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Implementation Completion Report (ICR) Review - Private Sector Growth And Social Protection Dpg


  
1. Project Data:   
ICR Review Date Posted:
06/21/2013   
Country:
Yemen
Is this review for a Programmatic Series?
 No
First Project ID:
P122414
Appraisal
Actual
Project Name:
Private Sector Growth And Social Protection Dpg
Project Costs(US $M)
 70  68.9
L/C Number:
Loan/Credit (US $M)
 70  68.9
Sector Board:
Economic Policy
Cofinancing (US $M)
 0  0
Cofinanciers:
Board Approval Date
  12/14/2010
 
 
Closing Date
12/30/2011 12/30/2011
Sector(s):
Central government administration (39%), General industry and trade sector (39%), Other social services (22%)
Theme(s):
Public expenditure financial management and procurement (34%) Social safety nets (22%) Regulation and competition policy (22%) International financial standards and systems (11%) Micro Small and Medium Enterprise support (11%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Stefano Migliorisi
Fareed M. A. Hassan Ismail Arslan IEGPS2

2. Project Objectives and Components:

a. Objectives:


    There were three Program Development Objectives (PDOs) associated with this single-tranche development policy grant (DPG) (see Program Document – PD, p. vii and p. 26): (i) fostering private sector growth in the non-hydrocarbon part of the economy, (ii) improving key aspects of the public financial management system, and (iii) mitigating the impact of the ongoing fuel subsidy reduction on the poor by creating a more inclusive and more equitable cash transfer system.

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 nine prior actions in the DPG covering four policy areas. The first two policy areas (i.e., private sector growth and employment, and enhancing financial intermediation and access to finance) were related to the first PDO mentioned above (i.e., fostering private sector growth in the non-hydrocarbon part of the economy), the third (i.e., Public Financial Management and Governance) to the second PDO (i.e., improving key aspects of the public financial management system), and the fourth (i.e., efficiency and equity of the social protection system) to the third PDO (i.e., mitigating the impact of the ongoing fuel subsidy reduction on the poor by creating a more inclusive and more equitable cash transfer system).

A. Private Sector Growth and Employment

There were two conditions concerning private sector growth and employment: the streamlining of investment incentives (a rationalized incentive system based on the rule of law and General Investment Authority focused only on investment promotion), and the simplification of business entry procedures, including the launch of a one-stop shop for business entry procedures, registration and building permits, in the governorates of Aden, Taiz, Al-Hodeidah, Hadhramout and Ibb. The first prior action involved the enactment of Investment Law 15/2010, dated August 23, 2010 which provided, inter alia, for the elimination of firm-specific tax holidays and supported investment promotion,facilitation and advocacy. The second prior action was completed in March 2010 when the Ministry of Industry and Trade issued a decree simplifying business registration, including the launch of a one-stop shop.

B. Enhancing Financial Intermediation and Improving Access to Finance

There were two prior actions concerning financial sector reform, the effective launch of a credit registry, and the completion of the regulatory framework for micro finance. The first action was carried out by the Central Bank of Yemen through a circular issued in January 2010 establishing a central credit registry, and specifying the scope and periodicity of credit reporting to a central credit agency as well as access by banks to such pooled credit information. The second action was completed with the approval of the necessary by-laws by the Central Bank of Yemen.

C. Public Financial Management and Governance

There were three prior actions concerning public financial management and governance: the introduction of a Medium Term Expenditure Framework (MTEF) and of expenditure Commitment Control Systems (CCS) in pilot ministries (i.e., Ministries of Public Works, Education, Health and Finance ), and the automation of the government financial accounts (AFMIS). The MTEF was established through the Budget Law of December 2009, and the CCS was introduced, on a pilot basis, through an order of the Ministry of Finance of October 2010. The last prior action was completed through the preparation of the Final Accounts 2009 and the quarterly In-Year Budget Execution Reports for 2010 using AFMIS.

D. Efficiency and Equity of the Social Protection System

There were two prior actions concerning efficiency and equity of the Social Protection System: the establishment of a targeting method to operationalize the Law on Social Welfare of 2008, and approval of the by-laws to the Social Welfare Law, No. 39, of 2009. Both prior actions were completed in October 2010, when the Council of Ministers approved (i) a proposal to operationalize a new targeting methodology for beneficiaries of the Social Welfare Fund, based on the survey conducted by the Social Welfare Fund in 2008; and (ii) by-laws to the Law on Social Welfare No. 39, to complete the legal framework and strengthen the operation of the Social Welfare Fund.

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

Cost

The cost of the DPG was XDR 45 million equivalent to US$70 million or 0.3% of Yemen’s GNI at the time of approval. The DPG complemented an IMF Extended Credit Facility approved in 2010 and covering three years for a total value of XDR 243.5 million (US$380 million).

Financing

One World Bank grant of XDR 45 million (US$70 million) funded the program.

