Document of The World Bank Report No: ICR1639 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-74160) ON 4 CREDITS IN THE AMOUNT OF US$ 210 MILLION EQUIVALENT TO THE REPUBLIC OF MAURITIUS FOR A PROGRAMMATIC DPL 1-2-3-4 SERIES May 25, 2012 Poverty Reduction and Economic Management 1 Africa Region Government Fiscal Year January 1 – December 31 (starting 2010) July 1- December 31 (2009) July 1 – June 30 (prior to July 2009) CURRENCY EQUIVALENTS (Exchange Rate Effective as of August 27, 2009) Currency Unit = Mauritius Rupee US$1.00 = Rs.32.65 Weights and Measures Metric System ACRONYMS and ABREVIATIONS AAA Analytic and Advisory Activities MOFED Ministry of Finance and Economic AfDB African Development Bank Development BOI Board of Investment MRA Mauritius Revenue Authority BOM Bank of Mauritius MTEF Medium Term Expenditure Framework CEB Central Electricity Board NEF National Empowerment Foundation CEM Country Economic Memorandum NLTPS National Long-Term Perspective Study DBM Development Bank of Mauritius NPC National Pay Council DDO Deferred Drawdown Option NTB Non-Tariff Barriers DPL Development Policy Loan NTMs Non-Tariff Measures DPO Development Policy Operation PBB Program Based Budgeting DPs Development Partners PDO Program Development Objectives EAP Eradicating Absolute Poverty PFM Public Financial Management EPZ Export Processing Zone ROSC Report on the Observance of Standards ESW Economic Sector Work and Codes ICR Implementation Completion and SAFE South African Far East Cable Results Report SEHDA Small Enterprise and Handicraft ICT Information and Communication Development Authority Technologies SMEs Small Medium Enterprises ICTA Information and Communication SMEDA Small and Medium Enterprise Technologies Authority of Mauritius Development Authority IMF International Monetary Fund SMSTs Sector Ministry Support Teams IPLCs International Private Leased Circuits WMA Waste Management Authority MBGS Mauritius Business Growth Scheme ZEP Zones d‟Education Prioritaires MFA Multi-Fiber Agreement Vice President: Makhtar Diop Country Director: Haleh Z. Bridi Sector Manager: John Panzer Task Team Leader: Rafael Munoz Moreno ICR Team Leader: Sawkut Rojid This ICR was produced with contributions and support from Rafael Munoz (Senior Economist, AFTP1), Alain D‟Hoore (Lead Economist, AFTP1), Zhanar Abdildina (Senior Operations Officer), Khurshid Noorwalla (Team Assistant), and Wenda Rabot (Team Assistant). The team thanks Fernando Blanco for peer reviewing the document. REPUBLIC OF MAURITIUS IMPLEMENTATION COMPLETION AND RESULTS REPORT CONTENTS Data Sheet 5 A. Basic Information 5 B. Key Dates 5 C. Ratings Summary 6 D. Sector and Theme Codes 6 E. Bank Staff 7 F. Results Framework Analysis 7 1. Program Context, Development Objectives and Design: 13 1.1 Context at Appraisal 15 1.2 Original Program Development Objectives (PDO) and Key Indicators 16 1.3. Revised PDO 16 1.4. Original Policy Areas Supported by the Program 16 1.5. Revised Policy Areas 19 1.6. Other significant changes 19 2. Key Factors Affecting Implementation and Outcomes 19 2.1 Program Performance: 19 2.2 Major Factors Affecting Implementation 23 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 25 2.4 Expected Next Phase/Follow-up Operation 26 3. Assessment of Outcomes 26 3.1 Relevance of Objectives, Design and Implementation 26 3.2 Achievement of PDO 28 3.3 Justification of Overall Outcome Rating 34 3.4 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 37 4. Assessment of Risk to Development Outcome 37 5. Assessment of Bank and Borrower Performance 38 5.1 Bank Performance 38 3 5.2 Borrower Performance 41 5. Lessons Learned 42 6. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 44 Annex 1 Bank Lending and Implementation Support/Supervision Processes 52 (a) Task Team members 52 (b) Staff Time and Cost 53 Annex 2. Beneficiary Survey Results 54 Annex 3. Stakeholder Workshop Report and Results 54 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR 54 Annex 5. Comments of Co financiers and Other Partners/Stakeholders 54 Annex 6. List of Supporting Documents 54 4 Data Sheet A. Basic Information Development Policy Country: Mauritius Program Name: Loan 1,2,3,4 P101570, P106650, Program ID: L/C/TF Number(s): IBRD- P112369, P116608 ICR Date: 10/04/2012 ICR Type: Core ICR Government of Lending Instrument: DPL Borrower: Mauritius Original Total USD 210.00M Disbursed Amount: USD 210.00 M Commitment: Revised Amount: USD 210.00M Implementing Agencies: Ministry of Finance and Economic Development Co Financiers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: Effectiveness: DPL 1 21-Sep-2006 DPL 1 31-Jan-2007 DPL 2 04-Sep-2007 DPL 2 29-May-2008 DPL 3 08-Sep-2008 DPL 3 22-May-2009 DPL 4 26-Aug-2009 DPL 4 28-Jan-2010 Appraisal: DPL 1 18-Oct-2006 DPL 2 18-Dec-2007 Restructuring(s): DPL 3 17-Feb-2009 DPL 4 21-Sep-2009 Approval: DPL 1 12-Dec-2006 DPL 2 28-Feb-2008 Mid-term Review: DPL 3 31-Mar-2009 DPL 4 12-Nov-2009 Closing: DPL 1 31-Dec-2007 5 DPL 2 31-Dec-2008 DPL 3 31-Dec-2011 DPL 4 31-Dec-2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Highly Satisfactory Borrower Performance: Highly Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Highly Satisfactory Government: Highly Satisfactory Implementing Quality of Supervision: Highly Satisfactory Highly Satisfactory Agency/Agencies: Overall Bank Overall Borrower Highly Satisfactory Highly Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA): (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) – DPL 1 Central government administration 45 General industry and trade sector 30 General education sector 15 Power 5 General water, sanitation and flood protection sector 5 6 Theme Code (as % of total Bank financing) – DPL 1 Administrative and civil service reform 27 Public expenditure, financial management and 18 procurement Debt management and fiscal sustainability 18 Export development and competitiveness 18 Education for the knowledge economy 18 E. Bank Staff Positions At ICR At Approval DPL 1: Vice President: Gobind T Nankani Makhtar Diop DPL 2,3 & 4: Obiageli Katryn Ezekwesili DPL 1& 2: Country Director: Ritva Reinikka Haleh Z. Bridi DPL 3 & 4: Ruth Kagia DPL 1: Emmanuel Akpa Sector Manager: John Panzer DPL 2,3&4: John Panzer DPL 1 & 2 Robert Keyfitz Program Team Leader: Rafael Munoz Moreno DPL 3 & 4: Fabiano Bastos ICR Team Leader: Sawkut Rojid ICR Primary Author: Sawkut Rojid F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The objective of the program was to support the comprehensive structural reforms which respond to two major challenges: (i) the “triple trade shock� of trade preference erosion and high oil prices and (ii) the transition from low wage, low skill sugar and apparel exporter to innovative, knowledge and skill based services economy. The reform program was anchored on four pillars: (i) consolidating fiscal performance and improving public sector efficiency; (ii) improving trade competitiveness; (iii) improving the investment climate; and (iv) democratizing the economy through participation, social inclusion and sustainability. 7 Revised Program Development Objectives (if any, as approved by original approving authority) Program Development Objectives were not revised (a) PDO Indicator(s) Original Formally Actual Value Value as at Baseline Target Values Revised Achieved at December Indicator Value (from approval Target Completion or 31, 2011 documents) Values Target Years Indicator 1: GDP Growth Value (Quantitative or Qualitative) 3.7 5 4.1 4.1 Date Achieved 6/1/2006 6/1/2010 12/31/2010 GDP growth rate indeed started to increase. It was 5.7% in 2007, 5.5% in 2008. However because of the global crisis, it Comments (incl. % of shrunk to 3.1 in 2009 but improved again in 2010 and 2011 to Achievement) 4.1 %. Indicator 2: Unemployment Rate Value (Quantitative or Qualitative) 9.5 <8 7.6 7.9 Date Achieved 6/1/2006 6/1/2010 2007/08 Comments (incl. % of Achievement) Achieved Indicator 3: Total Number Employed Value (Quantitative or Qualitative) 511.3 >550 542.2 600 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Total number employed increased throughout the years and the Achievement) target of 550 was achieved in 2011. 8 Indicator 4: FDI as a % of GDP Value (Quantitative or Qualitative) 1.6 >1.6 3.5 2.9 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 5: Stabilize Revenue as a % of GDP above 19.0 Value (Quantitative or Qualitative) 20.1 >19 21.2 21.3 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 6: Public sector debt as a % of GDP Value (Quantitative or Qualitative) 68.8 <68.8 60.7 57.5 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 7: Primary Spending as % of GDP Value (Quantitative or Qualitative) 21.6 <21.6 22.3 21.9 Date Achieved 6/1/2006 6/1/2010 12/31/2010 The target was already achieved by 2007/08 (20.2%). However, because of increased expenditure to stimulate the economy during the crisis, primary spending as a percentage of GDP Comments (incl. % of increased to 22.3%. Fiscal consolidation continued in 2011 and Achievement) primary spending was brought back on a decreasing trend. Indicator 8: Trade tariff lines with 0 tariff rate Value (Quantitative or Qualitative) 74 95 87 88 Date Achieved 6/1/2006 6/1/2010 12/31/2010 While the ratio increased, the target was not attained. This is because of unanticipated effects of speedy liberalization on some domestic manufacturing industries which were highly Comments (incl. % of protected. The Government took a one year respite in the move Achievement) toward a duty free island, and continued to cut tariffs thereafter. 9 Indicator 9: Raise Exports as a % of GDP Value (Quantitative or Qualitative) 60.6 >60.6 52.5 53.4 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Not achieved. Exports as a percentage of GDP fell since 2007 Achievement) and stagnated around 53 percent. Indicator 10: Increase Tourist Arrivals (million) Value (Quantitative or Qualitative) 0.78 >0.78 0.93 0.94 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 11: Unify regulatory regime across EPZ, non-EPZ sectors Value (Quantitative or Qualitative) No Yes Yes Yes Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 12: Increase international internet bandwidth (Mbps) Value (Quantitative or Qualitative) 123 >123 1864 1864 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 13: Increase ICT sector as a % of GDP Value (Quantitative or Qualitative) 5.2 >6 6.4 6.7 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 14: Increase FDI (million Rupees) Value (Quantitative or Qualitative) 2807 >10,000 12000 9,456 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved 10 Indicator 15: Number of days to start a business Value (Quantitative or Qualitative) 46 <46 6 6 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 16: Number of days it takes to enforce commercial Contracts Value (Quantitative or Qualitative) 750 <750 645 645 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 17: Public credit registry (% of adults) Value (Quantitative or Qualitative) 0 >0 49.8 49.8 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 18: Number of days spent dealing with construction permits Value (Quantitative or Qualitative) 162 <162 136 136 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 19: Reduce difficulty of firing index No Value (Quantitative or indicators Qualitative) 50 <50 36.8 available Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved Indicator 20: Percentage of mentored SME firms that show increase in profitability Value (Quantitative or Qualitative) 75 80 N/A N/A Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Data not available 11 Indicator 21: Trained workers under empowerment program (refer to placement program only) Value (Quantitative or Qualitative) 0 12000 8200 12200 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved in 2011 Indicator 22: Place women displaced from textile sector into jobs Value (Quantitative or Qualitative) 45 600 200 234 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Not Achieved. Indicator 23: Number of SMEs supported through matching grants Value (Quantitative or Qualitative) 22 50 16 58 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved in 2011 Indicator 24: Raise Primary completion rate Value (Quantitative or Qualitative) 64.9 70 68.1 71.4 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Achieved in 2011 Indicator 25: Raise secondary completion rate Value (Quantitative or Qualitative) 78.4 80 78.8 79.2 Date Achieved 6/1/2006 6/1/2010 12/31/2010 Comments (incl. % of Achievement) Almost achieved in 2011 12 1. Program Context, Development Objectives and Design: 1. This Implementation Completion and Results Report (ICR) is prepared following the completion of the first Development Policy Loan (DPL) programmatic series in Mauritius. The objectives of this series were to support the country to transit from an economy which benefited from decades of preference agreements for its trade activities to one in which the firms were to face more competition, and to transit from a low skill highly concentrated economy to a more innovative service based economy. To achieve these objectives, the Government of Mauritius implemented a program of structural reforms which was bold and covered a wide range of areas. This program was strongly owned by the Government at the highest level and the commitment to make the right changes, at times even politically sensitive, was strong. The program itself was build based on rigorous analytical work. The reform program has been very successful as measures by two factors: (i) the resilience of the economy during the crisis of 2008, and (ii) the attainment of most of the targets on indicators identified to measure success. 2. The results of the reform program have been impressive, even at a very early stage in the process. Substantial progress was already achieved in just two years of reforms. By 2008, for example, debt to GDP ratio already fell to 53.7 percent (from 68.8 in 2006), primary spending 20.2 percent (from 21.6 in 2006), unemployment rate 7.2 percent (from 9.5 in 2006), the number of days to start a business was 6 (from 46 in 2006), and tourist arrivals 0.93 million (from 0.78 in 2006). When the financial crisis set in 2008, some of the measure had to be relaxed in order to address the short-term concerns and to stimulate the economy, but commitment for refrom and progress was sustained throughout the operation. 3. The response to the crisis was targeted and time-bound. As a result of structural reforms introduced since 2006 Mauritius entered the global crisis with strong fundamentals. In fact, the fiscal space created due to the reform process until 2008 improved the economy‟s resilience to better absorb the impact of the shock. The package of measures that were implemented to counter the impact of the global crisis and to support in stimulating the economy was comprehensive and innovative. The fiscal stimulus (around 5 percent of GDP) were primarily focused to accelerate infrastructure investment projects crucial for long-term economic growth, and to facilitate restructuring of firms to improve their competitiveness and at the same time preserve jobs and improve capacity. Institutions were put in place (for example a project plan committee) to ensure that only investments that have a satisfactory rate of return, and fast- tracking and front loading public investments. To deal with capacity constraints, schemes were put in place to facilitate recruitment of local/international expertise in specific areas to assist the government in formulation, design and evaluation of projects and programs. Microeconomic interventions targeting firms and protecting vulnerable employees were introduced. In this context, an innovative initiative called the Mechanism for Transitional Support to Private Sector (MTSP) was introduced. In the MTSP, the Government became an equity partner to guarantee survival of, otherwise sound firms, facing severe distress during the crisis. However, the Government would only intervene if the Banks and shareholders were jointly willing to finance 60 percent of the restructuring costs, thus ensuring only market conforming intervention. Coordination between monetary policy loosening and fiscal policy stimulus was timely and well calibrated. The floating exchange rate regime also played an important role as a shock absorber, contributing directly to the balance of payments sustainability. Overall, a high quality 13 macroeconomic policy framework effectively helped to sustain stability and avoid derailment of achievements. The response to the crisis, of course, resulted in easing, to some extent, the fiscal consolidation component of the reform program. 4. The momentum of the reform program has been maintained even after the crisis. The experience of improving the resilience of the economy during the crisis due to the reforms undertaken until 2008 was in itself a motivating factor to continue the implementation of the reform agenda. The authorities ascertained that they were on the right track and were determined to continue the implementation of the reform program. This is evident from the results framework of the DPO project. Despite some of the indicators fell off-track during the crisis period, yet they have been brought on track after the crisis and most of them have been achieved. For example, the debt to GDP ratio which increased to 60.2 percent in 2009 is back on a declining trend and stood at 57.5 percent in December 2011, and tourist arrivals which fell to 0.87 million in 2009 is consistently increasing and reached 0.96 million in 2011. 