Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H5770) ON A GRANT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H5770) ON A GRANT IN THE AMOUNT OF SDR 2 MILLION (US$3 MILLION EQUIVALENT) TO THE UNION OF THE COMOROS FOR A ECONOMIC GOVERNANCE REFORM SUPPORT GRANT July 17, 2012 Poverty Reduction and Economic Management 1 Country Department AFCS4 Africa Region Report No: ICR2453

2 (Exchange Rate Effective as of May 1st, 2012) Currency Unit = Comorian Franc (KMF) Euro 1.00 = KMF 492 AfDB CREF DGCF DGTCP DPO ECF EGRSG EGTA EPCA EU GDP GISE HACS HIPC ICRR IDA IDF IMF ISN LICUS LOFE MDRI MOF PDO PEFA PFM PRGSP SDR TOFE African Development Bank Economic and Financial Reforms Unit Direction Générale du Contrôle Financier Direction Générale du Trésor et de la Comptabilité Publique Development Policy Operation Extended Credit Facility Economic Governance Reform Support Grant Economic Governance Technical Assistance Project Emergency Post-Conflict Assistance European Union Gross Domestic Product Integrated civil service and wage management software High Authority of Civil Service Highly Indebted Poor Countries Implementation Completion and Results Report International Development Association Institutional Development Facility International Monetary Fund Interim Strategy Note Low Income Countries Under Stress Loi sur les Opérations Financières de l État Multilateral Debt Relief Initiative Ministère des Finances (Ministry of Finance) Project Development Objective Public Expenditure and Financial Accountability Public Financial Management Poverty Reduction and Growth Strategy Paper Special Drawing Rights Tableau des Opérations Financières de l État Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Makhtar Diop (AFRVP) Haleh Bridi (AFCS4) Marcelo Giugale (AFTPM) John Panzer (AFTP1) Noro Aina Andriamihaja (AFTP1) ii

3 UNION OF THE COMOROS IMPLEMENTATION COMPLETION AND RESULT REPORT ON THE ECONOMIC GOVERNANCE REFORM SUPPORT GRANT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring A. Basic Information... iv B. Key Dates... iv C. Ratings Summary... iv D. Sector and Theme Codes... v E. Bank Staff... v F. Results Framework Analysis... vi G. Ratings of Program Performance in ISRs... viii H. Restructuring (if any)... viii 1. Program Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1: Bank Lending and Implementation Support/Supervision Processes Annex 2: Beneficiary Survey Results (if any) Annex 3: Stakeholder Workshop Report and Results (if any) Annex 4: Summary of Borrower s ICR and/or Comments on Draft ICR Annex 5: Comments of Cofinanciers and Other Partners/Stakeholders Annex 6: Comoros Main Economic Indicators, Annex 7: List of Supporting Documents Country MAP iii

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5 DATA SHEET A. Basic Information Country: Comoros Program Name: Economic Governance and Reform Support Grant Program ID: P L/C/TF Number(s): IDA-H5770 ICR Date: 07/17/2012 ICR Type: Core ICR Lending Instrument: DPL Borrower: Union of the Comoros Original Total Commitment: Revised Amount: XDR 2 M Disbursed Amount: XDR 1.99 M XDR 1.99 M Implementing Agencies: Ministry of Finance of the Union Co-financiers and Other External Partners: Concept Review: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) 06/18/2009 Effectiveness: 10/12/ /12/2010 Appraisal: 04/12/2010 Restructuring(s): Approval: 06/01/2010 Mid-term Review: Closing: 06/30/ /30/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Significant Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: Satisfactory Satisfactory Quality of Implementing Moderately Satisfactory Supervision: Agency/Agencies: Satisfactory iv

6 Overall Bank Performance: Moderately Satisfactory Overall Borrower Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Program at any time (Yes/No): Problem Program at any time (Yes/No): DO rating before Closing/Inactive status: No No Moderately Satisfactory Quality at Entry (QEA): None Quality of Supervision (QSA): None Rating: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General Public administration Theme Code (as % of total Bank financing) Public expenditure, financial management and procurement Administrative and civil service reform Other economic management E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Haleh Bridi Johannes C.M. Zutt Sector Manager: John Panzer Kathie Krumm Lead Economist Alain d Hoore Jacques Morisset Task Team Leader: Noro Aina Andriamihaja Aurelien Kruse ICR Team Leader: Noro Aina Andriamihaja ICR Primary Author: Marcelo Andrade v

