Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 19582-ZA

MEMORANDUM OF THE PRESIDENT

OF THE

INTERNATIONA.L DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A COUNTRY ASSISTANCE STRATEGY

OF THE WORLD BANK GROUP

FOR THE

REPUBLIC OF ZAMBIA

August 13, 1999

Country Department 2Africa Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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The last Country Assistance Strategy was dated June 25, 1996

Currency EquivalentsCurrency Unit = Zambian Kwacha (K)US $1 = K 2,408.96 (as of July 1999)

Abbreviations and Acronyms

ASIP Agricultural Sector Investment ProgramCAR Operations Evaluation Department's Country Assistatce Review of ZambiaCAS Country Assistance StrategyCDF Comprehensive Development FrameworkCODELCO Chilean Copper CorporationCOMESA Common Market for Eastern and Southern AfricaCPPR Country Portfolio Performance ReviewDEC Development Economics Vice-PresidencyESAF Enhanced Structural Adjustment FacilityESP Environmental Support ProgramGDP Gross Domestic ProductIBRD International Bank for Reconstruction and DevelopmentIDA Intemational Development AssociationIFC International I-inance CorporationIMF International Monetary FundMIGA Multilateral Investment Guarantee AgencyMMD Movement for Multi-Party DemocracyMOF Ministry of FinanceNGO Non-Governmental OrganizationOED Operations Evaluation DepartmentPFP Policy Framework PaperPIRC Privatization and Industrialization Reform CreditPREM Poverty Reduction and Economic Management NetworkPSRP Public Sector Reform ProgramSADC Southern African Deveiopment CommunitySAF Structural Adjustment FacilitySIP Sector Investment ProgramSME Small- and Mediun-sized EnterpriseSRP Social Recovery ProgramUNDP United Nations Development Program-meZCCM Zambia Consolidated Copper MinesZIMCO Zarnbia Industrial and Mining CorporationZPA Zambia Privatization AgencyZRA Zambia Revenue Authority

Vice Presidents Callisto Madavo, Jean-Louis SarbibCountry Director/Teamn Leader Phyllis PomerantzTeam Members Laurence Clarke, Hinh Dinh, Column Garrity,

David Kim, Helen Mbao, Kaia Miller,Mushiba Nyamazana

FOR OFFICLAL USE ONLY

REPUBLIC OF ZAMBIACOUNTRY ASSISTANCE STRATEGY

TABLE OF CONTENTS

Executive Summaryl. Recent Social and Economic PerformanceII. The External Environment 6m. The Government of Zambia's Development Agenda 8IV. The Bank Group's Country Assistance Strategy (CAS) 11

The CAS Process and Links to a Comprehensive Development Framework (CDF) 11The Challenge Confronting This CAS - Lessons Learned 12Objectives, Strategic Priorities, and Selectivity 15Strategic Priority I: Removing Constraints to Sustainable, Diversified Growth 16Strategic Priority HI: Improving Governance 19Strategic Priority III: Increased Access to Basic Services and Direct Poverty 20

InterventionsThe Bank's Program - Portfolio Management 21The Bank' s Program - Scenarios and Proposed Lending 22Non-Lending Services 25Risks and Conclusions 26

BoxesBox I Poverty Trends, Social Indicators, and Coping Strategies 2Box 2 The Basic Steps in the CAS/CDF Process 11Box 3 Groups Consulted in the CAS/CDF Process 11Box 4 IDA Lending in Last CAS 12Box 5 ESW for FYOO-02 25Box 6 Special Initiatives, Informal Policy Advice, and Technical Assistance 25

Figures and GraphsGraph 1 Aid and Policy 7Figure I Zambia's Emerging Comprehensive Development Framework 8

TablesTable I Outcomes Under the Last CAS 12Table 2 Problem Projects 21

Annexes 27Annex A2 Country At a Glance 28Annex B 1 Selected Indicators of Bank Portfolio Performance and Management 30Annex B2 Bank Group Program Summary 31Annex B3 Bank Group Fact Sheet - IFC and MIGA Program 32Annex B4 Summary of Non-lending Services 33Annex BS Poverty and Social Development Indicators 34Annex B6 Key Economic Indicators 35Annex B7 Key Exposure Indicators 38

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

Annex B8 IBRD Loans and IDA Credits in the Operations Portfolio 39Annex B9 Statement of IFC Investments 40Annex B1O CAS Program Matrix and Environment Indicators (Appendix) 41Annex BI I CAS Summary of Development Priorities 52Annex C Comprehensive Development Framework (CDF) 53Annex D Client Feedback Survey 59

COUNTRY MAP

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Republic of ZambiaCountry Assistance Strategy

Executive Summary

i. When Zambia became independent in 1964, its rich endowment of copper seemedto guarantee a bright future. However, state-dominated economic policies, coupled withfalling copper revenues, led to plummeting standards of living. By the early 1 990s,Zambia was among the most heavily indebted and poorest countries in Africa. Followingelections in 1991, the new Government embarked upon a far-reaching economic reformprogram. Despite substantial achievements in liberalization and establishing a market-based economy, sustained growth has remained elusive. Positive growth rates in 1996and 1997 were followed by a two percent decline in GDP in 1998. A delay in privatizingthe copper mines, a steep decline in copper revenues, the heavy debt burden, anddiminished external aid flows have limited the Government's ability to reduce poverty.Sustaining reform, achieving consistent growth, and bringing tangible benefits toZambia's people are the central concerns of the Government and of this CAS.

ii. Zambians on average have better access to health, education and water than manyof their neighbors. However, since the early 1980s, the quality of social services hasdeclined and poverty has risen. HIV/AIDS incidence is extremely high, at over 19%, andby the year 2000, some 11 percent of children will be orphans, one of the highestpercentages in the world. In the late 1990s, the Government has put in place sectorinvestment programs in education and health to try and reverse these trends and isintensifying its HIV/AIDS prevention efforts. Other key development challenges includesound environmental management, improving governance and reforming the publicsector, reducing Zarnbia's extremely high external debt burden, and ensuring theeffective application of core labor standards, such as rights of the child, freedom fromdiscrimination, and the right to assembly.

iii. The recent efforts to privatize Zambia's copper industry, along with plummetingcopper prices, have brought home the need for a profound change in Zambia's economy.Zambia will have to move away from its dependence on copper and gradually rely moreon new products and services related to sectors such as agriculture and tourism. Becauseof the need to incorporate the Bank's CAS within a new long-term development visionfor the country, CAS preparation was based on extensive consultations. Early on in theconsultations, it became clear that the CAS process could be helpful to Government ininitiating a wider Government-led process to forge a common long-term vision anddevelopment framework. Although Zambia is not a Comprehensive DevelopmentFramework (CDF) pilot country, the experience with sector investment programs,coupled with concerns about aid coordination and the lack of a shared, long term vision,provided the impetus to the Government to undertake preliminary work on a CDF forZambia with its development partners.

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iv. Based on the consultations and the Government's articulated priorities, three strategicareas were identified: removing constraints to sustainable, diversified growth; improvinggovernance; and increasing access to basic services and direct poverty interventions.These strategic areas provide the basic building blocks for the current working version ofthe CDF matrix. Further work on the CDF will be carried out by the Government togetherwith its external and internal partners and supported during the CAS period.

v. The long-term objective of the Bank's work in Zambia is to increase incomes andliving standards for the vast majority of Zambians who are poor. The objective of this CAS isto sustain positive growth rates and show that economic reforms are beginning to bringtangible, measurable benefits to the population. The target is an annual growth rate of at leastfive percent. However, the base case of the CAS assumes a more modest three to four percentgrowth rate based on Zambia's history of periodic shocks. This growth rate will not beenough to significantly reduce poverty in the near term. The challenge for this CAS is to getZambia on a sustainable growth path that directly leads to more rapid growth and povertyreduction in the future. The base case also assumes that privatization of the copper industrywould be substantially completed by the end of 1999 and that Zambia would reach the HIPCdecision point sometime in FY00. Zambia would be spared major involvement in regionalconflicts, and the overall governance environment would be satisfactory, enabling substantialbalance of payments support from the international community.

vi. Base case lending over the FYOO-02 period would total about US$375 million,about even divided between adjustment and investment lending. The CAS' strategicpriorities directly link to the basic elements of the Government's program and its emergingvision (para. iv). The program has been formulated bearing in mind lessons from theconsultation process, the Client Feedback Survey, and OED's 1996 Country AssistanceReview. All of these point to the need for more Bank outreach, greater flexibility, and moreproactivity in detecting and resolving implementation difficulties. Ongoing IDA-supportedactivities are spread over all three strategic priorities. New lending during the CAS periodwould be concentrated on removing constraints to diversified growth (two-thirds of newoperations and 75 percent of IDA lending amounts). This strategic choice is based on: a)IDA's substantial ongoing involvement in social sector investment programs with other aidpartners; b) as shown in the CDF matrix, the priority given by other aid partners to the socialsectors and governance; and c) the short-run strategic importance of growth-enhancinginvestments given the pressing need for growth and diversification. While the strategy isselective, poverty reduction remains at the center. Without laying the foundations for moredynamic, future growth, there is little hope of improving the welfare of the majority of poorZambians. At the same time, many of the growth-enhancing operations (e.g. the CopperbeltServices Project and the Local Development Fund) will also directly improve the lives of thepoor. In addition, IDA will continue to have a strong presence in the social sectors through itseconomic and sector work program, which includes a social sector strategy and an analysis ofpublic spending priorities and their impact on the poor; work on the HIPC initiative and theuse of debt service savings to increase funding for poverty reduction activities; its directinvolvement in sector investment programs and HIV/AIDS prevention; and continuingsupport to the Government on CDF-related work. Because of this, should gaps emerge, IDA

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will be well positioned to respond quickly with support to the social sectors beyond what iscurrently planned.

vii. Indicators for the base case include substantial adherence to the program in the latestPolicy Framework Paper; satisfactory efforts to improve portfolio performance, includingachieving the targets for portfolio improvement in FY00 (no more than 10% problem projects;no more than 15% projects at risk; and at least an 18% disbursement ratio) and beyond;implementation of a comprehensive governance program, with specific actions agreed eachyear; and budget allocations and expenditures in accordance with agreed priorities andspending targets. Zambia is currently operating in the base case. Zambia generally has beenoperating in the base case over the last few years, despite some periods when delays in criticalpolicy actions have led to temporary lapses into the low case. Civil strife, severe governanceproblems, a reversal of economic reforms, or a failure to conclude the sale of the bulk of theremaining assets of the copper industry could trigger the low case during this CAS. Withregard to the copper industry, if the prospective buyers were to decide not to acquire theremaining assets, an urgent international response would be needed, given the immediate,adverse social and economic implications. This CAS and other development partners'strategies would need to be reformulated in light of the radical alteration in the country'seconomic environment and development prospects.

viii. Zambia's program continues to be high risk. The legacies of the past have all caught upwith Zambia and place its economic reform efforts in constant jeopardy. A failure tosuccessfully complete the copper privatization, a further fall in copper prices, governanceactions which hinder growth and/or cause a reduction in external support, and social unrestcould derail the program. Continuing regional instability and the HIV/AIDS epidemic poseserious new threats. Although the program has been designed with these risks in mind, there isno simple way to minimize or mitigate them. The actions outlined in this CAS - includinginter alia HIPC debt relief; implementation of the governance program, including public sectorreform; a more aggressive HIV/AIDs control and prevention program; and work on the CDFare some of key actions to lessen the risks and restore Zambia to a sustainable growth path.

ix. The following issues are suggested for Board discussion:

* The proposed program's responsiveness to Zambia's development challenges andrisks.

* The degree of selectivity in new lending.* Reactions and advice regarding the CDF process and the emerging CDF.

MEMORANDUM OF THEINTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS ON ACOUNTRY ASSISTANCE STRATEGYOF THE WORLD BANK GROUP FOR

THE REPUBLIC OF ZAMBIA

I. Recent Social and Economic Performance

1. Background. When Zambia became independent in 1964, its rich endowment of copperseemed to guarantee a prosperous future. The reality has been vastly different. By 1991, the countrywas heavily indebted and one of the poorest in Africa. State-dominated economic policies, coupledwith falling copper revenues beginning in the mid- 1970s, led to plummeting standards of living.Piecemeal economic reforms in the 1980s were not sustained. Following the accumulation of arrears,Bank and IMF lending was suspended between 1987 and March 1991, and again in September 1991.In November 1991, the Movement for Multiparty Democracy (MMD), a broad coalition partyopposing the previous regime, won the national elections. The new Zambian Government clearedarrears to the Bank, and a Rights Accumulation Program was successfully concluded in 1995 to cleararrears to the IMF. Over the last seven years, the Zambian Government has implemented a far-reaching economic reform program, but has not yet been able to achieve sustainable growth. Growthresumed in 1996 and 1997, but was followed by a two percent decline in GDP in 1998. A delay inprivatizing the copper mines, falling copper revenues, the heavy debt burden, and governance issueswhich adversely affected external aid flows have tested the Government's commitment to economicreform and limited its ability to foster growth and bring prosperity to its citizens. Despite thesechallenges, Zambia reached agreement with the Bank and the IMF on a new Policy Framework Paperand the IMF approved a new three-year ESAF arrangement in March 1999. Sustaining reform,achieving consistent growth, and bringing tangible benefits to Zambia's citizens, the vast majority ofwhom are poor, are the central concems of the Zambian Govemment and this CAS.

2. Poverty and Social Services. The majority of Zambians are poor, although data suggest aslight lessening in the severity of poverty since the reform program began (Box 1). Apart from SouthAfrica, Zambia is the most urbanized country in Southern Africa, and public sector and mining layoffsare exacerbating poverty in urban areas. Most of the urban poor live in squatter settlements with fewpublic services, and live off informal trading. Rural poverty is more prevalent and deeper and isclosely associated with geographic isolation. The farther a community is from "the line of rail" (therail corridors linking the copper-producing region, the Copperbelt, with Lusaka and the rest ofSouthern Africa), the more likely it is to be poor and lacking in basic services. Less than a quarter ofthe rural population has access to safe water, and a fifth lives more than 20 km from public transport.The Southern, Northern, Eastern, and Copperbelt provinces account for almost 60 percent of the corepoor, while the more sparsely populated and distant Western and Luapula provinces have the greatestincidence of poverty. Female-headed households are more likely to be among the poor. Customarylaw still inhibits women's equitable access to economic resources, particularly land and inheritances.

3. Although Zambians on average still have better access to health, education, and safe water thanmany of their neighbors, social and poverty indicators have deteriorated since the early 1980s, and thequality of services has declined. AIDS has reached epidemic proportions: HIV/AIDS incidence isextremely high at over 19 percent and is the major factor behind increasing rates of infant and maternalmortality, as well as declining life expectancy. By the year 2000, some 11 percent of children under 14

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years will be orphans - one of the highest percentages in the world. Child-headed households aregrowing in number, especially in urban areas. AIDS has become more than a health issue - it is now amultisectoral development issue in need of urgent attention. Another emerging social problem is therecent increase in refugees fleeing war in Angola and the Congo. Zambia currently has over 150,000refugees within its northern and western borders and has appealed to the international community forhumanitarian assistance.

:000j0.g9.fTBox 1: P=et T.ns Sodawin l dctr s, ~d and Coping StrategiePoverty Trends (%) Social Indicators (latest available, 1991-97)

1991 1993 1996 Zambia SSA*National Incidence 69.7 73.8 69.2 Literacy (°/O) 78 57Depth* 62.2 60.6 53.2 Gross Primary Enrollment (%) 89 75Severity (Core Poor) 46.6 40.5 32.3 Female Primary Enrollment (%) 86 67Rural Poor (% rural pop.) 88.0 92.2 82.2Urban Poor 48.6 44.9 46.0 Infant Mortality (per 1,000) 113 90Income Distribution 0.59 0.51 0.50 Life Expectancy (years) 43 52(Gini Coefficients) Child Malnutrition (%/o) 29 27*Average distance from poverty line HIV/AIDS Prevalence (%) 19 8

*Sub-Saharan AfricaCoping Strategies of the Poor* Abandoning homes to move to unspoiled virgin soils and going back to "slash and burn" shifting cultivation- Reducing food intake or number of meals• Reducing other household items/assets* Substituting inferior foods (e.g., wild fruit, pumpkin, sweet potatoes, wild caterpillars)- Begging, informal borrowing, food for work, piecework, walking long distances (90k+) to sell handicrafts

Recommendations for Self Reliance and Income Generation (by residents in a poor rural community)* Work hard* Fix the roads, government only to assist* Form farmer groups; do not concentrate on maize onlye Organize and find markets for produce

3 Do not sell food crops hoping for food relief

The Voices of the Poor"The school teaches our children, but the teachers are sufferingfrom hunger.""Hunger [not poverty] is the right word People do not care whether they have clothing, shoes, but they care for

food ""The absence of a man means that a number of chores which a man can do... are not done. This means our field issmall. ""I sometimes feel sorry for my children... They have too much work for their age."The clinic is veryfar away, difficult to access. In any case, it doesn 't have drugs and adequate tools.""Hunger will only stop when people stop looking to government for inputs such as fertilizers and seeds.""During a very good year our harvest lasts up to January so that there is only one hunger month."

4. Recent Government efforts have focused on improving basic health care and education throughsector investment programs supported by a group of development partners including IDA. Promisinghealth reforms have focused on systems development and institution-building. However, procurementand management-related implementation difficulties have resulted in few positive changes in servicedelivery. Limited access to health care facilities, understaffing, and shortages of drugs and medicalsupplies still prevail. A dialog is underway between Ministry of Health officials and external partnersto determine policy and implementation changes needed to make the health program more effectiveand reap the benefits of reform. After years of preparation, a basic education subsector program has

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begun and aims to address the key issues of stagnating enrollment rates and poor learning outcomes.Social sector budget allocations increased from 28 percent in 1993 to 36 percent in 1998, but overallbudget constraints have meant that there has been no increase in non-wage-related social sectorspending in real terms.

5. Economic Potential. In the short to medium term, copper and cobalt production will continueto be the backbone of Zambia's economy. With new investment and management and the opening ofnew mines, copper production is expected to become internationally competitive and increase fromcurrently depressed levels. Over the longer term, Zambia's future lies in diversifying and expandingeconomic opportunities, through learning new skills and producing globally competitive goods andservices. Zambia has plentiful land for agricultural expansion, minerals and gemstones, and a relativelyunspoiled environment that hosts abundant wildlife and has considerable tourism potential. Because ofthe mining sector, it also has a relatively skilled labor force. The challenge for Zambia will be to makeuse of these resources to develop high-value agriculture and agro-industries, efficient mining,international tourism, and specialized services.

6. Economic Policies and Performance. Since late 1991, the Government has accomplished aturnaround in economic policy, and a wide spectrum of reforms have been supported by seven IDAadjustment operations, including the Public Sector Reform and Export Promotion Credit (PSREP),approved in January 1999. The pace of liberalization has been impressive. Price controls and subsidies(once over 10 percent of the budget) are gone. Exchange and interest rates are market determined;licensing and other quantitative trade restrictions have been eliminated; and the tariff structure has beensimplified and compressed. Parastatal monopolies have ended; the parastatal holding company(ZIMCO-Zambia Industrial and Mining Corporation) was closed in March 1995; and an ambitiousprivatization program is continuing. Fiscal performance has improved gradually over the 1990s. In1994, the Government established an autonomous Zambia Revenue Authority (ZRA), and a broadbased value-added tax was introduced in 1995. The Government has operated within a cash budgetsince 1994 and has shifted expenditures in favor of the social sectors. An ambitious public sectorreform program has begun.

7. Financial sector reform has also taken place. Because of longstanding portfolio problems,three state-owned financial institutions - the Development Bank of Zambia (DBZ), Eximbank, andthe agricultural Lima Bank - stopped direct lending operations or operating altogether. Following adisastrous Government bailout attempt in 1995, one of the country's largest commercial bankseventually closed and the Bank of Zambia moved to strengthen commercial bank regulation andsupervision. The reforms included tighter regulations on foreign exchange, large loan exposure, andinside lending, as well as improved provisioning for loan losses. The capacity of the Bank of Zambiafor on-site inspections was strengthened, and its accounting and inter-bank payments systems weremodernized. Following the reforms, several banks were placed in receivership. The reform agenda isnot yet complete. In 1997, it was estimated that one-fifth of commercial banks' outstanding balanceswere non-performing. Of particular concern is the state-owned Zambia National Commercial Bank,the largest commercial bank which previously engaged in lending to loss-making parastatals. It isnow slated to be offered for sale in 2000. The reforms have substantially reduced (but not totallyeliminated) the risk that a financial crisis will undermine macroeconomic stability.