5. This programmatic series closely supported the Government in its policy reform agenda. This programmatic series has been used as a vehicle to harmonizing policy dialogue of development partners with the Government and has also served as a mechanism to ensure coordination among development partners in the country. This series was also flexible in responding to the needs of the country. Initially this series consisted of three operations for an amount of USD 90 million (USD 30 million each). However, to respond to the additional fiscal challenges of the client in order to cushion the impact of the unexpected financial crisis of 2008, the Bank increased the amount for the third operation to USD 100 million and introduced in the operation a Deferred Drawdown Option (DDO). A fourth operation, of USD 50 million, was also added to this series to continue supporting the reform agenda, since election was due in a year‟s time and it would not have been the right timing to start a new series. This programmatic series ended up with four operations for a total amount of USD 210 million. 6. The objectives set out for this series has been broadly achieved. Mauritius indeed transitioned from a low wage, low skill economy to an innovative and skill based economy. For example, the country experienced a high real growth rate for the ICT sector (above 13 percent in 2009 and 2010). The value added of the ICT sector in 2010 was 14.1 percent higher than in 2009. Exports of ICT goods, including re-export rose by 68.1 percent in 2010 and exports of ICT services increased by 21.6 percent in the same year. Employment in the ICT sector increased by 3.7 percent in 2010. The ICT Development Index (IDI) which measures countries‟ progress towards becoming information societies improved to 4.03 in 2010 from 3.83 in 2009, and Mauritius is ranked second among African countries after Seychelles. From 2001 to 2011, while labor input for the whole economy grew by an average of 1.3 percent annually, labor productivity grew by 3.0 percent. While attribution is not only linked to the reform program, yet this denotes that the economy is becoming more skilled and productive. Employment in higher skilled jobs (financial intermediation, education, health and real estate and business activities) has increased by 2.5 percent between 2010 and 2011. 14 1.1 Context at Appraisal 7. Mauritius had achieved important economic success since independence in 1968, but positive outcomes could not be sustained. Mauritius grew at a yearly average of 5 percent (6 percent between 1980 and 1990) causing GDP per capita to rise substantially from 48 percent of the world average in 1980 to 78 percent of world average in 2004. This impressive achievement was possible largely due to the opportunistic use of preferential trade agreements for sugar and textiles, sound institutions to ensure growth and redistribution, and prudent macroeconomic management. However, the positive outcomes could not be sustained, and growth rate deviated downwards. In 2005, economic outlook became somber and the pessimism increased in the wake of the phasing out of the Multi-Fiber Agreement (MFA) for textiles (December 2004), the gradual decline of the EU guaranteed price of sugar (starting 2006), and the sharp rises in oil and food prices at that time. These three factors are combined together as the „triple trade shock‟ in the PDO. 8. At appraisal for the first operation, macroeconomic indicators were worrisome. Budget deficit was 5 percent and increasing. The International Monetary Fund (IMF) noted that if public enterprise deficit and cash interest payments on an accrual basis is accounted for, then the overall fiscal deficit is in fact 6.6 percent of GDP for 2004/05 and not 5 percent. Unemployment rate was 9 percent, its highest level in 20 years, inflation was 11 percent, FDI declined 1.5 percent of GDP, and public debt-to-GDP ratio stood at 72 percent at the end of June 2005, up from 55 percent in 1995. The Fund noted that a real GDP growth of about 3 percent would worsen the fiscal deficit (widen to around 7 percent) over time and public sector debt would become unsustainable. External accounts deteriorated. Current account deteriorated, following increased trade deficit (fall in textiles exports coupled with increased import bill as fuel prices hiked) and this led to a drop in the net official foreign reserves (from 7.5 months on imports in 2003/04 to less than 5 months of imports in 2005/06) and depreciation of the real effective exchange rate (3.8 percent in 2003/04 and 6 percent in 2004/05). The authorities, by the end of 2004 started a comprehensive structural reform program to diversify the economy and enhance competitiveness to maintain high growth rates. The team‟s assessment of the macroeconomic policy framework at the start of each operation was sound and realistic, and this helped responding to the needs of the client. 9. Economic reforms accelerated when a new government took office in 2005 and recognized the need for fundamental reforms to boost competitiveness and to ensure fiscal sustainability over the medium term. The Government elected in 2005 maintained substantial policy continuity but accelerated the on-going reform process, which were in line with the National Long-Term Perspective Study (NLTPS). The goal was to diversify the economy by moving towards high value-added, skill and knowledge intensive service sectors, with explicit reference to the Information and Communication Technologies (ICT) sector. In 2006, the implementation of a bold package of policies and institutional reforms started. It deepened many of the efforts initiated in the preceding years and it aimed at addressing some politically-sensitive reforms as well, like reduction in custom tariffs and linking wage increase to productivity. The reform program was informed by the Aid for Trade Report in 2006 that the Government prepared with the support of the Bank. 15 10. The programmatic DPL series was the right vehicle to respond to the reform program set out by the Government. It provided both financial assistance and technical assistance to the Government to undertake its reform program, and had in-built flexibility. This DPL series completely aligned with the priorities of the Government. These priorities are outlined in the Government‟s budget speeches and the Country Partnership Strategy (CPS) 2007-20131. The CPS stressed that the challenge for Mauritius was to boost economic growth through higher productivity; develop human capital through education and labor market reforms; promote new emerging sectors and develop a knowledge based economy, while preserving its long standing commitment to social welfare. The CPS objective was to help the Government deal with short- term trade shocks and the transition to a more competitive and sophisticated economy, while minimizing negative social impacts. The Government was consistent in its long term policy objective throughout the series. Technical assistance was provided in a number of areas to support implementation of policy decisions. For example, in the area of fiscal consolidation, the WB Treasury provided assistance to the Bank of Mauritius (BOM) and the Ministry of Finance and Economic Development (MOFED) to jointly develop an action plan for improving Public Debt Management, and also provided training workshops which proved helpful in strengthening the relationship with key counterparts and advancing this agenda. Due to its flexibility, at the time of the crisis in 2008, this series responded rapidly to the needs of the authorities. 1.2 Original Program Development Objectives (PDO) and Key Indicators: 11. The objective of the program was to support the comprehensive structural reforms which respond to two major challenges: (i) the “triple trade shock� of trade preference erosion and high oil prices and (ii) the transition from low wage, low skill sugar and apparel exporter to innovative, knowledge and skill based services economy. The reform program was anchored on four pillars: (i) consolidating fiscal performance and improving public sector efficiency; (ii) improving trade competitiveness; (iii) improving the investment climate; and (iv) democratizing the economy through participation, social inclusion and sustainability. 1.3. Revised PDO and Key Indicators, and reasons/justification: 12. The development objective was not revised during the series. 1.4. Original Policy Areas Supported by the Program: 13. Policy area I, Consolidating fiscal performance and improving public sector efficiency: In 2005/06, debt to GDP ratio already exceeded prudent levels, at 69.2 percentage of GDP. The IMF has warned the authority of significant risks to the outlook and urged the authorities to make bigger and faster adjustments in 2006/07. The IMF projected that with adverse developments in growth and world interest rates, a no-adjustment situation could quickly get out of control increasing debt to 112.3 percent of GDP. Demands on the state for discipline, strategic resource allocation and economic restructuring increased. The government self-imposed fiscal rules in the budget of 2006/07. These rules included the following (i) that Government should borrow only for investment and not for recurrent expenditure, and (ii) that public debt to GDP should decline. 1 The CPS progress report prepared in 2011 extended the CPS period to 2015. 16 To attain these objectives, the MOFED set up Sector Ministry Support Teams (SMSTs) to coordinate budget preparation with sector ministries in line with the self-imposed rules. The goal was to help sector ministries improve allocative efficiency in expenditure. The Government program aimed at: (i) stabilizing total revenue at above 19 percent of GDP and (ii) reducing re- current expenditure. 14. The DPL series supported a number of policy changes in these areas. On the revenue side, the program supported the Government to adopt policies to reduce distortions and increase equity in the tax code, relinquishing discretionary powers to grant tax and duty exemptions and operationalizing the Mauritius Revenue Authority (MRA)2. On the expenditure side, the program supported the Government to adopt a Medium Term Expenditure Framework (MTEF), to implement Program Based Budgeting (PBB) in order to increase predictability of resource envelopes for planning purposes, to align the chart of accounts of the Treasury accounting system to the Government Finance Statistics Manual 2001, to upgrade the Borrower‟s financial management information system to enable budget implementation and reporting of financial and non-financial data, and to prepare sector strategies in line with PBB requirements. 15. Policy area II, Enhancing trade competitiveness: Mauritius faced ineffective regulation, anti-export biased policy distortions, red tape and discretionary interventions, which impacted negatively on trade competitiveness thereby impeding flow of resources to growth sectors. Incentives in place were geared more toward production for domestic markets than exports, product and process innovations were not encouraged and policies to deal with the constraints of Small Medium Enterprises (SMEs) were not priorities. The reform agenda put in place by the government addresses these problems by revamping incentives, eliminating the distinction between Export Processing Zone (EPZ) and non-EPZ firms, tariff liberalization, eliminating investment tax credit, and lightening regulatory burdens. 16. The DPL series supported a number of reforms under this component. DPL1 and DPL2 focused on reducing the cost of international connectivity and increasing capacity, and DPL2 also called for a review of telecommunications regulation3. Informed policy dialogue in the area of competitiveness and regulatory framework was enhanced following the Bank‟s Economic Sector Work (ESW), which identified a number of inappropriate non-tariff trade-related regulations and implementation, bottlenecks which compromise competitiveness in Mauritius. Strong Government interest on the subject nurtured a productive policy dialogue and set-up of a permanent regulatory review committee, as recommended. To support these policies, some of the prior actions that the DPL series followed up are: acquisition of additional capacity on the South African Far East Cable (SAFE) cable by Mauritius Telecom, issuing of decision by Information and Communication Technologies Authority of Mauritius (ICTA) on Mauritius Telecom‟s 2 The MRA‟s legal basis dates from 2004, but it became fully operational only in July 2006 with new premises, a full complement of professional staff having their own scheme of service, and equipped with a clear mandate and a modern client focus 3 Regulatory challenges have centered on balancing the interests of the incumbent, Mauritius Telecom, with other competitors in the sector, especially MT‟s exclusive control over the landing point for international communications and participation in the SAFE consortium. Good practice thinking on regulation has evolved considerably since 2001 when the ICTA was established under the Telecommunications Act, shifting away from licensing entry to promoting efficient market outcomes. 17 application for 20 percent price reduction on asymmetric digital subscriber line (ADSL) charges, initiation of regulatory review of ICTA, continue implementation of the duty free island policy by significantly reducing average tariff rate and number of top rated tariff lines and establishing a joint Public-Private Sector Standing Committee to review the design and implementation of regulatory measures relative to import and export licenses with a view to eliminate unwarranted barriers to trade. 17. Policy area III, Improving the investment climate: A number of constraints inhibited investment to the country. Some of these constraints were: shortage of human capital, rigidity in regulation on entry of foreign workers, inflexible labor market, linking wage setting to productivity rather than index-linked and poor port and road infrastructure. The Government embarked on reforms to eliminate bureaucratic obstacles. The Registrar of Companies was designated as a one stop focal agency for business registration and the Board of Investment (BOI) converted from being an administrator of programs to a facilitator and promoter. Whereas firms previously had to obtain ex-ante fire and health certificates to start operations, new rules were set up for ex-post verification of adherence to published guidelines. Other measures include merging development and building permits, easing entry of foreign workers by combining residence and work permits into a single occupation permit and tying wages more closely to productivity by replacing the tripartite wage setting mechanism with a National Pay Council (NPC). In addition, land administration and management was being modernized with the introduction of a cadastre system and establishment of transparent and predictable procedures for transfers of ownership and usage. 18. The DPL series supported various components toward improving investment climate. In March 2004, the Bank submitted the “Report on the Observance of Standards and Codes (ROSC) of Insolvency and Creditor Rights Systems for Mauritius� and made recommendations on how to improve the statutory insolvency framework in Mauritius. Other areas of support included the establishment and operationalization of a new wage negotiating mechanism, introduction of a flexi-security scheme, and the appointment of the Competition Commission of Mauritius. 19. Policy area IV, Democratizing the economy through participation, social inclusion and sustainability. The objectives are to make better use of available human resources, create job opportunities, empowering people through active labor market programs, and providing adequate social safety nets for the vulnerable. In this context, an Empowerment program was incorporated for the following purposes/ activities: (i) land for social housing; (ii) land for small entrepreneurs; (iii) a workfare program emphasizing training and re-skilling; (iv) special programs for unemployed women; (v) tourist villages; (vi) assistance for outsourcing; and (vii) support for development of new entrepreneurs and SMEs. Government also embarked on reforms of the administration of social safety nets to strengthen financial viability and focus support on the truly needy and emphasis was also laid on increasing access to education and (re)training. 20. In this pillar, the DPL series supported the expanding opportunities through education, empowerment of people to increase their employability and better targeting of the needy. The prior actions in the series were: (i) drafting of national education strategy to increase primary, 18 secondary and tertiary levels and raise quality, (ii) preparation and submission to Cabinet of a draft Education and Human Resources Strategy Plan and implementation of a targeted and temporary policy action in the form of a work and training scheme, and (iii) production of a poverty map with the objective of improving the capacity for geographical targeting. 1.5. Revised Policy Areas: 21. Policy areas were not revised. 