7 F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The overarching objective of the operation was to strengthen Comoros transition from fragility to resilience. It directly supported two of the country s PRGSP six axes, namely (i) axis one, on economic stabilization and equitable growth, emphasizing improvements in government and fiscal operations; and (ii) axis three, on strengthening governance and social cohesion, focusing on improvements in core personnel management systems. This operation would contribute to one of the two objectives identified of the ISN FY10-12, namely strengthen state capacity and accountability. It was complemented with a technical assistance operation, the Economic Governance Technical Assistance Project, approved on January 31, Revised Program Development Objectives (if any, as approved by original approving authority) N/A (a) PDO Indicator(s) 1 Indicator Indicator 1: Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Timeliness of budget preparation and transparency of intergovernmental relations (i) 2007 PEFA PI-8 on (i) PEFA PI-8 transparency of rated as C+ intergovernmental relations rated C (ii) 2007 PEFA PI-11 on organization and participatory nature of the budget preparation process rated D+ (ii) PEFA PI-11 rated as C n/a Impact of reforms on PEFA scores to be assessed during the 2012 PEFA assessment, scheduled to take place in the third quarter of Date achieved 10/01/ /31/2011 June 14, 2012 The National Assembly approved the Budgets for 2011 and 2012 before the beginning of the respective fiscal year. The Public Financial Management Law Comments (Loi des Operations Financières de l État - LOFE) was approved by the (incl. % National Assembly on June 14, The new law modernizes the PFM legal achievement) framework, including in aspects that deal with budget preparation and intergovernmental relations. 1 Guidance on the criteria for Public Expenditure and Financial Accountability (PEFA) Framework Performance Indicators ratings is provided on the website vi

8 Indicator Indicator 2 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Timely production and public availability of historical budget execution data (i) 2007 PEFA PI-4 (i) PEFA PI-4 on arrears monitoring rated C and accumulation rated D (ii) 2007 PEFA PI-10 on public access to budgetary information rated D (ii) PEFA PI-10 rated C n/a Impact of reforms on PEFA scores to be assessed during the 2012 PEFA assessment, scheduled to take place in the third quarter of Date achieved 10/01/ /31/2011 May 23, 2012 Publication of quarterly budget execution reports began at end of last quarter of The first quarter of 2012 report has also been issued. Quality of these reports is limited, as social expenditures are not Comments reported. Also, comparison to the budget is not possible for main (incl. % administrative headings. The reports have not been made available to the achievement) public. Change in net domestic arrears (excluding the float) represented an estimated 5.5 percent and 3.5 percent of GDP in 2010 and 2011, respectively. Indicator 3 : Value (quantitative or Qualitative) Progress on implementation of the PFM Action Plan (i) 2007 PEFA PI-5 (i) PEFA PI-5 on on budget rated C+ classification rated C (ii) 2007 PEFA PIs- 6&7 on budget exhaustivity rated C (iii) 2007 PEFA PI- 21 on the efficiency of budget controls rated D (ii) PEFA PIs- 6&7 rated C+ (iii) PEFA PI-21 rated D+ n/a Impact of reforms on PEFA scores to be assessed during the 2012 PEFA assessment, scheduled to take place in the third quarter of Date achieved 10/01/ /31/2011 May 23, 2012 PFM Action Plan implementation progressed well after June From late 2011 to May 2012, the National Assembly approved: (i) legislation Comments on ministry personnel frameworks (organigram and staffing plans); and (incl. % (ii) the law adopting a new public procurement code consistent with achievement) COMESA. Moreover, (iii) in February, the President approved the decree to reform the Treasury and Public Accounting areas, (iv) in April, vii

9 Indicator 4 : Value (quantitative or Qualitative) the Council of Ministers approved a draft decree to establish the General Directorate of Financial Control (Direction Générale du Contrôle Financier), and (v) in May, the President approved the decree creating the Autorité de Régulation des Marchés Publics and defining other important public procurement reform implementation issues. Automatisation of payroll (i) 2007 PEFA PI-18 on the efficiency of payroll controls rated D (i) PEFA PI-18 rated C n/a Impact of reforms on PEFA scores to be assessed during the 2012 PEFA assessment, scheduled to take place in the third quarter of Date achieved 10/01/ /31/2011 May 23, 2012 From July 2011 to March 2012, most of civil service salaries were processed by the newly installed computerized system - GISE. The Comments fieldwork of a civil service census was completed in October 2011, but (incl. % cleaning up of the GISE personnel database is taking longer than achievement) expected. The final list of civil servants is planned to be completed by end-june Indicator 5 : Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) Share of new recruitments into the civil service made following a competitive selection managed by the Civil Service High Authority N.A. 90 % n/a Not met. 04/05/2010 (Appraisal) 12/31/2011 May 23, 2012 Occasionally, recruitment of A level staff at Union level followed competitive procedures. Competitive procedures not followed at Island level, where an important share of that recruitment takes place. G. Ratings of Program Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 05/10/2011 Moderately Satisfactory Moderately Satisfactory 3.13 Not Applicable H. Restructuring (if any) viii

