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The World Bank Group in Mozambique, Fiscal Years 2008–21

Chapter 5 | Support for Addressing Weak Governance

Highlights

The World Bank contributed to improved public financial management by increasing coverage of financial management information systems and strengthening internal and external control functions at the central level. However, World Bank support for budget preparation and execution did not enhance budget credibility.

Despite clear weaknesses in public investment management, it was only in the wake of the hidden debt crisis in 2016 that the World Bank made concerted efforts to intensify support. Despite progress “on paper,” the institutionalization of public investment management reform is lagging.

World Bank support for improving debt management and reforming state-owned enterprises had a modest impact. Support was focused on building technical and institutional capacity (which were legitimate constraints), but engagement did not adequately take into account the context of weak governance. Tangible progress was made only when this context was taken seriously into account.

The World Bank was not effective in supporting the establishment of a coherent decentralization policy framework, with progress affected by political economy constraints. Implementation of public financial management reforms at the subnational level faced significant challenges, but these were successfully addressed using Program-for-Results financing. World Bank–supported projects contributed to tangible improvements in municipal revenue collection.

The World Bank contributed to the establishment of a regulatory framework for managing the extractives sector and complying with transparency standards. However, World Bank support for the implementation of a fiscal rule and a sovereign wealth fund for managing revenues from the extractives sector did not lead to tangible outcomes.

World Bank support to improve governance in Mozambique focused on five areas: (i) public financial management (central government); (ii) public debt management; (iii) SOE reform; (iv) decentralization; and (v) transparent and effective management of extractives.

World Bank support for improving public financial management focused appropriately on priorities identified in key diagnostics. Using the 2005 Public Expenditure and Financial Accountability (PEFA) assessment and the government’s second Action Plan for the Reduction of Absolute Poverty as a starting point, the CPS FY08–11 identified three strategic priorities: (i) establishing an integrated financial management information system; (ii) enhancing budget credibility through support for budgeting capacity at all levels and better alignment between budget expenditures and policy priorities; and (iii) strengthening the external and internal audit functions. These priorities were identified as critical for improving the use of public resources and reducing fiduciary risks in Mozambique. At the beginning of the evaluation period, the World Bank’s public financial management support focused on improving budget credibility by building budgeting capacity at the central and subnational levels and rolling out an integrated financial management information system called Electronic State Financial Administration System (e-SISTAFE). The World Bank also emphasized downstream public financial management aspects such as strengthened internal and external controls and compliance with auditing and accounting standards. Later in the evaluation period, in the wake of the hidden debt crisis, the World Bank increased its support for public investment management (PIM), which had previously received little attention.

Integrated Financial Management Information System

The World Bank contributed to increasing the coverage of Mozambique’s integrated financial management information system, known as e-SISTAFE. At the beginning of the evaluation period, Mozambique’s e-SISTAFE had low coverage, particularly among autonomous institutions, district governments, and line ministries at the central and provincial levels (World Bank 2007). The World Bank sought to expand coverage via prior actions in the PRSC series, including by rolling out e-SISTAFE to ministries and requiring increased coverage of budgetary expenditures implemented through e-SISTAFE. The World Bank also provided technical assistance through the Public Sector Reform Project (FY03–10) and the National Decentralized Planning and Finance Program Project (FY10–15). The Public Sector Reform Project rolled out e-SISTAFE to all ministries at the central and provincial levels, in 50 out of 128 districts, and in 29 autonomous institutions, thus meeting the project targets. In 2010, 97 percent of the budget (goods and services) of ministries at the central and provincial levels was allocated through the system (World Bank 2014d). The National Decentralized Planning and Finance Program Project supported the implementation of e-SISTAFE at the district level. By the end of FY14, 91 districts had closed their financial processes in e-SISTAFE with project support, falling short of the target of 128 districts (World Bank 2016d). By the end of the evaluation period, e-SISTAFE covered planning and budgeting, budget execution, and budget reporting at the central, provincial, and district levels (IMF 2019). In 2021, e-SISTAFE was considered by the International Monetary Fund to be comprehensive and adequate for enabling the government to produce fiscal reports in a timely manner (IMF 2021, 26).

