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Implementation Completion Report (ICR) Review - Economic Recovery Support Operation (ERSO)


  
1. Project Data:   
ICR Review Date Posted:
04/03/2014   
Country:
Kyrgyz Republic
Is this review for a Programmatic Series?
 No
First Project ID:
P125425
Appraisal
Actual
Project Name:
Economic Recovery Support Operation (ERSO)
Project Costs(US $M)
 30  30
L/C Number:
Loan/Credit (US $M)
 30  30
Sector Board:
Economic Policy
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  08/02/2011
 
 
Closing Date
06/30/2013 06/30/2012
Sector(s):
Other social services (25%), General public administration sector (25%), General energy sector (20%), Public administration- Information and communications (15%), General finance sector (15%)
Theme(s):
Social safety nets (25%) Other public sector governance (25%) Other accountability/anti-corruption (25%) Macroeconomic management (15%) Infrastructure services for private sector development (10%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Nils Fostvedt
Clay Wescott Lourdes N. Pagaran IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The ERSO - as per the Program Document (PD), paragraph 5 - supported policy actions implemented between April 2010 and June 2011 aimed at (i) stabilizing the economy, (ii) strengthening governance and (iii) safeguarding social protection. There were thus three overall objectives. The PD elaborates on these under two themes: Strengthened governance in management of public assets and revenues, and Safeguarding Social Protection and Supporting Conflict-Affected population (pp.28-38, 58-9).

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:

The policy areas under each theme were as follows:

Theme 1: Strengthened governance in management of public assets and revenues.
Assert budget control and transparency over management of public assets and revenues;
Establish proper transparency and accounting practices of energy sector operations; and
Maintaining financial sector stability.

Theme II: Safeguarding social protection and supporting conflict affected population
Safeguarding essential social protection spending; and
Re-establish livelihoods and provide social compensation in the south.

There were eight prior actions under Theme I, and four under Theme II. All were met as agreed. There was no theme for economic stabilization, but two of the three policy areas under Theme 1 and several of the related policy actions supported the objective of stabilization, including those related to maintaining financial sector stability; and asserting budget control and transparency over the management of public assets and revenues.

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

This was a one-tranche operation (IDA credit plus IDA grant) based on the fulfillment of prior conditions. The ERSO became effective in November 2011 and closed as scheduled June 30, 2012. There were no concomitant adjustment/development policy operations, but a program for Programmatic Development Policy (PDP) operations (planned for three operations) was initiated with the approval of PDP1 in mid 2013. That operation became effective in late 2013 and PDP2 is now under preparation.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

The ERSO provided budget support (together with ADB, IMF and the EU) at a time when the country was coming out of political turmoil and ethnic conflict (that had erupted in 2010) that inflicted a serious burden on the economy and on the budget. The operation addressed important short-term reform issues in the important areas of economic stabilization, governance and social safety nets. In addition, some areas of support addressed longer-term perspectives as well. For example, the ERSO-supported reforms in the electricity sector could serve as a subsequent basis for a longer-term reform and development strategy. The focus on the objectives of economic stabilization, governance and social protection supported the implementation underway of Government reforms, linked to the planned Medium Term Development Program for 2012-2014 (Poverty Reduction Strategy Paper), and was closely aligned with the Bank's FY12-13 Interim Strategy Note (ISN). The relevance of objectives was High.

b. Relevance of Design:
The ERSO provided a clear statement of high priority objectives. There was a plausible causal chain between 12 specific prior conditions, all of which were implemented prior to Board presentation, and the objectives and targeted outcomes. The design did not include any actions explicitly supporting the economic stabilization objective, but many of the actions indirectly contributed. There were no significant, unforseen exogenous factors affecting or unintended effects from this operation. Overall, the relevance of design was Substantial.


4. Achievement of Objectives (Efficacy) :


Objective: Help stabilize the economy (no indicators): Substantial.

