Document of The World Bank FOR OFFICIAL USE ONLY EMERGENCY PROJECT PAPER ON THE EUROPEAN UNION FOOD CRISIS RAPID RESPONSE FACILITY UNDER THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY EMERGENCY PROJECT PAPER ON THE Report No: YE EUROPEAN UNION FOOD CRISIS RAPID RESPONSE FACILITY UNDER THE GLOBAL FOOD CRISIS RESPONSE PROGRAM IN THE AMOUNT OF EURO 17.5 MILLION TO THE REPUBLIC OF YEMEN FOR THE EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT Human Development Sector Unit Middle East and North Africa Region December 8, 2009 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective September 14, 2009) Currency Unit = Yemeni Rial (YR) US$1.00 = YR 202 Euro 1 = US$1.45 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CA Cash Assistance LIP Labor Intensive Program CAS Country Assistance Strategy MENA Middle East and North Africa CBY Central Bank of Yemen MIS Management Information System CDD Community Demand-Driven MM Mitigation Measures COCA Government s Supreme Audit Institution MOF Ministry of Finance CSO Civil Society Organizations MOPIC Ministry of Planning and International Cooperation DA Designated Account MOSAL Ministry of Social Affairs and Labor DPPR Third Development Plan for Poverty PFS Project Financial Statement Reduction ( ) EC European Community PMT Proxy Means Testing ESSN Emergency Social Safety Net Enhancement PWP Public Works Project Project FM Financial Management ROY Republic of Yemen GFRP Global Food Crisis Response Program SC Steering Committee GOY Government of Yemen SFD Social Fund for Development HBS Household Budget Survey SOEs Statement of Expenditures HHs Households SWF Social Welfare Fund IDA International Development Association TA Technical Assistance IDP Internally Displaced People WA Withdrawal Application IFAD International Fund for Agricultural WB World Bank Development IFR Interim Financial Report WFP World Food Program Vice President: Country Director: Sector Director : Sector Manager: Task Team Leader: Shamshad Akhtar A. David Craig Steen Lau Jorgensen Roberta Gatti Afrah Al-Ahmadi

3 REPUBLIC OF YEMEN EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT TABLE OF CONTENTS Emergency Project Paper A. Introduction.. 2 B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project.3 C. Bank Response and Strategy: The Project..6 D. Appraisal of Project Activities E. Implementation Arrangements and Financing Plan...16 F. Project Risks and Mitigating Measures.. 18 G. Terms and Conditions for Project Financing...21 Annexes Annex 1. Detailed Description of Project Components. 22 Annex 2. Results Framework and Monitoring...25 Annex 3. Summary of Estimated Project Costs.29 Annex 4. Financial Management and Disbursement Arrangements..31 Annex 5. Procurement Arrangements 42 Annex 6. Implementation and Monitoring Arrangements.47 Annex 7. Project Preparation and Appraisal Team Members 50 Annex 8. Environmental and Social Safeguards Framework 51 Annex 9. Economic and Financial Analysis..53 Annex 10. Documents in Project Files.58 Annex 11. Statement of Loans and Credits..59 Annex 12. Country at a Glance 60 Map 62 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 EMERGENCY PROJECT PAPER REPUBLIC OF YEMEN EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT DATA SHEET Date: December 8, 2009 Country Director: A. David Craig Sector Manager/Director: Steen Lau Jorgensen Lending instrument: Emergency operation Team Leader: Afrah Al-Ahmadi Sectors: Social Protection Themes: Global Food Crisis Response Environmental screening category: B Type of Operation: New Operation [ X ] Additional Financing [ ] Existing Financing (restructuring) [ ] Financing type: Loan [ ] Credit [ ] IDA Grant [ ] Other [ X ] Global Food Crisis Response Trust Fund (Global Food Crisis Response Program Framework) Project ID: P Proposed terms: Grant Total Amount: Euro million Expected implementation period: 18 months Expected effectiveness date: December 30, 2009 Expected/revised closing date: June 30, 2011 Recipient: Republic of Yemen Responsible agencies: Social Fund for Development and Social Welfare Fund Development Objective: The objective of the project is to contribute to the reduction of the negative impact of food price volatility on the poor and vulnerable in selected areas, and support the protection and building of community assets. Short Description: Scale-up existing cash-for-work program to provide 6-9 months employment to approximately 12,000 of the unemployed poor households; and providing direct cash transfer for 12 months to an additional 41,000 of the eligible poor. Financing Plan (Euro million) Source Local Foreign Total Recipient (Euro 0.03) Trust Funds (Euro 17.5) Total Estimated disbursements (Bank FY/Euro million) Total IDA Trust Funds Does the emergency operation require any exceptions from Bank policies? Have these been approved by Bank management? Are there any critical risks rated substantial or high? Yes [ ] No [X] Yes [ ] No [ ] Yes [] No [ X ] What safeguard policies are triggered, if any? OP/BP 4.01 Significant, non-standard conditions, if any: 1

5 REPUBLIC OF YEMEN EMERGENCY SOCIAL SAFETY NET ENHANCEMENT PROJECT A. Introduction 1. This Project Paper seeks the approval of the Vice President, for the Middle East and North Africa Region, to provide a grant financed under the European Union Food Crisis Rapid Response Facility in the amount of Euro 17.5 million to the Republic of Yemen (ROY) for the proposed Emergency Social Safety Net Enhancement (ESSN) Project to reduce the negative impact of food price volatility on the poor and vulnerable. 2. The global food crisis has severely affected Yemen. The doubling of wheat prices in the last year, together with the rise in the prices of rice and maize, threaten to increase the share of the population living in poverty to levels last seen in Yemen imports more than three-quarters of its food needs, and recent droughts have further increased the population s vulnerability to high food prices. 3. The proposed support will help respond to the situation by: (i) carrying out a labor intensive workfare program initiated under the Global Food Crisis Response Program (GFRP) to provide cash to communities most seriously affected by the food crisis to help mitigate the impact of increased food prices through temporary work opportunities while building and protecting community infrastructure assets; and (ii) providing cash transfers to poor households in flood, conflict and child-trafficking affected areas that are not yet enrolled in the Social Welfare Fund (SWF) program. It is estimated that approximately 12,000 households within the communities most seriously affected will benefit from the workfare program and 41,000 households will benefit from the cash transfer, which will help them to cope with the crisis over a 12-month period. 4. This European Commission (EC) Trust Fund-financed operation complements, expands and builds on the early lessons learned from the US$10 million additional financing provided to the ROY through the International Development Association (IDA) Food Crisis Grant in The IDA Grant funded the establishment of the labor intensive program and provided institutional support to the cash transfer program. The ESSN Project will expand the labor intensive program benefits to additional poor communities, while simplifying and improving program targeting and delivery based on the lessons learned. The SWF will implement the project cash transfer component using the improved targeting and administrative capacity previously supported by the IDA Grant. The World Food Program is also supporting the Government of Yemen (GOY) with an Emergency Food Distribution Project that is benefiting from the improved targeting methodology introduced as a pre-requisite for the SWF direct implementation of this operation. B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project Country Context 5. The ROY, with a population of about 23.6 million people, and a GDP per capita of about US$930, is among the poorest countries in the world. Forty percent of the rural population and 20% of the urban population live below the poverty line. Despite steady progress at the macro level, Yemen has some of the worst social indicators in the Middle East and North Africa (MENA) region: a 28% literacy 2

6 rate among women, 18% malnutrition, girls primary enrollment at 55%, and access to safe water at 31%. Poverty is pervasive in rural areas, where much of the population resides. The dispersion of the population and the difficult topography pose a serious challenge to delivering social services: Yemen has around 35,000 official villages (with approximately 136,000 human settlements), many with less than 100 households, which makes the provision and maintenance of social services very expensive. The country s fiscal revenues depend heavily on the oil sector for nearly 75% of income and production forecasts indicate that existing reserves will be depleted in 8-10 years. Yemen is an oil-dependent economy with oil revenues projected to decline, with no short to medium-term alternative income sources to deliver social services. 6. Yemen is suffering from multiple challenges, compounded by the global food crisis. Recent drought conditions, combined with energy, fertilizer and food price increases, have already imposed great hardship and rising expenses on the Yemeni population, particularly in rural areas. The sharply rising prices of imported food and fertilizers, in particular grain, have exacerbated the difficulties for the poor. The country now faces a significant food shortage and high food prices. 7. Domestic cereal production covers only 18% of the country s cereal consumption. With an average 2.5 million tons of cereal imported every year, a large proportion (73%) of the population lives in rural areas and most of them (90%) are farmers but remain net buyers of cereal. The increase in wheat prices from US$196 per ton in June 2007 to the current US$440 per ton has resulted in an additional US$600 million burden on Yemen. Because Yemen is a country highly dependent on wheat as a staple, the result is an increased vulnerability to unstable food prices. 8. The rise in international food grain prices in the context of meager per capita growth in Yemen has the potential to reverse the poverty reduction achievements of the last seven years. If not mitigated with income transfers, the doubling of wheat prices in the last year, compounded with the increase in prices of rice and maize, is projected to increase the proportion of the population living in poverty over the 1998 level. Estimated per capita real consumption growth indicates a decline of 1% per year in the last two years. This would take place in a context of already severe child malnutrition (32% of poor children are severely stunted and 14% are severely underweight). 9. Yemen also suffers from emergencies brought about by natural disasters as well as societal issues such as child trafficking and armed conflict. The October 2008 Category 3 storm and floods that hit Hadramout and AI-Mahara Governorates had a devastating impact. The disaster caused the death of 73 persons, scores of injured, destruction of 2,826 houses and huts and partial damage to another 3,679 houses, and the displacement of about 25,000 people. The issue of child trafficking is estimated to affect approximately 600/700 children every year and is rooted in poverty. Governorates bordering Saudi Arabia (Hajja, Al-Mahwet, and Hodeida) are particularly at risk due to the openness of the border. Poor families send their children to work in Saudi. Studies, supported by UNICEF, indicate that children in these circumstances are forced into a life of begging and abuse. With support from UNICEF, a Joint Yemen Saudi Committee was established to develop a National Plan aimed at combating child trafficking. The GOY has instigated an extensive awareness campaign through radio/tv/posters and taxi drivers to inform all citizens about the evils of this practice. Cabinet has recently approved stiff penalties (7 year prison terms, fines) for perpetrators. Recent conflict in the northern areas of the country has created an emergency situation with a reported estimate of 100,000 Internally Displaced People (IDPs). The conflict restricts the provision of necessary government services to assist the poor and vulnerable. Sector Context 3

7 10. Last year s severe global food, fuel and financial crisis (FFF crisis) deeply affected Yemen. However, given the high population growth (1.78%) over the same period, an increase in the numbers of poor would see an additional 1 million people falling below the poverty line. The 2007 Poverty Assessment found that poverty is spread across regions with poverty rates varying between 5.4% and 71% among governorates. The highest poverty levels are in the rural areas of the country i.e., Amran, Shabwah and Al-Baida governorates and the lowest levels in the urban areas i.e., Al-Maharah and Sana a City governorates. The fact that Yemen imports more than three-quarters of its food requirements has implications for both urban and rural poverty. Moreover, the recent drought, floods and increased fertilizer prices have added further to the rural population s vulnerability. As a consequence, the already large intra-governorate poverty heterogeneity is expected to increase. 11 In response to these multiple challenges, the Government has developed and is implementing a Poverty Reduction Strategy. One of the four main pillars of the strategy intervention is to protect the poor and vulnerable through a comprehensive social safety net program. Yemen has developed a multi-tier safety net, including highly successful community-driven programs (notably under the Social Fund for Development (SFD) and the Public Works Project (PWP)), and the provision of defined benefits to limited cash transfer to the poorest (through the Social Welfare Fund (SWF)). Altogether, public financing for these safety net programs is still quite modest, representing only 0.6% GDP if compared to similar low income countries, which spend between 1.5% and 2% of GDP on safety nets programs. 12. Yet the largest share by far of social expenditure is consumed by an expensive and untargeted subsidy system (essentially for energy products). Yemen s Development Program for Poverty Reduction (DPPR) takes a cautious approach to this politically sensitive issue, and focuses on the need to strengthen existing programs. Still, the Government is aware that in an increasingly constrained fiscal environment, it may not be possible to delay for much longer the necessary reform of the subsidy system, an issue which is likely to take some degree of prominence in the coming period. 13. To cope with the present crisis in light of its budget limitations, the GOY requested donor financial assistance. Last year, the ROY received US$10 million from the Food Crisis Response Trust Fund financed out of World Bank Surplus to support a SFD workfare program to mitigate the impact of the food crisis. A small component (about 10%) of the grant was allocated to support and develop the SWF administrative capacity and targeting system. 14. Social Fund for Development (SFD). Given the lack of capacity to deliver basic social services to the population, the Government, with support from the World Bank, created the SFD in This Fund is tasked with providing improved access to basic social services for the poorest Yemenis, while setting an example of an effective, efficient and transparent institutional mechanism operating within Yemen. Through its first and second phases, the SFD has supported long-term development for the poor and encouraged innovative and participatory approaches to delivering social services. Since its inception, the SFD has scaled up its operations, receiving financing of US$80 million in its first phase, US$175 million in its second phase, and US$670 million in its current third phase. The third phase is supported by a large number of donors, including the Arab Fund for Economic and Social Development, Department for International Development (DFID), European Commission, Islamic Development Bank, Government of Italy, IFAD, KfW, Government of the Netherlands, OPEC Fund, Saudi Fund for Development, US Food Aid, and UNESCO. 15. Social Welfare Fund (SWF). The SWF is the largest public cash-transfer-based social safety net in Yemen. It was established in 1996 by Presidential Law No. 31 and has gradually expanded to provide cash transfers to almost one million poor and vulnerable Yemeni households. In response to the food crisis in the last year, with high prices for basic foodstuffs coupled with rising prices for energy 4

8 commodities, the Government doubled the maximum level of benefits under the SWF to YR 4,000 (US$20) per case per month and has decreed that the number of beneficiaries will be doubled to at least 1.5 million households as soon as possible. This expansion would permit coverage of nearly all those below the poverty line. However, the impact of the oil crisis on government revenue has delayed the implementation of the Government s commitment to expand SWF coverage. 16. The SWF program has suffered in the past from a combination of low benefits and poor targeting, resulting in chronically low coverage of the poor and little impact on overall poverty. The 2007 Poverty Assessment concluded that the SWF covered only 13% of the poor population and nearly two-thirds of beneficiaries were not poor, according to the national poverty line. As a result of these findings, the GOY has authorized a program of fundamental reforms to SWF, including improving the targeting of the poor, strengthening the service delivery capacity, and implementing a new legal and policy framework. Technical assistance has been provided by the EC for several years, and recently the World Bank has begun to provide complementary guidance on program targeting and its reformed design. The implementation of the SWF reforms and program expansion are entering a critical period requiring immediate technical assistance, capacity building and training support. 17. In 2008, the SWF launched a national survey, completed recently, to identify the poor and vulnerable in Yemen in order to improve targeting and expand the program. It is expected that, in order to ensure access of all poor households, the SWF will support an open application process, whereby applying and assessing applicants eligibility for SWF support would be a continuous process. Eventually, between 7 and 10 million Yemenis may be recorded, making the SWF database the most comprehensive national record of poor and vulnerable individuals available in Yemen. Such a national database can be useful to target and coordinate other funds and benefits across a range of social programs. Project Rationale 18. Coupled with the food crisis in 2008, the fiscal impact of the reduction in oil prices in 2009 has resulted in the reduction of Government revenues by 30% so far in 2009 compared to 2008, leading to budgetary constraints and significant cuts in the public budget to most sectors, including the social sectors. The project will support the Government s plan to expand its safety net programs in response to the food crises and increase the coverage of existing cash-based programs targeted at the poorest and most affected by the crises. The Government plans to implement its expansion of cash-based assistance following recovery of the public budget and when the political timing is right to implement the energy subsidy reform program, expected to channel 50% of the savings achieved to social programs, including cash-based social assistance. Furthermore, the project is linked directly to the Government s Development and Poverty Reduction Strategy and the Social Protection Strategy that includes in its objectives increasing the coverage and effectiveness of the targeted cash-based safety net to address the impact of food prices and other shocks in the country. 19. Project Complementarity with other Initiatives. The project will coordinate closely with the EC activities and Technical Assistance (TA) supporting both the SFD and the SWF. The operation will extend the initial US$10 million Emergency Additional Financing Grant, allocated from the GFRP to Yemen. The first GFRP grant, implemented by the SFD, supported a workfare program that provided cash to the able-bodied poor in exchange for work on community activities to help them cope with the food price emergency. A small share of that financing supported the development of an improved targeting system for the SWF, using the Proxy Means Testing (PMT) method. Table 1 is taken from the SFD monthly update of the first GFRP grant and identifies results of the program over the last year: 5

