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Implementation Completion Report (ICR) Review - Wbg Support For Fiscal Sustainability And Public Financial Management


  
1. Project Data:   
ICR Review Date Posted:
04/09/2012   
Country:
West Bank & Gaza
Is this review for a Programmatic Series?
 No
First Project ID:
P118593
Appraisal
Actual
Project Name:
Wbg Support For Fiscal Sustainability And Public Financial Management
Project Costs(US $M)
 40  40
L/C Number:
Loan/Credit (US $M)
 40  40
Sector Board:
Public Sector Governance
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  09/16/2010
 
 
Closing Date
06/30/2011 06/30/2011
Sector(s):
Central government administration (50%), Compulsory pension and unemployment insurance (30%), Sub-national government administration (10%), Power (10%)
Theme(s):
Public expenditure financial management and procurement (80%) Social safety nets (10%) Rural policies and institutions (10%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Gita Gopal
Kris Hallberg Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The Program Document (PD) for the Palestinian Reform and Development Program (PRDP) Development Policy Grant (DPG) stated the objective as follows: Support the continued implementation of the government's PRDP to:
      • strengthen the fiscal position and
      • increase government transparency and accountability through improved public financial management. (pg. 30)

    The Development Credit Agreement (DCA) did not state the objectives but merely listed the program actions.

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:

DPG III was the final budget support grant in a series of three DPGs that focused on two policy areas, namely (i) strengthened fiscal position; and (ii) increased government transparency and accountability through improved public financial management. The associated focus areas for strengthening the fiscal position were: (i) Controlling the wage bill; (ii) Reducing the net lending (the unpaid utility bills that Israel deducts from Palestinian Authority (PA); (iii) improved targeting of the social safety net to increase efficiency and protection of most vulnerable populations; and (iv) improved domestic revenue collection. For the second policy area, the focus was on : (i) PA budget presented in a transparent manner and accounts comparable on an international basis; (ii) Upgraded institutional and regulatory procedures to support PFM reforms; and (iii) Strengthened PFM infrastructure and improve auditing functions. Ten prior actions focused on seven areas were all met.

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

PRDP DPG III was approved by the Bank’s Board in September 2010, and became effective on October 5, 2010, and it was also released in one tranche on October 5, 2010.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

The relevance of Program Objectives were high. The objectives aimed at fiscal strengthening, thereby reducing the PA’s dependence on aid. The focus on controlling the wage bill, ending net lending, and increasing domestic revenues were specifically designed to reduce aid dependency. However, ultimately, aid dependence is contingent upon the potential for real private sector led growth, which is currently constrained primarily due to restrictions on movement, trade and the access to resources. Also, reduction of the wage bill is dependent on civil service reform and pension reform. Although initiation of civil service reform was a prior action for the DPG I, this turned out to be too ambitious, and was followed through in a limited manner by the subsequent DPG II and III. Nevertheless, sustaining attention on these key objectives was highly relevant, given the political and social context within which these grants were provided. Additionally, untied budget support was not only essential for the PA to function, but efforts were also made to address critical areas, while protecting vulnerable groups under these grants.

b. Relevance of Design:

The relevance of the design was high. The policy reforms called for were complemented by other ongoing Bank support, thereby strengthening the chances of success. The design integrated lessons from previous budget support that ownership by MoF was inadequate by itself, when reforms involved other sectors. The results framework was overall sound and the choice of prior actions and focus areas were ambitious but relevant if PA is t achieve fiscal sustainability .


