFTP2) and Sylvie Ingabire (Team Assistant, AFMRW). The peer reviewers were Birgit Hansl (Senior Economist, ECSP2); Khwima Nthara (Senior Economist, EASPT); and Yasuhiko Matsuda (Senior Public Sector Specialist, EASPW). iv PROGRAM SUMMARY REPUBLIC OF RWANDA QUALITY OF DECENTRALIZED SERVICE DELIVERY SUPPORT DEVELOPMENT POLICY OPERATION Borrower Republic of Rwanda Implementing Agency Ministry of Finance and Economic Planning (MINECOFIN) Financing Data IDA grant of US$50 million Operation Type Development Policy Operation (DPO), stand-alone operation Main Policy Areas  Strengthened policy framework for decentralization;  Capacity development for quality service delivery by local governments;  Improved government transparency and accountability to citizens;  Enhanced local government fiduciary accountability. Key Outcome Indicators  Percentage of staff positions filled in revised organizational structures;  PEFA PI-23 (availability of information on resource received by service delivery unit)  Percentage of citizens who participate in the district budgetary process;  The number of districts with clean audit based on audit opinion of the Auditor General. Program Development The program development objective (PDO) is to support the Government to Objective(s) and clarify institutional roles and responsibilities for decentralized service delivery Contribution to CAS and to enhance public transparency, fiduciary accountability, and local government capacity for improved access to quality services. Therefore, this operation contributes to the two main pillars of the Country Assistance Strategy (CAS) 2008–2012, namely to promote economic transformation and growth, and reduce social vulnerability. Risks and Risk Four main risks could jeopardize the expected outcome of the proposed Mitigation operation: (i) political risks, (ii) macroeconomic risks, (iii) stakeholder risks, and (iv) program specific risks. The design of the proposed program should help mitigate some of these risks. Political risks. The political situation surrounding Rwanda is fluid. Following the publication of a United Nations (UN) report alleging the Government of Rwanda (Government)’s involvement in the Democratic Republic of Congo (DRC), the international community has reacted by suspending or delaying planned budget support to Rwanda. If the political situation worsens again, it will translate into macroeconomic risks, stakeholder risks and program specific risks. Mitigation. The World Bank is formulating ‘A strategy to support economic development and promote peace and stability in the Great Lakes region’ which proposes specific projects and is expected to help ease tension in the eastern DRC. While this operation cannot directly mitigate the political risks, Rwanda’s sustained development is a prerequisite of regional security and stability. This operation supports important development initiatives of the Government of Rwanda, including improvements in government transparency and accountability. v Macroeconomic risks. Rwanda’s short to medium/long-term macroeconomic outlook is vulnerable to fluctuation in aid flows. If the ongoing suspension/delay in aid continues, the macroeconomic conditions will likely worsen and become evident through deterioration in core economic indicators (inflation, exchange rates, international reserves, and the budget) in the short- term. The short-term impact will in turn hold back progress made in poverty reduction and social indicators, and progress of MDGs in the medium to long- term. Mitigation. The financing provided through this operation will help the Government maintain public expenditures in priority areas, as well as ease pressures on interest rates, exchange rates, and international reserves in the short-term. Therefore, this operation is expected to reduce a systemic risk to poverty reduction, MDGs and social indicators in the medium and long-term. Stakeholder risks. The suspension/delay in aid has negatively affected the policy dialogue between the Government and its development partners. Thus, this will undermine a good track record of aid effectiveness and aid coordination. Mitigation. This operation is the result of close consultations with the Government and development partners. This process has enabled the World Bank and other development partners to remain engaged in policy reform dialogue with the Government, especially during the ongoing finalization of the Government’s new strategy (EDPRS II) which will lead into the World Bank’s new CAS. Program specific risks. The policy reforms supported by this operation as well as their respective expected outcomes will be affected by the above mentioned risks, including for example the availability of adequate budget resources. Program-specific risks include the country’s weak capacity, especially for implementing interventions at the local level, and producing quality and timely outcome indicators. Mitigation. By complementing other Bank operations such as the Second Support to the Social Protection System (SSPS-2), this operation will mitigate program-specific risks by supporting reforms that will contribute to building government capacity and improving social and fiduciary accountability at the local level. The World Bank will provide additional support to public sector capacity and Government M&E systems through other related ongoing operations including the Statistics for Results project (P124129), and Governance for Competitiveness Project (P127105). Operation ID P145114 vi I. INTRODUCTION 1. This program document proposes a ‘Quality of decentralized service delivery support development policy operation’ (this operation) for a grant in the amount of SDR 33.4 million (US$50 million equivalent) to the Government of Rwanda (Government). This operation is stand- alone and supports the Government in implementing its long term Vision 2020 which has been operationalized through a series of medium term strategies, EDPRS 2. The new EDPRS II covering 2013–18 has an overarching priority theme on strengthening accountable governance through promoting greater citizen participation in government and enhancing the quality of decentralized public service delivery. The design of this operation has benefited from close collaboration with the Government, development partners, Civil Society Organizations (CSOs), and various stakeholders. It is in full alignment with the CAS 3 and the Bank’s Africa Regional Strategy, with its foundation on governance and public sector capacity. 2. The PDO is to support the Government to clarify institutional roles and responsibilities for decentralized service delivery and to enhance public transparency, fiduciary accountability, and local government capacity for improved access to quality services. This operation builds on the decentralization and public sector reforms supported by previous and ongoing World Bank operations. It targets key medium term challenges to improving the quality of service delivery to Rwandan citizens. Also, it serves as a transition to the World Bank’s future sectoral and thematic engagement with Rwanda in this area. 3. In recognition of the limited citizen participation and ownership of the development process, the Government has identified the decentralization process as the key focus for its accountable governance reforms. Starting in 2000, the Government has progressively decentralized the provision of public services to local governments in order to bring the state closer to its poor citizens and to improve its accountability to them. Through the reforms supported by this operation, the Government is seeking to strengthen governance institutions, enhance public accountability and responsiveness to citizens and improve the transparency of public information to citizens. 4. Rwanda has restored peace and national security and achieved remarkable development successes over the last 18 years since the devastating genocide of 1994. The country has achieved high growth, rapid poverty reduction and, since 2005, reduced inequality. Between 2001 and 2012, real GDP growth averaged 8.1% per annum. The poverty rate dropped from 59% in 2001 to 45% in 2011. 4 Over this period, Rwanda also made tremendous strides in improving access to basic services. For example, net enrolment in primary school increased from 76% to 99%, while primary school completion rates more than tripled from 24% to 79%. Similarly, child mortality decreased more than threefold (from 196 deaths per 1,000 live births in 2000 to 54 in 2012), due to increased access to health care and improved proximity of health centers to residential areas. 5. While Rwanda has made great strides towards addressing its development challenges, it remains among the world’s poorest countries: about 45% of the population lives below the poverty line and 24% are extremely poor 5. Furthermore, while the poverty headcount is relatively low in urban areas at 22%, it is on average 49% outside the capital and reaches 73% in Nyaruguru district. Child malnutrition continues to affect a significant number of Rwandans: 44% of children under the age of 5 are stunted. Health insurance coverage and usage of district hospitals have increased but 2 The Government plans to finalize the EDPRS II in March/April 2013. 3 It is important to note that the proposed operation is not included in the current CAS. 4 EICV National Household Budget Survey 2011. 5 Rwanda’s poverty line is Rwf 64,000 (US$100) per year at constant January 2001 prices, equivalent to Rwf118,000 (US$185) at 2011 prices. Its extreme poverty line represents the level of expenditure needed to provide the minimum food requirement of 2,100 Kcal per adult per day which is Rwf 45,000 (US$71) at constant January 2001 prices. If the World Bank’s international poverty line ($1.25 a day) is applied, the poverty rate is 63.2% in 2011. 1 remain negatively correlated with poverty status, and so is usage of other services provided by local administrations. Similarly, while agricultural productivity has increased significantly, households that rely on farm wage labor continue to be among the poorest and have largely missed out on the benefits arising from the poverty reduction trend over the last 10 years. By bringing government closer to citizens, decentralization has a potential to better target poverty reduction within the country. 6. The Government is currently embarking on an ambitious third phase of decentralization (2011-2015). The overall objective is to improve the targeting of service provision to meet the needs of the poor by empowering sub-national levels of the government that have the best knowledge of their district poverty reduction and service delivery needs. 6 For this objective, there is a strong emphasis on capacity development and organizational reform to facilitate this deepening and to also build the fiduciary and social accountability processes to deliver improved quality services and enable greater fiscal autonomy of local governments in the medium term. Equally, the Government recognizes that the policy and legal framework for decentralization needs to be updated and enhanced, particularly in view of the need for greater clarity on the respective roles and responsibilities of the central and the local government levels and for improving the functioning of the various institutions within local government. 7. The Bank proposes this operation under challenging circumstances and a fluid aid environment. Following the publication of a UN report alleging Government involvement in the DRC, development partners have suspended or delayed planned budget support to Rwanda equivalent to 11% of the budget in the first half of FY2012/13. Through fiscal and monetary policy measures, the Government has successfully limited the impact of the aid shortfall on the economy and poverty reduction. However, the impacts have started to be felt in exchange rates, interest rates and international reserves, and the continuation of the aid shortfall is likely to be translated into a deceleration in growth and poverty reduction. In addition, effective policy dialogue between the Government and development partners through the Budget Support Harmonization Group (BSHG) has been affected by the challenging environment. 8. In addition to supporting the Government’s policies to enhance decentralized service delivery, this operation helps mitigate the short term economic and social impacts of the aid shortfall, prevent a spillover effect to poverty reduction and MDGs in the medium/long-term, and sustain policy dialogue on accountable governance and service delivery during the crucial period of EDPRS II preparation. The financing provided through this operation will help the Government maintain public expenditures and service delivery in priority areas that are relevant for poverty reduction. In addition, while a lack of financial resources may also reduce the Government’s ability to implement planned reforms, this operation will help the Government maintain momentum in important reform areas such as capacity building, public financial management (PFM) and social accountability. Moreover, it will complement the Bank’s engagement in supporting improved service delivery through other investment and policy based operations. Finally, it will help sustain the Bank’s close work with other development partners through the Joint Budget Support Review dialogue. 9. The Bank’s medium-term engagement with the Government on decentralized governance will be articulated further in the next CAS. While further progress in the policy areas to be supported by this operation will require medium/long-term engagements by the Bank and other development partners, this operation is stand-alone for three reasons. First, despite not being formally part of a broader program, this operation is strongly linked to various past and ongoing Bank interventions. In particular, this operation capitalizes on the achievements of the Decentralization and Community Development Project (DCDP), the past Poverty Reduction Support Financing (PRSF) series, the Public Sector Capacity Building Project and the SSPS. Second, in light of the rapidly changing circumstances surrounding Rwanda, this operation serves as a transition to the Bank’s future engagement with the country in this area, which could potentially be based on different instruments 6 For example, all districts have prepared their own District Development Plans for 2013–2018 to specify their medium term growth and poverty reduction goals. 2 (e.g. Program-for-Results or Investment loans). Third, the instruments to be utilized in the Bank’s future engagement with Rwanda in order to follow up on this operation will be better articulated in the next CAS covering the next 3-5 years. The next CAS will be presented to the Board in FY2014 after the Government finalizes the EDPRS II in mid-2013. II. COUNTRY CONTEXT A. RECENT POLITICAL DEVELOPMENTS IN RWANDA 10. Over the past 18 years, the international community has provided strong support to Rwanda’s progress in growth and poverty reduction. Aid has supported major reforms in economic policy making. Development partners have also supported important sector programs, which have led to remarkable achievements in agricultural productivity – the main driver of poverty reduction in Rwanda - and health outcomes. Aid has become a very important financing source, accounting for approximately 40% of the budget. 11. Donor support has recently been suspended or delayed following a UN report which alleged violation by the Government of a UN Security Council resolution establishing arms embargo on all foreign and Congolese forces in eastern DRC. The continued conflict in the eastern DRC constitutes one of the world’s most severe crises. Notwithstanding the signing of different peace agreements in the past and the deployment of a large peacekeeping force under a UN mandate, the eastern DRC has continued to suffer from recurring cycles of conflict and persistent violence by a large number of armed groups, with often devastating consequences for the population. In November 2012, the Group of Experts on the DRC (appointed pursuant to UN Security Council Resolution 1533/2004) issued a report (S/2012/843) in which it alleged violation of the arms embargo and sanctions regime by the Rwandan Government contrary to UN Security Council Resolution 1807 (2008). The June 2012 interim version of this report led many development partners to suspend their aid to Rwanda, in particular in the form of budget support. The World Bank did not present to its Board for approval the PRSF9, a large general budget support operation and a central piece of its support program to Rwanda. 12. While the environment surrounding Rwanda is fluid, positive signs have recently emerged. In February 2013, a new peace and security framework agreement to stabilize the eastern part of DRC was signed in Addis Ababa by eleven Heads of States of the International Conference on the Great Lakes Region (ICGLR) and officiated by Ban Ki-moon, the UN Secretary-General, and Nkosazana Dlamini Zuma, the Chairperson of the African Union Commission. Under the new agreement, countries in the Great Lakes have committed to refrain from interfering in internal affairs of neighboring countries while the Congolese government has agreed to fast-track security sector reform, particularly within its army and police, and to consolidate state authority in eastern parts of the country. It also pledged to prevent armed groups from destabilizing neighboring countries. Some development partners such as the African Development Bank 7 have resumed their assistance and the Board of Directors of the World Bank recently approved SSPS-2 amounting US$50 million. 13. The World Bank is formulating a strategy to support economic development and promote peace and stability in the Great Lakes region. The Bank’s formulation of a Strategy for the Great Lakes Region coincides with the peace deal signed in February 2013 by regional heads of states, with the objective of ending two decades of conflict in the east of the DRC. Advancing social and economic development in a way that addresses underlying causes of the conflict is critical for achieving and sustaining peace in the region. In particular, sub-regional integration and cooperation among the countries of the Great Lakes region can be an important contributor to their economic 7 The Board of Directors of the African Development Bank approved US$40 million budget support on April 3rd 2013. 3 development and indirectly contribute to sustained peace and stability. The Strategy being formulated aims to support integrative policies that will reduce conflict risks through two main pillars of (i) reducing vulnerabilities and enhancing resilience and (ii) promoting economic opportunities and integration. Across these two pillars, the Strategy emphasizes support to strengthened governance and public sector capacity. It builds on a robust regional knowledge platform to inform envisaged operations and the broader regional policy agenda. The Bank is particularly well-placed in the areas of (i) re-prioritizing and scaling-up investments in infrastructure and related sectoral polices, with a focus on connecting countries through better transport, energy and IT linkages; (ii) intensifying support for improved improving governance (including rebuilding key state institutions and enhanced attention to mining, decentralization, and beneficiary participation and other demand side initiatives) with a focus on eastern DRC and borders between countries; (iii) facilitating intra-regional trade and agricultural development and (iv) advancing social welfare, with sensitivity to gender, through access to health and education, social protection and effective re-integration of combatants. B. GOVERNANCE 14. Rwanda scores highly and leads in the East African Community (EAC) on two governance aspects of the World Bank’s Worldwide Governance Indicators: government effectiveness and control of corruption. As part of its development vision, the Government has pursued vigorously a zero tolerance approach to corruption which has been fundamental to the strong growth and service delivery performance recorded over the past decade. Prior to 1994, the Rwandan public administration had a reputation for pervasive corruption. 8 A raft of oversight institutions have been established to control corruption and promote integrity, including the Office of the Auditor General (1998), the Office of the Ombudsman, the Rwandan Public Procurement Agency, and most recently a new Parliamentary Public Accounts Committee (2011) as well as a Public Procurement Appeals Commission. There is a constitutionally upheld asset declaration process for public officials (although this is not public). Transparency International (TI) has ranked Rwanda as the least corrupt country in EAC and among the least corrupt in Africa. In TI’s Corruption Perceptions Index, Rwanda is ranked 50th in the world and it is the 4th best performing country in Africa and the best in East Africa. 15. However, Rwanda performs less well on Worldwide Governance Indicators of voice and accountability, i.e. the extent to which citizens of a country are able to participate in selecting their government, as well as freedom of expression, freedom of association and a free media. The Economist Intelligence Unit democracy index ranks Rwanda 136 out of 167 countries. As the Government’s Decentralization Sector Strategic Plan 2013-17 notes, ‘participation through decision making and, demanding for accountability from leadership is still low as illustrated by the 2010 Citizen Report Card. Links between citizens and Members of Parliament (MPs) are also relatively nascent. The Mo Ibrahim Foundation’s Index of African Governance ranks Rwanda 29 out of 52 countries (score of 43.2) on participation and human rights, below the Africa average of 47.6 points. The Constitution upholds a free press and a number of private radio stations operate in Rwanda. However the media sector is relatively weak and the Press Freedom Index of Reporters Without Borders ranks Rwanda 156 out of 178 countries for 2011/12 and Freedom House ranks Rwanda 178 out of 197 countries in its 2012 World Press Freedom Index. C. RECENT ECONOMIC DEVELOPMENTS IN RWANDA 16. While Rwanda has a good track-record of macroeconomic management, its strong economic performance is being clouded by the ongoing aid shortfall. The authorities have quickly and adequately responded to the aid shortfall by securing alternative financing sources for the budget and prioritizing expenditures. While the recent authorities’ responses have demonstrated prudent macroeconomic management, Rwanda’s macroeconomic outlook is highly dependent on the timing 8 JGA 2008 p. 53. 4 and amounts of aid flows. Under a scenario which incorporates this operation and the disbursement of a AfDB budget support operation, the shortfall of aid in FY2012/13 would be of US$104 million in comparison to the original budget. Under that scenario, the growth outlook would remain positive with growth projected at 7% in 2013 before recovering to a robust 7.5% in 2014. However, if the aid shortfall in the current fiscal year were to widen to US$194 million, projected growth in 2013 would be 6.2%. Under this assumption, the Government would be forced to reduce expenditures in social and infrastructure programs, with direct and indirect short term impacts on the well-being of the poor, including through reduced income and access to basic services. THE REAL SECTOR 17. The economy successfully weathered Figure 1: GDP growth and contribution by the global financial crisis. In the past decade sector (%) average real growth exceeded eight percent. The economy has kept its growth momentum in recent years (Figure 1). The growth rate decelerated to 6.2% in 2009 due to the global financial crisis, but accelerated to 8.2% in 2011 and 8.0% in 2012 led by the service sector. The high growth rate of the industry sector (11% per annum) was mostly led by construction, whereas manufacturing growth averaged a much lower 4.7% and accounted for only 6% of GDP. 18. High services growth continued in 2012. The economy’s 8.0% growth in 2012 Source: National Institute of Statistics of Rwanda (NISR) made Rwanda the strongest performer in the East African Community (EAC peers) 9 and one of the fastest-growing economies in the world. The service sector contributed 5.6% to the overall growth rate followed by industry (1.1%) and agriculture (1.0%). Within services, the trade, transportation and communication, and hotel and restaurant sub-sectors were especially strong. On the other hand, in the industry sector, mining (-9.8%) and manufacturing (-2.9%) experienced negative growth rates. The contraction of mining was due to low international prices and weak tin production, and that of manufacturing was due to higher electricity costs, which increased by 20% since July 2012. FISCAL DEVELOPMENTS 19. Rwanda’s budget is characterized by a high aid share in revenue and grants, and a significant share of transfers to local governments in expenditures. In the FY2011/12 budget realization, the share of grants reached 43.6% of total revenues and grants. The size of aid relative to GDP was 11.1% and slightly lower than that of tax revenues (13.5%) (Table 1). In expenditures, the progress of decentralization has pushed the share of transfers to districts. In the FY2011/12 budget realization, transfers to districts reached 20.5% of total expenditures, which is almost equivalent to domestic and foreign capital expenditures. 9 During the same period, Tanzania grew by 6.8%, Kenya 3.8% and Uganda 3.2%. 5 20. While Rwanda’s budget Table 1: 2012/13 Budget (% of GDP) relies heavily on aid, the 2012/13 Government utilizes it effectively. Original July- Revised o/w Gap btw December Contingent Original and According to the results of the 2011 budget Actual Budget expenditures Revised Paris Declaration Survey on Aid Revenue and grants 25.5% 11.4% 24.4% - -1.2% Domestic revenue 15.2% 7.2% 15.0% - -0.2% Effectiveness, out of 13 indicators, Tax revenue 13.4% 6.4% 13.6% - 0.2% Rwanda met 8 targets and was close Non-tax revenue Grants 1.7% 10.4% 0.9% 4.2% 1.4% 9.4% - - -0.3% -1.0% to the targets for the remaining 5 Budgetary grants 5.3% 2.0% 4.2% - -1.1% indicators 10. Rwanda’s performance Capital grants Total expenditure and net lending 5.1% 28.0% 2.2% 12.5% 5.2% 30.2% - 2.3% 0.1% 2.2% on aid effectiveness is the best among Current expenditure 14.2% 7.0% 13.2% 0.8% -1.0% o/w Transfers 5.6% 2.8% 5.0% 0.5% -0.5% 77 participating countries 11. Capital expenditure 13.5% 5.3% 13.5% 1.5% -0.1% Net lending 0.2% 0.2% 3.5% - 3.3% 21. Aid inflows have declined Change in arrears (- reduction) -0.2% 0.7% -0.2% - 0.0% Overall deficit 0.0% 0.0% 0.0% - 0.0% substantially since mid-2012. Less Excluding grants -13.0% -4.5% -15.4% - -2.4% than 40% of committed amounts have Including grants -2.6% -0.4% -6.0% - -3.4% been actually disbursed in Source: MINECOFIN. World Bank Staff FY2012/13: US$146 million out of US$391 million. The gap between expected and actual aid is equivalent to 11.4% of the original FY2012/13 budget. 22. In the first half of FY2012/13, the Government responded to the aid shortfall by cutting or delaying expenditures (Table 1). The Government postponed some capital projects in the first quarter of FY2012/13, but ensured the execution of non-discretionary expenditures such as salaries and wages, interest payments and transfers to districts. As a result, the overall budget execution rate in the first half of the fiscal year was 90%. On the financing side, the Government increased domestic borrowing (through the issuance of T-bills and accumulation of domestic arrears). The domestic arrears outstanding reached Rwf 34.4 billion (US$50 million or 0.7% of GDP) in December 2012 but have declined to an average of Rwf 10.1 billion (US$16 million or 0.2% of GDP) between January and March 2013, mainly due to continued deceleration in capital expenditures and increased issuance of T-bills. 23. The FY2012/13 budget was revised in February 2013. The Government identified expenditure cuts of about one percent of GDP, which will result in the reduction of domestic arrears to almost zero by June 2013. Furthermore, the revised budget includes contingent expenditures of Rwf 107.6 billion (2.3% of GDP) whose implementation would be subject to the disbursement of additional budget support, including from the World Bank and the African Development Bank. EXTERNAL SECTOR DEVELOPMENTS 24. Rwanda’s current account relies heavily on foreign assistance (Table 2). The current account deficit reached 7.3% of GDP in 2011 (19% of GDP without current transfers). Yet, between 2009 and 2011, the cumulative Balance of Payments (BoP) reached $455 million and as a result foreign reserves increased from $744 million in 2009 to $1,050 million in 2011. 