9 6

10 # Subprojects Table 1: The SFD Global Food Crisis Response Program Results (2008/09) Total Cost - US$ (Disbursed) # of Participating HHs No. of Workers F M Employment Created (days) Wages (US$) 98 7,944, ,092 6,434, The project will also coordinate with the World Food Program (WFP), currently under preparation, which aims at providing food support to poor households. The SWF newly developed targeting mechanisms and the recently established database of the SWF eligible beneficiaries will be shared with the WFP to ensure appropriate support to households desperately in need of food assistance. 21. The project builds on the Bank s technical assistance as well as guidance to ongoing cash transfer program reform efforts. Bank support is focused on improving the SWF targeting through application of Proxy Means Testing as well as supporting the development of a comprehensive operations manual for all SWF staff. These activities are initial steps to prepare the SWF for a planned cash transfer program expansion from about 1 million current households to 1.5 million households. The project will also complement the ongoing EC support to the reform of the SWF. The EC support focuses on building the institutional capacity and policy reform towards further effectiveness and efficiency. 22. The World Bank and the EC are supporting the development of the food security strategy. Other donors, particularly Japan and Germany, are also planning to engage in the agriculture sector and rural water management. The proposed project will coordinate with this initiative, as well as coordinating with the established donors implementation support and coordination group. Both the EC and the World Bank are currently extending support to the Government to increase the effectiveness of the SWF Steering Committee by assessing Steering Committee representation, mandate and mechanisms. C. Bank Response: The Project Brief Description of the Bank Strategy of Emergency Support 23. The World Bank has been engaged in social protection in Yemen for several years. It has supported the SFD since its creation, and is currently supporting the expansion of the program along with other donors and contributing institutions. The SFD is uniquely positioned to utilize grant resources and direct them to the neediest communities and to support cash transfers through community-based laborintensive works. The SFD has also provided the SWF with technical assistance and other support over the years, and can assist with the management and capacity building currently required to enable the SWF to improve its effectiveness as a safety net. Together, the technical expertise of the Bank, combined with its current involvement with safety net programs in Yemen, provide a strong rationale for expanded support through the EC Food Crisis Rapid Response Facility Trust Fund. 24. The Bank strategy for emergency support is focused on financing the provision of immediate to medium-term cash transfers to the poor badly affected by the food crisis (those that continue to suffer from the impact even after price stabilizing due to accumulated debts during the crisis), as well as the poor impacted by the floods, drought, and armed conflict in different regions in the country, while at the same time protecting poor communities assets. The Bank is also focusing on strengthening the capacity and delivery mechanisms of the workfare and cash transfer programs as a medium to long term objective 7

11 towards enabling these safety net programs to effectively respond to any future shock, a strategy deemed to be important in the current economic and political tensions Yemen is experiencing. For a longer term strategy, the Bank with other development partners (EC, IFAD, GTZ, and WFP) is supporting the Government with the development of a National Food Security Strategy and supporting rain-fed agriculture programs (given Yemen s scarce water resources). Project Development Objectives 25. The project objective is to contribute to the reduction of the negative impact of food price volatility on the poor and vulnerable in selected areas, and support the protection and building of community assets in poor communities. See Annex 1 for a detailed description of the Project Components. Summary of Project Components 26. The project is expected to achieve its objectives through two main components: (i) workfare assistance to approximately 12,000 poor households capable of participating in the program; and (ii) direct cash transfers to approximately 41,000 households under the food poverty line in selected areas affected by flood, conflict, and areas prone to child trafficking. Component 1: Workfare Assistance and Impact Evaluation (Euro million) 27. Sub-component 1.1. Expand workfare assistance for the needy (Euro 9.8 million). The subcomponent will finance the provision of Sub-grants under the workfare assistance program to about 12,000 to 16,000 households within the most seriously affected communities for the carrying out of basic infrastructure activities (subprojects) in the fields of: soil protection, agricultural terraces rehabilitation, maintenance and improvement of local feeder roads, streets pavement and other types of labor-intensive based on the demand and priority needs of each community. The sub-grants will cover wages, materials, local consultants, training, and transportation directly related to the mobilization of communities and implementation of the subprojects. 28. The Phase I workfare program initiated under the initial GFRP grant will be expanded to reach additional households affected by the food crisis. Cash will be provided to help mitigate the impact of increased food prices through temporary work opportunities through a well-tested community targeting mechanism, as well as supporting rehabilitation of basic community assets. It is estimated that 60-70% of the sub-component cost would be for wages, and approximately 30% for cost of materials, project mobilization/supervision activities, etc. It is estimated that participating households will earn US$ (average 66 days participation spread over a period of 6 9 months depending on the nature of the subproject). The formula used to determine household wage share is described under Section D - Social of this document. 29. Sub-component 1.2. Impact evaluation and component management - workfare program (Euro million). The sub-component will support the implementation of the program s phase II baseline study and an impact evaluation of the workfare assistance program through the provision of consultants services, and financing up to Euro 298,000 (3% of component 1.1) for SFD incremental operating costs. 30. Results from the Phase I Beneficiary Assessment will contribute to the design of the phase II impact evaluation. The impact study will provide lessons and policy recommendations for further SFD workfare expansion, as well as contributing to the social protection dialogue concerning the protection of the able-bodied poor. 8

12 Component 2: Temporary Cash Assistance for Poor Households (Euro million) 31. Sub-component 2.1. Cash transfers to poor and vulnerable households (Euro million) The sub-component will provide temporary cash assistance grants to about 41,000 eligible poor households in selected areas, who are not yet enrolled in the SWF program but have been identified through the recently completed SWF household survey and the developed Proxy Means Test (PMT) scoring. These households, to be located in flood, conflict or child trafficking areas, will receive US$20/month to help them cope with price pressures over 12 months. The subcomponent will also finance the contracted payment agency administrative fee. After project closing, these households will be included in regular SWF coverage based on the GOY 2011 budget. 32. Sub-component 2.2: Evaluation and component management - cash assistance program (Euro 0.163). The sub-component will support an evaluation of the temporary cash assistance program to address the targeting, operational processes and results of the program at the household level. The subcomponent will also finance the salary of a local Financial Management Specialist to support the SWF Finance Department to meet project fiduciary requirements, the fee for the external auditor, and additional local consultants as required, as well as travel cost for SWF staff for field follow up and supervision. 33. The evaluation findings will provide lessons learned and policy recommendations for the SWF overall program, as well as contributing to the dialogue in regard to policy options for the reform of the wider safety net programs. Eligibility for Processing under OP/BP Consistent with the guiding principles of OP 8.00, the proposed project will address adverse economic and social impacts resulting from the global food price increase which doubled wheat prices in Yemen in 2008 and recent droughts which have further increased the population s vulnerability to high food prices. Application of the OP 8.00 Guidelines provides the policy framework for rapid response operations, and enables the Bank to respond quickly to Yemen s poor and vulnerable in a manner consistent with the recommendations approved by the Board under the GFRP. Unless effectively mitigated, the ongoing high food prices, further aggravated by the current financial crisis, are likely to cause a major adverse economic and social impact and rapidly increase the number of people living in poverty in a country where an estimated 40% of the population already lives below the poverty line. 35. The proposed project will be implemented by the SFD and the SWF. The SFD has successfully implemented a labor-intensive workfare program under the GFRP. The SWF has been receiving technical assistance from both the EC and the Bank with resultant improved targeting by applying PMT scoring. These two institutions are deemed capable of transferring cash to the poor in an efficient and transparent way. To date, only the EC and IDA have been supporting workfare programs and providing technical assistance to SWF. This project is intended to provide additional support to expand the workfare program and provide funds for temporary cash assistance. Consistency with Country Strategy 36. The project is consistent with the Yemen Country Assistance Strategy (CAS) objectives and contributes by supporting the CAS s third strategic objective to help foster human and social development. The CAS specifies a number of thematic areas for achieving the third strategic objective, including thematic area 3 expand the umbrella of social protection and services to poor communities. Expanding coverage of Yemen s safety net is a strategic option for lifting households that fall under the 9

13 food poverty line to a food consumption level that protects these households from loss of human capital. Underpinning the subsidy reform challenge and strengthening the capacity of the cash transfer program are identified in the CAS as key focus areas for pro-poor improvement of Yemen s safety net. Expected Outcomes 37. The Project activities are expected to result in: (i) the creation of temporary job opportunities in approximately 12,000 households in targeted communities; (ii) improvement of community assets related to agriculture, transportation and basic infrastructure; (iii) the expansion of cash transfer coverage to over 41,000 poorest households; and (iv) improvement of SWF targeting, and communication with, cash transfer beneficiaries. See Annex 2 for the project results framework. Project outcome indicators include: Number of households (HHs) receiving cash transfers; Amount of grant transferred to beneficiaries; Percentage of households reporting that cash assistance has reduced the food consumption gap, decreased debt and/or protected productive assets related to food price increase: Number of subprojects rehabilitated (community assets); and Percentage of households confirming that the subprojects implemented support the protection and building of community assets. Intermediate Results Indicators include: Number of employment days created as a result of subprojects implemented; Number of paid days per participating household; Percentage of female participating in the workfare program; The number of subprojects rehabilitating community assets; Number of new households enrolled to receive cash assistance; Percentage of HHs receiving cash assistance in floods/conflict/child trafficking affected areas; Percentage of female-headed households receiving cash assistance; Percentage of households to which proxy means testing (PMT) applied to determine participation; and Percentage of households collecting their benefits on a timely basis. D. Appraisal of Project Activities Economic Benefits 38. Overall, the project is expected to have modest national-level economic benefits, given the relatively small number of participating households 1. It is estimated that the ESSN project can cover only 4.6% of the Yemeni population, and 12.6% of the poorest 10% within this population. US$20 a month is about 9% of the monthly food poverty line for Yemen and is 6% of the average regional poverty line. For the poorest 10%, ESSN benefit size would represent 12.8% of household per capita consumption. Costbenefit analysis estimates that for each Euro 1 spent in the program, Euro 0.4 would help to reduce the 1 12,000 HHs under component 1(workfare); and 41,000 HHs under component 2 (cash transfer). 10

14 extreme poverty gap and Euro 0.72 would apply to the reduction of the national poverty gap. 39. However, if considering only the selected areas, the impact on extreme poverty levels is much higher, with a 26.6% reduction in the extreme poverty gap in these areas. For Component 2, the coverage rate of the program is estimated at 18.9% of the population, and 58.3% of the extreme poor population in these areas would be covered by the ESSN program. It is estimated that 76.3% of the benefits would reach the poor population in these areas, with approximately 45.4% of benefits reaching the extreme poor. The food poverty headcount would drop by 12% and the food poverty gap decrease by 23.59%. For the regional poverty line, the poverty headcount would drop by 2.81% and the food poverty gap decrease by 7.11%. The impact on extreme poverty and poverty levels in these areas is estimated respectively at 14.9% and 4%. The transfer is not large enough to lift people entirely out of poverty but is effective to reduce the food poverty gap. Technical 40. The project aims to support the Government s response to food price volatility, assisting the poor and vulnerable to offset the crisis impact on food consumption and their productive assets. The project design builds on the experience of the SFD in delivering workfare programs and the SWF in delivering direct cash assistance. The SFD and the SWF are the two main social safety net programs in Yemen, and both have been operating for over 12 years with a record of delivering cash assistance. 41. The design of Component 1 builds on the experience and lessons learned from the current GFRPfunded workfare program implemented by the SFD, as well as from the global emergency program experience. Component 2 is grounded in policy and sector work supported by the Bank and the EC, and draws on lessons learned from the SWF experience over the past 12 years. Policy and sector work include: (i) social protection strategy framework and subsidy reform dialogue supported by the Bank; (ii) an SWF policy paper supported by the EC and guidance provided to the SWF 2008 reformed law; and (iii) the SWF program review supported by the World Bank. 42. Project preparation benefited from the World Bank s review of the current workfare program and the review recommendations, as well as the results of technical assistance provided to the SWF to reform its targeting through the application of proxy means testing on their recently developed national database of the poor. Operations manuals/guidelines have been developed to guide project implementation. Several measures have been taken to ensure smooth and timely implementation of the project, including: (i) setting simple and clearly defined eligibility criteria for the selection of sub-projects under Component 1; (ii) using the post office to deliver the cash assistance to beneficiaries on behalf of the SWF, building on the long experience and wide network of the post office; (iii) the recruitment of qualified engineers to support the identification and supervision of sub-projects under Component 1; and (iv) the recruitment of a qualified financial management specialist under Component A comprehensive focus on Monitoring and Evaluation will guide regular feedback from the targeted beneficiaries, assess the efficiency of the benefit payment schemes, and evaluate the effectiveness of cash assistance on poor and vulnerable households and communities. Intermediate outcomes indicators are clearly defined as is the monitoring arrangement. Impact evaluations for both components are under included in the project design, building on lessons learned. 44. The appraisal mission found a strong commitment on the part of GOY, represented by the implementation agencies (the SFD and the SWF), Ministry of Planning and International Cooperation (MOPIC), and Ministry of Finance (MOF). This is reflected in: (i) implementation agencies commitment to incorporate lessons learned in the project design and translating that into their operations guidelines; 11

15 (ii) the SFD and the SWF commitment to collaborate, evident through the exchange of data on targeted communities and households; (iii) MOPIC interest in including the project s monitoring information in the national M&E initiative; and most significantly, the MOF commitment to continue benefits to the 40,000 beneficiaries targeted under Component 2 after the project closes, as well as providing counterpart funding to support project operational costs. The Government has made a commitment to include the 41,000 HHs after project completion in the public budget (representing a 4% increase of the current SWF budget), or from the beneficiaries that would be dropped as ineligible after the cabinet s approval of the 2008 beneficiary survey results (pending). 45. The appraisal mission also found no overlap between the Bank-supported Public Works Project and the SFD Workfare Program. The SFD emergency program focuses on immediate employment generation to supply cash to hard hit communities while the ongoing PWP focuses on providing needed infrastructure to improve services and environmental conditions at the community level, while providing consistent development opportunities for small scale contractors and consultants. PWP does not set a wage rate and its sub-projects are contracted to small and medium registered contractors rather than implemented by community households. Social 46. Each of the two ESSN components is designed to optimize project benefits at the household and community level. Targeting mechanisms/approaches to identify the poor and vulnerable have been developed by both agencies and will be monitored over the life of the project, as well as assessed for effectiveness in reaching the target group in the end-of-project evaluations. The SFD s allocation of funds at the governorate level is based on food poverty indicators derived from the Household Budget Survey (2005/2006) coupled with data on services from the 2004 Census. Communities are selected based on population, services, field assessment of eligibility, and house-to-house survey carried out once an eligible community is defined. Each household participation and share of total wages is based on the following formula: YR 1500/month/per capita multiplied by the number of household members times 8 months. YR 1500 has been determined to be the wheat consumption gap resulting from food price increase. Once the household wage share is determined, the figure is converted to the number of days of labor (depending on the daily rate). The daily rate is set at 10-20% below the local wage rate. Using this formula, 66 days is the estimated average of paid work days per household. These days are to be extended over a period of several months (6-9 months depending on the nature of the subproject/activity, giving the participating households some level of flexibility to spread their working days over a period, proven important for women s participation). On average each participating Household would receive benefits totaling between US$ , over a period of 6-9 months, while actually contributing about 66 working days. The SFD is cognizant of the ticklish nature of setting daily wage rates for this emergency program: low enough so they do not deter better qualified job seekers from looking further afield, but high enough so that community members are not drastically underpaid with the result that they must work increasing number of days in order to garner benefits from the project. For this reason wages are set about 10-20% below local market wages for unskilled labor. The daily wage for rate would range between 2500 YR for skilled workers and 1200 YR for unskilled workers. The SWF s targeting is centered on the application of the Proxy Means Test (See Annex 9) on their database of the poor to determine those under the food poverty line in the selected areas. The 12

