Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA-3773A IDA-H0410) ON A CREDIT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA-3773A IDA-H0410) ON A CREDIT IN THE AMOUNT OF SDR 36.7 MILLION (US$50.0 MILLION EQUIVALENT) AND A GRANT IN THE AMOUNT OF SDR 55.0 MILLION (US$75.0 MILLION EQUIVALENT) TO THE REPUBLIC OF UGANDA FOR THE SECOND LOCAL GOVERNMENT DEVELOPMENT PROJECT June 10, 2008 AFT: Water and Urban 1 Eastern Africa Country Cluster 1 AFRICA

2 CURRENCY EQUIVALENTS (Exchange Rate Effective April 14, 2008) Currency Unit = Uganda Shillings Ushs = US$ US$ 1.00 = Ushs FISCAL YEAR July - June ABBREVIATIONS AND ACRONYMS CAS CBG CBU CRM DDP DPSF DSWG EFMP II ENR FDS G Tax GoU HLG HPPG ICR IFMS JARD KPI LDG LG GAC LGDP I LGDP II LGFC LGFIAS Country Assistance Strategy Capacity Building Grant Capacity Building Unit Common Result Matrix District Development Project Decentralization Policy Strategic Framework Decentralization Sector Working Group Second Economic and Financial Management Project Environment and Natural Resource Fiscal Decentralization Strategy Graduated Tax Government of Uganda Higher Local Government Harmonized Participatory Planning Guide Implementation Completion Report Integrated Financial Management System Joint Annual Reviews of Decentralization Key Performance Indicators Local Development Grant LG Governance and Anti-Corruption Local Government Development Project I Second Local Government Development Project Local Government Finance Commission Local Government Financial Information and Analysis System LGMSDP LG LGSWG LLG LOGICS LoGSIP LST M&E MoFPED MoLG MTEF MTR OAG PAD PCU PDO PEAP PMU PRSC PTC QAG UboS UJAS UNCDF VFM Local Government Management and Service Delivery Project Local Government LG Sector Working Group Lower Local Government Local Government Information and Communications System Local Government Sector Investment Plan Local Service Tax Monitoring and Evaluation Ministry of Finance, Planning and Economic Development Ministry of Local Government Medium Term Expenditure Framework Mid Term Review Office of the Auditor General Project Appraisal Document Project Co-ordination Unit Project Development Objectives Poverty Eradication Action Plan Project Management Unit Poverty Reduction Support Credit Programme Technical Committee Quality Assurance Committee Uganda Bureau of Statistics Uganda Joint Assistance Strategy United Nations Capital Development Fund Value For Money Vice President: Obiageli K. Ezekwesili Country Director: John McIntire Sector Manager: Jaime M. Biderman Project Team Leader: Naa Dei Nikoi

3 UGANDA Second Local Government Development Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAPS IBRD and 33504

4 A. Basic Information Country: Uganda Project Name: Second Local Government Development Project Project ID: P L/C/TF Number(s): IDA-37730, IDA- 3773A, IDA-H0410 ICR Date: 06/10/2008 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Environmental Category: B GOVERNMENT OF UGANDA XDR 91.7M Disbursed Amount: XDR 91.7M Implementing Agencies: Ministry of Local Government; Local Governments Cofinanciers and Other External Partners: Government of Netherlands - US$15m; Republic of Ireland - US$7.5m; DANIDA - US$1.8m; Austria Development Corporation - US$0.3m; GoU/LGs - US$14.8m. B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/28/2002 Effectiveness: 10/29/ /29/2003 Appraisal: 03/31/2003 Restructuring(s): Approval: 05/29/2003 Mid-term Review: 06/06/2005 Closing: 06/30/ /31/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Moderate Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory

5 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General public administration sector General water, sanitation and flood protection sector Health 5 5 Primary education Roads and highways Theme Code (Primary/Secondary) Access to urban services and housing Secondary Secondary Decentralization Primary Primary Municipal finance Primary Primary Municipal governance and institution building Primary Primary Rural services and infrastructure Secondary Secondary E. Bank Staff Positions At ICR At Approval Vice President: Obiageli K. Ezekwesili Callisto E. Madavo Country Director: John McIntire Judy M. O Connor Sector Manager: Jaime M. Biderman Jaime M. Biderman Project Team Leader: Naa Dei Nikoi Lance Morrell ICR Team Leader: ICR Primary Author: Naa Dei Nikoi Martin Onyach-Olaa Barjor E. Mehta