4. Achievement of Objectives (Efficacy) :

A. Strengthening fiscal position (substantial)

    • Control the wage bill: The wage bill was substantially controlled. As noted earlier, the achievement of objectives was to be assessed by two indicators: (i) PA 2010 wage bill does not exceed budget target of NIS6,053 million and (ii) 2010 public sector wage bill less than 23 percent of GDP).
      • Both targets were met. The PA wage bill for 2010 was NIS6,017 million and the 2010 public sector wage bill was 19. percent of GDP. The public work force had reached 150,400 by the end of December 2010 which is consistent with limiting the annual net increase in PNA employment to 3,000 hires, as stated in the PRDP, to achieve fiscal sustainability.
      • This said, it must be noted that the TPA did not meet the PRDP commitment to having no general wage increase and allowing inflation to slowly lower real wages was not met. Due to unexpectedly high inflation of nearly 10 percent in 2008, the TPA provided a 6 percent wage increase in 2009. Inflation in 2009 was only about 2.75 percent. The 4 percent general wage increase thus provided a real wage increase for most PA employees, which were already higher than private sector wages, and thus sustainable in the long term. TPA was also committed to hiring no more than 3000 workers per year and that too in the health and education sectors. However, the TPA hired 6,643 net new hires between December 2008 and March 2010, 2,665 of whom were in security and 672 were in the President’s office while only 2,008 and 422 were in the education and health sectors respectively. The agenda for civil reform was also dropped although smaller steps were taken to ensure, for example, that MOF was in a position to monitor new recruitment and pay all public sector salaries, and thereby to contain civil service hiring.
      • Additionally, overall fiscal balance was somewhat worse in 2011 (projected) than in 2008, but this was mainly due to shortfall in external financial support, which was really outside the control of PA. Reducing pension liabilities is also an important step in achieving fiscal balance. The Pension Reform Action Plan was approved by the Cabinet to establish a unified pensions scheme that is sustainable in the long term and the PA has committed itself to achieving a number of milestones including extensive reform of the existing pensions law.
    • Reduced Net lending: Overall, there has been considerable progress when assessed by indicators stated in the PD:
      • 2010 net lending falls to NIS950 million or less than 5 percent of GDP: This was achieved with the net lending at NIS880 million and only 2.9 percent of GDP. Net lending actually fell by about a third between 2007 and 2009 and it is expected to continue falling as effective actions are taken in Gaza where efforts to reduce net lending have been hampered by political constraints.
      • At least 80 percent of electricity in Northern West Bank being distributed by the newly operational NEDCO: This was not fully met. 31 percent of electricity customers in Northern West Bank have been transferred to NEDCO, and another 14 percent were expected to be transferred in December 2011.
      • All households receiving benefits under the new PNCTP are below absolute poverty line: Progress was achieved in updating database and the introduction of the PNCTP has resulted in the merger of two cash assistance programs through the use of a single payment modality in the West Bank (a prior action for PRDP III). However, transitioning all non extreme-poor recipients out of the system has not been implemented and only 66 percent of the households receiving benefits under the new PNCTP are below the absolute poverty line. The political constraints also prevented visits to households in Gaza from being revisited and updated. In the meantime, the old SSNRP and SHC systems continue to be implemented in parallel.
      • Property tax collections rise to JD23 million in 2010 and JD30 million in 2011: The PA expanded the collection of property tax and in 2010 increased coverage from 25 to 37 municipalities (although it was expected to be extended to 49 municipalities by end 2010 in the PD). At the same time that the coverage is being expanded, the MOF has initiated a program to re-value property and in 2009 it re-valued properties in 15 of the 25 municipalities originally covered by the tax. As a result of these actions, property tax collections reached JD44 million in 2010 and JD39 million for Jan-Sept 2011.

B. Increasing transparency and accountability of government through improved public financial management (modest). Despite the significant achievements in this policy area noted in the Borrower's ICR, the efficacy in this policy area was modest because only one of the three indicators was fully achieved. Achievements are more modest in the other two, although there is some progress in both areas in terms of efficiency and transparency.
    • PA budget presented in a transparent manner and accounts comparable on an international basis. The prior action that a new economic and administrative budget classification be developed for use in the preparation of the 2011 budget aligned with the economic classification based on the GFSM 2001 structure was met. However, the GFSM classification was not ultimately used in the final presentation of the 2011 budget. Some progress was achieved in terms of efficiency and transparency. The fiscal framework for the 2011 budget was aligned with framework for the Palestinian National Plan 2011 – 2013 and the 2011 budget includes an annex that provides detailed financial information for all major development expenditures.
    • Establish upgraded institutional and regulatory procedures to support PFM reforms: The target that the 2011 budget be prepared and adopted by January 2011 was not met. The 2011 budget was adopted only by January 2011, although the PRDP prior action (All line ministries are connected to the new computerized financial management system) was met. The new budget module developed for the computerized accounting system was used to prepare the 2011 budget. This should have helped the PA to prepare the 2011 budget by January and while the detailed planning stages were completed in a timeframe consistent with the targeted January approval date, delays arose as the broad budget parameters were negotiated at the highest levels. Consequently, the new budget was not adopted until March 2011 reflecting no improvement in timing and resulting in increasing inefficiency and exacerbating internal tensions, Nevertheless the system is now in place.
    • Strengthen PFM infrastructure and improve auditing functions: The indicator that "All purchase orders for capital expenditures subject to MOF control" has been fully met. MoF used new procurement module to restrict capital expenditures in late 2010 and early 2011. Most capital expenditures in 2011 have been to clear arrears from earlier periods. The newly introduced system will limit accumulation of arrears providing a mechanism for the MOF to restrict capital expenditures to available resources. However, since MOF does not yet have a strong system of controls, it has been difficult for them to accurately estimate arrears on a timely manner. For example, in 2009, more than US$142 million in arrears were unexpectedly brought forward from 2008. The new system at this point is not able to control earlier undetected arrears, but is able to ensure that in going forward no commitments in the capital budget can be incurred without approval of the MOF. PA was also supported in preparing its 2009 financial statements compliant with International Public Sector Accounting Standards (IPSAS). The ICR notes that the audit of the 2009 accounts was completed in early October 2011, and the MoF submitted the draft 2010 financial statements for audit in mid-September 2011, consistent with the Policy Matrix planned actions and medium-term objectives. Auditing guidelines were established for external audits in 2010, and DPG III helped to leverage technical assistance to the State Audit and Administrative Control Bureau (SAACB) in terms of training and capacity building under an EU project based on a comprehensive needs assessment completed in 2010, although this was refined in early 2011 during the inception phase of the project.

