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Implementation Completion Report (ICR) Review - Economic And Social Development Policy Loan


  
1. Project Data:   
ICR Review Date Posted:
06/25/2012   
Country:
St. Lucia
Is this review for a Programmatic Series?
 No
First Project ID:
P117016
Appraisal
Actual
Project Name:
Economic And Social Development Policy Loan
Project Costs(US $M)
 12.0  12.0
L/C Number:
Loan/Credit (US $M)
 12.0  12.0
Sector Board:
Economic Policy
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  06/08/2010
 
 
Closing Date
06/30/2011
Sector(s):
Central government administration (37%), Other social services (25%), Non-compulsory pensions and insurance (25%), General industry and trade sector (13%)
Theme(s):
Public expenditure financial management and procurement (38% - P) Social safety nets (25% - S) Other financial and private sector development (13% - S) Trade facilitation and market access (12%) Regulation and competition policy (12% - P)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Nestor Ntungwanayo
Michael R. Lav Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The DPL aimed to "support policies and reforms that will assist the Government of St. Lucia in dealing with the emerging short term economic challenges and further advancing the country’s longer term development agenda"(Program Document, page 42). More specifically, the DPL was " to support core measures to help (i) improve business environment and competitiveness, and strengthen the financial sector, (ii) improve public sector governance and economic management, and (iii) improve effectiveness and efficiency of social safety nets."

    On page 6, the Loan Agreement omits the above-mentioned overarching objective in the Program Document, and refers directly to the specific objectives which are identical to those specified in the Program Document. For this review, the loan objectives will be the specific ones which are identical in both documents.

b. If this is a single DPL operation (not part of a series), were the project objectives/key associated outcome targets revised during implementation?

c. Policy Areas:

The DPL had three main policy areas to address the specific objectives noted above:

(i)To improve business environment and competitiveness, and strengthen the financial sector

    • Improving Doing Business Indicators by (i) launching the online company registration
      portal and (ii) submitting to the Parliament an Insurance Bill.
    • Mitigating the adverse impacts of the British American Insurance Company (BAICO) and the Colonial Life Insurance Company (CLICO) collapse by appointing a judicial manager to perform a review of BAICO and to recommend an orderly resolution of the BAICO insolvency.

(ii) To improve public sector governance and economic management
    • Improving Public Service Efficiency and Performance through (i) establishing a cap on public service employment to keep the size of funded positions at the FY 2008/2009 levels, and stop the funding of vacant approved positions as outlined in the FY 2009/2010 budget, (ii) merging the Ministry of Finance and the Ministry of Economic Planning and National Development to create the Ministry of Finance, Economic Affairs and National Development under the administration of a single Permanent Secretary, and (iii) conducting an institutional review of the Ministry of Foreign Affairs, and operation and efficiency reviews for the Ministry of Social Transformation and the Ministry of Communications, Works, Transport and Public Utilities.
    • Improving efficiency of Inland Revenue and Customs Departments through (i) submitting
      a Value Added Tax Bill to the Parliament, (ii) establishing a VAT Implementation Unit and make the unit functional with adequate staffing and resources, (iii) implementing the Automated System for Customs Data (ASYCUDA) World program in its customs department by allocating an amount of approximately EC$1.5 million for the implementation of said program in the FY 2009/2010 budget, (iv) launching a training program for its customs administration personnel, (v) completing a prototype software for ASYCUDA World program, and (vi) developing a corporate strategic and business plan outlining a sequential implementation of said ASYCUDA World program for the next three years.
(iii) To improve effectiveness and efficiency of social safety nets
    • Improved efficiency, effectiveness, and implementation of social safety net by (i) completing a Social Safety Net Assessment; (ii) conducting subsequent stakeholder consultations on the results of said assessment, (iii) establishing a Social Safety Net Steering Committee to spearhead reform efforts of its Social Safety Net System (iv) formulating an Action Plan by the Social Safety Net Steering Committee whose priorities will include the upgrading of the Public Assistance Program, and reviewing the Public Assistance Law, and (v) initiating the review of the targeting mechanism for the Koudemain program in order to lay the ground for a proxy means test that will be used for the broader social safety net programs.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
This $12.0 million DPL was a single-tranche stand-alone operation. It was a blend loan with an IBRD component of $4.0 million equivalent, and an IDA component of $8,0 million equivalent. It was approved on June 08, 2010, and made effective on August 12, 2010. Loan proceeds were fully disbursed at effectiveness and the operation was closed as scheduled on June 30, 2011.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