16 SWF database of the poor was recently established resulting from the house-to-house survey of potential beneficiaries nationwide that included 1.62 million households (about 50% of the population). The SWF Cash Transfer component will add approximately 40,000 new beneficiaries selected from 7 governorates and 58 districts affected by additional emergencies and hardships, i.e., floods, child trafficking and conflict. 47. Community and Household Selection: The SFD will conduct field assessments to develop a final list of potential participating villages with high poverty rates. In potential villages, the SFD conducts an initial random door-to-door survey sampling of village households to assess community eligibility and interest in participating in workfare program. If sufficient households provide positive responses (at least 70%), a full survey of the community is completed to identify interested workfare participants and develop a project socio-economic baseline. During this survey, the SFD determines all sources of household income (including SWF benefits) for each participating household and establishes the household benefit level based on application of the wheat consumption gap formula, taking into account other payments. The SFD staff conduct Public Awareness Campaigns at the community level to inform about the nature of the Workfare program and the benefits available to all. The community is mobilized to select potential projects, identifying community priority works with a view to protecting community assets (terraces, hillsides, water sources) as well as rehabilitating others (feeder roads, etc.). Workfare opportunities are offered to all households. Inclusion of poor in subproject communities is ensured by the SFD staff visiting every household to inform about the workfare program, and collect data Gender Issues: Extensive gender discussions were held with each implementing agency to ensure that women are included to the maximum extent possible, due to their roles related to food consumption (selection, preparation, family nutrition). The appraisal team was informed that Yemeni culturally determined gender attitudes in many cases limit the type of activities in which women can be involved. Both agencies considered the pros and cons of a more women focused approach (i.e., targeting women directly, both as laborers and recipients of all cash transfers), and both agencies will ensure that women s participation is maximized through promotion and women-friendly sub-project design. Targets for women as ESSN project beneficiaries have been set at 10-20% female participation for both implementing agencies. 49. The SFD has started the preparatory phase for the full implementation of the gender mainstreaming strategy and framework for The SFD gender working group and focal point have revised the SFD project guidelines to reflect the adopted gender mainstreaming strategy. The gender checklist for each stage of project preparation and implementation are prepared. The reporting requirements have been identified and report formats for each stage of the sub-project cycle have been prepared. The gender monitoring indicators, including outcome, progress and process indicators, are being introduced in the Management Information System (MIS) to ensure regular monitoring of the strategy implementation. All these are being summarized in the SFD gender mainstreaming handbook. The SFD is also progressing well with implementation of its gender action plan in its wider program. Environmental 50. Component 1 is implemented by the SFD and is a workfare program targeted at small community asset rehabilitation sub-projects. The scale of the projects is such that no significant environmental impacts are expected. The SFD has an Environmental Management Plan in place and conducts social and environmental screening for each sub-project prior to the start of project work. Regular environmental audits are also carried out on workfare programs. The community sub-projects will be focused on existing community assets and no land acquisition/resettlement will be required. 13

17 51. Component 2 has no environmental implications as it is purely a cash-transfer program. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [X] [] Natural Habitats (OP/BP 4.04) [] [X] Pest Management (OP 4.09) [] [X] Cultural Property ( OP 4.11) [] [X] Involuntary Resettlement (OP/BP 4.12) [] [X] Indigenous Peoples (OP 4.10) [] [X] Forests (OP/BP 4.36) [] [X] Safety of Dams (OP/BP 4.37) [] [X] Projects in Disputed Areas (OP/BP/GP 7.60) [] [X] Projects on International Waterways (OP/BP/GP 7.50) [] [X] The project is rated as Environmental Category B, and the safeguard policy on Environmental Assessment OP 4.01 will be triggered. No other safeguard policies envisaged to be triggered. Fiduciary Financial Management 52. The SFD will be implementing component 1 of the Project while the SWF will be entrusted to implement component 2. A Financial Management (FM) Assessment was conducted at both entities. The objective of the assessment was to determine whether: (i) the entities have adequate FM arrangements to ensure Project funds will be used for the purposes intended in an efficient and economical way; and (ii) the controls and processes at each of the two entities can be relied upon and (iii) that the systems in place are able to generate reliable and accurate project reports on timely basis. 53. The Assessment confirmed that SFD has adequate FM capacity to implement the project. The SFD has been implementing a number of World Bank-financed projects, including a similar program - The Emergency Additional Financing Grant of US$10 million under the GFRP which was approved on June 11, 2008 and which has disbursed 100% of its funds. The SFD departments, units and staff including the financial staff will be used to implement component 1 of the project. The SFD FM Department is adequately staffed with a qualified financial manager assisted by a deputy financial manager and six accountants. The SFD s internal controls are deemed adequate, the internal audit department is adequately staffed, and current staffing is sufficient to cover this project. The flow-of-funds procedures including the controls over cash balances and transfers to the field offices are acceptable and will be used under the project. The SFD has developed an operational manual setting out the structure of the program, including fiduciary arrangements and the relation with the field offices which are deemed to be adequate and will be used for the project. The SFD will be issuing on a quarterly basis, Interim Financial Reports (IFRs) reviewed by an external auditor acceptable to the Bank, and on an annual basis, Project Financial Statements (PFS) audited by an external auditor acceptable to the Bank. 54. Given the nature of the inherent risks in the country system and the project and in view of the FM arrangements already in place in the SFD, the overall risk rating of the project component implemented by the SFD has been assessed as Moderate. There are no FM Conditions for component 1 of the project 14

18 which will be implemented by the SFD. The FM arrangements will continue to be monitored throughout Project implementation. 55. The Assessment concluded that the SWF is in need to enhance its FM system through implementing defined mitigating measures aiming to reduce the FM risk associated with this component of the project. The SWF does not have prior experience with Bank-financed projects, and the nature of the project carries high risk (i.e., cash transfers); there are no defined formal FM procedures and controls applicable to the proposed Project and this creates high FM risks. To mitigate these risks, the following measures will be implemented: (i) hiring of a qualified Financial Management Specialist (FMS) based on a TOR acceptable to the World Bank and whose salary will be financed from Component 2.2 of the project; (ii) agreement with the SWF on the FM procedures, controls, and safeguards, including the role of the Internal Audit Department, to be applied during implementation, and documentation of these controls and procedures in the project procedures manual; (iii) establishing an accounting system capable of recording project transactions and generating timely project financial reports; (iv) Engaging an external auditor acceptable to the Bank, to perform quarterly audits of the project s activities especially verification on the cash transfer process and issue on a quarterly basis, Audited Interim Financial Reports, and conduct the year end audits on the Project Financial Statements. Training on Bank FM Guidelines will be provided to the SWF staff and continuous support through the Bank field office will be provided, especially during the first months of implementation. 56. Given the nature of the inherent risks in the country system and the project and in view of the FM arrangements already in place in the SWF, the overall FM risk rating of the project component implemented by the SWF has been assessed as High. With the implementation of the mitigating measures, the project FM risk will be reduced to Substantial. Disbursement and Flow of Funds 57. The Project funds will be channeled through the SFD and the SWF and deposited into two separate segregated EUR Designated Accounts (DAs) in a bank acceptable to the World Bank, to be opened and maintained by the SFD and the SWF, separately, and under conditions acceptable to the World Bank. For Component 2 (implemented by the SWF), a disbursement condition requires that satisfactory FM arrangements be in place prior to disbursement for this component. Advances and Reimbursement based disbursement will be the main disbursement method, along with direct payment and special commitments. Requests for payments from the Grant funds will be initiated through the use of the Bank s Withdrawal Applications (WAs) supported by Interim Financial Reports (IFRs) for the SFD and supported by IFRs audited each quarter by an external auditor along with Post Office Reconciliation Report and Bank statements for component 2 implemented by the SWF. Disbursement to the beneficiaries from the SFD and SWF s separate segregated DAs will follow the Fund s respective Operational Manuals and the World Bank Guidelines. Additionally, under Component 2.1, implemented by the SWF, cash payments to beneficiaries will be through Yemen s Post Office branches in the selected governorates. Procurement 58. Procurement activities for Component 1 (Labor Intensive Workfare Program and complementary TA) managed by the SFD will be carried out jointly by the Sana a based Procurement Unit of the SFD which includes two procurement officers specializing in CDD projects and the newly established Intensive-Labor Unit whose clear mandate is to enable the SFD Branches at the Governorate level to design, appraise and implement Workfare programs. 15

19 59. As for Component 2 (managed by the SWF), simplified procurement procedures under OP 8.00 are applied. The procurement activities will involve the financing of the administrative fee of the delivery agency (Post Office), and consultancy services contracts for an end-of-project evaluation and related TA to help the SWF meet the fiduciary staffing requirements. Given that the SWF responsible for Component 2 is unfamiliar with the consultant guidelines, in line with OP 8.00 the Procurement Unit of the SFD as well as Procurement Specialists from the Sana a Country Office would provide the required assistance to help facilitate the SWF to carry out the selection of consultants under Component The draft simplified procurement plan reflecting the procurement packages and tendering methods agreed for the project period (18 months) would be finalized at negotiations. All procurement activities for the proposed project would be carried out in accordance with the provisions of the Bank s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004, Revised October 1, 2006; Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004, Revised October 2006; and the provisions stipulated in the Legal Agreement. However, given the emergency nature of the operation, exceptional procedures will be used during the implementation, consistent with Bank Guidelines under OP Considering most of the component 2 funds (97%) will be transferred to the beneficiaries through the existing cash transfer system (Post Office), the overall procurement risk of the SWF relative to compliance with the procurement guidelines requirements of the Bank is considered Substantial. Whereas the overall procurement risk for component 1 implemented by SFD is rated Moderate for the following reasons: (i) SFD s accumulative experience of Bank procurement procedures over the last three projects; (ii) SFD s considerable experience with CDD approach and community contracting, which has successfully brought to bear in the program design of phase I of the workfare program; and (iii) the manual for the workfare program builds on the experience and lessons learned from CDD and Phase I of the workfare program. Lessons Learned and reflected in the project design: 62. The proposed project design takes into account lessons learned from previous and current operations in Yemen as well as from other global emergency program experience: 63. Simplified and improved project design: One of the key lessons learned with the ongoing emergency programs is that an emergency project should have a simple project design that can be quickly and efficiently implemented with a clear project development objective and easily monitored indicators established from the beginning. The proposed project design is basically an expansion of the ongoing GFRP Grant project with the same workfare program design for cash transfer and providing temporary cash assistance through the SWF. The design has been simplified and improved based on the Phase I GFRP grant project experience (i.e., improving communications, matching community skills with project, use of consultant engineer at the project design and implementation, improving promotion of women participation, introducing medical insurance scheme, introducing complaint system, simplifying project administration e.g. paying wages every two weeks, promoting agricultural related activities). 64. Use of existing implementing agencies with appropriate capacity: The implementing agency should have the capacity to quickly mobilize human and financial resources (for project preparation) to carry out the project activities. The SFD proved to be one of the few institutions in Yemen capable of targeting and implementing community-based workfare projects and properly monitoring the results within a short period. The SFD has prepared the GFRP Grant s mid-term review report of the ongoing activities and implementation arrangements have been further fine-tuned based on lessons learned from this exercise. The SWF is an existing agency operating for the past 10 years. It has recently carried out a 16

20 national survey to improve targeting of poor households. The targeting under this emergency operation benefited from the results of the national beneficiary survey and the application of Proxy Means Test (PMT) methodology for the identification of eligible poor. Prior to the introduction of PMT, the SWF identified beneficiaries based on social categories resulting in significant inclusion error. 65. Emergency operations should focus on measurable results and outcomes tied to the short implementation timeframe. The results framework under the project follows this approach. 66. The engagement of Civil Society Organizations (CSO) and community participation are measures to improve social accountability for service delivery. SFD already follows this approach, while SWF has not until recently. SWF and the Bank s team delivered a consultation workshop with Yemeni Civil Society Groups on the draft Concept of the Social Welfare Fund Institutional Support Project (under preparation IDA Grant). The workshop (attended by over 65 participants) concluded with recommendations for further engagement and support of CSOs in monitoring and supporting SWF service delivery, especially with regard to targeting and benefits delivery. The Project (ESSN) will build on the conclusions of the consultation workshop and encourage CSOs role in project monitoring and communication support. The Project does not involve any exceptions to Bank policies. E. Implementation Arrangements and Financing Plan 67. The Project will be implemented over an eighteen month period between January 2010 and June There will be two parallel implementation arrangements: one for the implementation of Component 1, under the responsibility of the SFD; and the other for the implementation of Component 2, under the responsibility of the SWF. 68. Component 1. Workfare Assistance and Impact Evaluation will be implemented by the SFD. The SFD is an autonomous organization under the Prime Minister s office. Its Board of Directors has representation from Government, NGOs, the private sector, and the financial sector. The executive body of the SFD is headed by a Managing Director (MD) who has full authority to manage the day-to-day operations, including all personnel and operational matters. Besides the SFD s office in Sana a, there are nine branch offices country-wide. Based on the successful experience of implementing a workfare program under the Emergency Additional Financing Grant under the Global Food Crisis Response Program (P US$10 million) completed as of December 31, 2009, this component will be implemented by the Branch Offices (9 Branch Offices covering all 23 Governorates) under the supervision of SFD Head Office Labor-intensive Works Program. 69. The SFD Branch Offices will contract Consultant Engineers (CE) to carry out a technical review of each sub-project, and upon completion of the review, a supervision contract will be signed between the CE and the SFD. The CEs then distribute the work among the beneficiary households within the selected community, and appoint one of the residents as Resident Technician (RT) at the sub-project location to follow-up on the implementation from technical side. An accountant at the Branch Office level is also contracted for the Program, and supervises the field accountants who, along with the RT, will calculate the beneficiaries' wages based on verifying the amount of work performed by the beneficiary household. 70. Component 2. Temporary Cash Assistance for Poor Households will be implemented by the SWF. The SWF was established in 1996 by the Presidential Law No.31, and it is governed by the revised Presidential Law 39 (2008). Its Board of Directors, headed by the Minister of Social Affairs and Labor, is composed of Vice Minister of Finance, Deputy Minister of Social Affairs and Labor, Deputy Minister of 17

21 Local Administration, Managing Director of the SWF (member and secretary), Executive Managers of Social Security Network Programs, and Community Representatives of Private Sector and Civil Society Organizations. The executive body of the SWF is headed by a Managing Director who is responsible for day-to-day operations. Besides the SWF s office in Sana a, there are 22 branch offices in each governorate and 171 district offices country-wide. 71. The implementation of Component 2 will be carried out through an existing cash-transfer mechanism of the SWF. This sub-component will provide cash assistance in the amount of US$20/month to around 40,000 households. The beneficiary households have already been identified through recently developed PMT scoring. Payments are made four times a year, and each payment corresponds to three payment months. The payment will be made through the Yemen Post Office which has 251 branches and mobile units, and is the most widely spread financial agency in Yemen. The Post Office Bank delivers the checks/payments through its branches and mobile units. A Financial Management Consultant is being recruited to manage the grant funds allocated to the SWF (Euro 7,358,000) according to IDA s requirements. Detailed implementation arrangements can be found in Annex 6. Supervision Plan 72. Intensive supervision of the early phase of project implementation (three supervisions in year 1) of the SWF component will be carried out to ensure adequate FM arrangements continue to be in place and the capacity of the FM unit is adequate. Subsequently, supervision will be conducted twice a year to monitor regularly the financial management arrangements for both the SWF and the SFD. 73. The Bank will intensify its supervision of the project during the first quarter of project implementation to verify that the systems are working. The project will be subject to at least two supervision missions per year, in addition to the provision of day-to-day support and advice by the Bank s Country Office-based Team Leader. Supervision activities will include review of quarterly progress and financial management reports as well as timely follow-up of issues and field visits. The project will support dissemination of information about the project and project activities to the target beneficiaries and the public at large through an information and communications program which will be an activity under project management in each component. Civil Society Organizations will be encouraged to join missions activities. 74. Alternative approaches were considered but rejected. Given its excellent implementation track record, the SFD had been considered as the executing agency for both components. This alternative was rejected due to the specific technical requirements for Component 2 - cash payments. The SFD has a good record of implementing social development sub-projects but does not have the comparative advantage for cash transfer interventions. The ongoing improvements in its administrative procedures, the SWF was deemed to be more qualified to implement Component 2 activities. The SWF s direct implementation of Component 2 is seen to provide the opportunity to develop further the SWF capacity as a safety net instrument capable of responding to crisis and shocks. Another Component 2 implementation approach considered was to transfer the total amount for beneficiary households in one or two payments instead of quarterly payments. This was rejected for practical considerations in that larger cash amounts might require additional money management skills to ensure that the beneficiaries would have sufficient resources over the longer term. Topping up the current SWF beneficiaries payments to address the food consumption gap caused by the crises was considered, but was found to be socially and politically challenging in that those on the SWF assistance waiting list would continue to do without any assistance while others received additional cash support. 18

22 F. Project Risks and Mitigating Measures Risk Risk Rating Comments/Risk Mitigation Measure Residual Risk Rating Risks for Both Components Economic and political instability and unrest Substantial Mitigation is beyond the scope of the project. However, ongoing dialogue with GOY, donors, NGOs and CSOs will serve to keep the issue of poverty and social protection on the development agenda. Substantial Substitution effects between food and qat consumption will occur Extremely vulnerable families will not be reached by the program Social and political pressures may arise which exclude some regions from the project benefits during the current period of political turmoil and widespread poverty. Duplicate targeting between the two components, whereby some households may get double benefits on the expense of excluding other needy households Substantial monitoring substitution effects through the household surveys of both SFD and SWF government has embarked on a public information campaign to raise public awareness on qat negative impact on food security SFD is implementing qat awareness campaigns in their intervention areas participation of women as they are more likely to use the money on food for the family Substantial utilizing data of poor households from the SWF national survey (covering 1.6 million households) for targeting Once geographic targeting is completed, SFD carries out a household-level survey to identify most eligible households using proxy means testing for targeting direct cash assistance and cash transfer through workfare will be working in parallel and with coordinated targeting to reduce the risk of exclusion Substantial clear targeting criteria are set for geographic selection and will be available for sharing as needed by both SFD and SWF SFD has accumulated a long and deep experience of pockets of poverty in all regions of the country, which would be materialized to reach out. SWF and the post office will collaborate with local authority and NGOs to reach to beneficiaries in the armed conflict areas PMT is applied for the ranking of eligible poor for the project benefits Bank and SWF teams have recently implemented an information and consultation workshop with civil society organizations to gain their support SFD and SWF will implement a communication program targeting political groups, local authorities and communities. Moderate Exchange of household data is agreed between the two implementation agencies Moderate Moderate Moderate Low 19