The ICR reports that the ERSO funding, together with that of other development partners, provided resources to ensure that essential spending was protected. The economy rebounded quickly in 2011 (to 5.7 percent), with physical security and political stability largely restored. But it then contracted in 2012 (by 0.9 percent) due to a drop in gold output due to geological issues (a shift of ice and waste into the central pit of the Kumtur mine) and a protracted conflict with the main producer. There was also lower than expected growth in agriculture, although other sectors seem to have performed quite well. Growth for 2013 has recovered to about nine percent as per early estimates, while medium-term growth is projected at around five percent per annum. Fiscal consolidation is still "urgently" needed. Thus significant economic stabilization has been achieved, but the picture is still fragile. IMF (staff report May 21, 2013) notes that the authorities have implemented critical fiscal reforms, that financial sector reforms turned out to be more challenging than expected, and that – notwithstanding the deterioration of macroeconomic conditions in 2012 - policies have generally remained prudent.

Note that in a few cases, the indicators or their targets (discussed below) as presented in the ICR have been formulated slightly differently from the text in the Program Document matrix. Such differences should be avoided, but in this case they do not seem to have any significant importance.

Objective: Strengthen governance. Substantial.

Assert budget control and transparency over management of public assets and revenues. Three targets mainly achieved: (i) The government has restored accountability and responsibility for public investments to the Ministry of Finance. (ii) The responsibilities for privatization have been clarified and the 2012-14 program has been approved, but it is not clear whether this improvement fully meets the original target: “privatizations implemented in line with best practice” (iii) The Kyrgyz Republic has been declared (since 2011) fully compliant with the Extractive Industries Transparency Initiative (EITI) and the target for company coverage has been exceeded (57 compared to a target of 46), but the ICR raises some doubt as to the sustainability of the EITI in the country for funding reasons.

Establish proper transparency and accounting practices in energy sector operations. Six targets achieved: (i) Supervisory council set up in the Ministry of Energy and strategic decisions are being made with its input. (ii) Power export proceeds are accounted for and used transparently. (iii) Performance agreements between the regulator and the six energy companies are in place (but it is not explicitly clear in the ICR whether they are being followed). (iv) Loss reduction in the electricity sector is better than targeted. (v) Electricity collection rate target reached in 2011. (vi) Ministry of Energy has adopted revenue sharing rules (among generation, transmission and distribution sub-sectors) with transparent criteria. However, the steps forward regarding improved data availability, greater public participation in decision making, and improved public accountability are still described as modest, and the principal challenges for the energy sector (financial viability, export potential, and the regulatory framework) still remain to be addressed.

Maintain financial sector stability. Three targets achieved: (i) A major bank (AUB) was nationalized, split into a “good” and a “bad” bank, and the “good” bank (Zalkar) was privatized in 2013 - this was later than expected. Some other banks remain under conservatorship. Meanwhile, banking system indicators have begun to improve. (ii) The central bank’s ability to supervise the banking sector has improved – but that is not quite the same as whether it is now equipped to supervise the sector, address vulnerabilities in a timely manner, and resolve troubled banks efficiently, as per the original target. (iii) The Deposit Protection Agency has been reconstituted as an independent legal entity. Overall, there are still deficiencies in the bank resolution legal framework, and weaknesses in the supervisory framework. Some of these issues were to be addressed in an IDA financial sector development project (2012) that was not approved by Parliament (it was since restructured into a smaller operation).

Objective: Safeguard social protection. Substantial.

Safeguard essential social protection spending. Two targets achieved: (i) The monthly benefits for poor families with children were increased. (ii) Number of rights-based categories decreased to 25. Overall, the social sector still requires consolidation and a more decisive shift towards poverty-targeted programs.

Re-establish livelihoods and provide social compensation in the south. This was the area most affected by the ethnic unrest. One target achieved: In the intermediate post-conflict period, the government provided significant support to affected people in the form of cash compensation and support to re-establish livelihoods.

The ICR rightly notes - with particular reference to the governance-related measures - that these were well advanced early in the preparation process, making difficult causal attribution-linkages. But importantly it is also noted that the reforms were prepared largely by the government itself, are still in place and in some areas are being further advanced.