25. In 2012 the widening of the current account deficit pushed the BoP into deficit for the first time since 2003, reducing international reserves by almost 20% to around US$845 million by end-2012. The combination of the decline in aid and an expansion in the trade deficit has pushed the BoP from a surplus in 2011 (3.7% of GDP) to a deficit of US$212 million (3.0% of GDP) in 2012. The current account deficit has widened to an estimated 11.4% of GDP in 2012, its highest level in more than 20 years. Aside from the decline in aid, the spike in global financial market volatility in early 2012 resulted in a reduction in foreign demand for Rwandan Government sovereign debt 10 http://www.oecd.org/dac/effectiveness/Rwanda%205.pdf 11 Yoichiro Ishihara (2012) “Identifying Aid Effectiveness Challenges in Fragile and Conflict-Affected States� (World Bank Policy Research Working Paper No.6037). 6 compared to 2011 12. On the positive side, foreign direct investment (FDI) has continued to rise ―predominantly to the mineral and hotel and leisure sectors 13― and is estimated to have reached US$166 million in 2012. To offset net capital outflows, during 2012 the Banque Nationale du Rwanda (BNR), the central bank, ran down international reserves to US$690 million as of end- February 2013, or about 3.4 months of imports. The reduced scope of the authorities to intervene highlights the ongoing vulnerability of the country’s external accounts. 26. While aid has significantly declined since mid-2012, both exports and imports have continued to rise. Export earnings are estimated to have expanded to US$ 591 million in 2012, with annual growth of 27.3% outpacing growth in imports 14. Despite the strong growth in exports in 2012, and because of their much lower initial base, the trade deficit widened to US$1,376 million in 2012 (20% of GDP), up from US$1,102 million in 2011 (17.3% of GDP). 15 MONETARY POLICY, EXCHANGE RATE Figure 2: Interest Rates Trends AND INTEREST RATE DEVELOPMENTS 13.0 T-Bill, Weighted Average Rate 27. The BNR has adopted measures to Deposit rate 11.0 Interbank rate enhance the effectiveness of monetary policy Key Repo Rate operations and transmission mechanisms, and improve crisis preparedness. Measures taken 9.0 during the second half of 2012 include the streamlining of liquidity management, and 7.0 7.5 enhancement of the interbank money market 7.0 operations and overnight liquidity management. 6.5 To reduce the economy’s reliance on foreign 5.0 May-… currencies, the BNR has also mandated that all Nov-11 Apr-12 Nov-12 Oct-11 Jul-12 Aug-12 Oct-12 Dec-11 Jan-12 Feb-12 Mar-12 Jun-12 Sep-12 Dec-12 Jan-13 Feb-13 reserves requirements―for both local and foreign currency deposits―must be held in local currency, Source: Central Bank of Rwanda and introduced a new rule limiting banks overall Figure 3: The Rwandan Franc depreciated foreign exchange exposures to about 10% of their in H2 2012 before it stabilized in 2013 Daily rate Annual average core capital. 16 In addition, to monitor financial 640.0 market conditions and risks, the BNR created the Financial Stability Committee (FSC) in July 2012. 630.0 Depreciation 28. With strong countervailing forces of 1.4 % in 620.0 H1-2012 affecting the domestic economy, the BNR kept Depreciation of 1.6 % in 2011 the benchmark policy rate unchanged through 610.0 the second half of 2012 (Figure 2). Domestic price Depreciation of 3.1 % in pressures eased significantly, with low growth in H2-2012 600.0 broad money, and core inflation dropping. Motivated also by the uncertainties surrounding 590.0 aid flows, heightened external and fiscal risks, and Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 monetary policy easing in some EAC countries, Source: Central Bank of Rwanda the BNR maintained its benchmark interest rate at 12 Rwandan authorities are yet to announce further plans for the issuance of a potential Eurobond of US$350 million. 13 In 2012 these included a US$162 million tourism project called Eagle on the Lake Ltd, as well as investments by Century Park Hotel, Nandan Agro-processing Industries Ltd from Singapore, and South Africa’s cement manufacturer Pretoria Portland Cement. 14 The increase in exports is partly due to that in re-export of fuel and vehicles mainly re-directing to DRC. Re- export has a neutral impact on the trade balance. 15 It is important to note that the current analysis does not include any adjustment for informal cross-border trading. 16 This is in line with practices in other EAC countries. 7 29. 7.5% throughout the second half of 2012. Figure 4: Inflation Trends (Year-on-Year) Although the BNR kept the policy interest rate 18.0 Core Headline Food Import prices unchanged, treasury bill rates rose from 9.3% in 16.0 June 2012 to 12.4% at the end of 2012, as the 14.0 government turned to domestic borrowing to fill 12.0 the budget financing gap caused by the aid 10.0 shortfall. Deposit rates also increased by 3.2%, as 8.0 bank deposit growth eased relative to very strong 6.0 credit growth. 4.0 30. The Rwandan franc depreciated in the 2.0 second half of 2012 before it stabilized in early 0.0 2013 (Figure 3). The real effective exchange rate -2.0 depreciated by 2% in 2012, compared to an appreciation of 0.7% in 2011. The depreciation Source: Central Bank of Rwanda was mainly due to lower inflation in Rwanda compared to the nation’s major trading partners, as well as a nominal depreciation of the Rwf against the US dollar. The Rwandan franc has been relatively stable in the first three months of 2013 depreciating only by 0.5%, a similar depreciation level as in the same period a year ago. 31. Credit growth to the private sector supported high growth in 2012. Credit growth reached more than 30% in 2012 and decelerated only slightly in early 2013 (29.1% y-o-y in February 2013). Private sector activities backed by high credit growth have thus far supported the economy. 32. Both headline and core inflation rates decreased in the second half of 2012, but import prices started to rise (Figure 4). The headline inflation rate fell to 3.9% (year-on-year) by December 2012, and core inflation fell to 2.5%. The food inflation rate, accounting for 35% of the price basket, remained high at eight percent. While headline and core inflation rates remained low in the second half of 2012, the weakening currency has started to affect inflation in import prices, which accounts for 20% of the price basket and reached 3.2% in December 2012. D. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 33. While the medium-term economic outlook remains positive, growth is likely to decelerate in 2013 before recovering in 2014. Bank staff estimates that Rwanda’s economy will grow 7% in 2013, assuming a budget support shortfall of US$104 million relative to the original budget in FY2012/13. If aid flows recover in FY2013/14, growth would accelerate to a robust 7.5% in 2014. The projected slowdown in 2013 growth would be driven mainly by lower public expenditures as a result of the aid shortfall. While government actions have so far limited the impact of the aid shortfall on the economy, the reduction in public expenditures will begin to have a noticeable spill-over into related private sector activities. Service sectors, in particular, are expected to slow down, especially those with stronger links to public expenditures. As foreign assistance inflows begin to be partially disbursed throughout 2013, the current account deficit is projected to decline slightly to 10.2% of GDP. The inflation rate is projected to remain moderate. 34. However, under an alternative scenario in which the aid shortfall reaches US$194 million, the 2013 growth rate would decelerate to 6.2%. Under this scenario, the Government efforts to reduce poverty and protect the provision of basic services will be further undermined. The reduction in public expenditures will have a direct impact on growth and poverty reduction. The deceleration of capital expenditures, for example, will affect employment in the construction sector, while further cuts in current expenditures will erode the economy’s overall job creation capacity. Pressure on exchange rates will be translated into higher inflation rates, which will affect the poor disproportionately. In addition, further widening of current account deficits will result in a loss of foreign reserves, which will increase the country’s vulnerability to external shocks. If and when the 8 latter were to materialize, their negative social impact would be amplified through the above mentioned transmission mechanisms (lower social expenditures and job creation and higher inflation). 35. Rwanda’s debt dynamics remain sustainable. In the most recent Debt Sustainability Analysis (DSA) update of May 2012 the present value of external debt to GDP ratio is projected to improve from 19% in 2012 to 17% in 2015. Similarly, the present value of public debt to GDP ratio is projected to decline from 37% in 2012 to 26% in 2015. Under the most extreme stress test, which involves a one-time 30% depreciation of the nominal exchange rate in 2013, the present value of the external debt to GDP ratio could increase to 24% in 2013 but then fall to 22% in 2015. Similarly, the ratio of public debt to GDP would increase to 41% in 2013 but then fall to 33% by 2015. Rwanda’s risk of debt distress is rated as moderate rather than low on account of the vulnerabilities associated with the country’s limited export base. Rwanda’s capacity for macroeconomic and public financial management has been upgraded from low to high. 36. BoP vulnerability is expected to decline in the medium term. In the near term, the current account balance will depend on aid inflows. The current account is expected to remain in deficit over the medium term, but deficits are expected to narrow as some of the large strategic investment projects come to completion. Exports continue to be vulnerable to fluctuations in international commodity prices, intensified by the narrow export base. The Government expects that the implementation of the recently-approved National Export Strategy, which provides a framework for increasing exports, will yield early results in terms of the diversification of exports. The import bill is expected to decline in coming years due to the declining need for capital goods, because many of the large strategic investment projects have been, or will soon be, completed. 37. The BNR is closely monitoring monetary and exchange rate risks. The Rwandan Franc could depreciate further and inflation could rise due to growing import prices. Food inflation will also need to be carefully monitored, given that it has been in double digits over the first 10 months of 2012. However, the BNR is expected to implement policies to minimize risks of monetary inflation while supporting the Government economic growth objective. In particular, the BNR will increasingly focus on a wider set of indicators – linked to economic activity as well as interest and exchange rate developments – in order to anchor inflation expectations and move to a more flexible monetary targeting framework by introducing a reserve money band of ±2% around the central reserve money target. This framework will attempt to guide banking liquidity and short-term interest rates to move in line with the targeted monetary policy stance. 38. Risk of policy instability remains low. Rwanda has a good track-record of macroeconomic management which has resulted in strong economic performance in the past decade. Rwanda has managed aid effectively and has used them for productive public investment and public services. The authorities’ fiscal and monetary policy reactions to the recent aid shortfall have further exemplified their macroeconomic management capacity and policy coherence. 39. Financial sector risks have been reduced through ongoing efforts to strengthen banking regulation and supervision. The process of amending the banking law and its implementing regulations following the 2011 Financial Stability Assessment Program 17 is expected to be concluded by end-2013. In 2012, the capitalization level as measured by total capital to risk weighted assets, stood at 23.9%, well above the Rwanda’s regulatory minimum capital of 15% and above the new 10% Basel Committee Benchmark. The quality of banks’ loan portfolios continued to improve as the ratio of non-performing loans (NPLs) in gross loans continued to show a downward trend. The NPL ratio has steadily declined from 11.3% in December 2010 to 8.2% in December 2011, and further to 6.1% in December 2012. To better monitor financial market conditions and risks, the BNR created the FSC in July 2012. 40. In the medium term, in order to accelerate growth and further poverty reduction, Rwanda faces the challenge of reducing its reliance on aid, as well as improving job creation and 17 http://www.imf.org/external/pubs/ft/scr/2011/cr11244.pdf 9 competitiveness. In order to bolster its resilience to diminishing aid flows, Rwanda is expected to continue expanding its domestic tax base and further strengthen its financial system’s ability to mobilize savings and spur private sector investment. In addition to the growing service sector, agriculture is another area where Rwanda has substantial capacity to build on current success and continue expanding productivity and job creation, including in off-farm activities. Job creation will also benefit from Rwanda’s growing investments in upgrading the skills of its labor force. Finally, Rwanda faces the challenge of making the most of growing regional stability and economic integration, which will be fundamental for accelerating the country’s development path towards its objective of achieving medium income status in the next decade. 41. The Bank considers the country’s macroeconomic framework to be appropriate for development policy lending. Rwanda’s track record of prudent macroeconomic policies is evidenced by the transition to PSI-based IMF support in 2010. Rwanda successfully completed the fifth review of the Policy Support Instrument (PSI) in November 2012. While the recent aid shortfall has brought increasing macroeconomic management challenges and uncertainties for the macroeconomic outlook, the authorities have quickly and adequately responded to the challenges. Table 2: Macroeconomic Framework 2009 2010 2011 2012 2013 2014 2015 Actual / Actual Actual Actual Projection Projection Projection Estimate Output and Prices Real GDP growth 6.2 7.2 8.2 8.0 7.0 7.5 7.0 Consumer prices (end of period) 5.7 0.2 8.3 3.9 6.5 6.5 6.0 Public Finance (% of GDP) 1/ Revenue and grants 25.6 24.3 25.4 24.1 25.5 22.1 18.7 Domestic revenue 12.5 13.6 14.3 14.8 14.9 15.1 14.9 Tax revenue 12.0 13.1 13.5 13.4 13.8 14.1 14.4 Non-tax revenue 0.5 0.6 0.8 1.4 1.1 1.0 0.5 Grants 13.1 10.7 11.1 9.2 10.6 7.0 3.8 Total expenditure and net lending 25.7 27.7 26.6 31.6 27.7 24.2 23.3 Current expenditure 14.7 14.8 14.9 13.1 14.6 14.1 13.9 Wages and salaries 3.4 3.4 3.5 3.7 - - - Goods and services 3.4 3.5 3.6 1.9 - - - Transfers 5.7 5.5 5.5 5.6 - - - Capital expenditure 10.1 12.3 11.7 13.2 13.1 10.1 9.4 Domestic 5.1 6.2 5.6 5.4 - - - Foreign 5.0 6.2 6.1 7.8 - - - Net lending 0.9 0.5 0.0 5.3 0.0 0.0 0.0 Overall deficit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Excluding grants -13.6 -14.4 -12.6 -17.0 -12.8 -9.1 -8.4 Including grants -0.5 -3.7 -1.5 -7.8 -2.2 -2.1 -4.6 Financing 0.5 3.7 1.5 7.8 2.2 2.1 4.6 Foreign financing (net) 0.8 1.9 2.3 7.4 - - - Domestic financing -0.4 1.8 -1.1 0.3 - - - Balance of Payments (US $ millions) Balance of Payments 145 72 235 -212 -153 -7 55 Current Account -383 -418 -459 -813 -791 -762 -625 Current Account (excl. Pub. Transfers) -903 -985 -1,206 -1,352 -1,534 -1,381 -1,205 Goods Trade -764 -787 -1,101 -1,376 -1,438 -1,205 -1,036 Exports 235 297 464 591 590 621 677 Imports 999 1,084 1,565 1,967 2,028 1,826 1,713 Services -182 -246 -187 -85 -126 -222 -211 o/w Tourist receipts 174 202 252 282 - - - Income -37 -43 -52 -74 -108 -96 -112 Current Transfers 600 657 881 722 881 761 734 o/w Public transfers 520 567 747 540 743 619 580 Capital Account 200 286 197 171 263 231 287 Financial Account 328 214 486 411 375 524 393 Direct Investments 119 42 106 160 - - - Public sector borrowing 182 52 207 93 - - - Other Private 27 119 172 158 - - - Errors & Omissions 0 -9 11 18 0 0 0 Foreign Reserves 744 813 1,050 845 692 685 740 Memorandum Item Nominal GDP (billions of Rwanda francs, FY) 3,128 3,553 4,131 4,778 5,478 6,208 6,995 Exchange rate (Rw/USD average) 568 583 600 614 - - - 1/ 2012 corresponds to FY2012/13 Source: Rwandan Authorities, IMF staff estimates and projections, and World Bank staff estimates. 10 E. POVERTY PROFILE AND MDG ACHIEVEMENTS 42. Poverty has significantly declined in Rwanda over the past decade, but challenges remain (Annex 3). While the poverty headcount (the proportion of the population living below the national poverty line) decreased by 14 percentage points between 2001 and 2011, 45% of the population lives below the poverty line. 18 Therefore, despite the drop in poverty, Rwanda is unlikely to achieve the 2015 MDG-1 target for poverty and hunger eradication (Annex 5) 19. The poverty headcount is much higher in rural areas (49%) than urban areas (22%). Extreme poverty (the fraction of the population living below the food poverty line) dropped by 16 percentage points over the past decade, but 24% of the population was still in extreme poverty in 2011. Inequality slightly improved, reflected in a Gini coefficient of 0.49 in 2011 compared to 0.52 in 2006. The decline in poverty occurred during a period of high growth rates in Rwanda but also during intermittent periods of food price inflation. 43. While notable progress has been made in a wide range of health and primary education indicators, children malnutrition and stunting remains a very serious health problem (Annex 5). The 2009 Comprehensive Food Security and Vulnerability Analysis (CFSVA) and Nutrition Survey showed that Rwanda has made progress in terms of increasing food security but indicated that more investments are needed to sustain this progress. It is notable that the observed decline in poverty between 2006 and 2011 was accompanied by a decline in the proportion of female-headed households among the poorest income quintiles. This appears to show that female-headed households are becoming less vulnerable, which corroborates the excellent performance of Rwanda with regard to the achievement of MDG-3 on gender equality. 20 With regard to MDG-7 on environmental sustainability, Rwanda’s natural resources are under pressure from the growing population, which is most evident in land degradation, soil erosion, declines in soil fertility, deforestation, wetland degradation, and a loss of biodiversity. Further economic development will increase environmental pressures by increasing energy consumption, pollution, and urbanization. Progress in increasing the proportion of the population that has access to safe drinking water and improved sanitation facilities is still too slow to reach the set targets. 44. The 2010 Rwanda Demographic and Health Survey (DHS) and the EICV3 have shown that maternal and child health has improved dramatically, and HIV prevalence has been contained at 3% since 2005. Under-five mortality decreased more than threefold since the early 2000s, hitting the mark of a two-thirds reduction in child mortality targeted by MDG 4. Progress in health indicators was mainly sustained by increased access to health care, largely due to the increased proximity of health centers to residential areas. However, more progress still needs to be made with respect to nutrition. Nationwide, 44% of children under the age of 5 are stunted, and 17% are severely stunted. In regard to education, Rwanda has made progress in expanding access, with net primary school enrollment having increased from 76% in 2001 to 99% in 2011. Also, the primary school completion rate increased from 24% in 2001 to 79% in 2011. If this progress continues, there is a possibility of the related MDG target being achieved by 2015. However, indicators for secondary and tertiary education are still 18 NISR (2012), The Third Integrated household Living Conditions Survey (EICV3) available at http://statistics.gov.rw/images/PDF/Main%20EICV3%20report.pdf 19 The 2010 MDG country report set the goals to be met by 2015 in accordance with national priorities and through the implementation of the EDPRS. 20 Within education, gender parity in literacy rates and gender enrollment parity at the primary level have been achieved. Within the public arena, the number of woman in politics, parliament, and all decision-making bodies has sharply increased over the last decade, supported by the government’s target of 30% female representation. For example, to date, women hold 56% of the seats in Rwanda's Parliament, the highest percentage of female lawmakers in the world. 11 lagging behind and there is a challenge to improve the quality of teaching, for example the primary school pupil to qualified teacher ratio stood at 62:1 in 2011/12. 21 45. Access to basic services has increased Table 3: Access to Services by Poor significantly among poor rural households. In Household in Rural Areas (%) Rwanda, 98% of the poor live in rural areas. Use Satisfaction rate Between 2006 and 2011, access to public primary 2006 2011 2006 2011 Public Primary education among the rural poor increased from 67.5 74.7 61.7 74.8 Education 68% to 75%, and access to health centers from Health Centre 63.1 80.6 74.1 84.7 63% to 81% (Table 3). It is worth noting that District Office 35.8 55 68.6 74.8 these improvements have taken place during the Source: NISR same period in which decentralization was Table 4: Households’ Access to Services (%) accelerated. Safe Drinking Improved Health Access to Electricity 46. Important challenges remain to deliver Water Sanitation Insurance Services 2005/06 2010/11 2005/06 2010/11 2005/06 2010/11 2005/06 2010/11 basic services to the poorest citizens (Table 4). Electrification, for example, has mostly benefitted Rwanda 4.3 10.8 70.3 74.2 58.5 74.5 43.3 68.8 the wealthiest households. While the proportion Q1 0.0 0.4 66.6 68.4 42.4 64.7 33.2 52.9 of wealthy families with access to electricity rose Q2 0.2 0.8 66.7 71.4 51.1 72.1 37.6 61.4 from 18% in 2006 to 39% in 2011, about 1% of households in the first two quintiles of the income Q3 0.1 2.1 67.2 71.5 55.6 71.9 45.5 69.3 distribution (the poorest 40%) have access to Q4 0.6 5.6 68.9 73.2 60.9 74.7 47.7 74.5 electricity. On the other hand, other services, Q5 17.8 38.8 79.6 84.0 76.6 85.6 51.5 84.5 education, health, and water and sanitation, have shown more income-neutral or even pro-poor Source: NISR increases in access. Access to improved Table 5: Poverty headcount and access to sanitation, in particular, has increased by more services in 2011 than 50% among the poorest 20% compared to Population Population Population Accessing 12% among the richer 20%. Access to safe Poverty Accessing Accessing Sector Headcount District Health Centres drinking water has also increased at a (slightly) Hospital (% ) (% ) Administration (% ) faster rate among the poor while health insurance has increased by almost 60% in all consumption Highest Provice 73.3% 84.1% 99.0% 97.5% Lowest Province 8.3% 3.2% 31.9% 5.6% quintiles, with a slightly more pronounced Average 44.9% 37.8% 81.1% 58.2% increase for women (from 44% to 70%). Source: NISR 47. Similary, there is great inequality to access to services across Districts. For example, usage of sector administration provided by sub-district varies from 6% in Rusizi District to 98% in Nyabihu District (Table 5 and Annex 4). Large differences across districts are also observed in access to health services (e.g. health centers and district hospitals). The large inequality across districts reiterates the importance of bringing the state closer to citizens. III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSESES 48. Good governance and a capable state is the first pillar of Rwanda’s long term Vision 2020 strategy that is focused on the country becoming a lower middle income economy by 2020. The pillar espouses the importance of strengthening accountability, transparency and efficiency in deploying scarce resources. Central to the Vision 2020 is the national decentralization process adopted in May 2000 with the aim of promoting greater government accountability to citizens, local economic 21 USAID Task Order 7 Early Grade Reading and Mathematics in Rwanda, February 2012 indicated that many pupils were not receiving adequate instruction in the important skills needed to read and interpret text. The complexity of this effort is increased by the change in 2008 from French to English as the medium of instruction. 12 development, national unity, and improved service delivery. The policy is significant given the country’s history of highly centralized rule prior to 1994. 49. Accountable governance also constitutes one of the four overarching pillars of the draft EDPRS II, which underlines a strong concern to improve the quality of service delivery and enhance citizen participation and ownership in the development process. The other three overarching development goals in the EDPRS II are: (i) economic transformation; (ii) rural development; and (iii) enhanced productivity and youth employment. During the EDPRS II period, the Government proposes to strengthen various accountability initiatives. These include home grown participatory mechanisms such as District Joint Action Development Forums (JADF), public accountability days, the Umuganda monthly community development exercises, and the National Dialogue process; as well as formal mechanisms such as the Office of the Ombudsman and its associated nationwide system for filing grievances and complaints; and service delivery charters to inform citizens of public service standards, as well as the use of ICT to engage citizens in feedback. Consolidating decentralization and PFM are foundational cross cutting issues that will be addressed in the EDPRS II. 50. Rwanda initiated Decentralization in 2000 following a series of nationwide consultations as a means to strengthen national unity and reconciliation and bring government closer to citizens and was enshrined in the new Constitution of 2003. It was part of a significant public sector reform process that sought to enhance government productivity and efficiency by substantially downsizing the administration, establishing a raft of new agencies and decentralized entities to lead on service delivery implementation, and instilling codes of ethics, standardized recruitment procedures and improved pay and skills. Decentralization has since become a cornerstone of the Government’s national development policy. 51. The Government has implemented decentralization in an incremental and phased approach. In the first phase between 2001 and 2006, the focus was on establishing five levels of government; namely: central government, provinces (12), districts (106), sub-districts (1,545) and cells (9,165) and democratic and community development structures at the local government level. There were a number of legal, institutional and policy reforms, as well as the establishment of democratic local elections. All local leaders have been elected since the Constitution was finalized in 2003. Unlike village and cell level elections, sub-district and district elections are secret. The candidates are elected indirectly by the cell and sub-district councilors respectively. A further restructuring was implemented in 2005, and sub national administrations were thus reduced to 4 provinces, 30 districts, 416 sub-districts, 21,480 cells and 14,975 Imidugudu (villages). 