23 Risk Newly targeted poor under the project may not benefit beyond the project period (12 months), given the current substantial public budget cuts The SWF does not have prior experience in managing an IDA Project Inherent Risks Based on the findings of the various Country assessments conducted recently, serious weaknesses were identified in the accounting and auditing professions in Yemen. Implementing Entity The SWF does not have prior experience with World Bank projects. Risk Rating Substantial Substantial High High Comments/Risk Mitigation Measure Risk for Component 2 Government has decreed the doubling of current SWF beneficiaries Government is committed to enroll HHs targeted under the project as soon as additional public funding is made available (by additional budget, or replacement of non-eligible HHs as identified by the survey) IDA will monitor closely through carrying out supervision missions at least three times a year including Project Launch Workshop and its Sana a Office will provide additional operational support. The project is being implemented using SWF existing cashtransfer mechanism; there is no new design involved, and sufficient control is in place as described in below. Use of Country system is not ready, thus, the project design follows the ring fencing method based on the Fund s structure. An independent qualified audit firm will perform quarterly audits on the Project Interim Financial Reports and annual audits on the project s Financial Statements. The SWF has implemented a new scheme for identification of targeted families with valid need for support which has been reviewed by the Bank and deemed adequate. The project implementation will be ring fenced. The SWF will have a qualified FM Specialist managing the FM activities of the project, the SWF s internal audit will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF s Operations Manual approved by the Bank. Additionally, the project s accounts will be audited quarterly and annually by an independent private external auditor acceptable to the World Bank. Residual Risk Rating Substantial Moderate Substantial Substantial Staffing The SWF s current FM department may not have required capacity. High The SWF will recruit FM Specialist prior to project disbursement whose salary is financed from the project s proceeds, with TOR acceptable to the World Bank. He/she will be responsible for managing the FM activities of the project, with the support of SWF s Accountant. Substantial Accounting System & Internal Controls The SWF has an internally developed automated accounting system and does not have a complete FM manual of procedures. Substantial The SWF s automated accounting system is deemed adequate for this project pending finalizing the project s chart of accounts and reporting capacity to meet the Bank s reporting requirements. The SWF will make such updates to their system and have it ready prior to project disbursement. The SWF has an operations manual approved by the World Bank, but is in the process of completing the FM section of the Manual which will be ready for the World Bank approval prior to disbursement. Moderate 20

24 Risk Risk Rating Comments/Risk Mitigation Measure Residual Risk Rating Flow of Funds and Disbursement The SWF does not have prior experience in the Bank s Disbursement Guidelines and Component 2 includes cash transfer. High All payments to the beneficiaries will be done centrally by the SWF s Head Office in Sana a and using the Post Office for cash transfers. A segregated Designated Account will be maintained at the Central Bank of Yemen (CBY) for grant funds. Requests for payments from the Grant funds will be initiated through the use of the Bank s Withdrawal Applications (WAs) supported by IFRs audited by an external auditor along with Post Office Reconciliation Report and Bank statements. The SWF s internal audit will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF s Operations Manual approved by the Bank. The project s accounts will be audited quarterly and annually by a private independent external auditor acceptable to the World Bank. Substantial Cash transfers through the Post Office - SWF High The Post Office has proved its ability to manage large volume of cash payments through the SWF s experience with their current program and also through the World Bank experience in other IDA-financed projects. There are proper controls in place at the Post Office to ensure proper transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office internal system. The data imported into the Post Office system is compared with the data generated from the SWF and once approved, the data is locked into the Post Office system. The post office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data once received by the SWF will be compared with the data in the SWF s system. Also prior to disbursement the allocation department reviews the list in the post office to ensure the total number per area is consistent. The project will have DA in EUR and sub account in YR. The sub account will be used to transfer funds from the project s DA to the sub-account for payments to the post office and uncollected funds will also be deposited (i.e. refunded from the Post Office) into this sub-account. The funds for the unpaid cases will be refunded to the project s YR sub-account under the project s DA which will be clearly disclosed in the contract agreement between the SWF and Post Office (currently being drafted to be sent to the Bank for review). Substantial Eligibility of beneficiaries to receive cash payments - SWF System used to identify, record, and maintain the list of eligible beneficiaries. High The beneficiaries under this project will all be new to the SWF programs, i.e. not benefiting from current cash transfers. The SWF has developed oracle based system for the purpose of recording and maintaining the list of all their beneficiaries. They are currently developing a separate sub-module of their system to be used only for the beneficiaries under this project, which will be ready before disbursement. The SWF conducted an internal review of all their beneficiaries and ensured no duplication of benefits given to the beneficiaries. The system has the capacity to generate exception reports showing potential duplication of benefits by running queries to list duplicated beneficiary data (e.g. name, ID #). There is proper control of access to the system as Substantial 21

25 access is limited to few individuals in the SWF. Risk Risk Rating Comments/Risk Mitigation Measure Residual Risk Rating Financial Reporting The SWF may lack prior experience with Bank reporting guidelines. Substantial The SWF s automated accounting system is deemed adequate for this project pending finalizing the project s chart of accounts and reporting capacity to meet the Bank s reporting requirements. The SWF will make such updates to their system and have it ready prior to project disbursement. The content and format of the IFRs have been agreed upon during project appraisal. The IFRs will be quarterly audited by the external auditor. Moderate External Audit Weak audit profession in Yemen. Substantial An independent qualified private external auditor acceptable to the World Bank will be engaged to audit the project s accounts, quarterly and annually, according to TORs acceptable to the World Bank. The TOR will include a special provision for the Auditor to conduct field visits to a sample of the selected beneficiaries and post offices to validate the beneficiaries eligibility and their proper receipt of funds. Moderate Procurement Management Low procurement capacity of the SWF Substantial Procurement under the component to be carried out by the SWF is limited to temporary cash transfer and therefore entails minimal specific procurement risk. IDA will provide procurement support for a number of consultant services contracts which constitute less than 3% of the total component cost. Moderate Overall Risk Overall Risk Substantial Moderate G. Terms and Conditions for Project Financing 75. The proposed project will be implemented through the Joint Management Framework: (a) with the signature of an Administrative Agreement between the World Bank and the European Commission followed by; (b) the signature of a Grant Agreement between the Bank and the Government of Yemen. The latter agreement will frame the commitment of the Government to implement the grant activities in an effective and efficient manner. 76. Execution of the two Subsidiary Agreements: (i) between the Government of Yemen and SFD for the implementation of Component 1, and (ii) between the Government of Yemen and SWF for the implementation of Component 2, are conditions of effectiveness of the Legal Agreement. 77. Disbursement Conditions: the following are conditions for disbursement under the cash transfer component (Component 2): (i) prepared and submitted to the World Bank, a Financial Management Manual in form and substance satisfactory to the World Bank; (ii) established a financial management system in accordance with consistently applied accounting standards acceptable to the World Bank; and (iii) retained a financial management consultant with qualifications and terms of reference acceptable to the World Bank. 22

26 Annex 1: Detailed Description of Project Components Project s Components: The proposed project is expected to achieve its objectives through two components: Component 1: Workfare Assistance and Impact Evaluation (Euro million) 1. Sub-component 1.1 Expand workfare assistance for the needy (Euro 9.8 million). The workfare program initiated under the initial GFRP will be expanded to reach an additional of 12,000-16,000 households within the communities most seriously affected by the food crisis. Cash will be provided to help mitigate the impact of increased food prices by offering temporary work opportunities through a well-tested community-targeting mechanism. The component is expected to create temporary work opportunities of around 800,000 person days in poor communities that have suffered from the food crises, drought and floods. Each participating household will be given the opportunity to work for a period of 9 to 12 months and will receive a total of US$400 to 600, depending on the size of the household. 2. Communities are identified based on a set of eligibility criteria, including: (i) community falls under the most deprived communities as defined through the targeting methodology described below; (ii) village population size of at least 300 people; and (iii) at least 70% of the of households are affected by the food price volatility, measured by a house-to-house survey carried out by SFD. Within the selected communities, participating households are identified through a self-targeted method whereby wages are set at 10 30% below the market rate prevalent in the area where the activity is implemented. 3. Labor intensive community works will be identified based on the demand and priority needs of each community. It is estimated that over 60% of the sub-component cost would be on wages, and the rest will cover costs of materials, community mobilization/participation activities, site supervisors, etc. 4. This subcomponent is expected to support the implementation of over 100 community subprojects selected based on a set of criteria including: (i) the size of the labor component should be at least (60%) of the sub-project cost; (ii) should be identified and approved by the community and the community should be able to implement it without requiring high technical skills; (iii) does not require the approval of a third party for operation and maintenance; and (iv) it should have a positive effect on the community. 5. Sub-component 1.2: Impact evaluation and component management - workfare program (Euro million). This sub-component will finance the implementation of the program s phase II baseline study and impact evaluation. Results from the Phase I (funded under IDA GFRP) Beneficiary Assessment will contribute to the design of the phase II impact evaluation. The impact study will provide lessons and policy recommendations for further SFD workfare expansion, as well as to contribute to the social protection dialogue and debate in regard to the protection of the able-bodied poor and transitory poor. 6. The sub-component will also finance an international specialized firm to implement the baseline study and impact evaluation. The difference-in-difference approach will be used for the impact evaluation, whereby the program will select twice as many eligible communities as can be financed under the project, and participating communities will be randomly assigned. The sub-component will also finance up to Euro 298,000 (3% of component 1.1) for SFD operating costs. 23

27 Component 2: Temporary Cash Assistance for Poor Households (Euro million) 7. Sub-component 2.1: Cash transfers to poor households (Euro 7.14 million) This component will provide temporary cash transfers to an additional 41,000 poor households in selected areas who are not yet enrolled in the SWF program but who have been identified through the recently completed the SWF household survey and the PMT 2 scoring. These households, located in flood, conflict or child trafficking areas, will receive US$20/month/household to help them cope with price pressures for a period of 12 months. The subcomponent will also finance the contracted payment agency administrative fee. After project closing, these households will be included in the regular SWF coverage based on the GOY 2011 budget. 8. Sub-component 2.2: Evaluation and component management - cash assistance program (Euro million). This component will support an evaluation of the cash transfer process and results. The evaluation findings will provide lessons learned and policy recommendations for the SWF overall program, as well as contribute to the dialogue in regard to policy options for the reform of the wider safety net programs. The subcomponent will also finance the recruitment of a local financial management specialist to support the SWF finance department to meet project fiduciary requirements, external auditor, communication and supervision activities, as well as additional local consultants as required. Targeting of Beneficiary Communities and Households 9. The SFD will follow multiple levels of identification starting at the office in a desk exercise with a list of the poorest districts from the perspective of food poverty; data will be extracted from the household budget survey 2005/06. A set of criteria that combines food poverty and population density of the poor will lead to the nomination of sub districts within which field investigation will help identify of most affected villages and communities by drought, floods and food price volatility. The latter will be carried out by SFD s relevant branch offices. At the household level, self targeting will be insured by setting the wages offered 10-30% below prevailing market levels, thus attracting the most needy to participate and benefit from those operations. Women s participation and benefits from the program will be encouraged through promotion programs and guaranteeing some flexibility with the type of works available as well as time flexibility to ensure their participation will suit their family obligations. 10. The SWF is currently finalizing findings from a national survey to re-identify its targeted households. Multiple methods were utilized to communicate with and encourage local communities to report needy households. At present the SWF has a database of 1.6 million poor HHs covering all districts. The SWF will apply (with World Bank support) the Proxy Means Test (PMT) methodology for targeting their beneficiaries. The 41,000 households benefiting from Component 2 will be selected using PMT to identify the poor in the group under the food poverty line. Priority under the project will be given to poor households in flood affected areas (Hadhramout and Mahara); conflict affected areas (Saada and Amran); and areas with a high prevalence of child trafficking (Hajja, Al-Mahweet and Hodeidah). Overall, Component 2 will cover 58 districts in 7 Governorates. 2 Proxy Means Test (PMT) generates a score for each applicant on the base of observable characteristics using statistical models. Weights and selection of variables are derived from statistical analysis (usually Ordinary linear regressions, but it can be principal components analysis or discrete models) of detailed survey that had collected wealth information for the population of interest. 24

28 Component Coordination 11. To improve coordination among SSN programs, and to avoid any potential overlap of beneficiaries between the SWF component and the SFD component, as well as other cash/food based transfer programs, it is agreed that the SWF will share lists of its targeted beneficiaries in the villages/communities where other programs are implemented for coordination and equitable distribution of the benefits of these programs. The beneficiary list of the SWF component is ready for distribution to other relevant programs. Recognizing that poor households employ a suite of coping mechanisms for their survival strategies, the SFD assesses all income sources for each household when conducting their house-to-house surveys of selected participating communities. Household benefits to be derived from the workfare program are then tailored to ensure that some HH do not benefit more than others. Sustainability 12. Despite the emergency nature of the project, the Government has taken measures to ensure the continuation of such interventions beyond the project, with the proviso that such continuation is subject to public resource availability. The SFD (encouraged by the Government) in its Phase IV is scaling up the Labor Intensive Program (LIP) (under preparation), due to accumulation of the necessary experience for substantial expansion of the program beyond Phase I and II. 13. The Government has decreed an expansion of the SWF coverage from the currently enrolled 1 million HHs to 1.5 million households. Over the past few years, the Government has gradually expanded the SWF funding which enabled the program to add 100,000 poor households every year. Given the fiscal crises the GOY encountered in 2008 and 2009, no further expansion was possible. However, during project appraisal the GOY (MOF) agreed to budget for the enrollment of the 41,000 HHs covered under this project in the general SWF program, starting from the closing date of the project. 25

29 Annex 2: Results Framework and Monitoring Arrangement Table 2.1: Results Framework and Monitoring Project Development Objectives (PDO) Results Indicators for Each Component Use of Results Monitoring Source of Information\ Data Gathering Method To contribute to the reduction of the negative impact of food prices volatility on the poor and vulnerable in selected areas, and support the protection and building of community assets in poor communities. 1. Number of HHs receiving cash transfers (target: over 12,000 HHs for workfare program; and 41,000 HHs for the direct cash transfers) 2. Amount of grant transferred to beneficiaries (target: at least 60% of workfare grant= Euro 5.88m; and 98% of cash assistance grant= Euro 7.0m) 3. Percentage of households reporting that cash assistance has reduced the food consumption gap, decreased debt and/or protected productive assets related to food price increase (target: 80%) 4. Number of subprojects rehabilitating community assets. (target:100) 5. Percentage of households confirming that the subprojects implemented support the protection and building of community assets (target 80%) As a result of the evaluation, the SFD will improve its future targeting strategy for similar projects. SFD will be better informed on the types of community assets that are more effective for poor communities. The SWF will be informed about how the level of cash benefits impacts poor HH food consumption, and use the information for future decisions on levels of benefits. Improving the SWF targeting mechanism and approaches. SFD MIS, SWF MIS, Household/ Community Surveys and beneficiaries assessment, project evaluations 26

30 Intermediate / Immediate Results Results Indicators for Each Component Use of Results Monitoring Source of Information\ Data Gathering Method Component 1: Workfare Assistance and Impact Evaluation Outcome 1: Increase access of the targeted communities to temporary job opportunities. 1. Number of employment days created as a result of subproject implementation (target: 800,000) 2. Number of paid days per participating household (target: average 66 days/hh) 3. Percentage of female participation (target: 10 20%) To improve the efficiency and effectiveness of the SFD interventions By having all data segregated by gender, the SFD will focus on improving women participation Household Survey, beneficiaries assessment and SFD MIS Outcome 2: Increase number of community assets protected and built. Component 2: Temporary Cash Assistance for Poor Households Outcome 3: Increase coverage of cash transfer benefits to poor households. 4. Number of subprojects fully financed (target:100) 1. Number of new households enrolled to receive cash assistance target: 41,000) 2. Percentage of HHs receiving cash assistance in flood/conflict /child trafficking affected areas (target: 80%) 3. Percentage of female headed households receiving cash assistance (target: 10-20%) To improve targeting of the SWF, and build experience to act in response to emergency By having all data segregated by gender, the SFD will focus on improving women participation Household Survey, beneficiaries assessment and SFD MIS Household survey, beneficiary assessment, SWF MIS Outcome 4: Targeting and benefits payment is according to established methodologies and processes 4. Percentage of households to which PMT applied to determine participation (target: 100%) 5. Percentage of households collecting their benefits on a timely basis (target: 100%) Monitoring the timeliness of benefits delivery will inform SWF to improve its communication and monitoring procedures 27