Borrower Contribution

There was no borrower contribution.

Dates

There were no significant deviations from planned dates during the course of the operation. Approved on December 14, 2010, the Yemen Private Sector Growth and Social Protection DPG became effective the following day and the single tranche was disbursed on December 23, 2010. The DPG closed on schedule on December 30, 2011.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

The relevance of the original objectives was substantial.

    • The DPG is consistent with Yemen’s Transitional Program for Stabilization and Development (TPSD) covering the period 2012-2014. In particular, DPG’s second PDO supports the achievement of the fourth top priority of the TPSD (“Achieve macroeconomic stability”, p. 11), while DPG’s first PDO is in line with TPSD’s first medium term priority (“Revive Economic Growth”, p. 16) and DPG’s second PDO with TPSD’s third medium term priority (“Expand social protection”, p. 17).
    • The DPG is also consistent with the Bank’s Interim Strategy FY2013-2014 based on three areas of engagement. The DPG supports the first (Achieving Quick Wins and Protecting the Poor) and second areas (Promoting Growth and Improving Economic Management).
    • However, objectives were ambitious in the context of a fragile state with weak capacity.

b. Relevance of Design:
The relevance of the original design was modest.

    • Prior actions were (a) technically ready; (b) politically achievable, and, (c) based on extensive analytical or operational work.
    • As noted in the ICR (p. 16), the close linkage of the operation with the IMF program arguably increased the effectiveness of both.
    • The DPG design gave particular attention to poverty and social impacts and identified mitigation measures.
    • However, the promotion of growth in the non-oil sector necessarily involved a series of actions that would need to take place over time. In the context of a single tranche operation, only initial measures in this area could be envisioned, leaving open the question of how these reforms would be sustained upon completion of the operation.
    • By contrast, the measures in the areas of public finance management and reform of the cash transfer system were both reasonably well contained in the context of the program period (and hence suitable for inclusion in a single tranche operation) and directly supportive of the objective of fiscal consolidation. The ICR acknowledged these deficiencies and suggested that a better focused and more streamlined operation would have been preferable.


4. Achievement of Objectives (Efficacy) :

As noted in the ICR (p. 9) implementation of the program was seriously affected by the social and political unrest that broke out in Yemen in early 2011 and lasted for about one year. The unrest effectively paralyzed the country and its government for the entire year during which the impact of the measures supported by the program should have occurred. Due to the unrest, the country’s GNI contracted by 10.5% in 2011 (compared to 4.1% growth assumed in the DPG), and grew by only 0.1% in 2012, according to IMF Staff estimates of December 2012.

Fostering private sector growth in the non-hydrocarbon part of the economy

The DPG’s target was that, by December 2011,registration of a limited liability company in the governorates of Aden, Taiz, and Al-Hodeida requires no more than 6 procedures and 17 days, and registration of sole ownership requires no more than 8 procedures and 16 days. Due to the unrest of 2011, it was not possible to carry out the Doing Business (DB) Survey and the ICR (p. 10) stated that “the events of 2011 (…) made it unlikely that implementation took place". Data disaggregated at the sub-national level are not available, but national data show a clear deterioration instead of progress. Yemen’s 2013 Doing Business Rank for starting a business worsened from 64 in 2012 to 110 in 2013. The number of procedures (6) matched the DPG target, compared to 7 in 2009, but the number of days needed to start a business (40) was almost 2.5 times the target, twice the regional average, and triple the 2009 starting point of 13 days.

Access to credit has also worsened, with very marginal improvements on credit information since 2009. Yemen has a 2013 DB ranking on access to credit of 164, worse than in 2012 when it was 162, and one of the worst worldwide. The project target was to increase the number of loans of the two microfinance institutions by over 50 percent since 2010. In reality, the value of the loan portfolio of the two microfinance banks declined by 4.6 percent between 2010 and 2011.More generally, according to IMF data, overall credit of the banking system to the private sector fell 17 percent in 2011 and only partially recovered in 2012 when it grew by 9 percent, still remaining below its 2010 level.

The investment authority (GIA) was successfully restructured in line with the new investment law, and is now limited to an Investment Promotion Agency. The efficacy of the first objective is therefore rated as modest.

Improving key aspects of the public financial management system

The MTEF for the period 2011-13 was completed as part of the 2011 budget preparations, even though there was a more general breakdown in fiscal discipline in 2011. Implementation of the CCS system has instead proceeded as planned despite the 2011 civil unrest, and allowed the identification of level of arrears and better control over them in key ministries.The efficacy of the second objective is therefore rated as substantial.

Mitigating the impact of the ongoing fuel subsidy reduction on the poor by creating a more inclusive and more equitable cash transfer system

The government added about 500,000 new beneficiaries from the waitlist, but did remove only a small number of the better off beneficiaries from the rolls, thus making the cash transfer system more inclusive but not more equitable. In addition, fuel prices remained in 2011 and 2012 substantially lower than international prices. As a result, energy subsidies still amount to about 8 percent of GDP.This large untargeted subsidy benefits the richest segments of the population disproportionately. The efficacy of the third objective is therefore rated as modest.