52. The second phase of decentralization (2006–2011) saw a greater increase in total transfers to districts, which reached 25% of total domestic revenues in 2006, and a concomitant attempt to build more capacity in local government institutions to enhance service delivery implementation and boost local economic development. A key instrument to this end was the introduction of performance contracts signed by District Mayors and the President – a system known as Imihigo (Box 1). In addition the government established systems for community mobilization and participation. However, overall capacities remained limited and the government initiated training programs to build skills in the newly established institutions, including through a Multi Sector Capacity Building Program beginning in 2005 as a long term Strategic Framework to guide and direct public sector capacity development activities, and programs run by the new Rwanda Institute of Administration and Management. This was followed by a PFM Reform Strategy of 2008–2012 and a set of second generation public administration reforms that sought to inter alia reform pay structures and introduce an Integrated Payroll and Personnel Information System (IPPIS) to strengthen human resource management. By 2010/11, sub national government staff was almost on a par with that for the central government (respectively 8,549 and 10,284 employees) and a state system was in place at all the sub national levels – Province, District, sub-district, cell and village with an elected council at each of the levels. Although only 10% of mayors were women in 2012, approximately 43% of local 13 government positions are held by women and the Constitution upholds that women shall constitute not less than 30 percent of leadership positions at all levels. Box 1: Rwanda’s system of Performance Contracts (the Imihigo process) Introduced at the inception of the second phase of decentralization, the first Imihigo were signed between the President of the Republic and District Mayors in 2006. The Imihigo then became an annual undertaking through which local governments articulate their own objectives which reflect priorities of their local citizenry, and set strategies to achieve the objectives. Derived from the traditional practice where individuals voluntarily set their own targets and publicly committed to achieve them within time bound periods, the revived concept aims to strengthen participatory priority setting, bottom-up planning and accelerate implementation while focusing on time bound results. The Imihigo are set yearly, but evaluated every six months. The process is credited for strengthening the focus on results, enhancing budget execution rates, and improving local government planning, implementation and reporting. Like other processes at the local government level, a number of areas are outlined as needing improvements to further facilitate efficiency and effectiveness of the Imihigo: these include strengthening predictability of planning; monitoring and evaluation; and increasing district resources potential to enable them commit realistically [Decentralization Policy – 2013; Annual Evaluation of Imihigo – 2011/13]. 53. In terms of fiscal decentralization, financial resources to local government have increased substantially since the second phase of decentralization (Table 6 and Annex 6) 22. Transfers from the central government to districts increased from 1.4% of domestic revenues in 2002 to 33.3% in 2011/12, of which 80% are earmarked funds and 14% are discretionary block grants23. While the tax base at the local level remains limited, MINECOFIN intends to increase local government revenues according to the draft Decentralization Sector Plan FY2013-17. The goal is to improve district autonomy and generate additional resources for local economic development. Table 6 : Financial Transfers to Districts (Rwf Millions) % of Financial Earmarked Domestic CDF 1/ Block grants Total Domestic Year funds Resources Revenue 2/ 2002 1,300 100 0 1,400 101,700 1.4 2003 4,000 1,500 0 5,500 117,900 4.7 2004 5,500 3,300 0 8,800 133,700 6.6 2005 3,500 3,300 0 6,800 169,600 4.0 2006 4,000 5,000 38,900 47,900 190,300 25.2 2007 6,000 8,400 57,100 71,500 242,000 29.5 2008 8,800 11,300 64,700 84,800 297,800 28.5 2009/10 48,000 16,500 78,200 142,700 385,100 37.1 2010/11 48,200 20,400 87,600 156,200 471,200 33.1 2011/12 11,400 25,000 142,800 179,200 538,400 33.3 Total 140,700 94,800 469,300 704,800 - - 1/ The Common Development Fund, 2/ % of the previous year’s domestic revenues Source: Decentralization Sector Strategic Plan 2013/14-2017/18 54. Looking ahead, the Government recognizes that although the last decade of decentralization implementation has resulted in major positive developments, much remains to be done to reach the country’s goals in terms of democratic, participatory local governance and effective citizen-centered service delivery. For example, although some sectors have gone far in decentralizing activities from the central level, for example agriculture, education and health, overall 22 The Bank intends to conduct further analytical work and maintain its policy dialogue on this topic to support further improvement in the fiscal decentralization framework. 23 The division of transfers across districts is based on population, poverty, number of sub-district and surface areas. 14 the roles and responsibilities between the center and the local levels of government require more clarity and definition and some sectors have not yet fully decentralized. 55. One of key priorities in EDPRS II is to further improve the quality of service delivery. This will require both greater administrative capacity – building skills, planning, M&E and PFM systems – and strengthened accountability for performance at the local level of government which is the focus of service delivery implementation. Sub national capacity building and PFM are considered foundational cross-cutting issues that need to be addressed to improve decentralized service delivery. The new PFM government strategy of 2013/14–2017/18 prioritizes support to fiscal decentralization as well as the development of human resources and capacity building in PFM. Similarly, the need for a stronger focus on building public sector capacity at the district and sub-district levels has been one of the key lessons emerging from EDPRS I and the evaluation of the second phase of decentralization. Two key challenges identified in the EDPRS self-assessment evaluation are: (i) to improve linkages between central and local government planning; and (ii) to provide implementation support matching the responsibilities allocated to sub national governments. Moreover, strengthening public sector capacity through skills enhancement and technical assistance is upheld as a key cross cutting EDPRS II priority under the leadership of the Public Sector Capacity Building Secretariat which is implementing a national Strategic Capacity Building Initiative (SCBI) to build skills in four priority areas of agriculture, energy, mining and private sector investment as well as disseminating tools and guidance to enhance the quality and impact of capacity development activities including at the local government level. 56. The government’s latest third phase of decentralization (2011–2015) is ambitious in seeking to extend the range of services decentralized to local government, while also deepening decentralization to sub-district levels. There is a strong emphasis on stepping up a strategic approach to capacity development and organizational reform to facilitate this deepening and to also build the fiduciary and social accountability processes to deliver improved quality services to citizens and enable greater fiscal autonomy of local governments in the medium term. Equally, the government recognizes that the policy and legal framework for decentralization needs to be updated and enhanced, particularly in view of the need for greater clarity on the respective roles and responsibilities of the central and the local government levels and on the functioning of the various institutions within local government. IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM A. LINK TO CAS 57. This operation is in alignment with the CAS and supports the Government’s vision of Rwanda becoming a middle-income economy by 2020. The CAS is framed around two strategic pillars: (i) promoting economic transformation and growth and (ii) reducing social vulnerability. It is closely aligned with EDPRS I (2008-13) and follows the Government’s preferences for engaging with the Bank in coordination with other development partners (Annex 9). This operation is aligned with EDPRS II, and is thus likely to be strongly consistent with the new CAS which will be finalized in FY2014. As mentioned above, an overarching priority theme of EDPRS II is strengthening of accountable governance and improving decentralized service delivery, including through increased capacity development efforts. 58. By supporting policies aimed at increasing the quality of decentralized service delivery, this operation contributes directly to service delivery outcomes in both CAS strategic pillars and particularly supports the Outcome 1.4 on ‘Management of Public Resources at Central and Local Levels Strengthened’. Under this outcome area, the Bank committed to increase the emphasis on building PFM capacity at decentralized levels and to support policy development for Rwanda’s intergovernmental fiscal transfer system to help clarify responsibilities for service delivery. The CAS 15 also identified the lack of capacity, particularly at decentralized levels, as a key risk to manage through a cross-cutting approach tackling public sector management and the mainstreaming of capacity development across all operations. 59. The 2011 CAS Progress Report confirmed that Rwanda’s progress towards achieving the CAS outcomes has been largely positive although important challenges remain. The CAS Progress Report also adjusted the CAS Program by emphasizing a more strategic approach to capacity strengthening. The EDPRS was extended by one year until June 2013 – and with it the CAS. Going forward, the strategic approach to capacity building remains highly relevant and might be emphasized even further as evident from the draft EDPRS II. B. COLLABORATION WITH THE IMF AND OTHER DONORS 60. The Bank and the IMF continue to work closely to ensure coordination and consistency in their macroeconomic and structural policy programs. While the IMF advises the Government on the size of the spending envelope in its budget discussions, the Bank focuses its attention on the composition of spending and its alignment with the EDPRS. In June 2010, the IMF approved a three- year PSI for Rwanda. It aims to consolidate macroeconomic stability while reducing Rwanda’s aid dependency by: (i) maintaining a sustainable fiscal position through increased revenue mobilization; (ii) strengthening monetary and exchange rate policies to ensure low and stable inflation; (iii) reducing the vulnerability of the financial sector by strengthening banking supervision and deepening the financial sector by enhancing access to credit; and (iv) diversifying the export base and improving the business environment. Rwanda’s fifth PSI review was completed successfully in November 2012. The macroeconomic framework presented in this document is consistent with the one used for the most recent DSA and the fifth PSI review. 61. Since 1970, IDA has committed a total of US$2.1 billion to Rwanda, of which 37% has been in grants and 63% in credits. 24 Forty-five investment projects and 10 development policy operations have been implemented to date. IDA’s current active portfolio comprises 8 projects/programs with a net commitment of US$312 million, of which approximately US$107 million (33%) had been disbursed as of January 30, 2013. 62. Rwanda has a high level of donor engagement, and the Government puts a high priority on aid coordination and effectiveness. Rwanda uses aid effectively and therefore continues to attract many development partners. There are currently 12 bilateral, 3 multilateral (the African Development Bank, the European Commission, and the World Bank), and about 16 UN organizations active in Rwanda. In addition, a large number of NGOs and vertical funds (including the Global Fund) are funding major activities. A considerable amount of aid is still bypassing the budget. The Government has been proactive in initiating better donor coordination and is supporting a number of donor coordination forums. 63. The Government, in collaboration with development partners, has set up a Development Partners’ Performance Assessment Framework (DPAF) to review the performance of development partners against a set of indicators of the quality and volume of aid. In the last DPAF review for FY2011/12, the total aid came to US$938 million from 15 donors, with 29% of this provided in budget support. The DPAF exercise is based on donor reporting data on their aid data and programs providing information on the DPAF indicators, all of which is gathered in a development assistance database. The results of the DPAF FY2011/12 demonstrate that there remains a considerable challenge in the way aid is provided, particularly through the project modality. Efforts are needed to ensure that project support, even if budget support is Government’s preferred aid modality, is provided in line with the global commitments made in Paris, Accra and Busan. This requires increased policy and procedure changes on part of development partners as well as the Government. 24 World Bank Client Connections as of December 2012 16 64. A strong track record of Bank collaboration with other development partners has enabled it to further collaborate with them in preparation of this operation. The Bank has co- Chaired and been lead donor for the PFM Sector Working Group and for the Capacity Building & Employment Promotion Sector Working Group. These two groups coordinate all development partners with government to report on EDPRS progress and feedback on sector progress to the biannual Joint Budget Support Review. On the SCBI and the Bank’s support to the Public Sector Capacity Building Secretariat, the Bank has worked closely with Belgium, the Netherlands, the Africa Capacity Building Foundation, UNDP, the Department for International Development (DFID) and the Tony Blair Africa Governance Initiative. As lead donor on PFM, the Bank has provided quality assurance on all activities for the multi-donor PFM Basket Fund supported by the DFID, Germany, Sweden and the European Commission and collaborated closely with these partners to support the Government’s PFM Reform Strategy 2008-2012. Several joint donor missions on PFM and Civil Service Reform were carried out as part of the Public Sector Capacity Building Project implementation. The Bank also co-Chaired Rwanda’s Joint Governance Assessment from 2007 until the end of 2010 and collaborated closely with a wide set of development partners to review and monitor Rwanda’s governance. C. RELATIONSHIP TO OTHER BANK OPERATIONS 65. This operation will strongly complement other Bank operation in Rwanda. Much of the Bank portfolio relies heavily on decentralized delivery mechanisms. For example, the Land Husbandry, Water Harvesting and Hillside Irrigation Project and the proposed new Feeder Roads Project both have a strong focus on strengthening decentralized entities for delivery and will benefit from the support under this proposed operation to strengthened decentralized governance and capacity. This operation would have a close linkage to the 2013 Second Support to the Social Protection System (SSPS-2) given that this operation supports the implementation of social protection programs in the Districts while also seeking to build implementation capacity in relevant central institutions. It will also strongly complement and draw on the Governance for Competitiveness Project (2012-15) which has a component supporting the SCBI, skills development, and civil service reforms in specific public institutions for export promotion in horticulture and tourism. 66. All three PRSF series have supported service delivery 25. The first PRSF series (2004-07) had a strong focus on service delivery, supporting the Government’s efforts to reduce poverty by strengthening the macroeconomic stability to foster sustainable delivery of basic services in education, health, energy and water sectors. The second PRSF series (2008-10) continued support to deepen basic service delivery in these four sectors, while reducing the cost of service delivery and strengthening public service capacity for effective decentralized service delivery. The second series added other three sectors – agriculture, transport and financial sectors – and continued strengthening further the linkages between strategic planning and the MTEF. In supporting fiscal decentralization, the second series supported the adoption of budget software at District levels and the production of budget execution reports (including an evaluation of Imihigo). Moreover, the Bank supported the assessment of service delivery at the local level with Citizen Score Cards and Community Score cards and the operationalization of a comprehensive 5-year capacity building strategy for local government. The third PRSF series (2011) was expected to carry on support to a sustainable and efficient expansion of basic services to the population with a greater participation of the private sector. 67. The Community Living Standards Grant/Credit (CLSG/C) (2009-11) and SSPS series (2012-onward) were also centered on decentralized service delivery in the health and social protection sectors, and the Vision 2020 Umurenge (VUP) social protection program. Implementation took place through the decentralized local government system. Furthermore, the VUP and community health reforms were implemented through the same decentralized local government system. The CLSG/C series supported policy reforms to enhance the VUP policy and operational design in line 25 Annex 8 includes related policy areas, prior actions and outcome indicators in the past PRSG series. 17 with global good practices in these areas of intervention (social protection and health). The SSPS series was designed to support the Government’s policy reform to consolidate, enhance efficiency and effectiveness and expand coverage of the social protection system. 68. The Decentralization and Community Development Program (DCDP 2004–2010) supported the implementation of the Government’s decentralization (second phase) and community development policies. The program focused on strengthening district capacity to lead participatory planning with local communities and financing of priority community development initiatives; developing a matching grants system to finance local government projects; and strengthening decentralized project and financial management. 69. The Public Sector Capacity Building Project (2005–2011) supported a broad set of public sector reforms encompassing civil service reform (e.g. institutional restructuring, Integrated Personnel and Payroll Information System, Citizen Charters), PFM (e.g. Integrated Financial Management Information System, training, revenue management); and public sector capacity building interventions including an Annual State of Capacity Building report. All of these reforms had a bearing on capacity at the local government level. D. LESSONS LEARNED 70. The design of this operation builds on lessons learned from, for example, the successful second PRSF series, which highlighted the importance of advancing Government-owned reforms and emphasizing capacity building. Key success factors included the breadth of the Bank’s policy dialogue with Government, and the recognition by policy-makers of the utility of budget support in helping to move the reform process forward. Strong capacity support was a key factor in the substantial progress achieved in PFM, health, education and agriculture sectors reforms. Furthermore, because of the recognition of a lack of Government capacity in fiscal decentralization, part of the supported reform program of the PRSF series focused on capacity building, including for sub-national Government planning. 71. DCDP also pointed out the importance of capacity building along with participatory processes to promote demand side governance. DCDP introduced a comprehensive participatory process through community planning and prioritization informed by national level guidelines. This promoted both citizens participation but also the dissemination of demand side governance tools. An example constitutes the citizens report cards introduced by the DCDP and which have been institutionalized. E. ANALYTICAL UNDERPINNINGS 26 72. The preparation of this operation was also motivated by various works that pinpointed challenges associated with the decentralization process and the improvement of quality service delivery. The 2010 PEFA noted that efficient and effective PFM and fiscal decentralization requires not only adequate and transparent levels of resources for local authorities, but also financial managerial capacity to mobilize their own revenues, manage resources efficiently and enhance accountability for the way public money is spent. 73. The Independent Evaluation of the Implementation of the PFM Reform Strategy 2008- 2012 also highlighted capacity constraints, including human resources, as one of the major challenges in financial management – especially in the area of procurement– at the sub national government level. This was stressed by the World Bank’s Enhancing Human Resource Management for Rwanda’s Vision 2020, which considered the institutional capacity constraints affecting service delivery at the district level. The 2011 Pay and Retention Policy Situational Analysis noted that staff 26 Annex 7 includes list of analytical underpinning related to specific policy areas and prior actions. 18 retention issues at district levels serve as a major hindrance to the decentralization process and good quality of service delivery 27. 74. The new 2013 Decentralization Policy was underpinned by several evaluations following completion of the first and second decentralization phases. An evaluation report was commissioned following each phase to assess achievements, challenges, opportunities and threats. In addition, Districts capacity needs assessments were done during 2008/09 on the basis of which a 5- year local government capacity building strategy was developed. In an effort to further inform implementation of the new policy, the Government recently commissioned an assessment of sectoral decentralization to generate lessons for implementation of the third phase and this has informed the preparation of this operation as well. 75. In 2008, Rwanda, together with the World Bank as co-Chair and its development partners concluded a Joint Governance Assessment which was widely regarded as a good example of a coordinated assessment. A further Joint Governance Assessment was published in 2011. The Bank completed an assessment of Rwanda’s progress on public service reform in 2012, entitled, “Enhancing Human Resource Management for Rwanda’s Vision 2020�, which considered the institutional capacity constraints affecting service delivery in the agriculture and energy sectors and reviewed the literature on public service reform in Rwanda including the various Functional Reviews carried out across the public sector between 2008 - 2011. The Bank has completed Implementation Completion Reports for the Public Sector Capacity Building Project and the Decentralization and Community Development Project and the lessons learnt have been absorbed into the design of this proposed operation. 76. The latest Rwanda Economic Update (REU) 28 of the Bank underpins the sections on recent economic developments, macroeconomic outlook and poverty profiles and MDG achievements. The half yearly REU series analyzes and synthesizes recent economic developments and places them in a medium term and global economic context. The proposed operation has been informed by the analyses of the REU. Each edition of the REU contains a special feature on a selected topic. The latest REU covers “Poverty Reduction in Rwanda – Past, Present, and Implications for the Future�. V. THE PROPOSED OPERATION A. OPERATION DESCRIPTION 77. This operation amounts to SDR 33.4 million (US$50 million equivalent) grant financing to the Government. It supports the implementation of Rwanda’s long term national development Vision 2020 and EDPRS II. The design of this operation has benefited from a close collaboration with the Government, development partners, Civil Society Organizations, and various stakeholders and is in full alignment with the CAS and the Africa Regional Strategy, with its foundation on governance and public sector capacity. 78. The PDO is to support the Government to clarify institutional roles and responsibilities for decentralized service delivery and to enhance public transparency, fiduciary accountability, and local government capacity for improved access to quality services. The PDO is in full alignment with the draft EDPRS II’s overarching priority theme on strengthening accountable governance through promoting greater citizen participation in government and enhancing the quality of decentralized public service delivery. 79. Prior actions. The prior actions have all been completed (Table 7 and Annex 1). Hitherto, the PRSF series has drawn the prior actions from the Government’s Common Performance Assessment 27 Conducted by the Ministry of Public Service and Labor 28 Forthcoming in April 2013. 19 Framework (CPAF) agreed between the Government and development partners to monitor budget support so as to align behind the joint monitoring and evaluation framework. Given that the aid shortfall has adversely affected the policy dialogue between the Government and development partners in the area of budget support, and the stand alone nature of this operation, this program has adopted more flexibility in selecting prior actions from the Government reform program, including from outside the CPAF. Table 7: Policy Areas, Prior Actions and Status as of April 2013 Prior Actions Source of Actions Policy Area 1: Strengthened Policy Framework for Decentralization The Recipient has approved a new decentralization Cabinet approved the new policy in January 2013 policy which clarifies the roles and responsibilities of central and local government The Recipient has published in the Official Gazette the Gazetted in July 2012, Presidential Order No. 25/01 of Presidential Order establishing the list of fees and 09/07/2012 other charges levied by decentralized entities and the applicable thresholds Policy Area 2: Capacity Development for Quality Service Delivery by Local Governments The Recipient has adopted twenty eight (28) District 29 District Capacity Building Plans have already been capacity building plans approved by the District completed Councils Policy Area 3: Improving Government Accountability and Transparency to Citizens The Recipient has published in the Official Gazette a Access to Information Law was Gazetted in March new Access to Information Law which provides for the 2013 public’s right to information Policy Area 4: Enhanced Local Government Fiduciary Accountability The Recipient has reviewed twenty five (25) District By December 2012, twenty five (i.e. 83%) District Audit Committee reports of 2012 and issued Audit Committees had held quarterly meetings and communication to the districts on the main areas for reported to their respective District Councils follow up 80. This operation also helps mitigate the short term economic and social impacts of the aid shortfall as well as prevent a spillover effect to poverty reduction and MDGs in the medium/long-term. The Government has so far protected priority expenditures in social programs including transfers to districts. However, in the short-term, in the absence of additional aid, the Government would be forced to reduce not only capital but also current expenditures. This will inevitably have not only a negative impact on service delivery and poverty reduction in the short-term, but also holding back progress made in the past decade in the medium to long-term. In order to deal with a sustained reduction of aid, in the medium to long term the Government plans to mobilize alternative domestic and external financing sources, including a possible larger recourse to private participation in the infrastructure and social sectors. B. POLICY AREAS POLICY AREA 1: STRENGTHENED POLICY FRAMEWORK FOR DECENTRALIZATION Description 81. This operation supports the Government’s efforts to strengthen its policy framework for decentralization, including by clarifying institutional roles and responsibilities. In the past decade, the Government has introduced comprehensive decentralization implementation plans to put its policy and each phase of decentralization into practice, as well as a Fiscal Decentralization Strategy in 2011 led by MINECOFIN to guide the implementation of the Fiscal and Financial Decentralization policy. The institutional framework has also been developed with the establishment of a Decentralization Sector Working Group to coordinate cross-government and external policy dialogue. 20 The Government has also reconfigured institutional arrangements by establishing a Rwanda Governance Board and Decentralization Focal Points in Ministries and Provinces. Challenge 82. The Government recognizes that although local government entities now have more financial and human resources at their disposal, there are four key challenges to ensure that they perform effectively and to consolidate the still evolving and phased decentralization process moving forward. 83. First, although as previously mentioned there have been positive developments in participation and accountability, participatory local governance and effective citizen-centered service delivery need to be improved. The Citizens Report Card exercise (2010) has revealed that citizens’ participation was particularly weak in areas such as participation in the district budgetary process (35%). The current institutional mechanisms such as the JADF need to be strengthened including through the broader use of ICT and community radio, sensitization of citizens on their rights to participate, and a legal framework for access to information. A shift towards greater downward accountability between local public officials and citizens is required given that currently the Imihigo performance contracting system tends towards stronger upward accountability between local officials and the executive. 