31 Table 2.2: Monitoring Arrangement 28

32 (Year 1: January 2010 December Year 2: January June Project financials and completion to December 2011) PDO Results Indicators for Each Component 1. Number of HHs receiving cash transfers (target: over 12,000 HHs for workfare program; and 41,000 HHs for the direct cash transfers) 2. Amount of grant transferred to beneficiaries (target: 60% of workfare grant= Euro 5.88m; and 98% of cash assistance grant= Euro 7.0m) 3.Percentage of households reporting that cash assistance has reduced the food consumption gap, decreased debt and/or protected productive assets related to food price increase (target: 80%) 4. Number of subprojects rehabilitating community assets. (target:100) 5. Percentage of households confirming that the subprojects implemented support the protection and building of community assets (target 80%) Baseline 0 (beneficiaries under the project are new to the programs) N/A Data on food consumption and coping mechanisms will be collected at baseline at the beginning of implementation YR1 Targets 9,000 for workfare; 30,000 for cash assistance Euro 4.5m for workfare; Euro 5m for cash assistance YR2 Targets 3,000 for workfare; 11,000 for cash assistance Euro 2mill for workfare; Euro 2m for cash assistance 80% of total beneficiaries Data on the status and use of targeted community assets will be collected during appraisal of subprojects. 80% of surveyed community members Progress to Date Frequency and Reports Monthly update: 6 month progress reports SFD - Monthly update: 6 month progress report; SWF: Quarterly and annual reports By project closing Monthly update: 6 month progress report By project closing Data Collection Instruments SFD and SWF MIS and Reports SFD MIS and Reports; SWF MIS and Reports Workfare program impact evaluation; and cash assistance evaluation SFD MIS and Reports Workfare impact evaluation study Responsibility for Data Collection SFD, SWF SFD SWF SFD and SWF SFD SFD Intermediate Outcome Indicators Component 1: Workfare Assistance 1.Number of employment days created as a result of subprojects implementation 2.Number of paid days per participating household 3.Percentage of female participation in program 4.Number of subprojects rehabilitating community assets Intermediate Outcome Baseline Data Collection and Reporting YR1 Targets YR2 Targets 0 500, , % 10-20% Progress to Date Frequency and Reports Monthly update: 6 month progress report Monthly update: 6 month progress report Monthly update: 6 month progress report Monthly update: 6 month progress report Frequency and Data Collection Instruments SFD MIS and Reports SFD MIS and Reports SFD MIS and Reports SFD MIS and Reports Data Collection Responsibility for Data Collection SFD SFD SFD SFD Responsibility

33 30

34 Annex 3: Summary of Estimated Project Costs (Euro 000) Table 1: Project Costs by Component (Euro 000) Component 1: Workfare assistance and impact evaluation 1.1 Expand workfare assistance for the needy 9, Impact evaluation and component management - workfare program 397 Subtotal Component 1: Workfare assistance and impact evaluation 10,197 Component 2. Temporary cash assistance for poor households 2.1: Temporary cash transfers 7, : Evaluation and component management - cash assistance program 193 Subtotal Component 2: Temporary cash assistance for poor households 7,333 Total PROJECT COSTS 17,530 Table 2: Expenditure Accounts by Component (Euro 000) Component 1: Workfare Assistance and Impact Workfare Assistance Evaluation Impact Evaluation and Component Management Component 2: Temporary Cash Assistance Evaluation and Cash Component Transfers Management Total 1. Consultant Services under: (a) SFD (b) SWF Sub-grants for Workfare Assistance 9,800 9,800 3.TCA-grants for Temporary Cash Assistance 7,140 * 7, Incremental Operating Costs (a) SFD (b) SWF Total PROJECT COSTS 9, , ,530 *including service fee of Euro 140,000 (2% of the total cash transfer) to the Yemen Post Office Authority Table 3: Project Cost by Local and Foreign Expenditures (Euro 000) 31

35 (Euro 000) Local Foreign Total Component 1: Workfare assistance and impact evaluation 10, , Component 2. Temporary cash assistance for poor households 7, , Total PROJECT COSTS 17, , Table 4: Breakdown by EC Trust Fund Eligible Costs (Euro million) All Years Year 1 1. Human Resources & Travel 1.1 Human Resources & Travel - HQ 1.2 Human Resources & Travel - Country level 2. Equipment & Supplies including: 2.1 Seeds 2.2 Fertilisers 2.3 Food 2.4 Others 3. Local Operating Costs* Other costs, services including: Monitoring & evaluation Audit Others 5. Others (including Subcontracts): Micro-finance 5.2 Social transfer Others 6. Visibility 7. Contingency 8. Total Recipient Executed Costs (1 to 6) * $20,000 salary for Financial Officer for managing project funds and $53,000 operating cost (SWF); and $297,000 operating cost (SFD). 32

36 Annex 4: Financial Management and Disbursement Arrangements Country Financial Management Risks 1. As reported and outlined in the Country Assistance Strategy (CAS) of 2006, poor governance remains a critical issue faced in Yemen. Bank and Donor financed projects continue to be implemented as off budgetary activities. Efforts to move forward in reforming budget comprehensiveness, implementation, cash management, accounting and reporting have been pinned on the design and implementation of the Accounting & Financial Management Information System (AFMIS) project, which is experiencing significant delays. These factors, as well as the poor quality of education and training in accounting, have contributed to the generally observed weaknesses of the financial reporting and auditing. Such country risks result in having higher potential exposure to corruption. With the Bank and Donor funding implemented as off budget expenditures, the risks are mitigated through the project s design which follows the ring-fencing approach based on the existing structure of the Social Fund for Development (SFD) and the enhanced structure of the Social Welfare Fund (SWF). An independent external auditor acceptable to the World Bank will be engaged separately for each entity to perform quarterly reviews (audits for SWF) on the Project s Interim Financial Reports (IFRs) and annual audits of the Project s Financial Statements. Inherent Risk Issue / Risk Risk Before MM Mitigating Measures (MM) Risk After MM Based on the findings of the various Country assessments conducted recently, serious weaknesses were identified in the accounting and auditing professions in Yemen. High Use of Country system is not ready, thus, the project design follows the ring fencing method based on the Funds structure. An independent qualified audit firm will perform quarterly reviews (audits for SWF) on the Project IFRs and annual audits on the Financial Statements. Substantial Project Financial Management Arrangements 2. The Project will be implemented by two separate entities; the Social Fund for Development (SFD) and the Social Welfare Fund (SWF). The SFD which has significant experience in implementing World Bank Projects will manage the implementation of Component 1: Workfare assistance and impact evaluation (EUR million); while the SWF will manage the implementation of Component 2: Temporary cash assistance for poor households (EUR million). Social Fund for Development Component 1 3. The Project s proceeds for Component 1 (workfare assistance and impact evaluation) will be channeled through the SFD. The Project s proceeds allocated for Component 1 will be deposited into a segregated EUR Designated Account (DA) to be managed by the SFD. Advances and Reimbursement based disbursement will be the main disbursement method, along with direct payment and special commitments. Requests for payments from the Grant funds will be initiated through the use of Withdrawal Applications (WAs) supported by unaudited Interim Financial Reports (IFRs). 33

37 4. The SFD has been implementing a number of World Bank financed projects, including a similar program (Emergency Additional Financing Grant of $10 million under the Global Food Crisis Response Program which was approved on June 11, 2008 and 100% has been disbursed). The SFD departments, units and staff including the financial staff will be used to implement component 1 of the project. The FM department of the SFD is adequately staffed with a qualified financial manager who is assisted by a deputy financial manager and six accountants. The SFD s internal controls are deemed adequate and the SFD s internal audit department is adequately staffed and their scope will cover this project. The flow of funds procedures including the controls over cash balances and transfers to the field offices are acceptable and will be used under the project. The SFD has developed an operational manual setting out the structure of the program, including fiduciary arrangements, and the relation with the field offices which are deemed to be adequate and will be used for the project. 5. The current FM arrangements, which are working satisfactorily, are appropriate for the proposed Project and will be kept, with the caveat that the SFD will maintain separate accounting records and banking arrangement for the proposed Project. Accounting books and records are properly maintained using an Oracle based accounting and reporting system, required quarterly unaudited Interim Financial Reports (IFRs) and annual audited financial statements are produced on time and are reviewed/audited by an independent external auditor, and management acts promptly on any internal control issues raised in the auditor's management letter. Unqualified annual audit reports have been received in a timely manner. The audit report for the year ending 2008 has been received with no major issues raised. The audit report submission requirement remains the same, with the audit report being due within six months from the end of the fiscal year of December Given the nature of the inherent risks in the country system and the project and in view of the FM arrangements already in place in the SFD, the overall risk rating of the project component implemented by the SFD has been assessed as Moderate. There are no FM Conditions for component 1 of the project which will be implemented by the SFD. The FM arrangements will continue to be monitored throughout Project implementation. Social Welfare Fund Component 2 7. The Social Welfare Fund (SWF) is the largest public cash-transfer based social safety net program in Yemen. It was established in 1996 by a Presidential Law No. 31 and has gradually expanded to provide cash transfers to about 1 million poor and vulnerable Yemeni households. 8. The Project s proceeds for Component 2 (cash assistance for poor households) will be channeled through the SWF. Around 40,000 poor households are expected to receive YR 4,000 monthly cash assistance for 12 months, which will be disbursed to the beneficiaries every three months (i.e. each household will receive a payment of YR 12,000 each quarter). 9. The Project s proceeds allocated for this component will be disbursed to a separate segregated EUR Designated Account (DA), managed by SWF. 10. The SWF does not have prior experience with World Bank projects, and the nature of the project carries risk (i.e. cash transfers); and there are no defined formal FM procedures and controls applicable to the proposed Project which creates significant FM risks. To mitigate these risks, the following measures will be implemented prior to disbursement: (1) Hiring of a qualified Financial Management Specialist based on a TOR acceptable to the World Bank whose salary will be financed from Component 2.2 of the 34

38 project; (2) developing the Financial Management (FM) Manual which includes the FM procedures, controls, and safeguards including the role of the Internal Audit Department, to be applied during implementation; (3) establishing an accounting system that will be able to record project transactions and generate timely project financial reports; and (4) Engaging a financial auditor to perform verification on the cash transfer process and issue on quarterly basis an Audited Interim Financial Report reflecting the findings of the quarterly transfers and performing the year end audits and issue an audit opinion on the project financial statements. The hiring of the Financial Management Specialist, developing the FM Manual and establishing the accounting system will be conditions for project disbursement. Training on Bank guidelines will be provided to the SWF staff and continuous support through the Bank filed office will be provided especially during the first months of implementation. Project Financial Management Risks - SWF Issue / Risk Risk before MM Comments / Mitigating Measures (MM) Risk after MM Implementing Entity The SWF does not have prior experience with World Bank projects. High The SWF has implemented a new scheme for identification of targeted families with valid need for support which has been reviewed by the Bank and deemed adequate. The project implementation will be ring fenced. The SWF will have a qualified FM Specialist managing the FM activities of the project, the SWF s internal audit will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF s Operations Manual approved by the Bank. Additionally, the project s accounts will be audited quarterly and annually by an independent private external auditor acceptable to the World Bank. Substantial Staffing Current FM department may not have required capacity. High The SWF will recruit FM Specialist prior to disbursement whose salary is financed from the project s proceeds, with TOR acceptable to the World Bank. He/she will be responsible for managing the FM activities of the project, with the support of SWF s Accountant. Substantial Accounting System & Internal Controls The SWF has a recently internally developed automated accounting system and does not have a complete FM manual of procedures. Substantial The SWF s automated accounting system is deemed adequate for this project pending finalizing the project s chart of accounts and reporting capacity to meet the Bank s reporting requirements. The SWF will make such updates to their system and have it ready prior to disbursement. The SWF has an operations manual approved by the World Bank, but is in the process of completing the FM section of the Manual which will be ready for the World Bank approval prior to disbursement. Moderate 35

39 Issue / Risk Risk before MM Comments / Mitigating Measures (MM) Risk after MM Flow of Funds and Disbursement The SWF does not have prior experience in the Bank s Disbursement Guidelines and Component 2 includes cash transfer. Cash transfers through the Post Office High High All payments to the beneficiaries will be done centrally by the SWF s Head Office in Sana a and using the Post Office for cash transfers. A segregated Designated Account will be maintained at the Central Bank of Yemen (CBY) for grant funds. Requests for payments from the Grant funds will be initiated through the use of the Bank s Withdrawal Applications (WAs) supported by IFRs audited by an external auditor along with Post Office Reconciliation Report and Bank statements. The SWF s internal audit department will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF s Operations Manual approved by the Bank. The project s accounts will be audited quarterly and annually by an independent external auditor acceptable to the World Bank. The Post Office has proved its ability to manage large volume of cash payments through the SWF s experience with their current program and also through the World Bank experience in other IDA-financed projects. There are proper controls in place at the Post Office to ensure proper transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office internal system. The data imported into the Post Office system is compared with the data generated from the SWF and once approved, the data is locked into the Post Office system. The post office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data once received by the SWF will be compared with the data in the SWF s system. Also prior to disbursement the allocation department reviews the list in the post office to ensure the total number per area is consistent. The project will have DA in EUR and sub account in YR. The sub account will be used to transfer funds from the project s DA to the sub-account for payments to the post office and uncollected funds will also be deposited (i.e. refunded from the Post Office) into this sub-account. The funds for the unpaid cases will be refunded to the project s YR sub-account under the project s DA which will be clearly disclosed in the contract agreement between the SWF and Post Office (currently being drafted to be sent to the Bank for review). Substantial Substantial 36

40 Issue / Risk Risk before MM Comments / Mitigating Measures (MM) Risk after MM Eligibility of beneficiaries to receive cash payments System used to identify, record, and maintain the list of eligible beneficiaries. Financial Reporting Lack of prior experience with Bank reporting guidelines. External Audit Weak audit profession in Yemen. High Substantial Substantial The beneficiaries under this project will all be new to the SWF programs, i.e. not benefiting from current cash transfers. The SWF has developed oracle based system for the purpose of recording and maintaining the list of all their beneficiaries. They are currently developing a separate sub-module of their system to be used only for the beneficiaries under this project, which will be ready before disbursement. The SWF conducted an internal review of all their beneficiaries and ensured no duplication of benefits given to the beneficiaries. The system has the capacity to generate exception reports showing potential duplication of benefits by running queries to list duplicated beneficiary data (e.g. name, ID #). There is proper control of access to the system as access is limited to few individuals in the SWF. The SWF s automated accounting system is deemed adequate for this project pending finalizing the project s chart of accounts and reporting capacity to meet the Bank s reporting requirements. SWF will make updates to their system and have it ready prior to disbursement. The content and format of the IFRs have been agreed upon during project appraisal. The IFRs will be quarterly audited by the external auditor. An independent qualified private external auditor acceptable to the World Bank will be engaged to audit the project s accounts, quarterly and annually and according to TOR acceptable to the World Bank. The TOR will include a special provision for the Auditor to conduct field visits to a sample of the selected beneficiaries and post offices to validate the beneficiaries eligibility and their proper receipt of funds. Substantial Moderate Moderate Overall FM Risk Assessment SWF 11. As detailed above, the financial management risk assessment identified under the Project for the SWF component is High. The successful implementation of the mitigation measures, which have been agreed upon with the SWF, will eventually reduce the project FM risk to Substantial. The mitigating measures are documented in the risks assessment table above and are further detailed in the FM action plan in this annex. Organization and Staffing 12. The SWF is headed by a board of directors, responsible for the overall policy of the Fund and the Minister of MSAL is the chairman of the board. The main executive agency is the SWF Head Office in Sana a and it has 22 Branch Offices (one in each governorate) and 171 District Offices. The SWF Head 37

