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Implementation Completion Report (ICR) Review - Economic Recovery And Gov. Grant 3


  
1. Project Data:   
ICR Review Date Posted:
10/28/2011   
Country:
Togo
Is this review for a Programmatic Series?
 No
First Project ID:
P117282
Appraisal
Actual
Project Name:
Economic Recovery And Gov. Grant 3
Project Costs(US $M)
 16.3  16.3
L/C Number:
Loan/Credit (US $M)
 16.3  16.3
Sector Board:
Economic Policy
Cofinancing (US $M)
 0  0
Cofinanciers:
Board Approval Date
  05/20/2010
 
 
Closing Date
12/31/2010 12/31/2010
Sector(s):
Central government administration (50%), Crops (20%), Power (20%), Mining and other extractive (10%)
Theme(s):
Public expenditure financial management and procurement (50%) Other rural development (20%) Export development and competitiveness (15%) Other public sector governance (15%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Mauricio Carrizosa
Jorge Garcia-Garcia Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The objectives of the Third Economic Recovery and Governance Grant (ERGG-3) were:
    a. improve public financial management. Specific objectives were to strengthen budget preparation, budget execution, budget controls, and public procurement.Targets for outcomes in these areas were:
    Budget Preparation: publication of 3 quarterly budget reports in 2010 (same as 2009), including 3 ministries with medium term expenditure frameworks (MTEFs, none in 2008);
    Budget Execution: an increase in execution of priority spending (health, education, agriculture, and infrastructure) from 71 percent in 2006-07 to 85 percent in 2010;
    Budget Controls: an increase in the number of internal budget control audits from 8 in 2009 to 10 in 2010;
    Public procurement: an increase in procurement review from 0 percent to 80 percent of contracts in five ministries and seven major companies.
    b. restore performance in key sectors of the economy. Specific objectives were to increase private sector confidence through improved governance and transparency in the cotton, phosphate, and energy sectors.Targets for outcomes in these areas included:

    Cotton Sector: a 10 percent reduction in cotton processing costs;
    Phosphate Sector: an increase from 2 to 4 in the number of Extractive Industry Transparency Initiative (EITI) criteria met to become a candidate country;
    Energy Sector: clearance of public and para-public arrears to Togo's Electric Energy Company (CEET), as indicated by the stock of arrears and obligations to CEET coming down to zero.
    Improved management in selected public enterprises (objective b above) was expected to provide additional fiscal space and investments in the sectors covered by those enterprises. This was to strengthen fiscal sustainability, economic governance and growth, and enhance the transparency of state institutions and processes. The PAD did not indicate targets for these expected, higher order results.

    The ERGG-3 objectives (a) and (b) above followed up on equivalent objectives included in the FY09 Second Economic Recovery and Governance Grant (ERGG-2) and the FY08 Economic Recovery and Governance Grant (ERGG). However, the much larger ERGG ($164 million) had also sought to facilitate the clearance of Togo's arrears to IDA, which was required to restore normal relations between the country and the World Bank,

b. If this is a single DPL operation (not part of a series), were the project objectives/key associated outcome targets revised during implementation?
No

c. Policy Areas:

There were two policy areas: (1). Financial management: budget formulation, monitoring, execution, and controls; and public procurement; and (2). Performance in key sectors: Governance and transparency measures covering information, accounting and the regulatory framework in the cotton sector; EITI candidacy and reconciliation of phosphate revenues with treasury revenues in the phosphate sector; and clearance of arrears in the energy sector.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates

There were no extensions to the original closing date of 12/31/10. The grant's single tranche was disbursed one month after the grant approval date of May 20, 2010 (the grant was signed on June 8, 2010).


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

Relevance of Objectives. The ERGG-3 was the third of a series of IDA grants to Togo that the Bank approved following the country's emergence in 2007 from a prolonged period of socioeconomic instability and in response to a series of economic reforms that the government began to implement. The reforms aimed to address the widespread economic mismanagement that had led to excessive public debt levels, large losses in public enterprises, undercapitalization of several banks, weak government services, and a weak business environment. Following progress under the ERGG-2, the ERGG-3 reform objectives were relevant in that they further helped address fiscal financial mismanagement (Objective (a)) and the large losses of public enterprises (Objective (b)). The ERGG-3 objectives were aligned with the first and second of the three strategic areas indicated by the Interim Strategy Note (ISN) issued in May 2008 for the period FY08-FY10: i) to improve public financial management and governance in key public sector institutions and ii) to promote economic recovery and sustainable development. With objectives addressing well-identified development challenges and consistent with ISN objectives, relevance of objectives is rated high.