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11 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal 1. The Union of Comoros is emerging from a long period of political instability. Since its independence in 1975, the country has suffered 21 coups and coup attempts and the main source of the conflict has historically been the sharing of power and resources between the three islands. Successive regimes were unable to establish strong state institutions and attempts at building political consensus have led to overlapping layers of decision-making mechanisms and bureaucracy leading to administrative inefficiencies. In April 2006, democratic elections resulted in the country s first peaceful transfer of power. Resolution of the political crisis between the separatist island of Anjouan and the Union in 2008, followed by passage of the May 2009 Constitutional Amendment presented an opportunity to put the country back on a path of robust and sustained growth. The Constitutional amendment aimed at streamlining the federal administration and enhancing central government authority over budget and economic management. 2. The country is in debt distress. With an average growth rate of 1.7 percent over the period and a population growth of about 2.4 percent, growth has not been sufficient to reduce poverty. In 2004, the latest year for which data was available, about 45 percent of the population lived below the poverty line, with poverty incidence varying significantly across regions and being generally higher in rural areas and on the island of Anjouan. Over the last two decades, the country has accumulated an unsustainable level of public and publicly guaranteed external debt, estimated at US$285.9 million in nominal terms at end-2009, which corresponds to US$213.6 in Net Present Value (NPV) terms and is equivalent to about 45 percent of Gross Domestic Product (GDP), percent of exports and of fiscal revenues. 3. Comoros Poverty Reduction and Growth Strategy Paper (PRGSP) was officially adopted on September 10, This strategy, resulting from a thorough and inclusive participatory process, concentrates on the following six axes: (i) stabilizing the economy and laying the groundwork for strong and equitable growth; (ii) strengthening key sectors by focusing on institutionbuilding and ensuring a broader role for the private sector; (iii) strengthening governance and social cohesion; (iv) improving the health status of the general public; (v) promoting education and vocational training; and (vi) promoting environmental sustainability and civilian security. 4. Since 2009, the donor community has substantially increased its support to Comoros. This trend aimed at supporting increased political stabilization and the Union government s commitment to undertake a sound macroeconomic and structural reform policy agenda. Bilateral and multilateral partners have provided substantial budget support in 2009 and 2010 and expressed willingness to support the Government s reform efforts in subsequent years. Also, the International Monetary Fund (IMF) approved a Three-Year arrangement under the Extended Credit Facility (ECF) 2 on September 16, 2009 following the satisfactory performance under the Emergency Post- Conflict Assistance-supported program. Given measured progress on political and economic reforms, a Preliminary HIPC Document was discussed by the Bank s Board of Directors on April 8, The Extended Credit Facility has replaced the Poverty Reduction and Growth Facility (PRGF). 1

12 5. The Board reviewed an Interim Strategy Note (ISN) for the period FY10-12 on June 1, 2010, jointly with the operation under review. It outlines a strategy to facilitate the implementation of the country s PRGSP and is structured around two objectives: (i) reducing social vulnerability, and (ii) strengthening state capacity and accountability. To support consolidation of recently achieved gains with respect to political stability and economic management, key ISN interventions in support of the second objective included two development policy operations (DPOs), including the Economic Governance Reform Support Grant (EGRSG) under review. The Bank s strategy also aims at supporting Comoros to achieve debt relief through the Highly Indebted Poor Countries Initiative (HIPC) and Multilateral Debt Relief Initiative (MDRI). Implementation of the country s reform program, including those supported by this operation, was also to be supported by an Economic Governance Technical Assistance (EGTA) Project that was approved on January 31, Original Program Development Objectives (PDO) and Key Indicators (as approved) 6. The overarching objective of the operation under review was to strengthen Comoros transition from fragility to resilience. It directly supported two of the country s PRGSP six axes, namely (i) axis one, on economic stabilization and equitable growth, emphasizing improvements in government and fiscal operations; and (ii) axis three, on strengthening governance and social cohesion, focusing on improvements in core personnel management systems. This operation was originally expected to be the first of a programmatic series of two DPOs. However, due to politically related delays in the implementation of the reform process, and a delay in the completion of the 3 rd review under the IMF Enhanced Credit Facility (ECF) program, the planned second operation has lapsed and this DPO ended up being a stand alone operation. 7. There were five prior actions and their impact was to be measured against a set of five expected outcome indicators. Three of these indicators focused on public financial management measures aimed at improving timeliness of budget preparation and transparency of intergovernmental relations, timely production and public availability of historical budget execution data, and progress on implementation of the PFM Action Plan. The remaining two indicators focused on strengthening public sector efficiency and accountability aimed at improving wage bill management and deployment of civil service human resources, respectively. Monitoring of the expected outcomes indicators on PFM and wage bill management have largely drawn on selected 2007 PEFA Performance Indicators to identify the baseline and target improvements to be confirmed by a new PEFA assessment planned for the second half of 2012, after closure of the originally anticipated second DPO. 1.3 Revised PDO 8. PDOs and result indicators remained unchanged during program implementation. 1.4 Original Policy Areas Supported by the Program (as approved) 9. The program supported reforms that are critical in helping the government stabilize the economy, achieving equitable and robust growth over the medium and long-term and improving governance, all central themes of the country s PRGSP. The EGRSG reforms focus on 2