1.6. Other significant changes: 22. During the crisis in 2008, the Bank responded quickly to meet the needs of the country. The initial plan was a programmatic series of three operations of USD 30 million each. However, during the global financial crisis when the economic outlook was uncertain, the country has serious concerns over declining revenues and the authorities needed to insure against the negative impact of the crisis. The Bank responded and provided an increase of US$70 million equivalent for the third operation as a self-insurance to adapt and protect against disruption to the reform program. To allow for greater flexibility in responding to mounting uncertainties, the operation was converted into a DDO operation and the credit was approved on a more favorable term which included the elimination of the commitment fee. Although the request from the authorities was higher than USD 100 million for DPL3, the Bank determined that given the exposure limits for Mauritius and the then existing volume of loans outstanding, the DDO would have to be limited to US$100 million. 23. A fourth operation (DPL4) was added to the program. During the preparation of DPL3, the Government requested for a new series of DPOs to support in the continuation of reforms. However, to keep in step with the electoral cycle it was agreed to add one operation, DPL4, to the series and to begin a new programmatic series in FY11. The Bank provided a further US$50 million in funding through DPL4, and this was well coordinated with other development partners to close potential sizeable funding gap if the crisis continued to worsen. This amount was matched by Euros 40 million of funding from AFD directed at support for projects meeting the criterion of environmental sustainability. African Development Bank (AfDB), which was also preparing a DPO series decided to make US$700 million available to Mauritius in three tranches and the EU also scaled up its assistance through additional grants. DPL4 included joint missions with all the development partners and development of common results framework with the African Development Bank. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance: 24. The DPL series aligned with the priorities of the Government’s reform agenda. (The four pillars are mentioned in section 1.2). The subsequent operations build on the previous ones and the prior actions followed an incremental sequencing path to push the reforms deeper. Since the program based budgeting (PBB) was formally introduced in 2008/09, this series made use of some of the country‟s own indicators and targets to measure success and achievements. 19 Table 1: Prior Actions for DPL1 – 4 Components Prior Actions: All Successfully Met DPL1 DPL2 DPL3 DPL4 Consolidating Reduce primary Implementation of Enactment and proclamation of the Public Preparation of at least fiscal spending by 0.5 a MTEF budget and Debt Management Act 2008, which limits four line ministries performance percent of GDP preparation of an the Borrower‟s public sector debt to a strategies for the and improving relative to 2005/06 indicative PBB for maximum of 60-percent of gross Borrower‟s Fiscal public sector 2007/08 budget domestic product and provides for public Year 2010 budget in efficiency sector debt reduction to 50-percent by the line with program- end of 2013. based budget requirements. Reduce tax Reduction of Implementation of performance expenditures by 0.5 primary spending management pilots in the Borrower‟s percent of GDP by 1.0 percent of civil service by individual line ministries relative to 2005/06 GDP in 2007/08 and the Ministry of Civil Service and compared to Administrative Reforms. 2005/06. Pass legislation to Enactment and Alignment of the chart of accounts of the abolish ministerial proclamation of the Treasury accounting system with the discretion over tax and Public Procurement Government Finance Statistics Manual duty exemptions Act 2006, including 2001 and upgrading of the Borrower‟s the appointment of financial management information system senior officials for to enable budget implementation and the Procurement reporting of financial and non-financial Policy Office, the data, under the efforts of the MOFED, in Central coordination with the department of the Procurement Board Accountant General and the Independent Review Panel, as prescribed under the Act Use fiscal rules to set Submission of Begin implementation of the respective budget envelope and paper to cabinet parastatal reform action plans, by the strengthen monitoring establishing Central Water Authority, Wastewater to ensure allocations Parastatal Reform Management Authority, Central to line ministries Steering Electricity Board, and Sugar Planters accord with preset Committee. Mechanical Pool Corporation, to improve ceilings Evaluation of state operational efficiency and service of health of selected delivery by: (a) introducing a parastatals (SPMP, performance management system, Central Electricity promoting staff proficiency in multiple Board (CEB), areas of expertise, reducing overtime and CWA, Wastewater eliminating unfilled posts; (b) increasing Management capacity utilization of capital equipment Authority (WMA) (i.e., vehicles, tractors), and reducing fuel and establishment and lubricating oil costs; (c) outsourcing of remedial action transport and security services, cutting plans to address the delivery time and cost, and reducing problems pilferage; and (d) improving inventory management by reducing the number and volumes of items carried. Operationalize MRA to strengthen tax administration 20 Improving Implement first year (i) Acquisition of Continue implementation of the Revision of the legal trade of phased tariff additional capacity Borrower‟s duty free island policy by and regulatory competitiveness reduction toward on the SAFE cable significantly reducing average tariff rate framework of the eventual duty free by Mauritius and number of top rated tariff lines by the Information and island by cutting top Telecom; (ii) MOFEE. Communications ad valorem rate from Issuing of decision Technology (ICT) 65 to 30 percent and by ICTA on sector in line with the reduce average tariffs Mauritius international best by 2 percent Telecom‟s practices and changes application for 20 resulting from percent price technological reduction on ADSL convergence for charges; (iii) modern competitive Initiation of ICT markets, as shall regulatory review be evidenced by: (i) of ICTA reduction of the prices of International Private Leased Circuits (IPLCs) from Mauritius to Paris; (ii) preparation and approval by the Board of ICTA of draft proposals for amendment to the Information and Communication and Technologies Act; and (iii) appointment of the Data Protection Commissioner pursuant to the Data Protection Act. Unify tax and Establishment of a regulatory regimes for joint Public-Private EPZ and non-EPZ Sector Standing firms, with the Committee to review exception of labor the design and regulation implementation of regulatory measures relative to import and export licenses with a view to eliminate unwarranted barriers to trade. Reduce cost of IPLCs by 20-35 percent Improving the Facilitate doing Establishment and Introduction of a flexi-security scheme, as Enactment of the investment business by operationalization reflected in the workfare program insolvency legislation climate streamlining of new, NPC during provisions contained in section IX of the (Insolvency Act No 3 registration 2007 pay round. Employment Rights Act 2008. of 2009). procedures Designate the Appointment of the Registrar of Competition Companies as a one- Commission of stop center for Mauritius business registration 21 Ease entry of foreign professional and skilled workers by issuing single residency and occupation permits within three working days Democratizing Set up machinery for Drafting of national Preparation and submission by the Implementation of a the economy Empowerment education strategy Ministry of Education, Culture and targeted and through Program to spend Rs5 to increase primary, Human Resources to Cabinet of a draft temporary policy participation, billion over 5 years on secondary and Education and Human Resources Strategy action in the form of a social inclusion social protection, tertiary output and Plan that diagnoses education sector work and training and retraining and SME raise quality, needs, identifies objectives and priorities, scheme by the sustainability support including through: and outlines options, which will be costed National increasing and, together with human resources Empowerment enrollment at requirements, incorporated into a medium Foundation (NEF) to tertiary level; term action plan and a fully financed, mitigate the risks of reducing the failure program based budget submission. widespread layoffs in and marginal pass the context of the rate of the CPE, in economic slowdown. particular in Zones d‟Education Prioritaires; offering a vocational stream to those who fail or barely pass the CPE; upgrading teacher training; implementing a new curriculum with a greater emphasis on languages, science, math and ICT. Design measures to Production of a final facilitate growth of poverty map by the formal SME sector Central Statistic through access to Office of Mauritius finance, technical (CSO) combining the assistance and Borrower‟s FY capacity building and 2001/02 Household consultancy services Budget Survey and 2000 Population Census data with the objective of improving the capacity for geographical targeting. Replace consumer subsidies with targeted cash transfers, with additional measures to increase support and opportunities to the poorest 25. Flexibility was instilled in the series to increase effectiveness. The third operation in the series was prepared with DDO and with an increase in the amount of the operation to respond to 22 the Government needs in light of the financial crisis and its associated uncertain outlook at that time (sees section 1.6). Even during the global crisis in 2008, momentum for reforms remained high. The reforms implemented in the first two operations of the series provided the fiscal space to surmount the fiscal challenges that the crisis created. The authorities realized the benefits of the reforms implemented and therefore continued implementation of the reform program. 26. Partnership with other development partners (DPs) was important to reduce transaction costs by the authorities. There are a limited number of development partners that operate in Mauritius. These are the European Commission (EC), the World Bank (WB), the African Development Bank (AfDB) and the United Nation Development Program (UNDP). Except the AfDB, the other three DPs have an office in Mauritius. The AfDB opened an office after the end of this program. Donor coordination was very effective; all donors participated in the DPO missions and were attending several meetings, especially in the areas that they were also engaged. This was very helpful both for the donor community as well as the Government. In fact the Government requested that mission around the DPO should be conducted jointly with the DPs to reduce Government‟s transaction costs but also to ensure that there are no duplication. DPs were also conducting donor meetings to share views and identify joint working areas. The Government highly values the DPL operations as a vehicle for coordination on policy dialogue among all stakeholders involved. During the DPL4 preparation, AfDB and the WB worked closely in preparing their respective operations. 2.2 Major Factors Affecting Implementation: 27. A number of factors contributed to the successful implementation and outcome of the programmatic series. These include: (i) adequacy of Government‟s commitment, (ii) soundness of background analysis, (iii) assessment of the operation‟s design, and (iv) risks identified at appraisal stage and effectiveness of mitigation measures. 28. Adequacy of Government’s commitment: Commitment to economic reform was expressed at the highest level by the President of the Republic during his address to the nation in July 2005 (President‟s address: Government Programme 2005-2010), by the Finance Minister‟s statement to Parliament, Setting the Stage for Robust Growth in August 2005), and the budget speech of FY 2006/07 in June 2006. The reform program was strongly owned by the Government and the Ministry of Finance was the champion leading the reform process. The areas for reform were set out by the Government and it was highly committed to attain its objective. The reform agenda had the political backing at the highest level, and consultations with stakeholders were quite thorough. The private sector and the public sector were both formally and informally meeting to discuss relevance of policy changes. Government‟s ownership throughout this series grew as the Government officials gained more capacity and build confidence to discuss on policy changes with the Bank and understood the necessity for these reforms. 29. Operations based on sound analytical work: The DPL series was designed on the basis of the analytical work undertaken prior to the preparation of the first operation and other Analytic and Advisory Activities (AAAs) undertaken during the implementation of subsequent operations. The program largely benefitted from the Bank‟s technical assistance in parallel with 23 analytical work. The main underpinning analytical study which informed the reform program is the Aid for Trade piece that the Bank completed in 2006. Throughout the series, the operations benefitted from the Investment Climate Assessment in 2009, a study on the social protection system of the country, a Public Expenditure and Financial Accountability Review in 2007 and work on private sector development by the annual Doing Business Surveys. In addition, the operations benefited from other works undertaken by other DPs and the IMF, in particular the various Article IV documents, and the African Economic Outlook. During the last operation, the Bank conducted an ESW on trade and labor4 to gather more knowledge which has been used to inform policy reforms in the area of competitiveness for a subsequent programmatic series of new DPLs. These knowledge products, in addition to those done by others provided analytical background for the design of the different operations. 30. Assessment of the operation’s design: The program aligned to the priorities of the Government, and covered a wide range of reform areas. The implementation of the reform program required buy-in from a number of actors, several agencies/ institutions/ ministries, some of which had weak implementation capacity. During the design phase, areas where implementation capacity was limited were identified and technical assistance was provided either by the Bank or through partnerships with other development partners. Based on past experience (see section 5.1) the first operation of the series was designed in such a way that the actions were in themselves of standalone strategic importance but were concurrently connected to the remaining operations. These areas were mainly debt management, Public Financial Management (PFM) and trade competitiveness. The DPs ensured effectiveness of their engagements, avoided duplication, and limited transaction costs to the authorities. The DPO programmatic series provided a platform for DPs to coordinate their support to the Government. Joint missions (identification, preparation and appraisal) carried out with other DPs have been instrumental in harmonizing the donor community around the Government‟s program. The Government highly values the DPL operations as a vehicle for coordination on policy dialogue among all stakeholders involved. The DPL and parallel financing from other DPs have supplied around a quarter of the public sector borrowing requirement over the period. 31. Risks identified at appraisal stage and effectiveness of mitigation measures: Three risks were identified during the appraisal stage of the operations and mitigating measures were proposed. These were related to the ability of the Government to keep up the momentum of the reforms, maintaining of the macroeconomic stability and capacity constraints. Because the reform agenda included some policy changes that would affect and be unpopular with some segments of the population, and given the knowledge that eliminating subsidies and targeting of pension payments to only the needy have proved unacceptable in the past, the team identified that the authorities may slip off track for some of the politically sensitive reforms. However, this risk would be mitigated since the Government‟s priority pillars included the democratizing of the economy and adopted an Empowerment Program to enhance opportunities and protect the vulnerable groups who are at risks from changes taking place. The mitigating factors worked. 32. Maintaining macro stability was identified as a risk as poor debt management policy was a concern. For the last two operations, the risk of instability of the macroeconomic situation 4 Although the ESW was completed after DPL4 declared effectiveness, yet the recommendations were adopted during the preparation of the operation. 24 was higher due to the fiscal and balance of payments effects of the financial crisis. However, this risk of macroeconomic instability was mitigated by the Government‟s continuing commitment and leadership to a sound medium term economic framework, capacity building in debt management, Government‟s cognizance of the importance of a sustainable and good quality fiscal response as demonstrated by its fiscal measures and the operation of an exchange rate policy conducive to external adjustment. The Bank, as well as other DPs, scaled up their operations. Despite the effects of the global financial crisis, macroeconomic stability was maintained. 