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Implementation Completion Report (ICR) Review - DRC Emergency Project To Mitigate Impact Of Financial Crisis


  
1. Project Data:   
ICR Review Date Posted:
03/14/2012   
PROJ ID:
P115642
Appraisal
Actual
Project Name:
DRC Emergency Project To Mitigate Impact Of Financial Crisis
Project Costs(US $M)
 100.0  101.1
Country:
Congo Democratic Republic
Loan/Credit (US $M)
 100.0  101.1
Sector, Major Sect.:
: Primary education, Secondary education, Power, General energy sector, Water supply
Cofinancing (US $M)
 0  0
Theme(s):
Other financial and private sector development (29%) Macroeconomic management (29% - P) Debt management and fiscal sustainability (26% - S) Education for all (16% - S)      
L/C Numbers:
CH453
Board Approval (FY)
  2009
Partners involved
 
Closing Date
03/01/2010 08/31/2010
         
Evaluator: Panel Reviewer: ICR Review Coordinator: Division:  
Kavita Mathur
Jorge Garcia-Garcia IEG ICR Review 1 IEGPS1

2. Project Objectives and Components:

a. Objectives:
The objective of the project was to help mitigate the immediate and severe impact of the global financial crisis on the Democratic Republic of Congo's (DRC) economy by providing short term transitional support to fund critical imports and maintain targeted essential services (from the Project Paper, para. 16).

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components (or Key Conditions in the case if Adjustment Loans):
Component 1: Financing of imports of essential goods and commodities (appraisal/actual cost: US$58 million/US$69.7 million). This component aimed to support the government in sustaining the level of key imports in face of the foreign exchange shortage as exemplified by the drop in official reserves from about five weeks to 0.26 weeks (less than two days) of imports. The component financed imports done by the private sector of food products, construction materials, telecommunication equipment, and petroleum and fuel products. These goods are critical for sustaining transport activities, utility services, public and private construction activities and investment.

Component 2: Financing of primary and secondary school teacher's salaries (appraisal/actual cost: US$16 million/US$6.2 million). This component would contribute to the uninterrupted delivery of education throughout the territory to protect recent gains in education and help the government maintain its objective of one million more children in school in 2009. Continued payment of teacher’s salaries in Kinshasa as well as outside the capital would provide income throughout the territory. The Project would reimburse the government for the payment of one month of primary and secondary education teachers’ salaries for the month of November 2008.
Component 3: Financing State water and electricity bills (appraisal/actual cost: US$26 million/US$25.2 million). By covering expenditures for public utility bills, this component would prevent the crisis from aggravating the financial position of the State Water Utility (REGIDESO) and the State Electricity Company (SNEL) and causing services to deteriorate, thus jeopardizing on-going recovery efforts. The component was to pay the state’s water and electricity bills for January through June 2009. The component also financed expenses related to project management and implementation.

The components were not revised.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost and Financing: The IDA Grant by the amount of SDR 66.2 million (US$100 million equivalent) was fully disbursed in September 2010. Funds amounting to US$11.7 million were reallocated from component 2 and 3 to component 1. The disparity between appraisal and actual values comes from variations in the exchange rate.
Borrower Contribution: None.
Dates: The project closing date was extended from March 1 to August 31, 2010 to allow completion of all project activities. These include (i) collecting necessary documentation to justify expenditure under Component 1, (ii) conducting studies on the impact of Component 3, and (iii) conducting technical and financial audits of the project.
The government’s adoption of the Inter-Ministerial decrees establishing simplified procedures for payment of the government’s water and electricity bills was delayed by four months. This slowed down the implementation of component 3. The final disbursement for component 3 was made on January 13, 2010 instead of September 2009.


3. Relevance of Objectives & Design:

Relevance of Objectives: rated high.
In response to a weakening fiscal position and a significant drop in the country’s terms of trade following the global financial crisis, the Government formulated an Emergency Recovery Program and committed to three fiscal policy objectives: (a) macro-economic stability; (b) regular servicing of the international debt; and (c) ensuring the continuity of social services. The project objective "to help mitigate the immediate and severe impact of the situation in the country and the global financial crisis by providing short term transitional support to fund critical imports" was consistent with the Government's fiscal policy objectives. According to the Joint IDA-IMF staff Advisory Note (June 11, 2010), the government recognized that continued, sustainable growth in a stable macroeconomic climate was essential to reducing poverty. The Government's medium-term macroeconomic objectives are to: (i) reduce year-to-year inflation to 9 percent by end-2012; (ii) increase international reserves to 10 weeks of non-aid imports by end-2012; and (iii) achieve real GDP growth in the range of 6 percent per annum. The government intends to accelerate its program of reforms to achieve these objectives.