13 two broad policy areas: (i) improving public financial management, primarily in areas of budget preparation and execution, and (ii) strengthening public sector efficiency and accountability, particularly improvements in core personnel management systems. Improving Public Financial Management 10. The 2007 Public Expenditure and Financial Accountability (PEFA) assessment concluded that the performance of Comoros public financial management (PFM) system remains extremely weak. In 22 out of 28 PEFA performance indicators, the 2007 assessment rated the country at the lowest possible score - D. Another five PEFA indicators were rated at C and only one was rated A (the indicator comparing aggregated expenditure out-turn to original approved budget). The assessment highlighted weaknesses at all levels of the PFM system from formal institutions and procedures to actual implementation and processes. 11. The Constitutional Amendment approved by popular referendum on May 17, 2009 requires agreement on a revised and implementable legal and institutional framework of public finances. The 2009 Constitutional changes reasserted some core federal fiscal competencies and to cement national reconciliation it is imperative to define a clear fiscal framework for intergovernmental division of labor and responsibilities. This was to be achieved in a phased approach to allow time for solutions to be worked out and consensus to be reached among all stakeholders. First, unlike in the past when the budget preparation process was the mere consolidation of four separate exercises, the 2010 budget was consolidated through a participatory preparation process in support of collective policy goals and involving relevant stakeholders (prior action 1). Subsequently, the preparation of the new organic law governing the budget framework (Loi sur les Operations Financières de l État - LOFE) adapted to Comoros unique institutional setup should take place. In this context, a new budget preparation calendar taking into account budget discussions at island level should be defined and the outdated 2001 rigid revenue sharing formula should be reviewed. An indicator of progress on this front, and a trigger for the Bank s possible additional budget support, is preparation of this new fiscal regulatory framework involving all interested parties prior to submission for approval. 12. Budget execution reporting and accountability were slightly improved. Since late 2004, a Budgetary Committee was set up to coordinate budget preparation and execution. After an interruption due to the 2007 and 2008 political tensions, the Budgetary Committee resumed operations providing key budget data for policy makers and donors. An outcome of the Budgetary Committee meetings has been the compilation and validation of consolidated fiscal data from the four entities and preparation of an updated TOFE (Table of Government s Financial Operations). In this context, quarterly budget execution reports were prepared for each of the four quarters of FY2009 (prior action 2). Further progress in this area and a trigger for the Bank s possible next DPO, focuses on ensuring that in-year budget execution reports are released on a quarterly basis by the Budgetary Committee, incorporate basic information on social spending and are publicly disclosed. 13. The government adopted a PFM Action Plan for to support implementation of a comprehensive PFM strategy for the coming decade ( ). The strategy is structured around four pillars: (i) modernizing the legislative and regulatory framework and strengthening institutional capacity; (ii) rationalizing budget preparation; (iii) strengthening budget execution; and 3

14 (iv) increasing transparency through improved internal and external controls. The strategy and first three-year action plan address key structural weaknesses in the expenditure chain, public procurement and fiduciary controls, is broadly endorsed by donors and provides a platform for donor support and coordination. The Government s commitment to PFM Strategy and Action Plan implementation was demonstrated by the appointment of a focal point (CREF Economic and Financial Reforms Unit) tasked with responsibility for implementing the plan and reporting on progress (prior action 3). Additional progress in this area, and a trigger for the Bank s continued budget support, is to be assessed by actual implementation of the first three-year plan demonstrating improved capacity in the areas of budget organization and internal and external controls. Strengthening Public Sector Efficiency and Accountability 14. Comoros civil service wage bill constitutes a serious burden on the Government s limited resources. This is the outcome of a disorderly process of decentralization agreed in 2001 to resolve tensions between the Union and the islands. Basically, most central administrative entities were simply duplicated in each autonomous island (with the Union and each island having a President, cabinet and National Assembly). The civil service roster doubled to about 12,000 in the period 1999 to 2008 and the wage bill increased from 6.2 percent to 9 percent of GDP. In 2009, civil service wages and salary expenditures claimed about 65 percent of domestic revenues. Not surprisingly, roles and responsibilities became blurred; wage arrears accumulated, staff morale plummeted and poor quality services were provided to the population. 15. Renewed reform efforts should focus on improving the public administration s effectiveness and bringing the wage bill down to fiscally sustainable levels. Preliminary reforms launched in 2005 stalled in 2007 due to the collapse of the Union-island cooperation. Later in 2008, a new law of civil service was adopted providing for the setting up of a High Authority of Civil Service (HACS) responsible for organizing the competitive selection process prior to all recruitments and for managing the personnel roster of all civil service entities. In recent years, HACS has updated and computerized the civil service roster for the Union and islands and contracted the development of GISE - an integrated civil service and wage management software (prior action 4). Evidence that the software is being used to manage civil service will measure future progress in this area and be a trigger for continued development policy lending. 16. The HACS is operational, but much remains to be done. Centralized personnel management units have been established in the finance administrations. A vast review of the existing organizational structures of each administration was completed in April 2010 and the authorities have established a Commission to start preparing a plan to reform the public administration. Now, the HACS has the de jure responsibility for overseeing the competitive process leading to new recruitments into the civil service of all level A civil servants (prior action 5). Further progress in this policy area will require (i) that the HACS fully exercises its authority to lay the foundation of a new meritocratic civil service, (ii) completion of a physical census of public employees to eliminate ghost workers and validate the computerized database, and (iii) official adoption of the organic frameworks of the various Comorian administrations, at Union and Island levels. A trigger for continuation of the Bank s budget support will be the systematic public disclosure (newspaper with national coverage) of the lists of admitted candidates (ranked by order of merit) to competitive 4