84. Second, inadequate functional linkages between local governments and line Ministries remain. Progress on sector decentralization varies across sectors. The Government recognizes the need to improve the clarity of roles and responsibilities between the center and sub national entities while deepening the overall devolution of power. There are concerns that line ministries continue to influence staffing at the district level through deploying and earmarking staff salaries which can create distortionary pay and work differentials that undermine performance. 85. Third, a legal framework clarifying the roles and responsibilities of sub national entities is required, in accordance with the new decentralization policy. The existing legal framework has evolved progressively but remained weak. The Constitution provides clear principles for decentralization. However, its implementation is complex and subject to different interpretations by stakeholders. Recent situational analysis for the new policy suggested the need to clarify the functions assigned to the Provinces and to overcome incidences when political officials step into the technical sphere by clarifying respective political and technical roles in local government. 86. In the same vein, fourth, the legal framework for sub-national revenue needs to be tightened. Local governments have, since 2002, been assigned responsibility for collecting property taxes, trading licenses and rental income taxes. Local authorities also collect fees, including fees for plot sales, public cleaning services, market fees and notary charges. However, there are issues with the legal and policy framework to promote local service delivery and economic activity. In particular, the framework for local fees and other charges allows decentralized entities to charge a relatively wide range of rates, against a wide range of different fees and charges – some of which have a high ‘nuisance’ value – without a proportionate link to the public service being provided. A legal instrument defining a ‘closed list’ of allowable fees and other charges, with clear maximum allowable rates associated with each one, would help to address this issue. Government actions to date and future activities to address the challenge 87. The new Decentralization Policy aims to align national policy with the key challenges identified by the situational analysis. It sets a policy direction on: (i) enhancing citizen participation and systems of accountability such as the JADF and ICT enabled reporting which is discussed in Policy Area 3; (ii) strengthening intergovernmental coordination and the clarity of roles and responsibilities; and (iii) improving overall capacity development at the local government level and reviewing local government structures and incentives to enable Districts and their lower levels to hire appropriate staff, which is discussed in Policy Area 2; and (iv) local economic development. The policy also sets a strategic policy direction on (v) enhancing fiscal decentralization including strengthening systems of PFM and accountability which is discussed in Policy Area 4. 21 88. To achieve the key objectives, the Government commits to undertake strategic actions in 14 areas such as local government structures with clear roles, responsibilities and functions 29 and espouses some fundamental guiding principles. These are ‘subsidiarity’ (whereby the central government shall only perform those tasks which cannot be undertaken at the local government level while local governments shall apply the same principle to the lowest level); national unity and indivisibility and equitable development; as well as the separation of powers between technical and political authority. Other guiding principles concern respecting local autonomy and diversity, championing a one size does not fill all approach and gender equality and social inclusion. 89. The Government is already taking some significant steps forward in the development of the legal framework. A new Law Governing Decentralized Administrative Entities has been drafted and is currently in the Senate for approval. It will consolidate and simplify all laws on decentralization. It establishes the procedures guiding the appointment or election of different local leaders, their roles and responsibilities, and the roles and responsibilities of provinces. Complementary measures to strengthen the legal framework for local revenue raising have been enacted as part of the new policy framework. 90. In addition, the Government plans to issue Prime Ministerial Instructions on Sectoral Decentralization during 2013. These will both formalize existing sectoral decentralization arrangements, which are currently not clearly defined, and accelerate the decentralization of responsibilities in various sectors to sub national entities in a sequenced manner over time. The instructions follow a government study on sector decentralization that has provided an inventory of all decentralized activities to the districts with recommendations for additional activities to be decentralized in 2013/14 and in the medium term, for example in the areas of health, education, infrastructure and agriculture. With the issuance of the instructions, roles and responsibilities of local governments will be greatly clarified. 91. The Government will also issue revised local government organizational structures that match the increasing decentralization of responsibilities to the District and sub-district resulting from the new Decentralization Policy. The new structures will be determined through the current review of effectiveness and efficiency of the entire public sector that the Government is completing in June 2013. The current restructuring proposals for the Districts will, for example, enhance public financial management staff capacity by increasing the Finance Unit from 5 to 11 staff and adding an additional internal auditor. The staff of the Planning, M&E Unit is proposed to double from 3 to 6 staff. Table 8: Roles and Responsibilities under Decentralization Policy Level/Units Expected changes with the 2013 new Responsibilities Effective 2006 (2005/6) decentralization policy Central (1) Policy Formulation; Resource mobilization; Additional services performed by sectors Capacity building; M&E further decentralized to local governments 29 (1) Local government structures with clear roles, responsibilities and function; (2) Local autonomy and stronger inter-governmental fiscal relations; (3) Supportive legal and regulatory framework for decentralized governance and service delivery; (4) Promoting integrated citizen-centered local and national development planning; (5) Effective mechanisms for stakeholder engagement and coordination; (6) Management of data, information and knowledge for rational, effective decision making; (7) Local economic development and the role of the private sector’(8) Promoting planned and sustainable urbanization and urban authorities; (9) Comprehensive integrated civic education as a long-term citizen-centered empowerment mechanism; (10) Communication as a tool for empowerment and change management; (11) Decentralization for fast-tracking and making regional integration meaningful for local Rwandans; (12) Enhancing and sustaining community-based innovations and voluntary initiatives; (13) Capacity development for sustainable local governance and decentralized service delivery; and (14) Use of ICTs for enhanced efficiency and effectiveness in service delivery. 22 Level/Units Expected changes with the 2013 new Responsibilities Effective 2006 (2005/6) decentralization policy Provincial (4) Co-ordinate District planning; Promote citizens Planning coordination function centred governance; alignment with national decentralized to Districts in collaboration policies, laws and regulations and research with central government City of Kigali City master plan; Capacity building to city Existing responsibilities will be retained. (1) Districts and Sectors; City development programmes; Vital statistics on socio-economic development; Mobilise investments in the City District (30) Capacity building for sectors to enable them to Added: Coordination of medium term provide services to the population; Develop and development planning; building and implement District Development Plans; Co- maintenance of service facilities; in-kind ordinate and analyse vital statistics on socio- transfers for the poor; acquisition and economic development; Management of public maintenance of heavy machinery. resources; Mobilization of funds; Research in Clarified: Segregation of duties between districts; Promote ICT and social welfare. (i) Mayors and Vice Mayors, (ii) executive and council committees. Sub-District / Provision of basic services; facilitate participation Added: All basic services to be further Sector (416) of citizens in participatory planning; Conflict and decentralized to the districts will be problem solving among the populace; Collection provided by the Sectors (e.g. in-kind of basic statistics; Sensitization of the population; transfers to the poor) Coordinate and promotion of specific Government programmes such as Gacaca, TIG, ICTs. Cell (2,148) Coordination of the village activities and linking Existing responsibilities will be retained. with Sectors; collection of basic data and information for the Sectors; Assessing challenges facing the population and resolving conflicts; Promotion of positive social development. Umudugudu/ Collect basic statistics and deliver them to Emphasized: Villages will mainly play a Village institutions which analyse, utilise and keep them; community mobilization role. (14,975) Promote ICT; Promote peace and security. 92. The legal framework for subnational revenues has also been strengthened considerably. A law establishing the Sources of Revenue and Property of Decentralized Entities and Governing their Management was passed at the end of 2011, and was further implemented by a Ministerial Order determining the modalities for the implementation of the law 30. Together these legal instruments will make the local revenue system less regressive in many respects. For example, the former trading license tax did not take into account ability to pay, with small local traders paying the same amount as large companies: the new law now takes into account ability to pay (VAT registered companies will be classified by turnover). The administrative provisions also created high compliance costs for taxpayers. The simplified administrative arrangements under the new law will also reduce taxpayer compliance costs. 93. To implement the new Decentralization Policy, the Decentralization Sector Working group has developed a new National Decentralization Sector Strategic Plan 2013/14–2017/18. This plan sets out a more in-depth five year strategic framework to guide the decentralization policy implementation, with clear output areas and activities under each policy theme that will be measured through time bound outcome indicators and targets. The plan has been approved through the system of developing sector strategies for the EDPRS II and will be monitored jointly by government officials and development partners and the Decentralization Sector Working Group. The strategy elaborates the implementation and coordination arrangements for the decentralization policy both within government and with development partners. 30 Law no 59/2011 of 31/12/2011 and No. 005/12/10/TC of 22/06/2012, respectively 23 Prior Action 1 94. The first prior action is ‘the Recipient has approved a new Decentralization Policy which clarifies the roles and responsibilities of central and local government’. This will ensure that the Government approach is relevant, comprehensive and up-to-date for the decade ahead and has a stronger focus on enhancing good governance, local level autonomy and evolving demands for local government responsiveness to citizenry needs. The policy also sets the agenda for concrete follow up on legal reforms and executive instructions for implementing the new policy and reforms. Expected results 95. The new Decentralization Policy will be implemented through the Law Governing Decentralized Administrative Entities and the Prime Ministerial Instructions that will clarify roles and responsibilities of districts and sub-districts. This will help increase the effectiveness and efficiency of local governments by eliminating duplication of efforts. The clarification of roles and responsibilities will be reflected in revised local government organizational structures, that will facilitate the allocation of human and financial resources to national and sub-national government entities, in a way that is more commensurate to their functions and responsibilities. The structures will be approved following the completion of the national review of public sector efficiency in June 2013. The progress in filling staff positions in these revised local government structures will be measured. The Government’s targets on the percentage of staff positions filled in revised organizational structures is 70% in 2013/14 and 90% in 2017/18. Prior Action 2 96. The second prior action is ‘the Recipient has published in the Official Gazette the Presidential Order establishing the list of fees and other charges levied by decentralized entities and the applicable thresholds’. The Presidential Order 31 established a ‘closed list’ of fees and other charges – thereby limiting the scope for ‘nuisance’ fees and charges and setting clear maximum allowable rates to ensure that the fees and other charges levied are consistent with the quality of services provided, are not distortionary in nature and do not discourage utilization of services, thereby creating a better enabling environment for local economic development. Expected results 97. The improved regulation of the collections of fees and other charges by decentralized entities will facilitate increased access to the corresponding services to citizens. The increase usage of the services will be measured through the amount of fees and charges collected by districts (whose rates are capped by the Order). The preliminary result in 2012 32 shows that total fees and charges collected by the districts significantly increased over 2011 33. The Government’s targets are 12% increase from the baseline in 2013/14 and 47% increase in 2017/18. POLICY AREA 2: CAPACITY DEVELOPMENT FOR QUALITY SERVICE DELIVERY BY LOCAL GOVERNMENTS Description 98. This policy area supports the government’s efforts to enhance the capacity of local government to provide quality services to the population. Since decentralization began, the Government has taken strong efforts to strengthen the capacities of the sub national entities particularly through trainings for staff and new PFM systems such as the IFMIS and the Integrated 31 No. 25/01 of 09/07/2012 32 Including half year data after the implementation of the Presidential Order. 33 In addition to the Presidential Order, an introduction of ‘a zero cash policy’ in late 2012 – fees and charges are paid through a bank account rather than cash – and a land registration policy in 2011 may have contributed to the increase. 24 Personnel and Payroll Information System to improve pay, establish controls and increase staff motivation. Rwanda has made strong progress given the low skills base that existed following the genocide. Challenge 99. Nonetheless, several local capacity challenges remain. First, there are challenges to recruit, attract and retain staff in local governments. There is a national skills gap that makes it particularly challenging for Districts to hire and then hold onto good caliber professional and technical staff 34. The gaps affect priority sectors for service delivery such as agriculture 35. Second, under-staffing at the sub-district, cell and village levels undermines their technical strength. The Government is keen to deepen sub-districts’ role in service provision if the technical capacity is in place. Evidence also suggests that many local government professional staff such as District agronomists are overloaded due to the limited staff at the sub-district and district level. These gaps affect service delivery and are likely to challenge long term quality and access enhancements. In addition, relatively little attention has been given to strengthening organizational and institutional systems such as organizational structures and human resource management. Capacity strengthening interventions at the subnational level have also been uncoordinated and overly focused on training. 100. Sub national PFM systems need to be strengthened concurrently with human and organizational capacity. This is especially pronounced among subsidiary entities below districts (which number 4,348 in total), including frontline service delivery units such as schools and health clinics. In particular, there has been inadequate attention to District level reporting, as highlighted in a recent IMF report. 36 Reporting by subsidiary entities (also known as non-budget agencies) is described as “negligible� for transfers to hospitals, health centers, primary and secondary schools. Given that transfers to these agencies are likely to increase in the future, the reporting system urgently needs to be strengthened to provide adequate capacity for subnational fiduciary accountability. Government Action 101. Since 2012, all Districts have embarked on a new process to elaborate five year District Capacity Building Plans. This is a result of the 2010 government’s Local Government Capacity Building Strategy and the 2012 Implementation Plan for this strategy supported by the Bank’s PRSF- 7. The central government has assisted the Districts with quality assurance and guidance to enhance impact, and supported Districts with less capacity. Cross-cutting priority areas have emerged from the new Plans, particularly PFM, planning, human resource management and M&E. In addition, there is the need for enhanced knowledge management; organizational structures that match growing sub national responsibilities; and leadership and governance. 102. The District Capacity Building Plans have been an important input to the current Government led review of public sector efficiency and effectiveness which will make recommendations for enhancing human resources at the sub national level through revised local government organizational structures. For example, under current proposals, whereas previously thematic areas such as infrastructure and agriculture were staffed by one or two individuals in the District, under the new proposals small units of several staff (5 staff on average) will be established in the areas of infrastructure, local economic development, agriculture, governance, health, education and social development. Along with the above mentioned proposed District staffing increases in public financial management and planning, these new institutional arrangements should significantly boost local government capacity for service delivery. The Plans have also fed into a new study on Local 34 The National Skills Audit in 2009 identified a 60% skills gap in the country and a serious shortage of human capital in the public sector with gaps concentrated in the professional cadre. 35 the 2009 national skills audit showed the agriculture sector accounting for 35% of the total skills shortage in the country 36 “Rwanda: Advancing the Medium-Term Expenditure Framework and Fiscal Reporting,� Fiscal Affairs Department, January 2012, pp. 42 - 44. 25 Government Common Capacity Building Priorities which summarizes cross-cutting needs to be addressed in the medium term. 103. Progress is being made in developing PFM systems capacity below the District level. The Government produced a Concept Note setting out plans to improve financial reporting of subsidiary entities in three phases: (i) achieve accountability of subsidiary entities through submission of financial reports; (ii) set up a database of all subsidiary entities and conduct a capacity needs assessment; (iii) elaborate uniform reporting requirements and embed the financial reporting requirement in the legal framework. The new PFM Reform Sector Strategic Plan includes an indicator to monitor the roll-out of a simplified accounting and financial reporting application to Districts. This system is currently being developed for Kigali District but is not yet well advanced. The scheduled targets are to achieve the following coverage of the 2,054 subsidiary units: 2013/2014 (6% or 123 units); and 2014/2015 (47% or 965 units). It will strengthen fiduciary accountability below District level in the short-to-medium term while more comprehensive systemic reforms are developed. Prior Action 104. The prior action is ‘the Recipient has adopted twenty eight (28) District capacity building plans approved by the District Councils’. To date, 29 out of 30 Districts have finalized their plans and the remaining plan is expected to be finalized and validated by the respective District Council by the end of April 2013 37. These plans are a significant departure for the capacity building efforts because they are (i) bottom up, owned by the Districts and based on a holistic diagnostic tool, and move Rwanda on from the previously top down and often uncoordinated interventions of the past decade; (ii) being coordinated with the District Development Plans (DDPs) that form part of the EDPRS II. They also provide an assessment of the cross cutting and more systemic issues affecting local government which provides a stronger basis than hitherto for concerted and strategic follow up by the government on local level institutional and organizational development needs. 105. Effective implementation of the plans is ensured by the MINECOFIN budget call circular requiring Districts to attach one year versions of the five year plans to their budget submission for 2012/13. This establishes a clear linkage between the plans and the budget process. Given the cross-cutting nature of the local government capacity needs, the follow up to the plans will involve both the national center of government level, for example through the above mentioned reforms to overall public sector organizational structures that will result from the current public service review, and the local level through specific District activities. Central level funding for the plans through the national Capacity Building Fund will be prioritized. The Government has recently commissioned work to assess the potential for a pooled funding mechanism to develop a more coordinated long term funding mechanism for local government capacity strengthening. 106. Linking the plans to the DDPs will also facilitate implementation. The DDPs have been developed to ensure that Districts play a key role in implementing the EDPRS II. By ensuring a synergy between national and district planning processes during the past year, the government has sought to ensure that capacity development issues are mainstreamed into all District five year plans and the overall EDPRS II delivery. Expected results 107. The prior action is expected to lead to improved administrative capacity for the delivery of quality service by local government, particularly in the four top priority areas of human resource management, planning, M&E and PFM. Following the elaboration of their locally tailored capacity building plans, the specific activities to strengthen organizational, institutional and individual capacities will be monitored. The operation will track improvements in PFM through an indicator measuring increased information on resources received by service delivery units. The simplified accounting and financial reporting application for Districts’ subsidiary entities – i.e. units 37 The Government exceeded the prior action by adopting 29 rather than 28 District capacity building plans. 26 below District level, including service delivery units such as schools and health centers – will build on a model currently being piloted in Kigali. Its roll-out will be essential in ensuring that decentralized PFM systems are able to track funding down to service frontline delivery units, ultimately with a view to a revised IFMIS being used for this purpose. The improved fiduciary accountability at the central and local levels will support accountable governance and improved service delivery quality. Over the medium-term, if fully implemented, this will enable the Government to have a routine accounting system for resources received by subsidiary entities including schools and health clinics, resulting in a “B� score on PEFA indicator PI-23 which measures the availability of information received by service delivery units. During the program period, an improvement from the baseline of “D� (as reflected in the 2010 PEFA assessment) to “C� in 2013/14 is expected as a result of the recent conduct of a public expenditure tracking survey in the education sector. 38 The rating is expected to be further improved to B in 2017/18. POLICY AREA 3: IMPROVING GOVERNMENT ACCOUNTABILITY AND TRANSPARENCY TO CITIZENS Description 108. This policy area supports the Government’s efforts to improve accountability and transparency to citizens as fundamental elements of sustained performance and results in public service delivery. As the Bank’s Africa Strategy observes, an intimate relationship exists between weak governance and low public sector capacity in Africa with many countries caught in a low-level equilibrium trap of both. Poor delivery of services is ultimately a result of weak systems of accountability and inadequate checks and balances. The policy area will help deliver the EDPRS II thematic pillar on accountable governance. Challenges 109. Civil society lacks the capacity and experience to demand accountability from service providers. Participatory decision making processes and feedback loops remain underdeveloped. There is a historically rooted power of the Rwanda state relative to Rwandan society dating back to the pre-colonial era. Since 2000, the number of CSOs has grown rapidly with close to 90% in the form of Community Based Organizations. Some of these organizations such as Transparency International Rwanda are involved in monitoring service delivery and the budget process. A Rwanda Civil Society Platform provides a coordination and dialogue forum. However, as the CAS notes: “these organizations largely confine themselves to philanthropic work and small income generating activities. Progress is needed on two fronts: (i) to strengthen the environment for CSO engagement with the state including access to information on government policies and programs; and (ii) to strengthen the capacity of CSOs to engage in policy formulation processes�. The capacity of local communities and civil society organizations to articulate their concerns is low and mechanisms to transmit their demands to different levels of government are also nascent. Deepening downward and vertical accountability between the state and citizens remains a significant challenge. Government Action 110. The Government has been developing various mechanisms to enhance civil society participation in its decentralized service delivery structures since 2000. For example, the Government has established the JADF in all the Districts as one of the primary mechanisms for participatory dialogue with civil society. It also convenes participatory dialogue on District development priorities through holding District Public Accountability Days and an annual National 38 Scoring a “C� on PI-23 requires, under the PEFA framework, that special surveys undertaken within the last 3 years have demonstrated the level of resources received in cash and in kind by either primary schools or primary health clinics covering a significant part of the country OR by primary service delivery units at local community level in several other sectors. The report “Rwanda Public Expenditure Tracking Survey in Education,� was published by Transparency International Rwanda in March 2012. 27 Dialogue involving the citizenry on national development priorities. 39 The monthly Umuganda community work public meetings also provide opportunities for citizens to discuss local priorities in their localities, and there are community training programs on citizen rights and responsibilities that involve campaigns using the radio and television. 