33. Capacity constraints were identified as major risk in all the operations. This included both lack of high technical skills in some areas and lack of human resource in some other areas to implement the reform program. To mitigate this risk, initiatives such as Service to Mauritius, Capacity Building program or redeployment from public enterprises were also being undertaken by the authorities. The donor community supported substantially with technical assistance. For example, the UNDP and IMF provided technical assistance to modernize the budget process through adoption of a MTEF and PBB. A key PBB requirement was the development of sector strategic plans, and this was supported by the Bank. To improve the capacity for geographic targeting of the poor, as part of the support in the „democratizing the economy‟ pillar, there was a need for a poverty map to be developed by the Central Statistical Office. Since the statistical office had limited capacity to undertake such an activity, the UNDP provided support for the construction of a Social Registry containing information on beneficiaries of social programs in Mauritius. The EC has supported the setting up of a poverty observatory in Mauritius to monitor the effectiveness of poverty alleviation policies and to produce high frequency information for policy makers through the use of qualitative methodologies. This technical assistance was timely and well coordinated with the Bank which helped to providing advice towards rationalization of social programs and identifies short/medium-run actions that could generate efficiency and financial gains. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The PDO were clear since the beginning of the program and this helped in the designing process of the M&E parameters to follow up on the achievements of the objectives. 34. M&E Design: The results matrix highlighted the linkages between policy actions and expected outcomes for each of the four main priority area of the Government. This matrix was prepared jointly by the Government (involving sector ministries), the Bank and to some extent other DPs. The results matrix of the first operation included target values for some of the monitoring indicator and in DPL2, the results framework was updated to assigned target values to all the indicators. At the time of the crisis, the program document reflected well the potential economic impact and highlighted that the impact may negatively affect some of the targets set in the monitoring indicators. There were four indicators mentioned in the program document but which were not linked to any policy actions and were not mapped to any of the four different pillars of the series. These indicators are: GDP growth, unemployment rate, total number employed (000) and FDI as a percentage of GDP. Since these indicators were not linked to the policy changes supported by this series, they have not been assessed. 25 35. M&E Implementation: The data used for M&E purposes were all official data collected from the Central Statistical Office, sector ministries of the Government, principally MOFED and the central bank. Data from these institutions are highly reliable and very up to date and disseminate data on a timely basis – monthly, quarterly and yearly. For the pillar on widening the circle of opportunities, there was a need to gather data to measure low frequency event of absolute poverty and in this context the UNDP provided technical assistance to the statistical office to conduct a Survey of Living Conditions (SLC). To better monitor poverty parameters, the statistical office lacked capacity. The Bank provided assistance to building capacity at the CSO for production of poverty maps so that the institution can develop necessary tools to monitor poverty. The assistance from the Bank and UNDP further improved capacity for the local institutions to produce reliable and frequent data on important factors. 36. M&E Utilization: During the design stage of subsequent operations, the Bank and Government teams would go through the monitoring indicators to assess progress made and whether the results show large deviations from expected and targeted outcomes. During the preparation of this ICR, the team did not have any difficulty in gathering data required to fill out the indicators table, except for one indicator for which data is no longer kept – percentage of mentored SME firms that shows increase in profitability. 2.4 Expected Next Phase/Follow-up Operation: 37. Following the successful completion of the programmatic series, the Government requested two subsequent DPL programmatic series – one focusing on public sector competitiveness and other focusing on private sector development. The public sector competitiveness series builds on dialogue that the first programmatic series initiated on civil service reforms, public enterprise reforms and trade competitiveness. This series focuses more specifically on: (i) social protection reform, (ii) public enterprise and parastatal reform, (iii) civil service reform, (iv) raising competitiveness (trade), (v) improve social sector delivery (education and health). The private sector development programmatic series is a sector budget support that draws on the policy and institutional dialogue that underpinned two investment lending operations that were cancelled. The series focus on (i) enhancing competitiveness through skills development and technology up-gradation; (ii) access to finance and regulatory reform for SME growth; and (iii) ICT and e-Government support for increased efficiency and transparency gains. The first operation of both series were presented to the Board in March 2012. 3. Assessment of Outcomes Overall rating: Highly Satisfactory 3.1 Relevance of Objectives, Design and Implementation: Rating for relevance of Objective: Highly Satisfactory Rating for relevance of Design: Satisfactory Rating for relevance of Implementation: Highly Satisfactory 26 38. This relevance of the program is rated highly satisfactory. It reflects proper diagnosis of development priorities that remains relevant at the time of the ICR. The program was flexible and responded quickly to the needs of the client during the global crisis. 39. Objectives: The program‟s objectives (as set out in section 1.2) have been broadly achieved and remain relevant in the current country context. The objectives set in this series are still consistent with the objectives of the Mauritius‟s reform program, as set out in the Presidential Address to the Nation (2010-2015) in 2010. The four pillars of the program were highly relevant at the time of appraisal and still relevant in the current context. This is reflected by the CPS progress report (2011). The objective of the CPS (2006) was to help Government deal with short-term trade shocks and the transition to a more competitive and sophisticated economy and was centered on the four pillars of the Government‟s strategy. The CPS progress report notes that “the objectives of the CPS remain relevant and aligned to the country’s development agenda.� The two current DPO series that was approved by the Board in March 2012 recognize the importance of transitioning to knowledge and skill based services economy, while consolidating the base. The emphasis on public sector efficiency, competitiveness, and social safety nets is very strong. While business environment has substantially improved during the program implementation, yet there are challenges ahead. There is a need for further streamlining of regulations, remove unnecessary hurdles and improve institutions at the customs for more transparency. Improving public sector efficiency continues to be of high relevance for Mauritius in the current context, despite improvements have been achieved so far and as reflected by two indicators in the World Governance Indicators 2011 – Government effectiveness and regulatory quality. As highlighted in section 1, the ICT sector has gained substantially more importance in terms of value added, exports and employment. Greater use of IT system for transactions and modernizing the civil service are key areas. 40. Design: The project design was consistent with the project objectives and such a design remains relevant in the current context. The program, overall, included reforms that were strongly owned by the authorities, underpinned by strong analytical foundation and complemented by financial and technical assistance by the donor community. The program was developed in close coordination with other development partners to ensure that it reflected the expertise of the institutions engaged and build synergy for the benefit of the country. Partnerships with donors and local stakeholders will remain crucial, going forward. Mauritius wants to make a leap to become a developed economy in the next ten years or so. There is a knowledge gap in terms of key policy changes that are required to make this leap, and robust analytical work in required to lay out the foundations. 41. Implementation: Flexibility was instilled in the program and the program‟s focus was on the development objectives. Whenever there were changes in indicative triggers to firm up prior actions, it was ensured that these changes do not altered the thematic content of the DPL and were fully consistent with its development objectives. The program was aligned to government medium term priorities but supported the country to address short term challenges. For example, such that during the time of the global crisis, the program was adjusted to respond to the immediate needs of the client, by scaling up the amount of the operation and also adding the DDO facility to it. On capacity, it should be noted that the authorities have upgraded their skills to a large extent in some areas, for example on fiscal management. The same model of 27 engagement is relevant in the current context. The technical capacity for implementation of some specialized reforms is still limited. Therefore the combination of knowledge, technical assistance and financing will continue to be relevant. 3.2 Achievement of PDO: 42. Achievement of the PDO is highly satisfactory. Momentum for reforms was high throughout the program. Despite external shocks in 2008/09 and 2010 due to the financial and Euro zone crisis, the Government maintained macroeconomic stability and stayed the course of reforms. The economy defied the negative consequences and observed overall positive growth throughout the crisis period, although lower than forecasted at the beginning of the DPO program. Economic activity slowed down during the crisis period but Government was able to weather the negative consequences thanks to the fiscal space created due to the reform program. The policy actions supported by the program were critical in achieving the objective of the PDO. As reflected in section 1 (using examples from the ICT sector), Mauritius indeed transitioned from a low wage, low skill economy to an innovative and skill based economy. Objective 1: Consolidating fiscal performance and improving public sector efficiency- Consolidating fiscal performance rating: highly satisfactory Improving public sector efficiency rating: satisfactory Overall rating: satisfactory 43. The program supported reforms to improve fiscal and debt conditions. Fiscal discipline was therefore critical. The aim in this area was to undertake measures to stabilize fiscal performance at a sustainable level. Measures implemented were twofold: (i) stabilizing revenue and (ii) reducing expenditure. On the revenue side, a number of policy changes in the tax system were introduced to stabilize revenue above 19% of GDP. Discretionary power to grant preferential import duty rates at ministerial level were abolished, tax administration were strengthened through the operationalization of the MRA and personal income tax was simplified by consolidating allowances and exemptions on emoluments, retirement pensions, pension contributions, secure loan interest and more into a single general exemption set according to household income. Passing legislation to abolish ministerial discretion over tax and duty exemptions, and operationalization of the MRA to strengthen tax administration were prior actions supported by this program. Revenue as a percentage of GDP indeed stabilized above 19 percent during the course of the program, but also beyond. In 2011, this ratio was at 21.3 percent. 44. On the expenditure side, the objective was to contain recurrent expenditure. This was to be achieved by annual cuts in primary spending by an additional 0.5% each year. The aim was to reduce debt to GDP ratio below the 68.8 percent (the 2005/06 level). In 2006/2007 the Government took a decisive step to cut primary spending by 2 percent of GDP, far exceeding the target of 0.5 percent envisaged. Primary spending as a percentage of GDP by end 2007 was 20 percent. Greater fiscal responsibility in the form of lower government spending along with strong GDP performance led to a reduction of debt-to-GDP ratio from 69.2 percent of GDP in 2006 to 57.5 percent of GDP in 2011. The Government showed firm intentions to reduce the debt burden in Mauritius, demonstrated by the establishment of a Debt Management Unit, preparation of a 28 debt management strategy and enacting of the Debt Management Act 2008. The reforms implemented helped the Government build resilience and weather the impact of the financial crisis by creating fiscal space with permitted the authorities to unveil a stimulus package of Rs 10.4 billion. Reduction in primary spending and enactment and proclamation of the Public Debt Management Act were prior actions supported by this program. Although primary spending did not reach the targeted value by the end of the operation, there is a move in that direction. The target was not met by December 2010 due to injection of public funds to stimulate the economy during the crisis period. 45. Progress on public sector efficiency has been satisfactory. To improve public sector efficiency, this program supported the preparation of sector strategies, implementation (on a pilot basis) of performance management system, and preparation and implementation of reform plan for 5 parastatals. Progress in this area has not been very strong. When the program was initiated, it was expected that by DPL3, all sector ministries would have produced sector strategies to feed into the national budget of 2008/09. The logic of this choice is that effective budgeting demands a clear vision of sector objectives and a menu of strategically relevant, costed programs from which policymakers can choose as they make tradeoffs within and across sectors. However, the authorities postponed the preparation of the strategies to DPL4, but at the same time reduced the number of sector strategies to only four. The implementation of performance management system was indeed piloted within the Ministry of civil service, and is expected to be extended to all ministries and parastatals. Implementation of the action plans produced to address the challenges that 5 parastatals face is slow. Reforms in this area are politically sensitive and progress in this area might take quite long. The DPO series that went to Board in March 2012, has one pillar on parastatals reforms. Table 2: Indicators for pillar 1, and baseline, target and actual values Target Actual Actual Baseline Values values values Value 12/31/2 12/31/2 12/31/2 Monitoring Indicators 6/1/2006 010 010 011 Consolidating fiscal Stabilize Revenue as a % of GDP performance and above 19.0 20.1 >19 21.2 21.3 improving public sector Public sector debt as a % of GDP 68.8 <68.8 60.7 57.5 efficiency Primary Spending as % of GDP 21.6 <21.6 22.3 21.9 Objective 2: Enhancing trade competitiveness – Highly satisfactory 46. The Government’s objective is to transform Mauritius in an open, globally connected, low tax, business friendly environment. Towards this end, the reform agenda aimed at enhancing trade competitiveness by (i) reducing anti-export bias which impedes private investment in internationally competitive activities; (ii) revitalizing existing sectors to raise productivity and release resources for higher productivity sectors and (iii) facilitating development of export sectors through reducing costs and making selected public investments. 