15 examination for entry into the civil service. This aims at ensuring that any deviations from the suggested ranking are subject to public scrutiny. 1.5 Revised Policy Areas. 17. The policy areas were not revised during program implementation. 1.6 Other significant changes 18. There were no changes in design, scope and scale, implementation arrangements and schedule, and funding allocations of this operation. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance 19. The program was supported by a single tranche operation 3. The EGRSG approval was subject to the implementation of five prior actions (see Box below). All prior actions were satisfactorily met before the Board considered the operation. The grant was approved on June 1, 2010, became effective on October 12, 2010 and closed on June 30, Box 1: EGRSG Prior Actions A. Strengthening public financial management Prior action 1. The Recipient has prepared a consolidated budget for FY 2010, using a participatory process involving all concerned stakeholders. Prior action 2. The Budgetary Committee has met regularly on a quarterly basis during FY2009, and produced budget execution reports for each of the four quarters of FY2009. Prior action 3. The Recipient has taken initial steps for the implementation of the PFM strategy and action plan, through the establishment of a focal point to be responsible for the implementation of the plan and monitor progress. B. Strengthening public sector efficiency and accountability Prior action 4. The Recipient has developed and automated payroll system for the management of the wage bill in of civil service. Prior action 5. The Recipient has taken steps to reaffirm the pre-eminent role of HACS in the recruitment of level A civil servants, through the issuance of an administrative circular reminding concerned ministries and agencies that no such recruitment can be undertaken otherwise than on the basis of the outcome of a competitive selection process, responsibility for which vests exclusively in HACS. 3 This operation was originally expected to be the first of a programmatic series of two DPOs. However, due to the slowness of the reforms and the delay in implementation of the IMF program, the planned second operation has lapsed and the two operations had to be de-linked. 5

16 20. Since 2009, encouraging progress has been achieved on economic reforms. In spite of a difficult international environment and severe capacity and institutional constraints, the country adopted a full-prgsp in September 2009 and established a broadly satisfactory track record of policy performance under IMF-supported programs. Progress achieved, helped Comoros to reach the HIPC Decision Point on June 29, 2010 paving the way for achievement of the HIPC Completion Point as early as the end of During 2009 and 2010, a gradual move to better macroeconomic management has allowed Comoros to weather the adverse impacts of domestic and external shocks. A renewed commitment to macroeconomic stabilization and structural reforms resulted in modest but encouraging developments, against the background of protracted fragility in domestic political developments and the global financial crisis. The fiscal outturn remained broadly stable in 2009 and improved in 2010 with the domestic primary fiscal deficit being reduced from 2.7 percent of GDP in 2008, to 2.6 percent in 2009 and 1.6 percent in 2010, respectively. Revenue collection was generally consistent with projections, reflecting initial reform efforts to improve customs and tax administration, including its enhanced computerization. At times, weakened focus or delays on tax and customs administration reforms and difficulties in bringing the wage bill under control posed challenges, but spending cuts on goods and services allowed the 2009 and 2010 targets on the domestic primary fiscal deficit to be largely met. 22. A weak fiscal performance in the context of the December 2010 elections was reversed by strong corrective measures in late Renewed political tensions in mid-2010 and the subsequent long period until a new administration took charge in mid-2011 had a clear adverse but temporary impact on fiscal management. Delays in tax revenue collection and increases in expenditure, including a sizable public sector pay raise in late 2010, contributed to slippage in the ECF program later in 2010 and during the first half of 2011, and a delay in the completion of the third and fourth ECF reviews. Fiscal performance strengthened significantly during the second half of 2011, with restrained wage spending following the reversal of the 2010 public pay raise, stepped-up tax arrears recovery, and strong one-off nontax receipts. The domestic primary budget deficit (excluding one-off non-tax receipts) was limited to 1.4 percent of GDP and all wage arrears accumulated in the earlier months of 2011 were cleared by end-year. 23. On the fiscal structural reform front, while uneven, substantial progress has been made in implementing selected reforms supported by the EGRSG following the renewed impetus since later in During the volatile 12-months period up to mid-2011, the loss of reform impetus impacted adversely progress on structural reforms. However, since later in 2011 commitment to reforms supported by the EGRSG has gained momentum. A draft organic law on the budget framework (Loi sur les Operations Financières de l État - LOFE) has been prepared, with support of technical assistance recruited under the EGTA, after a consultative process involving the President of the Comoros, representatives of autonomous islands, and key senior civil servants of public administrations. On March 28, 2012, this draft law was adopted by the Council of Ministers and on June 14, 2012 was approved by the National Assembly. In parallel with the Budget 2012, the National Assembly approved legislation on ministry personnel frameworks (organigram and staffing plans). Measures to strengthen public expenditure management included the publication of quarterly budget execution reports, which began at end of last quarter of The first quarter 2012 report has 6