6 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Improve Local Government's institutional performance for sustainable, decentralized service delivery. Revised Project Development Objectives (as approved by original approving authority) PDO was never revised. (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : 75% of Higher Local Governments with a three year rolling Development Plan Value 40 HLGs 56 HLGs 74 HLGs quantitative or (54%) (75%) (100%) Qualitative) Date achieved 06/30/ /31/ /31/2007 Over performed. Target was 76% and achievement was 100% by end of Comments project. All the HLGs had three year development plans of good quality linked (incl. % to their respective budgets and the medium term expenditure framework achievement) (MTEF). 75% of Higher Local Governments submitted final accounts on time to the Indicator 2 : Office of the Auditor General (OAG) Value quantitative or Qualitative) 25 HLGs (34%) 56 HLGs (75%) 74 HLG (100%) Date achieved 06/30/ /31/ /31/2007 Comments (incl. % achievement) Over performed. Target was 76% and achievement was 100%. All HLGs by end of project were able to submit their final accounts to OAG within the statutory 3 months after close of the financial year. Indicator 3 : 35% of Higher Local Governments registering 20% increase in own revenue (taxes, user charges and fees) Value quantitative or Qualitative) 14 HLGs (19%) 26 HLGs (35%) 12 HLGs (16%) Date achieved 06/30/ /31/ /31/2007 Target met in the first three years of the project (revenue increases of 53%; 36%; and 49% for FY02/03; FY03/04 and FY040/5 respectively) but dropped Comments (incl. % achievement) in the last 2 years to 34% and 16% respectively due to the abolition of the Graduated tax. However government compensated LGs through direct transfers of Ushs. 25 billion and Ushs. 45 billion in FY05/06 and FY06/07 respectively and approved new tax measures (local Service Tax and Hotel Tax) to replace the Graduated Tax.

7 (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : 95% of Higher Local Governments receiving a reward in planning Value (quantitative or Qualitative) 68% HLGs 95% HLGs 98% Date achieved 06/30/ /31/ /31/2007 Over performed. Target was 95% but actual was 98% of HLG received Comments (incl. % achievement) rewards in the FY2006/7 in planning by having the plan aligned with the national PRSP, has incorporated all crossing cutting issues (gender, HIV/AIDS, environment etc), made adequate provisions for O&M and reflected community needs. Indicator 2 : 80% of Lower Local Governments receiving a reward in planning Value (quantitative or Qualitative) 71% LLGs 80% LLGs 84% Date achieved 06/30/ /31/ /31/2007 Comments (incl. % achievement) Over performed. 84% (770 out of total of 974) of the LLGs received reward for the good quality of their development plans. Only 13% (121 LLG) were static and only 3% (30 LLG) were penalized. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 07/10/2003 Satisfactory Satisfactory /17/2003 Satisfactory Satisfactory /26/2004 Satisfactory Satisfactory /24/2004 Satisfactory Satisfactory /18/2005 Satisfactory Satisfactory /15/2005 Satisfactory Satisfactory /31/2006 Satisfactory Satisfactory /16/2006 Satisfactory Satisfactory /13/2007 Satisfactory Satisfactory /30/2007 Satisfactory Satisfactory H. Restructuring (if any) Not Applicable

8 I. Disbursement Profile

9 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country Context - Uganda s government strategy for economic transformation is spelled out in its Poverty Eradication Action Plan (PEAP), a medium-term development plan that guides government policy and provides a framework for detailed sector and Local Governments (LGs) planning. The PEAP was first drafted in 1997, revised in March/April 2000 and the summary presented to the Boards of the Bank and the International Monetary Fund in May 2000 as Uganda s Poverty Reduction Strategy Paper (PRSP). The third PEAP ( ) focused on four key pillars: (i) creating an enabling environment for economic growth and structural transformation; (ii) ensuring good governance and security; including improvement in public service delivery and decentralization; (iii) directly increasing the ability of the poor to raise their incomes; and (iv) improving the quality of life of the poor. One element of the poverty reduction strategy which needed additional support was the cross sector support to decentralization, a cornerstone of Uganda s government policy which is mandated by the Constitution and elaborated in the Local Governments (LGs) Act. To support the PEAP, the development partners have jointly developed the Uganda Joint Assistance Strategy (UJAS) to harmonize the program of donor support linked to the third PEAP. The Second Local Government Development Project (LGDP II) was therefore, designed and implemented within the broader context of the PEAP and UJAS Sector background - LG reforms started in 1992 with the decentralization policy pronouncement. This was followed by Constitutional (1995), legal (1997) and regulatory (1998) reforms to operationalize the decentralization policy. Following the policy pronouncement, DANIDA provided support to the Decentralization Secretariat which was responsible for drafting the LG Act (1997) and associated regulations. The Bank s first involvement in the LG sector in Uganda was in 1995 when it piloted, using a PHRD grant, a community demand-driven service delivery approach in peri-urban areas of four municipalities. In 1997, UNCDF provided a grant of US$14.5 million to government to pilot, in four districts, the constitutional and legal provisions on decentralization. In 2000, the Bank, building on the experiences of the two pilots (urban and rural) approved the Local Government Development Project I (LGDP I), a credit of US$65 million to, amongst other areas, test the legal provisions with respect to decentralized service provision and devolution of the development budget; build capacity of the Ministry of Local Government (MoLG), the Local Government Finance Commission (LGFC) and LGs; and monitor and evaluate experiences for eventual scale up. At that time, the sector was characterized by a weak MoLG, low managerial and technical capacities within LGs and a weak private sector which resulted in a lack of confidence/trust from line ministries and development partners to decentralize. The legal provisions were also new and had never been tested. Despite these challenges, from the onset, MoLG and the LGs were made the responsible institutions for the implementation of the project. This was done with the specific objective to build their capacities through experiential learning by doing. In February 2002, during the mid term review (MTR) of LGDP I, it was found that LGs still lacked the capacity to adequately respond to and benefit from the PRSC modality. It was therefore agreed that a follow-on effort of LGDP II should provide the bridge between LGDP I and the decentralization PRSC envisioned in the next CAS cycle. This would allow the government to maintain the momentum of reforms and institutional building carried under LGDP I. LGDPII was therefore designed to consolidate the achievements made under LGDP I (implemented from 2000 to 2003). LGDP II was appraised in April 2003; approved in June 2003; and became effective in October It was processed within the Country Assistance Strategy (CAS, document number 20886) for the period FY2001 to It 1