Budget Credibility

World Bank support to improve budget preparation and execution did not enhance budget credibility. When the composition of expenditure varies considerably in relation to the original budget, the budget is no longer a useful statement of intent with regard to government policies. The variation was 16.7 percent in 2007, 14.5 percent in 2008, and 16.6 percent in 2009, which resulted in a D score for the PEFA indicator measuring this variation (PI-2: Composition of expenditure out-turn compared with original approved budget). To address this challenge, the World Bank supported planning and budgeting capacity at both the central and local levels through a mix of investment and policy lending. The Decentralized Planning and Finance Project (FY04–09) supported training to increase planning and budgeting capacity at the provincial and district levels. By the end of the project, management reported that all 128 districts had formally adopted the project-supported strategic and annual planning and budgeting approaches. IEG rated the overall outcome of the project as moderately satisfactory. The National Decentralized Planning and Finance Program Project (FY10–15) financed training and technical assistance at the central and provincial levels to strengthen national systems in support of decentralized planning and finance and help districts prepare high-quality budgets. IEG rated the overall outcome of the project as satisfactory. To reduce deviations between budget plans and execution for priority sectors, PRSCs 3 and 4 included prior actions that required a minimum level of actual expenditures for priority sectors, while PRSC 5 had a prior action requiring the alignment of the expenditures with the medium-term expenditure framework. By the end of PRSCs 3 through 5, the share of actual expenditures for priority sectors was 62 percent, falling short of the 65 percent target. Although the alignment of expenditures with the framework was achieved for 2008 and 2009, the result was reversed by the end of PRSCs 3 through 5 in 2010. This World Bank support did not result in improved budget credibility, with the PEFA score remaining at D and presenting an even greater deterioration, as the variation was 13 percent in 2012, 27 percent in 2013, and 28 percent in 2014. This high deviation is explained, in part, by a legal framework that allows budgetary reallocations without the need for legislative approval and by a sizable donor-funded external component of the budget. However, the root causes are more likely to be associated with persistent weaknesses in planning and budgeting processes at the institutional level (PEFA 2016). By the end of the evaluation period, this PEFA score remained at D (PEFA 2020).

Internal and External Audit Function

The World Bank supported internal and external audit functions through a mix of analytical and advisory support and investment and policy lending. The 2006 PEFA indicated that the government’s external audit function required significant attention, its internal controls were weak, and its adherence to international accounting standards was nonexistent (World Bank 2007, 17). To address these shortcomings, the PRSC series had prior actions requiring the adoption of International Financial Reporting Standards; the establishment of internal control units and an expansion of internal audits; and increases in the coverage of external control over the state budget and financial audit reports. To reinforce these prior actions, the National Decentralized Planning and Finance Program Project (FY10–15) sought to strengthen the internal and external control functions by enhancing the capacity to carry out audits. The World Bank also provided nonlending technical assistance (Introduction of Risk-Based Internal Audit FY12) to improve internal audit methodologies, specifically for rolling out a risk-based audit approach.

World Bank support contributed to progress in the internal and external controls function at the central level. World Bank support contributed to improving the external audit function’s (Tribunal Administrativo) adherence to International Standards for Supreme Audit Institutions and to increasing audit coverage of public entities and the state budget, reaching 51.1 percent of the state budget by 2018, up from a 26 percent baseline in 2007 (PEFA 2020). These results were sustained over time: by 2021, the International Monetary Fund Fiscal Transparency Evaluation deemed the Tribunal Administrativo’s external audit function as good (IMF 2021), although there were still delays in the implementation of audit recommendations by public entities and weaknesses in the institutional arrangement for ensuring the Tribunal Administrativo’s independence from the central government (PEFA 2020). With respect to the internal audit, World Bank support contributed to increasing the share of central and provincial-level bodies with internal control units from 25 percent in 2007 to 100 percent in 2011 (World Bank 2014e), and audited public entities were implementing recommendations issued by the Inspectorate General of Finance and the Internal Control Units (World Bank 2018f). By the end of the evaluation period, the PEFA score for internal audit coverage had increased from a B (PEFA 2006) to an A (PEFA 2020).