17 also been issued. However, data on social sectors spending has yet to be reported and the reports have not been disclosed to the public. 24. Moreover, implementation of the PFM Action Plan for has progressed well. 4 The Budget Laws for 2011 and 2012 were approved before the beginning of the fiscal year, demonstrating improved capacity in the area of budget organization. In February 2012, the National Assembly approved a law adopting a new public procurement code consistent with COMESA (Common Market for Eastern and Southern Africa). Also, on May 31, 2012, the President approved the decree creating the Autorité de Régulation des Marchés Publics and defining other important public procurement reform implementation issues. On February 29, 2012, the President approved the decree to proceed with reform of the Treasury and Public Accounting areas and, shortly, is expected to approve the decree to establish the General Directorate of Financial Control (Direction Générale du Contrôle Financier) laying the foundation for improved internal budget controls. The latter was already adopted by the Council of Ministers in April Moreover, from July 2011 to March 2012, most of civil service salaries were processed by the newly installed GISE civil service payroll computerized system. In this regard, the fieldwork of a civil service census was completed in October 2011, but cleaning up of the GISE personnel database is taking longer than expected. Currently, the plan is to complete the final list of civil servants by end-june As for the competitive recruitment of the civil service for category A and systematically publication of the lists of admitted candidates, ranked by order of merit, in a newspaper with national coverage little progress has been made. At the Union level, the procedure was occasionally followed, but at the Island level it was not. Given that an important share of recruitment takes place at the Island level, it is unlikely that the 90 percent target spelled out in the Program Development Objectives Indicators has been met. 2.2 Major Factors Affecting Implementation Adequacy of government s commitment 25. After the 12-months volatile period through mid-2011, the Government renewed its commitment to maintain macroeconomic stability and advance structural reforms in priority policy areas. Following the bold decision of the Constitutional Court, on May 8, 2010, to rebuke President s Sambi attempt to extend his term beyond the initial limit of May 2010, rising political tensions started to ease. The African Union mediation led to presidential elections and the elections of Governors of the islands in December The political transition ended when the new President was sworn into office in May Nevertheless, the long election and transition period weakened the focus on reforms delaying their implementation and leading to slippage in the reform program in the first half of However, by implementing strong corrective measures, the new administration appointed in June 2011 considerably improved macroeconomic performance and accelerated structural reforms (see paragraphs 23 and 24). 4 Reforms of the Treasury, Public Accounting and Financial Control areas and those related to the computerization of the civil service payroll have been supported by the EGTA project, including its PPF. 7

18 Soundness of the background analysis 26. The rationale for and focus of the DPO is spelled out in the Bank s FY10-12 ISN. It highlights the country s (i) gradual reformer status within the Bank s typology of fragile states, and (ii) planned eligibility to assistance under the HIPC Initiative. 5 The ISN stresses that governance has been a persistent problem in Comoros, which ranks low on the quality of its budgetary and financial management systems and the quality of public administration. 6 The ISN identified strengthening state capacity and accountability as one of the Bank s two objectives to assist Comoros. The key interventions to support this objective, are (i) two DPOs planned for FY10 and FY12, to assist the government to focus on the right priorities; and (ii) an Economic Governance TA project, to proceed alongside with the DPOs to build up capacity for reform implementation. This approach, coordinated with other donor budget support, aimed at helping the country to build the track record needed to become eligible to significant debt relief under the HIPC Initiative. 27. The EGRSG design has appropriately drawn on available country analytical work, which fed into the formulation of the operation s prior actions and expected results. The country s macroeconomic performance and planned policies have been assessed in the context of joint Bank-IMF missions since In the PFM area, a thorough diagnostic of the strengths and weaknesses of the public financial management system was provided by the diagnostic and dialogue supported by trust funded (LICUS and IDF) technical assistance in 2006 and 2008, respectively, as well as by the EU-funded 2007 PEFA assessment. With regard to civil service reform, the policy dialogue benefited from a 2001 World Bank-financed study on the civil service composition and wage profile, complemented by a 2005 diagnostic of the civil service wage bill and EGTA-funded (under the Project Preparation Facility) recent analytical and material support to the development of an integrated civil service management software. Finally, lessons learned by the Bank from DPO s in fragile environments as well as application of Good Practice Principles for Conditionality were usefully incorporated into this DPO s design. With regard to the former, a key lesson emerging from DPO s in fragile states is the importance of strengthening the budget process. Successful DPOs in fragile states have helped government s consolidate their budget systems and processes enabling them to be used as a framework for policy and operational decision-making. This DPO has focused on politically-feasible reforms that built momentum for changes, with a particular emphasis on restoring and strengthening basic state functions notably with respect to civil service and public expenditure management. Assessment of the operation s design 28. The limited scope of reforms supported by this DPO was appropriate. As indicated in the ISN, the purpose of the operation was to address a limited set of key policy reforms in two areas: public financial management and public sector efficiency and accountability. The country s growth and poverty reduction strategy identifies these areas as being central to stabilize the economy and lay the foundation to eligibility to significant debt relief under the HIPC Initiative. Also, this DPO approach to pursue the gradual deepening of reforms was consistent with the country s weak capacity and fragile political environment. In addition, the reduced number of institutional counterparts, 5 World Bank (2005) Good Practice Note for Development Policy Lending: Development Policy Operations and Program Conditionality in Fragile States. 6 The ISN indicates that in 2008, the country s CPIA governance score averaged 2.2 (out of 6) compared with an African average of 3.0 and an IDA average of