111. The strength of these participatory mechanisms on service delivery performance will be strongly determined by the degree to which citizens have access to public information and are empowered to use that information to demand results and influence policy. The Government has been taking steps forward in this area. First, on budget transparency, Rwanda has scored poorly on the Open Budget Index in recent years because various key budget documents such as the pre-budget statement and in-year reports were not publicly available. However, in 2011/12 the Government posted several key documents on its website including the approved budget, the citizens’ guide, the budget call circulars and the revised budget and budget framework paper. In 2012/13, the Government has taken further steps and published in year reports and the annual budget execution report on the MINECOFIN website. Second, the Office of the Government Spokesperson is leading work to enhance the quality of the 179 public websites (including district websites) through a new ranking system that measures quality enhancement including the speed by which websites are updated; the use of Kinyarwanda to enhance accessibility to all citizens; and effectiveness in publications and archiving. It has carried out training for all District communication officers in 2013 to enhance website quality, media relations, and use of social media. Third, the government has prioritized the publication of service delivery charters on the doors of Districts, sub-districts and cell offices spelling out the procedures for citizen complaints and the service that citizens should expect to receive. Prior Action 112. The prior action is 'the Recipient has published in the Official Gazette a new Access to Information Law which provides for the public’s right to information’. The law has strong potential to improve the enabling environment for increasing transparency and public accountability since it provides for the right to information possessed by public organs and some private bodies by all citizens. It will help to deepen the existing participatory mechanisms. The new law requires disclosing information where the public interest in disclosure outweighs the interest of not disclosing such information. There is a clause on the proactive disclosure of vital information to the public. Particular emphasis is put on the following: (i) to promote the culture of informing the public about their activities; (ii) to ensure that the expenditure of public funds is subject to effective management and oversight; (iii) to promote founded public debate; (iv) to ensure that any public authority with a regulatory mission properly discharges its functions. To facilitate information disclosure, the new law requires appointing information officers to provide information to any citizens requiring it. The new law applies equally to local government institutions as to the central level administration and will be rolled out to both simultaneously. 40 The Office of the Ombudsman will play a key role in monitoring the enforcement of the law. 113. The impact of the new Access to Information law will be determined by the voice and empowerment of citizens to demand and use information. The Rwanda Governance Board is proposing to sensitize the public (and public institutions) to it in partnership with the Human Rights Commission. The law is part of a media reforms package gazetted in March 2013 that includes a law to regulate the media and a law to determine the responsibilities, organization and functioning of the Media High Council. These two laws fundamentally alter the nature of media regulation providing for the print media to be self-regulated and the broadcast media to be regulated by the Rwanda Utilities Regulatory Agency. In order for a more independent media to use access to information legislation more meaningfully, a further law to establish a Rwanda Broadcasting Agency 39 This issue is noted in the draft Decentralization Sector Plan 2013-17. 40 A set of Ministerial Orders will be issued as a result of the law, for example clarifying the information that could destabilize national security and determining in detail the information that shall be proactively disclosed to the public by public and relevant private organs. 28 and replace the Rwanda Bureau of Information and Broadcasting with a more independent body that aims to become fully self-reliant in the long term has been adopted by the Senate and should soon be gazetted. These are important steps towards strengthening the demand side of public accountability, by increasing the ability of the media to hold the state accountable and convey public information to wider society. 114. In addition to the legal environment for access to information, the Government has taken complementary steps to better manage information so that it is easily accessible to the public as well as within government. In September 2012 the Cabinet agreed new procedures for an Electronic Document Tracking System for the government. This will improve the way that the Districts respond to the public by better storing records and tracking officials' performance in responding to public letters and requests. The system will support enhanced intergovernmental coordination since local governments will have easier access to Central Government documents and vice versa; information flows will be improved and documents will be quicker to locate. The system is being rolled out to all Districts and Ministries at the same time. Second, the Rwanda Governance Board is developing a new local government monitoring system to collect service delivery data at the District level which will be available online once functioning in 2013/14, thereby enhancing transparency of comparative district data to the public. 115. Expected results The prior action is expected to enhance the government’s accountability to citizens, including at the local level to improve the quality of service delivery. The outcome indicators measure improvements in the degree of citizen participation in the district budgetary process and in formulation of the Imihigo activities, based on the annual Citizen Score Card which was supported in the 2nd PRSF series as a means of increasing citizen voice in service delivery. On citizen participation in the district budgetary process, the Government aims to improve from 11% in 2010 to 20% in 2013/14 and 50% in 2017/18; of which, the participation by women is expected to increase from 10% in 2010 to 19% in 2013/14 and 50% in 2017/18. On citizen participation in formulation of the Imihigo, the Government aims to improve from 24% in 2010 to 30% in 2013/14 and 55% in 2017/18; of which, the participation by women is expected to increase from 22% in 2010 to 28% in 2013/14 and 55% in 2017/18. POLICY AREA 4: ENHANCED LOCAL GOVERNMENT FIDUCIARY ACCOUNTABILITY Description 116. Greater local government autonomy requires improved fiduciary accountability through the sub national PFM system at and below the District level covering subsidiary entities including schools and health centers. Increased sub-national capacity and accountability will support improvements in service delivery quality by allowing local services to be more responsive to local needs, ensuring more efficient and effective use of public resources. Challenge 117. Fiduciary accountability systems at the local government level require significant attention. Weak internal controls in financial management and reporting are identified by the 2010 PEFA. Although financial management capacity has improved in the Districts, according to the Auditor General’s Report for Districts of 2011, none of 30 Districts received a clean audit and in the reports scrutinized, many complaints were raised by the Auditor General involving not less than Rwf 70 million. The report also expressed serious concerns over persistent failure to implement prior year audit recommendations 41. 41 Required by Article 74 of Organic Law on State Finances and Property 2006 and Ministerial Instructions N° 004/09/10/MIN of 01/10/2009 for Audit Committees 29 Government actions to date and future activities to address the challenge 118. To improve transparency and accountability at District level, Audit Committees were established in all 30 Districts in June 2011. 42 Audit Committees are responsible for: (i) providing advisory assistance to the management of the government entity for the betterment of its operational efficiency; (ii) considering and reviewing the financial statements of the government entity focusing on their overall credibility, unbudgeted expenditure and any other unusual transactions; (iii) considering and approving the annual action plan of the internal audit unit; (iv) considering and reviewing of internal audit and Auditor General’s reports and recommend appropriate actions to be taken in connection with the issues raised and recommendations in those reports; (v) follow-up with management to ensure the implementation of the agreed recommendations within the agreed time frame. In local government entities, members of the Audit Committee are appointed by District Councils, and the members in turn elect a chairperson among themselves. Since the internal audit function reports to management, the Audit Committee structure provides a mechanism for ensuring that timely action is taken on audit reports and 'protects' the independence and objectivity of internal auditors. Therefore, the establishment of District Audit Committees is expected to result in improvements in internal audit and financial accountability within local governments. 119. Audit Committees in Districts are required to report on a quarterly basis to their respective district councils. The Audit Committees discuss implementation of both external and internal audit recommendations. They are also supposed to review financial statements and advise management. Since the Audit Committees are still a relatively recent initiative, improved effectiveness of follow-up on audit recommendations will require further training and sensitization. This will include: training of Audit Committee chairmen and secretaries; training on ‘finance for non-finance managers’ to committee members without a financial management background; awareness sessions for other government actors; Audit Committee marketing materials (e.g. brochures); and, review of Audit Committee regulations in line with lessons learnt. Meanwhile, monitoring of audit recommendations started in 2012 by the Government Internal Auditor Office and the Office is consolidating the monitoring reports from all government entities for submission to the Prime Minister’s Office with a copy to the Office of Auditor General. Prior Action 120. The prior action is ‘the Recipient has reviewed twenty five (25) District Audit Committee reports of 2012 and issued communication to the Districts on the main areas for follow up’. This demonstrates that the internal and external audit function is becoming established at District level, with the majority of District Audit Committees submitting reports to their respective District Councils. Follow-up on implementation of audit queries (e.g. weak accounting and financial reporting systems) would contribute to ensuring that public funds are used for the purposes intended in an efficient and effective manner and contribute positively to improved service delivery and local governments’ fiduciary accountability. Expected results 121. Improvements in fiduciary accountability at local government level, including in internal audit, are expected. These will result from the implementation of the new PFM Reform Strategy, including the increased effectiveness of the new District Audit Committees. The main result expected with regard to the embedding of District Audit Committees is that they should start to complete follow-ups regarding their reports on internal and external audit issues with the management in the District executive. In turn, this is expected to be reflected in an increase in the number of Districts with proper books of account maintained and with financial statements that provide a ‘true and fair 42 Based on ministerial circular N°004/09/10/MIN of 01/10/2009, and supported by Audit committee regulations in 2010 and an Audit Committee Charter in July 2011. 30 view’ based on the audit opinion of the Auditor General. Overall these reforms should help to embed a culture of fiduciary accountability in the Districts, thereby promoting more efficient and effective use of public resources. This prior action will be measured by the number of districts with qualified audit. The Government aims to increase the number of districts with qualified audit to 5 districts in 2013/14 and 15 districts in 2017/18. With the increase in the number of districts with qualified audit, 5 districts are expected to have clean audit in 2017/18 43. VI. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACTS 122. The analysis of poverty and social implications found that this operation has no significant impacts on distribution (Annex 2). Improved service delivery at decentralized levels is expected to benefit all segments of the population. As poor households are more dependent on public services which currently lack quality (for instance public education), the proposed operation can be expected to benefit the poor more than the wealthier households. 123. The policy area to support the Government in a strengthened policy framework for decentralization is expected to have a positive impact on poverty reduction. Through an improved clarity on roles and responsibilities between the central and local governments, service delivery at the local government level is expected to improve. The prior action relating to the implementation of the Presidential Order on fees and other charges is likely to have a pro-poor impact as it limits the number of fees and charges levied by local government by introducing a ‘closed list’ system and establishes maximum allowable limits on the associated rates, ensuring they are more proportionate to the services rendered. 124. The policy area on capacity development for quality service delivery is expected to have a positive impact on all segments of the population. Improved capacity of institutions and local civil servants will result in higher quality services, which will positively impact all users of those services. The evidence from the decentralization process over the last decade has shown capacity building interventions were too supply driven and uncoordinated. By supporting capacity building plans that are based on local needs, this operation will help ensure that those interventions are better targeted and thus have larger benefits for the local population. 125. The policy area on improving government transparency and accountability to citizens is key to improve service delivery. Through the increased availability of quality public information and an improved access to the information, beneficiaries will be better placed to proactively approach the Government (both central and local) and make their demands for improved services heard. 126. The policy area to enhance local government fiduciary accountability is expected to have an indirect positive impact on poverty reduction over the medium- to long-term. The policy action, by improving local government compliance with PFM laws and procedures, would ultimately improve the efficiency and effectiveness of public funds, thereby ensuring decentralized entities provide better services for a given budget. Given that the volume of funding spent through Districts is likely to increase over time this effect should also become more important in the medium- to long- term. 43 A qualified audit means that ‘except for the matters raised, proper books of account have been maintained and the financial statements do give a true and fair view of the state’ based on audit opinion of the Auditor General. A clean audit means that ‘proper books of account have been kept and the financial statements give a true and fair view (clean audit)’ based on audit opinion of the Auditor General. The former is a prerequisite for the latter. 31 B. ENVIRONMENTAL ASPECTS 127. The policies supported by this operation are not expected to have any adverse effects on the environment. Country systems are functioning and appropriate arrangements have been made through the Bank’s work, to address any such effects that might arise. 128. Furthermore, Rwanda has improved its institutional environmental management framework. In 2006, the Government established the Rwanda Environment Management Authority (REMA) to enforce environmental standards and audit functions. In 2009, REMA published a Rwanda State of Environment Outlook Report 44 to support the Government’s commitment under the EDPRS to finding a balanced approach between environmental conservation and the need for increased agriculture productivity. 45 Additionally, the Environmental Impact Assessment (EIA) is within the Environment Compliance Unit in the Rwanda Development Board (RDB). 46 Additionally, the United Nations Environment Program supports small grants to build capacity in key ministries to carry out environmental assessments. Moreover, the Global Environment Facility projects are also supporting institutional capacity development on environmental management in Rwanda, particularly on ecosystem and watershed management in both the central and district levels. 129. In addition, an extensive Environmental Assessment and Social Analysis was undertaken during PRSG-1 and remains relevant; as well as other environmental management assessments undertaken in the context of other Bank projects to address potential environmental concerns. This includes policy discussions to: (a) strengthen the Government’s capacity in the key environmental management agencies; (b) address the lack of adequate staffing with relevant skills training both at the central and district level; and (c) strengthen environmental monitoring and analysis. C. IMPLEMENTATION, MONITORING AND EVALUATION 130. The monitoring and evaluation arrangements rely on Government arrangements with the aim of strengthening Government capacity and institutions. The Government has developed in close collaboration with development partners, including the Bank, a results and performance framework integrated into the planning and budgeting processes for monitoring the EDPRS. The integrated result framework/monitoring system consists of three components: (i) a National Results and Policy Matrix, (ii) the CPAF which forms a subset of support PAF and (iii) the DPAF. This operation will particularly utilize indicators in the CPAF, the PFM Sector Strategic Plan 2013–18, and the Decentralization Sector Strategic Plan 2013–18 for monitoring and evaluating progress on governance, public sector reform and decentralization. These indicators are monitored through Rwanda’s Sector Working Group structure whereby the government and its development partners meet regularly and in quarterly Joint Sector Reviews to report on sector progress. It will also draw on the annual government Citizen Score Card and Governance Score Card exercises which report on citizen satisfaction with service delivery and overall quality of service delivery. In 2014, Rwanda will carry out a further PEFA following the 2010 PEFA assessment which will provide relevant data on the policy area concerning increased budget transparency and accountability. 131. The government has also designed appropriate institutional settings to monitor its reform program implementation, in which responsibility for the overall monitoring of the EDPRS 44 http://www.rema.gov.rw/soe/index.php 45 Various pilot activities are being undertaken to test different approaches by the REMA and MINAGRI, including through the Bank and Global Environment Facility (GEF)-supported Integrated Management of Critical Ecosystems Project (recently closed) and Lake Victoria Environmental Management Project-II (being initiated). A new GEF project, supporting Rwanda’s forest and landscape restoration initiative, is proposed to address the forestry and agriculture nexus, in addition to biodiversity, land degradation, and climate change issues. 46 RDB is the one-stop center for business registration, incorporating the EIA clearance process, and has helped to minimize clearance procedures for businesses. 32 rests with MINECOFIN’s National Development Planning & Research Directorate. The National Budget Directorate reports on spending of the budget and related outputs. This unit also ensures that the sector spending plans are incorporated into the macro-MTEF, and budget. 132. To improve monitoring systems, the Bank has supported the Government’s efforts to build quality and institutional capacity. The Bank is implementing a grant from the Belgian Poverty Reduction Partnership Trust Fund aimed at enhancing statistical capacity particularly in the area of poverty analytics. It is also providing support to the National Institute of Statistics through the Statistics for Results Facility. Finally, the Bank’s ongoing investment projects each have a M&E component that helps to strengthen capacity in this area in the public sector. D. FIDUCIARY ASPECTS 133. Implementation of the first PFM Reform Strategy has had positive results. The basic PFM principles were introduced in all central level institutions, a comprehensive, coordinated and integrated framework for PFM was established and is currently operational and the culture of the PFM has been strengthened in all the institutions. 47 The November 2012 independent evaluation report on the implementation of the first PFM Reform Strategy noted the need to expand the scope of the PFM Reform Secretariat beyond the activities funded by the PFM basket fund. 134. Rwanda performs very well on comprehensiveness of information in budget documentation. The current annual budget was presented to the parliament and approved in June 2012 and was also published on the web-page 48 of the MINECOFIN in July 2012. The details of all large value contract awards above Rwf 300 million are published on the Rwanda Public Procurement Authority website on a quarterly basis (PEFA 2010 report). All central government audit reports of the Office of Auditor General are made available to the public 49. However, more still needs to be done to ensure that audit recommendations are implemented as required by the legal framework. 50 135. The areas of PFM performance that are not showing much improvement and remain weak include: (i) multi-year perspective in fiscal planning, expenditure policy and budgeting; (ii) availability of information on resources received by service delivery units; (iii) quality and timeliness of in-year budget reports; (iv) legislative scrutiny of the annual budget law; (v) proportion of aid that is managed by use of national procedures. The areas of PFM performance that are showing some improvement but still remain weak include variance in composition of expenditure out-turns compared to original approved budget and lack of follow-up on audit queries. 136. The November 2012 independent evaluation report noted that inclusion of most central and local government employees in the IPPIS is a significant step forward from the previous manual system. 51 Some progress has also been achieved in the implementation of IFMIS, which has been rolled out to over 100 sites. However, the current IFMIS lack some key modules and functionalities. The Government plans in the next 5 years to have a full-fledged IFMIS operational across all budgeting entities. Following the successful establishment of the foundations for the PFM framework, the second phase of the PFM reform strategy will focus on consolidation of the reforms and deepening their application to the Local Governments and the periphery. 47 A PFM Reform Steering Committee, comprising representatives of the implementing agencies and development partners, oversees the implementation of the PFMRS. 48 http://www.minecofin.gov.rw/library/budgetfinalversion 49 http://www.oag.gov.rw/IMG/pdf/Annual_Report_2011.pdf 50 Article 74 of Organic Law on State Finances and Property 2006 and Ministerial Instructions N° 004/09/10/MIN of 01/10/2009 for Audit Committees 51 However, apparent failure to respond openly to a critical technical report casts considerable doubt over the IPPIS future upgrading and development. The report recommended that a systems audit program should be prepared to enable to test the accuracy of data entry and the efficiency of the software in producing the right pay and deduction calculations. 33 137. The most recent safeguards assessment of the BNR was completed by the IMF in the context of the PRGF arrangement approved on June 12, 2006. The updated assessment was completed on January 26, 2007, and it made several recommendations to address continuing vulnerabilities in the external audit and financial reporting areas. The implementation of these measures is being monitored under the Fund program, but there has been no separate follow-up since 2007. The Central Bank has been regularly audited, and its audited financial statements are publicly disclosed accompanied by internal control reports..52 The audit opinion issued is unqualified (clean) and in compliance with international financial reporting standards. E. DISBURSEMENT AND AUDITING 138. Amount, Beneficiary, Terms, and Tranching: The Recipient is the Republic of Rwanda, represented by MINECOFIN. A single-tranche development policy grant consisting of a Grant of SDR 33.4 million (US$50 million equivalent) will be made available following approval and notification by IDA of financing effectiveness. 139. Disbursements: The proposed Grant will follow the Bank’s disbursement procedures for development policy operations. The Grant proceeds will be disbursed against satisfactory implementation of the development policy program and the maintenance of a satisfactory macroeconomic framework. The Recipient shall open, prior to furnishing to the Association the first request for withdrawal from the Financing Account, and thereafter maintain the following two deposit accounts (“Deposit Accounts�) at the BNR on terms and conditions satisfactory to the Association: (a) a deposit account in United States Dollars (“Foreign Currency Deposit Account�); and (b) a deposit account in Rwandan Franc (“Local Currency Deposit Account�). Upon notification by IDA of Grant effectiveness, and with the submission by the Recipient of a withdrawal application, the proceeds of the Grant will be deposited into an account designated by the Recipient that forms a part of the country’s foreign exchange reserves at the BNR. Upon each deposit of an amount of the Financing into the Foreign Currency Deposit Account, the Recipient shall ensure deposit by the BNR of the local currency equivalent amount into the Local Currency Deposit Account. The Recipient shall promptly, upon each withdrawal from the Financing Account, provide to the Association a report in form and substance satisfactory to the Association on the amounts deposited in the Foreign Currency Deposit Account and on the amounts deposited into the Local Currency Deposit Account with an indication of the exchange rate applied. Disbursements will not be linked to specific purchases and no procurement requirements will be necessary. However, the proceeds of the Grant cannot be used for ineligible expenditures (i.e. to finance goods and services from the IDA’s standard negative list as reflected in the Financing Agreement). If the Association determines at any time that an amount of the Financing was used to make a payment for an Excluded Expenditure, the Recipient shall, promptly upon notice from the Association, refund an amount equal to the amount of such payment to the Association. Amounts refunded to the Association upon such request shall be cancelled. 140. Reporting, Accounting, and Auditing: The Recipient will report to IDA on the amounts deposited in the Foreign Currency Account and credited in local currency to the budget management system with an indication of the exchange rate applied. The Director of Treasury will be notified accordingly. The BNR will not impose any charges or commissions on Government for these transactions. The conversion from US dollar to Rwanda Franc will be based on the prevailing exchange rate on the date that the funds are credited to the consolidated account. Government, through the Ministry of Finance and Economic Planning, will: (i) provide written confirmation within 30 days to the Bank that an amount equivalent to the Grant proceeds from the Bank has been credited to the consolidated account, with an indication of the exchange rate applied; (ii) provide evidence that the 52 Audits of the Central Bank are annual and published in the annual reports, which can be found under publications at http://www.bnr.rw. The most recent audit report is part of the annual report for June 2012 , which will be uploaded on the BNR website. Audit reports are accompanied by internal control reports (not included in the published report). The exercise dates back to audits of 1997, conducted in 2002. 34 Rwanda Franc equivalent of the Grant proceeds was recorded as financing for Government budget; and (iii) ensure that the Rwanda Franc equivalent of the Grant proceeds are subject to controls to ensure its use for eligible budgeted public expenditures only. The Financing Agreement gives IDA the right to require the Recipient to audit the Foreign Currency Deposit Account and Local Currency Deposit Account through agreed terms of reference. 