10 was a program of reform which was consistent with the Bank s CAS, Uganda s PRSP agenda and the agreed upon UJAS principles by the development partners Rationale for Bank support - The Bank has had the comparative advantage to support government in the implementation of the decentralization reform process. The Bank s serious engagement in the sector started with LGDP I and considering the long gestation period required to mainstream decentralization, there was a need to have a follow-on operation to consolidate the achievements made under the first operation. In addition, LGDPII was complementary to the Bank funded PRSC2 and 3 and was contributing to the achievement of the PEAP objectives. Following the successful piloting of the fiscal decentralization approach under LGDP I, in 2001 the government undertook a Fiscal Decentralization Strategy (FDS) through which they made a strategic choice to mainstream the LGDP I approach. By LGDP I MTR, the approach had gained popularity and was increasingly supported by other development partners. LGDP II design and implementation was informed by the LGDP I MTR recommendations and the ICR findings and lessons learned. LGDP II was therefore designed as an instrument to mobilize broad grant support to implement decentralization reform with a possible strong demonstration effect for the future in terms of development partner coordination and harmonization. The Bank, therefore, had a key and strategic role to continue providing support to government to achieve this goal. With the introduction of IDA grants in September 2002, LGDP II was selected for grant financing, inter alia, because of: (i) its complementary character in the World Bank s Uganda program in addressing poverty reduction with PRSC; (ii) the innovative approach to collaboration between development partners in supporting the decentralization process which is central to Uganda s development challenges; and (iii) the government s commitment to reducing the debt burden and the unfair burden this commitment had placed on the implementation of the PEAP and decentralization reform. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective was to improve local government's institutional performance for sustainable and decentralized service delivery. The Key Indicators were: (i) 75 percent of Local Governments (LGs) with a three year rolling development plan; (ii) 75 percent of Higher Local Governments (HLGs) submitted final accounts on time to the Office of the Auditor General; and (iii) 35 percent of LGs registering 20 percent increase in their own revenue (taxes, user charges and fees) from the baseline year 2002/ Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was never revised. 1.4 Main Beneficiaries The primary target groups of the project were the local governments and their institutions and constituencies, as well as private contractors for implementation of the substantial parts of the local government program. 1.5 Original Components (as approved) The project had five components with a total cost of US$165 million (IDA - US$125 million of which US$50 million was Credit and US$75 was Grant; Denmark - US$2.4 million; Austria million; Ireland - US$7.5 million; Netherlands - US$15 million and GoU/LGs - US$14.8 million). 2

11 1.5.1 Component 1 - Support for the Decentralization Process - This component supported eight sub-activities namely: (i) support to the fiscal decentralization strategy (FDS) implementation and tools to support decentralization of the development budget; (ii) support to institutional structure surrounding decentralization; (iii) support to sector issues related to decentralization, (iv) formulating and implementing a national LG capacity building strategy; (v) strengthening LG human resource development function, (vi) audit of the accounts of lower local governments (LLGs); (vii) support the harmonization of procurement regulations and practices of the LGs with those of the central government; and (viii) improve financial management in those LGs which are not covered by the integrated financial management system (IFMS) (See PAD Annex 2 pages 32-34) Component 2 - Local Development Grant (LDG) - This component comprised a nonsectoral conditional grant (the Local Development Grant - LDG) distributed on a formula basis to all local authorities in Uganda for investment in local infrastructure in accordance with local needs as determined through local planning and budgeting processes. Although all local authorities were eligible to receive the LDG funding, actual access was determined by capacity, accountability, and performance conditionalities which were designed to incentivise improvements in sustainable service delivery at the local level. The LDG IDA grant covered three years FY03/04 - FY05/06 (See PAD Annex 2 pages 34-36) Component 3 - Local Government Capacity Building - This component provided a capacity building grant to LGs aimed at increasing the quality of training and to help establish a national system of standardized training modules recognized by all stakeholders. The development of standardized training courses and the elaboration of a short-list of qualified national training providers were coordinated by the LG Capacity Building Unit and the Specific Technical Working Group on standardized training. The grant was restricted to non-sector, generic training and skills development for all levels of LGs (See PAD Annex 2 page 36) Component 4 - Local Government Revenue Enhancement - This component provided support to enhance the capacity of LGs to administer their own sources of revenue in order to achieve and sustain acceptable levels of service delivery. It had five sub-components namely: (1) strengthening local revenue policies and legislation which covered three activities: (i) the review of the graduated tax (GT) policies and legislations; (ii) technical work on property tax to inform the property tax legislation and regulation; and (iii) business levies and fees; (2) training of politicians and officials - to sensitize and educate political leaders and senior officials at both central and LG level on the important role of and need for local taxation to achieve more accountable and sustainable local government; (3) strengthening local revenue systems - support nationwide efforts in the area of local revenue administration by conducting an comprehensive study to identify local revenue enhancement (LRE) best practices in Uganda and develop a set of manuals focusing on improvements to local revenue administration for implementation by LGs nationally; (4) extension of property tax system - to specific LGs to improve their property tax administrations systems by assisting them in (i) property data collection and assessment; (ii) developing a comprehensive property tax administration system; and (iii) training the LG staff on the new property tax law and regulations; and (5) monitoring local government revenue - to track the progress on the revenue enhancement effort by (i) upgrading Local Government Financial Information and Analysis System (LGFIAS); (ii) training LGs officials on data collection and reporting on revenues and expenditures; and (iii) verification and analysis of revenue data (See PAD Annex 2 pages 36-38). 3