19 Ministry of Finance of the Union and High Authority of Civil Service, simplified the design of the operation. Finally, support by the Bank s Economic Governance Technical Assistance (EGTA) Project, as well as other donors capacity building initiatives, has proven to be critical in advancing the reform agenda (e.g. computerization of payroll, civil service census, and budget management and reporting). Relevance of the risks identified at appraisal and effectiveness of mitigation measures 29. Risks were well identified in the Program Document, but could not be fully mitigated (see Table 1). This resulted in an uneven implementation of reforms, with most progress being made after June Table 1: EGRSG - Anticipated Risks and Mitigating Factors Risk Political risk from stalling of reforms due to renewed Union-island political tensions. Macroeconomic risk from inability of the Government to adhere to the macroeconomic framework due to (i) fiscal slippages, (ii) accumulation of new arrears, and/or (ii) further deterioration of the external environment through terms of trade shocks or fading remittances. Implementation capacity risk from extremely weak capacity. Fiduciary risk associated with weak national fiduciary systems. Political economy risk due to lack of political buy-in to reforms Mitigating Factors This risk did materialize. Renewed political tensions emerged when President Sambi attempted to extend his term beyond May As anticipated in the DPO, the international community pro-active involvement was key in the easing of tensions. Mediation by the African Union led to presidential elections in December The newly elected President was sworn in May 2011 and installed his administration in June However, the long political transition had a clear adverse but temporary impact on fiscal management. This risk did materialize. The Government s weak fiscal performance in the context of the December 2010 elections was further exacerbated by the adverse impact of international fuel and rice price pressures. Strong corrective revenue and expenditure measures in late 2011 were supported by close economic and policy monitoring, notably by the IMF and the Bank. Budget support with parallel technical assistance and policy advice by IDA and other donors has been instrumental in mitigating this risk. The Government s Action Plan for PFM and reforms supported by budget support are contributing to the gradual improvement of fiduciary standards. Focus on few key reform areas and a gradual reform process aligned with the objective of achieving significant debt relief contributed to marshal the country s broad support. 9

20 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: M&E design 30. Targets with specific indicators were identified for each prior action (Annex 2). The PEFA assessment of 2007 provided a baseline for most of the policy areas. The PEFA planned for 2012 would provide a detailed evaluation of the set of 9 PEFA indicators chosen to track progress on DPO-supported reforms aimed at improving the PFM system and overall financial accountability. 31. With the support of its development partners, the country is building up its M&E capacity. The authorities are strengthening and developing their capacities to design, implement, monitor, and evaluate their development and poverty reduction strategies. In particular, the European Commission is supporting strengthening the capacity of the Commissariat General for Planning, responsible in particular for aid coordination and poverty reduction strategy monitoring and evaluation. AfDB is focusing on strengthening statistical capacity. M&E implementation and utilization 32. The Ministry of Finance of the Union, with support from the Directorate of Planning, was responsible for monitoring reforms, reporting progress and coordinating actions among other public entities, including at the island level. The first Annual Progress Report on PRGSP implementation was completed in mid The Government was also expected to appoint a committee, responsible for steering and following up on reforms and the implementation of the PFM Action Plan. In this regard, the authorities established CREF Economic and Financial Reforms Unit - that has been instrumental in moving forward the reform agenda. 33. The 2012 PEFA assessment will soon be launched. The operation under review was originally expected to be the first of a programmatic series of two DPOs. In the politically difficult context of the late 2010 elections, slower than expected implementation of reforms and slippages in macroeconomic performance resulted in a considerable delay in launching the preparation of the second DPO. The identification of the new operation has taken place in May Because the planned second DPO has lapsed, the two DPOs had to be de-linked and preparation of this DPO s ICR has been accelerated and cannot benefit from the findings of the upcoming PEFA assessment. The 2012 PEFA assessment, while taking place somewhat later than initially anticipated, will be conducted in the third quarter of Expected Next Phase/Follow-up Operation 34. The EGRSG identified prior actions for a possible next operation by IDA (Box 2). In anticipation of a follow-up DPO, the EGRSG identified a set of five reform measures to be considered for possible future budget support from IDA. Overall, substantial progress has been made in the implementation of those actions (see paragraphs 23 and 24). While prior actions 1 and 3 have 7 If the country s performance would have justified processing the second DPO during the second half of 2011, the two DPOs would have been linked and the respective single ICR could have benefited from findings of the soon to be launched PEFA assessment. 10