141. Closing Date: The expected closing date of the Financing will be June 30, 2014. F. RISKS AND RISK MITIGATION 142. There are a number of risks that could jeopardize the expected outcome of the proposed operation. These include (i) political risks, (ii) macroeconomic risks, (iii) stakeholder risks, and (iv) program specific risks. The design of the proposed program should help mitigate some of these risks. 143. Political risks. The political situation surrounding Rwanda is fluid. Following the publication of a UN report alleging Government involvement in the DRC, the international community has reacted by suspending or delaying planned budget support to Rwanda. Over recent months, the international community has welcomed the peace talks that remain ongoing in Kampala (between the Government of DRC and one rebel group active in the east of the country) and Rwanda’s signature of the regional peace framework agreements that was initiated by the UN Secretary General. If the political situation worsens again, it will be further translated into macroeconomic risks, stakeholder risks and program specific risks. Mitigation: The World Bank is formulating ‘A strategy to support economic development and promote peace and stability in the Great Lakes region’ which proposes specific projects and is expected to have a positive impact on easing the regional tension. Though this operation does not have a direct impact on regional security and stability, it tackles frontally some of the concerns that development partners have expressed in the domestic domain. With its focus on transparency, participation and decentralization, the operation engages with a number of issues regarding the openness of Government, both at the center of Government and at the frontline of service delivery. For example, it supports a new law on Access to Information that provides citizens with the right to public information as the basis for stronger voice and engagement with government on policy and service delivery issues. The law also requires more proactive disclosure of information by the government to improve transparency. The proposed operation also supports a stronger policy framework on decentralization that will enhance social accountability at the local government level through improved systems for participatory dialogue and community feedback. 144. Macroeconomic risks. If the suspension/delay in foreign assistance inflows continues, core economic indicators (e.g. inflation, exchange rates, international reserves, and the budget) are likely to deteriorate in the short-term. The short-term impact will in turn be holding back progress made in poverty reduction, social indicators, and MDGs in the medium to long-term. Mitigation: The financing provided through the proposed operation will help the Government maintain public expenditures in priority areas for poverty reduction and service delivery, as well as ease pressures on interest rates, exchange rates, and international reserves in the short-term. Therefore, this operation is expected to reduce a systemic risk to poverty reduction, MDGs and social indicators in the medium and long-term. 145. Stakeholder risks. The Government has exercised ownership of its reform program, and development partners have aligned development cooperation with government strategies through effective policy dialogues under the BSHG. However, the suspension/delay in aid have negatively affected the policy dialogue between the Government and its development partners. This will undermine a good track record of aid effectiveness and aid coordination. The Government and development partners are discussing a draft concept note regarding mechanisms for dialogue which could lead to a revitalization of the Development Partners Consultative Group. This mechanism would allow for a number of development partners that were previously excluded from the BSHG to 35 participate in the policy dialogue process. Nevertheless, a longer term cessation of general budget support by the international community going into the next financial year is likely to change the content of the dialogue over time. Mitigation: The proposed operation was prepared in consultation with the Government and other development partners. This process has enabled the Bank to remain engaged in policy reform dialogue with the Government. Upon the finalization of the EDPRS II in mid-2013, the Bank will start preparing the next CAS covering next 3-5 years in FY2014. The CAS preparation and consultation will also mitigate stakeholder risks. With discussions regarding the formal structures for development partner-Government coordination still underway, it is not possible at the moment to describe the exact mechanisms that might prevail over the medium term. 146. Program specific risks. The policy reform supported by this operation as well as their respective expected outcomes will be affected by the abovementioned risks. Most notably, the improvement of quality service delivery will depend on the availability of adequate budget resources. Program-specific risks include the country’s weak capacity, especially for implementing interventions in a decentralized environment and producing quality and timely outcome indicators. Decentralization begun in 2000 and local government systems and skills, as well as M&E systems, are still developing. Mitigation: By complementing other Bank operations such as SSPS-2, this operation will mitigate these risks by supporting reforms that will contribute to further building government capacity, while also improving transparency and accountability. For example, it will support the approval of District Capacity Building Plans for at least 90% of Districts, a stronger policy framework for decentralization that will boost the government’s strategic support to enhanced intergovernmental coordination and local level capacity; and strengthen district’s public financial management capacity through supporting the internal audit function. In addition, Bank’s support through other operations such as the Statistics for Results project (P124129) aims to improve the quality and timeliness of statistical information, as well as making it accessible to users. Additional support for enhancing public sector capacity and moving forward civil service reforms is being provided through the Governance for Competitiveness Project (P127105). 36 ANNEXES A NNEX 1: P OLICY M ATRIX Program Program Target Prior Action Outcome Indicator baseline (2013/14) Policy Area 1: Strengthened Policy Framework for Decentralization 1) The Recipient has approved a new decentralization policy which clarifies the HR: Percentage of staff positions filled in revised organizational 0% (2012/13) 70% roles and responsibilities of central and local government (Cabinet approved the structures 53 new policy in January 2013) 2) The Recipient has published in the Official Gazette the Presidential Order Fees and charges collected by districts 54 Rwf 134 12% increase establishing the list of fees and other charges levied by decentralized entities and million (2012) from the the applicable thresholds (Gazetted in July 2012, Presidential Order No. 25/01 of program 09/07/2012) baseline Policy Area 2: Capacity Development for Quality Service Delivery by Local Governments 3) The Recipient has adopted twenty eight (28) District capacity building plans PFM: PEFA PI-23 (availability of information on resource D C approved by the District Councils (28 District Capacity Building Plans have received by service delivery unit) (2010) already been completed) Policy Area 3: Improving Government Accountability and Transparency to Citizens 4) The Recipient has published in the Official Gazette a new Access to Information % of citizens who participate in the district budgetary process 11% 20% Law which provides for the public’s right to information (Access to Information (o/w women) (10%) (19%) Law was Gazetted in March 2013) (2010) % of citizens who participate in the formulation of Imihigo 24% 30% activities (o/w women) (22%) (28%) (2010) Policy Area 4: Enhanced Local Government Fiduciary Accountability 5) The Recipient has reviewed twenty five (25) District Audit Committee reports The number of districts with qualified audit 55 0 5 districts (17%) of 2012 and issued communication to the Districts on the main areas for follow up (2011/12) (By December 2012, twenty five District Audit Committees had held quarterly meetings and reported to their respective District Councils) 53 That matches with the mandates of Local Governments approved by District Councils and Sector Ministries 54 Including market fees; fees and charges on parking and public parking fees; Fees on lease of land; Fees charged on public cleaning services; Fees charged on provision of land and plot related services; Fees charged on official documents and documents notified by the public Notary; fee charged on civil marriage done outside the official business days; fees charged on public cemeteries; Fees charged on advertising billboards and banners; Fees charged on boat number plate; and Fees charged on bicycle number plates; and Fees charged on communication towers 55 The number of districts in which ‘except for the matters raised , proper books of account have been maintained and the financial statements do give a true and fair view of the state’ based on audit opinion of the Auditor General. 37 A NNEX 2: P OVERTY A ND S OCIAL I MPACT M ATRIX Channels and Prior Actions by Size of Distribution Main Gainers and Direction of Impact Effects on the Poor Policy Area Effects Losers on Living Standards Policy Area 1: Medium positive (+) Improved Gainers: Users of Poor are expected to Strengthened policy effects on quality of accountability and public services at be the main framework for local service delivery quality of service local level through beneficiaries of the decentralization through an improved delivery at local level improved quality of regulation of service clarity on roles and positively impact all service delivery and fees and the targeted 1) The Recipient has responsibilities segments of local improved clarity on exemptions (for approved a new between local and population service fees and levies instance, land decentralization central governments registration for policy which clarifies (+) Improved Losers: Districts that farmers cultivating the roles and Medium positive uniformity and were charging less than two ha of responsibilities of effects on quality of fairness through excessively high fees land is free) central and local service delivery regulation of service for certain services government through limiting the fees scope of nuisance fees 2) The Recipient has and charges published in the Official Gazette the Presidential Order establishing the list of fees and other charges levied by decentralized entities and the applicable thresholds Policy Area 2: Medium positive (+) Improved local- Gainers: Civil Both poor and non- Capacity effects on quality of level capacity leads to servants at local level poor are expected to development for local service delivery higher quality service through increased gain from improved quality service through improved delivery capacity; Users of quality of service delivery at the local capacity related to local services due to delivery at local level level service delivery at the (-) Capacity building higher quality of local level. is a long-term and service delivery. 3) The Recipient has potentially expensive adopted twenty eight process, and might (28) District capacity absorb funds destined building plans for other priority approved by the expenditures District Councils Policy Area 3: Medium positive (+) Decreased misuse Gainers: Citizens who Small and indirect Improving effects on of public funds will have more benefits for the poor government accountability and through increased information on the use due to better accountability and citizen participation transparency and of the budget; The management of public transparency to from citizen’s access to financial population as a whole resources citizens enhanced access to information as improved public information, transparency of public 4) The Recipient has including public (+) Increased citizen finances will decrease published in the finances participation in local leakages and improve Official Gazette a new planning through efficiency Access to Information Small positive effects improved access to Law which provides from quicker service information Losers: Those who for the public’s right delivery through use were misusing public to information of an electronic (+) Higher funds for personal document tracking transparency of local gain system public finances will decrease leakages and improve the likelihood that local services reach the poor 38 Channels and Prior Actions by Size of Distribution Main Gainers and Direction of Impact Effects on the Poor Policy Area Effects Losers on Living Standards Policy Area 4: Small positive effects (+) Improved quality Gainers: Users of Both poor and non- Enhanced local on the effective use of of service delivery public services who poor will have access government fiscal local funds through and access to a wider will benefit from more to a wider variety of autonomy and better management of array of services and higher quality services of better fiduciary local resources and customized to local services; quality accountability better procurement needs positively practices impact lives of all Losers: Those who 5) The Recipient has segments of the were misusing public reviewed twenty five population funds for personal (25) district Audit gain Committee reports of (+) Improved quality 2012 and issued of service delivery communication to the through less misuse of districts on the main local funds areas for follow up 39 A NNEX 3: P OVERTY H EADCOUNT T RENDS B ETWEEN 2001 AND 2011 Poverty Headcount (%) Extreme Poverty Headcount (%) 2001 2006 2011 2001 2006 2011 Rwanda 58.9 56.7 44.9 40.0 35.8 24.1 By Location Urban n/a 28.5 22.1 n/a 16.0 10.4 Rural n/a 61.9 48.7 n/a 39.5 26.4 By Region Kigali City 22.7 20.8 16.8 14.5 12.9 7.8 Northern Province 64.2 60.5 42.8 46.5 39.1 23.5 Eastern Province 59.3 52.1 42.6 39.4 29.9 20.8 Southern Province 65.5 66.7 56.5 44.7 44.9 31.1 Western Province 62.3 60.4 48.4 40.4 37.7 27.4 By Sex of Household Head Male 56.7 55.8 44.3 37.4 35.6 23.6 Female 64.7 60.2 47.0 46.8 41.1 26 By Education Household Head No Schooling 71.8 70.3 56.7 51.6 49.1 33.3 Primary 57.6 56.8 46.2 37.4 35.5 23.9 Secondary 11.9 17.5 10.6 6.5 11 4.4 Higher 0 0.8 0.7 0 0 0 By Main Occupation Household Head: Farm Wage 79.5 78.5 62.8 59.3 57.6 41.2 Male 76.5 76.9 63.7 55.4 57.1 45.1 Female 87 82.4 59.3 68.8 58.9 26.3 Nonfarm Wage 16.3 36.3 14.4 8.6 22.6 8.1 Male 17.2 36.8 14.8 9.4 22.6 8.5 Female 8.6 30.3 7.5 1.5 22.6 3.7 Independent Farmer 65.6 61.8 49.1 44.4 39.4 25.6 Male 63.9 61.6 48.9 41.5 38.2 25.3 Female 69.7 62.3 49.7 50.8 42.4 27.6 Independent Non-Farm 18.5 34.3 12.9 13.6 17.9 4.4 Male 18.9 34.3 12.3 14.1 17.9 3.8 Female 17.1 34.3 16.1 11.6 17.8 8.2 Note: Poverty line: Rwf 64,000 (US$100) per year at constant January 2001 prices, equivalent to Rwf118,000 (US$185) at 2011 prices; Extreme poverty line: Rwf 45,000 (US$71) (at constant January 2001 prices). Source: NISR 40 A NNEX 4: POVERTY AND ACCESS TO SERVICES BY DISTRICTS Population Population Population Accessing Accessing Accessing Sector Province District Poverty Headcount District Health Administration( Hospital (% ) Centers (% ) %) Kigali City Nyarugenge 10.1% 57.6% 90.4% 87.0% Kigali City Gasabo 26.0% 22.7% 64.0% 52.9% Kigali City Kicukiro 8.3% 42.3% 75.2% 48.2% Southern Province Nyanza 49.8% 75.1% 97.2% 95.8% Southern Province Gisagara 59.4% 20.1% 76.4% 31.4% Southern Province Nyaruguru 61.6% 43.9% 99.0% 77.5% Southern Province Huye 46.6% 27.6% 92.4% 51.8% Southern Province Nyamagabe 73.3% 38.5% 86.5% 65.1% Southern Province Ruhango 60.4% 10.3% 56.4% 9.1% Southern Province Muhanga 53.6% 12.6% 48.3% 19.1% Southern Province Kamonyi 46.7% 38.3% 95.6% 86.4% Western Province Karongi 61.7% 5.4% 36.3% 11.0% Western Province Rutsiro 53.0% 46.0% 92.5% 35.1% Western Province Rubavu 35.8% 23.2% 80.5% 53.5% Western Province Nyabihu 28.6% 82.0% 97.8% 97.5% Western Province Ngororero 51.9% 58.2% 95.2% 84.0% Western Province Rusizi 45.0% 4.8% 31.9% 5.6% Western Province Nyamasheke 63.4% 31.4% 90.7% 48.0% Northern Province Rulindo 42.9% 11.8% 80.8% 29.5% Northern Province Gakenke 56.6% 84.1% 97.7% 97.5% Northern Province Musanze 20.1% 43.3% 98.6% 76.5% Northern Province Burera 45.2% 3.2% 40.9% 17.3% Northern Province Gicumbi 49.3% 24.8% 88.7% 54.3% Eastern Province Rwamagana 30.4% 22.6% 80.1% 54.9% Eastern Province Nyagatare 37.8% 39.6% 96.1% 92.1% Eastern Province Gatsibo 43.1% 62.7% 97.0% 93.9% Eastern Province Kayonza 42.6% 70.8% 97.0% 92.1% Eastern Province Kirehe 47.9% 81.6% 89.9% 88.0% Eastern Province Ngoma 47.6% 20.6% 70.8% 35.6% Eastern Province Bugesera 48.4% 29.2% 88.1% 55.5% Highest 73.3% 84.1% 99.0% 97.5% Lowest 8.3% 3.2% 31.9% 5.6% Average 44.9% 37.8% 81.1% 58.2% 41 A NNEX 5: P ROGRESS T OWARDS T HE M ILLENNIUM D EVELOPMENT G OALS Latest 2015 Goals Indicators 2000 2005 2008 data Target Goal 1a: Eradicate extreme poverty Proportion of population and hunger: Reduce by half the 44.9 below the national poverty 58.9 56.7 -- 23.8 proportion of people living on less than a (2011) line dollar a day Prevalence of underweight 11.4 children under 5 years old 20.3 18.0 15.8 14.5 Goal 1b: Eradicate extreme hunger: (2010) (%) Reduce by half the proportion of people Proportion of the population who suffer from hunger 24.1 below minimum level of -- -- -- 17 (2011) dietary energy (%) Net enrollment ratio in 98.7 -- 84.0 94.2 100 Goal 2: Universal primary education: primary education (2010/11) Ensure that all boys and girls complete a Primary completion rate, full course of primary schooling 79 total (% of relevant age -- 49.2 74.5 100 (2010/11) group) Goal 3: Promote gender equality and Ratio of girls to boys in 101.1 empower women: Eliminate gender primary and secondary 96.0 100.2 -- n/a (2008) disparity in primary and secondary education (%) education preferably by 2005 and at all Seats occupied by females 56.3 17.0 48.8 56.3 50 levels by 2015 in Parliament (%) (2011) Mortality rate, under-5 (per 54 Goal 4: Reduce child mortality: Reduce 196.0 152.0 103.0 47 1,000) (2012) by two-thirds the mortality rate among Mortality rate, infant (per 38 children under 5 between 1990 and 2015 107.0 86.0 62.0 28 1,000 live births) (2012) Maternal mortality ratio 476 Goal 5: Improve maternal health: (modeled estimate, per 1071.0 720.0 540.0 325 (2012) Reduce by three-quarters the maternal 100,000 live births) mortality ratio Births attended by skilled 69 31.3 38.6 52.1 90 personnel (% of births) (2010) Goal 6: Combat HIV/AIDS, malaria, and other diseases: a) Halt and begin to reverse the spread of HIV/AIDS and b) HIV prevalence 3.8 3.1 -- 3 (2010) n/a halt and begin to reverse the incidence of malaria and other major diseases Proportion of land covered 17.6 13.9 15.6 -- 25 Goal 7: Ensure environmental by forest (%) (2010) sustainability: a) Integrate the principles Improved water source (% 74.2 67.0 66.0 65.0 82 of sustainable development into country of population with access) (2011) policies and programs and b) reverse loss Improved sanitation 74.5 of environmental resources. facilities (% of population 40.0 49.0 54.0 n/a (2011) with access) Sources: Millennium Development Goals Progress Report, Rwanda Country Report 2010, DHS2010, EICV3, WDI, CPAF Matrix 42 A NNEX 6: INTERGOVERNMENTAL FISCAL RELATIONS Revenue responsibilities of local governments are limited. Since 2002, local governments – the 30 Districts together with Kigali City – have been responsible for collecting limited taxes and fees. 56 There is thus a heavy vertical fiscal imbalance: in the 2012/13 revised budget, central government revenues total 24.4% of GDP while local government revenues are merely 1.3% of GDP. In addition, 51% of local revenues are collected by Kigali City and its three Districts, with the share of own revenues in District budgets outside Kigali at around 14%. In other words, districts heavily rely on financial transfers from the central government to finance their budgets. Three main channels of inter-governmental transfer are: (i) block transfers 57; (ii) earmarked transfers; and (iii) development transfers (including the Common Development Fund or CDF). Block transfers are discretionary and fund the administrative functions of local governments to supplement service delivery, although in practice they are largely used for salaries. Earmarked transfers finance the majority of service delivery at the local level. Development transfers are budgeted under the projects and programs of the relevant sector line ministries. Donor funded external grants also finance inter-governmental transfers by supplementing the three transfer channels, either merging with Government funds in the form of general or sectoral budget support, or in the form of financing of specific projects through development transfers (e.g. the CDF). There are also off-budget external grants channeled directly to Districts which cannot be quantified, as well as funds spent in Districts that are managed directly by line ministries. Earmarked transfers account for the majority of inter-governmental funding flows. They account for around 70% of total transfers in the revised 2012/13 budget: the remainder is almost equally divided between block transfers, development transfers and external grants (Annex Table 1). Further, the share of earmarked transfers in total budget votes varies across line ministries, indicating that sector ministries have decentralized to varying degrees (Annex Table 2). Annex Table 1: Summary of Intergovernmental Transfers, 2012/13 Revised Budget Share in Share in Rwf billion transfers total budget Transfers from the Central Government (a) 276 100% 80% Earmarked Transfers 191 69% 56% External Grants 28 10% 8% Block Transfers 28 10% 8% Transfers from Other Government Agencies 28 10% 8% Own Revenues (b) 68 - 20% Total Budget (a+b) 344 - 100% Source: 2012/13 Revised Budget and MINECOFIN data. Annex Table 2: Share of Earmarked Transfers in Line Ministry Budget (%) Ministry of Local Ministry of Agriculture Ministry of Education Ministry of Health Government (MINAGRI) (MINEDUC) (MINISANTE) (MINALOC) 6% 43% 15% 48% Source: 2011/13 Budget and IMF (2012). 56 Local governments collect three taxes: property tax, trading licenses and rental income tax. The local government revenue legal framework was revised in 2011 with the passage of a law establishing the sources of revenue and property of decentralized entities (Law no 59/2011), and implemented in 2012 by a Ministerial Order determining the modalities for the implementation of the law and a Presidential Order which regulates the range, level and rates of fees and other charges levied by local governments. 57 Known as the Local Authorities Budget Support Fund (LABSF) 43 Block Transfers Horizontal allocations of block transfers across districts are formula based. Block transfers are reviewed annually, with the total amount determined as a percentage of the previous year’s central government domestic revenues, ranging between 3–5% 58. In 2010/11, the Government introduced a new formula for horizontal allocation based on (i) population (20% weight); (ii) poverty (30% weight); and, (iii) number of sub-districts (50% weight). Although the size of own revenues is not part of the allocation formula, it is taken into account by excluding Kigali City and its three Districts from receiving block transfers on account of their large own revenues. MINECOFIN plans to review the formula to incorporate a fiscal capacity component in the near future. 59 Earmarked Transfers The size and composition of earmarked transfers are determined by relevant line ministries through the budget process. Since 2010/11, guidance on earmarked sector transfers has been collated in annual District Earmarked Transfers Guidelines. 60 The guidance includes specified formulae for each earmarked sectoral transfer, together with the allocation by program to each district and Kigali city together with expected outputs for each program and sub-program. The majority of earmarked transfers are equally allocated across districts (i.e. divided by 30), while the largest service delivery transfers under major line ministries have more complex allocation formulae. 61 Many sector ministries also provide more than one earmarked transfer: for example in 2012/13 MINEDUC budgeted for 13 different earmarked transfers, covering areas such as teacher salaries and girls’ education. Indeed, the number of earmarked transfers has proliferated since their introduction in the 2006 budget. In the revised 2012/13 budget, local authorities received transfers against up to 28 programs and 51 sub-programs in addition to block and development transfers. As a result, districts have limited flexibility to allocate funds based on local priorities. Development Transfers Development transfers, partly financed by external grants, are budgeted under projects and programs of the relevant line ministries. Thus, districts do not have the flexibility to select their own projects and programs, except through the CDF 62. The CDF is a discretionary cross sectoral investment transfer under MINALOC. It was introduced in 2002 with the intention of providing support to districts for development purposes. The transfers aim to allocate an amount equivalent to at least 10% of the previous year’s domestic revenue (although in practice the allocations have been much lower), as well as external grants. For CDF, 90% of the Government funds and all donor funds are allocated according to a formula with three components: (i) District population (40% weight); (ii) land area (20%); and, (iii) poverty headcount (40%). The remaining 10% of the Government funds in 2012/13 were allocated based on the results of 2010/11 Imihigo performance rankings. Aggregate Resource Allocation The aggregate effect of the inter-governmental transfer system is that per capita budget allocations vary considerably across districts. Table 3 presents data on aggregate local government resources from the revised 2012/13 budget. There is a Rwf 30,000 per capita difference between Nyarugenge (Rwf 52,000 in transfers and own revenues per capita and a poverty rate of 10%) and Gicumbi Rwf (19,000 per capita, poverty rate of 49%). 58 The percentage is not grounded in a specific legal instrument, but does reflect a cabinet level decision. 59 This review awaits the findings of a “Local Government Revenue Potential Study� currently being undertaken by Georgia State University. 60 See for example “2012-13 Districts’ Earmarked Transfers Guidelines,� Ministry of Finance and Economic Planning, September 2012 (pp. 197). 61 Equal shares means dividing the total aggregate transfer amount equally among the recipient local authorities. 62 This is envisaged under the Fiscal Decentralization Strategy: MINECOFIN’s ultimate objective is to establish a single discretionary development transfer for each local government. 44 Annex Table 3: Inter-governmental Transfers and Own Revenues by Districts in the 2012/13 Revised Budget (Rwf billion) Budget Other Total Own Total Resources District & Kigali Earmarked External Block Gov'tAgenci Transfers Revenues Budget Per Capita City Transfers (i) Grants (ii) Grants (iii) es (iv) (v=i+ii+iii+iv) (vi) (v+vi) (Rwf '000) NYARUGENGE 4.9 0.3 - 1.4 6.6 7.3 13.9 52.2 KICUKIRO 4.7 0.3 - 0.3 5.3 5.4 10.7 38.6 GASABO 6.1 0.6 - 0.4 7.1 8.1 15.2 37.0 KARONGI 7.5 0.8 1.1 1.4 10.8 2.1 12.8 36.2 NYARUGURU 7.3 0.6 1.0 0.4 9.4 0.8 10.2 33.5 BURERA 6.0 1.0 1.2 3.1 11.2 0.5 11.8 33.3 NYAMAGABE 7.1 1.1 1.3 0.4 9.9 1.0 10.9 33.2 RUHANGO 6.9 0.8 0.9 0.4 9.0 1.1 10.1 33.1 MUHANGA 6.1 0.7 1.0 0.8 8.6 1.0 9.7 32.5 RUBAVU 6.2 1.2 1.0 2.8 11.1 2.6 13.7 32.5 RULINDO 5.7 0.9 1.1 1.0 8.6 0.9 9.5 32.3 NYAMASHEKE 7.7 1.0 1.3 1.4 11.3 1.1 12.5 31.7 RUSIZI 7.7 0.9 1.3 1.5 11.4 1.7 13.1 31.3 NYANZA 6.4 0.8 0.8 0.6 8.6 0.8 9.3 30.4 GAKENKE 6.4 1.2 1.3 0.6 9.5 0.9 10.4 30.1 HUYE 6.5 0.6 1.0 0.5 8.6 1.0 9.6 30.1 KAYONZA 6.0 0.6 0.9 0.7 8.1 1.7 9.8 29.5 MUSANZE 6.7 0.8 0.9 1.8 10.2 1.9 12.1 29.2 BUGESERA 6.1 0.8 1.1 0.8 8.7 2.6 11.3 28.9 NGORORERO 6.6 0.8 1.0 0.9 9.3 0.5 9.8 28.8 NGOMA 6.0 0.6 1.0 0.7 8.3 0.9 9.2 28.6 RUTSIRO 5.9 0.8 1.0 0.9 8.6 0.6 9.3 28.4 RWAMAGANA 5.4 0.5 0.9 0.7 7.4 1.6 9.0 28.4 GISAGARA 6.2 0.6 1.0 0.4 8.3 1.1 9.4 27.8 NYABIHU 5.4 0.7 0.8 1.7 8.6 0.5 9.2 27.7 KAMONYI 5.7 0.6 0.9 0.4 7.6 1.3 8.9 27.1 KIREHE 4.9 0.6 0.9 1.1 7.5 1.2 8.7 26.5 NYAGATARE 6.4 0.9 1.0 0.3 8.6 1.4 10.0 23.6 KIGALI CITY 3.6 5.4 - 0.1 9.1 13.4 22.5 23.5 GATSIBO 6.5 0.8 1.1 0.3 8.6 1.2 9.8 20.0 GICUMBI 6.9 1.0 1.4 0.3 9.7 1.4 11.0 19.3 TOTAL 191.5 28.0 28.3 28.1 275.8 67.7 343.5 29.6 Source: Revised 2012/13 Budget and data provided by MINECOFIN. 