12 1.5.5 Component 5 - Support to Project Implementation - This component supported the overall coordination, implementation, monitoring and evaluation and auditing of the project. It also supported the mentoring and backstopping functions in key activities such as national assessment of LGs and review and control of the grants (both the LDG and CBG) transfers to LGs (See PAD Annex 2 page 38). 1.6 Revised Components The project components were not revised nor the objective changed. 1.7 Other significant changes The Development Financing Agreement (DFA) was amended three times for the following reasons: Transfer the project special accounts from Commercial Bank to the Central Bank following government policy decision to transfer all donor funded project accounts to Bank of Uganda (April 20, 2005). Cater for the severance payments from the project to all eligible LGs staffs that were retrenched as a result of the LG restructuring (June 7, 2005). A total of 5,821 LGs staff were retrenched (10% of the total established posts of 560,000 staff) and paid severance packages totaling around US$10 million. Extend the closing date of the project from December 31, 2006 to December 31, 2007 to allow for the disbursement of the LDG for the fourth year (April 9, 2007). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project was not assessed by QAG for quality at entry. ICR rating for quality at entry: Satisfactory. Conceptualization and formulation of LGDP II commenced as early as the mid term review of LGDP I with active participation from the Ministry of Local Government (MoLG), participating Local Governments (LGs), select line Ministries and interested Development Partners. These provided opportunities to the Bank team together with MoLG to listen, incorporate lessons learned, and design enough flexibility in the project framework to respond to unforeseen events. Flexibility was required and necessary because the decentralization process was still unfolding in Uganda. Development partners, who until then had supported their own area-based programs and projects, recognized the strengths of a unified system of support towards decentralization and decided to co-fund LGDP II. 2.2 Implementation ICR Rating: Satisfactory. Project implementation was facilitated by a tested project implementation unit which was fairly well integrated with the MoLG. Implementation issues were resolved with active collaboration between the PCU, MoLG, Development Partners and the Bank s supervision team. However, government policy shifts during the project period offered three substantial challenges: Government established new local governments: LGDP II was designed to work with 56 local governments. In , the government established 24 new local governments which offered substantial challenges to the Local Development Grant and Capacity Building Grant transfer mechanisms. The new LGs began in a highly capacity- 4