Public Investment Management

PIM became a high priority for both the World Bank and the government in the wake of the hidden debt crisis, which had demonstrated shortcomings in PIM. For much of the evaluation period, PIM was not a strategic priority for the World Bank’s operational work, even though it had been flagged in World Bank and International Monetary Fund analytical work as an area that required attention, given rising public investment (Dabla-Norris et al. 2011; World Bank 2014b). Deficiencies were documented in a 2015 PIM Assessment (box 5.1). PIM weaknesses were recognized in the World Bank’s 2014 Public Expenditure Review and the 2016 SCD (World Bank 2016c, 126). The 2015 PIM Assessment was not referred to as an analytical underpinning for the design of PRSCs 9 through 11. Neither the FY08–11 CPS nor the FY11–16 CPS made any reference to shortcomings in PIM, which only came to the forefront in the aftermath of the hidden debt crisis in 2016, when serious deficiencies in Mozambique’s PIM system were exposed. Improved PIM was not included as an explicit strategic objective until the FY17–21 CPF.

Box 5.1. 2015 Public Investment Management Assessment Results

In 2015, before the hidden debt crisis, the International Monetary Fund carried out an assessment of Mozambique’s public investment management planning and appraisal systems and found that their quality was low. The assessments found evidence of weak financial planning for capital projects and an overall weak process for selecting and assessing projects, meaning that project appraisal and selection procedures did not ensure that projects were vetted and selected based on policy or efficiency criteria. In addition, the assessment found that the investment program was being executed in the absence of a strategic capital or infrastructure development plan, which left the capital budget anchored only in broad policy documents. Project implementation and monitoring systems were also found to be weak. The assessment found that contracts were not always awarded based on competitive transparent biddings and that an integrated system for parallel monitoring of financial and physical progress of projects was missing.

Source: IMF 2015.

Despite World Bank support to improve regulations and technical conditions for PIM, few improvements were achieved before the hidden debt crisis. The World Bank supported PIM capacity building through a mix of analytical work and investment and policy lending. With an overall IEG outcome rating of moderately satisfactory, the Integrated Growth Poles Project (FY13–20) trained 510 public officials on project planning, proposal evaluation, and implementation monitoring (World Bank 2021h). PRSCs 9 through 11 included prior actions to develop an appraisal and evaluation manual for public projects (PRSC 9, FY14), approve a public investment plan (PRSC 10, FY15), and mandate a cost-benefit analysis (PRSC 10, FY15) and viability studies (PRSC 11, FY16) for all public projects above $50 million. As a result of these prior actions, at the end of the program, all public investment projects included in the government’s public investment plan were to have been appraised and evaluated, but the target was not met. The Implementation Completion and Results Report for PRSCs 9 through 11 acknowledged that capacity constraints were underestimated by the World Bank, leading to the inclusion of targets that turned out to be unachievable. In hindsight, the World Bank relied too heavily on DPOs that were not well suited for addressing longer-term capacity issues. This pattern, whereby the World Bank relied too heavily on DPOs to support PIM, has been identified as a broader issue in IEG’s recent evaluation World Bank Support for Public Financial and Debt Management in IDA-Eligible Countries (World Bank 2021p).