41 Office is headed by its Managing Director who is also a member and secretary of the SWF s Board. The Head Office has eight departments and five units dealing with all SWF affairs on the national level. 13. The Finance Department is managed by a Director General from the Ministry of Finance (MOF) who reports directly to the Executive Manager and also accountable to the Internal Auditor, the MOF, and the Government s Supreme Audit Institution (COCA). This department is responsible for preparing the annual SWF Program budget, undertaking all procurement for the SWF, and maintaining the SWF entities. As a result of the finance department low capacity and conflict of interest in its mandate (e.g. finance and procurement), the SWF will recruit FM Specialist who will report to the SWF s Managing Director, prior to project disbursement. The FM Consultant s salary is financed from the project s proceeds, with TOR accepted by the World Bank. He/she will be responsible for managing the FM activities of the project, with the support of the SWF s Accountant. 14. Additionally, the SWF has an Internal Audit Department which is responsible for conducting audits on the SWF Cash Assistance (CA) Program as required by the Program Management but at least on annual basis in accordance with COCA, performing audits for the SWF Branch Offices, preparing all required documents for annual external audits, and reviewing and investigating in case of any irregularities found. The department has 5 staff whose experience is relevant to the proposed project. The IAD submits its audit reports to the SWF s Managing Director. Accounting System & Internal Controls 15. The SWF has recently developed an internal automated accounting system which is deemed adequate for this project pending finalizing the project s chart of accounts and reporting capacity to meet the Bank s reporting requirements. The SWF will make such updates to their system and have it ready prior to disbursement. The Accounting system is capable of recording project financial transactions, including allocation of expenditures in accordance with respective sub-components, governorate, number of beneficiaries, disbursement categories and source of funds. The system has controls over the preparation and approval of transactions ensuring all transactions are correctly made and adequately explained. The system is flexible to design chart of accounts adequate to properly account for and report on project activities and disbursement categories. The system is capable of proper record keeping and has a backup system in the SWF s server. 16. The SWF has operations manual setting out the structure of the CA Program including the controls over the use of the post office, which is approved by the World Bank, but is in the process of completing the FM Manual which will be ready for the World Bank approval prior to disbursement. The FM Manual will ensure proper segregation of duties in terms of authorizing and recording transactions, and custody of assets, describe the role of the internal audit department, the project s accounting policies and procedures and internal controls. The SWF s Accountant will prepare monthly bank reconciliations, reviewed and approved by the project s FM Specialist. The project will prepare quarterly IFRs showing the source and use of funds by sub-component, expenditure category, governorate and number of beneficiaries. Additionally, the IFRs will report the reconciliation of the DA, and a progress report detailing status on the payment to the beneficiaries; reflecting the unpaid and remaining balance in the DA, and the amount of paid and unpaid (returned) cash transfers to beneficiaries by Governorate. These reports will be attached with the application requesting funds for the following quarters. 38

42 Flow of Funds and Disbursement Arrangements 17. The Project funds will be channeled through the SFD and the SWF and deposited into two separate segregated EUR Designated Accounts (DAs) in a bank acceptable to the World Bank, to be opened and maintained by SFD and SWF, separately, and under conditions acceptable to the World Bank. Advances and Reimbursement based disbursement will be the main disbursement method, along with direct payment and special commitments. Requests for payments from the Grant funds will be initiated through the use of the Bank s Withdrawal Applications (WAs) supported by unaudited IFRs for SFD and IFRs audited by an external auditor along with Post Office Reconciliation Report and Bank statements for component 2 implemented by the SWF. Disbursement to the beneficiaries from the SFD and SWF s separate segregated DAs will follow the Fund s respective Operational Manuals and the World Bank Guidelines. Additionally, under Component 2.1, implemented by the SWF, cash payments to beneficiaries will be through Yemen s Post Office branches in the selected governorates. For disbursement under component 2, including advances, a disbursement condition on Category All payments will be done centrally by the SWF s Head Office in Sana a. Disbursement to the beneficiaries from the SWF s segregated DA will follow the Fund s Operational Manual and World Bank Disbursement Guidelines. Additionally, under Component 2.1, implemented by the SWF, cash payments to beneficiaries will be through Yemen s Post Office branches in the selected governorates. The Post Office has proved its ability to manage large volume of cash payments through the SWF s experience with their current program and also through the World Bank experience in other IDA-financed projects. There are proper controls in place at the Post Office to ensure proper transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office internal system. The data imported into the Post Office system is compared with the data generated from the SWF and once approved, the data is locked into the Post Office system. The post office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data once received by the SWF will be compared with the data in the SWF s system. Also prior to disbursement the allocation department reviews the list in the post office to ensure the total number per area is consistent. The project will have DA in EUR and sub account in YR. The sub account will be used to transfer funds from the project s DA to the sub-account for payments to the post office and uncollected funds will also be deposited (i.e. refunded from the Post Office) into this sub-account. The funds for the unpaid cases will be refunded to the project s YR sub-account under the project s DA which will be clearly disclosed in the contract agreement between the SWF and Post Office (currently being drafted to be sent to the Bank for review). 39

43 Chart (A) SWF Flow of funds chart Grant Funds Component 2 EUR DA CBY Eligible Expenditures Component 2.2 YR Sub-Account CBY Post Office Component 2.1 Beneficiaries Chart (B): Illustrating process for requests of payments from the SWF s DA Pmt req. for expenditure FM & Director MOF approval CBY Pmt Chart (B) above applies to eligible expenditures paid from the SWF s DA for eligible expenditures under component 2.2. Chart (C): Illustrating process for requests of payments from the SWF s sub-acct Pmt req. for expenditure FM & Director MOF approval Transfer from DA to Sub-acc CBY Sub-acc payment CBY Checks signed by FM & Director 40

44 Chart C above applies to eligible expenditures under component 2.1 (cash transfers including post office fees) paid from the SWF s sub-account which is replenished from the SWF s DA. SWF Cash Assistance Program Payment Cycle A POOR VULNERABLE P I CSO O TARGETING M TARGETING SURVEY DATA ENTRY BENEFICIARY SELECTION L B E ENROLMENT E A PAYMENTS RECONCILIATION 41

45 Process to ensure eligibility of households to receive cash payments Component The disbursement from the World Bank to the DA is based on Bank s proper review of the satisfactory application of Proxy Means Test (PMT) confirming the eligibility of households to receive benefits. Prior to disbursement, assurances satisfactory to the World Bank will be sought through an eligibility review that beneficiary households were selected in accordance with the proxy means testing formula and are eligible to receive cash benefits from the proposed Project. 20. The selected beneficiaries will be informed that they are selected and invited to receive their program cards that will include their pictures. The Bank recommends the SWF to post the list of beneficiaries in each of the Post Offices used to deliver the cash payments to the beneficiaries for as long as the project is ongoing. There is a hotline for complaints if someone is informed to be eligible for cash assistance but never received later any funds from the project 21. The SWF s Internal Audit Department will add the proposed project to its scope of work. Internal Audit will be responsible for checking the list of proposed beneficiary households and confirm eligibility including conducting regular visits to a sample of selected beneficiaries and submit internal audit reports to the Managing Director. Additionally, the SWF s Department of Allocation is responsible for following up on payments of beneficiaries, their correct and timely delivery; and following up on refunds. Also, the Project s External Auditor s TOR will include a special provision for the Auditor to conduct two field visits to a sample of the selected beneficiaries to validate the beneficiaries eligibility and proper receipt of funds. Project Financial Reporting 22. Interim Financial Reports (IFRs) arrangement: IFRs will be prepared by each implementing entity separately and submitted to the World Bank quarterly. IFRs will be submitted to the Bank no later than 45 days after the end of the quarter. The IFRs will be reviewed (audited for the SWF) by an independent external auditor acceptable to the World Bank and the reports will consist of (a) source and uses of funds by Component and Expenditure Category, (b) a reconciliation of the DA, and (c) for the SWF, cash transfers by governorate and number of beneficiaries, a progress report detailing status on the payment to the beneficiaries; reflecting the unpaid and remaining balance in the DA, and the amount of paid and unpaid (returned) cash transfers to beneficiaries by Governorate. 23. External Audit o o Entity: Separate Annual Audited Financial Statements of SWF and SFD are required to be sent to the World Bank as the SWF and the SFD are Continuing Entities. The entities audited financial statements should be submitted to the World Bank within six months of the end of the fiscal year. Project: Separate Annual Audited Financial Statements of the project for each of the SWF and the SFD are required to be sent to the World Bank within six months from the end of the fiscal year. 3 The annual audited financial statements will be audited by an independent external auditor acceptable to the World Bank and each report will cover the period of each fiscal yearend and is due to the Bank within six months from the end of each fiscal year. Additionally, the SWF 42

46 will submit to the Bank quarterly Audited Interim Financial Reports for Component 2 of the project. The quarterly reports are due within 45 days of the quarter.. The Terms of Reference (TOR) for the external auditor and the required Project Financial Statements will be agreed by the World Bank. The Project s External Auditor s TOR will include a special provision for the Auditor to conduct field visits to a sample of the selected beneficiaries to validate the beneficiaries eligibility and their proper receipt of funds. The external auditor report (in English) shall encompass all Project s components and activities and shall be in accordance with internationally accepted auditing standards e.g., International Standards on Auditing (ISA). The audit report and opinion will cover the Project s financial statements, reconciliation and use of the Designated Account (DA) and sub-account, use of direct payments, and withdrawals based on Interim Financial Reports. The auditor is required to prepare a management letter indentifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent, and shall provide recommendations for their improvements. The cost for the external auditors will be funded from the proceeds of the Project. Corruption 24. Fraud and corruption may affect the project resources. The above fiduciary arrangements including the capacity of the SFD and the SWF, reporting and audit arrangements will reasonably reduce the risk of corruption from a technical perspective through the fiduciary arrangements but may not be effective in case of collusion. FM Action Plan 25. The following FM action plan has been developed and agreed upon with the SWF during appraisal: No. Action Due date Responsibility Recruit qualified Financial Management Specialist for SWF and based on TOR acceptable to the Bank. Submit to the Bank, acceptable FM Manual for SWF which includes the accounting policies and procedures for the Project. Establish the SWF s accounting system to meet the Bank s reporting requirements (to be agreed to by the Bank). Engaging an independent external auditor based on TORs acceptable to the Bank for each of SWF and SFD, separately. Supervision Plan Disbursement Condition Disbursement Condition Disbursement Condition After effectiveness SWF SWF SWF SWF & SFD 26. Intensive supervision of the early phase of project implementation (three supervisions in year 1) of the SWF component will be carried out to ensure adequate FM arrangements continue to be in place and the capacity of the FM unit is adequate. Subsequently, supervision will be conducted twice a year to monitor regularly the financial management arrangements for both the SWF and the SFD. 43

47 ANNEX 5: PROCUREMENT ARRANGEMENTS AND PLAN A. General 1. A Country Procurement Assessment Report (CPAR) for Yemen carried out in 2000 concluded that the procurement legislation, Law No. 3 of 1997 concerning Government Tenders, Auctions and Stores, and corresponding Regulations introduced by Decree No. 234 of 1997, was a significant improvement over previous legislation for public procurement but nonetheless not yet up to acceptable international standards. 2. The CPAR recommended a set of comprehensive National Procurement Manual (NPM) to support capacity building of the GOY s public procurement management responsibilities at all levels together with a national Standard Bid Documents (SBDs) for goods, works and services. The NPM and SBDs for works, goods and consultancy services were endorsed by the Cabinet in April 2006, and preparation and capacity building efforts led by the Technical Committee of the High Tender Board have focused on broad dissemination of these country procurement documents since In addition, as part of the National Reform Agenda adopted in early 2006, a new reform-oriented public procurement law reflecting international best practice was prepared with Bank and USAID support and was subsequently ratified by Parliament on July 24, The procurement for the proposed Project would be carried out in accordance with the OP 8.00 and the World Bank s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004, revised October 1, 2006; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. Time frame agreed between the Recipient and the Bank is recorded in the agreed Procurement Plan dated 11/17/2009 signed at the time of Grant Negotiations. The Procurement Plan will be updated at least once per year as agreed. B. Procurement Arrangements 4. Procurement under Workfare Program: Procurement under Component 1 would involve scaling up labor intensive programs for delivery of services directly related to the high food prices emergency on the poor. As part of its rapid processing of procurement capacity assessment of counterpart agencies mandate the appraisal mission has ascertained the capability of the SFD to continue to manage both the Force Account (approx. 70% of expenditures) and procurement of materials (the remaining 30%) for eligible community level subprojects which are at the core of the proposed emergency rapid response operation. 5. Procurement of Goods: Goods procured under this project would primarily involve construction material to be procured at the Branch level by the SFD through National Shopping procedures and used as input to the community based subprojects in Component 1 under the workfare program, as well as office equipment and furniture as required during project implementation for institution building purposes. However, given the emergency nature of the operation, exceptional procedures may be used during the implementation, consistent with Bank Guidelines as provided under OP The procedures to be followed for National Competitive Bidding under this paragraph shall be those set forth in Law No. 23 for 2007 concerning Government Tenders, Auctions and Stores, and its Regulations, with the following additional procedures: 44

48 (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) a Recipient-owned enterprise in the Republic of Yemen shall be eligible to bid only if it can establish that it is legally and financially autonomous, operates under commercial law, and is not a dependent agency of the Recipient; bidding (or pre-qualification, if required) shall not be restricted to any particular class of contractors or suppliers, and non-registered contractors and suppliers shall also be eligible to participate; tenders shall be advertised for at least two (2) consecutive days in two (2) local newspapers of wide circulation; prospective bidders shall be allowed a minimum of thirty (30) days for the preparation and submission of bids, such thirty (30) days to begin with the availability of the bidding documents or the advertisement, whichever is later; until national standard bidding documents acceptable to the Association are available, bidding documents approved by the Association shall be used, and may be prepared in Arabic; registration shall not be used to assess bidders qualifications; qualification criteria (in case prequalification was not carried out) and the method of evaluating the qualification of each bidder shall be stated in the bidding documents, and before contract award the bidder having submitted the lowest evaluated responsive bid shall be subject to post-qualification; a foreign bidder shall not be required to register or to appoint an agent as a condition for submitting its bid and, if determined to be the lowest evaluated responsive bidder, shall be given reasonable opportunity to register, without let or hindrance; the registration process shall not be applicable to sub-contractors; all bids shall be submitted in sealed envelopes and may be submitted, at the bidder s option, in person or by courier service; all bids shall be opened at the same time in a public bid opening which bidders shall be allowed to attend and which shall follow immediately after the deadline for submission of bids; evaluation of bids shall be carried out in strict adherence to the criteria declared in the bidding documents and contracts shall be awarded to the lowest evaluated responsive bidder, without resorting to the rejection of bids above or below a certain percentage of the pre-bid estimate (bid price bracketing); no bidder shall be requested or permitted to modify its bid after the bid closing date shall have elapsed and bids submitted after the deadline for submission of bids shall be returned to the bidder unopened; post-bidding negotiations with the lowest or any other bidder shall not be permitted; under exceptional circumstances, the procuring entity may, before the expiration of bid validity, request all bidders in writing to extend the validity of their bids, in which case bidders shall not be requested nor permitted to amend the price or any other condition of their bids; a bidder shall 45

49 have the right to refuse to grant such an extension without forfeiting its bid security, but any bidder granting such extension shall be required to provide a corresponding extension of its bid security; (xiv) (xv) (xvi) price adjustment provisions may be included in contracts for works with a duration of more than eighteen months; rejection of all bids is justified when there is lack of effective competition, or bids are not substantially responsive, however, lack of competition shall not be determined solely on the basis of the number of bidders; and each contract financed from the proceeds of the Grant shall provide that the contractor or supplier shall permit the Association, at its request, to inspect their accounts and records relating to the performance of the contract and to have such accounts and records audited by auditors appointed by the Association. 7. Selection of Consultants: Consultants financed by IDA would be appointed in accordance with the Bank s Guidelines for the Selection and Employment of Consultants (May 2004 and revised in October 2006). For firms all contracts would be procured using Quality-and Cost-Based Selection (QCBS) as well as Fixed Budget Selection (FBS) procedures will be used except for small contracts of standard or routine nature estimated to cost less than $100,000 equivalent which may be procured using selection based on Consultant s Qualification (CQ) and Least-Cost Selection (LCS) methods. Single- Source Selection (SSS) for hiring services that meet the requirements of paragraph 3.10 of the Consultant s Guidelines may be used on an exceptional basis, with prior agreement of IDA. When only one firm is qualified or has experience of exceptional worth. Shortlist of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7of the Consultant Guidelines. All individual consulting assignments would be on the basis of comparison of qualifications in accordance with section V of the Guidelines for selection of consultancies. Consultant services under the ESSN to be provided by firms and individuals would include but not be limited due to the emergency nature of the operation to the following:(i) Impact evaluation studies for both Components 1 and 2 at project completion; (ii) Survey data collection and data entry for Component 2; (iii) FM Specialist for Component 2; and (iv) External Auditors for both Components 1 and 2. There will only be a limited number of consultancy contracts under both Component 1 and 2 and in particular since the SWF responsible for Component 2 is unfamiliar with the consultant guidelines in line with OP 8.00 the Procurement Unit of the SFD as well as Procurement Specialists from the Sana a Country Office would provide the required assistance to help facilitate the SWF to carry out the selection of consultants under Component Operating Costs related to the project implementation activities which will be financed by the project and procured using the implementing agency s administrative procedures, and reviewed and found acceptable to IDA, will include: office supplies, per diem, banking charges, transportation, translation, communication services, and other implementation related expenses. 46