5. Efficiency (not applicable to DPLs):

6. Outcome:

The relevance of objectives is high as is the relevance of the program design. For the first objective, efficacy was substantial . The achievement of the second objective was only modest. Nevertheless, IEG's review concurs with the ICR in rating the overall outcome rating as moderately satisfactory because of the high relevance and the fact that there was progress towards the development objectives even in the areas where efficacy was more modest. The outcomes are also likely to be realized, albeit with some delay.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

The continued support provided by the Bank and other development partners will help to reduce risks to sustaining development risks. Additionally, the institutional and organizational capacity created in the three policy areas is likely to be sustained. However, there are many factors that are outside the control of the TPA and of the Bank, which increase the risks to outcomes. Support for private sector and civil service reform is also weak, and this is a significant risk to achieving fiscal balance.

a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:

Bank performance at entry was satisfactory. The Bank supported a DPG that was highly relevant. DPG I, II, and III were overall part of a coherent and considered framework, based on sound diagnosis and donor collaboration. The Bank worked closely with other donors such as the IMF in designing the policy matrix. There was a clear monitoring framework that was overall sound, although some targets were overly ambitious. Relevant line Ministries and local governments were consulted in designing the DPG, increasing their ownership of the reform. As noted in the ICR, the implications of specific risks, such as the institutional weaknesses that impeded the transfer of electricity distribution to NEDCO within the targeted timeframe, could have been further considered and addressed.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:

Bank support for implementation was also satisfactory. A public sector specialist was posted to the local office to provide regular and timely support to the TPA in achieving the reform objectives and in monitoring progress. The lack of progress in some outcomes reflected fundamental obstacles that were often beyond the control of the World Bank Group institutions. However, no ISR was prepared for the operation.

Quality of Supervision Rating: Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The Government demonstrated commitment despite all the challenges it had to face. However, it was unable to fully meet four out the 9 indicators. Some of this can be attributed to the complexity of the reform (such as those in electricity), and some to the weak capacity. One area where the Government exhibited signs of wavering commitment is with respect to narrowing the PNCTP targeting eligibility to include only the extreme poor, and with respect to the 2011 budget presentation format and timing. Overall, Borrower performance is considered to be moderately satisfactory given the political and social challenges of having to exclude all but the absolute poor from the social safety net.

Government Performance Rating: Moderately Satisfactory

b. Implementing Agency Performance:

For a Development Policy Grant providing budget support to TPA, the borrower consists of the government, which also acts as the implementing agency.

Implementing Agency Performance Rating: Not Applicable

Overall Borrower Performance Rating: Moderately Satisfactory

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

a. M&E Design:

The M&E framework was consistent for the series of 3 DPGs. It was based on the PRDP. The indicators were clear, relevant, and monitorable. However, some outcome targets in DPG III continued to be overly ambitious in terms of their timing.

b. M&E Implementation:

During implementation, the M&E framework was monitored. The TPA and the donors monitored progress through the PRDP monitoring framework. Quarterly meetings were held to discuss achievements and MOF produced quarterly performance reports.

a. M&E Utilization:

The data was utilized to assess progress and to inform discussion with TPA. The results framework, based on the PRDP, also helped to strengthen donor collaboration and support.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:
No safeguard issues were involved.

b. Fiduciary Compliance:
There were no fiduciary issues identified by the ICR.

c. Unintended Impacts (positive or negative):
None were identified.

d. Other:

The PD had noted that female-headed households would be supported through the reform of the safety net programs, and that an accurate database and unified system of assistance would help the PA to understand how to strengthen support for gender equality. However, the ICR does not provide any data to understand whether this happened.

The PD had also noted that any adverse impact on poor households resulting from the imposition of cost recovery measures in the power sector would be addressed. The ICR reports that measures were taken to shield poor households from such adverse impact.



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Moderately Satisfactory
Moderately Satisfactory
 
Risk to Development Outcome:
Significant
Significant
 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Moderately Satisfactory
Moderately 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:
  • Coordinated Bank support, with clear objectives, reasonably ambitious actions and conditions, and good donor collaboration can generate results even in difficult and challenging situations.
  • By focusing on the same key policy areas through the series of three quick disbursing DPGs, the Bank strengthened the likelihood that the results would be delivered and increased the chances of sustaining the results.

  • 14. Assessment Recommended?

    No

    15. Comments on Quality of ICR:

    The ICR is clear and explains the basis for its ratings. It focuses on results and outcomes. It provides relevant lessons linked to the overall implementation experience with the DPG. However, being the final DPG in a series of three, it could have provided a better insight into the results of the overall support by updating the matrix (see PD for PRDP III) and supporting the table with a clear narrative.

    a. Quality of ICR Rating: Satisfactory

    (ICRR-Rev6DPL-Jun-2011)