The project objectives were also fully consistent with the priorities set out in the most recent Poverty Reduction Strategy Paper (2007) (PRSP), particularly Pillar 2 "Consolidating Macroeconomic Stability and Economic Growth" and Pillar 3 "Improving Access to Social Services and Reducing Vulnerability". The objectives were consistent with the FY08-11 Country Assistance Strategy (CAS) as the CAS is closely aligned with PRSP priorities.

Relevance of Design: rated substantial.
The "Emergency Recovery Grant" was the appropriate lending instrument to address immediate financing requirements of DRC. The choice of an emergency recovery grant arose from the lack of other options, such as the restructuring of an existing project, to meet the immediate financing needs. The alternative of providing assistance under a Development Policy Grant was considered but rejected, given the importance of offering short-term financing rather than supporting policy and institutional actions to address the crisis, as a prerequisite for a DPO.

The three components of the project were designed to help DRC overcome a temporary crisis situation and to bridge the foreign exchange gap while other economic measures and other credits were processed. The project support to water, energy, and education sectors was important to assure continuity of services.


4. Achievement of Objectives (Efficacy) :

Help mitigate the immediate and severe impact of the global financial crisis on Democratic Republic of Congo (DRC) by providing short term transitional support to fund critical imports and maintain targeted essential services: rated substantial.
Outputs
  • The project funded critical imports of: food products (61.4% of the total component amount), oil products (34.7%), telecommunications equipment (2.4%) and construction materials (0.3%).
  • State water and electricity bills were paid for the first and second quarter of 2009.
  • Teachers received salary payments for the months of March, April, and May of 2009 and regular payments continued for the entire 2009-2010 school year with assistance from AfDB and Government funds. The ICR reports that for the first time in years the start of the school year in 2009 was not marked by strikes.
  • The Government’s adoption of the inter-ministerial decrees establishing simplified procedures for payment of the government’s water and electricity bills (originally planned in the context of other ongoing Bank-financed sector operations but speeded up by the Project) resulted in reducing billing time from about 150 days to below 60 days.
Outcomes
  • The ICR notes that there were no price spikes for the main categories of goods imported (rice, wheat, sugar, chicken) over the critical months following effectiveness, indicating that there were no major shortages of goods on the local markets (page 19).
  • The ICR reports that the payment of water and electricity bills prevented disruption of services. The State Electricity Company (SNEL) reported that without the Grant, it would not have had funds to respond to a transformer station breakdown in Kinshasa in September 2010, which would have resulted in 59,502 connections being cut off from the grid for an extended period of time. The Water Company (REGIDESO) reported that the Grant principally allowed the company to purchase chemical products to assure quality of water to the clients.

The Project funds prevented international reserves from reaching negligible levels and bridged the foreign exchange gap while other economic measures and other credits were processed to sustain the economic recovery program. In 2009, DRC import of key agricultural commodities was about US$ 79 million (Source: Food and Agricultural Organization Statistics). The “bridge” of US$101 million provided foreign exchange to maintain key imports.

5. Efficiency (not applicable to DPLs):

The Net Present Value and Economic Rate of return (ERR) were not calculated at appraisal or completion. The audit of component 2 (teachers' salaries) resulted in US$4.6 million of expenditures being qualified as ineligible. The ineligible amount was subsequently reimbursed by the government on February 27, 2010. The ICR provides no other evidence that the project funds were efficiently utilized. Overall, project efficiency is rated modest.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:



Rate Available?
Point Value
Coverage/Scope*
Appraisal:
No
%
%
ICR estimate:
No
%
%

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

The relevance of objectives was high but that of design was substantial. The resources made available to the Government through the Project contributed to mitigating the short-term impacts of the global financial crisis on the economy of DRC. The project enabled imports of food products, construction materials, telecommunication equipment, and petroleum and fuel products.The State water and electricity bills were paid, thus maintaining the critical services. Teachers salaries were paid and continuos delivery of public education services was maintained. Efficiency was rated modest due to lack of evidence. Overall, Outcome is rated moderately satisfactory.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating :

Although the Government is paying teacher’s salaries, it has not paid its utility bills since October 2009, i.e. beyond what was financed by the Project and the African Development Bank. The ICR reports that by project closing, water and electricity delivery had not been affected, but in the longer term sustainability will depend on continued institutional reforms that are not progressing at the expected pace. The risk to development outcome rating is rated significant (the ICR rates risk substantial which the review equates to significant. This is also OPCS guideline terminology).

a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

Quality at entry: The Bank’s response to the deteriorating economy of DRC was quick and appropriate.The Project used "IDA Financial Crisis Response Fast-Track Facility" (IDA FTF), just two days after IDA FTF Board presentation. The project design was satisfactory and safeguards categorization was appropriate.
Supervision: The first supervision mission was carried out three weeks after effectiveness and included financial management, procurement, and disbursement staff. There were five supervision missions within an 18 months period. The project was restructured following the audit of component 2 (teachers' salaries), which resulted in US$4.6 million of expenditures being qualified as ineligible. The ineligible amount (which was subsequently reimbursed by the government) along with the undisbursed balance from components 2 and 3 (due to exchange rate fluctuations) was reallocated to component 1, for a total reallocation to of US$11.7 million. The Bank Team extended the closing date to ensure that funds were fully utilized.