b. Relevance of Design:

Relevance of Design. The operation supported reforms strongly linked to the expected financial management and sector outcomes (Section 2), but weakly linked, if at all, to the indicated higher order outcomes (fiscal sustainability. increased investment in the critical sectors, higher growth). Prior actions (e.g., to establish and extend the new financial management system) were critical components of the reform objectives supported (e.g., to strengthen budget preparation and monitoring). But actions towards restoring performance in key sectors (Section 2, objective b) were unlikely to achieve the indicated higher order objectives. As with the ERGG-2, the program document for the ERGG-3 did not delve at any length into the link between the reform actions and those higher order objectives. The sector actions supported by the operation were unlikely to bring in investment to those sectors let alone trigger higher economic growth. Given the critical nature of the actions supported for the reform objectives, albeit with a limited impact on higher order objectives, relevance of design is rated substantial.


4. Achievement of Objectives (Efficacy) :

Improve public financial management. Substantial. Progress was best on budget preparation and monitoring and on budget controls, less so on budget execution, and least on public procurement. Details follow.

Specific objective i: Strengthen budget preparation and monitoring. Prior actions included publication of the 2009 quarterly budget execution reports; and submission to Parliament of the draft 2010 budget law with a medium term expenditure framework (MTEF) for two priority ministries (Education and Health). The 2010 and 2011 budgets were approved on December of the previous year. The expected results were achieved: the Government published the three expected 2010 quarterly budget execution reports and, as expected, the 2011 budget law included MTEFs for three ministries (education, health, and agriculture).

Specific objective ii: Strengthen Budget Execution. Under the prior actions, the Government made available at least 80 percent of the allocations for poverty reduction activities (health, education, agriculture, and infrastructure) by February 2009 and the 20 percent remaining by October. In 2009 , following approval of the Grant, the Government extended the integrated budget execution information system (SIGFIP) to the Treasury and implemented a new computerized payroll system interfaced with the SIGFIP. Results were below target. The budget execution rate for the selected activities was 69 percent, below the 85 percent target. The ICR reports 92.5 percent (corresponding to domestically financed expenditures) because the region decided that, given the lack of government control over foreign financed investment, the total execution rate was misleading.

Specific objective iii: Strengthen Budget Controls. Under the prior actions, the Government prepared and implemented a procedures manual for the General Finance Inspectorate and established and made operational the Court of Accounts. Results met expectations with an increase in the number of audits conducted by the General Finance Inspectorate from 8 to 25.

Specific objective iv: Strengthen Public Procurement. Under the prior actions, the Government established and made operational the General Procurement Department and created commissions to conduct ex-ante procurement reviews in at least five priority ministries and the Lomé municipal office. However, the need for additional staffing and training activities impeded the review of contracts in the expected amounts in 2010. Accordingly, the target value for procurement review was not achieved.

    Restore the performance of key sectors of the economy. Substantial. Progress was best in the phosphate sector. less so in the cotton sector, and least in the energy sector. Details follow.

    Specific objective v: Increase private sector confidence through improved governance and transparency in the cotton sector. Under the prior actions, the Government assessed the management information and cost accounting system of the New Togo Cotton Company and proposed a new system. Furthermore, the main stakeholders adopted the regulatory framework that specifies their roles, responsibilities and obligations and the mechanisms to make effective the representation of the producers at the Board of the New Togo Cotton Company. Following approval of the grant, improved management under the new New Togo Cotton Company was expected to reduce cotton processing costs. Although available data suggests that processing costs declined beyond expectations, the available cost data is not fully comparable to the baseline.

    Specific objective vi: Increase private sector confidence through improved governance and transparency in the phosphate sector. As prior actions, the government adopted the legal and institutional framework with the objective of becoming an EITI candidate and published a reconciliation of phosphate revenues reported by the Phosphate Company with revenues received by the Treasury in 2008. Following approval of the Grant, five EITI criteria were met, thereby surpassing the expected target (four). Togo was granted EITI candidate status in October 2010 after fulfilling all criteria. It has two years to achieve EITI validation status.

    Specific objective vii: Increase private sector confidence through improved governance and transparency in the energy sector. As prior actions, the government prepared a time-bound plan for the clearance of the public and parapublic arrears to CEET and identified measures to prevent accumulation of arrears in the future. Following approval of te Grant, arrears to the Togo Electric Energy Company were securitized, not paid as expected by the PAD (p. 36).