47. The authorities continue to work towards making of Mauritius a “duty free island�. In this context, one prominent reform area was the substantial reduction of custom tariff. The 29 number of tariff lines with zero rated tariffs increased from 74 percent in 2005/06 to 87 percent in 2010. The Government continues in this direction. In 2012 the Government abolished duties on further 80 tariff lines (0.64% percent of total tariff lines). It should be noted that the target in this area was too ambitious. The authorities planned to eliminate tariffs on 95 percent of tariff lines. But, this was unrealistic to achieve. Analyses were not undertaken to assess the possible negative consequences that accelerated tariff reductions may have on domestic producers. In fact, substantial reduction in tariffs resulted in unanticipated effects on domestic producers. There were no accompanying policies to mitigate this impact, nor was producers given enough lead time to accommodate the policy changes. To counteract these effects, the Government provided for funds in the budget of 2007/08 to support the local firms to strengthen their capacity in product innovation, marketing and export promotion. Besides elimination of tariffs for 88 percent of tariff lines, the highest tariff band was also reduced from 60 percent to 30 percent. In 2005/06, 13 percent of tariff lines were subject to a tariff rate of 30 per cent or above and this reduced to 1 percent in 2010. Phased tariff reduction by cutting top ad valorem rate from 65 to 30 percent, reducing number of top rated tariff lines and reducing average tariffs by 2 percent was a prior action supported by this program 48. With reduction in tariffs, inappropriate regulations hindering trade became more evident. A number of inappropriate regulations and implementation bottlenecks which compromise competitiveness in Mauritius. The program supported the setting-up of a permanent regulatory review committee (the Non-Tariff Barriers (NTB) Review Committee) with responsibility to: (i) define the general principles of regulatory reform based on international best practice and to ensure that these are applied consistently across line ministries and departments; (ii) review all new and important existing regulations; (iii) oversee the introduction of regulatory impact analysis as a key tool across the government; (iv) facilitate the intra-ministry coordination that is essential to address a wide range of the regulatory constraints, including duplication of requirements and (v) encourage and assist the roll out of IT solutions for trade facilitation across ministries and agencies. This Committee effectively served as a platform for private sector to voice out their complaints. This is an area where the Bank is providing continued assistance as part of the new DPL series. The reforms include revamping of business regulations, streamlining of Non-Tariff Measures (NTMs), and promoting services trade. Government actions to reduce air transport costs by liberalizing air access has partially contributed towards the increased in number of tourist arrivals in the country from 0.78 million in 2005/06 to close to 1 million in 2011. 49. To boost exports a common regulatory regime across all sectors of the economy were introduced and measures to improve international connectivity were undertaken. The distinction between EPZs and non-EPZ producers was eliminated and the incentive regimes for EPZ and non-EPZ firms have been unified, for example by setting all corporate taxes at 15 percent. Anti-labor bias in the tax system was eliminated by removing a 25 percent investment tax credit, and the application process for licenses and permits streamlined to emphasize more on ex-ante approvals of business registration rather than ex-post verification of safety and health standards. Unifying tax and regulatory regimes for EPZ and non-EPZ firms was a prior action supported by the program. The Government implemented reduction in IPLC prices by 50 percent between 2003 and 2008. Also, to be in line with international standards, amendments have been made to the Information and Communication and Technologies Act. These changes, which were 30 prior actions of the program, led to substantial increase in ICT-enabled business. The share of the ICT sector as a percentage of GDP has increased from 5.4 percent in 2007 to 6.4 percent in 2010 and met the set target. International internet bandwidth has increased from 123 Mbps in 2005/06 to 1864 Mbps in 2010. However, the target for the indicator „increase exports as a share of GDP‟ was not achieved as exports suffered considerably during the global crisis period. Exports/GDP fell to 47 percent in 2009. However, sustained effort led to increase in export to GDP both in 2010 (50 percent) and 2011 (53.4 percent). Table 3: Indicators for pillar 2, and baseline, target and actual values. Target Actual Actual Baseline Values values values Value 12/31/2 12/31/2 12/31/20 Pillars Monitoring Indicators 6/1/2006 010 010 11 Improving trade Trade tariff lines with 0 tariff rate 74 95 87 88 competitiveness Raise Exports as a % of GDP 60.6 >60.6 50 53.4 Increase Tourist Arrivals (million) 0.78 >0.78 0.93 0.94 Unify regulatory regime across EPZ, non-EPZ sectors No Yes Yes Yes Increase international internet bandwidth (Mbps) 123 >123 1864 1864 Increase ICT sector as a % of GDP 5.2 >6 6.4 6.7 Objective 3: improving the investment climate – Highly Satisfactory 50. The program supported the government to improve the investment environment by revising the regulations and streamlining unnecessary processes that were unnecessarily retarding investments. To achieve this objective, the Government initiated the following: (i) investment facilitation, (ii) increasing labor market flexibility, and (iii) attracting skilled foreign workers. With a rank of 20 in the Ease of Doing Business indicators, Mauritius is one of the best ranked African countries. The Doing Business index takes into account several factors including the following factors which were monitoring indicators in this operation: number of days to start business, number of days it takes to enforce commercial contracts, public credit registry, and number of days spent dealing with construction permits, and difficulty in firing index. All target related to these indicators were achieved. Improved investment environment helped in raising FDI from 2.8 billion rupees in 2005/06 to greater than 12 billion rupees in 2010. 51. The program supported dismantling barriers that caused delays in registering businesses. Prior to the policy changes that the program supported, unnecessarily complex procedures created uncertainty and often required long waits for clearances and permits. One of the key areas of policy change that this program supported through its prior action was to facilitate doing business by streamlining registration practices. To this end, the Government enacted the Business Facilitation (Miscellaneous Provisions) Act 2006 which included a wide range of measures to expedite business registration, amending and abrogating several laws. This Act made the Registrar of Companies a one-stop shop for and changed the role of the BOI from granting discretionary approvals for investment projects to facilitation. It also relaxed restrictions on granting work and residency permits. The number of registered companies increased from 29,330 in 2007 to 33,002 in 2011, an increase of around 12 percent. 31 52. To forge competition by domestic business, the creation of a Competition Commission was supported by this operation. The setting up of this mechanism was crucial to prevent anti- competitive behavior. If investigations show that firms are involved in anticompetitive behaviors, the Commission has powers to intervene and correct the situation through fines and/or other punitive measures. The commission has so far completed investigation on two cases and is currently investigating on six additional cases. 53. The program supported policy changes towards easing entry of foreign skilled workers by facilitating permit issuance and towards improving labor market efficiency by introducing a flexi-security scheme. The problem of shortage in skilled labor was partially resolved by easing entry of foreign workers in the labour market by creating a single occupational permit by combining residency and work permits, and legalizing conversion of tourist to business visas. With the promulgation of the Employment Rights Act (2008), a “flexi-security� scheme was introduced with the aim of increasing labour market efficiency by strengthening worker protection rather than jobs. To reduce employee resistance to necessary structural changes in the labour market, the scheme provides for a maximum of twelve months of transitional assistance to employees who wish to take opportunity of the scheme to seek job replacements, undergo training and reskilling or start a small business, and these employees benefited from financial assistance. As of December 2010, around 3000 workers (52% female and 48% male) benefited from this scheme, of which 80 percent sought job replacement. 54. The program supported wage increase linked to productivity rather than wage being consumer price index linked. To this end, the program used as prior action the establishment and operationalization of a new NPC during the 2007 pay round which would replace the tripartite wage bargaining mechanisms so as to tie wages closely to worker productivity. In 2010, a new system for wage negotiation has been set up - the tripartite wage bargaining system. This is a hybrid of the system supported by the program and the former system whereby wage was negotiated based on index changes. Table 4: Indicators for pillar 3, and baseline, target and actual values. Target Actual Actual Baseline Values values values Value 12/31/20 12/31/20 12/31/20 Pillars Monitoring Indicators 6/1/2006 10 10 11 Number of days to start a business 46 <46 6 6 Number of days it takes to enforce commercial Contracts 750 <750 645 645 Public credit registry (% of Improving the adults) 0 >0 49.8 49.8 Investment Climate Number of days spent dealing with construction permits 162 <162 136 136 Reduce difficulty of firing index 50 <50 36.8 n/a Increase FDI (million Rupees) 2807 >10,000 12,000 9,456 32 Objective 4: Democratizing the economy through participation, social inclusion and sustainability – Satisfactory. 55. The programme supported reforms to shield the vulnerable from negative impacts of the transition towards higher value added services and to provide opportunities to improve inclusion. In this context, the program aligned with Government‟s objectives to enhancing opportunities for education and (re)training, protecting the vulnerable by channelling social support to the truly needy, and implementing a comprehensive strategy for poverty alleviation. 56. The programme supported strengthening the educational system. This is in line with the Government objective to enable young Mauritians to be employable in the new sectors and participate fully in a knowledge based economy. At the same time, education plays a key role in increasing participation and social equity. The Government prepared an Education Strategy Paper covering the period 2008 to 2020 with the support of the EU. This strategy covered five main subsectors (pre-primary, primary, secondary, tertiary and TVET). The strategy also had a costed implementation plans with specific objectives. The goal was to expand opportunities in education, improve teacher training and supervision, modernize the curriculum to feature more critical thinking and mathematics, science and language training, revitalize the Zones d‟Education Prioritaires (ZEP) schools with provision of supportive services (food, health, and remedial teachers), encourage community participation, and expand tertiary education. The plan has been adopted by the Government and is currently being implemented. For example curriculum has been modernized and science subjects have been introduced at primary school level. The ZEP schools have also been provided with support services. DPL2 and DPL3 actions have supported preparation of a national education strategy. Primary and secondary school completion rate has increased from 64.9 and 78.4 percents in 2005/06 to 74.1 and 79.2 percent in 2011. The expected target for secondary completion rate has not yet been achieved, but the country is moving in that direction. 57. The social safety net has been strengthened. The authorities have pursued a number of policy actions to assure that opportunities would reach as many Mauritians as possible while fundamental economic changes would take place. A major initiative, the Empowerment Program, with the objectives to: (i) providing placement, training and re-skilling for the unemployed; (ii) supporting entrepreneurship and SME competitiveness through financial and technical assistance; (iii) advancing social housing and development amongst poor families and (iv) support older unemployed women was launched and the establishment of the Empowerment Program was a DPL1 prior action. The Government has scaled up the operations of the Empowerment Program which is now called the NEF. The NEF oversees a wide range of initiatives, but the main one is the Placement Program. It also oversees placement and training for women displaced from textile sector. The number of trained workers under the NEF has increased from 821 in 2006/07 to over 12,000 by end 2011. The number of displaced women placed in jobs increased from 45 in 2008/09 to over 200 by the end of 2011. In this case the target was 600 and was not achieved. This is mainly because the majority of the displaced women preferred to be re-trained to join other sectors rather than be re-employed in the textile sector. 33 58. Government has also set up an innovative scheme to promote growth of SMEs. With the support from the Bank, the Mauritius Business Growth Scheme (MBGS) was introduced. Under this scheme, eligible firms receive financing to support their business growth on a cost- sharing basis. 58 SMEs have benefited from this scheme by the end of 2011. Table 5: Indicators for pillar 4, and baseline, target and actual values Actual Baseline Target values Actual Value Values 12/31/201 values Monitoring Indicators 6/1/2006 12/31/2010 0 12/31/2011 Democratizing the Percentage of mentored SME firms economy through that show increase in profitability 75 80 n/a n/a participation, Trained workers under social inclusion empowerment program 0 12000 8200 12200 and sustainability Place women displaced from textile sector into jobs 45 600 200 234 Number of SMEs supported through matching grants 22 50 16 58 Raise Primary completion rate 64.9 70 68.1 74.1 Raise secondary completion rate 78.4 80 78.8 79.2 3.3 Justification of Overall Outcome Rating: 59. Based on the combined assessment of achievement and relevance, the program overall outcome rating is highly satisfactory. A separate assessment for each of the pillars of the program is showed in table 6. In each case achievement and relevance are rated. Table 6: DPL 1-4: Overall ratings by policy area Heading Consolidating Improving Improving Democratizing Overall fiscal trade the the economy performance competitivene investment through and ss climate participation, improving social inclusion public sector and efficiency sustainability Achievement of objectives Satisfactory Highly Highly Highly Highly Satisfactory Satisfactory Satisfactory Satisfactory Relevance of Highly Highly Highly Highly Highly objectives Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Relevance of Satisfactory Highly Highly Satisfactory Satisfactory Relevance design Satisfactory Satisfactory Relevance of Highly Highly Highly Highly Highly implementation Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Overall Satisfactory Highly Highly Highly Highly Satisfactory Satisfactory Satisfactory Satisfactory 34 3.4 Overarching Themes, Other Outcomes and Impacts: (a) Poverty Impacts, Gender Aspects, and Social Development 60. The DPL series supported the objective of transforming the Mauritius economy towards a high value-added services economy. This was a process that the authorities already started in the early 2000 to start preparing to adapt to a world without trade preferences. The cumulative net job losses in apparel and sugar industry between 2001 and 2006 (sectors facing the trade preference shocks) reached around 9 percent of total employment. The impact was higher for women than men. Some measures in the reform program may have produced losers as well as winners. For instance, tariff cuts while raise real incomes of some low income households by reducing the cost of goods, they also contribute to job losses in vulnerable sectors. The Government slowed the pace of tariff liberalization to minimize the negative impacts and balancing these competing interests. 61. Since the beginning of the program supported by the Bank in 2006, the authorities have pursued a number of policy actions to assure that the most vulnerable are and the poor catered for. The Government has also been careful to include in the program accompanying measures to mitigate some of the social costs. One of the main pillars of the reform program has been the democratization of the economy. This consisted of reforms to the national economic structure that will open the doors of economic opportunities to the majority of the population. The main vehicle has been active labor market programs through the NEF (formerly the Empowerment Program) with training subsidies and support to the unemployed for starting SMEs, including special programs for women entrepreneurs. The workfare program was introduced to cushion worker reallocation pressure as labor regulatory framework was being revised in 2008/09. The objective of this program is to support laid off workers to reintegrate the labor market either as employee or as small entrepreneurs through training and placement offered by the NEF or the Small Enterprise and Handicraft Development Authority (SEHDA). A placement and training was introduced to unemployed person with an opportunity for job placement jointly with work-related formal training. In an attempt to address the problem of mismatch in the labour market, arising primarily because the structure of the economy is changing towards higher value added production and services-based economy, such programmes support in providing the rightly trained people to the industry. 