Once the World Bank halted budget support in 2016 after the hidden debt crisis, government demand for PIM support increased. In response, the World Bank launched an analytical and advisory program funded by the Department for International Development (UK) to strengthen public investment, debt, and fiscal risk management. This program supported a comprehensive PIM reform plan to establish an integrated system and guide capacity-building activities. With support from this program, the government continued to develop tools and methodologies needed for the functioning of a PIM system and trained public officials in their use. In addition, the PIM system started to be linked with the budget planning cycle and the medium-term fiscal framework; by 2020, 19 investment projects had been formulated and appraised using program-supported methodologies (World Bank 2019d). Finally, with the resumption of budget support, the COVID-19 Response Project included a prior action requiring the approval of a PIM regulatory framework that established the rules and main stakeholders of the PIM system. Overall, World Bank support has contributed to significant advancements on paper, but there are de facto shortcomings. By 2020, there was a detailed manual for the identification, formulation, and evaluation of investments. However, the 2020 PEFA found that individual projects lacked the financial and economic analysis recommended by the manual (PEFA 2020). Likewise, the 2020 PEFA found no evidence of adequate project monitoring and controls to ensure the fiduciary integrity of the projects. Overall, the 2020 PEFA indicator measuring PIM quality (PI-11) rated Mozambique’s system a D, down from a baseline of D+ in 2016 (PEFA 2020; PEFA 2016).

Public Debt Management

Before the hidden debt crisis, World Bank support to improve debt management was modest, despite evidence indicating that Mozambique had serious shortcomings. The 2008 Debt Management Performance Assessment (DeMPA) concluded that Mozambique did not meet the minimum requirements for any aspect of external borrowing, loan guarantees, debt strategy, debt administration, or debt reporting. Despite these findings, debt management did not become a strategic priority in Bank Group–supported strategies until the end of the evaluation period. The FY08–11 CPS indicated that Mozambique’s debt was sustainable because the country had received debt relief under the Heavily Indebted Poor Countries Initiative in 2001 and the Multilateral Debt Relief Initiative in 2006 (World Bank 2007).

Debt management was also not considered a priority in the FY12–16 CPS,1 although PRSC 9 (FY14) and PRSC 10 (FY15) included prior actions requiring the approval of a Medium-Term Debt Management Strategy (MTDS) for the period 2012–15 and the implementation of an annual domestic borrowing plan based on the MTDS. PRSC 11 (FY16) included a prior action to support a new MTDS for the period 2015–18 and another prior action requiring the Ministry of Economy and Finance to create a Fiscal Risk Unit.

The contribution of PRSCs 9 through 11 to improving debt management was negligible. There was no progress in the publication of debt reports or compliance with annual domestic debt plans, and although the Ministry of Economy and Finance established a Fiscal Risk Unit, the unit did not produce adequate fiscal risks statements for the 2016 and 2017 budget laws (World Bank 2018f). The Fiscal Risk Unit remains in place, although some development partners interviewed by IEG were doubtful about the unit’s capacity to play a significant role in monitoring fiscal risks and influencing the government’s debt strategy.

Only after the hidden debt crisis exposed the country’s debt management weaknesses did debt management and monitoring of fiscal risks become a strategic priority for the World Bank, with the FY17–21 CPF including explicit debt management–related objectives. These objectives sought to improve debt sustainability by improving investment transparency and strengthening fiscal risk management (World Bank 2017b). To support the CPF’s objectives, the World Bank launched an analytical and advisory program designed to address important regulatory gaps for managing debt and fiscal risks stemming from SOEs. This program included an update to the 2008 DeMPA; the elaboration of a Debt Management Reform Plan; and an analytical and advisory program to strengthen public investment, debt, and fiscal risk management (table 5.1). With this support, the government approved new regulations to strengthen the management of public debt and guarantees in December 2017 and increased its capacity to analyze debt sustainability and create a medium-term debt strategy. In 2018, the publication of fiscal risk statements resumed, with a revamped report prepared annually to inform budget preparation. Although the practice was resumed, it only met minimum standards with respect to including an assessment of the overall financial performance or quasi-fiscal activities of the public corporations sector (IMF 2021).

Although it has been slow, there has been tangible progress toward increased debt transparency. This slow progress was partly because the hidden debt situation made debt analysis and reporting on the full stock of debt and contingent liabilities a sensitive issue (World Bank 2019d). By 2019, there were still significant shortcomings in transparency, with annual debt reports still not published regularly and only including information on central government direct and guaranteed debt (World Bank 2020b). With the resumption of budget support, the World Bank included a prior action to increase debt transparency by requiring the mandatory publication of annual reports with coverage of SOEs and liquefied natural gas debt. This prior action, which was one of three performance and policy actions under the Sustainable Development Finance Policy of the International Development Association (IDA), was found by IEG to be relevant for addressing shortcomings in transparency, a key driver of debt distress in Mozambique (World Bank 2021b). This requirement was incorporated into the 2021 Public Financial Management Act, which now mandates the publication of annual debt reports covering the SOE sector.