21 been met, prior actions 2 and 4 have been substantially met. Prior action 5 was not met. Box 2: Prior Actions for the Follow Up Operation A. Strengthening public financial management Prior action 1. A draft organic law on the budget framework is prepared and discussed in a national workshop prior to submission for approval. Prior action 2. Quarterly reports are published on public website or newspaper with national coverage and include basic information on social sectors. Prior action 3. The government implements the first tri-annual PFM action plan demonstrating improved capacity for budget organization and strengthened internal and external controls. B. Strengthening public sector efficiency and accountability Prior action 4. The system is operationalized to manage civil service human resources and payroll. Prior action 5. The lists of admitted candidates (ranked by order of merit) to competitive examinations for entry into the civil service for category A are systematically published in a newspaper with national coverage. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 35. The operation under review was and continues to be highly relevant to current country and global priorities, and the Bank s assistance strategy to Comoros. It was designed to support implementation of the Government s development strategy spelled out in its 2009 PRGSP and endorsed by the new Government appointed in mid By focusing on macro-economic stability, strengthening governance through PFM and Public sector reforms and laying the foundations for eligibility to debt relief under the HIPC Initiative, the operation was and continues to be highly relevant to global priorities and the Bank s FY10-12 ISN and goals in fragile states. The operation design appropriately targeted a limited number of prior actions and was framed as part of a concerted multi-donor effort. Substantial progress on reforms supported by this operation is a key first step for achieving the country and the Bank objectives stated in the PRGSP and ISN, respectively. 3.2 Achievement of Program Development Objectives 36. PDO Achievements: substantial progress has been made on 4 of the 5 PDO areas, as summarized in Table 2, below. In spite of reported progress, in the case of 4 PDO indicators, a new PEFA is not available to measure achievement of the respective targets. These were indicators relating to PFM, and included: (i) timeliness of budget preparation and transparency of intergovernmental relations; (ii) timely production and public availability of historical budget execution data; (iii) progress on implementation of the PFM Action Plan; and (iv) automatisation of the payroll. As for indicator 5, it has not been met. 11

22 Table 2: Anticipated and actual outcomes of the EGRSG Anticipated Result Indicator 1. Timeliness of budget preparation and transparency of intergovernmental relations. Indicator 2. Timely production and public availability of historical budget execution data Indicator 3. Progress on the implementation of the PFM Action Plan Indicator 4. Automatisation of payroll Indicator 5. Share of new recruitments into the civil service made following a competitive selection managed by the Civil Service High Authority. Actual Outcome The National Assembly approved the Budgets for 2011 and 2012 before the beginning of the respective fiscal year. The Public Financial Management Law (Loi des Operations Financières de l État - LOFE) was approved on June 14, The new law modernizes the PFM legal framework, including in aspects that deal with budget preparation and intergovernmental relations. Publication of quarterly budget execution reports began at end of last quarter of The first quarter of 2012 report has also been issued. Quality of these reports is limited, as social expenditures are not reported. Also, comparison to the budget is not possible for main administrative headings. The reports have not been made available to the public. Change in net domestic arrears (excluding the float) represented an estimated 5.5 percent and 3.5 percent of GDP in 2010 and 2011, respectively. From late 2011 to May 2012, the National Assembly approved: (i) legislation on ministry personnel frameworks (organigram and staffing plans); and (ii) the law adopting a new public procurement code consistent with COMESA. Moreover, (iii) in February, the President approved the decree to reform the Treasury and Public Accounting areas, (iv) in April, the Council of Ministers approved a draft decree to establish the General Directorate of Financial Control (Direction Générale du Contrôle Financier), and (v) in May, the President approved the decree creating the Autorité de Régulation des Marchés Publics and defining other important public procurement reform implementation issues. From July 2011 to March 2012, most of civil service salaries were processed by the newly installed computerized system - GISE. The fieldwork of a civil service census was completed in October 2011, but cleaning up of the GISE personnel database is taking longer than expected. The final list of civil servants is planned to be completed by end-june Competitive recruitment of the civil service for category A occasionally followed at the Union level, but not at the Island level. The latter represents an important share of total recruitment of category A. The 90 percent target for coverage is unlikely to have been met. 37. Following improved performance since late 2011, the third review of the IMF-supported ECF has been completed in June Economic growth is edging up with real GDP growth continuing to accelerate from 1.8 percent in 2009, to 2.2 percent in 2011 and being projected at 2.5 percent in 2012 (Annex 6). Growth has been mainly driven by the favorable performance of the agricultural sector, robust remittances and associated housing construction, and a modest recovery in foreign direct investment. Despite favorable agricultural food production, average inflation accelerated markedly to 6.8 percent in 2011, reflecting the rise of world food and oil prices and the sizable rise in public sector wages in late Inflation has since subsided and is projected at