62. Preservation of jobs was at the centre of the policies. During the global crisis, in an attempt to save jobs in the tourism and manufacturing Sectors, a mix of work and training scheme was introduced to support enterprises facing financial difficulties of at least 15% reduction in their turnover. Instead of firing workers, the firms were given incentives to keep them employed but for a lesser number of days per week. On the other non-working days, the employees followed trainings. The cost of the training and the daily salary of non-working days are covered by the NEF. A Special Entrepreneurship Program (SEP) was also introduced with the objective to promote entrepreneurship culture, more geared towards small and medium enterprises. This program operates under three legs: financing support schemes, support sectors in difficulty, and promote profession of art which are slowly disappearing. Accompanying measures have mitigated some more egregious distributional impacts of the reforms. For example in 2006, a means tested income support scheme was introduced to compensate for eliminating consumer subsidies on rice and flour. The Government also remained committed to 35 Eradicating Absolute Poverty (EAP). With the support of the development community the authorities better measured the low-frequency event of absolute poverty, improved qualitative poverty monitoring, developed poverty maps combining household surveys and census data, and identified pockets of extreme poverty, all of which helped to improve targeting. All these measure jointly helped the authorities to reverse unemployment rate and better cater for the poor and vulnerable. 63. The reversal of increasing unemployment provides evidence of a positive overall social impact of the reform program. Most significant there has been the decline in female unemployment rate explained by strong job creation in the services sector. Unemployment rate among males has also been declining. The world economic crisis caused mild deterioration of labor market outcomes. Unemployment rate is close to 8 percent, from close to 10 percent at the start of the reform program. Figure 1: Unemployment Rate 2000 - 2011 20 15 percentage 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Male Female Both (b) Institutional Change/Strengthening (particularly with reference to impacts on longer- term capacity and institutional development): 64. Institution strengthening and capacity building were supported in this programmatic series. There has been substantial institutional development and capacity building under this program, especially in the areas of fiscal consolidation, enhancing competitiveness and statistics. At the Ministry of Finance the capacity to prepare more comprehensive budget documents including forecasting in the context of PBB and linking expenditure to macroeconomic framework, has been built. The capacity at the Ministry of Finance in monitoring budget execution has also been improved as the ministry is constantly monitoring deviations between allocated funds and actual expenditure for each ministry, departments and agencies on a monthly basis. The program supported the establishment of a Debt Management Unit. The Bank‟s Treasury assisted the Government to develop plan for improving Public Debt Management and also conducted workshops to strengthen the relationship with key counterparts within the Government and advancing the policy dialogue. Trainings were also delivered to improve capacity to for debt assessment and management. Other examples include the creation of a Competition Commission and the setting-up of a permanent regulatory review committee. These developments were important to enable the Government ensuring that policy decisions are 36 indeed institutionalized and implemented. Technical assistance has been provided to the statistical office to improve the capacity of the staffs to undertake surveys and poverty related analysis. (c) Other Unintended Outcomes and Impacts (positive and negative): 65. The implementation of the reform program has realized much more benefits than was anticipated during the design of the program. For example, strengthening tax administration and abolishing discretion over tax and duty exemptions improved the raking of Mauritius in the global ranking of paying taxes to 9th position (2011). Service delivery to tax payers has substantially improved. Taxes can be paid online as well as submission of relevant documents can be filed online. 3.4 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops: 66. There were no beneficiary survey and/or stakeholder workshops 4. Assessment of Risk to Development Outcome 67. The risks that development outcomes or expected outcomes will not be maintained or realized are moderate. This assessment takes into account both the probability and likely impact of threats to outcomes. It considers how these have been mitigated in the operation‟s design or by actions taken during its initial implementation. The following individual criteria of risk has been considered as it may affect realized/planned outcomes: a. Technical and financial risks are low. Interviews with industry associations‟ show that a large number of medium and big firms have moved to more capital intensive production. Changes in innovative technology and systems helped to improve profitability and development of the firms. At national level, the country is rated investment grade and has a sound financial system. Therefore, there exists minimal risk that technical changes and limited availability of finance and robustness of financial flows will affect the development outcomes. b. Economic risk related to external shocks is moderate: The risk of external shocks associated with the uncertainties in the global economic environment is moderate as the economy remains vulnerable given its large dependence for its tourism industry on the European market. The external environment may also affect aid and foreign investments in the economy and thus impact on development outcome. The risk that changes at country and global level will affect the development outcomes is moderate. The country is dependent on exports of goods and services, especially to Europe (about 70 percent). Therefore the speed and timing of recovery of European countries will affect development outcomes. The slower than expected recovery is already affecting exports of commodities and prolonged slow recovery may deteriorate external accounts and growth. The country is conscious of the situation and measures have been announced to diversify products and markets towards emerging economies like India and China. Another source of concern at macroeconomic level is debt sustainability. The ambitious public investment program could increase public 37 debt above the legally defined threshold. An external shock and/or an increase in the fiscal deficit would raise this ratio to levels that might lead to the downgrading of Mauritius by international rating agencies, raising the cost of financing. c. The risk that momentum of reform will be lost is moderate: Mauritius has a well established tradition of political stability5, dialogue and social harmony. The political situation is stable and the country has no history of major political instability which led to any sort of economic or social instability in the country. Therefore political risk affecting development outcomes is low. The Government‟s ownership and commitment to reforms continues to be high. However, since the second generation of reforms would deal with politically risky areas, for example improving efficiency in public enterprise reforms and civil service reforms, the probability that these reforms will be slower than economically justified is high. Also, while Mauritius has proved its capacity and ability to re-engineer itself and adjust to changing conditions, second generation reforms to improve the regulatory environment will require close cooperation with the private sector and public enterprises. There might be some reluctance to move quickly. On macroeconomic management, the Government has shown strong commitment to maintain economic stability and has been successful in dealing with the global crisis in terms of absorbing the shocks as well as providing necessary cushion to employees who lost jobs. While there is no reason to assume that the commitment and ability of Government to maintain macroeconomic stability, the risk of delayed reforms in key area may moderately affect development outcomes. 5. Assessment of Bank and Borrower Performance (Relating to design, implementation and outcome issues) 5.1 Bank Performance Rating: Highly Satisfactory (a) Bank Performance in Ensuring Quality at Entry Rating: Highly Satisfactory 68. Bank performance in ensuring quality at entry is highly satisfactory. The program supported a comprehensive structural reform program. The policy changes in the reform program responded to the medium term challenges that the country faced at the time of the start of the program, as well as short term challenges at the beginning of each operation. 5 Although coalitions between political parties are made and broken quite frequently, there has never been a coup. 38 69. The Government’s bold and ambitious reform program reform program which the DPL series supported was underpinned by strong analytical foundations. Prior to and during the start of the preparation of this programmatic series, the Bank and other donors carried out extensive AAA work. The two AAAs (both by the Bank) that guided the design of the Government‟s reform agenda were the Country Economic Memorandum (CEM) and an Aid for Trade mission (AFT) report. The CEM focused on the structural transition to a higher value added, knowledge based economy and recommended policy reforms in three key areas: (i) role and performance of the public sector; (ii) the labor market and human capital formation; and (iii) science and technology in a knowledge based economy. The recommendations of this mission quickly built up an excellent and highly influential dialog at both the technical and political levels. It proposed measures to strengthen competitiveness, move resources out of declining and into dynamically growing sectors, improve the quality and cost of input services such as telecommunications, air transport and cargo handling, and strengthen transitional support for displaced workers. The four pillars, on which the reform program was anchored (see section 1.2), were guided mainly by these two AAAs. The Investment Climate Assessment (2005), and the Unemployment Study (2005) have also contributed to identify crucial constraints to growth and propose policy actions. Technical assistance in the areas of MTEF and Performance Management dating back to 2002 have also generated important insights regarding modernization of Public Sector. Continuous production of analytical work guided specific reforms in the subsequent operations. 70. The DPL and the Country Partnership Strategy (CPS)6 are closely linked. The two were prepared concurrently and jointly cross referenced to the Government‟s program which was itself coming into focus at the same time. Both are intended to support the adjustment to the triple trade shock and structural transition to a more competitive and higher value added economy. They share the same overarching strategic objectives of increasing competitiveness while protecting the vulnerable, and their matrices are built around the same four pillars of the Government‟s reform program. The great majority of the DPL‟s actions and triggers are drawn from the CPS. The pillars of the reform program continued to remain the priority of the Government throughout the four operations, and beyond, as evidenced by maintaining these pillars in the CPS progress review in 2011. 71. The design of this operation applied lessons learned from Bank’s previous Bank’s (meager) engagement. In FY02, the Bank approved a programmatic series of Public Expenditure Reform Loan (PERL) and this program provided two important lessons which have greatly influenced the preparation of this series. The first lesson concerns ownership. Like the PERL, this series supported the Government‟s own reform program to ensure commitment for reforms. It recognizes the importance of supporting an agenda which is Government owned at the highest level and better yet, which enjoys broad popular support. Second, the design of the operation was mindful of the risk that the operation may not continue beyond the first year (as was the case in PERL). In light of that, care has been taken to ensure that DPL-1 actions were in themselves of standalone strategic importance, but at the same time actions that fitted well with the remaining operations in this series to ensure integration within the overall framework of the program. This was to ensure some level of developmental impact even if there were no follow on. 6 Presented to the Board in November 2006. 39 72. Assessments of relevant aspects were correct. The program correctly evaluated institutional, fiduciary and environmental aspects. None of these evaluations was proven wrong during the subsequent operations. In each of the operation of the program, risk assessments were relevant and mitigating factors were envisaged. Poverty and social development aspects were considered fully as one of the main components of the program was related to inclusion and increased opportunities to empower the vulnerable to participate in economic activities. The M&E framework was sound and assessment of the political economy was correct. 73. During preparation of the subsequent operations, the Bank identified actions such that it was most likely for the country to achieve planned development outcomes. This was important in areas where the triggers that were identified for operation „n+1‟ during preparation of operation „n‟. In some cases, the country progresses more rapidly than anticipated where as in some cases, progress were slower and therefore the prior actions may have had to deviate from the identified trigger. In those cases, the actions were carefully crafted to ensure that the planned development objectives were achievable. For example, in DPL2, one of the indicative trigger for DPL 3 was to prepare sector strategies for budgetary purposes. However, the authorities needed more time to prepare good strategies, and also not all ministries had the capacity to prepare a sector strategy. To be more realistic, in the preparation of DPL3, this trigger did not (b) Quality of Supervision (including M&E arrangements): Rating: Highly Satisfactory 74. Quality of supervision is highly satisfactory. The focus of supervisions was on the development objectives and outcomes indicators. Since this program was a programmatic series with subsequent operations in each consecutive fiscal year, the program benefited from the supervision of operation „n‟ being conducted side by side with preparation of operation „n+1‟. This has permitted documenting the progress of the reform program on a yearly basis, and to better determine the needs for technical assistance to advance the reform program. This also allowed the Bank to understand the political economy and capacity at different ministries/ agencies and the reasons why reforms advance faster in some areas. Progress on the program was also being tracked during the annual business planning meetings between the Government and its development partners. Also, given the high capacity of the statistical office and the macroeconomic unit at the Ministry of Finance to produce and disseminate online frequent and reliable data, monitoring of outcome indicators was made easier. Cooperation between the Bank and other DPs and the IMF was excellent. The Bank also participated in the IMF Article IV missions which helped better understanding the debt sustainability situation and macroeconomic conditions. 75. Continuous supervision resulted in proactive actions. The constant monitoring of the Mauritius economy in the context of the changes in the global environment drew the attention of the authorities of the potential impact the financial crisis of 2008 on the island‟s economy. On the request of the authorities, the Bank jointly with the fund produced likely macroeconomic scenarios depending on the severity of the crisis and shared with the authorities to be used for internal discussions on the impact and policy choices for mitigating the effects of the crisis. 40 Through continuous dialogue the Bank proactively help the government to mitigate the negative effects of the global crisis while maintaining the momentum for reforms. The Bank scaled up the amount of the financing in DPL3 and also designed the operation into a DDO. This flexibility in meeting the needs of the authorities just in time was important to ensure that the reform program is not jeopardized. (c) Justification of Rating for Overall Bank Performance: 76. Overall Bank performance was highly satisfactory. According to ICR Guidelines, the overall ratings are dictated by the combination of ratings for Quality at Entry and Quality of Supervision. A combination of highly satisfactory rating at quality at entry and highly satisfactory rating for supervision implies a combined rating of highly satisfactory. 5.2 Borrower Performance Government Performance/ Implementing Agency or Agencies Performance/ Overall Borrower Performance Rating: Highly Satisfactory 77. The Borrower’s performance is highly satisfactory. In this operation, the Government and implementing agency cannot be distinguished separately. Therefore the rating in this section should be considered as overall rating for the borrower. The Ministry of Finance was the driver and coordinating body for the reform program. It was responsible for the overall management of the reforms. The overall amount of progress made in all the pillars of the reform program is impressive, and underscores a significant commitment to advance the reforms at the highest level. 