5. Efficiency (not applicable to DPLs):

6. Outcome:

While the program pursued relevant objectives and focused on a limited set of prior actions, it failed to achieve its objectives. While the civil unrest of 2011 caused significant disruption in the country, affecting the performance of the program, it was not unforeseeable and the related risk was not adequately addressed in the program's design, that was too ambitious for such a fragile situation. As the relevance of objectives was substantial, while efficacy of the objectives was modest, the overall outcome is therefore rated “unsatisfactory”, as in the ICR.

a. Outcome Rating: Unsatisfactory

7. Rationale for Risk to Development Outcome Rating:

IEG does concur with the ICR’s assessment that the risk to development objectives is high. The political situation in Yemen remains extremely fragile. The Government’s ability to implement reform remains also weak, particularly in areas that are politically sensitive.

a. Risk to Development Outcome Rating: High

8. Assessment of Bank Performance:

a. Quality at entry:

The DPG was designed with a focus on a limited set of actions. Project preparation was quick, to keep the operation aligned with the much larger IMF program that tackled complementary issues. The Bank had a well-established dialogue in most of the reform areas that the Government wished to pursue, facilitating their inclusion in the DPG (ICR, p. 2). The single tranche nature recognized the limited Government capacity and was appropriate given the country’s circumstances.

However, as noted in the ICR (p. 18-19), project design did not identify the risk of political opposition to the legitimacy of the government, but only political opposition to specific measures. As a result, mitigation measures were ineffective. This systemic risk was well known as the country had been involved in six domestic wars since 2004. Given this systemic risk, Bank engagement through analytical work rather than lending might have been more appropriate (ICR p. 18), or prior actions that could be accomplished quickly but were of an irreversible nature might have been preferable.

In addition, as discussed in Section 2, DPG’s scope covering four policy areas was probably too ambitious given Yemen’s fragile situation, as noted in the ICR (pages 16-17).

Quality-at-Entry Rating: Moderately Unsatisfactory

b. Quality of supervision:

Given the security conditions in Yemen and the closure of the Bank office in Sana’a, the Bank supervised the program from outside Yemen. There were no major issues as implementation concerned monitoring of DPG’s targets. As noted in the ICR (p. 21), the IMF team regarded the World Bank’s involvement as critical and felt that the engagement by the team had been very constructive and collaborative. The IMF also participated or added to the supervision of the project.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Moderately Unsatisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

Government had to operate under very difficult conditions and achieved progress in PFM reform, but not in the three other policy areas. Performance was therefore moderately unsatisfactory, even though some failures were clearly due the difficulties linked to the transition process.

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:

The monitoring and evaluation framework was simple. The small number of indicators (9) included baseline data identified at appraisal, and was not changed during the life of DPG. Only seven of these indicators related to outcomes, as noted in the ICR (p. 10). Two of the indicators (the first, relating to the enactment of the investment law, and the seventh, relating to automation of the government accounts) were output indicators, directly tied to the successful completion of the policy actions. All indicators were appropriate and easily verifiable.

b. M&E Implementation:

Implementation was made difficult by civil unrest, and collection of data was often impossible.

a. M&E Utilization:

There were limited opportunities for using the framework.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:

There were no safeguard issues concerning the DPG.

b. Fiduciary Compliance:

No fiduciary issue affected the implementation of the DPG. The audit letter on the designated account was produced on time as part of the regular annual independent audit arrangements of the Central Bank of Yemen.

c. Unintended Impacts (positive or negative):
None

d. Other:



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Unsatisfactory
Unsatisfactory
 
Risk to Development Outcome:
High
High
 
Bank Performance:
Moderately Satisfactory
Moderately Unsatisfactory
The project design was too ambitious and underestimated systemic political risk and reduced the rating on Bank performance for quality at entry to moderately unsatisfactory.  
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:

There are three main lessons that can be drawn from the experience of this DPG:

A. The Bank’s knowledge of country circumstances should allow it to identify high systemic political risks in advance and adapt project design to it. As political risks are rated by independent specialized agencies, their ratings should allow a corporate wide monitoring of such risk and mitigating measures.

B. Simple design is essential in contexts characterized by political instability and weak capacity.

C. The Bank’s policy menu for private sector development is still too focused on business creation and access to credit, whose link to a possible supply response is tenuous at best. It is far from proven that a reduction in the number of days needed to register a business could spur growth.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR provides a frank and thorough assessment of the performance of the program. It shows a deep understanding of the dynamics of policy lending, and provides a fair criticism of all players, including the Bank. It also raises important questions on the Bank’s engagement in fragile situations.

Overall, the quality of the ICR is rated as satisfactory.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
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