    Higher Order Objectives. Negligible. The program did not achieve any significant results on the higher level objectives it pursued. Details follow.

    Fiscal Sustainability. Following a deterioration of the government's primary and overall fiscal balances between 2008 and 2009, Togo improved its fiscal performance in 2010 due to higher revenues triggered by higher growth. Furthermore, Togo benefited from debt reduction under the Multilateral Debt Relief Initiative. Reforms under the ERGG-3 had little or no bearing on these developments.

    Investment in the Phosphate, Cotton, Financial, and Energy Sectors. There is no indication that investment levels in the targeted public companies has increased.

    GDP Growth. Togo's GDP growth declined from 1.9 percent in 2007 to 1.1 percent in 2008 and recovered to 3.2 percent in 2009 and 3.4 percent in 2010. The decline and recovery primarily reflected the impact of the world recession and recovery, not an effect of any of the reforms supported by the ERGG-2 or ERRG-3.

5. Efficiency (not applicable to DPLs):

6. Outcome:

On public financial management, progress was best on budget preparation and monitoring and on budget controls, less so on budget execution, and least on public procurement. The Government submitted draft budgets to Parliament and published budget execution reports in a timely fashion, the budget included three ministries with medium term expenditure frameworks, and Parliament approved budgets also in a timely fashion. But the pace of budget execution and the coverage of procurement reviews were below target. On improving sector performance, progress was best in the phosphate sector, less so in the cotton sector, and least in the energy sector. The phosphate sector improved its transparency and the cotton sector reduced operational costs. However, the government was unable to clear arrears with the energy company. The program did not achieve significant results on its higher level goals of fiscal sustainability, investment in the key sectors, or GDP growth. Although objectives were relevant to country conditions and Bank and country strategy, and design was relevant for attaining the financial management and sector performance objectives, relevance for the fiscal, investment and growth higher level objectives was weak.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

Reforms in public financial management have been sustained thus far through the three ERGG operations but may test institutional capacity as the reforms deepen 2nd generation components (e.g., extension of MTEF to all sectors). The likelihood that institutional capacity may falter appears significant and the impact of faltering capacity would be critical if it were to materialize (e.g., on implementation of the MTEF). Reforms of state-owned enterprises face substantial risks and their materialization would be critical for those sectors. These include fiscal constraints that continue to impede the cancellation of arrears to the energy sector and undermine the latter's financial sustainability. And the incentives for operational performance of the new cotton company under its new ownership structure still remain to be tested. Risks on higher order outcomes (fiscal sustainability, investment and growth) depend on multiple factors outside the scope of the reforms supported by operation.

a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:

Quality at entry benefited from knowledge of financial management and relevant sector issues by the task team; adequate analytical work including a PEMFAR, audits and studies in the phosphate, cotton and electricity sectors; alignment with Bank and government strategy; adequate attention to safeguard issues (environment) beyond the reach of the operation and to fiduciary issues that were at the core of the operation; focus on policy and institutional issues covering the Ministry of Economy and Finance and three sectors; implementation and M&E arrangements efficiently centered at the Ministry of Economy and Finance; and adequate coordination with the IMF and EU. Focus on poverty, gender and social development was achieved by specifying floors on budget execution in the health, education and agriculture sectors. The PAD provided good assessments of key political, macroeconomic, fiduciary and implementation risks. Nevertheless, quality at entry suffered from the absence of a link between the reforms supported by the operation and the fiscal, investment and GDP growth objectives it aimed for.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:

While there was only one ISR (02/11), the grant was also supervised through preparation of the fourth grant (which covered the same areas), during a supervision mission in October 2010 and regular technical follow-up by Bank staff. By the same token, supervision covered transition arrangements following loan closing. Supervision followed up primarily on progress in the financial management and sector reform areas, but with little or no focus on the expected higher level outcomes. Supervision covered fiduciary issues (financial management and procurement) as substantive components of the reform program that the operation supported, but not the environmental and social issues that the Bank addressed separately through a Country Environmental Analysis (see Section 11).

Quality of Supervision Rating: Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The Government provided a supportive macroeconomic framework through prudent fiscal policies as the economy recovered in 2010. The Ministry of Economy and Finance, as the entity in charge of coordinating the program. exercised strong commitment and ownership of the reforms supported by the operation. The role of the National Assembly in reviewing and passing budget legislation also contributed positively to borrower performance.