45 A NNEX 7: A NALYTICAL U NDERPINNINGS Policy Area Prior Actions Analytical underpinning Strengthened policy framework The Recipient has approved a new  Decentralization Sector Strategic plan for decentralization decentralization policy which (2013/14-2017/18). clarifies the roles and  Decentralization Implementation Plan 2011- responsibilities of central and local 2015 (MINALOC). government The Recipient has published in the  Revenue Potential Study for Districts Official Gazette the Presidential Inception Report. Order establishing the list of fees  Fiscal Decentralization Strategy (2011) and other charges levied by decentralized entities and the applicable thresholds Capacity development for quality The Recipient has adopted twenty  National Skills Audit (2009). service delivery at the local level eight (28) District capacity building  Rwanda Public Sector Pay And Retention plans approved by the District Policy: Situation Analysis (2011). Councils  Human Resource Management Policy situational analysis (2011).  Technical Assistance for Public Expenditure Management: A Policy Note (2010).  5 years Capacity Building Strategy for Local Governments (2011- 2015).  Enhancing Human Resource Management for Rwanda’s Vision 2020 (2012). Improving government The Recipient has published in the  Joint Governance Assessment 2008. transparency and accountability Official Gazette a new Access to  Joint Governance Assessment 2011. to citizens Information Law which provides for  Decentralization Sector Strategic Plan the public’s right to information (2013/14 – 2017/18). Enhanced local government fiscal The Recipient has reviewed twenty  Decentralization Sector Strategic plan autonomy and public financial five (25) district Audit Committee (2013/14-2017/18). accountability reports of 2012 and issued  PEFA 2007 and 2010. communication to the districts on  PFM Reform Strategy 2008 -2012. the main areas for follow up  Independent Evaluation of the PFM Reform Strategy 2008 – 2012 (2013).  PFM Draft Sector Strategic Plan 2013/14 – 2017/18. 46 A NNEX 8: S ELECTED P OLICY A REAS AND P RIOR A CTIONS O F P REVIOUS D PL s 1. First PRSF Series Policy Areas Outcomes PRSG-1-Prior Actions PRSG-2 Prior Actions PRSG-3 Prior Actions Outcome Indicators/ Outcomes Improving Increased Complete document on a fiscally MTEF 2006-2008 ceilings and MTEF 2007-2009 ceilings and % of children having completed service delivery Primary sustainable sector strategy that 2006 Budget Framework Paper are 2007 Budget are consistent with primary school for the Poor completion indicates GoR’s preferred scenario consistent with the sector the sector financing strategy; - Baseline (2003): 33% for achieving Universal Primary financing strategy; present official present official government draft - Target: 67% Completion. Agree how the 2005 government draft budget budget document to all - Actual (2006): 52% Budget and 2005 – 2007 MTEF document to all stakeholders in stakeholders in September 2006. will reflect this decision. September 2005. (Completed document containing decision and process.) Increased Carry out performance based Carry out a comparative review of Implement recommendations of Immunization coverage mortality payment schemes for high impact the two pilot schemes and ensure comparative review of - Baseline (2003): 83% reduced services in Butare and Cyangugu 2006 budget covers at least 75% of performance based schemes for - Target: 95% with donor funding; make their cost. health centers and expand scale up - Actual: 98% provisions for transferring at least to at least 3 regions with Use of bed nets 50% of the cost to 2005 budget; government funding. - Baseline (2003): 4% increase DPT3 coverage to 80%. - Target: 30% - Actual (2006): 65% Under five mortality (per1,000 births) - Baseline (2003): 198 - Target: 140 - Actual: 103 Improve Water MINITERE/DEA has developed 10% of rural water supply systems Access to clean water and Sector guidelines to assist Districts in are managed by local private sanitation facilities Performance contracting private operators for operators. - Baseline (2003): 48% managing new or rehabilitated - Target: 55% systems; management contracts - Actual (2007): 71% (clean have been signed in at least 1 water); 42% (sanitation) district Improving the Approval by RURA (Rwanda (5) Adoption by Cabinet of revised Targets Performance of Utilities Regulation Agency) of electricity tariff that balances Create regulatory framework for Energy Sector revised Electrogaz tariffs and protection of industrial consumers the energy sector. Electrogaz Management Contract and cost recovery requirements. Transparent tariff setting “performance indicators� adjusted. mechanism in use Outcome - Clear regulatory framework for the energy sector adopted - Transparent tariff setting mechanism in use 47 Policy Areas Outcomes PRSG-1-Prior Actions PRSG-2 Prior Actions PRSG-3 Prior Actions Outcome Indicators/ Outcomes Public Sector Strategic  2005 Budget Framework Paper  Submitted draft 2006 budget  Submit draft 2007 budget law Targets Underpinnings budgeting available, consistent with macro law to cabinet, consistent with to cabinet, consistent with MTEFs for key ministries for improved framework, 2005-2007 medium macro framework, 2006-2008 macro framework, detailed and (education health, water and services term expenditures framework detailed and output-oriented output oriented 2006-2008 energy) prepared annually and delivery and PRSP priorities; and medium term expenditure medium term expenditure budget allocations reflects MTEFs detailed output oriented frameworks for education, frameworks for education, medium term expenditures health, water, and energy, and health, water, and energy, and Outcome frameworks for education and PRSP priorities. PRSP priorities. MTEFs for key ministries health.  2004 budget execution report  2005 budget execution report (education, health, water, and  2003 budget execution report submitted to Auditor General submitted to Auditor General energy) prepared annually and submitted to Auditor General and presented to Parliament. and presented to Parliament. budget allocations reflect MTEFs and presented to Parliament. Improve  Draft questionnaires of citizen  Publish pilot citizen report card  2007 budget includes funding Targets accountability report cards survey available. surveys on identity cards and for Citizen Report Card Citizens report cards results of government health and education services. program to be conducted in disseminated to the public and to citizens each of the 30 districts. used in poverty reduction Strategy monitoring to assess user satisfactions with services Outcome Citizen Report Cards results disseminated to the public and used in Poverty Reduction Strategy monitoring to assess user satisfaction with services 48 2. Second PRSG Series Policy Areas PRSG-4 Prior Actions PRSG-5 Prior Actions PRSG-6 Prior Actions PRSG-7 Prior Actions Outcome Indicators/ Outcomes Investing in  Law on health insurance  Publish TVET Policy  Revision of the Education Pupil teacher ratio in primary Human Capital (including financing Sector Strategic Plan education and Enhancing framework and regulation) (ESSP) to include greater - Baseline (2006): 72.7 the Skills of the submitted to focus on and cost of PBE - Target: 65 Population  Completion of an and its linkages to the labor - Actual: 63 assessment of schools, market as well as Science teachers, and students in Technology and Innovation Transition from basic to upper newly established “tronc (STI). secondary education commun� that identifies - Baseline (2006): 82% Districts with largest gaps - Target: 95% - Actual: 98% Raising  Government increases  Complete feasibility studies  Develop action plan for  Develop, cost and initiate Proportion of employees who Agricultural resources for water of at least 4 out of 34 sites private sector-led fertilizer action plan for capacity are satisfied with the Productivity harvesting, beginning in for watershed management distribution for September building of private sector performance of TVET 2008 budget, for regions including assessment of 2009-January 2010 agro-dealers in input graduates that have most vulnerable to pilots and mapping of areas harvesting season based on procurement and - Baseline (2006): n/a timing and low levels of in need of protection by key lessons from the distribution, particularly at - Target: 9% rains – i.e. Bugesera and watershed management and September 2008-January decentralized - Actual: n/a Kirehe terracing. 2009 harvesting season; action plan endorsed by the Ministry and shared with the Rural Sector Working Group Strengthening  Application of a software  Complete development of  Payroll Module  Completion of the piloting % of population covered by Public financial program (Budget Master) in Public Books software (subsystem) of the of the IFMIS in central mutuelle de santé Management each of the Districts integrated personnel government and integrate it - Baseline (2005): 40% System designed to assist in the payment information with the IPPS. - Target: n/a management of District system installed in central - Actual: n/a Budgets government ministries Strengthening  Regulations, Standards and  Publish the independent  At least eighty percent  Cabinet approval of the bill Proportion of arable land Capacity and Bidding Documents review (appeal) panel report (80%) of all procurement to amend the Procurement sustainably managed against Transparency of adopted and available on (2008) agencies submit a Law to increase efficiency soil erosion Procurement NTB website procurement plan that is and transparency of public - Baseline (2006): 40% System consistent with their procurement - Target (2009/10): 50% allocated budget, to - Actual: (2009/10): 80.9% MINECOFIN, and RPPA publishes at least 60 Mineral Fertilizer used (MT) percent of such plans on its - Baseline (2006): 14,000 website - Target (2009/10): 30,800 - Actual (2009/10): 27,906 49 Policy Areas PRSG-4 Prior Actions PRSG-5 Prior Actions PRSG-6 Prior Actions PRSG-7 Prior Actions Outcome Indicators/ Outcomes Strengthening  District Budget Execution  Conduct an assessment of  Adoption by Cabinet and Operation of an IFMIS fiscal Reports for January to June service delivery at local operationalization of a integrating budget, payroll Decentralization 2007 published on level with Citizen Report comprehensive 5-year Index on quality and Government website, Cards and Community capacity building strategy timeliness of annual financial together with evaluation of Score cards for local Government statements (PEFA) Imihigo performance - Baseline (2006): n/a contracts - Target (2009/10): Yes - Actual (2009/10): IFMS piloted in key CG ministries Index on quality and timeliness of annual financial statements - Baseline (2007): C+ - Target (2009/10): B- - Actual: D+ (based on PEFA 2010 assessment Adopt Civil  MIFOTRA completes  Cabinet approval of the  Cabinet approval of the Proportion of the value of Service functional reviews in 6 key organic framework General Statutes for the procurement tendered Reforms to ministries (MINECOFIN, reflecting agreement Public Service competitively or justified (%) Build Skills and MIFOTRA, MINEDUC, between the Ministry of - Baseline (2006): 73% Incentives for MININFRA, MINITERE, Public Service and Labor - Target (2009/10): 87% Retention MINISANTE) and all central government - Actual: 100% ministries on staffing levels and ministerial structures for optimal performance within fiscal. 50 3. Third PRSG Series Policy Areas PRSG-8 Prior Actions PRSG-9 Triggers PRSG-10 Triggers Outcome Indicators Increasing Publication of an independent evaluation  A revised fertilizer strategy  Adopting a regulatory framework for Mineral fertilizer used (MT) Agricultural of the implementation of the fertilizer incorporating an action plan for the fertilizer importers, wholesalers, - Baseline (2006): 14,400 Productivity strategy to promote agricultural phasing out of the Ministry of dealers and retailers in Rwanda - Target (2012/13):56,000 productivity, including the results and Agriculture’s (MINAGRI) farm inputs Establish an Inter-ministerial Steering lessons learned, on the Ministry of distribution and subsidization program Committee to oversee the Production of key food Agriculture website has been adopted implementation of the Post-Harvest security crops (1,000 MT  The Recipient has established and Handling and Storage Staple Strategy cereal equivalents equipped the agriculture and livestock - Baseline (2006): 1,611.8 inspection and certification services - Target (2012/13): 3,235 department within MINAGRI and mandated it to enhance the safety of trade in agricultural and livestock products through provision of livestock inspection and certification services Improved Public Integration of appropriate Human  An equitable and competitive pay and Counterparts in place for all Strategic Percentage of planned outputs Accountability Resources (HR) and payroll subsystems retention policy providing a framework Capacity-Building Initiative (SCBI) achieved in the 4 selected into the IPPIS to improve payroll for compensating, rewarding, retaining international practitioners with positive capacity building initiative accuracy and transparency in the and motivating public and civil feedback on skills transfer (SCBI) priority areas management of public finances servants has been adopted by the - Baseline (2006): n/a Recipient’s Cabinet - Target (2012/13: 70%  An IPPIS has been deployed in all the Recipient’s ministries and agencies and an action plan for its roll-out in the Districts has been developed Enhanced public  Development and integration of a Increase transparency and accountability Percentage of Internal audit financial Medium-Term Expenditure of the budget process by posting on the reports submitted management Framework (MTEF) into the budgeting MINECOFIN website key budget - Baseline (2006): 20% of all process across all sectors to improve documents budget agencies medium-term macroeconomic and - Target (2012/13): 55% of fiscal projections all budget agencies  Adoption of a regulatory framework for the establishment of internal Audit Committees in public entities and at Local Government level to oversee the auditing of public finances 51 A NNEX 9: R ELATIONSHIP T O EDPRS, CAS A ND W ORLD B ANK O PERATION Governance Sustainable Growth for Jobs and Vision 2020 Government Security; justice; unity and Exports Umurenge (pro-poor reconciliation; transparency, Strategy Skills and capacity for productive components) PFM EDPRS-1 employment, Economic infrastructure, ICT and innovation for growth, financial Decentralization, citizens’ participation & empowerment World Bank Significant health and Capacity to manage Agricultural Improved access to Improved environment public resource–at CAS social risks–to Production–particularly and quality of key for sound private central and local outcome vulnerable group and for food crops– infrastructure services sector levels–strengthened social cohesion in Rwanda–are mitigated Agricultural Policy Note; Independent Review Financial Sector Assessment Rwanda Health Study; Human AAA Support to Agric. Reforms of Rwanda’s energy Program update; Just-in-time Public Expenditure Resources for Health; Social Management; Capacity (IDA) TA; Sustainable Land Generation Policy Notes; Investment Climate Protection Study; Social Risk Management; Regional Investment; TA to Assessment; Assessment of Building Management of Climate Agriculture Research Rwanda Energy Regional Dairy Trade; Non-Tariff Change; Youth Employment Measures on Goods Trade in the Study; On Demand Policy EAC, Country Education Status Notes in the Social Sectors Report, Rwanda Investment Promotion TA Rural sector Support Transport Sector Development Community Living Standard PRSG series, E-Rwanda; Projects & trust Competitiveness and Project (APL); Land, Project incl. Africa Catalytic Credits (APL) including Health Statistics for Results; funds (IDA) Enterprise Dev. & Governance for Management, Water Growth Fund; Regional: East Additional Financing; Results Innovation Trust Fund; Harvesting & Hillside Africa Trade and Transport PRSG series; Demobilization Competitiveness TA Project Skills Development Irrigation; Global Facilitation Project, Electricity and Reintegration Program-2; Agriculture and Food Access Roll out; Energy Project; Regional, EAC Support to Social Protection Public Sector Capacity Security Program Additional Financing; Rural Financial Sector System (APL); East Africa and Decentralized additional financing to Roads projects; Regional Regionalization; PRSG Public Health Laboratory Service Delivery Support LWH Communications series; Governance for Project; Economic Infrastructure Project-II; Competitiveness TA Empowerment of Young PRSG series Project Women – Adolescent Growth Initiative; 52 A NNEX 10: R WANDA ’ S 2007 A ND 2010 PEFA This annex presents a summary of the PEFA 2010 prepared in the second half of 2010, covering a Central Government (CG) assessment and a Sub-National (SN) assessment. The CG Assessment is a repeat assessment as a PEFA for CG has been undertaken in 2007. It will inform the direction of future PFM reforms. It showed remarkable improvements compared to the 2007 PEFA Overall, the PEFA assessment for found a marked improvement in external audit (PI-26) and legislative scrutiny of audit reports (PI-28). Weak PFM performance remains concentrated in three areas, first in regard to the multi-year perspective in fiscal planning, expenditure policy and budgeting (PI-12) and composition of expenditure out-turn compared to original approved budget (PI-2), second in regard to quality and timeliness of reporting of in-year budget reports (PI-24) and annual financial statements (PI-25); and, finally, in regard to effectiveness of internal audit (PI-21 When comparing the 2007 and 2010 ratings it should be noted the previous PEFA may have under- scored or over-scored some of the ratings for indicators or individual dimensions. Thus a simple comparison of the overall scores between two assessments at different times, not detailed by dimension, and with no analysis of change, can suggest deterioration, improvement or stagnation of indicators, which is in fact not the case. In the case of Rwanda there was real progress despite the appearance of stagnation, if an indicator was over-scored by the previous assessment, as the PEFA team found to be the case for PI-11. Similarly, in the case of PI-21 and PI-25 there is the appearance of deterioration as indicators or dimensions were highly over-scored in the PEFA 2007. Also, there was progress for PI-18 but less so than indicated by a simple comparison of the overall scores, as the indicator was over-scored by the previous assessment. The CG assessment found that the areas of PFM performance that were already at a very satisfactory level of performance (A) in 2006 and have remained such are: PI-3 Aggregate revenue out-turn compared to original approved budget (A); PI-5 Classification of the budget (A); PI-13 Transparency of taxpayer obligations and liabilities (A). The areas of PFM performance that have improved and achieved a very satisfactory (A) or acceptable (B) level of performance are: PI-1 Aggregate expenditure out-turn compared to original approved budget (A); PI-4 Stock and monitoring of expenditure payment arrears (B); PI-6 Comprehensiveness of information included in budget documentation (A); PI-8 Transparency of inter-governmental fiscal relations (A); PI-10 Public access to key fiscal information (A); PI-11 Orderliness and participation in the annual budget process (B+); PI-14 Effectiveness of measures for taxpayer registration and tax assessment (A); PI-16 Predictability in the availability of funds for commitment of expenditures (B+); PI-17 Recording and management of cash balances, debt and guarantees (B); PI-18 Effectiveness of payroll controls (B+); PI-19 Competition, value for money and controls in procurement (A); PI-20 Effectiveness of internal controls for non-salary expenditure (B+); PI-22 Timeliness and regularity of accounts reconciliation (B); PI-26 Scope, nature and follow-up of external audit (B+); PI-28 Legislative scrutiny of external audit reports (B); D-1 Predictability of Direct Budget Support (A). The areas of PFM performance that are showing some improvement, yet remain weak, are: PI-2 Composition of expenditure out-turn compared to original approved budget (D); PI-7 Extent of unreported government operations (D+); PI-9 Oversight of aggregate fiscal risk from other public sector entities (C); PI-21 Effectiveness of internal audit (C); PI-25 Quality and timeliness of annual financial statements (D+); D-2 Financial information provided by donors for budgeting and reporting on project and program aid (D+). The areas of PFM performance that are not showing much improvement and remain weak are: PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting (C+); PI-15 Effectiveness in collection of tax payments (D+); PI-23 Availability of information on resources received by service delivery units (D); PI-24 Quality and timeliness of in-year budget reports (D+); PI-27 Legislative scrutiny of the annual budget law (C+); D-3 Proportion of aid that is managed by use of national procedures (D). 53 Ratings that have remained unchanged since the 2007 PEFA, and are difficult to justify are: PI-7 (ii), PI-23, and D-3 at D; PI-15 and PI-24 at D+; PI-12 and PI-27 at C+. For PI-7 (ii), more information on donor assistance than what is included in fiscal reports is available within MINECOFIN, for PI-15, effectiveness in collection of tax payments, unchanged at D+ since the 2007 PEFA, despite Domestic Revenue Generation being a component of the Government PFMRS under Pillar 1, Economic Management and Budget; for PI-24, as in-year budget reporting did take place in 2007 and 2008; and in-year reporting just ceased. Regarding the others, it can be noted that: D-3, proportion of aid that is managed by use of national procedures, shows that donors are not sufficiently relying on country systems for the channeling of donor assistance, and have not increased their reliance since 2006, despite the constant and coordinated presence of donor support in Rwanda, an overall improvement in PFM processes, and the general objective under the Paris Deceleration and the Accra Agenda to increasingly rely on national systems; The failure of improvements in the availability of information on resources received by service delivery units (PI-23) is surprising especially give the fiscal decentralization process underway, and the stated objectives of the National Decentralization Policy. Regarding legislative scrutiny of the annual budget law (PI-27), the indicator rating cannot improve as long as the current situation, of no limit in place for the size of supplementary budgets, reflected under dimension (iv), continues. The failure of the MTEF (see PI-12) to deliver its true objective of linking policy targets with actual budget allocations and thus ensure at the same time a strategic allocation of resources and fiscal sustainability, is also costly in Rwanda, given the vast amount of capacity invested in the multi- year planning process, which is very extensive and involves a large variety of activities throughout the budget preparation cycle, across all sectors. Regarding the implementation of IFMIS/SmartGov, which is part of the official PFM Government Reform Program, under Pillar 2, component 3, it has fallen behind schedule. Its delay is at the root of the fact that the quality of financial statements (PI-25 (i)) has not improved as much as its potential, as it is hampered by the continued coexistence of two different systems, SagePastel and SmartGov. Overall, not enough effect has trickled to PFM systems in the area of accounting, recording and reporting despite it being one of the main reform pillars. 54 Annex Table 1: PEFA 2010 Rwanda Scores PEFAScores November No.-ember 2007 2010 A. P FM -OUT-TURNS: Cndibility of the budeet PI-I Aggregate expenditure out-tllffi compared to original approved B A budget PI-2 Composition of expendinlfe out-tllfn compared to original D D approved budget PI-3 Aggregate revenue out-nlfn compared to original approved A A budget PI-4 Stock and monitoring of expendinlfe payment arrears D+ B B. KEY CROSS-CUTTING ISSUES: Comprehensinness and Transparency PI-5 Cla~sification of the. budget A A PI-6 Comprehen~iveness of infonnation included m budget D A documentation PI-7 Extent of unreported government operations D+ D+ PI-8 Transparency of inter-governmental fiscal relations B A PI-9 Oversight of aggregate fiscal risk from other public sector entities D+ c PI-10 Public access to key fiscal information c A C . BUD GET CYCLE C(i) Policy-Based Bmloetino PI-ll Orderliness and participation in the armual budget process B+ B+ PI-12 Multi-year perspective in fiscal planning, expendinlfe policy and C+ C+ budgeting C(ii) Predictability and Control in Budoet Execution PI-13 Transparency of taxpayer obligation~ and liabilities A A PI-14 Effectiveness of measures for taxpayer registration and tax B+ A assessment PI-15 Effectiveness in collection of tax pay"Ulffits D+ D+ PI-16 Predictability in the availability of fi.mds for commitment of B+ B+ expenditl!fes PI-17 Recording and management of cash balances, debt and B B guarantees PI-18 Effectiveness of payToll controls D+ B+ PI-19 Competition value for money and controls in proctlfernrot B A PI-20 Effectiveness of internal control~ for non-salary expenditllfe D+ B+ PI-21 Effectiveness of internal audit C+ c C(iii) Accountinll:, Reconlino and Reportino PI-22 Timeliness and regttlarity of accounts reconciliation B+ B PI-23 Availability of infonnation on resol!fces received by Se1"V1Ce D D delivery unit~ PI-24 Quality and timeliness of in-year budget reports D+ D+ PI-25 Quality and timeliness of armual financ.ial statements C+ D+ C(iv) External Scrutiny and Audit PI-26 Scope, natllfe and follow-up of external audit D+ B+ PI-27 Legislative scmtiny of the armual budget law C+ C+ PI-28 Legislative scmtiny of external audit reports D+ B D. DONOR PRACTICES D-1 Predictability of Direct Budget Support B+ A D-2 Financial information provided by donors for budgeting and D D+ reporting on project and program aid D-3 Proportion of aid that is managed by use of national procedt!fes D D 55 A NNEX 11 : 2010 PEFA A SSESSMENT A T T HE D ISTRICT L EVEL The PEFA 2010 SN Assessment found a satisfactory nature and scope of the external scrutiny of SN governments (see SN PI-26, rated at A for nature and scope and B overall). The OAG in fact audits all SN governments on a yearly basis and issues the results of the audit as part of the Annual Report presented to Parliament, under Volume III. Also in parallel with CG, and also probably as a result of an acceptable level of external oversight, including on the implementation of audit recommendations, the SN Assessment found that controls on both salary and non-salary expenditure are at an acceptable/satisfactory level, with PI-18 and PI-20 both rated at B+. At the SN level, the core dimension transparency and comprehensiveness was assessed only on the basis of two indicators (PI-8 and PI-10), one of which was found not applicable (PI-8). On the basis of PI-10 only, which assesses public access to key fiscal information, transparency at the SN level is satisfactory (A). The core dimension accounting and reporting, assessed at the SN level on the basis of the availability of funds for commitment expenditures (PI-22) and in-year budget reporting (PI- 24), shows acceptable to good results (B+), and a more positive status of processes than for CG. By indicator, the SN Assessment found that the areas that are at a good or acceptable level of performance are: PI-2 Composition of expenditure out-turn compared to original approved budget (B,B,A,B); HLG-1 Predictability of transfers from higher levels of Government (B+, B+, B+, A), PI-10 Public access to key fiscal information (A); PI-16 Predictability in the availability of funds for commitment of expenditures (B+); PI-18 Effectiveness of payroll controls (B+); PI-20 Effectiveness of internal controls for non-salary expenditure (B+); PI-22 Timeliness and regularity of accounts reconciliation (B+); PI-24 Quality and timeliness of in-year budget reports (B+); PI-26 Scope, nature and follow-up of external audit (B+). The following areas were found to be weak: PI-1 Aggregate expenditure out-turn compared to original approved budget (D,B,D,D); PI-11 Orderliness and participation in the annual budget process (D+). Annex Table. Sub-National (SN) Indicator Overview (PEFA 2010) 56 A NNEX 12: F UND R ELATIONS N OTE IMF Executive Board Completes Fifth Review under the Policy Support Instrument for Rwanda Press Release No.12/463 November 28, 2012 The Executive Board of the International Monetary Fund (IMF) completed today the fifth review under a three-year Policy Support Instrument (PSI) for Rwanda. In completing the review, the Board approved a waiver of nonobservance of the quantitative assessment criterion on net domestic financing (NDF). The Executive Board approved a three-year PSI for Rwanda on June 16, 2010 (see Press Release No. 10/247). The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven (see Public Information Notice No. 05/145.) Following the Executive Board’s discussion on Rwanda, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated: “The Rwandan authorities are to be commended for their satisfactory implementation of the economic program supported by the Policy Support Instrument, carried out against a challenging global economic environment. Economic growth has continued to be strong, inflation remains contained, and poverty has further declined. “Fiscal and monetary policies remain appropriate. Delays in budget support have required postponing some government spending, and fiscal policy during the remainder of the fiscal year will need to be carefully executed to minimize recourse to domestic bank financing and avoid crowding out the private sector. Meanwhile, the central bank has appropriately tightened the monetary stance to slow credit growth and mitigate exchange rate and inflation pressures. “Strengthening the domestic revenue base and public financial management are important objectives, including for reducing aid dependency. The recommendations of a recent technical assistance mission on tax policy and revenue administration represent a good basis for broadening significantly the tax base. “The government has taken important steps to strengthen Rwanda’s debt management capacity. It will be critical in the period ahead to continue with prudent management of debt and complete large ongoing investment projects. It will also be important to maintain the momentum of structural reforms to improve the business environment, strengthen competitiveness, and broaden the economic base, in order to sustain economic growth and further reduce poverty,� Mr. Shinohara added. IMF EXTERNAL RELATIONS DEPARTMENT Public Affairs Media Relations E-mail:publicaffairs@imf.org E-mail:media@imf.org Fax: 202-623-6220 Phone: 202-623-7100 57 A NNEX 13: L ETTER OF D EVELOPMENT P OLICY :~· APR 1.013 REPUBLIC OF RWANDA K!gali, ···JI'"··r N f·t:::..f· ·rr.t .. :···~·if · .. .......l.t.O.O:::l.f.I.G. .'