5. Efficiency (not applicable to DPLs):

6. Outcome:


This project supported 12 prior actions that all were met prior to Board presentation and there has been no back-sliding. It addressed priority objectives and provided budgetary support at a time when the country was recovering from political and ethnic unrest and starting to reform under a new regime. Progress is discernible in all areas addressed, although further improvements are needed. The relevance of objectives was High, the relevance of design Substantial, and the achievement of the three objectives all Substantial.

a. Outcome Rating: Satisfactory

7. Rationale for Risk to Development Outcome Rating:

The government has made a good start with its stabilization and reform program, but the Kyrgyz Republic is a small, landlocked country, highly dependent economically on gold mining and remittances, with a recent history of political and ethnic unrest. The transition to a more open, rules-based representative government has so far gone quite well but remains a work in progress. Human and institutional capacity remains a concern.

a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:

This project was a timely response to the need for assistance following the crisis, and was prepared in a short time and addressed priority issues. A three-year series of programmatic development policy operations had been added to the country program in late 2009, and the first such operation had been appraised prior to the outbreak of unrest in April 2010; the funds in the lending program were then reallocated to crisis response. A multi-loan program has now been initiated with PDP1. The decision to go for a free-standing ERSO in 2011 was reasonable in light of the still unsettled conditions at the time and the absence of medium term development program, as explained in the ISN, with the prospects for a subsequent DPO program. The program matrix should have explicitly addressed the objective of stabilizing the economy.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:

The prior actions were met prior to Board presentation, and the project closed as planned. There was supervision as part of continued dialogue on economic policy and governance. This included a formal supervision undertaken at the time of credit and grant effectiveness, and parallel supervision of related technical assistance operations.

Quality of Supervision Rating: Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The program supported by ERSO was prepared in a short time period and with 12 prior conditions all implemented prior to Board approval. The subsequent implementation of the program has gone well.

Government Performance Rating: Satisfactory

b. Implementing Agency Performance:
The Ministry of Finance was responsible for coordinating donors' activities and was the Bank's counterpart for the ERSO implementation, as well as for the management and coordination of implementation of policy measures among other ministries and agencies, but the real counterpart was the government as a whole. The ICR also does not discuss the performance of the ministry, so there are thus two reasons for not rating it separately here.

Implementing Agency Performance Rating: Not Applicable

Overall Borrower Performance Rating: Satisfactory

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

a. M&E Design:
The policy matrix (PD Annex 2) was well designed, except that it did not include any explicit targets regarding the objective to help stabilize the economy.

b. M&E Implementation:

The ICR includes updates on all the identified indicators - given the nature of the program most of the indicators were qualitative and thus presumably easier to track than more numerical indicators. As mentioned in Section 4, a few indicators or their targets were formulated slightly differently in the ICR than in the PD. Examples include; (i) The indicator on electric power in the PAD talked of collection rate of energy delivered to the internal market and in the ICR of per kWh billed; (ii) Target for AUB resolution in the PD matrix talked of “Major bank nationalized and restructured through a “good bank, bad bank” split. Other banks put under conservatorship, temporary administration, or direct supervision. Stability and confidence in the banking sector partly restored.” The first sentence was reformulated in the ICR without significant change in meaning, while second sentence was missing altogether.

a. M&E Utilization:
The indicators were used in the brief period of implementation.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:
Not applicable.

b. Fiduciary Compliance:
Not applicable.

c. Unintended Impacts (positive or negative):
There were no such impacts.

d. Other:

The operation helped paving the way for the subsequent Programmatic Development Policy program, for which the first operation has just become effective.



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Satisfactory
 
Risk to Development Outcome:
Significant
Significant
 
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:
    • A single-tranche operation can be an adequate response to a post-emergency situation, but it is preferable - as in this case - for such an operation to be prepared with the prospect of a subsequent development program.
    • An operation with high government ownership as in this case, where most of the specific prior actions were prepared largely by the government, may have better prospects for sustainability and for avoiding backsliding.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR discusses all relevant aspects of the project. It could have avoided and/or noted the modest differences in the formulation of the indicators between the PD results matrix and subsequent formulations.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
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