50 C. Assessment of the Agency s Capacity to Implement Procurement 9. Assessment of SFD s capacity to oversight procurement activities for Component 1 (Workfare or Labor Intensive works program) by the SFD Procurement Unit working closely with the newly established Intensive Labor Unit was carried out during the August appraisal mission. The SFD s Sana a based Procurement Unit as well as Procurement Officers at the Brach level in the Governorates have a proven record over a period of three back-to-back IDA financed operations in handling technical, fiduciary, and contract management responsibilities. During appraisal based on the performance record of the SFD in managing the Workfare Program the Procurement Specialist was able to determine that the overall procurement risk for the SFD is considered Moderate for the following reasons: (i) the SFD has become over the years more experienced with IDA procurement guidelines and procedures although additional strengthening is needed to enhance contract management; (ii) the SFD has taken into account in the program design, subproject selection criteria, optimizing benefits of the workfare program to target communities, the overall lessons learned from Community Demand-Driven (CDD) projects in phase 3 sub-projects, which consist of similar type and size of contracts based essentially on use of the Shopping method to procure the inputs required for the workfare; and (iii) the SFD s Operational Manual which determines Community Contracting procedures has been further improved to include the combined force account for labor content and use of shopping method for provision of materials in sub-projects covered by the Workfare Program. 10. The SWF baseline procurement capacity: Procurement activities under Component 2 of the Proposed Project would necessarily be limited in nature as this component of the project focuses on temporary cash transfer as a core implementation responsibility for the SWF and therefore entails minimal specific procurement risk. The rapid procurement assessment has brought out the following baseline profile of procurement administration at the SWF. 11. The SWF Procurement Unit is led by a Manager seconded from the MOF and reports to the Manager of the Finance Department. The unit which conducts all non-high value tenders (MOF takes responsibility for contracting high value) has a staff of seven of whom two are reasonably familiar with the compliance provisions of Law 23 of 2007 (the public procurement law) and the complimentary implementation arrangements enshrined in the Executive Regulations set out in the Cabinet Decree of February As the SWF has not been a recipient of Bank assistance in the past, the SWF has no previous knowledge of the Bank s procurement guidelines. Notwithstanding most of the project funds (97%) will be transferred to the beneficiaries through existing cash transfer system (Post Office), the overall procurement risk of the SWF relative to compliance with the procurement guidelines requirements of the Bank is considered High, however taking into account, the SWF will not have any new procurement responsibilities, while procurement under component 1 (workfare program managed by SFD) will be limited to a combination of use of Force account (for the labor component 70% of sub-project cost) and us of Shopping method (for the materials 30% of sub-project cost) which has already been utilized extensively by the SFD, the overall combined procurement risk for both Component 1 and Component 2 of the Project rated as Substantial. Given the fact that this is an emergency rapid response project the immediate risk mitigation measure involving supplementary assistance to the SWF from the SFD and the CO-based Procurement Specialists as described above will of necessity be of a stop-gap nature to be able to respond to the emergency on hand in line with OP However, a follow-up IDA financed operation to support the SWF is already in the CAS, the assessment findings will be a foundation to determining the capacity building action plan of the follow-on project currently at the identification phase. 47

51 Prior Review Thresholds Works Goods Services Above US$500,000 plus the first contract. Above US$200,000 plus the first contract. Above US$50,000 for individual and US$100,000 for firms, TORs, EOI, short-list, and all single source selection. (Per the Procurement Plan, Bank prior review of only a limited number of consulting assignments is expected.) D. Procurement Plan 13. A simplified Procurement Plan for both component 1 and 2 has been prepared in draft by the SFD and SWF and will be part of the Minutes of Negotiations. Respectively detailing all procurement envisaged under the proposed Grant. The Procurement Plan would be updated annually or as required to reflect the actual implementation needs and submitted to IDA for review and no objection. E. Frequency of Procurement Supervision 14. Supervision missions from headquarters and the country office would bi-annually review project implementation activities, including procurement and disbursement. F. Use of Statement of Expenditures (SOEs) 15. Withdrawals from the credit account may be made on the basis of Statements of Expenses for the following expenditures: (i) Works contracts costing less than US$500,000 million; (ii) Contracts for goods and equipment costing less than US$200,000; (iii) Contracts for consulting firms costing less than US$100,000; (iv) Contracts for individual consultants costing less than US$50,000; and (v) The SFD and the SWF Operating expenses. 48

52 Implementation Arrangements Annex 6. Implementation and Monitoring Arrangements 1. The project will be implemented for eighteen months from January June There will be two parallel implementation arrangements: one for the implementation of Component 1, under the responsibility of the SFD; and second for the implementation of Component 2, under the responsibility of the SWF. Component 1: Workfare Assistance and Impact Evaluation 2. This component will be implemented by the SFD. The SFD is an autonomous organization under the Prime Minister s office. Its Board of Directors has representation government, NGO, private sector, and the financial sector. The Board reviews policy issues and approves important documents like annual plans, budgets, and amendments to the operations manual. The Executive body of the SFD is headed by a Managing Director (MD) who has full authority to manage the day-to-day operations including all personnel and operational matters. Besides the SFD s office in Sana a, there are eight branch offices country-wide. 3. Over the last 12 years, through three phases, its capacity has been built gradually to identify, prepare, and supervise the implementation of development projects. Now, it is providing institutional capacity building support to other governmental institutions as well as governmental organizations, NGOs, and CBOs. The SFD has a capacity to commit subprojects and disburse approximately US$10 million per month. Main functions have been gradually decentralized, and the branch offices are now making a large number of operational decisions. The SFD has a dynamic group of staff in Sana a as well as in the branch offices. It has developed its organizational structure and subproject cycles, and has a state-of-the-art MIS system that was designed in-house and that captures all aspects of the subproject cycle from the submission of the request to closure and evaluation of the subproject. The SFD has also proved to be one of the most efficient institutions in the country with its operational costs remaining within 6% of total investment costs. 4. Based on successful experience of implementing workfare program under the Emergency Additional Financing Grant under the Global Food Crisis Response Program (P US$10 million) which closes on December 31, 2009 and 100% of whose funds are expected to be disbursed with an average 70% of workfare component resources paid as wages, this component will be implemented by the Branch Offices (9 branch offices covering all 23 governorates) under the supervision of the SFD Head Office Labor-Intensive Works Program. The Operational Guidelines of the SFD is a dynamic document which includes the workfare program. The manual also includes details on monitoring and evaluation of the subprojects, procurement methods, financial management issues, etc. Targeting 5. The SFD will apply data from the 2005 HBS to allocate the grants to governorates. Due to the limitation in the sample size of the HBS, poverty indicators were not available at the district and community levels. Therefore, the SFD is using service poverty indicators and population size extracted from the 2004 census for the identification of potential participating communities. Field investigation will then confirm eligible communities most affected by drought and food crises according to the agreed criteria: (a) community with at least 300 residents; and (b) more than 70% of the community members 49

53 have been affected by the food crisis during past 12 months. Self-targeting will be insured by setting the wages offered below prevailing market levels. Sub-project (workfare program) Implementation 6. The SFD Branch Offices will contract Consultant Engineers (CE) to carry out a technical review of each sub-project, and upon completion of the review, a supervision contract will be signed between the CE and the SFD. The CEs then distribute the work amongst the beneficiary households within the selected community, and appoint one of the residents as Resident Technician (RT) at the sub-project location to follow-up on the implementation from technical side. An accountant at the Branch Office level is also contracted for the Program, and supervises the field accountants who, along with the RT, will calculate the beneficiaries wages based on verifying the amount of work performed by the beneficiary household. Component 2: Temporary Cash Assistance for Poor Households 7. This component will be implemented by the Social Welfare Fund (SWF). The SWF was established in 1996 by Presidential Law No.31, and it is governed by the revised Presidential Law 39 (2008). Its Board of Directors, headed by the Minister of Social Affairs and Labor, is composed of Vice Minister of Finance, Deputy Minister of Social Affairs and Labor, Deputy Minister of Local Administration, Managing Director of the SWF (member and secretary), Executive Managers of Social Security Network Programs, Community Representatives of Private Sector and Civil Society Organization. The Board reviews policy issues and approves important documents like annual plans, budgets, and annual audits. The executive body of the SWF is headed by a Managing Director who is responsible for day-to-day operations. Besides the SWF s office in Sana a, there are twenty-two branch offices in each governorate and 171 district offices country-wide. 8. The implementation of Component 2 will be carried out through an existing cash-transfer mechanism of the SWF. This sub-component will provide cash assistance in the amount of US$20/month to around 41,000 households. The beneficiary households have been already identified through recently developed PMT scoring. Payments are made four times a year; each payment corresponds to three payment months. The payments will be made through the Yemen Post Office which has 251 branches and mobile units, being the most widely spread financial agency in Yemen. The Post Office delivers the checks/payments through its branches and mobile units. For payment to SWF beneficiaries, the Post Office charges a 2% service fee, which will be funded through the Project. 9. A Financial Management Consultant is being recruited to manage the grant funds allocated to the SWF (Euro 7,358,000) according to IDA s requirements. An Operations Manual which is to be finalized will guide the implementation of the Project (operational translation of the revised Law). Targeting: 10. The SWF has just completed a national survey to re-identify its targeted households. Based on the survey results, the SWF will select beneficiaries of the temporary cash assistance using PMT scoring, including the poorest among: flood affected areas (Hadhramout and Mahara); war affected areas (Saada and Amran); and areas with significant child trafficking (Hodiedah, Haja and Mahweet). Poor households in these areas suffer double shocks of the food crises and recent floods and armed conflict. Around 58 districts have been identified in 7 Governorates. 50

54 Monitoring and Evaluation Arrangements 11. Monitoring and Evaluation (M&E) will be undertaken by the two implementing agencies: SFD and SWF. Project activities will be monitored by both agencies on an ongoing basis to support achievement of the Overall Development Objectives. Monitoring reports covering the key Project Outcome Indicators will be submitted according to the schedule of frequency in Table 2.2 Monitoring Arrangements. SFD s M&E Approach is detailed in Section 7 of the SFD Operational Guidelines supported by the SFD Monitoring and Evaluation Manual. Monitoring SFD: Ongoing project level monitoring will be carried out by SFD Labour Intensive Program staff and SFD branch offices near project sites to ensure that subprojects are meeting their participation and community asset improvement targets. Monitoring will also include participant assessments to ensure that person day reporting is accurate and verifiable and that wages are being paid. Monitoring SWF: SWF through its M&E Department and governorate branch offices will monitor the number of new beneficiary enrolments from selected areas (flood, conflict, childtrafficking) as well as determining whether the PMT has been used in selecting beneficiaries. Regional coverage will be adjusted if necessary to fully utilize ESSN resources. Beneficiary cash transfers will be delivered through a tested intermediary (the Post Office) on a quarterly basis, with financial monitoring reports submitted to SWF. SWF will track information from these reports to identify households not collecting benefits and will request a follow-up by the nearest SWF Social Researcher or other appropriate Governorate/district staff member to determine cause. These financial reports will also be monitored to determine benefits received by femaleheaded households. Evaluation SFD: SFD M&E Unit has developed a strong evaluation capacity and has recently completed the Phase I Workfare Beneficiary Assessment. The findings of this assessment will contribute to the design of the ESSN impact evaluation. The ESSN subprojects will comprise Phase II Workfare with baseline data for each participating household collected by SFD staff at the outset of the project. A rigorous impact evaluation methodology is being designed to measure food consumption behaviors and changes due to project cash assistance based on comparisons of control and participant groups. The intention is that the control groups will become participants for later funded activities. The evaluation will focus on the issue of increased food consumption and other coping mechanisms to deal with food prices volatility. Community perceptions of benefits arising from protecting and building community assets will also be assessed. Evaluation SWF: SWF is at the beginning stages of evaluation experience. The evaluation conducted for the SWF component will be an opportunity for the agency to build its evaluation capability. The World Bank support will assist in the technical design of the end-of-project evaluation, with an outside survey firm contracted to collect specific baseline information from a representative sample of new beneficiaries. The evaluation will assess the targeting efficiency of the PMT; assessing the efficiency of administrative and operational processes; and to assess impact of the program on households welfare. The survey sample will be resurveyed at project s end to determine the impact of ESSN cash assistance on food consumption patterns and/or use of coping mechanisms. Satisfaction data (satisfaction with the SWF payment mechanism, level of program information and support received from SWF) will be collected at the same time. Technical expertise from the Bank will assist SWF to develop a Survey Company TOR, as well as completing data analysis for the Evaluation Report. 51

55 Annex 7: Project Preparation and Appraisal Team Members Planned Actual Appraisal Decision meeting September 7, 2009 October 27, 2009 August 29, 2009 November 12, 2009 Negotiations November 2, 2009 November 18, 2009 Board/RVP approval November 15, 2009 Planned date of effectiveness Planned date for mid-term review December 1, 2009 September 20, 2010 Planned closing date June 30, 2011 Name Title Unit Afrah Al-Ahmadi Senior Human Development Specialist, Team Leader MNSHD Mira Hong Operations Officer MNSHD Marget Davis Social Development Specialist, consultant Consultant Banumathi Setlur Phillippe Leite Social Protection Environmental Specialist Economist MNSEN HDNSP Ghada Youness Senior Counsel LEGMS Moad Alrubaidi Financial Management Specialist MNAFM Mikael Mengesha Senior Procurement Specialist MNAPR Safa a Al-Sharif Renata Lukasiewicz Program Assistant Program Assistant MNCYE MNSHD 52

56 Annex 8. Environmental and Social Safeguards Framework Introduction 1. The project will finance temporary cash transfers through a SFD workfare program and the SWF distribution of cash assistance to new beneficiaries in areas affected by floods/child trafficking/armed conflict. Potential Environmental Impacts 2. Sub-projects under workfare component 1 (dealing with rehabilitation activities) will be similar to those funded under component 4 of the ongoing Yemen Additional Financing for Third Social Fund for Development project (P112345), also being implemented by SFD. Potential sub-projects will be based on the demand and priority needs of each community, and will be small-scale community asset rehabilitation-type activities. Component 1 is expected to support over 100 labor-intensive community sub-projects that are not expected to result in negative or irreversible environmental impacts. The potential sub-projects could include rehabilitation of existing small structures such as terraces, water harvesting structures, upgrading of locations such as eroded hillsides or existing local feeder roads, etc. 3. No heavy equipment will be employed for the workfare component and the scale of the subprojects ensures that there is little likelihood of associated disturbances such as: Traffic congestion or temporary re-routing and interruption of traffic; Temporary site disturbance associated with demolition of damaged infrastructure; Temporary erosion and sedimentation in streams from reconstruction of road foundations and associated increases in sediment loads and turbidity during construction; Dust and noise from operation of heavy equipment during construction; Handling, storage and disposal of waste materials; and Construction zones. 4. The project is rated as environmental Category B, and the safeguard policy on Environmental Assessment, OP 4.01 will be triggered. No other safeguard policies are envisaged to be triggered. This is also consistent with the ongoing SFD III project. Additionally, the community sub-projects will focus on existing community assets and therefore no land acquisition/resettlement will be required. Approach to Environmental and Social Assessment 5. Under the Social Fund for Development III Project (P082498), an updated Environmental Management Plan (EMP) was prepared (dated August 2003), appraised and is under implementation. The EMP includes: rigorous use of safeguards questionnaires early during the preparation of sub-projects; where necessary, preparation of an environmental impact assessment and other safeguard related plans as part of the preparation of sub-projects; and more comprehensive training for SFD staff and clients on safeguards issues. 6. This EMP will be used during the implementation of the ESSN project and similar auditing procedures will be followed by SFD. The proposed SFD workfare component will support multiple subprojects, the scale of which does not require detailed design. Each sub-project to be financed under the 53

57 grant will be screened by SFD staff using a safeguard questionnaire to determine if any environmental or social safeguard issues are triggered. If so, the SFD will ensure that appropriate recommendations contained in the EMP will be implemented. The Project will also ensure that SFD staff and clients are trained on these procedures, the safeguard policies and theory behind them, as required. The Bank team will spot check the safeguard questionnaire as well as any resulting documents and actions required of the SFD during supervision. SFD also carries out regular environmental audits on annual basis. Technical assistance where needed will be provided by SFD contracted supervising engineers to ensure that work undertaken through the ESSN is useful and will contribute to protection and building of community assets. TA for the consulting engineer will be provided during and after community selection of priority work. 7. No resettlement issues or land acquisition are expected in any of the proposed sub-projects under the ESSN Project. The project will NOT finance any sub-project that may require land acquisition. SFDs Labor-Intensive Program staff and SFD Branch Office closest to the community have the responsibility of monitoring day-to-day rehabilitation activities to ensure that no resettlement issues will be triggered. 9. The proposed emergency workfare subproject will finance construction materials (cement, sand, wire mesh, etc.) and basic tools (shovels, picks, etc.) required to complete the community asset rehabilitation projects. Workfare opportunities are available on an equal basis to all interested community households, to ensure equity among social groups, irrespective of gender, ethnic or religious group, and taking into account variations in livelihood earnings and ability. The sub-project focus is on the use of labor-intensive community rehabilitation to ensure optimum distribution of emergency temporary workfare cash assistance. Community consultations will be conducted to elicit the views of the male and female population. Institutional Responsibilities 10. The agency responsible for implementation of Component 1 is SFD, which has proven capacity to implement Bank s safeguard policies. Further, SFD also carries out regular environmental audit. Based on the progress reports and observation from supervision missions since the effectiveness of the SFD III, the Bank team is confident that the SFD has the capacity to effectively plan and implement the project. SFD s ability to successfully implement the EMP was confirmed during a Safeguards Thematic Mission undertaken by the World Bank during May 24 - June 3, Included in the mission s assessments were SFD workfare sub-projects as well as other projects. The mission concluded the projects that were included in the review are by and large in compliance with World Bank s Environmental Safeguard Policies, in particular regarding on Environmental Assessment (OP4.01). The projects were found to be generally in compliance with the social safeguard policy regarding Involuntary Resettlement (OP4.12). At this time, SFD also attended a World Bank Safeguard Policies workshop at the Bank office in Sana a. 54