8. Since the last CAS (July 1996) and despite a difficult external environment (aid shortfalls andlow copper prices), the Government has succeeded in maintaining its economic reform program. Forthe first time since 1989, Zambia registered two consecutive years of GDP growth in 1996 and 1997

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(6.5 and 3.5 percent respectively). Non-metal exports continued their impressive growth - about 35percent in 1997. A tight fiscal and monetary policy through much of 1997 contributed to a drop ininflation from 35 percent at end-1996 to just under 19 percent at end-1997. The overall centralgovernment deficit was reduced to about 1.9 percent of GDP (from 2.6 percent of GDP in 1996).Tight fiscal policies also helped curb imports, and despite the fall in copper prices in the second halfof 1997, the trade deficit fell. However, the current account deficit (after transfers) grew from 3.7percent of GDP in 1996 to 6.2 percent of GDP in 1997 because of a drop in net transfers and adeterioration in the services account.

9. Recent Economic Developments. A combination of internal and external adverse shocks in1998 slowed the economy. An over 25 percent drop in copper prices since 1997, coupled withZCCM's (Zambia Consolidated Copper Mining Limited) operational and financial problems anddelays in completing its privatization, reduced copper production and export revenues. This had anegative impact on other sectors of the economy, and combined with weather-related declines inmaize production, GDP contracted in 1998 by about 2 percent. The fall in foreign exchange earningsand a lack of balance of payments support resulted in the Kwacha depreciating in nominal terms byover 60 percent during the year, and official foreign exchange reserves fell from about two months ofimports at end-1997 to less than two weeks of imports by end-1998. Inflation rose to just over 30percent. The current account deficit (after transfers) widened to over 8 percent of GDP. Although theGovernment tried to maintain a tight fiscal stance, the lack of balance of payments support led todeteriorating domestic fiscal balances, and the overall government deficit grew in 1998.

10. Against this backdrop, progress on structural reforms continued. Trade reform continued withan elimination of the 5 percent Import Declaration Fee in July 1998, and the average tariff rate fell tojust over 11 percent. The Public Sector Reform Program retrenched 15,500 workers by end-1998. ByDecember 1998, over 80 percent of the 280 non-mining public enterprises slated for divestiture hadbeen privatized or liquidated. A significant portion of ZCCM's assets (including the Kansanshi,Chibuluma, Luanshya, and Chambishi copper and cobalt mines and the power division) were sold toseveral different investors. However, ZCCM privatization efforts suffered a setback in mid-1998when an international consortium, the only bidder, withdrew from negotiations on the sale of thelargest asset packages. The process regained momentum in January 1999 when ZCCM, theGovernment, and the Anglo-American Corporation (AAC) signed a Memorandum of Understandingfor the purchase of the Nampundwe mine and the Nchanga, Nkana, and Konkola divisions.

11. So far, in 1999, progress has continued on a number of fronts. In March 1999, the Governmentagreed on a new Policy Framework Paper with the Bank and the IMF, and the IMF approved a newthree-year ESAF program. In April, the Government concluded a debt rescheduling agreement with theParis Club. Following a successful Consultative Group Meeting in late May 1999, and subject tocontinuing progress on economic and governance issues, several bilateral donors have either resumedbalance of payment support or indicated a willingness to do so. Progress on the Public Service ReformProgram (PSRP) has continued, and the Bank released a "floating tranche" of balance of paymentssupport related to the PSRP in early July 1999. Agricultural production is up from last year.Nonetheless, in the second quarter of 1999, the delays in the privatization of ZCCM and related balanceof payments support increased the vulnerability of the economic reform program and adversely affectedthe Government's ability to meet some of the ESAF's targets, particularly on the external side. Overalleconomic performance continues to be sluggish. While the Government and the IMF will be discussingneeded adjustments to the program, the key to Zambia's short-term prospects is the final sale ofZCCM's remaining assets. There has been progress over the last few months. AAC has found two

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prospective partners - CODELCO, the Chilean copper company, and IFC. No final decision has yetbeen made by any of the partners, but intensive work is continuing with the objective of achieving afinal sale in the last quarter of 1999.

12. Environmental Management. Careful management and judicious use of Zambia's naturalresources are central to growth and poverty reduction. The main environmental concerns relate to theneed for safe water, sanitation, and solid waste management; deforestation, whose costs fall mostlyon the poor, especially women; and pollution and physical degradation linked to mining activities,especially copper and cobalt production. Zambia has completed a National Environmental ActionPlan, created an environment ministry, and developed an Environmental Support Program. Newenvironmental regulations related to mining have taken effect. Further work is needed on wildlifeprotection and management in conjunction with tourism development, environmental cleanup inmining areas, and capacity-building for environmental assessment and monitoring, along withenforcement of the regulatory and legal framework.

13. Governance and Public Sector Reform. Over the last few years, Zambia has confrontedboth political and economic governance challenges. On the political front, the opposition boycottedthe 1996 presidential elections after Parliament amended the Constitution, effectively barring theformer president from running. In October 1997, there was an attempted cbup resulting in over onehundred detainees (among them, the former president and another presidential candidate) and allegedhuman rights abuses. Some of those arrested were subsequently released. These events causedZambia's bilateral aid partners to withhold balance of payment support. At the May 1998Consultative Group Meeting, following a frank discussion, the Government agreed to prepare acomprehensive Governance program, outlining actions, capacity-building measures, and neededexternal support. The program, extensively discussed and adopted by Cabinet, was presented to theMay 1999 Consultative Group Meeting and was generally endorsed. The next step is a broadnationwide consultative process to refine the document and increase the public's knowledge andunderstanding of the governance program.

14. The Government's program includes measures related to human rights, democracy andfreedom of the press. It also includes measures related to economic governance, especially focusingon improving accountability and transparency. Low pay, poor morale, and inadequate performancestandards permeate the public sector and spawn inefficiency and concerns about transparency, pettycorruption, and poor service delivery. There is a general acknowledgement that public auditing andprocurement functions, despite recent efforts, still require considerable strengthening. In addition,there is a perception that a few senior officials are engaged in more substantial forms of corruption.Corruption indices place Zambia in the middle range of developing countries overall and slightlyabove the norm (i.e., relatively less corrupt) when corrected for national income levels. TheGovernment has acknowledged a need to be more proactive in this area. It recognizes that seniorpublic officials must be held accountable and that public sector reform is overdue. Building on pastefforts (e.g., the establishment of the Anti-Corruption Commission, training of justices, auditing andpublic tendering reforms - all actively supported by IDA and other external partners), acomprehensive public sector reform and capacity-building program is being developed as part of theoverall governance program. In addition to salary improvements for remaining staff after neededretrenchments, the program will focus on performance management and monitoring and haveexplicit measures to improve transparency and accountability, including further strengthening ofauditing, procurement and legal affairs. Complementary activities will focus on shoring up the legalframework and the institutions in charge of investigating and prosecuting corruption.

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15. Knowledge Generation and Capacity-Building. For some time after Independence, Zambiawas considered a "knowledge leader' in the region. Its universities attracted foreign students, andZambian workers were considered to be relatively skilled. That situation has changed. The universitiesare in financial crisis and attract few students from outside Zambia. The educational use of computersand the Internet is restricted to a handful. The skills base is rapidly eroding; less than five percent of theworkforce has been involved in recent training, and many qualified Zambians have left the country. Thevocational and technical training systems are dated, with little involvement from the private sector. Thetraining programs offered are poorly designed and inappropriate for the labor market. In a recent survey,conducted as part of the CAS consultations, the majority of Zambian respondents felt that the countryhad sufficient knowledge to be able to successfully develop. This contrasts sharply with results in othercountries which have higher income and education levels, and conversely, less confidence in theirknowledge base. The Zambia results may reflect a relative lack of familiarity with recent developmentsin other parts of the world, especially outside of Africa. Recognizing that up-to-date knowledge andskills are fundamental for growth, the Government has emphasized that capacity building needs to be afocus of its development efforts.

II. The External Environment

16. External Debt. Zambia is among the most highly indebted poor countries. Much of the debtwas accumulated in the 1980s when Zambia borrowed heavily to offset declines in copper prices andeamings and finance mounting public expenditures. By end-1990, the amount of outstanding debt wasclose to US$7 billion. Once the reform program began, a successful commercial debt buy-back operationreduced the debt level to less than US$5 billion in 1992. By the end of 1998, the nominal value ofZambia's total external public debt had risen again to about US$6.8 billion, nearly twice the level ofGDP, because of new borrowing to sustain the economic reform program, mainly from multilateralagencies. About 52 percent is multilateral debt, 41 percent is Paris Club bilateral debt, and about 7percent is other bilateral debt. IDA accounts for about US$1.6 billion or 24 percent of the total debt andclose to half of the multilateral debt. By end-1998, the debt service to export ratio had reached 33percent, and the net present value of the debt stock to exports ratio, 510 percent. The debt service owed in1998 was equivalent to almost twice the Government's budget allocations for health and education. Thisunderscores the importance of debt relief for improving basic services and poverty reduction.

17. Debt Sustainability. Recent debt sustainability analysis shows that even with strong policies,concessional borrowing only, and the full use of traditional debt mechanisms, Zambia's external debtwill remain unsustainable for a long time to come. The debt management strategy in the base case(excluding HIPC relief which has not yet been decided for Zambia) is based on the followingassumptions: (i) GDP growth of about 3 to 4 percent per annum during 1999-2001; (ii) export growthof 10 percent per annum during 1991-2001 and 6 percent thereafter; and (iii) Zambia's continuedadherence to an ESAF Program, enabling the country to obtain balance of payments assistance andaccess further debt relief from Paris Club members under Naples terms. In addition, the debt analysisassumes: (a) Paris Club flow rescheduling on Naples terms with a 67 percent net present valuereduction; (b) a topping-up of maturities under 1990 and 1992 Paris Club agreements; (c) comparabletreatment for non-Paris-Club debt; and (iv) accessing new borrowing only on concessional terms. Evenunder these optimistic assumptions, Zambia's external debt would not reach sustainable levels, asdefined under the HIPC Initiative, for the next decade. The debt stock to exports ratio would remainabove 250 percent until 2005 and would not fall below 200 percent until 2010. The debt service ratioafter rescheduling would only drop below 25 percent in 2004, and would still be equivalent to about 35percent of government revenues and 30 percent of expenditures. Given this analysis, Zambia's entrance

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into the HIPC debt relief initiative is urgent. Work on the detailed debt sustainability analysis hasalready begun, with a view to bringing Zambia to the decision point in FY00 and a completion point assoon as possible thereafter. Strong performance on both economic policy and governance will beessential if Zambia is to receive support for this from its major creditors.

18. Commodity Prices. Zambia's dependence on copper leaves it highly vulnerable to externalshocks. In 1998, copper prices fell by 27 percent from the previous year. Copper and cobalt still accountfor two-thirds of Zambia's exports, and the terms-of-trade effect of this external shock was estimated tobe at least negative 10 percent. Copper prices are expected to remain at about US$1,500 per metric ton in1999 and 2000, rising gradually to US$2,000 in 2005; low world inflation (about 2.6 percent per annum)is expected to moderate import price increases. While in the longer term economic diversification willhelp reduce Zambia's vulnerability to external trade shocks, in the short run, Zambia's growth prospectsremain dependent on copper prices and the volume of copper exports. If new management andinvestment in the mines do not lead to increased production or if there is a further drop in copper pricesor a large increase in the price of major imports, Zambia's growth prospects will suffer.

19. External Financing Flows. Given Zambia's debt overhang, heavy reliance on copper, anddevelopment needs, it is extremely dependent on external assistance, particularly balance of paymentsupport. Foreign investment is growing slowly, but is still at relatively low levels (US$164 million in1998). In the first years of the reform program, Zambia enjoyed high levels of support. However, asGraph 1 suggests, despite a continuing improvement in policies (based on a composite measure whichincludes economic governance), in recent years aid has declined. Bilateral donors suspended balanceof payments assistance in June 1996, largely based on concerns about the conduct of presidentialelections. This hiatus extended into 1997 and 1998 because of governance and human rights concernsin the wake of the 1997 coup attempt and arrests. In 1998, multilateral balance of payments supportwas also held up due to the delays in privatizing ZCCM. External balance of payments support wasonly US$141 million (lessthan half the original Graph 1: Aid and Policy

Policy Index Aid/GDPestimate) in 1996, even lower 2-- 1in 1997 (US$120 million,virtually all from IDA) and 1.5 AInegligible in 1998, creating I 8serious difficulties for I /program implementation 6(para. 9). Thus far in 1999, 0.5o

there has been a resumption in Key: \ / o multilateral and some bilateral 1.1 Mdor 0 -- 2support, but delays and 2.7 =Good - 0shortfalls are continuing, '66- '70- '74- '78- '82- '86- '90- '94- '97-

linked to the delay in -*-P0LICY-4-A1D/GDP

ZCCM' s privatization.Continuing progress on economic reform (especially concluding ZCCM's sale) and governance, andimproved relations with external partners are critical if Zambia is to have the necessary resources toregain the momentum for growth and reduce poverty.

20. Regional Collaboration and Conflict. Zambia is an active member in both the SouthernAfrican Development Community (SADC) and the Common Market for Eastern and Southern Africa(COMESA). Ongoing regional collaboration on financial harmonization, trade and trade guarantees,

8

energy and water resources are all of potential benefit to Zambia. At the same time, violent conflictsin neighboring Angola and the Congo could potentially spill over, and the number of refugees withinZambia is increasing. Zambia's President is a leading mediator in the Congo situation and haspublicly reiterated Zambia's commitment to peace.

III. The Government of Zambia's Development Agenda

21. The Government's medium-term objective is to manage the economy more effectively andachieve sustained growth, in order to eliminate poverty over the long run. The Government's medium-term program is outlined in the latest Policy Framework Paper dated March 1999. In addition, as part ofthe CAS consultations, the Government prepared a paper detailing guiding principles and priorityactions for its development program and its cooperation with the Bank and other partners. Thesedevelopment principles, grouped into three strategic areas - removing constraints to sustainable,diversified growth; improving governance; and increasing access to basic services and direct povertyinterventions - provided the building blocks for a working version of a Comprehensive DevelopmentFramework (CDF) for Zambia and for this CAS. Zambia is not a CDF pilot country, but theGovermnent took advantage of the CAS process to initiate work on a long-term vision, based on aholistic approach to development. The preliminary CDF is based in part on extensive information andviews provided by Zambia's development partners. These were discussed during CAS consultation andfeedback sessions, as well as during a special session at the recent Consultative Group Meeting. TheCDF matrix, depicting the priorities and current levels of support from the various development partnersin Zambia, is depicted in Figure 1. A more extensive version of the CDF matrix is found in Annex C.

Figure 1: Zambia's Emerging Comprehensive Development Framework

PO increawng Access to BasicO s" Rernoving Constigts t a Growth Improving Govemance SArvices and Direct Poverty

Interventions

Um Sf hx Erm~ft Kwv *n&Sa clM PoHilc AJDIC6H " ni Ir"rm_ W4W Ey hpv4bI mrS & E GOFwr Govr Isx onfor

Pafu~~wsmt a mr fte NAW Innon "WV mn& W=an Vtkabke

_b .' Ls E= 'S X "ar

I mha

*High Activity Signfilcant Activity CESome Activity E- Litttlje orNo

9

22. Removing Constraints to Sustainable, Diversified Growth. Strengthened macroeconomicmanagement, with a focus on fiscal management and the careful use of limited financial resources tomaximize the impact of public programs, is a key objective. Qualifying for and receiving HIPC debtrelief is part of this objective. The principal macroeconomic targets for the period 1999-2001 are tosustain economic growth of about 5 percent per year, reduce inflation progressively to 8 percent in2001, and strengthen Zambia's gross official reserves to about three months of imports by 2001.Sources of growth are to include a recovery in copper production spurred by privatization (about 7percent increase per year), agricultural output growth (about 5 percent growth per year), and growthin non-traditional exports (about 10 percent per year). Key fiscal policies aim at reducing the overallfiscal deficit (including grants) to about 3 percent of GDP in 1999 and to about 1 percent by 2001,while generating domestic budget surpluses of over 1 percent of GDP. This fiscal stance will allowZambia to begin to reduce its dependence on external assistance as a source of budget financing.While some of the 1999 targets may be revised because of the delay in the ZCCM privatization, everyeffort is being made to tighten economic management, especially fiscal management. Strengtheningtax and customs administration and overall public expenditure management (through safeguardingpriority spending on social services and infrastructure while reducing the wage bill through publicsector reform) will be critical to achieving the fiscal objectives.

23. The Government intends to buttress its macroeconomic policies with policies and actions tostrengthen the business environment and induce a greater supply response. A liberal exchange andtrade regime will be maintained, and in 2001, the maximum tariff rate will be reduced to 20 percent.By end-1999, divestiture of ZPA's current portfolio will be completed. The Government will alsooffer for sale minority shares in the state-owned telecommunications company and add remainingstate-owned utilities and financial institutions to ZPA's portfolio. No direct lending or deposit takingwill take place through public institutions not licensed by the Bank of Zambia. The DevelopmentBank of Zambia will not resume direct lending and will limit its activities to loan recovery. TheBank of Zambia will have a small unit, acting as an apex financing organization, to channel externalloans through properly supervised financial institutions in support of private investment and exports.Through the ongoing Agricultural Sector Investment Program, the ongoing Rural Investment Fund,and the proposed Local Development Fund, the Government will provide support to small farmergroups to promote diversification into higher-value crops and improve productivity and farmincomes. The Government plans to develop tourism linked to wildlife conservation. Tourism will beprivate-sector driven, but supported by public investment in infrastructure and national parkprotection. A strengthening of the public/private sector partnership will take place through increaseddialog and interaction.

24. Inadequate infrastructure is a major bottleneck for private investment and growth. The roadssector program aims to rehabilitate and maintain over 50 percent of the main road network, as well aspriority feeder roads. Government efforts will emphasize greater private sector participation,improved control and prioritization of roads sector expenditures, and revenue mobilization through theRoad Fund. In addition, the private concessioning of Zambia Railways will facilitate the movement ofgoods. In the power sector, an ambitious sector rehabilitation program will further the government'sobjectives of making the power company financially viable, restructuring it for privatization, andfacilitating private sector investment. An Energy Regulation Board has been established to regulateenergy activities, including electricity prices. The provision of urban infrastructure will be linked tolocal capacity building and decentralization. Efforts are underway to strengthen urban watermanagement, rehabilitate water and sewage facilities, and increase water fees and collection to enable

10

water companies to operate on a commercial basis. The Government's objective is for 100 percent ofthe urban population and 50 percent of the rural population to have clean water by 2004.

25. Sound environmental management will also contribute to the overall strengthening of thebusiness environment. The Government's Environmental Support Program (ESP) will strengthen theinstitutional and regulatory framework for environmental protection and management, and enablecommunities to pilot sustainable use and protection activities. The Government will also develop anenvironmental mitigation program for the Copperbelt to address the environmental problems related tothe past operations of ZCCM. Strengthening the stock of knowledge and capacity-building are alsovital for business development in Zambia. The Government has highlighted the importance of higherlevel education and technical skills training, in conjunction with the private sector, to prepareZambia's workforce to compete in the global economy.

26. Improving Governance. Local capacity building is being emphasized by the Government.To strengthen local implementation, the Government is creating the office of District 'Secretary in alldistricts. Work on a national decentralization policy is continuing, and the Government is planning anew Local Development Program to fund community-based projects and strengthen capacity at thelocal level. In September 1997, the Government adopted a Public Sector Reform Program (PSRP).The program aims at reducing public employment, decompressing public sector salaries, andstrengthening public payroll control and performance management systems. A revised action planwas prepared in the first half of 1999, and its implementation has started. The plan emphasizescapacity-building and include actions related to retrenchments, pay and pension policies, ministerialrestructuring, performance monitoring, and the mitigation of the social impact of retrenchments. Avital part of this work is the evaluation of various options for retrenching civil servants in anaffordable manner.

27. The Government has prepared a comprehensive governance program to consolidate itsapproach to governance and human rights issues, including issues related to core labor standards suchas rights of the child, discrimination, and the right to assembly. The program underscores theimportance of capacity-building and institutional strengthening of governance related institutionssuch as the police, the judiciary, the Auditor General's Office, the National Tender Board, and theindependent anti-corruption, human rights, and electoral commissions. A Public Sector CapacityBuilding Program will provide support for a number of these activities (paras. 13-14).