      Due to a combination of high exposure to natural disasters and its small size economy with limited diversification, St. Lucia is sensitive to external shocks. In particular, it was hit by the 2008-09 global economic crisis. St. Lucia also faced a decline in fiscal revenues, as the main source of revenues (tourism) was severely affected by the global crisis. It has also been exposed to severe financial distress due to troubles at key financial groups in the Caribbean at large. Vulnerable groups in St. Lucia were significantly affected by the global crisis as one-fourth of the country's population was living below the poverty line in 2006, and unemployment level at 17 percent in 2008.

      The priorities of the Government program to address the above challenges were stated in the budget speeches for FY09/10, and FY10/11 and were articulated around the following pillars: (i) Private sector development and financial sector reform, (ii) Public sector efficiency and performance, and (iii) Social safety nets. The DPL reform program as detailed in section 2c above was congruent with the above Government program pillars. Furthermore, St. Lucia is part to the Bank's Regional Partnership Strategy (RPS) FY10-14 that was adopted a few months after the DPL approval and that has two main pillars: (i) building resilience, and (ii) enhancing competitiveness and stimulating sustainable growth. More specifically, the FY10-14 RPS was to contribute to achieving improved fiscal and debt sustainability, increasing efficiency and transparency of public spending and service delivery, sustaining macroeconomic and financial stability, strengthening policy coordination and economic management, rationalizing social safety net programs and its targeting system.

      Budget support provided in the context of the DPL was critical for re-establishing financial macroeconomic stability during the turmoil of the global economic crisis, and helped St. Lucia to move toward recovery. Also, there was an overall alignment of the DPL objectives to the country program and the Bank regional partnership strategy. Most importantly, the actions and reforms in the DPL were appropriate in addressing the key country priorities summarized above. This review rates the relevance of objectives as high.

b. Relevance of Design:
The DPL objectives were relevant in addressing challenges in key areas of the country's social and economic life, but the design of the operation was inappropriate. There was a disconnect between the short-term nature of the operation (12 months) and the time needed to make concrete progress in the identified areas of reform. To achieve the objectives, the country would have been better assisted by a phased programmatic series of operations. A single tranche stand-alone operation could only launch the reforms but these will take many years to be completed, and to achieve the objectives. The scope of the program was ambitious, and this was in contrast with the limited resources ($10 million) earmarked for this operation. There were also limited incentives for the Government to embark on such a complex set of reforms in public and private sector governance, and in social protection, given the small amount of the loan and the large scope of domestic challenges.

The results matrix chain was unrealistic, as policy actions of the program represented only a start in comparison to the what was needed to effect real change on the ground. Because of the disconnect between the ambitious objectives and the short time nature of the intervention, the review rates the relevance of design as modest.


4. Achievement of Objectives (Efficacy) :

Objective 1: To improve business environment and competitiveness, and strengthen the financial sector:
    • Under this objective, two prior actions were completed before DPL presentation to the Board: (i) An insurance bill requiring basic solvency margins through capital requirements was submitted to the Parliament, but final approval was expected in 2011, and it was to be in full effect in 2012, (ii) A regional plan for the orderly resolution of the BAICO/CLICO collapse was developed and St. Lucia had nominated a representative who became the chair of the regional committee of insurance regulators.
    • Other achievements under the first objective were only partial, and included the following: (i) the number of days to register a business was reduced from 20 days in 2009 to 14 days in 2010, against a target of 4 days at the end of the program, and (ii) the online company registration portal was launched in 2009, but no companies had been registered through the portal by October 2011.
    • In sum, DPL performance in improving business environment and competitiveness, and in strengthening the financial sector had significant shortfalls. This review rates the performance in achieving the first objective as modest.