.tD.. w u M INISTRY OF FI NANCE AND ECONOMI C PLANNING B.P. 158 Kigali Tel: +250-252 575756 Fax: +250-252 577581 E-mail : rnfin@mi n~cofi n.eov.rw J im YongKim The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A Dear Mr. Kim, Subject: Letter of Development Policy for t he Q ua lity of Decentralized Service Delivery Support Development Policy Operation I am writing to request, on behalf of the Government of Rwanda, financing in the amount of US$50 million rrom the International Development Association (IDA) to support the reform program under the proposed Quality of Decentralized Service Delivery Support Development Policy Operation. This fund ing will contribute to meeting the financing needs of the Republic of Rwanda (Rwanda) for the implementation of its medium-term Economic Development and Poverty Reduction strategy, and in particular to supporting improvements in service delivery at the local government leveL The Letter of Development Policy is attached hereto and provides a summary of the Government's development program and reinforces its commitment to foster economic growth and accelerate poverty reduction. Mr. Johannes Zutt Country Director for Rwanda /African Region World Bank Nairobi Ms. Carolyn Turk Country Manager World Bank Kigali Website: hup://www.minccofin.nov.rw 58 Development C hallenge I. Rwanda has restored peace and national security, and achieved remarkable development success since the devastating Genoc ide in 1994. The growth rate in the past decade exceeded eight percent per annum and the poverty rate improved from 59% in 200 I to 45% in 20 II. 2. While Rwanda has made significant development progress in the past decade, the country remains one of the poorest in the world with 45% of the population below the poverty line and 24% 1 extremely poor • In 2010, the under 5-mortality rate (MDG target 4) stood at 76 per 1,000 much higher than the 2015 target of 47. Improving the delivery of basic services to the poor, including health, education and water among others, is fundamental for Rwanda to address its large development challenges. Furthermore, improving service delivery- and making it more responsive and accountable to citizens' needs through decentralization - is a key priority of Rwanda ' s Economic Growth and Poverty Reduction strategy. 3. Many of Rwanda's social achievements are currently at risk as a resu lt of a shortfall in donor budget support equivalent to approximately 3% of GOP in FY20 12/13. We have thus far protected our social programs by decelerating capital expenditures and increasing domestic borrowing. Going for.vard, however, in order to adjust to a sustained reduction in aid, we will in the short-term be forced to make additional budget cuts, with inevitable negative impacts on growth, service delivery, and ultimately poverty reduction. Therefore, and considering that a very large share of our population remains highly vulnerable, one of the main motivations for seeking financing from the World Bank for the proposed program is that of avoiding a reversal in the significant social progress we have made in the past decade. P rogress in Se1-vice Delivery 4. Decentralization has been pursued by the Government of Rwanda since 2000, and accelerated since 2006, as one important means of promoting national unity, good governance, better and more accountable service delivery, and national development. Sub-national district and sub-district governments have become responsible for planning, coordinating - working through sub-district entities - and implementing the provision of a large and increasing number of basic services, ranging from health and education, to water, sanitation, and agricultural development Between 2002 and 2005, total transfers to districts increased from 1.4% to 4% of total domestic revenues; they increased to 25% in 2006 and reached 33% in 2012. In 2012, transfers from the central government to districts were comprised of (i) block grants (14%); (ii) transfers from the common development fund (CDF) (6%); and (iii) earmarked funds (80%). In addition, districts have their own revenues ranging from 5 to 20% of their budgets. 5. The early steps of the Government's decentralization program have coincided with rapid improvements in access to public services in Rwanda, especially in rural areas, where 98% of the poor live. For example, the use of public primary education by poor rural households increased from 68% in 2006 to 75% in 20 11, while access to health centers increased from 63% in 2006 to 81% in 20 II. However, progress has been uneven across sectors and there are still large challenges to reach the poorest citizens and enhance overall quality, for example in the area of education. For example, while almost 70% of Rwandans have access to health insurance, coverage is only 53% for households among the poorest 20%. 6. Despite these dramatic improvements in access to public services, much remains to be done, both in improving the quality of service delivery and, relatedly, its responsiveness to local priorities and local feedback. This can only be achieved by a deepening of the decentralization process in Rwanda, which will help to improve service delivery through a number of channels. First, although the number of services whose provision has been decentral ized has grown rapidly during recent 1 Poverty hne IS Rwf64,000 per year at 2001 constant prices, equivalent to Rwf 118,000 at2011 prices. Extreme poverty line is Rwf 45,000 per year at 2001 constant prices. 59 years, there is now an urgent need to formally and clearly specify the different roles of ditTercnt levels of government in the provision of basic services. This will help avoid duplication of efforts across government levels, and will ensure that citizens have greater clarity regarding which level of government is respons ib le, and hence accountable, for which service. It wi ll also facili tate the allocation of human and fi nancial resources to national and sub-national government entities, in a way that is commensu rate to their functions and respons ibili ties. To this end, we have recently adopted a new decentralization policy on the basis of which we are passing new legislation and executive orders that wi ll clarify the responsibilities of various levels of government in the provision of basic services. 7. The Government of Rwanda is also convinced that as sub-national governments become increasingly capable, and they successfully promote local economic development in their communities, their resource mobilization ability will also increase. Enhanced resource mobilization at the local level will bring new opportunities for regional development, helping finance investments and the provision of services that reflect specific local needs. However, while it is important that local governments have flexibility in their resource mobilization efforts, it is also paramount to define clearly the specific jurisdictions of national and sub-national governments in terms of taxation powers. Moreover, it is important to ensure that tax rates and the fees charged by local governments are consistent with the value of the services they are capable of offering. Both excessive fees that do not reflect the quality of the services being provided, and the proliferation of multiple ' nui sance' fees, could negatively affect access to those services and indirectly affect local economic development. With these motivations, we have passed new legislation, and a new Presidential Order has been issued to regulate the range of taxes and fees -as well as their rates - whose collection is the attribution of sub-national governments. 8. ln addition, the allocation of additional responsibilities and resources to sub-national entities has to be accompanied (and in many cases preceded) by efforts to build their capacity, especially in the cross-cutting areas of public financial management, human resources management, planning and monitoring and evaluation. The availability of well-trained human resources and the dissemination of modern management systems and result frameworks will be essential to ensure that the increasing resources transferred to sub-national governments are translated into improved services de livered to the population. Furthermore, given that resources are extremely scarce in a country of the level of income of Rwanda, it is paramo unt that capacity building activities, funded by the national government or development partners, are well coordinated and prioritized, taking into consideration the varying needs of entities in different regions of the country and different levels of government. 9. Finally. we firmly believe that strong accountability mechanisms will be fundamental to ensuring that sub-national governments perform their functions in an efficient and effective and responsive way. This involves enhancing government transparency and accountability to citizens, but also improving fiduciary accountability. The overall objective is to ensure that public resources are not only focused on their intended purposes, and generate the expected results, but also that these results are reflective of local priorities and subject to local accountability. To that end, since the beginning of the decentralization process, the Government of Rwanda has placed a strong emphasis o n creating mechanisms for the population to not only elect local government officials, but also to be able to monitor and provide feedback on local government activities. To further enhance that process, we have recently taken two important policy measures. First, we have passed a new Access to Information Law, which we expect will help to enhance public transparency and the accountability of the state (at all levels of Government) to the citizenry. Indeed, the Law provides for the right to access infom1ation possessed by public organs and some private bodies where the public interest in disclosure outweighs privacy considerations. Second, we have taken steps to ensure that at least 80% of the Audit Committees elected by District Councils that we established in al1 30 districts in 201 I, are fu nctioning properly - i.e., having met on a quarterly basis and submitted audit re ports to their respective Councils. We believe this is an important measure to strengthen the audit function in subnational governments, as it helps ensure that audit recommendations are actually implemented by District governments. 60 Requ est for World Ba nk Su pport I0. In the context of Rwanda's strong track record of macroeconomic management and poverty reduction, including through the improvement of service delivery at the sub-national level, the Government has requested World Bank support to consolidate its social achievements and further enhance the policy framework for increasing the effectiveness, efficiency, and responsiveness of local governments. We have requested the World Bank to support the Government in improving the quality of service delivery at the decentralized level by focusing on (i) a strengthened policy framework for decentralization; (ii) capacity development for local government; (iii) improved government accountability and transparency to citizens; and (iv) enhanced fiduciary accountability. We have identified these policy areas based on our decentralization experience and evaluations in the past decade. II. We have made progress in decentralization and public sector reforms, which were supported by previous and ongoing Bank operations including the past Poverty Reduction Support Facility series. Recently, we have adopted the following policy and institutional actions: (i) Adoption of a new decentralization policy that clarifies institutional roles and responsibilities; (ii) Issuance of a Presidential Order establishing the list of fees and other charges levied by decentralized entities and the applicable thresholds; (iii) Finalization of District Capacity Building Plans in in at least 28 Districts; (iv) Publication in the official Gazette of a new Access to Information Law that provides for the right to public information by citizens; and (v) Submission of audit reports for 2012 by at least 25 District Audit Committees to their respective District Councils. These policy and institutional actions are critical for making progress in the above mentioned policy areas. For example, District Capacity Building Plans are a significant departure from the top down and often- uncoordinated interventions in the past decade, to bottom-up interventions that are owned by the Districts and based on a holistic diagnostic tool. 12. Outcome indicators have been identified to measure the progress supported by the operation. Baseline and target values for each year have been established, against which actual values will be measured in the second half of 2014. These indicators will be monitored through Government's own arrangements such as the Common Performance Assessment Framework (CPAF). We expect that the use of Government's own monitoring framework will strengthen it. 13. The Government is strongly committed to financing decentralized public services but is currently dealing with the possibility of having to cut a significant amount of earmarked transfers from the central government to Districts, as a result of the above-mentioned sudden reduction in foreign aid. ln the current fiscal year, in particular, we have experienced a 60% reduction in planned budget support. As a result, the current account deficit has widened from 7.3% in 20 II to I 0.4% in 2012. This has led to 30% decline in international reserves. While the aid shortfall has amounted to II% of the original budget, we have so far been ab le to execute 90% of budgeted expenditures through an increased recourse to domestic borrowing. However, if the current aid shortfall were to be sustained, we would be forced to further cut expenditures, including capital expenditures and certain earmarked transfers from the central government to districts which in our revised FY2012/13 budget we have made contingent on the receipt of additional aid flows. Those contingent expend itures include Rwf 35.2 billion (US$55.6 million) out of Rwf 110.3 billion (US$ 173.8 million) that had been originally budgeted main ly in the areas of agricu ltural development, access to energy, water and sanitation, primary and lower level secondary education, health services and human resource capacity for district and sub-district governments (A nnex 1). We would like to note that the financing from this operation (US$50 million) will allow for the execution of 90% of these human and social development programs through earmarked transfers from the central government to districts during the current fiscal year, in line with the objective of the operation. Earmarked transfers from the central government to districts account for two thirds of districts' revenues and are central to improving service delivery at the local government level. 14. _ _ _ _ __ In compliance with our Ia and practices, we will report on the financial execution of our. budget through audit (March 31, 20 14) and budget execution reports (September 30, 2013), as well 61 as on the results generated through those transfers through An nual Performance Reports (September 30, 20 13), and share the information with the World Bank and othe r Development Partners. 15. The Government of Rwanda stands ready to execute the expe nditure items by the end o f FY2012/ 13. More precisely, we have already prepared contracts for the expenditure items. Upon the availability of financ ing from this operation, we will execute the expenditure items. We w ill periodically update the World Bank on progress. Conclusion In closing, the Government of Rwanda expresses its gratitude to the World Bank for its continued support to the development of Rwanda and reiterates its strong commitment to reduce poverty and foster sustainable growth. T he Government would greatly appreciate the approval o f the proposed financing to assist in the implementation of its policy reform program. 62 Annex 1· SELECTED SOCIALDEVELOPMENT PROGRAMMES EARMARKED TO DISTRICTS AND 2012/13 CONTINGENT EXPENDITURES 2012/2013 REVISED BUDGET 2012/13 CONTINGENT SPENDING EARMARKED TRANSFERS TO DISTRICTS lnUSD (Rwf) (Rwf) 10 INTENSIFICATION AND DEVELOPMENT OF SUSTAINABLE PRODUCTION SYSTEMS (MINAGRI ) 6,949,442,491 2,948,964,520 4,644,039 1001 SUSTAINABLE MANAGEMENT OF NATURAL RESOURCES AND SOIL CONSERVAllON 4,683,203,560 2,201,105 673 3,466,308 10021NTEGRATED SYSTEM OF INTENSIVE AGRICULTURAL AND LIVESTOCK PRODUCllON 2,266,238,931 747,8S8,847 1,177,730 18 WATER AND 5ANITAl10N (MIN INFRA) 8,110,293,908 3,606,302,004 S,679,216 1801 MANAGEMENT OF WATER RESOURCE 160,482,424 28,886,836 45,491 1802 ACCESS TO DRINKING WATER AND ASANITATION 7,949,811,484 3,5n,415 157 5,633,725 19 TRANSPORT (MININFRA) 14,266,513,267 3,994,623,714 6,290,746 1901 DEVELOPMENT & MAINTENANCE OF TRANSPORT INFRASTRUCTURES 14,266,513,267 3,994,623, 714 6,290,746 20 ENE RGY (MININFRA) 4,258,223,217 1362,631,429 2,145,876 20011MPROVEMENTOFACCESS TO ENERGY 4,258,223,217 1,362,631,429 2,145,876 25 PRE-PRIMARY AND PRIMARY EDUCATION(MINEDUC) 6,547,962,698 2,422, 746,198 3,815,348 2502 CAPITATION GRANT 6, 54 7' 962,698 2,422,746,198 3,815,348 26 LOWER LEVEL SECONDARY E .DUCATION (MINEOUC) 9,572,929,508 3,578,978 282 5 636,186 2602 CAPITATION GRANT 3,861,605,652 1,351,561,978 2,128,444 2608 SCHOOL FEEDING 5, 711,323,856 2,227,416,303 3,507,742 311NFORMATION AND COMMUNICAllON TECHNOLOGY (ROB) 802,863,030 160 572 606 252,870 3101 MANAGEMENT SUPPORT 802,863,030 160,572,606 252,870 34 FINANCIAL ACCESSIBILITY TO HEALTH SERVICES(MINISANTE) 9,310,104,925 3,997,372,531 6,295,075 3401 ORGANISATION AND REGULATION OF MUTUELLES INSURANCE SYSTEM 825,613,632 264,196,362 416,057 3402 5UBSIDISAl10N OF HEALTH SERVICES 8,484,491,293 3, 733,176,168 S,879,018 35 GEOGRAPHICAL ACCESSIBILITY TO HEALTH SERVICES(MINISANTE) 4,899,153,078 2,449,576,539 3,857,601 3502 HEALTH EQUIPMENT 4,899,153,078 2,449,576,539 3,857,601 36 QUALITY AND DEMAND FOR SERVICES IN THE CONllROL OF DISEASES(MINISANTE) 15,401,368,092 5,674 191 883 8 935,735 3601 COMMUNITY HEALTH 1,240,000,331 396,825,705 624,922 160611 PERFORMANCE BASED FINANCING HEALTH CENTER (PBF) 7,098,795,970 2,697,542,468 4,248,098 160612 PERFORMANCE BASED FINANCING DISllRICT HOSPITAL (PBF) 2,874,400,000 1,092,272,000 1,720,113 160613 PERFORMANCE BASED FINANCING REFERER HOSPITAL (PBF) 2,889,052,146 1,097,839,815 1,728,882 1606141NFORMAl10N, EDUCATION AND COMMUNICATION FOR HEALTH 1,299,039,645 389,711,893 613,720 38 CHILD RIGHTS PROMOTION AND PROTECllON(MIGEPROF) 822,230,245 241,660,609 380,568 3802 CHILD PROTECTION 782,057,262 226,796,605 357,160 3803 SUPPORTTO THE CHILDREN REHABILITATION CENTERS AND ORPHANAGES 40,172,983 14,864,003 23,408 41 HUMAN RESOURCE CAPACITY 28,244,951,702 4,236,742,755 6,672,036 4101 DISTRICT, SECTOR AND CELL WAGES AND BENEFITS 28,244,951,702 4,236, 742,7S5 6,672,036 42 ENVIRONMENT CONSERVAllON AND PROTECTION 1,187,080,829 617 282 031 972,098 4201 FIGHT AGAINST EROSION 1,187,080,829 617,282,031 972,098 TOTAL 110,373,116,990 35,291,645,101 55,577,394 6 63 A NNEX 14: C OUNTRY AT A G LANCE (I NCLUDES C OUNTRY M AP ) 3/15/13 Sub- Key Development Indicators Saharan Low Rwanda Africa income Age distribution, 2011 (2011) Male Female Population, mid-year (millions) 10.9 875 817 75-79 Surface area (thousand sq. km) 26 24,244 16,584 60-64 Population growth (%) 3.0 2.5 2.1 Urban population (% of total population) 19 36 28 45-49 30-34 GNI (Atlas method, US$ billions) 6.2 1,101 466 15-19 GNI per capita (Atlas method, US$) 570 1,258 571 GNI per capita (PPP, international $) 1,270 2,225 1,378 0-4 10 5 0 5 10 GDP growth (%) 8.3 4.7 6.0 percent of total population GDP per capita growth (%) 5.1 2.1 3.7 (most recent estimate, 2005–2011) Poverty headcount ratio at $1.25 a day (PPP, %) 63 48 48.4 Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 82 69 74.3 Life expectancy at birth (years) 55 55 59 300 Infant mortality (per 1,000 live births) 38 69 63 Child malnutrition (% of children under 5) 12 21 23 250 200 Adult literacy, male (% of ages 15 and older) 75 71 70 150 Adult literacy, female (% of ages 15 and older) 68 54 56 Gross primary enrollment, male (% of age group) 140 103 108 100 Gross primary enrollment, female (% of age group) 143 96 103 50 0 Access to an improved water source (% of population) 65 61 65 1990 1995 2000 2011 Access to improved sanitation facilities (% of population) 55 31 37 Rw anda Sub-Sah aran Africa Net Aid Flows 1980 1990 2000 2011 (US$ millions) Net ODA and official aid 154 288 321 1,032 Growth of GDP and GDP per capita (%) Top 3 donors (in 2010): United States 7 13 23 141 60 United Kingdom 0 1 53 106 40 European Union Institutions 21 36 49 104 20 0 Aid (% of GNI) 12.3 11.3 18.7 18.5 Aid per capita (US$) 30 40 40 97 -20 -40 Long-Term Economic Trends -60 95 05 Consumer prices (annual % change) 7.2 4.2 3.9 5.7 GDP implicit deflator (annual % change) 3.1 13.5 2.8 7.8 GDP GDP per capita Exchange rate (annual average, local per US$) 86.1 83.7 389.7 600.3 Terms of trade index (2000 = 100) .. 78 100 76 1980–90 1990–2000 2000–11 (average annual growth %) Population, mid-year (millions) 5.2 7.1 8.1 10.9 3.2 1.3 2.7 GDP (US$ millions) 1,255 2,550 1,735 6,375 2.2 -0.2 7.9 (% of GDP) Agriculture 45.8 32.5 37.2 31.9 0.5 2.5 4.9 Industry 21.5 24.6 13.6 16.3 2.5 -3.8 9.7 Manufacturing 15.3 18.3 7.0 6.6 2.6 -5.8 7.8 Services 32.6 42.8 49.2 51.7 .. .. 10.0 Household final consumption expenditure 83.3 83.7 93.5 88.7 1.2 1.4 7.4 General gov't final consumption expenditure 12.5 10.1 11.6 9.0 5.2 -1.5 8.2 Gross capital formation 16.1 14.6 13.4 21.4 4.3 2.8 14.7 Exports of goods and services 14.4 5.6 6.3 13.4 3.4 -4.2 12.6 Imports of goods and services 26.4 14.1 24.9 32.5 2.6 6.5 12.6 Gross savings 12.6 11.4 7.3 15.3 Note: Figures in italics are for years other than those specified. .. indicates data are not available. 64 Rwanda Balance of Payments and Trade 2000 2011 Governance indicators, 2000 and 2011 (US$ millions) Total merchandise exports (fob) 69 464 Voice and accountability Total merchandise imports (cif) 308 2,036 Net trade in goods and services -317 -1,289 Polit ical stability Current account balance -101 -463 Regulat ory quality as a % of GDP -5.8 -7.3 Rule of law Personal transfers and compensation of employees (receipts) 7 103 Control of corruption Reserves, including gold 191 1,048 0 25 50 75 100 2011 Country's percentile rank (0-100) Central Government Finance higher values imply better ratings 2000 (% of GDP) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 21.5 25.7 Tax revenue 9.6 13.2 Current expenditure 14.0 15.3 Technology and Infrastructure 2000 2011 Overall surplus/deficit 0.8 -0.7 Paved roads (% of total) .. .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 1 41 Corporate .. .. High technology exports (% of manufactured exports) 1.5 3.4 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 1,289 1,103 Agricultural land (% of land area) 68 78 Total debt service 36 20 Forest area (% of land area) 13.9 18.0 Debt relief (HIPC, MDRI) 953 286 Terrestrial protected areas (% of land area) 9.9 10.0 Total debt (% of GDP) 74.3 17.3 Freshwater resources per capita (cu. meters) 1,092 868 Total debt service (% of exports) 29.5 2.2 Freshwater withdrawal (% of internal resources) 1.6 1.6 Foreign direct investment (net inflows) 8 106 CO2 emissions per capita (mt) 0.08 0.07 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) .. .. Composition of total external debt, 2011 Energy use per capita (kg of oil equivalent) .. .. Short-term, 0 Private, 0 IBRD, 0 Bilateral, 151 IDA, 392 World Bank Group portfolio 2000 2011 (US$ millions) IBRD Other multi- lateral, 428 Total debt outstanding and disbursed 0 0 Disbursements 0 0 Principal repayments 0 0 IMF, 132 Interest payments 0 0 US$ millions IDA Total debt outstanding and disbursed 692 392 Disbursements 37 138 Private Sector Development 2000 2011 Total debt service 11 5 Time required to start a business (days) – 3 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 4.7 Total disbursed and outstanding portfolio 2 31 Time required to register property (days) – 25 of which IFC own account 2 31 Disbursements for IFC own account 0 8 Ranked as a major constraint to business 2000 2011 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 1 Electricity .. 31.8 Tax rates .. 26.9 MIGA Gross exposure – 55 Stock market capitalization (% of GDP) .. .. New guarantees – 43 Bank capital to asset ratio (%) 8.1 11.4 Note: Figures in italics are for years other than those specified. 3/15/13 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 65 29°30'E 30°00'E 30°30'E 31°00'E RWAN D A To Kafunzo 1°00'S Kagitumba SELECTED CITIES AND TOWNS AKARERE (DISTRICT) CAPITALS UGANDA To Kikagati INTARA (PROVINCE) CAPITALS Kag NATIONAL CAPITAL era To 0 10 20 30 40 Kilometers RIVERS Kisoro Nyagatare MAIN ROADS gitumba 0 10 20 30 Miles AKARERE (DISTRICT) BOUNDARIES To Muvumba Kidaho Butaro Kabale N YA G A T A R E Ka INTARA (PROVINCE) BOUNDARIES Lac Burera Lac Volcan Burera Rwanyakizinga INTERNATIONAL BOUNDARIES Karisimbi MUSANZA BURERA Mulindi Gatunda 1°30'S (4519 m) Muhoza Lac Kirambo 1°30'S Ruhondo Cyeru Lac Busogo G ICUMBI Gabiro Mikindi Kinihira 29°00'E G AT S I B O To Mukamira NORTH Byumba Gatsibo Rutshuru RUBAVU N YA B I H U Nemba Gakenke EAST Vir To Rubavu Kagali Lac Sake Karago PROVINCE Kinyami Kabarore Hago Gisenyi Nyondo un Tare Kiziguru PROVINCE ga Muramba GAKENKE Lac RULINDO Kivumba D E M . R E P. Kabaya Ngaru Muhura Rukara Lac To Bugene M Mbogo Lac Ihema Ny OF ts. Ngororero Muhazi ab RUTSIRO Shyorongi K AY O N Z A ar CONGO La c K ivu NGORORERO go GASABO TA N Z A N I A no Murunda WEST KIGALI CITY Mukarange Gihingo Ndera Gikoro Rwamagana OVINCE P RRutsiro Bulinga Rugenge KIGALI Rukoma Kicuro Bicumbi Kigabiro Lac 2°00'S MUHANGA Nasho 2°00'S Mabanza NYARUGENGE KICUKIRO RWAMAGANA Kibuye Nyamabuye Rubengera KAMONYI Lac Gitarama Lac Kigarama Lac Mpanga KARONGI Mugesera Cywambwe Bugesera Nyamata Kibungo Gishyita RUHANGO Rilima Bwakira NGOMA KIREHE Ngoma Gashora Sake Masango Ruhango Kirehe BUGESERA Gatagara N YA N Z A Kagano SOUTH Nyanza Busasamana Lac Cyohoha Ka g era Rwesero N YA M A G A B E Sud Lac To Kamembe N Y A M A S H E K E PROVINCE Rusatira Rweru Lusahanga Gasaka Karaba Cyangugu HUYE To 2°30'S To Kitabi Gikongoro Karama Walangu Rwumba Kirundo GISAGARA RUSIZI To Ngoma Nyya-Ghezi Ruramba Butare Ndora Kibeho RWANDA This map was produced by yaru the Map Design Unit of The N YA R U G U R U Kanzi an World Bank. The boundaries, Bugarama Munini Kigembe To BURUNDI Ak colors, denominations and Cibitoke any other information shown To IBRD 33471R2 on this map do not imply, on the part of The World Bank Cibitoke Group, any judgment on the To To legal status of any territory, JUNE 2008 Kayanza Ngozi or any endorsement or acceptance of such boundaries. 29°00'E 29°30'E 30°00'E 30°30'E