28. Increasing Access to Basic Services and Other Direct Poverty Interventions. HIV/AIDShas become a central poverty and development issue in Zambia. Zambia will host a majorinternational conference on AIDS in September 1999, and planning is underway for a multi-sectoral,multi-partner IHV/AIDS program. Basic social services for all Zambians are a Govermment priority,and the Government is finalizing a National Poverty Reduction Action plan. Basic education andsector programs are in place, but wider coverage and increased efficiency are needed. In health, thefocus is on providing essential, cost-effective health care, building districts' capacity to managehealth services, and improving health system logistics and capacity. In education, the goal is toincrease basic enrollment by four percent per year to close to 100 percent net enrollment by 2005 andto improve learning outcomes. The Government will maintain its commitment to allocate at least 36percent of domestic expenditures (excluding debt service) to the social sectors.

11IV. The Bank Group's Country Assistance Strategy

The CAS Process and Links to a Comprehensive Development Framework (CDF)

"What is the long-term vision for Zambia? I am not sure there is one.- Zambian business owner

29. With over seven years of difficult economic reform, and the urgent need to reverse a 25-yeardecline in per capita incomes, Zambia is at an important crossroads. The efforts to privatize ZCCM,along with plummeting copper prices, has brought home that copper, while still important, is nolonger "king" in Zambia. The pressing questions today in Zambia are what will be the future sourcesof growth and whydiversification, Tox 2: The asbk Step in the CASCF Processrecognized since the early V - ealizing the Ptmieof Prsperity in Zambia"-1980s as fundamental to n a on pAS Conlitaons (Lusa Jan '499)the country's future, is so o Ttem RtreatsonCAS a-*nd C(DP &A Luaa, JanFeb '99)

- istR*und '- country, onsultations saka nmid-Feb to mid-Mar, '99)slow to emerge. Fedindnso CAand CDF C, M

- -overmien Review of Draft CAS (L 19930. Over the short to C Diia CDF -iscssion widi nsui p (Paris May '99)medium term, continuing :Fe and.2ndRoundConut on CAS and CDF (Luka, June '99)the economic reform CAS-R iw by the Ban's Executv lctos (DC, Sept '99)program outlined in ( ongoonF rmlaion and -i (ogoing)Section III and a recoveryin copper production, bolstered by - 3: r C iprivate management and investment, : B groupo Mnster c btheresiA gr-oAup of 4t Wmists chosen by the Presixtentwill underpin growth. Over the longer . on 's T a ore(e enentterm, Zambia's economy will have to Secreted*Minry of Financundergo a profound change, gradually * IDspported e Manrelying on new products and services * l BlandMlial entPersrelated to sectors such as agriculture - ( s and Heads of opmentAgencies)Heads ofU ' Aand tourism. Given the past lack of . NMS (60), Te Unions, and Church Groupsprogress in making this transition and private Sectorthe need to trace a clear future path, . New mine ownersthe Bank's Country Team felt that this ' AC-demi.sCAS would benefit from an extensive * Par niSelected local Governmen officialsconsultation process. Boxes 2 and 3 f seiroeentfissummarize the basic steps in the - A sample poor ban and rcommunities (thrgh theprocess and the groups consulted. poverty Assement Group)

31. Early in the consultations, it became clear that the CAS process could be useful to theGovernment in initiating a wider Government-led process to forge a common long-term vision anddevelopment framework. The accumulated experience with sector investment programs (there are nowfive ongoing sector programs) and common concerns related to overall aid coordination and the lack ofa shared, long-term development strategy and vision for Zambia, provide the impetus to theGoverrnent to develop a long-term development framework. Zambia is not a CDF pilot country andthe CDF process is still at an early stage in Zambia, but there is consensus regarding its usefulness,given the need to identify Zambia's longer term competitive advantages and to place the government'spolicies and priorities in a longer-term context in order to achieve sustained growth over a fifteen totwenty year period. Because the challenges confronting Zambia are formidable, a shared long-term

12

framework and the active participation of all of Zambia's external and internal development partnersare prerequisites. This CAS is organized around a first working version of a CDF, based on theGovernment's priorities and the findings of the first-round consultations (Section III). External aidpartner, private sector and NGO activities have been mapped using this early version of the CDF(Annex C). The next steps, led by the Government, will be to form strategic networks to jointlyestablish coordinated strategies and shared benchmarks among all the partners.

32. Performance Under the Last CAS. x iIdig in LatCS(JS ilosBox 4 compares proposed base case lending Proposed Base Case Actual

in the last CAS with actual lending. The last Adjustment 270 268

CAS also included a table on Bank and Infrastructure/PSD 165 190

Government actions to implement the CAS, Agriculture and 20 13

including measures of success. Table 1 EnvironmentSocial Sectors 30 40*

summarizes the outcome using the same set TOTAL 485 511

of measures. * Part of US$340 million multi-partner sector program

Table 1: Outcomes Under the Last CAS

* Annual growth rate of at least 5% led by agriculture. * 1996 GDP grew by 6.5%, by 3.5% in 1997, anddeclined by 2% in 1998; agriculture did not grow.

* Increase in gross investments as a proportion of GDP. * Increased from below 5% in 1991 to 14% in 1998.* Non-traditional exports to increase by at least 10% per year. * In 1997 these exports grew by 35%, but declined by 4%

in 1998.* Inflation substantially reduced, with a goal of under 10% per * Reduced to 35% in 1996 and to 18.6% in 1997. Rose to

annum. 30% in 1998 owing to delayed ZCCM privatization andshortfalls in external support.

* Fiscal deficit eliminated and stock of domestic debt declining by * Fiscal deficit not eliminated. Stock of domestic debt1997. increased as of end 1997, but declined as a % of GDP.

* District grants no less than 30 percent of health budget by 1999. * Progressing on target.* At least another 75 parastatals privatized or liquidated by 1999. * Done: 231/280 privatized by end-1998.* ZCCM privatized. * Delayed, but final sale expected in late 1999.* Primary schools in peri-urban areas to serve another 49,000 pupils * Achieved.* Reduction of class size to 50 pupils in peri-urban areas. * Achieved.

* Allocations to social sectors of at least 33 percent of domestic * Achieved.budget (excluding non-discretionay allocations).

* Infant mortality reduced below 90 deaths/1 ,000 live births by '99. * Not achieved.* Changes in Govermnent policies and programs to address the issue * Government Secretariat on HIV/AIDS established, but

of HIV/AIDS more effectively. more effort needed.

The Challenge Confronting This CAS - Lessons Learned

"We made an assumption that liberalization was enough. "- Senior Government Official"People have accepted what the country has gone through, but the benefits have not diffused

to the average citizen. " - Trade Union Leader

33. The principal challenge confronting Zambia and the Bank's CAS over the next three years is tobring tangible benefits of economic and social reform to the Zambian people, especially the poor. Thereforms over the last seven years - centered around economic liberalization and redefining the role ofthe state in the economy - have provided a sound foundation for economic growth, but have not beensufficient to bring about sustainable growth. Despite Zambia's solid record on macroeconomic andstructural reform, the reform process has remained fragile. The fragility has its roots in the lack of

13

tangible benefits which could undermine the population's and the external community's continuingsupport for reforms.34. The question as to why economic reform has not yet brought benefits to the average Zambianwas a constant theme in the CAS/CDF consultations. The following insights emerged:

* There was little basis for growth until the core reform agenda, especially on liberalization andprivatization, was well advanced. Unfinished items on this core agenda - ZCCM privatization andHIPC debt relief - remain essential for sustained growth.

* Government actions, while impressive on some fronts, fell short on others. The need forincreased transparency and accountability in fiscal management and for greater efforts to combatcorruption and improve public sector performance are widely acknowledged, including by thegovernment. Aid partners' dissatisfaction with other aspects of governance related to electionsand human rights curtailed the availability of public resources to support growth and reducepoverty, thereby contributing to the program's fragility.

* Greater efforts were needed to support the diversification and expansion of productive activitiesand increase productivity, creating jobs. Some inconsistencies in policy implementation,especially in the agricultural sector; the lack of supporting infrastructure and difficulties in ruralservice delivery, limited knowledge on how to compete in the global economy; outdatedtechnology; and lagging skill levels are key gaps.

• In addition to resource constraints, major policy reform and the need for institutionalstrengthening and capacity-building slowed progress in delivering health and education servicesto the poor along with other direct poverty interventions. Reaching vulnerable groups with basicservices, and increased attention to gender considerations, are essential for improving socialindicators.

* HIV/AIDS has become a major threat to sustainable growth and development. Unless aneffective prevention program is put in place, AIDS could erase gains under the reform program.

* A long-term shared vision was missing to guide decisions and support growth. Short-termeconomic and governance crises tended to "crowd out" longer-term development concerns. Anational dialog, led by the Government, to create a shared vision among all of Zambia's internaland external development partners, and increased regular consultation on the Government'sprogram, are critical if Zambia is to muster the necessary resources and political will to continueeconomic and social reform and undergo the fundamental change required for exponential leapsin productivity and poverty reduction.

35. These lessons have implications not only for the Government's strategic priorities, but forwhat its external aid partners can do as well. For the Bank Group in particular, this means:

* Continuing to emphasize sound economic management, with a particular focus on improvingfiscal management and the efficient use of scarce resources.

* Helping Zambia obtain HIPC debt relief as soon as possible.

14

* Placing a greater priority on governance, especially improving public sector transparency andaccountability, combating corruption and continuing efforts to increase public sector capacity andefficiency.

* Providing a real push on implementation, thereby supporting a pro-poor pattern of growth. Ifaccelerated, many of the IDA-supported programs could provide substantial infrastructure andother support for private sector-led growth, as well as improving social service delivery andproviding other help to the poor, especially in rural areas. Economic and sector work and carefulwork to ensure that HIPC debt service savings are used to bolster social sector activities and otherpoverty reduction measures will also support the implementation of a pro-poor developmentstrategy.

* Directly focusing most of IDA's new lending during this CAS period on removing constraints tosustainable, diversified growth. Also critical will be increasing IFC's direct support to the privatesector.

* Supporting a multi-sectoral, multi-donor HIV/AIDS prevention and treatment program, as well asstrengthening related activities in the ongoing portfolio.

* Using the CAS consultative process to encourage Zambia to start a national dialog on a long-termvision and Comprehensive Development Framework, tailoring the CAS to the emergingframework, and supporting regular opportunities for dialog and further work during CASimplementation.

36. These strategic lessons emerged not only from the consultations, but from an earlier ClientFeedback Survey (1997) and OED Country Assistance Review (1997). All three have also providedother lessons that can help the Bank strengthen its relationship with the Government and otherdevelopment partners. The Bank is generally regarded (together with the IMF) as the macroeconomic"watchdog" with the ability to grant or withhold crucial balance of payments support. The Bank'soverall objective of poverty reduction and its involvement in programs that directly benefit the poor aremuch less known. In particular, this points to the need for Bank staff to reach out more to relevantgroups within civil society. Previous efforts to build bridges to the private sector and NGO communityneed to become more systematic and inclusive, for example, of trade unions, church groups, and localmedia. Feedback also suggests that Bank operational staff need to be more proactive in detecting andresolving implementation issues, and that there is a need for increased flexibility and agility when mid-course corrections are needed. The need for greater simplicity in project design, with more tailoring toexisting capacity and local conditions, was frequently mentioned. While support for sector investmentprograms is generally strong, their complexity was acknowledged, along with an emerging view thatthey need to be balanced with some simpler, shorter-term project interventions. With respect to overallBank-Government relations, the Client Feedback Survey confirmed that these are generally strong,especially at senior Government levels. The relationship is marked by openness and candor.Nonetheless, there are periods of tension normally centered around policy disagreements or delays. Thelast such period was in the second half of 1998 when the Bank postponed an adjustment operation untilprogress resumed on the ZCCM privatization. The Government would like to see the Bank's supportbecome less conditioned and more understanding of the difficulties it faces. The Government wouldalso like to see a larger IDA investrnent program, with certain operations advanced (e.g., urban), butunderstands that capacity constraints limit what can be achieved.

15

37. Finally, there is some recognition that the Bank has increased its efforts over the last couple ofyears to provide information and foster improved coordination and common understandings among theexternal development partners. However, this is an unfinished agenda. First, at the local level, formalaid coordination mechanisms and links between the Government and the development partners arerelatively weak and have only recently started to improve. Secondly, there have been somemisunderstandings surrounding the criteria for IDA lending, particularly with respect to governanceissues, resulting in occasional tensions in the partnership. IDA's support is based and will continue tobe based solely on economic (including economic governance) criteria. However, there is fullrecognition that Zambia's program cannot be fully funded and sustained without support from thebilateral partners for whom political governance is an important aspect. Continuing joint work on theformulation and implementation of a comprehensive development framework is important in thiscontext since it will allow partners to concentrate on their specific areas of priority and comparativeadvantage while underscoring a holistic approach towards development.

Objectives, Strategic Priorities, and Selectivity

"We need to address the issues that are hindering our ability to implement projects and getresults. - Senior Government Official

38. The long-term objective of the Bank's work in Zambia is to increase incomes and livingstandards for the vast majority of Zambians who are poor. The short-term objective of the CAS is tosustain positive growth rates and show that economic reforms are beginning to bring tangible,measurable benefits to the Zambian people, especially the poor. The target is an annual growth rateof at least five percent. However, the base case assumes a more modest three to four percent growthrate based on Zambia's history of periodic shocks. This growth rate, while realistic, will not bringsignificantly reduced poverty in the near term. The challenge for this CAS is to get Zambia on asustainable growth path that will ensure more rapid growth and poverty reduction in the future. Inaddition to the performance indicators in the CAS matrix (Annex B 10), progress will be measuredexplicitly in terms of improvements in the social indicators and poverty trends listed in Box 1.

39. The CAS' strategic priorities have been formulated to directly link to the basic elements in theGovernment's program and the CDF (Figure 1). Ongoing IDA-supported projects and non-lendingactivities are spread quite broadly over all three strategic priorities in the CDF - removing constraints tosustainable, diversified growth, improving governance, and increasing access to basic services and directpoverty interventions. In contrast, new lending during the CAS period would be concentrated onremoving constraints to diversified growth (two-thirds of new operations and 75 percent of IDAlending amounts). This strategic choice reflects several key factors. First, IDA already has animportant ongoing involvement in social sector investment programs with other aid partners. Secondly,as illustrated by current donor support classified in the CDF matrix, a number of other aid partners havegiven priority to governance and the social sectors. Thirdly, this choice also reflects the short-runstrategic importance of this set of investments if the economy is to diversify and growth is to resume andcontinue, leading to sustained poverty reduction.

40. While the strategy is selective, poverty reduction remains at the center. Without laying thefoundations for more dynamic future growth, there is little hope of improving the welfare of the majorityof poor Zambians. At the same time, many of the growth-enhancing operations proposed in this CAS(e.g. the Copperbelt Services Project and the Local Development Fund -- the latter, for instance, wouldsupport social investments benefiting poor communities, building on Zambia's and other countries

16

successful experience with social fund programs) will also directly improve the lives of the poor. Inaddition, IDA will continue to monitor and have a strong presence in the social sectors through its directinvolvement in sector investment programs and HIV/AIDS prevention; its economic and sector workprogram which includes a social sector strategy and an analysis of public spending priorities and theirimpact on the poor; work on the HIPC initiative and the use of debt service savings to increase fundingfor poverty reduction activities; and its continuing support to the Government on CDF-related work.Because of this, should gaps emerge, IDA will be well positioned to respond quickly with support to thesocial sectors beyond what is currently planned.

Strategic Priority I: Removing Constraints to Sustainable, Diversified Growth'

"Zambia cannot continue to depend on the mines. " - Mine Owner

41. Macroeconomic Management. Annual PFPs will set out the economic reform agenda tounderpin growth. Fiscal management reforms, financial reform and debt relief will be the major thrustof Bank-supported activities. Pension reform, improving budget management, including the cashbudget system, and establishing a medium-term expenditure framework, are areas expected to besupported by the next adjustment operation. Policy advice on improving fiscal management willcontinue throughout the CAS period. A financial sector study, to be undertaken in the latter half of theGAS period, is expected to identify further reforms, particularly in financial market development,including term lending, and banking oversight and supervision. Assisting Zambia to obtain HIPC debtrelief will be a major activity, with the expectation that Zambia will reach the decision point in FYOOand a completion point as soon as possible thereafter.

42. Private Sector Efficiency and Competitiveness. The entire Bank Group, including IDA,IFC, and MIGA, has an important role to play in this area. Several past adjustment and technicalassistance operations have supported regulatory reform and Zambia's far-reaching privatizationprogram. Support for the Zambia Privatization Agency will continue under the Public SectorCapacity-Building Project, and steps toward the privatization of key utilities will be supported undera FYO1 adjustment operation. To facilitate the completion of the ZCCM privatization, the Bank willsupport a Mining Municipal Services Project, providing transitional management arrangements forservices previously provided by ZCCM, but no longer provided by the new, private mine owners.IDA will also support the Government's environmental mitigation efforts to clean up pastenvironmental problems left by ZCCM and the private concessioning of Zambia Railways, importantfor the transport of needed inputs and copper exports. If required to ensure the successfulprivatization, IDA is also prepared to consider some form of partial risk guarantee. The Bank willcontinue to regularly monitor developments in the mining sector.

43. A major piece of economic work (postponed from the last CAS), Local Growth Centers, willfocus on identifying specific constraints to private sector competitiveness and growth in two or threepotential growth regions. As part of the study, some detailed business strategy pilots and case studieswould be developed focusing on potential growth sectors, e.g., agriculture, tourism, services andmining outside of copper. Because agriculture is central to Zambia's prospects, special attention willbe devoted in the study to reviewing the Government's and the Bank's rural development strategy tostrengthen the sector's ability to contribute to reduced poverty, food security, and sustainable growth.

The following paragraphs highlight key Bank activities in each area. Annex C summarizes the development partners'activities in each area. For a detailed listing of related Bank activities, see Annex BlO, the CAS Program Matrix.

17

The strategy focuses on: a) maintenance of a sound macroeconomic environment and a consistent,liberalized agricultural policy environment; b) improved service delivery to both the commercialfarming sector and small farmers, through the Agricultural Sector Investment Program, to encouragecrop diversification out of maize and into higher value crops and to increase both productivity andfarmed area; c) a complementary program of direct investments at the village level to supportinfrastructure and economic subprojects through a Local Development Fund; and d) additional work,as part of the Local Growth Centers and Financial Sector studies, on ruralfinance, a key bottleneckconstraining the capacity of commercial farmers to expand and diversify. In addition, ongoinginvestmnents in the road network, including feeder roads, are accelerating. In the past, the absence ofspecific elements of the strategy - in particular, uneven progress towards macroeconomic stabilityand some confusing sector policy signals - had slowed agricultural growth. A more consistent policyenvironment, coupled with improved service delivery under the Agricultural Sector InvestmentProgram, should set the foundation for steady agricultural growth over the next years. There arealready some positive signs: since the early 1990s, largely agro-based, non-traditional exports havegrown rapidly, and now account for one-third of total exports. Progress will be regularly monitoredagainst the key performance indicators under the agricultural sector program.

44. In addition to agriculture, tourism is a potential growth sector because of abundant wildlife andextensive national parks. The strategy is to encourage private sector development of upscale, limitedeco-tourism, capable of creating well-paying jobs while conserving the environment and reducing thepressure on public services and infrastructure. Sector work on the complementarities between acompetitive tourism industry and sound environmental management could set the stage for possibleIDA support for national park management and related infrastructure. In the service and smallmanufacturing sectors, the ongoing Enterprise Development Project is providing a credit facility,training programs and matching grants to help firms adapt to the newly competitive environment andimprove technology and marketing.

45. Zambia has the potential to become a significant market for IFC. Recent FIAS work assistedthe government in reforming the basic regulatory environment for private participation. The IFC,which participated in the CAS process, including the CAS Country Team retreat, is focusing onbuilding up its modest portfolio in Zambia. The current IFC portfolio is US$14.21 million, withanother US$5.5 million approved but not yet committed. Investments include agribusiness, tourism,finance and insurance, mining services, and telecommunications. In addition to direct financing,small and medium-sized enterprises are receiving technical and advisory services through the AfricaProject Development Facility (APDF) and Africa Management Services Company (AMSCO). TheSME pipeline is strong and is expected to continue. As part of the privatization of ZCCM, IFC isexploring its reengagement in the mining sector. Promotion efforts recently have been increased toidentify new project opportunities. In 1999, MIGA issued a $1.8 million guarantee for its first projectin Zambia to cover an investment in the manufacturing sector. It has 14 applications pending formore than US$500 million in investments in the agribusiness, mining, manufacturing and powersectors. In addition, MIGA is providing a variety of capacity building and information services. Forexample, MIGA held an economic diplomacy training workshop for Zambian embassy staff in tencountries in late May 1999, and Zambia is one of the pilot countries for MIGA's Privatization Link,which profiles investment opportunities arising from privatization.