Table 5.1. World Bank Debt Management Engagements in Mozambique

Project Name

Fiscal Year

Debt Management Performance Assessment 2008

2008

Medium-Term Debt Management Strategy

2011

Medium-Term Debt Management Strategy

2011

PRSC 9

Prior action: Council of Ministers has approved the Medium-Term Debt Management Strategy (2012–15).

2014

PRSC 10

Prior action: Ministry of Economy and Finance has implemented the first annual domestic borrowing plan, prepared based on the Medium-Term Debt Management Strategy.

2015

PRSC 11

Prior action: Ministry of Economy and Finance has prepared the recipient’s Medium-Term Debt Management Strategy for 2015–18.

Prior action: Ministry of Economy and Finance has created a fiscal risks unit to better manage fiscal risks.

2016

Debt Management Performance Assessment 2017

2017

Debt Management Reform Plan

2018

Support to Strengthen Public Investment, Risk, and Debt Management

2018

Source: Independent Evaluation Group.

Note: PRSC = Poverty Reduction Support Credit; SOE = state-owned enterprise.

For most of the evaluation period, World Bank support had a modest impact on improving debt management in Mozambique. Progress in improving debt management between 2008 and 2017 has been marginal and can be seen by comparing the evolution of DeMPA scores (appendix E). To some extent, this progress reflected a focus of World Bank support on technical and institutional capacity building. Although this focus may have been a necessary condition for improving outcomes, governance shortcomings also needed to be addressed to have impact in the field. Although these were generally identified as risks to relevant operations, mitigating these risks was not at the forefront of operational design (World Bank 2018f, 38). DPO prior actions focused on disclosure of medium-term debt strategies and debt and fiscal reports. More of a governance lens would have focused on establishing ex ante controls and borrowing limits for the issuance of debt, an area in which Mozambique remained weak throughout most of the evaluation period. Only toward the end of the evaluation period did the World Bank move to this approach, with the leveraging of a performance and policy action under IDA’s Sustainable Development Finance Policy, which required the adoption of a zero nonconcessional borrowing limit on external public and publicly guaranteed debt for FY21. Finally, despite widely recognized synergies among borrowing and the quality of public investment, support for debt management was not systematically accompanied by efforts to improve PIM for most of the evaluation period. This lack of coordination in Mozambique is consistent with the findings from the recent IEG evaluation World Bank Support for Public Financial and Debt Management in IDA-Eligible Countries (World Bank 2021p), which found that synergies between different public financial and debt management pillars remain underexploited in many IDA countries.

State-Owned Enterprises Reform

Until 2014, support for SOE reform focused on improving business and operations management at the enterprise level and facilitating compliance with the Extractive Industries Transparency Initiative (EITI) in the extractives sector. Although there was support for SOEs, this was not a priority in either the FY08–11 CPS or the FY12–16 CPS. Support was focused in the energy sector, whereby the World Bank sought to improve business and operations management through infrastructure rehabilitation and capacity strengthening for the electricity company (Electricidade de Moçambique), the oil company (Empresa Nacional de Hidrocarbonetos), and the mining company (Empresa Moçambicana de Exploração Mineira). In addition, through a mix of investment and policy-based lending, the World Bank provided support for improving corporate governance, with the aim of facilitating compliance with the EITI.