58 Annex 9: Economic and Financial Analysis Targeting 1. To select beneficiaries for the Component 1 of the ESSN program, EC, WB and GOY had agreed with the use the already tested method developed by the Social Development Fund (SFD). SFD is running workfare programs for a decade and they are recognized as cost-effective programs according to innumerous evaluation. To participate in the program, households must be classified as poor and not receiving any other government assistance. 2. Subprojects for the workfare program are selected based on a demand-driven approach, whereby the targeted community build consensus on community priority of infrastructure. In assessing the participation of community in the development of SFD subprojects, the perceived level of priority for SFD subprojects gives an idea of the consensus between the program and beneficiaries. From the Impact evaluation, among the households, 60% to 89% of interviewees concurring with the fact that the subproject implemented was actually the one with the highest priority. 3. To select beneficiaries for the Component 2 of the ESSN program, EC, WB and GOY had agreed with the use of a proxy means method to rank the potential beneficiaries to select the poorest. The rationality behind the use of the PMT is the following: Recent reports on the impact of crises on population have classified the crisis impact as an income shock. As a result, more people are less likely to cover their basic needs; large numbers of households have reduced their meal frequency and dietary diversity to cope with the crisis; and some have skipped meals. The crisis may have brought more people to poverty, but those who were already poor may also have increased their income/consumption gap. So a program to deal with crisis must be able to identify not only the new poor but also the chronic poor. 4. Therefore, to implement a program to cover the basic needs of some of the poor, it is necessary to identify who they are and who can be identified as the potential beneficiaries. Given that full information about the household welfare is not available on a regular basis for all of the population, and its data collection is costly and time-consuming, an alternative way to identify the poor population needs to be found. One alternative is to predict the household welfare (proxy means) based on a number of easy-toverify variables such as gender of the head of the household, type of material of the wall, and type of water connection etc. 5. The main concern about the effectiveness of the proposed PMT method is the quality of the resulting targeting selection in a low income context, and the resources needed for its implementation. PMT is also seen as difficult to understand, because the score is a result of a linear combination of mysterious weights and few indicators are related to the household characteristics. However, the PMT instrument is quite simple to understand. In the registration from, a number of indicators are collected that are correlated with poverty. The PMT score is then a linear combination of this set of easy-to verify household characteristics correlated with poverty. For this PMT, the weights are derived that best predict household per capita expenditures using the HBS data, as follows: 3 Where is the predicted household per capita expenditure of the household i,e., are the easy to verify indicators, and are the weights used to aggregate each indicator Recently, SWF had received assistance from the World Bank to redesign their targeting system, and some analysis on the existent HBS survey has shown that the PMT score system would reduce leakage and improve the coverage of the program. This PMT score captures one dimension of the economic status of the household. While it is reasonable to think that it measures the wealth of the household when the true household welfare it is not available, the PMT score may vary in terms of both the set of indicators included ( ) and set of weights used ( ) to aggregate the indicators. 55

59 6. The PMT score designed for the SWF program and the existing SWF MIS system will be used to select the beneficiaries of the ESSN project without additional cost. 7. Households with PMT scores below the PMT food poverty line are then selected as beneficiaries for Component 2 of the project. It is possible to consider the validation of the list of beneficiaries within the community in order to improve targeting. Few errors of inclusion can be identified by the community as well as errors of exclusion. Potential program impact 8. Outcomes of the potential impact of the program on poverty and a financial analysis of the Components 1 and 2 will be based on existent administrative data and on household surveys. Key points to address are: Effectiveness of the program to reduce poverty Targeting accuracy Impact on household consumption Cost-benefit ratio Fiscal impacts and sustainability 9. Component 1 of the Emergency Safety Net Project (ESSN) - workfare assistance for the needy - will cover 12,000 poor households within communities most affected by the food crisis according to the SFD. The SFD has experience on the selection of communities and beneficiaries and this component is an expansion of the existent intervention completed with the GFRP funds. It is expected that 70% ( 6.86 million) of the 9.8 million budget will be spent on wages. Each household would participate for approximately 66 person days, earning a total of US$ over the period. In total, project can finance up to three rounds of interventions, totaling 42,000 48,000 households in a year. Component 2 - temporary cash transfers - will provide cash transfers to poor households that are not yet receiving cash assistance from SWF programs. The program is planned to cover around 40,000 households selected by the SWF Proxy Means Testing method from districts in Hajjah, Al-Hudaidah, Hadramout- Al Mukalla, Saadah, Al- Mahweet, Al Maharah, Amran, and Hadramout-Seyon governorates. These districts were classified by GOY as those most vulnerable districts recently affected by drought, flood, armed conflict, and even child trafficking. Selection of beneficiaries of this component will be based on the applicants list of households with PMT scores below the food poverty line. 10. Based on HBS survey 2005/06 the likely impacts of such interventions on poverty were simulated and a benefit incidence analysis of both components performed. The simulations tried to reproduce the exact targeting approach, but assumed that everybody identified as a potential beneficiary actually participates in the simulated programs. In other words, we supposed a 100% take up rate and that all benefits were paid on time. The impact on poverty was estimated as the change in poverty levels after implementation of the ESSN program. The benefit incidence analysis focused on how the ESSN program would channel their benefits to the poor. Questions like, what share of the benefit of ESSN program is going to the poor? How generous is the ESSN program among the poor? What is the cost-benefit of the ESSN program? What proportion of the poor is covered by ESSN program? Have changes in eligibility rules succeeded in reducing the share of non-poor beneficiaries? How much did the coverage of the poor increase after expansion of the program? 56

60 11. These two analyses provides useful insights about the targeting accuracy of the ESSN program because a reduction in poverty brought about by the program will be a function of the program s coverage, generosity, inclusion errors, and benefit incidence among other factors as disincentive effects that we cannot simulate. Therefore, the proposed analysis indicates whether ESSN program may reach its goals. 12. For measuring Targeting Accuracy, Ravallion (2007) and Grosh et al (2008) suggest a few indicators and we had selected the following indicators: Concentration curve: Share of total transfers going to the poorest percentage of the population ranked by household welfare per person Benefit incidence: Share of transfers going to those who are initially deemed poor (or other reference group based on income) Coverage rate: Program participation rate for the poor Inclusion error (leakage): Proportion of program beneficiaries who are not poor Exclusion error (undercoverage): Proportion of the poor who do not benefit from the program Cost-Benefit ration: $ Poverty gap reduction for each US$1 spend in the program Generosity: ratio of benefit amount and household welfare 13. For this proposed analysis, the ADePT SP module developed by the World Bank staff: HDNSP- SSN and DECRG-PO team was used. The food poverty line as defined as the extreme poverty line and the regional national poverty line as the poverty line. Benefit incidence and generosity indicators were presented for the poorest deciles of the household per capita consumption because they provide information across the full spectrum of the household welfare. 14. Applying the PMT weights designed to the SWF cash assistance program on the HBS survey, we selected the poorest 40,000 households in the selected district of the ESSN program as participants of the Component 2. These households will receive US$240 for the year, totaling 7 million (US$10 million). Then, among all the other group of poor households according to the PMT, the poorest households that did not have any other government assistance were randomly selected to receive US$270 as a workfare component until all the annual budget is dispersed, 6.86 million (around US$ 8.8 million). 15. Given the fact that ESSN only targets a few households, undercoverage of the ESSN program is large as expected, although estimated leakage is quite small. Less than a 25% leakage rate is estimated which is quite low, and at levels of well recognized cash transfer programs in other regions. The ESSN program can only cover 4.6% of the Yemeni population, and 12.6% of poorest 10% population. Component 2 has slightly higher coverage rates than Component 1. The suggested targeting approach would identify the poorest households in the selected areas with about 30.9% of benefits reaching people classified among poorest 10% population, 47% among poorest 20%, and 74% among poorest 40% population. For the poorest 10% population, ESSN benefit size would represent 12.8% of household per capita consumption. The cost-benefit ratio that measures poverty gap reduction obtained due to the transfer is estimated at 0.4 for the extreme poverty line and for the national poverty line, meaning that for each 1 spent in the program, 0.4 would help to reduce the extreme poverty gap and 0.72 for reduction of the national poverty gap. Since the number of households participating in the ESSN program is too small, impact on extreme poverty and national poverty levels is quite modest. 57

61 Coverage Benefit Incidence Generosity Component 1 Component 2 ESSN program Total 1.90% 2.80% 4.60% d1 5.50% 7.00% 12.60% d1 32.3% 29.5% 30.9% d2 13.5% 18.3% 15.9% d3 16.9% 13.9% 15.4% d4 8.4% 14.3% 11.5% d1-d4 71.1% 76.0% 73.6% d % 11.08% 12.80% d % 7.83% 8.69% d3 8.85% 5.92% 7.19% d4 7.58% 5.10% 5.77% Impact on Extreme poverty FGT(0) -1.9% -1.8% -3.7% FGT(1) -3.0% -2.5% -5.5% Impact on poverty FGT(0) -0.3% -0.6% -0.8% FGT(1) -0.9% -1.0% -1.9% Cost (in millions) Cost-Benefit ratio Extreme PL National PL If looking only to selected areas for Component 2 41 thousand households the coverage rate of the program is estimated at 18.9% of the population, and at 58.3% of extreme poor population in these areas would be covered by the ESSN program. Around 45.4% of benefits would reach the extreme poor and 76.3% of the poor population of these areas. Impact on extreme poverty and poverty levels in these areas is estimated respectively at 14.9% and 4%. ESSN program would also reduce extreme poverty gap of these areas by 26.6%. Component 2 (only in EPP selected areas) Coverage Benefit Incidence Total 18.90% Extreme Poor 58.30%* Extreme Poor 45.4% Poor 76.3% Generosity Extreme Poor 10% Impact on Extreme poverty Impact on poverty FGT(0) -14.9% FGT(1) -26.6% FGT(0) -4.0% FGT(1) -8.8% 58

62 17. Results from above indicate that the ESSN program can be quite successful in mitigating poverty due to good targeting accuracy. Another indicator that shows how good targeting can be is presented in the concentration curve below. Note that poorest population concentrate large share of benefits. Program Cost and Fiscal Sustainability 18. The estimated cost of the program is 7 million a year for 41,000 households. In other words, the ESSN will transfer benefits of about 170 (US$ 240) a year per household. This is assuming that the monthly transfer per household will remain fixed at 14 (US$ 20) a month. Taking into account the average annual inflation rate of about 10% between 2003 and 2007, the budget needed for the next year would increase to 7.7 million if the same 41,000 households remain in the program, with benefits rising to 190 (US$ 268) per household. The Program as planned now would represent 0.04% of GDP of year 2008(US$ 22.5 billion). If the program expands after one year the cost of delivery is expected to drop considerably due to economies of scale and increased program efficiency. 19. Since program cost is a small fraction of GDP, the sustainability of the ESSN program relies on the capacity of the GOY to manage and finance this program. In the new Social Protection Strategy the GOY is promoting significant reforms to help the government reallocate their budget from costly nontargeted subsidies to SWF, SFD or Public Works Program. 19. The Project will also provide needed basic infrastructure to those poor communities in the area of irrigation, water harvesting, soil protection, agricultural terraces rehabilitation, maintenance and improvement of village access earth roads, streets pavement, forestation and other types of labor-intensive works of priority of each community. The workfare program is implemented through means similar to direct community contracting. Studies show that when conducted properly the benefits derived from community-based contracting usually exceed those under private contracting, and result in lower unit costs. 20. The nature of subprojects under the workfare program involves no fiscal sustainability concerns. These subprojects are implemented and maintained by the communities. The project includes activities to support and facilitates the establishment of community committees to take responsibility of operating and maintaining the community assets created under the ESSN. 59

63 Annex 10: Documents in the Project File Government Documents SWF Law No. (39) By-Law on the Organizational Structure of SWF March 25 th Social Welfare Fund Operations Manual July 29 th Social Welfare Fund Reform Policy Paper Draft Version October Government Letter: Endorsement of Financing under European Union Food Crisis Rapid Response Facility. Field Assessment of SWF Beneficiaries Selection Using PRA February World Bank Documents Labor Intensive Program Project Paper (PP) SFD Additional Financing May Food Price Crisis Response Grant Review December 17 th Labor Intensive Public Works Program (Global Food Crisis Response Program) World Bank Team Review June Review of Program Practices Social Welfare Fund - Mission Report June Design and Implementation of Proxy Means Test (PMT) for the Social Welfare Fund. Improving Targeting: a Proxy Means Test for the Social Welfare Fund. 60

64 Annex 11: Statement of Loans and Credits Active Projects Difference Between Expected and Actual Original Amount in US$ Millions Disbursements a/ Project ID Project Name Fiscal Year IDA Cancel. Undisb. Orig. Frm Rev d P RY - Civil Service Modern P RY - Rural Water Supply & Sanitation P RY - Taiz Municipal Dev. Flood Protection P RY - Urban Water Supply and Sanitation APL P RY - Sana a Basin Water Management P RY - Port Cities Development Program P RY - Groundwater & Soil Conserv Proj P RY - Social Fund for Development III P RY - Third Public Works P RY - Basic Education Development Program P RY - Second Rural Access P RY - Power Sector P RY - Fisheries Res. Mngmnt & Conservation P RY - Second Vocational Training Project P RY - Rainfed Agriculture and Livestock P RY - Sec. Educ. Dev. and Girls Access Project P RY - Institutional Reform Credit (DPL) P RY - Rural Energy Access P RY - Water Sector Support Overall Result STATEMENT OF IFC s Held and Disbursed Portfolio In Millions of US Dollars Committed Outstanding Commitment Institution Loan Equity Quasi Guarantee ALL ALL Loan Equity Quasi Guarantee ALL ALL Fiscal Year Short Name Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - Part Out - IFC Out - IFC Out - IFC Out - IFC Out - IFC Out - Part 1999 ACSM Ahlia Water NCC Yemen / 2008 AYCC S Y Healthcare / 2008/ 2009/ 2010 Saba Islamic Bnk Al-Maw arid Magrabi Yemen Total Portfolio

65 Annex 12: Country at a Glance M. East POVERTY and SOCIAL & North Low- Yemen Africa income 2007 P opulation, mid-year (millions ) ,296 GNI per capita (Atlas method, US$ ) 870 2, GNI (Atlas method, US $ billions ) D evelopment diamond* L ife expectancy A verage annual growt h, P opulation (%) L abor force (%) Most recent estimate (latest year available, ) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years ) Infant mortality (per 1,000 live births ) Child malnutrition (% of children under 5) Acces s to an improved water s ource (% of population) Literacy (% of population age 15+) Gros s primary enrollment (% of s chool-age population) M al e F emale KE Y E CONOM IC R AT IOS and L ONG-T E R M T R E ND S GDP (US $ billions ) Gros s capital formation/gdp E xports of goods and s ervices /GDP Gross domestic savings/gdp Gross national savings /GDP Current account balance/gdp Interest payments /GDP T otal debt/gdp T otal debt s ervice/exports P resent value of debt/gdp P res ent value of debt/exports (average annual growth) GDP GDP per capita Exports of goods and services GNI per capita Access to improved water source E conomic ratios * Domes tic savings Yemen, R ep. Low-income group Trade Indebtednes s Yemen, R ep. Low-income group Gros s primary enrollment Capital formation ST R UCT UR E of the ECONOMY 62

66 (% of GDP ) Agriculture Indus try Manufacturing S ervices H ous ehold final cons umption expenditure General gov t final cons umption expenditure Imports of goods and services Growth of capit al and GD P (%) GCF GDP (average annual growth) Agriculture Indus try Manufacturing S ervices H ous ehold final cons umption expenditure General gov t final cons umption expenditure Gros s capital formation Imports of goods and services Growth of exports and imports (%) Exports Imports Note: 2007 data are preliminary estimates. T his table was produced from the Development Economics LDB database. * T he diamonds s how four key indicators in the country (in bold) compared with its income-group average. If data are mis s ing, the diamond will be incomplete. Yemen, Rep. P R ICES and GOVER NMENT F INANCE D omes tic prices (% change) Cons umer prices Implicit GDP deflator Government finance (% of GDP, includes current grants ) Current revenue Current budget balance Overall surplus /deficit Inflation (%) GDP deflator CPI TRADE (US $ millions ) T otal exports (fob).. 2, Crude oil (government s hare).. 1, Crude oil (company s hare) Manufactures T otal imports (cif).. 2, F ood F uel and energy Capital goods Export price index (2000=100) Import price index (2000=100) Terms of trade (2000=100) Export and import levels (US$ mill.) 8,000 6,000 4,000 2, Exports Imports 63

67 Annex 13: Map 64