18

46. Infrastructure. Reducing transport costs will help increase international competitiveness andunderpin growth in agriculture, tourism, manufacturing, and mining. Work on a national transportstrategy will assist the Government in implementing its new transport policy which emphasizes anincreased role for the private sector. The strategy will identify complementary legislative andinstitutional reforms, analyze intermodal tradeoffs and investment decisions, and recommend anappropriate regulatory framework to encourage private sector initiatives. To support the new transportpolicy, IDA, along with other partners, is financing a first phase of a ten-year road sector program,addressing the backlog of road maintenance and institutional and financing reforms. Followingcompletion of the transport sector strategy, preparation for a second phase of this program will begin.IDA will also support a project to facilitate the private concessioning of Zambia Railways.

47. IDA is also supporting other infrastructure activities. The Mining Municipal Services Projectwill ensure that key urban services and infrastructure, related to water supply, sanitation, and solidwaste management, will be properly managed and maintained in the post-ZCCM privatization period.This effort, along with the experience gained under the ongoing Urban Restructuring and WaterSupply Project, is expected to lead to an expanded local government and urban infrastructureprogramn. Preparation of this program will begin during this CAS period. Increasing private sectorparticipation in the petroleum, energy and telecommunications sectors are important policy objectiveswhich could lead to future IDA guarantees and IFC support to private ventures. This has alreadybegun, with IFC's recent investment in Zambia's cellular phone industry.

48. Environmental Management. Agriculture and tourism, potential sources of growth andemployment, are heavily dependent on Zambia's ability to prevent the degradation and depletion ofnatural resources. The ongoing IDA-supported Environmental Support Program is focusing oninstitutional development, capacity building, public information, research, and community pilotprojects in environmental management. The rural development strategy work within the LocalGrowth Centers study will highlight natural resource management issues, and a sector study onZambia's tourism potential will concentrate on related environmental management and protectionissues. This work could lead to future IDA and Global Environmental Facility (GEF) lending in thisarea. Mining-related pollution and access to safe water are also serious environmental problems.Previous IDA support for a revision of Zambia's environmental laws and regulations related tomining is beginning to have some impact. IDA will also support environmental mitigation actionsdevolved to the Government as a result of the ZCCM privatization. Also, in addition to supportingurban water supply investments, IDA, together with other partners, is providing technical assistanceand policy advice for Zambia's Water Resource Action Plan (WRAP) which aims to ensuresustainable water resource development. Because natural resource management is of particularimportance over the long-term, a set of environmental indicators will be monitored throughout theCAS period and beyond (Appendix to CAS Program Matrix).

49. Knowledge and Innovation. Given Zambia's need to diversify and compete on world marketsin areas other than basic commodity exports, capacity-building and knowledge generation are central toits growth prospects. This and the changing structure of Zambia's formal employment sector, followingretrenchments in the mining and public service sectors, have lent increased importance to investing inpeople to produce a workforce that has the flexibility to acquire new skills. With others, IDA is helpingto prepare a Training Subsector Investment Program, which will focus on the cost-effective provision ofnew skills, including for retrenched workers. It will involve intensive collaboration with the privatesector in its design and implementation. The overall status of tertiary education will be reviewed as partof a social sector strategy. Under an IDF grant, Zambia was one of the first southern African nations to

19

rapidly expand internet use, and the World Bank Institute is planning to include Zambia in the GlobalLearning Network in FYO1/02. Zambian officials will continue a tradition of enthusiastic and frequentparticipation in World Bank Institute training courses. In addition to these programs, capacity-buildingand training are being carried out under each IDA operation and are especially intensive in the sectorinvestment programs. Finally, to encourage innovative thinking as part of the work on theComprehensive Development Framework, the Country Team is planning to sponsor a series ofworkshops and guest speakers to stimulate debate on emerging global trends and lessons of particularrelevance to Zambia. This program began during the CAS consultations.

Strategic Priority Il: Improving Governance2

"Who 's monitoring Government?" - NGO Representative

50. The Government's program to improve governance centers around increasing transparency andaccountability and combating corruption; improving public sector capacity to make governmentinstitutions and employees more efficient and responsive; and strengthening local government toincrease participation and accountability at the grassroots level. The Government has prepared acomprehensive governance program covering both political and economic aspects. The program iscurrently under discussion with its extemal and internal partners. IDA will support the economicaspects through: a) assistance in galvanizing support among the external partners to help finance theprogram; b) direct support to the Public Sector Capacity Building Program and a Local DevelopmentFund Program; and c) non-lending activities, including support for fiscal management reform andpolicy advice and technical support for decentralization.

51. Transparency and Accountability. The Government's governance program highlightscapacity-building and reform efforts towards increased transparency and discipline in the use of publicresources. Public auditing and procurement improvements began under the Financial Management andLegal Upgrading Project (FILMUP). This work will be continued and intensified under the PublicSector Capacity Building Program (PSCAP) and is one of the program's central themes. It will becomplemented by the fiscal management reform work supported by the next adjustment operation. Thegovernance program describes actions underway to strengthen the institutions responsible forinvestigating and prosecuting corruption. Zambia is also considering joining GCA (Global Coalitionfor Africa) efforts and programs to combat corruption, and the Country Team will facilitate this to theextent possible. The Annual Budget Speech, a detailed public account before Parliament of theGovernment's budget and program, has been a critical part of information dissemination. In addition,the Government has agreed to make the recent PFP and this CAS publicly available. Finally, aGovernment-led national dialog around a long term vision and a comprehensive developmentfiamework will be an important tool to share information and improve public spending programs.

52. Public Sector Efficiency and Capacity. Capacity building efforts are ongoing under thesector investment operations, and public sector reform was the major theme of the FY99 adjustmentoperation. Comprehensive public sector reform in Zambia - including retrenchments, improvingincentives, performance management, training, and revamping a wide array of personnel-relatedsystems - will take a number of years. The next adjustment operation will help strengthen the pensioninstitutions to facilitate a more efficient and equitable retrenchment of public sector employees. Workwill continue under the multi-partner PSCAP.

2 Under "Improving Governance," political governance is part of the proposed CDF, but is not part of the Bank's CAS.

20

53. Local Government and Decentralization. Strengthening local government is a priority forthe Zambian Govermment, but the policy framework is not yet complete. Work on an overall localgovernment and decentralization policy has been ongoing for some time and could be supported byfuture IDA adjustment lending. In the meanwhile, IDA will provide support for a Local DevelopmentFund program - the successor to both the Social Recovery Fund and the Rural Investment Fund -which will support capacity-building and local development initiatives, particularly in rural areas.Also, pilot decentralization efforts in a few urban areas are being supported by an ongoing urbanoperation, and the Copperbelt services operation is designed to be consistent with increased localgovernment responsibilities in the future. In addition, the agriculture, health, and education sectorprograms are based on decentralized management and implementation structures. These differentdecentralization initiatives are providing valuable lessons. At some point, these experiences will needto be harmonized, and IDA is prepared to provide periodic policy advice and technical assistance.Once the policy framework is in place, IDA would also assist in the preparation of a new localgovernment/urban program.

Strategic Priority III: Increase Access to Basic Services and Direct Poverty Interventions

"School in Zambia is becoming somethingfor the privileged. " -Academic

54. HIV/AIDS Prevention. The devastating social consequences of AIDS and its adverse impacton skills and growth argue for a concerted multi-partner effort. IDA will support a multi-sectoralHIIV/AIDs Control and Prevention Program. In addition to this program, ongoing IDA programs, witha special emphasis on the sector investment programs, will be reviewed with the objective of includingHIIV/AIDS related activities and information. The first of these efforts is a joint study under the basiceducation sector program to review how education and training programs can assist in the overallstrategy to fight AIDS. This study is critical given the numbers of teachers with the AIDS virus and theplight of the growing number of children who are orphans because of AIDS. Finally, IDA will use itsaid coordination role to heighten awareness and galvanize expanded assistance.

55. Education and Health. IDA, along with many other external partners, is supporting sector-wide programs in basic education and health. Future IDA support in the social sectors will be guidedby the completion of a Social Sector Strategy. Provided reforms and implementation continue apace,it is likely that IDA, with the other partners, will continue to support these vital services throughsector-wide programs.

56. Targeted Programs for Vulnerable Groups. In addition to HIV/AIDS, there are othertargeted activities that IDA will support during this CAS period. The first is the Local DevelopmentFund Program which will provide basic social infrastructure determined and implemented by poorcommunities. This program will continue to support periodic poverty analysis and assessmentscurrently carried out under the Social Recovery Fund program. The second area of focus is gender.In recognition of the pivotal role of women in the economy, IDA has a two-pronged strategy. First,IDA-supported projects and programs are designed taking into account that in many cases women arethe primary beneficiaries. The agriculture, education, and health sector programs all include activitiestargeted to women, and the HIV/AIDS and Local Development Programs will particularly benefitwomen. Secondly, through several non-lending activities, including the financial sector study, therewill be an emphasis on identifying and removing constraints to women's full participation ineconomic activities. Finally, a special study will look at key areas of public spending and ways toimprove targeting to the poor. The findings will be particularly relevant to ensure that the

21

incremental resources made available as a result of HIPC debt relief are effectively used for povertyreduction.

The Bank's Program - Portfolio Management

"Implementation is a problem in this country. "- NGO Representative

57. Portfolio performance over the last several years has generally been good. However, with theeconomic standstill and budget shortfalls in the last eighteen months, performance and disbursementshave noticeably lagged. There are currently fourteen projects totaling just over US$675 million in theZambia portfolio (as compared to seventeen projects totaling about US$650 million at the start of thelast CAS period). Of these, there is one adjustment operation for about US$170 million, about 25percent of the total portfolio amount. A floating tranche related to public sector reform was releasedin July 1999, and the final tranche will be released when the ZCCM sale is completed. Of the thirteenremaining projects totaling just over US$500 million, about US$335 million or 67 percent remainsundisbursed. Four projects, just over 28 percent, are considered to be at risk (as opposed to just underhalf in mid FY-98). Of these, three projects, representing about one-third of the undisbursedbalances, are currently classified as problem projects. Disbursement ratios in FY97 and 98 were inthe 19-21 percent range, but reached only 13 percent in FY99. This partially reflects an overallslowdown in implementation, but also reflects the addition of two large sector-wide infrastructureprojects during the last quarter of FY98. Because of procurement lead times and startup delays,disbursements under these operations are off to a slow start. (Table 2).

_Table 2: Problem ProjectsPROJECT ACTUAL PROBLEM AT ISIC

* Agricultural Sector I Prioy, butno longer No* Reath Secor Yes Actual

(Amn Oman in place, but actiondelayed; specalchniCal review

aeed Wi Governnt to determinenext steps)

* Enterprise Dovelopment Yes Actual(Action p1wagreed - perormance

lely t impove in coming months)* Patrleam Rehabilitation Yes Actual

.(Lng-Tem Probm Prjoct Qualittyat Enty issu; No ageement on

actioE; Suspensionwaing issued

* Power Sector Rehabilitation potential Potential(Quality at Entry I=ssusfinacia

. t~~~~~~~~~vaiity and complexit are major-________________________ , ssues; needs early reSe r ur

58. During the first round of CAS consultations, the Government and the Bank agreed toimmediately undertake a joint Portfolio Review, resulting in an overall Portfolio Improvement Planto accelerate implementation and specific action plans for each problem project and project at risk.The Bank's Lusaka office had overall responsibility for the review, which has just been finalized.The targets are to bring the percent of problem projects and projects at risk to 10 percent and 15percent, respectively, and the disbursement ratio to 18 percent, by the end of FY00. The respectivefigures for FY01 are: less than 10 percent problem projects, 10 percent projects at risk, and a 20percent disbursement ratio. The portfolio review has already yielded results since the number of

22

projects at risk has been significantly reduced since the middle of FY99, and there is agreement onthe way forward for two of the three problem projects. In addition to the Portfolio Review andresulting actions, restructurings and closings, other measures are being taken to shore up portfolioperformance. The Ministry of Finance is to establish a new directorate to monitor and coordinateextemally-financed projects, beginning with the IDA portfolio. This will help to ensure timelyfollow-up of issues with line ministries and implementing agencies. The Bank's Lusaka Office hasbeen upgraded and expanded. Under the guidance of the Resident Representative and a SeniorOperations Officer, seven professionals have been locally recruited for implementation follow-up inagriculture, social sectors, financial management, procurement, macroeconomic management,information technology, and civil society partnerships. The decision to recruit both a procurementand a financial management specialist reflects an increased focus on these issues, and team leadershave been asked to strictly follow Bank procurement, financial management, and auditing guidelinesto ensure proper management of IDA-supported operations.

The Bank's Program - Scenarios and Proposed Lending

"The Bank should ensure capacity is in place before undertaking a project and think morecarefully about the launching ofprojects. "- Project Manager

59. Base Case Scenario and Lending Program. The base case scenario is one in which Zambiacontinues to carry out its reform program as outlined in the most recent PFP. The ZCCM privatizationwould be completed by end-1999. Zambia would be declared eligible and reach the decision point forthe HIPC Initiative sometime in FY00. While in one or more years, growth would reach five percent orhigher, the base case assumes an average growth rate of three or four percent (lower than that in thecurrent PFP) over the next three years, reflecting Zambia's tendency to experience periodic shocks andpolicy implementation delays which curb growth. Copper production and exports, bolstered byprivatization and new investment, would begin to recover from current low levels, increasing by about7 percent per annum over the medium term. Growth in non-traditional exports would resume,averaging about 10 percent. Increased attention would be focused on implementing infrastructure andsocial sector investment programs. Zambia would be spared major involvement in regional conflicts,and the overall governance environment (including preparations for the 2001 national elections) wouldbe satisfactory, enabling the continuation of substantial support, including balance of payments support,from the international aid community. The Government would sponsor a national dialog with itsexternal and internal partners on a long-term vision and comprehensive framework for Zambia'sdevelopment. The stage would be set for higher growth rates in subsequent periods.

60. The base case lending over the three-year period would total about US$375 million. Thislevel is considerably less than the US$510 million in new commitments undertaken in FY97-99 andis in line with the upper limits of IDA authorized lending for FYOO-02. The exceptional FY97-99commitments were consistent with the base/high case in the previous CAS and considerably higherthan the IDA authorized lending allocation, a recognition of Zamnbia's extraordinary needs for balanceof payments support. In this CAS, the need for balance of payments support would be reducedtowards the end of the period because of debt relief provided under the HIPC Initiative. Nonetheless,adjustment lending (two operations in FY00 and FY01) would still account for just under 50 percentof new comnmitments.

61. The base case investment program is aimed at removing critical, specific constraints to growth(e.g., private concessioning of the railways, vocational and technical training) and addressing high

23

priority issues related to social welfare and governance, especially HIV/AIDS and public sector reform(para. 39-40). The Public Sector Capacity Building Program is being designed as an AdaptableProgram Credit (APC). The training operation will be a sector-wide program with other partners. Thebase case investment program is predicated on satisfactory portfolio performance (paras. 57-58). In theevent that this does not occur, some or all of the investment operations scheduled for FY01-02 wouldbe delayed. Also, if sufficient funding is available from other partners for any operation (e.g.,HIV/AIDS prevention and control), IDA will not lend and will restrict its role to technical support.Finally, if preparation advances on the regional Africa Guarantee Facility (AGF - providing politicalrisk guarantees for short-term trade credits) and Zambia elects to participate, a small IDA operationcould be advanced into the base case to cover Zambia's contribution to the AGF. The base case lendingprogram is shown in Annex B2.

62. The indicators for the proposed base case lending program are monitored on an ongoing basisby the Bank's Country Team and include:

* Substantial adherence to the macroeconomic and structural policies and timetables forimplementation outlined in the current PFP, with particular emphasis on sound fiscal managementand establishing a medium-term expenditure framework.

* Satisfactory efforts towards improved portfolio performance, including completion and periodicreview of the joint Portfolio Review; agreed action plans satisfactorily implemented or Bankremedies applied for problem projects; and achievement of portfolio performance improvementtargets for end-FYOO (10% percent or less problem projects, 15% percent or less projects at risk,and at least an 18 percent disbursement ratio) and beyond (para. 58).

* Formulation, implementation and periodic discussions with external partners of a comprehensivegovernance program, including specific government actions related to combating corruption andpublic sector reform and capacity-building. In order to track progress in this area, two or threepriority actions and/or performance indicators will be agreed annually. For FY00, these indicatorsare: timely release of budget allocations for the Anti-Corruption Commission and the opening ofat least one additional local office for the Commission in the Western, North Western, or LuapulaProvinces; and startup of the PSCAP program, including the meeting of PSRP targets for 2000.

* Budget allocations and actual expenditures in accordance with priorities and spending targetsagreed by the Government and its external partners in the annual review of the education andhealth sector programs and in the PFP.

During preparation of this CAS, the joint Portfolio Review and the governance program were completed,and Zambia is currently operating in the base case. Over the past few years, Zambia generally has beenoperating in the base case. However, there have been periods (e.g., the second half of 1998) whendelays in critical policy actions have led to temporary lapses into the low case. It is the intention of theZambian Government to consistently sustain performance at base case levels or above.

63. High Case. Under the high case scenario, economic recovery would be swift and Zambiawould quickly attain a sustainable growth path upon completion of the ZCCM privatization. Averagegrowth rates could exceed 5 percent, based primarily on a more rapid increase in copper and non-mineral exports than under the base case. The rural development strategy would bear results, andagricultural performance would be strong, averaging five percent or better. While the policy directionwould be the same as under the base case, some key remaining reforms would be advanced, includingprivate sector involvement and privatization of energy-related parastatals. Public sector reform wouldproceed with the needed retrenchments, salary decompression, training and new performance standards.

24

Implementation of the governance program would lead to significant improvements, and external aid(including HIPC debt relief) would stabilize and increase. Portfolio performance would be good, and anumber of operations, including second phases of the agriculture and health sector investmentprograms, an urban/local government program and the AGF operation, could be advanced into thelending program. Lending would increase to a range of about US$410 to US$500 million depending ona number of factors, including the pace of public sector reform, sustained reforms in the health andagriculture sectors, and the level of overall confidence in Zambia demonstrated by the internationalcommunity. The higher end of the range would be a recognition of exceptional efforts and performanceby the Government. Triggers for the high case would include all of the base case indicators plus:

* Portfolio performance exceeding the targets specified in the Portfolio Improvement Program(para. 58).

* An improving trend on governance, as measured by improvements in PREM/DEC Indicators onInstitutional Quality.

* Deepening reforms in the agricultural and social sectors leading to improved performance, asmeasured by the key performance indicators established for the agriculture, health, and educationsector programs.

* Continuing progress with external and internal partners on a comprehensive development frameworkfor Zambia, including the establishment of agreed milestones, targets, and monitoring mechanisms.

64. Low Case. The low case scenario involves civil strife, Zambia's being drawn into regionalconflicts, or governance problems which severely impede economic reform efforts. The low casecould also occur if economic policy were substantially altered toward reasserting state control ofproductive activities. A final cause for Zambia's entering the low case would be a failure to concludethe sale of the remaining assets of ZCCM, resulting in the company's liquidation and severe socialproblems on the Copperbelt. Whatever the cause, the low case would be characterized by recession,high and increasing inflation, and a severe shortfall in balance of payments support. HIPC debt reliefwould be significantly, if not indefinitely, delayed. Triggers for the low case include:

* Significant reversals in economic reform policies, especially related to overall macroeconomicmanagement, agriculture, the financial sector, privatization and trade policy.

* Governance actions which cause the external development partners to withhold balance ofpayments support for an extended period.

* Reductions in the non-salary share of public spending for primary health care and primary education.* No sale of ZCCM's remaining assets and the company's subsequent liquidation.

Provided that Zambia continued to meet its debt service obligations to the Bank, disbursements for on-going operations would continue as would non-lending services. Lending would be pared back to US$90million over the three-year period. A total of four operations would focus on critical needs: Copperbeltmunicipal services; public sector reform, a social recovery fund, and HIV/AIDS Control and Prevention.The low case scenario is not sustainable for long, since Zambia would experience large shortfalls inexternal financing needed to service its external debt to the Bank and others. In the event that Zambia isunable to meet its obligations towards the Bank, disbursements and new lending would be suspended,with only selected non-lending services continuing. If the low case were triggered by the prospectivebuyers' decision not to acquire ZCCM's remaining assets and the company's liquidation, this would alsotrigger an emergency response by the Bank. This emergency response would include calling animmediate Consultative Meeting to discuss short-term actions and the complete reformulation of thisCAS given the radical alteration in the country's economic environment and development prospects.