Government Performance Rating: Satisfactory

b. Implementing Agency Performance:

The Ministry of Economy and Finance, as implementing agency for the financial management component performed well, except for the newly established General Procurement Office, which failed to review the expected percentage of contracts as it took time to set its work program running. Outcomes on cotton (lower processing costs) and phosphates (EITI Criteria) suggest that the corresponding implementing entities also discharged well their responsibilities under the program. Performance of energy company results hinged on repayment of arrears owed to it by the Government and other parastatals, which did not occur due to fiscal constraints.

Implementing Agency Performance Rating: Satisfactory

Overall Borrower Performance Rating: Satisfactory

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

a. M&E Design:

Monitoring and evaluation was to focus on progress in implementing reforms and on monitoring a set of indicators. Day-to-day monitoring was to be the responsibility of an existing high-level team within the Ministry of Economy and Finance (Comité de Suivi des Programmes et Réformes, CSPR) The Ministry of Economy and Finance was to provide quarterly reports to IDA on implementation progress measured against the established timetables and the agreed performance indicators. Design did not cover M&E of the contribution to the higher order objectives of the operation (fiscal sustainability, investment in the targeted sectors, and growth)

b. M&E Implementation:

The Government, the parastatals involved, other stakeholders in the cotton company, and the Bank reviewed progress of the program. Two IMF missions in 2010 monitored adherence to a sound macroeconomic framework. The PRSP annual progress report (APR) published in October 2010 measured achievements under the first two PRSP (and ISN) pillars (i) strengthening of governance; and (ii) consolidation of the foundations of strong and sustainable growth.The Government prepared regular progress reports on the implementation of the reforms.

a. M&E Utilization:

The evaluation results of the joint review described above informed preparation of the follow-up ERGG-4.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:

ERRG-3 economic governance and institutional reforms were not expected to have significant negative environmental or natural resource impacts. Similarly, no environmental effects were expected from supported actions in the cotton, phosphates, and energy sectors. Nevertheless, the PAD argued that increased investments and output in each of the targeted sectors resulting from these reforms (PAD para. 6.10) could have environmental effects. The Bank's response was to help prepare a Country Environmental Analysis. It addressed the potential adverse environmental and social impacts that could be associated with increased investment and production in the cotton, mining and energy sectors, and recommended measures to help eliminate or mitigate these impacts. The ICR did not assess those impacts.

b. Fiduciary Compliance:

Improved fiduciary standards were within the financial management objectives of the proposed operation. At the time the operation was prepared, the government had already implemented normal budget preparation and execution procedures, organized the Treasury, and created an internal audit and inspection unit. The ERRG-3 was to build on these earlier measures to deepen reforms and improve the country’s fiduciary management system.The establishment and operationalization of the Court of Accounts and the General Procurement Department, the preparation of a Manual of procedures for the Genera Finance Inspectorate. as well as the increase in the number of audits contributed to the improvement of fiduciary standards.

c. Unintended Impacts (positive or negative):

The ICR reports that there were no unintended impacts or outcomes. The actions and outcomes discussed in Section 4 do not suggest any unintended outcomes

d. Other:



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Moderately Satisfactory
Clearance of arrears to the energy company, defined in the PAD as reduction of the stock of arrears to zero, was not achieved. Furthermore, achievement of higher order objectives was negligible and not assessed by the ICR.. 
Risk to Development Outcome:
Moderate
Significant
A higher weight is given to the high risk of inadequacies in implementation capacity, 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Satisfactory
Satisfactory
 
Quality of ICR:
 
Satisfactory
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:

Two lessons are drawn from the experience of this operation:
    1. Good performance on reform objectives (e.g., public financial management) does not guarantee success in achieving higher level objectives, particularly if the operation's design fails to properly consider the links of the former to the latter.
    2. As a corollary, failure to include the link of reforms to higher level objectives in the M & E design may weaken awareness of those links and impede adequate information/analysis needed to correct policies. By way of example, establishing the links of reforms in the cotton company to higher order outcomes (investment in the cotton sector) and monitoring investment in that sector might have enriched the dialogue on the reforms needed and perhaps helped achieve stronger progress in this area.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR provides an adequate assessment of the context of the operation and of implementation of reforms. It could have provided a better analysis of the implications of the reforms for the higher order objectives that the operation envisaged.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
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