When fiscal risks from SOE operations became evident, the World Bank pivoted to providing support for tightening the legal framework at the national level, but negligible results were achieved. Midway through the implementation of PRSC 9 (FY14), fiscal risks became evident when EMATUM, a government-owned fishing company, issued publicly guaranteed bonds with a total value of $850 million. Concerns about transparency of fiscal risks were documented in the Implementation Status and Results Report for PRSC 9. In response to these concerns, PRSC 10 (FY15) sought to tighten the SOE legal framework, with a prior action requiring the approval of implementing regulations for the public enterprises law. The prior action was to provide the Ministry of Economy and Finance with the legal basis required to collect better information on SOEs, a potential source of fiscal risks. In addition, the DPO series (from PRSC 10) increased its focus on managing fiscal risk by strengthening debt and fiscal risk reporting and the scrutiny of public investment proposals. But these prior actions, which emphasized technical solutions, reflected an insufficient understanding of the political barriers to achieving full fiscal transparency. In this event, these measures were insufficient, and overall, PRSCs 9 through 11 did not adequately identify or mitigate risks to the macroeconomic framework stemming from nontransparent SOE borrowing. Moreover, the World Bank did not take strong remedial action when the $850 million state-guaranteed loan was disclosed, and it continued with the remainder of the DPO series with only a light refocus on SOEs. Overall development outcome and World Bank performance for PRSCs 9 through 11 were rated as unsatisfactory by IEG.

Against the backdrop of the hidden debt crisis in 2016, SOE governance became a government and World Bank priority, and tangible progress was achieved. In response to government demand, the World Bank launched an analytical and advisory program to strengthen public investment, debt, and fiscal risk management in August 2016. With support from this program, the government approved a new legal framework for SOEs in 2018 (law) and 2019 (regulations), which strengthened oversight, corporate governance, and performance management. The government also tightened control over SOE borrowing by requiring a more stringent approval process. With the resumption of budget support in 2020, the World Bank further advanced SOE transparency with the inclusion of prior actions requiring (i) the mandatory annual publication of the financial statements of the national hydrocarbons company (Empresa Nacional de Hidrocarbonetos), and (ii) the publication of a credit risk assessment framework for SOEs from 2019 onward. The latter requirement, which was also a performance and policy action under IDA’s Sustainable Development Finance Policy, has been incorporated into the 2021 Public Financial Management Act, which mandates the publication of annual fiscal risk statements that contain SOE credit risk reports.

On balance, World Bank interventions were only effective when control of corruption and SOE reform became government priorities. This finding is consistent with what IEG found in State Your Business! An Evaluation of World Bank Group Support to the Reform of State-Owned Enterprises, FY08–18 (World Bank 2020l). This evaluation found that control of corruption is a country characteristic strongly associated with SOE reform success. In the case of Mozambique, there was low appetite to address corruption before the hidden debt crisis. In addition, many of the factors that the IEG evaluation found could mitigate the negative effects of weak control of corruption were not present—namely, client commitment to SOE reform and strong institutional capacity and coordination. Attention to the legal framework at the national level only emerged in earnest when fiscal risks mounted on the heels of the $850 million state-guaranteed EMATUM loan. This support at the national level achieved negligible results. Once the hidden debts were revealed, tangible progress was made as the appetite for increased control of corruption increased and a compelling case for SOE reform was made.

Decentralization

World Bank support sought to alleviate impediments to successful decentralization. Mozambique’s second Action Plan for the Reduction of Absolute Poverty (PARPA II) 2006–09 conceived of decentralization as a means to improve service delivery and thereby contribute to poverty reduction. It was also seen as a means to improve accountability by bringing the government closer to the people. At the start of the evaluation period, the World Bank identified two challenges to decentralization (World Bank 2003, 2007). First, subnational entities lacked the capacity to perform basic government functions such as public financial management and revenue collection and administration. Second, intergovernmental fiscal transfers were inequitable across provinces, with some provinces (for example, Nampula and Zambezia) receiving lower fiscal transfers per capita than the rest of the country (World Bank 2016c, 4). To address these key challenges, the World Bank focused on (i) establishing a policy framework for decentralization and intergovernmental fiscal transfers, and (ii) building subnational capacity through support for basic government functions, such as public financial management and revenue collection and administration.