25

Non-Lending Services

"We in Zambia need to understand how the world economy works in order to survive."- Businessman

"Something needs to be done about the crushing effect of debt on the poor."- NGO Representative

"We need more opportunities for dialog. " - Foreign Ambassador to Zambia

65. Analytical Work, Policy Advice, and Debt Relief.Analytical work is a necessary investment at this time if theBank is going to help Zambia make the transition to a . . , o .wbroad-based economy capable of competing on worldmarkets with a range of innovative, knowledge-basedservices and products. Box 5 summarizes the Economicand Sector Work program, while Box 6 lists specialinitiatives and areas where the Bank, on request from the Government, will provide informal policyadvice and technical support. In addition, the Bank, the IMF, and the Government will prepareannual Policy Framework Papers.

66. Development Partnerships.Fostering and participating indevelopment partnerships is a big part ofthe Bank's work in Zambia. Three aspects .will receive priority attention during this .CAS period. The first is short-term aid ;; @ i v Eicoordination. Because of the large 0 W s T samounts of support Zambia requires, mcoupled with occasional performan ce ______

delays or shortfalls on matters of particular concern to its partners, aid0 coordination is essential and required on a *virtually daily basis. In addition to formalConsultative Group Meetings chaired bythe Bank, there are regular contacts among senior officials representing Zambia's major externalpartners. The external partners look to the Bank for economic policy guidance, briefings, andcoordination. At the local level, the Bank actively participates in a newly formed local aidcoordination group under the chairmanship of the UNDP.

67. Quite apart from short-term aid considerations, Zambia's development partnerships - bothinternally and externally - need strengthening if Zambia is to develop a realistic long-term vision andrealize growth and prosperity for its citizens. During the CAS consultations, the Bank began topromote the idea of a government-led national development dialog which would involve all of thepartners in the formulation and implementation of a Comprehensive Development Framework. TheBank will continue to support this important work during this CAS.

68. The third priority area for partnerships is within the Bank Group and between the BrettonWoods institutions. The World Bank Institute and IFC have been active in Zambia and plan tobecome more so. As the economy improves, there is likely to be a growing demand for MIGA

26

guarantees as well. The Country Team structure has proven useful for sharing information andimproving coordination within the Bank Group. Bank/IMF cooperation is fundamental to Zambia'sfuture prospects. The ZCCM privatization and public sector reform are just two of the areas whereclose coordination has been needed. In addition to joint economic reviews and PFPs, work on theHIPC initiative will demand an even closer relationship between the two institutions.

Risks and Conclusion

69. As noted in previous CAS documents, the Zambia program is high risk. The legacies of thepast - high indebtedness and heavy dependence on foreign aid; over reliance on copper; mountingpoverty and eroding social indicators; scant experience with transparent and accountable government -have all caught up with Zambia and place its impressive economic reform efforts in constant jeopardy.A further delay in completing the ZCCM privatization, a fuirther fall in copper prices, governanceactions which hinder growth and/or cause external partners to withhold balance of payments support,and social unrest among retrenched workers or the poor could derail the program outlined in this CAS.In addition, there are new threats because of the conflicts that surround Zambia in neighboringcountries and the HIV/AIDS epidemic. Although the program has been designed with these risks inmind, there is no simple way for the Bank to minimize or mitigate these risks. However, some of thekey objectives and actions foreseen under this CAS could lower at least some of these risks over thenext three years. First and foremost, Zambia's successful entrance into the HIPC initiative wouldprovide a more stable context and additional resources for poverty-reducing growth. The govemanceprogram, including public sector reform, could lead to a more responsive and accountable publicsector, as well as bolster international support. Work on a long-term vision and the CDF could resultin more robust internal support for the reform program and development objectives and actions that aremore focused, better designed, and able to generate the desired results. An effective HIV/AIDScontrol and prevention program could begin to turn the tide and lessen the disease's impact on growthand welfare. Improvements in services and infrastructure, along with knowledge and new insights thathelp firms compete, could hasten the transition towards a diversified economy and sustained growth.Over the last seven years, the Bank has played a key role in helping Zambia and its developmentpartners to sustain the reform process over a number of difficult moments and disappointments, and itwill undoubtedly have to play that role again. Nonetheless, new tools such as the HIPC Initiative andthe CDF, coupled with Zambia's steadfast commitment to reform, point to the way forward and makethe potential rewards for the Zambian people worth the risks.

"We need to recognize that the world does not owe Zambia a living - it's Zambia's choice."- Senior Government Official

James D. WolfensohnWashington D.C. PresidentAugust 13, 1999

bySven Sandstrom

27

REPUBLIC OF ZAMBIA: ANNEXES

CAS ANNEXES

Annex A2: Country at a GlanceAnnex B1: Selected Indicators of Bank Portfolio Performance and ManagementAnnex B2: Bank Group Program SummaryAnnex B3: Bank Group Fact Sheet - IFC and MIGA ProgramAnnex B4: Summary of Non-Lending ServicesAnnex B5: Poverty and Social Development IndicatorsAnnex B6: Key Economic IndicatorsAnnex B7: Key Exposure IndicatorsAnnex B8: IBRD Loans and IDA Credits in the Operations PortfolioAnnex B9: Statement of IFC InvestmentsAnnex B10: CAS Program Matrix

Environment Indicators (Appendix)Annex B II: CAS Summary of Development PrioritiesAnnex C: Comprehensive Development Framework (CDF)Annex D: Client Feedback Survey

MAP

28 Annex A2

Zambia at a glance

Zambia Africa Income Development dlamond^

fG! IPoWpula0 0 0 : 0iit ion mldysm (m0 0 t: :0 J i l0 | i 9 6. 28 3.515 Life expectancyGNP pe aia(ta ah4(8)30 486 620GNP (As io llia s) 3"2' f304 I1.844

AvPo ,anua roth 794

PoputiWon (% 2.6 Z2. 1.7

lib (t919:6;;::;j)j;:009 |0.0i09j:.S:00:t :: :00:: t3i;:it; 0X;0 2.8;F}0i;;0: l202;6SiQl2 2. C1.9 GNP GrossMoetre testimabb,ct. 924)it;0f;};:0 (latestXtlt34|};; Year available 00000000000 ;; t00$ttl caper primary1592-98) ~~~~~~~~~~ ~~Capita 7/ enrollment

Urban population (96 oF total populali on 44 < 33 iS4 31:

tmori(p.rl.OI,v.bitlhs) 11~ ~ ~~ ~ ~~~~~~~~3 91 69Ch $ 4ildi; malnutriQ: \tioRn.? (926:- of c:hild:e: un..........e.. 5);: 2 .. .. .. Acce to safe water

Acstosatewer(96ofpopula-5bn) 044 tiiti0t4341 ii:47; 74:_IllIteracy (96 oipopulaUon age 15w') ~~~ ~~~ ~~~~22.:' 42 32,

Gros rimryenrllent(9 ofrotoo-ae ppuatin) 89 7 08ZambiaMale f P $: ;0000; l i f 92 8 ;\i;i2 fi4 0 :11-300 : Low-income group

1377 1987 1997 ~~qli ~1998

Economic rmose

Grssd sicP ;0t ;:0Xi ; tTt t:-t:-i 0 tl;t24.7 05000000 012.?0 ';I;tit ;4,0 it2 12 . TradeEiposoloodEs and serIes/GaPnd 39.4 395 31.7 29.4TGross avings/GDP 221 16. 9, ii 3 5.3

Gross national savlngslGOP 13,5 ~~~0.4 P, -,

ItereSt0 0 -8.6.0002 0 0;;.; t04-0000-15.340 -t$0:itt.101.30 -0;004ji105.2200 ti Domestic

Total debt/GOP 0000 5 t lt01 }0;: 93A 292.00000 i *5 174W4 204.7 ,: Savings /Totaldebtservlce/exports 28,8 15.5 21.6~~~~~~~~~~~~IU 234,1

Present value DP debilrpoits I : 2 i . ,:

Indebtedness19747 98-98 199 19968 S99.03

OP 0.5 0.7 3.4 Zani

GNPtpe:rcapita .:;:;00ti: ;:0 7;:;j:::i:tit;0 0 04.10400:: -0 03*1.2;;;: ;5 0:1.420 .;00;t40 0 f1.-7 tLow-income groupExprsofg o s n e vice 0: ;0:j-3.9 04 2.1 10 : 4.6 i -7.5 : 6.4 _ __ __ __ __ __ __ __ __ __ __

STRUCTURE of the ECONOMY1977 1987 1997 1998 Growth rates of output and Investment (%)

(6 of GDP)Agriculture 18.1 12.0 18.6 .19.4 40

Industry 41.8 45.5 34.6 29.6 30

Manufacturing 19.6 28.5 13.5 12.8 20

Services 40.2 42.4 46.7 50.9 1

Pfvate consumption 51.5 63.1 79.4 83.8 .10 93 95 9S 97 9S

General govemment consumption 26.4 20.4 11.3 10.8Imports of goods and services 41.9 35.7 37.0 38.4 GDI GDP

(average annual growth) 1977487 1988698 1997 1998 Growth mtes of exports and Imports (%)

'Agicufture 1.4 -5.2 -5.1 -6.1 soIndustry -0.4 -3.5 8.7 -4.3 40

Manufacturing 1.8 -11.4 7.4 -1.0 20 WServices 0.4 8.1 3.2 4.4

Private consumpton 1.8 1.2 2.6 -1.4 -20 W 97

General govemment consumpton -2.1 -11.1 0.7 -9.6Gross domestic investment -9.6 10.3 25.4 -3.5 40Imports of goods and serices -5.1 -0.7 19.2 -8.2 -E *ports -*-ImportsGross national product -1.1 1.6 3.9 -1.8

Note: 1998 data are preliminary estimates.

The diamonds show four key indicators In the country (in bold) compared with its income-group average. If data are missing, the diamnond willbe incomplete.

29 Annex A2

Zambia

PRICES and GOVERNMENT FINANCE

Domestic prIces 1977 1987 1997 1998 Inflation (%)

(% change) 200Consurner prices 19.8 43.0 24.8 28.7 150Implicit GDP deflator 8.2 62.0 25.9 23.2 10

Govemment finance so(% of GDP) oCurrent revenue .. 19.8 19.8 18.1 93 94 ss 95 97 9SCurrent budget balance .. -7.3 1.4 1.4 GDP deflator CPIOverall surplusfdeficitexcl. captal grants, arcrual .. -5.8 -6.2 -9.5Overall surplusldeficit[Incl.capital grants, cash] -2.6 -1.9 -4.3TRADE

(US$ millions) 1977 1987 1997 1998 Export and Import levels (USS millions)

Total exports (fob) 897 867 1,119 874 ,Copper .. 736 623 442Zinc *- 51 185 143 _

Manufactures .. 42 180 186 r00Total imports (ci?) 683 669 1,056 1,022 ODe

Food .. 11 12 11 400 . _3 3Fuel and energy .. 67 87 59 2-Capital goods .. 250 665 687 o

92 93 94 9s 96 97 99Export price index (1995=100) .. 75 84 70Import price index (1995=100) 42 74 91 84 mExportS aImportsTerms of trade (1995=100) .. 101 93 83 _

BALANCE of PAYMENTS

(US$mn7,/i,nS) 1977 1987 1997 1998 Current account balance to GDP rato (S)Exports of goods and services 970 918 1,230 984Imports of goods and services 971 892 1,432 1,286Resource balance -1 27 -202 -302 -Net income -134 -344 -219 -190 10*Net currentttransfers .. -30 -16 -17 I-Current account balance -217 -347 -438 -509

Financing items (net) 179 611 470 347Changes in net reserves 38 -264 -32 161 -25 i

Memo:Reserves induding gold (USS millions) 94 111 238 69Conversion rate (DEC, locaWAUSS) 0.8 9.5 1,333.8 1,861.6

EXTERNAL DEBT and RESOURCE FLOWS1977 1987 1997 1998

(US$ millions) Composition of total debt, 1998 (USS millions)Total debt outstanding and disbursed 2,341 6,626 6,758 6,862

IBRD 293 555 62 42 G:374 A: 42IDA 0 260 1,493 1,544 F: 122 , : 1,544

Total debt service 259 171 282 244IBRD 26 28 40 25 AIDA 0 1 14 16

Composition of net resource flowsOfficial grants .. 105 378 240 E: 2,971Official creditors 70 99 87 74 C: 1,138Private creditors 42 -38 9 -32Foreign direct investment .. 0 70 219Portfolio equity .. .0 .. .. D: 671

World Bank program a/Commitments 60.00 43.00 158.00 145.00 A - IBRD E - BilateralDisbursements 46.00 98.00 118.00 157.00 B-IDA D - Other multilateral F - PrivatePrincipal repayments 6.00 26.00 49.00 31.00 C - IMF G - Short-ermNet flows 40.00 72.00 89.00 126.00Interest payments 20.00 34.00 18.00 16.00Net transfers 20.00 38.00 51.00 110.00

a/ Fiscal year 8/12/99Development Economics

30 Annex B1

Zambia - Selected Indicators ofBank Portfolio Performance and Management

Indicator 1996 1997 1998 1999Porfoilio Assessment

Number of Projects under implementation * 18 20 19 14 gAverage implementation period (years)b 3.35 3.80 3.80 3.30 sPercent of problem projects ac

by number 11.11 15.00 10.53 21.43 by amount 7.56 14.90 10.92 19.39 s

Percent of projects at risk a d

by number 23.53 23.53 21.43 28.57 "by anount 17.37 22.89 23.85 30.48 9

Disbursement ratio (%/o)C 12.07 21.78 19.32 13.00

Portfofio Management

CPPR during the year (yes/no) No Yes No Yes fSupervision resources (total US$) 1,673.59 1,539.19 1,933.56 976.1Average Supervision (US$/project) 92.98 76.96 101.77 61.0

Memorandum item Since FY80 Last five FYs

Projects evaluated by OEDby number 44 18by amount (US$ millions) 1207.42 510.22

Percent rated U or HUby number 43.18 44.44by amount 33.42 24.79

a. As shown in the Annual Report on Portfolio Performance (except for FY99)b. Average age of projects in the Bank's country portfolio.c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).d. Includes one potential and three actual projects at risk.e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the

year: investment projects only.f. Joint Portfolio Review.g. Reflects status as of July 1, 1999.

31 Annex B2

Zambia - Bank Group Program Summary, FY 2000-2002

Proposed IBRD/IDA Base-Case Lending Program, FY 2000-2002'

Strategic rewards' ImplementationbFY Project US$(AM) (H/M/L) risks (HIMIL)

2000 ECONOMIC REFORM 90.0 H HPUBLIC SERVICE CAPACITY (PSCAP) 25.0 H HCOPPERBELT SERVICES 25.0 H M

Subtotal 140.0

2001 RAILWAYS 20.0 H MLOCAL DEVELOPMENT FUND 45.0 M MECONOMIC REFORM 90.0 H H

Subtotal 155.0

2002 TRAINING SIP 20.0 M MHIV/AIDS PROJECT 20.0 H MCOPPERBELT ENVIRONMENT 40.0 H M

Subtotal 80.0

Total, FY 1999-2002 375.0

a. This table presents the proposed program for the next three fiscal years.b. For each project, indicate whether the strategic rewards and implementation risks are expected to be

high (ID, moderate (M), or low (L).

32 Annex B3

Zambia - IFC and MIGA Program, FY96-99

PastCategory 1996 1997 1998 1999

IFC approvals (US$m)' 0.00 13.85 .40 5.10

Sector (%)

0.00 0.00 0.00 0.00Financial Services 0.00 40.00 100.00 0.00Hotels & Tourism 0.00 20.00 0.00 0.00Infrastructure 0.00 0.00 0.00 100.00Timber, Pulp & Paper 0.00 40.00 0.00 0.00

TOTAL 100.00 100.00 100.00 100.00

Investment instrument (°)Loans 0.00 79.00 0.00 88.00Equity 0.00 21.00 100.00 12.00Quasi-Equity b 0.00 0.00 0.00 0.00Other 0.00 0.00 0.00 0.00

TOTAL 100.00 100.00 100.00 100.00

MIGA guarantees (US$m) 0.00 0.00 0.00 1.80MIGA pending applications (US$m) -- -- -- +500.00

aExcludes AEF projects.bIncludes quasi-equity types of both loan and equity instruments.

33 Annex B4

Zambia-Summary of Nonlending Services

Product Completion Cost Audiencea ObjectivebFY (US$000)

Recent completions

Prospects for Sustainable Growth 97 465 Bank, Govt., Donors Problemn solving, knowledge generationPolicy Framnework Papers 98/99 100 Donors, Public Problem solvingReview of Local istitutions 98 25 Bank, Govt., Public Knowledge generation, problem solvingFiscal Management Review 99 82 Bank, Govt., Donors Problem solving

Underway

Country Assistance Strategy 99 200 Bank, Govt., Donors, Public Problem solving, public debateZCCM Privatization Follow-up 00/02 200 Bank, Govt Problem solvingWater Resources Action Plan 00/02 75 Bank, Govt., Donors Problem solving

Planned

Formal:Policy Framework Papers 00-02 245 Govt., Bank, Public Problem solvingLocal Growth Centers Study 00/01 250 Bank, Govt., Donors, Public Knowledge generation, problern solvingPublic Sector Spending & Poverty 00 70 Bank, Govt., Donors, Public Problem solving, knowledge generationStudySocial Sector Strategy 00 100 Bank, Govt., Donors Knowledge generation, problem solvingTourism & Environment Study 01 100 Bank, Govt., Donors, Public Knowledge generation, problemn solvingFinancial Sector Review 02 85 Govt., Bank Knowledge generation, problem solvingTransport Sector Strategy 02 50 Bank, Govt. Knowledge generation, problem solving

Informal:Support to National Development 00-02 165 Govt., Bank, Donors, Public Knowledge generation, problem solving,Dialog and Comprehensive public debateDevelopment Framework (CDF)HIPC Debt Initiative 00/01 300 Govt., Donors, Public Problem solvingDecentralization Policy 00/02 85 Govt. Problem solvingFiscal Management Monitoring & 00/02 100 Govt., Bank Problem solvingSupportEnvironment Monitoring 00-02 150 Bank Govt. Knowledge generation, problem solving

Other:World Bank Institute Courses 00 Govt. Knowledge generationWorkshops on Global Economic 00/02 150 Govt., Donors, Public Knowledge generation, problem solvingand Business Trends Public debateGlobal Learning Network 01 /02 100 Govt., Public Knowledge generation

a. Government, donor, Bank, public dissemination.b. Knowledge generation, public debate, problem-solving.

34 Annex B5

Zambia Social Indicators

LWtest single year Same region/income group

1970-75 1980-85 1992-97 Sub-Saharan Low-incomeAfrica

POPULATIONTotal population, mid-year (millions) 4.8 6.7 9.4 612.4 2,035.6

Growth rate (% annual average) 2.9 3.1 2.2 2.2 1.7Urban population (% of population) 34.8 40.9 43.6 32.3 28.4Total fertility rate (births per woman) 6.9 6.9 5.6 5.5 4.0

POVERTY(% of population)National headcount index .. .. 68.0

Urban headcount index .. ..

Rural headcount index .. ..

INCOMEGNP per capita (US$) 600 360 370 510 350Consumer price index (1995=100) .. 0 183 118 122Food price index (1995=100) .. 0 146

INCOMEJCONSUMPTION DISTRIBUTIONGini index .. .. 49.8Lowest quintile (% of income or consumption) .. 4.2Highest quintile (% of income or consumptio 7) .. 54.8

SOCIAL INDICATORS

Public expenditureHealth (% of GDP) .. .. 2.9 2.5 1.0Education (% of GNP) 6.7 4.7 2.2 4.3Social security and welfare (% of GDP) 0.5 0.3

Net primary school enrollment rate(% of age group)

Total .. 85 75Male .. 89 76Female .. 81 74

Access to safe water(% of population)

Total 42 48 53 47 69Urban 86 70 66 74 80Rural 16 32 37 32 66

Immunization rate(% under 12 months)

Measles .. 49 69 58 74DPT .. 58 70 53 76

Child malnutrition (% under 5 years) .. .. 29Ufe expectancy at birth(years)

Total 47 51 43 51 59Male 46 50 43 49 58Female 49 52 43 52 60

MortalityInfant (per thousand live births) 100 88 113 91 82Under5(perthousand live births) 181 149 189 147 118Adult (15-59)

Male (per 1,000 population) 546 482 512 428 274Female (per 1,000 population) 460 413 524 375 255Matemal (per 100,000 live births) .. .. 230 .