Objective 2: To improve public sector governance and economic management:
    • Under the second objective there were four prior actions: (i) The program aimed to contain budget expenditures on wages and salaries below 12% of GDP in 2010, and reduce them to 10.3% in the medium term and to stop the funding of approved vacant positions. This was achieved, as budget expenditures on wages and salaries were contained at 11.92% of GDP during FY10/11 (and 10.84% in terms of rebased GDP) and the number of funded positions were limited at 7,050 in FY10/11, compared to 7603 approved positions, (ii) the planned merging of the Ministry of Finance, and the Ministry of Planning and National development did not take place (iii) The introduction of a VAT bill was postponed, and the VAT implementation unit was not established and (iv) The implementation of the ASYCUDA World program in the customs department could not be launched.
    • Only one out of four identified objectives was completed, and overall progress of the reforms to improve public sector governance and economic management was limited. Achievement of objective is rated modest.


Objective 3: To improve effectiveness and efficiency of social safety nets:
    • Under the third objective, two prior actions were identified: (i) completion of a Social Safety Net Assessment and subsequent stakeholder consultations of the results of the assessment did not improve the targeting of assistance, and stakeholder consultations on the above didn't take place, and (ii) A Social Safety Net Steering Committee did not spearhead reform efforts as intended, as a proposed Action Plan formulated by the Steering Committee was not implemented. An assessment of the Koudemain program led to the conclusion that its targeting mechanism, based on the Poverty Assessment, was not appropriate for other programs. Program performance in improving the effectiveness and efficiency of social safety nets is rated modest.

5. Efficiency (not applicable to DPLs):

6. Outcome:

While the project objectives were highly relevant, the design of the reform program was only modestly relevant. The reform program aimed to (i) improve the environment for the private sector, (ii) enhance the public sector governance and economic management , and (iii) improve effectiveness and efficiency of the social safety nets. The reform program was too ambitious and there was a substantial disconnect between the wide scope of pursued objectives and the short time nature of the intervention. At the project closing date, there was little change in the business regulatory reforms and the financial sector in St Lucia as confirmed by the CPIA rating, which was maintained at respectively 4.5 and 3.5 two years in a row (2009-10) for the two sectors. The situation was identical in public sector governance and economic management as the CPIA rating was stable at 3.7 for two years in a row (2009-10). The Government was also unable to launch its reform program intended to improve effectiveness and efficiency if social safety nets. However, the Government did successfully contain expenditures on wages and salaries, and did pursue a regional plan of the resolution of BAICO. On the basis on the above performance record, this review rates the out come as Moderately Unsatisfactory.


a. Outcome Rating: Moderately Unsatisfactory

7. Rationale for Risk to Development Outcome Rating:


The risk to development outcome rating is high. The little progress achieved under the DPL program is likely to be difficult to sustain, especially given the single-tranche stand-alone operation and the absence of follow-on programmatic initiatives. St. Lucia is a middle -income country, with erratic external support, limited budget resources and weak public sector capacity. The slow recovery of the global economy exposes St. Lucia to additional risks. Finally, St. Lucia remains exposed to external shocks and at high risk of natural disasters. On the basis of these factors, the risk to development outcome rating for this operation is high.

a. Risk to Development Outcome Rating: High

8. Assessment of Bank Performance:

a. Quality at entry:

The DPL was prepared under the pressures of the of the global crisis and lacked adequate AAA support. While the relevance of the operation's objectives was high, the design was unrealistic. The ICR acknowledges that (i) there was no experience with DPLs on the government side, (ii) the program was very broad and comprised complex reforms, and (iii) the time allocated for implementation was short. The operation was not associated with institutional support, despite the limited capacity in the public sector. While the Bank tried to quickly put together a comprehensive program under difficult conditions, as St. Lucia faced substantial challenges, the design, implementation, and results matrix of the operation proved too unrealistic. The quality at entry is rated Moderately Unsatisfactory .