The World Bank’s decentralization approach built on lessons learned from previous decentralization support in the country. The World Bank’s approach drew on four lessons that were reflected in the mix of investment and policy lending that supported decentralization during the evaluation period. The first lesson concerned the need to build subnational administrations’ capacity as a precondition for more effective delivery of services. The second lesson involved the use of small infrastructure investments as a means for providing hands-on training for subnational administrations. The third lesson was about the importance of simultaneously building upward and downward accountability approaches to strengthen the accountability of subnational administrations to citizens. The fourth lesson involved the importance of using a two-pronged approach to decentralization that could simultaneously focus on both policy progress and subnational capacity but could be flexible enough to be redirected to the latter when policy evolution was slow or came to a stop temporarily.

The World Bank provided support for the articulation of a decentralization framework that, in the end, was not pursued by the government. As part of the project design, the Decentralized Planning and Finance Project (2003–09) financed an intergovernmental fiscal relations study that laid out options for transferring responsibilities from the central and provincial levels to the district level. The study sought to inform the preparation of a decentralization policy framework, which would define the responsibilities of different levels of government, the intergovernmental fiscal architecture, and the relation between sectors and subnational administrations. In addition, PRSCs 3 through 5 had a trigger foreshadowing the completion of a national decentralization strategy that would clarify the responsibilities of various levels of the state, the fiscal intergovernmental architecture, and the relation between the planning and execution on the part of the sectors and local administrations. When the government did not meet the timeline for the preparation of the national decentralization strategy, the World Bank dropped this trigger from PRSC 4. The World Bank justified this decision on the grounds that “political economy questions surrounding the issue [were] not yet well understood” (World Bank 2010b, 11).

In the absence of government buy-in, the World Bank backed away from lending support but remained engaged through analytical and advisory services. During this period, the World Bank maintained a dialogue with the government on decentralization. This included a Policy Note on intergovernmental fiscal transfers that documented the weaknesses in the fiscal transfer system and laid out options for improving its fairness, equity, and transparency (Grandvoinnet et al. 2018). In 2018, a constitutional change brought about a new round of decentralization reforms, which were seen by the government, the World Bank, and development partners as key to the restoration of peace and stability in the country (World Bank 2020c, 2020g). This work led to a new government request for World Bank support. The World Bank responded with the National Urban Development and Decentralization Project (2020–25), which provides a mix of technical assistance and capacity-building support to develop a legal and regulatory framework, clarify the roles and competencies of the different government levels for better local service delivery, and establish a coherent intergovernmental fiscal transfers system through more transparent, needs-based, and predictable transfers. According to World Bank staff, the project was making “satisfactory” progress toward the achievement of its objectives.

Building Subnational Capacity

Public Financial Management

Early in the evaluation period, the World Bank provided considerable and generally effective investment lending support to strengthen subnational public financial management. Improving budget planning at the district, provincial, and municipal levels was one of the priorities in the FY08–11 CPS and was supported through three investment projects (World Bank 2007). The Public Sector Reform Project (2003–09) provided support for rolling out e-SISTAFE to 50 out of 128 districts though the achievement of the overall project objective to help the government restructure public service for decentralized service delivery. This project was independently assessed as moderately satisfactory (World Bank 2014d). The Decentralized Planning and Finance Project (2003–09) sought to improve the institutional performance of district administrations to plan and manage small infrastructure investments in response to community demands. The project’s overall outcome rating was satisfactory (World Bank 2014a). The National Decentralized Planning and Finance Program (2010–15) sought to improve the capacity of local governments to manage public financial resources for district development in a participatory and transparent manner. At project closing, the overall outcome rating was moderately satisfactory. Meanwhile, at the municipal level, the ProMaputo Program strengthened the institutional capacity and service delivery of the Maputo Municipal Council with an overall outcome rating of moderately satisfactory (World Bank 2020e).