a. Ensuring Quality-at-Entry: Satisfactory

b. Quality of Supervision: Satisfactory

c. Overall Bank Performance: Satisfactory

9. Assessment of Borrower Performance:

Government Performance: The Government, led by the Technical Reform Committee in the Ministry of Finance, was fully engaged in project preparation. The Government formulated an Emergency Recovery Program and committed to three fiscal policy objectives (see section 3 above). The ICR does not discuss the implementation of the Government's Emergency Recovery Program.
During implementation, the Government was slow at signing the Inter-Ministerial decrees establishing simplified procedures for payment of the government’s water and electricity bills. Also, it was late in adopting the anti-corruption plan and implementing it. Following the final audit of component 2 (received by the Bank on February 26, 2010) the government reimbursed the ineligible expenditures on February 27, 2010.
Implementing Agency Performance: The Project Coordination Unit (PCU) was the implementing agency and carried out project implementation effectively with timely disbursements and audits. The PCU speedily responded to the financial crisis.

a. Government Performance: Satisfactory

b. Implementing Agency Performance: Satisfactory

c. Overall Borrower Performance: Satisfactory

10. M&E Design, Implementation, & Utilization:

Design: The project included output focused indicators such as inflation, payment of teacher salaries and payment of utility bills. The Consumer Price Index (CPI) as an indicator to assess the availability of goods critical for the economy in not a good indicator as seasonal conditions, changes in the exchange rate, monetary and other factors can influence the prices that affect CPI.
Implementation: The PCU M&E specialist was in charge of collecting data from the various project beneficiaries. The ICR reports that data were evaluated by the PCU and shared with the Bank, as incorporated in the Implementation Status and Results Report (ISR). The mid-term review (MTR) was timely and was used to review the project's progress in depth. The results of the review are not presented in the ICR.
Utilization: The ICR reports that M&E framework was used to make adjustments to project implementation and especially to make sure disbursement was on track. No other information is provided on M&E utilization.

a. M&E Quality Rating: Modest

11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts):

Safeguards: At appraisal, the project assigned Environmental Category "C" as it did not finance any physical investments and there were no negative environmental or social impacts. No other safeguards policies were applicable. During implementation no safeguards were triggered.
Fiduciary: The Financial Management encountered few major problems:
  1. The audit of component 1 discovered US$5.2 million ineligible expenditures which were not on the positive list (such as imports of car spare parts). The corresponding withdrawal applications were cancelled and supporting documentation for substitute imports was submitted to the Bank by the PCU. Subsequent audits confirmed that funds from component 1 were used in conformity with the Bank and Government’s Emergency Recovery Program and not for military or security expenditure.
  2. The audit of component 2 found that US$4.55 million ineligible expenditures due to non-compliance with the exact terms in the Financing Agreement. The “Replacement teachers” were paid in accordance with Congolese regulation but the Financing Agreement only agreed to reimburse salaries of teachers on the official payroll. The ineligible amount was subsequently reimbursed by the Government.
The ICR reports that the audit report did not indicate that these ineligible expenditures resulted from misprocurement, fraud or corruption. A procurement review carried out by the Bank's Procurement Specialist rated procurement satisfactory.
Unintended Impacts: The Bank support, through the Project, was instrumental in bringing on board other donors. The project was used by other partners using the same design and institutional arrangements to provide additional resources to mitigate the impact of the financial crisis.


12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Moderately Satisfactory
The relevance of objectives was high but that of design was substantial. The resources made available to the Government through the Grant contributed to mitigating the short-term impacts of the global financial crisis on the economy of DRC. However, efficiency was rated modest due to lack of evidence. Overall, Outcome is therefore rated moderately satisfactory. 
Risk to Development Outcome:
Significant
Significant
 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Satisfactory
Satisfactory
 
Quality of ICR:
 
Satisfactory
 

13. Lessons:

IEG broadly concurs with the lessons outlined in the ICR but would like to highlight the following two in particular:
  1. For this type of emergency project, the PCU is an adequate structure as its knowledge of Bank procedures, acquired through implementation of other Bank-financed projects, was critical to fast project implementation.
  2. Intensive supervision and fiduciary support is needed particularly for this type post-conflict emergency operation to ensure that the project remains on track and funds are not misappropriated.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR is concise and comprehensive. It contains all information necessary for the evaluation.

a. Quality of ICR Rating: Satisfactory

(ES-Rev5-Jul/06)
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