World Development Indicators 1999 CD-ROM, Wold Bank

35 Annex B6Page 1 of3

Zambia - Key Economic Indicators

National accounts(as % GDP at currentmarket prices)

Gross domestic product 100.0 100.0 100.0 100.0 1000 100.0 100.0 100.0 100.0Agriculture' 13.5 16.2 15.4 16.3 17.3 18.0 18.0 17.9 17.9Industry" 34.7 31.6 30.4 30.4 26.4 27.0 27.3 27.4 27.1Services' 38.9 39.7 41.4 41.0 45.4 43.7 42.9 42.4 42.7

Total Consumption 90.7 91.9 91.3 90.7 94.7 95.4 93.3 91.2 90.4Gross domestic fixed 13.3 13.6 14.5 13.1 13.3 14.1 15.5 16.7 17.4investment

Government investment 7.0 7.0 5.9 5.2 7.7 8.0 8.2 8.5 8.7Private investment 6.5 6.9 9.0 9.3 6.6 8.1 8.8 9.2 9.7(includes increase instocks)

Exports (GNFS)b 35.1 37.6 33.8 31.7 29.4 32.5 33.8 35.7 35.6Imports (GNFS) 39.3 43.4 39.9 37.0 38.4 44.1 44.0 44.6 44.4

Gross domestic savings 9.3 8.1 8.7 9.3 5.3 4.6 6.7 8.8 9.6Gross national savingsc 1.7 0.6 2.0 3.3 -0.8 -2.6 -0.9 1.2 2.4

Memorandum itemsGross domestic product 3347.5 3497.7 3297.7 3875.4 3352.4 3145.6 3330.1 3596.5 3929.5(US$ million at currentprices)Gross national product per 340.0 330.0 350.0 380.0 330.0 330.0 320.0 320.0 340.0capita (US$, Atlas method)

Real annual growth rates(%, calculated from 1994prices)Gross domestic product at -3.4% -2.3% 6.5% 3.4% -2.0% 3.0% 3.5% 4.0% 4.0%market pricesGross Domestic Income -0.6% 0.4% 2.6% 5.4% -6.1% 0.2% 4.3% 5.2% 5.0%

Real annual per capitagrowth rates (%, calculatedfrom 1994 prices)

Gross domestic product at -6.1% -4.9% 3.8% 0.9% -4.3% 0.7% 1.3% 1.8% 1.7%market pricesTotal consumption -6.9% -1.5% -0.6% -0.1% -4.8% -0.9% -0.2% 0.6% 0.7%Private consumption -6.0% -1.0% 1.6% 0.1% -3.7% 1.3% -0.8% 0.1% 0.7%

(Continued)

36 Annex B6Page 2 of 3

Zambia - Key Economic Indicators(Continued)

Balance of Payments(USSm)

Exports(GNFS)b 1174.7 1316.0 1113.0 1230.2 984.0 1023.4 1124.2 1283.8 1400.2MerchandiseFOB 1067.3 1186.0 993.0 1119.1 874.0 919.5 1012.3 1163.1 1270.2

Imports (GNFS)b 1317.0 1518.0 1316.0 1432.4 1286.0 1386.0 1466.7 1602.7 1744.6Merchandise FOB 1003.0 1194.0 1055.0 1056.0 1022.0 1076.0 1181.7 1292.7 1406.6

Resource balance -142.3 -202.0 -203.0 -202.2 -302.0 -362.5 -342.5 -318.9 -344.4Net current transfers -19.0 -20.0 -17.0 -16.0 -16.8 -14.7 -15.4 -16.2 -17.0(including official currenttransfers)Current account balance -59.7 -146.2 -122.0 -239.5 -268.8 -332.7 -350.6 -374.4 -362.0(after official capital grants)

Net Private Foreign Direct 40.0 97.0 117.0 207.0 219.0 250.0 285.0 315.0 350.0InvestmentLong-termn loans (net) -97.0 -104.0 49.0 207.4 -48.0 23.5 149.7 132.6 216.2Official 87.1 116.6 86.0 87.0 115.0 -17.0 141.8 13.4 8.3Private -184.1 -220.6 -135.0 120.4 -164.0 41.5 8.9 119.2 207.9

Other capital (net, including .. .. .. .. .. ..

errors and omissions)Change in reservesd -155.0 -2.0 -52.0 -32.0 161.3 -62.8 -86.6 -101.3 -204.1

Memorandum itemsResource balance (% of -4.2% -5.8% -6.2% -5.2% -9.0% -1].5% -10.3% -8.9% -8.8%GDP at current marketprices)Real annual growth rates(1994 prices)

Merchandise exports 1.8% -4.9% -0.1% 12.2% -6.1% 10.6% 7.0% 7.0% 6.4%(FOB)

Primary -2.7% -10.4% -4.2% 7.2% -9.2% ..

Manufactures .. 12.9% 12.5% 11.3% -3.0% 9.0% 9.0% 9.0% 9.0%Merchandise imports 1.9% 10.1% -7.6% 5.5% 4.7% 4.8% 6.1% 6.4% 6.1%(CIF)

Public finance(as % of GDP at currentmarket prices)'Current revenues 20.1 19.9 20.6 19.8 18.1 18.7 19.1 19.5 19.6Current expenditures 27.9 24.2 18.5 18.4 16.7 20.2 19.8 19.2 18.6

(Continued)

37 Annex B6Page 3 of 3

Zambia - Key Economic Indicators(Continued)

Current account surplus (+) -7.8 -4.4 2.1 1.4 1.4 -1.5 -0.8 0.3 1.0or deficit (-)

Capital expenditure 4.0 5.1 8.7 7.5 10.9 10.7 10.6 10.7 10.8Foreign financing 9.4 9.3 8.4 8.9 9.4 ..

Monetary indicatorsM2/GDP (at current market 15.5 18.0 18.3 17.4 17.5 ..

prices)Growth of M2 (%/6) 74.8 55.3 34.4 24.0 21.5 ..

Private sector credit growth I .. .. .. .. .. ..total credit growth (%)

Price indices( 1994 =100)Merchandise export price 114.1 133.3 111.7 112.1 93.2 88.7 91.3 98.0 100.6indexMerchandise import price 124.5 134.7 128.8 122.2 113.0 113.5 117.5 120.8 123.9indexMerchandise terms of trade 91.6 98.9 86.7 91.7 82.5 78.1 77.7 81.2 81.2indexReal exchange rate 169.2 162.0 169.5 203.0 221.0 ..

(US$/LCU)JReal interest ratesConsumer price index 53.6% 34.2% 46.3% 24.8% 28.7% 26.5% 12.0% 12.0% 8.0%(% growth rate)GDP deflator 56.6% 36.9% 24.3% 25.9% 23.2% 20.0% 12.0% 8.0% 8.0%(% growth rate)

a. If GDP components are estimated at factor cost, a footnote indicating this fact should be added.b. "GNFS" denotes 'goods and nonfactor services."c. Includes net unrequited transfers excluding official capital grants.

d. Includes use of IMF resources.e. Should indicate the level of the govemment to which the data refer.f "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.

38 Annex B7

Zambia - Key Exposure Indicators

Total debt outstanding and 6495.1 6138.7 7181.0 6758.0 6862.5 6848.5 7061.2 7191.6 7172.6disbursed (TDO) (US$m)n

Netdisbursements(US$m)a 1.1 1303.6 61.0 110.0 -48.0 79.5 205.7 141.6 -19.8

Total debt service (TDS) 371.6 215.7 248.0 239.0 244.5 410.5 449.5 676.1 641.7(US$m)1

Debt and debt service indicators

(%)TDO/XGSb 545.6 458.8 632.1 517.1 648.5 660.6 617.5 548.9 500.8TDO/GDP 194.0 175.5 217.8 174.4 204.7 217.7 212.0 200.0 182.5TDS/XGS 31.2 16.1 21.8 18.3 23.1 39.6 39.3 51.6 44.8Concessional/TDO 48.6 56.1 53.3 56.2 58.2 54.7 55.7 57.9 60.6

IBRD exposure indicators (%)IBRDDS/publicDS 20.6 31.8 23.8 17.1 10.4 2.7 2.0 1.3 1.3Preferred creditor DSfpublic 60.4 72.4 60.7 45.3 53.8 28.8 24.9 52.1 51.0DS (%)CIBRD DS/XGS 6.4 5.1 5.1 3.1 2.4 1.1 0.8- 0.7 0.6IBRD TDO (US$m)d 201.0 155.0 105.0 62.0 42.0 33.0 26.0 19.0 12.0

Of which present value ofguarantees (US$m)

Share of IBRD portfolio (%) .. .. .. .. .. ..

IDA TDO (US$m)" 1043.0 1250.0 1405.0 1493.0 1544.0 1645.0 1784.1 1967.9 2095.6

IFC (US$m)[Committed]Loans 0.5 0.1 0.0 5.8 1.3 4.7Equity and quasi-equity /c 0.0 0.0 0.0 0.5 0.3 0.8

MIGAMIGA guarantees (USSm) .. .. .. .. .. 1.80

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital; on due basis.

b. "XGS" denotes exports of goods and services, including workers' remittances.

c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements.

d. Includes present value of guarantees.

e. Includes equity and quasi-equity types of both loan and equity instruments.

Annex B839

Status of Bank Group Operations in ZambiaOperations Portfolio

Difference Betweenexpected

Original Amount in US$ Millions and actual Last PSRFiscal ____________________________________________ disbursements a/ Supervision Rating b/

Projeact ID Year Borrower PurposeIBRD IDA Cancel. Undisb. Orig Frm Rev'd Dev Obj Imp Prog

Number of Closed Projects: 56

Active ProjectsZM-PE-3251 1992 GOVT OF ZAMBIA PIRC TECHNICAL ASSIS 0.00 10.00 0.00 .76 .43 .06 S SZM-PE-3258 1994 GOVT OF ZAMBIA FINANCIAL & LEGAL MA 0.00 19.00 0.00 4.31 3.83 4.29 S SZM-PE-3252 1994 GOVT OF ZAMBIA PETROLEUM REHA3 0.00 30.00 0.00 23.98 24.11 4.33 HU UZM-PE-3241 1995 GOVT OF ZAMBIA URBAN RESTRCT &WATER 0.00 33.00 0.00 10.46 -1.28 -3.71 S SZM-PE-3239 1995 GOVT OF ZAMBIA HEALTH SECTOR 0.00 56.00 0.00 31.70 30.48 0.00 S UZM-PE-3210 1995 GOVT OF ZAMBIA SOCIAL RECOVERY II 0.00 30.00 0.00 3.10 4.29 0.00 S SZM-PE-3218 1995 GOVT OF ZAMBIA AGRICULTURE SECTOR I 0.00 60.00 0.00 30.14 26.63 0.00 S SZM-PE-40642 1996 GOVT OF ZAMBIA ERIPTA 0.00 23.00 0.00 7.18 5.48 0.00 S SZM-PE-44324 1997 GOVT OF ZAMBIA ENTERPRISE DEVELPMNT 0.00 45.00 0.00 40.24 18.94 0.00 U UZM-PE-3253 1997 GOVT OF ZAMBIA ENVIRONMENT 0.00 12.80 0.00 11.41 2.79 0.00 a SZM-PE-35076 1998 GOVT OF ZAMBIA POWER REHAB 0.00 75.00 0.00 71.84 26.17 0.00 S SZM-PE-3236 1998 GOVT OF ZAMBIA NATIONAL ROAD 0.00 70.00 0.00 65.24 5.51 0.00 S SZM-PE-35641 1999 GOVT OF ZAMBIA PSREP (ESAC III) 0.00 172.80 0.00 104.23 -65.80 0.00

ZM-PE-3249 1999 GOVT OF ZAMBIA BASIC ED SEC INV PRG 0.00 40.00 0.00 38.16 0.00 0.00

Total 0.00 675.60 0.00 442.77 81.58 4.97

Active ProjectsP rojects rojects TotalTotal Disbursed (IBRD and IDA): 228.95 2,017.54 2,246.49

of which has been repaid: 0.00 570.33 570.33Total now held by IBRD and IDA: 708.60 1,396.27 2,104.87Amount sold : 0.00 28.58 28.58

Of which repaid : 0.00 28.58 28.58Total Undisbursed : 455.20 0.00 455.20

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS - highly Satisfactory, S - satisfactory, U unsatisfactory,

NU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Ratings are as of July 01,1999.

Note:Disbursement data is updated at the end of the first week of the month. Data is as of June 30, 1999.

40 Annex B9

ZambiaStatement of IFC's

Committed and Disbursed PortfolioAs of 30-June-99

(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1972/3 Bata Shoe ZA 0.00 .22 0.00 0.00 0.00 .22 0.00 0.001994 AEF Big Five Car .52 0.00 0.00 0.00 .52 0.00 0.00 0.001995 AEF Kaila Lodge .11 0.00 0.00 0.00 .11 0.00 0.00 0.001997 AEF JY Estates .89 0.00 0.00 0.00 .89 0.00 0.00 0.001997 AEF Pentire .67 0.00 0.00 0.00 .67 0.00 0.00 0.001997 Finance Bank 4.26 0.00 0.00 0.00 1.76 0.00 0.00 0.001997 IMDHZ 0.00 .50 0.00 0.00 0.00 .50 0.00 0.001998 AEF Amaka Cotton 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.001998 Nicozam 0.00 .30 0.00 0.00 0.00 .30 0.00 0.001999 AEF Drilitech .20 0.00 .15 0.00 .20 0.00 .15 0.001999 Zamcell 4.50 .60 0.00 0.00 0.00 0.60 0.00 0.00

Total Portfolio: 12.45 1.62 .15 0.00 5.45 1.62 .15 0.00

Approvals Pending Commitment

Loan Eouity Quasi Partic1999 AEF ESQUIRE 0.45 0.00 0.00 0.001999 AEF KEMBE ESTATE 1.30 0.00 0.00 0.001999 AEF MPELEMBE 0.70 0.00 0.30 0.001997 SAFARI INTL. 2.00 .75 0.00 0.00

Total Pending Commitment: 4.45 .75 .30 0.00

41COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexB1O

COUNTRY PROGRAM MATRIX (FY2000-2002)

_rmel ViedqXie DtnWiik ankFilstrmns

h{AtMo X ~~Zainbia has liberalized econotniic a Maintain a liberal exchange and XAdherence to monetary, fiscal mAh ^ ] ~~~~policies in a range of areas since trade regime. and exchange rate policies Lendine:1

. .1991. a Implement fiscal management outlined in the latest PFP * Economic Reform,

Price controls and subsidies have reforms through strengthened * Real growth rate of at least 3-4% (FYO0,01,03).been eliminated, exchange and tax and customs administration per year.interest rates are market- and overall public expenditure * Inflation reduced to single digit P orRformandetermined, and tariffs have management. figures by 2001. Public Sector Refom andbeen simplified and compressed. * Reduce dependence on external * Gross official reserves increased (PSoRP)rAnd, despite the difficult financing as a source of budget to 3 months in 2001.external environment, reforms financing. * Economic Recovery andhave been maintained. * Implement effective monetary * Investment-GDP atio increased Investment Promotion TA

Progress has been made in policy and financial reforms, 2001. i198o2%nEPTArestoring macroeconomic 2001. Non-Lending:stability: inflation dropped from * Qualify and receive debt relief * HIPC decision point reached in - Support to Nationala high of 350% in 1990 to 18% under the HIPC initiative. FY00. Development Dialog andin end-1997. Comprehensive

* Positive GDP growth was also Development Frameworkregistered in 1996 and 1997. (FYOO-02).However, in 1998 Zambia * HIPC Debt Initiativeexperienced an economic (FYOO/01).downturn with GDP declining * Fiscal Managementby about 2%. Inflation increased Monitoring and Supportfrom 18% to 30% and foreign (throughout).exchange reserves dropped to

.. :. ... less than two weeks at end-1998. * Financial Sector Review... ... Prospects are improving in 1999, (FY02).

but delay in ZCCM privatization * Policy Framework Paperis still a drag on the economy. (FYOO,01,02).

* Key factors contributing to thisdownturn were the delay inprivatizing ZCCM, aid shortfallsand low copper prices.

* The US$7 bn debt overhangcontinues to be unsustainable.

1Zambia Base Case Lending.

42COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AmnexBIO

COUNTRY PROGRAM MATRIX (FY2000-2002)

d Ld "~~~~ The privatization program has * Continue regulatory reform and a Completion of divestiture of the IDA:l .d ~~progrcssed with 80%/ of the 280 privatization prograin including ZPA's portfolio. Lendine; § R S~~OEs priatzed or liquidated. state-owned utilities and a Progress in privatization of . Copperbelt Municipal

. Critical ZCCM transition issues financial institutions. utilities and financial sector. Services Project (FYOO).include the management of * Address critical ZCCM * Final transfer of ZCCM assets. * African Guarantee

municipal services and privatization transition issues. fordmart of identified Facility, AGF (FY03).enviromnental concems. for management ~of municipal * Copperbelt Environmnental

d dWd d g * ZCCM privatization is delayed; services in the Copperbelt. Support (FY02).dlrl d completion is expected in second * Agriculture Sectorhalf,7.w¢P:'a,.d of 1999d Investment Project ll

* Non-metal exports are growing * Maintain liberalized agricultural * Growth in value of non- (ASIPII, FY03).fast -- 30% in 1997, but exports policies. traditional agricultural products. * Tourism & Environmentare still dominated by copper * Encourage agricultural crop * Identification and documentation (FY04)

and cobalt. diversification and increases in of success stories at the farm and Portfolio:a Agricultural production and production and productivity. village level. * Privatization & Industrial

productivity levels have * Support productive investments Reform TA.stagnated, although some niche at farm/village level. * Enterprise Developmentagricultural products are Project (EDP).

growing fast. * Agricultural Sector

Investment Project (ASIP).* Firms have been slow to adapt to - Identify constraints to private * Increase in domestic and foreign * Copperbelt Municipal and

the newly liberalized sector growth and investment Services Project.environment due to eroding competitiveness and help firms * Identification and documentation Non-Lendine:skills, weak management, poor adapt to the newly competitive of enterprise success stories. * ZCCM privatizationstrategic decisions, and lack of environment. follow-up (FYOO/01).competitiveness. * Explore the complementarity * Local Growth Centers

0* Zambia's tourism industry offers between a competitive tourism Study (FYOO/0 1).attractive opportunities for industry and sound * Tourism & Environmentgrowth and high quality job environmental management. STudy &FYOirncreation. . Study(FY01).

IFC: MIGA:Strategy: IFC's strategy in Zambia focuses on a range of sectors, with a particular Stratey: MIGA's efforts in Zambia are designed to contribute to strengthening the private sectorpreference for foreign currency generating projects: (i) infrastructure; (ii) financial sector; through the provision of selective support to projects with high developmental impact. With respect(iii) mining; (iv) small and medium-sized enterprises; (v) agribusiness; (vi) tourism. to its advisory services and TA, MIGA aims to strengthen investment intermediaries charged withPortfolio: AEF Amnaka Cotton; AEF Big Five Car; AEF JY Estates; AEF Kaila Lodge; attracting foreign direct investment.AEF Pentire; Bata Shoe ZA; Finance Bank; NICOZAM; Zamcell; AEF Drilltech. Portfolio & Pendine Commitments: In FY 99, MIGA issued a $1.8 million guarantee in its first project in thePending Committnents: AEF Mpelembe; Safari Int'l.; AEF Esquire; AEF Kembe Estate. country to cover an investment in the manufacturing sector. In addition, it has 14 applications pending for moreIndicators: Level of IFC investments, advisory services and thnical asstance. than US$500 million in investments in the mining, manufacturing and power sectors.

Technical Assistance: Past TA has included capacity building (e.g. FDI promotion, tourism); mining investmentfacilitation; regional investment facilitation; and information dissemination (e.g. IPAnet, PrivatizationLink).

43

COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexB1OCOUNTRY PROGRAM MATRIX (FY2000-2002)

. _ . a. i. s~~~~~~~~~~V St 'k, '- !'-.".. :::...i:,DeveIopipnt :: Diagn: : Gevernkixht SiSetdGvr.ot Bin . Bank (*rup Istmas

Although progress has been made, Supporting infrastructure will IDA:I**4SfldCtI4M inadequate infrastructure remains a remain a major part of Zambia's Lendin:

bottleneck for private investment growth strategy.and growth. Services and * Railways Restructuringmanagement still require Project (FY01).significant upgrading. * Copperbelt Municipal

Services Project (FY00).Inter-modal tradeoffs and * Develop a national tr8flSt * Private concessioning of Zambia National Road Sector:-- - . complementarities need to be strategy leading to better Railways.incorporated into a national mneetad tetoof *Rehabilitaton of about 1,400 kmn of Ivsmn rjctrsport strategy. road ai t ads and incrased share of ROS II) Y0).