13 constrained environment and required substantially higher amounts of mentoring, hand holding and overall support. Graduated Tax (G Tax) was abolished: The Revenue Enhancement Component was impacted when government decided to abolish the G Tax and compensate LGs through transfers from Treasury. In the first year, government compensated LGs with Ushs. 25 billion which was far short of what LGs earned through G Tax. The project team had to convince the PRSC6 to include a cross-conditionality to fully compensate LGs. In , the government fully compensated LGs with Ushs. 45 billion. Owner-occupied houses were exempted from paying Rates: In FY2005/6 government exempted owner-occupied residential buildings from paying property rates but retained rates on industrial, commercial and rented residential houses. Residential properties make up a majority of rate payers. The project team had to modify an activity and redirect it to identify alternative taxes and assist in the formulation of a new Local Government (Rating) Act 2005 and the regulations (2006), which when operational will allow LGs to collect new taxes. However, because of the flexibility of the project design, a number of measures were taken to address the revenue challenges faced by LGs namely: (i) under PRSC government compensated LGs for loss of revenue from G tax for two fiscal years (Ushs. 25 billion compensated in FY2005/6 and Ushs. 45 billion in FY2006/7); (ii) new tax measures - Local Service Tax and Hotel Tax- were identified and are expected to yield Ushs. 75 billion per annum. The Bill introducing the new taxes has been approved by Parliament; (iii) the project provided seed capital of Ushs billion to 106 LGs (10 municipalities, 42 towns and 54 districts) to improve their revenue collection efficiency from existing sources. This support has resulted in a revenue increase from Ushs billion in FY2004/05 to Ushs billion by FY2006/07. The revenue of these 106 LGs from existing sources is projected to increase to Ushs billion by FY2007/8 representing a 55.6% increase over the last four years; and (iv) 158 LGs (13 municipalities, 85 towns, and 60 districts) have been assisted with Ushs. 3.8 billion to update their valuation rolls. Work has been completed on 72 LGs (10 municipalities, 40 towns and 10 districts). The updated valuation lists from these 72 LGs has resulted in the identification of ratable properties worth Ushs billion with minimum revenue from rates estimated at Ushs billion per annum for the next five years when new valuation is redone. Although owner occupied houses were exempted from paying rates, the LG (Rating) Act extended the coverage for payment of rates on commercial and industrial properties to the rural LGs which hitherto were only limited to urban LGs. In terms of rates coverage the new law was an improvement over the original law. Through these measures the project adequately and effectively responded to the government policy changes and supported MoLG and MoFPED on local revenue issues consistent with the original project objective. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization ICR Rating: Satisfactory. LGDP II has enabled MoLG to establish and mainstream effective M&E systems through three mechanisms: a. Establishment of LOGICS and LOGICS Plus: Prior to LGDP II, LG reporting did not use standardized formats. Inspectors from MoLG also did not use standardized reporting protocols, and therefore, it was not possible to consolidate, compare and analyze LG information. LGDP II assisted in the upgrading, roll out and implementation of the Local Government Information and Communications System (LOGICS) which had been designed and piloted during LGDP I. Subsequently, LGDP II also assisted in the development, integration and piloting of a financial information module which allows LGs to report on 5

14 expenditures and revenues. The expanded system is called LOGICS Plus and will be rolled out during the following Local Government Management and Service Delivery Project (LGMSDP) to all HLGs. b. Local Government Performance Assessment: LGDP II facilitated the establishment of an annual assessment of LGs to ensure compliance with GoU laws and regulations as well as assess performance in financial management, procurement, planning, capacity building and sub-project implementation in terms of quality of workmanship, usage of the facility and O&M. The assessment is done by a team consisting of officials from MoLG, sector ministries and a private contractor for quality assurance. The team covers all 93 Higher Level LGs and 40 percent of the lower local governments, town councils and sub-counties. The annual performance assessment is the basis for imposition of sanctions for noncompliance and incentives for good performance. The annual assessment was initially conducted with the help from the PCU, but by FY2005/6, MoLG s Inspectorate Department had assumed full responsibility. The assessment has been improved overtime to include sector indicators to assess functionality of education, health, water and sanitation, works, production, environment and natural resources departments thereby enhancing a holistic approach to LG performance including the cross cutting issues. Assessment documentation and reporting formats have been computerized which allows the assessment to become a line function for MoLG Inspectors and enables them to provide inputs during regular inspections. Large assessment teams may now not be required to physically travel to each LG. c. Value for money (VFM) audit: The LGDP II assisted the MoLG to conduct VFM audit, on a sample of 1,083 subprojects out of the total of 8,204 subprojects (13.2% sample). The audit shows that 60% of the sampled sub-projects had best/good VFM. 31% had fair VFM and only 9% had poor VFM. The audit concluded that those projects which had fair/poor VFM exhibited weakness either in their planning, procurement, supervision, documentation, and/or handover/commissioning resulting, in some cases, in significant costs over-runs and/or defects. These findings have provided valuable feedback for further strengthening of policy reforms and support to LGs to enhance their capacity to provide quality services to the population. The VFM audit looked at the interrelation of three variables, economy, efficiency and effectiveness defined as follows: (i) Economy - minimizing the cost of resources used for an activity, with due regard for appropriate quality. Assessed in terms of deviations between budgeted cost, contract price; actual cost or market cost and defect cost and rated as: Best (3); Good (2); Fair (1); or Poor (0). (ii) Efficiency - is concerned with the investment processes and has been defined in five stages: planning and approval process; procurement process; implementation process; financial management; and commissioning /handover process. Efficient execution of a sub-project ( efficiency ) is rated as: Best (3); Good (2); Fair (1); or Poor (0). (iii) Effectiveness - the extent to which objectives have been achieved and the relationship between the intended impact and the actual impact of an activity. It includes: quality of finished activity/investment product (adherence to standards; quality of material; quality of workmanship); utilization of finished investment; operation and maintenance considerations (Budget allocation; O&M plan; O&M implemented). The extent to which the investments meet their objectives, (effectiveness) and the outcome is rated as Best: (3); Good (2); Fair (1); or Poor (0). 6