78. The authorities had a strong ownership of the reform program and were committed to implement the program in a realistic timeframe. The program was very ambitious and bold. Strong ownership, leadership, and commitment of the Government to the reform agenda were key factors to attaining the development objectives. The authorities, given their weak capacity for implementation of the reform program knowledge gap in some areas, partnered with several development partners to secure technical assistance and analytical work to help in the implementation of the program. Relationship and coordination between Government and other partners is effective. The Government played a critical role in ensuring that the development partners collaborate in their engagement with the Government and complement each other‟s work for the benefit of the country. The Ministry of Finance quite often organized meetings with development partners to take stock of on-going engagement and ensuring that there were no duplications. The DPL missions usually worked as the platform for these meetings. Continuous dialogue prepared the ground for bolder reforms in the current programmatic series. 79. The authorities created an institutional set up to consistently monitor progress. Monitoring and evaluation arrangements by the Government improved and the environment 41 enabling reforms were sound. Several units under the Ministry of Finance were involved in the reform process. The ministry set up a team of Ministry of Finance staffs, called SMSTs, to coordinate budget preparation and progress in the reform program with sector ministries. One SMST was responsible for one sector ministry and the SMSTs were participating in the mission of the Bank. Their main objectives were to ensure that the reform program was on track and to identify funding requirements for the implementation of the reforms so that these requirements can be included in the budget. The Ministry of Finance and the statistical office put lots of emphasis on producing reliable data and make these data publicly available on their websites, and this allowed easy monitoring of the program‟s progress and performance. Fiduciary arrangements in the country were already reliable when the first operation was designed. 80. Partnership between the authorities and the private sector played a critical role in the implementation of the program. To ensure effective implementation, a few committees are co- chaired between the public and private sectors. For example, the non-tariff barriers committee and the committee set up during the crisis in 2008 to put together the policy measures to mitigate the impact. The public and private sectors have a culture of working together during the budget preparation time. This culture was intensified during the DPL series and the dialogue between these two sectors became more often. As the implementation of the program was progressing, the private sector was invited to more and more meetings with the authorities to contribute to the discussions. This was mainly during discussions on the pillars of investment climate and competitiveness. 5. Lessons Learned 81. The key lessons learned from this program pertain to: (i) Strong Government ownership and leadership, (ii) alignment with Government priorities and incremental approach in dialogue, (iii) strong coordination with DPs, and (iv) flexibility. 82. Strong Government ownership and capacity drives reforms. Ownership, leadership, commitment and capacity of the authorities, at the highest level, in design and implementation of the policy reform agenda have been the most important factor in the success of an operation. Technical assistance in parallel to the operations which builds capacity as well as nurture collaboration and joint work improves performance. For example, to improve competitiveness of the country, passing of the Business Facilitation Act 2006 was instrumental in improving the regulatory framework and making it more business friendly and implementation of new measures did not take long to happen as the first tier cadres have a high implementation capacity. Another example is the commitment to improve macroeconomic stability which led to the self- imposition of a debt law with a ceiling on the debt to GDP ratio. In areas where ownership by sector ministries was weak, especially the less consensual reforms which have political implications, for instance in the areas of civil service and public enterprises, reforms were implemented at a slower pace. The driving force for reforms and coordinating mechanism came from the Ministry of Finance, and thus reforms which were to be implemented by the Ministry of Finance were successfully implemented. However, a better understanding of the political economy would have improved the engagement with sector ministries and possibly the implementation of the reform agenda. Since the country now moved to second generation 42 reforms, engagement with sector ministries should be deepened to ensure ownership of the reform plan at the ministries‟ level. The coordinating role should continue to remain with the Ministry of Finance as this ministry has the capacity of looking at the macro perspective and effectively plays the role of policy coordination within the Government. A key lesson for Mauritius is that reforms are better implemented where the reform champion is strong both at policy and technical levels. 83. Alignment with Government priorities is a necessary ingredient for rapid policy changes. Alignment with Government priorities and incremental dialogue provides valuable weight to immediate and short term policy exigencies while building consensus for broader and bolder reforms. The incremental dialogue approach essentially helps the Government to identify and articulate country priorities and as such build the ground in terms of substance and sequencing for subsequent operations. Strong knowledge base helps to identify priority areas of reforms as well as specific measures to be implemented. Alignment and incremental dialogue also helps in designing pragmatic time bound prior actions and the setting realistic targets. Agreement on the set of results and continued dialogue motivate agencies, but more importantly, the champions to remain focus on the reform agenda. Going forward, the combination of developing strong knowledge base to prioritise the areas of reforms and incremental dialogue in politically-sensitive areas should be maintained. This combination ensures ownership of reforms, especially at sector level. 84. Strong coordination with DPs avoids duplication and harmonize results framework. There has been a positive impact from the highly harmonized policy dialogue across donors providing budget support. Government‟s capability to take leadership in coordinating development assistance from the donor community has been instrumental. The ability of the team to work in close collaboration with DPs resulted in harmonizing results framework through common policy dialogue with the Government. Close coordination has proven to be an effective way to support budget planning and execution. Building on technical support across sectors for capacity building and analytical work by DPs contributed to achievement of the objectives of the program. Dissemination of ESWs helped to strengthen momentum for reforms and build allies. For example the dissemination of the ICA 2009 and the Trade and Labor ESW in 2010 brought together public sector, private sector and the Bank together to reinforce synergy. Going forward, strong coordination with partners should continue. This will help to avoid duplication and build allies to accelerate the reform agenda. The M&E framework has to be more realistically designed and outcomes indicators should be clearly linked to the areas of support in the operation, and should be re-adjusted in case of major changes. 85. Flexibility to adjust and respond to Government emerging needs is fundamental. Government immediate priorities change due to several factors like (i) external shocks, (ii) justified resistance from affected sectors (possibly due to miscalculation of potential impacts of reforms undertaken) and (iii) as a way to mitigate political risks. The ability to adapt to such immediate changes in circumstances and priorities is essential for achievement of the objectives in the medium term. For instance, the rapid response of the Bank through a DDO in the third operation, as well as an increase in the value of the loan, helped keep on track the reforms. Also, one additional operation was added to this series to align to the electoral cycle. Correct timing of the individual operations helped sustained reform momentum. Each operation in the 43 programmatic series was aligned to the Government‟s budget cycle and this helped in maintaining the reform process on-going as most of the policy changes were announced in the budget whereby adoption by cabinet was easier. The timing of one of the operations also changed to match the change in budget timeframe which moved the financial year from July- June to align with the calendar year. This meant that there was a six month bridging gaps (i.e. a financial year of six months) and to sustain the reform momentum, an operation was prepared within this time frame. 6. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies: Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible Pillar 1: Consolidate Fiscal Performance and Improve Public Sector Efficiency DPL1 Use fiscal rules to set budget Ministry of Finance To strengthen budget discipline and monitoring by PBB introduced to bring more envelope and strengthen and Economic using fiscal rules to set an aggregate spending accountability and improve service monitoring to ensure allocations Development envelope and strengthening discipline to ensure the delivery. to line ministries accord with allocations are respected. preset ceilings Impact: Put in place framework for debt management through the Public Debt Management Act - Fiscal performance improved with lower deficit and debt to GDP ratio Prior to that MOFED signal the used on rules in the - Debt to GDP ratio improved - Created fiscal space budget circulars e.g., the Golden rule followed was to borrow only for investment purposes Reduce primary spending by Ministry of Finance Reverse the negative trend in primary spending ratio Primary spending went down from 0.5% of GDP relative to 2005/06. and Economic by 2.0% of GDP in 2006/07 relative to 2005/06 20.6% of GDP to 18.6% of GDP Development Impact: - Lower deficit and debt to GDP ratios - Created fiscal space Pass legislation to abolish Ministry of Finance To remove the Finance Minister‟s discretionary Eliminated discretionary power to remit ministerial discretion over tax and Economic powers to remit excise duty, registration duty and tax liability. and duty exemptions. Development other land duties and taxes by amending the Customs Tariff Act and other legislation. Under the 2006 Rule-based and transparent exemptions Finance Act, the Minister‟s discretionary powers have be remitted as from 10 January 2007. Impact: - Tax system made more transparent and rule based. Reduce tax expenditures by 0.5% Ministry of Finance To simplify and streamline personal income taxation Tax Expenditure as a share of GDP of 2005/2006 GDP. and Economic by consolidating allowances and exemptions on reduced Development emoluments, retirement pensions, pension contributions, secure loan interest and more into a In line with the tax reform to lower single general exemption set according to household drastically tax exemptions income. Impact: 44 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible - Tax system made simple, fair and transparent - Mauritius global ranking on paying taxes improved to 9th position by 2009 (year 2011) - revenue collection improved - service to tax payers made more prompt, efficient, effective - Operationalize Mauritius Ministry of Finance Put all revenue collection under control The MRA operational as from July 2006 Revenue Authority to strengthen and Economic tax administration. Development / MRA Impact: - Strengthened tax administration by allocating more resources improving collection through effective tax administration. DPL2 Implementation of a MTEF Ministry of Finance Mainstreaming MTEF/PBB has led to the revision of MTEF introduced in 2004 and PBB in budget and preparation of an and Economic the Chart of Accounts, upgrading computer systems 07/08 indicative PBB for 2007/08 Development and providing adequate training. budget. Impact: - Improved budgeting from an input based annual exercise to a performance based multi annual exercise linking financial resources to outputs and outcomes - Aligned expenditure with policy priorities - Improved quality of spending - Rolling three year budget has allowed more visibility on government medium term fiscal programme. - Increased accountability of supervising officers Reduction of primary spending Ministry of Finance The setting up of Audit Committees in key ministries Primary spending reduced by > 1% of by 1.0% of GDP in 2007/08 and Economic has reduced unnecessary spending GDP compared to 2005/06 thus compared to 2005/06. Development contributing towards. Impact: - Contributed in improving fiscal performance (lower deficit/GDP and Debt/GDP) - Contributed towards building fiscal space/buffers for future Enactment and proclamation of Ministry of Finance The international best practice standards have been Act Enacted the Public Procurement Act 2006, and Economic addressed in new procurement legislation enacted in including the appointment of Development/ December 2006 which replaced the Public Impact: officials for the PPO, the Central Procurement Policy Procurement Transparency and Equity Act of 2000 Procurement Board and the Office - More efficient procurement and Independent Review Panel, as better value for money in public prescribed under the Act. expenditure Submission of paper to cabinet Ministry of Finance This has improved service and reduced costs of Improved competition in the economy establishing Parastatal Reform and Economic essential outputs. and public services costs have reduced.. Steering Committee. Evaluation Development/ 45 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible of state of health of selected Ministry of Energy parastatals (Sugar Planters‟ and Public Utilities/ Mechanical Pool, CEB, CWA, Ministry of Agro- WMA) and establishment of Industry and Food remedial action plans to address Security the problems. DPL3 Alignment of the chart of Ministry of Finance This has upgraded the Financial Management New Chart of Accounts introduced using accounts of the Treasury and Economic Information System (FMIS) to enable budget latest GFS 2001 methodology for accounting system with the Development implementation and reporting on both financial and computing/accounting government Government Finance Statistics non-financial data . finance statistics Manual 2001 and upgrading of the Borrower‟s financial Impact: management information system to enable budget implementation - Mauritius graduated to GFS 2001 and reporting of financial and earlier than many countries in Africa and the rest of the world – non-financial data, under the thus improving standards of its efforts of the Ministry of Finance public finance statistics and Economic Development - Treasury Accounting system (“MOFED�), in coordination improved significantly the access to with the department of the real time data to policy makers and Accountant General. analysts - Efficiency gains realized through less number of man hours required for consolidating and monitoring financial transactions of government Implementation of performance Ministry of Civil Raise efficiency and productivity in the Civil Service The PMS is being reviewed by an UN management pilots in the Service and expert. The Report is due end-May Borrower‟s civil service by Administrative 2012. individual line ministries and the Reforms Ministry of Civil Service and Administrative Reforms. Enactment and proclamation of Ministry of Finance The Debt Law has progressively lowered total debt Act Proclaimed in 2008 the Public Debt Management Act and Economic to 50 percent of GDP by 2013. 