Despite generally positive project ratings, implementation of public financial management reforms at the subnational level faced significant challenges. In 2015, authorities acknowledged that there was a gap between subnational public financial management rules and actual practices and that, for this reason, the impact on service delivery had been minimal (World Bank 2014c). The Mozambique Public Financial Management for Results Program (2014–19) was the World Bank’s attempt to help bridge gaps in public financial management implementation and address service delivery underperformance. According to interviews with World Bank staff, the Program-for-Results instrument was more effective for addressing implementation gaps than for investment projects. IEG rated the project’s overall outcome as satisfactory in light of evidence that the project had bridged gaps in public financial management implementation and improved service delivery in the health and education sectors (World Bank 2020d).

Subnational Revenue Mobilization

Municipalities’ limited capacity to collect revenue affected the decentralization process in Mozambique. In 2005, taxes were paid on only 5 percent of Maputo’s properties because of the city’s lack of an up-to-date property cadastre (World Bank 2020e). Maputo also lacked the means to levy and collect other municipal taxes and fees. This hindered Maputo’s and other municipalities’ ability to deliver essential public services.

World Bank–supported projects contributed to tangible improvements in municipal revenue collection. Between 2008 and 2017, World Bank support for the ProMaputo Program resulted in increased municipal revenue through improved property tax management. More than 33,000 land property titles were issued, leading to a sixfold increase in the number of property taxpayers and a 281 percent increase in revenues (World Bank 2020e). Beyond Maputo, the World Bank provided support for local revenue enhancement to other municipalities through the Cities and Climate Change Project between 2012 and 2021. As a result, 20 municipalities implemented land registries that contributed to increases in municipal own-source revenues and in the share of municipal income coming from own-source revenue (World Bank 2021a).

Extractives

As extractives rose in economic importance after the discovery of gas deposits in 2010, the World Bank responded with a program to promote transparent, inclusive, and effective management of the extractives sector. Exploration in the Rovuma Basin in 2010 confirmed the existence of large gas deposits. Given the potential game changer that these deposits represented, the government requested World Bank support to carry out governance reforms of its mining and natural gas sectors to address the economic and social impacts of extractives development. In response, the FY12–16 CPS included improving transparency in the extractives sector as an objective. This objective was to be achieved through compliance with the EITI and supported with a mix of analytical work and investment and policy lending (appendix F). The FY12–16 CPS envisaged support for (i) establishing a legal, policy, and contractual framework for attracting and securing large private investments; (ii) strengthening the government’s role as a supervisory authority, enforcer, and participant in the extractives sector; (iii) improving fiscal design to manage revenue volatility and managing and distributing revenues; (iv) helping to identify and implement policies to ensure that the extractives sector contributes to the country’s economic growth and socioeconomic development; and (v) building government capacity and promoting policies to minimize the social and environmental costs associated with the development of the extractives sector (World Bank 2012a).

The World Bank was largely successful in supporting the establishment of a regulatory framework for managing the extractives sector and complying with transparency standards. The PRSC series and the Mozambique Mining and Gas Technical Assistance Project (2013–22) helped the government prepare and approve laws and regulations for the mining and hydrocarbons sectors (appendix F). This support contributed to the government becoming compliant with the EITI in 2012. By 2020, the mining and petroleum sectors’ legal frameworks were clear, public, and easily accessible, and they covered all stages of upstream exploration and extraction (IMF 2021). As of 2022, the Mozambique Mining and Gas Technical Assistance Project was making satisfactory progress toward the achievement of its objectives.

In contrast, the World Bank’s contributions to improving governance in other areas of the extractives sector have not had much success. The results of efforts to design and implement a fiscal rule for managing liquefied natural gas revenue volatility was modest to negligible; no fiscal rules or targets were officially adopted by the government. Likewise, policy dialogue proposing the use of a sovereign wealth fund to manage revenues from the extractives sector has not produced concrete outcomes (World Bank 2020f, 40).

  1. The fiscal years 2012–16 Country Partnership Strategy noted that the International Monetary Fund and the World Bank had upgraded Mozambique to a higher-capacity country with regard to nonconcessional borrowing capacity because of improvements to the country’s medium-term debt strategies and the government’s completion of an annual debt sustainability analysis (World Bank 2012a).