15 Additionally, towards the end of the project, a survey to assess Beneficiary Participation and Accountability under LGDP II was conducted to provide feedback and inform the proposed LGMSD Project (See Annex 5). 2.4 Safeguard and Fiduciary Compliance Safeguards (environment): Moderately Satisfactory. LGs have been following adequate environmental screening during sub-project preparation. However, they do not make adequate provisions for implementing environmental mitigation measures during sub-project implementation. MoLG guidelines now require LGs to include funding for environmental mitigation measures in implementation contracts. Fiduciary Compliance: Highly Satisfactory. Project funds have been transferred regularly to LGs without any diversions. Procurement requirements have been complied with. In both instances, Country Office teams have provided substantial support. 2.5 Post-completion Operation/Next Phase The strongest indicator of LGDP II sustainability is the fact that GOU started mainstreaming the transfer of the Local Development Grant (LDG) and the Capacity Building Grant (CBG) to LGs through the national budget in and will now continue to do so. These grants now form part of the national budget and have been provided for in the Medium Term Expenditure Framework (MTEF). A Decentralization Policy Strategic Framework (DPSF) and a Local Government Sector Investment Plan (LoGSIP) have been put in place. These provide a clear and comprehensive guide map with a common results matrix (CRM) for all actions and investments in the LG sector. Development Partners have provided Euro 40 million in the national budget to support implementation of LoGSIP over the next three years where the sector is required to prepare consolidated work plan and budget encompassing all resources (Government, development partners / World Bank) to achieve outcomes consistent with the CRM. LGMSDP, which is a successor initiative to LGDP II, was approved by the Bank s Board and is awaiting clearance from Parliament. The new project will deepen decentralization by concentrating on further professionalizing LG cadres, strengthening public financial management reform at LG levels, and bring them in line with national systems and strengthen the interface between LGs and their resident communities. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project objectives are relevant and consistent with the current Uganda Country Assistance Strategy (CAS). They are relevant to the government s Poverty Eradication Action Plan (PEAP) and the Bank/Development Partners Uganda Joint Assistance Strategy (UJAS). 3.2 Achievement of Project Development Objectives Achievement of PDO is rated Satisfactory. The achievements by each component of the project are summarized below Component 1: Support to the Overall Decentralization Process (PAD US$23.80 million; ICR US$33.6 million) - Satisfactory. This component had eight activities and all were satisfactorily implemented. 7

16 Activity 1: Support to the Fiscal Decentralization Strategy (FDS) Implementation and Tools to Support Decentralization of the Development Budget: Satisfactory. Prior to LGDP II, most government line ministries as well as Development Partners were skeptical of the ability of LGs to effectively utilize and account for discretionary grants. This had led to a situation where LGs only received sectoral conditional grants. Financial management systems, protocols as well as M&E systems designed and rolled out under LGDP II provided and increasingly elevated the confidence of central government and its line ministries for increased transfer of discretionary grants to LGs. During LGDP II, the FDS became operational and has enabled LGs to become more responsive to locally defined community priorities and make decisions which are recognized by their residents as effective investments for local economic development. Tools such as the participatory planning guidelines, strengthening of procurement arrangements at the LG level and the roll out of LOGICS were directly responsible for enhanced accountability and confidence in LGs. Activity 2: Institutional Structures Surrounding Decentralization: Satisfactory. LGDP II assisted in the development of the National LG Assessment process, including an Assessment Manual in the actual conduct of assessments to provide feedback to MoLG on progress and allowing LGs to benchmark themselves against each other. This required substantial mentoring to ensure the orientation of the assessment teams. Towards the end of LGDP II, the national assessment of LGs has been mainstreamed as a regular function of MoLG s Inspectorate Department. Financial support was provided to restructure LGs because under LGDP I, it was realized that most local governments were not appropriately staffed and therefore could not effectively respond to their new mandate. Therefore, LGDP II included financial support (USD10 million) which allowed provision of compensation to 5,821 LG staff who were retrenched by mutual consent. This large scale restructuring was done with active support of multiple agencies and representatives of LG staff. The retrenchment exercise was effectively conducted. It was transparent, all those retrenched were fully paid their agreed packages including the provision of counseling services, entrepreneurship skills training to allow them to invest wisely, and support to mitigate any social and economic impact on the staff separated from the LGs. Government has now recruited appropriately qualified staff and has filled about 65% of the core positions in LGs. The MoLG was restructured to include a strengthened Inspectorate Department, all LGs were assessed annually, LOGICS was rolled out and the Capacity Building Unit of MoLG became fully operational. Activity 3: Sector Issues Related to Decentralization: Satisfactory. Lack of physical planning within LGs was identified as a major constraint to the growth of the settlements and the local economy. To avoid conflicting land uses and to provide indications for networks such as roads, water supply and drainage, LGDP II assisted in the drafting of the principles of the Physical Planning Bill and guidelines to operationalize the Bill. Based on the Bill, LGDP II financed the formulation of physical development plans in 93 LGs. Activity 4: Strategic Framework - National Strategy and Institutional Set-up: Satisfactory. In light of the new LG mandates and to guide the process of LG capacity building, a LG Capacity Building Policy Committee chaired by MoLG was established. The Committee guided the formulation of the National LG Capacity Building Strategy which was approved for implementation by the Cabinet and launched in MoLG also established an in-house Capacity Building Unit (CBU) which provided substantial support to all LGs in the formulation of their own Capacity Building Needs Assessments and Capacity Building Plans. A unique feature of the capacity building effort under LGDP II is the emergence of an active LG capacity building market. Private as well as public sector training providers now compete to win training contracts from LGs, who demand training based on their internally identified needs. In 8