Quality-at-Entry Rating: Moderately Unsatisfactory

b. Quality of supervision:

St. Lucia needed intensive support as it implemented the program, because of weak public sector capacity. However, with a change in TTL after Board approval, timely support was lacking when St. Lucia needed even more support in the face of Hurricane Tomas, which directed government's attention to reconstruction. This led to the postponement of several supervision missions, so that there was only one supervision mission a few weeks before the closing date. However, had Hurricane Tomas not intervened, the quality of supervision might well have been higher. The quality of supervision is rated Moderately Unsatisfactory.

Quality of Supervision Rating: Moderately Unsatisfactory

Overall Bank Performance Rating: Moderately Unsatisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The operation was managed by the Ministry of Finance, Planning and Economic Development of St Lucia. The country's authorities wanted to mitigate expected shocks from the global crisis, and a DPL from the World Bank was a sound option. However, the preparation of the DPL was improvised. The Government didn't take enough time to gauge the status of its public sector, and to ensure the matching of the DPL reform program to existing institutional capacity. The Government didn't undertake the needed consultations with domestic and external stakeholders to guarantee the adequacy and ownership of the reform program. Increased rigor and carefulness on the Government's side would have led to a more realistic program and with more achievable objectives. However, implementation shortcomings are partly attributable to Hurricane Tomas which diverted Government attention from implementation.

Government Performance Rating: Moderately Unsatisfactory

b. Implementing Agency Performance:

Implementing Agency Performance Rating: Not Applicable

Overall Borrower Performance Rating: Moderately Unsatisfactory

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

a. M&E Design:

At the design level, Bank and borrower staff discussed with all relevant institutions about the M&E process to ensure feedback to policy makers on DPL implementation. At this stage, it was acknowledged that M&E is traditionally a weak area in the small island economies, including St.Lucia. It was understood that M&E mechanisms for this operation will have to be strengthened, but no arrangements for a corrective action were agreed upon and no accountability was established for this task. The results matrix in Annex II of the Program Document was weak, especially as regards to outcome indicators and benchmarks, and M&E framework and responsibilities were also unclear.

b. M&E Implementation:

Hurricane Tomas that hit St Lucia after Board approval absorbed the attention of the Bank and the Government alike. The Government focused on reconstruction issues and the Bank responded quickly with an Emergency Recovery Loan approved by the Board in March 2011, and DPL supervision was left unattended, especially that a change in the TTL took place in the meantime. M&E implementation lacked for this operation.

a. M&E Utilization:

Due to a weak M&E system in the public sector of St Lucia, and weak DPL supervision from both the Bank and the borrower, there was no information about progress of the DPL implementation. Both the Bank and the Government of St Lucia didn't use the M&E tool to improve DPL performance.

M&E Quality Rating: Modest

11. Other Issues:

a. Safeguards:
Not applicable

b. Fiduciary Compliance:
Not applicable

c. Unintended Impacts (positive or negative):
Not applicable

d. Other:
Not applicable



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Moderately Unsatisfactory
Moderately Unsatisfactory
 
Risk to Development Outcome:
Significant
High
The little progress achieved under the DPL program is difficult to sustain, because of limited budget resources and weak public sector capacity. Moreover, external shocks are still looming large, including the slow recovery of the global economy, and the high risk of natural disasters. 
Bank Performance:
Moderately Satisfactory
Moderately Unsatisfactory
The design of the program and the results framework of the operation proved unrealistic, and was unsatisfactory. In fairness to the Bank, note that the impact of Hurricane Thomas precluded the possibility of more effective supervision, which might have improved the outcome.  
Borrower Performance:
Moderately Unsatisfactory
Moderately Unsatisfactory
 
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:
    • A stand-alone one-year program is not effective in supporting a substantial reform agenda. A programmatic approach, supporting a multi-year phased program should yield better results.
    • DPL operations require a good grasp of the country's political economy, sound preparation and consultation. This allows to match the reform program to the ground realities, and enhances ownership by the client.
    • In the context of a weak public sector, a DPL operation should be simple in design, and should be coupled with technical assistance and close supervision.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR is by and large of good quality, as it covered candidly all factual aspects of the DPL operation, starting from its design, through its implementation and closure, and the distillation of lessons learned. This Review agrees with all the lessons learned and are reflected in this review. However, the ratings in the ICR could have better reflected shortcomings of the operation including design, results framework, consultation, and supervision.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
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