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Implementation Completion Report (ICR) Review - Sao Tome & Principe - Public Resource Management


  
1. Project Data:   
ES Date Posted:
03/11/2005   
PROJ ID:
P069909
Appraisal
Actual
Project Name:
Sao Tome & Principe - Public Resource Management
Project Costs(US $M)
 7.5  5.34
Country:
Sao Tome & Principe
Loan/Credit (US $M)
 7.5  5.34
Sector, Major Sect.:
General agriculture fishing and forestry sector, Central government administration, General finance sector, Health, General water/sanitation/flood protection sector,
Agriculture fishing and forestry; Law and justice and public administration; Finance; Health and other social services; Water sanitation and flood protection
Cofinancing (US $M)
   
L/C Number:
C3428      
   
Board Approval (FY)
  1
Partners involved
 
Closing Date
03/31/2003 06/30/2004
         
Prepared by: Reviewed by: Group Manager: Group:  
Michael R. Lav
John H. Johnson Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
A. improve domestic resource mobilization and the implementation of tariff reform

B. strengthen public expenditure management
C. deepen the public enterprise reform program

b. Components
A. improve domestic resource mobilization and the implementation of tariff reform (2nd tranche release conditions)

1. eliminate the granting of all ad hoc tax exemptions
2. strengthen tax administration
3. tariff reform

B. strengthen public expenditure management (2nd tranche release conditions)

1. civil service reform/retrenchment
2. conduct public expenditure reviews in education and health sectors to identify issues recording composition of sector allocations, expenditure programming, budget execution and impact evaluation
3. improve investment expenditure by implementing a public investment program and, especially, insuring that external donor contributions flowed through the budget (not specified in the Development Credit Agreement)

C. Public Enterprise Reforms (floating tranche release conditions)

1. liquidate ENCAR (a meat processing plant) and ENAMED (a medicine distribution company) and bring to the point of sale Pusada Boa Vista (a hotel), EMOLVE (a palm oil company), Cunha Gomes (a construction material distribution company), Air Sao Tome (the national airline) and the water and electricity enterprise (EMAE).
2. adopt a program for the privatization of large state-owned farms


D. Structural Reforms, (floating tranche release conditions) including

1. adopt a land tenure reform program
2. adopt a program for the privatization of large state-owned farms and an action plan for the rationalization of the land tenure system,
3. a new law including revisions of taxes and the investment code largely as recommended by FIAS has been presented to the National Assembly. A telecommunications sector law was approved by the National Assembly, and the contract with the telecommunications company was renegotiated to permit the opening of the market to competition by end 2005.
4. strengthen government capacity and the quality of governance (mentioned in the ICR and described in the Project Document, but in the Development Credit Agreement).

c. Comments on Project Cost, Financing and Dates
The project final project cost (after cancellation of the floating tranche of US$2.16 million) was US$5.34 million, financed entirely by an IDA credit. The credit was originally for US$7.5 million, reduced to US$5.34 with the cancellation of the floating tranche. The project was appraised in June, 2000, approved by the Board on November 2, 2000, made effective on February 8, 2001, and closed on June 30, 2004, 15 months behind schedule.


3. Achievement of Relevant Objectives:

A. improve domestic resource mobilization and the implementation of tariff reform - moderately satisfactory


1. No new ad hoc exemptions were granted from 2001 through May, 2004. A general services tax was implemented in January, 2003
2. A new Unique Fiscal Identifier system is only partially operational. Administration of the general sales tax suffers from lack of capacity. However, improved coordination among the tax directorates has increased tax collection which exceeded IMF targets
3. A new customs surveillance system was launched to reduce under-reporting and is being implemented with EU assistance, but glitches remain.

B. strengthen public expenditure management - moderately unsatisfactory

1. A plan to downsize the civil service was adopted and 306 employees separated (well below the original target of 532, and at substantially higher cost than foreseen). the computerized payroll is now functional and the government has compiled a list of civil servant qualifications and salary scales, but these data bases need to be integrated to be a useful basis for further reforms
2. Public expenditure reviews in education and health sectors identified issues in sector allocations, expenditure programming, budget execution and impact evaluation, and expenditures are now better targeted to priority areas (especially primary levels) with significant improvements in quality.
3. A rolling three-year public investment program has been implemented. However, external donor contributions do not yet flow through the budget although the budget more accurately reflects such expenditures.

C. Strengthen and deepen the public enterprise reform program - moderately unsatisfactory
(i) The ENCAR (meat processing plant) and ENAMED (medicine distribution plant) were liquidated
(ii) Poussada Boa Vista Hotel was sold.
(iii) EMOLVE was brought to the point of sale but progress stalled for lack of bidders
(iv) Air Sao Tome has not been brought to the point of sale. The Government has introduced some competition in the sector, which is a benefit, but which may be a cover for not wishing to proceed with privatization as had been agreed in the Development Credit Agreement.
(v) EMAE (electricity and water company) is being restructured and is being subjected to yearly external auditing, but has not been brought to the point of sale.


D. Other Structural Reforms: unsatisfactory

1. adopt an action plan for the rationalization of the land tenure system - no progress reported
2. strengthen the rural sector - some rural roads have been built but little progress was made in improving extension and micro-credit systems
3.strengthen the legal and institutional framework for private investment. the tax and investment law was twice presented to the National Assembly and twice returned on procedural grounds. No progress has yet been made on improving the commercial code.
4. Strengthen government capacity and governance. The accounting tribunal has been active since 2003 to audit budget execution and improve transparency.


4. Significant Outcomes/Impacts:

Public expenditure management has been improved.

5. Significant Shortcomings (include non-compliance with safeguard features):

Some 93 percent of the land is state-owned, so developing a plan for rationalization of the land tenure system is a high priority reform on which little has been achieved. Development is constrained by the inability of those who lease the land to finance investments. The failure to adopt an action plan for rationalization of the land tenure system is a significant shortcoming of this project, and, without progress in this sector, the economy will probably not have a basis for broad-based growth.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
UnsatisfactoryUnsatisfactoryIn view of the importance of the floating tranche reforms and their unsatisfactory outcome, and the moderately unsatisfactory outcome of most of the other reforms supported by the project, the outcome of the entire project is rated unsatisfactory.
Institutional Dev.:
ModestModest
Sustainability:
LikelyLikely
Bank Performance:
UnsatisfactoryUnsatisfactory
Borrower Perf.:
UnsatisfactoryUnsatisfactory
Quality of ICR:
Satisfactory

7. Lessons of Broad Applicablity:

The objectives of adjustment projects need to be realistically calibrated and focussed taking into account the stability of the political system, degree of administrative capacity, and extent to which government fully owns the project's objectives. In this case, a less ambitious, more focussed project design might well have led to a satisfactory outcome.

8. Audit Recommended?  No

          Why?  

9. Comments on Quality of ICR:

The ICR does a good job of discussing and evaluating this project. It gives a very thoughtful and commendable presentation of the benefits, and shortcomings, of this operation. However, the ICR could have presented more clearly the 2nd tranche and floating tranche conditions. In addition, the ICR could have presented at least in general terms developments in the petroleum sector, which will change the structure of the economy and are therefore an important lens through which to view progress (or lack of progress) in structural reforms. Finally, the ICR appears to overstate the degree to which the Borrower agrees with the ICR, since Annex 8 and its discussion of the project's benefits (including improved tax administration, and education and health expenditure allocations) suggest that the Borrower would rate the project's outcome somewhat better than does the ICR.

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