17 response, an Association of National Service Providers has emerged which now deals with quality control, training of trainers and identifies new areas for training. Activity 5: Strengthen LG Human Resource Development Function: Satisfactory. LGs now have their own Human Resources personnel with adequate training. This allows LGs to proactively plan, budget and manage appropriate skill mixes based on local demands. Activity 6: Audit of the Accounts of Lower Local Governments (LC IIIs): Satisfactory. Prior to LGDP II, audits for accounts of LLGs were not conducted. LGDP II funded the first ever audits of LLGs and worked with the Auditor Generals Office to facilitate the development of an Audit Strategy for LLGs. The strategy is now in place and audits for LLGs have been mainstreamed in the Auditor General s office which is responsible for audits on a regular basis. Activity 7: Procurement Capacity Building at the Higher Local Governments (HLGs): Satisfactory. LGDP II enabled the development of the Local Government Procurement and Assets Disposal Regulations 2006 which now addresses all procurement related issues under the umbrella of the Public Procurement Act. LGDP II provided hands-on support to LGs on post-procurement reviews followed by active mentoring. LGs have now inducted their own procurement staff. Activity 8: Local Financial Management: Satisfactory. A study reviewed the financial management strategy for the local government sector and identified ways in which the Integrated Financial Management System (IFMS) could be rolled out to select local governments. Additionally, the study also highlighted actions needed for Second Tier local governments where a full-fledged IFMS would not be installed and Third Tier local governments would receive simple spreadsheet-based financial management systems Component 2: Local Development Grant (PAD US$ million, ICR US$118.8 million) - Highly Satisfactory. The Local Development Grant (LDG) has been fully disbursed. The use of the grants by LGs was aligned with broader expectations of the national PRSP [the Poverty Eradication Action Plan (PEAP)]. On average, out of the total LDG received by the LGs, they chose to invest: 19% in Education, 13% in Health, 10% in water and sanitation, 39% in roads, 15% in agriculture extension, 2% in the construction of public administration buildings; and 1% in solid waste management. The VFM audit conducted in December 2007 which was based on a sample of 1,255 sub-projects funded by LDG showed that 60 percent of the sampled project had best/good value for money in terms of efficiency of implementation; effectiveness (use of the sub-projects) and economy (quality and within budget). 31% had fair VFM with only 9% having poor or no value for money. A Community Beneficiaries Assessment based on a sample of 1,500 households from 150 communities indicated that on average 63% of the households were satisfied with LGDP II service delivery modality, although the level of satisfaction varied between sectors. Education had the highest level of satisfaction (69%) while road infrastructure had the lowest (54%). In addition to the above high implementation achievement, government has fully mainstreamed the LDG by including this transfer in the normal budget and medium term expenditure framework (MTEF). Since LDGP2 provided for the LGD for only three years, from FY2006/7 GoU has fully funded the LDG using its own resources and will now continue to fund the LDG to the tune of about US$40 million annually. The decision by government to make the LDG an integral part of the national budget ensures the sustainability of the LDG Component 3: Capacity Building Grants (PAD US$15.00 million, ICR million) - Highly Satisfactory. District and Municipal level LGs received an annual Capacity Building Grant (CBG) if they prepared a Capacity Building Plan and could demonstrate that the previous year s grant had been effectively utilized in terms of financing only those activities which were 9