7?wupo - * Road improvements are ongoing, * Identify complementary legislative maintenance expenditure in Road * Local Govt./ Urban (FY04)..,butthenetwork0needs sustainable and institutional reforms and Fund from 65% (1998) to 95% by Portfolio:

. .. maintenance and additional analyze inter-modal tradeoffs and 2002; increased Road Fundcapacity to nanage programs and investment decisions. coverage of maintenance * National Road Sectorsupervise works. * Support sustainable funding of road requirements from 33% (1998) to Investment Program

E . i * State-run railways are struggling maintenance. Improve control and 70% by 2002; increase proportion (ROADSIP).: .due to high costs and poor service. prioritization of roads sector of paved roads in good condition * Petroleum Sector

expenditures, especially in rural from 20% (1998) to 45% by 2002. Rehabilitation Project.areas. * Power Sector

Support private concessioning of Rehabilitation.railways. * Railways Restructuring

Project (FYO).* An Energy Regulation Board has * Increase in ZESCO's operating * Urban Restructuring &

been established to regulate energy *Support financial viability andWaeSupyPoct&wry d > activities, including electricity eventual privatization of electricity efficiency and profits.s .l c -- prices. parastatal ZESCO. * Minority shareholding of Non-Lendine:

ZAMTEL. TasotSco ttg* Electric company ZESCO is not * Support private sector participation * Transport Sector Strategyoperating on a commercial basis in telecom parastatal ZAMTEL. Implementation of strategy and (FY02).

and rvenue do nt covr coss * pinvolement Action Plan for TAZAMA, ZNOCand revenues do not cover costs Promote private sector involvement d I refi* Water Resources Actionand allow for needed investment. in hydro power and transmission. an INDEN r ery. Program.

* Telephone services are poor and * Remove oil import restrictions. IFC:costly. * Exanine role and viability of the * itvestments in utilities.

* Policy has been put in place to TAZAMA pipeline and state-promote private sector involvement owned oil refinery.in hydro power and transmission.

* Further restructuring is needed in thepetroleum sector to better ensureconsumers' least cost supply.

44COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexB1O

COUNTRY PROGRAM MATRIX (FY2000-2002)

, Water resource management policy * Preparations to launch water 100% of urban population andand strategy not yet formulated. resource management policy and 50% of rural with access to

(CI , ii|4) * Policy reforms in urban water and strategy underway. reliable and safe water by 2004;sanitation have been formulated, * Support local capacity building and increase in water tariffbut implementation is stalled. decentralization. collection.

* Access to safe water is declining * Support proper management ofX with increasing pressure on urban water, sewage, and sanitation

water, sewage, and sanitation systems.systems.

* Access to safe water and sanitation * Implement the institutional and * Standard application of EIA IDA & GEF:is the single most important regulatory framework for guidelines to all relevant Lni2environmental issue facing Zambia. enviromnmental protection and government and private sectorLedn:64 of urban population and 27%o management projects. S Copperbelt Envirownentalof rural population has access to Build capacity to manage and * Increase in number of Support (FY02).safe water. monitor the envirornmental impacts envirornmental pilot projects that * Tourism & Environment

* Deforestation is increasing at 0.8% of privatization and growth. involve communities and private (FY04).per year as a result of agriculural * Enable the private sector and sector participation. Portfolio:

charcoal and fuel-wood communities to pilot sustainable * Decrease in deforestation rate and * Environmental Supportconsumption in urban areas. use and protection activities. rate of traditional fuel use. Program I (ESP).

* Agriculture and tourism, potential * Incorporate environmental * Increase in percent of land Non-Lendinif:sources of growth and employment, considerations into different protected (8.6% in 1995). * Tourism & Environment0- X are heavily dependent on Zambia's economic and social sectors. * Increase in international tourism Study (FYO1).ability to prevent the degradation * Develop complementarity between receipts as percent of total exports. * Environmental Monitoringand depletion of natural resources, environmental and wildlife (throughout).including stemming of poaching to protection and tourism. Note: See Environent Indicatorsprotect wildlife populations. * Carry-out environmental mitigation Appendix. Note: Water related activities

* Mining-related water and air measures in mining areas. are listed under infrastructure.pollution is also a seriousenvironmental problem.

45COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexB1O

COUNTRY PROGRAM MATRIX (FY2000-2002)

Pevelopmcnt E iuguo~i* G . ...... . .. Ow ent Selected_ _over Bink Grop n, strmei t sObjecties.--..:.. Straegy/Ation:.- Peror.ance;Indicato.

* For some time after independence, * Strengthen the stock of knowledge * Increase in number of individuals Lendin:Zambia was considered a and build capacity for business participating in relevant, demand- * Training Sub-sector"knowledge leader" in the region development in Zambia. driven training programs, Investment Program (TSSIP,but the skill base is rapidly eroding. * Revamp technical/ vocational particularly among women. FY02).

Capacity-building and knowledge training in partnership with * Number of "Global Trends and Portfolio:are central to Zambia's growth private sector. Lessons for Zambia" workshops * Enterprise Developmentprospects given the country's need * Develop tertiary education and participants. Project (EDP).to diversify and compete on world strategy. * Completion and implementation * Training activities in Sector: markets. * Incorporate training in investment of tertiary education strategy. Investment Projects (SIPs).

- Zambia has demonstrated projects. * Entrance into Global Learning Non-Lendine:; -significant tpriogaressin saoIme kery * Promote computer based learning Network. Global Leaing Networkareas e.g., it is a regional leader in (YlO)internet technology adoption.

: The changing structure of Zambia's * Social Sector Strategy Study.: : The changing structure of Zambia's (FY00, concerning tertiaryformal employment sector, education).following retrenchments in themining and public sectors, makes E Workshops on Globalretooling a critical imperative. Economic and Business

* The vocational and training system Trends (FY00-02).

is fragmented and focused on * World Bank Instituteobsolete skills and trades with little Courses.or no involvement of the privatesector.

46COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnmexB1O

COUNTRY PROGRAM MATRIX (FY2000-2002)

slightly above the norm (i.e., less the strengthening of government Inteml ational. Poroliocorrupt) when corrected for institutions such as the judiciary, * increased funding levels fornational income. Auditor General, and independent comimissions. *Financial and Legal

* Concern over transparency and commlTissions. * n ~management Upgradingaccountability persist in the * Implement Public Service Reform Ministries. Government and among its Programn. *Public Sector Reform andpartners. * Improve public . Number of well qualified public Export Promotion Credit

* Independent commissions, such management.as the AniCorruption * Enhiance auditing procurement, NnLnlfCommission, have been formed, and legal procedures. Non-Lendinbut they lack funding and * Build a national dialogue around a Support to Nationalcapacity. shared, long-term vision and Development Dialog and

• Efforts have been made to support ongoing public-private Comprehensivedisseminate information to the sector dialogue. Development Frameworkpublic (e.g. publication of PFP (FYOO-02).and CAS) but need to beincreased.

* The Government has prepared acomprehensive GovernancePrograim to consolidate itsapproach to governance.

47COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnmexBlO

COUNTRY PROGRAM MATRIX (FY2000-2002)

at.cv StaoyAda rwp,e aiao

* The cost-effectiveness of the Continue Public Service * Adoption and implementation of Lendine:11i .cytt public service declined over the retrenchment and decompression time bound PSRP Action Plan. * Public Service Capacity

past 20 years; expenditures on of salaries. * Reduction in number of public Building (PSCAP, FY00).. ...... essential supplies and capital S Continue implementing capacity- sector employees (e.g., achieve Portfolio:spending have been crowded out building, pay and pension reforms, 7,000 retrenchment benchmark

by wages. Qualified personnel~~~~~~~~~~~~ Public Sector Reformi and:, -; .:.::: by wages. Qualified personnel ministerial restructuring, and end-1999 and subsequent targets). E Promoto reditare limited. performance monitoring. * Decompression of public sector (PSorP)r

* Personnel management and * Ensure complementary capacity salary levels.payroll systems are antiquated. and institution building in SIPs. * Introduction of new, affordable

GRZ, since 1997, has eliminated pension system.a number of positions, instituted ahiring freeze, and begun5Esi;5ii9r ., /'' ' restructuring ministries, to measure improvements in

* GRZ has a comprehensive public service delivery.sector reform program, but costof retrenchment is an ongoingconcern.

L .d6F.L * * Government has expressed * Continue development of an * Finalization of the national Lendina:;~ecta#*avi0e priority to strengthen local overall local government and decentralization policy * Public Service Capacity

government, decentralization policy linked to framework. Building (PSCAP, FY00).

: Local government and the Public Sector Capacity * Number of districts with local * Local Development Funddecentralization policy work has BUilding Project. development projects. (FY01).been ongoing for some time, but * Create an office of District Local Goverment/Urbanthe policy framework is Secretary in all districts toincomplete. strengthen local implementation J

* Various decentralization efforts. Portfolio:initiatives exist, but need * Monitor ongoing sectoral * Urban Restructuring &harmonization. decentralization efforts. Water Project.

* Build capacity and skills of local Non-Lendin:government institutions and staff * Decentralization Policyto participate in the design and (throughout).implementation of localdevelopment interventions.

.____________________I____________________________________

48COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexBIO

COUNTRY PROGRAM MATRIX (FY2000-2002)

iir^gS,r 0' * Zambia has a high and increasing *Implement national AIDS * Slower increase in rate of new . .Lendine:; ...... gX ~HIV adult prevalence rate of 19% education and awareness AIDS cases reported, and a HlV/AlDS Project. gg= 2 . (1(I997). Estimates are that by programn. improve Contraceptive (FY02).

2000, 11% of children under 14 Prevalence Rate (modem Portfoliowill be orphans. methods) from 14% (1997) toSince 1986, Zambia has had a 22% by 2001. * Include specific AIDS-multi-sector HIV/AIDS Control related actions in ongoingand Prevention Program that aims operations.to ensure full participation of allgovernment ministries, NGOs,churches and social groups, andthe private sector in HIV/AIDSplans and programs, but it has notbeen effective.

4 e 0gk . * Health indicators are low, e.g. a Continue health reforms focused * Upgrade the Health Sector Lending:infant mortality rate of 109/1000 on systems development and Support Project from a problem * Health 11 (FY04).(1997) and a Maternal Mortality institution building. project.Ratio of 649/100,000 (1997). * Provide essential and cost- * Improved health outcomes

* Sector program in place and effective health care, improving through e.g. lowering the Infant Portfolio:* S;;X progress on reforms has been health coverage and building Mortality Rate from 109/1000 * Health Sector Support

good, but limited access to Districts' capacity to manage (1997) deaths per live birth to Project.*t 0. health care facilities, health services. 100/1000 by 2001 and

understaffing, and shortages of improving the Maternal Non-Lendine:drugs and medical supplies Mortality Ratio from * Social Sector Strategyprevail. 649/100,000 (1997) to (FY00).

600/100,000 by 2001.

49

COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AmlexBlO

COUNTRY PROGRAM MATRIX (FY2000-2002)

Dev . = R*Wi Gnp rinif- .. ____'_*_,,,,_,,_,:_, Stt$eey*M~tio* g ........................................... s F~rforna '. u,PO f''; .. ' S..... i.c~ ~4f i:.i: .......... , r~ __ _.__...

* Primary level enrollment rates are * Implement program to improve * Net primary school (Grades 1-7) Lendine:falling (69% in 1996 vs. 88% in the quality of basic education enrollment increasing 4% * Basic Education II (FY03)1985). and to increase enrollment, annually from 1.63m to 1.75m

. --- * Percentage of girls enrolled vs. particularly for children of the children by FY2002.S boys enrolled is roughly equal, poor. * Establishment of enrollment Portfolwith girls comprising 48% of * Ensure that critical elements of monitoring mechanism for 7 * Basic Education Sub-sector

primary level enrollment. the program include: improving year-old children. Investment Program.

* Poorly trained staff, outdated primary teacher training and * Establishment of standardized Non-Lendin:

curricula, poorly maintained readiness, primary school test results as national * Social Sector Strategyequipment and buildings, and lack infrastructure, primary teacher benchmarks. (FY00).of materials contribute to the low training, and curriculum. * Improved test scores in national

quality of basic education. standardized tests.

2.E#78t~4 * While social sector budget * Protect, and if possible, increase - Reduce incidence of poverty. Lendine:k~teVwtAt*Ps i allocations have increased from share of budget going to social * Increase number of social * Local Development Fund

frir ~ 28% in 1993 to 36% in 1998, sectors. development projects located in (FY01).* poverty levels remain high at * Enhance social and economic the most remote areas in poorest Portfolio:

69.2% (1996). conditions of poor communities districts from 40% (1998) to 65% * Social Recovery Project II* Urban poverty has continued to through increasing access to, and by FY2002. (SRP II).

increase due to public sector and quality of, basic social and * Local Development Fundmining layoffs, and rural poverty economic services at the (FY01).has remained prevalent. community level. Non-Lendin

:-- > - * Malnutrition remains a problem as * Improve basic social Social Sector Strategy1/2 of children between ages 3-59 infrastructure determined and * FYo oramonths were stunted in 1996. implemented by poor ).

:. ii i : communities. * Public Spending &

Regular collection and Poverty Study (FY00).dissemination of poverty statistics.

. : - * ~Government currently undetkn: Govassessments curtly unddertaking * Strengthen role and capacity ofasses setis to planean lem local stakeholders -- in particular * Increase ratio of assistance tospecific actions for vulnerable

women -- to design and manage women and orphans under thewomen and o; hans. development processes that affect Zambia Local Investment Fund.Female-headed households are their welfare. * Cabinet approval andmore likely to be among the poor.

--- ~~~~~~~~~~~~~~~~~~Government implementation of* The regulatory framework and Gender Policy.

customary laws inhibit women'sequitable access to economicresources, particularly land andinheritances. Gender Policy currentl

:_____________ under consideration by Cabinet.

50COUNTRY ASSISTANCE STRATEGY FOR ZAMBIA AnnexBlO

COUNTRY PROGRAM MATRIX (FY2000-2002)

• Short-term aid coordination * Guide and coordinate support * Regular Consultative Group Bank Groupneeds continued attention in from development partners to Meetings and infomnal donor * Support to National

X light of Zambia's financing achieve priority objectives. meetings. Development Dialog andneeds. a Joint Govemment-IDA portfolio * More effective implementation Comprehensive

implementation review in FY99. and disbursement of projects. Development Framework(FYOO-02).Aid Coordination/Consultative Group

• Zambia's intemal and extemal * Govemment-led national * Continued CDF in-country Meetings.partnerships need strengthening development dialogue involving development govemment a SPA Meetings.to further develop a long-term all partners in the formulation officials, bilateral and * Annual Meetings.vision through a government-led and implementation of a multilateral development * CT Meetings & Retreats.national development dialogue. Comprehensive Development partners, parliamentarians,

Framework (CDF). NGOs, academics, private * CASsector, poor and urbancommunities, etc.

• Strengthen partnership amongthe Bank Group and Brett on * Continue strong Country TeamWoods institutions for greater for cooperation amongst theservice delivery. World Bank Institute, IFC,

MIGA and the Bank.0 Joint economic reviews, PFPs,

and HIPC.

51 Annex B1O

Environmental Indicators - Zambia

Indicatorsnb Zambia Sub-SaharanAfrica

Land-Use IndicatorsAgricultural value addedfworker (1995$) -- 1995-97 226 371Irrigated land (% of crop land) 1994-96 0.9 3.S Ehvironmental DiamondArable land as % of land area 7.1 6.4

% change in fertilizer consumption per ha, 1980-95 -37.15 AgriculturalvalueAnnual deforestation (average % change (90-95)) 0.S 0.7 addedlvorkerPercent land protected 8.6 6.2 (1995$)- 1995-97

Water Related IndicatorsAnnual water withdrawal as % of water resources 1.5 TraditiDnal fueluse Annual deforestation

Access to safe water (% of urban population) 1995 66Access to safe water rural (% of rural population) 1995 37Access to sanitation (% of population) 1995 51 GDP per unit ofDecline in access to sanitation (% of population) 1985-94 17 energyuse

Energy IndicatorsGDP per unit of energy use 1996 (1995 $ per kg oil 0.6 0.9 - Zambia -Sub-SaharanAfiicaequivalent)Traditional fuel use (% of total fuel use) 71.2 47.4

% change in traditional fuel consumption bet 1985-95' 29 26

% change in commercial energy consumption bet 1985-95' -10 1 5

% change in electricity production bet 1985-95' -22 51

Carbon dioxide emissions - 1996 (kg per 1995$ of GDP) 0.7 1.5Access to Safe Water

Resource Use Indicators a_Mining and quarrying, value added (constant 1987 US$) 300,000,000 704

% change in value added, 1980-95 -11.87 SD

Intemational tourism receipts as % of total exports -1997 5.1 5.5 s:

40 *E 1982]

National Accounting Aggregates 0 1995

Gross Domestic Savings (% of GDP) - 1997 9.8 16.8 30

Net Domestic Savings (% of GDP) -- 1997 -0.1 7.8 20

Genuine Savings (% of GDP) - 1997 1.9 3.4io~~~~~~~~-

%Total %Urban %RuralPopulation Population Population

' All indicators are for 1995 unless the year is noted.

All data is from WDI, 1999 unless otherwise noted.

'Data from World Resources Institute for all of Africa, 1999.

52 AnnexBll

Zambia-CAS Summary of Development Priorities

Reconciliation ofCountry Country Bank country and Bank

Network area perfor ea Major prior jyC priorfty" priorities'Poverty Reduction &Economic Management* Poverty reduction Fair High poverty level at 69.20/o. High High* Economic policy Good Policy reforms since late 1991 have not High High

yet yielded sustained economic growth.* Public sector Fair Overstaffed civil service. High High* Gender Good Customary laws inhibit women's Moderate Moderate

equitable access to economic resources.

Human DevelopmentDepartment* Education Fair Primary level enrollment is failing. High High

Teacher training, curricula, materials,equipment & buildings are needed.

* Health, nutrition & Poor Progress on reforms, but serious health High Highpopulation concerns persist. HIV prevalence rate is

high at 190%0.- Social protection Fair Better safety net programs are needed Moderate Low Other donors have

for most vulnerable groups. lead.

Environmentally &Socially SustainableDevelopmente Rural development Poor Rural poverty is prevalent Agricultural High High

production and productivity levels havestagnated.

* Environment Fair Access to safe water and sanitation. Moderate Moderate* Social development Fair Local government and decentralization Moderate Moderate

policy is ongoing, but greatercommunity participation is needed.

Finance, Private Sector& Infrastructurei Financial sector Fair Limited access to credit and high real Moderate High Ongoing dialogue.

interest rates.* Private sector Good Firms are slow to adapt to newly High High

liberalized environment* Energy & mining Fair Privatization of utilities and ZCCM. High High* Infrastructure Fair Maintenance and service delivery. High High

a. Use "excellent," "good," "fair," or "poor."b. Indicate principal country-specific problems (e.g., for poverty reduction, "rural poverty;" for education, "female secondary completion;"

for environment, '"rban air pollution').c. To indicate priority, use "low," "moderate," or "high."d. Give explanation, if priorities do not agree; for example, another MDB may have the lead on the issue, or there may be ongoing

dialogue.

53 Annex C

Zambia's Emerging Comprehensive Development FrameworkPoky ~~~~~~~~~~~~~~~~~~~Increasing Access tD B3aslc

Obj,;s0es Removing Constraints to Growth Improving Governance Services and Direct PovertyInteiventorns

_ ~~~Intoho Sourld Ir;w Pubicr H"nh SbonerMacro Sector lure Enro- KVmledge ercr & Sector Locn PoNial AJDS I HV Core Bsic Idenen-

Macge- Effciu tr npow- merte & Accoorta- Etscy Govem- Gowl lrpw drlo Wmor forhartZees M l t a b e Mae lnnDrovon htielt E od & ean meet ton ViAeroabl

. _ Yt~'K ... G s.

7.~~~~~~~~~~~~~70

High Activity Significant Activity [ Some Activity W Little or NoActivity

What is the Comprehensive Development Framework?The Comprehensive Development Framework (CDF) is a conceptual tool that can help a country identify itspriorities and strategies for reducing poverty. It is a means to an end, rather than an end in itself. By mappingout a holistic set of priorities for reducing poverty, and the activities of a country's development partners inthese areas, the CDF provides a mechanism for ensuring better coordination among development partners, andfor identifying potential gaps in the country's strategy. Each country's CDF will be different, depending onthe specific priority areas identified. Reducing poverty requires the coordination of many players and theintegration of activities in many areas. The CDF gives a country a comprehensive view of its ongoingdevelopment activities, allowing that country to guide its own development more effectively.