2008, which limits the Development Impact: Borrower‟s public sector debt to a maximum of 60-percent of - Enhanced fiscal responsibility on gross domestic product and the part of policy makers which in turn contributed towards improve provides for public sector debt macroeconomic management reduction to 50-percent by the - Debt rule and target provide better end of 2013. visibility on government fiscal plans for future. - Improved investor confidence and governance - Contributed towards improving Mauritius credit rating Begin implementation of the Ministry of Finance To improve service quality and address issues of cost This measure has improved efficiency respective parastatal reform and Economic control, outsourcing and tariff setting. and reduce budgetary liabilities. action plans, by the Central Development/ Water Authority, Wastewater Ministry of Energy Management Authority, Central and Public Utilities/ Electricity Board, and Sugar Ministry of Agro- Planters Mechanical Pool Industry and Food 46 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible Corporation, to improve Security operational efficiency and service delivery DPL4 Preparation of at least four line MICT, MOESD, Promote expenditure efficiency and linking funding Impact: ministries strategies (ICT, MTL MICCP to results environment, tourism and Sector strategies aligned to reform industry) for 2010 budget in line agenda with PBB requirements. Pillar 2: Improve Trade Competitiveness DPL1 First year of phased tariff Ministry of Finance Duty rates were reduced on some 659 tariff lines and Tariff barriers reduced significantly to reduction by cutting top ad and Economic another 345 lines were set to zero. The dispersion in support integration in the global valorem rate from 65 to 30 Development/ MRA the tariff structure has nearly halved from a standard economy and move towards duty-free percent and reducing average deviation o f 15.5 percent to 8.4 percent. island concept. tariffs by 2 percent. Unify tax and regulatory regimes Ministry of Finance Eliminate the distinction between EPZ and non-EPZ The regulatory environment simplified for EPZ and non-EPZ firms, with and Economic status which has imposed a variety o f costs on and ease the burden of compliance eased. the exception of labor regulation. Development/ MRA exporters and effectively barred many SMEs from competing in export markets because they lacked the In line with Doing Business Reform and resources and sophistication to take advantage o f improving investment climate. EPZ status. Reduce cost of International Ministry of Encourage new investment in the BPO sector and This has triggered a reduction in the Private Leased Circuits by 20-35 Information and facilitate diversification of tourism into the Meetings, tariffs from Internet Service Providers percent. Communication Incentives, Conferences and Exhibitions (MICE) Technology market. DPL2 Implementation of support Ministry of Finance Tariff reductions have reduced the level and/or Support local enterprises affected by programs to raise export and Economic dispersion of tariffs hence eliminating distortions tariff reduction. competitiveness during one year Development respite from duty reductions. (i) Acquisition of additional Ministry of Doubled the capacity of the line and the increase has Capacity is today 15 Gbps. capacity on the South Africa Far Information and been distributed across consortium members. East cable by Mauritius Communication Board Membership revised in Telecom; (ii) Issuing of decision Technology accordance with law. by ICTA on Mauritius Telecom‟s application for 20 percent price reduction on ADSL charges; (iii) Initiation of regulatory review of ICTA DPL3 Continue implementation of the Ministry of Finance To be more competitive on the international front Improved competitiveness. Borrower‟s duty free island and Economic policy by significantly reducing Development 88% of tariff lines already zero-rated. average tariff rate and number of top rated tariff lines by the MOFED. 47 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible DPL4 Establishment of a joint Public- Ministry of Finance To put in place procedures ensuring that regulations Reduce, rationalize and streamline Private Sector Standing and Economic are designed and implemented in a way that is licensing requirements for export and Committee to review the design Development consistent with: (i) public policy; and (ii) import. Increased exports. and implementation of regulatory development of the economy as an efficient global measures relative to import and competitor. export licenses with a view to eliminate unwarranted barriers to trade. Revision of the legal and Ministry of This process has improved the gaps identified in the This initiative has increased exports as a regulatory framework of the Information and Data Protection legislation for Mauritius in relation to percentage of GDP, particularly service Information and Communications Communication the EU standards and to reinforce the institutional exports. Increased investment in BPO Technology (ICT) sector in line Technology set-up of the Data Protection Office. sector with the international best practices and changes resulting 25% reduction has been achieved. from technological convergence for modern competitive ICT Amendments to ICTA –Sections 30 and markets, as shall be evidenced 31 made in December 2011. by: (i) reduction of the prices of international private leased circuits from Mauritius to Paris; (ii) preparation and approval by the Board of ICTA of draft proposals for amendment to the Information and Communication and Technologies Act; and (iii) appointment of the Data Protection Commissioner pursuant to the Data Protection Act. Pillar 3: Improve Investment Climate DPL1 Facilitate doing business by Ministry of Finance This has reflected to a more transparent approach to - Significant increase in FDI flow - and Economic regulatory issues Rs 7,222 M (2006), 11,514 M streamlining registration Development/ (2007), 11,419 M (2008), 8,793M practices by: (2009), 13,948 M (2010), 9,456 Registrar of M(2011) - enacting Business Facilitation Companies - World Bank Doing Business Bill to enable ex post verification Ranking for Mauritius – from 49 to rather than ex ante approval; 23 today - designating the Registrar of - Businesses can start their operations Companies as one a one-stop within a time frame of 3 days center for business registration in - A Building and Land Use Permit is the Business Registration Act; issued within 14 days - amending the Planning and - Elimination of trade license. No Development Act to merge waiting time to pay trade fee development and building permits. - transforming the trade licensing fee into a single municipal fee to be paid post business operation through amendment of the Local Government 2003 Act. Ease entry of foreign skilled Ministry of Labour/ The work and residence permits have been combined From Oct 2006 to 18 April 2012, the workers by issuing permit within Board of Investment into only Occupational Permit (OP). With the number of OPs issued to professionals 3 working days for high income enactment of the Business Facilitation Act in 2006, it 48 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible earning professionals and others. takes three days to process and obtain an occupation amounted to 7,889. permit which is issued for a maximum period of three years. Local skill shortage compensated by having recourse to foreign expertise DPL2 Establishment and Ministry of Civil Introduce to labor market reform. More flexible and responsive wage operationalization of new, Service and bargaining resulting in greater efficiency National Pay Council during Administrative and outcomes in line with productivity 2007 pay round. Reforms/ PRB trends DPL3 Introduction of a flexi-security Ministry of Labour, Reform of the Industrial Relations Framework New legislation put in place, scheme, as reflected in the Industrial Relations Employment Relations Act and workfare program provisions and Employment Employment Rights Act to improve contained in section IX of the labor market efficiency. Employment Rights Act 2008. DPL4 Enactment of the Insolvency Ministry of Finance This has provided judicial supervision to ensure that Process of winding up liquidation of legislation and Economic the process is not subjected to manipulation or abuse. companies made easier. Development Appointment of the Competition Ministry of Business, To prevent anti-competitive behavior by domestic Promote competitive practices Commission of Mauritius Enterprise, business. domestically and increase efficiency of Cooperatives and firms. Consumer Protection Pillar 4: Widen the Circle of Opportunity through Participation, Social Inclusion and Sustainability DPL1 - Set up machinery for Ministry of Social Improve the democratization agenda of the Empowerment Programme has managed Empowerment Programme to Integration and Government Programme. to spend its allocation and improve spend Rs5 billion over 5 years on Economic awareness and knowledge of its social protection, retraining and Empowerment programs. In 2011, 13,000 male and SME support. female employment seekers who are registered with the National Empowerment Foundation have been trained and placed /obtained a job/ joined a business network/become self employed. - Design measures to facilitate Ministry of Business, Simplify registration procedures. Some 40 Graduate Scheme participants growth of formal SME sector Enterprise, and trained as counselors to provide Cooperatives Help small businesses to prepare their business plan, consultancy services under SEHDA . filing statutory returns and complying with various health, fire and environmental regulations Development Bank of Mauritius (DBM) opened a special window for SMEs to 49 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible provide working capital and other short term finance in the form of micro-loans of MUR 50,000 to MUR 300,000. - Replace consumer subsidies with Ministry of Social This has increased cost effectiveness of social Over time the number of recipients has targeted cash transfers, with Integration and protection. risen from around 40,000 in July to additional measures to increase Economic 115,000 currently. support and opportunities to the Prices of rice and flour remain controlled, they were Empowerment poorest. allowed to rise by the amount of the previous subsidy for an increase of around 50%. DPL2 Drafting of national education Ministry of This has improved the development of problem A positive impact on human capital strategy to increase primary, Education and solving and critical thinking skills, and inadequate formation and growth secondary and tertiary output and Human Resources tertiary capacity. raise quality, including through: (i) increasing enrollment at tertiary level; (ii) reducing the failure and marginal pass rates of the CPE, in particular in Zones d‟Education Prioritaires; (iii) offering a vocational stream to those who fail or barely pass the CPE; (iv) upgrading teacher training; (v) implementing a new curriculum with a greater emphasis on languages, science, math and ICT. DPL3 Preparation and submission by Ministry of To improve education system efficiency and service Continuous review of actions and the Ministry of Education, Education and delivery policies to be implemented for a Culture and Human Resources to Human Resources comprehensive overall of the education Cabinet of a draft Education and system to enable the student population Human Resources Strategy Plan to acquire skills for smooth transition to that diagnoses education sector a high income economy. needs, identifies objectives and priorities, and outlines options, which will be costed and, together with human resources requirements, incorporated into a medium term action plan and a fully financed, program based budget submission. DPL4 Implementation of a targeted and Ministry of Social Targeted and temporary policy actions to reduce the temporary policy action in the Integration and likelihood of massive layoffs. form of a work and training Economic Impact: scheme by the National Empowerment Empowerment Foundation to Reduced layoffs in sectors mostly mitigate the risks of widespread affected by the world economic crisis. layoffs in the context of the 50 Program Prior Actions Ministries Objective Outcome achieved and/or impact Responsible economic slowdown. Production of a final poverty map Ministry of Social Improve policy formulation and effective Institutional capacity improved and by CSO combining 2001/02 Integration and implementation of measures in the social sector. necessary tools to monitor poverty Household Budget Survey and Economic developed. 2000 population census data with Empowerment the objective to improve capacity Statistics Mauritius has built capacity on for geographical targeting how to produce poverty maps and can now carry out the exercise independently in the future. (b) Co financiers: [to be inserted] (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society): 51 Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P101570 - Mauritius Development Policy Loan Responsibility/ Names Title Unit Specialty Lending Supervision Robert Keyfitz TTL MNSED Richard S. Newfarmer Special Representative to the EXTGE Julia Nielson Asst. to the President EXC Ganesh Rasagam Sr Private Sector Development AFTFE P106650 - Mauritius Second Development Policy Loan (FY08) Responsibility/ Names Title Unit Specialty Lending Supervision Robert Keyfitz TTL MNSED Lisa Lui Lead Counsel LEGIP Suzanne F. Morris Senior Finance Officer CTRFC P112369 - Mauritius Third Development Policy Loan Responsibility/ Names Title Unit Specialty Lending Supervision Maria Teresa Benito-Spinetto Research Analyst AFTP1 Robert Keyfitz TTL MNSED Fabiano Bastos TTL AFTP1 Lisa Lui Lead Counsel LEGIP Saraswathi Sundaram Program Assistant AFTP1 P116608 - Mauritius Fourth Development Policy Loan Responsibility/ Names Title Unit Specialty Lending Fabiano Bastos TTL AFTP1 Constantine Chikosi Senior Operations Officer AFTFE Suzanne F. Morris Senior Finance Officer CTRFC Edith Ruguru Mwenda Sr Counsel LEGAF Saraswathi Sundaram Program Assistant AFTP1 Supervision Maria Teresa Benito-Spinetto Research Analyst AFTP1 52 Constantine Chikosi Senior Operations Officer AFTFE Lars Jessen Lead Financial Officer/Soverei BDM Jacques Morisset Lead Economist AFTP1 Edith Ruguru Mwenda Sr Counsel LEGAF Sawkut Rojid E T Consultant AFTP1 Sudharsan Sundaram Program Assistant ISGIS Mark D. J. Williams Senior Economist CITPO (b) Staff Time and Cost P101570 - Mauritius Development Policy Loan Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including travel No. of staff weeks and consultant costs) Lending FY07 31 237.32 FY08 0.00 Total: 31 237.32 Supervision FY07 22 96.12 FY08 18 82.70 Total: 40 178.82 P106650 - Mauritius Second Development Policy Loan (FY08) Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including travel No. of staff weeks and consultant costs) Lending FY07 9.64 FY08 30 191.82 FY09 0.00 Total: 30 201.46 Supervision Total: 0.00 53 Annex 2. Beneficiary Survey Results Not Undertaken Annex 3. Stakeholder Workshop Report and Results None Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR [to be included] Annex 5. Comments of Co financiers and Other Partners/Stakeholders Comments from the European Commission: The DPL series catalyzed strong donor coordination and harmonization. All the budget support donors participated in joint reviews of the economic reform program of Mauritius, which allowed a very fruitful policy dialogue with the Government of Mauritius. The EU started its budget support operations in 2007. Two of these EU budget support operations, representing a total of around 100 million Euros, had three common priority areas with the DPL 1-4 programmatic series namely fiscal consolidation, education and socio-economic empowerment. Annex 6. List of Supporting Documents 1. First Trade and Competitiveness DPL Program Document, Report No. 37947- MU, November 2006 2. Second Trade and Competitiveness DPL Program Document, Report No. 42150- MU, January 2008 3. Third Trade and Competitiveness DPL Program Document, Report No. 46219- MU, March 2009 4. Fourth Trade and Competitiveness DPL Program Document, Report No. 50181- MU, October 2009 5. Country Partnership Strategy Program Document, Report No. 37703- MU, October 2006 6. IMF Staff Reports 2007-2010 54 IBRD 33446 57°30'E Rodrigues Island INDIAN MAUR I T I U S Flat Island 19°40'S Port Mathurin OCEAN SELECTED CITIES AND TOWNS Grand Montagne DISTRICT CAPITALS Petit La Femme Gabriel NATIONAL CAPITAL Gunner's RIVERS Quoin 19°45'S 0 1 2 3 Kilometers Crab MAIN ROADS Island 0 1 2 3 Miles 63°20'E 63°25'E 63°30'E DISTRICT BOUNDARIES INTERNATIONAL BOUNDARIES 57°45'E 20°00'S Cannoniers 20°00'S Point Grand Grand Gaube This map was produced by the Map Design Unit of The World Bank. Baie The boundaries, colors, denominations and any other information Goodlands Ile D'Ambre shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Triolet Triolet RIVIÉRE Poudre d'Or DU PAMPLEMOUSSES PAMPLEMOUSSES R E M PA R T Riviére du Rivié Riviére Pamplemousses Rempart Rempart Riviér e Citro INDIAN Terre Terre Rouge m pa rt n ns n Re e OCEAN Ri vi ér PORT LOUIS La Bon PORT Nicolié Nicoliére Nicoliére Accueil LOUIS N cq Découve Fla Point ou ll te du Centre Petite Riviére ve e P os de Flacq rt du re e e e v ié Moka Ri MOKA Pointe Quartier Quartier Militaire FLACQ Quatre Cocos 20°15'S Rose Hill 20°15'S Bel Air Q Q Q Bambous ua Ile aux Cerfs a a rt Piton de Milieu Montagne ie Reservoir Reser voir Blanche r r r Phoenix M lit i Riv ai re Vacoas Vacoas re ié é é du r South East Re Bambou M ts Curepipe Grand Rive em e Rivié r e Tamarin p p p Tamarin ar t Pointe BLACK PLAINES du Diable RIVER WILHEMS GRAND Vieux Vieux Grand Gra n s Mare Nouvelle aux France PORT Port Port a d Vacoas Vacoas co vié Riii INDIAN Va Rivi re ére e e Mont Piton No L ir e Rose Belle OCEAN a (828 m) Mahebourg Ch Ile aux Grand Bois a ux Bénitiers G Riv e Riv e r Riv e Cap Sa du ra R R R iv a a Mt. Cocotie v va v n n nd er Baie des Pointe (771m) ne d Po e u s e e Sud AV S AVA N N E AVA Sa te Mt Mt Mt Ouest L'Escalier va v v s s s G le t Chemin a a a s Riviére des Riviére Rivié n n nn Grenier Anguilles e 20°30'S Baie du Cap Surinam Souillac MAURITIUS 0 1 2 3 4 5 Kilometers 0 1 2 3 4 5 Miles 57°30'E DECEMBER 2004