18 contained in the approved plan and ensuring that all levels of LGs are beneficiaries. Up to 20% of the grant could be used to fund the career development of LG staff, 15% could be spent on discretionary training while the rest had to be spent on procuring training from a menu of 29 modules developed by the MoLG. In addition to the training, LGDPII also supported mentoring of LG staff by qualified and experienced peers who were organized under District and Municipal Resource Pools. All higher level LGs have prepared three year rolling Capacity Building Plans and procured training for a total of 260,089 technical staff, councilors, civil society organizations and the private sector through 3,460 training events (an average of US$58 per participant and US$4,335 per training event). Training coupled with mentoring has had positive impacts on LG performance. In 2006, 81% and 78% of the districts and municipalities respectively met the minimum conditions (in terms of: a good quality plan, financial management as per statutory requirements, compliance with public procurement laws, and ability to provide 10% co-funding from own source revenue) rising from 59% and 69% for districts and municipalities in Funds for career development of LG staff have resulted in the building up of a critical mass of accounting staff in LGs. In 2003 there were no professional accountants with ACCA qualification in LGs and only three qualified accounts technicians. By December 2007, there were forty one (41) professional accountants with ACCA qualification and 391 qualified accounts technicians in LGs. A similar critical mass of professional staff is being trained for human resource management positions and procurement in the LGs. An indirect impact of LGDPII is the emergence of training institutions catering to LG capacity building. The Capacity Building Unit (CBU) of the MoLG competitively establishes a list of qualified training service providers (public as well as private) and based on their own Capacity Building Plan, LGs use the CBG to competitively procure training from the providers. In addition to providing training, such providers now constitute a national pool of consultants with the skills and knowledge required by the local government sector as a whole. The LGDP II capacity building best practices have been documented by the World Bank Institute (WBI) in a Capacity Development Brief (No. 22 of June 2007). The approach pioneered under LGDP II where project and development partner resources are used to create incentives aimed at improving the performance of LGs through rewards and sanctions which stimulate both supply and demand for capacity development at the local level are now used widely in many countries Component 4: Local Government Revenue Enhancement (PAD US$11.90 million; ICR US$8.15 million) - Moderately Satisfactory. The component strengthened local revenue policies, legislation, and systems, trained LGs officials in revenue mobilization, extended property rates systems to cover all LGs (both rural and urban) country wide, and developed a national LG revenue monitoring system. Over the first three years of LGDP II, this component was on track to meet its objective. However, progress was adversely affected in FY2005/6 when government announced the abolition of two major sources of revenue for LGs (G Tax and Rates by owner-occupiers). To address the negative impact of this policy decision, government instituted four measures: (i) compensated LGs through direct transfers from treasury; (ii) provided seed capital to LGs to improve the collection efficiency from the remaining ownsources; (iii) assisted LGs to prepare and/or up-date property valuation rolls; and (iv) identified (and which have now been legislated) two new sources of own-source revenue for LGs - local service tax (LST) and hotel tax. 10

19 Activity 1: Strengthening Local Revenue Policies and Legislation - Satisfactory. LGDP II approached this activity in three parts: (i) During appraisal a review of the Graduated Tax (G Tax) legislation and policies was envisaged. Since, GoU decided to abolish the G Tax, the project team re-oriented its focus to identify alternative sources of revenue. A project financed study identified a Local Service Tax and a Hotels Tax. A Bill to operationalize these new taxes has been approved by Parliament. (ii) Technical work in the area of property tax included assistance in the preparation of the Local Government (Rating) Bill 2006 and the Local Government (Rating) Regulations 2006; Property rating Handbook (2007); and Property rating Training Manual (2007) and trained 105 urban councils (13 municipalities and 92 towns). LGDP II also assisted 158 LGs (13 municipalities, 85 towns and 60 districts) to update and prepare valuation lists. By December 2007, 24 LGs had approved valuation rolls and could start collecting revenue from this source. Another 14 LGs will have their valuation rolls approved by the Minister of LG this financial year and will be able to collect property tax by FY The project revenue from these measures is Ushs billion per annum for the next five years. However, issues of property tax revenue became a critical issue when in FY2005/6 GoU decided to exempt owner-occupied residential buildings from paying property tax resulting in a loss of Ushs. 4.5 billion for urban councils (Kampala City Council (KCC) about Ushs. 3 billion and other Urban LGs about Ushs. 1.5 billion). (iii) Business Levies and Fees were considered as being of critical importance to facilitate new business development and encourage local economic development. A single business permit was designed and piloted in Entebbe Municipality (where the business levies went up by 30%) and was rolled out to Mukono, Lira and Torroro LGs with a further roll out in 10 additional LGs. These systems include business registers, billing, and tax education interactions with the local business communities. As a result of the roll out, revenue from business levies from these 14 urban LGs increased from a total of Ushs million in FY2004/05 to Ushs. 1,484.4 million in FY2006/7 representing a 82% increase over the last three years. There is a high level of compliance from businesses in terms of timely payments of the single business permit. Activity 2: Training of Politicians and Officials -- Moderately Satisfactory. Due to the nature of electoral cycles at the national and LG levels, LGDP II concentrated on the training of officials. Training materials were developed and 35 trainers were trained who, in turn, trained 732 officials at the District and Town Council levels. A mismatch between the LGDP II project period and LG electoral cycles has resulted in a lag of training of politicians. Activity 3: Strengthening Local Revenue Systems - Satisfactory. In 2003, the United Nations Capital Development Fund (UNCDF) had commissioned a study to document LG revenue collection methods which had worked well in Uganda. LGDP II financed the dissemination of the documentation derived from the study and allowed the mentoring of LG revenue collection officials in the application of methods that had worked in other LGs. In addition, LGDP II provided seed capital of Ushs billion to 106 LGs (10 municipalities, 42 towns and 54 districts) to enable them to implement the Local Government Revenue Enhancement Plans. This support increased revenue from existing sources from Ushs billion in FY2004/5 to Ushs billion in FY2006/7 representing a 11% increase. Revenue from these sources are projected to increase to Ushs billion in FY2007/8. 11