Zambia's Comprehensive Development FrameworkThe Zambian Government, along with a broad array of development partners, is in the process of defining itspriorities for reducing poverty and its strategies for allocating its resources across the priorities. The CDF toolwas introduced during the 1999 CAS consultations to stimulate discussions about Zambia's long-term visionand priorities, and to understand the partners' activities currently underway. The CDF matrix above is part ofZambia's emerging CDF. It was initiated by a set of priorities articulated by the Government of Zambia, andexpanded to incorporate the views of the broader set of development partners, including bilateral andmultilateral donors, private sector representatives, NGOs and civil society.

Zambia's CDF is a tool and a process for achieving the objective of reducing poverty and creating opportunitiesand wealth for average citizens of Zambia. It is by nature dynamic and will change continually as specific goalsand performance targets are identified and monitored, and strategies revised to ensure the desired results areachieved. Zambia's emerging CDF matrix, summarized above, is a snapshot. It is a summary of the attacheddetailed matrix which captures the specific commitments and current activities in Zambia, identified during the1999 CAS Consultations, and through extensive follow-up interviews and review of secondary sources. TheCDF will change as new information becomes known or circumstances change.

54

Z A M B I A Annex CTHE COMPREHENSIVE DEVELOPMENT FRAMEWORK

00 0.5555V 0.Policy Reform Agri. Sector Program National Roads Program Forestry Conservation National Institute for Scientific

< 000.u 4 & . ~~~(ASIP) Presidential Housing Initiative -National Housing National Parks and Wildlife &; Industrial Research (NISIR)

Privatization Programn Authority (NHA) Management - Zambia Wildlife Technology Business Center

Zambia Investment Center ZAMTEL - telephony, wireless, internet Authority (99).. o=mpetitio.n Corniniss=ion..... s Zambezi River Authority Technology Development and... , ......... Competition Commission Environmental Council of Zambia Advisory Unit (TDAU)

Enterprise Development Technical Education, Vocational

Program ~~~~~~~~~~~~~~~~~~~~~~~~~~& Entrepreneurship Authority

Regional Trade: SADC, (TEVETA)COMESA Law Development Commission

Homecraft Centers

CID.atR$ 1CIDA: $1m DflD: S2.5m Danida: $35m Kapiri Mposhi-Serenje roads CIDA: $5m

=artuw's DflD: $3.4m Finland: ASIP research; DflD: $40m Rural infrastructure development Finland: Provincial Forestry ActionPublic Finance extensions; animal health Germany: $30m Livingstone-Sesheke, Program

Germany: and husbandry improvements to river crossing at Katito Mulilo Germany: DM0.5m

DM24m JICASIPAgrinputsupplya Irish A id: $285k; Urban Water; peri-urban water; Irish Aid: $125km il . < r Netherlands: inu upysanitation75m 19)Netherlands: inutsppy iato JICA: $260k Kafue National Parks

L S7.5m (1999) Netherlakds: ASIP JICA: $20m Lusaka roads; $50k Mwekere Netherlands: Community Env

Livestok deveopment Aquacultur Station; $ 180k Kanakantapa Projects; Forestry; InstitutionalNorway: ASIP Policy and Resettlement Scheme; Community Env Projects; Pacty; Legal anstitutory;planning; Gender; ACF; Water and Sanitation; [$3.9 million) Safety Water Capacity; Legal and Regulatory;RIF; extension services; Project in George Compound ('94 - 2000); $11.5m Water supply and waste water; $500kresearch; private sector Safety Water Project in Southem Province (97-01) (1998); $500k (1 )

Zambia Investment Center kKuwait: $Irm feasibility study for Great West Road Norway Air pollution, Infornation(99);i $27v1ktZambia Cetre3iiti systems, Institutional Capacity

(99); $271k Zambia ~~~~~~~~~~~Building, Water supply and wasteRegistry of Co.(99) Netherlands: $10m nHuman resource development water, National Parks; $11.2m Co-

SIDA: Micro-credit; EDP in roads sector; $500k (1998); $1m (1999) financing URWSP-TA; $614k

PrSvatizat ID:2AI AC n $ Norway: $470k Water Resource Action Plan (99); $286k Gamne Management (99)Privatization; $2m Agri $7kR DSP(90)USA ID: S2m Natural ResourceSector Liberalization, SIDA: Power Rehab., Zambia Railways Management

USAID: Urban water; peri-urban water; sanitation

Information is constantly evolving. Data shown here may not be complete or fully accurate.

55

Z A M B I A Annex C

THE COMPREHENSIVE DEVELOPMENT FRAMEWORK

Mtdtilatevsl EU: ASIP: animal ADB: $17m Great East Road to Luangwa Bridge EU: Community Env Projects; UNAIDS: $50k TrainingP.rtwtpw ~~~~~production and disease Forestry; Institutional Capacity; entrepreneurship

cpronuctrol; Tourdism; Mic EU: $S 10m ROADSIP, for Monze-Zimba, Kabwe- Inrational Conventions; Legal and enADepraduate

Bankers Tr~ust Kapiri Mposhi, feeder roads in Copperbelt and Regulatory frameworkIFAD: Post graduateCentral, some TA Parks; Regional Environmental sponsorships

:. .::'FAO: S69m Fisheries and UNDP: US$6m eastern province feeder road Management; Soil degradation;-.. rural agriculture research improvement program Tourism; Wildlife; Wetlands; Agri.and extension and Fisheries; Human Res

UNIDO: $350k food UNESCO: S17.5k Communications Development; Env Impactindustry; women UNICEF: $1 1.6m Rural water and sanitation Assessmentf lv e entrepreneurs UNESCO: $39k waste management

WFP: $4m Urban food forwork

W 7rld flank S170m PSREP $60m ASIP: policy and $33m Urban Restruct. & Water: addresses severe $12.8m ESP; Institutionalplanning; research; urban water and sewage problems; community Strengthening; Environmentalextension services; generated water and sanitation projects Education and Public Awareness;capacity building Pilot Environmenta Fund; Water

$30m Petroleum Sector Rehab. Co-financed by supply ad waste water; Water- : $45m Enterprise EIB Pollution; Environmental Information

- , Development Project S75m Power Rehab. improve efficiency of electric. Management; Legal and Regulatory

SlOm PIRC-TA for suppliers Framework; Energy Research;ZCCM privatization Forestry; Soil degradation;

$70m National Roads Program Agriculture and Fisheries

.. Jesuit OXFAM CARE, International Environment Conservation Agency Economic Association of

C onrTheionoia Catholic Commission for World Vision International The World Conservation Union Zambiafor Theological Justice & PeaceReflection - YWCADebt relief Africare

Agribusiness - Small ZAMCELL - wireless communications ZACCIscale fanming methods, TELECEL - wireless communications BIMZI - leather, paprika (newnon-traditional crops pdt

A .anita Z .mbiana ZAMNET - Internet accessZAMNET - Internet services

ZACCI

56

Z A M B I A AnnexcTHE COMPREHENSIVE DEVELOPMENT FRAMEWORK

1ovt. Public Sector Reform Public Sector Reforms and Capacity Decentralization policy being developed National Capacity Building Programnme

Anti-Corruption initiative Building for Good Govemance

Permanent Human Rights Comm.

CIDA:$1m (unspecified) CIDA: $2m Germany: DM2.7m JICA: $26k ('98) Human Rights

DflD: $2.5m Human Rights DflD: $2.4m PSRP Irish Aid: $225k Commission; $22k ('98) Zam AssocCommission, ACC, DEC Research and Development for Women;

Germany: DM19m Netherlands: $Im (1998); $1m (1999) $7k ('98) Reconstruction Org. forNetherlands: $500k (1998); $500k Irish Aid: $1m (unspecified) Democracy and Governance(1999) . Norway: $530k District Development Norway: $1 .6m Frame AgreementNorway: $530k Auditor General JICA: $1.4 million Central Govt. Capacity Cooperation (99) Democracy (99), $667k Democracy

(99) Netherlands: $300k (1998); $300k (1999

USA ID: $0.3m Administration of (unspecified)Justice SIDA: ZNTB, ZESCO, ERB

USAID: $1.35m Public Debate

UNAIDS: $29k Life Skills at MoE; $547kProgram Development

$170m PSREP - Public Sector $20m PSCAP - Public Sector CapacityReform Building

$23m ERIPTA - Legal framnework $l1Om PIRCTA - Institutional capacitygoverning business activity building

$18m FILMUP - Financial &Legal management

Afronet Trade Unions Zambia Local Government Association Afronet

Civil Sd~tY Legal Resources Foundation Amnesty International

Zamnbia Independent Monitoring FODEPTeam (ZIMT) OXFAM

Trade Unions ZIMT

Private ZACCI ZACCI ZACCI ZACCI

SecStor ,,

57

Z A M B I A Annex C

THE COMPREHENSIVE DEVELOPMENT FRAMEWORK

STRATECIC I?RIORITY 111u Incsg Access to Basic Services anid Dirut POr liuterveinfonsA[DS/VHW Blasic Heath BakEuaiaTar&eew t~ntot o

: . . .. : - . - . - : . .: -~~~~~~~~~~~~~V4lnerabI (top$

,*Vt. Immunization and Infrastructure Rehab. Basic Ed. Sector Program (BESSIP) - School National Poverty Reduction Action PlanHealth Sector Support program infrastructure rehab., school materials and teacher Community Development Programs

trainingYouth Skills Training Centers

Norway: $800k, HIV CIDA: Single drug purchases Danida: 3.4m BESSIP; teacher development; CIDA: $14m=IIRICVAI AIDS NGO Danida: District capacity; support Board curriculum development DftD: $7.4m (CARE Int'l)

SIDA: AIDS of Health; district grants; FAMS (incl. DflD: $12.Om BESSIP; Program Mgnt., teacher Germany: (DM30m- aggregate for Basic

USAID: $4.25m AIDS Hardware and vehicles) develop, literacy Services)prevention EU: Blood banks; rural health centers; EU: $15.2m BESSIP; Equity; Capacity building; basic Irish Aid: $5.3m

district grants school infrastructure

JICA: General/central hospitals; moving Finland: $1.0m BESSIP; Basic school infrastructure million (9 8$toward child health; $1.7 m Infectious Irish Aid: $1.7m Program Mgnt; Basic SchoolDisease Control (95-98); $756k Primary infrastructure; teacher Mlomnt1 Norway: (Local NGOs) $133kr Women;Health Care (97-98) inrsrcue ece eepet$347k Social Sector

Netherlands: Drug kits & JICA: $16.Om BESSIP; Basic schoolpharmaceutical, district grants, pop/RH, infrastructure/constructioninfo. Systems Netherlands: $1.2m BESSIP; program management;

SIDA: Financing/expenditure reviews; teache development; Equitydrug kits & pharm.; pop/RH; district Norway: $3.1m BESSIP; Educational materials;grants Equity; $1.3m Girls basic ed. UNICEF (99); $160k

USAID: $2.55m Family planning; $3.5m EducationChild health; $4m non project sector OPEC: $3.7m BESSIP, Basic school infrastructure

support USAID: $lm BESSIP; Equity; Girl's education

UNAIDS: $46k WHO: AIDS; specific support to ADB: $5.2m; BESSIP; Basic School infrastructure UNAIDS: $44k Catalytic support to

Partners HIV/AIDS; $50k technical programns areas; training ($5.3m NGmsSTD/AIDS; $50k for 98/99) UNDP: BESSIP; capacity building NO

World AIDS campaign UNAIDS: $50k Mother Theresa UNICEF: $11.4m BESSIP; Community Schools, Girl's advocacy

UNESCO: $485k orphanage educationHIV/AIDS WP 14GilseuaonWFP: $3m Rural food for work; $16m

UNICEF. $18m PHC, child, maternal WFP: $1 4m Girl's education Supplementary Feeding; $1.75 m Micro

UNICEF: HIV/AIDS and adolescent health -Fund Facility

UNFPA: $8.5m population relatedobjectives, reproductive health (97-01)

World Bank $56m Health Sector support $40m BESSIP $30m Social Recovery Program

58

Z A M B I A Annex CTHE COMPREHENSIVE DEVELOPMENT FRAMEWORK

Famnily Health Trust Planned Parenthood Association of Alliance for Community Action for Female Education Africare

YWCA Zambia Forum for African Women Educationalists in Zambia CARE International

0 Church groups World Vision International Non-Government Organizations Coordinating Red CrossChurch groups Committee (NGOCC) NGOCC

Zambia Council for Social Scientists Poverty Assessment Group

Church groups Program Against Malnutrition

YWCA

World Vision Intemnational

Church groups

59 Annex D

Zambia Client Feedback

Overview: Collecting client feedback is a priority for the Zambia Country Team. There are two key sourcesof recent client feedback for Zambia: 1) the Bank's 1997 Client Feedback Survey, and 2) the 1999participatory CAS consultations and national dialogue about the Comprehensive Development Framework.The Client Survey offers a quantitative assessment of the Bank's performance by representatives from theGovernment, the donor community, private sector, and civil society. Participants' evaluations of the 1999CAS Consultations offer more recent views on the relationship between the Bank and Zambia.

The 1997 Client Feedback Survey: The 1997 Client Feedback Survey in Zambia was designed to determinethe strengths and weaknesses of Bank performance and relations in Zambia. 141 individuals completed thewritten survey, 75 percent of whom were clients and the remainder were Bank staff. Client respondentsincluded government officials, staff of implementing agencies, donors, private sector representatives andmembers of civil society. There were over 50 questions in several categories including: the Bank's mission,qualifications and quality of work, partnership and trust, ease of working with the Bank, Bank responsivenessto client needs, and effectiveness and results. Most questions involved rating the Bank on a scale of 1 to 5with I being most favorable and 5 being least favorable. Some caution is needed in interpreting the results, asrespondents differed widely in their knowledge of the Bank and familiarity with its work.

Key Leamings: In general, respondents rated the Bank higher on its qualifications and quality of Bank work,and lower on ease of doing business with the Bank.

* The Bank received higher ratings on its technical knowledge and knowledge of international bestpractice, and lower ratings on its knowledge of the country and the local situation.

* The Bank's economic and sector studies were rated higher than its studies of beneficiaries.* Issues related to the speed and flexibility of the Bank were rated quite low.* The Bank received higher ratings on interpersonal skills from government officials than from donors.

The Bank received mixed ratings on effectiveness and results.* Respondents rated the Bank's performance higher on economic dimensions of development, such as

laying foundations for growth, promoting economic reforms, and strengthening the private sector.* Respondents rated the Bank's performance lower on other dimensions of development, such as

improving the life of the poor, investing in people, and the environment.- The Bank received average overall effectiveness ratings, with lower ratings on project management.

Respondents' views on the Bank's partnership with other development players were generally positive.* Government officials tended to view the strength of the partnership more favorably than did the

donors and civil society. In fact, across most categories, the Bank received higher ratings fromGovernment, particularly ministry employees and implementing agencies, than it received fromdonors and civil society. Private sector ratings were more mixed.

* However, civil society rated the Bank highest on changes in client focus over the last two years. Ingeneral the Bank received average ratings related to its responsiveness to client needs.

* Respondents rated the Bank higher on responding to suggestions, and lower on listening I adapting.

The 1999 Client Feedback from the CAS Consultations: The 1999 CAS Consultations and dialogue aroundZambia's Comprehensive Development Framework between February and July provided an opportunity forthe Bank to address some of the concerns raised in the 1997 Client Feedback Survey and to collect currentviews from a broad array of the Bank's development partners.

60 Annex D

There were three principal themes of the first round of Bank-led in-country 1999 CAS consultations: resultsin Zambia today, the vision for Zambia's future, and the strategies and partnerships required to realize thevision. The first round of consultations took place in February and March and involved over twentyindividual consultation sessions with the following groups: 8 ministers chosen by the President, theGovernment's appointed Technical Task Force including selected permanent secretaries and Ministry ofFinance officials, IDA-supported Project Managers, local bilateral and multilateral development partners(Ambassadors and local heads of development agencies), heads of UN agencies, 60 NGOs, trade unions,church groups, private sector leaders, academics, Parliamentarians, selected local government officials,selected former senior government officials, and a sample of 10 poor urban and rural communities through thePoverty Assessment Group. Feedback from clients came in the form of a quantitative rating of theconsultations, along with qualitative remarks about the sessions and the Bank in general.

Key Learnings: In general the Bank was praised by participants for its openness and the inclusive process itadopted for the CAS Consultations. Specific constructive feedback was given on Bank-assisted projects andan across-the-board plea was expressed for more and better coordination and dialogue among all developmentpartners, including Government.

What the Participants Liked

EvaluatSons from the CAS Consultatons: b"Hearing about the World Bank and learning to really know what they do."Session Ratings |L"r the Word " appreciated being invited-this was my first exposure to the World Bank."

Average "The fact that the Bank is interested in what is going on"ge "To know what the World Bank has and feels for this country."

Refing "I liked more the openness, transparency of the World Bank."

Openness of "How the Bank sincerely cooperates with the stakeholders.",ed __Discussions "The opening up of the World Bank to get views on this country."

cs =_______ 6"The openness and free discussion."

Thinking "The occasion to talk in depth about cooperation in Zambia."Cer &I about rThe exchange of information"

. evelopment "Quality thinking about conditions for developmnent and change."

Participatory "Participatory process by the facilitators. Agenda was well planned."Not Valuable At All Extremely Valuable a copros "Participatory atmosphere'"Well-prepared talks, well-organized, widespread selection of groups"

Action Steps

From the Client Feedback Survey and the more recent CAS Consultations, several action steps are apparentthat can help the Bank strengthen its partnership with the Government and other development partners:

* The Bank's overall objective of poverty reduction is not as widely known as its macroeconomic work. Inparticular, this points to the need for Bank staff to reach out more to relevant groups within civil society.The CAS Consultations and Feedback Sessions provided an opportunity for this to begin in earnest.

* Bank operational staff need to be more proactive in detecting and resolving implementation issues, andincrease flexibility and agility when mid-course corrections are needed. There is a need for greatersimplicity in project design, with more tailoring to existing capacity.

* Overall Bank-Government relations are generally strong, especially at senior Government levels. Therelationship is marked by openness and candor. Nonetheless, there are periods of tension normallycentered around policy disagreements or delays which must continue to be managed.

* The Bank has increased its efforts over the last couple of years to provide information and fosterimproved coordination among development partners. However, this is an unfinished agenda, particularlyat the local level. Continuing joint work on the formulation and implementation of a common andcomprehensive development framework is important in this context.

61 Annex D

Selected Statistics from the 1997 Client Feedback Survey

Selected Questions with Highest Overall RatingsQuestion Category Mean % ° Comments

__ _ ___ Agree Disagree .Economic studies Quality of work 1.74 89 1 Al ratings favorable, Ministers

100%Technically competent staff Qualifications 1.88 87 2 All ratings favorableSector studies Quality of work 2.05 79 3 All ratings favorable, Ministers

I__ _ _ _ _ _ _ _ _ _ _ _ 100%Poverty assessment Quality of work 2.13 69 4 Donorand civil society ratings most

favorable, pnvate sector leastBank brings useful intellectual Qualifications 2.18 75 8 Donor ratings most favorable,and tech knowledge private sector least favorableKnowledgeable of the best Qualifications 2.21 67 4 All ratings favorableintemational practices I.I

Selected Questions with High Disagreement Among RespondentsQuestion Category Mean % Comments

Agree DisagreeBank staff seek participation Partnerships 2.42 65 14 Ministry employees much moreof beneficiaries in their work favorable, civil society and ministers

slightly lessBeing accessible to you Ease of 2.46 59 15 Govemment ratings much more

working with favorable, civil society and privatesector much less favorable

Developing solutions jointly Partnerships 2.57 46 12 Donor ratings much lowerwith key stakeholdersHow satisfied are you with the Effectiveness 2.59 54 19 Govemment ratings more favorable,WB donor ratings much less favorableSpecifically seeking your Partnerships 2.66 50 20 Govemment ratings much morecontribution and involvement favorable, donors and civil societyin their development work lowestBank listens to clients Responsive to 3.02 35 35 Ministry employee ratings much

needs more favorable, others somewhatI__ _ _ _ _. V less

Selected Questions with Lowest Overall RatingsQuestion Category Mean % Comments

Agree Disagree

Bank policies / practices are Ease of 3.18 34 46 Ministry employee ratings moreeasy to understand and working with favorable, donors and civil societyimplement lessImproving life of the poor Results 3.28 21 45 Govemment ratings most favorable,

donors and civil society lowestBank does things quickly Ease of 3.39 25 54 Ministry employee ratings

working with significantly more favorable, donorsslightly less

Time spent from project id to Ease of 3.51 25 60 Ministry employee ratingsapproval is reasonable working with significantly more favorable, donors

and ministers lessBank is flexible Ease of 3.62 17 62 Private sector ratings slighty more

working with favorable, donors less favorable

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